The Business Model as a Tool of Improving Value Creation ... - RESER

Zott, 2001; see also Markides; Charitou, 2004). Business models can also be usedas an analytical tool for the description of business activities of a company. The essenceof a business model is in defining the manner by which the firm delivers valueto customers, attracts customers to pay for the value and turns those payments into aprofit (Teece, 2010). Business models help in getting everyone in the organisationaligned in producing the kind of value the company wants to create. Therefore, theconcept has an enormous practical value (Magretta, 2002).A business model is a holistic concept which embraces elements such as pricingmechanisms, customer relationships, partnering and revenue sharing (Osterwalder,2004). Certainly, every company operates according to some logic, even if the logicis not described as a business model. However, a systematic approach essentiallyfacilitates the communication of the business goals to the employees and keeps thepieces of business together. Business models can be seen as focusing on the activity-systemside of how a firm creates economic value, as Seddon et al. (2004, 429)describe: ‘A business model outlines the essential details of a firm’s value propositionfor its various stakeholders and the activity system the firm uses to create and delivervalue to its customers.’In this research, we apply the view of Osterwalder et al. (2005, 5) who define businessmodel as ‘a conceptual tool containing a set of objects, concepts and their relationshipswith the objective to express the business logic of a specific firm’. The authorsthus specify that ‘we must consider which concepts and relationships allow asimplified description and representation of what value is provided to customers, howthis is done and with which financial consequences’. This definition addresses thevalue the concept embraces in the creation of an understanding of what a firm is,how it works, and what it offers and to whom.2.1. The Business Model Canvas as a Tool in Value CreationNext, we explain our theoretical framework – the business model canvas by Osterwalder& Pigneur (2010) – in more detail. The canvas is derived from the businessmodel ontology by Osterwalder (2004; see also Osterwalder et al., 2005). It includesfour areas that constitute the essentials of a company: customer interface, valueproposition, infrastructure management, and financial aspects. These areas are furtherdivided into a set of nine interlinked building blocks that allow the outlining of abusiness model. Osterwalder (2004) proposes that while the four areas provide arough structure for the business model, the nine building blocks are the core of thebusiness model. These building blocks are customer segments, value proposition,channels, customer relationships, revenue streams, key resources, key activities, keypartnerships, and cost structure. The blocks and their foundations are presented inthe Fig. 1.3

Fig. 1: The business model canvas with the nine building blocks and their foundations (adapted from Osterwalder;Pigneur, 2010).The building blocks delineate interdependent aspects of a company’s business. Dependingon who the customers are, the company has to find the right customerchannels and develop its value proposition, too. Depending on the value propositionand the customers, the company has to design its activities and resources. The systemicwhole described by the seven views of the company’s business operations areconnected in the model by the financial aspects – the cost structure and the revenuestreams – presenting the economic model of the physical activities in the company.This combination of the financial aspects and the physical aspects into a single wholein Osterwalder’s & Pigneur’s (2010) business model differentiates it from those focusingmostly on revenue models of business logic.Osterwalder’s & Pigneur’s (2010) model has been used in practise in various companiesand industries (see e.g. Mäkelä; Lehtonen 2011). It is holistic but still relativelysimple. It is generic and as such applicable to different kinds of businesses. It can beunderstood as a canvas which resembles of a painter’s canvas – preformatted withthe nine building blocks. Canvas allows one to paint pictures and describe new orexisting business models (Osterwalder; Pigneur, 2010). In the empirical part of thispaper we explain how the canvas was used as a tool in workshops with the casecompanies of this study.4

3. Development of services in electric mobilityIn general, the role of services in automotive industry is growing. The transition towardsservice-based business strategies from technology oriented and productbasedstrategies is analogue to other industries and companies, e.g. IBM, Xerox andKone. In addition, the electrification of cars is seen as disruptive technology from traditionalautomotive perspective, and this creates a lot of opportunities for new serviceinnovations (Godlevskaja; van Iwaarden; van der Wiele, 2011).The shift from traditional oil-based internal combustion engine value chain towardsthe e-mobility value chain changes the dynamics of the automotive and the surroundingindustry substantially. Mobility powered by electricity differs from conventional oilbasedmobility by placing the storage of energy, in other words a large battery, to thecenter of the value chain. This requires totally new co-operation between differentactors compared to the internal combustion-engine which needs fuelling. On the contrary,charging the battery of an electric vehicle can take place at home, workplace orat the shopping center. However, this causes a need for co-operation between energyutility, charging service enabler, IT service provider and the car and battery manufacturerat a minimum. A generic description of this kind of value chain is provided inthe Fig. 2.Fig. 2: Generic industrial e-mobility value chain (adapted from Pirhonen; Giesecke; Malinen, 2011).The totally new e-mobility value chain brings demands and opportunities for a wholenew service family. Particularly, the emerging co-operation between energy utilities,ITC and car manufacturers provides an example of the complex and rich service innovationspace. One example of this is the need for innovative services to enable thedeployment of electric cars to perform ancillary services for the electric grid. This isall but unambiguous, and actors entering this industry need good tools and methodsfor succeeding in creating new service models and viable business models (Quinn;5

