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Three Big Points

How to Identify New Business Models

Systematically exploring alternative approaches to value creation can allow companies to find new opportunities for growth.

Innovation Strategy
Business Models

Image courtesy of Kennametal.

Organizations traditionally pursue growth via one or more of three broad paths:

They invest heavily in product development so they can produce new and better offerings.
They develop deep consumer insights in order to offer new and better ways to satisfy customers’ needs.
They concentrate on strategy formulation to grow by acquisition or by moving into new or adjacent markets.

Each of these paths usually involves devoting considerable time and resources to developing a corresponding organizational competency. For example, to build product capability, companies typically invest in in-house research and development departments and/or technology-sourcing expertise. Establishing customer insight capability often requires creating in-house market research units and implementing robust feedback links between the sales force and the developers of product or service lines. And creating a strategy capability generally involves setting up dedicated corporate strategy units and merger and acquisition groups or engaging consultants.

Recently, a fourth path has emerged, one that we might label “business model experimentation”: the pursuit of growth through the methodical examination of alternative business models. At its heart, business model experimentation is a means to explore alternative value creation approaches quickly, inexpensively and, to the extent possible, through “thought experiments.” The process sheds new light on potential competitors and lowers the risk of taking the wrong or a lesser-potential road — all for an initial investment that is typically quite small relative to what can be gained.

Research conducted in the last 10 years has established a link between business model innovation and value creation. 1 To our minds, this research points to the need for organizations to build a competency in business model innovation — that is, in the process of exploring possible business model alternatives that can be pursued to commercialize any given idea prior to going out into the market and expending resources. However, few organizations have successfully conceived and executed a business model different from their current one, fewer still have done it more than once and only a handful have put in place a methodical approach to business model innovation.

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Our goal is to demonstrate how an organization’s ability to methodically and routinely examine multiple business model alternatives — in other words, by treating the business model as a variable and not a constant — can serve as a critical enabler of growth, allowing executives to anticipate, adjust to and capitalize on new technologies or customer insights. The approach we describe is based on research over the last two decades into mechanisms of reliable, methodical business model generation as well as our own work helping companies 2 build the capability to create repeatable growth through business model experimentation.

What Is a Business Model?

At a conceptual level, a business model includes all aspects of a company’s approach to developing a profitable offering and delivering it to its target customers. A review of the relevant literature reveals that more than 40 different components — such as target customer, type of offering and pricing approach — have been included in various definitions of business models put forward over the past few decades, with much of the variation stemming from differences between the industries and circumstances in which a definition has been applied. 3

For our purposes, we will explore the concept of a business model by addressing several core questions that the majority of business model researchers deal within their models:

Who is the target customer?
What need is met for the customer?
What offering will we provide to address that need?
How does the customer gain access to that offering?
What role will our business play in providing the offering?
How will our business earn a profit?

In any working business model, the answers to these questions are fixed. But what if they weren’t? What if you considered each of them as a variable? What new opportunities could you capture that you can’t address with your current business model? The answers to these questions form the essence of business model experimentation.

Starting the Process

The first step in the business model exploration process is to create a template to examine possible alternative answers to the questions above. (See “A Business Model Development Template.”) The questions that help to shape a business model represent a series of decisions, each of which has a set of possible outcomes. Our template lays out various possible outcomes within the business model structure. Selecting one possibility from each category and then linking them together forms one potential new way to proceed. And, of course, selecting different combinations creates other possible outcomes.

To see how this works, consider how an airline might use the template to generate alternative business models. Currently, airlines serve a range of customers with the same basic model. For example, regardless of whether the customer is going on vacation with her family, traveling on business or responding to an emergency, airlines use the standard pay-per-seat model with which we are all familiar. Minor levels of customization exist — for example, larger seats and priority boarding for those who pay for them — but the core model is the same for all.

To explore business model innovation, an airline could start by picking a specific customer group and then beginning to explore potential options other than its current model. Answers to the question “How does the customer gain access to the offering?” (which is essentially the same as asking “How will we sell it?”) could include “Through travel agents” or “Through online websites” or “Through self-service kiosks” or “As part of partnerships.” As for where on the value chain the airline might operate, it could be the service provider, but it might also be a wholesaler selling off excess capacity to reduce unprofitable flights. Various profit models would likely start with the traditional pay-per-seat but might expand to include subscription models. The offering itself might be a premium seat, a low-cost seat or maybe even fractional ownership of a plane or chartered use of an aircraft. We experimented with “What we sell” for an airline to show how changing just one variable can result in a substantially different business. (See “Generating New Business Models by Changing One Variable.”)

Working out what elements should be in a business model — and then examining different combinations of them — can be a rapid and robust way to explore the possibilities of business model innovation. This process has the potential, for instance, to uncover combinations that are common in other industries but not in your own. In fact, deliberately applying analogies from other industries (for example, what if a company became the NetJets of agricultural equipment or the Dell of automobiles?) can be highly fruitful. It may also highlight links that create a “systemic” level of competitive advantage in the business concept — much as Apple did with the agreements it made with record labels to distribute songs through its iTunes online music site. Alternatively, the business model innovation process can uncover opportunities to more comprehensively fulfill a customer need than any current competitors do.

A quick run-through of simple combinations of high-level strategic questions can produce a wide range of potential business models. But each of the questions could be examined in more detail in a systematic way to yield deeper insight into some specific aspect of the business. For example, rather than brainstorming various alternatives for the “What we sell” category, a company could break the category down into its constituent parts and ask a series of additional questions such as:

Should we sell a product or a service?
Should it be standard or customizable?
Will its benefits be tangible or intangible?
Will we sell a generic or branded offering?
Should it be a durable or a consumable?

We have often found it useful to visualize such choices as switches, or levers, which can be flipped one way or the other. (See “Exploring Offering Options in More Depth.”) You could engage in a similar exercise to systematically explore potential variations in the way a customer might gain access to an offering or the way a customer might pay for it.

Narrowing the Choices

Despite what one might think, these choices are not infinite. In working through possible combinations of variables, it becomes clear that some are inherently interrelated. For example, if the offering is a durable good like a car, it is unlikely that the consumer will need to purchase new ones frequently. Such realizations dramatically reduce the number of options that must be explored.

What’s more, there are likely only a handful of ways that any of these questions can be practically addressed while remaining consistent with the mission of the organization and its “goals and bounds” 4 — that is, what the organization is willing, and not willing, to do. Some answers form a more natural path to making the business more efficient or better able to deliver the existing value proposition. Some will lead to models that are more feasible to implement than others, given the company’s existing competencies and its ability to develop new ones.

In fact, it is possible to use this approach to deliberately align the exploration of alternative business models with wider corporate goals by “locking in” one or more variables as you go about your experimentation. To see how this might work, let’s take a look at two cases in more depth. In the first, a tool manufacturer explores opportunities to enter new lines of business spurred by market trends; in the second, a maker of petroleum additives seeks to identify new ways to employ its core competencies.

Exploring New Customer Needs

Kennametal is a tool manufacturer based in Latrobe, Pennsylvania. Faced with an evolving manufacturing environment, a changing customer base and increasing global competition, Kennametal embarked on a business model experimentation initiative to diversify its revenue stream by identifying two to three new businesses in adjacent markets that would leverage core assets. A small team kicked off the initiative with a research effort focused on developing a more comprehensive understanding of potential customers’ frustrations, desires and challenges, in order to populate both the target customer and possible needs categories of the business model template. The research involved a combination of qualitative, quantitative and observational activities. 5

Since the goal was to create diversified revenue streams, Kennametal chose to prioritize needs based on the classic measures of their profit potential: importance to the customer, the customer’s level of dissatisfaction with the offerings currently on the market and the degree to which the need had not already been targeted by other internal efforts. The company then identified three high-potential combinations. For example, one was small “job shops” that had unmet training needs. The next step was to focus on developing the offering and determine how the company would deliver it.

For each possibility, the team methodically reviewed a list of levers for the remaining business model components — for example, “What we sell” and “How we profit” — and articulated multiple options for each lever. By examining more than 30 different levers in multiple combinations, they systematically generated an expansive list of possible business model options. Conceptualizing the different components of a business model as levers forced the team to consider new combinations they likely would have otherwise overlooked. For example, Kennametal has traditionally been a product-centered company that provides service as part of product sales. However, by looking at its service capabilities and examining the options for some “How we profit” levers, the company was able to consider a number of interesting fee-for-service business models. In doing so, Kennametal was essentially exploring ways to monetize the latent wealth of knowledge contained in the organization’s experience, people and knowledge-management systems.

With more than 30 levers, there were literally thousands of possible permutations and, therefore, the last step in the process was to identify the most attractive ones. The team focused on the possibilities that would generate the greatest customer satisfaction, would be the hardest for competitors to copy and were the most feasible to pilot. This process ensured not only that a wide range of options were considered but that the opportunities selected were well matched to customers’ needs, were competitively robust and leveraged existing resources appropriately.

The initiative required a minimal amount of time from a small, multifunctional team over an eight-week period — truly a low-risk way to home in on new growth options. In this way, Kennametal used the business model innovation process to move beyond incremental improvements in its businesses and generate three new opportunities to pursue in adjacent markets. In particular, two of these initiatives formed the foundation of new service-based offerings for Kennametal.

Using Core Competencies to Create New Businesses at Infineum

Infineum, an enterprise based in Oxfordshire, United Kingdom, with about 1,600 employees that conducts business in more than 70 countries, is another organization that has used the business model experimentation process. Infineum is one of the leading formulators, manufacturers and marketers of petroleum additives for the fuel and lubricant industry, and its customers are oil and fuel marketers. Infineum’s goal in the business model experimentation process was to leverage its product technology and know-how and create a list of profitable new opportunities that fit with its core competencies.

Since Infineum wished to hold to a strong interpersonal sales model in any initiative it pursued, we locked down the “How we sell” switch and did not consider alternative sales methods. In addition, the company’s goals and boundaries were built into the process by dividing entries under each category into three groups: “desirable,” “discussable” and “unthinkable.” (See “Incorporating Goals and Boundaries into Business Model Experimentation.”)

Given those requirements, within each category each option was considered according to its overall merits. Infineum identified a number of new opportunities, two of which we will now describe in more detail. Both went from inception to commercialization within 18 months, a time frame that is unusual in an industry as asset-intensive as petrochemicals.

Rethinking what we sell. The first example involves additives for the lubrication of high-precision instruments like cameras and robotics. Identifying a commercialization opportunity for this market presented two special challenges to Infineum’s existing business model. First, the amount of lubricant required per instrument is extremely small, so selling the product by the ton, as Infineum usually did, was not appropriate. Second, Infineum was working closely with one particular original equipment manufacturer, which wanted to treat the offerings as a trade secret, whereas Infineum would have normally sought patent protection for its intellectual property.

To address these challenges, a new business model was devised having two key new elements in the “What we sell” and “How we profit” categories. The first element was to charge a regular fee (typically, twice yearly) for work resulting in meeting R&D targets. This fee was charged on the basis of value to the OEM in meeting technical challenges, rather than bearing any relationship to the cost of the R&D, and as such can be considered as the direct monetization of the value of the R&D work. The second element involved licensing the necessary know-how to the OEM and charging royalties linked to the OEM’s use of that know-how, based on the OEM’s unit sales. Revenue from these elements, together with the sales price of additives sold to the OEM, created three distinct income streams, which led to a viable business model for Infineum that was also acceptable to the OEM.

Changing places. The second example shows what can happen when you look at different roles your company might play in the industry value chain. Infineum normally sold diesel and heavy-fuel-oil additives to refineries, with a value proposition based on a combination of high levels of technical performance, lowering costs and a responsive supply chain to deal with fuel-specific requirements. In the new business opportunity, additives are mixed into the fuel after it has left the refinery, typically when it is on board a ship in the port of delivery. Here, the main emphasis is on high levels of responsiveness and very short lead times to minimize the turnaround time of vessels in port.

In this business model, Infineum was operating further along the supply chain than usual, with a very different value proposition. In this case, in order to gain access to the distribution channel, Infineum partnered with a transportation service provider familiar with operating further along the supply chain in this specific market. By holding inventory of product close to the partner’s supply points, Infineum was able to meet the challenge of very short lead times.

Neither of these opportunities could have been captured and commercialized within Infineum’s normal business models. They involved the development of not only new value propositions but new ways to turn a profit and new ways to position the company within the industry value chain. So beyond improving business results by opening new avenues to revenue, these initiatives stretched the organization’s ability to think beyond its traditional competencies.

The Bottom Line

By engaging in business model experimentation with a small, focused team, companies can accomplish three important goals. First, they can understand the implications of different business models and make clearer, better informed decisions about where and how they want to compete. Second, they can identify the business models that will create the most value for customers and themselves and appropriately leverage their existing resources. And third, they can use business model innovation to extract the maximum potential from other growth-focused activities — their technical R&D, customer insight and strategic development efforts. Given the high potential of business model innovation and how few companies have mastered it, we see business model experimentation as a potent source of competitive advantage.

About the Authors

Joseph V. Sinfield is an associate professor of civil engineering at Purdue University in West Lafayette, Indiana, and a senior partner at the innovation and strategy consulting firm Innosight. Edward Calder, a principal at Innosight, is based in the firm’s Lexington, Massachusetts, headquarters. Bernard McCon-nell is vice president of WIDIA Products Group at Kennametal, based in Latrobe, Pennsylvania. Steve Colson is a company coach at Open Water Development Ltd. and a former general manager of growth initiatives at petroleum-additive maker Infineum in the United Kingdom.

1. See T.W. Malone, P. Weill, R.K. Lai, V.T. D’Ursio, G. Herman, T.G. Apel and S.L. Woerner, “Do Some Business Models Perform Better Than Others? “Working paper 4615-06, MIT Sloan School of Management, (Cambridge, Massachusetts, 2006) May 16; S.M. Shafer, H.J. Smith and J.C. Linder, “The Power of Business Models,” Business Horizons 48, no. 3, (2005): 199-207; E. Giesen, S.J. Berman, R. Bell and A. Blitz, “Three Ways to Successfully Innovate Your Business Model,” Strategy & Leadership 35, no. 6 (2007): 27-33; and M.W. Johnson, C.M. Christensen and H. Kagermann, “Reinventing Your Business Model,” Harvard Business Review, 86, no. 12 December 2008: 51-59. In a study of 1,000 of the largest U.S. firms, for example, Malone et al. called attention to the link and mapped out a comprehensive classification system that can be employed both to categorize and to develop business models. Shafer et al. described the benefits General Motors gained by employing business model innovation in the development of OnStar, and contrasted this success story with the narrow and less innovative approach employed to define the business model for eToys in the late 1990s. Giesen et al. examined 35 financially successful enterprises and outlined three distinct paths to business model innovation — industry, revenue and enterprise model innovation — that were at the core of their success. Further, Johnson et al. explored the stories of P&G, Tata, Hilti and Dow Corning to emphasize the financial and long-term competitive differentiation benefits that companies can achieve through business model innovation.

2. Johnson et al., “Reinventing Your Business Model.”

3. Shafer et al., “The Power of Business Models”; and M. Morris, M. Schindehutte and J. Allen, “The Entrepreneur’s Business Model: Toward a Unified Perspective,” Journal of Business Research 58, no. 6 (June 2005): 726-735.

4. J.V. Sinfield and S.D. Anthony, “Constraining Innovation: How Developing and Continually Refining Your Organization’s Goals and Bounds Can Help Guide Growth,” Strategy & Innovation 4, no. 6 (November-December 2006): 1, 6-9.

5. For more on conducting research into discovering such needs see, for example, C.M. Christensen and M.E. Raynor, “The Innovator’s Solution: Creating and Sustaining Successful Growth” (Cambridge, Massachusetts: Harvard Business Press, 2003); and S.D. Anthony and J.V. Sinfield, “Product for Hire: Master the Innovation Life Cycle With a Jobs-to-be-done Perspective of Markets,” Marketing Management 16, no. 2 (March-April, 2007): 18-24.

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What Is a Business Model?

Andrea Ovans

A history, from Drucker to Christensen.

A look through HBR’s archives shows that business thinkers use the concept of a “business model” in many different ways, potentially skewing the definition. Many people believe Peter Drucker defined the term in a 1994 article as “assumptions about what a company gets paid for,” but that article never mentions the term business model. Instead, Drucker’s theory of the business was a set of assumptions about what a business will and won’t do, closer to Michael Porter’s definition of strategy. Businesses make assumptions about who their customers and competitors are, as well as about technology and their own strengths and weaknesses. Joan Magretta carries the idea of assumptions into her focus on business modeling, which encompasses the activities associated with both making and selling something. Alex Osterwalder also builds on Drucker’s concept of assumptions in his “business model canvas,” a way of organizing assumptions so that you can compare business models. Introducing a better business model into an existing market is the definition of a disruptive innovation, as written about by Clay Christensen. Rita McGrath offers that your business model is failing when innovations yield smaller and smaller improvements. You can innovate a new model by altering the mix of products and services, postponing decisions, changing the people who make the decisions, or changing incentives in the value chain. Finally, Mark Johnson provides a list of 19 types of business models and the organizations that use them.

In The New, New Thing , Michael Lewis refers to the phrase business model as “a term of art.” And like art itself, it’s one of those things many people feel they can recognize when they see it (especially a particularly clever or terrible one) but can’t quite define.

AO Andrea Ovans is a former senior editor at Harvard Business Review.

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A business journal from the Wharton School of the University of Pennsylvania

The Latest Innovation: Redesigning the Business Model

November 18, 2014 • 14 min read.

Innovation in the business model – not just products – can drive enormous value, says Wharton management professor Raffi Amit.

Innovation has become a buzzword in business today, as new-product sales advantages so often flow from new designs or features. Think mobile phones, tablets, or even autos. But apart from product or service leaps, can innovation in the way a company conducts business give it a leg up? Research from Wharton management professor Raffi Amit and co-author Christoph Zott, a professor at IESE Business School in Barcelona, Spain, suggests that it can. In this Knowledge at Wharton interview, Amit covers the highlights of a research paper titled, “ Business Model Innovation: Creating Value in Times of Change .” The authors note: “Business model innovation … relies on recombining the existing resources of a firm and its partners, and it does not require significant investments in R&D.”

An edited transcript of the conversation appears below.

The importance of business-model design:

Raffi Amit: My colleague, Chris Zott, and I started a research program that addresses the broad question of how firms do business, which is the business model. A business model is a system of activities that are interdependent and that create value for the stakeholders of the firm. For example, in the old days, Apple designed the hardware, either produced or assembled some of the hardware, and then sold it. The value equation was to the sale of hardware.

Enter the iPod, which was a profound change in Apple’s business model, because the company realized it can create value for stakeholders not just by selling a gadget which is nicely designed, but also through the use of the gadget. So, Apple, in introducing the iPod, profoundly changed its business model by having a relationship with the music industry, the owners of the intellectual property to the various songs, and convincing those studios to sell by the song, not by the CD. Then through an electronic store, iTunes, [Apple] enabled people to download selected music. Each time a song was downloaded, Apple got a share of the proceeds, and therefore … it created value for the customer, for Apple’s shareholders and obviously for its employees.

“Innovation is not limited to the innovation of product [but also includes] innovation of the very way a company engages in business.”

The business model is a description of how the firm does business, and it is a system of activity. When Apple introduced the iPod, new activities were added, and the value that was created by this modified business model was enhanced because there were new stakeholders. Note that the stakeholders span both firm and industry boundaries. Who would think a computer company would be in the music business? And suddenly Apple was literally in the music business.

Over the years, Chris Zott, who is now at IESE Business School in Barcelona, Spain, and I have addressed a number of issues that relate to the business model. For example, what are the elements of a business model? What are activities that decide the content? What is the structure? How are those activities combined to create the system and, as importantly, the governance of the business model?

