Framework Of Business Model Innovation

Concept of Business Model

Discuss about the Framework of Business Model Innovation.

With the growing developments in the contemporary economy, the conventional balance between the supplier and customers has changed to a great extent. With the new computing technology, the customers now have more options. Therefore the businesses have turned into more client-centric, especially in terms of providing solutions to the customers and providing products at lower cost (Bocken et al., 2014). Within this changed environment, the companies require to address the needs of the customers more specifically while they capture the value by providing service and products. Therefore, without a well designed business model, it is nearly impossible for the businesses to capture the value from innovations, especially for the IT companies that create the revenue streams from the conceptualizations of the business model (Frankenberger et al., 2013). This essay addresses the concept of the business models and the related notions in respect to the renowned IT Company, IBM, which has a huge impact of the rise of big data in its business model.

The business model is the method which has been applied by the company in order to generate more revenue and make more profit from the operations of the company. The business model defines the rationale of how the organization acts and captures the required value (Carayannis, Sindakis & Walter, 2015). The business model is also a part of the business strategy within the social, economic and cultural context. Within both the theoretical and practical field, the business model is utilized for different informal and formal descriptions for representing the basic aspects for the entire business including the business process, purpose of the business, target client base, infrastructure, customers, organizational structures, organizational structures and the other operational processes. The business model can also be defined as the abstract representation of the whole business. It can be textual, conceptual, graphical, even it can be architectural. According to Saebi and Foss. (2015), the value architecture, value proposition, value network and the value finance which articulated the main dimensions or the constructs of the business are called the business model. In the contemporary business practice, the business practice mostly depends on the technological practices of the organization.

The primary purpose of the business model is to define all the functions of the business in a concise way. Within this model, the E-business archetypes model was developed by Carl Jung. This concept is related to the basic personalities of the business and it produces a structural base which is related with the identification of the spectrum of the potential templates. Within this model, there are two kinds of activities, primary and secondary. Within the primary activities, there are three kinds of fundamental activities or interests; product, service and trade, while on the other hand, within the secondary archetypes, there are four kinds of interests, brokerage, market place, subscription and the ecosystem (Lambert & Davidson, 2013). Within the primary archetypes, the product denotes the one time purchasing of any artifact; the service signifies the manual service while charging a basic charge for that and the trade indicates the connection of the sellers and the buyers for commercial purpose. Within the secondary archetypes, the brokerage denotes providing the trade as the service, the subscription signifies the semi automation and productizing the service, the market place indicates the self service place where the trade can be productized and the ecosystem is the place where the businesses are build (Carayannis, Sindakis & Walter, 2015).

E-business Archetype

Figure 1: Business model archetypes

Source: Bocken et al., 2014

The business model exploits the business opportunities by the creation of the value for all the involved stakeholders. Therefore the organization requires fulfilling all the requirements of the customers by creating the customer surplus and generating the profit for all the stakeholders. An activity within the business model of any firm can be generally viewed as an engagement of the physical, human and the capital resources of any of the stakeholders within the business model (Kindström & Kowalkowski, 2014). As the activity system, the business model serves the particular purpose of fulfilling the all the aim and objectives of the organization. Therefore, it can also be said that the business model as the activity system is a set of internally dependent organizational activities that is centered on a specific organization. This activity system includes the particular organization, its vendors, partners and the customers. The activity system can also help the organization in transcending the specific organization in expanding its boundaries. However, the model will remain to be organization centric for enabling the particular organization for creating value with all its stakeholders while it will also keep a suitable share of the created value for itself. The business model is always equipped towards the entire value creation for all the involved stakeholders. It generally lays the primary base for the captured value of the organization.

Figure 2: Activity System

Source: Galí 2015

Other than demonstrating the core operations of the business, the business model has another goal of exhibiting the profit generation by the business. Mostly it is done by the cost- revenue architecture where both the cost and revenues are approximated as precise as possible on the basis of the size of the market share. Therefore, the accurateness of the cost-revenue architecture is dependent on the input quality as well. In addition to that, the quality can also be enhanced if the input estimations are the outcome of the detail cost calculation based on the architecture which is also based on the genuine resource costs, time of processing and the processing volume (Kuehl et al., 2015). The architectures can also be defined from different points of view which may result into various views on the architectural model. These views are also aimed at several stakeholders who have keen interest on the models. There are four views:

Client view: This cost is generally seen as the revenues as it is the cost per piece of the product or the service.

