5 Network-based business models
(Written by Morten Lund, MSc., PhD-fellow)
[Please quote this chapter as: Lund, M. (2012), Network-based business models, in Nielsen, C. & M. Lund (Eds.) Business Models: Networking, Innovating and Globalizing, Vol. 1, No. 2. Copenhagen: BookBoon. com/Ventus Publishing Aps]
For several decades the success and ultimately also the sustainability of businesses has been problematized in the light of societal and industrial developments. Among other issues the rise of the importance of intangibles and sustainability issues has put pressures on the profitability of businesses, as well as the actions of policy-makers and professional bodies alike. Numerous examples of how new business values are gaining momentum in relation to the value proposition of organizations surface, pressuring organizations to surrender profits for ethical reasons, and in this sense how the market may endure greater power than policy-makers. We need to start accounting for value creating; not value creation.
As such, the rise of new business models, e.g. based on loosely coupled networks and multisided platforms of value creation, potential y pose a large threat to the stability and structure of organization and value– realization as we know it. Perhaps it can even be argued that e.g. accounting and jurisdiction as we know it, will become obsolete in a world of network organizations and social-community based business models, thus posing new conceptions of accountability and creating new sets of stakeholder tensions.
Despite such developments in business, i.e. communities, knowledge, col aboration, networks, innovation, professions such as accounting, finance and law have not kept pace. Not to mention policy-making. Thus from a management perspective we may need to ask: “How do we produce decision-relevant information?” and “How do we capture value creation and value realizing transactions?” Furthermore, we may need to ask: “How do we validate information across structures that do not exist per se”? Final y, implications for policy-making and accounting bodies need to be evaluated.
The ventures of the network economy are different than those of past decades. Hence, we need to go beyond business combination-based joint venture thinking and even beyond network-accounting. Here we are concerned with virtual companies constituted by mutual y beneficial business partners. Here notions of virtual value and connectivity capital become cornerstones of understanding value creation.
In this book we describe different views on business models, how to understand them, analyze and describe them. We can either focus on business models as the business model for the company or as individual elements of it, but this is limited to the company focus, e.g. as is evident in the Osterwalder business model canvas he includes partners complimenting the key activity and resources that are in the company, allowing business modelling to include partners – but partners can be an inevitable part of a business model – In this chapter we introduce examples of different types of network-based business models.
5.1 What defines a network based business model?
A network based business model is a model including two or several stakeholders creating a joint value proposition based on the stakeholders key activities and resources. This can be done as open business models or Business Network Business Models (BNBM) where local or even global network partners gain significant competitive advantage and growth through creating network based business models. Companies will in future need to understand that they have entered a new era – one that is based on new principles, worldviews – new business network business models – where the business model playing rules are significantly changed compared to what we have known until today.
We already know that collective knowledge; in some instances called “intellectual capital” or knowledge resources put into broad horizontal networks of participants can be mobilized to create far more value than a single company can do alone.
The financial crises showed that companies cut their cost to a minimum reducing key resources and activities in their business model, some resulting in limiting the value proposition to customer – It is almost inherent that when a company needs to cut costs, e.g. Scandinavian Airlines, it will have an impact on the service provided to the customers. Evidence suggests that new business models in the future be based on openness, peering, sharing, and global positioning, will enable the possibility to reduce cost by partnering instead of thinking the business model as a single levelled model.
The speed with which changes and the ever increasing demand for new business models and processes are challenging companies, many are well aware that they can no longer rely on their own internal capabilities and competencies to survive. Nor can they rely on tight, rigid and inflexible relationships with only a few business partners – for a keep pace with customers’ increasing desire for speed, innovation and control. Companies must in the future engage, and build a development area with many people – partners, competitors, stakeholders, and not least – customers. “Mass Col aboration” is a necessary part of any company’s innovation strategy.
A company’s ability to connect and disconnect to these networks, business models and processes and its ability to innovate across the network capabilities represent themselves to be one – must.
5.2 Barriers and challenges
The development of new interdisciplinary network, however, contains a number of new barriers and challenges for both businesses and researchers. Although it will be the central hub for innovation and development of global business models, they are very few companies ”leveraged” to practice the innovation of business models in the network. It goes without saying that companies are ”handicapped” by their creation of a corporate culture and learning culture which was characterized by hierarchy, ”single business model thinking,” Planning and push and pull economy.
It requires an entirely new knowledge, research and new businesses to cope with ”mass col aboration” and ”multi-business model” (Lindgren, Taran and Boer 2009) economy. However, it is not enough to be able to get the ideas and concepts for new business models ”merged” together – but it is also necessary to act on them commercialize them quickly, global y – and thus to different markets.
This must necessarily on the research side be based on a structured innovation research strategy developed in close col aboration with researchers from all interested innovation communities, companies and knowledge competencies (GTS, Knowledge Consultants, etc.) as well as professional development and service operators who have an interest in developing the area.
Sum-up questions for chapter 5
• Why have network-based business models gained so much momentum in recent years?
• Define a network-based business model
• Give your own example of a network-based business model