Popular in Course
verified elite notetaker
Popular in Business
This 205 page Document was uploaded by an elite notetaker on Sunday December 20, 2015. The Document belongs to a course at a university taught by a professor in Fall. Since its upload, it has received 7 views.
Reviews for Business-Models-Networking--Innovating-and-Globalizing
Report this Material
What is Karma?
Karma is the currency of StudySoup.
You can buy or earn more Karma at anytime and redeem it for class notes, study guides, flashcards, and more!
Date Created: 12/20/15
Christian Nielsen & Morten Lund (Eds.) Business Models Networking, Innovating and Globalizing Download free eBooks at bookboon.com 2 Business Models: Networking, Innovating and Globalizing nd 2 edition © 2012 Christian Nielsen, Morten Lund (Eds.) & bookboon.com (Ventus Publishing ApS) ISBN 978-87-403-0179-3 Download free eBooks at bookboon.com 3 Business Models: Networking, Innovating and Globalizing Contents Contents About the authors 9 1 An introduction to business models 12 1.1 Overview of the book 14 1.2 Networking, innovating and globalizing 15 1.3 Value configuration 16 1.4 Driving out the business model 24 1.5 Archetypes of business models: looking for patterns 24 Sum-up questions for chapter 1 25 2 A brief history of the business model concept 26 Sum-up questions for chapter 2 33 3 Moving towards maturity in business model definitions 34 3.1 Business model typologies 35 3.2 Business model characteristics 47 3.3 Towards business model building blocks 58 Sum-up questions for chapter 3 59 The next step for top-performing graduates Masters in Management Designed for high-achieving graduates across all disciplines, London Business School’s Masters in Management provides specific and tangible foundations for a successful career in business. This 12-month, full-time programme is a business qualification with impact. In 2010, our MiM employment rate was 95% within 3 months of graduation*; the majority of graduates choosing to work in consulting or financial services. As well as a renowned qualification from a world-class business school, you also gain access to the School’s network of more than 34,000 global alumni – a community that offers support and opportunities throughout your career. For more information visit www.london.edu/mm, email email@example.com or give us a call on +44 (0)20 7000 7573. *Figures taken from London Business School’s Masters in Management 2010 employment report Download free eBooks at bookboon.com 4 Click on the ad to read more Business Models: Networking, Innovating and Globalizing Contents 4 Frameworks for understanding and describing business models 60 4.1 Service-profit chain 61 4.2 The strategic systems auditing framework 62 4.3 Strategy maps 68 4.4 Intellectual capital statements 74 4.5 Chesbroughs open business model framework 76 4.6 Business model canvas 79 Sum-up questions for chapter 4 81 5 Network-based business models 82 5.1 What defines a network based business model? 83 5.2 Barriers and challenges 84 Sum-up questions for chapter 5 85 6 Value creation maps 86 6.1 What is the value creation process? 87 6.2 Why might the value creation process be difficult to discover? 88 6.3 What is a value creation map? 89 6.4 The building process: A two-step method 90 6.5 Refining the value creation map 93 Join EADS. A global leader in aerospace, defence and related services. Let your imagination take shape. helicopter supplier, a global leader in space programmes and a development opportunities, and all the support you need, worldwide leader in global security solutions and systems to form interesting challenges on state-of-the-art products. Europe’s largest defence and aerospace group. MoreWe take more than 5,000 interns every year across disciplines 140,000 people work at Airbus, Astrium, Cassidian ranging from engineering, IT, procurement and ﬁnance, to in 90 locations globally, to deliver some of the istrategy, customer support, marketing and sales. Positions are exciting projects. available in France, Germany, Spain and the UK. An EADS internship offers the chance to use your theoretical knowledge and apply it ﬁrst-hand to real situations and assignmentsnd apply, visitwww.jobs.eads.com. You can also during your studies. Given a high level of responsﬁnd out more on our EADS Careers Facebook page. Download free eBooks at bookboon.com 5 Click on the ad to read more Business Models: Networking, Innovating and Globalizing Contents 6.6 Value creation maps and indicators 94 6.7. Pros and cons 96 Sum-up questions for chapter 6 98 7 Business model innovation 99 7.1 Method 100 7.2 Analysis 104 7.3 Discussion: Single vs. multi BM innovation 107 7.4 Conclusion 110 Sum-up questions for chapter 7 110 8 Globalizing high-tech business models 111 8.1 Setting the scene 111 8.2 Tensions at the inception 112 8.3 Dyadic tensions 117 8.4 Conclusion 120 Sum-up questions for chapter 8 122 9 Communicating and reporting on the business model 123 9.1 The demand and supply of value-creation information 125 9.2 The business model and business reporting 128 Excellent Economics and Business programmes at: “The perfect start of a successful, international career.” CLICK HERE to discover why both socially and academically the University of Groningen is one of the best places for a student to be www.rug.nl/feb/education Download free eBooks at bookboon.com 6 Click on the ad to read more Business Models: Networking, Innovating and Globalizing Contents 9.3 Good advice on communicating business models 130 Sum-up questions for chapter 9 132 10 The investor perspective on business models 133 10.1 Information needs of investors and analysts 135 10.2 Background on the market for information 137 10.3 Gaining a competitive edge in the market for information 140 10.4 Information trigger-points for investors 145 10.5 Analysts as infomediaries 147 10.6 Translated to the real world context this means… 148 Sum-up questions for chapter 10 152 11 Analyzing business models 153 11.1 The analytical guideline 157 11.2 The process of evaluating business models 160 Sum-up questions for chapter 11 166 12 Strategic innovation – the context of business models and business development167 12.1 Introduction: a new competitive landscape 167 12.2 Strategic innovation: the background 169 12.3 Defining strategic innovation 170 12.4 Defining business concepts 171 Teach with the Best. Learn with the Best. Agilent offers a wide variety of affordable, industry-leading electronic test equipment as well as knowledge-rich, on-line resources —for professors and students. We have 100’s of comprehensive web-based teaching tools, lab experiments, application notes, brochures, DVDs/ CDs, posters, and more. See what Agilent can do for you. www.agilent.com/ﬁnd/EDUstudents www.agilent.com/ﬁnd/EDUeducators © Agilent Technologies, Inc. 2012 u.s. 1-800-82canada: 