European Journal of MarketingEmerald Article: Flexible Business ModelsKaty J. Mason, Stefanos Stefanos Mouzas

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This is an EarlyCite pre-publication article: Katy J. Mason, Stefanos Stefanos Mouzas, (2012),"Flexible Business Models", European Journal of Marketing, Vol. 46 Iss: 10 (Date online 14/8/2012)

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Article Title Page

[Article title] Flexible Business Models Author Details (please list these in the order they should appear in the published article) Author 1 Name: Katy Mason Department: Management School University/Institution: Lancaster University Town/City: Lancaster State (US only): Country: UK Author 2 Name: Stefanos Mouzas Department: Management School University/Institution: Lancaster University Town/City: Lancaster State (US only): Country: UK Author 3 Name: Department: University/Institution: Town/City: State (US only): Country: Author 4 Name: Department: University/Institution: Town/City: State (US only): Country: NOTE: affiliations should appear as the following: Department (if applicable); Institution; City; State (US only); Country. No further information or detail should be included Corresponding author: [Name] Katy Mason Corresponding Author’s Email: k.j.mason@lancaster.ac.uk

Please check this box if you do not wish your email address to be published Acknowledgments (if applicable): Biographical Details (if applicable): [Author 1 bio]

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[Author 2 bio] [Author 3 bio] [Author 4 bio] Structured Abstract: Purpose of the paper: Our aim in this paper is to describe and explain the flexibility offered by different business

models adopted by different firms as they strive to achieve higher levels of business performance.

Research Method: Cross-sectional research is used to investigate a matched pair sample of 20 high performing and

20 low performing firms in the United Kingdom. The relationship between business model architectures and focus are

examined and their implications for flexibility are illustrated and discussed.

Findings: The flexibility offered by different business models is explored through the way organisations select and

integrate three inter-related elements to devise flexible business models: a) network influence b) transactional

relationships and c) corporate ownership. Affected by situated practices in each business network and the market

position or business size, companies select and integrate various configurations of these elements to respond to the

constantly evolving demands of end-customers.

Research limitations/implications: Although based upon a cross-sectional analysis of a matched pair sample, the

concept of “flexible business models” has far wider managerial implications. The efficiency of the proposed approach is

achieved through the reduction into three inter-related elements that allow flexible configuration and re-adjustment.

Practical implications: Companies can use the flexible business model approach to examine their own selection and

integration of network influence, transactional relationships and corporate ownership and scrutinize their flexibility and

performance in the marketplace. Value of the paper: The development of the flexible business models concept, based

upon an empirical investigation of firms in the United Kingdom.

Paper type: Research Paper.

Keywords: Flexibility, Flexible Business Models, Market Focus, Network Focus

For internal production use only Running Heads:

Article submitted to

European Journal of Marketing

Special Issue on Marketing and Flexibility

Submitted 30th September 2006

Revised and Resubmitted 20th February 2008

Revised and Resubmitted 20th June 2009

Accepted May 2009 (with minor amendments)

Flexible Business Models

Katy Mason and Stefanos Mouzas

Lancaster University

Management School

Lancaster, LA1 4YX

Tel: +44 (0) 1524 594840

Fax: +44 (0) 1524 593928

k.j.mason@lancaster.ac.uk

s.mouzas@lancaster.ac.uk

Key words: Flexibility, Flexible Business Models, Market Focus, Network Focus

1

Flexible Business Models

Purpose of the paper: Our aim in this paper is to describe and explain the flexibility offered

by different business models adopted by different firms as they strive to achieve higher levels

of business performance.

Research Method: Cross-sectional research is used to investigate a matched pair sample of

20 high performing and 20 low performing firms in the United Kingdom. The relationship

between business model architectures and focus are examined and their implications for

flexibility are illustrated and discussed.

Findings: The flexibility offered by different business models is explored through the way

organisations select and integrate three inter-related elements to devise flexible business

models: a) network influence b) transactional relationships and c) corporate ownership.

Affected by situated practices in each business network and the market position or business

size, companies select and integrate various configurations of these elements to respond to the

constantly evolving demands of end-customers.

Research limitations/implications: Although based upon a cross-sectional analysis of a

matched pair sample, the concept of “flexible business models” has far wider managerial

implications. The efficiency of the proposed approach is achieved through the reduction into

three inter-related elements that allow flexible configuration and re-adjustment.

Practical implications: Companies can use the flexible business model approach to examine

their own selection and integration of network influence, transactional relationships and

corporate ownership and scrutinize their flexibility and performance in the marketplace.

Value of the paper: The development of the flexible business models concept, based upon an

empirical investigation of firms in the United Kingdom.

Paper type: Research Paper.

