Crafting business models for conflicting goals: Lessons from creative service firms

The business model construct has become attractive to both managers and academics. It reflects how the most important organization's strategic and tactical choices regarding the allocation of resources interact in order to create and capture value. Yet with the growing entrepreneurial complexity, managers often end up pursuing conflicting and even paradoxical strategic goals, thus rendering the business modelling processes more complex, too. Well-known examples are profit versus social value, stakeholder versus company interests, exploration versus exploitation and environmental sustainability versus economic returns. The academic business model literature so far has provided limited insights on how to implement business models beyond a single goal and focused mainly on the initial strategic choice of a business model, ignoring that such salient tensions are often persistent and resurface within the business practice. In this study we leverage paradox theory to investigate how managers of creative firms make tactical choices to accommodate (not solve) salient tensions within their business models, focusing on the domains like services provided, choice of clients, networking and resourcing practices, revenue models and new venture creation. Based on qualitative case study research, we found four integrating and three differentiating decision-making tactics that managers deploy to create both economic and creative value through their business models. Adding to the business model theory, we show how business models are crafted in managerial practices by making tactical decisions to solve conflicts and paradoxes. The results equally enrich the paradox literature by providing for tactical-level approaches toward working through the paradox.     

Bridging strategic planning and business model management – A formal control framework to manage business model portfolios and dynamics

Despite the increasing interest in the intersection between strategic planning and business model management, research and practice struggle to integrate the two activities. By applying a rationalist view and drawing on the formal control theory, we develop an integrated management framework that provides a conceptual model of how to achieve consistency between the relevant goal and the planning levels. Therefore, we decompose the complex organizational activities into the level strategy, business model portfolio, tactics, and operations. For each level, we specify the formal activities and objectives and elaborate how the levels determine each other. Furthermore, we explain how higher and lower level formal control loops ensure alignment and that the appropriate level of the organization responds to changes in the environment. Finally, we discuss how these formal control mechanisms allow for proficient management of the dynamics inherent in strategy and business model management.     

Stakeholder Theory: The State of the Art

Abstract

For the last 30 years a growing number of scholars and practitioners have been experimenting with concepts and models that facilitate our understanding of the complexities of today’s business challenges. Among these, “stakeholder theory” or “stakeholder thinking” has emerged as a new narrative to understand and remedy three interconnected business problems—the problem of understanding how value is created and traded, the problem of connecting ethics and capitalism, and the problem of helping managers think about management such that the first two problems are addressed. In this article, we review the major uses and adaptations of stakeholder theory across a broad array of disciplines such as business ethics, corporate strategy, finance, accounting, management, and marketing. We also evaluate and suggest future directions in which research on stakeholder theory can continue to provide useful insights into the practice of sustainable and ethical value creation.     

Strategies for business model innovation: How firms reel in migrating value

This paper brings together firm-level research on business models and industry-level research on value migration to examine patterns of business model innovation. We draw on qualitative data from 14 cases and 68 interviews in the computer and telecommunications industries to demonstrate how business model innovation is sensitive to industry-wide forces of value migration. Based on our analysis we conclude that when value is rapidly migrating across industries and between firms, proactively substituting key elements of the primary business model provides a better fit with the new value landscape than launching secondary business models in parallel. We suggest four underlying mechanisms that link business model innovation, value migration and subsequent outcomes. Unpacking business model innovation allows us to discuss contingencies for the main business model strategies, specifically in terms of limitations to—and opportunities of—changing the primary business model and the practice of parallel business models.     

Configuring a new business model through conceptual combination: The rise of the Huffington Post

How a successful business model (BM) is designed is a key question in the business model innovation (BMI) literature. Delving on the shared concept of BM as a configuration of components and interdependencies, we take a cognitive perspective to study the conceptual combination as a central process in BMI. We investigate the complexity of conceiving a new BM configuration, through a longitudinal study of the emergence of “The Huffington Post” which combined newspaper and blog in a disruptive and successful BM. With our research we theoretically frame the dynamic interplay between the three cognitive mechanisms of conceptual combination and the system of interdependent components of an emerging BM. Our findings unveil how the overall process unfolds and specifically delves into the dynamic iteration of composing and experimenting with the new configuration until the overall coherence is reached. Hence, we advance the literature by showing how the conceptual combination of a new BM is a complex effort and comprises some iterative cycles, vital to reach a coherent configuration which could secure a superior performance.     