1-877-894-4414 Download free eBooks at bookboon.com 7 Click on the ad to read more Business Models: Networking, Innovating and Globalizing Contents 12.5 Discussions 178 Sum-up questions for chapter 12 181 References 182 Need help with your dissertation? Get in-depth feedback & advice from experts in your topic area. Find out what you can do to improve the quality of your dissertation! Get Help Now Go towww.helpmyassignment.co.uk for more info Download free eBooks at bookboon.com 8 Click on the ad to read more Business Models: Networking, Innovating and Globalizing About the authors About the authors Christian Nielsen Christian Nielsen, Ph.d., is Associate Professor at Aalborg University in Denmark. He is Centre Director of CREBS (Center for Research Excellence in Business modelS, www.crebs.aau.dk), the worlds first interdisciplinary research center focusing on business models. Christian has previously worked as an equity strategist and macro economist focusing specifically on integrating Intellectual Capital and ESG factors into business model valuations. His Ph.d. dissertation from 2005 won the Emerald/EFMD Annual Outstanding Doctoral Research Award, and in 2011 he received the Emerald Literati Network Outstanding Reviewer Award. Christian Nielsen has a substantial number of international publications to his record and his research interests concern analyzing, evaluating and measuring the performance of business models. Linkedin profile for Christian: dk.linkedin.com/in/christianhnielsen Morten Lund Morten Lund, MA in Business, Ph.d. Fellow at Aalborg University in Denmark. He is an experienced entrepreneur and executive, with a combined pragmatic and creative profile. He believes in mixing knowledge and creativity with methods and structure. He has a wide knowledge and experience bothpracticallyandmethodologically/theoreticallythathehas gained through a natural curiosity and eagerness to discover new dimensions of business. He is among the founding group of CREBS (Center for Research Excellence in Business modelS, www.crebs.aau.dk), the worlds first interdisciplinary research center focusing on business models. Linkedin profile for Morten: dk.linkedin.com/in/mortenlunddk Download free eBooks at bookboon.com 9 Business Models: Networking, Innovating and Globalizing About the authors RomeoV.Turcan Romeo V. Turcan is Associate Professor at Aalborg University in Denmark. He holds a PhD and an MSc degree from Strathclyde University in the UK, and mechanical engineering degree from the Air Force Engineering Military Academy in Latvia. He has researched in the areas of entrepreneurship and international business, including aspects of legitimation, internationalization of entrepreneurial firms, de- and re-internationalization of knowledge intensive ventures. He has studied the entrepreneurial capabilities and business models of knowledge intensive firms and is interested in cross-disciplinary theory building. Dr. Turcan has published in Journal of International Entrepreneurship, International Journal of Entrepreneurship and Small Business, International Entrepreneurship and Management Journal, Venture Capital: an International Journal of Entrepreneurial Finance, International Small Business Journal, and Advances in International Management. Linkedin profile for Romeo: dk.linkedin.com/pub/romeo-turcan/0/87/b65 YarivTaran YarivTaran,Ph.D,isanAssistantProfessorattheCenterforIndustrialProductionatAalborgUniversity. He received his bachelor’s degree in Management and Sociology at the Open University of Israel, and M.Sc.inEconomicsandBusinessAdministrationatAalborgUniversity.Hisresearchfocusesonbusiness model innovation. Other areas of research interests include intellectual capital management, knowledge management, entrepreneurship and regional systems of innovation. Academic profile for Yariv: http://personprofil.aau.dk/115453 Marco Montemari Marco Montemari, Ph.D., is Research Grantee at the Marche Polytechnic University (Faculty of Economics “G. Fuà”). His research interests concern management accounting and intellectual capital. Marco was a visiting Ph.D. student at the Aalborg University in Denmark from May to August 2011. His Ph.D. dissertation focused on how cognitive maps can support and improve the measurement and the management of intellectual capital. Linkedin profile for Marco: it.linkedin.com/pub/marco-montemari/2b/168/979 Download free eBooks at bookboon.com 10 Business Models: Networking, Innovating and Globalizing About the authors Robin Roslender Robin Roslender is a Professor in Accounting and Finance and Acting Dean at Dundee University. A trained sociologist and accountant, he divides his research effort between managerial accounting and critical accounting topics. Currently Dr. Roslender is looking at the relationship between workforce health and well-being and intellectual capital. In early 2008 he was appointed Editor of the Journal of Human Resource Costing and Accounting. Academic profile for Robin: http://www.dundee.ac.uk/accountancy/staff/robinroslender/ Per Nikolaj Bukh Per Nikolaj Bukh is a Professor at the Department of Business Studies at Aalborg University, Denmark (http://www.pnbukh.com/). He has published about 200 articles, book chapters, reports and books on a number of subjects including Knowledge management, Intellectual Capital reporting, Benchmarking and management accounting. In addition to his research activities, Per Nikolaj Bukh often contributes to postgraduate programs and conferences. Linkedin profile for Per Nikolaj: dk.linkedin.com/in/pernikolajbukh Anders Drejer Anders Drejer is a Full Professor in Strategic Management and Business Development at Aalborg University, Department of Economy and Management. Professor Drejer has a M.Sc. in Industrial Engineering (1993) and a Ph.D. in strategy (1996) from Aalborg Unversity. He has published extensively over the years including 14 books and more than 100 journalpapers and scientific articles. Furthermore, Professor Drejer is a well-known expert in the media, public speaker and advisor to a number of organisations.Atpresent,ProfessorDrejerisinterestedinthenewbusinessmodelsthatarebeingcreated based on globalization, digitalisation, experience economy and new competitive landscapes. Linkedin profile for Anders: dk.linkedin.com/pub/anders-drejer/0/214/221 Download free eBooks at bookboon.com 11 Business Models: Networking, Innovating and Globalizing An introduction to business models 1 An introduction to business models (Written by Christian Nielsen, Associate professor, PhD, and Morten Lund, MSc., PhD-fellow) [Please quote this chapter as: Nielsen, C. & M. Lund (2012), An introduction to business models, in Nielsen, C. & M. Lund (Eds.) Business Models: Networking, Innovating and Globalizing, Vol. 1, No. 2. Copenhagen: BookBoon.com/Ventus Publishing Aps] A business