Comments for Business model design: asking the right questions Gilles de Buijst, Alice de Walque, Guillaume Delande, Nathalie Garron, Robin Josse 7 December 2018 (Article) Wirtz, B. W., Pistoia, A., Ullrich, S., & Göttel, V. (2016). Business models: Origin, development and future research perspectives. Long Range Planning, 49(1), 36-54. Executive summary: Business Models: Origin, Development and Future Research Perspectives - Key insights (“What?”): 1) WHERE DID THE BUSINESS MODEL COME FROM AND HOW HAS IT DEVELOPED? Even if the term business model has been present in scientific discussions for over fifty years now, there is still a very heterogeneous comprehension of the concept.Today, there is an increasingly converging view of the concept…Read moreExecutive summary: Business Models: Origin, Development and Future Research Perspectives – Key insights (“What?”): 1) WHERE DID THE BUSINESS MODEL COME FROM AND HOW HAS IT DEVELOPED? Even if the term business model has been present in scientific discussions for over fifty years now, there is still a very heterogeneous comprehension of the concept.Today, there is an increasingly converging view of the concept among authors but still no accepted definition of it. Yet the majority of the authors understand a business model as a link between strategy and process management. 2) WHAT IS A BUSINESS MODEL ANYWAY AND WHAT DOES IT CONSIST OF? After a background in the literature, we define business model as a simplified and aggregated representation of the relevant activities of a company. The ultimate goal of a business model is to generate or secure a competitive advantage of a company. It is capital to be conscious that there may be a need for business model evolution or innovation, due to internal or external changes over time. Moreover, we learn that there exist many components of business models, which can be gathered through strategic components, customer and market components, and value creation components. 3) WHAT IS THE FOCUS OF CURRENT RESEARCH AND WHAT ARE THE IMPLICATIONS FOR FUTURE RESEARCH? In scientific research, business model receives continuously increasing attention, even if it is at an early stage yet. We can mention three important areas of research, which are about the concept, the structure and the management process of business models. One of the main question to be answered in future research is how to determine the quality of a business model, and so far the studies have had lots of trouble with that. ————— – Managerial Implications (“So What?”): Having a business model is essential for companies, it acts as a road map of the value creation. But it is not a theoretical document, it must lead to concrete actions and therefore it is important to consider the following elements. 1) FIRST, IT IS HARD TO FIND AN UNIVERSAL BUSINESS MODEL All companies must have a BM, regardless of their size, their value creation, their age or their clients. And if components of the BM must be chosen carefully, even the scientists don’t totally agree on what the components a BM should include. Nevertheless, some key elements are considered as essential: the strategy, the material and immaterial necessary resources, a network-oriented view, the importance of the customers, the value proposition and the revenue model. 2) DYNAMISM OF THE BM Then, the second managerial implication of the article is the dynamism of the business model. Indeed, a BM is not frozen and must be considered as evolutive. New sources of sustainable competitive advantage can often only be reached from BM reinvention. The innovation by the BM is based on a disruptive innovation. For example, Ryanair did it by inventing the low-cost aviation. The value chain, the customer relation, all was different from a traditional airline company. Moreover, the entire economic ecosystem can change (with a deregulation, or new technology for example). So, it is important to regularly make a structural revision of the BM. 3) UNDERSTANDABLE BM REQUIRED Finally, the third implication is to establish a logical and understandable BM. Scientists are still discussing about the definition and the content of a good business model and there are several articles which deal with that, but it is not only a conceptual topic. Entrepreneurs need to have a functional BM. For the moment academic researches didn’t highlight the essential success factor of a BM but the only remarkable thing is that they were all flexible. ————— – Limitations: 1) ASSESSING QUALITY (OF THE BM) The quality of the business model is not directly measurable. How can we then ensure quality and reliability of the BM? Different researches have been made about this topic but there doesn’t seem to be a clear consensus about the success criteria of a BM. For example, in other research fields there’s some sort of consensus about using SMART criteria. But there’s no equivalent to business models. 2) BUSINESS MODEL IS BASED ON ASSUMPTIONS A BM simplifies the business to be “understandable”. This implies that the BM is based on assumptions. If some of these assumptions appear to be false, it could have some incidence on the validity of the BM. Some examples of the assumptions that are typically made; access to capital; ressources; customers: needs, perceptions, purchasing behavior; interest rates & exchange rates; stable economic & political environment; laws & regulations. 