Business Models, Long Range Planning, Baden-Fuller and latency

July 23rd, 2010 by Patrick Stähler

Long Range Planning, a prestigious academic journal on strategy, discovered the topic of Business Models and Strategy. It dedicated a whole Special Issue to Business Models. I have mixed feelings regarding the Special Issue. On the one hand it is great that academia takes up such an important topic; on the other hand, it is shows again that academia is a self-referential system which has a strong bias to not-invented-here syndrome since most authors do not reference earlier works that were published outside their closed community of Strategy professors. Sad. Many of the ideas I have read at other places before.

Already in May, I have heard that Long Range Planning had published a Special Issue on Business Models. Today, I got hands on it thanks to Andres Sundelin from The Business Model DataBase.

You can access the article via http://www.sciencedirect.com/science/journal/00246301 as a guest. Very interesting topics like “Business Models as Models” by C. Baden-Fuller and M. Morgan or “Business Models, Business Strategy and Innovation” by D.J. Teece are included, so the Special Issue is definitely worthwhile reading.  That is the happy part of the Special Issue.

C. Baden-Fuller, M. Morgan, Henry Chesbrough and business model

What makes me sad about the issue is the closed and self-referential world of the academia in Strategy Research. The topic was broadly covered in early 2000 at least in two Ph.D. theses, I know. However, so far I have found only two citation to Alex Osterwalder’s work in the article “Business Model Innovation: Opportunities and Barriers” by Henry Chesbrough and in the article by Wirtz & al.. Thanks Henry, that you take your open innovation approach also your research. Thanks Bernd.

I hoped to find some background on Business Models in Baden-Fullers and Morgan’s article. Negative. They seemed to have not heard from Osterwalder before, they do not cite him. They are not mentioning ideas of Gary Hamel on business concept innovation from 2000, a concept very close to business model innovation. They cite only their own kind. They still live in their closed community where it is extremely important from whom the idea is coming, even when the original idea is 10 years old and not even cited. That is what I call a long latency!

Origin of business model thinking

The origin in business model thinking dates back to the information management researchers that were building information systems. To do so, they needed models of the reality. They talked about data models, process models, enterprise models and later about business models. When the first Internet entrepreneurs were talking about their strategy, they talked naturally about their business model since that was a language familiar to them. From there, the term transcended to Strategy. E.g., I wrote my Ph.D. thesis exactly at this crossing of information systems and strategy. My supervisors were Prof. Beat Schmid, background in computer science and Prof. Georg von Krogh, a strong researcher in Strategy. Quite a balancing act.

Business model is just a model of a business

When I was writing my Ph.D. thesis, Prof. von Grogh told me that I needed a unit of analysis for my research. I know the traditional culprits like industry or firm but they did not fit into what we saw in the New Economy. Industry boarders become meaningless; competition came from competitors you had not even heard before.

Therefore, my answer to Georg was very simple: I used the business model as my unit of analysis. He said fine. Just define it. Well, easy said difficult done. I was positive at the beginning that there must be something since we all got Masters of Business Administration so Business should be defined. Nope. Not really.

And again, it was Peter Drucker who had worked on this. He asked the simple questions “What business are you in?” and “What is the purpose of a business”.  And this is exactly what a business model should answer when used for strategizing.

Chesbrough and Rosenbloom (2002) explain the antecedents to the business model concept in their article “The Role of the Business Model in Capturing Value from Innovation: Evidence from Xerox Corporation’s Technology Spinoff Companies”. It is interesting that it was not the academic world that saw the necessity to have the business in focus for strategy but the real world. The business is where the competition is. Welcome to the real world.

9 Responses to “Business Models, Long Range Planning, Baden-Fuller and latency”

  1. Kay Plantes Says:

    Terrific blog posting Patrick. I joined a very highly-ranked department as an assistant professor after completing my Ph.D. at MIT, thinking I wanted an academic life. When I saw how narrow and incestuous the research world was up close, I left and have had no regrets since. Another basis for business model thinking is the positioning work for products, emerging from marketing when marketing was far more strategic and not the tactical sales-assistance process it has become today. While this is not formalized in literature as far as I know, the pathway from strategic marketing to business model strategy is straightforward.

