Business model maturity


The core model that most people use to explore and articulate the motivation, offerings and capabilities required to pursue an enterprise is the business model. This article explores our perceptions of the evolution of the business model artefact through four phases which we have named as versions (1.0, 2.0, 3.0 and 4.0).

Business model 1.0

This “version” encompasses the origins of business models, which were financial models reflecting the expected revenues for products and services being offered, the expected costs of producing, distributing or providing, and maintaining the products and services, and the resultant profits realised as a return on the investment made in establishing and operating the proposed business.


This model would be reviewed and revised as:

  • opportunities or threats emerged in the market
  • product / service offerings could be extended, refreshed or reduce
  • improved efficiency and effectiveness needed to be or could be pursued

Business model 2.0

The next version emerged in the era and was formalised by Alex Osterwalder in his work and articulation of Business Model Canvas. This work established an ontology for the business model, in terms of the domains of information that required attention and articulation, covering:

  • Customer segments
  • Channels
  • Relationships
  • Key capabilities
  • Partners
  • Cost structure
  • Revenue streams

This ontology and associated tools have seen widespread adoption, with consulting services available to support startups through to large corporates in developing an expression of their business model(s).

Business model 3.0

This version takes the concepts in Business Model Canvas and extends them further based on a systems view of an enterprise and the environment in which it operates.

This encourages greater attention to the enterprise-as-a-system and the enterprise-as-a-part-of-broader-systems. In doing so, attention is given to:

  • the broader value chain of which an enterprise is part
  • the potential for enterprise suppliers to provide services directly to enterprise-customers (circumventing the value proposition of the enterprise)
  • the creation of new market dynamics through adoption of market platforms, shared economies and other market disruptions

This evolution explores these dimensions as they apply to the dynamic relationships which exist in the market environment, as shown in the following figure.


Business model 4.0

The fractal application of business model might entail development of the business model for:

  • an organisation
  • a marketing capability
  • a production capability
  • a supplier chain capability
  • a corporate wide capability (eg. people management)

exploring the dynamics arising from the application of business models to enterprise-subsystems, enterprises-as-organisations, and multi-organisational enterprises.


In practice, this requires an iterative approach:

  • to the application of business models and operating models
  • each component of the operating model being considered an enterprise-in-focus to which the next level of business model and operating model is applied

which effectively constitutes an objective – strategy cascade where:

  • business model establishes the objective(s)
  • operating model establishes the strategies


Use of these models can be considered in terms of maturity, starting with a simple financial model (level 1) and eventually maturing to integrated application from individuals to the Board (level 4).

At what level of modeling maturity:

  • do you operate as a leader for your role and your team?
  • does your organisation operate?
  • does your industry or region operate?
  • does your nation operate?

This outlines the essential elements of the manner in which business model development is applied in any circumstance that we encounter.


Exploring business models

This article extends on my first article about business models, where I outlined the key elements of such models and the value in developing such models.  This article explores:

  • the use of business model thinking for any system within an organisation
  • the relationship of the business model to other familiar techniques
  • the different considerations that arise in different enterprise contexts, with some specific examples

Systems within the enterprise

Traditionally, the concept of developing a business model has been applied at the enterprise level, inviting exploration of customers, products/services, value propositions, channels (on the output side of the business) and suppliers, partners, activities / capabilities (on the input and production side of the business) and developing a financial model that reflects an appropriate outcome (break-even or profit, depending on the type of enterprise).

These concepts can just as legitimately be considered for any system within the enterprise, whether that is an enterprise capability or an organisational unit.  It might be a particular “line of business”, a “shared service”, or a support function.  Taking people (or human resource) management as an example, it is feasible to consider:

  • the HR Branch (or organisational unit) providing products and services to the enterprise as customers with appropriate consideration of value propositions and channels, etc
  • the people management capability as a whole across the entire enterprise providing products and services to employees and to managers as customers with appropriate consideration of value propositions and channels, etc

Care needs to be taken in such treatments.  For the HR Branch, there is the risk of assuming its continued existence, whereas the people management capability model allows consideration of alternate sources for products and services. A genuine exploration of services and value propositions should test these against competitors (or other options) in either scenario.

This is not novel.  The application of customer service thinking to corporate services occurred several decades ago now.  For those with experience in such initiatives, it should be easy to recognise the focus as having been the “enterprise” or “system of interest”, to which the business model can be applied. This demonstrates the value of applying this “business model concept” in a fractal manner to any designated system-of-interest.  As such, it can be applied to any identified system-of-interest or organisational unit.

