Business Model As Systems: Definition, Function, And Application Essay.

1. When you write your essay you should ensure you fully address the above statement and do the following

a) Define the concept of a business model.

b) Explain what is involved when one conceptualises business models as systems.

c) Explain how business models as systems can be used to solve static and dynamic problems.

d) Explain how business models as systems can be used to understand how firms partner.

e) Explain how business models as systems can be used to understand the innovation process.

f) Explain Kodama's (2009), Zott and Amit's (2010), OR Itami and Nishino's (2010) arguments in more detail through the use of an example, that is, by explaining the business model of one firm in more detail.

Discussion of Business Model

Business model is an abstract representation of organization, which assists it towards generating revenue and making profit from its operation. The concept of business model defines core interrelated co-operational, financial and architectural arrangement of an organization towards sustainable business development. While considering the concept of business canvas model, it involves effective management of business infrastructure, offerings, customers, customer relationship and finally revenue stream. According to Maglio and Spohrer, (2013), the core activity business model creates high value for the customers as well as for key partners, which fosters long term business sustainability.   On the other hand, Christensen et al., (2016) opined that business model generate flexible flow of revenue stream for maximizing business profit. This discussion will critically analyze business model as systems by taking ideas from various sources.

While conceptualizing the business lean canvas model, it is seen that it involves an effective business framework for newly set up organization. This business model sketches business problems for newly set up organizations and outline perfect solution for addressing those issues. As per Casadesus-Masanell and Zhu, (2013), business lean canvas model aim at shortening the product life cycle with effective combination of validated learning, hypothesis-driven experimentation and iterative product releases. On the other hand, Martins et al., (2015) opined that lean model fosters unique value creation and competitive advantage for the organization towards anticipating high level of revenue stream.

In order to sustain in growing competitive business environment, organizations need to upgrade and innovate their business framework. The business framework should provide unique value to the customers towards gaining their loyalty and sustaining an optimum level of business profit. Both static and dynamic problem can have severe impact on business sustainability of an organization. Static problems are always associated with cost structure, organizational resources and organizational structure. According to Schneider and Spieth, (2013), effective business model anticipates the revenue stream for an organization and the organization takes its decision based on the most profitable revenue stream method. Hence, the issues of cost structure and organizational resources are minimized. Epstein et al., (2015) pointed out that business model explore the process innovation for an organization. It can help the organization towards acquiring the advanced technology and getting unique business value through innovation. Moreover, the model helps in maximizing the wealth of stakeholders through proper business functioning and addressing business issues.

On the other hand, business model also solve some dynamic problems associated with business in terms of changing consumer needs and government policies. According to Itami and Nishino, (2010), business model helps in constant interaction with the customers. Hence, organizations can easily identify their dynamic issues and get immediate solution to that issue. Moreover, it fosters sustainable business through aligning business elements with market changes.

Solving Static and Dynamic Problems through Business Models as Systems

In order to reduce risk and optimize business operation, an organization always needs to cultivate buyer-supplier relation towards concentrating on core activities of business. According to Mina et al., (2014), business model assess the most profitable partnership based on the nature of the business. As the best partnership option, this model considers joint venture and strategic alliance between competitors and non-competitors. The model also suggests the way of sharing the resources and expertise among the business partners through the partnership relation. Hence, the chance of risk is minimized enough with the chance of maximizing profit. On the other hand, West et al., (2014) opined that an organization can also enhance its collaboration with the suppliers for reducing the risk of product supply on time and in effective manner. Moreover, business model is the perfect tool to be used as a system towards developing effective partnership.

Business model is also effectively used as a system of bringing innovation in the business. It helps organizations towards selecting suitable products or services for meeting their dynamic needs. According to DaSilva and Trkman, (2014), the value proposition created by business model fosters innovation in the business framework. It can be in two ways either in quantitative or in qualitative. The model can suggest for reducing price or bringing differentiation towards gaining competitive advantage. On the other hand, Morris et al., (2015) opined this model is the perfect way of knowing customer’s dynamic needs through enhancing customer relationship. Hence, the organization can easily incorporate innovation their product or service towards gaining special attention of the customers and enhancing sales volume.  

