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Entrepreneurship and Enterprise Development through a Formal e-
Business Model Framework
Paper
Alexander Osterwalder
BFSH1, CH-1015 Lausanne, Switzerland
Information Systems Department University of Lausanne
Tel: (+41 21) 692.3420
Fax: (+41 21) 692.34.05
http://inforge.unil.ch/aosterwa
Lausanne, Switzerland
Keywords: Entrepreneurship, Enterprise development, Business Models, e-Business, Digital Divide,
Developing Countries
Abstract: The bridging of the so-called digital divide is an important issue in today's development efforts
of international and non-governmental organizations and developing countries. This does not only
concern access to new information and communication technologies (ICT) such as the Internet, but also
access to the know-how to use these technologies for economic development. Many of the recent
international initiatives to narrow the digital divide stress the necessity to develop a knowledgeable class
of e-entrepreneurs that are able to use ICT. In this paper we outline a concrete methodology and propose
some practical tools that shall foster entrepreneurship and enterprise development for the Internet era in
developing countries.
1 Introduction
When an architect starts planning a building he does several things. First of all, he collects information
about the environment, the parties involved, the ground and the legal constraints. Second, he analyzes the
situation and discusses the different possibilities with his team and with investors. After that he starts
drawing the first sketches of the building. These sketches help the architect reason about what makes
sense and help him find out if his ideas are feasible. Then follow the first serious discussions with the
future owners and investors. When he has approval, the architect starts with the drawing of the plans - he
begins with the raw and goes towards the subtle. At the same time he always checks if the increasingly
detailed plans correspond to and express the big picture he initially had in mind. This whole process
remarkably resembles the tasks of a manager of a company, who creates the strategy of the firm in a
given environment, sets up a viable business model and oversees its implementation in process,
organizational and Information Technology (IT) issues (see figure 1). One of the biggest differences
between architects and managers is that former are confronted with physical problems, whereas the latter
treat relatively complex social systems. This may be one explanation for the fact that architects dispose of
quite sophisticated software tools to plan their buildings, while managers (business architects) are
principally armed with word processors and some graphical tools to discuss, build, assess, share and
implement the logic of their business. Only at the business process and the Information Systems level
managers have a large choice of software tools that help them in their architectural tasks.
Figure 1: Business architects
Because one of the biggest challenges of the modern enterprise and its executives is change, it would be
interesting to think of a set of software tools that would allow business people to understand and describe
the logic of their business and of what essential elements it is composed - just as an architect does for the
blueprint of his building. Tools that would let them easily communicate this business logic to others and
that would let them change and experiment with it in order to learn about business opportunities. To
achieve this goal we introduce the business model framework that shall allow business architects to better
seize the logic of their business, help them discover blind spots in their model and uncover new
opportunities.
The second section of the paper describes what is understood under the "digital divide" between so-called
developed and developing countries and outlines some of the ongoing efforts of the international
community to narrow this gap. The term refers to the discrepancy concerning the use of Information and
Communication Technologies (ICT) and the originating competitive advantages, respectively
disadvantages, in the international economic environment. Not being able to or not knowing how to make
use of ICT is becoming a clear factor of economic exclusion for businesses in developing countries. Of
course we are aware of the fact that the use of Information and Communication Technologies (ICT) is not
a panacea for all development problems and that there are several obstacles that make it difficult for
Small and Medium Sized Enterprises (SMEs) in developing countries to adopt ICT and particularly
Internet business tools. But detailed analysis of experience around the world reveals ample evidence that,
used in the right way and for the right purposes, ICT provides developing nations with an unprecedented
opportunity to meet vital development goals such as poverty reduction, basic healthcare, and education
more effectively than before [1]. Nevertheless, ICT stay useless tools without the knowledge to use them.
Among many others, the Digital Opportunity Initiative [2] shows that it is indispensable to build a critical
mass of knowledge workers that understand the new (architectural) tools, to increase technical skills
among users and to strengthen local entrepreneurial and managerial capabilities. Particularly the Internet
is an interesting communication channel that can mobilize this worldwide knowledge and expertise [3]
and allows fostering knowledge transfer to and between the business actors in developing economies.
In the third section we show that the Business Model Framework [4] can be a fertile methodology for the
training of business architects (e.g. entrepreneurs and managers) to better understand the business use of
ICT and the Internet in developing countries. The framework highlights the relevant business issues and
bricks firms have to think of, in order to build successful organizations in the Internet era. This formal
building-block like approach to business models helps entrepreneurs and business people in developing
countries understand two things. First, what exactly is understood under business logic and how one can
assemble and describe a business model - a little bit like an architect describes a building through plans.
