MGMT20132 Innovation and Sustainable Business Development

A business model refers to the clear, precise way of representing and picturing how a company operates. Every company strives to provide value to the market as well as maintaining competitiveness against the rival firms. The business model shows the textual representation of a business entity designed to show financial arrangement, core architectures of the organization and how they co-operate to provide effective efficiency in the firm. A business model tries to explain how businesses create, distribute and get value in social, economic, cultural and political aspects (Baden-fuller & Morgan, 2010). This essay describes what is involved in business systems and modeling conceptualization, the use of business model systems to solve dynamic problems, the use of business models in understanding partnership of firms, and how managers utilize business models in understanding the innovative processes.  

Below is an illustration of a business model used in planning service delivery structures for a business.

To conceptualize business model as a system, one needs to understand the company's value proposition. This involves knowing how the company gains an advantage by undertaking a particular activity and this will help the firm to avoid activities that create less value or no value at all. The cost structure is also involved in conceptualizing business model where a manager can know the value of embracing the model and as a guideline for performing its tasks (Chesbrough, 2010). The model should be cheap to operate and maintain and should match the costing policies used by the enterprise. Also, business models are used to analyze distribution channels under which goods and services of a company are delivered. Further, business models create effective revenue models which help firms gain more funds from different operations.

This hence ensures that the firm has enough revenue to finance their expenditures. Furthermore, the conceptualization of business models enables a manager gain core capabilities on how to efficiently maximize the available resources use at the most minimum cost possible. The designed system content assists in the performance of firm models that relate to the needs of the company as well (Kodama, 2009). Also, business models help managers understand the system structure on how the activities of the company are linked and connected to each other so that they can be interdependent. System governance is also enhanced by the help of business models for it assists the management to find out whether training of employees is needed or not. Business models can also be used to solve static and dynamic problems within an organization.

Business models can also be used to solve static and dynamic problems in various ways. Business models usually break down complex and vibrant business problems and make them easy to understand and address them. These problems include reduced investments, labor demand, population, capital supply, land, demand and supply shortages, increased tax rate, and low customer satisfaction.

The models designed are used to identify better investment opportunities that the firm can invest in and continue operating efficiently, and this increases the value of the business for better dividends (Chesbrough, 2007). For the case of low customer satisfaction, the company uses business models to understand what customers want by observing their purchasing patterns. Further, the business people use value resell models to improve the quality of their products and by doing so their customers will be satisfied, and they will increase their customer loyalty and market share (Burkhart, Krumeich, Werth, & Loos, 2011). Labor demand problems are also addressed by business model through analysis of cheap methods of providing employees’ services and assisting them to maximize productivity.  The diagram below shows applicability of business model in solving static problems related to expenses payment:

Business model as a system helps a company understand how firms partner. Before a model is developed, one needs to understand partner networks and the business capabilities so that the company can make the right call when looking for trading partners. The business model should help the organization select suppliers who meet their demands and enter into partnerships with them for efficient operations (Al-Debei & Avison, 2010). The firm can also use collective business models where different companies pool resources together for the benefit of all them. The design should help the organization select the right group of firms to share resources and avoid wastage of resources. Also, the organization can also use franchise model to identify another business which they can work together as one and derive meaningful value and revenue in the process.

Business model as a system assists business managers to understand the innovation processes. Through business models, innovation in companies has been enhanced to ensure that the firm operates smoothly with little or no time wastage at all. Innovation enables the creation of new ideas and identification of new markets for the organizations to exploit and deliver goods and services (Chesbrough, 2010). This is made possible by identifying the unmet needs of consumers. Business model enables firms to identify new opportunities which lead to the growth of the enterprise. Also, business models help the organization come up with new ideas which enable satisfaction of customer needs which leads to improved revenue. The diagram below shows how business model can be applied by managers in innovation ideas for distribution, marketing, and procurement.

According to Zott and Amit (2010), business model should be developed around the activities of the organization so that it can be more efficient and create value for the firm. They emphasize on two parameters which are design elements and design themes. Design elements consist of activity system content, event system structure, and activity system governance. Design themes comprise of novelty, efficiency, lock-in, and complementarities which involve valuing organizational activities. For instance, Proctor and Gamble company creates value of the firm by participating in corporate social responsibilities coupled with event system structures, and design themes for entire business and world advantage. Valuation of the company has been persistently high and this shows effectiveness and efficiency in the application of design elements and themes.

Mitsuru Kodama (2009) highlighted that the most important aspects to be considered are innovation and knowledge integration if the business is to thrive and meet its goals and objectives. For a business to succeed, useful changes in technology should be embraced so as to maintain market position and compete globally. Vertical integration is more preferred if a firm wants to grow. For example, Pepsi nonalcoholic company has been using vertical integration model to expand and diversify its markets around the globe, as a strategy to compete Coca-Cola.

According to Itami and Nishino (2010) business model consists of an enterprise system and profit model. The business system shows how the firm produces and delivers its products and services to the target market within and outsides its boundaries. Profit model tries to explain how the organization will reduce costs and increase revenues which may be through advertisements. For instance, Toyota is a well-known company which utilizes the business model addressed by Itami and Nishino’s 2010 article.

Itami and Nishino, (2010) article is more useful as it is not complicated like the other two and proves more realistic by stating clearly that business models are modeled around profit models and business systems. This proposition is very real and more applicable as compared to others.

In conclusion, business models assist organizations to plan for growth, financial sustainability, and design competitive advantage strategies in the industry. Every business irrespective of whether new or seasoned needs to have a robust business model for survival in the business environment. For a business to thrive, a business model is essential. Businesses should be sensitive to dynamic changes in the marketplace by designing efficient business models. Therefore, companies should understand the significance of business models when setting strategic plans and launching new ventures in different business environment.

References

Al-Debei, M. M., & Avison, D. (2010). Developing a unified framework of the business model concept. European Journal of Information Systems, 19(3), 359-376.

Baden-Fuller, C., & Morgan, M. S. (2010). Business models as models. Long range planning, 43(2), 156-171.

Burkhart, T., Krumeich, J., Werth, D., & Loos, P. (2011). Analyzing the business model concept—a comprehensive classification of literature.

Chesbrough, H. (2007). Business model innovation: it's not just about technology anymore. Strategy & Leadership, 35(6), 12-17.

Chesbrough, H. (2010). Business model innovation: opportunities and barriers. Long range planning, 43(2), 354-363.

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.

Kodama, M. (2009). Boundaries innovation and knowledge integration in the Japanese firm. Long Range Planning, 42(4), 463-494.

 Zott, C., & Amit, R. (2010). Business model design: an activity system perspective. Long range planning, 43(2), 216-226.