business models review plus
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1 Conroy Julian, M.A., B.A., (Dip. Mass Comm. UWI) E-mail: Consctripta @hotmail.com
1. A Review of the Literature of Business Models
Research is cumulative, therefore no single study stands alone (Wimmer and Dominick,
2006). It is therefore important that the appropriate literature be reviewed prior to
undertaking new research (Cooper, 1984; Marshall and Rossman, 1996). The study of
existing literature provides the foundation for greater understanding of the topic being
examined (Jorgensen, 1989). In addition to assisting in identifying gaps, a review of
literature helps to shape the research question(s) thus making the project more relevant for
the intended purpose (Marshall and Rossman, 1996).
The literature on business models is being reviewed in order to understand why it is
appropriate as a measure of financial performance. The following four perspectives have
been chosen from the literature to examine the business model phenomenon:
1. The approach that exogenous factors, including new technology and policy open
opportunities for the emergence of business models.
2. The approach of aligning numbers with the narratives.
3. The building blocks and change models approach.
4. The theory that a business model is determined by what rights are being traded
and types of assets held.
2 Conroy Julian, M.A., B.A., (Dip. Mass Comm. UWI) E-mail: Consctripta @hotmail.com
The use of the term business models became pervasive at the height of the dot.com
bubble in 2000/2001 as the great buzz word of the internet boom. “A company did not need a
strategy, or special competence, or even any customers, all it needed was a web based business
model that promised wild profits in some distant ill-defined future”( Magretta, 2002, P.3). In
other words, the very act of registering a domain name was seen as putting a new business
model into operation.
Figure 1 shows the emergence of the term, ‘business model’ in scholarly journals from
the mid 1990s up to 2003 when it gained much traction. Anecdotal evidence suggests that
significant growth in the occurrence of the term in business circles has also taken place over
the period.
Figure 1: Occurences in Scholarly Journals. Source: Linda and Cantrell (2001)
Many of the sources that were reviewed came to the conclusion that the term ‘business
model has been used loosely and proceeded to give their definitions which are in essence,
similar.
3 Conroy Julian, M.A., B.A., (Dip. Mass Comm. UWI) E-mail: Consctripta @hotmail.com
The theoretical approach which posits that exogenous factors and technology open the
opportunities for the emergence of new business models is associated with Timmers (2004) and
Chesbrough and Rosenbloom (2006).
Research pioneer, Paul Timmers (1998), uses technological innovation as the basis of
his definition. Timmers (2004) underscored the role that exogenous factors, including
technology, played in the development of new business models as distinct from merely using
technology to trade on the world wide web.
He defines the business model as the process of transforming technical inputs such as
products, feasibility and performance into economic outputs such as value, price and profit. He
went even further, as seen in (figure 2), by outlining cases in which technological change
creates new business models but added that, “the most important part of a business model is
to answer the question, ‘how you get paid’ or ‘how you make money.’”(Timmers, 2004. P.6)
He included in his definition that the following concepts: identifying of market segments; value
proposition or the sum total of benefits which a vendor promises that a customer will receive;
the firm’s organization and value chain or the series of input expenses needed to effectively
deliver the goods or services demanded by the customers; the cost structure and profit
potential; how the firm is positioned in its industry and how that affects its value network; and
how it differentiates itself from products or services from that of its competitors.
Timmers’ (2004) compelling argument about the genesis of business models seemingly put to
rest the argument that this is a recent phenomenon:
Business models have existed for centuries and millennia. However, until the last
4 Conroy Julian, M.A., B.A., (Dip. Mass Comm. UWI) E-mail: Consctripta @hotmail.com
ten years, there has been relatively little active reflection about the used business
models themselves. The agricultural and industrial economies each had a number
of accompanying business models. But the historical slow change of the economy
gave few incentives for problematising the way of doing business. (p.13)
2.1 Exogenous Factors and New Technology Approach
Technological change has been perhaps the single most important reason for the debate
about business models as Timmer’s matrix below shows that exogenous factors, in this case
technological change, enabled the development of new business models.
(Timmers 2004) has clearly outlined the importance of exogenous factors such as
technology and innovation which enabled the development of business models. The impact of
those business models on economic activities is debatable, but the fact is that they do exist.
