International Journal of Japan Association for Systems Vol. 10 No.1, December 2018, pp. 45-52

Quantitative Analysis of Models and ’s Approach to Business

Tsutomu KONNOa *

aFaculty of Business Administration, Kobe Gakuin University 1-1-3 Minatojima, Chuo-ku, 650-8586 Japan

Abstract Among the existing body of research focused on business models are studies by Osterwalder (2010), Slywotzky (2002), Yamada (2012), and Matsubara (2014). However, these involved the qualitative classification of business models. This study quantifies business models and uses data analysis to clarify the key factors that change the of a company. Moreover, it uses data to analyze business models in the manufacturing industry and proposes an approach to such business models.

Keywords: Business model, Quantitative analysis

1. Introduction certain , its ratio to GDP is declining. While expansion to foreign markets can be foreseen, Senoh’s book (2010) “Why Japan that excels in manufacturing industry that creates new innovation and technology loses in business?” was quite sensational [1]. technology and that has a powerful ripple effect on other The book came out just when were struggling industries continues to be important for Japanese to recover from the economic downturn precipitated by economy, more important than the mere figure of 20% of the Lehman Brothers bankruptcy in 2008, and were GDP. In fact, other countries including the US and exploring various solutions. Senoh pointed out in his book Germany have announced policy changes to next- the necessity of Trinity Business Strategy, which consists generation manufacturing industry, and are re-examining of the following. [1] the importance of manufacturing industry.” [4] 1) Development of vital technology suited to product This paper shares the same awareness. The author thinks architecture that the manufacturing industry’s GEMBA-RYOKU, 2) Establishment of a business model that achieves both which was once Japan’s strength, no longer links to market expansion and profit assurance at the same companies’ achievement and that the reason for this may time lie in business models. The study focuses on the 3) Deployment of management that manufacturing industry since it is a key industry of Japan uses the following properly for unique technologies: for 20% of GDP and its revitalization would acquisition or concealment of rights, open or have a great impact on not only Japanese economy but conditional licenses, and open standardization. also on the world economy [4]. I came to believe that 2) above, business model, is the In recent years, politics, the economy, and the social key. environment have been changing at a dizzying pace. Sakane, who served as the president and chairman of Komatsu Ltd. and then became the vice chairman of There has been a rash of corporate alliances and mergers, Keidanren, describes in his book (2015) the smart with companies unable to keep pace with environmental construction solution [2]. At lectures, he says that changes ending up on the receiving end of a takeover. Japanese companies’ key to winning is to take a lead in On the other hand, some companies are demonstrating the business model and compete on GEMBA-RYOKU, on-site capabilities [3]. improved business performance and can be considered to This top businessman’s words encouraged me to go be excellent companies. Osada (2003) lists the following forward with this study a great deal. five requirements for becoming an excellent company. Japan is the country of MONOZUKURI, manufacturing. (1) High profitability White Paper on Manufacturing Industries of Ministry of Economy, Trade and Industry (METI) 2015 states in (2) Sustainability of profits “Chapter 1 Section 2 The Manufacturing Industry Which (3) Growth potential Supports Japan’s Industrial Structure” that “The (4) Market value and shareholder value manufacturing industry, which accounts for 20% of (5) Japan’s GDP, is a key industry of our country. However, recently with the deployment of manufacturing bases The book also cites 14 best practices and gives examples overseas and great changes in competitive structure of of 13 companies [5], describing best practice as *Corresponding author: [email protected]

