Although the term business model has attained widespread adoption, academic literature on this topic is still not unified in terms of meanings that are being used. The formation, growth potential, and success of any new managerial structure is often credited to the development of new business models, especially in unstable industries (George & Bock 2012).
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This paper explores the significance of business models in business processes and project management as well as why modern project managers ought to comprehend business models.
Why modern project managers should comprehend Business Models
It is imperative to note that business models assist in understanding the importance of creating value in any business establishment (Zott & Amit 2001). Business models are crucial in boosting the competitive nature of a business especially if the competitors are not in a position to copy the model. However, other researchers argue that business models lack clarity and do not auger well with business strategy (Porter 2001).
In addition, the success of any project management lies heavily on the established business models bearing in mind that it offers solid directions on how revenue will be earned. Project managers can also benefit from business models especially when they use it to set up business partnerships as well as acquire or attract external investors.
For modern project managers, business models assist in the process of drafting a whole plan of a business. While the concept of business model is broad and can be viewed from various perspectives, the following section of the essay elaborates the wider roles of business model to modern project managers.
Project managers and Organizational Design
Managers have a responsibility of influencing organizational structures. This role complements their function in order to come up with firm activities, products, and markets. In order to set up new organizations and guarantee their survival, managers logically assess active and prospective business models.
According to Bucherer, Eisert and Gassmann (2012), practitioner-focused work interlinks business models and strategy and suggests that good business models are the cornerstone of long-term performance. Hence, a project manager can greatly benefit from a well crafted business model that adheres to organisational design.
There are other analyses which usually suggest that a firm’s performance is directly related to business model that has been adopted (Zott & Amit, 2008). It may also be related business model consistency across international subsidiaries or partners (George & Bock 2012).
The business model as design necessitates implementation of a sole business model to evade operational inefficiencies (George & Bock 2012). In contrast, business models and strategy may evolve jointly as an increasing, budding process guided by learning harmonized by purpose.
Even where business model change is instigated and effected top down, emergent business models may depart from agent-driven design (George & Bock 2011).The problem of path dependence in business models is still unanswered. Studies have found path-dependent transitions between business models in manufacturing (Lovins, Lovins & Hawken 1999) and biotechnology (Willemstein, van der Valk & Meeus 2007).
A presumption of business models where managerial results are mainly dependent on the managerial skills, choice, level of expertise, and execution has practical appeal.
However, it undoubtedly does not clarify the contingency achievement of resource acquisition and deployment, creation of opportunity, or innovations in business models. Similar research in various contexts has stressed the business model as a component of managerial design without focussing on its components (George & Bock 2012).
Project managers and Organizational Narrative
The business model can also be fitted into a frame that includes managerial narrative. Magretta (2002, p. 87) defines the business model “as the gestalt embodiment of firm execution, incorporating all elements of operations and structure into the narrative as stories that explain how enterprises work.” The storytelling structure has stood out to be a potent tool for enhancing perception and interpretation organizational behavior.
However, the essentially biased nature of story formulation produces the challenges for impartially measuring managerial behaviors and outcomes. The business model is usually limited when various fields within the economic performance of a firm are not clearly stipulated. This kind of model operates in a restricted setting, generally detached from the firm’s revenue mechanism (Osterwalder, Pigneur & Tucci 2005)..
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George & Bock (2012) claims that a related perspective focuses on sensemaking and enactment where institutional pressures on the business model shape firm growth processes. Organizations may control the verification process if the model is innovative and the organization steers narrative sensemaking at managerial and community levels (George & Bock 2012).
Narrative sensemaking is crucial in up-and-coming markets where investors are powerless to appraise unverified business models without explanation (George & Bock 2011).
In the coevolution of stories that verify authenticity of firms, Business models may be vital in ensuring the survival of a firm. If business models take a central role in the part in verification, isomorphism would surface as a consequence of firms adopting similar business models (George & Bock 2012).
Within an organization, the narrative sensemaking of business models could also happen. This could arise if Business models develop through changes in internal structures, predisposed by the narrative changes that spur the growth of the firm’s regulations, organizational structure, hierarchy, and social order. The narrative perspective creates uncertainty in business model development and deployment.
Firms may test multiple business models concurrently (George & Bock 2011). The business model as narrative mechanism limits the scope of research to story formation and cataloging of narrative commonalities. Currently, there are no processes that reconcile narrative models and firm behavior or outcomes.
Project managers and innovation
Many studies assess the relationship between technology innovation and business models or the change in business models. This viewpoint puts business models within the context of innovation. It describes a business model as a logical structure that obtains technical character and potentials as capital and alters them into economic gains using customers and markets.
The business model is envisaged as a focal point that reconciles technology advancement and economic gain (Chesbrough & Rosenbloom 2002, p. 532). Here, business model development and change are punctuated phenomena that follow disruptions or enactment of new opportunities. An adaptive framework for innovation suggests that business models adjust in parallel to the firm’s life-cycle evolution (Andries & Debackere 2007).
When the business model is changed at the level of a business enterprise or project management, the young and upcoming forms are more likely to be affected. The business model may be an important link between innovation and organizational structure.
