A concise lecture on current research on business models and business model innovations. Emphasis on dynamic aspects of business model.

1. Business Models
Strategic Global Marketing Management
25.9.2017
Tommi Rissanen tommi.rissanen@lut.fi
Lappeenranta University of Technology
School of Business and Management

2. Background
Tommi Rissanen, 45, PhD student
Experience
- Projects with media and ICT
companies in development agencies,
universities and as an independent
consultant in Lappeenranta,
Tampere & Helsinki since 2002
- Thesis on business model
experimentation due in 2018

3. (1) Definition and concept
(2) Business model and strategy
(3) Business model innovation
(4) Business model dynamics and change
(5) Business models in practice
Agenda

4. Theoretical background
BM exp.
BMI
BM
Innovation
Entrepreneurship
Strategy
Disc. driven
planning
Entrepr.
opportunity
Resource-based
View of the firm
Dynamic
capabilities
Strategic
entrepreneurship
Disruptive
innovation

5. Business model definition
“The essence of a business model is in
defining the manner by which the
enterprise delivers value to customers,
entices customers to pay for value, and
converts those payments to profit. It thus
reflects management’s hypothesis about
what customers want, how they want it,
and how the enterprise can organize to
best meet those needs, get paid for doing
so, and make a profit.” – Teece (2010)
“Business model consists of four
elements: a customer value proposition,
a profit formula, key resources and key
processes.” – Casadesus-Masanell &
Ricart (2011)
” Business models are stories that
explain how enterprises work. They
answer to the following questions: 1) who
is the customer, 2) what does the
customer value, 3) how do we make
money in this business, and 4) what is
the underlying economic logic that
explains how we can deliver value to
customers at an appropriate cost” –
Magretta (2002)
“two core components: (1) the basic ‘unit
of business’, what customers pay for; and
(2) process or operational advantages,
captured in a set of ‘key metrics’ that
allow a firm to deliver superior
performance. – McGrath (2010)

6. What are the common ingredients of
business models
Value creation
- Processes
- Resources
Value proposition
Value capture
- Revenue model
Business
Model
Exploitation
Exploration
Value
Creation
Value
propositi
on
Value
Capture
Effects

7. (1) Definition and concept
(2) Business model and strategy
(3) Business model innovation
(4) Business model dynamics and change
(5) Business models in practice
Agenda

8. Relationship between Business Model
and Strategy
As described, a business model is more
generic than a business strategy. Coupling
strategy analysis with business model
analysis is necessary in order to protect
whatever competitive advantage results
from the design and implementation of new
business models. Selecting a business
strategy is a more granular exercise than
designing a business model. Coupling
competitive strategy analysis to business
model design requires segmenting the
market, creating a value proposition for
each segment, setting up the apparatus to
deliver that value, and then figuring out
various ‘isolating mechanisms’ that can be
used to prevent the business
model/strategy from being undermined
through imitation by competitors or
disintermediation by customers. – Teece
(2010)

9. Business model, strategy and tactics
Casadesus-Masanell & Ricart (2010)
“A strategy is a contingent
plan of action as to
what business model
to use. The firm’s
available actions for
strategy are choices
(of policies, assets or
governance structures)
that constitute the raw
material of business
models. Thus, strategy
entails designing
business models (and
redesigning them as
contingencies occur) to
allow the organization
to reach its goals.
Business models are
reflections of the
realized strategy.”

10. (1) Definition and concept
(2) Business model and strategy
(3) Business model innovation
(4) Business model dynamics and change
(5) Business models in practice
Agenda

11. What is business model innovation
Business model innovation can be
manifested in three ways: (1) a
form of innovation themselves;
(2) business model for
innovative new technologies or
services; and (3) re-formulation
of business model to fulfil new
customer needs and business
environments.- (Trimi &
Berbegal-Mirabent 2012)
Business model innovation has
been argued to represent a
firm's response to changing
sources of value creation.
Meanwhile, minor, continuous
changes to the extant business
model of a firm primarily require
a firm to focus on the usage of
its resources and competences
as - (Schneider & Spieth 2013)

12. Business model innovation
Schneider & Spieth (2013)

13. Business model innovation framework
(Clauss 2017)

14. (1) Definition and concept
(2) Business model and strategy
(3) Business model innovation
(4) Business model dynamics and change
(5) Business models in practice
Agenda

15. Business model dynamics
Business model analysis also gives us a
sense of firms in action. But this
dynamic perspective is not central to
two ideas about the genesis of
competitive advantage that are well-
accepted in strategy: the industry
positioning view or the so-called
resource-based or dynamic capability
view. The positioning school has long
proposed that what firms need to do to
succeed is to find a truly differentiated
and defensible position within an
industry and execute relentlessly
against that position. The capability
school argues instead that advantage
stems from having difficult-to- copy
resources that are often built up over
long periods of time. - McGrath 2010

16. Achtenhagen et al. (2013)

17. Concluding points on business model
theories
There are various interpretations to the concept, but the core elements in
most are value creation, value proposition and value capture
Business models and strategy are related concepts, but there is an ongoing
discussion on the hierarchy between the two.
Business model innovation too can be explained in different ways
depending on the context. However, business model innovation leans
more towards radical exploitation and exploration activities rather than
incremental adjustment and development of existing business models
Dynamic nature of business models is an increasingly important and
interesting approach aiming to understand the cyclical processes and
ways of continuously experimenting with business models.
There are discrepancies on the definitions of the concepts – but that is the
nature of our field of science. There are no absolute truths

18. (1) Definition and concept
(2) Business model and strategy
(3) Business model innovation
(4) Business model dynamics and change
(5) Business models in practice
Agenda

19. https://strategyzer.com/canvas/business-model-canvas

20. https://strategyzer.com/canvas/value-proposition-canvas

21. Primary value
proposition
Customer need
Value prop
Value prop
Value prop
Value prop Customer need
Customer need
Value propositions and customer
needs

22. Custo-
mer
seg-
ments
Processes
Resources
Value
proposition
Business model
Revenue
model

23. Literature
Achtenhagen, L., Melin, L. & Naldi, L., 2013. Dynamics of business
models - strategizing, critical capabilities and activities for sustained
value creation. Long Range Planning, 46, pp.427–442.
Casadesus-Masanell, R. & Ricart, J.E., 2010. From strategy to
business models and onto tactics. Long Range Planning.
Clauss, T. (2017). Measuring business model innovation:
conceptualization, scale development, and proof of performance. R
and D Management, 47(3), 385–403.
Magretta, J., 2002. Why Business models matter. Harvard Business
Review, May, pp.86–92.
McGrath, R.G., 2010. Business models: A discovery driven
approach. Long Range Planning, 43(2–3), pp.247–261.
Schneider ’, S. & Spieth^, P., 2013. Business Model Innovation:
Towards an Integrated Future Research Agenda. International
Journal of Innovation Management ^ imperial College Press,
1734(1).
Teece, D.J., 2010. Business models, business strategy and
innovation. Long Range Planning, 43(2–3), pp.172–194.
Trimi, S. & Berbegal-Mirabent, J., 2012. Business model innovation
in entrepreneurship. International Entrepreneurship and
Management Journal, 8(4), pp.449–465.