Introduction to Business Models

A business model describes how an organisation creates, delivers, and captures value, in economic, social, cultural or other contexts form its assets, projects, services and interventions. The process of business model construction and modification is also called business model innovation and can form a part of a strategy.

In theory and practice, the term business model is used for a broad range of informal and formal descriptions to represent core aspects of an organisation or business, such as local authorities, including purpose, offerings, customers, strategies, resources, organisational structures, procurement, trading practices, and operational processes and policies.

Pillars of a business model

A good business model answers the following questions about viability, feasibility and desirability.

Viability

Is the business model commercially viable?

Identifying revenue generation streams
Identifying cost saving/avoidance opportunities
Investigating other factors that can influence commercial viability
Illustrating commercial benefits of business models using example projects

Feasibility

What is needed to deliver the business model?

Mapping out and detailing key stages of project delivery
Exploring specific feasibility considerations for each business model through desk-based research and external engagement with industry experts
Exploring lessons learned through external engagement with local authorities

Desirability

What is the value of the business model to a local authority?

Exploring the value of different roles local authorities may assume in the short-term business models

Structure of a business model

Well-designed business models help organisations to de-risk new enterprises, streamline operations and maximise the value they create for themselves and others. The business model can be described as outlining the follow items.

This can be split into the 3 pillars.

Viability – Is the business model commercially viable?

Cost Structure
Revenue Streams

Feasibility – What is needed to deliver the business model?

Key Partners
Key Activities
Key Resources

Desirability – What is the value of the business model to a local authority?

Value Propositions
Customer Relationships
Customer Segments
Channels

These pillars can be visualised on a business model canvas.

Key Partnerships

The key partners and their motivations to participate in the business model (including organisational structures)

Key Activities

The key activities necessary to implement the business model

Value Propositions

The value proposition of what is offered to the market or stakeholders

Customer Relationships

The relationships established with customers and stakeholders

Customer Segments

The segment(s) of stakeholders or customers that are addressed by the value proposition

Key Resources

The key resources needed to make the business model possible

Channels

The communication and distribution channels to reach customers and stakeholders and offer them the value proposition

Cost Structure

The cost structure resulting from the business model

Revenue Streams

The revenue streams generated by the business model (the revenue model)

Effective business model for local authorities

The most effective business model for local authorities to deploy renewable generation projects will be dependent on the characteristics of the local area, the risk appetite and structure of the local authority as well as the low carbon interventions most suited to the place. Business models should be considered in parallel with place characteristics and appropriate low-carbon solutions.

The right balance needs to be struck between what is technically possible (i.e., the technical solution), how value can be maximised (i.e., does the business model satisfy local needs, priorities and other local characteristics) and the skills required to deliver the business model (i.e., are the right skills and resources in place or will partners be required).

Key Place Characteristics

Local Needs and Priorities	How is energy used by a local authority? Can additional value be generated at the same time as decarbonising the site or region?
Spatial	What space restrictions are there? Where can generation be located? How close is generation to the demand local authorities are trying to decarbonise?
Resources	What resources are available for decarbonisation?
Density	Are buildings in close proximity? Can generation opportunities be shared?
Energy Profile	What does the local authority’s energy demand look like? How will the energy profile change over time?
Energy System	What constraints are there for connecting new generation, or what constraints are there on existing demand?
Future Development Plans	What does land and/or building use look like in future based on development plans?
Low Carbon Solutions	Considers the best technical solution(s) for decarbonising a site or region based on the place/site characteristics