Home > Current Issues > 43/2 April 2010
43/2 April 2010
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43/2 April 2010 |
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This Special Issue on Business Models will include the following articles: Morgan and Baden-Fuller Drawing on research undertaken in the history and philosophy of science, with particular reference to the extensive literature which discusses the use of models in economics and biology, we explore the question “Why are Business Models useful”. We point out that they act as various forms of model that provide means: to describe and classify businesses; to operate as sites for scientific investigation and to act as recipes for creative managers. By this analysis, we argue that studying business models as models is a rewarding project that enables us to see how they embody multiple and mediating roles.
David J. Teece Whenever a business enterprise is established, it either explicitly or implicitly employs a particular business model that describes the design or architecture of the value creation, delivery, and capture mechanisms it employs. The essence of a business model is in defining the manner by which the enterprise delivers value to customers, entices customers to pay for value, and converts those payments to profit. It thus reflects management's hypothesis about what customers want, how they want it, and how the enterprise can organize to best meet those needs, get paid for doing so, and make a profit. The purpose of this article is to understand the significance of business models and explore their connections with business strategy, innovation management, and economic theory.
Yves L. Doz and Mikko Kosonen Strategic discontinuities and disruptions usually call for changes in business models. But, over time, efficient firms naturally evolve business models of increasing stability - and therefore rigidity. Resolving this contradiction can be made easier by developing three core meta-capabilities to make an organization more agile: strategic sensitivity, leadership unity and resource fluidity. This article reviews the underlying determinants of these capabilities, based on detailed research undertaken in a dozen companies who were re-conceiving their business models - among others, Nokia, easyGroup, HP, SAP and Kone are used as examples. We propose a repertoire of concrete leadership actions enabling the meta-capabilities needed to accelerate the renewal and transformation of business models. To organize our argument we borrow the three main dimensions of the strategic agility framework presented in our earlier work, and develop corresponding vectors of leadership actions, each of which can enhance a firm's ability to renew its business models.
Peter J. Williamson Some of established businesses' most ubiquitous and profitable business models are increasingly being challenged by a new breed of emerging market players. Rather than simply focusing on cut-priced, undifferentiated offerings, emerging country multinationals are deploying their cost advantages in creative ways to deliver high technology, variety and customisation at minimal price premiums, and to redirect niche offerings towards volume segments. This amounts to the emergence of a new type of generic strategy: ‘cost innovation’. Meanwhile, fundamental changes in global market structures are afoot which favour these new business models, and the confluence of these forces is creating a global ‘value-for-money’ revolution. Incumbents will require new types of responses to survive and prosper – but the pre-requisite for any effective response is a shift in mindset about the new business models required to succeed in the future.
Henry Chesbrough Companies commercialize new ideas and technologies through their business models. While companies may have extensive investments and processes for exploring new ideas and technologies, they often have little if any ability to innovate the business models through which these inputs will pass. This matters - the same idea or technology taken to market through two different business models will yield two different economic outcomes. So it makes good business sense for companies to develop the capability to innovate their business models.
Hiroyuki Itami and Kazumi Nishino A ‘business model’ is commonly seen as composed of two elements: a business system and a profit model. While the latter often gains the higher profile, the former is arguably the real ‘meat’ of a firm's business model. Not only does it act as the ‘system of works’ that actually produces and delivers the firm's products or services, it is also the locus where a firm can learn about its operations and the behaviors of its suppliers and customers. This learning can accumulate to represent a considerable competitive advantage, one that risks being wasted if activities are unwisely unbundled. While the profit model earns revenues for the short term, the business system learns information for the longer term: a successful business model must aim for both these outcomes.
Alfonso Gambardella and Anita M. McGahan This article describes a business model that is growing in prevalence and that carries novel implications: the development of general-purpose technologies for licensing to downstream specialists. In their archetypical format, these general-purpose technologies are constructed in ways that can be employed by different potential downstream licensees, and can accommodate their different strategies. This strengthens the hand of innovative firms in the rising markets for knowledge-based assets, and can be expected to improve their ability to capture a greater share of the value their technology creates. The innovation of business model designed for licensing such technologies will have unpredictable, but inevitable, consequences for industry structure and organizational capabilities, as well as for the content and context for the upstream science.
