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The Constructs of a Business Model Redefined: A Half-Century Journey:

The Constructs of a Business Model Redefined: A Half-Century Journey: Despite its growing popularity, the term business model has not been uniquely defined so far. Within the management science and practice, it has been frequently confused with other popular terms. This article aims to bring clarity into what stands behind the business model concept by providing a review of the most common themes used in defining business model elements. It also discusses the relationship between the concept of a business model, on one hand, and strategy and sustainability, on the other. A few conclusions emerge. First, although there are no generally accepted definitions for either the business model or its building blocks, academics and practitioners agree that a business model is all about value. Second, a business model is not the same as a strategy but it has an important role in strategy implementation. Third, sustainability is found to be a hot topic for business models and has been increasingly used in symbiosis with this concept. Besides being a theoretical contribution to a definition of the business model as an independent concept, the findings may be particularly helpful to managers and business practitioners seeking ways to enable their firms to deal with complex market challenges and gain competitive advantage. Keywords business model, strategy, sustainability terms in the management literature such as strategy, business Introduction concept, revenue model, economic model, or even business The business model concept has become very popular in process modeling (DaSilva & Trkman, 2014; Morris, terms of a company’s competitive success as well as in man- Schindehutte, & Allen, 2005). agement science. Regarding companies, whenever a busi- As a generally accepted definition of the business model ness venture is established, it either explicitly or implicitly does not exist, it is not surprising that the constitute elements employs a particular business model (Teece, 2010), and for a of the business model are not clearly defined too. Despite venture to become viable, a sound business model is required many efforts (e.g., Demil & Lecocq, 2010; Mahadevan, (Magretta, 2002). Also, business model design and innova- 2000; Morris et al., 2005; Onetti, Zucchella, Jones, & tion are of critical importance for a company’s performance McDougall-Covin, 2012; Osterwalder & Pigneur, 2010; and success (Kesting & Günzel-Jensen, 2015; Zott & Amit, Richardson, 2008; Roome & Louche, 2016; Runfola, Rosati, 2007; Zott, Amit, & Massa, 2011). & Guercini, 2013; Shafer, Smith, & Linder, 2005), this issue These claims may sound very clear and logical, but a still allows for different interpretations. For that reason, aim- question arises: Do we know how to build a sound and inno- ing to make the business model concept more transparent, vative business model? Put differently, what stands behind some authors have extensively explored extant literature and this concept? Recently, many authors from various fields of meta-science databases (DaSilva & Trkman, 2014; Ghaziani research have been looking for appropriate answers (Arend, & Ventresca, 2005; Kujala, Artto, Aaltonen, & Turkulainen, 2013; Casadesus-Masanell & Zhu, 2013; Chesbrough, 2007; 2010; Mäkinen & Seppänen, 2007; Morris et al., 2005; Johnson, Christensen, & Kagermann, 2008; Kesting & Onetti et al., 2012; Richardson, 2008; Wirtz, Pistoia, Ullrich, Günzel-Jensen, 2015; Klang, Wallnöfer, & Hacklin, 2014; Osterwalder, Pigneur, & Tucci, 2005; Schaltegger, Hansen, & Lüdeke-Freund, 2016; Seelos & Mair, 2005; Zott & Amit, 1 University of Rijeka, Faculty of Tourism and Hospitality Management, 2010, etc.) and it really seems that the business model is Opatija, Croatia emerging as a new unit of analysis (Zott et al., 2011). These Corresponding Author: authors offer a variety of definitions, but a general consensus Marko Peric, University of Rijeka, Faculty of Tourism and Hospitality on the definition of the business model has not been reached. Management, Primorska 42, P.O.B. 97, 51410 Opatija, Croatia. The term has been frequently confused with other popular Email: markop@fthm.hr Creative Commons CC BY: This article is distributed under the terms of the Creative Commons Attribution 4.0 License (http://www.creativecommons.org/licenses/by/4.0/) which permits any use, reproduction and distribution of the work without further permission provided the original work is attributed as specified on the SAGE and Open Access pages (https://us.sagepub.com/en-us/nam/open-access-at-sage). 2 SAGE Open & Göttel, 2016; Zott et al., 2011). Their conclusions are quite In parallel, academics searched for more generic approaches similar; the research on business models shows a high degree in their researches, and the business model has developed of complexity and is still an underresearched topic within the into an overall presentation of the company organization management field. contributing to managerial decision-making process (Wirtz This article builds on these recent works reviewing the et al., 2016). state of the art in business model research and has two main During the “new economy” era (Morris et al., 2005), that objectives. First, it intends to provide a review of the most is, the 1990s, we witnessed an explosion of the use of the common themes used in defining business model elements. term in both nonacademic and academic literature. Only in Second, it discusses the relationship between the concept of the last decade, at least five special issues were devoted to a business model, on one hand, and strategy and sustainabil- business models (e.g., the Long Range Planning in 2010, the ity, on the other. Providing new insights into the business Journal of Cleaner Production in 2013, the Strategic model notion, the findings not only contribute to the devel- Entrepreneurship Journal in 2015, and the Sustainability and opment of management theory but could be also used by the the Organization & Environment in 2016). managers and business practitioners of new entrants as well The rise to prominence of the term was also confirmed by as incumbent firms to design business models capable of many authors who have extensively explored extant litera- addressing direct competitive challenges. ture, by searching the term business model in the title, The article proceeds as follows. The “Literature Review” abstract, or full text of the articles (DaSilva & Trkman, 2014; section provides a synthesized overview of the available lit- Ghaziani & Ventresca, 2005; Klang et al., 2014; Kujala et al., erature, focusing on the emergence and popularity of the 2010; Mäkinen & Seppänen, 2007; Morris et al., 2005; business model concept in academic literature as well as on Nenonen & Storbacka, 2010; Onetti et al., 2012; Osterwalder business model definition. The “Method” section describes et al., 2005; Richardson, 2008; Shafer et al., 2005; Wirtz the methodology of research. The “Results” section details et al., 2016; Zott et al., 2011). Their findings suggest that, in the results obtained regarding business model elements and peer-reviewed journals, the number of articles has grown two issues usually associated with business models: strategy from a single-digit number per year to more than several 100 and sustainability. The article finishes with a discussion and articles per year in the last 50 years. The rapid growth of some concluding remarks. references to the business model in the literature has cer- tainly contributed to the efforts to theoretically and opera- tionally define this concept. Despite the fact that research in Literature Review business models has matured over the years, the literature on business models is divergent and heterogeneous. Emergence of the Business Model Concept in Literature Business Model Definitions The term business model has been present in academic litera- ture for more than 60 years now. According to Markides Analyzing the evolution of the business model concept, (2013), its first use in the literature can be traced to Lang Osterwalder et al. (2005) concluded that this evolution has (1947), while Osterwalder et al. (2005) found that it appeared entered its final phase, with the business model concept for the first time in an academic paper in 1957 (in the context being applied in management and information systems (IS) applications. This implies that the previous four phases (defi- of business games for training purposes; Bellman, Clark, nition and classification of business models, listing business Malcolm, Craft, & Ricciardi, 1957) and in the title and model components, describing business model components, abstract of a paper in 1960 (how college students from the and modeling business model components) have all been fin- business field should be trained and how technologies should ished. However, just from a short glance at Table 1, which be introduced to them; Jones, 1960). In the beginning, how- presents a synopsis of available perspectives regarding busi- ever, the term was used in a very unspecific manner, reflect- ness model definitions, one can see that it is still quite an ing a simplification and simulation of reality aimed at interesting topic for academics. educating future managers on technology (DaSilva & Also, it seems that the term is not clearly and unambigu- Trkman, 2014). Since the 1970s, the business model has ously defined. The business model has been referred to as a been associated regularly within the context of information statement, a description, a representation, an architecture, a technology and mainly used in the sense of business model- conceptual tool or model, a plan, an assumption, a structural ing (see Wirtz et al., 2016). This highlighted its operational template, a method, a framework, a pattern, and a set (see and functional aspects necessary for system modeling. Still, also Morris et al., 2005; Zott et al., 2011). until the 1990s, the term had been used only sporadically. Morris et al. (2005), Zott et al. (2011), and Wirtz et al. The advent of the Internet in the business world gave a boost (2016) tried to bring some order to the various perspectives to the usage of the term business model (see Amit & Zott, in the gathered definitions. Summarizing their findings, sev- 2001; Magretta, 2002), with so-called dot-com firms pitch- eral general approaches, perspectives, and/or categories of ing business models to attract funding (Shafer et al., 2005). Peric et al. 3 Table 1. Business Model Definitions. Author(s) (year) Definition: A business model(s) . . . Timmers (1998) . . . “is an architecture of the product, service and information flows, including a description of the various business actors and their roles; a description of the potential benefits for the various business actors; a description of the sources of revenues” (p. 4). Amit and Zott (2001) . . . “depicts the content, structure, and governance of transactions designed so as to create value through the exploitation of business opportunities” (p. 511). Magretta (2002) . . . “They are, at heart, stories–stories that explain how enterprises work.” (p. 4). Chesbrough and Rosenbloom (2002) . . . “the heuristic logic that connects technical potential with the realization of economic value” (p. 529). Morris, Schindehutte, and Allen (2005) . . . “is a concise representation of how an interrelated set of decision variables in the areas of venture strategy, architecture, and economics are addressed to create sustainable competitive advantage in defined markets” (p. 727). Osterwalder, Pigneur, and Tucci (2005) . . . “is a conceptual tool that contains a set of elements and their relationships and allows expressing the business logic of a specific firm. It is a description of the value a company offers to one or several segments of customers and of the architecture of the firm and its network of partners for creating, marketing, and delivering this value and relationship capital, to generate profitable and sustainable revenue streams” (p. 10). Shafer, Smith, and Linder (2005) . . . “is defined as a representation of a firm’s underlying core logic and strategic choices for creating and capturing value within a value network” (p. 202). Voelpel, Leibold, Tekie, and von Krogh (2005) . . . “can generally be defined as the particular business concept (or way of doing business)” (p. 40). Brousseau and Penard (2007) . . . “a pattern of organizing exchanges and allocating various costs and revenue streams so that the production and exchange of goods or services becomes viable, in the sense of being self-sustainable on the basis of the income it generates (p. 82). Santos, Spector, and Van der Heyden (2009) . . . “is a configuration of activities and of the organizational units that perform those activities both within and outside the firm designed to create value in the production (and delivery) of a specific product/market set” (p. 11). Casadesus-Masanell and Ricart (2010) . . . “a reflection of the firm’s realized strategy” (p. 195). Smith, Binns, and Tushman (2010) . . . “the design by which an organization converts a given set of strategic choices . . . to create and capture this value” (p. 450). Teece (2010) . . . “is defining the manner by which the enterprise delivers value to customers, entices customers to pay for value, and converts those payments to profit. (p. 172). Wirtz, Schilke, and Ullrich (2010) . . . “reflects the operational and output system of a company, and as such captures the way the firm functions and creates value” (p. 274). Cavalcante, Kesting, and Ulhøi (2011) . . . “an abstraction of the principles supporting