  2. Patrick Stähler Says:

    Thanks for your comment on strategic marketing. The problem I see today is that we have by far a too high degree of division of labor among departments. You are either a strategy guy who loves analysis of data or you are the marketing guy who knows everything about all the little marketing secrets. The reason I came up with business models was to bridge the gap between all the departments; marketing, strategy, operations, IT, HR….. The business model is just an easy way to communicate the overall purpose of your business to your management, to your employees, to your customers, to your suppliers and to the public. The business model helps coordinate all the different activities in your firm and to focus your activities. A budget airline is a budget airline and will not think about setting up a lounge for frequent travelers since I would be against its genes of being a budget airlines. Other airlines have to make deliberate decisions in order to say yes or no to a lounge.

    Hope your project on the software on Business Model Innovation goes ahead well. Let’s talk about separately. Just contact me please via Skype.

  3. Erwin Fielt Says:

    Hi Patrick, I was also looking forward to this issue and although I enjoyed some of the papers had the same feeling of disappointment.

    Also in my work as IS academic at a technical faculty I have sought the collaboration of the strategy/entrepreneurship/innovation people at the business faculty. But find it hard to get their interest.

  4. Patrick Stähler Says:

    Hi Erwin, thanks for your comment. It is good that you feel the same way. I thought at the beginning that my disappointment was due to déformation professionnelle. It is the classic Not-Invented-Here (NIH) syndrome. But interestingly, I see just the opposite as well. At my home university everything is good what comes from the US, they just love to follow what is a hype. For them, it is hard to see that somethings were even invented at their university. They are too close to see the innovativeness and freshness of the idea. It is too close; they are too close. It is funny to observe this human behavior.

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  6. Ashlyn Laxen Says:

    Limitations reside only in our minds. Yet if we utilize our creativeness, our possibilities become endless

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  8. Line Hvilaom Says:

    I am writing my master thesis and finding it really challenging to create a “valid” research, because of the self-referential. I am trying to interpret how a business model is coupled, and not many researchers touch this topic, and they do neither take their own standing point, instead they do refer to each other and that makes it very challenging.

  9. Patrick Says:

    Hi Line

    As Teece states in his paper “Business Models, Business Strategy and Innovation” on page 175: “The concept of a business model lacks theoretical grounding in economics or in business studies.”

    However, he forgot to mention that the concept has foundations outside the little world of business strategy. The concept has foundations but not in business but information science where IT guys used the (data) models to build enterprise IT. From there the data models where used more and more in strategy to describe what a business and how it creates value.

    Academia from business theory and economics should wonder if they use the right unit of analysis. Traditional, they use the industry or the firm, but in my humble opinion they miss the point and have the wrong unit of analysis. That is a pretty disaster since with wrong unit you get useless answers at best. At some universities, they still talked about convergence of industries when they look at the web. But they miss is, that new business models emerge and old business models die. They is no convergence.

    The concept of industry is extremely dated and does not explain anything anymore. The concept how you create value is the core for looking at chances. An that is exactly what the business model describes.

    I was one of the first to research the background of the term and defined than a definition what a business model is. It is important to notice, that a model is never right or wrong, but just useful or not.

    Here you find the text of on the origin of the term business model. http://books.google.ch/books?id=mgO-E6l0DScC&lpg=PR4&ots=Dc2KsFKS0V&dq=patrick%20st%C3%A4hler&hl=de&pg=PA38#v=onepage&q=patrick%20st%C3%A4hler&f=false . Unfortunately, it is in German but you can use Google translate to understand the basics.

    When Alex O. was a young Ph.D. student, I presented part of my finished thesis at a workshop, he organized. Here is an abstract in English on the issue of “unit of analysis for strategizing”. http://www.scribd.com/doc/34770740/Business-Models-as-a-unit-of-Analysis-for-Strategizing .

    Good look with your thesis.

    Patrick

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