3.7 Business models as narratives
3.7.5 Components of a business model
In identifying the components of a business model, the perspective offered by Doganova and Eyquem-Renault (2009, p. 1568) is helpful, where they ‘consider the business model as a material object, as a scale model of the new venture’, also that of DaSilva and Trkman (2014, p. 380) where they see it as a ‘simulation of the real world through a model’. Thus, the business model will need to contain all the components that would be found in the business itself. Morris et al. (2005, p. 730) offer a useful set of questions that underlie a business model:
• How do we create value? • Who do we create value for?
• What is our source of competence?
• How do we competitively position ourselves? • How we make money?
• What are our time, scope, and size ambitions?
These questions are a starting point for identifying the components of a business model. Several recent authors have identified business model com- ponents from their literature reviews (Al-debei and Avison, 2010; Nenonen and Storbacka, 2010; Zott et al., 2011; Fielt, 2013; Spieth and Schneider, 2016; Wirtz et al., 2016). The business model components identified by these authors can be summarised in a number of categories that represent stages in developing a business model:
1. Personal factors: behavioural norms; belief system; business actors; capabilities; leadership; mission; personal factors; relationships; roles. 2. Resources: assets; competencies; information; investor factors; knowl-
edge; reputation; resources.
3. Opportunities: markets; opportunities; technology.
4. Stakeholders: alliances; competitors; stakeholders; government; part- ners; relationships; suppliers.
5. Value creation and capture: economic value; sustainable returns; value capture; value creation; value exchange; value network; value proposi- tion; transformation of inputs.
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6. Strategy: business logic; configuration; concept; differentiation; strate- gic choices; strategic control; strategic objectives; strategy; sustainabil- ity.
7. Boundaries: boundary-spanning; business networks; network of firms; network structure; partnerships; scope; stakeholder network.
8. Structure: architecture; governance; structure.
9. Activities: activities; distribution; implementation; operations; pro- cesses; products.
10. Customers: customer relationships; customers; customer selection; cus- tomer target.
11. Revenue and costs: costs; finance; price; revenues; revenue sources; transactions.
12. Profit: profit formula; profit potential; profits.
These business model components then contribute to considering business models as narratives.
3.7.6
Business models as narratives
Some authors view business models as a narrative, where Margetta (2002, p. 4) saw business models as ‘stories that explain how enterprises work. A good business model answers Peter Drucker’s age old questions: Who is the customer? And what does the customer value?’. Downing (2005, p, 186) views a business model as ‘set of expectations about how the business will be successful in its environment’ which can be expressed as a narra- tive. Doganova and Eyquem-Renault (2009) frame the business model in terms of narrative devices that are co-created with stakeholders to enable a shared understanding. Taking this thinking a stage further, they propose that the ‘business model is not only an input of the encounters between the entrepreneurs and the allies that they seek to enroll, but also an output thereof ’ (2009, p. 1566). This perspective is reinforced by Araujo and Eas- ton (2012), who claim that the business model ‘begins to perform the world it narrates with every successful iteration’ (p. 316).
The narrative approach to business models links with the institutional approach, where institutions are ‘rules, norms, and beliefs that enable and constrain action and make social life predictable and meaningful’ (Vargo and Lusch, 2016, p. 11). These discursive perspectives are reinforced by Wieland
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et al. (2017), who define business models as ‘dynamic assemblages of insti- tutions that, through the performative practices (i.e., actions, constructions) of actors, reciprocally link and influence technological and market innova- tion and contribute to the viability of these actors and the viability of the service ecosystems of which they are a part’ (p. 926). These views on busi- ness models as a narrative can be evaluated by considering business models in terms of the narrative framework offered in Section 3.4.4:
1. Purposeful intent: One of the ‘decision variables’ to gain competitive advantage identified by Morris et al. (2005, p. 730) is personal and investor factors, including ‘time, scope, and size ambitions’, another is the firm’s sources of competence and leadership. Business models are generally created by groups of individuals as they are focused on action (Ahokangas and Myllykoski, 2014), however a ‘single actor, on the other hand, can propose a business model’ (Wieland et al., 2017). Narratives can be an effective means of transmitting values and beliefs in a business context, particularly when there is conflict between them (Denning, 2006).
