The purpose of this research project has been to clarify and provide expert advice on how to create a sufficiently transparent business model. Too many companies are assessed solely on the basis of factors that have direct influence on their share price, for example changed depreciation principles and the lack of growth of competitors. This is a problem, because the company is deprived of having its own direct influence on its share price, which often leads to hasty short-term decisions in order to meet the expectations of the market and to benefit its shareholders in the short term. On the basis of this, our hypothesis is that if it is possible to improve, simplify and define the way a company communicates its business model to the market, then it must be possible for the company to create a more efficient price formation of its share.
To begin with, we decided to investigate whether transparency has an impact on a company's price formation. In this respect, we analysed whether those companies that publish a lot of information that may support a business model description tend to have a more efficient price formation. Next, we turned to our sample of companies, and via interview-based case studies, we managed to draw conclusions on how to construct a comprehensible business model description.
The business model explains how the company intends to compete in its market, and thus it gives an account of the characteristics that make the company unique. The business model constitutes the platform from which the company prepares and unfolds its strategy. In order to explain this platform and its particular qualities to external interested parties, the description must provide a clear and explicit account of the main determinants of the company's value creation and explain how the operational and tactical strategies complement each other. This brings us to the following definition of a business model:
A business model is a representation of the company's concept. The concept shows in what way the company is trying to establish a unique identity in the market in comparison to its competitors. The business model description must therefore give an account of the platform that makes the company competitive, and it must be consistent with the company's objectives, means and strategy in relation to its value creation. Thus the business model reflects the relation between the resources, processes and services that make the company profitable in the long term. The main conclusions of our analysis are stated in the following. These conclusions form the basis of the 10 practical guidelines in the last section of this research note, which provide recommendations on how a company should explain its business model to external interested parties.
|Place of Publication||Aarhus|
|Publisher||Aarhus School of Business|
|Number of pages||18|
|Publication status||Published - 2007|