Quantitative Analysis of Business Models and Manufacturing Industry’S Approach to Business
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International Journal of Japan Association for Management Systems Vol. 10 No.1, December 2018, pp. 45-52 Quantitative Analysis of Business Models and Manufacturing Industry’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 company business models. This study quantifies business models and uses data analysis to clarify the key factors that change the business model 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 businesses, 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 companies 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 intellectual property management that manufacturing industry since it is a key industry of Japan uses the following properly for unique technologies: accounting 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) Competitive advantage 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 money" [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 organization 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 Partnerships), 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 finance, 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 Service 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 International Journal of Japan Association for Management Systems - 46 - 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.