BUSINESS MODELS Flashcards
What is the simplest definition of a business model according to Michael Lewis?
How you planned to make money
How did Michael Lewis view the term ‘business model’ during the dot.com bubble?
Lewis criticized the overuse and misapplication of the term during the Internet boom.
What did Peter Drucker define as the essence of a business model?
Assumptions about what a company gets paid for
Drucker emphasized the importance of understanding market assumptions.
What is Drucker’s theory of the business primarily concerned with?
Assumptions about markets, customers, competitors, technology, and company strengths and weaknesses
This theory explains how companies fail to adapt to market changes.
What critical shift did IBM experience according to Drucker?
Shift from hardware to services
How does Joan Magretta define a business model?
Stories that explain how enterprises work
Understanding customer value and economic logic.
What fundamental questions does a good business model answer according to Magretta?
- Who is the customer?
- What does the customer value?
- How do we make money?
- What is the underlying economic logic?
What are the two parts of a business model by Magretta?
- Activities with making something
- Activities with selling something
What is Alex Osterwalder’s contribution to business modeling?
The nine-part business model canvas.
He thinks “a business model is really a set of assumptions or hypotheses”
What distinguishes a business model from a competitive strategy according to Magretta?
A business model describes how a business runs; a competitive strategy explains how to outperform rivals
What is the definition of disruptive innovation?
Introducing a better business model into an existing market
What does Clay Christensen focus on for understanding disruptive business models?
Customer value proposition and job-to-be-done.
What is the first symptom indicating a business model might be in trouble according to Rita McGrath?
when innovations to your current offerings create smaller and smaller improvements.
You should also be worried when your own people have trouble thinking up new improvements at all or your customers are increasingly finding new alternatives.
This can signal that a business model is becoming outdated.
What are the four broad categories for creating a new business model as discussed by Karan Giotra and Serguei Netessine?
- Changing the mix of products or services
- Postponing decisions
- Changing the people who make decisions
- Changing incentives in the value chain
What types of choices must managers make when designing processes for a business model according to Ramon Cassadesus-Masanell and Joan Ricart?
Divideing them into…
- Policy choices (such as using union or nonunion workers; locating plants in rural areas, encouraging employees to fly coach class)
- Asset choices (manufacturing plants, satellite communication systems)
- Governance choices (who has the rights to make the other two categories of decisions)
In The New, New Thing, Michael Lewis refers to the phrase business model as
“a term of art.”
Nimble
apsukrus
Drucker about assumptions about your company
explains that sooner or later, some assumption you have about what’s critical to your company will turn out to be no longer true.
business model first came into widespread use with the advent of the….
business model first came into widespread use with the advent of the personal computer and the spreadsheet, which let various components be tested and modeled.
Before that, successful business models “were created more by accident than by design or foresight, and became clear only after the fact.
What has accelerated in the past few decades, instigating a fundamental shift in the economic and competitive landscapes?
Innovations in computing and information technologies
This shift is often referred to as the digitalization of business.
What are the characteristics of changes brought by innovations in computing and information technologies?
Pervasive, comprehensive, and disruptive
What opportunities do recent developments in business models present?
New and exciting business opportunities in previously immune industries
Examples include Airbnb in hospitality and Uber in personal transportation.
What must managers of incumbent firms explore to create value?
New possibilities for value creation anchored in redesigning their business models
An example is Charles Schwab’s transformation to a web-based trading platform.
What should well-performing firms consider regarding competitors?
The possibility of eroding margins due to competitors’ business model innovations
Define a business model.
How to do business
This encompasses the framework and strategy a company uses to operate.
Define business model innovation.
How to do business in new ways
This involves rethinking traditional business models to create new value.
When did the concept of business models become widely recognized?
In the mid-1990s
What has become a core ingredient for opportunity analysis and development?
The business model
What important tool has been developed from the concept of business models?
The Business Model Canvas
“An opportunity represents the NEED to potentially SOLVE A PROBLEM with a new product, service, or business”
Barringer & Ireland
Business Concepts
represent ways to capitalize on an opportunity with
new products or services or processes.
T/F Any one opportunity could conceivably be capitalized upon with a
variety of different business concepts.
TRUE
Why do business models matter?
Helps capture opportunities and improve financial performance
A business model is about “how to do business,” and business model innovation is about “how to do business in new ways.”
