Sunday 2 September 2007

What are the business models of US Firms?

What are the business models of US Firms?

This is indeed an interesting question. And the answer has come from MIT. The Social and Economic Explorations of Information Technology (SeeIT) Project at MIT Sloan School of Management, has undertaken research to develop frameworks for analyzing and classifying
business models and to use these frameworks to empirically classify the business
models of substantial numbers of companies. Also the project aims to use the empirical data for formulating and testing hypotheses about the distribution,
performance and evolution of different business models.

So let's get back to the question. But before that let's see the definition given by the MIT researchers. At the broadest level, business model may be defined as how business appropriate value for the products or services they create. More specifically, the business model is defined as a description of the activities that a company performs to generate revenue or other benefits, and the relationships, information and product flows a company has with its customers, suppliers and complementers.

Now comes the taxonomy of business models. The classification scheme consists of four-by-four matrix, giving 16 types of business models. The two axes represent asset types and asset rights. The four asset types include financial, physical, intangible and human resources (HR) (actually the time and knowledge of human resources). The four types of asset rights include Creator, Distributor, Landlord and Broker. Now that gives 16 types though only some of them matter.

When the revenue data of publicly traded US firms over eight years (1997-2004) was analyzed, seven models were found to be common. They included Manufacturer (creator of physical assets), Wholesale/Retail (distributor of physical assets), Financial Landlord, Contractor (landlord of human resources), Physical Landlord, IP Landlord and Financial Broker.

Now while these findings answer the question, there are some more interesting findings from this research. Let me cover that at some later date. Now let me sleep. -:)

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