Who carries out each activity? We ask the questions, “How does the business model create value? What are the fundamental value drivers in the business model?” That’s where we created the so-called NICE business model, which stands for: Novelty, Lock-in, Complementaries. These are the fundamental value drivers. We asked managers to ask themselves, “Is our business model NICE?”

There’s another aspect, and that’s the process by which companies go through the business model’s design. Much of the work that’s been done so far focused on the content of what a business model is, or how the business model creates value and so on. But very little work has been done on how organizations design the business model. How do they modify it? And this applies to early-stage organizations — new startups — and to established organizations.

Once you think about what do managers do — obviously they have to lead their organizations and develop the strategies — how are they going to compete? The business model answers a different question. How are we going to do business? So, that’s the essence of our research program.

Key conclusions:

Our research on the process of designing a business model established that, by building on the methodology that was adopted for the purpose of product design by IDEO — which is a leading design company in the Bay Area on the West Coast — and in applying it to the design of the business model, we developed a five-phase process that’s embedded in the understanding of the antecedent for the design of the business model.

Some of the work we’ve done has established that when a company designs its business model, it doesn’t do it in a vacuum. It has to do it by considering a number of antecedents. For example, what’s the goal of the business model? [The answer is] one antecedent. What are some of the templates that other companies have been using? And to some extent thoughtfully and mindfully adopting some of those templates is another antecedent.

[We also looked at] understanding who are the stakeholders of the organization that would benefit from that business model. [Further, we looked at] constraints — whether these are financial, human capital, regulatory or any other type of constraints that would affect what the firm can and cannot do for any one of the reasons I just mentioned.

Once these antecedents are acknowledged and communicated, then there’s a process that we suggest in the research paper that involves five steps. First, to observe … a little bit of an ethnographic study — how people use your product or your service. What do they like and not like? When and how do they use it? Who uses it? Who makes the buying decision, and how is that decision made? So, a lot of observation is involved.

Then there’s a phase of synthesis — taking all of the information you observed and pulling it together. Then there’s a point of generating some product-type business model. [You can] say, “This is one idea of how we do business. Here’s another idea of how we do business, and let’s compare them.” [The fourth step is to] refine the model as you think about it more vigorously and more definitively. The last phase is implementation.

That cycle — observation, synthesis, generation, refinement and implementation — should be an ongoing process. It’s not the starting point. It’s a dynamic process in which the firm never sits still and says, “This is how we do business, and we work in silos.” Our main observation here is the need for people in the organization to think in a holistic way — not to think in silos — to take a broader view of the organization, not just of the activities in which they are involved. And that, we believe based on the research we’ve done, will create value for all stakeholders.

“Design doesn’t just apply to product design. It applies very much to the design of how firms do business.”

In fact this process paper is an attempt to journalize our past research that focused on emerging companies. This was our attempt to move from focusing and empirically examining young emerging-growth companies to focusing on … large, global, diversified companies.

What current business events are relevant in light of this research?

What are the implications of not adopting a process of continuously updating and revising your business model? I’d like to give two examples.

Look at a company like Blackberry, which dominated the smart phone industry in government, business and among consumers. Blackberry almost became a verb in American society. Even the President of the United States used a Blackberry. But Blackberry stuck to a particular way of doing business and ignored the changes that were happening in telecommunications, in the ability of wireless networks to transmit videos and other graphical information. Executives did not adapt the company’s business model. Today, Blackberry is in decline, and according to some, on the verge of bankruptcy.

Another example of a company that has not adapted its business model is Nokia. At one point it was by far the largest marketer of handsets for wireless communication. Nokia has since disposed of its handset business, and it declined to a very small percentage of the global number of handsets that have sold. It’s been taken over by the likes of Samsung, Apple, HTC and others.

A concrete example of a company that totally transformed itself by transforming its business model is IBM. Historically, IBM was a product-centered company. It sold computers, disk drives, tape drives, a number of boxes. Today, the vast majority of IBM revenue comes from services where the products are not a means to an end, but are a means to deliver the services.

That’s a profound transformation of how IBM does business. Today, the most profitable part of the company is not the boxes, but the services. The largest fraction of IBM’s revenue comes from services. So, IBM is a good example of a global, multi-national, large and diversified firm that has undertaken a profound updating or revision of its historical business model and, as such, enabled it to stay on top.

How does this research stand apart from other studies?

We believe we are the first to focus exclusively on the process of business model innovation. There has been a realization that business model innovation matters. But before we did this study, no one had really vigorously looked at the process of how you innovate a business model. And that’s where we believe our main contribution lies.

Two main takeaways for business:

First, the need to apply design thinking to the design of the business model. Traditionally, design thinking has been applied to the design of products. What we’ve established through this research project is that the process by which firms design the business model can, in and of itself, create enormous value.

The second takeaway is that firms need to develop a capability to continuously ask themselves how to tweak their business models, how to refine and revise them. This is an organizational capability that needs to become part of a firm’s DNA. The business model needs to change as the environment in which the firm competes changes. There [needs to be] a realization that each and every member of the organization needs to look at: “Are we still doing business in a way that maximizes the value creation potential?”

“The process by which firms design the business model can, in and of itself, create enormous value.”

The answer, therefore, is that designing the business model is no longer just a job that the CEO has to do. Each and every member has to ask: “In the activities that I’m involved in, is there another way to do this activity? How do the activities that I’m involved in relate to other activities that are going on in our firm that create value for our stakeholders?” And when I talk about stakeholders, there are obviously the customers of the firm, the partners, owners, employees and managers — to pick a few stakeholders. All of them need to be considered in thinking through the design of the business model.

So, these are the two main takeaways. Design doesn’t just apply to product design. It applies very much to the design of how firms do business. And secondly, this has to be a continuous activity that becomes part of a firm’s DNA.

Surprises that came out of the research:

On one hand, the impact of the business model’s design on the firm’s performance has been substantial, greater than what I would have anticipated. But what surprised me most is how rare it is in the organizations that we surveyed and talked to where the process of designing the business model is part of the firm’s DNA.

Very few organizations routinely think, “How can we tweak our business model? How can we find a better, more efficient, greater value-creating business model?” That surprised me, and I think that managers and organizations more generally would benefit by thinking deeper about the design and thinking about it not as a one-time or once in two years thinking, “Is there a better way?” — but as an ongoing, dynamic capability that the firm has.

And it’s up to the leadership of the company to instill that kind of design thinking into the DNA of the firm. And the fact that this is rare was a surprise to me.

Misperceptions dispelled:

The perception is that innovation is about product innovation. And what our study attempts to show is that innovation is not limited to the innovation of product [but also includes] innovation of the very way a company engages in business, how it interacts with its stakeholders, how the various activities are connected to each other. Who carries out each of the activities?

Because in business models in today’s environment — where there have been enormous advances in information and communication technologies — companies are involved in activities that are carried out by other companies. And that’s very much part of the business model of how a modern corporation operates today.

I can give you a lot of examples of how the business model of Amazon relies on UPS delivering the products that people buy from it. And Amazon doesn’t produce or stock most of the products it sells. They’re just drop-shipped from another company. So, the business model of Amazon involves companies and activities that are happening outside of the boundaries of Amazon — outside of the industries it’s in.

There are companies where the entire innovation is how they do business. Take Priceline, which has revolutionized travel. Rather than you going to the website of any airline and looking at the menu of what it has to offer, it’s just the opposite. You say, “I want to travel from A to B, and I’m willing to pay X dollars to travel, and, you airline, make me an offer.”

It’s kind of a reverse auction in some sense. But in many ways, it’s a way to create value — for the airline to dispose of seats it hasn’t sold, because if it flies an empty seat, it makes no money. So, everybody wins. This is a value-creating business model, and there’s no product there. With eBay, there are no products, right? The business model is where the value creation is.

What’s next?

We’re engaged in a fairly massive effort of collecting data to address a related question, and that is focusing on large companies and how the business models evolved side by side with the organizations — the people, the incentives. That’s because a business model focuses on what activities the firm is engaged in, in order to create value, and how that system of activities creates value, how it’s connected, who does it. But there are other elements of the organizations that need to be looked at. And that’s how we see ourselves in the next phase of this research program which, as I said, we started over 15 years ago.

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The term business model refers to a company's plan for making a profit . It identifies the products or services the business plans to sell, its identified target market , and any anticipated expenses . Business models are important for both new and established businesses. They help new, developing companies attract investment, recruit talent, and motivate management and staff.

Established businesses should regularly update their business model or they'll fail to anticipate trends and challenges ahead. Business models also help investors evaluate companies that interest them and employees understand the future of a company they may aspire to join.

Key Takeaways

A business model is a company's core strategy for profitably doing business.
Models generally include information like products or services the business plans to sell, target markets, and any anticipated expenses.
There are dozens of types of business models including retailers, manufacturers, fee-for-service, or freemium providers.
The two levers of a business model are pricing and costs.
When evaluating a business model as an investor, consider whether the product being offered matches a true need in the market.

Investopedia / Laura Porter

A business model is a high-level plan for profitably operating a business in a specific marketplace. A primary component of the business model is the value proposition . This is a description of the goods or services that a company offers and why they are desirable to customers or clients, ideally stated in a way that differentiates the product or service from its competitors.

A new enterprise's business model should also cover projected startup costs and financing sources, the target customer base for the business, marketing strategy , a review of the competition, and projections of revenues and expenses. The plan may also define opportunities in which the business can partner with other established companies. For example, the business model for an advertising business may identify benefits from an arrangement for referrals to and from a printing company.

Successful businesses have business models that allow them to fulfill client needs at a competitive price and a sustainable cost. Over time, many businesses revise their business models from time to time to reflect changing business environments and market demands .

When evaluating a company as a possible investment, the investor should find out exactly how it makes its money. This means looking through the company's business model. Admittedly, the business model may not tell you everything about a company's prospects. But the investor who understands the business model can make better sense of the financial data.

A common mistake many companies make when they create their business models is to underestimate the costs of funding the business until it becomes profitable. Counting costs to the introduction of a product is not enough. A company has to keep the business running until its revenues exceed its expenses.

One way analysts and investors evaluate the success of a business model is by looking at the company's gross profit . Gross profit is a company's total revenue minus the cost of goods sold (COGS). Comparing a company's gross profit to that of its main competitor or its industry sheds light on the efficiency and effectiveness of its business model. Gross profit alone can be misleading, however. Analysts also want to see cash flow or net income . That is gross profit minus operating expenses and is an indication of just how much real profit the business is generating.

The two primary levers of a company's business model are pricing and costs. A company can raise prices, and it can find inventory at reduced costs. Both actions increase gross profit. Many analysts consider gross profit to be more important in evaluating a business plan. A good gross profit suggests a sound business plan. If expenses are out of control, the management team could be at fault, and the problems are correctable. As this suggests, many analysts believe that companies that run on the best business models can run themselves.

When evaluating a company as a possible investment, find out exactly how it makes its money (not just what it sells but how it sells it). That's the company's business model.

Types of Business Models

There are as many types of business models as there are types of business. For instance, direct sales, franchising , advertising-based, and brick-and-mortar stores are all examples of traditional business models. There are hybrid models as well, such as businesses that combine internet retail with brick-and-mortar stores or with sporting organizations like the NBA .

Below are some common types of business models; note that the examples given may fall into multiple categories.

One of the more common business models most people interact with regularly is the retailer model. A retailer is the last entity along a supply chain. They often buy finished goods from manufacturers or distributors and interface directly with customers.

Example: Costco Wholesale

Manufacturer

A manufacturer is responsible for sourcing raw materials and producing finished products by leveraging internal labor, machinery, and equipment. A manufacturer may make custom goods or highly replicated, mass produced products. A manufacturer can also sell goods to distributors, retailers, or directly to customers.

Example: Ford Motor Company

Fee-for-Service

Instead of selling products, fee-for-service business models are centered around labor and providing services. A fee-for-service business model may charge by an hourly rate or a fixed cost for a specific agreement. Fee-for-service companies are often specialized, offering insight that may not be common knowledge or may require specific training.

Example: DLA Piper LLP

Subscription

Subscription-based business models strive to attract clients in the hopes of luring them into long-time, loyal patrons. This is done by offering a product that requires ongoing payment, usually in return for a fixed duration of benefit. Though largely offered by digital companies for access to software, subscription business models are also popular for physical goods such as monthly reoccurring agriculture/produce subscription box deliveries.

Example: Spotify

Freemium business models attract customers by introducing them to basic, limited-scope products. Then, with the client using their service, the company attempts to convert them to a more premium, advance product that requires payment. Although a customer may theoretically stay on freemium forever, a company tries to show the benefit of what becoming an upgraded member can hold.

Example: LinkedIn/LinkedIn Premium

Some companies can reside within multiple business model types at the same time for the same product. For example, Spotify (a subscription-based model) also offers a free version and a premium version.

If a company is concerned about the cost of attracting a single customer, it may attempt to bundle products to sell multiple goods to a single client. Bundling capitalizes on existing customers by attempting to sell them different products. This can be incentivized by offering pricing discounts for buying multiple products.

Example: AT&T

Marketplace

Marketplaces are somewhat straight-forward: in exchange for hosting a platform for business to be conducted, the marketplace receives compensation. Although transactions could occur without a marketplace, this business model attempts to make transacting easier, safer, and faster.

Example: eBay

Affiliate business models are based on marketing and the broad reach of a specific entity or person's platform. Companies pay an entity to promote a good, and that entity often receives compensation in exchange for their promotion. That compensation may be a fixed payment, a percentage of sales derived from their promotion, or both.

Example: social media influencers such as Lele Pons, Zach King, or Chiara Ferragni.

Razor Blade

Aptly named after the product that invented the model, this business model aims to sell a durable product below cost to then generate high-margin sales of a disposable component of that product. Also referred to as the "razor and blade model", razor blade companies may give away expensive blade handles with the premise that consumers need to continually buy razor blades in the long run.

Example: HP (printers and ink)

"Tying" is an illegal razor blade model strategy that requires the purchase of an unrelated good prior to being able to buy a different (and often required) good. For example, imagine Gillette released a line of lotion and required all customers to buy three bottles before they were allowed to purchase disposable razor blades.

Reverse Razor Blade

Instead of relying on high-margin companion products, a reverse razor blade business model tries to sell a high-margin product upfront. Then, to use the product, low or free companion products are provided. This model aims to promote that upfront sale, as further use of the product is not highly profitable.

Example: Apple (iPhones + applications)

The franchise business model leverages existing business plans to expand and reproduce a company at a different location. Often food, hardware, or fitness companies, franchisers work with incoming franchisees to finance the business, promote the new location, and oversee operations. In return, the franchisor receives a percentage of earnings from the franchisee.

Example: Domino's Pizza

Pay-As-You-Go

Instead of charging a fixed fee, some companies may implement a pay-as-you-go business model where the amount charged depends on how much of the product or service was used. The company may charge a fixed fee for offering the service in addition to an amount that changes each month based on what was consumed.

Example: Utility companies

A brokerage business model connects buyers and sellers without directly selling a good themselves. Brokerage companies often receive a percentage of the amount paid when a deal is finalized. Most common in real estate, brokers are also prominent in construction/development or freight.

Example: ReMax

There is no "one size fits all" when making a business model. Different professionals may suggest taking different steps when creating a business and planning your business model. Here are some broad steps one can take to create their plan:

Identify your audience. Most business model plans will start with either defining the problem or identifying your audience and target market . A strong business model will understand who you are trying to target so you can craft your product, messaging, and approach to connecting with that audience.
Define the problem. In addition to understanding your audience, you must know what problem you are trying to solve. A hardware company sells products for home repairs. A restaurant feeds the community. Without a problem or a need, your business may struggle to find its footing if there isn't a demand for your services or products.
Understand your offerings. With your audience and problem in mind, consider what you are able to offer. What products are you interested in selling, and how does your expertise match that product? In this stage of the business model, the product is tweaked to adapt to what the market needs and what you're able to provide.
Document your needs. With your product selected, consider the hurdles your company will face. This includes product-specific challenges as well as operational difficulties. Make sure to document each of these needs to assess whether you are ready to launch in the future.
Find key partners. Most businesses will leverage other partners in driving company success. For example, a wedding planner may forge relationships with venues, caterers, florists, and tailors to enhance their offering. For manufacturers, consider who will provide your materials and how critical your relationship with that provider will be.
Set monetization solutions. Until now, we haven't talked about how your company will make money. A business model isn't complete until it identifies how it will make money. This includes selecting the strategy or strategies above in determining your business model type. This might have been a type you had in mind but after reviewing your clients needs, a different type might now make more sense.
Test your model. When your full plan is in place, perform test surveys or soft launches. Ask how people would feel paying your prices for your services. Offer discounts to new customers in exchange for reviews and feedback. You can always adjust your business model, but you should always consider leveraging direct feedback from the market when doing so.

Instead of reinventing the wheel, consider what competing companies are doing and how you can position yourself in the market. You may be able to easily spot gaps in the business model of others.

Criticism of Business Models

Joan Magretta, the former editor of the Harvard Business Review, suggests there are two critical factors in sizing up business models. When business models don't work, she states, it's because the story doesn't make sense and/or the numbers just don't add up to profits. The airline industry is a good place to look to find a business model that stopped making sense. It includes companies that have suffered heavy losses and even bankruptcy .

For years, major carriers such as American Airlines, Delta, and Continental built their businesses around a hub-and-spoke structure , in which all flights were routed through a handful of major airports. By ensuring that most seats were filled most of the time, the business model produced big profits.

However, a competing business model arose that made the strength of the major carriers a burden. Carriers like Southwest and JetBlue shuttled planes between smaller airports at a lower cost. They avoided some of the operational inefficiencies of the hub-and-spoke model while forcing labor costs down. That allowed them to cut prices, increasing demand for short flights between cities.

As these newer competitors drew more customers away, the old carriers were left to support their large, extended networks with fewer passengers. The problem became even worse when traffic fell sharply following the September 11 terrorist attacks in 2001 . To fill seats, these airlines had to offer more discounts at even deeper levels. The hub-and-spoke business model no longer made sense.

Example of Business Models

Consider the vast portfolio of Microsoft. Over the past several decades, the company has expanded its product line across digital services, software, gaming, and more. Various business models, all within Microsoft, include but are not limited to:

Productivity and Business Processes: Microsoft offers subscriptions to Office products and LinkedIn. These subscriptions may be based off product usage (i.e. the amount of data being uploaded to SharePoint).
Intelligent Cloud: Microsoft offers server products and cloud services for a subscription. This also provide services and consulting.
More Personal Computing: Microsoft sells physically manufactured products such as Surface, PC components, and Xbox hardware. Residual Xbox sales include content, services, subscriptions, royalties, and advertising revenue.

A business model is a strategic plan of how a company will make money. The model describes the way a business will take its product, offer it to the market, and drive sales. A business model determines what products make sense for a company to sell, how it wants to promote its products, what type of people it should try to cater to, and what revenue streams it may expect.

What Is an Example of a Business Model?

Best Buy, Target, and Walmart are some of the largest examples of retail companies. These companies acquire goods from manufacturers or distributors to sell directly to the public. Retailers interface with their clients and sell goods, though retails may or may not make the actual goods they sell.

What Are the Main Types of Business Models?

Retailers and manufacturers are among the primary types of business models. Manufacturers product their own goods and may or may not sell them directly to the public. Meanwhile, retails buy goods to later resell to the public.

How Do I Build a Business Model?

There are many steps to building a business model, and there is no single consistent process among business experts. In general, a business model should identify your customers, understand the problem you are trying to solve, select a business model type to determine how your clients will buy your product, and determine the ways your company will make money. It is also important to periodically review your business model; once you've launched, feel free to evaluate your plan and adjust your target audience, product line, or pricing as needed.