Received: January 28, 2018 Accepted: October 5, 2018 - 45 -

Tsutomu KONNO

"outstanding business modalities and operating (work) intelligible and there are many specific examples of methods." analysis. One collection of examples was published by the Business Model Innovation Association under the title Business models are a concept similar to best practice. “An Anthology of Business Model Examples: 50 Selected There are various definitions of a business model. To give Examples of Innovation” [10]. This paper quantifies the one example, Afuah (2003) defines it as "a framework for business models of these companies and examines making " [6]. approaches to business models in the manufacturing The study of business models in Slywotzky (2002) sets industry, one of leading industries of Japan. out 23 kinds of business model, including customer solution profit [7]. Osterwalder (2010) defines a business model thus: "A business model describes the rationale of 2. Business Model Quantification how an creates, delivers, and captures Osterwalder (2010) divided business models into nine value." [8]. The definition of business model in Matsubara blocks, and used the specific elements thereof and (2014) states, "A business model is a framework for relationships between them to express those business creation and delivery between the customer and the models [8]. This is one business model notation technique company" [9]. In his book, Matsubara compares the that is both easy to understand and widely used all over business model mapping that he advocates with the the world. Besides this, there is the business model models of Slywotzky and Osterwalder [5]. mapping advocated by Matsubara (2014), which is At the beginning of this study in 2016, the author divided into 12 blocks, such as business value [9]. This researched the references [5]-[9], but they were mostly paper adopts the business model generation of qualitative evaluations and each literature contained only Osterwalder, which has abundant examples and expresses 10 or so cases at the most, which were not enough for business models using nine blocks. quantitative evaluation. When encountered with the The nine blocks of business model generation are as reference [10] that contained 50 case studies, comparisons follows: KP (Key ), KA (Key Activities), VP of old and new business models and 100 data, the author (Value Propositions), CR (Customer Relationships), CS considered using it for the study. Since it was also the (Customer Segments), KR (Key Resources), CH qualitative evaluation, the author tried its quantification. (Channels), C$ (Cost Structure), and R$ (Revenue Since the literature contained on top of 22 companies in Streams). Osterwalder’s (2010) book provides detailed the manufacturing industry, various cases of different definitions of the nine blocks [8]. industries including , medicine, entertainment, The data for the business models used in this research retails, and pharmaceuticals, the author abandoned an is from the Business Model Innovation Association “An attempt to quantify different characteristics of various Anthology of Business Model Examples: 50 Selected industries. With this background, the author came up with Examples of Innovation” [10]. In total, 100 examples of the problems 1) – 3) in the study of business models. business models – a pair of old and new models for each Although various studies of business models have been of 50 prominent companies – are classified into the 13 undertaken to date, there are three problems. types of business model in this book. The classification of 1) While the differences between the old business model the business model types of 50 companies is shown in and the new one can be understood, the specific Table 1. For further details, see Reference [10]. factors that were key to achieving the outcome are not clear. Table 1 Classification of Business Models 2) It is likely that some business models are more suitable Business to certain industries than others, but these studies do Number of Model Type of Business Model not touch upon this point. Companies 3) All of the business models are subjected to qualitative No. evaluation, but not quantitative evaluation, making it 1 Conversion to Type 8 difficult to judge whether or not a business model Differentiation by Reduction of Value 2 7 should be changed. Propositions This paper adopted the following approach in order to 3 Conversion of Customer (from B to C) 6 address these three problems. 1) First, quantify the business model. 4 Expansion of Value Chain 5 2) Based on the quantified data, explore the key factors 5 Self-strengthening Loop 5 that constitute the differences between the old and 6 Conversion of Customer (from C to B) 4 new business models. 7 Application of the Gillette Model 3 3) Taking the manufacturing industry as an example for 8 Exclusion of Personality 3 reference, clarify the applicability of each type of 9 Redefinition of Customer 2 business model in individual industries. 4) Explore specific keywords for success in business 10 Mass Customization 2 models in the manufacturing industry. 11 Application of Arbitrage Transaction 2 12 Fixed Cost Changing to Variable Cost 2 The business model notation of Osterwalder (2010) is 13 Reduction of Value Chain 1 adopted in this paper [8], because this notation is Total 50

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Quantitative Analysis of Business Models and Manufacturing Industry's Approach to Business