the development of the core repeated standard processes necessary for a company to perform its business” (pp. 1328-1329). Abdelkafi, Makhotin, and Posselt (2013) . . . “describes how the company communicates, creates, delivers, and captures value out of a value proposition” (p. 12). Baden-Fuller and Haefliger (2013) . . . “a system that solves the problem of identifying who is (or are) the customer(s), engaging with their needs, delivering satisfaction, and monetizing the value” (p. 419). Amit and Zott (2015) . . . “describes how a focal firm taps into its ecosystem to perform the activities that are necessary to fulfill the perceived customer needs” (p. 346). Wirtz, Pistoia, Ullrich, and Göttel (2016) . . . “is a simplified and aggregated representation of the relevant activities of a company” (p. 6). definitions could be distinguished: technological, economic, 2002; Lam & Harrison-Walker, 2003; Rayman-Bacchus & operational, and strategic. The technologically oriented busi- Molina, 2001; Timmers, 1998, to list only a few). Afterward, ness model articles were very dominant during the earlier the business model concept became more generic, that is, stages of business model evolution. It was at the turn of the more universally applicable to other types of firm. The eco- new millennium that many articles were published in the nomic approach is concerned with the logic of profit genera- context of electronic business (Chen, 2003; Dai & Kauffman, tion, that is, how to make money and sustain its profit stream 4 SAGE Open over time (Abdelkafi, Makhotin, & Posselt, 2013; Shafer only a few) and proposing their own theoretical conceptual- et al., 2005; Stewart & Zhao, 2000; Teece, 2010). The opera- izations on what constitutes a business model (see Table 2). tional perspective embraces architectural configuration that The review in Table 2 indicates that most authors distin- enables the firm to create value (Morris et al., 2005). This guish between first- and second-order themes within the architectural approach further involves firms’ internal pro- structure of a business model. Many elements overlap and/or cesses, resources, and their organization (Amit & Zott, 2001, have very similar names. Also, they have been alternately 2015; Johnson et al., 2008; Osterwalder et al., 2005; Timmers, classified into both categories. Hence, there are numerous 1998; Voelpel, Leibold, Tekie, & von Krogh, 2005; Wells, differences in the definitions of elements implying the need 2016). Finally, definitions also emphasize firms’ strategies, for clearer distinction. with particular interest on market positioning, organizational boundaries, stakeholder identification and networks, com- Method petitive advantage, and sustainability (Baden-Fuller & Haefliger, 2013; Casadesus-Masanell & Ricart, 2010; In this article, a comprehensive review and critical analysis Casadesus-Masanell & Zhu, 2013; Cavalcante, Kesting, & of previous research on business models and their elements Ulhøi, 2011; Chesbrough & Rosenbloom, 2002; Shafer et al., were conducted in February and March 2016 as a part of the 2005; Voelpel et al., 2005). Furthermore, the strengths of the research design. In conducting the analysis, a multistep pro- more strategy-oriented articles lie in efforts to understand cess was used. business by decomposing strategy into a system of interre- For the analysis to be scientifically traceable, this study lated decisions, relationships, and organizational boundaries searched for articles that contain the term business model in (Onetti et al., 2012). the title or keywords published in leading academic and The variety of perspectives become more comprehensible practitioner-oriented management journals (Academy of as one progressively moves from the technological and eco- Management Journal [AMJ], Academy of Management nomic across the operational to the strategic levels (Morris Review [AMR], Academy of Management Perspectives et al., 2005). However, the boundaries between basic theo- [AMP], Administrative Science Quarterly [ASQ], Journal of ries become blurred (Wirtz et al., 2016; Zott et al., 2011), and Management [JOM], Journal of Management Studies [JMS], it would be very hard to draw a line between these dimen- Management Science [MS], MIS Quarterly, Organization sions as the majority of definitions encompass at least two or Science [OS], Strategic Management Journal [SMJ], three categories. In recent articles, authors mostly refer to the California Management Review [CMR], Harvard Business fundamental works and aspects of multiple basic perspec- Review [HBR], and MIT Sloan Management Review [MSM]). tives (e.g., Johnson et al., 2008; Kesting & Günzel-Jensen, This search revealed 277 articles on business models from 2015; Tikkanen, Lamberg, Parvinen, & Kallunki, 2005; the early publishing dates to December 2015, of which only Wirtz, Schilke, & Ullrich, 2010; Zott & Amit, 2010; Wells, 21 had been published in academic journals, while 256 had 2016). appeared in practitioner-oriented journals (i.e., CMR, HBR, These broad definitions and approaches are sometimes and MSM). detailed through the identification of the components of the The research was further extended to the ABI/INFORM business model. Indeed, after the definition phase, listing and database. Examining databases was confirmed as an appro- describing business model elements (or components or priate method for exploring extant literature on business unique building blocks or constitute attributes) are the next models (DaSilva & Trkman, 2014; Ghaziani & Ventresca, logical steps in the evolution of the business model concept 2005; Mäkinen & Seppänen, 2007; Wirtz et al., 2016; Zott (Osterwalder et al., 2005). In fact, definitions of a business et al., 2011, etc.) while international coverage makes the model quite often focus on structural aspects regarding its ABI/INFORM database one of the most complete sources on contents (e.g., Johnson et al., 2008; Tikkanen et al., 2005; business studies. The search was focused on academic arti- Voelpel et al., 2005). cles containing the term business model in the title or abstract, Regarding the content-related structural aspects of a busi- published in peer-reviewed scholarly journals in the English ness model, extant literature indicates a separate develop- language from January 1960 to December 2015. In total, ment and expansion of business model elements within these 4,028 articles were obtained. As 16 of the newly found arti- two distinctive phases of listing and describing. For instance, cles were already present in the initial sample of 277 articles, Morris et al. (2005) analyzed key words in definitions and our overall sample contained 4,289 articles. found 24 different items that are mentioned as possible ele- As an initial cursory analysis of these 4,289 publications ments, with 15 receiving multiple mentions. At the same revealed that many of the selected publications would not be time, Shaffer et al. (2005) and Osterwalder et al. (2005) useful for further analysis, three additional criteria were found more than 40 different items each. Recently, academ- introduced to identify articles relevant for this study: (a) an ics have been continually trying to gather and analyze the article must deal with the business model concept in a non- up-to-date state of the research (Nenonen & Storbacka, 2010; trivial and nonmarginal way, (b) an article also must refer to Onetti et al., 2012; Wirtz et al., 2016; Zott et al., 2011, to list the business model as a concept related to business firms (as Peric et al. 5 Table 2. Structural Aspects of a Business Model. Author(s) (year) Business model themes (in brackets are second-order themes) Mahadevan (2000) (1) value stream, (2) logistical stream, and (3) revenue stream Chesbrough and Rosenbloom (2002) (1) value proposition, (2) target markets, (3) internal value chain structure, (4) cost structure and profit model, (5) value network, and (6) competitive strategy Hedman and Kalling (2003) (1) customers, (2) competitors, (3) offering, (4) activities and organization, (5) resources, (6) suppliers of factor and production inputs, and (7) scope of management Voelpel, Leibold, and Tekie (2004) (1) new customer value proposition, (2) a value network (re)configuration (internal and external structures and processes, core strategy, vision, mission, objective, technology, economics, legal issues), and (3) leadership capabilities Morris, Schindehutte, and Allen (2005) (1) product offering, (2) market factors, (3) internal capability factors, (4) competitive strategy factors, (5) economic factors, and (6) growth/exit factors Osterwalder, Pigneur, and Tucci (2005) (1) product (value proposition), (2) customer interface (target customer, distribution channel, relationship), (3) infrastructure management (value configuration, core competency, partner network), and (4) financial aspects (cost structure, revenue) Shafer, Smith, and Linder (2005) (1) strategic choices (customer, value proposition, capabilities/competences, revenue/ pricing, competitors, output, strategy, branding, differentiation, mission), (2) value networks (suppliers, customer information, customer relationship, information flows, product/service flows), (3) creating value (resources/assets, processes/activities), and (4) capturing value (cost, financial aspects, profit) Chesbrough (2007) (1) value proposition, (2) target market, (3) value chain, (4) revenue mechanism(s), (5) value network or ecosystem, (6) competitive strategy Johnson, Christensen, and Kagermann (1) customer value proposition—CVP (target customer, job to be done, offering), (2008) (2) key resources (people, technology, products, facilities, equipment, information, channels, partnerships, alliances, brand), (3) key processes (processes: design, product development, sourcing, manufacturing, marketing, hiring and training, IT; rules and metrics, and norms), and (4) profit formula (revenue model, cost structure, margin model, resource velocity) Richardson (2008) (1) value proposition (offering, target customer, basic strategy to win customers and gain competitive advantage), (2) value creation and delivery system (resources and capabilities; organization: the value chain, activity system, and business processes; position in the value network: links to suppliers, partners, and customers), and (3) value capture (revenue sources, economics of the business) Demil and Lecocq (2010) (1) resources and competences, (2) organizational structure, and (3) propositions for value delivery Kujala, Artto, Aaltonen, and Turkulainen (1) customer, (2) value proposition for the customer, (3) competitive strategy, (4) position (2010) in the value network, (5) suppliers’ internal organization/key capabilities, and (6) logic of revenue generation Osterwalder and Pigneur (2010) (1) customer segments, (2) customer relationships, (3) value propositions, (4) channels, (5) key activities, (6) key resources, (7) key partners, (8) cost structure, and (9) revenue streams Zott and Amit (2010) (1) design elements (activity system content, structure and governance), and (2) design themes (novelty, lock-in, complementarities, efficiency) Onetti, Zucchella, Jones, and McDougall- (1) focus/what? (activities, resources), (2) locus/where? (location), and (3) modus/how? Covin (2012) (internal organization, network design) Runfola, Rosati, and Guercini (2013) (1) target segments, (2) value proposition, and (3) revenue model Bocken, Short, Rana, and Evans (2014) (1) value proposition (product/service, customer segments, relationships), (2) value creation and delivery (key activities, resources, technology, channels, partners), and (3) value capture (cost structure and revenue streams) Abdelkafi and Täuscher (2016) (1) value proposition, (2) value creation, and (3) value capture Roome and Louche (2016) (1) value proposition, (2) value network, (3) value capture, and (4) value creation and delivery opposed to economic cycles or models, for example), and publications, a few additional publications on business (c) an article must directly refer to the constitute elements or models were found that appeared relevant for this review, components of a business model. As a result, 102 articles fit primarily books and working papers. The final sample, the suggested criteria. Through careful reading of these therefore, contained 108 publications. 