Business Model Generation - Literature review Example

?Part III: ASSESSMENT I. Coherence of the Business Model From an objective point of view, the business model presented is quite detailed. However, inan attempt to be comprehensive, coherence became compromised due to numerous elements. As a result, their relationships were muddled. So, the problem is how the information and concepts were structured. The graphical representations of the elements and the way they interact should have been presented in a more clear and concise manner. For example, the link between the value proposition and customer segment was clearly established. However, other elements, particularly the individual actions that supported the goals and objectives of the model, are deficient. Components like cost structure or key activities are also ill-placed, especially when the model should provide a logical and structured framework where the hotel’s characteristics and potential can be clearly converted into economic outputs. (Chesbrough, 2011: 94) This must have been what Neely (2007: 200) had in mind when explaining how a model improperly grounded in the performing unit as a phenomenon will most likely overlook the variables that influence how the system functions. Because of these cited weaknesses, the business model will fail in the areas of theoretical and operational coherence. To address this, an improved framework should be adopted. An appropriate framework is outlined below. Fig. 1: Suggested Framework (Osterwalder, 2009: 44) The model shown above has been perfected by Osterwalder and could actually be modified into several other versions to accommodate the differences in both components and objectives. What the model offers is not only an effective framework description, but also the capacity to be flexible and envision alternatives. Hence, this particular model can optimize processes for underwater hotel ventures and its objectives, especially in the long term. II. Integration of the Business Model In terms of integration, the business model is quite efficient. The framework outlines clear practices and activities as well as future objectives and visions. This strengthens the business model, especially considering the fact that the venture is entering into the market for the first time. However, as has been previously cited, the model—in effectively integrating components—must provide nodes to depict their relationships and connections. Jaakola, Kiyoki and Tokuda (2008: 154) identified this as the node structure, an element in business models that explain processes such as value creation and business transactions. III. Feasibility of the Business Model Elements unique to a business model add to the complexity of how framework should be examined in the context of its feasibility. The most important criteria, however, is economic viability. This should made a crucial precondition, because without it there is no reason for existence, as the project being undertaken cannot be supported by the market. The project, as defined by the business model, should be profitable. What this means is that rewards must either equal or surpass the expectations of diversified investors on a risk-adjusted basis from investments made and resources consumed (Johnson, 2007: 42). Currently, the business model lacks value-added development and thus misses out on the profits available. Another important aspect in a business model is the way it creates value or shared value among business partners. According to Vermeulen and Cotula (2010: 35), there are four criteria that should be used to determine how a business model shares value: 1. Ownership of business equity shares 2. Ability to take part in decision–making process 3. Commercial risk and other types of risk such as political and reputational risks 4. Sharing of economic costs and benefits and other financial arrangements All of these variables are related to each other. One may be linked or is responsible for the existence of another. Nonetheless, these elements collectively bring about value and, hence, must be present in a business model. Taking this into consideration, it appears that the business model at hand is deficient in several aspects. For example, how will key partners contribute in the decision-making process, or how will they share the burden of risks and rewards? It is easy to explain joint ventures in figures, but to effectively and clearly represent them, equity is critical. This may appear to be a problem related with issues about coherence and integration. Nonetheless, it represents an inadequacy that must be addressed. IV. Resistance of the Business Model to Environmental Changes The trends in the current business climate are individualization and market segmentation. The services and products that are offered are highly tailored according to the demands and circumstances of clients. The business model is silent in this area, and may appear to be rigid in character. To demonstrate this, the case of the Chameleon Model (see Fig. 1) will be cited. This framework was developed by Jansen, Steenbakkers and Jaegers (2007: 46), and is likened to that of a chameleon, which is known for its ability to adapt to its environment. According to these authors, organizations, especially those in the hospitality industry, as evidenced by the initiatives undertaken by the Hilton Hotel chain, cannot change at its core and should adapt its appearance in response to customer demands. Fig. 2: The Chameleon Model (Jansen, Steenbakkers and Jaegers, 2007: 47) This business model was not able to provide a dimension to