Next, one example of an old and new business model See Reference [10] for further details of Tables 2 and 3. pair is shown in Tables 2 and 3 from Reference [10]. This Here, these business models are quantified based on business model is classed as the "Conversion to Service the following rules. Type." 1) The old business model is -1 and the new business model is +1. 2) The number of items in the nine blocks is counted. Table 2 The Old Business Model of Company K Rule 1) is for conducting multivariate analyses, such as KP (Key KA (Key VP (Value CR (Customer CS (Customer multiple linear regression analysis and discriminant Partnerships) Activities) Propositions) Relationships) Segment) analysis. It turned out that if rule 2) distinguishes between the items for each of the nine blocks, innumerable Developing・ High Quality Construction, Sales Agency One-off sales combinations will result, making analysis impossible. Manufacturing・ Construction mining, and Therefore, the number of items in each block is Selling Machinery forestry industries; considered to be objective data. The data from quantification of the business models is shown in Table 4. KR (Key CH (Channels) Resources) Table 4 Business Model Quantification Data Brand Corporate Sales KP VP CR CS R$ Intellectual KA KR C$ Sales Agency Type of Manufac (Key (Value (Custo (Cust CH (Reve property Comp (Key (Key (Cost Business NO. Business turing Partne Propo mer omer (Chan nue any Activi Resou Struct Model Model Industry rships sition Relatio Segm nels) Strea ties) rces) ure) ) s) nships) ent) ms) C$ (Cost Structure) R$ (Revenue Streams) Manufacturing costs Profit on sales Conversion to Service 1 2 4 2 1 1 2 2 4 4 -1 Type 10 A Conversion to Service 1 2 5 3 2 1 2 2 4 5 1 Type Conversion Table 3 The New Business Model of Company K to Service 1 0 1 1 1 2 1 1 1 1 -1 Type 20 B Conversion KP (Key KA (Key VP (Value CR (Customer CS (Customer to Service 1 0 3 3 1 2 3 1 3 3 1 Partnerships) Activities) Propositions) Relationships) Segment) Type High-quality ・ ・ Developing,Manu construction Sustainable Construction, ・ ・ Sales Agency facturing,Selling machinery relationships mining, and ・ ・ forestry Self- Theft prevention industries; strengthenin 0 0 2 2 0 2 1 0 1 1 -1 g loop Appropriate using industrial 500 AX Maintenace maintenance machinery Self- strengthenin 0 0 2 7 0 2 2 0 1 1 1 Accurate Kaizen operation g loop activities control Demand Thus, data for 100 business models – a pair of old and CH (Channels) forcast new business models for each of 50 companies – was KR (Key obtained. It encompasses 13 types of business model and Resources) 22 companies in the manufacturing industry. Network Corporate sales Brand Sales agency Intellectual 3. Outline of Business Model K System property Quantitative Analysis Operation information C$ (Cost Structure) R$ (Revenue Streams) Fig. 1 provides an outline of this study’s quantitative Manufacturing costs Profit on sales analysis of business models. It is explained in further K System installment costs Maintenace fees detail in Chapter 4. Network

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Table 5 Multiple Linear Regression Analysis

Variables Value 1. Quantify old and new business models Multiple correlation coefficient 0.678 Analyze business Contribution ratio 0.459 models based on all 2. Extract key factors of old and new business models data Contribution adjusted for degrees of 0.437 freedom 3 Extract data of manufacturing industry

Residual degrees of freedom 95 4 Extract key factors of manufacturing industry Residual standard deviation 0.754

Since the variance ratio of regression was 9.11 and its 5 Specify types of business model in the manufacturing industry risk value was 0, the regression model appears to be valid Analyze business models based on data for the Table 6 Partial Regression Coefficients 6. Consider points of change in manufacturing industry business manufacturing Standard models industry P value Partial Variances Partial No Predictor variable （Upper Regression Tolerance Ratio Regression side） Coefficients 7. Consider points remaining unchanged in manufacturing Coeficients industry business models 0 Constant Term 56.742 0.000 -1.751 7 KP (Key Partnerships) 1.970 0.164 + 8. Consider approaches to manufacturing industry business 8 KA (Key Activities) 0.071 0.791 + models 9 VP (Value Propositions) 23.998 0.000 0.289 0.406 0.830

