Innovation And Sustainable Business Development For Business Model

Discussion of Business Models as Systems

Discuss about the Innovation and Sustainable Business Development for Business Model.

Business model is the way through which an organization generates revenue and earns profit from its operation. Business analytics use metric for measuring the effectiveness and efficiency of organization’s business model. Pricing and cost are the two primary levers of business model. According to DaSilva and Trkman, (2014) business model is an abstract representation of business by incorporating core interrelated architectural, co-operational and financial arrangement of an organization. On the other hand, Morris et al., (2015) opined that business model canvas provides the structure of business plan for getting sustainable success in an organization. Moreover, business lean canvas model provide business plan for any startup company. It identifies the problems of startup business and provides solution for addressing those problems. This discussion will present the concept of business model as system through critical analysis and examples.

While conceptualizing business canvas model, it involves business infrastructure, customers, offering, channels, customer relationship and revenue stream. According to Casadesus?Masanell and Zhu, (2013), business canvas model identifies the key activities, resources and partners of an organization towards gaining long term business success. The activity system enables an organization towards concerting with the key partners and creating high business value. Furthermore, Martins et al., (2015) opined that effective business model builds a system of segregating customer segment and creating efficient channels towards communicating with the customers. Hence, it involves high level of customer relationship strategy in its conceptualization.  It also involves cash flow and revenue stream of organization towards earning profit.

While conceptualizing the business lean canvas model, it involves specific sketches for startup business organization. According to Schneider and Spieth, (2013), lean canvas model is aimed at shortening product development cycles through adopting combination of business-hypothesis-driven experimentation, validated learning and iterative product releases. Moreover, it identifies the business problems for the startups and addresses those issues through building proper business solution. It also involves unique value proposition and unfair advantage of the newly created business. Furthermore, it highlights the anticipated revenue structure for an organization.

With the growth of competition, organizations need to upgrade and conceptualize their flow of operation by following a framework, which would guide them in meeting business values. Static and dynamic challenges are extremely prevalent for both small scale and large scale enterprise but for that business models need to be followed. Static problems such as cost structure, organizational structure and organizational resources are well managed by business models (Maglio & Spohrer, (2013). This model helps in quantifying the available revenue streams and based on that helps the firm in make or buy decision. Based on the static decision support system and historical records, organizations are finally able to process innovation and acquire latest operational technologies that eventually help in positive business outcomes. Business models help in correlating the static challenges related to revenue, resources and organizational assets so that profit can be maximized and shareholder’s wealth can be well distributed. On the other hand, while considering the dynamic challenges of an organization it must be said that the external issues related to demand and supply, changing customer trend, governmental policies and product diversification are well managed by following business models (Epstein et al., 2015). The challenges are predominantly addressed by selecting appropriate business partner and supplier, vertical or horizontal integration, effective customer relationships and selecting literal market channels.

The Importance of Innovation in Business Model

According to Kodama, (2009), with the growth of business and depending on environment, firms operate with others through partnership by either outsourcing or by vertical integration. This helps the concerned firm to allocate resources for innovation and production. On the other hand, Mina et al., (2014) pointed out that through business models as systems firms try to collaborate with others for knowledge sharing and absorbing expertise and ideas. West et al., (2014) furthermore added that with the design of collaborative business moves supply chain of an organization achieves equal relationship with suppliers that results in dialectic view promoting knowledge integration. Therefore, it can be said that through business models organizations are able to build up its value stream by ‘connect and development’ strategy, which ultimately helps in determining corporate boundaries and aid in developing new products and services. Using business models as systems, organizations are able to evaluate the available suitable firms for partnership, exchange knowledge, ensure cross-divisional teams, outsource manufacturing and create interdependence among the research and development team, helping positive business outcome.

According to Amit and Zott, (2010) knowledge integration is the correlation between strategic communities and small world structure, which helps is feeding the business models. Innovation is the driving force that helps in guiding a firm to progress with breakthrough products that is unique and appreciated. On the words of Itami and Nishino, (2010), business models correlate all stakeholders starting from investors to distributors and therefore, dynamic knowledge for manufacturing new products comes into existence. Casadesus?Masanell and Zhu, (2013) pointed out that through business model canvas, an organization is able to segregate customer segments and based on that diversified products are thought. Research and development team of an organization assess market demand and based on that innovates new products that will keep the organization ahead of competition. Therefore, it can be said that business model while considered as a system, it helps in process innovation through market analysis for customer segment, identifying existing competitors and effective supplier selection.