Yes
the concept of the business model sud-
denly became “‘en vogue” in
mid 1990s
key strategic decisions that man-
agers and entrepreneurs were asked to address, which were also highlighted
in management courses, centered on:
(i) corporate strategy issues, and
(ii) business strategy issues
Corporate strategy issues concern:
the scope of the firm and include such questions as: What industries and product market
segments should the firm be in? How should the firm enter these markets (i.e., through mergers and acquisitions, joint ventures, or de novo entry)?
When should the firm enter these markets?
Business strategy issues center on:
establishing and sustaining the competitive advantage of a firm. They include such questions as how to compete in a particular product market
(e.g., compete on the basis of differentiation or cost leadership?), and what resources and capabilities to acquire or develop.
Business model innovation
conceptualization and implementation of new ways of doing business order to better address the imperfectly met needs of customers and
other market participants such as suppliers.
Business models are
a locus of innovation and value creation
business model is designed to
capture a perceived market opportunity
way that creates value for all stakeholders.
value creation perspective
has been advanced to capture the essence of
“how firms do business.”!
business model
a source of innovation when, for example, it connects previously unconnected parties, links stakeholders in new ways, or introduces new transaction mechanisms
The business model extends the concept of the value
chain by
(i) emphasizing value creation and delivery dynamics, (ii) spanning firm and industry boundaries, and (iii) allowing for a non-linear sequencing of interdependent activities.
Emphasizing value creation and delivery dynamics:
Amazon has widely deployed artificial intelligence (AI) across its business to help build and deliver value for its customers and partners.’? Since its early years,
for instance, it has used AI algorithms to provide customized product recommendations for customers. These algorithms more generally help Amazon learn about customer preferences and behavior, then dynamically implement this knowledge. This is reflected in a product offering that not only better meets current consumer demand but also
anticipates future demand. Anticipating demand in turn leads to faster delivery times, as goods can be proactively stocked in strategic locations. In Amazon’s model, value creation and delivery therefore
become circular rather than strictly linear. Over time, and as its number of customers (and therefore
transactions) has increased, Amazon’s algorithms have become more advanced, helping it build a product and product delivery activity system that is highly responsive to customer needs.”
Spanning firm and industry boundaries:
In the early 1980s, TradePlus (today known as ETRADE) introduced a groundbreaking online direct bro- kerage platform that enabled the execution of the “first-ever electronic trade by an individual investor.”! As this new platform removed the
need to go through a stockbroker, and made trading significantly more cost-effective, individuals could trade stocks at a highly affordable price. E*TRADE’ platform model connects an expansive, industry-spanning range of participants: individual investors, small business owners, companies that are publicly traded, and large market makers such as Citadel.
Allowing for a non-linear sequencing of interdependent activities:
On eBay’s auction platform, the pricing of individual items is determined via a dynamic auction process. Customers browse product listings, then interact with each other to set the final price of an item (by setting
interdependent bids). These customer activities — browsing and bidding — occur simultaneously and interactively, 1.e., in a non-linear fashion.
business model - skaidres - main
the system of interdependent activities that are performed by focal firm and by its partners and the mechanisms that link these activities to each other.
An activity in a focal firm’s business model can be viewed as
the engagement of human, physical, and/or capital resources of any party to the business model (the focal firm, end customers, vendors, etc.) to serve a specific purpose toward the fulfillment of the overall objective.
An activity system
is a set of interdependent and interconnected activities that are centered on a focal firm; it encompasses activities that are conducted either by the focal firm or by partners, customers, or vendors.
Value Creation vs. Value Appropriation
in Business Models
The greater the total value created, and the greater the focal firm’s bargaining power, the greater the amount of value that the focal firm may be able to appropriate.
Total value creation can be thought of as
a “value pie.” The greater the total value created, the larger the proverbial value pie.
Value appropriation
amount of value that is captured by individual stakeholders.
can be thought of as the proportionate size of individual slices of the value pie.
A focal firm
the initiator of an international business transaction
Akin
of similar nature or character
revenue model refers to
specific modes in which a business model enables revenue generation.”
4 dimentions
What, How, Who, and Why of the activity system.
Mutually exclusive dimensions
the How of the business model
describes how its various activities are linked, including the mechanisms that link them and the sequence in which they are linked.
WHO DIMENTION
Governance identifies which stakeholders in the business model perform which activities.
T/F Some of the stakeholder activities are the same (sellers place ads, and local buyers browse through these ads), but the governance (at the level of the platform) is different in that important activities (such as creating listings) are performed by customers, not the firm that owns and operates the platform.
T
T/F For example, what products to is an excellent and important question, but the What dimension of a
business model is not about this question.