CR (Customer Fig. 1 Process for the quantitative Analysis of Business 10 4.462 0.037 0.263 0.170 0.881 Models Relationships) 11 CS (Customer Segments) 1.026 0.314 + 12 KR (Key Resources) 8.702 0.004 0.28 0.255 0.762 4. Details of Business Model 13 CH (Channels) 0.020 0.889 - Quantitative Analysis 14 C$ (Cost Structure) 7.446 0.008 0.178 0.208 0.981 15 R$ (Revenue Streams) 0.026 0.872 - 4.1 Quantification of Old and New Business Models Based on all the data, the key factors determining the old and new business models were VP (Value Using the rules set out in Chapter 2, the data from the Propositions), CR (Customer Relationships), KR (Key Business Model Innovation Association “An Anthology Resources), and C$ (Cost Structure). Every partial of Business Model Examples: 50 Selected Examples of regression coefficient was positive, demonstrating that a Innovation” was quantified [10]. See Tables 1-4 for new business model has a larger number of items than the details. old business model. In particular, with a P value of 0, VP had an outstanding standardized partial regression 4.2 Extracting the Key Factors of Old and coefficient of 0.406. As such, presenting a large number New Business Models of new value propositions to customers appears to be important. Multiple linear regression analysis of the data in Table 4 was carried out, using the old and new business 4.3 Extracting Data for the Manufacturing models as the objective function and the nine blocks as Industry explanatory variables. Tables 5 and 6 show the results obtained by narrowing down the key factors following According to the website of the Ministry of Economy, variable selection. Trade and Industry, businesses must meet the following two conditions to be classed as being in the manufacturing industry. (i) A place of business that mainly manufactures or processes new products. (ii) A place of business that mainly wholesales new manufactured or processed

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Quantitative Analysis of Business Models and Manufacturing Industry's Approach to Business

products [11]. Under this definition, a company that does 4.4 Extracting Key Factors in the not have a factory is not, strictly speaking, categorized as Manufacturing Industry being in the manufacturing industry. This paper adopts a slightly more flexible approach, Multiple linear regression analysis of the data in Table 7 regarding companies that do not have factories but carry was carried out, using the old and new business models as out planning and development in-house and outsource the objective function and the nine blocks as explanatory manufacturing to an EMS (Electronics Manufacturing variables. Tables 9 and 10 show the results obtained by Service) as falling into the manufacturing industry narrowing down the key factors following variable category. This is to avoid being bound by conventional selection. concepts at the stage at which new business models are being explored. Thus, data for the 22 manufacturing Table 9 Multiple Linear Regression Analysis of industry companies selected is shown in Table 7. Manufacturing Companies

Table 7 Manufacturing Industry Data Variables Value Multiple correlation KP KA VP CR CS KR C$ R$ Business Type of CH 0.729 (Key (Key (Value (Custo (Custo (Key (Cost (Reven Busines NO. Model Business (Chann coefficient Partners Activiti Proposi mer mer Resourc Structur ue s Model Data Model els) hips) es) tions) Relation Segmen es) e) Streams Contribution ratio 0.531 Conversion to Service 2 4 2 1 1 2 2 4 4 -1 Type Contribution adjusted 10 A Conversion 0.496 to Service 2 5 3 2 1 2 2 4 5 1 for degrees of freedom Type Conversion Residual degrees of to Service 0 1 1 1 2 1 1 1 1 -1 40 Type 20 B freedom Conversion to Service 0 3 3 1 2 3 1 3 3 1 Residual standard Type 0.718 deviation ・ ・

