Comparative Study of Business Model*
ZHANG Hong, ZHANG Quan
Economics and Trade department, Xi’an Institute of Post and Telecommunication,
Xi’an,P.R.China,710061
Abstract: This paper bases on a large number of business model theories of comparative researches and
analysis, fully concludes the various business models and related theories, drawing on the idea of
scientific information "modular", and combining with industry value chain theory, propose a new
business model theoretical framework. The article finds that the market competition intensifies, many
enterprises have actively explored business models when change begins. When we studied the theories,
we have found that there are many imperfections. Therefore, through theoretical researches in home and
abroad and comparative analysis of business models theory, we finally reach a unique business model
theory.
Keywords: Business Model, Comparative Study, Modularization
1 Introduction
As market competition intensifies, the company supervisors increasingly try to win survival and
long-term development of space in fierce market competition through a variety of changes. However,
the change is a multi-faceted and multi-dimensional, which includes not only technical changes, but also
new method of distributing products, enterprise organizational structure and the changes of product
design. Moreover, these changes are not merely confined to the high-tech industry, and it generally exist
in any area of our economic life. Therefore, in the IBM Global CEO summit held in 2006, the 765 CEOs
and department managers from top companies all over the world held a discussion about the theme of
reform, and participants eventually reached an important consensus, that is to obtain advantages in
market competition by exploring a suitable business model for the enterprises themselves. The reason
for this is the enterprises community regard the Business Model as a transformation weapon of
enterprises’ strategy, and expect it to help enterprises enhance and improve their business performance.
Meanwhile, the same business model also receives the general concern of the academic community,
because they expect to establish a new and effective management theory to guide enterprise reform in
the fierce market competition. For these reasons, we tried to ultimately reach the more convincing
Business Model theory through comparative studies between Chinese and foreign Business Model.
2 Comparative Analysis of Chinese and Foreign Business Model Theory
2.1 Comparison of the value of business models
From the exposition of Business Model theory, we can see that many scholars have addressed the
same Business Model values. And people’s different understandings of values bring a direct result of the
different types of Business Model interpretations. It not only affects the composition of Business
Model’s various elements, but also it affects the intrinsic link between various elements.
Along with the changes of technology and the improvement of labor efficiency in global scope, it
directly results in the substantial excess of enterprises’ production capacity, and the gradual change from
the seller's market to a buyer's market. Therefore, in 1985, in a book called “Competitive Advantage",
the author Porter defined value as price of products and services that the customers are willing to pay the
enterprise, and a successful business model will maximize customers’ value to achieve a target
(Zhen-Yong Li, 2006), while some scholars believe to realize enterprises’ own value through providing
the solution to problems (Norman T. Sheehan & Charles B. Stabell, 2007). Clearly, the clients’ interests
have become the key issues considered by the entrepreneurs when they are building Business Models,
*
This study is funded by the National Scientific Fund Committee, namely, Study of Business Operation Model’Innovation based
on the Integration of Telecom Industry Value Chain (Project No. 70672109). E-mail:[email protected],[email protected]
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Although the enterprises have elaborated the issue of value on two different levels, that is the price that
customers are willing to pay and the solutions that the enterprises provide for customers. Under the
market economy, enterprises’ business model should always focus on customer-centric operation model ,
but there are many differences views about "customer-centric" and these differences are caused by the
consumer's preferences.
On contrary, SR. Lend defined right Business Model value as continual investment returns for
shareholders. From his definition we can discover that he apparently overlooked consumers’ role in
Business Model, and only stressed that what kind of Business Model would bring revenue to
shareholders not considered from point of consumers’ demand to construct a corporate Business Model
which is suitable for market survival rules. Thus, when we construct Business Model, we should clarify
what is the value at first,, and then it will help us with building a Business Model which is suitable
for the enterprises’ entire competitive strategy.
2.2 Revenue mechanism of the business model
From the contents of Chinese and foreign Business Model theories, we can find that the source of
income of the enterprise is always generally concerned by many experts and scholars. They believe that
Business Model is an important way for enterprises to obtain continuing revenue (Namibia & Lyytinen,
2002).If the enterprise wants to obtain such revenue to maintain the long-term survival, it should
analyze its location in the value-chain (Pappa, 2000) to identify cooperation and competition between
the enterprises and cooperation partners & competitors in order to obtain more durable and more
favorable gains (Osterwalder & Pigneur, 2002). Thus, we can believe that the enterprises’ revenue issue
is always the most fundamental interests of the business. However, while many scholars pay attention to
this issue, they introduce the concept of "organic whole system (Yuan Xinlong & Wu Qinglie, 2005)" to
the Business Model, and gradually make people’s research vision of Business Model from the
enterprise’s internal to external, and then introduce an analysis tool of industry value-chain, and finally
generalize Profit Model to income mechanism in industry value-chain. But, if we consider the revenue
issue of the Business Model from the perspective of the industry value-chain, it should consider three
aspects: Firstly, the acquisition and distribution of the resources in the industry value chain; Secondly,
the distribution channels that products or services are delivered from the providers to the final
consumers; Thirdly, distribution of the ultimate revenue in the entire industry value-chain systems.
