eisert_doll_business_model_based_management

360° – the Business Transformation Journal No. 14 | November 2015

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Abstract

While more and more companies leverage business models in an innovation context to ensure the economic viability of new products and services, their enormous potential to manage businesses over their entire life cycle is widely ignored. That is astonishing because business models help to design and maintain the business logic in a simple and unprecedented manner, whilst assisting to bridge the gap between strategy and daily business.


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BUSINESS MODEL BASED MANAGEMENT

In today’s economy, competitive advantage is progressively based on business models. Hence, companies will need to carefully consider their business model portfolio in order to stay on top of the market. This requires a new and innovative management approach in order to control the life cycle of business models and monitor the complete portfolio.

by Uli Eisert and Julia Doll

Bridging the Gap Between Strategy and Daily Business

There is an enormous hype around busi-ness models these days (Amarsy, 2015). Whether discussing the internet giants or the blurring of entire industry segments, people always refer to new business mod-els as the key to their success. We under-stand that differences in products and ser-vices alone are not enough to explain the success or failure of companies. The win-ners are those that embed their offerings into the right business model. Consequently, many companies have fi-nally started to manage business model innovation with the same level of profes-sionalism as product or process innova-tion. If done right, they utilize the capa-bility of business models to design the appropriate business logic in a very un-derstandable and tangible manner that is to a large extent a craft rather than an art (Doll and Eisert, 2014). However, the enthusiasm about business model innovation mostly stops after the

initial design of the business model. Very few companies handle the implementa-tion of new business models in an explicit and systematic manner, and even less use business models continuously to manage, optimize, and transform their current busi-nesses.

Challenges of Management TodayWhile academics are looking at business models from a strategic management per-spective, practitioners are still using the traditional mechanisms to manage, mon-itor, control, or optimize (Teece, 2010; Hal-ecker and Hartmann, 2014). A recent re-port reveals that the ten most used tools for management are based on concepts written 20 – 40 years ago (Rigby and Bi-lodeau, 2015). While 74% of the CEOs worldwide are concerned with new en-trants disrupting their business model, and 44% do not feel comfortable with their own business model (KPMG, 2015), most


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of them have not yet started to continu-ously manage and transform their portfo-lio of businesses using the business mod-el concept as the central framework.If we take the optimization of business-es as an example, most initiatives focus on operational excellence and efficiency only. These initiatives run the risk of op-timizing only parts of the business in an isolated manner, which do not lead to an overall improvement. This is where busi-ness models can make a difference (see box 1). Understanding that optimization activities are an effort to re-design and re-implement the overall business logic would ensure a more comprehensive and balanced approach. It supports ambitious results that go beyond operational excel-lence to increased competitive advantage or organizational agility.The same happens on the portfolio man-agement level. If we take mergers as an example, the typical post-merger process is focusing on pure integration of the ac-quired businesses assuming that this is sufficient to leverage synergies. Again,

the focus is mainly on efficiency gains. However, if the existing and acquired business models would be mutually opti-mized, businesses could achieve signifi-cantly better results (see box 1).Even worse, strategy and daily business are loosely coupled and develop indepen-dently from one another. To a large extent, this is due to a strategy formulation that is too high-level, too vague, and too ambigu-ous. People struggle to make the strategy and the corresponding business logic as tangible and concrete as managers and employees alike would like it to be. Con-sequently, there is no consistent and com-monly accepted management and deci-sion framework. Overall, today’s situation is characterized by a striking inability to bridge the gap between strategy and dai-ly business. There seems to be a need for a new approach – and it is the right time to put business models in the center of it.

Business Model Based Management Wouldn’t it be logical to leverage the strengths of business models over the

Box 1: Quotes of Early Adopters“We have seen that Business Model Based Management (BM)² has a huge potential for the holistic as-sessment of potential acquisition targets and the post-merger integration (PMI) of acquired companies. Some companies we acquire utilize business models that are different from the ones we already have in house. Some might not fit into our way of doing business or might not be able to deal with our constraints; others might be a great fit, but nevertheless require special consideration during the PMI phase. There might even be business models that we are actively looking for to enhance our business model portfo-lio. (BM)² provides tools we use to identify business model innovation early-on, during the due diligence phase. And it offers a great framework to help with implementation and optimization of such models during PMI”.Frank Schuler, Senior Director, M&A Expert at SAP Corporate Development

