Business Model Design

Learning Diary III:

In the following reflection paper the articles of Amit and Zott (2012) as well as Chesbrough (2007) will be revisited and related to my previous knowledge, in order to derive new insights on business models and business model innovation.

According to Amit and Zott (2012) business model innovation depicts an inexpensive and efficient way of generating new revenue streams for a company. In contrast to a very expensive R&D process of product development, business model innovation could be used as a efficient competitive advantage. Furthermore business model innovation can happen in a tighter lifecycle, fostering agility and adaptability to market volatility.  As a matter of fact, research suggests (Amit and Zott, 2012) that business model innovation is one of the key levers of any CEO to drive revenue, growth and ultimately profit. Additionally, Amit and Zott (2012) stress the point that respective business model engineering could be applicable for not only start-ups, but also SME’s or incumbents. Interestingly one can state that this view on business models is perfectly in line with the point of view of Osterwalder and Blank (2012) as well as Osterwalder and Pigneur (2010), who also argue that products become a commodity and the business model will be the key competitive differentiator for any company.  Referring to Amit and Zott (2012), a business model is defined out of three overarching building blocks and four underling value drivers: The content of a business model defines the selection of required activities (“What”), while the structure covers the “How” and the governance the required (human) resources (“Who”). Novelty, meaning how new the product or the actual value proposition is together will lock-in, complementariness and efficiency exhibit the four value drivers of a business model. While lock-in is defined through (high) customer switching cost, and incentives to stay respectively, complementarities describe the value enhancing cross-effects through the business model ecosystem and efficiency the cost savings through interconnections within the system. Personally, I already touched upon the presented idea of Amit and Zott (2012) in a previous class in Germany, nevertheless I enjoyed revisiting and through that refreshing and deepening the knowledge.

Finally I feel that, the six questions to ask before launching a new business model condense the above presented findings into a handy model. The model can be used in order to guide the thinking in terms of market requirements and actual business sense of the whole business model.

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Figure I: Six questions to ask before launching a new business (Amit and Zott, 2012)

Very similar to previous readings (Osterwalder and Blank, 2012, Osterwalder and Pigneur, 2010, Afuah, 2014) Amit and Zott (2012) also put distinct emphasis on the required holistic thinking while designing a business model. A systemic view must be taken were the network of the whole internal and external ecosystems is evaluated in order to innovate successfully. Yet again this partially clashes with the classical view on strategy (Porter, 1996).  

Supplementing the previous views on business model (innovation), Chesbrough (2007), for me personally, was able to work out two essential elements: First of all the differentiation between value creation and value capturing within a business model. Secondly the business model framework, mapping the continuum of different business models on a value scale.

According to Chesbrough (2007), a business model does not only beat any idea or technology, but is also defined by the two main tasks of value creation and value capturing. This ultimately means that, a business model should not only be able to generate revenues, but also profits or at least growth. Beyond that, business models can be clustered according to their inherent “value”. A low value business model at the very beginning of the scale is an undifferentiated business model that, on a product basis, only competes on price and availability. Adding segmentation and internal awareness and willingness to develop the business model even further will increase the “value” score. Finally the concession that business models should be internally and externally embedded in the whole ecosystem and thus proactively drive supplier and customer development will enhance the value score even more. Adaptive platforms, which reminded me of the early ideas of Chesbrough (2006) of open business model which I studied this summer in an “Innovation management” course, could be built through establishing a corporate VC, incubator, accelerator or through spin-offs. Additionally a joint venture (JV) could be a possible options to establish a so-called adaptive platform. I also enjoyed the idea of Chesbrough (2007) that a so-called “Business mode leadership gap” exists, which explains the management inertia towards changing it. As a holistic thinking is required, business model design could only happen through conjoint management advancements and only hardly through individual effort. This, as a matter of fact, leads to a situation where no one feels responsible for innovating and thus business model stagnation.