The Difference Between a Business Model & a Value Chain Model

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There is much confusion about business models and value chain models.
There is much confusion about business models and value chain models. (Image: NA/PhotoObjects.net/Getty Images)

The terms business model and value chain model are often used interchangeably confusing what are very different but complimentary topics. Writings on the subject contribute to this confusion often including value chain statements within business model statements (See Reference 1). Differences focus on purpose, strategy versus process focus, priority and importance to customers. A business model focuses on the positioning of products and services in the marketplace. A value chain model focuses on process and information flow required to produce and distribute a product or service. The business model and value chain model interact to produce a complete picture of the business strategy and execution of that strategy.

Purpose

A business model focuses on what a company does to satisfy customer needs and be profitable. A value chain model focuses on how the company satisfies the business model. The value chain model includes how the company operates design, purchasing, manufacturing, transportation and distribution to deliver a quality product or service in a timely manner. The business model focuses on company positioning of it's products and services in the market.

Strategy Versus Process Focus

A business model is strategy oriented. A value chain model is process oriented. Business models assess customer needs and come up with a strategy to provide products and services in an innovative way to satisfy those needs. The value chain model is how those products and services will be created and provided through processes and information flows.

Priority and Interaction

A business model precedes and drives a value chain model. Both are important and complimentary. Changes in the value chain model can affect the business model. For example, a company's supplier of a component that differentiates it's product to a customer could go out of business. The business model may have to adjust to focus on different product features and services to overcome the failure of the supplier. The value chain model will respond to the change in the business model by altering supplier requirements.

Importance to Customers

When a company presents itself to a customer it describes it's business model. The customer may not be interested in the value chain model but only in the product or service that is provided. Customers who are interested in the value chain model value the time and cost advantages of the value chain. They may want assurances that the value chain is stable and can perform at a high level for a number of years. Gaining new business may require presentation of both the business model and the value chain model.

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