What are business models and how do they work? A case study of community banking

Abstract

This study provides a definition of the construct of business model, including its component parts from a practitioner's point of view. It describes how a business model works, including the interaction of its component parts, and why it changes over time. It utilizes community banks in Oklahoma as a context and describes a generic community bank business model with a menu of options for its component parts. The study found that creators of a business model start by defining their important stakeholders, which might include investors, employees, customers, community, and regulators. As the aspirations or goals of stakeholders are defined, the business model components are organized to achieve the stakeholders' goals. The principle driving component was found to be where the focus of stakeholder interests were on a continuum ranging from maximizing current year net income (efficiency) to achieving rapid quality growth. The composite focus of stakeholders on this continuum appears to drive how other components are organized. A case study of First Oklahoma Bank is provided to illustrate the findings. Data were collected by conducting 34 in-depth interviews and two focus groups of six participants each with bank managers, owners, and industry experts, with an analysis of FDIC data on all banks involved in the study and internal documents of First Oklahoma Bank. These findings might benefit scholars studying entrepreneurship and community banking and provide guidance to practitioner's seeking to create and implement business models for their organizations.