6 SAGE Open Frequency of appearance of business model elements was The last domain addressed is about considering how the searched within the selected publications. Special attention company creates value for itself. Elements such as revenue was devoted to searching for business model elements that model or revenue stream, value capture, cost, price, and are related to strategy and sustainability to analyze the rela- profit formula (all these elements are mentioned at least 5 tionship between business models, on one hand, and strategy times in publications) reveal the financial aspect of a busi- and sustainability, on the other. ness model. When considered in relation to other domains and elements, a business model is a specific combination of resources and transactions which generate value for both Results customers and the organization. Domains Addressed in a Business Model Business Model Versus Strategy Across these 108 publications, 387 different business model elements or unique building blocks are found. A brief review Transformation of resources into valuable products and ser- of these adjacent literatures is presented in Table 3. It seems vices, and delivery of those to customers, occurs in a specific that some of the elements are seen time and time again in the strategic context. The previous review indicated that the definitions. For instance, four elements (value proposition, strategy literature stream has an essential influence on busi- customer, product, and resources) are mentioned in more ness model development and that strategic elements are than 20 publications, and another 56 out of 387 elements are mentioned very often in the context of business models. mentioned at least 4 times. In addition, 16 elements are men- Strategy or some other elements related to strategy like mis- tioned 3 times, 49 elements 2 times, and 262 elements are sion, competitors, organization, or structure have often been mentioned only once. incorporated in definitions (see again Casadesus-Masanell & Regardless of the large number of perspectives provided Ricart, 2010; Chesbrough & Rosenbloom, 2002; Shafer when business model elements are concerned, something et al., 2005; Smith, Binns, & Tushman, 2010; Voelpel et al., consistently recognized was that definitions often included 2005). This is also reflected in the various approaches used those elements that comprise the concept of value. More pre- when defining the main elements of a business model (see cisely, value proposition is convincingly the most often men- Tables 2 and 3). tioned element of a business model (in one third of analyzed Many authors argue that strategy is essential when con- publications). However, many other elements also overlap sidering elements of a business model. For instance, Hamel each other while referring to value proposition. For instance, (2000) considered the core strategy as a central (first-order) value, value offering, (customer) value proposition, or even element of a business model. Also, a group of authors refer to product or service all refer to value that is first proposed and competitive strategy (Chesbrough, 2007; Chesbrough & then delivered to a customer. In other words, value proposi- Rosenbloom, 2002; Kujala et al., 2010; Morris et al., 2005). tion is typically concerned with the product and service They all agree it must delineate how the firm will gain and offering, that is, the value embedded in the offerings of the hold advantage over rivals. Richardson (2008) mostly agreed firm (see also Afuah & Tucci, 2003; Osterwalder et al., 2005; but, from his point of view, basic strategy to win customers Voelpel, Leibold, & Tekie, 2004). and gain competitive advantage is a second-order theme and Resource-based view (RBV) of the firm (e.g., see Amit & belongs to value proposition. Shafer et al. (2005) argued that Zott, 2001; Seppänen & Mäkinen, 2007; Morris et al., 2005; strategy is all about making choices (regarding customers, Seppänen, 2009) also proved to be relevant for the business value proposition, pricing, competitors, branding, etc.), and model concept. Besides the term resources (found in one strategic choices are therefore considered as a separate ele- fifth of publications), elements such as key resources, strate- ment of a business model. Voelpel et al. (2004) and Tikkanen gic resources, assets, competencies, information, or even et al. (2005) see strategy as a second-order theme. According technology or brand all indicate the tangible or intangible to Voelpel et al. (2004), strategy, vision, mission, and objec- substance of a firm and its business model. On the contrary, tives are a part of a value network (re)configuration which Morris et al. (2005) argued that activity sets support each has to provide value for customers. Tikkanen et al. (2005) element of a business model. Furthermore, Zott et al. (2011) explained that the business model of the firm is based on how found that the received literature on business models mostly the material aspects of the business model interact with man- supports an activity system perspective, that is, a set of inter- agerial belief systems. Within material aspects, they find dependent organizational activities centered on a focal firm. strategic intent (long-term organizational commitment), the Indeed, this research found that managerial, organizational, strategy process managed by a firm’s managers, and the con- manufacturing, marketing, and especially networking pro- tent of strategy as part of the material aspects of a business model. cesses are frequently mentioned within the business model On the contrary, there are authors who do not explicitly framework. As a link connecting a firm’s infrastructure and embed the term strategy within the business model frame- customers, these activities are required to create and deliver work. For some of them, Onetti et al. (2012) for instance, the the value proposition to the targeted customer. Peric et al. 7 Table 3. Frequency of Appearance of Business Model Elements. Table 3. (continued) Element(s) Freq (N = 108) % Element(s) Freq (N = 108) % Value proposition 36 33.33 Key processes Customer 23 21.30 Suppliers Product 22 20.37 Value delivery Resources 21 19.44 3 2.78 Sustainability Technology 16 14.81 Environment 2 1.85 Value network 15 13.89 1 0.93 Community Revenue model 14 12.96 Environmental value Core competencies 10 9.26 proposition Social profit equation Cost structure Revenue stream Elements related to sustainability. Value capture Elements related to strategy. Cost 9 8.33 Relationship Value creation terms are more clearly explained when strategy is excluded Financial aspects 8 7.41 from the defining elements of the business model. Therefore, Partners Onetti et al. (2012) deliberately excluded concepts such as Processes mission and strategy (together with the components of value Channels 7 6.48 proposition, competition, differentiation, customer target Customer interface market, and pricing) from the defining elements of the busi- Customer relationship ness model. Mission According to Wirtz et al. (2016), such a lack of consensus Revenues with regard to the area of strategy as a building block of busi- Structure ness model could be explained by the fact that some authors Target customer usually integrate the implications of corporate strategy Capabilities 6 5.56 through a strategy model within the business model. Indeed, Customer segments the literature points to the importance of business models for Governance a firm’s strategy and definitions of a business model at a stra- Key resources b tegic level. However, a business model and a strategy are not Network the same thing, and the two should not be confused. In fact, Organization literature tries to portray the business model as an indepen- Scope dent concept but related to a number of other established Value managerial concepts such as strategy, organizational struc- Value configuration ture, or business planning (e.g., Casadesus-Masanell & Competencies 5 4.63 Ricart, 2010; DaSilva & Trkman, 2014). Competitive strategy Competitors In this respect, much has been discussed about differenti- Distribution channel ating between business models and strategy (Casadesus- Infrastructure management Masanell & Ricart, 2010; Chesbrough & Rosenbloom, 2002; Manufacturing DaSilva & Trkman, 2014; Klang et al., 2014; Magretta, Price 2002; Morris et al., 2005; Osterwalder et al., 2005; Pricing Richardson, 2008; Teece, 2010; Tikkanen et al., 2005; Profit formula Wikström et al., 2010; Zott et al., 2011). For Chesbrough and Revenue sources Rosenbloom (2002), the business model is “more of a proto- Services strategy, an initial hypothesis for how to deliver value to the Strategy customer . . .” (p. 550). It describes the organization’s activi- Value offering ties and how to create and deliver value to the customer but Activities 4 3.70 does not consider competition as a critical dimension of per- Architecture of value formance (Magretta, 2002). Hence, the business model is Assets focused on value proposition and emphasizes the role of the Brand customer (Zott et al., 2011). On the contrary, the strategy is Financial model concerned more with value capturing and its sustainability Information than with value creation (Chesbrough & Rosenbloom, 2002; Infrastructure Mäkinen & Seppänen, 2007). This means strategy gives (continued) meaning and direction on how the business model is utilized 8 SAGE Open depending on contingencies that might occur in a competi- only the right thing to do but also the smart thing to do tive environment (Casadesus-Masanell & Ricart, 2010; (Stubbs & Cocklin, 2008) because becoming environment- Tikkanen et al., 2005), and in such a way, strategy stresses friendly lowers costs, creates new businesses, and generates the need for positioning (Magretta, 2002). Hence, strategy is additional revenues from better products (Nidumolu, all about making choices while a business model reflects the Prahalad, & Rangaswami, 2009). In this way, sustainable strategic choices that have been made and their operating organizations need profits to exist (i.e., survive) and to implications (Shafer et al., 2005). However, Casadesus- achieve sustainable outcomes but they do not just exist to Masanell and Ricart (2010) argued that strategy is not just make a profit (Stubbs & Cocklin, 2008). the mere selection of a business model (making some choices The concept of a SBM was well accepted by other aca- and suffering the consequences of these choices) because demics and practitioners under slightly changed names— every organization has some business model, but not every sustainable business model or business model for organization has a strategy. Some academics have even ques- sustainability (BMfS; Abdelkafi & Täuscher, 2016; Bocken, tioned whether it would be possible to have more than one Rana, & Short, 2015; Bocken, Short, Rana, & Evans, 2013, business model at the same time (Arend, 2013; Casadesus- 2014; Boons & Lüdeke-Freund, 2013; Boons, Montalvo, Masanell & Ricart, 2010; Hedman & Kalling, 2003; Kim & Quist, & Wagner, 2013; Jabłoński, 2016; Roome & Louche, Min, 2015; Malone et al., 2006; Markides & Charitou, 2004) 2016; Schaltegger et al., 2016; Schaltegger, Lüdeke-Freund, or to alter business models within one strategy (DaSilva & & Hansen, 2012; Wells, 2016). However, all SBM or BMfS Trkman, 2014). understandings agree on the integration of a triple bottom line approach and consider a wide range of stakeholder inter- ests. SBM is based on the principles of balancing the busi- Business Models and Sustainability ness from a number of perspectives, and it is a kind of holistic Another theme that is becoming more and more present and hybrid model (Jabłoński, 2016). It generates therefore within the context of business models is sustainability. shared value creation for all stakeholders—it captures eco- Although sustainability is almost always seen in terms of nomic value for itself, while distributing value beyond its three dimensions that must be in harmony, namely, social, organizational boundaries by maintaining or regenerating economic, and environmental (Kates, Parris, & Leiserowitz, natural, social, and economic capital (Bocken et al., 2015; 2005; Strange & Bayley, 2008), when it comes to business Bocken et al., 2014; Boons et al., 2013; Schaltegger et al., models, the harmony of these dimensions was not always the 2016; Schaltegger et al., 2012). case. At first, sustainability was mentioned only from an eco- Accordingly, designing sustainability-oriented business nomic perspective. Besides creating and delivering value, models requires a long-term focus at both the organizational the core of a business model was to create a sustainable com- and socioeconomic levels (Stubbs & Cocklin, 2008) and the petitive advantage in defined markets (Morris et al., 2005) adoption of a systemic approach that seeks to integrate con- and to generate profitable and sustainable revenue streams siderations of the three dimensions of sustainability (Bocken that ensure the satisfaction of relevant stakeholders within a et al., 2015). Indeed, environment and community are firm (Brousseau & Penard, 2007; Osterwalder et al., 2005; acknowledged as true stakeholders. When it comes to attrib- Voelpel et al., 2005). The focus was on how a firm can sus- uting to natural or ecological capital, Abdelkafi and Täuscher tain itself, that is, how to be self-sustainable on the basis of (2016) discussed environmental value proposition, which the income it generates (DaSilva & Trkman, 2014; Shafer represents not the actual impact but the intended impact of a et al., 2005; Teece, 2010). As previously mentioned, many business model on the environment, and how to integrate it elements of a business model (e.g., revenue model, revenue into a BMfS. When it comes to the community perspective, stream, value capture, profit formula) reflect this approach. Stubbs and Cocklin (2008) even mentioned community as a Objectives and interests of the environment and community, subelement of a business model (together with customers, as external stakeholders, were less relevant. For instance, employees, suppliers, and management). In addition, some environment is considered as an element of business model authors used the business model framework to explain how only twice (see Hoque, 2002; Nair, Paulose, Palacios, & to create social businesses able to enhance social welfare Tafur, 2013) and has the meaning of a turbulent and competi- (e.g., Seelos & Mair, 2005; Yunus, Moingeon, & Lehmann- tive business setting that impacts firms’ survival. Ortega, 2010). According to Yunus et al. (2010), a social Meanwhile, the overall competitive landscape has business model defines the desired social profits through a changed in favor of the environment and wider community. comprehensive ecosystem view. This will result in a social In 2008, Stubbs and Cocklin (2008) discussed how sustain- profit equation (one constitute element of a social business ability concepts (all three dimensions) should shape the