The Three Concepts of Business Model
All successful business enterprises run on a strict and clear guideline usually developed at the onset of the organization. In essence, this guideline whether explicitly or implicitly stated defines the business model of the organization or enterprise. In all, this model defines the architecture or design of business by describing the value creation mechanisms and the delivery options of the services or products created (Teece, 2010). In a nutshell, a business model provides the strategies that a business will use to; deliver services/products to the customer, entice them and finally make profits out of the income earned. Therefore, business models usually reflect the management’s hypotheses on the customers’ needs, a concept that is the main focus of this short paper. In all, the purpose of this paper is to analyse the concept of business model and how it affects the businesses of today as well as those of the future.
The three concepts of business model
According to Zott, Amit and Massa (2011), the concept of business model can have several definitions based on the context in question. The variation in these definition warrants the distinct definitional concepts of e-business models archetypes, activity system and the cost structure/architecture. In the first instance, e-business model archetypes, the focus is usually on e-businesses and how they create value, more so, through the design of automatic transaction systems. These systems are usually defined by three parameters; content creation, deliverance and capture, which again usually yields the different combinations of business models seen today such as software as a service, e-commerce and social media among many others (Fielt, 2013).
On the other hand, business model as an activity system is based on the fact that organizations depend on a myriad of functionalities in order to achieve their objectives. In this concept, an activity system is defined as a group of organizational activities or functionalities that link the different arms of business and that are centred on the focal enterprise. Moreover, the arms outline the different stakeholders of business i.e. customers, suppliers and partners. Therefore, the design of the activities associated with these branches of business yields the definition of a business model (Zott, Amit, & Massa, 2011). Finally, we have the concept of cost or revenue architecture which describes the methods or sources used by a business to create revenue. In essence, an enterprise will have different sources of revenue generation and will use a clever mix of these options to create wealth (Stefan & Richard, 2014). Nevertheless, despite the variations in these concepts, the components of business models remains the same as outlined in the diagram below.
Despite the field involved, there are always many risks associated with a business. These risks are usually broadly categorised into two categories based on the view of the future where one will have an overall view of business (static framework) while the other will focus on information arrival thus warrant a dynamic approach. In both instances, there are always unforeseeable problems associated with a business outcome which usually necessitates the need for innovative solutions. Nevertheless, despite the problem, both models (either static or dynamic) can be used but with differing solutions. Therefore, in the event of a business problem, the choice of the method used relies on the nature of the conditions available. However, a dynamic framework is often relevant and preferred since it’s usually based on factual information. At the same time, static concepts can also be used as they define the unique instances of the dynamic problem. This contradiction is problem assessment outlines the problems experienced by businesses as a result of existing operational models (WLO, 2015).
Business Models as Solutions to Business Problems
Now, with this in mind, the benefits of the business models defined earlier start to emanate as they hold unique solution regardless of the framework used (static or dynamic). Consider, a unique problem, where a business desire’s to grow its organization by opening a new branch or office. In itself, this is a static problem that is based on the static vision of the organization. However, at the same time, this problem will depend on the dynamic vision of the organization i.e. the current and future information (loss or profit). This problem can be solved by conceptualising the models outlined above where components of e-business can be used to forecast future conditions to provide the best decision. Moreover, the same can apply when an activity system is considered as it can predict the functionalities of the future based on existing data. Furthermore, the same organization can adjust its model from one concept to another as the components of its business model are generally the same as previously highlighted, a clear solution for re-defining an existing business model (Zott & Amit, Business Model Design: An activity system perspective, 2010).
In the previous sections, the concept of business model has been defined as a general term where no specific context was outlined. However, in the real world, the business context must always be defined as it is usually used to predict the problems faced by an organization. In essence, a business context defines the environment, setting, framework and situation facing an enterprise, these factors also usually include the parties involved. In light of these components, the enterprise is always conditioned for change, an outcome that is facilitated by the variation of these factors ( (Casadesus-Masanell & Ricart, 2010)). A good example that illustrates this outcome is the digital environment as led by information technology.
