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THE BUSINESS MODEL PATTERN DATABASE - A TOOL

FOR SYSTEMATIC BUSINESS MODEL INNOVATION

GERRIT REMANE

, ANDRE HANELT , JAN F. TESCH and LUTZ M. KOLBE University of G€ottingen, Chair of Information Management,

Platz der G

€ottingen Sieben 5, 37073 G€ottingen, Germany gremane@uni-goettingen.de ahanelt@uni-goettingen.de jtesch@uni-goettingen.de lkolbe@uni-goettingen.de

Published 16 June 2016

Companies are more frequently seen shifting their focus from technological innovation towards business model innovation. One efficient option for business model innovation is to learn from existing solutions, i.e., business model patterns. However, the various understandings of the business model pattern concept are often confusing and contradic- tory, with the available collections incomplete, overlapping, and inconsistently structured. Therefore, the rich body of literature on business model patterns has not yet reached its full potential for both practical application as well as theoretic advancement. To help remedy this, we conduct an exhaustive review,filter for duplicates, and structure the patterns along several dimensions by applying a rigorous taxonomy-building approach. The resulting business model pattern database allows for navigation to the relevant set of patterns for a specific impact on a company's business model. It can be used for systematic business model innovation, which we illustrate via a simplified case study. Keywords: Business models; business model innovation; business model patterns; tax- onomy development.

Introduction

In advanced economies, innovative capacity is the strongest determent for nations and companies gaining competitive advantage (Porter,1990;Porter and Stern,

2001). Therefore, companies often heavily invest in technological innovations by

developing new resources, plants, and even business units (Amit and Zott,2012).

International Journal of Innovation Management

Vol. 21, No. 1 (January 2017) 1750004 (61 pages)

© World Scientific Publishing Europe Ltd.

DOI:10.1142/S1363919617500049

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However, due to the increasing environmental turbulence in more and more in- dustries and markets (El Sawyet al.,2010), this approach not only tends to be very expensive but also exhibits uncertain returns on investments (Amit and Zott,

2012). Furthermore, technological innovations are of little value without appro-

priate business models (Chesbrough,2010) - in fact, a good business model can even make an inferior technology more successful than a superior one (Chesbrough,2007). Hence, the design and implementation of new business models has the potential to be more efficient than technological innovation (Teece,

2010).

Research on the innovation of business models is spread across a variety of fields, including information systems, strategic management, and technology and innovation management (Abdelkafiet al.,2013;Schneider and Spieth,2013;Zott et al.,2011). In contrast to other research streams such as product innovation, business model innovation is still at the beginning of its academic elaboration (Buchereret al.,2012). This is somehow surprising due to the increasing im- portance of business model innovation for management practice, which requires conceptual toolkits for business model design (Zott and Amit,2010). Therefore, research on this matter should contribute to a better understanding by providing firms with specific means, i.e., tools and methods, for business model innovation (Schneider and Spieth,2013). One such tool are business model patterns, which describe proven solutions to recurring problems during business model design (Abdelkafiet al.,2013). The importance of the concept is underlined by thefinding that 90% of all business model innovations are a recombination of existing business model patterns (Gassmannet al.,2014). Therefore, by drawing upon aspects that have already been proven to be successful for other companies and industries, the use of business model patterns provides an efficient way to undertake business model innovation (Abdelkafiet al.,2013). However, business model patterns must not be misunderstood; they do not focus on imitating, but rather address efficiency, spur creativity, and help to overcome cognitive barriers in the business model inno- vation process, which is of special importance in times of transformative change (Chesbrough,2010). An illustrative example and often cited instance of business model patterns is razors/blades(e.g.,Gassmannet al.,2014;Johnson,2010;Linder and Cantrell,

2000). The pattern describes companies offering a cheap basic product ("razors")

with complements that must frequently be replaced ("blades"). These comple- ments are overpriced, thereby subsidizing the basic product. The pattern name was derived from Gillette's marketing efforts at the beginning of the twentieth century, when the company gave away razors in order to sell more blades (Gassmannet al.,2014). Since then, several companies have innovated their