driv- model) while an economic profit equation (another element) ing force of the firm and its decision making. They coined targets only full recovery of cost and of capital, and not the term sustainability business model (SBM)—a model financial profit maximization. Despite the growing impor- where a firm treats sustainability as a business strategy in tance of these issues (i.e., environment, environmental value itself, rather than as an add-on. For firms, sustainability is not proposition, community, and social profit equation) in Peric et al. 9 contemporary business, this research showed that they are accepted definitions for either the business model or its rarely mentioned as elements of a business model. An expla- building blocks. According to Shafer et al. (2005), the lack- nation for this can be found in the core definition of the ing consensus on business model definition may be in part SBM—sustainability (involving also environment and soci- attributed to interdisciplinary scholarly perspectives (e.g., ety) is treated as a business strategy in itself and there is no technology, IS, strategy, organizational theory, etc.). Despite need for it to be asserted as separate elements. the broadness and differences in definitions over the last two Hence, the quest for sustainability forces companies to or three decades, one thing the academics and practitioners change the way they think about products, technologies, pro- agree upon is that, when business models are concerned, it is cesses, and business models. Smart organizations now treat all about value (Abdelkafi et al., 2013; Amit & Zott, 2001; sustainability as innovation’s new frontier (Nidumolu et al., Chesbrough & Rosenbloom, 2002; Osterwalder et al., 2005; 2009). Designing SBMs explicitly depicts how value is cre- Santos, Spector, & Van der Heyden, 2009; Shafer et al., ated and appropriated by all involved. Thus, the creation and 2005; Smith, Binns, & Tushman, 2010; Teece, 2010; Voelpel further development of businesses toward sustainability is et al., 2005; Wirtz et al., 2010). What can be read out as a challenged by the cocreation of societal and economic profits common theme in the authors’ views is that a business model (Boons & Lüdeke-Freund, 2013), leaving plenty of space for is a conceptual tool and an abstract representation of a com- further research. pany’s core logic that describes how it creates, delivers, and captures value. To make this abstraction simpler, a business model is often expounded through the identification of its Discussion and Conclusion elements. The most frequently cited are a firm’s value propo- This overview has revealed that many practitioners and sition, customers, products (and services), resources, value scholars treat the business model as a promising concept. On creation, value capture, revenues, technology, processes, and the contrary, the validity of the business model concept and partners. Still, there is no congruency—different items are its long-term implications has been questioned over time. used for similar concepts and their meanings sometimes This apparently popular concept receives intense criticism, overlap. What product or service is to one author, value prop- which is quite paradoxical (Klang et al., 2014). It was argued osition is to another. Within a number of elements, it looks that the business model is defined vaguely, that there is con- like these elements are crucial when business models are fusion in terminology, and that the business model, as an concerned, and that value (i.e., a firm’s value proposition, approach to management, becomes an invitation for faulty value creation, and value capture), as claimed by Johnson thinking and self-delusion (Morris et al., 2005; Porter, 2001; et al. (2008) and Nenonen and Storbacka (2010), makes the Zott et al., 2011). Several conclusions, which are to a large core of a business model. extent coherent with these inferences, can be drawn from this Although consensus among the authors regarding the overview. dimensions of value as components of a business model First, although more than half a century has passed since exists to some extent, there is little or no agreement with the first appearance of the term business model in the litera- regard to the area of strategy. This review implies that there ture, this overview shows that its popularity is a relatively is both a relationship and distinction between business mod- young phenomenon (see also Wirtz et al., 2016; Zott et al., els and strategy. A strong relationship between business 2011). The business model concept began to be increasingly models and strategy is manifested in two ways: Business used only during the 1990s, in parallel with the development models are often defined from a strategic point of view while and intensive evolution of e-commerce. Since then, research strategic issues are pointed out as important business model in business models has matured over the years, and numer- elements. Although there is a strong relationship between the ous definitions of business model and elements have two, the next conclusion is that a business model and a strat- appeared. The e-business and technology stream dominated egy are not the same thing. The majority of the extant litera- the early stage of business model evolution, after which time ture portrays the business model as an independent concept a more generic approach emerged, focused on the strategic (Casadesus-Masanell & Ricart, 2010; DaSilva & Trkman, and operational dimensions of a firm and seeking to define 2014; Magretta, 2002; Shafer et al., 2005), and a clear dis- the concept as a more generalized representation of a firm. tinction should be made between strategy and business The economic stream, emphasizing the logic of profit gen- model. When a business venture is concerned, strategy can eration, is a constant throughout the whole period. This, be understood more as a kind of guide (Wirtz et al., 2016). therefore, is in line with some of the previous arguments On the contrary, business models include a number of strat- (George & Bock, 2011; Morris et al., 2005; Onetti et al., egy elements but build more on the creation of value for cus- 2012; Wirtz et al., 2016; Zott et al., 2011) that the literature tomers, and from a strategic view, the business model can be on business models is fragmented and dispersed in several a source of competitive advantage (Teece, 2010; Zott et al., streams with very loose boundaries between each other. 2011). This implies that a business model is typically devel- The heterogeneous nature of the extant literature gives oped from a more narrow perspective than a strategy (see support to other two conclusions—there are no generally Wikström et al., 2010). It seeks to integrate sustainable value 10 SAGE Open creation with capturing and appropriation while emphasizing leaves gaps for further research. Cocreation of environmen- the role of the customer which appears to be less pronounced tal, societal, and economic profits within and beyond the elsewhere in the strategy literature. In Addition, an organiza- boundaries of a business model is surely a challenge for both tion’s business model framework is usually approached from practitioners and academics. In this regard, more work a short-term perspective as the reflection of its realized strat- regarding business model terminology may certainly provide egy (see also Casadesus-Masanell & Ricart, 2010; Dahan, insights into making business models more efficient. Doh, Oetzel, & Yaziji, 2010), providing a link between strat- Despite the attempts to rigorously and objectively analyze egy and operations and between strategy formulation and the selected literature on business models, this article comes implementation. From this point of view, this conclusion is with several limitations. Besides strategy and sustainability, in line with previous findings (e.g., Mäkinen & Seppänen, business models have other, emerging common themes that 2007; Richardson, 2008) that found that business models should be looked into. For instance, future overviews on busi- facilitate operations, that is, the implementation of selected ness models should seek to overcome this limitation by focus- strategy. Consequently, strategy reflects the long-term per- ing on business model types (see Kujala et al., 2010; McGrath, spective, that is, what a company aims to become, while a 2010; Wirtz et al., 2010), business model innovation (Cavalcante business model is a description of a state, that is, what a com- et al., 2011; Mitchell & Coles, 2004; Zott et al., 2011), and the pany really is at a given time (Dahan et al., 2010; DaSilva & impact of adopted business models on firm performance Trkman, 2014). For sure, business model and strategy are (Cucculelli & Bettinelli, 2015; Markides & Sosa, 2013; Zott more complements than substitutes. et al., 2011). The research scope of future studies should also Moreover, sustainability is found to be a hot topic for focus on particular industries to build the theory and compare business models. Besides economic sustainability (DaSilva the overall conclusions. More empirical findings (i.e., case stud- & Trkman, 2014; Shafer et al., 2005; Teece, 2010, etc.), ies) will help both practitioners and academics to put all the increased interest in research is devoted to the social and pieces together and design competitive business models. environmental dimensions of sustainability. As a result, a new stream of literature on sustainable business models has Declaration of Conflicting Interests emerged (Abdelkafi & Täuscher, 2016; Bocken et al., 2015; The author(s) declared no potential conflicts of interest with respect Bocken et al., 2014; Boons et al., 2013; Roome & Louche, to the research, authorship, and/or publication of this article. 2016; Schalteggeret al., 2012; Stubbs & Cocklin, 2008). According to this approach, value is distributed to all stake- Funding holders, including those within a firm as well as those beyond The author(s) disclosed receipt of the following financial support the firm’s organizational boundaries. for the research, authorship, and/or publication of this article: This To summarize, this article reviewed the relevant literature work was supported by the Croatian Science Foundation [grant on business models to try gain a better understanding of the number UIP-2014-09-1214]. business model concept and its content-related structural aspects. It looks like 20 years of intensive development were References not enough for academics to agree on what a business model Abdelkafi, N., Makhotin, S., & Posselt, T. (2013). Business models is and what its constitute elements are. Still, progress is evi- innovation for electric mobility: What can be learned from exist- dent in other fields. Particular attention was therefore dedi- ing business model patterns? 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Environment, 29, 11-35. doi:10.1177/1086026615595084 (2005). Escaping the red queen effect in competitive strategy: Peric et al. 13 Sense-testing business models. European Management Zott, C., Amit, R., & Massa, L. (2011). The business model: Recent Journal, 23, 37-49. doi:10.1016/j.emj.2004.12.008 developments and future research. Journal of Management, 37, Wells, P. (2016). Economies of scale versus small is beautiful: A 1019-1042. doi:10.1177/0149206311406265 business model approach based on architecture, principles and components in the beer industry. Organization & Environment, Author Biographies 29, 36-52. doi:10.1177/1086026615590882 Marko Peric is an associate professor in the Department of Wikström, K., Artto, K., Kujala, J., & Söderlund, J. (2010). Business Management at the Faculty of Tourism and Hospitality Management, models in project business. International Journal of Project University of Rijeka, Croatia. With many research publications in Management, 28, 832-841. doi:10.1016/j.ijproman.2010.07.001 international journals, fields of his interest include strategic man- Wirtz, B. W., Pistoia, A., Ullrich, S., & Göttel, V. (2016). Business models: Origin, development and future research perspectives. agement, sports management, sports tourism, and project manage- Long Range Planning, 49, 36-54. doi:10.1016/j.lrp.2015.04.001 ment issues. Wirtz, B. W., Schilke, O., & Ullrich, S. (2010). Strategic develop- Jelena Durkin is a postdoctoral researcher and senior teaching ment of business models implications of the Web 2.0 for creat- assistant in the Department of Management at the Faculty of ing value on the internet. Long Range Planning, 43, 272-290. Tourism and Hospitality Management, University of Rijeka, doi:10.1016/j.lrp.2010.01.005 Croatia. Her main interests include social and community-based Yunus, M., Moingeon, B., & Lehmann-Ortega, L. (2010). Building social business models: Lessons from the Grameen experience. entrepreneurship, sustainable organising and stakeholder manage- Long Range Planning, 43, 308-325. doi:10.1016/j.lrp.2009.12.005 ment in tourism. Zott, C., & Amit, R. (2007). Business model design and the per- Vanja Vitezic is a teaching assistant in the Department of formance of entrepreneurial firms. Organization Science, 18, Management at the Faculty of Tourism and Hospitality Management, 181-199. doi:10.1287/orsc.1060.0232 University of Rijeka, Croatia. His main research interests include Zott, C., & Amit, R. (2010). Business model design: An activ- innovation management, entrepreneurial economy, and event man- ity system perspective. Long Range Planning, 43, 216-226. doi:10.1016/j.lrp.2009.07.004 agement in tourism and hospitality. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png SAGE Open SAGE

The Constructs of a Business Model Redefined: A Half-Century Journey:

