ITS business and revenue models Chapter | 10 115Casadesus-Masanell and Ricart (2010) describe a business model as how
a company deploys its strategy to be able to compete. They argue that there is
a relation between strategy and business models even though they are distin-
guished. They argued that business model refers to the logic of the firm, the way
it operates and how it creates value for its stakeholders. This means a business
model is how one deploys the strategy.
DaSilva and Turkman (2014) argued that the term business model seems
to be intrinsically connected with technology-based companies. According to
DaSilva and Turkman (2014) business models often encompass strategy, eco-
nomic model, and revenue model. As it can be seen, there is no agreement
among scholars on a clear role for the business model in theory or practice.
According to Casadesus-Masanell & Heilbron (2015), a business model de-
tails a comprehensive description how a network, community, organization, or
actor creates and sustainably captures value from its activities. Baden-Fuller
and Mangematin (2013), give a different definition. They refer business model
to both cognitive representations detailing actors’ understandings of their busi-
ness and tangible, material aspects detailing actors’ configurations of their busi-
ness models. Reinhold et al. (2017) argued that from a practical perspective, the
concept has intuitive appeal for strategic and entrepreneurial reasoning because
it comprehensively describes how value is being created and captured following
a procedural input-throughput-output logic.
10.3 Components of a business model
The components of a business model describe what a business is made of
(Fielt, 2014). Teece (2010) argues that because business model still has no
fixed theoretical foundation in economics, it is difficult to identify processes
and components, which are necessary for business and would define a creation
of value in a company comprehensively and fundamentally. The compositional
elements are referred to by different authors as building blocks (Osterwalder &
Pigneur, 2010); components (Pateli & Giaglis, 2004); (key) questions (Morris
et al., 2005); or functions (Chesbrough & Rosenbloom, 2002)
Mullins and Komisar (2009) argued that a successful business model has
five pillars that predetermine the economic viability of the business—The rev-
enue model; Gross margin model; Operating model; Working capital model;
and Investment model.
The revenue model is the money that comes from a customer who is willing
to buy what the company sells. Gross margin model is the difference between
revenue from sales and cost for production, that is, money that is left after pay-
ment of direct costs. Operating model includes fixed costs that are indirectly
paid for production. Working capital model is cash which must be available to
ensure fluent operation until the customer pays for the goods. Investment model
describes the usage of money that the company wants to invest for the devel-
opment of the business. According to these authors, the success of the model