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business models by adopting therazors/bladespattern. For instance, Nespresso, a sub-brand of the Nestlé Corporation, introduced a new espresso maker that is sold for less than comparable machines of competitors are (Amit and Zott,2012). The espresso maker, however, can only be used in combination with Nespresso-pro- duced coffee capsules. In contrast to traditional producers of coffee machines, Nespresso does not depend on gaining value from selling the machines because the company uses the machines to open up an even larger and continuous value pool by selling the highly profitable capsules (Matzleret al.,2013). Because business model patterns can be such a powerful tool for business model innovation, several researchers assembled collections of business model patterns (e.g.,Applegate,2001;Gassmannet al.,2014;Johnson,2010;Rappa,

2001;Weillet al.,2005). Most researchers, however, have slightly different

understandings of the business model pattern concept. For instance, some col- lections discuss prototypical patterns describing holistic business models (e.g., Weillet al.,2005), while others discuss solution patterns that are specific building blocks of business models (e.g.,Johnson,2010) and yet others mix both types of patterns (e.g.,Gassmannet al.,2014). Furthermore, the patterns among the various collections strongly overlap, with many patterns occurring in multiple different sources. However, no collection is exhaustive; even when applying the most comprehensive collection with 55 business model patterns fromGassmannet al. (2014), one misses more than the two-thirds of the available patterns. This di- versity in research is of particular value, as business reality is not uniform and demands different solutions for different settings. Nevertheless, what is missing is a meta-perspective that describes which business model patterns are suitable for which purpose. With this research we aim to make the valuable existing collections of business model patterns more usable for both future business model pattern research as well as practice applications. The goal of our work is to provide the respective audi- ences with a tool guiding them to the patterns most suitable for their individual situations. Thus, we aim to bridge the gap between general business model pat- terns described in prior literature and specific business model innovation endea- vours in research and business practice. To do so, we conduct an exhaustive review and integrate all patterns into one database. Wefilter for duplicates and structure the patterns along several dimensions by applying a rigorous taxonomy- building approach. The database reveals the relevant set of patterns for a specific impact on a company's business model. Finally, we describe how to apply the database for systematic business model innovation, which we illustrate using a simplified case study. The database thus increases the efficiency and effectiveness of business model innovations in practice by deriving contingency factors for the targeted deployment of business model patterns. Furthermore, byfiltering,

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structuring and categorizing business model patterns, the database provides a common ground for the advancement of business model research, which for in- stance can be used to describe transformative effects stemming from technological or societal developments across industries.

Background

Before developing and presenting the business model pattern database, we briefly define the concepts on which we later build: the business model, business model innovation, and business model patterns.

The business model

The business model is a useful lens for understanding a company's underlying logic because it describes what value is provided, how this value is created and delivered, and how profits can be generated therefrom (Magretta,2002). Thus, the business model concept helps to look"at the forest, not the trees"(Amit and Zott,

2012, p. 49). The concept has a variety of uses, such as capturing value from

technological innovations (Chesbrough and Rosenbloom,2002), defining the boundaries of afirm (Zott and Amit,2010), and creating a direct connection between business strategy and business processes (Al-Debei and Avison,2010). To achieve a common understanding of the business model concept, several authors have identified elements belonging to a business model (e.g.,Gordijn et al.,2005;Hedman and Kalling,2003;Johnson,2010;Osterwalder and Pigneur,

2010). Probably the most popular example (Spiethet al.,2014) is the business

model canvas byOsterwalder and Pigneur(2010), shown in slightly adapted form in Table1.

