Business Model Literature Overview

Financial Reporting 1, 2014, pp. 79-130 Articles Business Model Literature Overview Aleš Novak* Abstract The term ʻbusiness modelʼ has recently attracted increased attention in the context of financial reporting and was formally introduced into the IFRS literature when IFRS 9 Financial Instruments was published in November 2009. However, IFRS 9 did not fully define the term ‘business model’. Furthermore, the literature on business models is quite diverse. It has been conducted in largely isolated fashion; therefore, no generally accepted definition of ʻbusiness modelʼ has emerged. Therefore, a better understanding of the notion itself should be developed before further investigating its potential role within financial reporting. The aim of this paper is to highlight some of the perceived key themes and to identify other bases for grouping/organizing the literature based on business models. The contributions this paper makes to the literature are twofold: first, it complements previous review papers on business models; second, it contains a clear position on the distinction between the notions of the business model and strategy, which many authors identify as a key element in better explaining and communicating the notion of the business model. In this author’s opinion, the term ‘strategy’ is a dynamic and forward-looking notion, a sort of directional roadmap for future courses of action, whereas, ‘business model’ is a more static notion, reflecting the conceptualisation of the company’s underlying core business logic. The conclusion contains the author’s thoughts on the role of the business model in financial reporting. Keywords: business model; literature overview; meaning of the term; strategy. First submission: 11 April 2011, accepted: 24 July 2014. * Ph.D. Associate professor of Accounting and Business Economics, University of Maribor, Faculty of Organizational Sciences, Kidričeva cesta 55a, SI-4000 Kranj, Slovenia, Phone: + 386 4 237 4254, Fax: + 386 4 237 4299, e-mail: [email protected]. 79 Copyright © FrancoAngeli N.B: Copia ad uso personale. È vietata la riproduzione (totale o parziale) dell’opera con qualsiasi mezzo effettuata e la sua messa a disposizione di terzi, sia in forma gratuita sia a pagamento. Aleš Novak 1. Introduction The term ‘business model’ has recently attracted increased attention in the context of financial reporting. Users of financial reports want to better understand financial position and performance. Furthermore, some preparers of financial statements as well as users of them suggest that the link between the ways a company does business and its reporting in financial statements should be better articulated. The term ‘business model’ was formally introduced in November 2009 in IFRS literature when the London-based International Accounting Standards Board (IASB) published IFRS 9 Financial Instruments, which at that time contained only requirements for financial assets. IFRS 9 states that classification and measurement of financial assets depends on the company’s business model for managing those assets. However, IFRS 9 does not define the term ‘business model’. Since the introduction of the term in IFRS 9, there has been significant controversy in the accountancy world about the meaning(s) of the term ‘business model’ in addition to its possible role in financial reporting. Therefore, different accountancy bodies have recognized the need to clarify the term. In 2010, the Institute of Chartered Accountants of England and Wales (ICAEW) issued a report entitled Business models in accounting: the theory of the firm and financial reporting. In June 2013, the European Financial Reporting Advisory Group (EFRAG) together with its partners (French ANC, German ASCG, Italian OIC and UK FRC1) issued a 16-page Getting a Better Framework bulletin, The role of the business model in financial reporting. In addition, EFRAG, France’s ANC and the UK’s FRC in December 2013 issued a supporting, more comprehensive research paper on this topic, The role of the business model in financial statements. Beattie and Smith (2013:252) also note that even the intellectual capital (IC) accounting literature, which customarily has close ties with the literature on strategic management (see Spender et al., 2013: 102), has not forged strong connections with either the more recent strategy literature or the business model literature. In contrast, the International Integrated Reporting Council (IIRC) identifies the organization’s business model as one of the fundamental concepts of integrated reporting (see IIRC, 2013b and Figure 2 of Appendix 2). 1. These are the abbreviations of four other prominent European national accounting standard-setters and stand for: Autorité des Normes Comptables (ANC), the Accounting Standards Committee of Germany (ASCG), the Organismo Italiano di Contabilità (OIC) and the Financial Reporting Council (FRC). 80 Copyright © FrancoAngeli N.B: Copia ad uso personale. È vietata la riproduzione (totale o parziale) dell’opera con qualsiasi mezzo effettuata e la sua messa a disposizione di terzi, sia in forma gratuita sia a pagamento.  Business Model Literature Overview The objective of this paper is thus to provide an overview of primarily academic literature on the discussion about business models, focusing on the meaning of the term ‘business model’ rather than its role in financial reporting. This paper does not attempt to provide an exhaustive list of all the relevant research in the area, but endeavours to highlight some of the perceived key themes in the literature and other bases for grouping/organizing the literature on business models. This paper’s literature review indicates the persistence and increased usage of the term ‘business model’, which I believe indicates its importance. However, neither a generally accepted definition of the term ‘business model’ nor the consensus about its meaning could be established, which creates a ʻcognitive gapʼ, according to Giunta et al. (2010). Therefore, I think that as a first step there is a need to find a more commonly understood meaning of the term before investigating the possible role of it within financial reporting. As a starting point, this paper has used some previous literature reviews (Osterwalder et al., 2005; Zott et al., 20112; Onetti et al., 20123; DaSilva and Trkman, 2013) to identify relevant papers/studies. In contrast to other papers on the subject, this is the fundamental strength of this paper. In addition, some more recent and most relevant papers/studies are examined in greater detail. In order to locate studies, the methodology used by DaSilva and Trkman (2013) was followed. For the years 2011, 2012 and 2013, which were not covered in prior literature reviews, all the papers published in the journals indexed in the Web of Science (WoS) online database that contain the term ‘business model’ or ‘business models’ in the titles were identified.4 These filters eliminated the papers published in non- 2. Zott et al. (2011) first searched for business model papers that contain the term business model in the title or keywords, published in leading academic and practitioner- oriented management journals between January 1975 and December 2009. Their search revealed 70 articles on business models, of which 10 had been published in academic journals and 60 appeared in three of the leading practitioner-oriented journals: California Management Review (CMR), Harvard Business Review (HBR), and MIT Sloan Management Review (MSM). This relatively small set of articles led to extensive search, using around 1,300 journals from EBSCO Business Source Complete database as a starting point. Zott et al. (2011) searched the database for academic articles published from January 1975 to December 2009 containing the term business model in the title, abstract or keywords. As a result of this process, they obtained 1,202 articles, which they added to the initial sample of 70 articles. However, their final sample included 103 publications. See Zott et al. (2011) for more about their sample selection. 3. Their literature review is based on 70 definitions published from 1996 to 2009. 4. Web of Science was chosen because it offers a reliable coverage and historical overview at the journal, article and cited-reference level (Norris and Oppenheim, 2007; in 81 Copyright © FrancoAngeli N.B: Copia ad uso personale. È vietata la riproduzione (totale o parziale) dell’opera con qualsiasi mezzo effettuata e la sua messa a disposizione di terzi, sia in forma gratuita sia a pagamento. Aleš Novak peer reviewed journals and the papers that made only minor references to business models. For the 2011, 44 papers were found, 51 were found for 2012 and 93 papers for 20135. All these newly identified papers and all the older papers that are directly cited in this paper were reviewed and analysed. The papers published in impact factor journals with multiple citations that considered the generic aspect of the business model concept were evaluated as the most relevant, while extra attention was given to papers published in the special issues of those journals6. This paper makes the following contributions to the literature. First, complements previous review papers on the business model concept by providing recent relevant papers/studies on this topic and an additional accounting dimension in the conclusion. Second, preceding papers typically provide only one separate basis for business model literature grouping/organization, whereas this study yields a comprehensive review of the current literature by summarising three different bases for business model literature grouping/organization. Two of them (themes and levels of conceptualisation) were previously identified independently, while the third (theoretical vs. empirical) was rather intuitive, and was thus not explicitly identified. The main business model theme also reveals that the terms ‘business model’ and ‘strategy’ are often used interchangeably and that the distinction between these two notions is usually not apparent. This distinction is perceived by many (for example, Magretta, 2002; Osterwalder et al., 2005; Keen and Qureshi, 2006; Onetti et al., 2012; Stefanovic and Milosevic, 2012; DaSilva and Trkman, 2013) as an essential element in making the business model notion better understood. Although this was also attempted in some other recent papers (for example, Shafer et al., 2005; Casadeus-Masanell and Ricart, 2010; Onetti et al., 2012; Stefanovic and Milosevic, 2012; DaSilva and Trkman, 2013), these studies suffer from the fact that they did not build upon earlier studies. It is important to note that these papers neglected the paper from Yip (2004) that, in my opinion, provides a basis for an intuitively sensible and conceptually elegant differentiation between the notions of the business model and strategy. The strength of this paper’s position is that it can be DaSilva and Trkman, 2013). DaSilva and Trkman (2013:3) report that the number of papers with ʻbusiness modelʼ in their title remained relatively stable between 2004 and 2007 at 25- 42 papers annually. Interestingly, it began to grow again with 45, 68 and 83 papers, in 2008, 2009 and 2010, respectively. 5. On 30 April 2014, there were 15 such papers issued in the year 2014. 6. The same approach was followed by Arend (2013: 392). 82 Copyright © FrancoAngeli N.B: Copia ad uso personale. È vietata la riproduzione (totale o parziale) dell’opera con qualsiasi mezzo effettuata e la sua messa a disposizione di terzi, sia in forma gratuita sia a pagamento.  Business Model Literature Overview complementary to the majority of the aforementioned studies. Therefore, a clear position on the distinction between the notions of the business model and strategy is, in my view, another contribution of this paper to the extant literature. This paper has the following structure: it begins with history and background of the term in the literature (Section 2). It then proceeds with the main business model literature themes (Section 3) and further explores the relations and distinctions between the notions business model and strategy (Section 4). Finally, Section 5 concludes the paper. 2. History and background A literature query shows that the popularity of the term ‘business model’ is a relatively recent phenomenon. Though the term appeared for the first time in an academic article in 1957 (Bellman et al., 1957)7 and in the title and abstract of the paper in 1960 (Jones, 1960)8, it rose to prominence only towards the end of the 1990s. This surge coincided with the advent of the Internet in the business world and the steep rise of the NASDAQ stock market in the US for technology-based companies (Osterwalder, 2005: 6-7). The proliferation of the term ‘business model’ seems to be intrinsically connected with new technology-based companies (DaSilva and Trkman, 2013). The phenomenon of these companies indicated that new designs and business models had become a matter of some importance (Onetti et al., 2012: 341). In this innovative context, the term ‘business model’ was often a buzzword, used mostly as a narrative tool, a short-story, or a non-detailed explanation of why a venture was worth investing in during the Internet boom (Arend, 2013: 392). The internet company’s business model was often used as a justification for its enormous 7. The article investigates the construction of business games for training purposes. The term is mentioned just once: ʻAnd many more problems arise to plague us in the construction of these business models than ever confronted an engineerʼ (p. 474). The meaning of the business model seems intrinsically connected with a representation of reality, a simulation of the real world through a model (DaSilva and Trkman, 2013). 8. The article raises questions about how college students from the business field should be trained and how technologies should be introduced to them. No mention of the term ʻbusiness modelʼ is made in the text itself, revealing the term’s arbitrary use in the title. Thus, the origin of the term reflects a simplification of reality aimed at educating future managers on technology (DaSilva and Trkman, 2013). 83 Copyright © FrancoAngeli N.B: Copia ad uso personale. È vietata la riproduzione (totale o parziale) dell’opera con qualsiasi mezzo effettuata e la sua messa a disposizione di terzi, sia in forma gratuita sia a pagamento. Aleš Novak valuations, a mistake common to several other dot-com companies at that time (Garfield, 2011; cited in DaSilva and Trkman, 2013: 3). Evidently, the term survived the dot-com bubble, and since around the turn of millennium the research has moved from a general focus on e- business context to a more generic and comprehensive approach to the notion of a business model, also relevant to other types of companies. In this regard, the above paragraph provides an excellent starting point for identifying the first possible basis for grouping/organizing the literature on business models, i.e. the major themes in the business model literature. According to Onetti et al. (2012) two major themes, i.e. main streams of literature can be identified: 1) the e-business stream and 2) the generic stream. Based on Zott et al. (2011), the generic stream can be further divided into a) a strategic issues (sub)stream and b) an innovation and technology management (sub)stream. These literature streams will be described in greater detail in Section 3. There has been a rise in the number of papers published, and an abundance of conference sessions and panels on the subject of business models.9 However, it appears that academics (and practitioners10) have yet to develop a common and widely accepted language that would allow others examining the business model construct through different lenses to draw effectively on the work of others (Zott et al., 2011: 1020). In fact, Shafer et al. (2005) think that this lack of consensus may in part be attributed to the interest in the business model concept from the range of disciplines identified above (e-business, technology and strategy). Furthermore, DaSilva and Trkman (2013) report that the growth of business model literature in recent years can also be attributed to papers on business models outside the business sphere. The term has also been used as a buzzword to analyse almost any human endeavour with a wide range of interpretations (Ghaziani and Ventresca, 2005). Authors have even discussed the business models of the care for hospitalised older adults (Capezuti et al., 2013); of other health care units (Schlein, 2013); of medical drug development (Philippidis, 2011); of terrorist organizations, such as Al-Qaeda (Vardi, 2010); of political parties, such as the Labour 9. Since 1995, there have been 1,177 papers published in peer-reviewed academic journals in which the notion of a business model has been addressed. The business model has also been the subject of a growing number of practitioner-oriented studies (Zott et al., 2011: 1019-1020). 