Business Model as an activity system

Resource view: It is the tariff or the cost per unit for the consumption of the resource. In the architecture, the resources are the information resources, human resources, information system, materials, money, buildings etc.

Process view: this is the cost per completion of any process. This cost is generally calculated by incurring all the sum of costs as the result of the all consumed resources.

Product view: This is the cost per completion of any single service or product. This is the sum of all the completed costs of all the business procedures which will identify the service or the product together.

Figure: Cost Benefit Architecture

Source: Galí 2015

The business model framework, there are three kinds of components; resource, design principles and capabilities. The aim of constructing the business model is to define the managerial opportunities for the specific organization for influencing the value co-creation. Within this framework, the design principles are the first components. As defined by Spieth, Schneckenberg & Ricart (2014). It these are the ‘instructions based on knowledge that turn resources into things that people use and value’. The design principles tend to guide the organizational abilities in a way which can integrate the value co-creation procedure. The resources are the second component of the business model framework. The service is the primary base of exchanging whereas the economic and social actors are the integrators of resource. The third component is the capabilities. Galí (2015) has defined it as ‘complex bundles of skills and accumulated knowledge, exercised through organizational processes that enable firms to coordinate activities and make use of their resources’. The following figure defines all the internal components of the business model framework.

Figure 4: Business model framework

Source: Spieth, Schneckenberg & Ricart, 2014

IBM is a multinational company that has been impacted by the rise of big data like any other IT company. The business model framework of the company has been impacted by the change to a great extent. The value chain of IBM, help optimizing the possible profit of the company by shifting the internal focus of the company to its core competencies. It is mostly driven by the performance indicators. The organization has developed a high performing value chain which reduces the cost of delivery, shortens the lead times, betters the cash flow and increases the client benefits and satisfaction. The value chain service of IBM has a transformational strategy which develops the roadmap after conducting the gap analysis.

Figure 5: IBM value chain service

Source: IBM – Australia. (2017).

Conclusion

In conclusion it can be said that, any organization should improve both the business model and the value chain model as it would make the customers more satisfied by the products and the service over the course of time. As the value chain model is a major part of the business model framework, it would keep the company floating by getting the revenues from the customers. Any organization should keep both the models well designed so that the company does not have to face much trouble within the value chain and supply chain frameworks.

Reference List

Bocken, N. M. P., Short, S. W., Rana, P., & Evans, S. (2014). A literature and practice review to develop sustainable business model archetypes. Journal of cleaner production, 65, 42-56.

Carayannis, E. G., Sindakis, S., & Walter, C. (2015). Business model innovation as lever of organizational sustainability. The Journal of Technology Transfer, 40(1), 85-104.

Frankenberger, K., Weiblen, T., Csik, M., & Gassmann, O. (2013). The 4I-framework of business model innovation: A structured view on process phases and challenges. International Journal of Product Development, 18(3-4), 249-273.

Galí, J. (2015). Monetary policy, inflation, and the business cycle: an introduction to the new Keynesian framework and its applications. Princeton University Press.

IBM – Australia. (2017). Ibm.com. Retrieved 20 August 2017, from https://www.ibm.com

Kindström, D., & Kowalkowski, C. (2014). Service innovation in product-centric firms: A multidimensional business model perspective. Journal of Business & Industrial Marketing, 29(2), 96-111.

Kuehl, N., Walk, J., Stryja, C., & Satzger, G. (2015, December). Towards a service-oriented business model framework for e-mobility. In Proceedings of the European Battery, Hybrid and Fuel Cell Electric Vehicle Congress, Brussels, Belgium.

Lambert, S. C., & Davidson, R. A. (2013). Applications of the business model in studies of enterprise success, innovation and classification: An analysis of empirical research from 1996 to 2010. European Management Journal, 31(6), 668-681.

Saebi, T., & Foss, N. J. (2015). Business models for open innovation: Matching heterogeneous open innovation strategies with business model dimensions. European Management Journal, 33(3), 201-213.

Schneider, S., & Spieth, P. (2013). Business model innovation: Towards an integrated future research agenda. International Journal of Innovation Management, 17(01), 1340001.

Spieth, P., Schneckenberg, D., & Ricart, J. E. (2014). Business model innovation–state of the art and future challenges for the field. R&D Management, 44(3), 237-247.