T
the business model of a firm or business unit is innovative when
its activity system is novel in the product-market space in which it operates.
vis-a-vis
in relation to
business model
a purposefully designed and value-centered activity system, where an activity is the engagement of human, physical, and/or capital resources of any party to the business model (the focal firm, end customers, vendors, etc.) to serve a specific purpose toward the fulfillment of the overall objective, which is typically an unmet or suboptimally met customer need.
Strategy (slides)
The choice of a future for the company and of a way to reach that future
Levels of strategy: Corporate strategy
HQ
Corporate strategy
defines the scope of the business in terms of the industries and markets in which it competes.
Involves decisions about diversification, vertical integration, acquisitions, divestments, allocation of resources between business units
Levels of strategy: Business strategy
Antras lygis - Business unit 1,2,3
Strategy levels: Functional strategy
Žemiausias - Marketing, R&D, Accounting
Business strategy
Concerned with how the firm competes within a particular industry or market.
Involves establishing a competitive advantage over its rivals
Functional strategy
deals with the detailed deployment of resources at the operational level (e.g., Marketing; R&D; Accounting)
Business model strategy
deals with how the firm should do business
Value chain vs Business model
The value chain is a strategic framework that breaks down a company’s activities into specific steps that add value to a product or service before it reaches the customer.
A business model defines how a company creates, delivers, and captures value. It is a high-level blueprint of how a company makes money.
Business model (skaidrės)
System of interdependent activities performed by a focal firms and its
partners, and the mechanisms that link these activities to each other
IBM Core activity and Peripheral activity
Service related such as consulting, IT maintenance etc.
Hardware related
Revenue generation model
WHY (VALUE LOGIC)
Value chain - mcd video
a set of activities that an organization caries out
to create value for its customer
Porter’s Value Chain focuses
on
systems, and how inputs are changed into the outputs
purchased by consumers using primary and support activities
Inbound logistics by mcdonalds
Raw materials are purchased from
its fixes, pre-defined supplier only
Some beef are imported from
Australia and New Zealand
The soft drinks exclusively by Coca-Cola
outbound logistic
quality control, freight truck inspection, ensuring freshness, in time delivery
Marketing and sales mcdonalds
Print and media advertising extensively in order to communicate its marketing message to the representatives of the target customer segment.
Prootions: Disney and Nickelodeon license agreement.
Feeding the athletes olympic partnership
Arch cards
McDonald’s gift card that can be used to purchase food and beverages at participating McDonald’s locations in the United States. It works like a prepaid debit card, allowing customers to load a specific amount of money onto the card and use it for multiple transactions until the balance is depleted.
procurement
the process of sourcing, purchasing, receiving, and inspecting all of the goods and services your business needs to operate
franchise purchase agreement
a legally binding contract between a franchisor (the owner of the brand) and a franchisee (the individual or entity purchasing the franchise rights). This document outlines the terms and conditions under which the franchisee is granted the right to operate a business using the franchisor’s brand, system, and support.
Q Choosing a suitable business model means answering which of the following questions:
What industries and product segments should the firm be in
How to compete in a particular product market
How should the firm do business
How should the firm do business
The activities performed by suppliers of Dell in building and supplying computer components to Dell represent which of the following:
WHO
HOW
WHAT
WHAT
The who part of the business model identifies which dimension of the business model?
Its governance
When Apple introduced music downloads through iTunes, which Business model dimension of Apple primarily changed?
HOW
WHAT
WHO
WHAT
When Hilti introduced the possibility of customers to rent tools, it changed which part of the business model dimension?
WHY
WHAT
WHO
WHY
What became prevalent with the advent of the Internet in the mid-1990s?
The business model concept
The business model concept has been integral to trading and economic behavior since pre-classical times.
How many publications contained the term ‘business model’ between 1975 and 2000 according to Ghaziani and Ventresca (2005)?
1,729 publications
Only 166 were published in the period 1975-1994; the remaining 1,563 were from 1995-2000.
What trend was observed in academic articles mentioning ‘business model’ up to December 2009?
1,202 articles in academic journals
The term was mentioned in a total of 8,062 documents from 1975 to December 2009.
What period saw a dramatic increase in interest in the business model concept?
1995 to 2010
This period aligns with the findings of Ghaziani and Ventresca (2005).
What factors may have driven the emergence of the business model concept since the mid-1990s?