model is a sustainable way of doing business. Here sustainability stresses the ambition to survive over time and create a successful, perhaps even profitable, entity in the long run. The reason for this apparent ambiguity around the concept of profitability is, of course, that business models apply to many different settings than the profit-oriented company. The application of business models is much broader and is a meaningful concept both in relation to public-sector administration, NGO’s, schools and universities and us, as individuals. A recent contribution in this latter realm is the book Business Model You by Clark et al. (2012), which translates the ideas of Osterwalder & Pigneur’s (2010) business model canvas into a personal setting for career enhancement purposes. Whether,inthecaseoftheprivatelyownedcompany,profitsareretainedbytheshareholdersordistributed in some degree to a broader mass of stakeholders is not the focus here. Rather, it is the point of this book to illustrate how one may go about conceptualizing, analyzing or communicating the business model of a company, organisation, or person! Sustainabilityishereinterpretedasthepropensitytosurviveandthusalsotheabilitytostaycompetitive. As such, a business model cannot be a static way of doing business. It must be developed, nursed and optimized continuously in order for the company to meet changing competitive demands. Precisely how the company differentiates itself is the competitive strategy, whilst it is the business model that defines on which basis this is to be achieved; i.e. how it combines its know-how and resources to deliver the value proposition (which will secure profits and thus make the company sustainable). Download free eBooks at bookboon.com 12 Business Models: Networking, Innovating and Globalizing An introduction to business models In the last decades, the speed of change in the business landscape has continuously accelerated. In the late 1990’s, the e-business revolution changed global competition, and during the early years of the new millennium the knowledge-based society along with rising globalization and the developments in the BRIC economies ensured that momentum continued upwards. As new forms of value configurations emerge, so do new business models. Therefore, new analysis models that identify corporate resources such as knowledge and core processes are needed in order to illustrate the effects of decisions on value creation. Accordingly, managers as well as analysts must recognize that business models are made up of portfolios of different resources and assets and, not merely traditional physical and financial assets, and every company needs to create their own specific business model that links its unique combination of assets and activities to value creation. The rising interest in understanding and evaluating business models can to some extent be traced to the fact that new value configurations outcompete existing ways of doing business. There exist cases where some businesses are more profitable than others in the same industry, even though they apply the same strategy. This illustrates that a business model is different from a competitive strategy and a value chain. A value chain is a set of serially performed activities for a firm in a specific industry. Figure 1: Porters GenericValue Chain, Porter 1988 The difference thus lies in the way activities are performed (strategic and tactical choices), and therefore a business model is closely connected to a management control agenda. The business model perspective has also been found useful for aligning financial and non-financial performance measures with strategy andgoals.Inaddition,communicativeaspectsfromexecutivemanagementtotherestoftheorganization, andalsotoexternalstakeholderssuchasbankers,investors,andanalysts,arealsofacilitatedbyabusiness model perspective. Download free eBooks at bookboon.com 13 Business Models: Networking, Innovating and Globalizing An introduction to business models 1.1 Overview of the book The field of business models is becoming a core management discipline alongside accounting, finance, organization etc. and we soon expect to see teaching modules on business models entering leading MastersandMBAprogrammes.Thisdevelopmentistakingplaceaswespeak,andatAalborgUniversity, this curriculum is already a mandatory part of several Masters level courses. This movement is in the coming years expected to be driven forth, partly by a call for greater interdisciplinarity within the core managementdisciplinesandacrossthenaturalsciences,andpartlybecausebusinessmodeloptimization and commercialization will become a politically driven issue in the light of innovation and sustainability pressures. At CREBS we believe that the focus on Business Models in policy-making and the business environment should be equally as important as the present focus on innovation and technology development and will become a focal point of support for entrepreneurs and small and medium sized companies. The “Vision” of this book is to be the most accessed and read book on business models by students, teachers and practitioners, and in due course to strengthen the relationship between innovation and commercialization activities and to make an impact on growth and sustainability of businesses. The“Mission”ofthisbookistoconstituteaninternationallyrenownedplatformthataccompaniesleading experts world wide and to affect business-related policy-making on regional, national and transnational levels. Free online Magazines Click here to download SpeakMagazines.com Download free eBooks at bookboon.com 14 Click on the ad to read more Business Models: Networking, Innovating and Globalizing An introduction to business models This book is structured so that the first 4 chapters give a basic introduction to the field of business models. Then we illustrate how the three main tendencies in business – networking, innovation and globalizing – are achieved through a business model perspective. Finally, we explore the inks between business models and profitability to greater extent. 