“(BM)² is the logical next step after BMDI. Applying the optimization workshop to a successful business such as SuccessFactors helped us rethink our current business and figure out our core strengths. The term “rethink” is broadly being used here to really mean creatively challenge, innovate and confirm the key priorities that should be pursued in our business activities with SAP SuccessFactors partnerships. Utilizing portfolio optimization for SAP business models should prove to be extremely helpful in order to simplify mergers and acquisitions at SAP and smooth the integration process of acquired business models (such as SuccessFactors). I think there is great potential in the new business model based man-agement services for our colleagues at SAP - and definitely our customers”.Natasha Loeffler-Little, Senior Director, Global Business Development, Cloud Global Partner Operations

Business Model Based Management (BM)²


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entire business life cycle and throughout the entire company? We believe that this could bring a new level of consistency and simplification to management on all levels of the corporation. We call this new ap-proach to management Business Model Based Management or simply put (BM)².If companies grasp the importance of the business models underlying their busi-nesses, the foundation for (BM)² is al-ready laid. In many cases, companies run various businesses in different stag-es in parallel, increasing the complexity of their management and the need for a (BM)² approach. This approach leverag-es business models strengths to provide a structured, consistent, and simplified approach. These aspects are captured in the five principles of (BM)² (see box 2 on the next page). Understandably, (BM)² has to support all phases of the life cycle of a business. The first phase deals with the initial busi-ness model design and implementation. While the initial design helps to embed

the new business idea into an appropri-ate business model, the initial implemen-tation phase helps launch commercializa-tion. The implementation ends when the expected volume of the business and oth-er KPIs are reached that justify a hand-over to the “regular” operation of the busi-ness. The second phase consists of the management and continuous optimiza-tion of the implemented business model supported by comprehensive monitoring. Once there is a valid reason to optimize the business model, activities are started accordingly. These activities are direct-ed at conquering upcoming threats and seizing new opportunities. These activi-ties consist of a re-design, re-implemen-tation, and execution of the modified busi-ness model until the next optimization is required. Due to the highly dynamic and sometimes disruptive environment, at one point, optimization is no longer suffi-cient and the business needs to be fun-damentally transformed or completely abandoned (see figure 1).

Transformation

(Re-)Design and (Re-) Implementation

Management and Optimization

Exit

Disruption Adaptation and Continuous

Improvement

Fig. 1: The business model life cycle (business model canvas adapt-ed from Business Model Foundry AG/CC BYSA 3.0)


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Box 2: The Five Principles of (BM)²

Business Models as an Instantiation of StrategyBusiness models provide the means to instantiate the strategy, to make it illustrative, tangible, under-standable, and ultimately implementable. While strategies leave room for interpretation, business mod-els ensure that the key questions are tackled: What is flowing back and forth between you, your partners, and your customers? How is the value created and for whom? How is the value delivered and captured in a sustainable and profitable way? Answering these questions enforces the accountable managers to transfer the strategy into concrete business logic and to verify their assumptions.

Business Models as a Management FrameworkBusiness models can replace traditional units of analysis (Amit and Zott, 2001). They offer a manage-ment framework consisting of three layers (Bucherer, 2010): First, business models are used as descrip-tion models to visualize, communicate, and share the business logic (Osterwalder et al., 2015). The de-scription provides the common ground needed for collaboration and smooth operations in the daily business. Furthermore, business models are used as explanatory models. Because the business model captures the overall business logic in a condensed manner, managers and experts can understand why and how the business works. Finally, business models are used as decision models so all decisions can be based on a common and holistic reference framework. This ensures that the best option for the over-all business is chosen and it considers that all aspects of the business prevents “local optimization”.

Business Models as a Structural ApproachIf you think of a company as a combination of different businesses that are utilizing appropriate business models, the segmentation of its structure into business units becomes obvious and simple. A segmen-tation along business models provides a more holistic view that combines external and internal aspects. Business models ensure consistent and more complete criteria to assess which business activities be-long together and where businesses should be split because they require different business models. Each business requires a responsible owner or management team and a sufficient degree of indepen-dence to steer and manage all business activities. Nevertheless, it can make a lot of sense to group dif-ferent businesses into one strategic business unit or some kind of division to ensure critical mass and to prevent micromanagement and sub-optimization.

