Business models
The concept of a business as a legal entity (“corporation”) dates back over 400 years. Until in the last 60 years, a corporation or business system was abstract. Businesses were intuitively described, analyzed, designed, planned, and managed without their detailed structure and relationships being visually represented. In the mid-1950s, Jay Forrester developed the field of Systematic Dynamics while modeling the performance of business units at General Electric (GE). However, the term “business model” was first used in a 1957 article by Bellman and Clark [5]. Use of the term “business model” gained prominence in the 1990s during the proliferation of Internet (“dotcom”) companies. A popular accepted definition is that business model is an integrated architecture of the products, services and information flows, including the involved actors and roles as well as the potential value created for all participants and the source of revenue [6]. Business model can be regarded as a system of components, linkages between the components, and dynamics [7]. According to Thomas, business model is to run a profitable business involving the overall structures of process, customers, suppliers, channels, resources and capabilities [8]. Business model is associated with industry application, where customer demands are the main driving force and value is the main offering [9]. Herein, a business model is a story or visual representation of how an organization works to achieve its hierarchy of goals. A general goal for an organization is to create, deliver, capture, and share value. For a business, the most critical goal relates to profitability and in particular, how to minimize cost and maximize revenue.
Business model innovation
A successful company can embrace market challenges as opportunities and innovations play the most important role in facing a market. Innovations can not only bring continuous change to successful companies, but also enable struggling companies to survive. Business model innovations are becoming new routes to competitive advantage. In an IBM Global Services Report in 2006, the study shows that interviewed CEOs consider business model innovations as the strongest drivers of business differentiation, value creation, and sustainable competitive advantage, while product and service innovations are less sustainable [10]. By creating new business models or renewing traditional business models, many companies like Dell, IBM, IKEA, Haier, Galanz, have achieved great success in the last decade.
Business model innovators have a growth in operating margin that is more than five times those of product/service innovators [11]. The current trend is to focus on business model innovations as the best way to improve profit as well as to avert competitive threats in the long term. Other benefits of business model innovations include cost reduction, strategic flexibility, exploitation of new market opportunities, and reduced risk of capital investment.
There are many advantages for companies to develop business models at a time when we are stepping into the time of the Internet of Things.
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Enabling companies to gain first-mover advantage during the development of the Internet of Things.
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Speeding up the pace of transformation or strategic realignment to meet the challenges of the Internet of Things.
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Better seizing the opportunities in the Internet of Things.
In the Internet of Things, innovation on business models might address on the following elements [12].
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Customers: Who are our core customers? Where are they? Are they changed?
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Markets: Are our markets changed? Should we change our market positioning?
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Channel: What’s the channel to offer product/service?
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Infrastructure: Who are our key partners? What are our key activities? Where are our available key resources?
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Value: What’s the value offer to customers?
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Revenue & Cost: Whether revenue exceeds the costs?