- Advent of the Internet
- Rapid growth in emerging markets
- Interest in ‘bottom of-the-pyramid’ issues
- Expanding industries dependent on postindustrial technologies
Scholars such as Amit & Zott (2001) and Prahalad & Hart (2002) have noted these influences.
How has the business model been defined at a general level?
- A statement
- A description
- A representation
- An architecture
- A conceptual tool or model
- A structural template
- A method
- A framework
- A pattern
- A set
Definitions vary significantly, and many studies do not provide explicit definitions.
What percentage of business model publications reviewed did not define the concept at all?
37%
These publications took the meaning of the business model for granted.
What percentage of publications explicitly define or conceptualize the business model?
44%
This includes enumerating its main components.
True or False: Existing definitions of the business model fully overlap.
False
Existing definitions only partially overlap, leading to various interpretations.
Fill in the blank: The term ‘business model’ saw a significant rise in publications after _______.
the advent of the Internet
This rise began in the mid-1990s.
Who was the founder of Uber?
Garrett Camp, a Canadian tech entrepreneur.
What problem did Garrett Camp face after buying a luxury sports car?
It was highly inconvenient to drive and park in San Francisco.
What transportation issue existed in San Francisco that contributed to Uber’s creation?
A long-standing policy capping the number of taxi licenses led to taxi demand exceeding supply.
What observation led Camp to develop the idea for Uber?
He noticed unmarked sedans in touristic areas struggling to connect with customers.
How was Uber initially envisioned in Camp’s early slide deck?
As a service offering sleek, high-end cars available for booking with “1-click.”
Who was the co-founder of Uber who initially hesitated to join?
Travis Kalanick.
What incident convinced Travis Kalanick to join Uber?
Being berated by a French cab driver in Paris during a tech conference in December 2008.
What major change did Kalanick insist on for Uber’s business model?
Instead of buying a fleet of cars, he suggested onboarding existing drivers.
What was Kalanick’s vision for Uber’s user experience?
We don’t own cars and we don’t hire drivers… I want to push a button and get a ride.
When and where did the first Uber ride take place?
July 2010 in San Francisco.
What was the initial name of Uber?
UberCab.
How did an early journalist review describe UberCab?
It “eliminates everything bad about a taxi experience.”
What was Michelin’s first major innovation?
The invention of the detachable bicycle tire in 1891.
Why did Michelin shift focus from bicycle tires to automobiles?
The rise of automobiles presented a significant market opportunity.
What types of vehicles has Michelin supplied tires for beyond cars?
Michelin expanded to provide tires for trains, trucks, buses, planes, and motorcycles.
Apart from tires, what complementary businesses has Michelin developed?
The production of road maps and the Michelin Guide.
How did Michelin traditionally operate in the 20th century?
It followed a conventional manufacturing-based business model, selling tires via distributors who also handled servicing.
What major shift in business strategy did Michelin introduce?
Transitioning from a product-based model to a service-oriented model, offering “tires as a service.”
What is the primary advantage of Michelin’s tire rental model for customers?
It reduces costs, improves safety, and decreases fuel consumption, particularly beneficial for transportation firms.
How does the tire rental model contribute to environmental sustainability?
By optimizing tire use and maintenance, it reduces waste and fuel consumption.
How does the new business model enhance Michelin’s relationship with customers?
By establishing long-term service contracts, increasing customer retention, and allowing direct marketing of new products.
Why is Michelin’s business model now considered a source of value creation rather than just its products?
Because the service-based model generates continuous revenue, strengthens customer loyalty, and enhances competitive differentiation.
How does Michelin’s shift relate to business model theory?
It demonstrates how a firm can move from product-based value creation to business model-based value creation.
What does the concept of a business model as a “unit of analysis” mean?
It refers to examining how companies create and capture value beyond just their products.
What was the primary motivation for early business model research in the late 1990s and early 2000s?
he desire to explain the rise of e-business and how digital technologies created value in virtual markets.
Why were traditional theories of entrepreneurship and strategy insufficient in explaining new digital ventures?
They each captured only part of the story and used different units of analysis that did not fully explain firms like Amazon, eBay, Google, and Netflix.
Why was a new category, the “business model,” introduced in academic research?
Established categories such as industry, firm, business unit, and process were inadequate to describe emerging digital businesses.
What is one of the earliest definitions of a business model?
It “depicts the content, structure, and governance of transactions designed to create value through the exploitation of business opportunities.”
How did eBay innovate in business models?
It was the first company to introduce large-scale customer-to-customer auctions, enabling the sale of low-value items between individual consumers.