2

1. Introduction

Companies that make, distribute or sell products strive to develop flexible business models in

response to two main sets of problems related to environmental factors. The first set of

problems that companies face is associated with the enormous growth in production capacity,

especially in the Far East, which has lead to an increasing number of industries operating with

excess capacity (c.f. Doz, 1996). Production skills and resources, once seen as the heart of a

firm’s core capabilities, are no longer sufficient, by themselves, to create sustainable

competitive advantage. Today, in more and more industries, organizations have to marry the

efficiency advantages gained through the careful management of capabilities and resources

with increasing effectiveness (Möller and Törrönen, 2003). It has been argued that the key

skill associated with developing effectiveness is marketing (Doyle, 2000). That is, creating

customer preference in over-supplied markets through branding and customer relationship

management. Hence, the challenge is to keep in touch with changing customer needs through

the creation of flexible product and service offerings. Companies operating upstream within a

supply chain, i.e. providing raw materials, manufacturing or assembly capabilities to other

firms, may find themselves distanced from end customers. These companies need to increase

their knowledge and understanding of not just their customers, but their customers’ customers

and ultimately end customers (Cairncross, 2002). It is, therefore, no surprise that the value

gained by understanding and managing downstream activities in a supply chain has risen in

prominence (Langabeer and Rose, 2001).

The second main set of problems that companies face is associated with how best to utilize

the business network’s resources. To do this, firms must foster effective communications

between the multiple actors within the business network. Effective communications can drive

innovative solutions to changing customer needs in hypercompetitive markets. Information

technologies have lowered the transaction costs of communicating, integrating and

coordinating firms’ activities (Sharma, 2002), making it possible for firms to influence the

activities of each other without taking corporate ownership (Mahoney, 1992). Web-like

structures of firms formed through complex technological links with multiple actors, have

developed from linear supply chains into complex business networks integrated through

seamless information exchanges (Hammer, 2001). This has important implications for

manufacturers and suppliers, as the interconnectivities associated with business networks

suggest opportunities for direct contact with end customers. For example, Doyle (2000) cites

the case of a leading producer of industrial sewing thread for a manufacturer of two of the

3

leading US sports shoe companies. The thread manufacturer’s direct contact with end-users

revealed that customer dissatisfaction was invariably due to poor stitching caused by breaks in

the thread during sewing operations. The thread manufacturer had to be flexible in how they

solved this problem and worked with the shoe manufacturer to create better machine

maintenance and sewing practices. These changes resulted in fewer thread-breaks, operating

costs were substantially reduced, and customer satisfaction was increased.

These two sets of problems draw our attention to the required flexibility within business

networks i.e. the flexibility within the specific context of upstream and downstream

relationships. Phenomena such as overcapacities in a number of industries and regions or the

rapid development of specialist resources within business networks affect the way customer

needs can be addressed and may re-order or re-define existing business relationships. In

general terms, flexibility is seen as the firm's ability to reposition itself in a market and to

dismantle its previous strategies to meet new customer needs (Sanchez and Mahoney, 1996).

In management research, for example, flexibility is often linked with the issue of

ambidexterity which is the capacity to simultaneously achieve alignment (with current

customer needs) and adaptability (to develop new customer solutions) at a business-unit level

(Gibson and Birkinshaw, 2004; He and Wong, 2004). This literature recognises that flexibility

of structures; what Birkinshaw and Gibson (2004) call structural ambidexterity, provides a

framework for contextual ambidexterity, which focuses on the flexible behaviour of

employees. This suggests that some structural designs might be better than others for

promoting effective and flexible behaviour of employees (Birkinshaw and Gibson, 2004).

The behaviour of employees is what constantly innovates and rejuvenates the organisation

and this is embedded at an organisational level in flexible intra and inter-firm routines and

systems (Howard-Grenville, 2005; Mason and Leek, 2008). This literature has parallels with

the emergent literature on business models, which discusses the suitability of network

architectures for delivering customer value (Morris et al., 2005).

To date, research into ambidexterity has focused on the creation of flexible organisations.

Despite the valuable contribution of this research it fails to take into account the broader

business network within which the firm operates. Examining flexibility within a network

context brings into focus many of the aspects of the firm-centric concept of strategic

flexibility (Birkinshaw and Gibson, 2004). Further, it captures the bi-directional tension

between alignment with downstream customers and accessibility to capabilities and resources

4

of upstream suppliers. The upstream-downstream alignment facilitates adaptability. Strategic

flexibility in a network context can therefore be understood as a bi-directional construct that:

first, represents a company’s capability in integrating the considerations of the end-customer

downstream (Kohli and Jaworski, 1990). This involves deliberate attempts to reduce the

‘distance’ from the end-customer through the development of network influence and

corporate ownership (Harrigan, 1986). Second, flexibility can be seen as the company’s

capability to access resources of upstream suppliers without corporate ownership. Thus it is

possible to develop new and innovative solutions for customers through the development of

either transactional relationships or network influence.