In the past, businesses used information technology as a complementary component that supplemented the daily activities i.e. an operational option. Today, this consideration has changed based on the environment in question. Consider a company like Blockbuster who at the height of its trade was a multi-million dollar company. The success of this business was based on a physical environment that capitalised on the sale of media/entertainment products. However, its failure was facilitated by a poor business model that failed to recognise change i.e. the growth of the worldwide web and its affiliated systems such as big data. On the other hand, consider the company’s greatest competitor and rival Netflix, an organization that capitalised on the dissemination of big data through online systems. Netflix at the state of business employed a dynamic model that continuously evolved with time to include virtual technologies such as cloud storage solutions that have facilitated it business. These ventures have propelled its operations through big data analytics, an outcome that has cemented its operations in the future. A future expected to have smart cities supported by virtualization through the digital environment ( (Christensen & Johnson, 2010)).
Innovation and information technology are the major driving force of change seen today in businesses. These factors have had a lot of impact on the business model used by organizations as they present a drastic shift in the components affiliated with these systems. Nevertheless, the impact has greatly been a positive one owing to the conveniences and efficiencies introduced by technology (Neus & Jetter, 2008).
To start with, change has helped organizations to remain active and current on trending events based on the availability of information. Secondly, change has boosted business practices because of the new opportunities introduced by the digital media, a component of today’s business model. Thirdly, change has increased the overall efficiency of doing business, an outcome that has also increased customer satisfaction rate. Finally, the changes seen in business have also improved the attitude of business leaders more so, the management who now led by managers who are more open minded so as to meet the expectations of their markets. In light of this outcome, the future will see managers who will be inclined to develop dynamic models that will be more accustomed to change (Joseph, 2017).
Conclusion
There exist many definitions of the term business model, most of which are based on differing concepts seen in the industry. These concepts may have varying parameters as exhibited before, however, they all hold a common notion that of organising business structures in order to achieve the best results. Furthermore, the business world seems to have completely adopted technology as highlighted by the electronic structures of business (e-business). These structures mark the start of an innovative trend of developing business models. In the future, the industry will experience many innovative ideas that will push the boundaries of business fundamentals in order to meet the demands of markets. In fact, a time will come when the foundations of business will be changed so as to accommodate the demands made by the digital environment.
References
Casadesus-Masanell, R., & Ricart, J. (2010). From Strategy to Business Models and to Tactics . Harvard business school, Retrieved 18 August, 2017, from: https://www.hbs.edu/faculty/Publication%20Files/10-036.pdf.
Christensen, C., & Johnson, M. (2010). What Are business model, and how are they built? Retrieved 18 August, 2017, from: https://www.thefgi.net/wp-content/uploads/2010/09/What-is-a-Business-Model.pdf.
Fielt, E. (2013). Conceptualising Business Models: Definitions, Frameworks and Classifications. Journal of Business Models, Retrieved 18 August, 2017, from: https://pdfs.semanticscholar.org/8e1a/952ce97a69afc094be8834a61f5bc7fc05d6.pdf.
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Neus, M., & Jetter, G. (2008). Technological Innovation and Its Impact on Business Model, Organization and Corporate Culture – IBM’s Transformation into a Globally Integrated,Service-Oriented Enterprise. Research paper, Retrieved 18 August, 2017, from: https://link.springer.com/content/pdf/10.1007/s12599-008-0002-7.pdf.
Stefan, S., & Richard, B. (2014). Analysis of Business Models. Journal of Competitiveness , Retrieved 18 August, 2017, from: https://www.cjournal.cz/files/178.pdf.
Teece, D. (2010). Business Models, Business strategy and innovation . Long range planning, Retrieved 18 August, 2017, from: https://www.businessmodelcommunity.com/fs/root/8jig8-businessmodelsbusinessstrategy.pdf.
WLO. (2015). Economics and finance of risk and of the future. Wiley Online Library, Retrieved 18 August, 2017, from: https://onlinelibrary.wiley.com/doi/10.1002/9781119205951.part3/pdf.
Zott, C., & Amit, R. (2010). Business Model Design: An activity system perspective. Long range planning, Retrieved 18 August, 2017, from: https://pdfs.semanticscholar.org/f3fb/cfa657debb4a44ac27f41ff143aecc313679.pdf.
Zott, C., Amit, R., & Massa, L. (2011). The business model: recent development and future research. Research gate, Retrieved 18 August, 2017, from: https://www.researchgate.net/publication/228134160_The_Business_Model_Recent_Developments_and_Future_Research.
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