1.2 Networking, innovating and globalizing Organizational survival has been stressed several times in the introduction to this book. Why? Because it is adamant. Of course, some companies and organizations are situated in sweet spots, with lacking competition, lots of funding and market growth in terms of customers to serve. This is, incidentally, regardless of whether the organization is in the public sector or the private sector. However, the situation is more often than not one of competition, constant change in markets and demand and fights for resources, competences and capital. Especially in the western world this is inherent. Whoever thought that the financial crisis, which started back in 2007, was over has during the second half of 2011 been proven wrong. National banks, governments and corporations world-wide have continuously smaller room for maneuver and weaker tools for creating financial stability and growth as the crisis moves into new phases. As such, more citizens will in 2012 be questioning not just the future of the financial sector of the western world, but also the sustainability of the industrialized western society as a whole. On the one hand, pressure from under-burdened western society taxpayers (voters) who crave an average working week of 35-37 hours and retirement 40-50 years prior to their death will be on the rise. On the other hand, eager hardworking Asian and Indian consumers with surprisingly well-educated workforces will lead us to be questioning our chances of economic survival in a truly globalized world all throughout 2012. One possible answer to this problem is that we to a greater extent need to rely on human capital in the quest for private sector value creation and competitiveness. However, human capital will not make the difference alone. Only when complemented by triple-helix based innovation structures, creativity and unique business models that commercialize innovation and human capital will this be an avenue to future sustainability of these societies. So you see: business models are not only important; they are crucial! Henry Chesbrough, Professor at University of California, Berkeley, has at several occasions stated that he would rather have part in a mediocreinventionwithagreatbusinessmodel,thanagreatinventionwithamediocrebusinessmodel.It is in this light that the keywords networking, innovation and globalizing are brought forth. These are the key success factors for sustaining business growth moving forward and hence also society as we know it. Download free eBooks at bookboon.com 15 Business Models: Networking, Innovating and Globalizing An introduction to business models The title of this book specifically emphasizes the three aspects networking, innovating and globalizing. We view these aspects as key success factors for sustaining business growth and thus they become cornerstones of the successful business models of the future. Networking and the ability to collaborate with key strategic partners in win-win based relationships will become even more vital for companies in the next years and decades. Building and encompassing e.g. win-win based relationships with strategic partnerswillrequirededicatedbusinessmodelinnovationandtheseaspectswillbeunderseverepressure from the rising degree of globalization we are seeing in these years. Intheendthethreesuccessfactorsforsustainingbusinessgrowthtogetherhavethepotentialtoproduce a whole new array of business model archetypes. The world has already seen the birth of the so-called Born Globals (REF here) and we expect to see other archetypes like Growth-symbioses and Micro- 1 multinationals emerge in the near future. 1.3 Value configuration Newvalueconfigurationssuchasthosebornoutofthethreesuccessfactorsforfuturegrowthhighlighted above reflect changes in the competitive landscape towards more variety in value creation models within industries. Previously the name of the industry may have served as a recipe for addressing customers. It doesn’t any more. Already in 2000, leading management thinker, Gary Hamel, quoted that competition nowincreasinglystandsbetweencompetingbusinessconcepts.Iffirmswithinthesameindustryoperate on the basis of different business models, different competences and knowledge resources are key parts of the value creation, and thus comparison of the specific firms even within peer groups now requires interpretation based on an understanding of differences in business models. Iffirmsonlydiscloseaccountingnumbersandkeyperformanceindicatorswithoutdisclosingthebusiness model that explains the interconnectedness of the indicators and why the bundle of activities performed is relevant for understanding the strategy for value creation of the firm, this interpretation must be done by someone else. Currently, there does not exist much research based insight into how this reading and interpretation may be conducted, and it is very likely that this understanding of the value creation of firms would be facilitated if companies disclosed such information as an integral part of their strategy disclosure. We attempt to address these issues in detail in chapter 9. 1 At Center for Research Excellence in Business modelS we are currently working on series of research projects that map out the attributes of the two new business model archetypes Growth-symbioses and Micro-multinationals. Download free eBooks at bookboon.com 16 Business Models: Networking, Innovating and Globalizing An introduction to business models 1.3.1 (One possible) verbal definition of a business model A business model describes the coherence in the strategic choices which facilitates the handling oftheprocessesandrelationswhichcreatevalueonboththeoperational,tacticalandstrategic levels in the organization. The business model is therefore the platform which connects resources, processes and the supply of a service which results in the fact that the company is profitable in the long term. This definition emphasizes the need to focus on understanding the connections and the interrelations of the bsuienss and its operations so that the core of a business model description is the connections that create value. This can be thought of e.g. by contemplating the silos by which the management discussion in the annual report normally is structured. By themselves, endless descriptions of customer relations, employee competences, knowledge sharing, innovation activities and corporate risks do not tell the story of the business model. However, if we start asking how these different elements interrelate, which changes among them that are important to keep an eye on and what is the status on operations, strategy and the activities initiated in order to conquer a unique value proposition are effectuated, we will start to get a feeling for how the chosen business model is performing. You’re full of energy and ideas . And that’s © UBS 2010. All rights reserved. just what we are looking for. Looking for a career where your ideas could really make a diﬀerence? ▯UBS’s Graduate Programme and internships are a chance for you to experience for yourself what it’s like to be part of a global team that rewards your input and believes in succeeding together. Wherever you are in your academic career, make your future a part of ours by visiting www.ubs.com/graduates. www.ubs.com/graduates Download free eBooks at bookboon.com 17 Click on the ad to read more Business Models: Networking, Innovating and Globalizing An introduction to business models 1.3.2 Conceptualizing the business model Conceptualizingthebusinessmodelisthereforeconcernedwithidentifyingthisplatform,whileanalyzing