Summary for the Strategy & Business Models course readings of the Master Data Science and Entrepreneurship.
Includes summaries for the following papers:
* Zott, C. & Amit, R (2008) - The Fit between Product Market Strategy
and Business Model
* Hartmann, P., Zaki, M., Feldmann, N. and ...
1. Business Models & Revenue Models
1.1 Zott, C. & Amit, R (2008) - The Fit between Product Market Strategy
and Business Model
Contingency theory seeks to understand the behavior of a firm by analyzing separately its
constituent parts. There is no optimal strategy for all organizations, therefore the most
desirable choice of strategy variables alters according to contingency factors (aspects of
environment, organization structure, technology, and marketing choice). These factors
interact with strategy variables and determine firm performance.
The focus of organization design seems to have shifted from the administrative structure of a
firm to the structural organization of its exchanges with external stakeholders.
A firm’s product market strategy and its business model are distinct constructs that affect
firm performance. Novelty-centered business models coupled either with differentiation or
cost leadership strength enhance firm performance (measured as the market value of firm’s
equity). Furthermore, a novelty-centered business model together with early entry into a
market has a positive effect on performance.
The Contingency Relationship of Strategy and Structure
Product market strategy is viewed as the way in which a firm chooses to position itself
against competitors in its addressable market space. There are three main drivers that affect
customer demand: price, quality, and timing. A firm can leverage these drivers by making
two fundamental strategic decisions:
● What type of product market position approach to adopt (i.e. cost leadership and/or
product/service differentiation).
● When to enter the market.
The Business Model: a New Structural Concept
The business model is a structural template of how a focal firm transacts with customers,
partners, and vendors, that is, how it chooses to connect with factor and product markets to
create and capture value. It refers to the overall composition of these possibly interlinked
boundary-spanning (search beyond existing boundaries) transactions. Business models can
be characterized by their design themes which capture the common threads that orchestrate
and connect the focal firm's transactions with external parties. Design themes are not
mutually exclusive (several design themes may be present in any given business model).
Novelty-centered business models refer to new ways of conducting economic exchanges
among various participants, this can be achieved through:
● Connecting previously unconnected parties
● Linking transaction participants in new ways
● By designing new transaction mechanisms
1
, Efficiency-centered business models refer to the measures firms may take to achieve
transaction efficiency (reduce transaction costs for all participants), they do not refer to the
outcome (efficiency) itself.
A firm with a distinct business model that creates more value than that of its rivals holds a
potential advantage. All other things being equal, it has the possibility to capture more value
for its shareholders.
Product market strategy differs from the business model mainly through its focus on the
positioning of the firm in relation to its revivals, whereas the business model is a structural
construct that centers on the pattern of the firm’s economic exchanges with external parties
in its addressable factor and product markets.
▶ Corollary: Business models (as, for example, measured by design themes) are distinct from product market
strategies (as, for example, measured by generic strategies).
The Fit Between Product Market Strategy and Business Model
Two design elements (A and B) of business models and product market strategies fit well if
there are complementarities between them, that is, if the marginal benefit of A increases with
the level of B, and if the levels of A and B are adjusted optimally to achieve a local
performance optimum.
The total value appropriated (TVA) by a firm is the value appropriate in all types of
transactions that the business model enables.
Novelty-centered business model and TVA
A novelty-centered business model strengthens the focal firm’s bargaining power in relation
to other business model stakeholders. The higher the degree of business model novelty, the
higher the switching costs for the focal firm’s customers, suppliers, and partners as there
may not be readily available alternatives.
A stronger emphasis on differentiation will influence customers’ willingness to pay positively,
and therefore make it easier for the focal firm to charge higher prices to costumes. A firm
that focuses all its activities and transactions on innovation may become an even more
skillful innovator over time. A marginal increase in the degree of product market
2
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