Business Models as a Common GroundThe compact description of the business model deserves to be print it on posters and to be hanged up in every meeting room or even in the cafeteria. The plain explanation of what is going on in the business is something most people appreciate, because they can relate their own contribution easily to it. This com-bination of simplicity, tangibility, and proximity to the daily business makes business models extreme-ly powerful. The common ground e.g., between different lines of business, also fosters collaboration. As soon as people see and understand what others contribute to the common business, they start to appre-ciate the needed alignment and collaboration.

Business Models as an Organizational LinkAs a vertical link, business models can connect different organizational levels. The different business models need to be consistent over the different levels in a way that the higher-level business model can be deconstructed into the lower-level models, and that the business models on the lower level can be condensed into the higher-level model. Thus, they can support a concrete alignment of all business ac-tivities across the various levels of the organization. As a horizontal link, business models are useful for the exchange between different business units. Re-sponsible managers can share best practices based on the aforementioned common language and un-derstanding of their respective business activities. Moreover, similarities of businesses can be easily de-tected, which might allow the exploitation of synergies.


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If a company runs more than one busi-ness, it also needs to manage and opti-mize its portfolio of businesses over time. Therefore, (BM)² supports the re-design and re-implementation of the portfolio dealing with various business models in parallel. This is about an ongoing optimi-zation of the portfolio of businesses deriv-ing the appropriate strategy for each busi-ness and ensuring that all synergies are fully leveraged.As a result, (BM)² supports both the man-agement of the entire life cycle of each in-dividual business as well as the manage-ment of the portfolio of businesses on all levels of the entire corporation. This is re-flected in the three disciplines of (BM)², which are closely linked with each other as depicted in figure 2.To provide a suitable, common, and con-sistent underlying approach for these disciplines, we use the Business Model Development and Innovation (BMDI) ap-proach as the foundation for (BM)² (see figure 3 on the next page). However, each discipline has a different context and a dif-ferent set of objectives, so the underlying

approach needs to be adapted accord-ingly.With its five principles that form a consis-tent understanding of business models as the primary management framework and the three disciplines that support the en-tire business life cycle based on a com-mon underlying approach, (BM)² is a new way of management that addresses the short comings of existing concepts.

Business Model Design and Imple-mentationDesigning a business model from scratch can be a challenging task, but given the right tools and methods, you can devel-op and evaluate ideas in an elaborate way that gives you the security to have con-sidered all crucial aspects. The afore-mentioned BMDI approach is an intuitive methodology used to develop and vali-date business models (see box 3 on the next page). The implementation phase is concerned with scaling the business, more specif-ically, how to get from the first custom-er to the targeted market share. Hence,

Fig. 2: The disci-plines of (BM)²: Design and Im-plementation, Man-agement and Opti-mization, Portfolio Management and Optimization

Disruption

Portfolio Management and Optimization

Business Model Management and Optimization

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you need to define a roadmap, describ-ing step-by-step how to accomplish this final state. To scale your business, you need to decide on an appropriate growth strategy from day one. Each company runs through similar growth stages. By being aware of their existence and char-acteristics, you can shape the future for your business. To succeed, the progress has to be carefully monitored (Scott and Bruce, 1987). A new development of sup-porting these stages are growth hacks. Growth hacking is based on the target-ed utilization of marketing strategies in

order to scale the business as quickly as possible. It can be considered an explor-atory mode, where you try to understand what works best for your business and the industry through trial and error. There is no one strategy that is suitable for all. As in the design of your business model, it takes a creative process inspired by a pool of different growth hack patterns to trigger ideas. These growth hacks can in-fluence the design of your business mod-el and hence, need to be part of the busi-ness model design process. For example, a growth hack applied by Apple was to give out their Square device for free in or-der to encourage customers to try their product. This would mean initial changes in your revenue model that should be re-flected in your initial business model can-vas. Finding the right growth hacks is hard to predict, they heavily rely on current trends and context. There are different examples of successfully applied growth hacks: Airbnb addressed Craigslist mem-bers to post on their site in order to utilize an existing user network, Facebook and Pinterest generated buzz by using an invi-tation-only approach, and Dropbox imple-mented an incentive-based referral pro-gram. However, growth hacking should be seen as a continuous process, you should not rely on one single growth hack but rather a smart combination of multi-ple growth hacks used to support your company through the different growth