10. The business model concept has immense value as a framework for practitioners to generate and test theories about how a business delivers value to its customers (Eckhardt, 2013: 412). 84 Copyright © FrancoAngeli N.B: Copia ad uso personale. È vietata la riproduzione (totale o parziale) dell’opera con qualsiasi mezzo effettuata e la sua messa a disposizione di terzi, sia in forma gratuita sia a pagamento.  Business Model Literature Overview Party in the UK (Faucher-King, 2008) and of the possibilities to preserve nature (Sovinc, 2009). The term is even used in macroeconomics to discuss the model of the US economy (Cappelli, 2009). While the term ‘business model’ has gained widespread use in the practice community, the academic literature on this topic is fragmented, and confounded by inconsistent definitions and construct boundaries (George and Bock, 2011: 83). In the academic literature, the expression stands for various things, such as parts of a business model (e.g. auction model), types of business models (e.g. direct-to-customer model), concrete real world instances of business models (e.g. the Dell model) or concepts, i.e. elements and relationships of a model (Osterwalder et al., 2005: 8). There is, therefore, a range of conceptualizations of business models in the literature. According to Zott et al. (2011), this multitude of (sometimes ad-hoc) conceptualisations has prevented, or at least slowed, cumulative research progress. Different levels of conceptualisation, identified in Osterwalder et al. (2005), thus provide a second possible basis for grouping/organizing the literature on business models. This is presented in greater detail in Section 2.1 of this paper. The available research tends to be descriptive in nature. It examines varied approaches to model construction, notes standard model types, cites examples of failed and successful models, and discusses the need for new models as conditions change (Morris et al., 2005: 726). In my opinion, the above paragraph provides a valid starting point for identifying a third possible basis for grouping/organising the literature on business models, i.e. theoretical/mainly descriptive papers vs. empirical papers. This is presented in greater detail in Section 2.2 of this paper. 2.1. Levels of business model conceptualisations As noted above, different levels of conceptualisation, identified in Osterwalder et al. (2005), can provide the second possible basis for grouping/organizing the literature on business models. Osterwalder et al. (2005) believe that the authors writing about business models can be classified into three different categories, which can be (but do not necessarily have to be) hierarchically linked to one another: a) Authors who describe the business model concept as an abstract overarching concept, which can describe all real world businesses; 85 Copyright © FrancoAngeli N.B: Copia ad uso personale. È vietata la riproduzione (totale o parziale) dell’opera con qualsiasi mezzo effettuata e la sua messa a disposizione di terzi, sia in forma gratuita sia a pagamento. Aleš Novak b) Authors who describe a number of different abstract types of business models (i.e. a classification scheme), each one describing a set of businesses with common characteristics; c) Authors presenting aspects of, or a conceptualization of a particular real world business model. All three categories can vary in their modelling rigour, ranging from simple definitions, or the listing of elements, to a set of related, defined and conceptualized elements. Osterwalder et al. (2005) do not advocate any one of these three categories because they are not mutually exclusive yet they all make sense. However, they firmly believe that they must be distinguished conceptually in order to achieve a common understanding of business models. Furthermore, they think that the three levels make the most sense when they are hierarchically linked to each other through a comprehensive approach (Figure 1). Figure 1 – Business model hierarchy Source: Osterwalder et al. (2005:9). The first category consists of definitions of what a business model is and what belongs into it, and (meta-)models11 that conceptualize business 11. According to Steinmüller (1993), a model is information: 86 Copyright © FrancoAngeli N.B: Copia ad uso personale. È vietata la riproduzione (totale o parziale) dell’opera con qualsiasi mezzo effettuata e la sua messa a disposizione di terzi, sia in forma gratuita sia a pagamento.  Business Model Literature Overview models. On this level, the business model is seen as an abstract concept that allows a description of what a business ʻdoes for a livingʼ. The definitions (Timmers, 1998; Magretta, 2002) simply give an idea of what a business model is (Osterwalder et al., 2005: 9). A typical example would be Magretta’s (2002) reasoning that the strength of a business model is that it tells a story about the business, drawing attention to how pieces of the business fit together and how the business makes money (see Table 1 of Appendix 1 for selected business model definitions). In addition, the meta-models (Chesbrough and Rosenbloom, 2000; Hamel, 2000; Linder and Cantrell, 2000; Mahadevan, 2000; Amit and Zott, 2001; Applegate, 2001; Petrovic et al., 2001; Weill and Vitale, 2001; Gordijn, 2002; Stähler, 2002; Afuah and Tucci, 2003; Osterwalder, 2004) define what elements (components) are to be found in a business model (Osterwalder et al., 2005: 10). The second category consists of several types or meta-model types of business models that are generic, but contain common characteristics (Bambury, 1998; Timmers, 1998; Rappa, 2001; Weill and Vitale, 2001). Furthermore, the types and models can be, but are not necessarily, a sub- class of an overarching business model concept (Weill and Vitale, 2001; taken from Osterwalder et al., 2005: 10). Most attempts to describe and classify business models in the academic and practice literature have been taxonomies, i.e. developed by abstracting from observations, typically not of businesses in general, but of a single industry12 (Baden-Fuller and Mangematin, 2013: 420). The most notable examples are industries such as wireless networking (Shubar and Lechner, 2004), computing (Rappa, 2004), mobile-games (MacInnes et al., 2002), airlines (Lawton and – on something (content, meaning) – created by someone (sender) – for somebody (receiver) – for some purpose (usage context). If there is a model of a model, there is a temptation to call it a ‘metamodel’ because the prefix ‘meta’ is used to indicate that some operations have been performed twice. For instance, when classifying an item twice, the result is referred to as a ‘metaclass’ to refer to instead of ‘class class’. 12. The usual way to differentiate between typology and taxonomy is to think of a taxonomy as being the classes (or kinds) of things observed in the world, and as being developed bottom up from empirical work. A typology is usually understood as delineating types of things (or events) where the types are decided theoretically or conceptually by the scientist, top down (Baden-Fuller and Morgan, 2010:161). See Baden-Fuller and Morgan (2010) for more on how the business model notion enables classifying businesses in a taxonomy or a typology. 87 Copyright © FrancoAngeli N.B: Copia ad uso personale. È vietata la riproduzione (totale o parziale) dell’opera con qualsiasi mezzo effettuata e la sua messa a disposizione di terzi, sia in forma gratuita sia a pagamento. Aleš Novak Solomko, 2005; Procter, 2005; Tretheway, 2004) music (Manafy, 2006; Procter, 2004; Swatman et al., 2006; Bustinza et al., 2013), etc. (taken from Osterwalder et al., 2005 and DaSilva and Trkman, 2013). Only a few robust and precise business model typological classifications have been developed thus far. For example, Baden-Fuller and Mangematin (2013: 420-422)13 suggest a typology that considers four elements, i.e. the characteristics that define the business model: Customers, i.e. the company’s target user and customer groups, are identified. Customer identification also specifies if the business model is one-sided or multisided, i.e. if the users pay for the services received, or if there is another group of customers who pay for services when the core offering is provided for free (for example free Internet search engines). Customer engagement, sometimes also called value proposition. Here one of the oldest and most established distinctions in the literature is proposed: between the ‘project based system’ and the ‘pre-designed (scale) based system’, which is often described as the ‘taxi’ and ‘bus’ systems. The business models using the former create value by interacting with specific clients to solve specific problems (e.g. consulting firms, such as McKinsey, large law firms, etc.). In contrast, those utilizing the bus system (car parts makers, car assemblers, mass fast food producers, etc.) add value by producing ‘one-size-fits-all’ goods or services in a repetitive manner via standardized, mass production processes. Monetization is an essential part of value capture and involves more than just pricing (the economist’s concern), but includes systems determining the timings of payments, and identifies the costs and methods of collecting revenues. It also distinguishes between charging all users the same price (as in grocery supermarkets) and negotiated prices. Teece (1986) stresses the role of the system of complementary assets, pointing out how leveraging these assets can increase monetizing opportunities (and in particular the often discussed ‘razor-blade’ model)14. Value chain and linkages, sometimes called architecture or governance systems. These are the mechanisms the firm uses to deliver its product or service to the customer (or to each of the customer groups in the case of 13. Please note that Baden-Fuller developed a similar four-dimensional typology with another co-author Haefliger (2013): customer identification, customer engagement, monetization and value delivery. 14. This is a label for the revenue model where part (generally, a small part) of the revenues is collected early (when the service/product is purchased, for example a hand razor) and the rest (often a good deal more) from the supply of complementary assets (in this case, associated consumables, for example blades) when being used. 88 Copyright © FrancoAngeli N.B: Copia ad uso personale. È vietata la riproduzione (totale o parziale) dell’opera con qualsiasi mezzo effettuata e la sua messa a disposizione di terzi, sia in forma gratuita sia a pagamento.  Business Model Literature Overview multisided platforms). Here there are many valuable contributions, particularly by Amit and Zott (2001) and by Casadesus-Masanell and Ricart (2010). However, even these excellent contributions appear to overlook the situations in which there are several user-customer groups requiring multiple interlinked value chains involving multiple technologies. This four-dimensional typology is offered as a valuable insight, because it provides a set of clear and alternative types of models (customers: one- or two- (or even more-) sided; customer engagement: each group of customers being engaged either via a taxi or a bus system; monetization: customers pay directly at the time of sale or indirectly, etc.). It also shows how different business models can be applied to the same product and the same set of customers. For example, an aircraft engine producer can offer its engines as a service on a taxi basis (through short-term rental agreements), or sell them outright, with servicing being provided as a complementary asset on the ‘razor-blade’ basis (Baden-Fuller and Mangematin, 2013: 421-422). Other typical examples of business model typologies that apply to businesses in general would, in my opinion, be the empirical studies by Malone et al. (2006) and Andersson et al. (2010), described in Appendix 3. The third category consists of firm-specific business models and/or their very basic descriptions, representations and conceptualizations, which could be labelled as a ʻbottom-upʼ approach to the business model conceptualization. Several authors used a business model perspective to analyse companies, such as Xerox (Chesbrough and Rosenbloom, 2002), Dell (Kraemer et al., 2000), IKEA (Porter, 1996), the General Motors’ OnStar project (Barabba et al., 2002; taken from Osterwalder et al., 2005:11), Sun (Shafer et al., 2005), Ryanair (Casadeus-Masanell and Ricart, 2010), etc.15 However, these authors vary significantly in terms of conceptualization 15. In the same way as biologists focus their study on a set of model organisms, business scholars repeatedly study the same organizations: Southwest Airlines, Google, Disney, Toyota, etc. to understand exactly how that kind of business model works, both in theory and in practice. This intensity of study creates a depth of understanding and provides an analytical account of each exemplar, involving theorizing, concept formation, and a fully developed appreciation of its practical details. It is this kind of model work and the knowledge it produces that turn the example into an exemplar case, i.e. something like an ideal type. It is these firms (a widely recognised set, often part of the teaching curriculum as well as research laboratory) that form the model organisms of management. Each firm is studied as an exemplar not just for its own sake, but as the ‘type’ against which other firms, following the same generic business model, can be measured and compared. In addition, each exemplar can also be contrasted with firms practising a different model, i.e. members of a different class (Baden-Fuller and Morgan, 2010: 164). 