Service Innovation and Business Models

Western economies are highly dependent on service innovation for their growth and employment. An important driver for economic growth is, therefore, the development of new, innovative services like electronic services, mobile end-user services, new financial or personalized services. Service innovation joins four trends that currently shape the western economies: the growing importance of services, the need for innovation, changes in consumer and business markets, and the advancements in information and communication technology (ICT).

See the publication in the business model book for mobile services here.

Design Trade-offs for Electronic Intermediaries

Electronic commerce offers intermediaries new opportunities for facilitating the transfer of information, goods and services between business customers and suppliers. Designing exchanges is a complex undertaking because of the many design options on the one hand and the diverse, and sometimes conflicting, interests of customers, suppliers and the intermediary to be considered on the other. Our research provides constructive support for balancing interests beyond simple prescriptions like 'creating win-win situations.' We developed an exchange design model and patterns focusing on trade-offs for electronic intermediaries based upon four in-depth case studies.

See the publication in Electronic Markets here.

Managers as designers (part 2/3)

Next to the focus on designing better, more innovative alternatives (Managers as designers: part 1/3), design also has a more formal and systematic side. With this side of design managers are more familiar as organizational design and business process design are traditional management issues.

For example, redesigning organizations with a functional structure into business units per product type or customer segment. The design of organizations covers higher-level issues related to the design of organizational units as well as lower-level issues related to the design of subunits and individual jobs (e.g. Nadler & Tushman, 1997).

Mangers have also been designing and redesigning business processes to improve the customer focus of their organization and to increase the operational efficiency. Davenport and Short (1990) define business process design as the analysis and design of workflows and processes within and between organizations. They differentiate between business processes on the basis of the entities (inter-organisational, inter-functional or inter-personal), objects (physical or informational) and activities (operational or managerial).

Managers as designers (part 1/3)

Managers are, or should be, involved in design activities related to managerial and organizational issues. We will take a closer look at different ways in which managers are engaged in design activities.

Managers are confronted with organizational problems: mismatches between the desired and the actual situation of their organization. So problem solving is a core concern for management. Managers can approach these problems with a decision attitude or with a design attitude (Boland & Collopy, 2004). Imagine having to decide upon the introduction of a new service that can either be of low quality at low cost or of high quality at higher costs. Would you do user studies to find out what the customers prefer? Would you calculate the business case for both alternatives? Or would you try to devise an alternative with high quality and low costs? Traditionally, managers are often inclined to pursuit a decision attitude: assuming it is easy to come up with a number of alternative solutions but problematic to decide upon the right solution (Boland & Collopy, 2004). A design attitude to problem solving, in contrast, assumes it is difficult to design a good alternative, but once a truly good solution had been developed, the selection of the alternative becomes easy. For example, for the introduction of tele-health services it may be more useful to design innovative business models, such as a model inspired by the rising interest in wellness, then to calculate an expected ROI based upon current health insurance practices. While managers need both attitudes, the capabilities of managers as designers are often not addressed and also design tools for managers are relatively underdeveloped compared to the decision-making techniques.

The relevance of business models: Business model functions

The particular functions of business models will be related to the application areas. A common application area of business models is innovation. A business model can be used for mediating between market and technology. Another application area of business models is the tactical level that brings strategy and operations together. Sometimes, business models are even considered as part of strategy. Business models can also produce business requirements that can be used in information system development.

When one takes a comprehensive perspective, it can even be argued that business models are a management approach that supports the process of designing, implementing, operating, and improving the way one or more firms deliver a specific service. Maybe the other functions discussed above can be seen as different subfunctions of business models as a management approach.

In practice different applications of business models come together. We take the application of business models for electronic business as an example. Electronic business models are often presented as an innovation in a particular industry, for example, direct sales via the Internet. Moreover, a business model enables one to try out different varieties of direct sales. The direct sales model can also be seen as a strategic move to compete with incumbents who make use of intermediaries and, therefore, cannot make a move towards direct sales easily. The specification of the direct sales model can serve as an input for the information systems development identifying building blocks such as a catalogue and online payment.

