Business Model is a representation of its core business practices. Despite the size or industry in which a business operates, a business model details how an organization creates and delivers products or services, specific business processes, infrastructure, customer acquisition strategies and the intended customer base. Brick-and-mortar and e-commerce form two categories under which business can operate. In the current business environment, business models come in a variety of forms that include direct sales, franchise, freemium and subscription models.
Consultants at IBM Global Business Services, interviewing 765 corporate and public sector leaders world-wide, found that firms that were financial outperformers put twice as much emphasis on business model innovation as underperformers. Going a step further, Giesen and colleagues (Giesen, Berman, Bell, & Blitz, 2007), also from IBM, looked at the relationship between business model innovation and firm performance.
They identify three types of business model innovation, namely industry models (innovations in industry supply chain), revenue models (innovations in how companies generate value), and enterprise models (innovations in the role the structure of an enterprise plays in new or existing value chains).
They report two key findings:
1) each type of business model innovation can generate success,
2) innovation in enterprise models that focuses on external collaboration and partnerships is particularly effective in older companies as compared to younger ones.
Business Models, Innovation, and Technology Management
The business model concept has also been addressed in the domains of innovation and technology management. Two complementary views seem to dominate the research. The first is that companies commercialize innovative ideas and technologies through their business models.
The second is that the business model represents a new dimension of innovation, which spans the traditional modes of process, product, and organizational innovation, and involves new forms of cooperation and collaboration.Business models can not only entail consequences for technological innovations; they can also be shaped by them. Calia, Guerrini, and Moura (2007) show how technological innovation networks can provide the resources necessary for business model reconfiguration. They present the results of a case study of a technology company in the aluminum industry, finding that the impact of technological innovation, when it is the result of a collaborative effort in a network of technological partners, might not be limited to the new product’s technological features, but can result in changes in the company’s operational and commercial activities, which ultimately
correspond to a change of the business model.
Sourcing refers to a number of procurement practices, aimed at finding, evaluating and engaging suppliers for acquiring goods and services. The scope of strategic sourcing extends beyond supplier price negotiation and takes into account the total cost of ownership.
A systematic and fact‐based approach for optimizing an organization’s
supply base and improving the overall value proposition.
What Strategic Sourcing Entails.
1. Focused on the Total Cost of Ownership (TCO) incorporating
customer needs, organizational goals, and market conditions
2. Getting the best product/ service at the best value.
3. Driven by a rigorous and collaborative approach.
4. Addresses all levers for savings.
5. Decisions based on fact based analysis and market intelligence
6. A continuous process.
PURCHASING VS PROCUREMENT.
Purchasing refers to the process of ordering and receiving goods and services. It is a subset of the wider procurement process. Generally, purchasing refers to the process involved in ordering goods such as request, approval, creation of a purchase order record (a Purchase Order or P.O.) and the receipt of goods.
Procurement is the overarching function that describes the activities
and processes to acquire goods and services. Importantly, and distinct from “purchasing”, procurement involves the activities involved in establishing fundamental requirements, sourcing activities such as
market research and vendor evaluation and negotiation of contracts. It can also include the purchasing activities required to order and receive goods.
KEY POINT: PURCHASING BY NATURE IS REACTIVE WHILE PROCUREMENT IS PROACTIVE.
The procurement process can be divided into five key steps:
a) Define the business need.
You need to understand what the fundamental business requirement is. At this point, it is important to understand the difference between a requirement and a solution. For example, the business
requirement is to source some software to help to get information published on the company intranet. An item of software to publish information on the company intranet is a solution – not a requirement. The requirement is to be able to publish information on the intranet. It may be that an outsourced solution is a better option.
b) Develop the Procurement Strategy.
Depending on the scale of your project, there could be a very wide range of potential solutions and approaches to your business need and a number of ways of researching the market and selecting a supplier.
c) Supplier Selection and Evaluation.
After researching the market and establishing your procurement approach, you need to evaluate the solutions available. This may involve a formal tender process or an online auction. Your criteria for comparing different solutions and suppliers are critical. Weight the key criteria heavily and don’t attach too much importance to aspects that will have little impact on the solution.
d) Negotiation and award.
Even when you have selected a supplier it is important that detailed negotiations are undertaken. This is not just about price. Think in terms of Total Cost of Ownership. A cheap product is not so cheap if the
carriage costs are huge or if the maintenance contract is onerous.
Consider carefully the process by which the goods or services will be ordered and approved; how they will be delivered and returned if necessary; how the invoice process will work and on what terms payment will be made. Considering the whole Purchase to Pay process (P2P) at the outset can reduce costs and risk significantly
e) Induction and Integration.
No goods or services should be ordered or delivered until the contract is signed, but this is not the end. It is vital that the supplier is properly launched and integrated. The P2P process needs to be in place and needs to be understood on both the buy-side and the supplier-side.
For more details on this subject, drop a comment or send a question (s) on our ‘ask a question’ page.