it is concerned with gaining an understanding of precisely which levers of control are apt to deliver the value proposition of the company. Finally, communicating the business model is concerned with identifyingthemostimportantperformancemeasures,bothabsoluteandrelativemeasures,andrelating them to the overall value creation story. A business model is neither just a value chain, nor is it a corporate strategy. There exist many value configurations that are different to that of a value chain, like e.g. value networks and hubs. Rather, a business model is concerned with the unique combination of attributes that deliver a certain value proposition. Therefore, a business model is the platform which enables the strategic choices to become profitable. In some instances it can be difficult to distinguish between businesses that succeed because they are the bestatexecutingagenericstrategyandbusinessesthatsucceedbecausetheyhaveuniquebusinessmodels. This is an important distinction to make, and while some cases are clear-cut, others remain fuzzier. One of the best examples of a business model that has changed an existing industry is Ryanair, which has essentially restructured the business model of the airline industry. As the air transport markets have matured, incumbent companies that have developed sophisticated and complex business models now face tremendous pressure to find less costly approaches that meet broad customer needs with minimal complexity in products and processes. While the generic strategy of Ryanair can be denoted as a low- price strategy, this does not render much insight into the business model of the company. The low-cost option is per se open to all existing airlines, and many already compete alongside Ryanair on price. However, Ryanair was among the first airline companies to mold its business platform to create a sustainable low-price business. Many unique business models are easy to communicate because they have a unique quality about them; i.e. either a unique concept or value proposition. This is also the case for Ryanair. It is the “no-service business model”. In fact, the business model is so well thought through thateventhearroganceandattitudeofthetopmanagementmatchestherestofthebusiness.Buttheycan make money in an industry that has been under pressure for almost a decade, and for this they deserve recognition. Ryanair’s business model narrative is the story of a novel flying experience – irrespective of the attitude of the customer after the ordeal. Download free eBooks at bookboon.com 18 Business Models: Networking, Innovating and Globalizing An introduction to business models A much applied example in the management literature is Toyota. However, Toyota did not really change the value proposition of the car industry. They were able to achieve superior quality through JIT and Lean management technologies, and they may have made slightly smaller cars than the American car producers, but their value proposition and operating platform were otherwise unchanged. The same can be said for Ford in the early 20th century. Ford’s business setup was not really a new business model. It sold one car model in one color, but so did most other car manufacturers at the time. Ford was able to reduce costs through a unique organization of the production setup, but the value proposition was not unique. Inthe1990’s,DellchangedthepersonalcomputerindustrybyapplyingtheInternetasanoveldistribution channel. This platform as a foundation of the pricing strategy took out several parts of the sales channel, leavingalargercuttoDellandcheaperpersonalcomputerstothecustomers.Nowadaysthisdistribution strategy is not a unique business model anymore as many other laptop producers apply it. Therefore, it is also a good example of the fact that what is unique today is not necessarily unique tomorrow. This mirrors Christensen’s quote that “today’s competitive advantage becomes tomorrow’s albatross” (Christensen 2001, 105). Having the right business model at the present does not necessarily guarantee success for years on end as new technology or changes in the business environment and customer base can influence profitability. The point to be made here is that if the value proposition is not affected in some manner, then it is most likely not a new business model. However, it could be the case that the value proposition is not affected, but the business’ value generating attributes are radically different from those of the competitors. Three examples of this are: 1. Thevaluepropositionoftwocompaniesproducingkitchenappliances.Onemaybemorehigh- end than the other, but this is a part of the competitive strategy, not the actual business model 2. The value proposition of two companies producing laptops. One may be priced lower because the range is smaller and the design kept to one color etc. This is not equivalent to different business models, but also a question of competitive strategy and customer selection. However, if one of the producers decides to alter the traditional distribution model, cutting out store placement and setting up technical support as local franchisees only, that could be a new business model 3. Two hair salons will both be performing haircuts, but their value propositions may be vastly different according to the physical setup around the core attribute Download free eBooks at bookboon.com 19 Business Models: Networking, Innovating and Globalizing An introduction to business models 1.3.3 Which parameters do we need to understand? Remembering that the business model is the platform which enables the strategic choices to become profitable, then it is clear that a business model is neither a pricing strategy, a new distribution channel, an information technology, nor is it a quality control scheme in the production setup. By themselves that is. A business model is concerned with the value proposition of the company, but it is not the value proposition alone as it in itself is supported by a number of parameters and characteristics, e.g. some of the parameters mentioned above like applied distribution channels, customer relationships, pricing models and sourcing from strategic partnerships. The key question here is therefore: how is the strategy and value proposition of the company leveraged? The problem with trying to visualize the “business model” of the company is that it can very quickly become a generic and static organization diagram illustrating the process of transforming inputs to outputsinachain-likefashion.Thereaderisthusmoreoftenthannotleftwonderinghowtheorganization actuallyfunctions.Hence,thecoreofthebusinessmodeldescriptionshouldbetheconnectionsbetween the different elements that the management review is traditionally divided into, i.e. the actual activities being performed in the company. Companies often report