3) DYNAMIC BM IN PRACTICE It seems very clear that dynamism is needed. But in practice it seems less clear about how dynamism needs to be managed. When should the company take action and adapt or reinvent its BM? How to know if an adaptation will be enough or if a total reinvention is needed? ————— – Further references: —— https://www.youtube.com/watch?v=xwwtkMdFYHE Video on the conference about the “collaborative economy and new business models’ challenges” organized by the ACCA (Association of Chartered Certified Accountants), UEAPME (European Association of Craft, Small and Medium-sized Enterprises) and European Movement International Brussels. They debate about the opportunities and limits of new business models. —— ACCA (2018), Business models of the future: systems, convergence and characteristics Report on the “business models of the future”, exploring “what lies behind business model innovation”. What are the trends leading the organizations to rethink their business models? Currently, a systematic way of thinking for the long-term is required to create “new sources of value”. —— Business models and dynamic capabilities, David J. Teece, Long Range Planning, Volume 51, Issue 1, 2018, pp. 40-49. Explains the interdependence between business models, dynamic capabilities and strategy. Dynamic capabilities and business models reinforce each other and define what strategy is feasible for the company. —— A dynamic business modelling approach to design and experiment new business venture strategies, Federico Cosenz, Guido Noto, Long Range Planning, Volume 51, Issue 1, 2018, pp. 127-140. This article addresses the too static representation of business models. This perspective can prevent from “identifying the most effective strategies”. So the authors propose a combination of the conventional and a dynamic method to build business models. Show less Reply ADANT Aurore, CALCUS Sophie, CLOQUET Nelson, VANDEN HERREWEGEN Géraldine, VIDREQUIN Charles 6 December 2018 Girotra, S. & Netessine, S. (2014). Four Paths to Business Model Innovation. (2014). Harvard Business Review (July-August ISSUE). This article was about the innovation in the business model and more precisely the way you can innovate in your decision making. The three key insights in this article are based on a framework to help managers with their innovation. The key insights are the different decisions you can make and through which you can be innovative. The first decision…Read moreThis article was about the innovation in the business model and more precisely the way you can innovate in your decision making. The three key insights in this article are based on a framework to help managers with their innovation. The key insights are the different decisions you can make and through which you can be innovative. The first decision is focusing on the offer we’ll make, the mix of product or services we’ll propose. Making changes in our offer can reduce the risk of an uncertain demand which is the biggest risks a business may face. The second decision is more based on the timing of the decision making. Some strategies, such as changing the order of the decision in order to delay the investment commitments until pertinent information is known, can help the manager to avoid the risk of fixing a price before actually sell anything. Finally, the third key insight is focusing on the person who’s making the decision and why this decision. A way to radically improve the decision making in the company is simply by changing the people who decide and give the decision right to the most informed people. That implicates that manager should build a relation of trust with his stakeholders. He has also to build a strong network, by asking his collaborators to expand their own. The manager should also think about integration as a way to innovate. You can either work with a vertical integration or a horizontal one, it will depend on the goal you want to achieve. Furthermore, managers should not forget to make detailed risk assessment regarding all the different kind of uncertainty the company may face. A company that knows how to react to each type of uncertainty would be more efficient and lose less time than a company that doesn’t. While keeping those implications in mind, managers should pay attention to the fact that, yes, a strong network is important, but they have to do their homework in advance, and inform themselves on the culture, the tradition, ect, otherwise they can offense other people. Then, to be able to integrate vertically, the company need to have capital. So, it has an impact on the flexibility of the company’s strategy. Further references: • For more general knowledge on Business Model : Mokter, H. (2017). Business model innovation: past research, current debates, and future directions. Journal of Strategy and Management, Vol. 10 Issue: 3, pp.342-359. • For more insights on decision making: Arms, H., Danner, C., Gerber, J., Wiecher, M. (2014). Leveraging Flexibility Win the Race with Dynamic Decision Management. Springer Berlin Heidelberg. • For more methods on risk analysis: Cox, L-A Jr. (2013). Improving risk analysis. Springer (New York, NY). Show less Reply Valentin Vendy (Group 10) 4 December 2018 Koen, P. A., Bertels, H. M., & Elsum, I. R. (2011). The three faces of business model innovation: Challenges for established firms. Research-Technology Management, 54(3), 52-59. Key insights : This article provides a model to understand the reason why some established companies have seen themselves disrupted by new innovation and new companies. It is called The Business Model Innovation Typology (BMTI) and it classifies innovation among 3 dimensions reported on 3 axes: (1) technology, (2) value network which is the network and relationship that the firm…Read moreKey insights : This article provides a model to understand the reason why some established companies have seen themselves disrupted by new innovation and new companies. It is called The Business Model Innovation Typology (BMTI) and it classifies innovation among 3 dimensions reported on 3 axes: (1) technology, (2) value network which is the network and relationship that the firm have with all its partners and (3) financial hurdle which is the minimal rate that the firm needs to achieve to cover all its costs. This model then divides the innovation in two categories: (1) The sustaining innovation which are innovation that are less risky as firms only uses existing value network and existing financial hurdle rate; (2) The business model innovation which