What business model innovation did Priceline.com introduce?
It introduced reverse market auctions, where buyers set reservation prices, and sellers bid to meet those demands.
What are two key characteristics of digitally driven business models?
(i) They reduce transaction costs and enable new transaction architectures, and (ii) they address customer needs in superior ways, creating enhanced value.
How did Autobytel.com transform the automobile retailing process?
It connected buyers, auto dealers, finance companies, and insurance providers, enabling seamless online car shopping.
How do innovative business models create value beyond traditional transactions?
By connecting previously unlinked parties, eliminating inefficiencies, adopting new transaction methods, and creating entirely new markets.
What is an example of a business model innovation that resulted in a patent?
Priceline.com’s “name your own price” method received a business method patent.
How did early business model research evolve from a transaction-based to an activity-based framework?
The shift occurred as transactions were seen as part of a broader system of activities, making the framework more practical for managers and researchers.
Why is an activity-based framework preferred over a transaction-based one?
(i) Managers naturally think in terms of activities rather than transactions, (ii) activities are part of larger systems (value chains or networks), and (iii) activities involve social and human factors beyond mere transactions.
What core elements of business models remained unchanged despite the shift to an activity-based framework?
The system of activities and key design elements: content, structure, and governance.
What are the five theoretical foundations of business model research?
- Schumpeterian innovation (creative destruction and new business opportunities) - jis is Harvardo
- Resource-based view (leveraging firm-specific resources for competitive advantage)
- Transaction cost economics (reducing costs through efficient governance structures)
- Value chain analysis (structuring activities for optimal value creation)
- Strategic network theory (building inter-firm relationships for enhanced value capture)
How does Schumpeterian innovation relate to business models?
It emphasizes how disruptive business models can redefine industries by creating new ways of delivering value.
How does transaction cost economics influence business model design?
It focuses on minimizing costs through efficient coordination of economic activities, such as platform-based models.
Why is strategic network theory relevant to business models?
It highlights how firms create value through partnerships, ecosystems, and network effects (e.g., Uber and Airbnb)
Who was Joseph Schumpeter, and what was his main contribution to economic theory?
Schumpeter (1883–1950) was an Austrian economist who pioneered the theory of economic development through technological change and innovation.
What are Schumpeterian rents?
Economic gains entrepreneurs receive from risky and innovative initiatives before their knowledge diffuses and becomes industry standard.
What are Schumpeter’s identified sources of innovation for entrepreneurs?
Introduction of new goods or production methods
Creation of new markets
Discovery of new supply sources
Reorganization of industries
What is Schumpeter’s concept of “creative destruction”?
It describes how technological change disrupts existing industries, creating new economic opportunities but also rendering old practices obsolete.
How did Schumpeter’s view of innovation extend beyond product and process improvements?
He included innovation in factor markets, distribution channels, marketing methods, and even new ways of utilizing information.
How did Schumpeter’s ideas influence modern business model innovation?
His theories encouraged the view that an entire business model—not just a product or service—can be a source of innovation and value creation.
What is the Resource-Based View (RBV) of the firm?
It sees firms as bundles of unique resources and capabilities that, when combined effectively, lead to sustained competitive advantage.
What are the key characteristics of strategic resources under RBV?
Resources must be heterogeneous within an industry, scarce, durable, not easily traded, and difficult to imitate.
How does RBV differentiate between value creation and value appropriation?
Value creation: Determined by consumers’ willingness to pay.
Value appropriation: Determined by market structure and control over resources.
What is the demand-side extension of RBV?
It emphasizes that the value of resources depends on consumer demand, making the customer’s willingness to pay a key determinant of value.
What is the dynamic capabilities approach?
It explores how firms build, acquire, and reconfigure valuable resource positions over time to sustain competitive advantage.
How do digital business models leverage RBV principles?
Instead of owning resources, firms increasingly access resources through partnerships and resource-sharing agreements.
What are examples of dynamic capabilities?
Coordination and integration of resources
Organizational transformation
Reconfiguration of business activities
How does RBV inform business model design?
It highlights the importance of resource combinations and complementarities to maximize value creation.
Why is value preservation a challenge in the digital economy?
Rivals can easily access substitute resources.
Information-based resources are highly mobile, leading to increased value migration.
The sustainability of newly created value is less certain due to rapid innovation cycles.
What is the central question addressed by Transaction Cost Economics (TCE)?
Why firms internalize transactions that might otherwise be conducted in markets (the “make-or-buy” decision).