Fig. 3: Business Model (Re-) De-sign and (Re-) Im-plementation as key activities of (BM)²

Monitoring

Status before (Re-)Design Status after (Re-)Design

Set-Up of (Re-) Design Project

(Re-)Design Using the BMDI Approach

(Re-)Implementation

Monitoring

Transformation

Time

Box 3: Business Model Development and Innovation (BMDI)Business Model Development and Innovation (BMDI) is a targeted approach to develop and evaluate business mod-els. It can be applied to many use cases such as the de-velopment of business ideas, the analysis of unsuccess-ful businesses, or the optimization of successful business models. BMDI can also be utilized at several levels to in-novate business models of companies, business units, or products and services. It offers a toolset of methods, which can be selected and combined in multiple ways in order to meet the specific needs of each business context. BMDI consists of four iterations that can easily be under-stood and applied: Analyze and Improve, Challenge and Change, Test and Verify, and Evaluate and Decide. To learn more about BMDI, read Business Model Development andInnovation - A Strategic Approach to Business Transforma-tion (Doll and Eisert, 2014).

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stages. For platform or marketplac-es, when deciding on your growth hack strategy, special consideration needs to be given to the network effects that can be exploited by reaching a critical mass. For example, in the first growth stage of platforms, special focus needs to be giv-en to solving the chicken and egg prob-lem. That is, when you want to address two segments that are interested in inter-acting, but neither one perceives value in being the first to join.Overall, you need to work out the details of your implementation roadmap to cov-er the different stages of growth. For this, you need to define a timeline subdivid-ed into several phases guiding your road-map. For each phase, you have to deter-mine certain KPIs allowing you to monitor and control your progress. KPIs can be manifold, such as reaching the first 50 cus-tomers, 5% market share, and establishing a reliable business network. Each phase is described with a detailed project plan, business case, and a business model can-vas that explains the business logic in the respective phase. Here, you should imple-ment the growth hacks chosen for the cor-responding phase. You should also con-sider adaptations in the business model canvas. In the initial canvas, you may not start addressing all planned customer seg-ments or, you might not offer the full value proposition from the beginning and start with offering parts of the product or ser-vice. Summing up all stages, you should achieve the final business model where you have reached all customers, offer the full value proposition, collaborate with all planned partners, and more.While you are implementing your busi-ness model you can always compare the as-is situation with the expectations for the respective phase. If gaps occur, you can always adapt your business model stages and project plans to any insights found along the way. This is the beau-ty of BMDI and business models in gen-eral; they represent dynamic tools that follow an iterative process. They should always reflect your current knowledge and

insights, which is why it makes them the perfect tool for monitoring and controlling your execution.

Business Model Management and OptimizationAfter the implementation of a new busi-ness model is finalized, the “regular” management of a business starts. In this phase, it is important that the business model is used as the management frame-work to make sure that all business deci-sions are taken from the perspective of the overarching business logic. To find out whether the business is running accord-ing to the expectations and to understand how the business model is performing, one should (1) frequently monitor multiple indicators, both internal and external, (2) identify gaps between the designed and the running business model, and (3) pro-vide the necessary improvements. That is why the management of a busi-ness model always involves its optimiza-tion. Under the term optimization, we re-fer to the reaction to a set of internal and

external dynamics related to an imple-mented business model subsuming all ef-forts for adaptations and improvements. In general, optimization activities can ei-ther be a reaction to a gap that was deter-mined (e.g., a regular analysis of the cus-tomer requirements might indicate that a readjustment of the value proposition is required) or, they could be triggered rath-er proactively when the responsible man-agers see a threat or an opportunity (e.g., digital technologies provide new options for companies and their competitors). This requires an understanding that a business model is a transformational rather than a

Four optimization themes were identified in our research: Nurture and extend, reduce and get lean, seize and expand, and protect and sustain.