Business model innovation

Defining business models and describing their constituent elements has received much interest in academia and belongs to a static view on the concept. However, due to heightening environmental turbulence and transformative developments, recent research has shifted to a more dynamic view on business models (Wirtz et al.,2015). Business model innovation, i.e.,"designing a new, or modifying thefirm's extant activity system"(Amit and Zott,2010, p. 2), is important for startups wanting to gain significantly in size as well as for incumbents looking to identify new growth opportunities (Günzel and Holm,2013). Business model innovations often result in additional yet unused sources of value generation

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(Amit and Zott,2012). Compared to product innovation, innovations regarding the business model are often harder to replicate (Amit and Zott,2012) and can therefore be a very strong competitive advantage (Magretta,2002). At the same time, however, business model innovations of competitors from within and outside the industry can be a major threat tofirms who fail to advance their business model in accordance with external changes (Amit and Zott,2012). For instance, the new business model of no-frills airlines such as Ryanair has changed the rules of competition for the whole airline industry (Demilet al.,

2015).

A business model innovation happens when a company modifies or improves one or several elements of its business model (Abdelkafiet al.,2013). Several authors describe the phases of business model innovation. For instance,Fran- kenbergeret al.(2013) distinguish among initiation, ideation, integration, and implementation.Schneider and Spieth(2013) mention exploration, exploitation,

Table 1. Elements of a business model.

Meta-component

Business model

building block Description Value proposition Value propositions Gives an overall view of a company's bundle of products and services. Value delivery Customer segments An organization serves one or several customer segments. Channels Value propositions are delivered to customers through communication, distribution, and sales channels. Customer relationships Customer relationships are established and maintained with each customer segment. Value creation Key resources Key resources are the assets required to offer and deliver the previously described elements. Key activities Number of key activities performed by key resources. Key partnerships Some activities are outsourced and some resources are acquired outside the enterprise. Value capture Revenue streams Revenue streams result from value propositions successfully offered to customers. Cost structure The business model elements result in the cost structure. Source:Osterwalder and Pigneur(2010); meta-components renamed according toGünzel and Holm (2013).The Business Model Pattern Database

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and effects, whileOsterwalder and Pigneur(2010) discuss thefive phases mobi- lize, understand, design, implement, and manage. Business model innovation is one of the greatest challenges for today's man- agers (Chesbrough,2006).Christensen and Overdorf(2000) demonstrate how establishedfirms fail in disruptive innovation due to conflicts with existing technologies and business models.Chesbrough(2010) argues that it is not only conflict but also confusion that holds managers back from business model inno- vation, as they fail to recognize proper business models.Bohnsacket al.(2014) point out that path dependency cognitively constrains managers in the sense that they stay close to what they already know when it comes to the design of new business models. These challenges also render the generic phases for business model innovation-independently of their concrete naming and order - of little value if not supplemented by concrete tools and methods. For instance, the identification of new business model ideas will probably not happen by following advice to do so, but rather by applying tools that facilitate creativity. Furthermore, tools are needed to enable experimentation and overcome cognitive biases such as path dependence in decision making (Spiethet al.,2014), as business model innovations have been described as being depended on trial-and-error-learning (Sosnaet al.,2010) or discovery-driven approaches (McGrath,2010). This es- pecially holds true as business environments become more complex and dynamic (El Sawyet al.,2010). The importance of tools is underlined by several researchers suggesting that tools are at least as important as the people applying them (Garfieldet al.,2001). Paradigm-changing ideas in particular - i.e., the more disruptive ones - can be facilitated significantly by the use of creativity tools (Garfieldet al.,2001). Furthermore, tools have been proven to be particularly suitable for facilitating group interaction and idea generation during business model innovation (Eppleret al.,2011). There are several tools that can be applied to support one or several use the customer value model, the business mapping framework, and group de- cision-support systems.De Reuveret al.(2013) propose business model road- mapping, which can be used to identify the ideal transition path once the desired business model changes are identified. However, the most popular tools for business model innovation are the business model canvas and business model patterns. Through an experimental study on the effectiveness of the business model canvas for idea generation and group interaction,Eppleret al.(2011)find that it significantly increases collaboration while significantly decreasing crea- tivity. In contrast, business model patterns not only facilitate group interaction (Gassmannet al.,2014) but also promote creativity by thinking in analogies (Johnson,2010).

