Discuss about the Business Models Strategy and Innovation.
The concept of the business model is basically a structure that supports business viability that includes its goals, purpose and other ongoing plans to achieve them. In simple words, it specifies the description to fulfill an organization’s purpose. The business plan is all about elements that are required for demonstrating a prospective business’s feasibility, whereas a business model is about demonstrating elements for making the existing business to work successfully.
The definition of the business model is described differently by various authors but its common meaning can be defined by two elements – a business system, that can be defined as work systems in form of delivery or production system that are designed by a firm, within its boundaries and beyond for product delivery to target customers. And the next element is profit model, which is a pattern to describe firm’s intention of making profits in existing business. It can include plans to sales increase or/and reducing costs. It also helps the business to distinguish from other competitors by means of product or price (Verstraete, & Jouison-Laffitte, 2011).
Out of the two elements of the business model, the business system is less visible and profit model is more visible. The profit model is observed by outsiders and due to direct linkage to the bottom line of any firm, it is much more glamorous than the business system. However, a business system can be considered as the most significant element in a business model, since it plays two roles – as a system that realizes a firm’s differentiation strategic intent which is the real work, and secondly, it accelerates towards future learning processes. During business system design the following things are determined by the firm –the labor division amongst the firm and its partners for trading, internally organizing firm’s in-house system of working and controlling trading activities of partners externally (Weill, Malone, D’Urso, Herman, & Woerner, 2005).
The business model as a system works to satisfy needs of customers and tries to do a better job than other competitors. It also enables people working in an organization to explore more about technologies and observe customer’s reaction. The business model as a system functions in accordance with learning system while doing the work that involves learning first. It also leaves footprints of the doers while working on any system. It determines two important factors that include maintaining the workflow of in-house and outsourced operations and controlling final delivery options to customers. These factors help the firm to determine ways to learn about market and technology and search for possible partners that are aligned with the firm’s goals (Lindgren, 2012). When actual work is done, the flow of various kinds of information takes place and it creates an overall exchange of information from firms to its business partners. As humans are blessed with high thinking and observational powers, it can directly stimulate by work or action that can be done. This action further provides triggering events and enhances the capacity to form proper strategies for the business system. Also, the business system helps with accumulating information. It is not just dealing with mundane operations to determine operations cost and various products to act as a learning system. It also enables these firms to keep close watch over outside parties like partners and customers and then gains business system’s byproducts activity that can quite quickly accommodate and provides growth for improving long-term benefits. Thus, eliminating static problems of any kind.
The profit models, on the other hand, has multiple attractions that enable the firming contract to offer lower cost operations that can reduce its operating costs and no longer needs to invest in such work sector (Osterwalder, & Pigneur, 2009). It overall leads to the reduction in capital costs in the firm. If the business model is considered as a system, the doers are accumulators of work related information and approach contract firm that is still learning. The costs can be controlled unless external work can become extra burdens to the firm’s business. It integrates together the unbundled and bundled work for carrying out overall operation smoothly, then delivers its final product to customers. This will not become a serious problem if both these bundled, as well as unbundled works, are integrated without creating the transaction costs too expensive. It also means that less learning about work never erodes future growth that has the potential of unbundling firm. The profit model can override risks that are imposed on the business system due to dynamic problems in firm. There are unexpected environmental conditions that exist in the supplier firms that can change in dramatic ways, and hence threatens the supply lines for destabilizing integration in smooth ways. This significant learning process can produce certain in-house components in a business model that creates a huge innovation towards progressing future market, where a central role is occupied by components to produce new products successfully (Kim, & Min, 2015).
As per the article on the design of business model with a perspective of an activity system, by Raphael Amit and Christoph Zott, it gives a whole new idea about the business model and its various parameters to design its activity systems. The design elements include structure, content, and governance.
The element structure describes activities that are linked or in other words have sequences between them that capture their actual importance for a business model. If IBM is considered, during the 90’s when a huge financial crisis occurred, the firm was triggered and it forced to switch its peripheral and core activities. Thus shifting the firm’s focus from hardware supplier and to become new software service provider. It enabled the firm to rebuild its structure from old known body or core and it helped in becoming one of the greatest service providers in the world. It took those decades but it enhanced its reach and helped them to launch a new range of activities related to IT, consulting, networking and many other services (Dermine, 2013). By the end of the year 2006, almost over half of the revenues generated by IBM amount to ninety billion dollars and it was possible due to investing new technologies or activities that are totally new.
The element content is referred to activities selection by the firm that is actually ready to be performed. If an example of retail bank named as Bancolombia is considered, it adopted activities that were designed for offering microcredit to above sixty percent of Colombian citizens who didn’t have banking service accesses. The bank adopted training methodologies for top management people to hire new staff and train them. Thus creating and developing new ways to link and expand the existing banking system that includes channels, applications, and platforms (Honohan, 2002).
The element governance is referred to people those performing activities. If any franchise is considered, it is relevant to one approach that can work as a key element in value determination in any firm. It’s about an adaptation of new business ideas through exploring professional management for creating values that can be added to performance in any business model.
The NICE themes for business model design deal with novelty, lock-in activities, complementarities services and efficiency in a model. Novelties are new ways of governance activities, lock-in refers to retaining power by the activity system, and complementarities are the inclusion of value adding services that lead to innovation in a firm and create demand in an actual market (Teece, 2010). The efficiency refers to use of activity system to achieve more output and reducing transaction costs.
Conclusion
The essay covers the overall idea regarding the adaptation of business models to run and operate any business firm successfully. Its idea is to understand the concept of business model and its work functioning as an activity system. The elements of business models are discussed in brief along with its focus on handling problems that can arise during business model implementation. The essay also enlightens on partnership and innovation processes along with significant design elements that are necessary for future growths of existing business models.
References
Dermine, J. (2013). Bank Regulations after the Global Financial Crisis: Good Intentions and Unintended Evil. European Financial Management, 19(4), 658-674. https://dx.doi.org/10.1111/j.1468-036x.2013.12017.x
Honohan, P. (2002). Comment on “Costs of banking system instability: Some empirical evidence”. Journal Of Banking & Finance, 26(5), 857-860. https://dx.doi.org/10.1016/s0378-4266(01)00271-0
Kim, S., & Min, S. (2015). Business Model Innovation Performance: When does Adding a New Business Model Benefit an Incumbent?. Strategic Entrepreneurship Journal, 9(1), 34-57. https://dx.doi.org/10.1002/sej.1193
Lindgren, P. (2012). Business Model Innovation Leadership: How Do SME’s Strategically Lead Business Model Innovation?. International Journal Of Business And Management, 7(14). https://dx.doi.org/10.5539/ijbm.v7n14p53
Osterwalder, A., & Pigneur, Y. (2009). Business Model Generation. Retrieved from https://www.businessmodelsinc.com/wp-content/uploads/2011/11/Business-Model-Generation-preview-of-the-book.pdf
Teece, D. (2010). Business Models, Business Strategy and Innovation. Long Range Planning, 43. Retrieved from https://www.businessmodelcommunity.com/fs/root/8jig8-businessmodelsbusinessstrategy.pdf
Verstraete, T., & Jouison-Laffitte, E. (2011). A business model for entrepreneurship (1st ed.). Cheltenham, UK: Edward Elgar.
Weill, P., Malone, T., D’Urso, V., Herman, G., & Woerner, S. (2005). Do Some Business Models Perform Better than Others?. Sloan School Of Management Massachusetts Institute Of Technology. Retrieved from https://ccs.mit.edu/papers/pdf/wp226.pdf
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