89 Copyright © FrancoAngeli N.B: Copia ad uso personale. È vietata la riproduzione (totale o parziale) dell’opera con qualsiasi mezzo effettuata e la sua messa a disposizione di terzi, sia in forma gratuita sia a pagamento. Aleš Novak in how they represent these real world business models (Osterwalder et al., 2005: 11). Although the different levels of the conceptualisation criterion for grouping/organising business model literature provide a sense of order, in some cases the line between the different levels of conceptualisation is rather fuzzy. For example, Baden-Fuller and Morgan (2010) claim that McDonalds (as a business) may be taken as a representative for a genre of firms that practice a similar kind of business model (‘business format franchising’) in which a company designs a system to deliver a product/service (as McDonalds delivers hamburgers), and offers knowledge of the system on a fee-related-to-success basis. Such business format franchising has become omnipresent in food outlets, hotels, coffee bars and many other consumer and small business services. While each business format franchise system is somewhat different, McDonalds remains the benchmark to which people refer, either centrally or tangentially, when analysing this particular business model – the model for business format franchising. This example is highly indicative, showing us that individual business models are not (any more) limited to a particular industry. Moreover, many successful innovations that blurred industry boundaries (for example, e- commerce, also bancassurance, etc.) do not fit traditional industry categories and could, therefore, be one of the potential explanations for the emergence of the notion of the business model. Having said that, the term ‘business model’ was apparently not explicitly needed in business thought and practice before 1960. According to Osterwalder et al. (2005), the business model concept is thus a candidate to replace the industry as a unit of analysis. Consider the iTunes software/website of Apple Computers, a successful music downloading service. The main role of this service is not only to sell music, but to enhance the company’s sales of iPods, a portable digital music player. Thus, in terms of industry sectors, this website includes the software, online, hardware and music industries. In terms of business models, this website forms an entire set of business design choices that reinforce one another. This means that technology from other sectors, such as information technology, influences the ways in which a business model can be created and adapted (Baden-Fuller and Haefliger, 2013: 424). The inherent advantages of the Internet, such as the reduction in transaction costs, have progressively spread into virtually all industries, including traditional ‘brick-and-mortar companies’. For instance, Ryanair, the low-cost airline 90 Copyright © FrancoAngeli N.B: Copia ad uso personale. È vietata la riproduzione (totale o parziale) dell’opera con qualsiasi mezzo effettuata e la sua messa a disposizione di terzi, sia in forma gratuita sia a pagamento.  Business Model Literature Overview company, took advantage of existing technology to eliminate intermediaries in ticket sales while acting as an intermediary in hotel and rent-a-car bookings. Not long ago, airline companies depended on agencies to sell their tickets and vice-versa. Nowadays, airline ticket purchases can be made from home with a click of a mouse or a touch of the screen. Airlines can even go as far as selling plane tickets below their marginal cost as they have established alternative revenue streams through online sales that compensate for the loss (i.e. the online sale of hotel rooms, car rentals, city- airport transfers). Without the Internet, the cost of doing so would be prohibitively high (DaSilva and Trkman, 2013). Furthermore, similarly to McDonalds, Ryanair is the benchmark to which people usually refer when analysing this particular business model: it is the model for the low-cost airline company, at least in Europe16. Therefore, we could conclude that sometimes the name of the company serves as a ‘practical expedient’ for describing the more generic business model type that is characteristic of and intrinsically connected with that particular company. Furthermore, I agree with Arend (2013: 393) that, at least in practice, the business model concept is not independent of the company and is, according to Lambert and Davidson (2013: 674), useful in understanding the current practice only within designated industries or contexts17. The great variety of conceptualizations of the business models certainly impedes empirical research on business models, which is presented in the following section of the paper. 16. Lohman and Koo (2013: 7) claim that airlines in the USA are no longer easily labelled as either low-cost carriers (LCCs) or full service network carriers (FSNCs), with many of the so-called hybrid airlines now combining attributes from LCCs and FSNCs to broaden their target demand and survive increasing competition. They present an airline business model spectrum on the data from nine major US carriers. Those data are used to map and summarize their business models in terms of revenue, connectivity, convenience, comfort, aircraft and labour use. Their analysis recognizes that airlines are better represented along a continuum rather than by discrete categories. 17. Similarly Nielsen and Bukh’s (2011: 265) paper, which is based on qualitative interviews with 12 sell-side financial analysts that follow Coloplast, a Danish medical device firm, on a regular basis indicates that within the analyst community the business model is often thought of in terms of industry structures and particular ways of doing business within a specific industry or sector. The business model is conceptualised as a distinct way of competing, almost as a generic industry way of competing that cannot be departed from. 91 Copyright © FrancoAngeli N.B: Copia ad uso personale. È vietata la riproduzione (totale o parziale) dell’opera con qualsiasi mezzo effettuata e la sua messa a disposizione di terzi, sia in forma gratuita sia a pagamento. Aleš Novak 2.2. Empirical studies on business models As identified above, the third possible basis for grouping/organising the literature on business models is a dichotomy between theoretical, i.e. conceptual/mainly descriptive papers vs. empirical papers. Since the majority of business model literature is theoretical and descriptive, and presented in other parts of our paper, this section focuses on empirical studies18. Lambert and Davison (2013) found 69 papers published in academic journals from 199619 to 2010 that use the business model concept in empirical research. They discovered that the business model frameworks used in the majority of existing empirical studies were specific to an industry or venture and thus non-cumulative due to the differing conceptualisations of the business model and consequently different common sets of characteristics.20 In addition, they revealed that the profile of the empirical research is biased in favour of European-based research, particularly in relation to media, information technology and biotechnology industries, which are young and fast growing and/or have been disrupted by technological changes. A relatively low number of empirical studies refers to the fact that there are a number of obstacles in the way to conducting empirical research, the first one being the diverse views on what a business model is, i.e. the lack of consistent definition(s). Even if a convergent definition is obtainable, a second difficulty is to show that it has a discriminant validity: is it sufficiently different from related concepts, such as industry classification? 18. Empirical research is grounded in observation. It takes phenomena (things that exist or happen), or at least the perception of phenomena, as its starting point, and attempts to represent them as data which can then be analysed. Theoretical research focuses on ideas rather than on phenomena, though (of course) both kinds of research require both foci (Arthur et al., 2013: 10). 19. Empirical research has necessarily lagged behind theoretical/conceptual research (Lambert and Davison, 2013: 675). 20. A very typical empirical study of this kind is the study by Amit and Zott (2001), based on a sample of Internet-related firms that went public between 1996 and 2000. They examined the fit of business model themes (novelty- versus efficiency-centred) and product- market strategy (differentiation versus low-cost, and timing of entry) affect firm performance, as measured by market value. They found that the novelty-centred business model fits all their types of product-market strategies, but the efficiency-centred business model fits only the low-cost product-market strategy (Malone et al., 2006: 4). However, since their study focuses only on Internet-related firms, it cannot be considered as prominent as the presented studies. Eckhardt (2013: 414) found this study to be a typical typology/taxonomy that aggregates business models into a few dimensions. 92 Copyright © FrancoAngeli N.B: Copia ad uso personale. È vietata la riproduzione (totale o parziale) dell’opera con qualsiasi mezzo effettuata e la sua messa a disposizione di terzi, sia in forma gratuita sia a pagamento.  Business Model Literature Overview Third, there is a challenge of obtaining data. Datasets on firms are commonly classified by industry and its various derivations, such as ‘line of business’ or segment. It is extraordinarily difficult to collect data on any meaningful definition of ‘business model’. Large-scale surveys of firms are possible but are subject to self-reporting errors (Lai et al., 2006: 5). Lambert and Davidson (2013: 677) claim that if empirical research is to be conducted in diverse industries and for diverse purposes, a general classification of business models based on various business model attributes is required. Since classifications are used as an input to other research, paying attention to classification schemes is particularly important. The development of a general classification scheme of business models that spans industry boundaries would facilitate broad generalizations from empirical research, which may facilitate theory building. Therefore, Appendix 3 of this paper presents two empirical studies (Malone et al., 2006 and Andersson et al., 2010) that provide, at least in my opinion, the most appealing typologies of possible business models in the economy as a whole. The authors of these papers identify and limit the number of different abstract types of business models with a set of common characteristics. Therefore, there is a second level, i.e. level b) identified under the different levels of the conceptualisation criterion in Section 2.1 of this paper. In addition, Appendix 3 contains more details about a survey study by George and Bock (2011), which was administered to senior managers of companies from diverse industry and of various sizes. I decided to present this study because I agree with Bukh (2003: 55, also in Beattie and Smith, 2013: 244) that it is crucial to do research on how management perceives their companies’ business models. Survey studies together with case studies present the largest empirical research venue on business models. The remainder of this paper deals with the last, but certainly not least, identified basis for grouping/organizing the literature on business models, i.e. the major themes in the business model literature (Section 3). This basis will also reveal that the terms ‘business model’ and ‘strategy’ are often used interchangeably and that the distinction between these two notions is usually not apparent. Therefore, the relations and distinctions between the notions of the business model and strategy are also discussed (Section 4), which is another literature contribution of this paper. 93 Copyright © FrancoAngeli N.B: Copia ad uso personale. È vietata la riproduzione (totale o parziale) dell’opera con qualsiasi mezzo effettuata e la sua messa a disposizione di terzi, sia in forma gratuita sia a pagamento. Aleš Novak 3. Business model literature themes As already noted in Section 2, according to Onetti et al. (2012), two main themes, i.e. streams of literature, can be identified: 1) the e-business stream and 2) the generic stream. The generic stream can be based on Zott et al. (2011) further divided into a) a strategic issues (sub)stream, and b) an innovation and technology management (sub)stream. These streams are presented below in greater detail. 3.1. E-business literature stream The new business era ushered in by rapid technological change in the 1990s (Tapscott, 1997; Kelly, 1998) heralded dramatic changes to competitive approaches in many industries (Onetti et al., 2012: 341). To attract funding, the early ʻdot-comʼ companies used the idea of business models to pitch the attractiveness of their proposed business ventures. The need for what was called ‘new e-business models’ arose (Shafer et al., 2005: 200). In the e-business stream, scholars have 1) defined and represented generic (e-)business models, and/or 2) developed typologies and taxonomies21. However, they have been less concerned with causal explanation or empirical testing22. Their mostly descriptive contributions highlight to varying degrees the notion of value as components (e.g. value stream, customer value, value proposition), monetary and financial aspects (e.g. revenue streams, cost structures) and aspects related to the architecture of the network between the firm and its exchange partners (e.g. delivery channels, network relationships, logistical streams, and/or infrastructure). Each of these components may constitute part of a generic business model; this could be a source of differentiation between business model types (Zott et al., 2011: 1028)23. Moreover, Veit et al. (2014) identify three distinct perspectives within the business model information systems research agenda: a) business models in IT industries (e.g. hardware, software, telecommunications); b) 21. See footnote 12 for more about typologies and taxonomies. 22. Onetti et al. (2012) even claim that typically the authors in this literature stream describe alternative business models rather than introduce a structured and generally accepted definition of what they mean by the term business model. Several scholars have attempted to classify e-business models by describing types of e-business models. See Zott et al. (2011) for more regarding that. 23. See Table 2 in Zott et al. (2011) for the most typical e-business model components. 94 Copyright © FrancoAngeli N.B: Copia ad uso personale. È vietata la riproduzione (totale o parziale) dell’opera con qualsiasi mezzo effettuata e la sua messa a disposizione di terzi, sia in forma gratuita sia a pagamento.  Business Model Literature Overview IT enabled, i.e. digital business models, which can be found in media industry, the retail industry, the financial services industry and logistic; and c) IT support for developing and managing business models, which should provide a computer-aided business model design and support software tools (e.g. Business Model Toolbox, Business Model Wizard). 3.2. Generic literature stream Since around the turn of millennium, the research has moved from a general focus on the context of e-business to a more generic and comprehensive approach of the notion of a ‘business model’, relevant also to other types of organizations. From basic definitions and taxonomies, scholars have moved to more articulated definitions and began to identifying the model’s building blocks and components (Onetti et al., 2012: 342; see also Section 2.1 on the levels of business model conceptualisations). Hedman and Kalling (2003: 51), for example, identify the company’s customers, its competition, its value offering, the activities and the organization, the resources, the suppliers, and the management processes as business model components (see Table 1 of Appendix 2 for more on business model components). As already noted, the generic literature stream can be, in my opinion, on the basis of Zott et al. (2011) further divided into a) the innovation and technology management (sub)stream and b) the strategic issues (sub)stream. Both literature (sub)streams are presented below. 