Who developed TCE, and what recognition did he receive for it?
Oliver E. Williamson developed TCE and won the Nobel Prize in Economics in 2009 (along with Elinor Ostrom).
What is the primary unit of analysis in TCE?
Transactions, although the theory can also be applied to activities.
What is the main decision analyzed in TCE?
Whether an activity (e.g., manufacturing a product) should be conducted in-house (“make”) or outsourced to another party (“buy”).
What are transaction costs?
The costs associated with planning, adapting, executing, and monitoring task completion in an economic transaction.
What conditions contribute to transactional inefficiencies?
Bounded rationality (limited human decision-making capacity)
Uncertainty and complexity
Asymmetric information (one party has more knowledge than the other)
Opportunism (risk of exploitation in small-numbers bargaining situations)
How does TCE view transaction efficiency?
As a major source of value—reducing inefficiencies lowers transaction costs and enhances value creation.
How can firms lower transaction costs in idiosyncratic exchanges?
By building trust, reputation, and transactional experience between firms.
What role does information technology play in reducing transaction costs?
IT investments can reduce coordination costs, mitigate transaction risks, and improve market efficiency.
How has digitization impacted transaction costs in modern business models?
Digitization reduces both direct and indirect transaction costs, such as coordination costs and risks of adverse selection or moral hazard.
What are examples of how digital business models lower transaction costs?
Increased transaction frequency through open standards
Reduced transaction uncertainty by providing more transaction-specific information
Lower asset specificity (alternative suppliers or platforms are “one click away”)
How does digitization mitigate the small-numbers bargaining problem?
It enables previously unconnected parties (buyers and sellers) to interact electronically, as seen in Uber’s business model.
How do business models expand beyond TCE’s traditional focus?
While TCE focuses on cost minimization in bilateral transactions, business models consider a broader system of interdependent stakeholders.
What stakeholders are typically included in a business model beyond just buyers and sellers?
The focal firm, suppliers, partners, and customers, creating opportunities for joint value maximization.
What are the traditional governance modes in TCE, and how have they evolved?
TCE traditionally highlights hierarchies (“make”) and markets (“buy”), but modern business models enable new hybrid governance forms (e.g., platforms, ecosystems).
Besides transaction efficiency, what other forms of value creation do business models leverage?
Innovation (new ways to create and capture value)
Resource reconfiguration (restructuring assets for competitive advantage)
What is Michael Porter’s value chain framework used for?
It analyzes value creation at the business unit (BU) level by identifying critical activities that contribute to competitive advantage.
What are the four steps of value chain analysis?
(i) Defining the strategic business unit (BU)
(ii) Identifying critical activities
(iii) Defining products
(iv) Determining the value of distinct activities
What are the two main categories of activities in a value chain?
Primary activities: Directly impact value creation (e.g., production, logistics, sales).
Support activities: Indirectly impact value creation by enhancing primary activities (e.g., HR, technology development, procurement).
How does Porter define value in the value chain framework?
The amount buyers are willing to pay for a firm’s offering, measured by total revenue.
What are key drivers of product differentiation in value creation?
Policy choices, linkages, timing, location, activity sharing, learning, integration, scale, and institutional factors.
Why is value chain analysis better suited for traditional manufacturing firms than digital businesses?
The linear structure of the value chain does not fully capture the complex information flows and network effects of digital business models.
What concepts emerged to address the limitations of value chain analysis in the digital economy?
Open innovation, industry architecture, value networks, and business models.
What are strategic networks?
Stable interorganizational ties that are strategically important, such as alliances, joint ventures, and buyer-supplier partnerships.
What are the key research questions in strategic network theory?
(i) Why and how are strategic networks formed?
(ii) What inter-firm relationships help firms compete?
(iii) How is value created in networks?
(iv) How do network relationships impact firm performance?
How does network structure impact firm advantages?
Network density and centrality determine access, timing, and referral benefits.
What are the benefits of strategic networks?
Access to information, markets, and technology
Risk sharing
Economies of scale and scope
Knowledge sharing and learning
Faster time-to-market and enhanced transaction efficiency
What is a network effect in strategic networks?
A product or service becomes more valuable as more people use it (e.g., social media platforms like Facebook).
Why are network effects important for platform-based business models?
They increase value through user connections, content exchange, commerce, and coordination.
What distinct units of analysis are used in different economic theories of value creation?