a lot of information about activities such as customer relations, distribution channels, employee competencies, knowledge sharing, innovation and risks;butthisinformationmayseemunimportantifthecompanyfailstoshowhowthevariouselements of the value creation collaborate, and which changes we should keep an eye on. One such idea on how to visualize the business model is the popular Business Model Canvas by Osterwalder & Pigneur (2010). Potential ENGINEERS, UNIVERSITY forexploration GRADUATES & SALES PROFESSIONALS Junior and experienced F/M Total will hire 10,000 people in 2013. Why not you? Are you looking for work in engineering, R&D, sales & marketingof or support professions such as information technology? We’re interested in your skills. Join an international leader in the applying atd chemical industry by More than 600 job.com openings are now online! Potential Copyright : Total/Corbis forrddevvellopmme entt Download free eBooks at bookboon.com 20 Click on the ad to read more Business Models: Networking, Innovating and Globalizing An introduction to business models Figure 2: Business Model Canvas (www.businessmodelgeneration.com) When we perceive relationships and linkages, they often reflect some kind of tangible transactions, i.e. the flow of products, services or money. When perceiving and analyzing the value transactions going on inside an organization, or between an organization and its partners, there is a marked tendency to neglect or forget the often parallel intangible transactions and interrelations that are also involved. At the Center for Research Excellence in Business modelS (CREBS) we have recently analyzed how existing“models”or“tools”perceivetransactionsandrelationships,andwehavefoundthattheygenerally lack a conception of intangible transactions, which in many cases are the very key to understanding the value logic of a business model. These ideas are discussed in depth in chapter 6 on value creation maps. While value creation from an accounting perspective merely constitutes the realization of value at the timeofsaleoftheproduct,i.e.registrationofturnover,fromaprocessperspective,valuecreationmaybe characterizedasthestepsleadingtowardsvaluerealization.Therebyweareinthisgenremoreconcerned with value creation potential, value creation processes and value creation extraction, which all can be said to precede the value realization phase. Download free eBooks at bookboon.com 21 Business Models: Networking, Innovating and Globalizing An introduction to business models In 2002 Chesbrough & Rosenbloom tried to corner the important aspects to be considered in order to comprehensively describe the business model of the company. They defined the business model as “[a] construct that integrates these earlier perspectives into a coherent framework that takes technological characteristicsandpotentialsasinputs,andconvertsthemthroughcustomersandmarketsintoeconomic outputs. The business model is thus conceived as a focusing device that mediates between technology development and economic value creation. We argue that firms need to understand the cognitive role of the business model, in order to commercialize technology in ways that will allow firms to capture value from their technology investments” (Chesbrough & Rosenbloom 2002, 5). This definition is worth noticing because it was among the first one to set value creation as a central notion of understanding the points of concern in the business model of a company. In the wake of this definition, they define six elements which make up the business model: 1. Articulate the value proposition, that is, the value created for users by the offering based on the technology 2. Identify a market segment, that is, the users to whom the technology is useful and for what purpose 3. Define the structure of the value chain within the firm required to create and distribute the offering 4. Estimate the cost structure and profit potential of producing the offering, given the value proposition and value chain structure chosen 5. Describe the position of the firm within the value network linking suppliers and customers, including identification of potential complementors and competitors 6. Formulate the competitive strategy by which the innovating firm will gain and hold advantage over rivals It is interesting to note that Chesbrough & Rosenbloom in the above take in strategy as an element of the business model. The relationship between business models and strategy is, if not fuzzy, then at least undecided. In her book from 2002, Joan Magretta defines business models as “stories that explain how enterprises work”, and notes that strategy, understood as how to outmaneuver your competitors, is somethingdifferentfromabusinessmodel.Seddonetal.2004takepartinthisdiscussionbyschematizing the possibilities in figure 3 below. Download free eBooks at bookboon.com 22 Networking, Innovating and GlobalizingAn introduction to business models Figure 3: Possible concept overlaps between business models and strategy (Seddon et al. 2004) If we briefly recap the business model definition given above: “A business model describes the coherence inthestrategicchoiceswhichfacilitatesthehandlingoftheprocessesandrelationswhichcreatevalueon both the operational, tactical and strategic levels in the organization. The business model is therefore the the company is profitable in the long term”, it is evident that it takes the stance of Seddon et al.s (2004) option E, because it sees the business model as the platform that enables strategy-execution. thinking . 360° thinking . 360° thinking . Discover the truth at www.deloitte.ca/careerDiscover the truth at www.deloitte.ca/careers © Deloitte & Touche LLP and affili.ated entities. Discover the truth at www.deloitte.ca/careersoitte & Touche LLP and affili.ated entities. © Deloitte & Touche LLP and affili.ated entities. Discover th23truth at Click on the ad to read more Business Models: Networking, Innovating and Globalizing An introduction to business models 1.4 Driving out the business model In order to start working with clarifying the business model of a company or an organization, one can start off by asking the following questions (regardless of which business model framework one chooses for structuring and visualizing the business model during the process): • Which value creation proposition are we trying to sell to our customers and the users of our products? • Which connections are we trying to optimize through the value creation of the company? • In which way is the product/service of the company unique in comparison to those of major competitors? • Are there any critical connections between the different phases of value creation undertaken? • Can we describe the activities that we set in motion in order to become better at what we do? • …and can we enlighten these through relevant performance measures? • Which resources, systems and competences must we attain in order to be able to mobilize our strategy? • What do we do in relation to ensuring access to and developing the necessary competences? • Can we measure the effects of our striving to become better, more innovative or more efficient, apart from the bottom line? • Which risks can undermine the success of the chosen Business Model? • What can we do to control and minimize these? 