Second, this approach demonstrates how ICT influences business logic in the Internet era just as new
materials increase the range of possibilities and creativity for an architect. The business model framework
we describe in this paper is founded on four main pillars, which are product innovation, customer
relationship, infrastructure management and financials. These main elements are then further decomposed.
In the last section we explain the interest of the Business Model Handbook for Developing Countries,
which is a Web-based knowledge transfer tool that should show SMEs and local entrepreneurs the
relevant business issues in the information society. With this tool they could, for example, learn how to
address customers directly or understand how to reduce operational costs by slashing material,
procurement and transaction costs, resulting in lower prices for intermediate and finished goods. Finally,
we describe how this handbook could serve as a repository of formalized case studies of Small and
Medium-Sized enterprises (SMEs) and Micro-Sized Enterprises (MSEs) in developing countries.
2 Digital Divide
Simply put, the digital divide means that between countries and between different groups of people within
countries, there is a wide division between those who have real access to ICT and are using it effectively,
and those who don't1. Since ICT are increasingly becoming a foundation of our societies and economies,
the digital divide means that the "information have-nots" are denied the option to participate in new ICT
jobs, in e-government, in ICT improved healthcare, and in ICT enhanced education. More often than not,
the "information have-nots" are in developing countries, and in disadvantaged groups within countries. In
this paper we particularly focus bridging the digital divide in companies of developing countries.
2.1 International Initiatives to Narrow the Digital Divide
Several initiatives to narrow the digital divide have been launched the last few years, covering issues from
infrastructure development to e-business development.
The Digital Opportunities Task Force (DOT Force). The DOT Force was created by the G8 Heads of
State at the Okinawa Summit in July 2000. It brought government teams, private sector, non-profit
organizations, and international organizations together, in order to identify ways in which the digital
revolution can benefit all the world's people, especially the poorest and most marginalized groups.
Therefore the task force developed the Genoa Plan of Action, a framework for implementation, with nine
priority areas to bridge the global digital divide. In this paper we address two of these action points,
which are "enhancement of human capacity development, knowledge creation and sharing" and "fostering
enterprise and entrepreneurship for sustainable economic development" [7].
United Nations (UN) ICT Task Force. Building on the Genoa Plan of Action, the ICT Task Force
complements the implementation work that DOT Force members undertake by drawing together the key
UN Agencies, reaching out to a broad audience through its regional network [6].
The Global Digital Opportunity Initiative (GDOI). GDOI is a partnership of the United Nations
Development Programme (UNDP) and the Markle Foundation launched in early 2002. Its goal is to
increase the impact of ICT in achieving the development objectives of developing countries. The GDOI
1 This definition of the digital divide and a pool of related information can be found on the Bridges.org Website (www.bridges.org) [accessed: April 17, 2002]
builds on a framework developed by the Digital Opportunity Initiative for the 2001 G-8 Summit in Genoa,
which consists of five critically interrelated areas for strategic intervention. Two of these areas, namely
"human capacity" and "enterprise" are addressed by the business model framework outlined in this paper2.
The United Nations Information Technology Service (UNITeS). UNITeS is a global volunteer initiative,
lead by the UN Volunteers programme, that allows volunteers to give their skills and time to extend the
opportunities of the digital revolution to developing countries. One of the main goals is the establishment
of a significant knowledge base/network on applications of ICT to various areas of human development
(e.g., support to small and medium enterprises, health, education) and humanitarian aid. As part of the
programme UNITeS has created the Netaid.org Website through which Online Volunteers from around
the world help individuals and institutions in developing countries to make practical use of ICT in their
development processes3.
The Information for Development Program (infoDev). infoDev is a global grant program managed by
the World Bank to help developing economies fully benefit from modern information systems. It shares
worldwide experience with, and disseminates best practices to governments and key decision-makers,
both public and private, on the economic development potential of ICT4.
2.2 Entrepreneurship and Development
As the initiatives above demonstrate, human capacity development and entrepreneurship promotion are
central issues in bridging the digital divide. Besides, the majority of recent publications of International
Organizations stress the fact that the encouragement and support of e-entrepreneurship is indispensable if
developing countries don't want to miss out on the possibilities of ICT [2; 5; 7; 8; 9]. Local businesses
need to acquire a strong awareness and understanding of the business opportunities these technologies
make available. Entrepreneurship plays a particularly critical role during periods of rapid economic
change, as small, agile firms increase the ability of an economy to quickly respond to new challenges.