2. Enacted by human or other actors: ‘The business model is a narrative and calculative device that allows entrepreneurs to explore a market’ (Doganova and Eyquem-Renault, 2009, p. 1559), and as it becomes successful, a business model ‘begins to perform the world it narrates’ (Araujo and Easton, 2012, p. 316). The definition of business models offered by Chesbrough (2006) focuses on activities, ‘First, it defines a series of activities that will yield a new product or service in such a way that there is net value created throughout the various activities. Second, it captures value from a portion of those activities for the firm developing the model’ (p. 108).
3. Particular incidents or events: Business models are ‘stories that ex- plain how enterprises work’ (Margetta, 2002, p. 4), framed in terms of a particular firm in its context, which is ‘rooted in the experience and knowledge of the focal actors’ (Ahokangas and Myllykoski, 2014, p. 8). The business model is both a narrative and calculative means of exploring a market (Doganova and Eyquem-Renault, 2009), which itself can be enacted (Chesbrough, 2010). George and Bock (2011, p. 99) view business models as ‘the design of organizational structures to enact a commercial opportunity’. Amit and Zott (2001, p. 493) de- fined a business model as the ‘content, structure and governance of transactions designed so as to create value through the exploitation of
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business opportunities’ while Jensen (2013) highlighted that exploring opportunities can take place across organisational boundaries.
4. Causal sequence: The Business Model Canvas shows how value flows from the business to customers (Osterwalder and Pigneur, 2010). Busi- ness model innovation follows a process of analysis, ideation, feasibility prototyping, decision-making, implementation and finally sustainabil- ity (Wirtz and Daiser, 2018). The business model evolves from infor- mal beginnings through trial and error (Morris et al., 2005), where, through ‘a more precise definition of market needs, customer bene- fits, users, and resources, the opportunity progresses first to become a business concept, and then ultimately matures into a business model’ (Ahokangas and Myllykoski, 2014, p. 11). A business model ‘helps articulate and make explicit key assumptions about cause-and-effect relationships and the internal consistency of strategic choices’ (Shafer et al., 2005. p. 202). A business model can thus inform a firm’s strat- egy, but it is not in itself a strategy (Shafer et al., 2005; Teece, 2010). 5. Reflect reality and create it: Margetta (2002) proposed that ‘A good
business model begins with an insight into human motivations and ends in a rich stream of profits’ (p. 3), while Perkmann and Spicer viewed a business model as ‘a text that re-describes and re-constructs reality’ (2010, p. 5). A business model first and foremost identifies the value proposition, then how the firm will generate and gain revenue (Chesbrough, 2010). A business model needs to have an ‘underlying economic logic’ for how the firm can deliver value to its customers at a cost that means they can remain in business (Margetta, 2002, p. 4), including in financial terms (Al-debei and Avison, 2010). Teece (2010) offers a more comprehensive profit-centred definition as where ‘the en- terprise creates and delivers value to customers, and then converts payments received to profits’ (p. 173). One factor in determining costs is the firm’s organisational boundary, which can be set to minimise gov- ernance costs (Santos and Eisenhardt, 2005), in themselves a form of transaction costs (Coase, 1937).