3.2.1. Technology and innovation management literature stream Many studies assess the relationship between technology innovation and business models or the change in business models. This perspective frames business models within an innovation context, defining it as ‘a coherent framework, which takes technological characteristics and potentials as inputs and converts them through customers and markets into economic outputs. The business model is conceived as a focusing device that mediates between technology development and economic value creation’ (Chesbrough and Rosenbloom, 2002: 532). What is communicated effectively is a story that translates technology into value and into profit (Arend, 2013: 392). Business models are often necessitated by technological innovation, which creates both the need to bring discoveries to market and the 95 Copyright © FrancoAngeli N.B: Copia ad uso personale. È vietata la riproduzione (totale o parziale) dell’opera con qualsiasi mezzo effettuata e la sua messa a disposizione di terzi, sia in forma gratuita sia a pagamento. Aleš Novak opportunity to satisfy unrequited customer needs. At the same time, new business models can themselves represent a form of innovation. The business model is thus mainly seen as a mechanism that connects the firm’s (innovative) technology to customer needs, and/or to other firm resources (e.g. technologies). The business model is conceptually placed between the firm’s input resources and market outcomes, and ‘embodies nothing less than the organizational and financial ‘architecture’ of the business’ (Teece, 2010: 173 and 176). According to this more functionalist, firm-centric perspective, the business model can be a vehicle for innovation as well as a source of innovation24 (Zott et al., 2011: 1034). Baden-Fuller and Haeflinger (2013: 422) also claim that strategy scholars have underplayed the role of business model choice in their search for a link between technology innovation and competitive advantage. The typical assumption that offering a radically improved product or service will over time automatically lead to increased profits for the innovating firm(s) ignores the enormous problems that firms face in working out the interdependencies between business model choice and technology effectiveness. Business model choice determines the nature of the complementarity between business models and technology and the paths to monetization. A poor choice can lead to low profits, a good choice to superior profits. In addition, in my opinion, this literature stream’s scope also partly extends into the dynamic capabilities view, which addresses the question of how companies can cope with changing environments and which has attracted increasing attention in the management literature in recent years. Baretto (2010: 270) claims that in terms of their nature, dynamic capabilities have been defined as abilities, capacities, processes, and routines, which is very similar to some of the business model components (see Table 1 of Appendix 2). In terms of their specific role, research into early dynamic capabilities tended to consider dynamic capabilities as concerning changes in resources, capabilities, operating routines, or a combination of these, which is very similar to the issues related to business model changes, which are addressed in Section 4.2 of this paper. 24. Business-model innovation is not programmatic, and new generations of modified business models will emerge eventually to solve problems and capitalize on opportunities created by original breakthroughs (Gambardella and McGaham, 2010: 270). 96 Copyright © FrancoAngeli N.B: Copia ad uso personale. È vietata la riproduzione (totale o parziale) dell’opera con qualsiasi mezzo effettuata e la sua messa a disposizione di terzi, sia in forma gratuita sia a pagamento.  Business Model Literature Overview 3.2.2. Strategic issues literature stream Within the strategy literature, research on business models has mainly revolved around three aspects (Zott et al., 2011: 1031): a) the networked nature of value creation, b) the relationship between business models and firm performance, and c) the distinction between the business model and other strategy concepts. Since strategy scholars are generally interested in the firm’s activities (as these help explain, for example, how a firm distinguishes itself from its competitors), it is not surprising that many of the business model conceptualizations proposed in this literature stream centre on (or at least include) the notion of activities or activity systems. A business model can be a source of competitive advantage, as it emphasizes the importance of activities centred on the customer needs, a perspective that is relatively rare within the strategy literature (Zott et al., 2011: 1031). It is worth noting the observations of Keen and Qureshi (2006) and DaSilva and Trkman (2013) that the term business model is frequently confused with other popular, well-established management terms such as ‘strategy’, ‘competitive positioning’, ‘organisational design’, ‘revenue model’, ‘economic model’25, ‘business concept’, ‘business process modelling’26 and ‘value chain’27. Stefanovic and Milosevic (2012) argue that the terms ‘strategy’ and ‘business model’ are among the most heavily used terms in the field of 25. ICAEW (2010:10) define the economic model of a firm as an articulation of the firm’s economics, showing how key changes in the business itself or in its environment would affect its results. This sort of model is an abstraction of reality. 26. DaSilva and Trkman (2013) provide a good explanation of how the business model concept is related to and/or distinguished from these popular management concepts: ʻrevenue modelʼ, ʻeconomic modelʼ, ʻbusiness conceptʼ and ʻbusiness process modellingʼ. They also deal with the strategy; however, I believe that my position on strategy is more complementary to previous research than the cited paper. Giunta et al. (2010) identify the origin of the business model concept in the concept of business idea by Normann (1979). 27. The value chain includes activities performed during the flow of goods and services from raw materials to consumption (Porter, 1985). It differentiates between primary activities that have a direct impact on value creation (such as inbound logistics, operations, outbound logistics, marketing and sales, and service) and secondary activities (e.g. administrative functions, technology, human resource management, and procurement) that affect value creation only through their impact on the performance of the primary activities. Value is created by the activities that reduce buyer costs or raise buyer performance through product differentiation. The value chain thus focuses on value creation at the firm level. However, its sequential character has been considered increasingly inadequate to the analysis of value creation processes in firms, as the economy saw the birth of new networked organizational forms and the growth of service firms, both of which differ from the traditional manufacturing firms for which the value chain was originally conceived (Zott and Amit, 2013: 408-409). 97 Copyright © FrancoAngeli N.B: Copia ad uso personale. È vietata la riproduzione (totale o parziale) dell’opera con qualsiasi mezzo effettuata e la sua messa a disposizione di terzi, sia in forma gratuita sia a pagamento. Aleš Novak business and management, and claim that both terms are sometimes even used interchangeably28. When people are asked ‘What is a strategy?’, most give an answer that includes the words ‘business model’ (Baden-Fuller and Morgan, 2010:156). Onetti et al. (2012) note that it is difficult to clearly distinguish business model components from the strategy it supports or represent. The overlap, however, leads to confusion and makes the business model notion rather vague. I agree with Shafer et al. (2005) that ‘a business model is not a strategy’. Furthermore, a distinction between business model and strategy notions is perceived by many (for example Magretta, 2002; Osterwalder et al., 2005; Keen and Qureshi, 2006; Onetti et al., 2012; Stefanovic and Milosevic, 2012; DaSilva and Trkman, 2013) as an essential element in making the business model notion better understood. In order to better understand the notion of the ‘business model’ and to make it more parsimonious, the next section (Section 4) of this paper is thus entirely devoted to relations and distinctions between the notions of the business model and strategy. 4. Relations and distinctions between the notions of the business model and strategy It is worth noting at the beginning of this section Magretta’s (2002) statement, which is despite its ‘age’, in my opinion, still very much true: ‘Today, “business model” and “strategy” are among the most sloppily used terms in business; they are often stretched to mean everything and end up meaning nothing. It’s true that any attempt to draw sharp boundaries around abstract terms involves some arbitrary choices. But unless we are willing to draw the line somewhere, these concepts will remain confusing and difficult to use. Definition(s) brings clarity. And when it comes to concepts that are so fundamental to performance, no organization can afford fuzzy thinking.’ Authors debating the differences between strategy and business models differ considerably in their opinion. Some use the terms ‘strategy’ and ‘business model’ interchangeably (Magretta, 2002). Frequently, they use it 28. It is also worth mentioning the results of a brief survey conducted in June 2011 that asked 15 members of the EFRAG’s Business Model Advisory Panel whether the business model has a different meaning than business strategy. Ten panel members or the two-thirds of those responding thought a business model was different from a business strategy. Three panel members believed a business model was the same thing as a business strategy and two panel members responded that they were not sure. 98 Copyright © FrancoAngeli N.B: Copia ad uso personale. È vietata la riproduzione (totale o parziale) dell’opera con qualsiasi mezzo effettuata e la sua messa a disposizione di terzi, sia in forma gratuita sia a pagamento.  Business Model Literature Overview to refer to everything they believe would give them a competitive advantage (Stähler, 2002). However, a review of the literature shows that the view that business models and strategy are linked, but distinct notions, is more common (Mansfield and Fourie, 2004; Osterwalder et al., 2005; Shafer et al., 2005; Casadeus-Masanell and Ricart, 2010; Onetti et al., 2012; Stefanovic and Milosevic, 2012; DaSilva and Trkman, 2013). Yip (2004) claims that business academics and consultants have been writing about strategy for around 50 years, yet there is still great confusion as to what strategy is. Therefore, the first step in exploring the relations and differentiation between the business model and strategy notions is to clarify what strategy is. 4.1. Strategy notions Strategy can be defined as the firm’s theory of how to compete (Barney, 2002; cited in Richardson, 2008: 133). Strategy theory concerns the explanations of the firm’s performance in a competitive environment (Porter, 1991; cited in Hedman and Kalling 2003: 50). There are many strategy perspectives. However, we believe there are four ‘paradigmatic’ perspectives: a) an industrial organization (hereinafter I/O) perspective, b) a resource-based view (hereinafter RBV) perspective, c) a strategy process perspective (Hedman and Kalling, 2003: 51) and d) and institution-based perspective (Peng et al., 2009). I/O, which was first developed by Porter (1980), and RBV, first developed by Wernfelt (1984) and Barney (1991), are both concerned with competitive advantage. However, their views on what competitive advantage is and on what it is based upon differ. I/O reasons that environmental pressure and the ability to respond to it are the prime determinants of firm success, whereas RBV states that idiosyncratic and firm-specific sets of imperfectly mobile resources determine which firm will reach above-normal performance (Wernerfelt, 1984; Dierickx and Cool, 1989; Barney, 1991; Peteraf, 1993). RBV emphasises the characteristics of the underlying factors behind low-cost and differentiation and the value chain, i.e., the resources of the company. An essential RBV attribute is resource rareness. In contrast, a valuable, rare resource also needs to be costly to imitate or to substitute in order to sustain the advantage of the resource. RBV occupies a more prominent role in strategy today than I/O and, according to Beattie and Smith 99 Copyright © FrancoAngeli N.B: Copia ad uso personale. È vietata la riproduzione (totale o parziale) dell’opera con qualsiasi mezzo effettuata e la sua messa a disposizione di terzi, sia in forma gratuita sia a pagamento. Aleš Novak (2013), provides the basis for the field of intellectual capital accounting. Nevertheless, RBV also has its limitations29. Critics put focus on the lack of empirical studies, the relative lack of process, i.e. dynamic orientation, and shortcomings in explaining hypercompetitive industries (Hedman and Kalling, 2003: 51). In addition, DaSilva and Trkman (2013) argue that resources per se, for example technology, do not bring any value to the customer, and that the firm’s competitive advantage is conceptualised (too) narrowly unless the knowledge of management regarding exploitation of a bundle of resources is viewed as a resource itself (Kraaijenbrink et al., 2010; cited in Beattie and Smith, 2013: 245). While both RBV and I/O may be seen as content-based approaches to strategic management, the process-based view on strategy focuses on the processes through which strategy contents are created and managed over time. However, it is worth noting that strategists still tend to argue about what it is that makes companies successful, whether it is a firm’s internal resources (Barney, 1991), successful reconfiguration of the value chain (Porter, 1985) or a well-implemented generic strategy (Porter, 1980; cited in Hedman and Kaling, 2003: 50). The institution-based strategy perspective can be seen as a consequence of the rise in new institutionalism throughout social sciences, which induced strategy scholarly attention on how institutions matter. Internally, the frustration associated with the I/O and RBV’s lack of adequate attention to contexts has called for new theoretical perspectives that can overcome these drawbacks. The result is the emergence of the institution-based view (Peng et al., 2009: 65). Shafer et al. (2005) refer to Henry Mintzberg’s book The Rise and Fall of Strategic Planning, in which it is claimed that a strategy can be viewed in at least four different ways: as a pattern, a plan, a position, or a perspective. Specifically in a backward-looking context, strategy is sometimes viewed as a pattern of choices made over time. More frequently, however, strategy is considered in a forward-looking sense. Within that forward-looking domain, some see strategy as a plan; a view that relates to choices about paths or courses of action, much like a directional roadmap. Some, including management guru Peter Drucker, view strategy as 29. The inclusion of knowledge and dynamic capabilities into the RBV paved the way for more linkages between the business model and RBV. Venkatraman and Henderson (1998) suggest that leveraging traditional and knowledge assets enable virtual organizing as a new business model. ʻNew economyʼ firms have been credited with leveraging intangible assets to generate extraordinary value (Boulton and Libert, 2000; cited in George and Bock, 2011: 86-87). 100 Copyright © FrancoAngeli N.B: Copia ad uso personale. È vietata la riproduzione (totale o parziale) dell’opera con qualsiasi mezzo effettuata e la sua messa a disposizione di terzi, sia in forma gratuita sia a pagamento.  Business Model Literature Overview perspective, i.e. choices about how the business is conceptualised. Still others, such as leading strategist Michael Porter, see strategy as a position; a view that relates to choices about which products or services are offered in which markets based on differentiating features. Porter (1991) reasons that the low-cost and differentiation advantages that firms enjoy on the product market ultimately stem from ‘initial conditions’ and ‘managerial choices’. Decisions taken affect the so-called drivers (resources or properties such as scale and scope), which are acted upon in activities, which in turn enable low cost and/or differentiation. These enable particular strategic positions in markets/industries, allowing, potentially, for firm success (Hedman and Kaling, 2003: 51). Although strategic position is not referred to as a business model, it incorporates many features that could be included in such a model. Porter (1991) is not specific about the contents of the components, but the model summarises his previous models and adds the causal relations between initial conditions and managerial choices and firm success. Inherent in this model is also the strategy process, as the managerial choices are seen as taking place in a longitudinal dimension. Strategic position is thus a response to criticism from the process perspective field (Mintzberg, 1978; cited in Hedman and Kaling, 2003: 51). In this context, it is worth noting Porter’s criticism of Internet business terminology: ‘The misguided approach to competition that characterizes business on the Internet has even been embedded in the language used to discuss it. Instead of talking in terms of strategy and competitive advantage, dot-coms and other Internet players talk about “business models”. The definition of a business model is murky at best. Most often, it seems to refer to a loose conception of how a company does business and generates revenue. Yet, simply having a business model is an exceedingly low bar to set for building a company. Generating revenue is a far cry from creating economic value, and no business model can be evaluated independently of industry structure. The business model approach to management becomes an invitation for faulty thinking and self-delusionʼ (Porter, 2001: 71). According to Hedman and Kaling (2003), Porter’s criticism of the business model concept (2001) could be resolved by using his other texts. This issue is then further developed in Yip (2004) and presented below. 