A company isn't just an entity that sells goods. It's an ecosystem that must have a plan in plan on who to sell to, what to sell, what to charge, and what value it is creating. A business model describes what an organization does to systematically create long-term value for its customers. After building a business model, a company should have stronger direction on how it wants to operate and what its financial future appears to be.

Harvard Business Review. " Why Business Models Matter ."

Bureau of Transportation Statistics. " Airline Travel Since 9/11 ."

Microsoft. " Annual Report 2023 ."

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BY INDUSTRY

How to Conduct Company Research for Investment?

Updated on April 5, 2024

Is a company worth the investment? To answer this question accessing high-quality, reliable data is not just a preference—it's a necessity. Yet, the path to uncovering actionable insights is often littered with obstacles: outdated financial statements, inconsistent metrics, and biased market analyses can cloud judgment, leading investors astray.

In this article, we will discuss the various types of data critical to comprehensive company research, its sourcing, and evaluating both opportunities and risks within potential investments.

Types of information needed for researching a company

Any investment analysis is built on information. Researching a company for investment involves leveraging various types of data.

Firstly, there is, of course, firmographic information like the company’s location, industry, revenue, and size. This is where the company research kicks off
Then another crucial piece is Information about the key employees of the company, and it ranges from contact and professional to leisure and interest data.
Further on we want to evaluate the growth trends and potential. For example, changes in online job postings or headcount data might indicate the firm’s growth or decline. Meanwhile, technographic data provides insight into how well the company adjusts to the fast-paced technological development.
Finally, effective company and market research involves news data analysis. This includes company reviews and other direct mentions, as well as market events and industry trends that could affect the firm.

Get fresh company database for your business needs

How to conduct effective company research?

1. identify the company.

The first step is, of course, identifying the object of our analysis. Thus, researching a company starts with finding out its defining features, for example, whether it is a public or private company. Public companies are easier to investigate as they are traceable by a ticker symbol and are required to disclose financial information. Other key identifiers of the company are its industry, market share, and where it is registered.

2. Clarify research questions

Research is effective when it has clearly defined goals. Think about what sort of questions need to be answered for you to be able to reach an investment decision about a specific company. Naturally, the main questions will revolve around the company’s products, services, sales, growth trends, management capabilities, and financial health.

3. Determine which sources are reliable and relevant

You are going to need a lot of data to answer the questions that you have raised. Thus, when choosing data sources, consider what information is relevant to your goals. If you seek to know more about company culture, for example, employer review sites are what you need.

The source should also be reliable. Financial data can come from the company’s annual reports and publicly available governmental sources. Meanwhile, market news should only be retrieved from trusted media outlets. Relevancy and reliability are the most important factors when choosing a third-party data provider.

4. Utilize data gathering and analysis tools

Finally, you will need to use the right tools to do the company analysis efficiently. While a manual google search or review of the company website might get you started, it won’t take you all the way.

Aggregating business news and analyzing public sentiment will require considerable automation. Below you will find more information on the tools and resources to use when researching companies.

Essential tools and resources for gathering information

Public companies operating in the US are required to file accounting and other reports with the Securities and Exchange Commission (SEC). You can use its Electronic Data Gathering and Retrieval (EDGAR) tool to search SEC filings.

EDGAR allows you to search for keywords in various documents describing everything from the company’s historical performance to current business operations and acquisitions. Thus, when it comes to traditional business data, EDGAR is certainly your friend.

Coresignal’s APIs

When it comes to public web data, Coresignal is the right place to be. Consider trying our APIs which allow searching for multiple data points and retrieve what you need immediately. The APIs will fetch you everything from general firmographics to in-depth information about the company’s employees .

Subscription resources

Library of congress provides multiple subscription-based tools that optimize company research for investment purposes. For example, Mergent Online archives past and present company information that can be searched by financial and textual criteria.

Meanwhile, Factiva holds premium business publications in 26 languages and from 200 countries all over the world. The complete list of subscription tools as well as the complete guide on how to access and use them can be found on the Library’s website .

Linkedin and other social media websites

When considering investing in a business, you want to know what kind of person or persons are running it, what they are interested in, who they network with, and other information found on social media profiles might make you aware of red flags that would otherwise be missed.

Linkedin is the leading social network where prospects on a job search gather information about a potential employer. It might just as well be used to research a company for investment decision-making. In addition to people’s data, social media pages are sources for public company reviews.

How to apply the gathered information to investment decisions?

Using the analysis results for investment decisions is all about putting it in the context of market trends and the competitive landscape faced by the business. Thus, your findings should be leveraged against the knowledge acquired by deeper market research into similar products and services.

First, look at the detailed information about the company’s performance and financial stance. If everything seems to be good there, check for red flags. News about the company and reviews by employees and customers will be the most useful for this purpose. Information from the news and social media websites will also help when considering market trends that will affect the business in question.

The final step of the analysis is scrutinizing every publicly available information about the key decision-makers in the company of interest. Insights from their online presence should supplement data on their department, role in the organization, and expertise.

The importance of company research

Investors need to research a company thoroughly before making their decision. Otherwise, they would have to pay not only the price of a bad investment but also that of a lost opportunity to invest in a better business. Only a deep analysis of the organization, its competitors, and industry conditions will give a good idea of its value.

Additionally, researching a company for its business model and the people that are involved has potential long-term benefits. The knowledge acquired might be used in deciding upon future opportunities when the same people or a similar business is encountered.

Thus, researching businesses is the smart thing to do before arriving at any important investment decision.

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How do business model tools facilitate business model exploration? Evidence from action research

Research Paper
Open access
Published: 20 May 2020
Volume 30 , pages 495–508, ( 2020 )

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Alexia Athanasopoulou 1 &
Mark De Reuver 1

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Business model tools are commonly used to describe and communicate business model ideas. However, studies do not sufficiently address whether and how business model tools support the early, exploratory phase in which new business models are initiated, conceptualized, assessed and planned. In this exploratory phase, offerings and addressable markets are highly uncertain, which requires extensive idea generation, reframing, comparison and evaluation. This paper examines whether and how business model tools facilitate the process of business model exploration. Through action research, we find three ways in which business model tools can better facilitate the process of exploring, reframing and comparing alternative business models. The paper contributes to business model literature and managerial practice by providing empirical evidence on how tooling facilitates business model exploration.

Business Model, the

Classification tools for business models: Status quo, comparison, and agenda

Avoid common mistakes on your manuscript.

Introduction

Tools for describing, presenting and communicating business models are emerging rapidly, both in practice and academia (Szopinski et al. 2019 ). Business models describe how companies create value for users and stakeholders (e.g. De Reuver et al. 2013 ; Teece 2010 ; Khanagha et al. 2014 ). Business model tools are `boundary objects’ that facilitate exchanging business model ideas between stakeholders (Bouwman et al. 2018b ). Business Model Canvas is particularly popular (Osterwalder and Pigneur 2010 ), and has become the de facto standard tool for documenting and sharing business model ideas. Studies show that canvas-based business model tools help to describe, document and communicate business model ideas (Chandra Kruse and Nickerson 2018 ).

For our study, we focus on the notion of business model exploration, in which uncertainties are great and new business opportunities emerge. Business model exploration comprises processes of developing initial ideas for a new business model (Cavalcante et al. 2011 ), (2) conceptualizing alternative business models (Sosna et al. 2010 ), (3) exploring and assessing alternatives (Heikkilä et al. 2016 ), and (4) formulating concrete actions to implement the selected business models (Baden-Fuller and Morgan 2010 ; McGrath 2010 ). In this way, business model exploration goes beyond describing, documenting and communicating business model ideas.

The goal of this study is to examine how business model tooling facilitates business model exploration. Thus, this study aims to answer: How do business model tools facilitate business model exploration?

We use action research as a methodology. Action research involves researchers and practitioners working together through activities of problem diagnosis, intervention, and reflection (Susman 1983 ). Action research is suitable for our purposes since it allows applying interventions (i.e. business model tools) in a real-life setting (i.e. a project aimed to develop business models for a new offering) throughout a long-term and unstructured process (i.e. business model exploration). We conduct our study within an innovation project aiming to design technology-enabled services for improving safe driving. The innovation project is partly supported by government funding. As required by the action research methodology, the authors of this manuscript were actively involved as members of the project team. We observe how business model tools facilitate business model exploration by reflecting upon the actions taken with business model tools, the purposes of taking these actions, and the achieved outcomes. Based on our analysis, we recommend how business model tools could be designed to facilitate the business model exploration process.

This study contributes to the literature on business model tooling (Teece 2010 ) by studying how tooling facilitates the processes of business model exploration. In this way, we go beyond the use of tools to describe, conceptualize, communicate and store business model ideas (Chandra Kruse and Nickerson 2018 ). Managerially, our study provides lessons on how to facilitate a process of business model exploration with tools, in settings where innovation project teams pursue new business model opportunities with high uncertainties.

The paper is structured as follows. First, the theoretical background is provided for our study. Next, the methodology is provided, and the findings are analysed. After discussing the findings, we conclude the paper by answering the research question and listing limitations.

Business models

Business models describe the core logic of how an enterprise creates and captures the value of innovations (Kallio et al. 2006 ; Linder and Cantrell 2000 ; Fielt 2014 ). Business models are considered essential for experienced and established organisations (Magretta 2002 ), as they contribute to competitiveness (Demil et al. 2015 ) and help commercialize relevant offerings such as products and services (Simmert et al. 2019 ). Scholars describe different building blocks that constitute a business model (e.g. Osterwalder and Pigneur 2010 ). A widely known and used one is proposed by Osterwalder and Pigneur ( 2010 ), comprising nine building blocks: value proposition, partner networks, customer segment, customer relationship, channel, key resources, activities, revenue streams, and cost structure.

Organizations focus on business models to stay competitive and profitable (Bucherer and Uckelmann 2011 ). Examples of drivers to change business models are poor firm performance, innovative use of resources (internal), the introduction of new services in the market (external), or simply a new idea (De Reuver et al. 2009 ). Regarding business models in times of change, scholars mainly discuss established organizations that have to innovate their existing business model due to a new market (e.g., Landau et al. 2016 ) or uncertainty (Schneckenberg et al. 2016 ). In this context, designing a business model is challenging, as many components of the business model are unknown up-front.

Making changes in business models requires competencies such as adaptive and flexible decision-making capacity, entrepreneurial experience and diverse knowledge. We argue that creating a business model is not a one-off task, but requires extensive exploration until an assumed-to-be viable business model is reached.

Business model exploration

Business model exploration is an iterative process through which business models are proposed, compared and subjected to experimentation until a revised and presumably successful business model is reached (Sosna et al. 2010 ). Through business model exploration, companies generate new business model ideas (Baden-Fuller and Morgan 2010 ; McGrath 2010 ). Further, scholars argue that exploring and experimenting with business models improves the consistency of the resulting business model (Demil and Lecocq 2010 ), helps overcoming obstructions to change (Chesbrough 2010 ), creates a competitive advantage (Eppler et al. 2011 ), and improves performance (Andries et al. 2013 ). A systematic approach to business model exploration enables enterprises to obtain new (or revised) business model ideas (Baden-Fuller and Morgan 2010 ; Hoffmann et al. 2011 ) and create competitive advantage (Hoffmann et al. 2011 ).

Only recently, scholars started to study empirically how business models are being developed (Foss and Saebi 2017 ). Sosna et al. ( 2010 ) find that the exploration phase of business model innovation consists of initial designs and trial-and-error improvements, which may last for several years. Cavalcante ( 2014 ) distinguishes business model experimentation (i.e. researching technical challenges and performing new practices) from business model learning (i.e. acquiring new knowledge, discussing new ideas and interacting with and contacting others). Achtenhagen et al. ( 2013 ) find that business model experimentation consists of retrieving information about the environment, encouraging new ideas, and learning from mistakes.

We consider four main activities of business model exploration, which need not be linear and sequential: (1) develop initial ideas on the new business model (ideate) (Cavalcante et al. 2011 ), (2) conceptualize alternative business models (reframe) (Sosna et al. 2010 ), (3) explore and assess alternatives (envision) (Heikkilä et al. 2016 ), and (4) formulate concrete actions to implement the business model (action-formulation) (Baden-Fuller and Morgan 2010 ; McGrath 2010 ). See Fig. 1 for an illustration.

The four activities of the business model exploration

We argue that these four activities take place within an iterative process of ‘trial-and-error’ improvements (Sosna et al. 2010 ). In this process, initial assumptions on the business model are being tested. If assumptions are not confirmed, a new round of testing takes place, until a suitable solution is reached.

Business model tools

Business model tools are boundary objects that enable companies and stakeholders to describe and communicate business models (Bouwman et al. 2018a ). The literature on business model tools is expanding rapidly (De Reuver et al. 2016 ). Business model tools can take many forms, such as printable templates (e.g. Business Model Canvas), printed cards (e.g. Foresight cards 2018 ; Haaker et al. 2017 ), apps (e.g. Osterwalder and Pigneur 2010 ), and websites (e.g. E3 Value 2017 ). Some scholars integrate tools for specific purposes, such as creating a start-up company (Heikkilä et al. 2016 ). In the practitioner area, tools are being developed, ranging from highly advanced (e.g. VDMBee Footnote 1 ) towards click-and-fill-out tools (e.g. Canvanizer Footnote 2 ).

Whereas some tools cover the full scope of a business model (e.g. Business Model Canvas), others focus on one specific aspect (e.g. Value Proposition Canvas). Tools also differ regarding the level of detail. For instance, one array of tools provides patterns that represent solutions or `proven’ configurations of specific business model components (e.g. Lüttgens and Diener 2016 ). Another set of tools follows a fill-in-the-blank approach, whereby users need to add information manually, for instance to a canvas or framework.

Classifications and taxonomies of tools are scarce in the literature. Online repositories are available, such as BMToolBox.net and BusinessMakeover.eu, which categorize business model tools based on their purpose, helping users to select the most suitable tools for their needs. Bocken et al. ( 2019 ) review 13 tools for circular business models, finding a variety of functions, such as (card) games, frameworks, canvases and structured question lists. Täuscher and Abdelkafi ( 2017 ) conduct a systematic literature review, categorizing 95 visual business model representations into a framework based on their contents. Szopinski et al. ( 2019 ) create a taxonomy of online business model tools, focusing on their modelling, collaboration and technical characteristics. None of the existing taxonomies or overviews focuses on business model exploration specifically.

Action research

Action research allows researchers to develop and test theoretical ideas on the efficacy of specific actions, through a process of interacting and intervening with practitioners in a naturalistic setting (Baskerville 1999 ). As the process of business model exploration is iterative, action research is particularly appropriate. The interventionist nature of action research further allows us to test the efficacy of business model tools in facilitating business model exploration.

We opt for action research rather than design science research or action design research since we do not aim to create an artifact. Similarly to action research, action design research focuses on solving a practical problem, with researchers and practitioners working closely together in iterative cycles (Sein et al. 2011 ), in order to generate knowledge (Collatto et al. 2018 ). The main difference is that action design research generates design knowledge by ` building and evaluating ensemble IT artifacts ’ (Sein et al. 2011 ). Yet, in our case, we develop a business model, which we view as a group of conceptual elements or ideas without any intrinsic IT component. Therefore, we use action research rather than action design research as our methodology.

We structure our research based on the action research cycle provided by Susman ( 1983 ), comprising steps of Diagnosing , Action Planning , Action Taking , Evaluating , and Specifying Learning , see Fig. 2 . According to Baskerville ( 1997 ), the research environment of action research is constituted by a client-system infrastructure. Two types of actors take part: the researchers and the practitioners (the ‘clients’). This client-system infrastructure allows collaboration between the researcher and the practitioners, based on mutual interests (Baskerville 1999 ).

The action research (based on Susman 1983 )

For our research we focus on an innovation-based project conducted by four businesses and one university, taking place in 2017. The project was partly funded by an independent organisation of the European Union, and partly by the businesses involved. The project aimed to create a start-up that offers a commercially viable product, with many uncertainties over what the eventual product would be. In this way, the project fits the notion of business model exploration as conceptualized previously. Within the project, the five organisations collaborated in order to develop and test the product and underlying business model.

The authors of this manuscript participated in the project, taking the five steps of action research (Susman 1983 ): diagnosing the problem, planning and taking specific actions, evaluating the outcomes, and formulating what we learned from the process. The direct involvement allowed the authors to actively intervene, collect data, and gather feedback. The project partners were meeting monthly in a face-to-face or online setting to discuss updates, and arrange action points for the upcoming month. Between the official monthly meetings, bilateral meetings were held between partners when necessary. Other activities included promotion of the project in European events, focus groups with potential users, workshops evaluating the products, and interviews with potential stakeholders.

Data collection

To increase the validity of our research, we document our actions throughout the process (Avison et al. 1999 ). We collected data in different formats, see Table 1 . Key informants (project partners and other involved individuals) validated the interview transcripts and minutes from meetings. Key informants also participated in workshops, in which each presentation by the researchers was followed by an open discussion.

The overall purpose of the project was to create a start-up (after 12 months) that promotes a road safety culture. Specifically, the goal was to make sense of attitudes and choices of young drivers, in order to generate a deeper understanding of the `why’ behind risky driving behavior. Based on the initial plan for the project, the ultimate goals for the project were: (1) making a product, described as a digital toolbox that improves the road behavior of young people, (2) creating a start-up that will offer the developed product on the market. The initial product idea was to create something that stimulates safe driving behavior by young people. Ideas for the product were to create online communities of young drivers, to model driving behavior based on data collected in the communities, and to offer gamified systems to educate road safety to young drivers. However, within this broad scope, it was not clear what the final product would be, what problem the product would solve, and to what customers it would be offered.

The research setting involved five organizations: one technical university (The Netherlands), one public research and innovation institute (Italy), two private consultancy companies (The Netherlands, #1 and France, #2), and one private research and design studio (Italy). Only the university and the Dutch firm were familiar with business model innovation. At the initial project meeting, the tasks of the partners (researchers and clients) were defined (see Table 2 ).

At the end of the project, the product was defined to be a ‘toolkit’ including (a) an online community that will share ideas and feedback on the topic of road safety and (b) an engaging `gameful’ app for young people that gathers data about their decision-making and attitudes in a structured form.

To describe the action research cycle, we follow the five steps from Susman (1985) and Baskerville ( 1997 ).

During the diagnosing phase (Month 1–2), the collaboration with the other project partners was intensive. Physical and online meetings, presentations, discussions and brainstorming sessions took place. The partners had two main assumptions about the scope of the project. First, mobility behavior is difficult to capture among young people because they are less willing to be monitored. Even if monitoring technologies are in place and accepted by young drivers, collected data tell what happened (e.g. driving style), but not why it happened (e.g. perceptions, norms and beliefs affecting driving behavior). Second, participants agreed that the ultimate product should leverage their existing technologies and knowledge from research-focused projects, such as gamification approaches and psychographic models on norms and beliefs affecting driving behavior. However, apart from these generic starting points, the project participants did not know what the final offering should be, and could not envision a business model for the start-up company. The initial diagnosis indicates that:

a) a start-up should be launched as a prerequisite of the funded project, based on a viable business model,

b) the offering and target group are not defined or developed, and, hence, it is difficult to define a specific business model.

Action planning

Next, we planned specific actions (Month 2–5). These actions were derived from the diagnosis phase and informed by theory on business model exploration. Specifically, our working hypothesis (cf. Baskerville 1997 ) was that business model tools facilitate business model exploration . We planned to take actions throughout the time period we had, solving the problem we diagnosed with the overall aim of creating a start-up.