(Timmers, 2004) was more concerned about describing the emergence of business
models, which is important if one is to fully understand the substance of that research. The
exogenous factors as described in (figure 2) show that these factors fit into three categories:
the development of new technology, new business strategy and a change in government policy.
The emergence of the internet is linked to new technology, cheap passenger airports is the
result of a change in business strategy and an unlicensed spectrum system is the result of a
change in government policy.
5 Conroy Julian, M.A., B.A., (Dip. Mass Comm. UWI) E-mail: Consctripta @hotmail.com
While it can be argued that these business models on the right of the matrix below are
demonstrable means of earning money for a firm, it does not adequately cover the purpose of
this project. The question of performance for instance of any one of these models when
compared to the others is not covered.
EXOGENOUS FACTORS ENABLED “BUSINESS MODELS”
Nationwide post delivery system Catalogue mail order
High strength steel & construction materials Sky scrapers, “very large bridges”
Mass media Nationwide Brands
Cheap paper and efficient printing Daily newspapers
Removal on legal ban on interests Banks and Credit System
Unlicensed Spectrum System DIY local wireless access points
Just-In-Time Logistics System Customized cars
Private Car Ownership Suburban shopping malls
Internet Internet business “eco-system”
Cheap passenger airport Mass tourist hotel complexes
Computers with modularized Interfaces Specialized firms in software, hardware etc
Wireless Internet Remains to be determined
Figure 2: Exogenous factors open opportunities for new business models (Source: Timmers,
2004)
6 Conroy Julian, M.A., B.A., (Dip. Mass Comm. UWI) E-mail: Consctripta @hotmail.com
(Chesbrough and Rosenbloom, 2000) also subscribe to the concept that exogenous
factors play a significant role in the emergence of new business models but primarily focused
on the development of new technology at the level of the firm. The authors covered the topic,
“The Role of the Business Model in Capturing Value from Innovation: Evidence from Xerox
Corporation’s Technology Spinoff Companies.” They outlined two ways in which firms harness
value from the prevailing technology: by including the technology in their business and
incorporating it by operating new ventures using those technologies as key inputs of the value
proposition (Chesbrough & Rosenbloom, 2000). The ZEROX case study focused on the latter
means. They subscribe to a definition of business model given by, a consulting firm, KMLab,
INC:
A Business model is a description of how your company intends to create value in the
marketplace. It includes the unique combination of products, services, image, and distribution
that your company carries forward... It also includes the underlying organization of people, and
the operational infrastructure that they use to accomplish their work. In order to probe the
question, the “role of business model in capturing value from innovation” Chesbrough et al
(2000) studied six of ZEROX'S, 35 “spinoff” companies, which had to meet the following criteria
to qualify as spinoff:
i. The technology involved was initiated or pursued for at least one year’s time at a
Xerox research center. This criterion excluded technologies that were simply licensed to
Xerox, though it includes some that originated outside of Xerox, and came in through
acquisition, and then were developed further within Xerox.
7 Conroy Julian, M.A., B.A., (Dip. Mass Comm. UWI) E-mail: Consctripta @hotmail.com
ii. At least one of Xerox’s researchers left along with the technology to become an
employee of the new “spinoff” companies. This excluded technologies that were
licensed or otherwise sold out of Xerox.
iii. The entity that received the technology and the researcher were separated from
Xerox, and incorporated into a new legal entity. This criterion facilitates measurement
of the ex post development of the technology and the organization. It excludes
technologies that satisfied
the first two criteria, but went into established organizations, where the influence on
the subsequent performance of the company was not easily separable from the
company’s overall performance ( p.39).
The six companies selected were; 3com, adobe, metaphor, SignOptics LiveWorks, and
Documentum. Four of those spinoff companies were described as successful while two were
said to be failures. All six companies were evaluated against six main components of a
business model plotted in a matrix by Chesbrough etal: “identified market segment, clear value
proposition, elements of value chain, defined cost and profits, position in value market,
formulated …and competitive strategy” (P.13). On a closer examination of the matrix it was
observed that Metaphor had a business model that closely resembled that of ZEROX’S, it was
almost a carbon copy, except for slight variations in identified market segment where ZEROX
targets the government and corporate market as against Mataphor’s focus on knowledge
workers in corporations. LiveWorks was another promising innovation coming out of ZEROX
but without a viable business model. The major failure here was its inability to differentiate
itself from its competitors (Magretta, 2000). LiveWorks failed because it developed, sold
8 Conroy Julian, M.A., B.A., (Dip. Mass Comm. UWI) E-mail: Consctripta @hotmail.com
hardware and software and controlled the distribution of its products and leveraged ZEROX’s
sales force. It operated just like ZEROX.