are disruptive innovations. Established firms often fail at implementing those innovations as they try to reach a new network or require a lower than expected financial hurdle rate. Implications : Having a clear understanding of the company’s mission will help to realize what the company actually does and not only what it sells. The purpose of this is to develop sustaining innovations because it is something necessary for the firm to obtain or keep a competitive advantage and therefore, remain on the market. You can see how MasterCard got disrupted by the contactless payment method due to the fact that they were too focus on what they were selling instead of seeing what was their mission. Analyzing the Value Chain with the Porter’s model, will also help to find those innovation through the ‘technological development’. In other words, it is a tool to find where you create or can create some value. The main implication is finding new opportunities, thinking about new boxes. With what I have, what can I do ? Where can I be next? Creating a new value network and going into a new innovative business model because it could be profitable or even the future of your company. Building your new BM by starting with Why, What, Who and How much. Limitations : The BMTI model does not allow to anticipate the disruptive innovation, it only allows to understand a posteriori how the business model was unprepared to face disruption and why the firm failed in the process to identify the coming disruption. A new Business Model is a risky solution, because, on the one hand,you have to invest in it and it did not prove its successfulness, and on the other hand, it costs a lot because in the meantime you need to keep investing in your previous models to counterbalance the risks taken. Furthermore, there is a risk of sales cannibalization between the products of those 2 business models. Further references: – Video : Christensen talks about disruptive innovation (Harvard Business Review) https://www.youtube.com/watch?v=qDrMAzCHFUU – Z. Lindgardt, M. Reeves, G. Stalk, M. S. Deimler, (2009), “Business Model Innovation”, The Boston Consulting Group, http://operatingpartners.com/wp-content/uploads/2014/03/OMS-3b-Process-Improvement.pdf This article defines the concept of Business Model Innovation by explaining its components, its utility, its role and its limitation. Show less Reply Dehon Benjamin, Demoulin Sylvain, Goffin Clément, Jonet Claire, Poncelet Antoine 4 December 2018 Ritter, T., & Lettl, C. (2018). The wider implications of business-model research. Long Range Planning, 51(1), 1-8. The article “The wider implication of business-model research” highlights business models and especially the application of five different perspectives of the business model. By explicitly distinguishing among these five perspectives and by aligning them into one overarching, comprehensive framework, this paper offers a foundation for consolidating business-model research. A business model describes how a firm does its business from the…Read moreThe article “The wider implication of business-model research” highlights business models and especially the application of five different perspectives of the business model. By explicitly distinguishing among these five perspectives and by aligning them into one overarching, comprehensive framework, this paper offers a foundation for consolidating business-model research. A business model describes how a firm does its business from the raw materials to the final product while fulfilling its goals and what is its strategy to create value. It is often seen as a “webbing” between diverse strategic management theories such as resource-based value and demand-side perspective or organization design. The five perspectives on terms of business model are the following: activities, logics, archetypes, elements and alignment. The first perspective describes the business model as a means for the firm to organize and describe its activities in order to implement its strategy. The second one summarizes the logic of the business and focuses on why certain activities make sense for a business in term of value-creating logics. The next one is the business model archetypes that aim to create value. For example, a firm sells a product at a reasonable price but offers paying services needed to use the product. The fourth perspective propose structuring business model on the basis of essential elements the company must take into account to capture the essence of its business. The last one perspective describes how the pieces of a business fit together. It is important that the different elements of a business model complement each other and can be aligned to understand the company’s core strategy. Moreover, these key insights have several managerial implications that can be useful in the development of a business model. Firstly, the company’s core strategy should be defined by equitably aligning the 5 perspectives of the business model to offer a comprehensive framework for understanding organizations and the strategic options available to them. However, an analysis of the existing business models of other players in the industry is required to know on which perspective the company should focus to capture a potential competitive advantage. Managers must therefore find out how the firm’s competitors manage their resources, what is their supply chain and which markets they serve. Lastly, to innovate its business model in the future, an organization must set up easily reconfigurable assets that will allow to modify or improve at least one of the value dimensions. Furthermore, three limitations have been identified. This paper provides a general definition of the business model but does not differentiate it according to different types of business such as B2B or B2C. Previously, it is advised to look at what and how other firms are doing concerning their business model but it might be really hard to deduct something