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Business model patterns

When defining business model patterns, researchers often refer to Christopher Alexander, a famous architect who is considered to be the father of patterns (e.g., Abdelkafiet al.,2013;Amshoffet al.,2015;Osterwalder and Pigneur,2010). He made several publications on the use of patterns in architecture - most famously, "A Pattern Language"(Alexanderet al.,1977), in which he proposes 253 patterns that can be used to design even highly complex architecture. Alexander asserts the following definition:"Each pattern describes a problem which occurs over and over again in our environment, and then describes the core of the solution to that problem, in such a way that you can use this solution a million times over, without ever doing it the same way twice"(Alexanderet al.,1977, p. x). From Alexander'sdefinition, we can learn three important aspects that also hold true for business model patterns. First, patterns describe a"solution"to a recurring "problem"that needs to be solved, which also accounts to business model patterns (Abdelkafiet al.,2013). For instance, a business model must capture value and therefore requires a pricing strategy for which the patternrazors/blades(Johnson,

2010) can be a solution. Second, Alexander notes that a pattern describes"the core

of the solution,"which means that a business model pattern often describes a solution for only a certain part of a company's business model (Weill and Vitale,

2001). Hence, complete business models of companies are often a combination of

several patterns (Osterwalder and Pigneur,2010). Third, a pattern should be usable "a million times over"and therefore requires a certain level of generalization (Amshoffet al.,2015;Timmers,1998). Accordingly, business model pattern researchers integrate one or several of these three aspects into their definitions (Table2). The majority of literature on business model patterns comprises lists of patterns. However, when practitioners and researchers attempt to use these collections in their current form, they face three major challenges: incompleteness, overlap, and inconsistent structure. First, incompleteness means that no single collection of patterns is even close to exhaustive. The most comprehensive collection of busi- ness model patterns, fromGassmannet al.(2014), contains 55 patterns. But in other collections, more than 100 additional patterns can be found. Therefore, innovators applying patterns from just one source can be sure to miss the majority of business model patterns. Second, existing collections have a significant amount of overlap. For instance, the business model patternvirtual communityinvolves creating and facilitating an online community of people by enabling interaction and service provision (Weill and Vitale,2001). However, several patterns from other collections describe a very similar idea, includingselling experience, create user communities, user communities, community model, social networking

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services, community building, andvirtual communities(Clemons,2009;Johnson,

2009,2010;Rappa,2001;Strauss and Frost,2014;Timmers,1998). Hence, ap-

plying several collections simultaneously leads to significant redundancies. Third, the patterns are not structured in a consistent manner. WhereasEisenmann(2001) presents the patterns without an underlying structure,Linder and Cantrell(2000) group their patterns in eight categories andTimmers(1998) arranges the patterns according to two dimensions. Due to this lack of consistent structure, it is very challenging to navigate through the different collections when attempting to apply them for business model innovation. In particular, this limits the possibility of filtering for business model patterns that address the situation of a specific business model innovation endeavour, which would substantially increase the efficiency and effectiveness of the patterns'usage. The three issues of existing business model pattern collections - incomplete- ness, overlap, and inconsistent structure - can, in general, be mitigated by a review. A review summarizes existing literature and thereby"creates afirm foundation for advancing knowledge"(Webster and Watson,2002, p. xii). How- ever, existing reviews of business model patterns have insufficiently addressed the issues related to existing literature. Most importantly, no review is exhaustive, but even the most comprehensive review (Bonakdaret al.,2013) misses more than two-thirds of the patterns available. Furthermore, the majority of reviews list dif- ferent patterns but do not systematically analyze the individual patterns by, e.g., highlighting commonalities and differences. This is because existing reviews deal with business models in general or their application to a specific case. Thus, the authors of prior reviews aimed merely to provide a rough overview.

