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The Business Model in Practice and its Implications for Entrepreneurship Research

George, G. & Bock A. J.

Entrepreneurship Theory & Practice, January 2011

1

Article ReviewFerran Giones

Supervisor: Dr. Francesc Miralles

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Agenda

• Introduction• Literature Review• Discourse Analysis• The Data• Discussion• Implications for Theory• Directions for Future Research• Conclusions

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Introduction

• Question:– What are business models and how do practitioners use them?

• Business models definition vary widely– Used as termed of convenience by press and practice

community

• Business models relevant for entrepreneurship– Need for a convergent construct

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Literature Review

• Review process:– Searched EBSCO and ISI Web of Science databases for

“business model”• EBSCO: 929 title hits, 822 from articles published after 2000, 288 in

management field.• ISI: 194 citations.

• Outcomes:– Discussion on business models emerging from six main themes:

1. Organizational design

2. The resource-base-view (RBV)

3. Narrative and sense-making

4. Nature of innovation

5. Nature of opportunity

6. Transactive structures

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Literature Review

• Theme 1: Business model as Organizational Design– Idea: Agent-driven or emergent configuration of firm

characteristics.

– Managers rationally assess existing and potential business models to ensure firm survival.

– Business model fit with strategy favors firm performance (Zott & Amit 2008).

– But:• Does not explain business model evolution.• Research has not yet converged on the components of the business

model.

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Literature Review

• Theme 2: Business model and the RBV– Idea: Organizational structure codeterminant and coevolving

with firm’s asset stock or core activity set.

– Links business models to resource acquisition and allocation.• Business model as the dynamic capability that links firm’s distinctive

competnencies to organizational aspirations and outcomes.

– But:• Easily confused with product-market positioning strategy

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Literature Review

• Theme 3: Business Model as Organizational Narrative– Idea: Subjective, descriptive, emergent story or logic of key

drivers of organizational outcomes.

– Powerful tool for understanding and interpreting organizational behavior.

– Generation of narrative sensemaking dynamics driven by the firm’s social order, rules, organizational structure…

– But:• Limited scope of research: story formation and cataloging of

narratives.• No process to mediate between narrative models and firm behavior

or outcomes.

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Literature Review

• Theme 4: Business Models as Innovation Form– Idea: Processual configuration linked to evolution or application

of firm technology.

– Business model as focusing device between technology development and economic value creation.

– Idea that business models adjust in parallel to firm’s life-cycle evolution.

– But:• Unclear linkages between business model and organizational

structure innovation.– What precedes what and how it is influenced.

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Literature Review

• Theme 5: Business Models as Opportunity Facilitator– Idea: Enactment and implementation tied to an opportunity

landscape.

– Business model as the link between the entrepreneurial appraisal of the opportunity and its exploitation.

– If opportunity is uncertain, business model are equated to “business idea” or firm’s value creation mechanism.

– But:• Need to explain better the mechanisms that connect the underlying

opportunity with the business model.

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Literature Review

• Theme 6: Business Models as Transactive Structure– Idea: Configuration of boundary-spanning transactions.

– Business model as unifying mechanism describing the “content, structure, and governance of transactions” (Amit & Zott 2001).

– Firm performance as a function of:• Specific business model characteristics.• Fit between business models and strategy.

– But:• Lacks theory building and empirical research outside of the e-

business sector.

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Discourse Analysis

• Objective is to compare practitioner perspectives and construct definitions in the literature.

• Method:– Pilot interviews (12).– Survey administration (182 Indian managers – 13 UK

managers).• Question: What is a business model?

– Discourse Analysis (O’Connor 1995):1. Identification of discourse content.

2. Selection of a unit of analysis.

3. Analysis of the text using an a priori set of categories.

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The Data

• Emergence of 25 subcategories, covering 80% of (word) usage across all analyses.

• Coding at two levels providing insights on the construct:– Response-level coding

• Higher-level perspective business model language of design and value.

– Word unit-coding• Usage in practice demonstrate importance of resource and

transactive elements at the organizational level.

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Discussion

• Absence of support in practitioners language for narrative perspectives of the business model.– Not matching with narrative legitimating efforts.

• Discourse analysis supports research streams that link business models to resources and transactive structures (Amit & Zott 2001).

• Business models as Opportunity-Centric Design– Business models are not the activities, but the structure that

bound and connect the firm’s core activity set in service to a specific set of goals (Winder & Szulanski 2001), for example to enact a commercial opportunity.

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Discussion

• Business Models, Strategy and Entrepreneurship

– Strategy is a dynamic set of initiatives, activities and processes• Linked to reflexive change.• Competitor or environment centric.

– Business model is a static configuration of organizational elements and activity characteristics.

• They are not a recipe for change.• Opportunity-centric.

– Firm viability requires a value structure to replenish or augment the firm’s resource base.

– Business model as a core building block of the entrepreneurial enactment process.

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Implication for Theory

• Framing of the business model: “opportunity-centric”

• Introduction of the idea of dimensional dominance in the business model definition:• Dominant dimensions obtain more resources or importance within the

firm configuration activities or efforts.– Resources structure dimension– Transactive structure dimension– Value structure dimension

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Implication for Theory

– Resource-Structure Dominance:

• Firm evolution as a function of product development “technologies in search of a market”

• Accommodate change by altering resource allocations, acquiring and deploying novel resources and reassessing busines model viability.

• Example: “Consulting model where a team of consultants execute projects and bring in improvements required/designed by the customer”.