2.3 Cooperation mechanism of business model
As the refinement of international cooperation, the enterprises are increasingly dependent on
external environment. Therefore, many enterprises adopt the strategy that establishes market strategic
partnership with other enterprises in the operation, and the cooperative ability within the value systems
is more important than the capacity of network resources and the possession of customer
resources(Wang Yu min, 2004), and it was named as "virtual-sensitive enterprises" (George Pohle &
Marc Chapman, 2006), in order to enhance their abilities to initiatively avoid market risks in the
operating environment with dynamic changes. Moreover, the introduction of the cooperation mechanism
into the Business Model will effectively realize the enterprises’ sensitivity and it greatly enhance the
enterprises’ ability to deal with the complex market environment and reduce the cost of the enterprises.
3 Inadequacy of Business Model Theoretical
3.1 Dynamic study of business model
Business models need to change according to enterprises’ internal and external specific
circumstances, therefore we need to build a dynamic business model, which can not only assess and
measure the enterprises’ original business but also adapt to the changes of external economy and
internal environment, and appropriately to adjust Business Model. Based on the above requirements, we
need to deeply explore some more critical factors and links which impact on the Business Model, and
we need to introduce new methods to build a dynamic Business Model. But since the mid-1960s, the
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management theory represented by the United States’ modular thought provided some useful
enlightenment for us to build dynamic Business Model.
3.2 Intrinsic links among various composed elements of business model
The business model is not a single concept, but it is organically composed by and a large of
correlative elements in the actual business process as a whole. We can not treat it as simple patchwork
and combination by some elements. Otherwise, it will cause failure when such Business Model
integrates with practice. Thus, we need to in-depth explore the structural and balanceable relations
between constituent elements after identifying them.
3.3 Perspectives for business model study
As to the Business Model studies, we find that the Business Model from excessively considers
issues from the perspective of entrepreneurs and managers. Therefore, in modern market economy, we
should consider specific methods of constructing Business Model from the consumer's view .Thus, it
requires us pay more attention to consumers’ demand in the market, and to accurately measure and build
Business Models by using research methods. Therefore, only the enterprises which adopt such Business
Model can maintain better competitive advantages and sustainable development in the market
competition.
4 New Business Model Theory Framework
4.1 The meanings of business model
Briefly speaking, business model is the means for modularization of existing business or future
business, which is based on highly abstract of the complicated reality (exterior management
environment and interior management environment) in the enterprise. It can help us to analyze and
research each primary constituting part, which forms the existing or future activities of the business
enterprise, and will make these fundamental activities into an integrity one organically through a serious
management means and management activities, which can deal with the inner and outer environment
changes of the business enterprise smartly, exactly and efficiently, in order to earn the long-term
interests. It includes the following meanings:
Business model of any organizations ( business
enterprises and virtual business enterprises ) all implicates an established assumption to the prior
condition, this assumption is based on the difference of comprehending the value chain perception, so
that there have come into different form and dissimilar style.
Business model is the general
designation that is established on business transaction of the information flow, logistics flow and funds
flow of the business enterprise value activities, and through the analysis of the competitive-cooperation
relationship, which involve many roles that are in the industry value chain and the supplier, business
enterprises and customers (common consumer and business enterprise customer ) in the value net,
finally making a potential profit model. Business model is the framework and blueprint of all the
inner and outer value activities in the business enterprises, such as the products or service marketing
orientation, business enterprise strategy, structure organization and operations management. It includes
three aspects: one is that business model is the schedule of a serious business activities, which play the
role in connecting business enterprise advocator and the potential consumers in the market; and then
these activities is a serious possibly continuous activities, with a flowchart, which will show the
business model; lastly, business model is a serious connection index sign and regulation to examine the
business enterprise value activities.