Relationship to other techniques

Whilst I was familiar with business-model-as-financial-model, I had not encountered the Ostwerwalder analysis and structure until about two years ago. Prior to that, along with many other architects, I had applied a range of traditional modeling techniques to the enterprise.

The simplest technique involved the use of a Context Diagram, placing the enterprise as the system-of-interest, and showing the external relationships to suppliers, partners and customers, each of which are considered in the business model .

As I started to explore value chains and value streams, it became evident that I could apply models used in Six Sigma and Lean thinking, in particular SIPOC, by considering the enterprise as a single process (P), and showing the suppliers (S), inputs (I), outputs (O) and customers (C).  This was (and is) a useful tool in making explicit these elements of the enterprise, as is the case when developing an expression of the business model.  Then, the core value stream could be expressed as a series of inter-connected SIPOC models as the next level of decomposition.

Another model which I have used is IDEFo, providing a different perspective by treating the enterprise as a function, and reflecting the inputs, outputs, controls (governance) and mechanisms (processes) which underpin the function.  Again, this model reflects some elements in common with the business model concept.

Each of these techniques demonstrates how the applicability of a system-related model to the enterprise, many of them paralleling elements that are included in the business model concept.  Analysts familiar with these techniques will be readily able to apply them to enterprises.

Application in different settings

There are different and distinctive differences in business models applied to different sectors.  Some assume that business models are not applicable to government and community sector organisations.  The following outlines some of the differences and demonstrates that the business model concept offers utility and value in all enterprise settings.

Public sector enterprises

These enterprises operate in more complex environments, where additional considerations are necessary.  Yet, the same concept and general principles can be applied, and potentially deliver additional value by establishing greater clarity and understanding of the way in which these enterprises can address the goals and objectives which communities set and expect of them.

The most obvious differences are that often public sector enterprises:

  • are not required to make a profit or realise a return on assets or investment
  • do not derive their income (revenue) from their customers
  • do not have choice as to their client / customer base
  • are measured on outcomes rather than outputs

(I may write a separate article to elaborate on these differences, as they are fundamental to better understanding the differing management challenges facing public and private sector managers.)

Business models are able to be accommodate these differences, as long as appropriate consideration is given to distinguishing between:

  • customers and consumers – customers being those who pay for products / services and consumers being those who use the products / services
  • treatment of income versus revenue, and profit/loss versus surplus/deficit
  • outputs and outcomes – the latter arising as an effect of the existence or use of an output

In order to treat these elements appropriately, greater attention must be given to:

  • the use of language and terminology
  • the varying stakeholders who may have interests and be beneficiaries of the enterprise beyond simply considering customers
  • the varying value propositions and benefits which may be afforded to the differing stakeholder groups

For example, I find it helpful to consider the following dimensions:

  • Financial dividends (afforded to owners and shareholders)
  • Economic, social and environmental dividends (afforded to other stakeholders)
  • Balancing of value propositions for owners, customers and employees (at a minimum)

Each of these can be explored and expressed in an enhanced business model representation.

People management as an enterprise

This provides an example of applying business model analysis to part of an organisation as opposed to an entire organisation. Whilst it is feasible to consider the HR organisation unit, it is often wiser to consider the entire people management capability or system, as there are elements of this system within the role of every manager and executive, in addition to any specialist services which the HR organisation unit may provide.

In considering this capability or system, the business model concept prompts consideration of:

  • customers – Executives, managers, employees
  • services – from workforce planning and industrial relations to payroll
  • channels – face to face, phone and online / self-service
  • suppliers and partners – providing specialist services
  • capabilities required to deliver the various services

An important element in this process is applying a combination of the business model concept and systems thinking concepts.  It is common in support functions to seek to optimise a particular function, when it is only part of the whole, and optimising a part may result in sub-optimal outcomes from a broader enterprise perspective.

Business models

The concept of business model is relatively recent, emerging in the 60’s and gaining greater attention in the 90’s and succeeding decades.  The different lines of thinking were subject of review in 2004 by Alex Osterwalder, who developed an ontology for understanding and expressing a business model. This ontology has provided the basis for development of a number of tools for expressing business models, the most well-known being Business Model Canvas.

This posting explores:

  • the concept and value of the business model as a key artefact in describing the architecture of an enterprise (AE)
  • potential areas for further development of this concept to provide greater utility

Key elements

Key elements of the business model ontology include:

  • Value proposition
  • Target customer
  • Distribution channel
  • Relationship
  • Value configuration
  • Capability
  • Partnership
  • Cost structure
  • Revenue model


Looking at enterprises over the last 50 years, it is possible to see how their business models have moved from being quite static to quite dynamic. This has occurred as a result of the increasing rate of change in the business environment and internal organisation of capabilities.

