Business model is an abstract representation of organizational operations in terms of revenue collection and service provision to the beneficiaries (Morris, 2015). Business concept is an idea that includes information like services and products offered, target population, and the competitive advantage of the firm among the other companies offering the same services provision (Morris, 2015). It also includes the market share of the company, service delivery and innovation approaches. A business model defines its rationale of the way a company crafts, distributes, and capturers value in various contexts such as social, cultural, or economic settings. The procedure of constructing a business strategy encompasses the process of business model generation. In theory and practice, the terminology business model is applied for a wide array of formal and informal descriptions to stand for key aspects of an organization including business process, organizational structures, trading practices, and sourcing.
Conceptualizing a business model helps in obtaining tools and skills required during difficult situations. It involves identification of a problem and formulation of hypothesis that helps solve the issue at hand. According to Morris, (2015) conceptualization involves two separate stages; problem definition and system conceptualization. A well defined problem is half solved (Morris, 2015). Problem definition is therefore, identifying the actual and potential challenges the organization has and the impact on its operations. Conceptualizing as the second stage, gives an insight of the possible available ways of handling the identified obstacles.
Competitive advantage, customer, business alignment, business value and execution of ideas are dimensions used in conceptualizing a business model (Kasabov, 2012). Applications of these dimensions help in solving both static and dynamic problems in an organization. Business model outline the steps of identifying static problems and ways of eradicating them. For example, the renovation of the organizational structure, and how to economize the firm’s resources. Dealing with the dynamic problems like the customers changing needs require formulation of dynamic hypothesis that govern innovation to cater for the customers changing needs. This problem solving strategies are highlighted in the model.
A business model helps in firm partnership by giving the need, direction of implementation, problems identification and handling, and the possible outcomes. For example the major need of the organization is to maximize the financial statistics and maintain the profit margins (Bocken, 2014).Also the number of partners a firm partnership need is outlined in the model. This helps to counter challenges of large and unmanageable firms. The hiring and firing rules, customer acquisition and retaining, sales and delivery and value creation are stipulated in the model.
Innovation process also can be best understood using the business model. It states the engineering methods that can be applied in value generation in the firm. It stipulates the methodology of doing it, tools, procedure and market analysis and approach. The model also helps one in identifying the dynamic changes of the consumers need and how to meet their needs through innovation (Zott, 2015).
Zott and Amit (2010) tried to explain the system of activities performed by the firm and those by the third parties like customers, partners, and suppliers as part of the firm’s business model. They also gave a conceptual toolkit to help the managers in the development and building of the business models to cater for their future needs. Also, they claimed that improved knowledge in designing an activity system was important in helping managers in identifying the topic of development and designing of a better business model (Chen, 2011). They also suggested the following;
The key role of entrepreneurial managers is to design a model that helps in the current and future undertakings of a firm.
System-level activity was more important as compared to the procedure of doing it like outsourcing of the work to be performed.
Equip managers with tangible toolkits of designing of a business model that help in improving common understanding and effective communication (Malhotra, 2000)
It also highlights the activity of the firm and adopts the importance of business model by building the literature from the previous business model (In Baden, 2015). They also suggested that design theme (originality and efficiency) and design elements (governance, content and structure), as the origin of value creation in the firm.
Zott and Amit use an example of FriCSo’s technology (young engineering company) to elaborate the understanding of the business model (Glauner, (2016).)
. The company had obtained a good means of friction reduction in its machines. FriCSo was to use a business model and develop innovation to counter the dynamic problem being encountered and develop the dynamic solutions like continuous oiling and replacement of the worn out parts.
The target industry was chosen to commercialize on the companies products. The firm therefore was to form a model that could help them in deciding whether to manufacturer, resources to be used and highlight activities involved. Also the procedure of partnership in case the partner needs to collaborate with other companies (Stamhuis, 2013). FriCSo therefore, having a template of guiding principles, was able to venture in the dynamic economy.
Zott, (2013) gives a clear and elaborate means of designing and adopting a business model .The identification of the design elements and theme forms basis of designing a business model. The problem identification and conceptualizing ideas towards solving the problem is best managed using a business model. Also it highlights clearly the procedure of a business model in partnership and innovation process to help in coping with the need for value creation but not how is acquired. The above reasons have helped me to appreciate Zott and Amit article in understanding of the business model as a system and its importance.
Also Zott and Amit have explained the business model as an activity based system rather than optimization (where all the activities are done according to the model and not deciding whether to outsource or get from within the organization) (Zott, 2015). It also explains how mangers can develop business models that help in the current and future situation management of the business.
In conclusion this model forms basis of: activities as a key role in conceptualization of proposed models, use of a system level approach in understanding what the firm is to do, understanding that business model is an emerging issue and development of model that explains the needs of the organization at a given point in time. This forms basis of the development of a business model for the future researchers and managers who are to develop a business model.
Bocken, N. M. (2014). A literature and practice review to develop sustainable business model archetypes. Journal of cleaner production, 42-56.
Chen, T. F. (2011).). Implementing new business models in for-profit and non-profit organizations: Technologies and applications.
Glauner, F. ( (2016).). . Future viability, business models, and values: Strategy, business management and economy in disruptive markets.
In Baden, F. C. (2015). Business models and modelling.
Kasabov, E. &. ( (2012)). . The compliance business and its customers: Gainging competitive advantage by controlling your customers. Basingstoke: Palgrave Macmillan.
Malhotra, Y. ((2000)). Knowledge management and business model innovatio. . Hershey, Pa. [u.a.: Idea Group Publishing.
Morris, M. S. (2015). Is the business model a useful strategic concept? Conceptual, theoretical, and empirical insights. Journal of Small Business Strategy, 27-50.
Stamhuis, B. &. (2013). . Merging the concepts of design thinking and business model innovation: Opportunities for Philips to design new business model.
Zott, C. &. ( (2015). Business model innovation: toward a process perspective. The Oxford Handbook of Creativity, Innovation, and Entrepreneurship, 395.
Zott, C. &. ((2013). The business model: A theoretically anchored robust construct for strategic analysis. Strategic Organization, 403-411.