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  • 1. The Business Model in Practice and its Implications for Entrepreneurship Research George, G. & Bock A. J. Entrepreneurship Theory & Practice, January 2011 11/09/2013 1 Article Review Ferran Giones Supervisor: Dr. Francesc Miralles
  • 2. Agenda • Introduction • Literature Review • Discourse Analysis • The Data • Discussion • Implications for Theory • Directions for Future Research • Conclusions 11/09/2013 2
  • 3. 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 11/09/2013 3
  • 4. 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 11/09/2013 4
  • 5. 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. 11/09/2013 5
  • 6. 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 11/09/2013 6
  • 7. 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. 11/09/2013 7
  • 8. 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. 11/09/2013 8
  • 9. 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. 11/09/2013 9
  • 10. 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. 11/09/2013 10
  • 11. 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. 11/09/2013 11
  • 12. 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. 11/09/2013 12
  • 13. 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. 11/09/2013 13
  • 14. 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. 11/09/2013 14
  • 15. 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 11/09/2013 15
  • 16. 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”. 11/09/2013 16
  • 17. 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. 11/09/2013 17
  • 18. 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. 11/09/2013 18
  • 19. 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. 11/09/2013 19
  • 20. Annex 11/09/2013 20
  • 21. Annex 11/09/2013 21
  • 22. The Business Model: Theoretical roots, recent developments, and future research Zott, C., Amit, R., Massa, L. IESE Working Paper, WP-862, June 2010 11/09/2013 22 Paper Review Ferran Giones Supervisor: Dr. Francesc Miralles
  • 23. 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. 11/09/2013 23
  • 24. 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) 11/09/2013 24
  • 25. 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) 11/09/2013 25
  • 26. 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). 11/09/2013 26
  • 27. 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. 11/09/2013 27
  • 28. Annex 11/09/2013 28
  • 29. Annex 11/09/2013 29
  • 30. 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… 11/09/2013 30