vendredi 28 janvier 2011
The Confusing “Business Model” Construct
Nice thoughts from one of my former professors in the PhD coursework. Even though we have divergent views on some political issues, I still like his writings.
(Nicolai Foss |
The discourse of both practising managers and management scholars abounds with concepts and jargon that sound fine, and surely refer to something real and important, but are used in a hopelessly imprecise manner and have all sorts of different, often conflicting, meaning attached to them. Examples of yesteryear include “value creation,” “competitive advantage” and “value proposition” — “yesteryear”, because reasonable clarity has gradually been achieved with respect to their meaning.
Another example, where lack of clarity unfortunately persists, is that of “business models” — which refers to, for example, “bricks and clicks business models” (which is mainly about integrating online and offline presence), “collective business models” (which is mainly about pooling resources across firms), “cutting out the middleman” (which is, well, you guessed it), “franchising” (which is a particular contractual arrangement for handling distribution), “freemium” (offering free basic services and expensive premium services” etc., etc. (examples are from the wiki on the subject). So, business models are about internet distribution, the contractual form of distribution, resource sharing, cutting out middlemen, differentiation policies, etc. It is not clear what unites all this, except, perhaps, a basic concern with the consumer/customer side of value creation and appropriation (and even that doesn’t hold for all conceptions). Moreover, some argue that building a business model is subordinate to formulating a strategy, while others (e.g., Teece) argue that strategies are on a lower level than business models.
Obviously, attempts to reduce all this confusion are highly laudauble. Two recent such attempts deserve mention here. One is an excellent paper, “The Business Model: Theoretical Roots, Recent Developments, and Future Research,” by Christoph Zott, Raphael Amit and Lorenzo Massa. Among other things they argue that the business model is a meaningful unit of analysis, and should be understood as a firm-centric, yet boundary-spanning activity system supported by a logic of value creation and appropriation. The second attempt is a special issue of Long Range Planning on the subject, with contributions from such luminaries as David Teece, Raphael Amit, Rita McGrath, Muhammad Yunus, Yves Doz, Michael Tushman and many others. I have only read the Teece paper, but look forward to reading the rest. Teece (in “Business Models, Business Strategy, and Innovation”) begins by arguing the “concept of a business model lacks theoretical grounding in economics or in business studies,” goes on to offer his own definition, supplies several examples, discusses the conceptual differences between business models and business strategies and ends by linking the business model constructs to his earlier work on how the organization of the innovation process influences the appropriation of value from innovation. Like so many articles in LRP, this paper will be excellent for the classroom.
(Nicolai Foss |
The discourse of both practising managers and management scholars abounds with concepts and jargon that sound fine, and surely refer to something real and important, but are used in a hopelessly imprecise manner and have all sorts of different, often conflicting, meaning attached to them. Examples of yesteryear include “value creation,” “competitive advantage” and “value proposition” — “yesteryear”, because reasonable clarity has gradually been achieved with respect to their meaning.
Another example, where lack of clarity unfortunately persists, is that of “business models” — which refers to, for example, “bricks and clicks business models” (which is mainly about integrating online and offline presence), “collective business models” (which is mainly about pooling resources across firms), “cutting out the middleman” (which is, well, you guessed it), “franchising” (which is a particular contractual arrangement for handling distribution), “freemium” (offering free basic services and expensive premium services” etc., etc. (examples are from the wiki on the subject). So, business models are about internet distribution, the contractual form of distribution, resource sharing, cutting out middlemen, differentiation policies, etc. It is not clear what unites all this, except, perhaps, a basic concern with the consumer/customer side of value creation and appropriation (and even that doesn’t hold for all conceptions). Moreover, some argue that building a business model is subordinate to formulating a strategy, while others (e.g., Teece) argue that strategies are on a lower level than business models.
Obviously, attempts to reduce all this confusion are highly laudauble. Two recent such attempts deserve mention here. One is an excellent paper, “The Business Model: Theoretical Roots, Recent Developments, and Future Research,” by Christoph Zott, Raphael Amit and Lorenzo Massa. Among other things they argue that the business model is a meaningful unit of analysis, and should be understood as a firm-centric, yet boundary-spanning activity system supported by a logic of value creation and appropriation. The second attempt is a special issue of Long Range Planning on the subject, with contributions from such luminaries as David Teece, Raphael Amit, Rita McGrath, Muhammad Yunus, Yves Doz, Michael Tushman and many others. I have only read the Teece paper, but look forward to reading the rest. Teece (in “Business Models, Business Strategy, and Innovation”) begins by arguing the “concept of a business model lacks theoretical grounding in economics or in business studies,” goes on to offer his own definition, supplies several examples, discusses the conceptual differences between business models and business strategies and ends by linking the business model constructs to his earlier work on how the organization of the innovation process influences the appropriation of value from innovation. Like so many articles in LRP, this paper will be excellent for the classroom.
Informal Firms - Le secteur informel, Etude Interessante.
In developing countries, informal firms (those that are not registered with the government) account for about half of all economic activity. We consider three broad views of the role of such firms in economic development. According to the romantic view, these firms would become the engine of economic growth if not stopped by government regulation. According to the parasite view, informal firms, by avoiding taxes and regulations, unfairly compete with the more efficient formal firms and, by taking away their market share, undermine economic progress. According to the dual view, informal firms are highly inefficient, do not pose much threat to the formal firms, but also do not contribute to economic growth, which is driven by the efficient formal firms.Using data from World Bank firm level surveys, we find that informal firms are small and extremely unproductive, compared even to the small formal firms, and especially relative to the larger formal firms. Compared to the informal firms, formal ones are run by much better educated managers. As a consequence, they use more capital, have different customers, market their products, and use more external finance. Hardly any formal firms had ever operated informally. This evidence is inconsistent with the romantic and parasite views, but supports the dual view. In this "Walmart" theory of economic development, growth comes from the creation of the highly productive formal firms. Informal firms keep millions of people alive, but disappear over time. (Laporta and Shleifer, 2008) www.nber.org
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