Importance of business models to the process of project management

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Table of Contents

Introduction
Defining business model
The process of project management
The relationship of business model and project management process
Integrating business model and project management
Importance of strategy and tactic
Business model and innovation
Business model and efficiency
Conclusion
References

Introduction

For a very long time, the general consensus was that business models and project management were separate disciplines. Here, the value of project management in an organization was the ability to offer the most effective and efficient way of conducting a project. Not much consideration was required by the management to understand if the project offered value to the firm through the business model.

But, these mindsets have changed since the current organizations have experienced rapid changes in technology and global competition. This problem is heightened by the continued use of the classical business models with basis on the principles of scale, labor, control, and structure (Johnson, 2006, p.4).

Such models are losing popularity because they cannot enhance the relationship between corporate strategy and techniques to implement it.

Today’s business requires actual delivery of value to customers, which gives reason for firms to address complex economic, social and business dilemmas as organic programs. This is where the importance of business modeling in project management has been suggested to fill the need.

Strategic project management emphasizes the integration of project management processes with business models to provide an all encompassing package. However, the importance of the business model is still doubtful. In an attempt to clear this doubt, this paper will evaluate the concept of business model in project management process and the emerging importance.

Defining business model

A very general idea of what constitutes business model can be attained from the definition of Magretta (2002, p.7) that business models are stories that try to explain how a business enterprises work. She asserts that a good business model answers two fundamental questions: who is the business customer and what does he value?

How can we deliver that value to the customer at the most appropriate cost? This means that the notion of a business model simply means the logic through which an enterprise earns money. Therefore, this definition brings about two principal questions that business models should respond to, one pertaining to the value a customer gets and the other to the firm’s ability to get value while serving the customer.

Amit and Zott (2001, p.500) present a narrowed but precise definition of business model as it focuses on e-business. They review how several theories have contributed to the issue of business modeling. These include; value chain analysis, virtual markets, resource-based viewpoint of the business, Schumpeterian innovation, transaction cost economics, dynamic capabilities, and strategic networks.

These authors realize that the theories contribute elements to the idea, but none per se can explain completely the idea of business models. After analyzing a sample of European and US e-business models they define the model as that which shows structure, content, and control of transactions designed to bring value by exploiting business opportunities arising.

Transaction content refers to both the information or products exchanges and to the capabilities and resources necessary. Transaction structure refers to all parties involved, their connections, and how they chose to work. Transaction governance refers to the control of the flow of products, resources, and information, the organizational culture, and the enticement to the parties.

The process of project management

Project management process involve organizing and leading a team of capable individuals in planning and executing a sequence of related activities that should be accomplished within a specified period of time and with a limited budget(Johnson, 2006, p.5). Due to the nature of the process, coordinating all the activities demands a process approach.

Frequently, development projects involve unexplored field, assumptions must be listed, assessed, as well as developing risk and contingency plans. The process also requires the close monitoring of the limited budget, schedule, and scope in order to deliver goals under the anticipated quality.

All these elements must be managed in a clear and systematic manner while initiating plans to indentify the responsibilities and resources necessary.

Moreover, there is the complexity of projects that call for a different approach as well as new ways in order to manage the limited resources and create value for all stakeholders.

This complexity is managed by de-constructing the project into manageable interrelated sections or processes, through the separation of the project into various process that the manager can better control the consequence and manage the challenges encountered.

Managing a project is a matter of identifying the strategies and tactics necessary in the system approach in order to deal with the various elements of that project. The strategies and tactics includes a holistic viewpoint of project situation, and the understanding that the project comprise of a sequence of interacting components operating to accomplish a goal so as to achieve the desired benefits.

The important thing is to indentify the process that entail the whole project management framework which assist in understanding the fundamental structure necessary for proper management of the project. This is achieved by identifying the most significant components that require careful and close analysis.

The relationship of business model and project management process

Business model is a function of project management and forms the platform for the integration of the various components of the process. While business model is the logic of the enterprise, the way it functions and creates value for customers, project management process refers to the planning, organizing, and controlling resources to successfully complete specific project objectives that facilitate the value creation for stakeholders.

Therefore, project management is both a strategy and tactic to facilitate the creation of value for stakeholders as described by the business model the organization is engaged in.

Integrating business model and project management

Having introduced the idea of projects management and business model, we can employ the generic two-stage framework to relate and integrate them. The figure below shows that business model is related to project management. As a strategy project management refers to the contingent plan of actions that determine the business model to use.

The related actions or the strategy are choices such as policies, structures, and assets that comprise the raw materials of business model. Thus project management entails the designing and redesigning of business models to allow a firm to achieve its goals.

Project management is a reflection of the realized business model. As a tactic, project management means the courses of actions that occur within the bounds defined by the business model.

Integrating business model.

Importance of strategy and tactic

Consistence with the idea of a strategy being a plan of action design to attain a particular objective, it can be referred to as the plan as to the kind of business model to use. It is a layout of committed alternatives made by management that lead to the creation of valuable and unique position which involves a different layout of activities. Strategy is not exactly the activity system, but the development of the system.

It is an elevated choice that has insightful implications on competitive outcomes. Therefore, the selection of a business model responds to the specifications of the subsequent strategy. Project management processes of a firm strategy define the elements to be considered when determining the most appropriate business model.

Tactics on the other hand play an important role in determining the level of value creation and capturing by organizations. In most cases, they echo the strategy though their characterization is influenced more by the business model used.

When project management process is viewed as a tactic, it means the efforts put by the firm to achieve particular goals when the most important elements of a strategy have been identified and considered as a priority.