1.5 Archetypes of business models: looking for patterns Other authors have attempted to define business models by discussing and identifying overall business model generics and archetypes. Business model archetypes was, as will be described in greater detail in chapter 2 on the history of the business model concept, one of the primary discussions in the field in relation to e-business models. Already in 1998, Timmers classified 10 generic types of Internet business models: • e-shop • e-procurement • e-auction • 3rd party marketplace • e-mall • Virtual communities • Value chain integrator • Information brokers • Value chain service provider Download free eBooks at bookboon.com 24 Business Models: Networking, Innovating and Globalizing An introduction to business models • Collaboration platforms Two years later, Rappa (2000) identified 41 types of Internet business models and classified them into 9 categories, which were fairly similar to Weill & Vitale’s eight (e-)business models from 2001: • Content Provider • Direct to Consumer • Full Service Provider • Intermediary • Shared Infrastructure • Value net integrator • Virtual Community • Whole of Enterprise/Government In recent years it is to a rising degree being realized that archetypes of e-business in reality merely are translations of already existing business models. And thus business model archetypes seen through today’s lenses could be something along the lines of: • Buyer-seller models • Advanced buyer-seller models • Network-based business models • Multisided business models • Business models based on ecology • Bottom of the pyramid business models • Business Models based on social communities • Co-creation and consumer-collaboration models • Freemium models Osterwalder et al. 2010 and Johnson 2010 provide more inputs on business model archetypes or patterns as they may also be called. Sum-up questions for chapter 1 • What is the difference between strategy and business models? • What is the difference between a business model and a value chain? • What is a business model archetype? • Find real life examples of the various business model archetypes Download free eBooks at bookboon.com 25 Business Models: Networking, Innovating and Globalizing A brief history of the business model concept 2 A brief history of the business model concept (Written by Christian Nielsen, Associate professor, PhD) [Please quote this chapter as: Nielsen, C. (2012), A Brief History of the Business Model Concept, in Nielsen, C. & M. Lund (Eds.) Business Models: Networking, Innovating and Globalizing, Vol. 1, No. 2. Copenhagen: BookBoon.com/Ventus Publishing Aps] Business models have been intimately connected with e-business since the rise of the Internet during the late 1990’s. Kodama (1999) and Hedman & Kalling 2003 provide early reviews of the business model conceptasseenaroundthedot.comeraandtheriseofthee-businessmodel,whileamorerecentaccount of events and developments can be found in Fielt’s 2011 review. Around 2001-2002, the concept of the business model started receiving a much more general meaning in management literature than the e-biz rhetoric which had surrounded it in the first years. Despite the definition of a business model still being “fuzzy at best”, in the words of Porter (2001), his colleague Joan Magretta, for instance, gained much attention by perceiving business models as “stories that explain how enterpriseswork”(Magretta2002,4).AccordingtoMagretta,businessmodelsdidnotonlyshowhowthe firm made money but also answered fundamental questions such as: “who is the customer? and “what does the customer value?” (Magretta 2002, 4). Precisely this aspect of value seen from the point of the customer made a big impact on the existing thinking. Further, a basic idea of the business model concept was that it should spell out the unique value proposition of the firm and how such a value proposition ought to be implemented. For customers such “value creation” could be related to solving a problem, improving performance, or reducing risk and costs, which might require specific value configurations including relationships to suppliers, access to technologies, insight in the users’ needs etc. In the late 1990’s the ‘business model’ concept became almost synonymous with e-business and the emergence of the so-called new economy. The Internet had in essence created an array of new business models where the major focal point of the literature on business models from an e-business perspective became how to migrate successfully to profitable e-business models. Therefore, much of the business model literature focusing on the e-business context concerned how such organizations could create value in comparison to their bricks and mortar counterparts. The only problem with the early e-business models was that they tended to forget the actual profit-formula or at best be completely overoptimistic on the conversion of Internet traffic to actual profits. Download free eBooks at bookboon.com 26 Business Models: Networking, Innovating and Globalizing A brief history of the business model concept As such, far from all ways of doing business through the Internet were profitable, and accordingly there has been a substantial interest in explaining how the nature of the new distribution and communication channels formed parts of new business structures. One way of approaching this issue was through Amit & Zott’s (2001) four dimensions of value-creation potential in e-businesses that has to be in place for an e-business model to be profitable: It must create efficiencies in comparison to existing ways of doing business,anditmustfacilitatecomplementarities,noveltyorenablethelock-inofcustomers.Forexample, the creation of efficiencies can be seen as the underlying notion of Internet-based business models in the banking industry, while e-commerce as a new distribution channel has created efficiencies thus enabling new business models to emerge. In the late 1990’s the mere naming of companies as ‘dot-com’ was enough to signal that the business model of the company was potentially profitable or at least attractive for investors. However, after the tech stock crash, analyst and investor behaviour changed so radically that signaling dot.com had the opposite effect. In a blow, it was no longer viable just to imitate an Internet-company business model. Now profit generation is required