Unfortunately, most developing countries have a poor environment for entrepreneurship. In general, there
is a lack of knowledge with respect to the new business models that characterize Internet-centered
businesses. And people that combine skills and creativity in Internet site creation, business know-how,
access to finance and knowledge of local community needs are still relatively rare worldwide, but
particularly in developing countries [10]. Nevertheless, as stated in the final report of the Digital
Opportunity Initiative it is far from inevitable that ICT will have a negative impact on developing
economies; in fact, with the right policies and practical actions, ICT can be a powerful enabler of
development [2]. Creativity and entrepreneurship in Brazil, India, Thailand, Niger and elsewhere have
already developed software for illiterate users and low-cost, solar-powered wireless devices [9]. But two
essential conditions for entrepreneurship development are access to architectural tools for business and
2 www.gdoi.org [accessed: April 17, 2002] 3 www.unites.org [accessed: April 17, 2002] 4 www.infodev.org [accessed: April 17, 2002]
business knowledge and understanding of the existing opportunities arising out of new ICT. In the
following two sections we try to outline a framework and some tools that address these issues.
3 Business Model Framework
The Business Model Framework is founded on four main pillars (see figure 5). (1) The products and
services a firm offers, representing a substantial value to the customer, and for which he is willing to pay.
(2) The infrastructure and the network of partners that is necessary in order to create value and to
maintain a good customer relationship. (3) The relationship capital the firm creates and maintains with
the customer, in order to satisfy him and to generate sustainable revenues. And last, but not least, (4) the
financials, which are transversal and can be found throughout the three former components, such as cost
and revenue structures. The four main elements are then further decomposed.
3.1 Product Innovation
The Product Innovation pillar of the framework covers all product-related aspects. The main elements are
the value proposition a firm wants to offer to specific target customer segments and the capabilities a
firm has to be able to assure in order to deliver this value (see figure 2).
Figure 2: Product Innovation
Target customer segment. The value proposition a firm offers on the market should target a specific
customer segment. The arise of new affordable communication technologies such as the Internet, have
given firms in developing countries access to completely new markets. If companies had to pass by
several intermediaries to access the final clients for their products and services, they can now often
address them more directly. Chincheros for example, a small village in Peru, increased its income five-
fold to US$1,500 per month when the village leaders formed an Internet-enabled partnership with an
export company in 1996. The village vegetables are now sold daily in New York [2]. Through
PEOPLink's global artisans trading exchange5 local craftspeople in developing countries are increasing
their incomes particularly because the wholesaling intermediaries for their produce have effectively been
removed. They now receive up to 95 percent of the selling price for their produce where previously they
received only 10 percent [2]. Several similar initiatives, offering indigenous peoples opportunities to
globally market their traditional crafts and farm products exist on the Web [11]. In general, the Internet
could erode an important advantage now enjoyed by firms in industrial countries: proximity to wealthy
customers [8].
5 http://www.peoplink.org [accessed : April 17, 2001]
Value proposition. This refers to what business the company is in and what bundle of products and
services it offers on the market. It is important for firms and entrepreneurs in developing countries to
understand that ICT opens them up a whole new world of opportunities. For example, rather than
exporting products over the Internet, which demands an efficient and functioning logistical infrastructure,
they could export digitally deliverable services. In e-transcription or e-editing firms would receive audio
files over the Web, split them into sections and format them by several employees in a parallel working
mode. The electronic document could be returned in 24 hours. A one hour tape, which equals about five
to six typed pages goes at US$ 60 to 100 per hour in North America [12]. Another often cited example is
the case of Indian firms that rely on cheap software developers or accountants to provide outsourcing
services to western firms, particularly to multinationals. Further, through customization [13] firms could
propose value tailored to the demand of a single customer. Small firms in developing countries have a
substantial competitive advantage if they provide customized handmade products or customer-tailored
services at low prices. The Internet makes it possible for a tailor in Shanghai to hand-make a suit for a
lawyer in Boston and then FedEx it to him [14].
Capabilities. To deliver a value proposition firms must be conscious that they have to possess the range
of capabilities that underpin the proposed value. This is particularly important for firms in developing
countries, where ICT infrastructure and general infrastructure are not always satisfying and still often
very expensive.