We collaborated with the practitioners to plan a specific set of activities to take towards the desired future state, that is, the release of the start-up (Month 12). First, we divided the responsibilities among the different partners. Then, we defined the following goals for using the business model tools, in close collaboration with the partners:

investigate what could be new markets;

identify potential competitors;

design potential business models and discuss the building blocks that are missing;

create potential business model scenarios;

involve potential stakeholders;

plan feedback sessions with potential users;

discuss with potential users and stakeholders what could be a valuable product;

discuss potential revenue models, including their risks; and

develop the business model in parallel to the product and other activities of the project

Fig. 3 presents the initial division of responsibilities. The dashed shapes indicate the activities for which the researchers were responsible. The resulting plan was discussed with all other partners.

Initial division of responsibilities

Notes: Dashed lines indicate activities that the authors of this manuscript participated in.

We planned to use business model tools in each activity to be carried out. We decided to use a broad portfolio of tools, covering the diversity of existing tools. Based on our own interpretation, we selected tools covering the four activities of business model exploration. We also selected tools that differ in terms of scope: tools that cover the business model as a whole (e.g. business model canvas) and tools that focus on one specific business model component (e.g. value proposition canvas). Finally, we selected tools with different forms: cards, canvases, checklists, and process descriptions. With these minimum criteria for coverage in mind, we selected tools according to the needs in the action setting. For coherency purposes, we selected tools from an available repository of tools (businessmakeover.eu). We present the business model tooling and the business model needs we used them for (see Table 3 ), and the links of digital business model tools (see Appendix).

Action taking

During the action taking, we implemented the planned actions (Month 5–11). Baskerville ( 1997 ) argues that different strategies can be adopted during action-taking. The intervention strategy that we adopt is the one where ‘the research ‘directs’ the change’ (Baskerville 1997 , p. 27). In essence, the researchers ‘directed’ the change with the introduction of different business model tools, based on the action plan. In some cases, tools were applied in workshops that took place with the partners. In most cases though, the researchers interacted with the other partners through meetings to distil information needed to fill out the tools. The distilled information was then rationalized into, for instance, a filled out template. The results were then discussed with the other partners.

We used tools to support the four activities of business model exploration. For the ideate activity, we used the widely used business model Canvas tool to create a first overview of the business model of the start-up, the Persona tool to identify potential stakeholders and the STOF business model to collect ideas of project participants. While the business model Canvas tool is user-friendly, it was challenging for the project partners to fill out the empty template as the offering was not yet defined. We had to create alternative versions of the business models, with different versions of the offerings, revenue models and involved stakeholders. We ended up with five different initial versions of the business models, all illustrated with different business model canvas versions. Regarding the STOF business model tool, it was not directly usable, as the level of detail of the checklist of questions in the tool requires a solid understanding of the offering and the stakeholders involved. We, therefore, used a simplified version of the tool, asking four basic questions related to each of the four STOF domains (service, technology, organization, and finance) in a workshop setting. During the workshop, project partners proposed different alternatives for each domain (4–5 different suggestions per domain on average). The brainstorming session showed the need for tools that do not expect clear and specific answers regarding the business model components. The use of the Persona tool helped to identify potential stakeholders, even unexpected ones. For instance, we found the need to involve local businesses (e.g., cinema, cafeterias), which are not related to the driving context but do attract young people.

For the reframe step, we used the Competitor analysis and Thinking hat tools to understand the current situation of the market and competitors. These tools helped identify potential competitors (e.g. governmental initiatives, commercial products of international companies, and add-on products). Knowing the unique characteristics of the competing offerings allowed the project partners to focus on the added value of the start-up’s offering. We assumed that competitors of the start-up would also offer some form of a tool or game. We identified competitors based on what they offer, their target group, their revenue model, and their strategy for differentiation. By using the tools, we found out that: (1) most of the competitors offer directly to consumers; (2) most competitors are interested in collecting data; (3) insurance companies are important stakeholders; (4) game users need to be rewarded. The tools were useful for the reframe step, as we did not have a clear overview of the market and the competitors. Based on the market and competitor analysis, we revised the alternative business models once more.

For the next processes of envision and action-formulation, we used tools to explore potential solutions and to design business models for later phases of the start-up. The tools we used to explore the potential solutions allowed us to create value propositions and features of the offerings, as well as to evaluate these with potential users. For the action-formulation process, we used business model tools like the business model roadmap and the pricing strategy cards to design a plan for the future of the start-up.

We presented the alternative business models to the project partners. They rejected one business model as not feasible and made recommendations, upon which we revised the business models. After multiple iterations and discussions between the product and business model teams, we reached a final business model for the start-up (see Fig. 4 ).

The final business model Canvas after iterations (adapted from Osterwalder and Pigneur 2010 )

Notes: We used the online tool as available via businessmakeover.eu . For confidentiality reasons, some text is removed (indicating the name of the start-up).

Below, we discuss the tools, regarding the requests from the project partners (purpose), the activities we performed (actions), and the achieved outcomes and results (outcomes ), see Box 1.

Box 1 Overview of the actions, purposes and outcomes of using the business model tools

As part of the project, a start-up has been initiated that will exploit the results. Based on the business model development results, finding a viable and scalable business model was still a challenge, and would require continued interaction with stakeholders. Several scenarios were explored through interviews with various paying customers, from insurance companies and parcel delivery companies to municipalities and road safety associations. Initial evaluation with stakeholders shows that, in principle, there is interest in the offerings.

A challenging part of this project was that the offering was not clearly defined up-front. As no launching customer had been defined either, there was much room for creativity but also a wide-ranging set of business model designs. In some instances, the business model team triggered the other teams to make decisions regarding the offering. For instance, the creation of different potential business models triggered the design team to make an overview of potential offerings. The market and competitor research was instrumental in finding out the competitive edge of the offering, which in turn steered product development. When the results were presented to the other project partners, discussions led to rejecting certain business models, while retaining others. After several iterations, an offering was decided upon.

The use of the tooling helped to make the business model design more specific, which was the main challenge in this project. The tooling also helped to communicate the results to the project partners. Developing the product and the business model in parallel resulted sometimes in challenges. The product was not clearly defined in the early stages of the project; hence the initial business model designs do not fully match the final product. Additionally, there was not always a clear distinction between paying customers and end-users. Early in the project, it was clear that the role of the (paying) customers and user roles should be separated as young drivers are not willing to pay; however, the available tools do not always make such distinction. Another challenge was that the business model tools are not made for businesses that are still exploring. Active and iterative business model experimentation was needed as the offering was not clearly defined and new technologies enabled new value propositions.

Specifying learning

While specifying learning is the activity described the last, it was an ongoing process in practice. What we learned was that when the offering is not clear, the potential stakeholders, customers and target group are not clear either. Project partners were asking the researchers to suggest a business model, whereas this was challenging without a specific offering. While we did not fully answer to their request, we created an initial business model that was adopted throughout the project . From the whole process, we realized that the business model exploration is becoming more focused when there is an initial business model to work upon. The initial business model allowed iterations that provided advantages. For instance, the market and competitor research was instrumental in finding out the competitive edge of the offering, and thereby steered product development. These advancing decisions were continuously reflected in updated versions of the business model design.

We learn that when the offering is not clear, alternative business model scenarios are needed . Exploring the alternatives can give ideas and reduce the possibilities when one idea is not feasible. That helped project partners realize that they did not need to focus only on the ‘obvious’ customer groups. Customers from other fields are possibly interested in the product as well. Also, revisions and flexibility are important when experimenting with business models.

Using business model tooling from the start of an innovation project allows identifying questions that need to be answered, thus providing more direction in subsequent steps of business model development . The tools were useful especially when the business team wanted to communicate findings to the other partners, as partners had no prior experience with business models. Furthermore, business model tools helped make the design process more focused. In most instances, the researchers used the tool and then presented the results to the other partners. The other participants acknowledged that the use of the tools made the process easier and more focused.

The project partners often asked for our opinion on what option or business model alternative to select. Deciding upon a business model or choice within a business model component (e.g. which pricing model or product offering) is a challenging task in a setting of start-up creation . Existing tools supported creating alternative models but did not sufficiently facilitate the decision-making process. What we realized is that most of the existing business model tools follow a fill-in-the-blank approach, whereby users need to add information manually. In some cases, users lack knowledge of what type of information is actually needed, which implies that creativity is needed on how to fill in the blanks (Szopinski et al. 2019 ). Additionally, the evaluation of business models is not sufficiently addressed as the existing business model tools do not have features that support the evaluation of business model changes and alternative business models.

For our research, we actively intervened in an innovation project aiming at creating a start-up that improves the mobility behavior of young people. The start-up is officially launched with some of the project participants as its shareholders. The start-up is based on the delivered business models. We, the researchers, are not participating as shareholders of the start-up and thus we are not able to access financial data. It would be interesting to follow the created start-up as it goes to market, and track the dynamics of the business model design and the implemented business model over a longer period of time. The time passed after the project end is not sufficient to make conclusions on whether the start-up is successful or not. The survival rate of European start-ups is 80% while the year-on-year survival rate is gradually falling with less than half of the enterprises surviving after five years (Eurostat 2018 ). At the time of writing (2020), the start-up is operational and promotes the marketable offering in events throughout Europe.

We found existing business model tools mainly facilitate the creation of single business model designs. Existing tools do not support the design of alternative business models, which is necessary when offerings and target market are not defined. More specifically, existing tools are not tailored to illustrate alternative business models. Eventually, we made and iterated multiple versions of business model canvas descriptions. The use of multiple business models canvases was not sufficient, as it was difficult to compare the business model components, to discuss the business models, and to record subsequent changes. Also, during the brainstorming sessions, we had difficulties to compare the models and to keep up with suggestions from project partners. Our experience indicates that future business model tools need to be more automated, allow the creation and comparison of multiple business models, without creating a large number of versions of the same business model template.

Finally, our experience with the business model tools is that they support the design of a business model, but largely do not support comparing and deciding upon the most suitable business model. We suggest that future business model tools should have features that support the decision-making between business model alternatives.

From our analysis, we made three observations on how business model tools facilitate business model exploration. From these observations, we provide our recommendations on how existing tools could facilitate business model exploration. We also provide recommendations on what future business model tooling should support, see Table 4 .

We can compare our findings to the existing literature. Footnote 3 We found business model tools are difficult to use when faced with high uncertainty and ambivalence over the offering. This finding differs from the study by Täuscher and Abdelkafi ( 2017 ), who suggest that brainstorming webs help in the ideation phase. The need for tools to support creating multiple alternative business models resonates with ideas from Augenstein and Maedche ( 2017 ), who develop a configuration tool to quickly make and evaluate changes in business models. Our findings indicate that available business model tools provide limited support to decision making. Available business model tools such as Business Innovation Kit (which offer techniques such as voting or pitches) could be used. However, it should be kept in mind that Eppler and Hoffmann ( 2012 ) found that digital business model templates lowered creativity and willingness to adopt the developed business models, whereas physical objects do not perform better than providing an empty sheet.

Our finding that business model tools helped to communicate between the business model team and other teams is in line with other studies. For instance, Ebel et al. (2016) and Simmert et al. ( 2019 ) find that business model tools help to design business models collaboratively in a virtual environment.

Conclusions

In this study, we examined how existing business model tools facilitate the process of business model exploration, in settings where companies actively create new business model opportunities. Similarly to Iriarte et al. ( 2018 ), who argue that additional research is necessary on how managers in practical settings can choose and use tools for service value proposition design, we argue that additional research on the business model tools can be useful to improve the business model innovation process. The results are important for understanding the scope in which existing business model tools can be applied, as we show that existing tools do, to some extent, facilitate business model exploration. Further, our results inform future tool development, through the three requirements that we derived. Specifically, we found that tools for business model exploration should allow defining business models when initial building blocks are unclear, should facilitate creating alternative and multiple versions of business models, and should facilitate decision making while comparing business model alternatives.

As with any other qualitative interpretive study, action research has limitations. A limitation of our paper is that the results are based on one single project. Action research as a method is conceptualized as ‘ fit a specific purpose’ rather than ‘ fit all purposes ’ (Melrose 2001 ). A specific characteristic of our setting is that the dynamism in the mobility-for-young-drivers domain is particularly high at the moment, with both regulatory dynamics (e.g. policies for reducing smartphone use in cars) and market/technology dynamics (e.g. connected cars). This environmental dynamism led to high uncertainties over offerings and competition, which may have made exploration even more important than in other settings. Additionally, for our study, we did not consider that different users apply the same tool in different ways. Also, in a realistic setting, how well a business model tool is used, depends on the user. For instance, a very experienced user might use a tool in more apt ways than an inexperienced user.

While the results were grounded in entries systematically collected in a logbook, memos, minutes and emails, the active and personal involvement of the authors in this action research project could be a source of bias. To increase the validity of our results we communicated to and received feedback from the project partners after each activity (e.g. by giving presentations, virtual meetings, face-to-face meetings.

The final limit a tion is related to the iterative nature of business model exploration, which we do not discuss in detail. We argue that an agile approach could support the iterative process of business model exploration, especially within innovative projects in which researchers, managers and consultants collaborate (Bouwman et al. 2018b ). Future studies could investigate the role of agility as a supportive method for business model exploration.

https://vdmbee.com/

https://canvanizer.com/

Note that we do not consider here specific branches of literature that focuses on how business model tools can contribute to specific goals of interest, such as sustainability, as this is not the focus of our paper (e.g. Bocken et al. 2019 ).

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Acknowledgments

This research received funding by EIT Digital-Digital Cities Action Line (activity 17091) and from the European Community’s Horizon 2020 Program (2014–2020) under grant agreement 645791. The authors would like to thank the project consortium and all the informants. We especially thank Melissa Roelfsema and Ruud Kosman for their valuable inputs and collaboration. We thank Harry Bouwman for valuable discussions motivating our research on agility, tooling and business model innovation. A previous, short version of this paper was presented at R&D Management Conference 2018 “R&Designing Innovation: Transformational Challenges for Organizations and Society” June, 30th-July, 4th, 2018, Milan, Italy. We thank the participants for their valuable comments and feedback.

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Athanasopoulou, A., De Reuver, M. How do business model tools facilitate business model exploration? Evidence from action research. Electron Markets 30 , 495–508 (2020). https://doi.org/10.1007/s12525-020-00418-3

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8 Types of Business Models & the Value They Deliver

26 May 2016

You want to start a company but aren’t sure about a viable business model. How might you create something that people are willing to pay for and could earn you a profit?

Before diving into potential strategies, it’s important to understand what a business is and does. At its heart, a business generates value for its customers. A business model is a specific method used to create and deliver this value.

What Is Value in Business?

A successful business creates something of value . The world is filled with opportunities to fulfill people’s wants and needs, and your job as an entrepreneur is to find a way to capitalize on these opportunities.

A viable business model is one that allows a business to charge a price for the value it’s creating, such that the business brings in enough money to make it worthwhile and continue operating over time. Whatever the business is offering must also satisfy the customer’s needs and quality expectations.

It’s important to note that value is subjective. What’s valuable to one person may not be to another. Moreover, the concept of value excludes any moral judgments about the intrinsic worth of an offering. For example, while most would agree that human life is more valuable than sports, some professional athletes make far more money than the average brain surgeon.

Nonetheless, the concept of value provides a useful bedrock on which to begin building your business model. In particular, consider what forms of value people are willing to pay for. Here are eight potential business models and the forms of value they deliver—as well as the pros and cons of each—to help you get started.

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8 Types of Business Models to Explore

A product is a tangible item of value. To run a successful product-focused business, try to produce the item for as low a cost as possible while maintaining a reasonable level of quality. Once the item is produced, your objective should be to sell as many units as you can for as high a price as people are willing to pay to maximize profit.

Products are all around us. From laptops to books to HBS Online courses (products don’t have to be physical), products are a classic form of value with high upside if you can get them right.

Pros: Many products can be easily duplicated. Thus, firms can achieve economies of scale after bearing some upfront costs of production.
Cons: Physical products need to be stored as inventory, which can increase costs. They can also be damaged or lost more easily than, say, a service.

Related: How to Create an Effective Value Proposition

A service involves offering assistance to someone else for a fee. To make money from your service, provide a skill to others that they either can’t or don’t want to do themselves. If possible, repeatedly provide this benefit to them at a high quality.

Like products, services are in abundance, especially in the knowledge economy. From hairdressers to construction workers to consultants to teachers, people with lucrative skills can earn good money for their time.

Pros: If you have a skill in high demand or a skill that very few others have, you can charge a fair price for your time and stand out in your field.
Cons: If you don’t charge enough for your services, or many people have your skill, your business may not be as lucrative.

3. Shared Assets

A shared asset is a resource that many people can use. Such resources allow the owner to create or purchase the item once and then charge customers for its use. To run a profitable business around shared assets, you need to balance the tradeoff of serving as many customers as you can without affecting the overall quality of the experience.

For instance, think of a fitness center. A gym typically buys treadmills, ellipticals, free weights, bikes, and other equipment and charges customers monthly membership fees for access to these shared assets. The key is to charge customers enough to maintain and, if needed, replace their assets over time. Finding the right range of customers is the key to making a shared asset model work.

Pros: This model provides people access to a lot of assets they wouldn’t otherwise have access to. In addition, many people are willing to pay a lot for access to trendy social spaces.
Cons: Because they don’t own the assets, customers have little incentive to treat your resources well. Make sure you have enough in your budget for quick fixes, if necessary.

4. Subscription

A subscription is a type of program in which a user pays a recurring fee for access to certain specified benefits. These benefits often include the recurring provision of products or services. Unlike a shared asset, however, your experience with the product or service isn’t affected by others.

To have a successful subscription-based offering, build a subscriber base by providing reliable value over time while attracting new customers.

The number of subscription services has exploded in recent years. From magazines to streaming services to grocery and wine delivery subscriptions, businesses are turning to the subscription-based model, often with great success.

Pros: This model provides certainty in the form of predictable revenue streams, making financial forecasting a bit easier. It also benefits from a loyal customer base and customer inertia (for instance, customers may forget to cancel their subscription).
Cons: To run this model, your business operations must be strong. If you can’t deliver value consistently over time, you may want to consider a different business model.

5. Lease/Rental

A lease involves obtaining an asset and renting it out for an agreed-upon amount of time in exchange for a fee. You can lease virtually anything, but it’s in your best interest to rent assets that are durable enough to be returned in good condition. This ensures you can lease the good multiple times and, perhaps, eventually sell it.

To profit from leases, the key is to ensure that the revenue you get from leasing the asset before it loses value is greater than the purchase price. This requires you to price the rental of the item strategically and potentially not lease to those who may not return it in good condition. This is why many rentals of high-value items require references, credit checks, or other background information that can predict how someone may return the leased item.

Pros: You don’t have to have a novel idea to make money using a lease business model . You can purchase assets and rent them to others who wouldn’t buy them for full value and earn a premium.
Cons: You need to protect yourself from unexpected damage to your assets. One way to do so is through insurance.

6. Insurance

Insurance entails the transfer of risk from a customer to a seller of an insurance policy. In exchange for the insurance company (the seller of the policy) taking on the risk of a specified event occurring, they receive periodic payments ("premiums" in insurance lingo) from the policyholder. If the specified event doesn’t happen, the insurance company keeps the money, but if it does, the company has to pay the policyholder.

In a sense, insurance is the sale of safety—it provides value by protecting people from unlikely, but catastrophic, risks. Policyholders can take insurance out on almost anything: life, health, house, car, boat, and more. To run a successful insurance company, you have to accurately estimate the likelihood of bad events occurring and charge higher premiums than the claims you pay out to your customers.

Pros: If you calculate risk accurately, you’re guaranteed to make money using the insurance business model.
Cons: It can be difficult to accurately calculate the likelihood of specific events occurring. Insurance only works because it spreads risk over large numbers of policyholders. Insurance companies can fail if a large portion of policyholders is impacted by a widespread, negative event they didn’t see coming (for example, the Global financial crisis in 2007 and 2008).

