Book review: The importance of a business model

Management master Peter F. Drucker once said, "Nowadays, the competition among enterprises is actually not concerning their products but their business models." His profound thought is absolutely right. A business model is not just a way of earning money but also the business strategy, the competition skills and the commercial logic.

People can seldom define a business model clearly even if they use the phrase freely, just as concepts such as Web 2.0, venture capitalism and growth enterprise market are thrown around.

There is a popular explanation - a business model is a kind of conceptual instrument comprising a series of elements and relations in order to clarify the business logic of a certain entity. It describes the value that the company can provide to its clients, as well as its internal structure, partner network, relational capital and other elements by which the company can realize (or create, promote and deliver) its value and produce sustainable income.

This definition is comprehensive but not easy to understand. Instead, a sentence in the book "The Power of Business Model", which is written by Peng Zhiqiang, Liu Jie and Xu Yingjie, really gets to the point - "You can copy yourself, but others cannot."

This means as the sales revenue, profit and retail shops of a company increase, in other words the company's economic benefit increases, it will not soon reach the ceiling or encounter a bottleneck but will be a long-term strategy for sustainable growth. Of course, the increase may not necessarily be made by unilateral business operations only but also by integration after mergers and acquisitions. By saying "Others cannot" (copy you, it means when a company executes a business model very well, it will have the pricing right which is of most significance in an enterprise. The company makes a fortune while others stand by jealously. The whole sentence illuminates vividly what a business model is and why we need it.

This book comes up with the concept of six approaches to a business model. According to that concept, a complete business model should take full account of customer demand, fund calculation, cost control, scale effect, core competence, value chain and sustainable development.

(China Daily 05/17/2010 page17)