The following paper is going to accomplish the objective of developing a coherent understanding regarding business model in terms of a concept. At the same time, the paper aims to understand the way the theoretical understanding of varied business models can be utilized for explaining aspects like value appropriation or innovation process and value creation in a business firm. Therefore, the focus of the following discourse would be to identify and explain the components involved in the process of conceptualizing the business model, the ways business models used for solving static as well as dynamic models. Furthermore, the role of business models in business innovation process would also be evaluated.
As stated by Hiroyuki Itami and Kazumi Nishino in their article “Killing Two Birds with One Stone”, two elements – a distinct business system and a particular model for profit margin are essentially required for composing a fruitful business model. It has been understood from the article of Hiroyuki Itami and Kazumi Nishino that one of the necessary components of business model, which is business system, is a “system of work” designed to successfully deliver the service or product to the customers (Itami & Nishino, 2010). On the other hand, a “profit model” is considered as a particular intention of a firm regarding the ways to make profit to business. However, as discussed by Christoph Zott and Raphael Amit in their article – “Business Model Design: An Activity System Perspective”, business model should be considered as a business system that is integrated with varied interdependent activities, which transcends the “focal firm” as well as expands the boundaries of business. Furthermore, the aforementioned authors have indicated that the design of a business model plays the role of a potential decision that entrepreneurs or a new firm holders pursue for acquiring a satisfying business performance (Zott & Amit, 2010). Therefore, understandably, according to the conceptualization of business model, the essential components that have been involved are interrelated or interdependent activities of a business firm or the particular activity system that enables an organization to establish value. It has been understood further that some of the chief aspects, which are integrated in time of conceptualizing business model as a system are possible business structure, accessible contents and corporate governance.
However, it has been understood that based on individual business aims and purposes, different business organizations develop different business models, which are integrated by different set of activities and different resources and the performance capabilities. As per Zott and Amit (2010), the predominant objective behind designing a business model is to exploit the opportunity of a business through the way of creating appropriate values for the involved parties. At the same time, it should be considered in the context that business models and their functions as business systems have the responsibility to address and satisfy customer needs, establish customer surplus and generate profit for the partners (DaSilva & Trkman, 2014). From the aforementioned point, it can be interpreted that business models are helpful system for understanding the needs of the firm partners, as it is one of the responsibilities of business models to initiate profit for them.
Nevertheless, in this respect it is required to mention that business model performing as business systems, can be utilized for solving dynamic as well as static issues like problems with the internal stakeholder and issues in marketing and change in the customer demand (Morris et al., ). More precisely, it has been understood that an organization’s particular business model and its static and dynamic aspects and their roles are interrelated. An organization needs to bring change in its business model or system considering the changes taking place in both of its static and dynamic aspects (Casadesus?Masanell & Zhu, 2013). For example, if an organization encounters sudden change in customer demand or change in market trend, the enterprise needs to modify or bring change in their marketing tactics or need to pursue product modification. On the other hand, if an organization encounters sudden instability in the political or social atmosphere, the management of the organization would initially opt for modifying the working culture, manufacturing pattern or relationship with the internal and external stakeholders (Bonakdar, 2015). All of the aforementioned elements are considered as the integral part of a business model as system.
As mentioned earlier, business model consists two particular models, which are profit model and business system. As per Itami and Nishino (2010), external and internal delivery process along with the business learning systems is included in every business model, therefore, in order to mitigate any issues in the profit earning system or in the internal business environment, improvement or modification in the business model would be essential. On the other hand, it has been identified that a business model, which is well articulated, provides insights to the investors regarding the ways through which a business organization creates sustainable value. Several times, business organizations attempt to pursue strategic alliance with other business parties for maintaining sustainability, expanding business or for strengthening their brand image. In the context, it should be mentioned that the phrase – “strategic alliance” is indicative of an agreement among two or more organizations for pursuing a particular set of agreed objectives while remaining independent enterprises (Lanzolla & Markides, 2015).
