We start by answering to the questions related to four dimensions: a customer value proposition, a profit formula, key resources, and key processes. Who is your customer, what does the customer value, and how do you deliver value at an appropriate cost? Companies make three types of choices when creating business models. Policy choices determine the actions an organization takes across all its operations (such as using contract workers, locating plants in offshore areas, or encouraging employees to be frugal). Asset choices pertain to the tangible resources a company deploys (manufacturing facilities). And governance choices refer to how a company arranges decision-making rights over the other two (should we own or lease machinery?). Not all business models work equally well, of course.

Good ones share certain characteristics: They align with the company’s goals, are self-reinforcing, and are robust.