Customer complementarity in the digital space: Exploring Amazon’s business model diversification

In spite of the striking evidence that many firms run multiple business models, scholars and practitioners still lack a comprehensive understanding about business model portfolio dynamics, particularly when this happens in the digital space. Prior research on business model diversification tends to focus on supply-side complementarities, such as a firm's synergies among resources and capabilities. Yet, the demand-side with its customer complementarities remains theoretically and empirically underexplored, despite offering interesting opportunities for firms' competitive advantage. By developing a qualitative, longitudinal (1995–2018) analysis of the various business models developed by Amazon.com, we identify and map how customer complementarities—network effects and one-stop shop effects—can support firm growth and competitive advantage, particularly in the digital space. We identify what we term the ‘integrative business model,’ defined as the business model in a portfolio exhibiting the most (predominantly positive) customer complementarities with other business models. We propose mechanisms for the integrative business model to contribute to sustainable competitive advantage via a causal loop diagram and discuss implications for theory and practice.     

商业生态系统价值结构、企业角色与战略选择

与强调企业在商业生态系统中如何攫取领导地位的战略观不同,本文把研究重心放在了企业战略如何塑造成功商业生态系统上。首先,本文构建了成功商业生态系统的价值结构模型,为企业的战略选择提供了微观与宏观上的方向与路径。其次,本文讨论了与成功商业生态系统相匹配的企业角色,并结合价值结构模型定义了与企业角色相匹配的战略任务。最后,在此基础上,重点阐述了骨干型企业在如何塑造成功商业生态系统过程中具体的宏观战略选择路径与机制问题。     

Toward a resilient complex adaptive system view of business models

This paper employs the theory of resilient complex adaptive systems (RCAS) to offer a versatile and universal foundation for the concept of a business model that facilitates connections between prior works while enabling future exploration with a common language. The proposed business model construct is developed by first exploring the field of systems to highlight how the concept of an RCAS can be employed to provide a more robust conceptualization of a business model than previous constructs. A thematic analysis of the literature is then conducted to translate the fundamental requirements of an RCAS into the business model context. This system view is inherently abstraction tolerant and provides a foundation for both academic research and practical applications. Specifically, it addresses two key gaps in the business model literature. First, the comprehensive nature of the system model naturally calls out important aspects of business models that have been largely ignored in the literature. Second, the construct provides a comprehensive means to connect the work of business model scholars and practitioners outlined in more than 150 studied articles, highlighting how each earlier research effort has employed a construct that is actually part of a grander whole.     

From Blaming the Middle to Harnessing its Potential: Creating Change Intermediaries

Middle managers have been under attack as organizational downsizing and reengineering have reduced their number. They are also frequently portrayed as obstructive and resistant to change. However, recent research suggests that managers at middle levels in organizations may be able to make a strategic contribution. Data from research on how managers in an organization undergoing transformation experience change are used to build on this existing research to demonstrate that middle managers fulfil a complex 'change intermediary' position during implementation. The findings reveal that a key aspect of this position is the need for middle managers to engage in a range of activities to aid their interpretation of the change intent. This interpretation activity then informs the personal changes they attempt to undertake, how they help others through change, how they keep the business going during the transition and what changes they implement in their departments. The interpretation aspect of their role is often overlooked, leading to workload issues and role conflict. These findings offer an alternative perspective on perceived middle manager resistance and lead into suggestions for future research and organizational implications.     

Demand-side strategy and business models: Putting value creation for consumers center stage

Value creation for consumers, as the conditio sine qua non for value capture, is at the heart of demand-side strategy research and is a core element of almost any business model. In this paper, we discuss the unique ideas that demand-side strategy and business model research jointly contribute to the strategy literature, and we elaborate on the potential for cross-fertilization between both areas of study. We argue that both the demand-side perspective and the business model concept could jointly promote a better understanding of strategy-making by mutually relying on the distinctive insights from each stream; specifically, while research on demand-side strategy can help business model scholars gain a more robust and granular understanding of effective value propositions, business models can serve as a “bridging concept” that links the shared ideas of both areas of study to resource-based streams of strategy research.     

A dynamic business modelling approach to design and experiment new business venture strategies

Business Modelling has evolved as a key activity to reflect new business venture strategy by framing the way a firm will operate and how it will function in achieving its goals (e.g., profitability, growth, innovation, social impact). However, scholars and practitioners have criticized the adoption of a too static perspective in the design and use of conventional Business Model representations. Such a static perspective prevents nascent entrepreneurs experimenting with their Business Models and, as a result, identifying the most effective strategies, especially in terms of business sustainability and profitability. In this paper, we argue that combining conventional Business Model schemas with System Dynamics modelling results in a strategy design tool that may overcome several limitations related to a static view of Business Model representation. Mapping the different key elements underlying value creation processes into a system of causal interdependencies – through the use of simulation – allows strategy analysts and entrepreneurs to experiment and learn how the business reacts to strategic and organizational changes in terms of performance, innovation and value creation. As such, Dynamic Business Models provide useful insights to strategy formulation and business venturing by capturing how critical Business Model elements interact to produce enduring competitive advantages over time.     