SAGE Open , Volume 7 (3): 1 – Sep 25, 2017

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Abstract

Despite its growing popularity, the term business model has not been uniquely defined so far. Within the management science and practice, it has been frequently confused with other popular terms. This article aims to bring clarity into what stands behind the business model concept by providing a review of the most common themes used in defining business model elements. It also discusses the relationship between the concept of a business model, on one hand, and strategy and sustainability, on the other. A few conclusions emerge. First, although there are no generally accepted definitions for either the business model or its building blocks, academics and practitioners agree that a business model is all about value. Second, a business model is not the same as a strategy but it has an important role in strategy implementation. Third, sustainability is found to be a hot topic for business models and has been increasingly used in symbiosis with this concept. Besides being a theoretical contribution to a definition of the business model as an independent concept, the findings may be particularly helpful to managers and business practitioners seeking ways to enable their firms to deal with complex market challenges and gain competitive advantage. Keywords business model, strategy, sustainability terms in the management literature such as strategy, business Introduction concept, revenue model, economic model, or even business The business model concept has become very popular in process modeling (DaSilva & Trkman, 2014; Morris, terms of a company’s competitive success as well as in man- Schindehutte, & Allen, 2005). agement science. Regarding companies, whenever a busi- As a generally accepted definition of the business model ness venture is established, it either explicitly or implicitly does not exist, it is not surprising that the constitute elements employs a particular business model (Teece, 2010), and for a of the business model are not clearly defined too. Despite venture to become viable, a sound business model is required many efforts (e.g., Demil & Lecocq, 2010; Mahadevan, (Magretta, 2002). Also, business model design and innova- 2000; Morris et al., 2005; Onetti, Zucchella, Jones, & tion are of critical importance for a company’s performance McDougall-Covin, 2012; Osterwalder & Pigneur, 2010; and success (Kesting & Günzel-Jensen, 2015; Zott & Amit, Richardson, 2008; Roome & Louche, 2016; Runfola, Rosati, 2007; Zott, Amit, & Massa, 2011). & Guercini, 2013; Shafer, Smith, & Linder, 2005), this issue These claims may sound very clear and logical, but a still allows for different interpretations. For that reason, aim- question arises: Do we know how to build a sound and inno- ing to make the business model concept more transparent, vative business model? Put differently, what stands behind some authors have extensively explored extant literature and this concept? Recently, many authors from various fields of meta-science databases (DaSilva & Trkman, 2014; Ghaziani research have been looking for appropriate answers (Arend, & Ventresca, 2005; Kujala, Artto, Aaltonen, & Turkulainen, 2013; Casadesus-Masanell & Zhu, 2013; Chesbrough, 2007; 2010; Mäkinen & Seppänen, 2007; Morris et al., 2005; Johnson, Christensen, & Kagermann, 2008; Kesting & Onetti et al., 2012; Richardson, 2008; Wirtz, Pistoia, Ullrich, Günzel-Jensen, 2015; Klang, Wallnöfer, & Hacklin, 2014; Osterwalder, Pigneur, & Tucci, 2005; Schaltegger, Hansen, & Lüdeke-Freund, 2016; Seelos & Mair, 2005; Zott & Amit, 1 University of Rijeka, Faculty of Tourism and Hospitality Management, 2010, etc.) and it really seems that the business model is Opatija, Croatia emerging as a new unit of analysis (Zott et al., 2011). These Corresponding Author: authors offer a variety of definitions, but a general consensus Marko Peric, University of Rijeka, Faculty of Tourism and Hospitality on the definition of the business model has not been reached. Management, Primorska 42, P.O.B. 97, 51410 Opatija, Croatia. The term has been frequently confused with other popular Email: markop@fthm.hr Creative Commons CC BY: This article is distributed under the terms of the Creative Commons Attribution 4.0 License (http://www.creativecommons.org/licenses/by/4.0/) which permits any use, reproduction and distribution of the work without further permission provided the original work is attributed as specified on the SAGE and Open Access pages (https://us.sagepub.com/en-us/nam/open-access-at-sage). 2 SAGE Open & Göttel, 2016; Zott et al., 2011). Their conclusions are quite In parallel, academics searched for more generic approaches similar; the research on business models shows a high degree in their researches, and the business model has developed of complexity and is still an underresearched topic within the into an overall presentation of the company organization management field. contributing to managerial decision-making process (Wirtz This article builds on these recent works reviewing the et al., 2016). state of the art in business model research and has two main During the “new economy” era (Morris et al., 2005), that objectives. First, it intends to provide a review of the most is, the 1990s, we witnessed an explosion of the use of the common themes used in defining business model elements. term in both nonacademic and academic literature. Only in Second, it discusses the relationship between the concept of the last decade, at least five special issues were devoted to a business model, on one hand, and strategy and sustainabil- business models (e.g., the Long Range Planning in 2010, the ity, on the other. Providing new insights into the business Journal of Cleaner Production in 2013, the Strategic model notion, the findings not only contribute to the devel- Entrepreneurship Journal in 2015, and the Sustainability and opment of management theory but could be also used by the the Organization & Environment in 2016). managers and business practitioners of new entrants as well The rise to prominence of the term was also confirmed by as incumbent firms to design business models capable of many authors who have extensively explored extant litera- addressing direct competitive challenges. ture, by searching the term business model in the title, The article proceeds as follows. The “Literature Review” abstract, or full text of the articles (DaSilva & Trkman, 2014; section provides a synthesized overview of the available lit- Ghaziani & Ventresca, 2005; Klang et al., 2014; Kujala et al., erature, focusing on the emergence and popularity of the 2010; Mäkinen & Seppänen, 2007; Morris et al., 2005; business model concept in academic literature as well as on Nenonen & Storbacka, 2010; Onetti et al., 2012; Osterwalder business model definition. The “Method” section describes et al., 2005; Richardson, 2008; Shafer et al., 2005; Wirtz the methodology of research. The “Results” section details et al., 2016; Zott et al., 2011). Their findings suggest that, in the results obtained regarding business model elements and peer-reviewed journals, the number of articles has grown two issues usually associated with business models: strategy from a single-digit number per year to more than several 100 and sustainability. The article finishes with a discussion and articles per year in the last 50 years. The rapid growth of some concluding remarks. references to the business model in the literature has cer- tainly contributed to the efforts to theoretically and opera- tionally define this concept. Despite the fact that research in Literature Review business models has matured over the years, the literature on business models is divergent and heterogeneous. Emergence of the Business Model Concept in Literature Business Model Definitions The term business model has been present in academic litera- ture for more than 60 years now. According to Markides Analyzing the evolution of the business model concept, (2013), its first use in the literature can be traced to Lang Osterwalder et al. (2005) concluded that this evolution has (1947), while Osterwalder et al. (2005) found that it appeared entered its final phase, with the business model concept for the first time in an academic paper in 1957 (in the context being applied in management and information systems (IS) applications. This implies that the previous four phases (defi- of business games for training purposes; Bellman, Clark, nition and classification of business models, listing business Malcolm, Craft, & Ricciardi, 1957) and in the title and model components, describing business model components, abstract of a paper in 1960 (how college students from the and modeling business model components) have all been fin- business field should be trained and how technologies should ished. However, just from a short glance at Table 1, which be introduced to them; Jones, 1960). In the beginning, how- presents a synopsis of available perspectives regarding busi- ever, the term was used in a very unspecific manner, reflect- ness model definitions, one can see that it is still quite an ing a simplification and simulation of reality aimed at interesting topic for academics. educating future managers on technology (DaSilva & Also, it seems that the term is not clearly and unambigu- Trkman, 2014). Since the 1970s, the business model has ously defined. The business model has been referred to as a been associated regularly within the context of information statement, a description, a representation, an architecture, a technology and mainly used in the sense of business model- conceptual tool or model, a plan, an assumption, a structural ing (see Wirtz et al., 2016). This highlighted its operational template, a method, a framework, a pattern, and a set (see and functional aspects necessary for system modeling. Still, also Morris et al., 2005; Zott et al., 2011). until the 1990s, the term had been used only sporadically. Morris et al. (2005), Zott et al. (2011), and Wirtz et al. The advent of the Internet in the business world gave a boost (2016) tried to bring some order to the various perspectives to the usage of the term business model (see Amit & Zott, in the gathered definitions. Summarizing their findings, sev- 2001; Magretta, 2002), with so-called dot-com firms pitch- eral general approaches, perspectives, and/or categories of ing business models to attract funding (Shafer et al., 2005). Peric et al. 3 Table 1. Business Model Definitions. Author(s) (year) Definition: A business model(s) . . . Timmers (1998) . . . “is an architecture of the product, service and information flows, including a description of the various business actors and their roles; a description of the potential benefits for the various business actors; a description of the sources of revenues” (p. 4). Amit and Zott (2001) . . . “depicts the content, structure, and governance of transactions designed so as to create value through the exploitation of business opportunities” (p. 511). Magretta (2002) . . . “They are, at heart, stories–stories that explain how enterprises work.” (p. 4). Chesbrough and Rosenbloom (2002) . . . “the heuristic logic that connects technical potential with the realization of economic value” (p. 529). Morris, Schindehutte, and Allen (2005) . . . “is a concise representation of how an interrelated set of decision variables in the areas of venture strategy, architecture, and economics are addressed to create sustainable competitive advantage in defined markets” (p. 727). Osterwalder, Pigneur, and Tucci (2005) . . . “is a conceptual tool that contains a set of elements and their relationships and allows expressing the business logic of a specific firm. It is a description of the value a company offers to one or several segments of customers and of the architecture of the firm and its network of partners for creating, marketing, and delivering this value and relationship capital, to generate profitable and sustainable revenue streams” (p. 10). Shafer, Smith, and Linder (2005) . . . “is defined as a representation of a firm’s underlying core logic and strategic choices for creating and capturing value within a value network” (p. 202). Voelpel, Leibold, Tekie, and von Krogh (2005) . . . “can generally be defined as the particular business concept (or way of doing business)” (p. 40). Brousseau and Penard (2007) . . . “a pattern of organizing exchanges and allocating various costs and revenue streams so that the production and exchange of goods or services becomes viable, in the sense of being self-sustainable on the basis of the income it generates (p. 82). Santos, Spector, and Van der Heyden (2009) . . . “is a configuration of activities and of the organizational units that perform those activities both within and outside the firm designed to create value in the production (and delivery) of a specific product/market set” (p. 11). Casadesus-Masanell and Ricart (2010) . . . “a reflection of the firm’s realized strategy” (p. 195). Smith, Binns, and Tushman (2010) . . . “the design by which an organization converts a given set of strategic choices . . . to create and capture this value” (p. 450). Teece (2010) . . . “is defining the manner by which the enterprise delivers value to customers, entices customers to pay for value, and converts those payments to profit. (p. 172). Wirtz, Schilke, and Ullrich (2010) . . . “reflects the operational and output system of a company, and as such captures the way the firm functions and creates value” (p. 274). Cavalcante, Kesting, and Ulhøi (2011) . . . “an abstraction of the principles supporting the development of the core repeated standard processes necessary