3.2 Infrastructure Management
The Infrastructure Management element, describes the value system configuration [15] that is necessary
to deliver the value proposition. This comprises the value configuration of the firm, in other words the
activities to create and deliver value, and, the relationship between them, the in-house resources and
assets and the firm’s partner network (see figure 3).
Value configuration. The main purpose of a company is the creation of value that customers are willing
to pay for. This value is the outcome of a configuration of inside and outside activities and processes. To
define the value creation configuration in a business model there are three basic trajectories. The value
chain framework by Porter et al. [16] and its extension, as defined by Stabell et al. [17], who add the
concept of the value shop and the value network. Understanding the value creation process is
indispensable for streamlining business and for identifying the right software and Internet tools. Firms in
developing countries can also benefit from the Open Source software movement that delivers powerful,
cheap ICT tools.
Resources and assets. In order to create value, a firm needs resources [18]. Grant [19] distinguishes
tangible, intangible, and human assets. Companies in developing countries have to analyze where they
have competitive advantages, in order to focus on a precise and limited range of resources and assets. For
everything else, ICT opens up new ways of partnering and outsourcing.
Partner network. The partner network outlines, which elements of the activity configuration are
distributed among the partners of the firm. Shrinking transaction costs make it easier for firms to
vertically disintegrate and to reorganize in partner networks. CatGen, for example, provides software that
enables local artisans to easily capture and transmit digital images of products over the Internet with
minimal training and in conditions of poor connectivity. The solution is feasible due to the existence of
public access points such as cyber cafes and telecenters [20].
Figure 3: Infrastructure Management
3.3 Customer Relationship
Through the use of ICT firms can redefine the notion of Customer Relationship. First, they can get a feel
for and understand the customer by outlining an information strategy. Second, firms can exploit new
ways to deliver value and expand reach by covering new and multiple channels. Third, companies must
understand that trust and loyalty has become one of the most important elements in a business world that
is increasingly virtual and has less face-to-face contact (see figure 4).
Information strategy. Collecting Information on customers and their behavior has become essential for
understanding the market and offering adequate products and services. Better knowledge of its customers
allows a firm to establish a personalized relationship tailored to the needs of every single customer. But
companies in emerging markets are often wary of introducing continuous-relationship marketing because
of the sophisticated IT systems, customer records, and marketing expertise it is said to require. In reality
things are not as complicated, as shown by Chung et al. [21]. One mobile-phone operator in Asia, for
example, cut customer churn by more than 40 percent by offering a special discount to just the customers
identified as the most likely to cancel. An East Asian retail bank increased its credit card profits by
targeting a direct-marketing campaign at high-income customers who were heavy ATM users, having
discovered through the use of CRM that they were four times as likely to take up a credit card offer as the
people in a control group.
Figure 4: Customer Relationship
Feel & serve (channels). This element refers to the way a firm “goes to market” and how it actually
“reaches” its customers [22]. As shown above, direct selling over the Web can improve margins and
selling through new Internet mediation services, so-called cybermediaries [23] can mean new market
opportunities. AfricanCraft.com6 is a Web site dedicated to bringing the arts and the artisans of Africa
online. By supplying information on online shops, craftspeople, artists and designers in Africa, and by
setting up on-line classrooms on subjects, such as “Kente paper weaving” or “Loom construction” this
Web site positions itself as a portal for African craftsmanship. This illustrates one of the best known and
mostly applied aspects of e-business: providing information on products and value-added services over a
Web Site. A firm can easily supply its customer with a wide range of basic information on products,
prices and availability, or even offer him customized real-time information (i.e., delivery status, product
lifecycle management). African countries for example, could have stopped their diminishing export
performances, which were largely attributed to non-prices factors on the demand side [24], if they had
used the Internet for marketing information on prices and used the Web for after sales services and quality
amelioration. A successful example of a new cybermediary is the Chinese Web site alibaba.com that
matches international customers with Chinese suppliers. This is very helpful for Chinese manufacturers
which often have little knowledge how to address international export markets.
Trust & Loyalty. For businesses in developing countries it is indispensable to find ways to establish trust
between business partners if they want to survive in the virtual market space, particularly if they are in the
export business. In online auctions, more often than not a lack of credibility makes it difficult for firms in
developing countries to access customers. Purchasers need to have confidence that suppliers will provide
input on time and in conformance with specifications, and product quality may not be known ex ante.