The successful companies apparently had business models which were more unique
with processes tailored to their specific need. The authors that subscribe to the approach being
discussed, see the quest for a viable business model as a useful framework for learning and as
an indicator for creating successful ventures.
Chesbrough and Rosenbloom’s (2006) perspective on the development of business
models relates specifically to technologically oriented firms, but ZEROX in particular, and is
therefore less abstract than the approach of (Timmers, 2004) who covered the subject from a
societal level. While the contributions of these authors add much value to the general thrust of
this project, findings about the performance of XEROX’S ‘spinoff’ companies speak specifically
to the impact of a chosen business model on performance. Figure 3 below illustrates one
perspective of the place that business models occupy in a firm (Chesbrough and Rosenbloom,
2006).
9 Conroy Julian, M.A., B.A., (Dip. Mass Comm. UWI) E-mail: Consctripta @hotmail.com
Figure 3: Business Model as a Construct. Source: (Osterwalder, 2006)
The top of the triangle is labeled Business Strategy which is unique to a firm and deals
with the problems of competition, providing a vision, balancing the organization’s internal
strengths and weaknesses with its external opportunities and threats, it further determines a
goal and measurable objectives for the purpose of evaluation. (Mitsburg and Lampel, (1999);
Porter, 1985); Kaplan and Norton, (1992) or Learned, Christensen et al, (1965).
At the base of business model triangle are Business Organization and Information
Communication Technology, (ICT). Firstly, Business Organization is about how the business is
structured by departments, units and function. ICT is all the information and communication
technology employed to enable proper functioning of the business model which is the firm’s
money earning logic. According to Chesbrough and Rosenbloom, (2006), these include
computer hardware and software, website, PDA cell phones and others.
Legal
Environment
Competitive Forces
Cu
stom
er
Dem
and
Business Strategy
Strategy
Business
Model
Social Environment
Environment
Technological
Change
ICT Business
Organization
10 Conroy Julian, M.A., B.A., (Dip. Mass Comm. UWI) E-mail: Consctripta @hotmail.com
Chesbrough and Rosenbloom (2006), using their technology schema state that,” a
business model is a construct that mediates the value creation process” (P.26). Value creation
occurs between the technical and social domains, therefore the selecting, filtering and
packaging of these technologies into configurations to be offered to the market are at the heart
of the business model from that perspective. There is, however, a weakness in the approach of
Chesbrough and Rosenbloom (2006) if applied to a more rigorous scale indicating the
performance of other firms outside of the technology domain.
The business model of XEROX was not clearly stated but it was described as a construct.
A construct is an intangible phenomenon (Boxill, Chambers and Wint, 1997). A construct
becomes more meaningful for research authentication when it is put into operation, thus
becoming more observable. Another approach searches for that important nexus between the
output of the firm as represented by numbers and the relevant narrative supporting those
figures.
2.2 Aligning Numbers with Narratives
Magretta (2002) explains that business models are stories which explain how business
works. A good business model is customer focused. It ultimately asks the question, “How do we
make money in this business? What is the underlying economic logic that explains how we can
deliver value to customers at the appropriate cost?” (Magretta, 2002) Magretta reduces
business model to two critical components, the narrative and the numbers The narratives of
the business model begin with an insight into human motivation and numbers end it with a rich
stream of profits (2002).
11 Conroy Julian, M.A., B.A., (Dip. Mass Comm. UWI) E-mail: Consctripta @hotmail.com
There are many examples of good business models where the narrative makes sense
and the numbers add up (Magretta, 2002). Travelers Cheques is regarded as one of the most
successful business models of all time (Margretta, 2002). Customers appreciate this simple
story whereby in exchange for a relatively small fee, they are able to buy both peace of mind
and convenience. Cheques were insured against loss and theft and they were accepted as a
means of payment. The tipping point in this business model is that it moved away from the
concept of debt first then revenue. Customers pay for the cheques long before they cash them,
therefore the interest free loans that American Express got from their customers increased its
bank balance.