2. The Role of Flexible Business Models

In dealing with these two main problems, companies seek to adapt quickly and easily to

changing customer needs by developing a flexible business model. While the term ‘business

model’ is widely used by practitioners, its appearance in the academic literature is less

common (Schweizer, 2005). Theoretically, a business model represents the “content,

structure, and governance of transactions designed so as to create value through the

exploitation of business opportunities” ( Zott and Amit, 2007;181). For this reason, business

models are often explored from a structural perspective (Morris et al., 2005). Amit and

Zott’s (2001) definition of business models emerges from investigations of entrepreneurial

start-ups associated with e-businesses but builds on the earlier work of economists studying

the structure of industrial supply chains. For example, Maddigan (1981) explores business

models through an investigation into the governance of transactions, such as corporate

ownership of various supply chain stages and Harrigan (1986) recognizes the

multidimensionality of corporate ownership: direction, stages, breadth, degree and form.

Such conceptualizations were generated from observations of the traditional business models

that emerged in the 1950’s and 1960’s. At this time, firms protected themselves from

uncertainty of supply and sought economies of scale by controlling the entire supply chain

through corporate ownership (Chandler, 1969). However, these traditional business models

are incompatible with the problems that companies face today. Even in well managed supply

chains, the problems for customer-facing companies downstream represent a different

challenge. This is evidenced in the case of sequential business models (Figure 1) which

organize added value processes through a carefully timed sequence of events (Harrigan,

1986).

5

[Take in Figure 1. Here]

Today’s rapid rate of market change is illustrated by the rise and fall of the dot.com

companies in the 1990’s (Shook et al., 2004). Firms sought to take advantage of information

technologies that might enable them to create flexible and efficient structures to deliver value

to customers (Linder and Cantrell, 2000; Magretta, 2002; Osterwalder et al., 2005; Weill and

Vitale, 2001) and found themselves exploring cost cutting through supply chain efficiency

drives in order to leverage profitability. This resulted in a dramatic shift towards de-

integrated supply chains as outsourcing strategies were increasingly pursued.

Despite the decline of many of the dot.com companies, the concept of business models stuck

and theory began to emerge to identify the components of flexibility at three distinct levels:

the network level, the firm level and the individual employee level. At the network level the

objective is for organizations to identify resources and capabilities available to them. If

managers know where and how to access resources within their business network, the

strategic options available to them are increased. At the firm level, inter-firm relationships

are developed to facilitate access to valuable resources, as and when customer demand

dictates. At the level of the individual, employees need authority and responsibility to solve

day-to-day problems in efficient and effective ways, in order to deliver value to customers.

Hammer (2001), describes how Hewlett Packard (HP), recognizing the duplicated and poorly

coordinated efforts of firms in their supply network, resolved to integrate the business

network to provide a single unified process. Timely and coordinated information exchange

about end-customer behaviour offered HP greater flexibility. The HP example illustrates the

relevance of business models beyond the dot.com sector and that in dealing with business

problems, companies take a network perspective and use this to frame the behaviours of

organizations and individuals (Teece, 2007).

In sum, business models need to be flexible and adaptable to foster innovation (Farrell and

Oczkowski, 2002). Developments in the availability, affordability and versatility of

information technology over the past decades is enabling companies to access new resources

and rethink their business models (Amit and Zott, 2001) in ways which allow organizations to

respond rapidly and innovatively to changing customer needs.

3. Responding Flexibly to Customer Needs

6

The need to respond effectively to customer needs is recognised in previous research by the

‘market focused’ (Kohli and Jaworski, 1990; Narver and Slater, 1990) and ‘network focused’

approaches (Gnyawali and Madhavan, 2001). The market focused approach explores how

firms can identify and orientate themselves towards the demands of their markets. Such

markets are often described in terms of geography (the US market), size (5,000 customers), or

value ($40m). In contrast, the network focused approach transforms the notion of market

from a faceless topology expressed in terms of supply and demand curves, into a web of

interconnected companies whose identities and relationships matter.

The rationale for bringing these approaches together is fourfold: first, networks can help us

understand how a market orientation (or market focus) can be built into business models.