More than half of 35 large firms using online auction or exchange sites said that they would not do
business through online Web sites with firms they did not know [25]. Interview results indicate buyers—
typically firms in industrial countries—see an especially high risk in purchasing from firms in developing
6 http://www.africancrafts.com [Accessed : 30 September 2001]
countries [8]. Therefore it is important to use the existing mechanisms to build trust in e-business
environments, such as virtual communities [26], performance history, mediation services or insurance,
third party verification and authorization, and, clear privacy policies [27]. Finally, customer loyalty
emerges out of the customer’s trust and satisfaction.
3.4 Financials
The Financials, the last pillar of our framework is transversal because all other pillars influence it. This
element is composed of the revenue model of the firm and its cost structure. The formerly mentioned
determine the firm’s profit or loss and therefore its ability to survive in competition (see figure 5).
Figure 5: Business Model Framework
Revenue Model. This element measures the ability of a firm to translate the value it offers its customers
into money and therefore generate incoming revenue streams. Firms can compose their revenue model of
different revenue streams that can all have different pricing models. Companies in developing countries
must understand that the Internet has had an important impact on pricing and has created a whole new
range of pricing mechanisms [28].
Cost structure. This element measures all the costs the firm incurs in order to create, market and deliver
value to its customers. It sets a price tag on all the resources, assets, activities and partner network
relationships and exchanges that cost the company money.
Profit/Loss. This element is simply the outcome of the difference between the revenue model and the cost
structure. It can be seen as the culminating point and as an expression of the entire business model.
Whereas product innovation and customer relationship shall maximize revenue, an effective infrastructure
management shall minimize costs and therefore optimize the profit model.
4 Tools for Entrepreneurship & Enterprise Development and the Spread of ICT
The framework outlined above is the foundation for a range of software and web-based-tools for
entrepreneurs and business people that help them understand enterprise development and the digital
opportunities in the Internet era.
4.1 The Business Model Handbook for Developing Countries
The Business Model Handbook for Developing Countries (BMH4dev) is a proposition for a tool for
business and entrepreneurial opportunity knowledge transfer over the Internet. It is Web-based and relies
on the Business Model Framework outlined above. Entrepreneurs and business architects could navigate
through the framework and learn about the essential enterprise concepts and discover the digital
opportunities they could exploit (see figure 6). In other words, they would learn how to draw the blueprint
for the Internet era organization. Of course, this tool should be driven by user demand and not perceived
as a kind of Trojan Horse [29] to impose business and ICT concepts of more developed countries.
Figure 6: The Business Model Handbook
4.2 Case Study Repository
The Case Study Repository is also based on the Business Model Framework and could be implemented
together with the BMH4dev. The goal of the repository is to make replicable, transportable and scalable
cases of ICT adoption in developing countries easily available. Different from similar existing Web-
repositories of international organizations and NGOs the cases would be decomposed and formally
described by using our framework based on a building-block like approach. This has the advantage that
cases can be searched and analyzed according to their different business model bricks. One entrepreneur
might want to know what kind of value proposition has been adopted by other firms in developing
countries, whereas a manager might want to learn more about digital distribution channel strategies and a
third one might want to understand more about the opportunities in infrastructure management or partner
networks. This project shares with the Process Handbook project of the MIT [30] the key idea that a
repository and the associated computerized tool can significantly enhance the creativity and the efficiency
of business model designers (process model designers in the case of the MIT).
5 Acknowledgement
My first thanks go to my intellectual family at the University of Lausanne, Switzerland and particularly to
my thesis director, professor Yves Pigneur who keeps me intellectually challenged. A special thank you
also to Dr. Sarra Ben Lagha and Mathias Rossi who have given me various insights on the topic of
Information Systems in developing countries.
6 Conclusions
A class of knowledgeable entrepreneurs and business architects must be developed if developing
countries want to bridge the digital divide. ICT stay useless tools without the know-how to use them. But
by using the new communication channels for knowledge transfer it is far from inevitable that ICT will
have a negative impact on developing economies. Therefore, we provide the business model framework
and propose a set of tools that shall allow entrepreneurs and managers in developing countries to
understand the issues in the Internet era.
7 References
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8 Biography
Alexander Osterwalder is a research fellow at the Information Systems Department of the University of
Lausanne, Switzerland. He holds a degree in Political Science and a Masters in Business Information
Systems. His main research is on business models and the Internet in developing countries. He is
managing editor for the Electronic Journal of Organizational Virtualness.