There are business models that not only fail the numbers test but the narrative test. A
case in point was the rapid rise and fall of the Priceline and Webhouse Club. This was a similar
concept to naming your own purchase for airline tickets. Wall Street CEO Jay Walker extends
this concept to gasoline and grocery (P.6). This is the story that Walker tries to sell.
Customers, via the internet, advised him how much they would be willing to pay for example, a
Jar of all spice. They would specify the price and not the brand, so they might end up getting
Walkerswood or Busha Browning. Webhouse would then aggregate the brand and then
approach the wholesalers about special volume discounts which allow the firm to sell profitably
at the price the consumer preferred.
The problem was that the major manufacturers with national brands would not enter a
deal which is in conflict with their business model. Webhouse’s strategy to get consumers was
based primarily on price. The millions of dollars spent by the manufacturers to build brand
12 Conroy Julian, M.A., B.A., (Dip. Mass Comm. UWI) E-mail: Consctripta @hotmail.com
loyalty would disappear. This story just would not convince the potential suppliers of
Webhouse to assist in the destruction of their own brands on which they spent years and
millions building consumer loyalty (Magretta ,2002) The investors did not believe the story
either and the model failed, both on narrative and numbers.
Magretta (2002), in her effort to clarity the meaning of ‘Business Model posits that
business model and business strategy must not be used interchangeably. “Business models
describe, as a system, how the pieces of a business fit together, but they do not factor in one
critical dimension of performance: competition” (p.6). Sooner or later every business runs
into competitors and strategy is used to deal with that actuality. A competitive strategy is seen
as unique to a business and is responsible for performance of the business. When all businesses
in an industry offer similar product, and services to similar customers using similar processes,
none will really prosper as competition drives down prices (Magretta, 2002).
The consumer will benefit in the short term, but continued low prices will lead to low returns in
the industry and ultimate failure of business (Magretta 2002). In other words, a competitive
strategy invariably differentiates one product or service from another when they are similar on
other key measures such as price and quality.
To further illustrate the difference between Business model and strategy, the case of
Wal-Mart is presented. Strategy is also one of the three pillars of the business model as a
construct as seen in Figure 3.
The success of Wal-Mart was not due to the result of pioneering a new business model
(Magretta, 2002). Sam Walton opened his first Wal-Mart in 1962 in Arkansas when the retail
13 Conroy Julian, M.A., B.A., (Dip. Mass Comm. UWI) E-mail: Consctripta @hotmail.com
discount business model had already existed for many years. Walton’s strategy was to serve a
different group of customers, in a different set of markets. K-Mart and Wal-Mart’s model was
said to be the same but the strategy was different.
The top ten discount retail stores of 1962 which focused on large metropolitan areas
and cities like New York today exist only in the history books. Wal-Mart’s strategy, as spoken by
Walton, “was to put good size stores in little one-horse towns which everybody else was
ignoring.” (Magretta, 2002)
Magretta’s (2002) assertion that the narratives about a business have an impact on the
numbers or financial performance has been established from her reference to Travelers
Cheques, Inc.. She also posits that a good strategy enables performance agrees with Linda and
Cantrell’s (2000) views that strategy enhances business model but that the term ought not to
be used interchangeably. Linda and Cantrell (2000) linked strategy to business processes and
information communication technology to form three pillars of a business model. Therefore,
strategy as an element of a business model and as measure of performance, supports the
purpose of this project. Therefore, a unique approach to business processes by a firm in an
industry could give it a competitive edge.
14 Conroy Julian, M.A., B.A., (Dip. Mass Comm. UWI) E-mail: Consctripta @hotmail.com
2.3 Building Blocks and Change Models Approach
The approach of dissecting the business models as building blocks and change models is
associated with (Osterwalder 2006; and Linda and Cantrell 2002). Linda and Cantrell (2002)
divide a business model into three parts. These are: components of business a model,
operating business models and change models (2000). The logic behind how the organization
creates value is somewhat consistent with other definitions but these authors were able to
differentiate themselves by unearthing two additional dimensions from their angle of
observation. The operating model takes a practical view of the definition which practitioners in
business will readily understand. The operating models appear to be the antecedents of the
change models as business operations would be curtailed by inertia without some incremental
change. In a hierarchical arrangement, the operating models are paramount followed by the
change models and model at the bottom representing mere pieces of the whole, are the
components of a business model.