101 Copyright © FrancoAngeli N.B: Copia ad uso personale. È vietata la riproduzione (totale o parziale) dell’opera con qualsiasi mezzo effettuata e la sua messa a disposizione di terzi, sia in forma gratuita sia a pagamento. Aleš Novak 4.2. Static vs. dynamic basis for a distinction between business model and strategy According to Richardson (2008), the strategy frameworks enable the strategist to apply general principles to the firm’s particular situation and to develop a good theory of how the firm should compete. Armed with a good theory, the strategist must test it through implementation or execution. At the most abstract level, there is the overall corporate strategy, e.g. pursue growth into new markets, and the business strategy conceived in broad terms, e.g. differentiate on superior technology. At the next level, a step toward operations, there are the functional strategies, e.g. marketing strategy, production strategy, and so on. A further intermediate level is sometimes employed in the framework, in which functional strategies are translated into policies that are used to guide activities. In this framework, the functional strategies aid in linking the basic business strategy to activities. Richardson (2008) then goes a step further, proposing that the business model concept can be developed into a useful integrative framework for strategy formulation and execution. The proposed business model framework provides a consistent logical picture of the firm that helps to guide the myriad choices and actions involved in the execution (of the strategy). In addition, Arend (2013: 392) claims the business model concept is useful for the recent renewal of interest in strategy implementation, especially for new technology businesses that have met monetization challenges (e.g. Twitter). Concerning strategies, Yip (2004) distinguishes between routine strategies and radical (or transformational) strategies. Nearly every business seeks to improve its position on an incremental basis. A company with a given market share usually wants to increase that share, or to improve its cost position, its quality position or its profitability. In most cases, companies seek to do so with routine strategies that do not change the underlying business model. For example, market share increases can be achieved through strategies such as increasing advertising, introducing more new products, increasing customer satisfaction and the like. Such routine strategies can usually achieve reasonable improvement, e.g. from a 10 to perhaps 15 percent share. Companies constantly use routine strategies, such as a marketing strategy to increase market share. More drastic ambitions, such as doubling or tripling market share, may require a fundamental change in the business model, in order to target new customer groups, to change the nature of the value position and so on. A radical (or 102 Copyright © FrancoAngeli N.B: Copia ad uso personale. È vietata la riproduzione (totale o parziale) dell’opera con qualsiasi mezzo effettuata e la sua messa a disposizione di terzi, sia in forma gratuita sia a pagamento.  Business Model Literature Overview transformational) strategy is needed to change the business model in one or more fundamental ways (Yip, 2004: 19). Hence, in essence, companies use radical (or transformational) strategies to change their business models and routine strategies to change their (market, etc.) positions within current business models. Thus, both types of strategy are dynamic and change oriented, and it is not a matter of static versus dynamic strategy. All strategies are dynamic (Yip, 2004: 18). In contrast, Yip (2004) states that the term ‘business model’ has been widely used to explain how an Internet company operates. When used in this way, its meaning embraces the target customer, the nature of the business and how revenues (and hopefully profits) are generated. Does this sound familiar? Indeed, it sounds very much like conventional notions of what constitutes a strategy, i.e. strategic positioning. In his Harvard Business Review article ‘What is strategy?’, Michael Porter (1996) defined ‘strategic positioning’ as having six elements, i.e. six fundamental principles (Porter, 2001: 70): The right goal: superior long-term return on investment. Only by grounding strategy in sustained profitability will real economic value be generated. A value proposition: or set of benefits, different from those that competitors offer. Strategy, then, is neither a quest for the universally best way of competing nor an effort to be all things to every customer. A distinctive value chain: in order to establish a sustainable competitive advantage, a company must perform different activities than rivals, or perform similar activities in different ways. Trade-offs: a company must abandon or forgo some product features, services, or activities in order to be unique at others. Such trade-offs in the product and in the value chain are what makes a company truly distinctive. Fitting among strategy elements: a strategy involves making interdependent choices throughout the value chain; all of a company’s activities must be mutually reinforcing. A company’s product design, for example, should reinforce its approach to the manufacturing process, and both should leverage the way the company conducts aftersales service. Such fitting not only increases competitive advantage, but also makes a strategy harder to imitate. Continuity of direction: a company must define a distinctive value proposition it will stand for, even if that means forgoing certain opportunities. Without continuity of direction, it is difficult for companies to develop unique skills and assets, or build strong reputations with customers. 103 Copyright © FrancoAngeli N.B: Copia ad uso personale. È vietata la riproduzione (totale o parziale) dell’opera con qualsiasi mezzo effettuata e la sua messa a disposizione di terzi, sia in forma gratuita sia a pagamento. Aleš Novak In fact, those six elements described above comprise a static positioning of where a company wants to be and could just as well be described as a business model. Most of the examples used by Porter and other strategy writers tend to describe static business models, for example IKEA, Southwest Airlines, etc. (Yip, 2004: 19), both of which are cost-based focusers. Nevertheless, Ikea’s focus is based on the needs of a customer group, and Southwest’s is based on offering a particular service variety (Porter, 1996: 10). According to Yip (2004) the term ‘strategy’ is thus more usefully reserved for dynamic activities used to change either a market or other position (routine strategies) or a business model (radical strategies), while the term ‘business model’ refers to static positioning. There is nothing wrong with having a static business model; being static should be the ideal because it means that the company is enjoying a dominant and profitable market position (Yip, 2004: 19). Shi and Manning (2009) assume that a business model is the outcome of management actions, be they planned, emergent, or realised. Shafer et al. (2005) see a business model as a representation of the firm’s underlying core logic and a reflection of the strategic choices that have been made, while Casadeus-Masanell and Ricart (2010) argue that a business model is a reflection of the firm’s realised strategy. All these understandings and facets of the business model also suggest the static essence of the business model notion. In other words, we agree that strategy is not a business model, but rather a pattern within which a business model changes (Stefanovic and Milosevic, 2012: 152) and that strategy reflects what a company aims to become, while a business model describes what a company at a given time actually is (DaSilva and Trkman, 2013: 5). Therefore, I believe strategy and business models are related, but different notions. In my opinion, ‘strategy’ is a dynamic and forward-looking notion, a sort of directional roadmap for future courses of actions. In contrast, a ‘business model’ is a more static notion, reflecting the conceptualisation of the company’s underlying core business logic; it is a reflection of the firm’s realised (executed) strategy, i.e. strategic choices that have been made as a necessary outcome of management actions30. Consequently, I support 30. Perhaps an appropriate analogy for the business model would be a photograph (Mason and Spring, 2011) or a blueprint (even a recipe) that fulfils important functions such as enabling description and classification (Demil and Lecocq, 2010: 228). Giunta et al. (2010: 42) argue that the business model, in fact, can be viewed as a magnifying glass 104 Copyright © FrancoAngeli N.B: Copia ad uso personale. È vietata la riproduzione (totale o parziale) dell’opera con qualsiasi mezzo effettuata e la sua messa a disposizione di terzi, sia in forma gratuita sia a pagamento.  Business Model Literature Overview Casadesus-Masanell and Ricart’s (2010) reasoning that the company’s business model determines the range of tactics available. Moreover, I agree with Cavalcante et al. (2011: 1338) that despite the static essence of the notion of a business model, some models can have some flexible characteristics that make them receptive to changes in the environment/competitive situation. Since not all business models are successful or viable in the long term, they need to be changed31. I support the reasoning of Yip (2004) that entities use radical (or transformational) strategies to change their business models32 and routines, i.e. tactical strategies (plans of action) to change their (market, etc.) positions within the current business model. Furthermore, by applying the reasoning of Tikkanen et al. (2005)33. I can assert that the function of radical (or transformational) through which one may look at a company: the number of disclosed details depends on how the glass is placed. 31. Chesbrough (2007) and Cavalcante et al. (2011) highlight that entities have a natural tendency not to change their business model. For example, organizational inertia (mentioned also in Achtenhagen et al., 2013: 427), i.e. forces that constrain companies’ ability to make structural changes (new, unfamiliar configurations of assets, resources, and positions) in response to environment threats, is a major concern. Cavalcante et al. (2011: 1336) distinguish between the change initiatives that are rejected from the outset and the change initiatives that can be adapted to existing business models so that the processes are implemented, but only insofar as they do not lead to major revisions of the existing business models. In addition, George and Bock (2011) claim that more research is needed to clarify the links between business models and organizational innovation as well as the mechanisms and processes of business model innovation and change. 32. Cavalcante et al. (2011: 1333-1334) distinguish between four different types of business model change: a) business model creation, b) business model extension, c) business model revisions and d) business model termination. While creation implies the conceptualization and implementation of a new business model, and extension implies expanding the business without affecting existing processes within the business model, revision implies that existing working practices are subject to change. Business model revision is likely to involve significantly more challenges than business model extension, because it requires more fundamental changes. Business model termination can refer to closing down a business area or unit (assuming it has its own business model), or closing the entire company. Yip (2004: 18) claims that companies use radical strategies (i.e. strategies to change, i.e. revise or even terminate their business models) rarely, usually only when changes in their environment render their current business models obsolete, or when they voluntarily choose to embrace a new business model. The root cause and rarity of radical strategies explain their low rate of success. First, having to replace an obsolete business model is inherently risky. Second, the rarity of use means that most companies and executives have little experience of devising and implementing radical strategies. After all, many business models work successfully for decades. For example, IBM’s mainframe computer business model worked from the mid- 1960s to the PC revolution of the mid-1980s. 33. The function of the strategy is to give meaning and direction to the development of the company’s business model. In other words, I see strategy as a comprehensive pattern of the company’s actions and intents, binding together all business model components 105 Copyright © FrancoAngeli N.B: Copia ad uso personale. È vietata la riproduzione (totale o parziale) dell’opera con qualsiasi mezzo effettuata e la sua messa a disposizione di terzi, sia in forma gratuita sia a pagamento. Aleš Novak strategy is to give the meaning and direction for the development of the company’s business model. 5. Summary and conclusions Chesbrough (2007) states that every company has a business model whether they articulate it or not. Teece (2010) notes that whenever a business is established, it either explicitly or implicitly employs a particular business model. Magretta (2002) believes an excellent business model remains essential to every successful organization whether it is a new venture or an established player. It is worth noting that even though businesses have been around for a very long time, the term ʻbusiness modelʼ is a relatively recent phenomenon that rose to prominence only towards the end of 1990s with the advent of the Internet. According to Teece (2010), the study of business models is an interdisciplinary topic that was neglected before the internet era. Despite the business model’s obvious importance, it lacks an intellectual home in the social sciences or business studies. The business model lacks theoretical grounding in economics and, quite simply, there is no established place in current economic theory for it34. The term ‘business model’ was formally introduced in November 2009 in IFRS literature when the IASB published IFRS 9 Financial Instruments. Since then, the attention and discussion about the role the company’s business model should play in financial reporting have intensified. There are divergent views about where and how financial reporting should reflect (Mintzberg and Waters, 1982). Strategic intent, in contrast, is the ‘driver’ of the content and process of the company’s strategy (Hamel and Prahalad, 1990). Strategic intent involves long-term organizational commitment to ambitious business objectives, creating a shared mind set and a sense of direction for the company (Tikkanen et al., 2005: 793). 