Entrepreneurs (Schumpeterian Innovation)
Resources & Capabilities (Resource-Based View)
Transactions (Transaction Cost Economics)
Activities (Value Chain Analysis)
Networks (Strategic Network Theory)
What are examples of companies that use strategic network theory in their business models?
: Groupon, Uber, Facebook, and Amazon.
Why are traditional economic theories insufficient for analyzing digital business models?
They focus on linear, firm-centered value creation, whereas modern digital models involve complex, interconnected, and platform-based interactions.
How does the business model concept complement existing theories?
It integrates activities, partners, transactions, and resources to explain holistic value creation.
What is a business model, according to modern analysis?
A system of activities linked through transactions, designed by a focal firm but spanning industry boundaries.
How does a business model differ from traditional organizational forms?
: It represents a “purposeful network” of firms, partners, and customers that co-create value.
How does digital transformation impact business model design?
New technologies like AI, cloud computing, and blockchain enable novel business models that require new analytical approaches.
What is the difference between a unit of analysis and a level of analysis in business research?
Unit of analysis = The factor being studied (e.g., firm capabilities, CEO decisions).
Level of analysis = What is being explained (e.g., firm performance, business model success).
Why is the business model considered a level of analysis?
It examines total value creation and competitive advantage across firms, networks, and ecosystems.
Why is a business model not the same as a business plan?
Business Model: Describes the firm’s activity system (dynamic and adaptive).
Business Plan: A static, forward-looking document that includes projections, strategies, and financials.
What does a business plan typically include that a business model does not?
Market trends, financial projections, operations, marketing strategy, and competitive strategy.
How does a business model fit into a business plan?
The business model is one component of the broader business plan, focusing specifically on how value is created and captured.
Why should a business model not be confused with organizational structure?
The business model focuses on value creation and delivery.
Organizational structure determines hierarchy, roles, and decision-making within the firm.
What is the Business Model Canvas?
A framework with nine key building blocks:
Customer Segments
Value Propositions
Channels
Customer Relationships
Revenue Streams
Key Resources
Key Activities
Key Partnerships
Cost Structure
How does the Business Model Canvas differ from the What, How, Who, Why framework?
Business Model Canvas: Bottom-up approach, mapping out firm elements for practical implementation.
What, How, Who, Why framework: Holistic, strategic approach to business model design.
What is a limitation of using the Business Model Canvas?
It can overgeneralize the business model and make it difficult to distinguish from broader firm concepts like corporate structure.
What is the key role of a business model in strategic management?
It bridges business and corporate strategy by defining how a firm creates and delivers value within its chosen market.
How does a business model contribute to competitive advantage?
It differentiates firms beyond product offerings by optimizing activity systems for efficiency and customer value.
Why is a business model especially relevant in the digital age?
The rise of platform-based, AI-driven, and decentralized businesses requires new ways of thinking about value creation beyond traditional strategy.
When did the business model concept gain prominence?
In the mid-1990s, driven by the rise of the Internet.
How does a business model differ from a business strategy?
A business model focuses on how a firm conducts business, while strategy focuses on competitive positioning.
What are the main factors that led to the emergence of the business model concept?
The Internet, emerging markets, and postindustrial technologies.
What is the most common issue with business model definitions in academic literature?
Many studies lack explicit definitions, leading to multiple interpretations.
What are some of the common definitions of a business model?
A statement, a description, a representation, an architecture, a conceptual tool, or a framework.
How has the Internet transformed business models?
By enabling new transaction architectures, reducing costs, and facilitating boundary-spanning organizational forms.
What are the four key elements of a business model?
Who, What, How, and Why—defining customers, value proposition, activity system, and value creation logic.
What are the two main research streams on e-business models?
Typology-based (classifying models) and component-based (identifying structural elements).
What are the key types of e-business models according to Timmers (1998)?
E-shops, e-procurement, trust services, and nine others.
What role does information technology play in e-business models?
It enables efficiency, scalability, and cost reductions.
What did Amit & Zott (2001) propose as value drivers in e-business models?
Novelty, lock-in, complementarities, and efficiency.
How do e-business models create value in digital ecosystems?
Through networked interactions between firms, suppliers, and customers.
How do platform-based business models benefit from network effects?
They become more valuable as more users join (e.g., Facebook, Uber).
What is the key limitation of traditional value chain analysis in digital business models?
It fails to capture dynamic, non-linear value creation.
What are the two main purposes of business models in strategic management?
Value creation and value capture.
How do business models relate to competitive advantage?
A well-designed business model can be a source of differentiation and superior performance.