Table 2. Definitions of business model patterns.

Author Definition

Abdelkafiet al.(2013, p. 14)"The relationship between a certain context or environment, a recurring problem and the core of its solution" Amshoffet al.(2015,p.4)"Reusing solutions that are documented generally and abstractly in order to make them accessible and applicable to others" Gassmannet al.(2014, p. 22)"A specific configuration of the [..] business model dimensions [...] that has proven to be successful" Osterwalder and Pigneur(2010, p. 55)"Business models with similar characteristics, similar arrangements of business model Building Blocks, or similar behaviours" Timmers(1998,p.4)"Generalisations of specific business models" Weill and Vitale(2001, p. 21)"The essence of a different way to conduct business"G. Remane et al.

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Methodology

Drawing on existing knowledge in thefield of business model patterns and the associated gaps in research outlined above, we argue that a meta-perspective serving as a navigator through the business model pattern landscape represents an important contribution but remains missing. The objective of this research was to create such a meta-perspective. Therefore, we proceeded in three major phases, which are further detailed in Table3. The objective of Phase 1 was to mitigate the incompleteness by systematically identifying and reviewing existing collections, while Phase 2 aimed to remedy the overlap byfiltering for duplicates and Phase 3 focused on creating a consistent structure among all patterns.

Table 3. Research design overview.

Phase 1: Review business

model pattern literaturePhase 2: Extract and integrate business model patternsPhase 3: Structure patterns by impact on business model elements

Objective Exhaustive overview of

business model pattern literatureIntegrated list of patterns that is free of duplicatesConsistent structure for navigation through the patterns Steps .Search scientific data- bases (e.g., EBSCO) for articles on business model patterns .Search for additionalarticles via forward andbackward referencing(Webster and Watson, 2002)
.Systematically analyze original and review articles .Extract patterns,descriptions, andexamples from originalsources into one com-mon database .Filter for uselesspatterns .Filter for duplicates by searching for -Identical/similar name -Similar description -Overlapping examples .For each potential du-plicate decide on ag-gregation by at leasttwo researchers .Apply a taxonomy-building methodologyto create a consistentstructure. (Nickersonet al., 2013) .Define a meta- characteristics of the taxonomy .Run through severaliterations until all pat-terns are classified

Result 22 original and 6 review

articles identified356 business model patterns identified, 182 afterfiltering182 patterns classified by affected business model elementsThe Business Model Pattern Database

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Phase 1: Review business model pattern literature

We searched for relevant literature on business model patterns in several common databases, including EBSCO, Web of Science, and Google Scholar. Because not all authors dealing with the topic use the name"business model patterns,"we also had to search for other terms, including"atomic business models"(Weill and Vitale,2001, p. 21),"business model analogies"(Johnson,2010, p. 131),"busi- ness models"(Rappa,2001, p. 1),"operating business models"(Linder and Cantrell,2000, p. 7), and"profit models"(Tuff and Wunker,2010, p. 5). The initial sources were supplemented by searching for forward and backward referencing (Webster and Watson,2002). Literature from academia and practice was likewise included in the search. The scope was on business model pattern collections dealing with generic patterns as well as e-business model patterns. Collections focusing on a single industry were not included in this review (e.g., mobile platform providers (Beckeret al.,2012;Ghezzi,2012), the textile industry (Hodge and Cagle,2004), project-basedfirms (Kujalaet al.,2010), Spanish in- dustry (Camisón and Villar-López,2010)). As a result, we identified 22 original collections of business model patterns (see Table4in results section) as well as six reviews (see Table5in results section), each summarizing several original col- lections. As we also studied all original collections mentioned in the review articles, we are confident that our sample represents a fairly complete picture of business model patterns mentioned in the existing literature.quotesdbs_dbs20.pdfusesText_26

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