Zimmerle; Bradley, 2009). Our empirical study attempts to cover this by applying thebusiness model approach to e-mobility.4. Action research on value creation of electric mobilityIn this chapter we present the empirical study implemented for this paper. We approachthe empirical study with the following research question:How can the concept of business model be used as a framework in action researchwhen attempting to understand the value creation logic of a specificemerging service industry, namely electric mobility?In order to answer to the research question, we have applied action research (Eden;Huxham, 1996) and case study methodology (Yin 2003). Next, we describe the researchstrategy, cases included and data collection of the study.4.1. Action research as a research strategyOur empirical study was based on action research approach. Action research is usuallyaimed at developing and elaborating theory from practice (Eden; Huxman, 1996).Action research quite literally combines action and research, or rephrased, combinespractice and theory. Basically, there are two thrusts in action research. One is concernedwith a practical problem solving in real-world situations. The other is concernedwith research or the development of new knowledge (McKay; Marshall,2001). Action research should be carried out with a declared-in-advance methodology(encompassing a particular framework of ideas) in such a way that the process isrecoverable by anyone interested in subjecting the research to critical scrutiny(Checkland; Holwell, 2007).4.2. Case companies of the studyThere are nine case companies in this study. They are national and internationalplayers which operate in or are entering to the field of electric mobility services. Theabove presented Fig. 2 describes these actors in the emerging e-mobility value networkand shows which type of case companies we had within this research. Nine ofthe companies in this research represent seven different elements of the value networkof electric mobility as illustrated in the Fig. 2. For example, some of the companiesprovide batteries for electric vehicles, while others provide charging infrastructure.We treat the nine business models of the case companies of the study as representativecases of the phenomenon studied, namely the business model as a tool ofimproving value creation. The underlying idea is that the understanding of the businessmodels of the case companies enables to construct a description about how thevalue network and value creation of electric mobility has evolved.6

6. Concluding discussionThis study has aimed at illustrating how the concept of business model can be usedas an analysis tool when describing the value creation logic of a developing industry.This task has been carried out as action research in which the researcher has an activerole in the community which action is in the focus of the research.The action research in this study followed four cyclical steps as described by Coughlan& Coghlan (2002): planning, taking action and evaluating the action, leading tofurther planning and so on. Also, the action research carried out in this study wasparticipative. This means that the members of the system which was studied (businessmodels and value network of electric mobility) participated actively in the abovementioned cyclical process. The research was concurrent with action, too. The goalwas to make the action more effective while simultaneously creating scientificknowledge (Coughlan; Coghlan, 2002).The research data was gathered in iterative cycles by feeding it back to those concerned,analysing it again, planning action, taking action and evaluating, and leadingto further data gathering. In other words, one of the authors of this study was in activerelationship with the informants during the research process.The main goals for the case companies of this study were to understand better electricmobility and its value creation, develop case companies’ current business models,and improve co-operation with other players in the field by creating a commonconcepts. The role of the action researcher as a facilitator was to offer a coherentand simple framework, and the business model canvas proved to be a good tool forthis.One limitation of the study is the high confidentiality of the case companies and theirjustified wish to keep strategic information hidden. This imposes challenges on thediscussion and presentation of case companies’ business models. The utilisation ofthe business model canvas would perhaps be even more productive if the case companiescould have been able to be more open.To get a deeper understanding and more empirical evidence about how well thebusiness model framework supports companies to understand their own businessand the industry that they are dealing with or entering to, it could be interesting andbeneficial to interview the case company representatives afterwards about their viewon the use of the business model framework. This would perhaps give an insightwhether they will use the framework as a tool in service development in the future.9

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