Related: 5 Steps to Validate Your Business Idea

7. Reselling

Reselling is the purchasing of an asset from one seller and the subsequent sale of that asset to an end buyer at a premium price. Reselling is the process through which most major retailers purchase the products they then sell to buyers. For example, think of farmers supplying fruits and vegetables to a grocery store or manufacturers selling goods to a hardware store.

Companies make money through resale by purchasing large quantities of items (usually at a bulk discount) from wholesalers and selling single items for a higher price to individuals. This price raise is called a markup.

Pros: Markups can often be high for retail sales, enabling you to earn a profit on the items you resell. For example, a bottle of water might cost 10 cents to produce, whereas a customer may be willing to pay $1.50 or more for the same bottle.
Cons: You need to be able to gain access to quality products at low costs for the reselling business model to work. You’ll also need the physical space to store inventory to manage sales cycles.

8. Agency/Promotion

Agents create value by marketing an asset, which they don’t own, to an interested buyer. They then earn a fee or a commission for bringing the buyer and seller together. Thus, instead of using their own assets to create value, they team up with others to help promote them to the world.

Running a successful agency requires good connections, excellent negotiation skills , and a willingness to work with a diverse set of individuals. One example is a sports agent who promotes players to teams and negotiates on their behalf to get the best deal. In return, they typically receive compensation equal to a certain percentage of the contract.

Pros: You can highly profit from expertise and connections in your industry, be it publishing, acting, advertising, or something else.
Cons: You only get paid if you seal the deal, so you have to be able to live with some uncertainty.

So You Want to Be an Entrepreneur: How to Get Started | Access Your Free E-Book | Download Now

Setting Your Business Up for Success

These eight types of business models each have pros and cons and deliver value in their own ways. If you’re looking to start a business and need a place to start, one of these could be the best fit for your venture and entrepreneurial skill set .

Interested in honing your entrepreneurial skills? Explore our four-week online course Entrepreneurship Essentials and our other entrepreneurship and innovation courses to learn the language of the business world.

This post was updated on February 19, 2021, and is a compilation of two posts, previously published on May 26, 2016, and June 2, 2016.

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Business Model Canvas: Explained with Examples

Got a new business idea, but don’t know how to put it to work? Want to improve your existing business model? Overwhelmed by writing your business plan? There is a one-page technique that can provide you the solution you are looking for, and that’s the business model canvas.

In this guide, you’ll have the Business Model Canvas explained, along with steps on how to create one. All business model canvas examples in the post can be edited online.

What is a Business Model Canvas

A business model is simply a plan describing how a business intends to make money. It explains who your customer base is and how you deliver value to them and the related details of financing. And the business model canvas lets you define these different components on a single page.

The Business Model Canvas is a strategic management tool that lets you visualize and assess your business idea or concept. It’s a one-page document containing nine boxes that represent different fundamental elements of a business.

The business model canvas beats the traditional business plan that spans across several pages, by offering a much easier way to understand the different core elements of a business.

The right side of the canvas focuses on the customer or the market (external factors that are not under your control) while the left side of the canvas focuses on the business (internal factors that are mostly under your control). In the middle, you get the value propositions that represent the exchange of value between your business and your customers.

The business model canvas was originally developed by Alex Osterwalder and Yves Pigneur and introduced in their book ‘ Business Model Generation ’ as a visual framework for planning, developing and testing the business model(s) of an organization.

What Are the Benefits of Using a Business Model Canvas

Why do you need a business model canvas? The answer is simple. The business model canvas offers several benefits for businesses and entrepreneurs. It is a valuable tool and provides a visual and structured approach to designing, analyzing, optimizing, and communicating your business model.

The business model canvas provides a comprehensive overview of a business model’s essential aspects. The BMC provides a quick outline of the business model and is devoid of unnecessary details compared to the traditional business plan.
The comprehensive overview also ensures that the team considers all required components of their business model and can identify gaps or areas for improvement.
The BMC allows the team to have a holistic and shared understanding of the business model while enabling them to align and collaborate effectively.
The visual nature of the business model canvas makes it easier to refer to and understand by anyone. The business model canvas combines all vital business model elements in a single, easy-to-understand canvas.
The BMC can be considered a strategic analysis tool as it enables you to examine a business model’s strengths, weaknesses, opportunities, and challenges.
It’s easier to edit and can be easily shared with employees and stakeholders.
The BMC is a flexible and adaptable tool that can be updated and revised as the business evolves. Keep your business agile and responsive to market changes and customer needs.
The business model canvas can be used by large corporations and startups with just a few employees.
The business model canvas effectively facilitates discussions among team members, investors, partners, customers, and other stakeholders. It clarifies how different aspects of the business are related and ensures a shared understanding of the business model.
You can use a BMC template to facilitate discussions and guide brainstorming brainstorming sessions to generate insights and ideas to refine the business model and make strategic decisions.
The BMC is action-oriented, encouraging businesses to identify activities and initiatives to improve their business model to drive business growth.
A business model canvas provides a structured approach for businesses to explore possibilities and experiment with new ideas. This encourages creativity and innovation, which in turn encourages team members to think outside the box.

How to Make a Business Model Canvas

Here’s a step-by-step guide on how to create a business canvas model.

Step 1: Gather your team and the required material Bring a team or a group of people from your company together to collaborate. It is better to bring in a diverse group to cover all aspects.

While you can create a business model canvas with whiteboards, sticky notes, and markers, using an online platform like Creately will ensure that your work can be accessed from anywhere, anytime. Create a workspace in Creately and provide editing/reviewing permission to start.

Step 2: Set the context Clearly define the purpose and the scope of what you want to map out and visualize in the business model canvas. Narrow down the business or idea you want to analyze with the team and its context.

Step 3: Draw the canvas Divide the workspace into nine equal sections to represent the nine building blocks of the business model canvas.

Step 4: Identify the key building blocks Label each section as customer segment, value proposition, channels, customer relationships, revenue streams, key resources, key activities, and cost structure.

Step 5: Fill in the canvas Work with your team to fill in each section of the canvas with relevant information. You can use data, keywords, diagrams, and more to represent ideas and concepts.

Step 6: Analyze and iterate Once your team has filled in the business model canvas, analyze the relationships to identify strengths, weaknesses, opportunities, and challenges. Discuss improvements and make adjustments as necessary.

Step 7: Finalize Finalize and use the model as a visual reference to communicate and align your business model with stakeholders. You can also use the model to make informed and strategic decisions and guide your business.

What are the Key Building Blocks of the Business Model Canvas?

There are nine building blocks in the business model canvas and they are:

Customer Segments

Customer relationships, revenue streams, key activities, key resources, key partners, cost structure.

Value Proposition

When filling out a Business Model Canvas, you will brainstorm and conduct research on each of these elements. The data you collect can be placed in each relevant section of the canvas. So have a business model canvas ready when you start the exercise.

Let’s look into what the 9 components of the BMC are in more detail.

These are the groups of people or companies that you are trying to target and sell your product or service to.

Segmenting your customers based on similarities such as geographical area, gender, age, behaviors, interests, etc. gives you the opportunity to better serve their needs, specifically by customizing the solution you are providing them.

After a thorough analysis of your customer segments, you can determine who you should serve and ignore. Then create customer personas for each of the selected customer segments.

Customer Persona Template for Business Model Canvas Explained

There are different customer segments a business model can target and they are;

Mass market: A business model that focuses on mass markets doesn’t group its customers into segments. Instead, it focuses on the general population or a large group of people with similar needs. For example, a product like a phone.
Niche market: Here the focus is centered on a specific group of people with unique needs and traits. Here the value propositions, distribution channels, and customer relationships should be customized to meet their specific requirements. An example would be buyers of sports shoes.
Segmented: Based on slightly different needs, there could be different groups within the main customer segment. Accordingly, you can create different value propositions, distribution channels, etc. to meet the different needs of these segments.
Diversified: A diversified market segment includes customers with very different needs.
Multi-sided markets: this includes interdependent customer segments. For example, a credit card company caters to both their credit card holders as well as merchants who accept those cards.

Use STP Model templates for segmenting your market and developing ideal marketing campaigns

Visualize, assess, and update your business model. Collaborate on brainstorming with your team on your next business model innovation.

In this section, you need to establish the type of relationship you will have with each of your customer segments or how you will interact with them throughout their journey with your company.

There are several types of customer relationships

Personal assistance: you interact with the customer in person or by email, through phone call or other means.
Dedicated personal assistance: you assign a dedicated customer representative to an individual customer.
Self-service: here you maintain no relationship with the customer, but provides what the customer needs to help themselves.
Automated services: this includes automated processes or machinery that helps customers perform services themselves.
Communities: these include online communities where customers can help each other solve their own problems with regard to the product or service.
Co-creation: here the company allows the customer to get involved in the designing or development of the product. For example, YouTube has given its users the opportunity to create content for its audience.

You can understand the kind of relationship your customer has with your company through a customer journey map . It will help you identify the different stages your customers go through when interacting with your company. And it will help you make sense of how to acquire, retain and grow your customers.

This block is to describe how your company will communicate with and reach out to your customers. Channels are the touchpoints that let your customers connect with your company.

Channels play a role in raising awareness of your product or service among customers and delivering your value propositions to them. Channels can also be used to allow customers the avenue to buy products or services and offer post-purchase support.

There are two types of channels

Owned channels: company website, social media sites, in-house sales, etc.
Partner channels: partner-owned websites, wholesale distribution, retail, etc.

Revenues streams are the sources from which a company generates money by selling their product or service to the customers. And in this block, you should describe how you will earn revenue from your value propositions.

A revenue stream can belong to one of the following revenue models,

Transaction-based revenue: made from customers who make a one-time payment
Recurring revenue: made from ongoing payments for continuing services or post-sale services

There are several ways you can generate revenue from

Asset sales: by selling the rights of ownership for a product to a buyer
Usage fee: by charging the customer for the use of its product or service
Subscription fee: by charging the customer for using its product regularly and consistently
Lending/ leasing/ renting: the customer pays to get exclusive rights to use an asset for a fixed period of time
Licensing: customer pays to get permission to use the company’s intellectual property
Brokerage fees: revenue generated by acting as an intermediary between two or more parties
Advertising: by charging the customer to advertise a product, service or brand using company platforms

What are the activities/ tasks that need to be completed to fulfill your business purpose? In this section, you should list down all the key activities you need to do to make your business model work.

These key activities should focus on fulfilling its value proposition, reaching customer segments and maintaining customer relationships, and generating revenue.

There are 3 categories of key activities;

Production: designing, manufacturing and delivering a product in significant quantities and/ or of superior quality.
Problem-solving: finding new solutions to individual problems faced by customers.
Platform/ network: Creating and maintaining platforms. For example, Microsoft provides a reliable operating system to support third-party software products.

This is where you list down which key resources or the main inputs you need to carry out your key activities in order to create your value proposition.

There are several types of key resources and they are

Human (employees)
Financial (cash, lines of credit, etc.)
Intellectual (brand, patents, IP, copyright)
Physical (equipment, inventory, buildings)

Key partners are the external companies or suppliers that will help you carry out your key activities. These partnerships are forged in oder to reduce risks and acquire resources.

Types of partnerships are

Strategic alliance: partnership between non-competitors
Coopetition: strategic partnership between partners
Joint ventures: partners developing a new business
Buyer-supplier relationships: ensure reliable supplies

In this block, you identify all the costs associated with operating your business model.

You’ll need to focus on evaluating the cost of creating and delivering your value propositions, creating revenue streams, and maintaining customer relationships. And this will be easier to do so once you have defined your key resources, activities, and partners.

Businesses can either be cost-driven (focuses on minimizing costs whenever possible) and value-driven (focuses on providing maximum value to the customer).

Value Propositions

This is the building block that is at the heart of the business model canvas. And it represents your unique solution (product or service) for a problem faced by a customer segment, or that creates value for the customer segment.

A value proposition should be unique or should be different from that of your competitors. If you are offering a new product, it should be innovative and disruptive. And if you are offering a product that already exists in the market, it should stand out with new features and attributes.

Value propositions can be either quantitative (price and speed of service) or qualitative (customer experience or design).

What to Avoid When Creating a Business Model Canvas

One thing to remember when creating a business model canvas is that it is a concise and focused document. It is designed to capture key elements of a business model and, as such, should not include detailed information. Some of the items to avoid include,

Detailed financial projections such as revenue forecasts, cost breakdowns, and financial ratios. Revenue streams and cost structure should be represented at a high level, providing an overview rather than detailed projections.
Detailed operational processes such as standard operating procedures of a business. The BMC focuses on the strategic and conceptual aspects.
Comprehensive marketing or sales strategies. The business model canvas does not provide space for comprehensive marketing or sales strategies. These should be included in marketing or sales plans, which allow you to expand into more details.
Legal or regulatory details such as intellectual property, licensing agreements, or compliance requirements. As these require more detailed and specialized attention, they are better suited to be addressed in separate legal or regulatory documents.
Long-term strategic goals or vision statements. While the canvas helps to align the business model with the overall strategy, it should focus on the immediate and tangible aspects.
Irrelevant or unnecessary information that does not directly relate to the business model. Including extra or unnecessary information can clutter the BMC and make it less effective in communicating the core elements.

What Are Your Thoughts on the Business Model Canvas?

Once you have completed your business model canvas, you can share it with your organization and stakeholders and get their feedback as well. The business model canvas is a living document, therefore after completing it you need to revisit and ensure that it is relevant, updated and accurate.

What best practices do you follow when creating a business model canvas? Do share your tips with us in the comments section below.

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FAQs About the Business Model Canvas

Use clear and concise language
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Business model innovation in small- and medium-sized enterprises: Strategies for industry 4.0 providers and users

Journal of Manufacturing Technology Management

ISSN : 1741-038X

Article publication date: 7 March 2019

Industry 4.0 is expected to significantly transform industrial value creation. However, research on business models affected through Industry 4.0, and on small- and medium-sized enterprises (SMEs), remains scarce. In response, the purpose of this paper is to address both aspects, further elaborating on the role that SMEs can take toward Industry 4.0 as provider or user.

Design/methodology/approach

The paper used an exploratory research design based on 43 in-depth expert interviews within the three most important German industry sectors, mechanical and plant engineering, electrical engineering and automotive suppliers. Interviews were conducted with leading personnel of the respective enterprises, including 22 CEOs. They assign business model implications through Industry 4.0, referring to the Business Model Canvas, while the paper delineates between Industry 4.0 providers and users.

The paper finds that key resources and value proposition are among the most affected elements of the business model, whereas channels are the least affected. Furthermore, distinct characteristics between Industry 4.0 providers and users can be delineated. In general, Industry 4.0 providers’ business models are significantly more affected than users, except for key partners and customer relationships.

Research limitations/implications

Industry 4.0 remains at its early stages of implementation. As a result, many interviewees’ answers remain at a rather general level.

Practical implications

Strategies for the further alignment of the business models are provided for Industry 4.0 providers and users.

Originality/value

The paper is among the few that investigate Industry 4.0 in the context of SMEs and business models.

Manufacturing industry
Case studies
Small- and medium-sized enterprises
Industry 4.0

Müller, J.M. (2019), "Business model innovation in small- and medium-sized enterprises: Strategies for industry 4.0 providers and users", Journal of Manufacturing Technology Management , Vol. 30 No. 8, pp. 1127-1142. https://doi.org/10.1108/JMTM-01-2018-0008

Emerald Publishing Limited

Published by Emerald Publishing Limited. This article is published under the Creative Commons Attribution (CC BY 4.0) licence. Anyone may reproduce, distribute, translate and create derivative works of this article (for both commercial & non-commercial purposes), subject to full attribution to the original publication and authors. The full terms of this licence may be seen at http://creativecommons.org/licences/by/4.0/legalcode

1. Introduction

Industry 4.0 is a concept initiated by the German government that intends to introduce a paradigm shift toward a digital future in industrial production. It is an attempt to ensure future competitiveness for German industry ( Kagermann et al. , 2013 ; Lasi et al. , 2014 ). Industry 4.0 attempts to address two developments for German industry within a common program, changing environmental conditions and relevant technological developments ( Lasi et al. , 2014 ). Examples of changing environmental conditions include globalization, increased market volatility, abbreviated innovation cycles, intensified competition and increasing complexity ( Lasi et al. , 2014 ). Relevant technological developments in industrial production include increasing automation, digitalization and interconnection between machines, products and users. These developments are based on the concept of the Internet of Things, which will be introduced into the German manufacturing industry ( Kagermann et al. , 2013 ; Lasi et al. , 2014 ).

In addition to securing Germany’s industrial position in the world through efficient value creation, Industry 4.0 intends to provide flexibility and customization of products and services ( Kagermann et al. , 2013 ). Ecological and social benefits, such as reduced energy consumption, waste reduction and new, adaptive work environments, also will be achieved through Industry 4.0 ( Kagermann et al. , 2013 ; Kiel, Arnold and Voigt, 2017 ; Kiel, Müller and Voigt, 2017 ; Müller, Kiel and Voigt, 2018 ). Along with technical challenges, organizational conversions must be faced regarding Industry 4.0 ( Loebbecke and Picot, 2015 ). One of the main elements within these conversions is the business model, where highly profitable new or changed models are predicted ( Arnold et al. , 2016 ; Kagermann et al. , 2013 ; Loebbecke and Picot, 2015 ). In contrast to research in technical fields regarding Industry 4.0, economic challenges and potential, especially relating to business models, thus far have been examined less ( Arnold et al. , 2016 ; Brettel et al. , 2014 ; Loebbecke and Picot, 2015 ). Therefore, this paper attempts to support research in the field of Industry 4.0 and correlated effects on business models.

Which specific characteristics regarding user and provider perspectives of Industry 4.0 exist in SMEs toward Industry 4.0-triggered business models?

In response to rare research in this field, this paper applies an exploratory research design that is based on 43 in-depth expert interviews. These were conducted within the three most important German industry sectors: mechanical and plant engineering, electrical engineering and the automotive industry. Interviews were conducted with leading officials of the respective enterprises, including 22 chief executive officers (CEOs). These interviews were used as primary sources, whereas archival data were used as secondary sources. By analyzing the interviews, obtained statements were allocated to the elements of the Business Model Canvas by Osterwalder and Pigneur (2010) . Subsequently, those were analyzed regarding the user and provider perspectives of Industry 4.0.

In essence, this paper addresses the research topic of the appropriate design of companies’ business models in order to extract value from new technologies ( Chesbrough, 2010 ). Technologically triggered business model innovation remains an acknowledged but comparatively less researched stream in business model research ( Baden-Fuller and Haefliger, 2013 ). In response to technological developments, such as Industry 4.0, companies need to correspondingly adapt their business model, fostering opportunities and meeting challenges that arise ( Saebi et al. , 2016 ). The topic of new or changed business models that are enabled or challenged through Industry 4.0 remains a relatively new topic that few studies have investigated so far ( Arnold et al. , 2016 ; Ehret and Wirtz, 2017 ; Kiel, Arnold and Voigt, 2017 ; Kiel, Müller and Voigt, 2017 ). Especially addressing their unique characteristics regarding Industry 4.0, SMEs require research that supports them on redeveloping or extending their existing business models. However, SMEs’ business models considering Industry 4.0 have been neglected thus far ( Müller, Buliga and Voigt, 2018 ). Therefore, this paper addresses the topic of business model innovation through Industry 4.0 in SMEs. It delineates the user and provider perspectives toward Industry 4.0 that play a vital role in how companies approach the concept ( Kagermann et al. , 2013 ).

2. Theoretical background

2.1 industry 4.0.