This is possible if we go beyond the concept of examining business models from the

perspective of a single company and explore the impact of the company on others in the

business network. Second, a network perspective allows us to see both the flexibility and

limitations of the business models identified. Third, a deeper understanding of market

orientation will improve our understanding of business networks and their conceptualization

and development of flexible business models. Finally, exploring how businesses work

together in networks to satisfy end customers will provide a new perspective for examining

the market focus literature which to-date, has adopted a firm centric view. The examination of

current, emerging and potential flexible business models adds to the existing ‘network

focused’ and ‘market focused’ perspectives, as it delivers a useful mind-set for how

companies conceptualize the structure of their business relationships as they seek to adapt to

customer needs.

The Market Focused Approach

A key underlying assumption behind the market focused approach is that companies need to

re-align themselves to their evolving markets to keep pace with changes in customer needs.

While recognizing that its origins lie in the principles of marketing, (delivering the right

product, at the right time, to the right customer (Ellram and Cooper, 1990)), the supply chain

management literature initially developed a focus around maximizing efficient solutions to

organizational supply problems (Beamon and Ware, 1998). However, while one stream of

research focused on the efficiency aspects of supply chain management, another group of

researchers began to discuss the limitations of the backward focus of this linear approach and

the need for supply chain members to orientate themselves towards their markets (Min and

7

Mentzer, 2000). By embracing the concept of marketing, a forward focus to supply chain

theory was developed and some researchers began to refer to the supply chain as ‘the demand

chain’ (Langabeer and Rose, 2001). This shifts the focus from efficiency to effectiveness. In

this regard, the market focused approach requires each firm in the supply chain to identify

their customers’ needs, and source suppliers in such a way as to best satisfy those needs.

Conceptually, market orientation has been defined as the implementation of the marketing

concept (Kohli and Jaworski, 1990; Narver and Slater, 1990) and, while many alternative

constructs and measurements have been developed, there are strong commonalities amongst

the dimensions. Typically the literature examines market orientation from one of two

perspectives; company culture (Deshpandé et al., 1997) and behavioural (Kohli and Jaworski,

1990). For the purpose of this paper, market orientation is defined as a multi-dimensional

construct that draws on both cultural and behavioural aspects of an organization (Hooley et

al., 2000). This approach is consistent with the tradition of synthesizing market orientation

perspectives and presents market orientation as the organization-wide strategic orientation

manifested in the development of co-ordinated customer and competitor-oriented activities.

In this way, market oriented companies are concerned with identifying and co-ordinating

information regarding customer needs and competitor actions within and across the

organization’s different functional departments. The customer (the next economic entity in

the supply chain) is the focus of a firm’s activities and not the consumer (at the end of the

supply chain).

The Network Focused Approach

The network focused approach is anchored in the recognition of markets as networks of

exchange relationships (Dyer and Singh, 1998; Möller and Svahn, 2006). The companies that

comprise a business network are individually significant actors. They may comprise key

customers, major suppliers or even competitors. Therefore, the network approach localises

environmental forces and allows companies to develop a high degree of precision in flexibly

adapting their offerings according to customers’ needs and suppliers’ resources, as well as

competitive offerings. As a result, flexibility can be seen as a function of the companies’

interaction with other firms (Håkansson and Ford, 2002) in a variety of different types of

networks (Möller et al., 2005)

8

As a theoretical perspective, the network focused approach allows us to move on to a high

level of aggregation because it moves beyond the single organization as the unit of analysis.

Hence the network focused approach looks at the existence of whole networks of business

relationships and examines the inherent interdependence among firms. The network focused

approach is sensitive to developments over time; it assumes that organizations transform

resources to carry out transactions linked by relationships. Further, the cumulative effect of

adaptations in relationships is thought to influence both the position and the network

structures in which an organization is located (Brennan et al., 2003). This is in contrast to the

traditional view that conceives the organization and the environment as separate, sharply

differentiated entities. Organizations are thus not seen as solitary entities confronting a

hostile, faceless environment (Axelsson and Easton, 1992). The traditional dichotomy

between the firm and its environment could be traced back to an open-system

conceptualization, which regards a market orientation as an attempt to achieve a degree of

harmony between the resources and activities of an organization, and the characteristics of the

environment (Håkansson and Snehota, 1989). The network critique of this dichotomy is well

established (Araujo and Easton, 1996; Gadde et al., 2003). The external environment is

perceived as a set of business relationships with other organizations whose identities and

relationships matter. The multiple boundaries of each organization are the result of the

interaction of the organization’s direct and indirect capabilities with other organizations

(Araujo et al., 2003). This could be represented diagrammatically as Figure 2.