34. Zambon (1996: 404) claims that it is widely recognized that the firm in standard economic theory is conceptualized in an ambiguous and unsatisfactory way in many respects. In addition, the ICAEW’s report (2010) actually looks at the economic theory of the firm and asks what insights we might gain from it in thinking about accounting issues. Further, it focuses on the theory of the firm’s potential relevance to questions of measurement in financial reporting. Authors argue that it is difficult to make a direct connection between the theory of the firm and accounting measurement, but one way of relating the two to each other is via the firms’ business models. Assumptions about business models have always been implicit in financial reporting standards, as it has always been the case that different businesses will account for the same asset in different ways depending on what its role within the firm’s business model is. Questions of cost allocation and revenue recognition for different firms and different sectors are also closely tied to the interpretation of their business models. 106 Copyright © FrancoAngeli N.B: Copia ad uso personale. È vietata la riproduzione (totale o parziale) dell’opera con qualsiasi mezzo effettuata e la sua messa a disposizione di terzi, sia in forma gratuita sia a pagamento.  Business Model Literature Overview the company’s business model. However, I believe it is essential that, as a first step, a better understanding of the notion itself should be gained before investigating the possible role of the business model notion may have within financial reporting. Therefore, this paper has aimed to shed some light on the meaning of the term, i.e. I have attempted to bring some clarity to the business model notion by showing what different authors mean when they write about business models. I have shown in this paper that there is great diversity in the understanding, conceptualisation and definitions of the term ʻbusiness modelʼ. Therefore, no generally accepted definition of the term has emerged35. What is, in my opinion, essential in the context of the business model debates is the thought by Rothenberg (1989; cited in Muller et al., 2012: 347) ʻthat the purpose of a model must be understood before the model can be discussed’. Moreover, I claim that, thus far, the business model debate has been largely context dependent. I agree with Arend (2013: 391) that it appears the value of the business model idea is best captured in practical terms as its theoretical impact has been limited by several concerns. In addition to the lack of a standard definition, there are no established general classifications of the business model, which consequently provides little theoretical base for business model research and application. Therefore, the fact that there have been very few large-scale systematic empirical studies of the business model should not come as too much of a surprise. This paper makes the following contributions to the literature. First, I complement previous review papers on the business model by providing recent relevant papers/studies on this topic and an additional accounting dimension in the conclusion. Whereas prior papers usually provide only one separate basis for business model literature grouping/ organization, this study provides a comprehensive review of the current literature by summarising three different bases for business model literature grouping/organization. Two of them (main themes and levels of conceptualisation) were previously identified in the literature separately, while the third (theoretical vs. empirical) is rather intuitive and was not explicitly identified in the prior literature. 35. Interestingly, Ludewig (2003; in Muller et al., 2012: 348) states that ʻnobody can even just define what a model is, and expect that other people will accept this definition; endless discussions have proven that there is no consistent common understanding of modelsʼ. 107 Copyright © FrancoAngeli N.B: Copia ad uso personale. È vietata la riproduzione (totale o parziale) dell’opera con qualsiasi mezzo effettuata e la sua messa a disposizione di terzi, sia in forma gratuita sia a pagamento. Aleš Novak The second literature contribution of this paper is a precise position on the distinction between the notions of the business model and strategy. This is perceived by many (for example Magretta, 2002; Osterwalder et al., 2005; Keen and Qureshi, 2006; Onetti et al., 2012; Stefanovic and Milosevic, 2012; DaSilva and Trkman, 2013) as an essential element in making the notion of the business model better understood. Although the distinction between the terms was attempted in some recent papers (for example, Shafer at al., 2005; Casadeus-Masanell and Ricart, 2010; Onetti et al., 2012; Stefanovic and Milosevic, 2012; DaSilva and Trkman, 2013), in my opinion, these studies suffer from the fact that they do not build upon the prior studies. I also observe that these studies neglected the paper by Yip (2004), who (in my opinion) provides the basis for distinguishing the notions of the business model and strategy that is intuitively sensible and conceptually elegant. Based on the literature review, I believe strategy and business model are related, but different notions. In my opinion, the term ʻstrategyʼ is a dynamic and forward-looking notion, a sort of directional roadmap for future courses of action. In contrast, a business model is more a static notion reflecting the conceptualisation of the firm’s underlying core logic; it is a reflection of the company’s realised (executed) strategy, i.e. strategic choices that have been made as a necessary outcome of management actions. In my opinion, a business model should play a role in financial reporting because financial reporting should reflect the companies’ business models. Few would probably argue against the usage of the business model notion in financial reporting outside of financial statements (that consist of primary financial statements and notes to the financial statements), which is within the annual report usually labelled as Management Commentary (MC36/Manage- ment Discussion and Analysis (MD&A)/Operating and Financial Review (OFR)/Management’s Report. It is considered a vital complement to the financial statements in annual reports and thus an ideal place for the holistic ʻthrough the eyes of the managementʼ37 disclosure of the company’s 36. On 8 December 2010, the IASB issued the IFRS practice statement Management Commentary. The practice statement provides a broad, non-binding framework for the presentation of management commentary that relates to financial statements prepared in accordance with IFRS. The practice statement is not an IFRS. Consequently, entities are not required to comply with the practice statement, unless specifically required by their jurisdiction (http://www.ifrs.org/Current-Projects/IASB-Projects/Management- Commentary/Pages/ManagementCommentary.aspx). Management Commentary is thus currently (still) outside of IASB’s remit. 37. The term was ʻborrowedʼ from IFRS 8 Operating Segements, BC6. 108 Copyright © FrancoAngeli N.B: Copia ad uso personale. È vietata la riproduzione (totale o parziale) dell’opera con qualsiasi mezzo effettuata e la sua messa a disposizione di terzi, sia in forma gratuita sia a pagamento.  Business Model Literature Overview underlying core business logic, i.e. how the company makes money38. Such a cognitive business model disclosure thus describes/visualizes business mainly at the conceptual level and less at the operational level. I also agree with Beattie and Smith (2013: 253) that the business model notion and related perspectives on competitive advantage offer a powerful integrating concept within which the intellectual capital disclosures could be refocused and integrated. After all, in accounting terminology, ‘intellectual capital’ is a general term for all the unrecognised intangible value drivers of the company, and the majority of business model definitions contain value creation/generation/capture notions. In my opinion, that connotation demonstrates the interdisciplinary and multi-faceted nature of the business model concept. Moreover, I support EFRAG’s view (2013c: 14) that the business model notion should be referred in the IASB’s financial reporting requirements, which primarily relate to financial statements, on a systematic basis and thus become part of the IASB’s Conceptual Framework39. It is worth emphasising that the business model notion influences financial statements at different levels/dimensions. I agree with Singleton- Green (2012) that different business models involve different assets and different transactions. Therefore, the business model in this dimension always plays a role in financial reporting and is simultaneously and always 38. See Cinquini and Tenucci (2011) for the discussion on business model in management commentary. It is also worth mentioning that in 2010 the UK Corporate Governance Code introduced a requirement for listed companies to disclose in their annual reports (effectively in their management commentary) a business model (explanation of the basis on which the company generates or preserves value over the longer term) and a strategy for delivering corporate objectives. Changes to the Code issued in September 2012 ask the company’s board to state in the annual report that the information necessary for shareholders to assess the company’s performance, business model and strategy has been provided within the company’s annual report (Deloitte, 2012). Moreover, on 6 August 2013 the UK Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013 (the ‘Regulations’) was issued. The Regulations, which affect the ʻfront-endʼ of the company’s annual report, replaces the current business review with a separate strategic report, which shall be presented as a separate section of the annual report, outside of the director’s report. For quoted companies, the Regulations also introduce some additional content into the strategic report, such as a description of the company’s strategy and business model (although as mentioned above this requirement to disclose the company’s business model and strategy is also included in the UK Corporate Governance Code). The Regulations apply to financial years ending on or after 30 September 2013. The FRC is developing guidance on the application of the strategic report requirements set out in the Regulations (FRC, 2014: 1-2), which will most likely be issued in Q2 2014. 39. See, for example, Fülbier at al. (2009: 462) for a discussion of its nature and purpose. 109 Copyright © FrancoAngeli N.B: Copia ad uso personale. È vietata la riproduzione (totale o parziale) dell’opera con qualsiasi mezzo effettuata e la sua messa a disposizione di terzi, sia in forma gratuita sia a pagamento. Aleš Novak more or less reflected in financial statements. What I believe to be a key issue is whether the same transaction or asset/liability should be treated differently depending on the company’s business model. Singleton-Green (2012) notes that the same physical, i.e. tangible asset will be accounted differently depending on its role in the company’s business model. In accounting terminology, the same physical asset is considered to be a different balance sheet asset item and is thus within the scope of different accounting standards. For example, two entities purchase a similar car. One company uses the car to generate revenues by providing taxi services. The second company is a car dealership and holds the car in inventory for resale. The actions or activities connected with the car and cash flow generation, which could also be labelled companies’ business models, are entirely different: in the first case, the car is used and is considered as property, plant and equipment (PPE), while in the second case it waits in a showroom to be bought and is considered as inventory. Singleton-Green (2012) claims that this is widely accepted in accounting. Nevertheless, what I consider critical is whether the same balance sheet asset item, which is usually within the scope of a single accounting standard, could be accounted differently depending on its role in the company’s business model. Therefore, one of the possible approaches that EFRAG (2013c: 77) also mentions would be for an accounting standard to set more than one accounting treatment for such an item and to require entities to select the treatment that is the most appropriate to their business model. That could enhance the relevance and faithful representation of financial reporting. EFRAG (2013c: 15) furthermore argues that reflecting the business model in such a way would even enhance comparability by eliminating ‘one-size-fits-all’ solutions, based on quasi-similarities40. 40. Furthermore, EFRAG (2013: 30-31) claims that the business model is already implicitly used in IAS and IFRS that pre-date IFRS 9. Although the term ‘business model’ was not used at the time when these accounting standards were issued, there are several provisions in specific standards that suggest that accounting standard setters had implicitly felt that it was necessary to take the notion into account. For example, IAS 2 Inventories generally requires inventories to be measured at the lower of the cost and net realisable values. However, IAS 2 includes an exception to this general requirement that allows commodity broker-traders to measure their inventories at fair value less cost of sale with changes in fair value less cost to sell recognised in profit or loss. The standard justifies a different treatment for broker-trader inventories because those inventories are principally acquired with the purpose of selling in the near future and generating a profit from fluctuation in prices and trade margins, i.e. because those inventories generate cash flow patterns, similar to financial instruments that are actively traded, therefore similar accounting treatment should be allowed. 110 Copyright © FrancoAngeli N.B: Copia ad uso personale. È vietata la riproduzione (totale o parziale) dell’opera con qualsiasi mezzo effettuata e la sua messa a disposizione di terzi, sia in forma gratuita sia a pagamento.  Business Model Literature Overview That could also help de facto to eliminate optionality in the existing accounting standards, for example, the free choice between the cost model and the revaluation model in IAS 16 Property, Plant and Equipment for measurement after recognition, because the company would need to justify its selection of accounting policy on the basis of its business model. In my opinion, the Conceptual Framework should contain a very general, high-level generic definition/identification of the business model notion, based on cash flow generation, which is equivalent to value capture, expressed in accounting terms. However, since financial accounting is a bottom-up, transaction-based system41, a more detailed definition/identification would thus need to be provided at the individual accounting standard level in order to categorise the business world, i.e. to identify different types of activities/processes/transactions relevant to accounting purposes. Particular standard-by-standard definition/identification could, in my opinion, vary according to the objective, i.e. purpose of the standard, i.e. whether the business model notion would be used for the purpose of recognition, measurement, presentation and/or disclosures. Nevertheless, the business model concept adopted at the accounting standards level would need to be properly defined and explained in order to provide the necessary robust discriminating validity, which I believe is an essential condition for the increased role of the business model in the context of financial statements. Regarding suggestions for future research, I agree with Bukh (2003: 55, also in Beattie and Smith, 2013: 244) that more research would be welcome on how company management ‘perceive the company’s business model and communication on strategy’. Beattie and Smith (2013: 244) suggest that case studies are the best means for that purpose because they provide concrete examples of constructs such as the business model and/or strategy. Furthermore, in the accounting context, that would be highly welcome, especially in the fields of financial instruments and thus IFRS 9. According to IFRS 9, a financial asset shall be measured at amortised cost if both the following conditions are met: a) the asset is held within a business model whose objective is to hold assets in order to collect contractual cash flows, and b) the contractual terms of the financial asset give rise, on specified dates, to cash flows that are solely payments of principal and interest on the principal amount outstanding (IFR9, para 4.1.2). In my opinion, this In this context, it should also be mentioned the issue of distinguishing between the business model and management intent. For more, see Leisenring et al. (2012) and EFRAG (2013c). 