Importance of Business Model for Profitable Business Operation

Business model defines the perfect outline of business towards most profitable business operation (DaSilva & Trkman, 2014). This study will define the way in which business model can be used to make partnership and innovation towards. The study will compare different articles on business model for understanding their suitability. Moreover, the study will also select the most suitable article based on the comparison of the articles.

Business model sketches the business outline towards successful business operation through identifying business resources, intended customer base and details of finance. According to Suarez et al., (2013), business canvas model outlines various prescriptions, which are used to form the building block of different business activities. While conceptualizing the business canvas model, it involves key partners, activities, customer relationship, key resources, and cost structure and revenue stream towards developing high value proposition. On the other hand, Morris et al., (2015) opined that business lean canvas model promises an entrepreneur-focused and actionable business plan for newly set up organization. This model always sketches business outline based on validated learning, iterative product releases and hypothesis-driven experimentation. While conceptualizing business lean canvas model, it involves identification problems, solutions, key metrics for business success and factors towards creating competitive advantage.

In the dynamic business environment and competitive business world, organizations need to upgrade and adapt their business model as per the changing needs. The business model of organization should bring unique value to the customers towards making them loyal and adequate profit towards its long term sustainability. Every business is likely to face somewhat static and dynamic business problem at some phase of business cycle. Businesses are most likely to face static problem in terms of organizational structure, funding sources and other organizational resources. As per Iacob et al., (2014), efficient business model assists in considering most profitable revenue stream method towards earning high level of profit with minimized operational cost. Hence, the issues of cost structure and organizational resources are almost eliminated.

The dynamic business problems are mostly related to changing consumer trends and market competition. Frankenberger et al., (2013) pointed out that effective business models always find the best method for enhanced customer relationship so that dynamic consumer trends are identified beforehand. Hence, the organizations can adjust their product and service as per those changing trends. In this way, the dynamic business issues are almost eliminated in organizations.

Successful business operation is highly dependent on buyer-supplier relationship towards concentrating of core business activities. This relationship is always helpful in reducing organizational risk and gain optimum level of profit from business operation. Markides, (2013) stated that business model always considers the best partnership option based on the business nature. The business model mostly selects strategic partnership in terms of joint venture or strategic alliance with either competitors or non-competitors. Moreover, sharing business ideas, knowledge and expertise between two partner organizations can maximize profit level of both the organizations through minimizing their business risks.

Different Business Model Approaches for High-Value Proposition

Kindström and Kowalkowski, (2014) pointed out that effective business model also suggest best collaborative relationship with the suppliers towards minimizing supply related issues of organizations. Moreover, it assists organizations in getting raw material supplies always in time and in effective manners. Hence, business model can be effectively used as system for making best organizational partnership.

Effective business model successful adds unique value proposition to the business operations of an organization. It can facilitate organizations towards producing innovative products and services by meeting the dynamic needs of the customers. According to Ritala and Sainio, (2014), business model suggest the suitable types of customers relationship with the particular customer base of an organization. In this way, organizations can identify the core needs of the specific customer base and incorporate innovative products or services as per those core needs. On the other hand, Markides, (2013) opined that business model also suggest the effective way of incorporating innovation in business either through reducing price or bringing differentiation in product or services.

As per Itami and Nishino, (2010), business model is composed of two important elements namely profit model and business system. Profit model is mostly associated with gaining more and more profit through delivering unique products or services to the customers. On the other hand, business system is mostly associated with learning about the business operation and relationship with the customers and suppliers. Profit model is limited with earning short term profit through business, whereas, business system focuses on creating competitive advantage through for long-term business sustainability. Profit model achieves the strategic intent of an organization through delivering unique products and services. Business system realizes the strategic intent through proper division of labor between trading partners and organization, organizing in-house system internally and maintaining and controlling the activities and relationship with the trading partners. 

Figure 1: Business Model

(Source: Itami & Nishino, 2010)

While considering the business model of Toyota, it can be seen that the organization follow quite different business model in their business operation. The organization is quite exceptional in all the three aspect of business system described in the business model of Itami and Nishino. It has been found that the organization outsources it production system for producing high quality auto parts. However, the organization follows tapered outsourcing system, where it both outsources and produces same parts in-house simultaneously. On the other hand, in outsourcing system, the organization avoids procurement from only one supplier.

Balancing Dynamic and Static Business Problems with Business Model

Apart from that, the organization also maintains long term, consistent and continuous relationship with its limited numbers of suppliers for better production system. The semi-organizational relationship of the organization with its suppliers conveys important operating information to both in-house and external suppliers (Frankenberger et al., 2013). The organization has also arranges different forums towards comparing technologies and costs among the suppliers. It highlights the opportunities of exchanging various items of information with the outsourced elements and reinforcing competition between them. In this way, the organization is highly capable of delivering best quality auto parts to the customers and earning optimum level of profit.  

Figure 2: Toyota Business Model

(Source: DaSilva & Trkman, 2014)

Amit and Zott, (2010) have explained business activity system through several business elements and design. All the elements are designed are concentrated towards maximizing the profit level of the organization. Moreover, they have represented business model as an interdependent activity system, which incorporates business content, structure, governance, novelty, efficiency, lock-in and complementarities. However, the article does not provide clear picture of business model, which can be applied towards long term business sustainability.

While considering the article of Kodama, (2009), it has been found that the article is more concentrated on knowledge integration management and innovation. Moreover, the article is not highly focused on resource management, customer relationship, supplier relationship and service delivery. Without these factors, it is not possible to make business competitive in the market. Moreover, the article does not present absolute understanding of business model, which can be applied successfully business operation.

While comparing all the articles of business model, Itami and Nishino, (2010), have provided the most suitable model for successful and sustainable business operation. This article is based on profit model and business system, which summarizes the methods of unique product and service delivery having appropriate learning of business operations. Hence, this business model described in this article covers all the aspect of business and can be applied to almost all types of businesses.

Conclusion

While concluding the study, it can be said that business model sketches the business outlines towards maximizing profit from business operations. From the analysis of three articles, it has been found that delivering unique product and service is the utmost priority of any business towards earning more profit. However, business innovation is fully dependent on business learning through flexible relationship with the customers and suppliers and integrating the business knowledge. The combination of profit model and business system ultimately provide sustainable business operation.

References

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

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

Frankenberger, K., Weiblen, T., Csik, M., & Gassmann, O. (2013). The 4I-framework of business model innovation: A structured view on process phases and challenges. International Journal of Product Development, 18(3-4), 249-273.

Iacob, M. E., Meertens, L. O., Jonkers, H., Quartel, D. A., Nieuwenhuis, L. J., & Van Sinderen, M. J. (2014). From enterprise architecture to business models and back. Software & Systems Modeling, 13(3), 1059-1083.

Itami, H., & Nishino, K. (2010). Killing Two Birds with One Stone. Long Range Planning, 43, 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, 463-494.

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

Markides, C. C. (2013). Business model innovation: what can the ambidexterity literature teach us?. The Academy of Management Perspectives, 27(4), 313-323.

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.

Ritala, P., & Sainio, L. M. (2014). Coopetition for radical innovation: technology, market and business-model perspectives. Technology Analysis & Strategic Management, 26(2), 155-169.

Suarez, F. F., Cusumano, M. A., & Kahl, S. J. (2013). Services and the business models of product firms: an empirical analysis of the software industry. Management Science, 59(2), 420-435.