for a company to perform its business” (pp. 1328-1329). Abdelkafi, Makhotin, and Posselt (2013) . . . “describes how the company communicates, creates, delivers, and captures value out of a value proposition” (p. 12). Baden-Fuller and Haefliger (2013) . . . “a system that solves the problem of identifying who is (or are) the customer(s), engaging with their needs, delivering satisfaction, and monetizing the value” (p. 419). Amit and Zott (2015) . . . “describes how a focal firm taps into its ecosystem to perform the activities that are necessary to fulfill the perceived customer needs” (p. 346). Wirtz, Pistoia, Ullrich, and Göttel (2016) . . . “is a simplified and aggregated representation of the relevant activities of a company” (p. 6). definitions could be distinguished: technological, economic, 2002; Lam & Harrison-Walker, 2003; Rayman-Bacchus & operational, and strategic. The technologically oriented busi- Molina, 2001; Timmers, 1998, to list only a few). Afterward, ness model articles were very dominant during the earlier the business model concept became more generic, that is, stages of business model evolution. It was at the turn of the more universally applicable to other types of firm. The eco- new millennium that many articles were published in the nomic approach is concerned with the logic of profit genera- context of electronic business (Chen, 2003; Dai & Kauffman, tion, that is, how to make money and sustain its profit stream 4 SAGE Open over time (Abdelkafi, Makhotin, & Posselt, 2013; Shafer only a few) and proposing their own theoretical conceptual- et al., 2005; Stewart & Zhao, 2000; Teece, 2010). The opera- izations on what constitutes a business model (see Table 2). tional perspective embraces architectural configuration that The review in Table 2 indicates that most authors distin- enables the firm to create value (Morris et al., 2005). This guish between first- and second-order themes within the architectural approach further involves firms’ internal pro- structure of a business model. Many elements overlap and/or cesses, resources, and their organization (Amit & Zott, 2001, have very similar names. Also, they have been alternately 2015; Johnson et al., 2008; Osterwalder et al., 2005; Timmers, classified into both categories. Hence, there are numerous 1998; Voelpel, Leibold, Tekie, & von Krogh, 2005; Wells, differences in the definitions of elements implying the need 2016). Finally, definitions also emphasize firms’ strategies, for clearer distinction. with particular interest on market positioning, organizational boundaries, stakeholder identification and networks, com- Method petitive advantage, and sustainability (Baden-Fuller & Haefliger, 2013; Casadesus-Masanell & Ricart, 2010; In this article, a comprehensive review and critical analysis Casadesus-Masanell & Zhu, 2013; Cavalcante, Kesting, & of previous research on business models and their elements Ulhøi, 2011; Chesbrough & Rosenbloom, 2002; Shafer et al., were conducted in February and March 2016 as a part of the 2005; Voelpel et al., 2005). Furthermore, the strengths of the research design. In conducting the analysis, a multistep pro- more strategy-oriented articles lie in efforts to understand cess was used. business by decomposing strategy into a system of interre- For the analysis to be scientifically traceable, this study lated decisions, relationships, and organizational boundaries searched for articles that contain the term business model in (Onetti et al., 2012). the title or keywords published in leading academic and The variety of perspectives become more comprehensible practitioner-oriented management journals (Academy of as one progressively moves from the technological and eco- Management Journal [AMJ], Academy of Management nomic across the operational to the strategic levels (Morris Review [AMR], Academy of Management Perspectives et al., 2005). However, the boundaries between basic theo- [AMP], Administrative Science Quarterly [ASQ], Journal of ries become blurred (Wirtz et al., 2016; Zott et al., 2011), and Management [JOM], Journal of Management Studies [JMS], it would be very hard to draw a line between these dimen- Management Science [MS], MIS Quarterly, Organization sions as the majority of definitions encompass at least two or Science [OS], Strategic Management Journal [SMJ], three categories. In recent articles, authors mostly refer to the California Management Review [CMR], Harvard Business fundamental works and aspects of multiple basic perspec- Review [HBR], and MIT Sloan Management Review [MSM]). tives (e.g., Johnson et al., 2008; Kesting & Günzel-Jensen, This search revealed 277 articles on business models from 2015; Tikkanen, Lamberg, Parvinen, & Kallunki, 2005; the early publishing dates to December 2015, of which only Wirtz, Schilke, & Ullrich, 2010; Zott & Amit, 2010; Wells, 21 had been published in academic journals, while 256 had 2016). appeared in practitioner-oriented journals (i.e., CMR, HBR, These broad definitions and approaches are sometimes and MSM). detailed through the identification of the components of the The research was further extended to the ABI/INFORM business model. Indeed, after the definition phase, listing and database. Examining databases was confirmed as an appro- describing business model elements (or components or priate method for exploring extant literature on business unique building blocks or constitute attributes) are the next models (DaSilva & Trkman, 2014; Ghaziani & Ventresca, logical steps in the evolution of the business model concept 2005; Mäkinen & Seppänen, 2007; Wirtz et al., 2016; Zott (Osterwalder et al., 2005). In fact, definitions of a business et al., 2011, etc.) while international coverage makes the model quite often focus on structural aspects regarding its ABI/INFORM database one of the most complete sources on contents (e.g., Johnson et al., 2008; Tikkanen et al., 2005; business studies. The search was focused on academic arti- Voelpel et al., 2005). cles containing the term business model in the title or abstract, Regarding the content-related structural aspects of a busi- published in peer-reviewed scholarly journals in the English ness model, extant literature indicates a separate develop- language from January 1960 to December 2015. In total, ment and expansion of business model elements within these 4,028 articles were obtained. As 16 of the newly found arti- two distinctive phases of listing and describing. For instance, cles were already present in the initial sample of 277 articles, Morris et al. (2005) analyzed key words in definitions and our overall sample contained 4,289 articles. found 24 different items that are mentioned as possible ele- As an initial cursory analysis of these 4,289 publications ments, with 15 receiving multiple mentions. At the same revealed that many of the selected publications would not be time, Shaffer et al. (2005) and Osterwalder et al. (2005) useful for further analysis, three additional criteria were found more than 40 different items each. Recently, academ- introduced to identify articles relevant for this study: (a) an ics have been continually trying to gather and analyze the article must deal with the business model concept in a non- up-to-date state of the research (Nenonen & Storbacka, 2010; trivial and nonmarginal way, (b) an article also must refer to Onetti et al., 2012; Wirtz et al., 2016; Zott et al., 2011, to list the business model as a concept related to business firms (as Peric et al. 5 Table 2. Structural Aspects of a Business Model. Author(s) (year) Business model themes (in brackets are second-order themes) Mahadevan (2000) (1) value stream, (2) logistical stream, and (3) revenue stream Chesbrough and Rosenbloom (2002) (1) value proposition, (2) target markets, (3) internal value chain structure, (4) cost structure and profit model, (5) value network, and (6) competitive strategy Hedman and Kalling (2003) (1) customers, (2) competitors, (3) offering, (4) activities and organization, (5) resources, (6) suppliers of factor and production inputs, and (7) scope of management Voelpel, Leibold, and Tekie (2004) (1) new customer value proposition, (2) a value network (re)configuration (internal and external structures and processes, core strategy, vision, mission, objective, technology, economics, legal issues), and (3) leadership capabilities Morris, Schindehutte, and Allen (2005) (1) product offering, (2) market factors, (3) internal capability factors, (4) competitive strategy factors, (5) economic factors, and (6) growth/exit factors Osterwalder, Pigneur, and Tucci (2005) (1) product (value proposition), (2) customer interface (target customer, distribution channel, relationship), (3) infrastructure management (value configuration, core competency, partner network), and (4) financial aspects (cost structure, revenue) Shafer, Smith, and Linder (2005) (1) strategic choices (customer, value proposition, capabilities/competences, revenue/ pricing, competitors, output, strategy, branding, differentiation, mission), (2) value networks (suppliers, customer information, customer relationship, information flows, product/service flows), (3) creating value (resources/assets, processes/activities), and (4) capturing value (cost, financial aspects, profit) Chesbrough (2007) (1) value proposition, (2) target market, (3) value chain, (4) revenue mechanism(s), (5) value network or ecosystem, (6) competitive strategy Johnson, Christensen, and Kagermann (1) customer value proposition—CVP (target customer, job to be done, offering), (2008) (2) key resources (people, technology, products, facilities, equipment, information, channels, partnerships, alliances, brand), (3) key processes (processes: design, product development, sourcing, manufacturing, marketing, hiring and training, IT; rules and metrics, and norms), and (4) profit formula (revenue model, cost structure, margin model, resource velocity) Richardson (2008) (1) value proposition (offering, target customer, basic strategy to win customers and gain competitive advantage), (2) value creation and delivery system (resources and capabilities; organization: the value chain, activity system, and business processes; position in the value network: links to suppliers, partners, and customers), and (3) value capture (revenue sources, economics of the business) Demil and Lecocq (2010) (1) resources and competences, (2) organizational structure, and (3) propositions for value delivery Kujala, Artto, Aaltonen, and Turkulainen (1) customer, (2) value proposition for the customer, (3) competitive strategy, (4) position (2010) in the value network, (5) suppliers’ internal organization/key capabilities, and (6) logic of revenue generation Osterwalder and Pigneur (2010) (1) customer segments, (2) customer relationships, (3) value propositions, (4) channels, (5) key activities, (6) key resources, (7) key partners, (8) cost structure, and (9) revenue streams Zott and Amit (2010) (1) design elements (activity system content, structure and governance), and (2) design themes (novelty, lock-in, complementarities, efficiency) Onetti, Zucchella, Jones, and McDougall- (1) focus/what? (activities, resources), (2) locus/where? (location), and (3) modus/how? Covin (2012) (internal organization, network design) Runfola, Rosati, and Guercini (2013) (1) target segments, (2) value proposition, and (3) revenue model Bocken, Short, Rana, and Evans (2014) (1) value proposition (product/service, customer segments, relationships), (2) value creation and delivery (key activities, resources, technology, channels, partners), and (3) value capture (cost structure and revenue streams) Abdelkafi and Täuscher (2016) (1) value proposition, (2) value creation, and (3) value capture Roome and Louche (2016) (1) value proposition, (2) value network, (3) value capture, and (4) value creation and delivery opposed to economic cycles or models, for example), and publications, a few additional publications on business (c) an article must directly refer to the constitute elements or models were found that appeared relevant for this review, components of a business model. As a result, 102 articles fit primarily books and working papers. The final sample, the suggested criteria. Through careful reading of these therefore, contained 108 publications. 