[Take in Figure 2. Here]

For this reason, the organization’s efforts are geared to differentiated systems of exchange

(Biggart and Delbridge, 2004) which can be classified on the basis of actors’ logic of action

within the context of business relationships. Marketing within networks is thus directed at the

relationships of the organization with other organizations (Gadde et al., 2003) and involves an

on-going co-operation (Wilkinson and Young, 2002) and negotiation. Each of these

interactions is part of a complex and continuing relationship between the organizations within

their various and multiple supply chains; each affects and is affected by the other business

relationships. In sum, this research addresses an important gap in the network literature that

recognises markets as webs of exchange relationships but does not explicitly address how

such networks develop flexibility to enable their re-alignment to continuously evolving

customer needs. Similarly, the market orientation literature, while offering valuable

contributions to our understanding of customer orientation, competitor orientation and inter-

9

functional co-ordination, does not specifically address the ‘network integration’ of these

dimensions. In this regard, identifying and describing the flexible business models adopted

by organisations is likely to generate useful insights for our understanding of flexible, market

oriented business networks.

4. A Framework for Analysing the Flexibility of Business Models

The literature recognizes the multi-dimensional nature of business models. While some

differences arise between authors, four common dimensions can be identified: (1) the network

structure is a structural template that describes the organization of a focal firm’s transactions

with all of its external constituents (Zott and Amit , 2007; Mason 2008); (2) the way

transactions are carried out between network members, specifically the types of relationships

that exist (Amit and Zott, 2001); (3) the sources of competence by which firms in the network

can offer and share specific knowledge and expertise (Mason and Leek, 2008) i.e. how firms

deliver value to their customers by focusing on them; and finally (4) the revenue structure;

how each firm in the network makes money (Teece, 2007). These dimensions are seen by

Magretta (1998) to represent the ‘stories’ that explain how a firm works within its network.

She suggests that a model contains specific characters (relationship typologies and cultures

explored through the network approach), plausible motivations or foci (desired outcomes

explored by the market focused approach), and a plot (shared business objectives) that

describes how value is created and appropriated (Magretta, 1998). In this sense, the network

structure and the types of business relationships that comprise the structure represent the

architecture of the business model, while the need to share knowledge about customers and

consumers in order to drive innovation and deliver value represent the business model’s focus.

It seems likely the concepts of business model architecture (associated with the network

approach) and business model focus (associated with the market focused approach) are likely

to be more helpful in exploring what makes business models flexible than the examination of

the revenue model. Drawing on the theoretical foundations of the ‘network focused’ and

‘market focused’ approaches we propose a list of elements that can be used to explore the

flexibility of alternative business models. They consist of the relationship between two sets of

variables. The first set, the business model architecture includes a) transactional relationships,

b) network influence and c) corporate ownership, upstream and downstream of the business

network. The second set, the business model focus involves a) customer focus, b) competitor

focus and c) inter-functional co-ordination (Figure 3).

10

[Take in Figure 3. Here]

The business model architecture variables build on the view that flexible business models are

the emergent outcomes of preconceived types of relationship configuration built through the

development of systems and routines that guide problem-solving for firms. In this view,

business models represent how firms frame their position and activities within business

networks. These variables consolidate Webster’s (1992) seven relationship typologies;

transactional relationships, repeat transactions, long-term relationships; buyer-seller

partnerships; network organisations; strategic alliances and vertical integration through

corporate ownership (Möller and Svahn, 2006), into three distinct categories of relationships;

1) transactional relationships, 2) network influence and 3) corporate ownership and proposes

the identification of relationship types upstream and downstream within the business network

(Gadde et al., 2003). Thus, the present framework achieves a higher level of

operationalisation; it allows us to identify the flexibility offered by different business models

architectures.

The business model focus variables (Figure 3) share similarities with the market orientation

approach and represent what might be more controversially described by Magretta (1998) as

business model ‘motivations’. She argues that business models are conceived to deliver

market-focused solutions. The concept of market orientation can, therefore, usefully be

explored at a network level. Both cultural and behavioral aspects of Narver and Slater’s

(1990) market orientation construct were adopted by Hooley et al., (2000) including:

customer orientation, competitor orientation and inter-functional co-ordination. Concordant

with their approach, this study adopted the Narver and Slater (1990) scales (Table 1). This

seemed appropriate as it allows the integration of relational and cultural aspects that are likely

to exist in a network whose boundaries are defined by the specified business model.

Finally, the way that the core firm develops the structure or architecture of the network in

order to best orientate itself to dynamic markets is likely to affect the flexibility of the

business model. In other words, the more market oriented the network architecture, the more

flexible the business model is likely to be. In this regard, we suggest that business model

flexibility is likely to be dependent on the interaction between business model architecture

and the business model focus. That is, flexibility is concerned with the ability of the network

to sense and respond to market changes (Christopher, 2000).