The term Industry 4.0 encompasses the expectations of politics and corporate practice that industrial manufacturing is heading toward a fourth Industrial Revolution ( Kagermann et al. , 2013 ; Liao et al. , 2017 ; Maynard, 2015 ). The previous three Industrial Revolutions have achieved high productivity increases driven by a few fast-spreading general-purpose technologies, such as mechanization, electricity and information technology ( Veza et al. , 2015 ). These general-purpose technologies resulted in strong technical improvements and initiated complementary developments ( Bresnahan and Trajtenberg, 1995 ). For Industry 4.0, the underlying technology is represented by cyber-physical systems, whose technological infrastructure is based on the concept of the Internet of Things ( Kagermann et al. , 2013 ; Lasi et al. , 2014 ; Xu, 2012 ). Together with cloud computing, cyber-physical systems and the Internet of Things are regarded as the central technological foundations of Industry 4.0 ( Zhong et al. , 2017 ).

In Industry 4.0, cyber-physical systems establish an interconnection between the physical world and cyberspace ( He and Xu, 2015 ; Ren et al. , 2013 ). The systems create mechanisms for human-to-human, human-to-object and object-to-object interactions along the entire value-added chain ( Kagermann et al. , 2013 ). The task of integrating humans into this concept remains a challenge as it faces employees’ resistance, including fear of being replaced or having inadequate skills ( Frazzon et al. , 2013 ; Gorecky et al. , 2014 ; Hirsch-Kreinsen, 2016 ; Kiel, Arnold and Voigt, 2017 ; Kiel, Müller and Voigt, 2017 ).

The integration of cyber-physical systems into industrial production leads to the creation of cyber-physical production systems ( Schlechtendahl et al. , 2015 ). These can fulfill their potential when interconnected across the entire supply chain ( Haddud et al. , 2017 ). Cyber-physical production systems enable several data-based services, such as predictive condition monitoring and balancing and reducing energy consumption within production ( Shin et al. , 2014 ; Tao et al. , 2011 ). Those features are established along the entire lifecycle of machinery and products ( Lennartson et al. , 2010 ).

Aside from cyber-physical production systems, Industry 4.0 is driven by technological developments such as service-oriented architectures ( Guinard et al. , 2010 ; Mikusz, 2016 ; Raja et al. , 2013 ; Vogel-Heuser et al. , 2015 ). These enable the creation of new services and product-service utilities ( Kiel, Arnold and Voigt, 2017 ; Kiel, Müller and Voigt, 2017 ; Ehret and Wirtz, 2017 ). Those developments result in the concept of smart production, also termed smart manufacturing ( Davis et al. , 2012 ; Radziwon et al. , 2014 ; Wang et al. , 2016 ; Zuehlke, 2010 ). Smart production is characterized by manufacturing of intelligent, personalized products and by high levels of collaboration through production networks ( Lasi et al. , 2014 ; Veza et al. , 2015 ; Xu et al. , 2014 ).

Besides the German Industry 4.0 initiative, similar initiatives have been developed worldwide ( Liao et al. , 2017 ). The European Union has started a public-private partnership under the title “Factories of the Future” to achieve sustainable and competitive production ( European Commission, 2016 ). In the USA, similar efforts are underway through the Industrial Internet Consortium. In China, the “Internet Plus initiative” and “Made in China 2025” represent programs comparable to Industry 4.0, and are among several approaches worldwide ( Liao et al. , 2017 ; Müller and Voigt, 2018 ).

2.2 Small- and medium-sized enterprises

In Germany, the term SME refers to companies with less than €50m in sales and fewer than 500 employees ( German Federal Ministry of Economic Affairs and Energy, 2014 ). For this paper, SMEs represent a fruitful research context for various reasons.

First, prospects for Industry 4.0 can primarily be expected because of the horizontal and vertical interconnection of the value chain. In German industrial value creation, SMEs represent an essential part, as they represent 99.6 percent of all enterprises, generating more than 50 percent of the GDP. In turn, integrating SMEs is perceived as a key success factor of Industry 4.0 ( Müller, Buliga and Voigt, 2018 ).

Second, existing studies reveal that SMEs’ specific challenges differ from those of large companies regarding Industry 4.0. These challenges include resource limitations, low bargaining power and concerns that existing business models might be unsuitable for Industry 4.0 ( Müller and Voigt, 2016 ; Müller, Kiel and Voigt, 2018 ). SMEs also tend to have distinct characteristics regarding the introduction of information technologies in general ( Sharma and Bhagwat, 2006 ). Therefore, SMEs require solutions tailored to meet their specific challenges, but research has mainly focused on large enterprises rather than on SMEs ( Müller, Buliga and Voigt, 2018 ).

Third, the upper management of SMEs is able to supervise the whole enterprise. The managers’ knowledge reveals information about Industry 4.0 that affects the whole enterprise and the entire business model. They may possess knowledge of key aspects within their enterprise and can therefore provide both an external and internal perspective ( Müller, Buliga and Voigt, 2018 ).

2.3 Business model innovation

Companies can extract value from new technologies only through suitable business models ( Chesbrough, 2010 ). Technological innovation therefore is a key driver for business model innovation ( Baden-Fuller and Haefliger, 2013 ). In response, companies must adapt their business models to external threats and opportunities ( Saebi et al. , 2016 ). By introducing Industry 4.0, manufacturers are able to develop new customer value ( Arnold et al. , 2016 ; Ehret and Wirtz, 2017 ; Müller, Buliga and Voigt, 2018 ). This is expected through new services and product-service systems. Manufacturers can take two roles, the user or the provider perspective of Industry 4.0 ( Kagermann et al. , 2013 ).

Whereas different approaches describe business models, most of the current literature agrees on central aspects: creating and capturing value by providing a value proposition to customers ( Casadesus-Masanell and Ricart, 2010 ; Zott et al. , 2011 ; Zott and Amit, 2013 ). This paper used the Business Model Canvas by Osterwalder and Pigneur (2010) . It originates from the Business Model Ontology by Osterwalder et al. (2005) . The Business Model Canvas is used in current literature to analyze business models from a practitioner’s perspective. It has proven to be a comprehensive approach to business models, as its nine building blocks assist in generating a holistic and nuanced view on business models ( Wirtz et al. , 2016 ).

The following description offers a brief summary of the building blocks within the Business Model Canvas. The value proposition provides an overview of a company’s bundle of products and services. Customer segments describes the groups of customers that a company wants to offer value. Channels describe the various means that the company utilizes to contact its customers. Customer relationships explains the types of links that a company establishes between itself and its different customer segments. Key activities describes the arrangement of activities and resources. Key resources outlines the competencies necessary to execute the company’s business model. Key partners portrays the network of cooperative agreements with other companies necessary to efficiently offer and commercialize value. Cost structure summarizes the monetary consequences of the means employed in the business model. Revenue streams describes the ways that a company makes money through a variety of revenue flows ( Osterwalder and Pigneur, 2010 ). Figure 1 illustrates the nine building blocks within the Business Model Canvas.

Several authors in business model research address the capabilities and impacts of digital technologies on business models. However, the specific impact of Industry 4.0 on business models remains a field scarcely investigated ( Arnold et al. , 2016 ). Furthermore, empirical investigations of business models in context of the Industrial Internet of Things mostly have not focused on the special requirements of SMEs ( Arnold et al. , 2016 ; Echterfeld et al. , 2016 ; Kiel, Arnold and Voigt, 2017 ; Kiel, Müller and Voigt, 2017 ; Müller, Buliga and Voigt, 2018 ).

3. Research design

This qualitative empirical study aims to present the impacts of Industry 4.0 on business models of manufacturing SMEs. First, the study generates an overview of business model changes brought from Industry 4.0 for manufacturing SMEs. Changes in the nine building blocks are highlighted, supported by exemplary expert statements. Further, the paper attempts to differentiate between several business model changes that are specific for the user or provider perspective upon Industry 4.0. Therefore, relative frequencies of affected building blocks are used to show differences and similarities. The perspective of providers encompasses manufacturing cyber-physical systems and selling them to customers. Users of Industry 4.0 apply cyber-physical systems in production and services. This delineation presents an important categorization that companies can take regarding Industry 4.0 ( Kagermann et al. , 2013 ). The delineation between providers and users of Industry 4.0 investigation is especially suitable in the context of SMEs. SMEs often have a focused and often single business model that can be overseen by top managers, in contrast to larger enterprises ( Müller, Buliga and Voigt, 2018 ). The paper thereby also attempts to overcome the limitation of single key informants not being able to report complex organizational phenomena ( Glick et al. , 1990 ; Hughes and Preski, 1997 ).

Because of scarce prior research on Industry 4.0-related effects on business models of manufacturing SMEs, an exploratory qualitative research design was chosen. This is appropriate in exploratory research as rich data can be obtained, allowing the investigation of concrete managerial problems and extending the existing state of research ( Yin, 2009 ; Eisenhardt and Graebner, 2007 ). Except for single-case studies, empirical research on business models in the context of emerging technologies remains scarce ( Demil et al. , 2015 ). Multiple-case studies enable contextualization, allowing the comparison of distinct findings and increasing the reliability of obtained data ( Eisenhardt and Graebner, 2007 ). Furthermore, case study research has been used successfully in information systems research ( Dubé and Paré, 2003 ).

To conduct the qualitative survey, a representative sample was chosen ( Yin, 2009 ; Eisenhardt and Graebner, 2007 ; Demil et al. , 2015 ). According to Kagermann et al. (2013) , mechanical and plant engineering, the automotive industry and the electrical industry would be primarily affected by Industry 4.0. Therefore, those three industry sectors were chosen for the study. Case firms were selected to have one predominant business model, as competing business models within a single enterprise are difficult to include in research design ( Markides and Charitou, 2004 ). To ensure these aspects, SMEs were preselected using publicly available data for classification before requesting an interview. Furthermore, a competent interview partner in a leading position, preferably the CEO, was required ( Kumar et al. , 1993 ).

Using semi-structured interviews, an interview guideline representing the research question was developed. Publicly available data and internal data provided by the interviewees for triangulation to validate the research were used as secondary sources ( Yin, 2009 ; Gibbert et al. , 2008 ; Huber and Power, 1985 ). The interview guideline consists of two parts, obtaining information about the interviewee and the enterprise, and then about business model changes from Industry 4.0. The interviews were conducted via telephone and recorded on audio files in accordance with the interview partners. Subsequently, the interviews were transcribed from the audio files, and then subjected to a qualitative content analysis ( Miles and Hubermann, 1994 ). During this process, the initial categories were defined inductively and then aligned to existing research, intending to develop theoretical knowledge ( Edmondson and McManus, 2007 ; Holsti, 1968 ). In the next step, the final categories were condensed from the initial categories using a frequency analysis ( Holsti, 1968 ). This process was conducted independently by two researchers. Subsequently, the categories were checked for consistency and compared to derive inter-coder reliability ( Holsti, 1969 ), thereby validating the coding process.

All surveyed enterprises fulfill the criteria of SMEs according to the definition of the German institute of SME research: a maximum number of 500 employees and a maximum annual turnover of €50m ( German Federal Ministry of Economic Affairs and Energy, 2014 ). In all, 43 interviews with lengths between 25 and 60 min were conducted and 22 of the 43 interview partners are CEO of their respective enterprises. The others are among the top officials of their enterprises, and all are members of their management board. Within the 43 enterprises, 24 are mechanical and plant engineering enterprises, 13 are automotive suppliers and 6 are from the electrical industry sector. The average number of employees is 91.02, whereas the average annual turnover is €16.09m. Figure 2 reveals the detailed distribution within the empirical sample.

4. Findings

4.1 changes of business model elements through industry 4.0.

Table I provides an overview for the nine building blocks within the Business Model Canvas, including exemplary changes of the respective building blocks through Industry 4.0.

Key resources is the most named building block within the sample (58.14 percent of interviewees). The interviewees mainly mention two aspects. First, production facilities and equipment need to be altered or especially purchased according to the specifications of Industry 4.0. As one interviewee mentions: “Industry 4.0 will require [us] to either adapt existing machinery, also known as “retrofitting,” or to purchase new machines. Especially the second will inflict high costs on SMEs” (Interviewee No. 21). Second, the interviewees describe the need for new personnel or required retraining of existing personnel. An SME representative states: “Industry 4.0 technologies require especially trained experts in the field of IT. SMEs cannot afford those easily, as such competencies are rare on the market. Currently, such experts mainly go to larger enterprises” (Interviewee No. 2). Another expert says “[…] it will be a challenge that existing personnel might become obsolete because we can’t train them accordingly” (Interviewee No. 30). This is confirmed by another interviewee, who states: “An SME has a limited workforce. The retraining required for Industry 4.0 is manageable for a larger enterprise. But who runs the daily business in an SME if the workforce is being trained? No SME can easily acquire adequate backup here” (Interviewee No. 14).

Value proposition is the second most named building block (53.49 percent of interviewees). The interviewees mainly describe new products, services or a combination of both to be offered to the customer. As one interviewee explains: “Our machines can produce more individually and tailored to customer demands. The ultimate goal here is often described as ‘batch size one.’ However, it remains questionable if this is really required for each and every product” (Interviewee No. 23). A manufacturer of machinery and equipment states: “We can offer new features with our machines, e.g., predictive maintenance, self-optimization, or reduction of energy consumption” (Interviewee No. 8). New services through Industry 4.0, which are often mentioned together with new products, are mostly described as “data-driven.” As another representative explains: “It is our goal to not only produce the machine, but set it up and connect it with other machines in the factory. We want to produce ‘turnkey’ solutions for our customer, especially regarding the integration in existing production plants” (Interviewee No. 39). Another interviewee describes the aforementioned retrofitting of machines: “As an SME, we can hardly keep up to build the newest equipment everywhere. But our strength is individual service. And this is something that you need if you want to make a 30-year-old machine ready for Industry 4.0” (Interviewee No. 6).

Key partners is tied for the third most named building block (48.84 percent of interviewees). In this context, the SMEs’ representatives primarily name partners that are experts in IT-related aspects. One interviewee states: “An SME cannot be an expert in machines and in IT easily. But it can look for the right partner, for me preferably another SME, that it can work together with” (Interviewee No. 11). Another interviewee mentions that “data security is a task that requires the right partners for us, but those partners are rare” (Interviewee No. 27).

Customer relationships is also tied for the third most named building block (48.84 percent of interviewees). Most interviewees agree that Industry 4.0 will lead to long-term relationships that include working closer together: “I experience that customers and suppliers are trying to solve these issues regarding Industry 4.0 together. You cannot achieve new technological developments in a short time, or if you only worry about costs in the short run” (Interviewee No. 27).

Customer segments is tied for the fifth most named building block (41.86 percent of interviewees). Here, the interviewees explain that new data-based products and services can lead to new customers being addressed. As one expert mentions: “Industry 4.0 rewrites the rules of the game to a certain extent. Also, the smaller [SMEs] are trying to address new customers, but also other players from abroad or from the IT industry try to enter the market” (Interviewee No. 28).

Revenue streams is also tied for the fifth most named building block (41.86 percent of interviewees). In this regard, all experts state that new pricing and revenue models will be available through Industry 4.0: “Pay per use, pay per feature, or other payment methods like this become possible. But before, this would just have been too hard to supervise. In Industry 4.0, this can be done automatically to a large extent” (Interviewee No. 13).

The Cost structure (37.21 percent of interviewees) is third least named by the interviewees, but still significantly more than key activities and channels. Most statements in this regard relate to investments required for Industry 4.0. As one interviewee mentions: “SMEs have a hard time facing the costs that come with Industry 4.0 implementation” (Interviewee No. 5). Cost savings through increases in productivity are also mentioned: “We will get more flexible and efficient in value creation, decreasing our variable costs through Industry 4.0” (Interviewee No. 26).

Key activities is second least named from all building blocks within the Business Model Canvas (23.26 percent of interviewees). Most interviewees name data-based activities through Industry 4.0: “We will be able to do things like data analysis and thereupon optimize our processes” (Interviewee No. 12). Another SME representative offers a possible explanation for the low number of SMEs naming key activities in the context of Industry 4.0: “SMEs tend to stick to what they did. They just want to do it better and especially more efficiently. For me, Industry 4.0 also includes the chance to do something completely new, even for an SME” (Interviewee No 40).

Channels is the least named building block (17.65 percent of interviewees). The few interviewees who mention this element of the Business Model Canvas relate to digital channels to communicate with their customers. One interviewee explains: “Industry 4.0, from my point of view, is able to save a lot of time in communication. One can now communicate digitally, or even the machines take over that job as they communicate among themselves” (Interviewee No. 17). Another interviewee offers a possible explanation for the lowest naming of this building block: “SMEs’ key asset, at least for many of them, is talking personally to each other and knowing the person you talk to. As such, they won’t easily turn to new ways of communication, although they should find a form to enter these new ways of communication” (Interviewee No. 40).

4.2 User and provider perspectives on Industry 4.0

In general, the present study finds that SMEs regarding Industry 4.0 from a provider perspective name the highest ratio of building blocks affected within their enterprise. Five out of nine building blocks are predominantly mentioned from a provider perspective. Two building blocks are stated comparably often from the user perspective and the provider perspective. The building block that both perspectives agree to be least affected by Industry 4.0 is channels, whereas key resources is mentioned by the majority of both perspectives as most affected by Industry 4.0. Key activities is named comparably seldom by the providers and the users, indicating a small impact on this building block for both perspectives on Industry 4.0. Only two building blocks are named by a higher percentage of Industry 4.0 users than from Industry 4.0 providers: key partners and customer relationships. These findings are summarized in Table II .

Figure 3 illustrates the ratio of building blocks affected from the perspectives of Industry 4.0 users and Industry 4.0 providers.

Within the sample of this study, most SMEs perceive themselves as users rather than as providers in the context of Industry 4.0. Only three enterprises regard themselves as both users and providers regarding Industry 4.0. Overall, the findings for both perspectives on Industry 4.0 can be summarized as follows: the providers of Industry 4.0 generally expect a significantly higher impact on their respective business models through Industry 4.0, except for the building blocks of key partners and customer relationships. However, this group constitutes the smaller portion of SMEs surveyed. The users of Industry 4.0 expect less impact on their business models through Industry 4.0 than providers, except for key partners and customer relationships.

5. Interpretation

Key resources is named predominantly by the providers of Industry 4.0-based solutions. This can be explained as manufacturing firms having to obtain competencies regarding IT. This in particular affects human resources, as data analysis experts and associated hardware are required ( Müller, Buliga and Voigt, 2018 ; Rachinger et al. , 2018 ). Fewer changes are expected for employees in production itself, but “creative problem-solvers” are increasingly required ( Kiel, Arnold and Voigt, 2017 ; Kiel, Müller and Voigt, 2017 ). Both developments are logical in respect to the providers of Industry 4.0-based products and services, as the new value propositions especially will require new key resources. Still, the task of integrating existing workers into Industry 4.0 remains a challenge that requires further investigation. This encompasses the need for training and qualification of the existing workforce that could be especially challenging for SMEs.

Value proposition is named predominantly by the providers of Industry 4.0-based solutions. This seems reasonable, as new value propositions, such as individualized products meeting customer requirements specifically with batch size one products, are expected through Industry 4.0 ( Kagermann et al. , 2013 ; Oesterreich and Teuteberg, 2016 ; Rachinger et al. , 2018 ). Furthermore, individual and customer-oriented services, making use of digital technologies and data analysis, are predicted through Industry 4.0. These include condition-based monitoring and predictive maintenance along with optimization of production systems and value chains ( Kagermann et al. , 2013 ; Müller, Buliga and Voigt, 2018 ). Conclusively, the providers of Industry 4.0-based predominantly mention value proposition, as providers of those solutions and products will primarily generate new value propositions.

