116 PART | III ITS business models
depends in the harmony of all five models, working together to create value for
customers and profit for the company. The advantage of this model is that it is
useful for an analysis of business economy and evaluation of financial health,
but it is abstracts from other components of the business model. Its limitation is
that the model pays little attention to the value, which is offered to the customer.
Therefore, this model is not useful for complex analysis.
According to Christensen & Johnson (2009), a business model consists
of four interlocking, interdependent elements—value proposition, resources,
processes, and profit formula that, taken together, create and deliver value.
The model starts by stating the value proposition for a product or service that
helps customers do more effectively, conveniently and affordably for a job that
they have been trying to do. The value proposition defines the resources the
business must put in place to deliver the value proposition. Resources can be
people, technology, products, suppliers, distribution channels, equipment, fa-
cilities, brands, and cash. They can be hired and fired, bought and sold, built or
destroyed. Processes are ways of working together to address recurrent tasks
in a consistent way such as budgeting, development, manufacturing, training,
planning, etc. Some processes are visible, codified, consciously monitored,
and managed. Other processes are habitual ways of working together to get
things done that have evolved over time in response to recurrent tasks. The
profit formula defines the gross and net margins the organization must achieve,
given the structure and magnitude of the fixed and variable costs inherent in
its resources.
The business model of Chesbrough and Rosenbloom (2002) is a conceptual
frame-work that mediates between technological development and economic-
value creation. The model has six components defining the main function and
purpose as follows:
- Articulation of the value proposition.
- Identification of a market segment, and the revenue generation mechanism
for the firm. - Definition of the structure of the value chain
- Estimation of cost structure and profit potential
- Description of the position of the firm within the value network linking sup-
pliers, customers, complementors, and competitors - Formulation of a competitive strategy.
David Watson (2005) has developed a model that evaluates a business model.
It has six components—competitors, customers, economy, management,
products and suppliers. The competitors are defined by barriers of entry to the
market, threat of substitute products, competition within the industry and the
advantage of being the first in the market. Customers are evaluated according to
their characteristics, types of contracts, and payment rates. Economy of compa-
ny is analyzed through acquisitions, economies of scale, earning on the growth
of another company, dividends, and breakpoint. Management is evaluated by