[Take in Table 1. Here]

11

5. Research Methods

In order to explore the flexibility offered by alternative business models, an exploratory-descriptive

research design was adopted and semi-structured interviews were employed as the primary form of

data collection. The literature argues that flexibility within the supply chain has a positive impact on

business performance (Christopher, 2000) and that some business model architectures are likely to

result in higher business performance than others (Swafford et al., 2006). Consequently a cross-

sectional research design was used to investigate a matched pair sample of 20 high-

performing and 20 low-performing firms, geographically dispersed across the United

Kingdom, between 2000 and 2004. This research design enabled us to identify and explore

multiple business models. In-depth interview methods were utilised as the main data collection

medium since such techniques obtain the ‘richest’ data within the prescribed limits of the research.

At the beginning of each interview the Narver and Slater (1990) market orientation scale was

applied so that the level of market orientation perceived by the interviewee could be ascertained.

Data were also collected regarding the performance of the firm relative to their competitors, across a

range of financial and market measures.

The remainder of the interview consisted of open questions based on the business model adopted

and how companies perceived their business model’s architecture to be linked with the

organisation’s market orientation. While the scale facilitated the measurement of ‘which’ and ‘how

much’ market-oriented behaviours were occurring, it did not reflect ‘how’ practitioners associated

the development of their business model’s architecture with their focus on being market oriented.

The interview guide aimed to bridge this gap and generate insights into, what, how and why flexible

business models emerged. Managers were not asked directly about their business models (though

many did use this terminology to describe their network architecture and market focus). Instead,

questions focused on the effect of the network architecture, the types of relationships being

developed and the market focus held by the firm and how these made it easier or more difficult for

the firm (and the network) to react to changing customer needs.

Particular attention was focused on a key issue within judgment sampling; identifying and gaining

access to ‘key informants’ who can provide genuine insights into the research issue. It was a

requirement of the research design to discover who was responsible for the development of business

models and how they were defined and implemented. Middle managers and executives were

identified as the most relevant sources in achieving this objective as their day-to-day involvement

12

with strategic development cast them in this role. In this way, this study adopted a ‘discovery-

oriented’ design (Dubois and Araujo, 2007).

[Take in Table 2. Here]

In order to generate in-depth insights, a broad cross-section of sectors was studied, with a bias

towards larger companies (Table 2). Larger companies tended to have more developed business

models which were to be the focus of our study. To allow comparison, interviews were conducted

in a matched-pairs sample of twenty high-performing and twenty low-performing organizations.

We wanted to examine firms that had demonstrated market-leader performance over the medium

term so the FT 1000 list was interrogated using both the Dunn & Bradstreet and the FAME

databases as secondary sources of published market-performance data. We identified one hundred

companies that met our criteria. Each high performance firm was approached and thirty-two

companies agreed to participate in the study. The high performance firms were then asked to

identify ‘a poor performing competitor’; each was asked to participate. Using this snowball effect

(Sudman, 1997) we ended up with the agreement to participate from twenty matched-pairs of high

performance/low performance firms.

In each organization, at least two separate interviews were undertaken, with the number of

interviews totalling 101. Marketing managers were initially contacted by telephone and they helped

to identify key informants. Informants were typically of the middle and top management levels and

ranged from Chief Executive Officers to Supply Chain Directors. Each interview was conducted

individually and commonly lasted one hour (although one interview was for six hours). Each

interview was audio-recorded and later transcribed. The analysis of data collected placed a

significant emphasis on verbatim quotations from informants. All recorded interviews were

analysed via methods of inductive reasoning and comparative methods (Turner, 1981). Codes were

generated by first looking for factors that were thought to have influenced a firm’s ability to achieve

a customer and competitor focus. Factors were subsumed into groups that seemed to have

commonalities.

The coding process revealed three distinct types of exchange relationship; transactional

relationships (where firms made exchange decisions on the basis of price or quality); network

influence (where firms made exchange decisions based on long term relationships and shared

strategic objectives between trading partners) and corporate ownership (where firms made exchange

decisions based on their corporate ownership of other supply chain members). The literature was

revisited to explore the appropriateness of these possible categorisations. The extent and

configuration of these types of relationship within a given supply chain were found to vary upstream

13

and downstream. Firms were categorised based on the extent to which they adopted the three types

of the relationship upstream and downstream of their supply chain. This was not always easy to do

as some supply chains were quite complex and involved a mixture of these different types of

relationships. Consequently, follow-up, clarification interviews with respondents were carried out,

during which it was decided that categorisations should be based on the types of relationship that

seemed to have most influence on the way the supply chain worked (upstream and downstream).

The researcher verified the classifications with the original respondent from each firm. In this sense,

the categorisation of relationship types represents the shared perceptions and understanding of the

researcher and the respondents. The combination of relationship types upstream and downstream

created taxonomy of nine business model architectures. However, the data revealed only six

business model architectures. In this way there was an iterative process between the data collection,

analysis, existing theory and theoretical development. The following section discusses the six

business model architectures identified in the study.

