MGMT8015 Chap.8 Business Models and Business Model Innovation
Business Models and Business Model Innovation
What a business model is
A business model explains how a firm creates value, delivers it and keeps a share of it.
The magic triangle reduces it to four questions: who the customer is, what is offered, how it is produced and why it earns money.
When a model is new
Business model innovation changes at least two of those four dimensions, either for the firm or for its industry; a new product alone changes only the offer.
How new models are made
Most new models recombine about 60 known patterns.
Firms transfer a pattern to a new industry, combine patterns or leverage their own model in a new product range, and pilot before rolling out.
Examples to remember
A computer maker that sold direct and let buyers configure machines changed how and what. An online marketplace that was free for sellers but charged them to rank higher in search changed what and value.
Capsule coffee combined direct selling, lock-in and razor-and-blade logic, then reused that model for tea and infant formula.
What this chapter covers
- 01
Creating, delivering and capturing value
- 02
The magic triangle
- 03
Business model versus competitive strategy
- 04
The two-of-four rule
- 05
Creativity can be learned
- 06
Transfer, combine and leverage
- 07
Asset-light firms and what they changed
Worked example · free
Test a bookshop’s change against the two-of-four rule
- 1WHO changes: from walk-in readers to primary schools.
- 1WHAT changes: from single books to a curated monthly box.
- 1VALUE changes: termly invoiced subscription revenue replaces one-off sales.
- 1Three of the four dimensions change, above the threshold of two, so this counts as business model innovation.
Key terms
- Magic Triangle
- Gassmann and Frankenberger’s model that describes a business through who, what, how and value.
- Business Model Innovation
- The search for a new logic of the firm that changes at least two of the four business model dimensions.
- Competitive Strategy
- A firm’s plan for doing better than its rivals, which the course separates from the business model itself.
Business Models and Business Model Innovation FAQ
What is the difference between a business model and a strategy?
The business model describes how the business is run: who it serves, what it offers, how it produces that and why it earns money. Competitive strategy describes how the firm will do better than rivals. Two firms can share a model and still compete on strategy.
How many dimensions must change for business model innovation?
At least two of the four: who, what, how and value. The comparison can be with the firm’s own previous model or with the usual model in its industry. Changing only the product is product innovation, not business model innovation.
Do you need to be a creative genius to invent a new business model?
No. The lecture cites George Land’s study, in which the share of children scoring at genius level fell sharply with age, and concludes that non-creative behaviour is learnt. Since most new models recombine existing patterns, systematic tools and imitation across industries do most of the work.
Why did so many well-known firms decline?
The Week 6 lecture gives one shared reason: their business models did not adapt as their environment changed. A film camera leader is its example of a mental block, staying inside the dominant logic of its industry until it went bankrupt, which is why the lecture tells firms to stop looking only at competitors.
How many business model patterns are there?
The lecture cites about 60 successful patterns and notes that around 90% of new business models are not really new but creative imitation and recombination of existing ones. A pattern is not tied to one industry, which is what makes transfer between industries possible.
Exam move
For three companies you buy from, fill in who, what, how and value on one line each. Then propose one change to each that alters two corners, and state whether it is a transfer, a combination or a leverage of an existing pattern. Pilot thinking matters too: for one proposed change, write the data you would collect before rolling it out. Keep the four corners on one line so the changes are easy to count.
Working through Business Models and Business Model Innovation in MGMT8015? Sia is AskSia’s AI Management tutor — ask any MGMT8015 Business Models and Business Model Innovation question and get a clear, step-by-step explanation grounded in how MGMT8015 is taught and assessed. Read this chapter free, then take your hardest questions to Sia.