A significant factor has been the increasing use of ICT in developing digital capabilities, complementary digital products / services and use of alternate digital channels.  This is evidenced in the increased attention given to business models in the era where digital channels became available as an alternative delivery mechanism.  It is also evident in the current business model disruption arising from effective use of ICT within the market in which enterprises operate, where digital services enable disaggregation of the value chain, opening up new points of competition for an enterprise.


One of the key benefits of the business model is that it presents a model which encompasses both internal and external elements which underpin the viable operation of the intended enterprise.  Consideration of:

  • value proposition, target customer, channels and relationship give attention to factors underpinning the revenue / income model and the balancing of stakeholder value with income
  • value configuration, capability, and partnership give due attention to factors underpinning the expenditure / cost structure

Review and validation of the business model gives attention to the viability of the enterprise and provides a suitable foundation for development of the supporting operating model.

I am encountering an increasing number of situations where enterprises are finding it necessary and valuable to revisit the viability of their current business model(s), demanding that they change in order to remain viable.  In one case, a review of a transformation program led to identifying deficiencies in their intended operating model, which led to identifying deficiencies in their intended business model.  Their failure to recognise and address the business model issues has led to the failure of the enterprise (going into administration last year).

Attention to the business model gives cause to consider the fundamentals underlying the market strategy for an enterprise and the corporate / development strategy for an enterprise.  Developing a transformation program for a flawed business model is a recipe for disaster and for wasting valuable change investment, both personal effort, energy and enthusiasm as well as financial.  Attention to the business model also gives cause to consider the balance between changes to the market strategy versus development strategy.


There are two areas of development that I see occurring:

  • viewing the external environment in systems terms ie as an ecosystem
  • viewing the internal elements in systems terms

In the past, there has been a tendency to consider entities in the external environment relatively independently.  With increasing market disruption, viewing the market as the containing system gives recognition to interactions occurring in the market that have implications for an enterprise that were not previously considered because the interactions were not directly with the enterprise.

From what I have seen, the use of tools such as Business Model Canvas prompt consideration of the various internal elements of an enterprise, but this does not require the elements to be considered through a systems view, recognising that there are interactions which require consideration of the “whole” and not just the parts.

In bringing a systems perspective, this also introduces the opportunity to apply:

  • elements of systems thinking to the enterprise
  • the Viable Systems Model to the enterprise
  • business model thinking in a fractal manner to subsystems within the enterprise

Practical application

It is probably worth adding that I have found that thinking about and exploring the business model of various enterprises has been helpful, whether or not I am engaged in developing the architecture of the enterprise.  Cases in point include:

  • LinkedIn Groups – considering the business model for LinkedIn to provide context and understanding of the role and contribution of LinkedIn Groups when it is not a direct part of the revenue model for LinkedIn
  • My state of South Australia and nation of Australia – thinking about how we are positioned in the global context, what capabilities we have or need, etc, including contribution to a group which considered the “innovation system” within our nation, and another interested in “reinventing our nation”
  • Voluntary collaborations in which I have been a member and contributor, helping the group to think about its goals and aspirations, the outcomes it is seeking (value propositions), the capabilities the collaboration needs and the areas to which we need to give priority


I have elaborated further on business models in a more recent article – Exploring business models.


Business-IT alignment

Alignment of business and ICT – an expression which entered the business and ICT vocabulary in the 90’s or thereabouts.

  • Has the expression passed its use-by-date?
  • What are the risks in using this expression?
  • What is being aligned to what?
  • Is alignment what we really need?
  • Is alignment what we really mean?

We all know that we shouldn’t align business to ICT, but do we really want to align ICT to business?

The effective use of ICT by different stakeholders in the market / environment in which an enterprise operates means that existing business models are being made irrelevant and redundant, impacting on the viability and sustainability of our enterprises.  In reconsidering the business model(s) upon which our enterprises are based, the incorporation of ICT capabilities offers wider choices.  Market demands may also be such that the only viable models are those incorporating particular ICT capabilities.

In such scenarios, it is no longer a case of “aligning” business and ICT – it is a case of facing no choice but to transition to ICT enabled business models.  This means that the resultant business and change strategies will require particular business and ICT capabilities as critical to realising the intended business model and associated goals, and ensuring the ongoing viability and sustainability of the enterprise.

The identification of critical business and ICT capabilities occurs as an intrinsic element of business strategy development, such that there is no subsequent “alignment” process to pursue.  There is simply the further development and execution of the change strategy to transition to the desired business model and associated operating model.