6 SAGE Open Frequency of appearance of business model elements was The last domain addressed is about considering how the searched within the selected publications. Special attention company creates value for itself. Elements such as revenue was devoted to searching for business model elements that model or revenue stream, value capture, cost, price, and are related to strategy and sustainability to analyze the rela- profit formula (all these elements are mentioned at least 5 tionship between business models, on one hand, and strategy times in publications) reveal the financial aspect of a busi- and sustainability, on the other. ness model. When considered in relation to other domains and elements, a business model is a specific combination of resources and transactions which generate value for both Results customers and the organization. Domains Addressed in a Business Model Business Model Versus Strategy Across these 108 publications, 387 different business model elements or unique building blocks are found. A brief review Transformation of resources into valuable products and ser- of these adjacent literatures is presented in Table 3. It seems vices, and delivery of those to customers, occurs in a specific that some of the elements are seen time and time again in the strategic context. The previous review indicated that the definitions. For instance, four elements (value proposition, strategy literature stream has an essential influence on busi- customer, product, and resources) are mentioned in more ness model development and that strategic elements are than 20 publications, and another 56 out of 387 elements are mentioned very often in the context of business models. mentioned at least 4 times. In addition, 16 elements are men- Strategy or some other elements related to strategy like mis- tioned 3 times, 49 elements 2 times, and 262 elements are sion, competitors, organization, or structure have often been mentioned only once. incorporated in definitions (see again Casadesus-Masanell & Regardless of the large number of perspectives provided Ricart, 2010; Chesbrough & Rosenbloom, 2002; Shafer when business model elements are concerned, something et al., 2005; Smith, Binns, & Tushman, 2010; Voelpel et al., consistently recognized was that definitions often included 2005). This is also reflected in the various approaches used those elements that comprise the concept of value. More pre- when defining the main elements of a business model (see cisely, value proposition is convincingly the most often men- Tables 2 and 3). tioned element of a business model (in one third of analyzed Many authors argue that strategy is essential when con- publications). However, many other elements also overlap sidering elements of a business model. For instance, Hamel each other while referring to value proposition. For instance, (2000) considered the core strategy as a central (first-order) value, value offering, (customer) value proposition, or even element of a business model. Also, a group of authors refer to product or service all refer to value that is first proposed and competitive strategy (Chesbrough, 2007; Chesbrough & then delivered to a customer. In other words, value proposi- Rosenbloom, 2002; Kujala et al., 2010; Morris et al., 2005). tion is typically concerned with the product and service They all agree it must delineate how the firm will gain and offering, that is, the value embedded in the offerings of the hold advantage over rivals. Richardson (2008) mostly agreed firm (see also Afuah & Tucci, 2003; Osterwalder et al., 2005; but, from his point of view, basic strategy to win customers Voelpel, Leibold, & Tekie, 2004). and gain competitive advantage is a second-order theme and Resource-based view (RBV) of the firm (e.g., see Amit & belongs to value proposition. Shafer et al. (2005) argued that Zott, 2001; Seppänen & Mäkinen, 2007; Morris et al., 2005; strategy is all about making choices (regarding customers, Seppänen, 2009) also proved to be relevant for the business value proposition, pricing, competitors, branding, etc.), and model concept. Besides the term resources (found in one strategic choices are therefore considered as a separate ele- fifth of publications), elements such as key resources, strate- ment of a business model. Voelpel et al. (2004) and Tikkanen gic resources, assets, competencies, information, or even et al. (2005) see strategy as a second-order theme. According technology or brand all indicate the tangible or intangible to Voelpel et al. (2004), strategy, vision, mission, and objec- substance of a firm and its business model. On the contrary, tives are a part of a value network (re)configuration which Morris et al. (2005) argued that activity sets support each has to provide value for customers. Tikkanen et al. (2005) element of a business model. Furthermore, Zott et al. (2011) explained that the business model of the firm is based on how found that the received literature on business models mostly the material aspects of the business model interact with man- supports an activity system perspective, that is, a set of inter- agerial belief systems. Within material aspects, they find dependent organizational activities centered on a focal firm. strategic intent (long-term organizational commitment), the Indeed, this research found that managerial, organizational, strategy process managed by a firm’s managers, and the con- manufacturing, marketing, and especially networking pro- tent of strategy as part of the material aspects of a business model. cesses are frequently mentioned within the business model On the contrary, there are authors who do not explicitly framework. As a link connecting a firm’s infrastructure and embed the term strategy within the business model frame- customers, these activities are required to create and deliver work. For some of them, Onetti et al. (2012) for instance, the the value proposition to the targeted customer. Peric et al. 7 Table 3. Frequency of Appearance of Business Model Elements. Table 3. (continued) Element(s) Freq (N = 108) % Element(s) Freq (N = 108) % Value proposition 36 33.33 Key processes Customer 23 21.30 Suppliers Product 22 20.37 Value delivery Resources 21 19.44 3 2.78 Sustainability Technology 16 14.81 Environment 2 1.85 Value network 15 13.89 1 0.93 Community Revenue model 14 12.96 Environmental value Core competencies 10 9.26 proposition Social profit equation Cost structure Revenue stream Elements related to sustainability. Value capture Elements related to strategy. Cost 9 8.33 Relationship Value creation terms are more clearly explained when strategy is excluded Financial aspects 8 7.41 from the defining elements of the business model. Therefore, Partners Onetti et al. (2012) deliberately excluded concepts such as Processes mission and strategy (together with the components of value Channels 7 6.48 proposition, competition, differentiation, customer target Customer interface market, and pricing) from the defining elements of the busi- Customer relationship ness model. Mission According to Wirtz et al. (2016), such a lack of consensus Revenues with regard to the area of strategy as a building block of busi- Structure ness model could be explained by the fact that some authors Target customer usually integrate the implications of corporate strategy Capabilities 6 5.56 through a strategy model within the business model. Indeed, Customer segments the literature points to the importance of business models for Governance a firm’s strategy and definitions of a business model at a stra- Key resources b tegic level. However, a business model and a strategy are not Network the same thing, and the two should not be confused. In fact, Organization literature tries to portray the business model as an indepen- Scope dent concept but related to a number of other established Value managerial concepts such as strategy, organizational struc- Value configuration ture, or business planning (e.g., Casadesus-Masanell & Competencies 5 4.63 Ricart, 2010; DaSilva & Trkman, 2014). Competitive strategy Competitors In this respect, much has been discussed about differenti- Distribution channel ating between business models and strategy (Casadesus- Infrastructure management Masanell & Ricart, 2010; Chesbrough & Rosenbloom, 2002; Manufacturing DaSilva & Trkman, 2014; Klang et al., 2014; Magretta, Price 2002; Morris et al., 2005; Osterwalder et al., 2005; Pricing Richardson, 2008; Teece, 2010; Tikkanen et al., 2005; Profit formula Wikström et al., 2010; Zott et al., 2011). For Chesbrough and Revenue sources Rosenbloom (2002), the business model is “more of a proto- Services strategy, an initial hypothesis for how to deliver value to the Strategy customer . . .” (p. 550). It describes the organization’s activi- Value offering ties and how to create and deliver value to the customer but Activities 4 3.70 does not consider competition as a critical dimension of per- Architecture of value formance (Magretta, 2002). Hence, the business model is Assets focused on value proposition and emphasizes the role of the Brand customer (Zott et al., 2011). On the contrary, the strategy is Financial model concerned more with value capturing and its sustainability Information than with value creation (Chesbrough & Rosenbloom, 2002; Infrastructure Mäkinen & Seppänen, 2007). This means strategy gives (continued) meaning and direction on how the business model is utilized 8 SAGE Open depending on contingencies that might occur in a competi- only the right thing to do but also the smart thing to do tive environment (Casadesus-Masanell & Ricart, 2010; (Stubbs & Cocklin, 2008) because becoming environment- Tikkanen et al., 2005), and in such a way, strategy stresses friendly lowers costs, creates new businesses, and generates the need for positioning (Magretta, 2002). Hence, strategy is additional revenues from better products (Nidumolu, all about making choices while a business model reflects the Prahalad, & Rangaswami, 2009). In this way, sustainable strategic choices that have been made and their operating organizations need profits to exist (i.e., survive) and to implications (Shafer et al., 2005). However, Casadesus- achieve sustainable outcomes but they do not just exist to Masanell and Ricart (2010) argued that strategy is not just make a profit (Stubbs & Cocklin, 2008). the mere selection of a business model (making some choices The concept of a SBM was well accepted by other aca- and suffering the consequences of these choices) because demics and practitioners under slightly changed names— every organization has some business model, but not every sustainable business model or business model for organization has a strategy. Some academics have even ques- sustainability (BMfS; Abdelkafi & Täuscher, 2016; Bocken, tioned whether it would be possible to have more than one Rana, & Short, 2015; Bocken, Short, Rana, & Evans, 2013, business model at the same time (Arend, 2013; Casadesus- 2014; Boons & Lüdeke-Freund, 2013; Boons, Montalvo, Masanell & Ricart, 2010; Hedman & Kalling, 2003; Kim & Quist, & Wagner, 2013; Jabłoński, 2016; Roome & Louche, Min, 2015; Malone et al., 2006; Markides & Charitou, 2004) 2016; Schaltegger et al., 2016; Schaltegger, Lüdeke-Freund, or to alter business models within one strategy (DaSilva & & Hansen, 2012; Wells, 2016). However, all SBM or BMfS Trkman, 2014). understandings agree on the integration of a triple bottom line approach and consider a wide range of stakeholder inter- ests. SBM is based on the principles of balancing the busi- Business Models and Sustainability ness from a number of perspectives, and it is a kind of holistic Another theme that is becoming more and more present and hybrid model (Jabłoński, 2016). It generates therefore within the context of business models is sustainability. shared value creation for all stakeholders—it captures eco- Although sustainability is almost always seen in terms of nomic value for itself, while distributing value beyond its three dimensions that must be in harmony, namely, social, organizational boundaries by maintaining or regenerating economic, and environmental (Kates, Parris, & Leiserowitz, natural, social, and economic capital (Bocken et al., 2015; 2005; Strange & Bayley, 2008), when it comes to business Bocken et al., 2014; Boons et al., 2013; Schaltegger et al., models, the harmony of these dimensions was not always the 2016; Schaltegger et al., 2012). case. At first, sustainability was mentioned only from an eco- Accordingly, designing sustainability-oriented business nomic perspective. Besides creating and delivering value, models requires a long-term focus at both the organizational the core of a business model was to create a sustainable com- and socioeconomic levels (Stubbs & Cocklin, 2008) and the petitive advantage in defined markets (Morris et al., 2005) adoption of a systemic approach that seeks to integrate con- and to generate profitable and sustainable revenue streams siderations of the three dimensions of sustainability (Bocken that ensure the satisfaction of relevant stakeholders within a et al., 2015). Indeed, environment and community are firm (Brousseau & Penard, 2007; Osterwalder et al., 2005; acknowledged as true stakeholders. When it comes to attrib- Voelpel et al., 2005). The focus was on how a firm can sus- uting to natural or ecological capital, Abdelkafi and Täuscher tain itself, that is, how to be self-sustainable on the basis of (2016) discussed environmental value proposition, which the income it generates (DaSilva & Trkman, 2014; Shafer represents not the actual impact but the intended impact of a et al., 2005; Teece, 2010). As previously mentioned, many business model on the environment, and how to integrate it elements of a business model (e.g., revenue model, revenue into a BMfS. When it comes to the community perspective, stream, value capture, profit formula) reflect this approach. Stubbs and Cocklin (2008) even mentioned community as a Objectives and interests of the environment and community, subelement of a business model (together with customers, as external stakeholders, were less relevant. For instance, employees, suppliers, and management). In addition, some environment is considered as an element of business model authors used the business model framework to explain how only twice (see Hoque, 2002; Nair, Paulose, Palacios, & to create social businesses able to enhance social welfare Tafur, 2013) and has the meaning of a turbulent and competi- (e.g., Seelos & Mair, 2005; Yunus, Moingeon, & Lehmann- tive business setting that impacts firms’ survival. Ortega, 2010). According to Yunus et al. (2010), a social Meanwhile, the overall competitive landscape has business model defines the desired social profits through a changed in favor of the environment and wider community. comprehensive ecosystem view. This will result in a social In 2008, Stubbs and Cocklin (2008) discussed how sustain- profit equation (one constitute element of a social business ability concepts (all three dimensions) should shape the driv- model) while an economic profit equation (another element) ing force of the