Business model diversification: Demand relatedness,entry sequencing,and curvilinearity in the diversification-performance relationship

This study integrates research on business model diversification (BMD) and demand-side theory to examine the relationship of BMD to performance and the sequencing of business model additions. We begin by explaining and demonstrating that the overall degree of BMD has an inverted U-shaped relationship with firm performance. We next highlight the particular role that demand relatedness plays in BMD. We first provide evidence that the inverted U-shaped relationship flattens in times of financial shocks, consistent with arguments that the benefits of BMD from consumers’ willingness-to-pay for simultaneous use of multiple business models may diminish during shocks. Second, we argue that firms tend to sequence the addition of new business models based on demand relatedness, and we provide evidence that the degree of demand relatedness between a core and a target business model enhances the likelihood of diversification into that target business model.     

Strategic Development of Business Models: Implications of the Web 2.0 for Creating Value on the Internet

There is virtually a consensus that, to remain competitive, firms must continuously develop and adapt their business models. However, relatively little is known about how managers can go about achieving this transformation, and how, and to what extent, different types of business models should be adapted. To illustrate the differential effect of environmental changes on different business model types, this article draws from the ‘4C’ Internet business model typology to elaborate on how a recent wave of changes on the Internet – the emergent Web 2.0 phenomenon – is affecting each of its four business model types. We argue that Web 2.0 trends and characteristics are changing the rules of the ‘create and capture value’ game, and thus significantly disrupt the effectiveness of established Internet business models. Since systematic empirical knowledge about Web 2.0 factors is very limited, a comprehensive Web 2.0 framework is developed, which is illustrated with two cases and verified through in-depth interviews with Internet business managers. Strategic recommendations on how to what extent different Web 2.0 aspects affect each business model type are developed. Executives can use the ideas and frameworks presented in the article to benchmark their firm's efforts towards embracing the changes associated with the Web 2.0 into their business model.     

Business models and dynamic capabilities

Business models, dynamic capabilities, and strategy are interdependent. The strength of a firm's dynamic capabilities help shape its proficiency at business model design. Through its effect on organization design, a business model influences the firm's dynamic capabilities and places bounds on the feasibility of particular strategies. While these relationships are understood at a theoretical level, there is a need for future empirical work to flesh out the details. In particular, studies that provide a better understanding of business model innovation, implementation, and change will also shed light on important aspects of dynamic capabilities.     

Strategizing in a digital world: Overcoming cognitive barriers,reconfiguring routines and introducing new organizational forms

As digital technologies such as cloud and edge computing, machine learning, advanced artificial intelligence (AI), and the internet of things (IoT) unfold, traditional industries such as telecoms, media, entertainment, and financial services are being reconfigured and new sectors are emerging. In this new competitive landscape we observe new organizational forms and new business models, including the emergence of platforms and multi-sided markets. This emergence has required a strategic response from incumbent firms, including both well-established firms and some first-generation digital enterprises. With these advances in digital technology, the very nature of strategy is changing. Fundamentally, the use of digital technologies may provide new opportunities for efficiency gains, customer intimacy, and innovation. However, without the right mindset for change, appropriate digital routines, and structural changes, digital transformation efforts will fail. We therefore present a framework for strategizing in this new digital competitive landscape that underscores the importance of the interplay between (1) the cognitive barriers faced by managers when trying to understand this new digital world and envision new digital business models, (2) a need to reconfigure and extend digital routines, and (3) new organizational forms that are better equipped to creating value and gaining competitive advantage. From this framework of essential pillars, we derive four journeys of digital transformation for companies that were formed in the pre-digital economy. We also describe the management roles required by top, middle, and frontline managers, depending on whether the digital migration is evolutionary or transformative and whether the firm is responding to or attempting to shape the ecosystem. Although digital transformation is technically all about technology, the more important issue is how companies make their way through this strange new digital world in which they find themselves. Ultimately digital transformation is as much about strategizing as it is about technology.     