A business model component is a mere subset of the various parts from which the
whole is constructed and ranges from revenue model and value proposition to organizational
structures and arrangement for trading relationship (Linda and Cantrell, 2000). The internet is
seen as being partially responsible for clouding the issue on business models. This cloudiness
becomes more evident as e-watchers who have paid much attention to new channel
configuration, new value proposition and revenue models, loosely refer to them as business
models ( Linda & Cantrell, 2000).
15 Conroy Julian, M.A., B.A., (Dip. Mass Comm. UWI) E-mail: Consctripta @hotmail.com
The operating business model is regarded as the dominant model. “An operating
business model is the organization’s core logic for creating value” (P.2). The concepts that a
good business model highlights the distinctive activities and approaches that enable the firm to
succeed in attracting customers, employees and investors and deliver products and services
profitably is analogous to what Magretta calls differentiation, (Magretta 2000) .
The change model is described as the organization’s ability to adapt in a dynamic
environment. The change model also describes how an organization will change over time in
order to ensure that it remains profitable. The operating model is said to be responsible for
coordinating core assets, capabilities, relationships and knowledge; but the change model
leverage and extends them.
The main weakness of Linda and Cantrel’sl (2000) approach is that it does not propose
an actionable basis of business models capable of describing the core money making logic
suitable for operating in different industries. This approach mainly serves to dissect the
processes in a given business organization. The strength of Linda and Cantrel’s’ (2000) model is
that of making a distinction among components, operating and change models. Strength of this
approach is its apparent success in clarifying what to observe and measure as an indicator of
performance. It proposes knowing the different components of business models and how that
aids accuracy of measurement and ultimately the conclusion reached.
Perhaps the most seminal piece of work on business models found in the literature was
done by Alexander Osterwalder for his PhD dissertation, titled “The Business Model Ontology A
Proposition In A Design Science Approach” (Osterwalder, 2004). The main goal of the research
16 Conroy Julian, M.A., B.A., (Dip. Mass Comm. UWI) E-mail: Consctripta @hotmail.com
was to provide an ontology to allow for an accurate description of a firms’ business model
(P.42). This was done in order to set the stage for the designing of a software based tool to
visualize, design and compare business models quickly and efficiently. The approach was
design science, which is applied research with practical consequences as against pure research
satisfying mere quests for knowledge or the interest of the research community (Booth,
Colomb, Joseph and Williams, 2003).
Osterwalder (2000) draws from the philosophical meaning of ontology; which deals with
the nature and organization of reality as against epistemology which deals with the nature and
sources of knowledge (Guarino and Giaretta 1995). The ontology draws from shared
definitions and conceptualization of the authors reviewed and has sought to take the discussion
to another level of cognition. This is however set against the background of the computer
science domain in the rigorous organization of knowledge of those authors he reviewed. The
authors were grouped based on their written assessment of the concept under headings;
definition, taxonomy, components, representation tool, ontological modeling, changes
methodology and evaluation measures.
Osterwalder’s business model ontology was first categorized under four headings;
product, customer interface, infrastructure management, and financial management. This was
further expanded to nine but as sub-categories of the first four. These are; value proposition,
target customer, customer relationship, distribution channel, value configuration, capabilities,
partnership, revenue model and cost structure. The business model ontology was then
translated into an XML-based description language called BM2L in order to capture and
describe a concrete case study, the Montreux Jazz Festival.
17 Conroy Julian, M.A., B.A., (Dip. Mass Comm. UWI) E-mail: Consctripta @hotmail.com
It is interesting to note that the business model ontology has been used in the context
of one developing country and could be applied to many firms in Jamaica. Propositions have
been made to apply the ontology for business model knowledge transfer to developing
countries (Osterwalder 2002; 2004; Osterwalder, Rossie et al, 2002). The nine business model
elements were used to describe the business model of a telecommunication firm in Bangladesh,
Grameen phone, set up to connect rural villages in that country. The approach of (Osterwalder
2006) while being more actionable in describing the building blocks which Linda and Cantrell
(2000) call components, still does not provide a complete basis for easily indentifying a firm’s
business model.