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static concept (Demil and Lecocq, 2010).Through our research, we identified four optimization themes that can be applied to different contexts.Nurture and Extend. The underly-ing assumption for this type of optimiza-tion is that there are just a few elements in your business model that are crucial for its success. Also, that the systematic ad-vancement of these elements would sig-nificantly contribute to competitive ad-vantages and to an improved financial performance. We call these elements

core assets that could be resources, ac-tivities, processes, capabilities, compe-tencies, values, standards, and more. This type of optimization is about identi-fying these core assets, improving their utilization directly, or, if required, nurtur-ing them and extending their usage as they grow.Reduce and Get Lean. This type of op-timization carries the assumption that there are several elements in your busi-ness model that are unvital for its suc-cess. Moreover, that a systematic reduction of these elements would sig-nificantly contribute to efficiency and re-duced costs. In the context of all types of lean approaches, these elements are at least to some extent considered as waste because they do not adequately contrib-ute to the value that is created, delivered, and captured. We call these elements dis-pensable assets. These elements could be resources (in the broadest possible sense), activities, or something in be-tween. Using the business model as a ref-erence, it becomes clear what adds value and what adds waste. This type of optimi-zation is about identifying these dispens-able assets, and systematically assess-ing if they could be eliminated, reduced,

or carried out in a more efficient way (e.g., by somebody else) in order to get lean. Seize and Expand. The underlying as-sumption for this type of optimization is that the environment provides frequent opportunities that can be seized in or-der to expand your own competitive posi-tion. These opportunities can arise due to changes in the environment, in particular on the customer side, the competitor side, and in regards to strategic partners. While these changes might simply occur, there may be changes that one can proactive-ly trigger in his or her own favor. What you want to accomplish in a “Seize and Ex-pand” optimization is to comprehensive-ly identify and seize opportunities in order to expand your footprint, i.e., to increase your market share or to enter new mar-kets. That is why this type of iteration is of particular interest if you pursue a growth strategy. Protect and Sustain. Here, the assump-tion is that threats frequently arise in the external environment that can endan-ger the company’s competitive position and long-term success. Thus, you have to protect your business to make it sus-tainable. These threats can arise due to disregarding certain aspects during the initial business model design and imple-mentation phase or they occur due to changes in the environment, in particular on the customer or competitor side. Be-sides quick and adequate responses to changes, this type of optimization is main-ly about proactive measures to make a business model less vulnerable and more sustainable.

Business Model Portfolio Manage-ment and OptimizationThe objective of business model portfoliomanagement and optimization is to im-plement and reflect the corporate strate-gy by the creation, maintenance, and op-timization of a portfolio of businesses. It supports the management of a portfolio of business models on the corporate lev-el with the goal of an ongoing optimiza-tion of the composition and alignment of


Portfolio management should shape the future by creating synergies, strengths, and opportunities that can be leveraged in the long run.


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the used business models. The key idea behind any portfolio is to make decisions in relation to other decisions (Bea and Haas, 2013). Business model portfolio manage-ment and optimization becomes rele-vant to achieving economic success in a sustained manner when a company is running more than one interrelated busi-ness. Rooted in growth aspirations and diversification strategies, active portfolio management supports solving the prob-lems of growing, multi-business firms (Untiedt, Nippa, and Pidun, 2012). A re-cent survey has shown that portfolio man-agement is eminently important and rel-evant with two-thirds of the interviewed companies applying portfolio manage-ment techniques regularly (BCG, 2011). Typical triggers for portfolio optimization are founded in the attempt to leverage ex-isting strengths, opportunities, or syner-gies. Nevertheless, portfolio management should also shape the future by creating synergies, strengths, and opportunities that can be leveraged in the long run.Because business model portfolio man-agement and optimization is the only dis-cipline within (BM)² that takes place on the corporate level, it has a distinguished role. It acts as the link between the strategy, corporate level, and subordinate level(s). This is particularly important when the decisions need to be made: – to develop a new business model or

to implement a newly developed busi-ness model

– to adjust running business models to changes in the corporate strategy

– to significantly invest into a business model

– to phase out a business or to start the transformation of a business model with the goal of the renewal of the business