Understanding platform business models: A mixed methods study of marketplaces

Recent technological advances have enabled the emergence of novel business models based on digital platforms. Marketplace like Airbnb or Uber offer such digital platforms to connect previously unmatched demand-side and supply-side participants through innovative forms of value creation, delivery and capture. While countless firms claim to offer the next ‘Airbnb for X’ or ‘Uber for Y’, we lack knowledge about the defining business model characteristics of these marketplaces. To close the gap, this paper provides a conceptually and empirically grounded taxonomy of their business models. Applying a mixed methods approach, it first develops an integrative framework of marketplace business models. Guided by the framework, the research systematically analyzes 100 randomly selected marketplaces with content analysis and binary coding. The gathered data is analyzed with cluster analysis techniques to develop a taxonomy for marketplace business models. The clustering process reveals six clearly distinguishable types of marketplace business models and thus shows that there is no one-size-fits-all approach to creating, delivering, and capturing value with marketplaces and platforms in general. We characterize these distinctive types on basis of the qualitative and quantitative findings. Among others, we find that two of these types are highly aligned with business model characteristics associated with the so-called sharing economy. The findings are discussed against platform, marketplace, and sharing economy literature to contribute to a higher integration of different literature streams that are concerned with similar organizational types and phenomena.     

Linking business models with technological innovation performance through organizational learning

This study examines how business models affect technological innovation performance through the mediating role of organizational learning. Using hierarchical regression analysis with data from 173 Chinese manufacturing firms embedded in global manufacturing networks, this study shows that both efficiency-centered and novelty-centered business models affect organizational learning. The results also demonstrate that organizational learning fully mediates the relationship between efficiency-centered business models and technological innovation performance and partially mediates the relationship between novelty-centered business models and technological innovation performance. This study provides new insights into the influence of business models on technological innovation performance by showing the indirect influence of business models. This study may help managers better understand the influence of business models on technological innovation performance.     

More Formally: Rediscovering the Missing Link between Formal Organization and Informal Social Structure

Abstract

Although foundational organization theory recognized the role of both formal and informal elements, for the past two decades scholarship appears to have primarily attended to the role of informal social structures (i.e. social networks) in explaining organizational functioning. This trend, however, has left a disconnect between the literatures on formal organization and informal social structure such that crucial questions and problems at the intersection of the two streams of research have been neglected. In this essay, we make the case for rediscovering the inherent interplay between formal organization and informal social structure given their common basis of interactions in organizations. We argue that by bridging the gap between formal organization and informal social structure scholarship we can advance our understanding of both the origins and evolution of social networks and the design and effective functioning of organizations. As a first step towards achieving greater integration of research on formal organization and informal social structure we: consolidate existing scholarly understanding in this area, profile the few studies that have begun to bridge the disconnect between formal and informal elements, identify conceptual logics for linking formal and informal elements, and propose an agenda for future research.     

Agency conflict in diversified business groups and performance of affiliated firms in India: Contingent effect of external constraint and internal governance

This study examines how diversification in Indian business groups creates multiple forms of agency problems and has performance implications for group-affiliated firms. Departing from prior literature which emphasizes the principal–principal agency conflict in business groups, we argue that business group diversification leads to dual agency problems between controlling and minority shareholders (principal–principal) and shareholders and managers (principal–agent) in affiliated firms. Both these agency problems arise in diversified business groups through cross-subsidization of affiliated firms by inefficient capital investment, continuing presence of affiliated firms in declining industries, tunneling of resources from profitable affiliated firms, lack of attention by business group headquarters to affiliated firms, and affiliated firm managers' sense of perceived security, which negatively impacts affiliated firms’ performance. These agency issues are reduced with the increase in product market competition from exposure to international markets and through concentrated promoter ownership in the affiliated firms. Our hypothesized model finds empirical support in a sample of 828 business group–affiliated firms in India.     

Selecting managers for cross-border assignments: building value into the process

Selecting cross-border managers simply by relying on an assessment of technical competence, isolated and domestic management success as well as perceived commitment to the organization has become inadequate. Multiple value orientations associated with cross-cultural business performance need to be examined as an integral part of the selection process. Value orientations associated with cultural identity, cross-border business focus and personal and professional development, are missing from and need to be taken into consideration when selecting managers for cross-border assignments.
A cross-cultural manager typology is developed, which identifies four cross-border manager 'types'. These 'types' are described as (1) transnationalist, (2) internationalist, (3) ethnocentrist and (4) transitionalist. The implications of these 'types' for the selection of cross-border managers are then explored within the context of, and interplay between, three value orientations. First, how and why managers value their cultural identity. Secondly, how and why managers value involvement in cross-border business activity. Finally, how these two value orientations are better understood based upon personal and professional development.