2.4 Determinant by Rights and Assets
Weill, Malone, D’Urso, and Woerner’s (2006) basic definition of business model is
consistent with other authors in the literature, of what a business does and how it makes
money from such activities (Chesbrough and Rosenbloom, 2000; Linda and Cantrell, 2000;
Magretta, 2002; Osterwalder, 2006; Rappa, 2002; and Timmers, 2004). The substantive
difference lies in Weill et al’s (2006) approach in classifying business models based on rights
being traded and type of assets held. Weill et al (2006) outlined four basic types of business
models based on rights being traded as represented by: creators, distributors, landlords, and
brokes. Two basic types of rights were established. These are trading the right to own assets
and right to use assets. The right to own asset means that when the asset changes hands the
new owner has full control of the asset until he/she decides to dispose of it. The right to use
asset is more temporary like having a licensing agreement or paying for an airline seat to
18 Conroy Julian, M.A., B.A., (Dip. Mass Comm. UWI) E-mail: Consctripta @hotmail.com
Florida. These were key factors in determining a business model. The types of asset were
further broken down into subgroups identified as: financial, physical tangible or human.
Weill et al (2006) sought to answer the question, “Do some business models perform
better than others?” This was done by surveying a sample of one thousand of the largest firms
in the United States. The findings were in the affirmative. The results prove that some business
models do perform better than others and in fact business models were better predictor of
financial performance than the traditional method of industry classification. The ‘landlord’ as a
type of business model was also compared with the other three basic types of business models
mentioned in the previous paragraph, gives more specificity to the question of performance.
The results of the survey were consistent as it clearly show that companies selling the rights to
use assets (landlord) were more profitable and had greater market value than those selling
ownership of assets( ‘creators’/manufacturers sell rights of ownership).
2.5 Conclusion of Literature Review
There appears to be consensus among the authors reviewed on some key points about
the role played by the dot.com bubble of a period between 1999 and 2001 when the NASDAQ
index soured to over five thousand points as an era when the business model concept and
nomenclature gained much prominence (Chesbrough and Rosenbloom, 2000; Linda and
Cantrell, 2000; Weill and Vitale 2001; Gordijin, 2002; Magretta, 2002; Afuah and Tucci, 2003;
Rappa, 2005; Osterwalder, 2004; Weill et al;, 2006). There is also anecdotal evidence in the
public domain attributed to business analysts in the mass media who have come to the same
19 Conroy Julian, M.A., B.A., (Dip. Mass Comm. UWI) E-mail: Consctripta @hotmail.com
conclusion about the impact of the growth of businesses on the internet on the use of the term,
business model. I hereby posit that the growth and use of the term ‘business model’ during the
period of the dot.com bubble stimulated much of the research which has added to the
literature as evident in publications between 1999 and 2006.
Margretta(2002) and Weil et al (2006)l show evidence from their research with the
former explaining that ‘business models, matter’ while the latter research found that ‘some
business models perform better than others.’ The performance of Dell Computers supports the
position taken by Magretta. Michael Dell pioneered the business model of selling computers
directly to corporate business customers instead of the home market which was being served
by other computer makers. Dell’s strategic choice was to determine where to apply the model
in terms of geographic markets, segments, customers, and kind of products (Magretta, 2000).
Walton on the other hand did not pioneer the concept of discount stores when he started
Walmart but did enough modification to give it a unique flavour to ensure its success
(Magretta, 2000). For Weill et al (2000), the choice of a business model determines how well a
firm performs as related in their four basic business model archetypes based on types of assets
held and rights being traded. Rappa (2002) corroborated in his taxonomy: brokerage,
advertising, infomediary, merchant, manufacturer, affiliate, Community, subscription and utility
models. Rappa’s (2005) understanding of subscription is also analogous to Weill et al’s (2000)
concept of selling of rights. Persons subscribing to a business magazine for example are buying
the rights to access a certain number of copies over a specified period of time. Firms involved
in the selling of rights tend to show high performance when using measures such as market
capitalization and operating income (Weill et al, 2006). Firms with a Creator business model
20 Conroy Julian, M.A., B.A., (Dip. Mass Comm. UWI) E-mail: Consctripta @hotmail.com
involved in the selling of the ownership of assets however perform better when using the
return on investment measure.