Christoph Zott and Raphael Amit Building on existing literature, we conceptualize a firm's business model as a system of interdependent activities that transcends the focal firm and spans its boundaries. The activity system enables the firm, in concert with its partners, to create value and also to appropriate a share of that value. Anchored on theoretical and empirical research, we suggest two sets of parameters that activity systems designers need to consider: design elements - content, structure and governance - that describe the architecture of an activity system; and design themes - novelty, lock-in, complementarities and efficiency - that describe the sources of the activity system's value creation.
Rita Gunther McGrath The business model concept offers strategists a fresh way to consider their options in uncertain, fast-moving and unpredictable environments. In contrast to conventional assumptions, recognizing that more new business models are both feasible and actionable than ever before is creating unprecedented opportunities for today's organizations. However, unlike conventional strategies that emphasize analysis, strategies that aim to discover and exploit new models must engage in significant experimentation and learning – a ‘discovery driven,’ rather than analytical approach.
James D. Thompson and Ian C. MacMillan This thought piece proposes a framework for addressing the challenges of poverty and human suffering so widespread around the world. Based on the WSWP action research program, we suggest that visionary businesses can play a role in creating new business models that open up new markets, and simultaneously attend to societal wealth improvements. This framework should be of great interest to global firms intent on creating new markets for their own futures. One of the critical problems managers face in opening up new markets is to maintain fiduciary responsibility in the face of little, if any, market information. We consider such environments to be characterized by significantly high - or near-Knightian - uncertainty, and propose a framework for designing business models that simultaneously attend to the planning and project evaluation concerns of such firms, as well as the societal needs of the activity's proposed beneficiaries.
Nicolas M. Dahan, Jonathan P. Doh, Jennifer Oetzel and Michael Yaziji Multinational enterprises (MNEs) face a range of challenges when entering developing countries, including the need to adapt their business models to local markets' cultural, economic, institutional and geographic features. Where they lack the tangible resources or intangible knowledge needed to address these challenges, MNEs may consider collaborating with non-profit nongovernmental organizations (NGOs) to help facilitate new modes of value creation. In such cross-sector partnerships, parties contribute complementary capabilities along each stage of the value chain to develop products or services that neither could produce alone, creating and delivering value in novel ways while minimizing costs and risks. Our conceptualization broadens the business model concept to incorporate cross-sector collaborations, arguing such partnerships can create and deliver both social and economic value, which can be mutually reinforcing. We highlight, in particular, the competencies and resources NGOs can bring to such partnerships, including market expertise, legitimacy with clients/customers, civil society players and governments, and access to local expertise and sourcing and distribution systems. Beyond contributing to particular value chain activities, NGOs and companies can offer missing capabilities to complete each other's business models, or even co-create new and innovative multi-organizational business models. We stress four strategic imperatives for the success of corporate-NGO developing market partnerships – innovative combinations of firm and NGO resources and skills; the importance of trust-building, and of fit between the two organizations' goals; and supporting and understanding the local business infrastructure and environment.
Wendy K. Smith, Andy Binns and Michael Tushman As our world becomes more global, fast paced and hypercompetitive, competitive advantage may increasingly depend on success in managing paradoxical strategies - strategies associated with contradictory, yet integrated tensions. We identify several types of the complex business models organizations will need to adopt if they are to host such paradoxical strategies. Managing complex business models effectively depends on leadership that can make dynamic decisions, build commitment to both overarching visions and agenda specific goals, at multiple levels, and engage conflict. Leaders can engage these functions through team-centric or leader-centric structures.
Muhammad Yunus, Bertrand Moingeon and Laurence Lehmann-Ortega Grameen bank, founded in 1976, has both pioneered the development of micro-finance, and created nearly 30 businesses designed to alleviate poverty. The article traces the gradual development of Grameen’s expertise in formulating social business models, which require new value propositions, value constellations and profit equations, and as such, resembles business model innovation. The article presents five lessons learned from this experience: three are similar to those of conventional business model innovation challenging conventional thinking, finding complementary partners and undertaking continuous experimentation; two are specific to social business models: recruiting social profit-oriented shareholders, and specifying social profit objectives clearly and early. We suggest these new business models e where stakeholders replace shareholders as the focus of value maximization - could empower capitalism to address overwhelming global concerns.