by looking at the business plan of a competitor. Actually, copying someone’s business plan does not guarantee the same result and analysing someone’s business plan without all the internal information needed could lead to wrong conclusions. The last limit relates to the business model (membrane which connects diverse strategic management theories) innovation. Sometimes, it could be disastrous for a company to change its business model because the modification of the membrane will damage the existing synergy between all the existing strategy components of its strategy. Further references: – Dellyana, D., Simatupang, T. M., & Dhewanto, W. (2018). MANAGING THE ACTOR’S NETWORK, BUSINESS MODEL AND BUSINESS MODEL INNOVATION TO INCREASE VALUE OF THE MULTIDIMENSIONAL VALUE NETWORKS.International Journal of Business and Society, 19(1), 209-218. – Fehrer, J. A., Woratschek, H., & Brodie, R. J. (2018). A systemic logic for platform business models. Journal of Service Management, 29(4), 546-568. Show less Reply Anonymous 26 April 2018 Zott, Christoph, and Raphael Amit. “Business model design: an activity system perspective. This paper focused on the importance of business models in current innovation and how can managers adapt their business accordingly. To profit from innovation, business pioneers need to excel not only at product innovation but also at business model design. Technological innovation does not always guarantee business success, therefore, new product development efforts should be coupled with a business model defining their “go to market”…Read moreThis paper focused on the importance of business models in current innovation and how can managers adapt their business accordingly. To profit from innovation, business pioneers need to excel not only at product innovation but also at business model design. Technological innovation does not always guarantee business success, therefore, new product development efforts should be coupled with a business model defining their “go to market” and “capturing value” strategies. At the same time, new business models can themselves represent a form of innovation. Indeed, the creation of new organizational forms , and in particular new business models are of equal, if not greater, importance to society, and to the business enterprise than technological innovation. For the key points, the purpose is to conceptualize a firm’s business model as a system of interdependent activities. The activity system allows to create some value for the company. She creates some value for these partners but also for the company. To create a business model, it is necessary a set of activity to connect between her. For example, there are the price model and the revenue model. Although the business model and the revenue model are connected. They can sometimes be conceptually distinct as Gillette. Gillette uses a valuable strategy. It sells cheap razor, but the blades are expensively. For the activity system, the article suggests two sets of parameters that activity systems designers need to consider: design elements and design themes. Regarding implications, the paper suggests two sets of parameters that activity systems designers need to consider: design elements that describe the architecture of an activity system; and design themes that describe the sources of the value creation of activity system. One set of important design parameters that characterize an activity system is content, structure, and governance. For the content : this concerns the activities to be performed. For example, in addition to the typical activities of a retail bank, Bancolombia adopted activities to offer microcredit to reach the more than 60% of Colombians who did not have access to banking services. To perform these new activities, the bank needed to train its top management, hire and train new staff, develop new capabilities, and link the new activity to its existing system. For the structure: describes how the activities are linked. Take the example of IBM. Triggered by a severe financial crisis in the early 1990s, the firm switched its core and peripheral activities, shifting its focus from a supplier of hardware (old core) to becoming a service provider (new core). IBM launched a range of new activities in consulting, IT maintenance, and other services. As a result, more than half of IBM’s 90 billion $ revenues in 2006 came from these activities. For the governance : refers to who performs this activities. Franchising, for example, represents one possible approach to activity system governance. It can be the key to unlocking value. Thus, activity system design describes how firms do business, and captures the essence of the business model. The other set of parameters who the managers should take into consideration the following four major interlinked value drivers of business models: novelty, lock-in, complementarities and efficiency. Indeed, each of these value drivers enhances the total value-creation potential of a business model and when combined, they can be even more powerful. 1. Novelty (N): you should think about new activities (content) and new ways of linking and governing activities (structure and governance). 2. Lock-in (I): you should use many ways to retain the customer and bring him back to the company. 3. Complementarity (C): propose complementary products and services by improving the interdependencies among business model elements. 