・ ・ Table 10 Partial Regression Coefficients of the

・ ・ Manufacturing Industry Standard P value Partial Self- Predictor Variances Partial strengthenin 0 3 3 0 2 0 1 4 2 -1 No (Upper Regression Tolerance g loop Variable Ratio Regression 220 V side) Coefficients Self- Coefficients strengthenin 0 3 5 0 2 2 1 4 2 1 g loop 0 Constant Term 32.414 0 -1.827 KP (Key 7 0.006 0.94 - Narrowing down the 50 companies to 220 in the Partnerships) KA (Key 8 3.523 0.068 0.198 0.229 0.787 manufacturing industry revealed that the manufacturing Activities) industry adopts only a limited number of business model VP (Value 9 20.684 0 0.422 0.523 0.885 types. Table 8 shows the business model categories Propositions) adopted in the manufacturing industry. There are many in CR (Customer 10 4.586 0.038 0.407 0.247 0.881 the conversion to service type and conversion of customer Relationships) (from B to C) categories and it can be seen that the CS (Customer 11 0.866 0.358 - companies adopted business models that brought them Segments) KR (Key closer to the customer than before. 12 1.981 0.167 + Resources) Table 8 Classification of Business Models in the 13 CH (Channels) 0.318 0.576 + Manufacturing Industry C$ (Cost 14 0.011 0.918 - Structure) R$ (Revenue Business 15 0.420 0.521 - Number of Streams) Model Type of Business Model Companies No. 1 Conversion to Service Type 7 From the manufacturing industry data, the key factors 3 Conversion of Customer (from B to C) 5 determining old and new business models were KA (Key 7 Application of the Gillette Model 3 Activities), VP (Value Propositions), and CR (Customer 10 Mass Customization 2 Relationships). Every partial regression coefficient is Differentiation by Reduction of Value positive, demonstrating that a new business model has a 1 2 Proposals larger number of items than the old business model. In 4 Expansion of a Value Chain 1 particular, with a P value of 0, VP (Value Propositions) 9 Redefinition of Customer 1 had an outstanding standardized partial regression 5 Self-strengthening Loop 1 coefficient of 0.523. As such, presenting a large number Total 22 of new value propositions to customers appears to be important, as was the case when all data were considered.

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Moreover, similarly to the situation when all data were Here, the detailed factors in these three blocks are considered, CR (Customer Relationships) also appears to examined. The detailed factors are the items listed in be important. Tables 2 and 3. Specifically, for KA (Key Activities) in Table 2, they include development, manufacture, and 4.5 Identifying Types of Business Model in sales. Table 12 summarizes these items for the 22 the Manufacturing Industry companies in the manufacturing industry. There are 30 types of detailed key factor for KA (Key Activities), 58 Table 11 shows the results of comparing types of for VP (Value Propositions), and 13 for CR (Customer business model for all data and for manufacturing industry Relationships). This gives a total of 101 types of detailed data alone. key factor.

Table 11 Types of Business Model in the Table 12 Detailed Business Model Key Factors for the Manufacturing Industry Manufacturing Industry

Number of Number of Percentage Old New Business Model Manufacturing Difference Companies Decrease Business Model Business Business Difference Types Sectors Model Model Mass Customization 2 2 0 0% Research 3 3 0 Application of the Gillette Model 3 3 0 0% Conversion to Service Type 7 8 1 13% Development 12 12 0 5 6 1 17% ・ ・ ・ ・ Conversion of Customer (from B to C) KA(Key 30 Redefinition of Customer 1 2 1 50% Activities） ・ ・ ・ ・ Differentiation by Reduction of Value 2 7 5 71% ・ ・ ・ ・ Propositions iTunes 1 5 4 80% Expansion of Value Chain management 0 1 1 Self-strengthening Loop 1 5 4 80% and operation High-quality Reduction of Value Chain 0 1 1 100% printers at low 1 1 0 Conversion of Customer (from C to B) 0 4 4 100% prices Easy to 1 1 0 0 2 2 100% download Fixed Cost Changing to Variable Cost VP(Value ・ ・ ・ ・ 58 Propositions） Exclusion of Personality 0 3 3 100% ・ ・ ・ ・ Application of Arbitrage Transaction 0 2 2 100% ・ ・ ・ ・ Total 22 50 High performance 1 1 0 and quality adopt Ongoing 4 8 4 U ncertain Menbership 0 1 1 N ot adopt ・ ・ ・ ・ CR(Customer 13 Relationships） ・ ・ ・ ・ Mass Customization and Application of the Gillette ・ ・ ・ ・ Model were found to be business models peculiar to the Leasing 0 2 2 manufacturing industry. In particular, the Mass contract Customization model adopts modular design. Modular Here, looking at the 101 kinds of detailed key factor, design is a method for producing variation in a large the difference between the number in the new business number of products by using standardized parts and only model and the number in the old business model was a small number of parts [12]. calculated. The results are presented in the histogram in The Gillette model involves supplying customers with Fig. 2. the hardware at a low price and then making money from 70 Frequency maintenance services or the supply of replacement parts. n=101 The application of the Gillette model involves changing 60 combinations of products, maintenance services and 50 replacement parts in various forms. See Reference [10] for details of each type of business model. 40