41. Taken from Beattie and Smith (2013: 252). 111 Copyright © FrancoAngeli N.B: Copia ad uso personale. È vietata la riproduzione (totale o parziale) dell’opera con qualsiasi mezzo effettuata e la sua messa a disposizione di terzi, sia in forma gratuita sia a pagamento. Aleš Novak indicates that, in this context, the business model implies how the financial assets are managed. Nevertheless, the Basis for conclusion of IFRS 9 contains the following sentences: ʻThe Board concluded that sales or transfers of financial instruments before maturity would not be inconsistent with a business model with an objective of collecting contractual cash flows, as long as such transactions were consistent with that business model, rather than with a business model that has the objective of realising changes in fair valuesʼ (IFR9, BC4.21) and ʻThe Board noted that an entity’s business model does not relate to a choice (i.e., it is not a voluntary designation) but rather it is a matter of fact that can be observed [emphasis added] by the way an entity is managed and information is provided to its managementʼ (IFR9, BC4.20). It would be particularly helpful if some case-study evidence could be obtained for whether in banks the business model whose objective is to hold assets in order to collect contractual cash flows could be robustly identified and discriminated from other business models and at what level (e.g. company, business unit42, segment, risk management level). In my opinion, it would be particularly unfortunate if, in this context, the business model notion would only provide a new label for the trading book/banking book distinction, which has been subject to criticism in the time after the financial crisis43. It would also be very helpful to determine how many different business models exist and what bases could be used for their distinction. That would further help substantiate the debates that arose after November 2012 when IASB’s Exposure Draft Classification and Measurement: Limited Amendments to IFRS 9 was issued, which also contains the business model assessment and introduces the ‘fair value through other comprehensive income’ (FV-OCI) measurement category for financial assets44. 42. See Aspara et al. (2013) for distinguishing business models at the corporate and business unit levels. Their basic assumption is that any company possess multiple businesses (commonly called strategic business units), which can all have their own business models. 43. See, for example, Bank for International Settlements (2012). 44. For example, EFRAG (2013a) believes that the IASB’s Exposure Draft fails to identify clearly the business model underlying measurement at FV-OCI. 112 Copyright © FrancoAngeli N.B: Copia ad uso personale. 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È vietata la riproduzione (totale o parziale) dell’opera con qualsiasi mezzo effettuata e la sua messa a disposizione di terzi, sia in forma gratuita sia a pagamento.  Business Model Literature Overview Deloitte (2012), Governance in focus: describing your strategy and business model. [online] http://www.deloitte.com/assets/Dcom-UnitedKingdom/Local%20Assets /Documents/Services/Audit/Corporate%20Governance/uk-audit-goverance-in- focus-dec12.pdf. Demil B. and Lecocq X. (2010), Business model evolution: In search of dynamic consistency, Long Range Planning, 43(2-3), pp 227-246, doi: 10.1016/ j.lrp.2010.02.004. Dierickx I. and Cool K. (1989), Asset stock accumulation and sustainability of competitive advantage, Management Science, 35(12), pp. 1504-1511, doi: 10.1287%2Fmnsc.35.12.1504. Eckhardt J.T. (2013), Opportunities in business model research, Strategic Organization, 11(4), pp. 412-417, doi: 10.1177/1476127013511059. 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(2001), Place to Space: Migrating to eBusiness Models (Boston, MA: Harvard Business School Press). Winter S.G. and Szulanski G. (2001), Replication as strategy, Organization Science, 12(6), pp. 730-743, doi: 10.1287%2Forsc.12.6.730.10084. Yip G. (2004), Using strategy to change your business model, Business Strategy Review, 15(2), pp. 17-24, doi: 10.1111%2Fj.0955-6419.2004.00308.x. Zambon S. (1996), Accounting and business economics traditions: a missing European connection, European Accounting Review, 5(3), pp. 401-411, doi: 10.1080/09638189600000026. Zott C. and Amit R. (2007), Business model design and the performance of entrepreneurial firms, Organization Science, 18(2), pp. 181-199, doi: 10.1287% 2Forsc.1060.0232. Zott C. and Amit R. (2010), Business model design: an activity system perspective, Long Range Planning, 43(2-3), pp. 216-226, doi: 10.1016%2Fj.lrp.2009.07.004. Zott C. and Amit R. (2013), The business model: A theoretically anchored robust construct for strategic analysis, Strategic Organization, 11(4), pp. 4013-411, doi: 10.1177/1476127013510466. Zott C., Amit R. and Massa L. (2011), The business model: recent developments and future research, Journal of Management, 37(4), pp. 1019-1042, doi: 10.1177/0149206311406265. 120 Copyright © FrancoAngeli N.B: Copia ad uso personale. È vietata la riproduzione (totale o parziale) dell’opera con qualsiasi mezzo effettuata e la sua messa a disposizione di terzi, sia in forma gratuita sia a pagamento.  Business Model Literature Overview Appendix 1 Table 1 – Selected business model definitions Author(s) & Definition Year Timmers, 1998 The business model is ʻan architecture of the product, service and information flows, including a description of the various business actors and their roles; a description of the potential benefits for the various business actors; a description of the sources of revenuesʼ (p. 2). Venkatraman & The business model is ʻa coordinated plan to design strategy along the Henderson, 1998 customer interaction, asset configuration and knowledge leverage vectorsʼ (106 WoS (p. 35). citations) Afuah & Tucci, The business model is ʻa model designed to make money for their owners 2001 in the long termʼ (p. 40). Amit & Zott, 2001 The business model ʻdepicts the content, structure, and governance of (590 WoS transactions designed so as to create value through the exploitation of citations) business opportunitiesʼ (p. 511). Winter & ʻBusiness model is typically a complex set of interdependent routines that Szulanski, 2001 is discovered, adjusted, and fine-tuned by ʻdoingʼʼ (p. 733). (232 WoS citations) Chesbrough & The business model is ʻthe heuristic logic that connects technical potential Rosenbloom, with the realization of economic valueʼ (p. 529). 2002 (363 WoS citations) Magretta, 2002 Business models are ʻstories that explain how enterprises work. A good (190 WoS business model answers Peter Drucker’s age old questions: Who is the citations) customer? And what does the customer value? It also answers the fundamental questions every manager must ask: How do we make money in this business? What is the underlying economic logic that explains how we can deliver value to customers at an appropriate cost?ʼ (p. 4). Morris et al., 2005 A business model is a ʻconcise representation of how an interrelated set of (159 WoS decision variables in the areas of venture strategy, architecture, and citations) economics are addressed to create sustainable competitive advantage in defined marketsʼ (p. 727). Zott & Amit, 2007 Business model is considered as ʻthe structure, content, and governance of (93 WoS citations) transactions between the focal firm and its exchange partners, and represents a conceptualization of the pattern of transactional links between the firm and its exchange partnersʼ (p. 183). 121 Copyright © FrancoAngeli N.B: Copia ad uso personale. È vietata la riproduzione (totale o parziale) dell’opera con qualsiasi mezzo effettuata e la sua messa a disposizione di terzi, sia in forma gratuita sia a pagamento. Aleš Novak Zott & Amit, 2010 They conceptualize a firm’s business model as ʻthe system of independent (78 WoS citations) activities that transcends the focal firm and spans its boundaries. The activity system enables the firm, in concert with its partners, to create value and also to appropriate a share of that valueʼ (p. 216). Al-Debei and The business model is ʻan abstract representation of an organization, be it Avison, 2010 conceptual, textual, and/or graphical, of all core interrelated architectural, (13 WoS citations) co-operational, and financial arrangements designed and developed by an organization presently and in the future, as well all core products and/or services the organization offers, or will offer, based on these arrangements that areneeded to achieve its strategic goals and objectivesʼ (p. 372). Casadesus- A business model refers to ʻthe logic of the firm, the way it operates and Masanell & how it creates value for its stakeholders (p. 196). It is a reflection of the Ricart, 2010 firm realized strategyʼ (p. 204). (59 WoS citations) Demil & Lecocq, A business model concept refers to ʻthe description of the articulation 2010 between different BM components or ‘building blocks’ to produce a (49 WoS citations) proposition that can generate value for consumers and thus for the organization.ʼ (p. 227). ICAEW*, 2010 Firm’s business model is ʻviewed as a description of how it plans to make money, rather than as an economic model of the business. At a minimum, a firm’s business model would indicate: • what activities it undertakes within the firm and how these are organised; • what it buys and sells in market transactions, which markets it operates in (i.e., who it buys from and who it sells to), and the nature of its relationships with these parties.ʼ (p. 10). Teece, 2010 A business model ʻarticulates the logic and provides data and other (151 WoS evidence that demonstrates how a business creates and delivers value to citations) customers. It also outlines the architecture of revenues, costs, and profits associated with the business enterprise delivering that value. In essence, it embodies nothing less than the organizational and financial ‘architecture’ of a businessʼ (p. 173). Cavalcante et al., A business model is ʻan abstraction of the principles supporting the 2011 (53 WoS development of the core repeated standard processes necessary for a citations) company to perform its businessʼ (p. 1329). Arend, 2013 We define the business model as ʻa useful representation of how the (2 WoS citations) organization creates value through transforming and transferring matter, by drawing on available factors, fuelled by an identifiable economic engine. Gross social and economic value is embodied in matter that may be digital (e.g. information), analogue (e.g. tangible assets), private, public, or other categories of goods. Factors involved include resources, capabilities, partners (e.g. in interdependent networks), and structures (e.g. governance choices). The economic engine is monetary or operational aid, and sourced from volunteers, customers, partners, governments, or other stakeholdersʼ (p. 391). 122 Copyright © FrancoAngeli N.B: Copia ad uso personale. È vietata la riproduzione (totale o parziale) dell’opera con qualsiasi mezzo effettuata e la sua messa a disposizione di terzi, sia in forma gratuita sia a pagamento.  Business Model Literature Overview Baden-Fuller & ʻThe business model is not a complete description of what the firm does, Mangematin, 2013 but rather it should be a stripped-down characterization that captures the (1 WoS citation) essence of the cause–effect relationships between customers, the organization and money. Hence, a business model is a special example of a configurationʼ (p. 419). Benson-Rea et al., ʻBusiness models are key tools to provide a means of operationalizing 2013 theories about firm and industry level strategies, and to understand the (1 WoS citation) nature of value drivers and the role of marketing in these processesʼ (p. 717). EFRAG**, 2013 ʻOur assumed meaning of the term ‘business model’ focuses on the value creation process of an entity, i.e. how the entity generates cash flows. In case of non-financial institutions, it represents the end-to-end value creation process or processes of an entity within the business and geographical markets it operatesʼ (p. 3). IIRC***, 2013b The term business model is defined herein as ʻthe chosen system of inputs, business activities, outputs and outcomes that aims to create value over the short, medium and long term. The business model sits at the core of an organization and represents the fundamentals of its activities, operating within the overarching organizational architectureʼ (p. 14). * ICAEW = Institute of Chartered Accountants of England and Wales ** EFRAG = European Financial Reporting Advisory Group. *** IIRC = International Integrated Reporting Council. Source: Selection of definitions until 2009 based on Tikkannen et al. (2005:790-791) and Zott et al. (2011:1024). Note: Table 1 contains generic, i.e. non-industry specific business model definitions. As already noted, for the 2011, 44 papers were found, 51 were found for 2012 and for the 2013, 93 papers were found that were published in the journals indexed in the Web of Science (Wos) online database with the phrase ʻbusiness modelʼ or ʻbusiness modelsʼ in their titles. For the 2010, DaSilva and Trkman (2013) found 83 such papers. 123 Copyright © FrancoAngeli N.B: Copia ad uso personale. È vietata la riproduzione (totale o parziale) dell’opera con qualsiasi mezzo effettuata e la sua messa a disposizione di terzi, sia in forma gratuita sia a pagamento. Aleš Novak Appendix 2 Table 2 – Selected identified business model components/elements Author(s) & Components/elements Year Timmers, 1998 The following components/elements were identified: business activities, potential benefits, sources of revenue, marketing strategy, marketing mix. Hamel, 2000 Four main building blocks: customer logic, strategy, resources and network. Afuah & Tucci, Business model is composed by ten blocks: profit site, customer value, 2001 scope, price, revenue sources, connected activities, implementation, capabilities, sustainability and cost structure. Osterwalder, Four pillars: product, customer interface, infrastructure management, 2004 financial aspects; and nine building blocks: value proposition, target customer, distribution channel, relationship, value configuration, capability, partnership, cost structure and revenue model. Yip, 2004 ʻA business model can be broadly defined as comprising these (21 CrossRef elements: value proposition, nature of inputs, how to transform inputs citations) (including technology), nature of outputs, vertical scope, horizontal scope, geographic scope, nature of customers, how to organizeʼ (p. 20). Shafer et al., Their affinity diagram (p. 200) identified four major categories: 2005 strategic choices, creating value, capturing value, and the value network. Tikkanen et al., ʻKey components of the business model include the company’s network 2005 of relationships, operations embodied in the company’s business (23 CrossRef, 60 processes and resource base, and the finance and accounting concepts Scopus citations) of the companyʼ (p. 792). Johnson et al., Business models ʻconsist of four interlocking elements, that, taken 2008; together, create and deliver valueʼ (p. 52). These are: customer value (59 WoS proposition, profit formula, key resources, and key processes. citations) used also in Eyring et al., 2011 (4 WoS citations) ICAEW, 2010 ʻAt a minimum, a firm’s (business) model would indicate: • what activities it undertakes within the firm and how these are organised; • what it buys and sells in market transactions, which markets it operates in (i.e. who it buys from and who it sells to), and the nature of its relationships with these partiesʼ (p. 10). 