Bernd W. Wirtz, Oliver Schilke and Sebastian Ullrich There is virtually a consensus that, to remain competitive, firms must continuously develop and adapt their business models. However, relatively little is known about how managers can go about achieving this transformation, and how, and to what extent, different types of business models should be adapted. To illustrate the differential effect of environmental changes on different business model types, this article draws from the ‘4C’ Internet business model typology to elaborate on how a recent wave of changes on the Internet – the emergence of the Web 2.0 phenomenon – is affecting each of its four business model types. We argue that Web 2.0 trends and characteristics are changing the rules of the ‘create and capture value’ game, and thus significantly disrupting the effectiveness of established Internet business models. Since systematic empirical knowledge about Web 2.0 factors is very limited, a comprehensive Web 2.0 framework is developed, which is illustrated with two cases and verified through in-depth interviews with Internet business managers. Strategic recommendations on how and how much different Web 2.0 aspects affect each business model type are developed. Executives can use the ideas and frameworks presented in the article to benchmark their firm’s efforts towards embracing the changes associated with the Web 2.0 into their business model.
Ramon Casadesus-Masanell and Joan Enric Ricart Strategy scholars have used the notion of the Business Model to refer to the ‘logic of the firm’ – how it operates and creates value for its stakeholders. On the surface, this notion appears to be similar to that of strategy. We present a conceptual framework to separate and relate the conceptsof strategy and business model: a business model, we argue, is a reflection of the firm’s realized strategy. We find that in simple competitive situations there is a one-to-one mapping between strategy and business model, which makes it difficult to separate the two notions. We show that the concepts of strategy and business model differ when there are important contingencies on which a well-designed strategy must be based. Our framework also delivers a clear distinction between strategy and tactics, made possible because strategy and business model are different constructs.
Valérie Sabatier, Tristan Rousselle, Vincent Mangematin
Silviya Svejenova, Marcel Planellas and Luis Vives In this article we examine the business model of an individual and trace its changes over time. In particular, we provide rich detail on the nature of the changes and why and how those changes take place. For the purpose of this study we define an individual’s business model as the set of activities, organizing, and strategic resources that he or she employs in pursuing his or her interests and motivations, thereby creating and capturing value. We draw insights from a longitudinal, in-depth, inductive study of the business model evolution of a critical case, that of the gastronomic innovator and entrepreneur Ferran Adrià, chef and co-owner of a three-star Michelin restaurant elBulli (see Appendix 1 on the data and methods used). Thus, our unit of analysis is Ferran Adrià’s business model and not that of his restaurant which is but an element in it. Further, our purpose is not to argue that the chef’s business model is frame-breaking for the industry. Rather, we seek to show the triggers, mechanisms, and defining changes in his business model evolution in the quest for creative freedom.
Marc Sosna, Rosa Nelly Trevinyo-Rodríguez and S. Ramakrishna Velamuri Whereas the early business model research presented a static perspective, a number of recent studies have acknowledged that the initial business model is frequently revised and adapted. However, we do not yet know what role individual and organizational learning plays in this evolution over time. The research that we report in this paper seeks to contribute to the incipient work on a dynamic perspective that sees business model development as an initial experiment followed by constant fine tuning based on trial and error learning.
Benoît Demil° and Xavier Lecocq Generally speaking, the business model concept (BM hereafter) refers to the description of the articulation between different elements or building blocks to produce a proposition that is offered to consumers and generates value for an organization. Two different uses of the BM can be noticed. The first refers to what we may call a static approach. This one insists essentially on the coherence between core components of the BM. Ultimately, in this approach, BM is a blueprint and fulfils important functions such as being classifiers and as embodying recipes. The second use of the concept of BM can be referred to a transformational approach. It considers the BM as a concept or a tool to address change and innovation in organization or to focus on the innovation in the BM itself. Each of these streams of literature is interesting and has strengths but also weaknesses. In this article, we try to reconcile these two approaches to address the question of how a BM evolves, looking particularly at the dynamic created by the interactions of building blocks of the BM. To handle this question of BM’s evolution, we first identify the components of a BM and then to deduce how these components change at the organizational level. To do so, we build on the RCOV framework which is inspired by a Penrosian view of the firm.
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