30 4.6 Points of Change in Manufacturing 20 Industry Business Models 10 The key factors determining the old and new business 0 models based on data for the 22 companies in the -7 -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 manufacturing industry were KA (Key Activities), VP (Value Propositions), and CR (Customer Relationships). Fig. 2 Histogram of Differences

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Quantitative Analysis of Business Models and Manufacturing Industry's Approach to Business

Although the tail is long, the distribution appears to be normal. The basic statistics are shown in Table 13. Table 16 Points Remaining Unchanged in Manufacturing Industry Business Models

Table 13 Basic Statistics Old New Basic Statistics Value Business Model Business Business Difference Model Model Average 0.70 Research 3 3 0 Standard Deviation 1.58 Development 12 12 0 KA(Key Planning 2 2 0

Activities） Sales 13 13 0

Here, results in the 2-sigma range – i.e. where the 3 3 0 probability of deviation is in the 4.55% range – were Rental 1 1 0 regarded as demonstrating a difference. The 2-sigma High-quality range is shown in Table 14. printers at low 1 1 0 prices Convenience of 1 1 0 portability Table 14 2-Sigma Range Easy to download 1 1 0 Lower Limit Upper Limit Delicious sweets 1 1 0 -2.45 3.86 More comfortable VP(Value life by using 1 1 0 nursing care beds Proporsitions） When the data in Table 12 were arranged on the basis Reducing heavy of the criteria in Table 14, the points of change in lifting by using 1 1 0 nursing care beds manufacturing industry business models emerged, as shown in Table 15. Unique 1 1 0 Improved operating 1 1 0 rate Ease of use 1 1 0 Table 15 Points of Change in Manufacturing Industry High performance 1 1 0 Business Models and effectiveness CR(Customer Rental 1 1 0 N ew Relationships） O ld Business B usiness M odel B usiness D ifference M odel M odel M anufacturing 19 16 -3 4.8 Discussion on Approaches to Business K A (Key Activities） M aintenace Models in the Manufacturing Industry 1 7 6 Service V P (Value Low Price 1 6 5 Contrasting the three key factors from Tables 15 and 16 P roporsitions） P opular Products 8 1 -7 gives the results shown in Table 17. C R (Custom er O ngoing 4 8 4 R elationships） O ne-off Sales 6 0 -6 Table 17 Approaches in the Manufacturing Industry

Change Not Change Primary functions, such as research, 4.7 Points Remaining Unchanged in Emphasis on maintenance services, even development, manufacture, and sale, KA(Key if manufacturing functions decline remain unchanged. Manufacturing Industry Business Activities） Models slightly. Rental and site management also retained. The points remaining unchanged in manufacturing Quality, convenience, performance While the supply of consumer industry business models are analyzed using the same VP(Value and effectiveness, and features of ceases, products are offered at low method as in 4.6. Detailed key factors where the Proporsitions） unique products and services are prices. difference between the old and new business models was retained. 0 were collated, giving the results shown in Table 16. Ceases to focus on one-off business and CR(Customer Relationship with the customer pursues an ongoing relationship with Relationships） retained through rental, etc. customers.