124 Copyright © FrancoAngeli N.B: Copia ad uso personale. È vietata la riproduzione (totale o parziale) dell’opera con qualsiasi mezzo effettuata e la sua messa a disposizione di terzi, sia in forma gratuita sia a pagamento.  Business Model Literature Overview Baden-Fuller & Proposed business model typology ʻconsiders four elements: Mangematin, Identifying the customers (the number of separate customer groups); 2013 customer engagement (1 WoS citation) (or the customer proposition); monetization; and value chain and linkages (governance typically concerning the firm internally)ʼ (p. 420). IIRC, 2013b Chosen system of inputs, business activities, outputs and outcomes (see Figure 1 below). Source: Before 2009 mainly based on Hedman and Kalling (2003:58) and Onetti et al. (2012: 341-342). Figure 1 – A simplified business model framework from IIRC (2013a) Financial Business Model Financial Manufactured How the organization Manufactured creates and sustains value Human in short, medium and long Human term Intellectual Intellectual Natural Natural Social and relationship Social and relationship Inputs External Outputs/Outcomes* environment * A distinction is made between outputs and outcomes. Outputs are the key products or services that an organization produces, as well as the waste or other by-products that create or erode value. Outcomes are the internal and external consequences for the capitals (financial, manufactured, human, intellectual, natural and social and relationship) as a result of an organization’s business activities and outputs. Source: IIRC (2013a:1). The fundamental concepts of integrated reporting centre on: a) The various capitals (financial, manufactured, human, intellectual, natural and social and relationship) that an organization uses and affects. b) The organization’s business model. c) The creation of value over time. Note: in my opinion this business model conceptualisation nicely reflects the company’s boundary-spanning interactions. It is also worth mentioning Osterwalder and Pigneur’s (2013: 240) experience that it is vital to make business models more tangible by using visual representations. 125 Copyright © FrancoAngeli N.B: Copia ad uso personale. È vietata la riproduzione (totale o parziale) dell’opera con qualsiasi mezzo effettuata e la sua messa a disposizione di terzi, sia in forma gratuita sia a pagamento. Aleš Novak Appendix 3 Malone et al. (2006) Malone et al. (2006) offer an operational definition of a business model: how businesses appropriate the maximum value of the products or services they have created45. They have settled on value appropriation because they think this is the essence among many of the practitioner’s definitions. Their definition is basically a typological definition based on two fundamental dimensions of what a business does. One dimension is the type of assets involved, i.e. what products or services have been created for appropriation. They distinguish between four important asset types: physical, financial, intangible and human. The second dimension is type of rights being sold, i.e. how value is appropriated. The first, and most obvious, kind of right a business can sell is the right of ownership of an asset. Customers who buy the right of ownership of an asset have a continuing right to use the asset in (almost) any way they want, including selling, destroying, or disposing of it. In the property rights literature, the idea is that the seller of an asset transfers residual rights to the buyer. Furthermore, they distinguish between sales that involve significantly transformed assets from those that do not. This allows them to distinguish between firms which make what they sell (like manufacturers), and those that sell things other firms have made (like retailers). Based on that, they distinguish two very different kinds of asset rights models: Creator and Distributor. The second obvious kind of right a business can sell is the right to use an asset, such as a car or a hotel room. Customers buy the right to use the asset in certain ways for a certain period of time. However, the owner of the asset retains the ownership and can restrict the ways customers use the asset. This motivates the third type of asset rights model: Landlord46. Finally, there is one other less obvious, but important kind of right a business can sell. This is the right to be matched with potential buyers or sellers of particular items. A home seller, for instance, may sign an agent contract with a real estate broker. Thereafter, the broker works to find buyers, who in turn must not bypass the broker to seal a transaction directly with the home seller. Taken together, they 45. Zott and Amit (2013: 405) argue that very broad definitions of the term business model lack specificity and open the door to ambiguity, misunderstanding and overlap. In addition, some definitions of the business model that are all-encompassing (according to which the business model comprises almost everything related to the firm: resources, activities, products, value propositions, incentives, organizational policies, revenue streams, cost structures, etc.) make it very difficult to see what the business model is not and how it differs from the firm or the organization (or other levels of analysis) at large. 46. Using the word ʻlandlordʼ in a more general sense than its ordinary English meaning, they define this basic asset right model to include not only physical Landlords who provide temporary use of physical assets (like houses and airline seats), but also lenders who provide temporary use of financial assets (like money), and contractors and consultants who provide services produced by temporary use of human assets. This asset rights model highlights a deep similarity among superficially different kinds of business: all these businesses, in very different industries, sell the right to make a temporary use of their assets (Malone et al., 2006: 7). 126 Copyright © FrancoAngeli N.B: Copia ad uso personale. È vietata la riproduzione (totale o parziale) dell’opera con qualsiasi mezzo effettuata e la sua messa a disposizione di terzi, sia in forma gratuita sia a pagamento.  Business Model Literature Overview call this fourth type Broker. A Broker facilitates sales by matching potential buyers and sellers. Unlike a Distributor, a Broker does not take ownership of the product being sold. Instead, the Broker receives a fee (or commission) from the buyer, the seller, or both. All in all, they consider four types of asset rights: Creator, Distributor, Landlord and Broker. The combination of these two dimensions – what type of asset is involved and what asset rights are being sold – leads to sixteen business models, shown in Table 3 below. Each cell is illustrated with a common name for the model as well as an example firm. According to Malone et al., this typological definition fits important criteria, such as parsimony, being mutually exclusive and collectively exhaustive, and has a good fit with intuition. Table 3 – Sixteen business models by Malone et al. (2006) What type of asset is involved? Financial Physical Intangible Human What Creator Entrepreneur Manufacturer Inventor Not applicable rights are (Kleiner (GM) (Lucent Bell being Perkins) Labs) sold? Distributo Financial Wholesaler/ IP Trader Not applicable r Trader Retailer (NTL Inc.) (Merrill Lynch) (Wal*Mart) Landlord Financial Physical IP Landlord Contactor Landlord Landlord (Microsoft) (Accenture) (Citigroup) (Hertz) Broker Financial Physical IP Broker HR Broker Broker Broker (Valassis) (Adecco) (Charles (eBay) Schwab) Source: Lai et al. (2006: 28)47. Note: The two not applicable models are illegal in the USA and most places today, because they involve selling human beings. They are included here for logical completeness. Malone et al. selected a sample of firms, classified their business models, and then analysed the firms’ financial performance. They chose a set of publicly traded United States firms in COMPUSTAT-CRSP, from 1998 to 2002. They classified the firms’ business models using their revenue as a guide. They posited that many firms would have more than one business model, so they classified the firm’s business models separately for each revenue segment the firm reported. They established that some business models do, indeed, perform better than others, but on different measures of performance. 47. Please note that Lai et al. (2006) write about the same business models as Malone et al. (2006). In addition, they provide a ʻreal worldʼ example for each business model type. 127 Copyright © FrancoAngeli N.B: Copia ad uso personale. È vietata la riproduzione (totale o parziale) dell’opera con qualsiasi mezzo effettuata e la sua messa a disposizione di terzi, sia in forma gratuita sia a pagamento. Aleš Novak Andersson et al. (2010) Andersson et al. (2010) argue that business models are constituted within an econo-sphere.48 The econo-sphere provides a pool of information resource(s) about products/services, human capital, physical and organizational technologies, financial resources, regulatory conditions and institutional arrangements. A business model is thus described by the information elements that constitute it. The focal firm subtended within a specific business model draws upon similar information elements as other focal firms in the business model. Given this financial purpose, business models can usefully be located within an augmented financial organizing framework49. In summary, this can be employed to describe a spectrum of possibilities/combinations where a continuum is constructed out of two summary financial elements: cash extractive capacity and capital intensity. Andersson and Haslam50 note that focal firms within a business model will display variable financial performance in some cases migrating deliberately into what will be a ʻnewʼ business model, or because a focal firm’s financials degrade to such an extent that it becomes re-located outside of the financial matrix which defines its business model (see Figure 2 below). Figure 2 – Business model typology by Andersson and Haslam 48. ʻWhat’s the difference between the economy and the Econosphere? I’m pleased to respond that there is absolutely no difference between the economy and the Econosphere.ʼ (Thompson, 2010). http://www.smartplanet.com/blog/pure-genius/the-econosphere-how- the-economy-really-works/1407. 49. Described in Andersson et al. (2010). The sample used is the survivor group of firms listed in the S&P 500 from 1990 to 2008. 50. The following text and Figure 2 were provided by Professor Colin Haslam via e-mail correspondence. 128 Copyright © FrancoAngeli N.B: Copia ad uso personale. È vietata la riproduzione (totale o parziale) dell’opera con qualsiasi mezzo effettuata e la sua messa a disposizione di terzi, sia in forma gratuita sia a pagamento.  Business Model Literature Overview On the left hand-side of the table, we find business models that burn cash and deplete balance sheet value to develop new product/services. Towards the middle, we have business models delivering strong cash and balance sheet augmentation from productive activity (production and services that are consumed). Towards the extreme right, we have business models that rely on thin cash margin skim on volume transactions where holdings gains/losses from a continuous process of balance sheet manipulation and trade in financial assets become more of the norm. Business models emerge, mature and also degrade because the information elements within the econo-sphere, upon which the business model is constructed, variably interact in the same way as a product life cycle. As business models emerge and mature, the elements align and may also promote an expanded share of national GDP and/or wealth accumulation. However, information elements also appear as contradictory forces encouraging business models to degrade, posing a threat to financial expansion, stability and amplifying financial risk for focal firms within the business model. George and Bock (2011) A survey conducted by George and Bock (2011) utilized a survey instrument with open-ended questions prompting text responses as well as quantitative assessments of numerous firm characteristics in a standardized format. The survey asked two open-ended questions: ʻWhat is a business model?ʼ and ʻWhat is your company’s business model?ʼ The questions were purposefully kept simple and were placed at the start of the survey in order to obtain a ʻtabula rasaʼ response. Survey responses were affected by available writing space and the written directions of ʻexplain in 1 or 2 sentences.ʼ The survey was administered to 182 senior managers of Indian firms who attended executive education programs between winter 2008 and spring 2009. Firms ranged in size from 2 to more than 20,000 employees ranging from start-ups to more than 100 year-old organizations51. A secondary test sample was obtained by administering the survey to 13 managers from the UK firms who attended an unrelated executive education program in fall 2009 (George and Bock, 2011: 90). Managerial discourse demonstrated52 that a business model is a relevant construct despite the concern expressed by managers that they’d ʻnever tried to define it beforeʼ or ʻcould not explain it clearly.ʼ More than 90% of the survey participants attempted to answer the question ʻWhat is a business model?ʼ and also 51. Of the 182 surveys completed, 31 were eliminated from the sample because of various reasons, such as incomplete responses or difficulties in handwriting transcription (18) or firm specific responses (13). The remaining 151 surveys represented 130 unique organizations. The resulting data set thus included 151 responses, 2,417 total words, and 650 unique words. Roughly 60% (n = 389) of the words occurred only once in the sample, 95% (n = 615) of the words occurred 10 times or less (George and Bock 2011: 90). 52. Based on discourse analysis, also referred to as ʻcontent analysisʼ or ʻtextual analysisʼ. It is an analytical tool attributed to Foucault (1982) which distils information from text using quantitative techniques (Fairclough, 2003; cited in George and Bock, 2011: 90). 129 Copyright © FrancoAngeli N.B: Copia ad uso personale. È vietata la riproduzione (totale o parziale) dell’opera con qualsiasi mezzo effettuata e la sua messa a disposizione di terzi, sia in forma gratuita sia a pagamento.  Aleš Novak provided a response to the question ʻWhat is your firm’s business model?ʼ (George and Bock, 2011: 97). Practitioners believe that a business model represents a relevant concept, linked closely to the firm’s performance and survival, and especially relevant to the underlying opportunity that the firm exploits. Practitioners’ responses reveal that a business model is an organization-level phenomenon, an architecture or design that incorporates subsystems and processes to accomplish a specific purpose. It is not equivalent to that purpose nor is it the reason that the organization exists. It is not a process. A business model is not fully explained by the firm’s revenue model, though aspects overlap. Practitioners apply both resource-based and transactive elements to the business model. Finally, a business model does not subsume nor is it subsumed by corporate strategy (George and Bock, 2011: 97). 130 Copyright © FrancoAngeli N.B: Copia ad uso personale. È vietata la riproduzione (totale o parziale) dell’opera con qualsiasi mezzo effettuata e la sua messa a disposizione di terzi, sia in forma gratuita sia a pagamento. View publication stats