Key partners is named predominantly by the users of Industry 4.0. This is confirmed in current literature, which states that key partners is considered to be especially important for operation and control of Industry 4.0-based systems ( Kagermann et al. , 2013 ; Porter and Heppelmann, 2014 ). Due to their limited size, SMEs as providers will most likely require key partners in order to develop new Industry 4.0-based solutions ( Müller, Buliga and Voigt, 2018 ).

Customer relationships is named predominantly by the users of Industry 4.0. Long-term, intensified relationships with manufacturers and providers of products and services are predicted, especially for usage of products and services ( Kagermann et al. , 2013 ; Müller, Buliga and Voigt, 2018 ). The findings are therefore in line with current research but should be extended with further investigation regarding the customer relationships of users and providers in Industry 4.0.

Customer segments is named comparably often by the providers and the users of Industry 4.0. This finding questions the assumption that providers would address new customer segments to a greater extent. Also in literature, no differentiation between provider and user perspectives of Industry 4.0 can be found thus far. However, new customer segments are predicted through Industry 4.0 ( Arnold et al. , 2016 ; Kagermann et al. , 2013 ; Kiel, Arnold and Voigt, 2017 ; Kiel, Müller and Voigt, 2017 ; Müller, Buliga and Voigt, 2018 ). This differentiation should be addressed in detail in further research.

Revenue streams is named predominantly by the providers of Industry 4.0-based solutions. New revenue models, such as dynamic pricing and pay-per-use payment models, are expected through Industry 4.0 ( Kiel, Arnold and Voigt, 2017 ; Kiel, Müller and Voigt, 2017 ; Müller, Buliga and Voigt, 2018 ). This can be explained as providers might foresee these new possibilities, as they will provide new revenue streams.

Cost structure is named predominantly by the providers of Industry 4.0-based solutions. Large investments are expected for Industry 4.0 to obtain required key resources. However, reductions in fixed and variable costs are predicted through increased quality and productivity ( Arnold et al. , 2016 ; Kagermann et al. , 2013 ; Müller, Buliga and Voigt, 2018 ). For obtaining new key resources, this evaluation seems logical, as providers will require large investments in this respect. For possible savings, those might not yet be seen for users in industry, especially in SMEs ( Müller, Buliga and Voigt, 2018 ).

Key activities is named predominantly by the providers of Industry 4.0-based products and solutions. In general, new key activities are expected through data management, data analysis and data mining to enable knowledge-based decision making ( Brettel et al. , 2014 ; Kiel, Arnold and Voigt, 2017 ; Kiel, Müller and Voigt, 2017 ). The low estimation for key activities from SMEs can be reasoned as manufacturing SMEs are not as far developed in terms of data management and handling so far. Therefore, they might not regard this topic as important yet ( Müller, Buliga and Voigt, 2018 ). However, the estimation of the providers of Industry 4.0-based solutions is in line with the state of research, as the provision of smart products and services will especially require new key activities.

Channels is the least named for all perspectives (17.65 percent of interviewees), and no differentiation between providers or users of Industry 4.0 can be found. Collaborative ways of value creation are predicted regarding Industry 4.0 that include co-creation between the providers and the users of Industry 4.0-based solutions, based on new communication technologies ( Kiel, Arnold and Voigt, 2017 ; Kiel, Müller and Voigt, 2017 ; Müller, Buliga and Voigt, 2018 ). As a result of this co-creation process, individual products can be created, understanding customer needs in detail ( Kagermann et al. , 2013 ; Müller, Pommeranz, Weisser and Voigt, 2018 ). However, the results do not reveal a differentiation between provider and supplier perspectives and offer a low evaluation of channels in general. This can be explained as direct, personal and highly individual Channels are already present in SMEs and provide a highly valuable characteristic of SMEs ( Müller and Voigt, 2016 ).

The finding that providers consider more changes in terms of impacts on their respective business model through Industry 4.0 seems logical. The provision of products and services from design to market affects more elements within a business model than using them. This becomes especially obvious for the low evaluation of key activities from a user perspective. The evaluation of key resources regarded as most important and channels regarded as least important from both perspectives is mostly in line with current research for larger enterprises ( Arnold et al. , 2016 ).

6. Managerial implications

Besides presenting the key findings, this paper separates managerial implications for the perspectives of both providers and users of Industry 4.0. Providers in respect to Industry 4.0 are recommended to investigate necessary key activities and required key partners regarding Industry 4.0. Especially for the latter, SMEs as providers will definitely require adequate partners for the provision of Industry 4.0-based solutions due to their limited size. Addressing new customer segments could provide new Industry 4.0-based solutions to a broader group of potential customers. New customer relationships should also be considered, also in respect to the mentioned new relationships that could emerge through digital channels. Furthermore, this paper recommends the possibilities of new channels in terms of Industry 4.0. This includes new technologies for communication in collaboration with existing and well-established channels. For the users of Industry 4.0, it can be suggested to especially regard the value of key partners and customer relationships, thereby finding suitable key partners for the provision of Industry 4.0-based solutions. In addition, the users of Industry 4.0 are advised to foster customer relationships in terms of Industry 4.0.

Extending these recommendations, special challenges of SMEs toward Industry 4.0 must be regarded: lack of financial resources, low production numbers, low degrees of standardization and a lack of understanding of integration, which are major concerns for German SMEs ( Müller and Voigt, 2016 ). Furthermore, access to skilled employees and concerns regarding data security and privacy concerns are among major challenges for German SMEs that plan to implement Industry 4.0. Conjointly with these findings, this paper presents the following recommendations for users and providers of Industry 4.0.

For users, the reduction of capital commitment regarding Industry 4.0-based solutions that are cost-intensive is essential. Pay-per-use contracts and leasing of machinery could provide ways to reduce capital commitment. This approach could also include financing by customers, especially larger enterprises possessing larger financial resources, relating to the high importance of new customer relationships. Furthermore, finding compound effects with other enterprises regarding Industry 4.0 is recommended, relating to the high importance of new key partners for users regarding Industry 4.0. This approach could assist in reducing costs, establishing standards and gaining access to trained personnel and expertise. Potential solutions could be platforms among SMEs or partnerships with larger enterprises.

For providers, this paper proposes business models building on new value propositions, key activities and revenue streams, such as provision of services, complete product-service systems and payment methods. Thereby, providers of Industry 4.0-based solutions could address the concerns of SME users of Industry 4.0, such as lacking expertise toward Industry 4.0 or insufficient financial resources. Offering complete solutions, such as service provision and hardware conjointly, could assist in generating compound effects and offering new value propositions to customers. Addressing the requirement of new key resources in terms of Industry 4.0, compound effects could be found within platforms among SMEs or partnerships with larger enterprises. These could also assist in developing new cost structures required in terms of Industry 4.0, relating to new key resources required.

Overall, it can be concluded that a provider role toward Industry 4.0 creates larger impacts on SMEs’ business models. Therefore, companies need to decide if this poses a threat toward their established business models, and whether they should therefore avoid the provider role toward Industry 4.0. However, taking a provider role toward Industry 4.0 could also enable SMEs to fully grasp the potentials of Industry 4.0, which remain out of reach of Industry 4.0 users. SMEs are therefore advised to consider both roles but encouraged to take the risks to become an Industry 4.0 provider.

7. Conclusion

This paper attempts to provide insights for manufacturing SMEs and how Industry 4.0 affects their business model, leading to specific integration strategies. Thereby, this study contributes to the current body of knowledge regarding business models and Industry 4.0. It presents findings that are especially focused on SMEs as one of the few studies in this context. The detailed differentiation among the nine building blocks for Industry 4.0 providers and users is unique and unseen in literature thus far. This approach is especially suitable regarding SMEs due to their focused and mostly singular business model.

Furthermore, the approach of differentiating between the perspectives of a provider and a user of a technology has scarcely been conducted thus far. It is expandable to other technologically triggered business model innovations and provides an insightful field for future research. The results show that distinct characteristics between these two perspectives exist, whereas providers of Industry 4.0-based solutions expect the most changes in their business models in regard to Industry 4.0. Notably, a significantly larger proportion of SMEs in this study can be characterized as Industry 4.0 users, with Industry 4.0 providers only constituting about one quarter of the sample. This information can be extended for the Industrial Internet of Things and comparable concepts to Industry 4.0 outside of Germany.

Because of the exploratory qualitative research design, the study also inherits several limitations. Exploratory research in this case has the difficulty that Industry 4.0 might be at its start of implementation for many of the surveyed SMEs. A generalization to other research settings without verification using different research methods is considered critical. However, as the study follows a replication sampling logic ( Yin, 2009 ) and encompasses 43 interviews, the results can present general patterns about impacts on business models regarding Industry 4.0. As a further limitation, this study mainly relies on qualitative results and uses case materials exclusively for validation. Future research could include case material in order to extend the empirical results obtained.

Further recommendations for future research include quantitative research methods in order to verify the qualitative research results. A comparison to larger enterprises, if those can be condensed to a single business model referring to Industry 4.0, would present further valuable insights for this topic. The interdependence between different elements within a business model is of particular interest, also in connection with reasons for the adoption of new or changed business models and their implementation processes. An investigation regarding the implementation of business model adaptions over time should be considered, investigating the interplay with partners, suppliers and customers. The managerial implications proposed must be verified in practice, whereas their effectiveness needs to be addressed in future research.

Business model Canvas

Annual turnover and number of employees within sample

Ratio of building blocks affected for provider and user perspectives of Industry 4.0

Business model building blocks and exemplary changes through Industry 4.0

Total ratio of perspectives and their predominant naming of building blocks

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Reinventing equity research as a profit-making business

The traditional business of providing equity research to asset managers has been under pressure in recent years, as managers, challenged to deliver alpha to their clients, seek new forms of research and asset owners turn increasingly to passive strategies. Now, new regulation—specifically, the advent of MiFID II in Europe in 2018—is about to escalate these pressures.

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The result will be an increase in both the magnitude and the pace of change in equity research, reducing the scale of the research business and reshaping its economics. Nonetheless, equity research still offers an attractive business opportunity for banks and broker-dealers that can adapt to deliver the types of research the buy side values and also successfully transform their operating models.

The trigger for accelerated change in the equity research business is the January 2018 go-live of European MiFID II regulations, which call for the explicit unbundling of charges for execution services and investment research by banks and broker-dealers. While the new MiFID regulations may strictly apply only to European asset managers, the impact is likely to be broader, as asset managers extend the MiFID II model of separate payments beyond Europe to their global operations. The result could be a sharp decline in the demand for equity research: the consensus view of banks we surveyed calls for an industry-wide drop in equity-research revenues of 30 percent or more over the next three years, although other scenarios could well play out (exhibit).

For the first time, bank and broker-dealer equity research will operate as a free-standing profit center, forcing a transformation of the business. The buy side will pay broker-dealers for actionable research that adds investment value, but the demand will fall far short of the mountains of research that banks currently supply “for free.” For asset managers, as research becomes an itemized cost, profits could be sharply reduced—by as much as 15 to 20 percent for firms in Europe. The resulting change to research operations could be enormous.

To succeed in this transformed environment and meet asset managers’ more exacting standards, banks and broker-dealers will need to focus on the changing nature of the types of research the buy side finds useful and overhaul their offerings. Long-only active managers and hedge funds focused on equities are demanding less in the way of traditional products (that is, single-stock research reports) and more in services, such as access to analysts and corporate management. Moreover, investors are seeking new forms of information and analytics, through big data and artificial intelligence (AI), which can complement conventional fundamental research in portfolio decision making.

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Beyond producing quality, differentiated research, banks will also need to adopt new operating models for their equity research businesses. This calls for focusing on four strategic priorities:

Establishing a research footprint that capitalizes on strengths of coverage in sectors and regions, and extending reach through joint ventures.
Understanding the scarcity and perishability of ideas, and what value clients place on research in different forms—reports, analyst and corporate-management access, conferences, and other forms of information and analytics.
Translating client preferences and demands into informed pricing structures. Explicit prices must be assigned to research, whether item-by-item for individual products and services or through packages or broad subscriptions.
Adopting new technologies to generate novel investment ideas and lower costs. The sell side can leverage AI to interpret high-frequency market data in real time, patterns in both supply and demand chains, and social media. They can reduce costs by automating basic financial analysis and maintenance research. For client coverage, analytical tools can discern clients’ preferred means of research delivery and service.

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Analytics in banking: Time to realize the value

Five business models may evolve for the provision of equity research and execution services in the future:

A few global banks will lead the industry with both global execution services and high-quality, broad-based research coverage.
Another cadre of two to three firms, likely market makers that are not banks, will be global leaders in execution but offer no research or only a limited, specialized array.
A second group of universal banks will attempt to maintain their current broad research efforts, combined with global execution at a smaller scale than the leaders. In view of dwindling research revenues and the competition for low-cost execution, however, this model is not likely sustainable, although some firms could make up the shortfall in client revenue internally from banking and wealth-management units. Accordingly, many firms currently large in both research and execution will have to make significant cuts in one direction or the other.
The majority of banks will rationalize their research and execution capabilities by focusing on their “home-field advantage” in local sectors and regional markets. Demand from local and global clients will likely support one to three such banks per region.
Independent research firms offering little or no execution should see significant growth in the new landscape, as they reverse the past trend among many research boutiques of offering execution as a means for the buy side to pay for research.

These strategic shifts are likely to take time, however, given several barriers to exit. Research is an entrenched part of capital-markets operations and provides value to banks’ investment-banking, wealth-management, and equities units, as well the intangible benefits of burnishing the corporate brand. Some firms will want to keep a hand in research as an option to scaling back up. Evolution will come fastest to European banks, followed quickly by the United States, while the Asian market may be slower to change.

Daniele Chiarella and Matthieu Lemerle are senior partners in McKinsey’s London office . Jonathan Klein is a partner in the New York office , where Roger Rudisuli is a senior partner.

The authors wish to thank Ben Margolis, Jeff Penney, and Gabriela Skouloudi for their contributions to this article.

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Business research: definition, types & methods.

10 min read What is business research and why does it matter? Here are some of the ways business research can be helpful to your company, whichever method you choose to carry it out.

What is business research?

Business research helps companies make better business decisions by gathering information. The scope of the term business research is quite broad – it acts as an umbrella that covers every aspect of business, from finances to advertising creative. It can include research methods which help a company better understand its target market. It could focus on customer experience and assess customer satisfaction levels. Or it could involve sizing up the competition through competitor research.

Often when carrying out business research, companies are looking at their own data, sourced from their employees, their customers and their business records. However, business researchers can go beyond their own company in order to collect relevant information and understand patterns that may help leaders make informed decisions. For example, a business may carry out ethnographic research where the participants are studied in the context of their everyday lives, rather than just in their role as consumer, or look at secondary data sources such as open access public records and empirical research carried out in academic studies.

There is also a body of knowledge about business in general that can be mined for business research purposes. For example organizational theory and general studies on consumer behavior.

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Why is business research important?

We live in a time of high speed technological progress and hyper-connectedness. Customers have an entire market at their fingertips and can easily switch brands if a competitor is offering something better than you are. At the same time, the world of business has evolved to the point of near-saturation. It’s hard to think of a need that hasn’t been addressed by someone’s innovative product or service.

The combination of ease of switching, high consumer awareness and a super-evolved marketplace crowded with companies and their offerings means that businesses must do whatever they can to find and maintain an edge. Business research is one of the most useful weapons in the fight against business obscurity, since it allows companies to gain a deep understanding of buyer behavior and stay up to date at all times with detailed information on their market.

Thanks to the standard of modern business research tools and methods, it’s now possible for business analysts to track the intricate relationships between competitors, financial markets, social trends, geopolitical changes, world events, and more.

Find out how to conduct your own market research and make use of existing market research data with our Ultimate guide to market research

Types of business research

Business research methods vary widely, but they can be grouped into two broad categories – qualitative research and quantitative research .

Qualitative research methods

Qualitative business research deals with non-numerical data such as people’s thoughts, feelings and opinions. It relies heavily on the observations of researchers, who collect data from a relatively small number of participants – often through direct interactions.

Qualitative research interviews take place one-on-one between a researcher and participant. In a business context, the participant might be a customer, a supplier, an employee or other stakeholder. Using open-ended questions , the researcher conducts the interview in either a structured or unstructured format. Structured interviews stick closely to a question list and scripted phrases, while unstructured interviews are more conversational and exploratory. As well as listening to the participant’s responses, the interviewer will observe non-verbal information such as posture, tone of voice and facial expression.

Focus groups

Like the qualitative interview, a focus group is a form of business research that uses direct interaction between the researcher and participants to collect data. In focus groups , a small number of participants (usually around 10) take part in a group discussion led by a researcher who acts as moderator. The researcher asks questions and takes note of the responses, as in a qualitative research interview. Sampling for focus groups is usually purposive rather than random, so that the group members represent varied points of view.

Observational studies

In an observational study, the researcher may not directly interact with participants at all, but will pay attention to practical situations, such as a busy sales floor full of potential customers, or a conference for some relevant business activity. They will hear people speak and watch their interactions , then record relevant data such as behavior patterns that relate to the subject they are interested in. Observational studies can be classified as a type of ethnographic research. They can be used to gain insight about a company’s target audience in their everyday lives, or study employee behaviors in actual business situations.

Ethnographic Research

Ethnographic research is an immersive design of research where one observes peoples’ behavior in their natural environment. Ethnography was most commonly found in the anthropology field and is now practices across a wide range of social sciences.

Ehnography is used to support a designer’s deeper understanding of the design problem – including the relevant domain, audience(s), processes, goals and context(s) of use.

The ethnographic research process is a popular methodology used in the software development lifecycle. It helps create better UI/UX flow based on the real needs of the end-users.

If you truly want to understand your customers’ needs, wants, desires, pain-points “walking a mile” in their shoes enables this. Ethnographic research is this deeply rooted part of research where you truly learn your targe audiences’ problem to craft the perfect solution.

Case study research

A case study is a detailed piece of research that provides in depth knowledge about a specific person, place or organization. In the context of business research, case study research might focus on organizational dynamics or company culture in an actual business setting, and case studies have been used to develop new theories about how businesses operate. Proponents of case study research feel that it adds significant value in making theoretical and empirical advances. However its detractors point out that it can be time consuming and expensive, requiring highly skilled researchers to carry it out.

Quantitative research methods

Quantitative research focuses on countable data that is objective in nature. It relies on finding the patterns and relationships that emerge from mass data – for example by analyzing the material posted on social media platforms, or via surveys of the target audience. Data collected through quantitative methods is empirical in nature and can be analyzed using statistical techniques. Unlike qualitative approaches, a quantitative research method is usually reliant on finding the right sample size, as this will determine whether the results are representative. These are just a few methods – there are many more.

Surveys are one of the most effective ways to conduct business research. They use a highly structured questionnaire which is distributed to participants, typically online (although in the past, face to face and telephone surveys were widely used). The questions are predominantly closed-ended, limiting the range of responses so that they can be grouped and analyzed at scale using statistical tools. However surveys can also be used to get a better understanding of the pain points customers face by providing open field responses where they can express themselves in their own words. Both types of data can be captured on the same questionnaire, which offers efficiency of time and cost to the researcher.

Correlational research

Correlational research looks at the relationship between two entities, neither of which are manipulated by the researcher. For example, this might be the in-store sales of a certain product line and the proportion of female customers subscribed to a mailing list. Using statistical analysis methods, researchers can determine the strength of the correlation and even discover intricate relationships between the two variables. Compared with simple observation and intuition, correlation may identify further information about business activity and its impact, pointing the way towards potential improvements and more revenue.