Some of the predominant reasons for forming strategic alliance are for forming economies of scale, for increasing competitiveness, setting new business standard and entering into new markets. Some of the fundamental roles of business models are to communicate business values, define value chain, estimate both profit potential and cost structure and most significantly the position of a firm (Kindström & Kowalkowski, 2014). Henceforth, without the use of business model, it is not possible to understand the need of partners and not even the need of the strategic partnership. On the other hand, considering each of the above-mentioned responsibilities of business models, it is understandable that business models helps to monetize business value and assists in identifying any particular issue in business (Barquet et al., 2013). The phrase business innovation refers to the act of implementing new technology or designing new ways for making new brands or business practice. On the other side, business models refer to the way of creating value to both the customers and stakeholders. Therefore, it can be said that without the proper utilization of business model, it is not possible for an organization to understand the need for brining innovative idea. At the same time, in order to identify an ideal process of innovation, there is the need to utilize the components integrated in a business model (Lambert & Davidson, 2013).
As identified in Hiroyuki Itami and Kazumi Nishino’s argument, in every business, there is the need to learn the about the work and they assert that business model as business system effectively functions as learning systems. Two of the aforementioned authors have also asserted that business models in terms of business system is responsible for determining the elements of work flow, which are required for delivering products and for determining the information system that controls the work flow. However, from Mitsuru Kodama’s article, which has focused on the business models of the Japanese business firms, it has been understood that knowledge integration procedure is responsible for establishing new knowledge through the networks those transcends corporate boundaries (Kodama, 2009). On the other hand, from the argument of Christoph Zott and Raphael Amit, it has been understood that design of a business model includes three essential elements, which are activity system content, activity system structure and activity system governance.
In the particular context, the example of the business model of the Google can be considered. The article of Hiroyuki Itami and Kazumi Nishino has evaluated the basic model of business by taking example from Google. As per the theoretical framework of business model, a profit model and a business system integrate an apt business model. Google’s use of profit model indicates that the organization gains profit in a unique way. According to the profit model, the users of Google never need to pay anything direct to the organization but with the utilization of the service of Google, users provide the opportunity to the organization to capitalize on the search engine site through selling the sites space to the advertisers.
Therefore, the business model of Google focus on the advertisers for the profit related concern, as they know that advertisers are the direct source of revenue for the organization. On the other side, the business system of Google is integrated by varied software and hardware capabilities like numerous elements of “bespoke in-house software” and “in-house server system”.
Google’s present success highly depends on its business system, which is an essential better half of its business model (Itami & Nishino, 2010). It is because, through the “in-house” business system procedure, the organization provides fastest service to the customers and at the same time process a huge extent of contact, which the advertisers have with the customers.
The application of the basic business model of Google indicates the fact that the business model of the organization plays the role of a “system of work” that not only satisfies the customers in a competent way, but also helps the internal stakeholders of the organization to learn about technology as well as customer reaction. Henceforth, the article by Hiroyuki Itami and Kazumi Nishino have been found the most relevant as the article has helped to acquire a clear understanding regarding the fundamental framework of business model through detailed elaboration and evaluation with handful of evidence. Most significantly, the article has helped in understanding one important fact related to business model, which is a business model functions as a learning system too.
Therefore, from the above understanding it can be indicated for the future procurement of business model that, a business model should be established by integrating a distinct profit model and business system. Beside for the reason of generating insight and value for the stakeholders, business models should be designed for helping the internal stakeholders to learn the expression of the customers as well as their individual responsibilities.
Barquet, A. P. B., de Oliveira, M. G., Amigo, C. R., Cunha, V. P., & Rozenfeld, H. (2013). Employing the business model concept to support the adoption of product–service systems (PSS). Industrial Marketing Management, 42(5), 693-704.
Bonakdar, A. (2015). Business model innovation (Doctoral dissertation, University of St. Gallen).
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.
Itami, H., & Nishino, K. (2010). Killing two birds with one stone: profit for now and learning for the future. Long Range Planning, 43(2), 364-369.
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.
Kodama, M. (2009). Boundaries innovation and knowledge integration in the Japanese firm. Long Range Planning, 42(4), 463-494.
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.
Lanzolla, G., & Markides, C. (2015). Does the strategy field need the business model concept. London Business School Working Paper No. LBS SE WP 22.
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.
Zott, C., & Amit, R. (2010). Business model design: an activity system perspective. Long range planning, 43(2), 216-226.
Zott, C., & Amit, R. (2013). The business model: A theoretically anchored robust construct for strategic analysis. Strategic Organization, 11(4), 403-411.
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