Table 17 can be summarized as follows.

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1) With KA (Key Activities), the fundamentals, such as Business models that satisfy these three conditions are research and development, remain unchanged from said to have a high probability of success. Going forward, before, while the company devotes additional energy to the author intends to study ways of introducing new maintenance services. business models that help to prevent the failure of efforts 2) In the case of VP (Value Propositions), the company in transforming business models. offers products at low prices, while retaining quality and other features of products and services. 3) For the CR (Customer Relationships) model, References companies move away from one-off business and focus [1] Kenichiro, Senoh: Why Japan that excels in on continuing the relationship with the customer technology loses in business? Diamond Press, P.xiii-xviii, through maintenance services, etc. P.326, 2010

[2] Masahiro Sakane: Polish what’s already the greatest 5. Conclusion strength. The Nikkei, P.33, 2015 [3] Masahiro Sakane: This paper attempted various ways of quantifying https://systemincome.com/tag/Sakanemasahiro (accessed business models. Analyzing detailed items resulted in a Oct. 6, 2018) huge number of data points, with innumerable factors, so [4] Ministry of Economy, Trade and Industry (METI) this approach was abandoned. As a result, the author hit http://www.meti.go.jp/report/whitepaper/mono/2015/ upon the simple method of counting numbers in the nine honbun_html/010102.html (accessed Oct. 6, 2018) business model blocks for 50 companies. In the past, [5] Hiroshi Osada: Best Practice Company. JUSE Press customer relationships, such as "customer creation," have Ltd., (2003), 3-9. been cited as being of primary importance to companies [6] Allan Afuah: Business Models: A Strategic [13]. This paper succeeded in quantitatively verifying that Management Approach. McGraw-Hill Irwin, (2003), 2. the value proposition, the customer relationships, etc. are [7] Adrian Slywotzky: the ART of PROFITABILTY. important. Furthermore, in the case of companies in the Warner Books, (2002), 9-19. manufacturing industry, this paper analyzed universal [8] Alexander Osterwalder, Yves Pigneur: Business elements and elements that should be changed. Based on Model Generation: A Handbook for Visionaries, Game the results, it appears this paper was able to demonstrate Changers, and Challengers. Wiley, (2010), 14-45. the direction that manufacturing companies should take in [9] Kyoushirou Matsubara: Business Model Mapping their approach to business. Casebook. Nikkan Kogyou Shimbun, (2014), 13-24. Yamada (2012) cites the following six issues faced [10] Business Model Innovation Association: An when transforming business models [14]. Anthology of Business Model Examples: 50 Selected (1) Temporary reduction in sales Examples of Innovation. Business Model Innovation (2) Stubborn attachment to the old model Association, (2017). 4-65. (3) Apparent resemblance when viewed in freeze- [11] Ministry of Economy, Trade and Industry: frame http://www.meti.go.jp/statistics/tyo/kougyo/wagakuni/19 (4) Organizational barriers 98_yogo.html (accessed on 2017/8/31) (5) Appraisal-related barriers [12] Tsutomu Konno: Problem Solving by Means of (6) Backlash from the supply chain and rival companies Module Standardization and Interface. The Journal of In some examples, the transformation of the business Japan Association for Management Systems, Vol.32, model failed because these six issues could not be No.2 (November 2015), 129-136. conquered [14]. Yamada (2012) suggests the following [13] P.F. Drucker: Drucker Sayings on Management. strategies for overcoming these challenges. Diamond Inc. (2003), 60. (1) Use service as a lever for selling a genuine product [14] Hideo Yamada: Why is That Company Profitable? at the full retail price. Business Model Edition. Nikkei Publishing Inc. (2012), (2) Build win-win relationships with stakeholders 17-19,216-242. (3) Combine customer value with economic efficiency for the customer

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