Experimental research

It may sound like something that is strictly for scientists, but experimental research is used by both businesses and scholars alike. When conducted as part of the business intelligence process, experimental research is used to test different tactics to see which ones are most successful – for example one marketing approach versus another. In the simplest form of experimental research, the researcher identifies a dependent variable and an independent variable. The hypothesis is that the independent variable has no effect on the dependent variable, and the researcher will change the independent one to test this assumption. In a business context, the hypothesis might be that price has no relationship to customer satisfaction. The researcher manipulates the price and observes the C-Sat scores to see if there’s an effect.

The best tools for business research

You can make the business research process much quicker and more efficient by selecting the right tools. Business research methods like surveys and interviews demand tools and technologies that can store vast quantities of data while making them easy to access and navigate. If your system can also carry out statistical analysis, and provide predictive recommendations to help you with your business decisions, so much the better.

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Home Market Research

Business Research: Methods, Types & Examples

Content Index

Business research: Definition

Quantitative research methods, qualitative research methods, advantages of business research, disadvantages of business research, importance of business research.

Business research is a process of acquiring detailed information on all the areas of business and using such information to maximize the sales and profit of the business. Such a study helps companies determine which product/service is most profitable or in demand. In simple words, it can be stated as the acquisition of information or knowledge for professional or commercial purposes to determine opportunities and goals for a business.

Business research can be done for anything and everything. In general, when people speak about business research design , it means asking research questions to know where the money can be spent to increase sales, profits, or market share. Such research is critical to make wise and informed decisions.

LEARN ABOUT: Research Process Steps

For example: A mobile company wants to launch a new model in the market. But they are not aware of what are the dimensions of a mobile that are in most demand. Hence, the company conducts business research using various methods to gather information, and the same is then evaluated, and conclusions are drawn as to what dimensions are most in demand.

This will enable the researcher to make wise decisions to position his phone at the right price in the market and hence acquire a larger market share.

LEARN ABOUT: Test Market Demand

Business research: Types and methodologies

Business research is a part of the business intelligence process. It is usually conducted to determine whether a company can succeed in a new region, to understand its competitors, or simply select a marketing approach for a product. This research can be carried out using steps in qualitative research methods or quantitative research methods.

Quantitative research methods are research methods that deal with numbers. It is a systematic empirical investigation using statistical, mathematical, or computational techniques . Such methods usually start with data collection and then proceed to statistical analysis using various methods. The following are some of the research methods used to carry out business research.

LEARN ABOUT: Data Management Framework

Survey research

Survey research is one of the most widely used methods to gather data, especially for conducting business research. Surveys involve asking various survey questions to a set of audiences through various types like online polls, online surveys, questionnaires, etc. Nowadays, most of the major corporations use this method to gather data and use it to understand the market and make appropriate business decisions.

Various types of surveys, like cross-sectional studies , which need to collect data from a set of audiences at a given point of time, or longitudinal surveys which are needed to collect data from a set of audiences across various time durations in order to understand changes in the respondents’ behavior are used to conduct survey research. With the advancement in technology, surveys can now be sent online through email or social media .

For example: A company wants to know the NPS score for their website i.e. how satisfied are people who are visiting their website. An increase in traffic to their website or the audience spending more time on a website can result in higher rankings on search engines which will enable the company to get more leads as well as increase its visibility.

Hence, the company can ask people who visit their website a few questions through an online survey to understand their opinions or gain feedback and hence make appropriate changes to the website to increase satisfaction.

Learn More: Business Survey Template

Correlational research

Correlational research is conducted to understand the relationship between two entities and what impact each one of them has on the other. Using mathematical analysis methods, correlational research enables the researcher to correlate two or more variables .

Such research can help understand patterns, relationships, trends, etc. Manipulation of one variable is possible to get the desired results as well. Generally, a conclusion cannot be drawn only on the basis of correlational research.

For example: Research can be conducted to understand the relationship between colors and gender-based audiences. Using such research and identifying the target audience, a company can choose the production of particular color products to be released in the market. This can enable the company to understand the supply and demand requirements of its products.

Causal-Comparative research

Causal-comparative research is a method based on the comparison. It is used to deduce the cause-effect relationship between variables. Sometimes also known as quasi-experimental research, it involves establishing an independent variable and analyzing the effects on the dependent variable.

In such research, data manipulation is not done; however, changes are observed in the variables or groups under the influence of the same changes. Drawing conclusions through such research is a little tricky as independent and dependent variables will always exist in a group. Hence all other parameters have to be taken into consideration before drawing any inferences from the research.

LEARN ABOUT: Causal Research

For example: Research can be conducted to analyze the effect of good educational facilities in rural areas. Such a study can be done to analyze the changes in the group of people from rural areas when they are provided with good educational facilities and before that.

Another example can be to analyze the effect of having dams and how it will affect the farmers or the production of crops in that area.

LEARN ABOUT: Market research trends

Experimental research

Experimental research is based on trying to prove a theory. Such research may be useful in business research as it can let the product company know some behavioral traits of its consumers, which can lead to more revenue. In this method, an experiment is carried out on a set of audiences to observe and later analyze their behavior when impacted by certain parameters.

LEARN ABOUT: Behavioral Targeting

For example: Experimental research was conducted recently to understand if particular colors have an effect on consumers’ hunger. A set of the audience was then exposed to those particular colors while they were eating, and the subjects were observed. It was seen that certain colors like red or yellow increase hunger.

Hence, such research was a boon to the hospitality industry. You can see many food chains like Mcdonalds, KFC, etc., using such colors in their interiors, brands, as well as packaging.

Another example of inferences drawn from experimental research, which is used widely by most bars/pubs across the world, is that loud music in the workplace or anywhere makes a person drink more in less time. This was proven through experimental research and was a key finding for many business owners across the globe.

Online research / Literature research

Literature research is one of the oldest methods available. It is very economical, and a lot of information can be gathered using such research. Online research or literature research involves gathering information from existing documents and studies, which can be available at Libraries, annual reports, etc.

Nowadays, with the advancement in technology, such research has become even more simple and accessible to everyone. An individual can directly research online for any information that is needed, which will give him in-depth information about the topic or the organization.

Such research is used mostly by marketing and salespeople in the business sector to understand the market or their customers. Such research is carried out using existing information that is available from various sources. However, care has to be taken to validate the sources from where the information is going to be collected.

For example , a salesperson has heard a particular firm is looking for some solution that their company provides. Hence, the salesperson will first search for a decision maker from the company, investigate what department he is from, and understand what the target company is looking for and what they are into.

Using this research, he can cater his solution to be spot on when he pitches it to this client. He can also reach out to the customer directly by finding a means to communicate with him by researching online.’

LEARN ABOUT: 12 Best Tools for Researchers

Qualitative research is a method that has a high importance in business research. Qualitative research involves obtaining data through open-ended conversational means of communication. Such research enables the researcher to not only understand what the audience thinks but also why he thinks it.

In such research, in-depth information can be gathered from the subjects depending on their responses. There are various types of qualitative research methods, such as interviews, focus groups, ethnographic research, content analysis, and case study research, that are widely used.

Such methods are of very high importance in business research as they enable the researcher to understand the consumer. What motivates the consumer to buy and what does not is what will lead to higher sales, and that is the prime objective for any business.

Following are a few methods that are widely used in today’s world by most businesses.

Interviews are somewhat similar to surveys, like sometimes they may have the same types of questions used. The difference is that the respondent can answer these open-ended questions at length, and the direction of the conversation or the questions being asked can be changed depending on the response of the subject.

Such a method usually gives the researcher detailed information about the perspective or opinions of its subject. Carrying out interviews with subject matter experts can also give important information critical to some businesses.

For example: An interview was conducted by a telecom manufacturer with a group of women to understand why they have less number of female customers. After interviewing them, the researcher understood that there were fewer feminine colors in some of the models, and females preferred not to purchase them.

Such information can be critical to a business such as a telecom manufacturer and hence it can be used to increase its market share by targeting women customers by launching some feminine colors in the market.

Another example would be to interview a subject matter expert in social media marketing. Such an interview can enable a researcher to understand why certain types of social media advertising strategies work for a company and why some of them don’t.

LEARN ABOUT: Qualitative Interview

Focus groups

Focus groups are a set of individuals selected specifically to understand their opinions and behaviors. It is usually a small set of a group that is selected keeping in mind the parameters for their target market audience to discuss a particular product or service. Such a method enables a researcher with a larger sample than the interview or a case study while taking advantage of conversational communication.

Focus group is also one of the best examples of qualitative data in education . Nowadays, focus groups can be sent online surveys as well to collect data and answer why, what, and how questions. Such a method is very crucial to test new concepts or products before they are launched in the market.

For example: Research is conducted with a focus group to understand what dimension of screen size is preferred most by the current target market. Such a method can enable a researcher to dig deeper if the target market focuses more on the screen size, features, or colors of the phone. Using this data, a company can make wise decisions about its product line and secure a higher market share.

Ethnographic research

Ethnographic research is one of the most challenging research but can give extremely precise results. Such research is used quite rarely, as it is time-consuming and can be expensive as well. It involves the researcher adapting to the natural environment and observing its target audience to collect data. Such a method is generally used to understand cultures, challenges, or other things that can occur in that particular setting.

For example: The world-renowned show “Undercover Boss” would be an apt example of how ethnographic research can be used in businesses. In this show, the senior management of a large organization works in his own company as a regular employee to understand what improvements can be made, what is the culture in the organization, and to identify hard-working employees and reward them.

It can be seen that the researcher had to spend a good amount of time in the natural setting of the employees and adapt to their ways and processes. While observing in this setting, the researcher could find out the information he needed firsthand without losing any information or any bias and improve certain things that would impact his business.

LEARN ABOUT: Workforce Planning Model

Case study research

Case study research is one of the most important in business research. It is also used as marketing collateral by most businesses to land up more clients. Case study research is conducted to assess customer satisfaction and document the challenges that were faced and the solutions that the firm gave them.

These inferences are made to point out the benefits that the customer enjoyed for choosing their specific firm. Such research is widely used in other fields like education, social sciences, and similar. Case studies are provided by businesses to new clients to showcase their capabilities, and hence such research plays a crucial role in the business sector.

For example: A services company has provided a testing solution to one of its clients. A case study research is conducted to find out what were the challenges faced during the project, what was the scope of their work, what objective was to be achieved, and what solutions were given to tackle the challenges.

The study can end with the benefits that the company provided through its solutions, like reduced time to test batches, easy implementation or integration of the system, or even cost reduction. Such a study showcases the capability of the company, and hence it can be stated as empirical evidence of the new prospect.

Website visitor profiling/research

Website intercept surveys or website visitor profiling/research is something new that has come up and is quite helpful in the business sector. It is an innovative approach to collect direct feedback from your website visitors using surveys. In recent times a lot of business generation happens online, and hence it is important to understand the visitors of your website as they are your potential customers.

Collecting feedback is critical to any business, as without understanding a customer, no business can be successful. A company has to keep its customers satisfied and try to make them loyal customers in order to stay on top.

A website intercept survey is an online survey that allows you to target visitors to understand their intent and collect feedback to evaluate the customers’ online experience. Information like visitor intention, behavior path, and satisfaction with the overall website can be collected using this.

Depending on what information a company is looking for, multiple forms of website intercept surveys can be used to gather responses. Some of the popular ones are Pop-ups, also called Modal boxes, and on-page surveys.

For example: A prospective customer is looking for a particular product that a company is selling. Once he is directed to the website, an intercept survey will start noting his intent and path. Once the transaction has been made, a pop-up or an on-page survey is provided to the customer to rate the website.

Such research enables the researcher to put this data to good use and hence understand the customers’ intent and path and improve any parts of the website depending on the responses, which in turn would lead to satisfied customers and hence, higher revenues and market share.

LEARN ABOUT: Qualitative Research Questions and Questionnaires

Business research helps to identify opportunities and threats.
It helps identify research problems , and using this information, wise decisions can be made to tackle the issue appropriately.
It helps to understand customers better and hence can be useful to communicate better with the customers or stakeholders.
Risks and uncertainties can be minimized by conducting business research in advance.
Financial outcomes and investments that will be needed can be planned effectively using business research.
Such research can help track competition in the business sector.
Business research can enable a company to make wise decisions as to where to spend and how much.
Business research can enable a company to stay up-to-date with the market and its trends, and appropriate innovations can be made to stay ahead in the game.
Business research helps to measure reputation management
Business research can be a high-cost affair
Most of the time, business research is based on assumptions
Business research can be time-consuming
Business research can sometimes give you inaccurate information because of a biased population or a small focus group.
Business research results can quickly become obsolete because of the fast-changing markets

Business research is one of the most effective ways to understand customers, the market, and competitors. Such research helps companies to understand the demand and supply of the market. Using such research will help businesses reduce costs and create solutions or products that are targeted to the demand in the market and the correct audience.

In-house business research can enable senior management to build an effective team or train or mentor when needed. Business research enables the company to track its competitors and hence can give you the upper hand to stay ahead of them.

Failures can be avoided by conducting such research as it can give the researcher an idea if the time is right to launch its product/solution and also if the audience is right. It will help understand the brand value and measure customer satisfaction which is essential to continuously innovate and meet customer demands.

This will help the company grow its revenue and market share. Business research also helps recruit ideal candidates for various roles in the company. By conducting such research, a company can carry out a SWOT analysis , i.e. understand the strengths, weaknesses, opportunities, and threats. With the help of this information, wise decisions can be made to ensure business success.

LEARN ABOUT: Market research industry

Business research is the first step that any business owner needs to set up his business to survive or to excel in the market. The main reason why such research is of utmost importance is that it helps businesses to grow in terms of revenue, market share, and brand value.

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Research: Technology is changing how companies do business

by Sarah Mangus-Sharpe, Cornell University

In the fast-paced world of modern business, technology plays a crucial role in shaping how companies operate. One area where this impact is particularly significant is in the organization of production chains—specifically the way goods are made and distributed.

A new study from the Cornell SC Johnson College of Business advances understanding of the U.S. production chain evolution amidst technological progress in information technology (IT), shedding light on the complex connections between business IT investments and organizational design.

Advances in IT have sparked significant changes in how companies design their production processes . In the paper "Production Chain Organization in the Digital Age: Information Technology Use and Vertical Integration in U.S. Manufacturing," which published April 30 in Management Science , Chris Forman, the Peter and Stephanie Nolan Professor in the Dyson School of Applied Economics and Management, and his co-author delved into what these changes mean for businesses and consumers.

In running a manufacturing plant , a key decision is how much of the production process is handled in-house and how much is outsourced to other companies. This decision, known as vertical integration, can have big implications for a business. Advances in information and communication technology , such as those brought about by the internet, shifted the network of production flows for many firms.

The production units of many of the companies in their study concurrently sold to internal and external customers, a mix they refer to as plural selling. They found that the reduction in communication costs enabled by the internet shifted the mix toward more sales outside of the firm, or less vertical integration.

"The internet has made it cheaper and faster for companies to communicate and share information with each other. This means they can work together more efficiently without the need for as much vertical integration," said Forman.

While some might worry that relying on external partners could make businesses more vulnerable, the research suggests otherwise. In fact, companies that were already using a plural governance approach before the internet age seem to be the most adaptable to these changes. Production units that were capacity-constrained were also among those that made the most significant changes to transaction flows after new technology investments.

"Technology is continuing to reshape the way companies operate and are organized," Forman said. "More recently, changes in the use of analytics in companies have been accompanied by changes in organizations, and the same is very likely ongoing with newer investments in artificial intelligence."

The research highlights the importance of staying ahead of the curve in technology. Companies that embrace digital technologies now are likely to be the ones that thrive in the future. And while there are still many unanswered questions about how these changes will play out, one thing is clear: The relationship between technology and business is only going to become more and more intertwined in the future.

Journal information: Management Science

Provided by Cornell University

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Better Business Chronicles
Operations Technology and Information Management
Research With Impact

Research: Technology Is Changing How Companies Do Business

Advances in IT have sparked significant changes in how companies design their production processes. In the paper “ Production Chain Organization in the Digital Age: Information Technology Use and Vertical Integration in U.S. Manufacturing ,” which published April 30 in Management Science, Chris Forman, the Peter and Stephanie Nolan Professor in the Dyson School of Applied Economics and Management, and his co-author delved into what these changes mean for businesses and consumers.

In running a manufacturing plant, a key decision is how much of the production process is handled in-house and how much is outsourced to other companies. This decision, known as vertical integration, can have big implications for a business. Advances in information and communication technology, such as those brought about by the internet, shifted the network of production flows for many firms.

Forman and Kristina McElheran, assistant professor of strategic management at University of Toronto, analyzed U.S. Census Bureau data of over 5,600 manufacturing plants to see how the production chains of businesses were affected by the internet revolution. Their use of census data allowed them to look inside the relationships among production units within and between companies and how transaction flows changed after companies invested in internet-enabled technology that facilitated coordination between them. The production units of many of the companies in their study concurrently sold to internal and external customers, a mix they refer to as plural selling. They found that the reduction in communication costs enabled by the internet shifted the mix toward more sales outside of the firm, or less vertical integration.

“The internet has made it cheaper and faster for companies to communicate and share information with each other. This means they can work together more efficiently without the need for as much vertical integration,” said Forman.

“Technology is continuing to reshape the way companies operate and are organized,” Forman said. “More recently, changes in the use of analytics in companies have been accompanied by changes in organizations, and the same is very likely ongoing with newer investments in artificial intelligence.”

SC Johnson College

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A new study from the Cornell SC Johnson College of Business advances understanding of the U.S. production chain evolution amidst technological progress in information technology (IT), shedding light on the complex connections between business IT investments and organizational design. Advances in IT have sparked significant changes in how companies design their production processes.
Research: Technology is changing how companies do business
Research: Technology is changing how companies do business. by Sarah Mangus-Sharpe, Cornell University. Credit: Unsplash/CC0 Public Domain. In the fast-paced world of modern business, technology ...
Research: Technology Is Changing How Companies Do Business
In the fast-paced world of modern business, technology plays a crucial role in shaping how companies operate. One area where this impact is particularly significant is in the organization of production chains—specifically the way goods are made and distributed. A new study from the Cornell SC Johnson College of Business advances understanding ...
Ai and the industry risk landscape
Insurance companies are already starting to introduce specific cover for AI performance failures - one of the biggest risks for all industries. Download and read the publication to better understand the AI risks landscape, how it may play out across industry lines, and how re/insurers could shape their business offerings accordingly.
OpenAI unveils newest AI model, GPT-4o
The new model, called GPT-4o, is an update from the company's previous GPT-4 model, which launched just over a year ago. The model will be available to unpaid customers, meaning anyone will have ...
Amazon Marketing Strategy: Case Study (2024)
Posted on May 22, 2024 by Daniel Pereira. The Amazon Marketing Strategy has been largely responsible for the company's meteoric rise to becoming one of the most powerful players in the global market. Dissimilar to conventional marketing approaches, Amazon's strategy has revolutionized the way businesses operate, reach out to customers, and ...

How to Identify New Business Models

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What Is a Business Model?

Starting the Process

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Exploring New Customer Needs

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Types of Business Models

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Fee-for-Service

Subscription

Marketplace

Razor Blade

Reverse Razor Blade

Pay-As-You-Go

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Example of Business Models

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How to Conduct Company Research for Investment?

Types of information needed for researching a company

How to conduct effective company research?

2. Clarify research questions

3. Determine which sources are reliable and relevant

4. Utilize data gathering and analysis tools

Essential tools and resources for gathering information

Coresignal’s APIs

Subscription resources

Linkedin and other social media websites

How to apply the gathered information to investment decisions?

The importance of company research

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Business Model, the

Classification tools for business models: Status quo, comparison, and agenda

Introduction

Business models

Business model tools

Data collection

Action planning

Action taking

Specifying learning

Conclusions

Acknowledgments

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Corresponding author

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Publisher’s note

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