Posts Tagged ‘failure’

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

Friday, July 23rd, 2010

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 They seemed to have not heard from Osterwalder before, they do not cite him.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 from 1997 to 2000 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.

[If you want to know something about the origins of business model thinking and my contribution to the topic read chapter two of my Ph.D. from summer 2001 at Google Books. I translated part of that chapter for a workshop Prof. Yves Pigneur and Alexander Osterwalder (a German speaker) organized in summer 2002, when they started their research on business models. (added Jan. 5th, 2017)]

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.

Karstadt: Death of a legend (business model)

Friday, June 12th, 2009

The German retail and travel conglomerate Arcandor AG formerly known as KarstadtQuelle AG filed on June 9th 2009 for insolvency. It claims that the financial crisis is the reason. It had asked the German government in May for state aid but the government refused. But is the financial crisis the real reason for the dire situation? I do not think so. The business models of its retail activities (Karstadt and Quelle) are just dead. The management did not innovate on its business model and that is the reason for failure.

Most writers and bloggers take the music industry as a prime example for an industry that failed to innovate its core business model. But there are many other industries where failure to innovate its core business lead to their decline. A sad prime example of missed innovation is Karstadt, a large department store chain in Germany and Quelle, a German mail order powerhouse.

The Karstadt case is typical for a corporation that business model is dated. Instead of rejuvenating its business model or finding new business ideas the old business model is defended and by consolidating the industry even reinforced.

The next lesson is that all activities at corporate level like selling non-core assets do not solve your problems of an ailing business model. The solution must be found on the business level not on a corporate level. If you cannot fix it, than sell or close it early. Success in business is not defined on corporate level but by its business model!

In May 2009, the CEO of Arcandor, Mr. Eich asked for “a state guarantee to temporarily bridge the gap of the currently non-functioning financial markets.” [update: link no longer available] Arcandor did not want to have any handouts nor a state participation in the company. It promised that it will repay the loan “to the last penny.” It claimed that the credit crunch is the main reason for its financial stress.

But is this really true?

The only constant in retailing is business model innovation

Retail markets in general are dynamic markets where new business models destroy old ones and create new fortunes. Zara, Aldi, H&M, IKEA or Carefour all reinvented their retail category and made their owners rich. But since the whole market did not grow as fast as the newcomers, the incumbents suffered losses in market shares and sales. (more…)