4. Efficiency (E): think on how to reduce transaction costs to achieve greater efficiency. One of the main limitations that could occur in the designing of a business model would be first of all the exclusion of external forces as the competition between the firms , the market factors or even the narrowness of the value of the final good in a way that the main valuation of the good produced by an organization is monetary , other dimensions as the social responsibility one is often forgotten or reduced . Another limitation could be the separation between key activities and key resources in the chain of production of the final good which could lead to a higher level of details in the business model and thus could also lead to higher costs for the organizations . further reference: ● Magretta, J. (2002). Why business models matter . Harv Bus Rev. ● Osterwalder, A., & Pigneur, Y. (2010). Business model generation: a handbook for visionaries, game changers, and challengers : Wiley. ● McDermott, C. M., & O’Connor, G. C. (2002). Managing radical innovation: an overview of emergent strategy issues . Journal of product innovation management. Show less Reply Anonymous 26 April 2018 Amit, R., & Zott, C. (2012). Creating value through business model innovation The aim of the paper is to explain what companies need to know about business model innovation to answer the question “when is the right time for launching new business model?” and see if they can benefit from the new business model. To understand the article, we will first define two important notions: Classical business model is a system of interconnected and…Read moreThe aim of the paper is to explain what companies need to know about business model innovation to answer the question “when is the right time for launching new business model?” and see if they can benefit from the new business model. To understand the article, we will first define two important notions: Classical business model is a system of interconnected and interdependent activities that determines the way the company “does business” with its customers, partners, and vendors. An innovative business model can either create a new market or allow a company to create and exploit new opportunities in existing markets. Before launching a new business model, six important questions have to be asked. 1) What are the perceived needs that can be satisfied in a market? 2) What novel activities are needed to satisfy these ones? (Business model content innovation) 3) How to link these novel activities together in novel ways? (Business model structure innovation) 4) What novel could governance arrangements support this structure? (Business model governance innovation) 5) How is value created through the novel business model for each stakeholder? 6) What revenue model fits with the company’s business model? Interdependencies exist between content, structure, and governance. These ones could help companies to strengthen their business model innovation. Furthermore, we observe a high interdependence between the business model and the revenue model which is the specific way a business model generates revenue for its stakeholders. Indeed, the definition itself shows the interdependence. In order to increase the odds of developing the right business model, the paper provides four major value drivers: 1. Novelty: it captures the degree of business model innovation that is embodied by the activity system. 2. Lock-in: it refers to those business model activities that create switching costs or enhanced incentives for business model participants to stay and transact within the activity system. 3. Complementarities: it refers to the value-enhancing effect of the interdependencies among business model activities. 4. Efficiency: it refers to cost savings through the interconnections of the activity system. The presence of each of these value drivers enhances the value-creation potential of a business model. The managerial implications of this paper are many. First, an organization must give the managers the resources and authority to define and launch business‐model experiments since business model innovation is a source of tacit knowledge and also that a good level of R&D may be efficient but is never sufficient. For example, the managers could meet once or twice a year to discuss and re-challenge the business model. Then, they should also encourage the different business ‘entities to communicate together. By developing a new product, the R&D team should continuously communicate with the other departments and managers to allow them to innovate the business model at the same time. Finally, the managers should also involve the creativity of their employees, ask them to be intrapreneurs. The managers should define a clear challenge and ask the employees to come up with creative ways to innovate the business model in order to solve this challenge and give them feedback. From this paper, two limitations can be emphasized. First, the corporate culture of a firm may strongly be dependent on the business model of this one. The relation between employees and their identity inside the firm, that they have developed for many years, will have to be rebuilt. Therefore, when a firm innovates in its business model, it has to make sure that the employees are following the trend and must offer them the support needed. Another limitation is that the context in which a business model innovation occurs is also a context of uncertainty. The firm must make an assumption on the six questions before innovating its business model. But these remain theoretical assumptions that will be tested later on the field. Business model innovation can lead to failures and these failures will not directly lead to higher returns. In order to have a broader knowledge of this topic, some extra sources can be found: Amit R., Zott C., Business Model Innovation: Creating value in times of change, IESE Business School Working Paper No. 870, July 2010, retrieved on https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1701660 on the 30/11/2017 Girotra K., Netessine S., Four paths to business model innovation, Harvard Business Review, July- August 2014, retrieved on https://hbr.org/…/07/four-paths-to-business-model-innovation on the 29/11/2017 Show less Reply Leave a Reply Cancel reply Your email address will not be published. Required fields are marked *Comment Reference Identify the bibliographic reference you are commenting. 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