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Implication for Theory

– Transactive-Structure Dominance

• Focus on structure systems that determine and execute boundary-spanning and intrafirm transactions.

• Resilent when scale economics in transactions show learning and tacit knowledge effects, only impacted by radical changes in the nature of boundary-spanning transactions.

• Example: “Catering to a niche market, we sell our products directly to customers through interior decorators and fashion houses”

– Value-Structure Dominance• Take value structure for granted focuses on the mechanisms to generate

profits and reinvest.

• Example: “Create high value product and service relevant to customer perception with changing difficult times and enhance all stakeholder values continuously.

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Directions for future research

• Discourse analysis of Entrepreneurial Activity.– Identify broad patterns in entrepreneurial psychology and

decision-making processes, and isolate particular characteristics and actions unique to entrepreneurial circumstances.

• Interactions of Business Model Dimensions.– Business model change to describe dimensional dynamics

interactions with underlying changes in the opportunity landscape.

• Business Models in Opportunity Creation.– Business model characteristics and the opportunity landscape,

comparing characteristics across organizations.

• Business Models and Entrepreneurial Outcomes.– Study the impact of business model structure on organizational

growth.

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Conclusions

• Fragmentation of definition has precluded integrative research on business models

• Reconceptualization of the construct through and inductive study:– Opportunity-centric perspective based on resource, transactive

and value structure underlying dimensions.

• Insight:– Same opportunity may look different through a specific

dominance lens.– Opportunity to unlock entrepreneurial processes, evaluate firm

configuration effects, explain and predict entrepreneurial outcomes.

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Annex

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Annex

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The Business Model: Theoretical roots, recent developments, and future research

Zott, C., Amit, R., Massa, L.

IESE Working Paper, WP-862, June 2010

22

Paper ReviewFerran Giones

Supervisor: Dr. Francesc Miralles

Update:

The Business Model: Recent Developments and Future Research

Christoph Zott, Raphael Amit and Lorenzo Massa

DOI: 10.1177/0149206311406265

Journal of Management published online 2 May 2011

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Review Key Points

• Business model definitional lack of consistency and clarity.

• Identification of most prevalent definitions employed to explain three main phenomena:– E-business and the use of IT in organizations.– Strategic issues: value creation, competitive advantage and

firm performance.– Innovation and Technology management.

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Review Key Points

• E-business and the use of IT in organizations:– Description of generic e-business models and typologies:

• Direct to customer, Intermediary…(Weill & Vitale 2001)• Agora, aggregation, Distributive Network… (Tapscott et al. 2000)

– Components of e-business models• Value stream, revenue stream, logistical stream (Mahadevan 2000)• System of linkages between components, customer value, revenue

sources (Afuah & Tucci 2001).

– Business model representation• Business model ontology (Osterwalder 2004)

– Strategic marketing in e-business• Monetization of e-business: fee and free business models (Pauwels

&Weiss 2008)

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Review Key Points

• Business Models and Strategy– Value creation in networked markets

• Four potential sources of value creation in e-business (Amit & Zott 2001)

– Novelty, Lock-in, Complementarities, and Efficiency (NICE)

– Business model and firm performance• Firms compete with business models (Casadesus-Masanell & Ricart

2009).• Novelty models can result in superior performance (Morris et al.

2005, Zott & Amit 2008).

– Strategy and the business model• Strategy emphasis is on competition and value capture, business

model focuses on value creation.• Business model has more focus on the value proposition and on the

customer role.• Business model as a reflection of firm’s realized strategy

(Casadesus-Masanell & Ricart 2009)

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Review Key Points

• Business Models, Innovation and Technology Management.– Companies commercialize ideas and technologies through their

business models• Business models following a discovery-driven process (McGrath 2009)• Theory of business model innovation in incumbent firms, focusing on

relational dynamics on the informal organization (Santos et al. 2009).• Linked to strategic flexibility (Bock et al. 2011) through different levers

(Giesen et al. 2007):– Industry model innovation (in value chain)– Revenue model innovation (in revenue generation, pricing models…)– Enterprise model innovation (changing role in value chain, reconfigurations).

– Business models represents a new dimension of innovation• Involves new forms of cooperation and collaboration.• Business model innovation through collaborative entrpreneurship

– Idea of Open Business Models (Chesbrough 2007).

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Discussion & Conclusion

• Business model is a new unit of analysis– Bridges the firm and the network

• Business model researchers adopt a holistic and system perspective– Looking at the content and the process.

• Organizational activities (processes, functionalities or transactions) are dominant elements of business model definition.

• Business model literature has shifted emphasis from value capture to value creation– Centrality of the concept of value in the business model literature.

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Annex

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Annex

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Ideas for discussion on Business Models

• Do business models need to be sensitive to competitive environment?– If so, what is strategy and what are business models?– Academics VS Practitioners??

• Business Model as resources, transactions & value creation• Or Business Models as simplified entrepreneur’s business plans.

• Business Model fit in entrepreneurship?– Needed to give shape to your incipient idea?

• Build your Business Model Canvas (Alex Osterwalder)

– Part of the idea validation and exploitation process?• Use it to pivot (experiment) around your initial hypotheses (Eric Ries & Steve Blank)

and learn from it.

• In Entrepreneurship research:– Are we ready to build research around Business Models?

• BM designs as explanatory variables for entrepreneurship performance?• BM definition as an under researched process, influence of entrepreneurs cognitive

elements, past experiences/knowledge…