– to sell, merge, or acquire a business– to prioritize key elements within the

business modelsThese decisions can be seen as trig-gers for activities on the subordinate lev-el. However, it would be wrong to assume that the linkage between portfolio man-

agement and optimization and the other disciplines is only one-way, which is top-down. In contrast, all levels should be ac-tively involved in the strategy process. This is true for the entire process from triggering and creating initiatives, to their

selection and implementation. Therefore, in the same way the corporate level influ-ences the development of business mod-els on the subordinate levels, these levels should be empowered and encouraged to contribute to the optimization of the over-all strategy and portfolio development on the corporate level.Similar to optimization activities on the single business model level, optimiza-tion activities on the portfolio level contain widespread themes that can be re-used in various contexts, such as the following.Leverage and Optimize. The underlying assumption for this type of optimization is that there are potential synergies with-in the portfolio that could be leveraged to optimize the overall economic perfor-mance. Leveraging synergies can lead to higher efficiency and lower costs as well as to a better competitive differentiation.

However, leveraging synergies can also lead to dependencies and conflicts. Thus, this type of iteration is ultimately about finding an optimal trade-off between syn-ergy and autonomy between the differ-ent businesses within the portfolio and be-

Optimization activities on the portfolio level include the following: Leverage and optimize; restructure and grow; cooperate and strengthen; and transform and renew.

Leveraging synergies can lead to higher efficiency and lower costs as well as to a better competitive differentiation.


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tween the corporate and the subordinate levels. While the former is often called hori-zontal optimization, the latter is sometimes called vertical optimization. We call the elements where synergies could be leveraged “synergy assets”. The first part of the analysis is to identify the potential "synergy assets". According to Porter (2010), these include tangible (e.g., machines), intangible (e.g., know-how), and competitive interrelations (e.g., aligned activities regarding a joint com-petitor). These assets cannot just lead to efficiency gains by centralizing or inte-grating activities that different businesses could do together, but also to competitive advantages by complementing the capa-bilities of one business with those that an-other business could provide.Restructure and Grow. For this type of optimization, the underlying assumption is that the structure of the portfolio could be improved in order to grow in a well-balanced manner according to the cor-porate objectives. Thus, this type of opti-mization is ultimately about deriving the right strategic direction for all business-

es of the portfolio in scope from a corpo-rate perspective. In most cases, growth is the dominant objective while balance (in regards to: lower vs. higher risk and focus vs. diversification) is rather an enabler for sustainable growth. When we look into the objective of growth, of course companies can lever-age traditional portfolio management techniques such as the BCG- or McKin-sey-Matrix. However, from a business model perspective it makes sense to as-sess the respective growth potential in a more holistic manner for the established and evolving businesses. Because a business can be developed to go into dif-

ferent directions and in various ways, the potential growth of a business is highly dependent on how the responsible man-agement team is shaping its future. This is why the team should leverage existing market data and stress its creativity and ability to influence future developments. Cooperate and Strengthen. The un-derlying assumption for this type of opti-mization is that various types of strategic partnerships on the corporate or subor-dinate levels can strengthen the compa-ny in different dimensions. Compared to an organic improvement of the competi-tive position and organic growth, partner-ships provide specific benefits that justify focusing on them in a separate type of op-timization. Cooperation is an instrument that should be used frequently due to the enormous scope of potential applications. You should focus on the desired benefits as a starting point, which are often clus-tered into the following areas (Welge and Al-Laham, 2011):– Resources: can provide access to ex-

ternal resources and competencies, e.g., specific expertise.

– Time: provides almost immediate ac-cess to new assets.

– Costs: opportunity to share expensive resources or to better utilize capacities.

– Markets: can provide access to markets that could not be reached beforehand and a joint offering might be significantly more attractive.

– Risks: can be the basis to share risks e.g., for expensive R&D activities.

– Reputation: may allow partners to ben-efit from the image and reputation of the partner.

– Market power: can result in an increas-ing market power e.g., to carry through industry standards.

When checking the business mod-els in scope, the task is to deter-mine where and how a partner could make a difference and if a cooperation would result in significant advantages. Transform and Renew. Here the as-sumption is that there is both the need (at least in sporadic, irregular intervals)


The desired benefits should be the focus, which are clustered in areas such as time, costs, markets, and more.