firm and its decision making. They coined targets only full recovery of cost and of capital, and not the term sustainability business model (SBM)—a model financial profit maximization. Despite the growing impor- where a firm treats sustainability as a business strategy in tance of these issues (i.e., environment, environmental value itself, rather than as an add-on. For firms, sustainability is not proposition, community, and social profit equation) in Peric et al. 9 contemporary business, this research showed that they are accepted definitions for either the business model or its rarely mentioned as elements of a business model. An expla- building blocks. According to Shafer et al. (2005), the lack- nation for this can be found in the core definition of the ing consensus on business model definition may be in part SBM—sustainability (involving also environment and soci- attributed to interdisciplinary scholarly perspectives (e.g., ety) is treated as a business strategy in itself and there is no technology, IS, strategy, organizational theory, etc.). Despite need for it to be asserted as separate elements. the broadness and differences in definitions over the last two Hence, the quest for sustainability forces companies to or three decades, one thing the academics and practitioners change the way they think about products, technologies, pro- agree upon is that, when business models are concerned, it is cesses, and business models. Smart organizations now treat all about value (Abdelkafi et al., 2013; Amit & Zott, 2001; sustainability as innovation’s new frontier (Nidumolu et al., Chesbrough & Rosenbloom, 2002; Osterwalder et al., 2005; 2009). Designing SBMs explicitly depicts how value is cre- Santos, Spector, & Van der Heyden, 2009; Shafer et al., ated and appropriated by all involved. Thus, the creation and 2005; Smith, Binns, & Tushman, 2010; Teece, 2010; Voelpel further development of businesses toward sustainability is et al., 2005; Wirtz et al., 2010). What can be read out as a challenged by the cocreation of societal and economic profits common theme in the authors’ views is that a business model (Boons & Lüdeke-Freund, 2013), leaving plenty of space for is a conceptual tool and an abstract representation of a com- further research. pany’s core logic that describes how it creates, delivers, and captures value. To make this abstraction simpler, a business model is often expounded through the identification of its Discussion and Conclusion elements. The most frequently cited are a firm’s value propo- This overview has revealed that many practitioners and sition, customers, products (and services), resources, value scholars treat the business model as a promising concept. On creation, value capture, revenues, technology, processes, and the contrary, the validity of the business model concept and partners. Still, there is no congruency—different items are its long-term implications has been questioned over time. used for similar concepts and their meanings sometimes This apparently popular concept receives intense criticism, overlap. What product or service is to one author, value prop- which is quite paradoxical (Klang et al., 2014). It was argued osition is to another. Within a number of elements, it looks that the business model is defined vaguely, that there is con- like these elements are crucial when business models are fusion in terminology, and that the business model, as an concerned, and that value (i.e., a firm’s value proposition, approach to management, becomes an invitation for faulty value creation, and value capture), as claimed by Johnson thinking and self-delusion (Morris et al., 2005; Porter, 2001; et al. (2008) and Nenonen and Storbacka (2010), makes the Zott et al., 2011). Several conclusions, which are to a large core of a business model. extent coherent with these inferences, can be drawn from this Although consensus among the authors regarding the overview. dimensions of value as components of a business model First, although more than half a century has passed since exists to some extent, there is little or no agreement with the first appearance of the term business model in the litera- regard to the area of strategy. This review implies that there ture, this overview shows that its popularity is a relatively is both a relationship and distinction between business mod- young phenomenon (see also Wirtz et al., 2016; Zott et al., els and strategy. A strong relationship between business 2011). The business model concept began to be increasingly models and strategy is manifested in two ways: Business used only during the 1990s, in parallel with the development models are often defined from a strategic point of view while and intensive evolution of e-commerce. Since then, research strategic issues are pointed out as important business model in business models has matured over the years, and numer- elements. Although there is a strong relationship between the ous definitions of business model and elements have two, the next conclusion is that a business model and a strat- appeared. The e-business and technology stream dominated egy are not the same thing. The majority of the extant litera- the early stage of business model evolution, after which time ture portrays the business model as an independent concept a more generic approach emerged, focused on the strategic (Casadesus-Masanell & Ricart, 2010; DaSilva & Trkman, and operational dimensions of a firm and seeking to define 2014; Magretta, 2002; Shafer et al., 2005), and a clear dis- the concept as a more generalized representation of a firm. tinction should be made between strategy and business The economic stream, emphasizing the logic of profit gen- model. When a business venture is concerned, strategy can eration, is a constant throughout the whole period. This, be understood more as a kind of guide (Wirtz et al., 2016). therefore, is in line with some of the previous arguments On the contrary, business models include a number of strat- (George & Bock, 2011; Morris et al., 2005; Onetti et al., egy elements but build more on the creation of value for cus- 2012; Wirtz et al., 2016; Zott et al., 2011) that the literature tomers, and from a strategic view, the business model can be on business models is fragmented and dispersed in several a source of competitive advantage (Teece, 2010; Zott et al., streams with very loose boundaries between each other. 2011). This implies that a business model is typically devel- The heterogeneous nature of the extant literature gives oped from a more narrow perspective than a strategy (see support to other two conclusions—there are no generally Wikström et al., 2010). It seeks to integrate sustainable value 10 SAGE Open creation with capturing and appropriation while emphasizing leaves gaps for further research. Cocreation of environmen- the role of the customer which appears to be less pronounced tal, societal, and economic profits within and beyond the elsewhere in the strategy literature. In Addition, an organiza- boundaries of a business model is surely a challenge for both tion’s business model framework is usually approached from practitioners and academics. In this regard, more work a short-term perspective as the reflection of its realized strat- regarding business model terminology may certainly provide egy (see also Casadesus-Masanell & Ricart, 2010; Dahan, insights into making business models more efficient. Doh, Oetzel, & Yaziji, 2010), providing a link between strat- Despite the attempts to rigorously and objectively analyze egy and operations and between strategy formulation and the selected literature on business models, this article comes implementation. From this point of view, this conclusion is with several limitations. Besides strategy and sustainability, in line with previous findings (e.g., Mäkinen & Seppänen, business models have other, emerging common themes that 2007; Richardson, 2008) that found that business models should be looked into. For instance, future overviews on busi- facilitate operations, that is, the implementation of selected ness models should seek to overcome this limitation by focus- strategy. Consequently, strategy reflects the long-term per- ing on business model types (see Kujala et al., 2010; McGrath, spective, that is, what a company aims to become, while a 2010; Wirtz et al., 2010), business model innovation (Cavalcante business model is a description of a state, that is, what a com- et al., 2011; Mitchell & Coles, 2004; Zott et al., 2011), and the pany really is at a given time (Dahan et al., 2010; DaSilva & impact of adopted business models on firm performance Trkman, 2014). For sure, business model and strategy are (Cucculelli & Bettinelli, 2015; Markides & Sosa, 2013; Zott more complements than substitutes. et al., 2011). The research scope of future studies should also Moreover, sustainability is found to be a hot topic for focus on particular industries to build the theory and compare business models. Besides economic sustainability (DaSilva the overall conclusions. More empirical findings (i.e., case stud- & Trkman, 2014; Shafer et al., 2005; Teece, 2010, etc.), ies) will help both practitioners and academics to put all the increased interest in research is devoted to the social and pieces together and design competitive business models. environmental dimensions of sustainability. As a result, a new stream of literature on sustainable business models has Declaration of Conflicting Interests emerged (Abdelkafi & Täuscher, 2016; Bocken et al., 2015; The author(s) declared no potential conflicts of interest with respect Bocken et al., 2014; Boons et al., 2013; Roome & Louche, to the research, authorship, and/or publication of this article. 2016; Schalteggeret al., 2012; Stubbs & Cocklin, 2008). According to this approach, value is distributed to all stake- Funding holders, including those within a firm as well as those beyond The author(s) disclosed receipt of the following financial support the firm’s organizational boundaries. for the research, authorship, and/or publication of this article: This To summarize, this article reviewed the relevant literature work was supported by the Croatian Science Foundation [grant on business models to try gain a better understanding of the number UIP-2014-09-1214]. business model concept and its content-related structural aspects. It looks like 20 years of intensive development were References not enough for academics to agree on what a business model Abdelkafi, N., Makhotin, S., & Posselt, T. (2013). Business models is and what its constitute elements are. Still, progress is evi- innovation for electric mobility: What can be learned from exist- dent in other fields. Particular attention was therefore dedi- ing business model patterns? 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Environment, 29, 11-35. doi:10.1177/1086026615595084 (2005). Escaping the red queen effect in competitive strategy: Peric et al. 13 Sense-testing business models. European Management Zott, C., Amit, R., & Massa, L. (2011). The business model: Recent Journal, 23, 37-49. doi:10.1016/j.emj.2004.12.008 developments and future research. Journal of Management, 37, Wells, P. (2016). Economies of scale versus small is beautiful: A 1019-1042. doi:10.1177/0149206311406265 business model approach based on architecture, principles and components in the beer industry. Organization & Environment, Author Biographies 29, 36-52. doi:10.1177/1086026615590882 Marko Peric is an associate professor in the Department of Wikström, K., Artto, K., Kujala, J., & Söderlund, J. (2010). Business Management at the Faculty of Tourism and Hospitality Management, models in project business. International Journal of Project University of Rijeka, Croatia. With many research publications in Management, 28, 832-841. doi:10.1016/j.ijproman.2010.07.001 international journals, fields of his interest include strategic man- Wirtz, B. W., Pistoia, A., Ullrich, S., & Göttel, V. (2016). Business models: Origin, development and future research perspectives. agement, sports management, sports tourism, and project manage- Long Range Planning, 49, 36-54. doi:10.1016/j.lrp.2015.04.001 ment issues. Wirtz, B. W., Schilke, O., & Ullrich, S. (2010). Strategic develop- Jelena Durkin is a postdoctoral researcher and senior teaching ment of business models implications of the Web 2.0 for creat- assistant in the Department of Management at the Faculty of ing value on the internet. Long Range Planning, 43, 272-290. Tourism and Hospitality Management, University of Rijeka, doi:10.1016/j.lrp.2010.01.005 Croatia. Her main interests include social and community-based Yunus, M., Moingeon, B., & Lehmann-Ortega, L. (2010). Building social business models: Lessons from the Grameen experience. entrepreneurship, sustainable organising and stakeholder manage- Long Range Planning, 43, 308-325. doi:10.1016/j.lrp.2009.12.005 ment in tourism. Zott, C., & Amit, R. (2007). Business model design and the per- Vanja Vitezic is a teaching assistant in the Department of formance of entrepreneurial firms. Organization Science, 18, Management at the Faculty of Tourism and Hospitality Management, 181-199. doi:10.1287/orsc.1060.0232 University of Rijeka, Croatia. His main research interests include Zott, C., & Amit, R. (2010). Business model design: An activ- innovation management, entrepreneurial economy, and event man- ity system perspective. Long Range Planning, 43, 216-226. doi:10.1016/j.lrp.2009.07.004 agement in tourism and hospitality.

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SAGE OpenSAGE

Published: Sep 25, 2017

Keywords: business model; strategy; sustainability

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