6. The Flexibility of Six Alternative Business Models

This section presents a summary of empirical findings related to a matched pair sample of 20

high performing and 20 low performing firms in the United Kingdom. The six business

models are labelled and their architecture and level of business performance are detailed

(Table 3). The data show the ‘majority usage’ of network influence, transactional

relationship or corporate ownership within each business model. Second, we present data

pertaining to the business model focus of each of the six business models, including customer

orientation, competitor orientation, inter-functional co-ordination (Table 4). A discussion

follows, regarding the ability of each business model to respond flexibly to changing

customer needs. This section concludes with a summary of key findings.

[Take in Table 3. Here]

The Network Influence Business Model

The Network Influence Model included firms with strong, long-term, inter-firm relationships

both upstream and downstream. Upstream network influence was found to exist with raw

material and component suppliers. Typically suppliers were categorized as 1st, 2nd or 3rd tier

and were involved with developing inter-firm relationships. Downstream customers included

retailers and wholesalers. All eighteen firms adopting this business model were involved with

the manufacture and/or assembly of tangible products (Figure 4).

14

Delivering customer satisfaction, monitoring customer needs and creating customer value

were associated with building relationships directly with end-customers and with the

flexibility to react quickly to changing customer needs. Firms used consumer information to

create and propose flexible solutions to end-customer needs. Consider a leading cereal

manufacturer. Aware of the value derived from their brand, they used their business model

focus to define their market and then developed their network architecture to find the

resources to serve it. The Supply Chain Manager of a cereal manufacturer explained, when

talking about the factors that influenced the types of relationships he tried to build in his

supply chain;

“…we‘re in rice and corn…there are of course sectors that we’re not playing…. We

focus on life style – you have a children’s section, adults section and then you have

adults’ basic, adults’ luxury” [Take in Figure 4. Here]

Consumer information allowed this Supply Chain Manager (working with the marketing and

product development team) to identify new opportunities in the business of Ready-to-Eat

Cereals, resulting in the introduction of cereal bars,

“…because we recognize that peoples’ eating styles are changing. They’re not sitting

down to have breakfast…” (Supply Chain Manager, cereal manufacturer)

Initially traditional retailers would not give shelf space to the product innovation. The

manufacturer drew on relationships with petrol forecourt proprietors and developed targeted

marketing campaigns to sell cereal bars to ‘people on the run’. This innovative approach to

the network proved profitable for manufacturer and retailer.

The nine high-performance firms in this group provided much more evidence than low-

performance firms of inter-functional co-ordination. Low performance firms were

particularly poor at sharing information about customer experiences and understanding how

the different functions within the firm could contribute. All but two firms selected as low

performers reported low performance for new product success. Nearly half of the low

performance firms reported high levels of customer retention.

High-performance firms reported high levels of new product success, sales growth, customer

retention and brand equity. Returns increased largely through cost saving exercises, which

frequently involved business model considerations including increased outsourcing, improved

efficiency and higher margins on products. Firms cited specific examples of business

performance improvement exercises including attempts to influence their business network.

The cereal manufacturer explained,

15

“..we’re taking an extra day of stock out, and some of these customers are taking

stock that represents £500,000 just in cereals…if you took 3 or 4 days… we’re talking

[about saving] millions” (Supply Chain Manager)

Process innovations such as this create flexibility in response time as demand fluctuates (Lee

et al., 1997).

The Transactional Business Model

The transactional business model represented firms buying and selling on the basis of price,

quantity and delivery agreements (Figure 5). Upstream transactional relationships were found

to exist with raw material and component suppliers where components were considered a

commodity product (milk, sugar, fabrics, cotton, and chemicals, salt). Downstream

customers included retailers and wholesalers. All firms were involved with manufacturing.

[Take in Figure 5. Here]

All three firms adopting this business model were low-performance firms (Table 3). The

interviewees were aware of their organisation’s business performance problems and linked

poor customer focus, competitor focus and inter-functional co-ordination with a lack of

flexibility. For example, a slipper manufacturer outsourced the sales function because of the

seasonal peak of sales around Christmas. Thus the sales function became a variable cost

instead of a fixed cost. However, sales agents proved to be ‘a real problem’ to monitor and

control. Their motivation was observed to be, ‘sometimes limited’ and their priorities to be

‘different’ from those of their supplier manufacturer,

“…retailers want to buy on price but we feel that the consumer wants to buy on

quality and we make quality products.” (Managing Director, slipper manufacturer) The mismatch between the perceived and actual needs of the end-customer, have created a

significant problem for the slipper manufacturer. Forming long-term relationships with their

downstream customers could have perhaps helped them predict change as cheap imports

flooded the market. Sales agents used transactional relationships downstream, which

hindered customer focus.