Electronic Offering Model

In the early days of e-commerce there was considerable attention to understanding the phenomena. Nowadays, there is less attention for this in the research community. In the mean time business presence on the web is still extending, both in a traditional (Web1.0) and new way (Web2.0). Therefore, it is still important to preserve and develop our understanding of doing business on the Internet.

While working on new service development and service design I studied the NetOffer model of Grönroos. It is a model of Internet offerings based upon the Grönroos Augmented Service Offering model. Grönroos refers in the notes at the end of the article to the ICDT model of Angehnr (article). I was not very enthusiastic about the way the NetOffer model deals with information and communication. Therefore, I had the idea of combining the Netoffer model and the ICDT model into the Electronic Offering model, as presented below. I hope to soon write more about it and evaluate the model with a case study.

The Design-Oriented Enterprise (DOE)

Coming from an IT background I perceived an increase in the scope of design activities. Starting with the design of information systems, the scope expanded to the design of business processes. Thereafter, the scope expanded even further to the design of the business itself, referred to as the business model.

I would like to raise the question how an organization could (or should) maximize the opportunities offered by a design approach. For this I came up with the concept of the ‘design-oriented enterprise.’ As I see it for now, the objective of a design-oriented enterprise should be to increase their performance by design motivation and ability (see also figure below). (I think the ‘design-oriented enterprise’ is not used yet in this way, see also the Google search.)


For design motivation it is possible to differentiate between ‘ambition levels.’ I based the following ambition levels partially on Investing in Design by Rosa Wu and Jess McMullin (adapted it to an IS context):

• No Conscious design effort: Design has no perceived value for the organization.
• Design is the gateway to automation: Design supports the automation of business activities.
• Design makes things better: Design makes things work better than they did before.
• Design as problem solving: Design finds new opportunities by solving existing problems.
• Design as problem framing: Design redefines the challenges facing the organization.

For design ability it is possible to differentiate between a number of maturity levels, as is done in the Capability Maturity Model (CMM) and CMM Integration (CMMI).

These are just some early ideas and these ideas would benefit from your comments!!!

Designing for Acceptance: Exchange Design for Electronic Intermediaries

My PhD research was on designing electronic intermediaries. I published my PhD thesis in November 2006. Below is a short summary.

Electronic business has brought many success stories as well as failures. Intermediaries are a particularly interesting application domain: on the one hand, they are given opportunities by electronic business to reinvent their value logic, while on the other they are threatened by opportunities for customers and suppliers to deploy electronic business to do business directly. Designing for Acceptance addresses the acceptance of electronic intermediaries by studying the design of the exchange. For example, should a web catalogue provide price information and should it consider an extension with transaction functionality?

Developing the right exchange design is a complex undertaking because of the many design options and the interests of multiple actors that need to be taken into account. Four cases were studied: Tapestria (interior fabrics), SeaQuipment (maritime products), Meetingpoint (insurances) and Voogd & Voogd (insurances). The results are an exchange design model and patterns that are derived from numerous case lessons and are supported by insights from theories on electronic intermediaries, acceptance and business design.

The exchange design model offers a systematic insight into generic exchange design themes that are relevant to the interests of customers, intermediary and suppliers. Exchange design patterns discuss specific trade-offs with respect to one or more themes. This study contributes to current knowledge by providing support for balancing interests in exchange design beyond simple prescriptions like ‘creating win-win situations.’ The exchange design themes and patterns are convenient instruments that offer constructive support for developing a vague electronic business idea into a concrete service concept.

Business model fundamentals

In discussing and thinking about business models, I often find it hard to compare different business models. One thing that is needed is, of course, having a definition of what a business model is and of what a business model consists of (the concepts). As example, I often use for this the work done at the Telematica Instituut upon the STOF business blueprint method and model.

However, even when having clarity about the definition and concepts, there are still a lot of different kind of business models that are sometimes hard to compare. This makes me wonder what are the fundamental differences between these business models? What I, for now, can think of and have read in the work of other, are:

• Bundled or unbundled
  
• Push or pull
• Exploitation or exploration
• long-term or short-term
• Open or closed
• Time (dynamics)

I have summarized it in the following picture. I plan to elaborate upon it later.