What is the difference between a business model and corporate strategy?
Business models focus on how a firm operates, while corporate strategy focuses on which businesses to enter or exit.
How does a business model differ from a business plan?
A business plan is a static document outlining future goals, while a business model is a dynamic system of activities.
Why are business models important in the digital economy?
They allow firms to monetize innovation and create new transaction architectures.
What are Zott & Amit’s (2007) two design themes of business models?
Efficiency-centered and novelty-centered.
How can early market entry influence business model success?
It can enhance the competitive advantage of a novelty-centered business model.
How can business models act as a source of competitive advantage?
By creating unique ways to deliver value that competitors cannot easily imitate.
What did Afuah & Tucci (2001) propose about business models and firm profitability?
Business models determine how firms use resources to generate revenue.
What role do strategic alliances play in business model success?
They expand capabilities, enhance innovation, and reduce costs.
What was a key finding of IBM’s Global Business Services (2006) study on business models?
Firms that emphasized business model innovation outperformed others financially.
How does the “lock-in” value driver enhance business model sustainability?
It creates high switching costs, making it difficult for customers to leave.
What is business model innovation?
Changing how a firm creates, delivers, and captures value.
How does business model innovation differ from product innovation?
It transforms the structure of business operations, rather than just improving products.
What are common barriers to business model innovation?
Cognitive biases, organizational inertia, and lack of leadership vision.
How can experimentation help firms innovate their business models?
It allows them to test and refine models before full-scale implementation.
What is open innovation, and how does it impact business models?
Leveraging external ideas and partnerships to accelerate innovation.
What is the role of leadership in business model innovation?
Leaders must foster strategic flexibility, encourage risk-taking, and enable change.
How do digital technologies enable business model innovation?
AI, blockchain, and cloud computing create new ways to transact and deliver value.
What are the four emerging themes in business model research?
Business models as a new unit of analysis.
Business models as system-level concepts.
Business models as activity systems spanning firm boundaries.
Business models as mechanisms for value creation and capture.
What is a key limitation in current business model research?
Lack of a unified definition and theory-building challenges.
How should future research refine business model theory?
By clarifying the theoretical foundations and distinguishing it from related concepts.
What is a key challenge in empirically testing business models?
The lack of standardized variables and measurement frameworks.
How does contingency theory relate to business models?
It suggests that the effectiveness of a business model depends on external conditions.
How do business models relate to value networks?
They operate beyond firm boundaries, involving multiple stakeholders.
Why is business model innovation critical in today’s economy?
It enables firms to adapt to rapid technological and market changes.
Activity =
Engagement of resources to serve a specific
purpose towards the fulfillment of the overall objective
“Resources and capabilities of a firm are the key
sources of its competitive advantage”
Jay Barney
Resources VS capabilities
- What is your most valuable possession?
- What is something that you can do better than most
others?
Resources
productive assets owned by a firm
– Tangible, intangible, human
– E.g., Cash, Copyright, Employees
Capabilities
“what a firm can do”, a firm’s capacity to
undertake a particular productive activity, better than
others !
– Design
– Brand management
– R&D
– Continuous improvement in operations
– Speed of distribution
– Financial control
TC
TRANSACTION COSTS: Information costs, Bargaining costs, Enforcement costs etc
Buy vs Make
3 critical dimensions of a transaction determine high
transaction costs
– Asset specificity (A.S.) is high when the supplier
cannot redeploy them to an alternative use (e.g.
sell them) without a significant reduction in value
– Uncertainty (U.) is high when complexity of good
is high and behavior of suppliers unpredictable
– Frequency (F.) is high when more transactions
* Better to “Make” than “Buy” when TC is high
Networks and Value creation –>
Density, Centrality, Size, Strength and Heterogeneity of Networks –> Communication, Coordination, Cooperation
Different contexts where BMs are used
E-businesses, Strategy and Innovation/Technology
Theories behind Business Models
Innovation, RBV, TCE, Value Chain and Strategic Network theory
According to the textbook, what was the key influence of Schumpeter’s thinking on business model designers ?
Urged them to focus on innovation mainly in products/services
Urged them to focus on innovation mainly in factor markets
Urged them to focus on innovation including and beyond products/services
Urged them not to focus on innovation
Urged them to focus on innovation including and beyond products/services
Which of the following is broadest in terms of scope ?
Business Model
Business Plan
Business Model Canvas
Business Concept
Business Plan
Business Models can be thought of as both unit and level of analysis, T/F
T