According to Itami and Nishino, (2010), business model is consisted of two elements namely profit model and business system. Profit model is associated with gaining higher profit for the business, whereas, business system learns about business operation and behavior of customers and suppliers. Profit model helps in earning revenue in short term basis. On the other hand, business system learns information for gaining long term competitive advantage. Successful businesses are always concerned about achieving both the outcome. Profit model is always concerned about achieving organization’s strategic intent through offering different products and service. On the other hand, business system is designed for realizing the strategic intent of the organization through learning in-house working system, control partnership with trading partners and labor division between trading partner and firms. Moreover, the intension of earning high level of profit is also unachievable without the designing business system.

Understanding Partnership through Business Models as Systems

The simplistic business model that has been proposed by Itami and Nishino, (2010) has been found to be extremely useful for Google. 

While considering the business model of Google, it can be found that the profit model of the organization is quite different from other business organizations. The user of the service never pays to the service provider; instead, they provide opportunity to the organization towards capitalizing their presence on the search engine sites by selling site space to the advertisers. These advertisers are the source of organizational revenue. In order make more profit, Google needs to increase the usage of their search service through providing more opportunities to the advertisers for connecting with their customers and deliver their message. Another aspect of Google’s profit model is to offer free search services to the users. However, without learning about the search pattern of the users, it would not be possible for the organization to make huge profit (Khanagha et al., 2014). Hence, Google has initiated in-house business system towards identifying the changing search patter of the users.

In this way, through learning about the searching pattern of users, the organization has become able to provide quick service and large volume of data towards attracting the users. Moreover, this large volume of users in Google’s search site has ultimately attracted advertisers to make wide advertisement on Google sites, which enhanced the profit volume of Google.

Amit and Zott, (2010) has discussed about several points regarding innovation, resource consumption, business knowledge articulation and explanation of literature. However, this article does not provide us a concrete basic business model framework based on which organizations can setup or upgrade their business. Explanation of concepts, literature and theories with real world examples has been found in Kodama, (2009) but the entire article is extremely concentrated in knowledge management and innovation. There have been only knowledge management models but for a business, along with knowledge and learning resource allocation, partnership, supplier, customer determination, service delivery and organizational structure determination are the factors that must be enlisted in business model framework. Therefore, this article does not provide complete knowledge of business model.

While considering the ideas of Itami and Nishino, (2010), it can be found that a complete basic business model has been presented. Also, examples of Toyota and Google have been discussed who have benefitted from the business models. Aspects such as resource allocation, innovation, user identification, service delivery and cost structure have been described by the model. Also this model has depicted the profit model and business system through which business models as system can be easily understood. 

Fostering Innovation through Business Models as Systems

Conclusion

Business models have been found to be extremely useful that predominantly forms a operational framework for an organization. In the discussion, considering the three most important articles, it has been found that innovation and knowledge management are the most important aspects of business models. Also, it has been found that resource, partnership, supplier, vertical and horizontal integration and service delivery are the most vital parameters that structure the operation of an organization. It is quite sure that in future, these models will be more customized to form operational structure of organizations, which will help in sustainability and corporate expansion. 

References

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.

Christensen, C. M., Bartman, T., & Van Bever, D. (2016). The hard truth about business model innovation. MIT Sloan Management Review, 58(1), 31.

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.

Khanagha, S., Volberda, H., & Oshri, I. (2014). Business model renewal and ambidexterity: structural alteration and strategy formation process during transition to a Cloud business model. R&D Management, 44(3), 322-340.

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.

vom Brocke, J., Schmiedel, T., Recker, J., Trkman, P., Mertens, W., & Viaene, S. (2014). Ten principles of good business process management. Business Process Management Journal, 20(4), 530-548.

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