Osterwalder (2004) in his ontology draws from all the major studies and synthesizes the
different conceptualizations into a single reference model consisting of the nine elements
mentioned earlier. Osterwalder’s ontology draws on twenty of the most important authors
who have made contributions to the topic under discussion and was therefore able to
appreciate the point that all wanted to bring greater clarity to the subject. Authors such as
Chesbrough and Rosenbloom (2000); Timmers (2004) with Information System(IS) biases
support the approach taken by Osterwalder’s (2006) study which detailed a design science
approach to research into business models. In other words, the design science approach uses
technology to creatively design solutions to solve the problems of businesses. The major area
of consensus among the authors came in their approach to the definition, that a business
model spells-out how a company makes money from its activities, use of resources, and its
position in the value chain.
The differences in definitions of a business model point to approach, industry relevance,
functional bias and method of classification. While two key authors, Linda &Cantrell (2000)
and Osterwalder, (2006) define business models in terms of components/building blocks but
they depart thereafter. Osterwalder (2006) using what he calls a design science approach for
the modeling of business models by using a common language (agreed code) for analyzing
business models, seeks to create a standardized software to compare business models. On the
other, hand Landa & Cantrell focus on a didactic explanation of three approaches to business
models by dissecting each one and showing how it can be applied in the context of a firm.
21 Conroy Julian, M.A., B.A., (Dip. Mass Comm. UWI) E-mail: Consctripta @hotmail.com
The approach of Linda & Cantrell was somewhat abstract when compared to Weill et al (2006)
whose definition I suggest is more practical and applicable. It was certainly less abstract when
one considers their clearly identifiable business model archetypes: creator, distributor,
landlord and broker.
Magretta (2000) in her article, written for the Harvard Business Review seems to
subscribe to the concept that the world is not made up of matter, it is made up of stories The
business model must not be seen as an arcane concept such a mathematical formulae on a
white board. The business model question is simply seen as being at the heart of the story that
entrepreneurs ask: “How do we make money in this business? What is the underlying economic
logic that explains how we deliver value to customers at an appropriate cost?” Communication
is seen as a critical tool in getting the narrative right, acting like a catalyst to convert visions into
reality. The firm has to be able to convince key stakeholders and, most importantly, customers
that the story is credible and that it is in their best interest to be part of the process. The
narrative behind Travelers Cheques gave Magretta (2002) the confidence to posit that it is one
of the greatest business models of all time. Traveler’s Cheques broke new grounds in
generating additional income from its customers because of the convenient financial service it
provided, thus scoring excellence in terms of the narrative. The customers' access to a means
of payment which was accepted with much confidence by merchants took the worry out doing
cross border transactions. Most importantly for the American Express principals, they receive
credit and interest free loans from their customers who buy the checks upfront with cash
(Magretta, 2002). The time log between the encashment of the checks and it being debited to
22 Conroy Julian, M.A., B.A., (Dip. Mass Comm. UWI) E-mail: Consctripta @hotmail.com
the bank account of the Travelers Express could take months. In short, a good narrative will
always impact the numbers on the financial statement.
The major approaches to business models can be categorized as; definition, taxonomy,
component, representation tool, ontological modeling, change methodology and evaluation
measures (Osterwalder, 2006). Business model as an evaluation measure (Weil et al 2006)
supports the proposition of this project as outlined in the preliminary section of this paper.
Osterwalder (2006) provides a framework which seemingly could be applied as a measure of
performance as it addresses the structure and processes of the firm. The other key authors
such as (Magretta 2002; Chesbrough and Rosenbloom 2002 and Rappa 2002; Timmers 1998;
and Linda and Cantrel 2000) provided further theoretical cover for analyzing critical aspects of
the business model concepts as a good indicator of financial performance.
Researchers ought not to be constrained by the results of prior research since the
pursuit of knowledge calls for a degree of creativity (Jorgensen (1989). In addition Shultz (1990)
posits that all theories contain breaches and omissions and are really works in progress. In
addition to theories, an alternative is to give more credence to the experience of practitioners
(Scriven, 1986).
The purpose of this study is to describe and explore the business model concept as a
good measure of financial performance of a small firm, particularly, Zion Organic Roots. In
order to achieve this, the concept of contingency theory in addition to the approaches
mentioned in the literature review will be utilized to complement the construction of the
conceptual framework which follows, to provide guidance for analyzing the data which emerge
from the study.
23 Conroy Julian, M.A., B.A., (Dip. Mass Comm. UWI) E-mail: Consctripta @hotmail.com
Written by Conroy Julian, M.A.
E-mail. Constripta@hotmail.com
Tele: 876 363 2104
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