6. Context: A business model can be viewed as a boundary object (Star and Griesemer, 1989), mediating between the firm and its context (Dog- anova and Eyquem-Renault, 2009), where a transactive view of busi- ness models frames them in terms of boundary-spanning transactions (George and Bock, 2011). Value is ‘generated through the transactions made with the use of resources’ (DaSilva and Trkman, 2014, p. 382),
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while Kornberger (2017) proposes that a ‘resource-based view suggests that sustainable competitive advantage is rooted in an organization’s specific resources, competencies, and capabilities’ (p. 186). A firm’s value network ‘can include suppliers, partners, distribution channels, and coalitions that extend the company’s own resources’ (Shafer et al., 2005, p. 202). Jensen (2013, p. 67) defines a business model as ‘a focal firm’s core logic for creating, delivering and capturing value within a stakeholder network’. Taking this thinking a step further, Kornberger (2017) highlights that, in contrast to the focus on a single firm in the past, a focal firm now ‘plays the role of the system architect, shaping relationships among suppliers, partners, and other network members’ (p. 178). Perkmann and Spicer (2010) highlight that business mod- els are ‘representations that create material effects such as enrolling buyers and suppliers, persuading investors, and directing employees’ (p. 5). Mason and Spring (2011) point out that, by ‘divulging different parts of the business model to investors, suppliers and customers, the business model (or fractions of it) becomes sited in the business models of others’.
7. Specific point of view: A business model ‘cannot be assessed in the ab- stract; its suitability can only be determined against a particular busi- ness environment or context’, including being ‘unpalatable for com- petitors to replicate’ (Teece, 2010, pp. 191-192). A business model is thus developed with reference to context and stakeholders and their expectations (Downing, 2005). The business model can thus ‘support a shared understanding among various participants’ (Doganova and Eyquem-Renault, 2009, p. 1568).
8. New point of view: Narratives can both communicate information and the meaning of that information (O’Connor, 1997), potentially opening up new ways of looking at a particular entrepreneurial context. The business model evolves through trial and error (Morris et al., 2005), where Ahokangas and Myllykoski (2014) frame business models in terms of creation and transformation through practice. Taking trans- formation a step further, ‘transformational leadership theory seeks to identify the characters and processes that enable leaders to transform their followers’ (Boland et al., 2008, p. 18).
9. Become institutionalised: A business model can be viewed as ‘a system of interdependent activities that transcends the focal firm and spans
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its boundaries’ (Zott and Amit, 2010, p. 6). Klang et al. (2014) iden- tify themes in business models of internal artefacts, relational mech- anisms and ‘external stakeholders, which exist beyond the boundaries of the firm’ (p. 468). Business models can function as ‘as a bound- ary object playing an important sense-making and sense-creating role for various stakeholders, despite their individual approaches and un- derstandings of the term’ (Jensen, 2013, p. 62). In a digital economy context, Lakhani et al. (2012, p. 8) ‘suggest that task decomposition and knowledge distribution provide a framework for the choice of firm boundaries’. Institutions, in the form of aids to collaboration, guide the formation of business models, which can be framed as ‘dynamic assemblages of institutions’ (Wieland et al., 2017, p. 926) that have a performative role through a range of actors in the market (Araujo and Easton, 2012) that fulfils the core roles of convincing, legitimising, and guiding social action (Perkman and Spicer, 2010). In particular, narrative forms of business models can create institutional norms and beliefs (Vargo and Lusch, 2016), as an ‘organic social structure’ created by relationship building and dialogue, which then becomes formalised into a ‘hard frame’ of formal accountability, control systems, legal doc- uments etc. (Bate et al., 2000, p. 448).
Applying the framework from Section 3.4.4 shows that business models can be viewed as a narrative, of particular interest is the assertion that a single actor can create a business model (Wieland et al., 2017). This links with the point made by Shah et al. (2005), that an open source project only needs a single individual to maintain and develop it. This point highlights that there are common aspects to open source and business models when framed as narratives, which will be explored further in the next section. In particular, a narrative form of business model could enable a single individual or small group to coordinate a much larger creative network, as highlighted by Weber (2004).
The next section brings together the concepts of open source as a nar- rative, business organisations as narratives and business models as narra- tives, to explore how power relations could operate in a business that oper- ates according to the principles of open source. It then proposes a narrative form of open source business model as a potential contribution to knowledge.
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