According Itami and Nishino, (2010), business model is composed of two elements, which are business system and profit model. With business system an organization delivers products and services within its business boundaries for serving its targeted customers and with profit model it determines decision for increasing sales and reducing costs. Operational efficiency is only achieved when realistic benefits are arranged for consumers through successful delivery system. Based on this concept Itami and Nishino, (2010) proposed a simplistic business model that explains the importance of a firm’s learning system aiding critical business success.

The Importance of Sustainable Business Development in Business Model

 

Figure 1: Basic Business Model

(Source: Itami & Nishino, 2010)

From the above model, it can be seen that it is applicable to any product or service based industry. Business system indicates the internal operation of an organization and the changing business environment. Business environment is extremely dynamic and the organic body needs to gather ideas of three aspects, which are its boundary, functions within the boundary and relationship with external firms.

Considering the real life example of Toyota, it has well implemented the basic business model and designed its business system by following three aspects. On aspect is labor division between trading partners and firm, which indicates decision between procurement and outsourcing. Other two aspects are organizing internal working systems and external activities with trading partners (Itami & Nishino, 2010). Toyota follows tapered outsourcing for most of its auto parts and it follows procurement from multiple tier 2 and tier 4 suppliers. Also, the organization maintains strong relationship with limited suppliers so that partnership and knowledge management is concrete. Toyota has established its Toyota Production System, which even serves internal organizing and therefore overall it can be said that the business system from the model is well followed. Considering the learning system from the business model, tapered outsourcing of Toyota helps in external control system, cost information and technological information from external plural outsourcing suppliers.

According to Kodama, (2009), Japanese firms have articulated enough knowledge to build a competitive edge and revitalize their organizations. The authors of this article have presented a new business model that is completely related to knowledge management starting from business boundaries to value chain creation. Through knowledge integration innovation has been directed that has been shown to comprise of new boundary conceptions, dynamic human network and knowledge architecture. Therefore, in this article, entire focus has been done on knowledge management and innovation but the method of partnership, cost structure and resource allocation has been not explained enough. On the other hand, Amit and Zott, (2010) focused mostly on innovation, R&D and related resource consumption. Theory, literature and concepts have been explicitly used in this article but there is no proper business model framework or model for reference.

Finally, while considering the view of Itami and Nishino, (2010), it can be said that the basic business model that has been presented will be applicable to any product or service oriented organization. Even the article describes the operations of Google and Toyota about how they follow basic business models and systems to guide their operation. This article is clear, concise, having a clear simplistic view of basic business model that surrounds ideas from knowledge, resource, innovation, operation, service, customer and profit maximization. Therefore, according to me, out of the three articles, this article has helped me in gaining enough idea of business model as system.

Conclusion

While concluding, it must be said that business models are the boundary spanning systems that are centered on a firm and the activities are quite interdependent surrounding governance, structure and content. It has been understood that in future these models will be more protruding with business development and change in organizational environment. These models will keep on updating according to organizational capabilities so that innovation and knowledge management is accomplished. However, in future decision makers of firms need to think of long term outcome so that frequent changes in business model are prevented otherwise maintaining resources will be quite tough.

Reference List

Amit, R., & Zott, C. (2010). Business model innovation: Creating value in times of change.

Casadesus?Masanell, R., & Zhu, F. (2013). Business model innovation and competitive imitation: The case of sponsor?based business models. Strategic management journal, 34(4), 464-482.

DaSilva, C. M., & Trkman, P. (2014). Business model: What it is and what it is not. Long range planning, 47(6), 379-389.

Epstein, M.J., Buhovac, A.R. & Yuthas, K. (2015). Managing social, environmental and financial performance simultaneously. Long Range Planning, 48: 35-45

Itami, H., & Nishino, K. (2010). Killing Two Birds with One Stone. Long Range Planning, 43, 364-369.

Kodama, M. (2009). Boundaries Innovation and Knowledge Integration in the Japanese Firm. Long Range Planning, 42, 463-494.

Maglio, P. P., & Spohrer, J. (2013). A service science perspective on business model innovation. Industrial Marketing Management, 42(5), 665-670.

Martins, L. L., Rindova, V. P., & Greenbaum, B. E. (2015). Unlocking the hidden value of concepts: a cognitive approach to business model innovation. Strategic Entrepreneurship Journal, 9(1), 99-117.

Mina, A., Bascavusoglu, E. & Hughes, A. (2014). Open service innovation and the firm’s search for external knowledge. Research Policy, 43. 853-866.

Morris, M., Schindehutte, M., Richardson, J., & Allen, J. (2015). Is the business model a useful strategic concept? Conceptual, theoretical, and empirical insights. Journal of Small Business Strategy, 17(1), 27-50.

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

West, J., Salter, A., Vanhaverbeke, W. & Chesbrough, H. (2014). Open innovation: The next decade.Research Policy, 43: 805-811.