regardless of ones distribution channel. This led to several authors stating that the profit-formula should still be a central feature of the business model. Based on dominant revenue models on the Internet, Afuah and Tucci (2003) identified four profit-formulas for e-businesses: • Commission • Advertising • Mark-up • Production It is worth noting that “[m]uch of what is being said about the New Economy is not that new at all. Waves of discontinuous change have occurred before”, as Senge & Carstedt (2001, 24) state. Just think of how Henry Ford’s business model revolutionized the car industry almost a century ago, or how Sam Walton revolutionized the retail industry in the 1960’s with his information technology focus and choice of demographic attributes for store locations, thus creating an immense cost structure focus along with a monopolistic market situation. These notions are what Hal Varian denotes as discontinuous innovation. Althoughthepresentfocusonbusinessmodelswithinacademicandpractitionercirclestoagreatextent can be related to their earlier discussions within an e-business context, the importance of the business modelperspectiveisfarfromonlyrelevantincertaindistributionchannelstructures.Thetransformation of the inter- and intra-company value chain is ongoing in almost all areas of the economy and this considerably challenges the markets and its enterprises. “Much talk [of business models: Ed.] revolves around how traditional business models are being changed and the future of e-based business models” (Alt & Zimmermann 2001, 1) but this is merely half the story. Business models are perhaps the most discussed and least understood of the newer business concepts. Download free eBooks at bookboon.com 27 Business Models: Networking, Innovating and Globalizing A brief history of the business model concept Taking one’s point of departure in a business model perspective can have multiple purposes. Among the advantagesofthisapproachisthepossibilityofenablingcompanymanagementtostructuretheirthoughts and understanding about strategic objectives and other relevant issues. Furthermore, this facilitates the conveyance of ideas and expectations the management has to the employees on the business process level and to the technically oriented functions. There are clear linkages to creating an understanding of the overall functioning of the firm in and, in addition, a focus on communicating the management perceptions of the business internally in the firm. Accentuating these thoughts on creating a common understandingofthebusiness,itsstrategyandobjectiveswithintheentireenterprise,Hoerl(1999)further argues that the application of the business model helps to structure the addressing of key business issues andthataneffectivebusinessmodeloughttoincorporateaspectssuchasculture,values,andgovernance. Conceptualizing the Business Model is therefore concerned with understanding the ‘whole’ of the business and its value creation logic. There exist a number of different value configuration types other than the value chain, and newer types of value configurations to a large extent reflect changes in the competitive landscape. There is a tendency that today a greater variety exists in value creation models withinindustrieswherepreviouslythe“nameoftheindustryservedasshortcutfortheprevailingbusiness model’sapproachtomarketstructure”(Sandberg2002,3).Competitionnowincreasinglystandsbetween competing business concepts, as Gary Hamel (2000) argues in his book ‘Leading the Revolution’, and not only between constellations of firms linked together in linear value chains, as was the underlying notion in the original strategy framework by Porter (1985). Find your next education here! Click here bookboon.com/blog/subsites/stafford Download free eBooks at bookboon.com 28 Click on the ad to read more Business Models: Networking, Innovating and Globalizing A brief history of the business model concept Iffirmswithinthesameindustryoperateonthebasisofdifferentbusinessmodels,differentcompetences andknowledgeresourcesarekeypartsofthevaluecreation,andmerebenchmarkingofkeyperformance indicators will not be able to provide any meaningful insight into the profit or growth potential of the firm.Comparisonsofthespecificfirmwithitspeergroupwillmoreoftenthannotrequireinterpretation within an understanding of differences in business models. It is by no means a new idea to create a model of the organization, which a business model, understood as a model of the business, may be perceived as. Organization charts and diagrams showing how departmentsanddivisionsinteractwithandaffecteachotherarewellknown.However,abusinessmodel comprehends something more than just the diagram. It should at least include a coherent understanding of the strategy, structure and the ability to utilize technological solutions to create value, which are three verysignificantattributes.Aprominent,almoststate-of-the-artexampleillustratingpreciselythesethree components, is Dell. Dell’s strategy is direct sales, and the company is structured around the utilization of information technology, almost like a hub, in this way enabling online ordering, custom built pc’s and direct shipping (Kraemer et al. 1999), i.e. an extension of the existing personal-computer business model via a unique strategy, structure and the application of information technology (Magretta 1998). Unliketraditionalorganizationaldiagramsandchartsthatmerelyillustratetheactionsofanorganization andtheformalorganization,organigraphsenablethedrawingoforganizationalactionbydemonstrating “howaplaceworks,depictingcriticalinteractionsamongpeople,products,andinformation”(Mintzberg & Van der Heyden 1999, 88). Organigraphs consist of four basic components: the set, the chain, the hub, and the web that are applied in visualizations of the organization in order to illustrate its concrete relationships and processes. The first two components are rather conventional and are also found in the more traditional organizational illustrations, while the two latter components are novel introductions. Download free eBooks at bookboon.com 29 Business Models: Networking, Innovating and Globalizing A brief history of the business model concept Figure 4: Organigraphs (Mintzberg &Van der Heyden 1999) Download free eBooks at bookboon.com 30 Business Models: Networking, Innovating and Globalizing A brief history of the business model concept The set refers to a collection of separate parts, a portfolio so to speak. For instance, this could be a set of independent activities, e.g. performed in two independent divisions or by two individua
Are you sure you want to buy this material for
You're already Subscribed!
Looks like you've already subscribed to StudySoup, you won't need to purchase another subscription to get this material. To access this material simply click 'View Full Document'