It remains unclear, however, whether business model change results in reconfiguration of the firm’s organizational structure (George & Bock 2011) or whether organizational design and knowledge management determine business model structure. More research is needed to clarify the links between business models and organizational innovation as well as the mechanisms and processes of business model innovation and change.
Importance of the resource-based view to project managers
A close link exists between the manner in which resources are acquired and distributed out within a given project. George and Bock (2011) suggests that firms must acquire resources concomitantly to the implementation of new business models. According to Mangematin et al. (2003), addition of active competencies and skills into the RBV facilitates further relations between the business model and RBV.
George and Bock (2012) propose that virtual organizing can be facilitated through leveraging of traditional and knowledge assets. “New economy” firms are recognized for their ability to leverage intangible assets to produce valuable products.
The active capability that connects a firm’s unique capability to managerial objectives and results can also be used to define business models. Social networks and knowledge sharing are connected to business model by an alternate viewpoint (George & Bock 2012).
A small number of researches have framed the business model as a developing package of activities, a “complex set of interdependent routines that is discovered, adjusted, and fine-tuned by ‘doing’” (George & Bock 2012, pp.186). In this frame, business model elements are discovered through experimentation and develop devoid of managerial input.
There has been intense penetration of the RBV concept especially in modern project managements. However, no agreement has surfaced on modalities of association between the business models and appropriability regimes. Many of the researches on business models that lean on RBV do not explain the difference between business models and product–market placement strategy (George & Bock 2012).
Project managers and Transactive Structure
The most rigorous and engaging construct definitions in literature are focused on transactive structures such as the streams of logistics and revenue (George & Bock 2011). Zott’s and Amit’s (2001) deductive construct seeks to explain extraordinary value creation mechanisms in e-businesses.
The business model is proposed as a unifying mechanism describing the “content, structure, and governance of transactions” (Zott & Amit 2001, p. 511).
Firm performance is a function of specific business model characteristics (Zott & Amit, 2007) and the fit between business models and strategy (Zott & Amit, 2008). This framework has been most commonly applied to e-business sectors, usually in the development of cluster solutions and typologies that deconstruct exchange characteristics (George & Bock 2012).
The transactive-based definition is intrinsically attractive: it is based on observed firm behavior, combines elements of entrepreneurship with strategy, and presents a spectrum of opportunities for empirical assessment and theory building. George and Bock (2012) argue that some business models are “forgiving” by shifting transaction risk to outside resources without commensurate remuneration.
Scientists have extended Zott’s and Amit’s transactive model to assess strategic growth investment outcomes after the dot.com crash and value creation associated with Internet firm acquisitions (George & Bock 2012). The transactive theme has enjoyed limited use in theory building and empirical research despite its widespread use in the business model literature. It is only in e-business sector that it enjoys widespread use.
Project managers and Opportunity Facilitation
In a relatively undeveloped framework, the business model is a facilitative intermediary in the opportunity-creation process. The business model has been described as the bridge between value creation and innovation (Chesbrough & Rosenbloom 2002) and also the cognitive connection between commercial evaluation of a prospect and its utilization (George & Bock 2011).
Others focus on the transactive element and view the business model as the mechanism for opportunity exploitation (Zott & Amit 2001). If the opportunity is uncertain, the optimal business model cannot be rationally determined (George & Bock 2012).
The business model is sometimes equated to the underlying “business idea” or the firm’s value creation mechanism, but separating the entrepreneurial opportunity from the established firm’s profit-managing process has not been addressed.
Research on venture capitalists’ use of business model frameworks links business model development with perceived commercial potential, but the mechanisms by which the underlying opportunity and the business model are interconnected have not been explored.
To recap it all, it is imperative to reiterate that the concept of business model has been used for long notwithstanding the varying meanings and applications. As noted above, a business model provides a concrete direction which a project should follow.
As a matter of fact, a business model is beyond a mere business plan bearing in mind that it is only through the creation of new business models that projects can be successfully completed. In particular, most unstable industries do benefit a lot from viable business models.
Needless to say, it can be confirmed that business models create as well as improve the overall value of a project. Business models also help in resource acquisition.
Business models also embody a firm’s execution, incorporating all elements of operations and structure of a business. Hence, creation of economic value as well as speedy facilitation of technological development can be easily achieved when the right business model is adopted.
Periodic assessments of active and prospective business models are undertaken by managers and entrepreneurs in order to set up new organizations and ascertain the survival of their firms. Business models may help stem competition especially where competitors are unable to ape the model in question.
According to George and Bock (2012), the formation, growth potential, and success of any new organizational forms is often attributed to the development of new business models, especially in unstable industries. Consequently, a business model may be seen as the organization’s configurational enactment of a specific opportunity.
The cognitive processes associated with opportunity identification and enactment focus may or may not incorporate firm level strategic thinking, but the firm formation decision is based on the enactment of an opportunity through an explicit or implicit business model. Firm formation establishes a resource structure, no matter how rudimentary.
The enactment of any opportunity establishes a transactive structure linking the firm and at least one external entity. The capability of the firm necessitates a value structure that generates nominal value to top up or supplement the resource base of the firm. The business model is therefore a very crucial building block for the enactment of any process whether in business or project management.
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