Business model and innovation

At the heart of any business activity and the design of new projects, lies the idea of innovation which means the use of the existing resources in a different way, to perform new things, irrespective of whether the resources increase or not (Zotti & Amit, 2007, p.186).

This Schumpeterian reasoning of innovation through the recombination of resources is in harmony with project management in organizations that depend on new technologies to conduct their business.

The essence of business model design is to conceptualize and adopt new approaches of performing economic exchanges that can be attained, for instance, by connecting project participants that were previously unconnected, by linking the participants in new ways, and/or by designing new projects mechanisms.

Innovation through business model may complement projects to innovate products and services, production methods, marketing or distribution. An innovative business model applied to project management either creates a new market or innovate projects in existing markets (Dutton et al, 2004, p.33).

Therefore, a business model may serve to exploit the opportunity to create projects as well as be part of the process of developing the opportunity. The organizational leaders as the designers can create opportunities, for instance, by collecting new information and engaging communication technologies to facilitate project management in new ways.

Innovation through the business model may give rise to project rents. The rents may accrue the stakeholders between introduction of an innovation and the time it diffuses. Despite the perceived positive primary effect of business model on the success of a project, project rents may amass to all stakeholders.

Therefore, in order to envisage the overall effect of a business model on the success of a project, it is important to consider the effect of the model on the ability of the project to correct the value generated by the business model. This ability is determined by factors such as the ability to control information and the ability of the participants to take cohesive action.

When the availability of resources is high, business model will matter more to project success than when the resources are scarce. In periods of high resource philanthropy, project managers can more easily coordinate and negotiate with resource holders and demonstrate the benefits of their innovative business model.

Thus, organizations have easier access to the necessary resources in supporting and implementing their innovative projects driven by their business model. This means that, in environments described by high resources, the benefits derived from the business model are emphasized.

Organizations with innovation-centered business models are dignified to take the merit of the greater enthusiasm of stakeholders to facilitate a project. Therefore, business models are more associated with the success of project management process when resources are in plenty that during periods of scarcity.

Business model and efficiency

Another way for organizations to create value is to imitate the existing organizations, offerings, and/or business models. This means that organizations may choose to replicate rather than create new ones–to do the same as other organizations but in a more efficient manner (Zott, 2003, p.119). To investigate the success implications of business models, we develop on project cost perspective.

This is effectual because the perspective refers to development of economic projects just like the business model make. Exchange qualities such as information irregularity and complexity, determine that projects will be organized into hierarchies in manners that reduce project costs and ensure success.

Researchers have generally emphasized on the importance of aligning business endeavors with appropriate structure of governance (Silverman, 2001, p.484). The studies reveal the importance of the direct relationship between good project management and organization performance.

Through business models especially those centered on efficiency, any organization can achieve efficiencies in their project management processes. Focusing on the use of business model to reduce project costs, this reduction can result from the reduction of complexity, uncertainty, and communication irregularity.

Business models have assisted organizations such as Amazon to pursue logistic projects that reduce cost and increase efficiency (Dutton et al, 2004, p.34). Other efficiency-bases business models have facilitated in increasing reliabilities and simplicity of projects, streamline the exchange of information, reduce costs, speed up projects, and provide scalability.

Similar to innovation, the overall effect of the business model on efficiency on project management process can be predicted by considering the effect of the model on the firm’s ability to correct the value generated by the business model. This ability is dependent on the organization’s ability to control information and ability of the participants to take unified action.

As noted earlier, such business model aims to minimize project costs, for instance through reducing complexity and linking participants deeply. These efficiency attributes are likely to reduce the cost of project management process while enhancing the efficiency of the process.

Business models centered on efficiency are particularly important during tough economic periods. When resources are not readily available for project management process to take place, the business models assumes greater significance as a differentiating factor for the organizations that during resource munificence.

During tough periods, organizations spend less and cost savings becomes very important in steering value creation. Generally, in tough economic environments most organization will halt most of their projects due to funding issues. However, for those employing business models based on efficiency, it is likely that the benefits derived from reduced costs are accentuated in favor of project management process.

Conclusion

Business model is that which shows structure, content, and control of transactions designed to bring value by exploiting business opportunities arising. On the other hand, project management process involve organizing and leading a team of capable individuals in planning and executing a sequence of related activities that should be accomplished within a specified period of time and with a limited budget.

The importance of business model in project management is revealed when project management is viewed as a strategy or/and tactic. Business model enhances innovativeness in project management processes as well as increasing efficiency that lead to cost reduction even during the time of resource scarcity.

References

Amit, R & Zott, C. 2001. Value creation in e-Business. Strategic Management Journal, 22, pp.493-520. Dutton, W., Kahin, B., O’Callaghan, R. & Wyckoff, A. 2004. Transforming Enterprise. Boston, MA: MIT Press.

Johnson, A. S. 2006. Project management and business processes: a look at strategy, structure, processes and projects. Retrieved from: https://pmworldlibrary.net/

Magretta, J. 2002. Why business models matter. Harvard Business Review, pp.1-8.

Silverman, B. 2001. Blackwell Companion to Organizations, London, UK: Blackwell Publishers.

Zott, C. & Amit, R. 2007. Business model design and the performance of entrepreneurial firms. Organization Science, 18 (2), pp.181-199.

Zott, C. & Amit, R. 2010. Business model design: an activity system perspective. Long Range Planning, 43, pp.216-226.

Zott, C. 2003. Dynamic capabilities and the emergence of intra-industry differential firm performance:Insights from a simulation study. Strategic Management Journal, 24, pp.97-125.

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