Understanding the Concept of a Business Model as a System
A business model is an elaboration of the methods and means that a firm employs to realise the revenue it had targeted in its plans. It sees the business as a system and it gives the answer to the question on how it’s going to make money for survival and growth. In other words, a business model is simply the bolts and nuts of how a firm plans to generate its revenue and realise profits. It comprises of the firm’s long-term strategy as well as day-to-day operations.
Most entrepreneurs often get confused between a business model and a business plan, the duo may have a similar intention of realising a better firm but have a difference in their meanings. A business model is a mechanism in which a company realises its profit while a business plan is a document that shows the company’s strategy and its expected monetary performance for the years ahead.
A business model can be expressed in different concepts since it is a dynamic application area, one of the concepts it can be perceived with is the concept of being a well organised system. According to (Zott & Amit, 2009). They conceptualized an organization’s business model as a subset of independent activities that surpasses the firm. The system-business model- enables the firm and the partners to generate value.
In reference to the theoretical and empirical research, there was a suggestion two sets of constants that the designers of the activity based systems need to consider and they include; First, the design elements, that is the content as well as the structure and governance which describe the architecture of the system; secondly is the design themes, that is the complementarities as well as the efficiency- which describe the source of the creation of the system’s value.
The system is also key in solving static and dynamic problems. Most business operators may use the system to solve the dynamic/behavioural problems by use of tools such as workflow diagram, case diagram and the channel process model, the system will define what a system does in case of a dynamic problem occurrence. The system also helps in solving static problems by reminding the user on how the system is. Data flow and class diagrams are some of the tools that the system may use to solve static problems.
Business model as a system is also used to facilitate key partnership between firms. It incorporates both the suppliers and partners to enhance the workability of the model. Companies engage in partnerships to optimize and benefit from economies of scale, this works in most companies since a company rarely owns the full resources it needs to perform every activity on its own, this makes it to partner with other companies who can supply the deficit resources in large quantities at an optimal cost. The business-system model in partnership also helps reduce risks in uncertain environs. This is mainly seen when company`s systems form strategic alliances in one area despite competing against each other for them to survive, for example the blue ray disc optical disc format was agreed upon to be the standard format by a group of the global leading media manufacturers, computers as well as consumer electronics but the members compete in selling their individual blue ray products (Zott & Amit, 2009).
Difference between a Business Model and Business Plan
The systems also enable co-operation between companies in acquisition of particular resources and activities. Firms rely on other firms to perform some certain activities. The resources include; licences, knowledge, access to customers among many. An example of this is when a mobile phone manufacturer decides to seek licence to use an operating system developed by another firm instead of him making an in-house operating system.
In terms of innovation, the business model is a system that has created a relationship between the firm operations and technology in two ways. First, business model system mediates the links between technology and the performance of the firm in terms of automation of the various processes in the firm to maximise on the output. Secondly, the development of the right technology is an issue attached to the business model decision in regard to its user engagement and openness since the technology has to be friendly and not hostile to the users (Kodama, 2014)
The design of a business model is a vital decision that a new firm entrepreneur must incorporate since it is a very crucial task for especially for the managers who are charged with the rethinking of an old model which can be used to make their firm fit for the days ahead(Zott &Amit’s, 2007). As indicated in an article published in the long range planning, the duo carried out a study on Frisco’s company, which is a young engineering firm that deals with friction reduction technology and had achieved a significant breakthrough in managing friction. Friction is an enemy of almost all mechanical systems since it lowers the power of machines, causes overheating, breakdown, wear and seizure in the moving parts.
If Frisco’s technological invention reduced friction by about 15,000%. This technology would be surely a great technology with a wide and clear applicability to its products as well as its industrial applications which mainly involves the moving parts such as those in manufacturing machines and automobiles (Zott & Amit, 2010). This invention was to be a full sure bet for the commercial success of the company. However the company had to ensure that its intellectual property right to the technology is safeguarded, it had to think of a model or template to use to ensure that all the firms that are to use its technology do not violate the company’s copyrights. For it to succeed in this it had to embed itself to the already existing web of original equipment manufacturers (OEMs) as well as use a model of partnership with its authorised suppliers(Zott &Amit’s, 2007). This is a better approach-despite being a traditional one- compared to other options that may be available example; the firm may prefer to create its own company to follow on whether other firms are infringing on its copyrights but this model would be very expensive to the company thus uneconomical. Using this article, it is evident that an organization cannot fully exist on its own. It must use a business model that will ensure its efficiency and the business model that is evident here is the business partnership model where by the firm partners with other entities to help it market and sell its products and the benefits received are mutual to both the firm and its partners.
As witnessed in the study of this topic it is clear that use of a business model is vital for entrepreneurs as well as general managers, however it is to my surprise that academic research has not paid much attention towards this topic hence it is difficult for one to really claim on which business model is most recommended. There is a need for the creation of a conceptual toolkit that will enable entrepreneurs and managers to design their future business models, as well as one that will help the managers to do analysis as well as improve their present designs so as to make them fit for the future. I also believe that an improvement in knowledge on how to describe the architecture of an activity system, example mastering its key design parameters, will go ahead and show the importance of the topic among the managers and researchers in their thinking, and this will help them to design better business models.
References
Zott, C., & Amit, R. (2010). Business model design: an activity system perspective. Long range planning, 43(2), 216-226.
Zott, C., Amit, R., & Massa, L. (2011). The business model: recent developments and future research. Journal of management, 37(4), 1019-1042.
Kodama, M., Hirose, A., & Kohlbacher, F. (2014). Dynamic fractal organizations for promoting knowledge-based transformation–A new paradigm for organizational theory. European Management Journal, 32(1), 137-146.
Kodama, M. (2009). Boundaries innovation and knowledge integration in the Japanese firm.Long Range Planning, 42(4), 463-494.
Zott, C., & Amit, R. (2009). The Network Challenge (Chapter 15): The Business Model as the Engine of Network-Based Strategies. Pearson Education.
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