the framework that demonstrates a capability for flexibility and efficiency in combating opportunities and risks; it provides the core services to be offered, but unfortunately did not include the components that will represent mechanisms of flexibility. This will define the hotel’s capability to navigate changes, risks, and opportunities. As an example, there is no reference to an integration of e-commerce or penetration of the Internet. Projections show that online travellers will become an important tool for the hospitality market, and the business model did not identify a concrete plan to employ and take advantage of this channel. The model did not include what Holloway (2008: 25) called as “the systems that will enable the organization to configure resources internally and externally to adapt to a highly fluid market.” V. Sustainability of the Business Model A related aspect to the previous variable concerning the ecosystem by which the business model operates is its sustainability. According to the framework, if the organization cannot navigate environmental changes, then its sustainability is seriously undermined. As cited elsewhere in this paper, the market is highly segregated, and market needs are in constant flux. A rigid business model can never be sustained if it cannot adapt to changes, take advantage of opportunities, and avoid the risks that they entail. VI. Appraisal of the Business Model It can be concluded that the hotel industry is highly competitive. A study by Chi (2006: 107) found that there is a directly positive causal relationship between business environment characteristics and competitive priorities, a directly positive causal relationship between business environment characteristics and supply chain structure, and a directly positive causal relationship between competitive priorities and supply chain structure. Although there was no graphical representation of the competition variable, the issues are fundamentally addressed by the current business model, as it chose to undertake a unique concept—an underwater hotel facility that targets the high-end market. This distinction means that the model prescribes clear and sophisticated business characteristics that fit well with competitive priorities. According to Viardot (2011: 24), “the most dangerous competitive threat often comes from new entrants because these actors are radically different from the companies already existing in the market.” In tandem with an excellent supply chain structure, these variables are often equated with excellent performance. This is supported by empirical evidence depicted in the Chi study, which surveyed 995 executives across the United States. This study found that an alignment of the said elements can make a difference and solve the issues regarding competition. Hence, this venture, as explained by the business model, will be competitive. The question now is whether the target market will be receptive to the business. The answer to this can be explained through an analogy offered by Peter Johnson (2007: 41): “It is better to live in the Garden of Eden than in the deserts of Moses.” What this means is that value is king. It is the core element that creates value and characteristics for the organization and its products. The distinction of the underwater hotel, in addition to an effective business model, will make the target market gravitate towards the product and brand. The organization belongs to the prestige hotel segment, and its unique value propositions, which will be equated with innovation and distinct experience, will provide the organization with a competitive advantage. But to sustain market interest, a business model should adopt a framework that can accommodate environmental change. Unfortunately, the current business model is preoccupied with short-term goals. Hence, strategies should include how the organization responds to external variables such as opportunities and risks in addition to the internal conditions. According to Wintzer (2007: 3), while there is a need to be consistent, it is also imperative to adapt. This can be viewed as harmonization of the actions of an organization to its environment. References Chesbrough, H. (2011) Open Services Innovation: Rethinking Your Business to Grow and Compete in a New Era. Hoboken, N.J.: John Wiley and Sons. Chi, T. (2006) A study of the relationships between business environment characteristics, competitive priorities, supply chain structures, and firm performance in the United States’ technical textile industry. Ann Arbor: ProQuest. Holloway, S. (2008) Straight and level: Practical airline economics, Hampshire: Ashgate Publishing, Ltd. Jaakkola, H., Kiyoki, Y. and Tokuda, T. (2008) Information modelling and knowledge bases XIX, Amsterdam: IOS Press. Jansen, W., Steenbakkers, W. and Jaegers, H. (2007) New business models for the knowledge economy, Hampshire: Gower Publishing, Ltd. Johnson, P. (2007) Astute competition: The economics of strategic diversity, Oxford: Elsevier. Neely, A. (2007) Business Performance Measurement: Unifying Theories and Integrating Practice, Cambridge: Cambridge University Press. Osterwalder, A. (2009) Business Model Generation. Hoboken, N.J.: John Wiley and Sons. Vermeulen, S. and Cotula, L. (2010) Making the Most of Agricultural Investment: A Survey of Business Models That Provide Opportunities for Smallholders, London/Rome/Berlin: IIED. Viardot, E. (2011) The Timeless Principles of Successful Business Strategy, Berlin: Springer. Wintzer, E. (2007) Global Competition and Strategic Management, Norderstedt: GRIN Verlag. Read More