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and the possibility for a company to rein-vent itself as a whole or in parts in order to renew itself frequently for sustainable success. While in the other optimiza-tion types existing strengths or custom-er relations were regarded as a key driv-er for success, in this type of iteration we look at the capabilities that companies need in times of disruptive change. Now, a dynamic approach is required: The re-sources and competencies, which laid the foundation for yesterday’s success, might be insufficient or even restricting to-day. Thus, companies have to be able to adjust their resources and competencies and target the new requirements of future markets. This transformation includes the cannibalization of existing assets and markets in the sense of the Schumpeteri-an “creative destruction” (Herrmann et al., 2007). This ability, allowing companies to achieve new and innovative forms of competitive advantage, is what Teece et al. (1997), as well as Eisenhardt and Mar-tin (2000) call dynamic capabilities.To sense and identify starting points on how a business in the portfolio or even the entire company could be re-invented, these aspects should be considered:– Disruptive technologies: Initially, dis-

ruptive technologies are rather limited in their capabilities and can take some time before their advantages are real-ized. It is important for companies to un-derstand this and look for niche markets or innovators on the customer side that would benefit from these advantages.

– Disruptive changes of customer behav-ior: While the majority of customers in B2B markets usually change their be-havior in a slow and predictive man-ner, there are also those that sudden-ly change their behavior, which comes along with new needs and demands. That is why in some industries it is im-portant to keep an eye on trendsetters or lead users.

– Mega trends: Certain trends are clear-ly related to disruptive changes of busi-ness models and totally new oppor-tunities. These include digitalization,

globalization, deregulation and liberal-ization, and increasing market dynam-ics. Scenario analysis can be used to reflect potential impacts of these trends for a company.

– Blurring industry borders: Because of advancing technologies, liberalization, and hyper competition, industry bor-ders are blurring. A few well-known ex-amples are the increasing economic convergence of IT and telecommunica-tion, utility and telecommunication, high tech and media, healthcare and tour-ism, banking and insurance, and bank-ing and retail. Positioning yourself in be-tween industries in order to come up with new, highly attractive offerings can be a strategy for new business models.

ConclusionBusiness model design is only valuable if it is well thought out for the life cycle of the business. Thus, one has to consider how to implement, monitor, and optimize business models along the way. Without this essential extra step, the developed and evaluated business model will not


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Key Learnings

► Implementing, monitoring, and optimizing business models is as important as designing them. It is the only way of reaching and sustaining the success intended in business model design.

► Companies have to manage business models throughout their whole life cycle from their design to their end life or transformation. They have to look into the portfolio of business models in order to understand their context and manage them holistically.

► Companies mostly run multiple business models, which require managing the business model portfolio. Looking at the interrelations in the portfolio allows to derive insights on synergies, conflicts, growth potentials, needs for transformation and the like.

ServiceAUTHORS

Dr. Uli Eisert is heading the Research and Innovation Hub in St. Gallen, Switzer-land. The Hub closely collaborates with the University of St. Gallen and is part of the

global Innovation Center Network of SAP. Mr. Eisert has worked in the field of busi-ness models for over eight years and has done multiple projects, workshops, and trainings. He has published various journal papers and articles on innovation man-agement and business model innovation. Before his current position, he was heading the global PLM solution management at SAP and was working as a con-sultant and project manager for SAP implementations. He holds degrees in me-chanical and industrial engineering as well as a PhD in business administration. uli.eisert[at]sap.com

Julia Doll is a senior project lead for business model innovation at the SAP Research and Innovation Hub in St. Gallen, Switzerland. She has been working on the concepts of business model innovation and business model based management. Ms. Doll has coached many projects in business model innovation, implementation, and optimiza-tion. Since she started working at SAP in 2007, she has worked on several projects around the globe. Ms. Doll holds a Master of Science from the University of Mannheim, Germany and a Master of Business from the University of Queensland, Australia.ju.doll[at]sap.com


achieve the expected success.However, business model management does not end there. Looking at the port-folio of business models run by a compa-ny provides further insights. Monitoring and controlling a company based on the business model portfolio is an innovative framework for strategic management that will give business executives the support needed in a dynamic environment where

business models are decisive to shape competitive advantage.Business models are meant to support a company on all levels. (BM)² can help to implement and align the strategy in a sim-ple manner. It is a framework that can help steer a company to come to the right de-cisions for accelerated growth and suc-cess. That is why (BM)² will pave the way for how we run businesses in the future.


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