①
②
③
4.2 The means of form business model
In order to adapt to the dynamic business model design framework, here we apply the
modularization ideology. Firstly, each module in the business model needs to be designed and actualized
lonely, we compartmentalize business model into four modules: business enterprise exterior reality,
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business enterprise inner activities, profit model and the business model evaluation, and then each
independent module can also carve into some sub-module, which will form a clear and compact
hiberarchy, so wholly speaking, the carve of each module conform into the request on the
modularization of nicety, clear and integrity; Secondly, the inner of independent module all can come
into system, which is half-self-discipline sub- system, and it also can be used, amended, disconnected
and constituted; Thirdly, there is a mutual harmony and check-balance relationship in each module
which is according to some regulation; Lastly, according to the variety of the market competitive
environment, the business model in the business enterprise can be disassembled and reconstituted fast in
which it can make the innovation of business model true.
Figure1. Sketch of business model
4.2.1 Business enterprise exterior reality
It is mainly to analyze the exterior environment existing in the business enterprise themselves by
the analysis instrument which is the industry value chain, it includes three aspects following: Firstly,
with the orientation analysis of the business enterprise in the value chain, we can identify the
cooperation relationship in the vertical industry value chain between the upper business enterprises and
down business enterprises, and then, from the horizontal industry value chain, in the other word, it is the
competitive relationship between the identical merchandise in the market competition; Secondly,
through the customer value orientation analysis, the supervisors of the business enterprise can make the
needs and preference of the down customers more clearly in the industry value chain, making the
customer value true; Thirdly, by the value orientation analysis of other cooperators in the industry value
chain, the rulers can know the value orientation of the cooperators quickly, so that it can fortify the
strategy allied relationship among the business enterprises and promote the limber throughput and
sensitive of the business enterprise.
However, business enterprise exterior analysis is involved the profit model of the enterprise from
the beginning to the end, which is also the goal, enterprise handlers need to make thorough and
particular analysis from the upper three aspects. Through the industry value chain constitution,
supervisors need to point out the position of the enterprises themselves in the value chain definitely,
which is how the enterprises to take part in the value creation in the industry value chain and play the
significant role in the process of the value creation, in order to predominate the enterprise exterior
environment wholly and provide information and decision-making support for the future product
orientation, structure organization and strategy and other big manage decision of the business
enterprises.
4.2.2 Business enterprise interior activities
Enterprise interior activities primarily compose of three aspects, which are value orientation of
enterprise itself, products and service market orientation and structure organization. Firstly, value
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orientation of enterprise itself, it is mainly to set forth the meaning of enterprise existing in the market,
which should constitute of the perceive of enterprise itself value, the plan of the enterprise short-term
strategy and long-term strategy; Secondly, by analyzing the products and service market orientation,
handlers can be conscious of the classifying aimed customer and the demands for the products and
service of enterprise distinctly, which can provide the basic guarantee for the earning of the enterprise;
And lastly, constructing reasonable and sensitive enterprise structure organization, which can promote
the ability to deal with the outer risk, enhance the integrity harmonization of the enterprise.
Finally, enterprise interior activities are spreading closely by the profit model, the final aim is to
achieve the long continuous earning of the enterprise, so as to maintain the well-balanced activity. It is
to have a detailed analysis research and perceive for the products and service market orientation
providing for the customer of the enterprise that is the most important thing of the enterprise interior
activities, which will make a stable base for the enterprise to gain the interests and payoff.
4.2.3 Payoff model
Analyzing the proceeds of cost and shares taking in hand by each part in the industry value chain,
which can provide a maintain for the integrity of the industry value chain that the enterprise exists,
protect the interests of the cooperators, so that it can carry out the long and healthy development. And,
each part in the industry value chain is facing two problems: one is how does the cost constitute (fixed
or varied); another is what is the potential earning for us. However, for the enterprise itself, rulers should
exoatiate on the cost and income structure and the earning aim planed to achieve. And for implementing
the payoff aim of the enterprise, payoff model should compose of the quomodo for making a price of the
products, the cost and income of each activity in the industry value chain and the mode of interests
sharing.
In conclusion, enterprise should treat the earning problem from the whole industry value chain
perspective, because in this manner it can be convenient for the enterprise to make an orientation (aimed
market and industry value chain), so as to explore better new market and search for exact payoff model
service.
4.2.4 Business model evaluation
Because business model is a high abstract of the enterprise in the real complicated manage
environment, we apply the modularization ideology to construct and appraise the business model. In this
way, we disassemble an intricate business model system into four biggish modular, which are enterprise
exterior reality, enterprise interior activity, payoff model and business model evaluation, each modular
also can subsection into some small unit modular and on the general condition, every modular will be
evaluated and used individually. In addition, combinations of several modular are very simple, when the
old business model can not accompany with the new manage environment, we can make a reasonable
decomposition and reconstitution under the modularization ideology. In a word, business model
evaluation is the inner factor to promote the change in the enterprise, and meanwhile it is an important
way to weigh the other three components of the business model to adapt to the special market
environment.
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