Another firm described the impact of supply problems on customer focus,

“We have unhappy customers because of our supply chain problems… one of our big

retailers has threatened delisting… we’re one of their worst suppliers…. We can’t

react to the changes they need…we’re too slow”

The flexibility in response time has been related to inter-functional co-ordination (Christopher

2000). Inter-functional co-ordination seemed hampered either by the difficulties experienced

16

in introducing innovative technologies or the absence of such innovations. For example, one

firm introduced SAP software to allow visibility between functions of stock, work-in-progress

and material requirements. Training had been difficult, costly and time-consuming. Stock

ordered by SAP continues to be regularly amended by phone or fax. A General Manager

(Health & Beauty products manufacturer) observed,

“…our customers speak a different language to us”.

Pressure from customers, demands flexibility; shorter lead times, changes to methods of

transaction and changes to quantities and packing requirements. SAP is gradually facilitating

these improvements and this is resulting in the identification of the need for downstream long-

term relationships.

The Franchise Business Model

The franchise business model utilized long-term relationships upstream and ownership

downstream. We labelled this model the Franchise Business Model as it is the model most

widely used in Franchisor/Franchisee supply networks (examples include the Body Shop,

McDonalds and Star Bucks). Seven of the eight firms adopting this model were identified as

high-performance firms and were involved in manufacturing. Two firms had integrated

downstream into retailing (Figure 6a). One high-performance retailer had no history of

manufacture (Figure 6b). The firms in this group were not specific to a single industry sector

or product type.

After 175 years of manufacturing shoes, one firm was developing a new business model,

outsourcing production and refocusing its business activities on retailing. As recently as 6

years ago, 70% of the manufacturing output came from the firm’s own factories; the other

30% was sourced overseas. Now that situation is almost completely reversed:

“…we’ve moved from a predominantly manufacturing base to a much more retail

responsive supply chain. Before we used to make shoes and then try and sell them,

now we’re trying to make the shoes in response to somebody wanting them.” (Purchasing Manager, shoe manufacturer)

The Purchasing Manager explained how purchasing from offshore shoe manufacturers had

switched a significant proportion of fixed costs to variable costs. By building long-term

relationships with offshore, upstream suppliers, our manager (together with the teams in the

offshore manufacturing firms), had been able to share market information and manufacturing

expertise in ways which enabled the supply chain to respond quickly to changing consumer

fashions.

17

[Take in Figure 6. Here]

Firms adopting the franchise business model had a high level of customer focus and

commented on the need to understand end customers through effective monitoring systems

such as loyalty cards. Downstream ownership was thought to have increased the collection

and dissemination of market intelligence, driving inter-functional and inter-firm co-ordination

(Table 4). For example, a manufacturer of children’s squash managed to persuade a retailer

of a ‘need’ for a look-alike fresh juice drink (to appeal to the health conscious parent). The

retailer helped market-test the drink which became one of the most successful new product

innovations that year. The retailer’s Supply Chain Director explained,

“…sometimes [our] suppliers really know about the market”.

Competitor focus was found to be important in driving downstream integration. The

Managing Director of a pharmaceutical firm explained,

“…We have seen the demise of many of our independent distributors [so] 1) we lose

our distributor network altogether or at best work with them knowing that they are

our competitors and 2) the distribution companies become specialists… They have

logistics expertise but very little technical expertise so they don’t do the best job of

selling our products.”

The business performance data collected during interviews confirmed the matched pairs

sample divide on high and low performance. The only low-performance firm to adopt this

business model performed particularly badly on new product success, sales growth and

customer retention.

The Agent Business Model

The Agent Business Model incorporated ‘supplier-focused’ firms. These firms formed long-

term relationships upstream but sold their products downstream through transactional

relationships, on the basis of price, quantity and delivery agreements. As with the Network

Influence business model, downstream customers included retailers and wholesalers. In all

cases our firms were involved with the manufacture and/or assembly of products. Four firms

adopted this business model; three were from the low-performance sample. There was no

commonality of industry seen across the group.

[Take in Figure 7. Here]

Firms in this group viewed transactional relationships downstream negatively (Table 3).

They seemed aware of the potential advantages of developing long-term relationships with

18

their customers but innovation initiatives focused on the end customer and ignored immediate

customers. Despite contact with end customers, these firms seemed poor at collecting,

interpreting and disseminating market intelligence. Some respondents felt that they did not

have the resources to do more for customers. One firm had a consumer help-line which their

interviewee described as,

“our firm’s only contact to the outside world”. (Sales and Marketing Director, pharmaceuticals)

Customer contact was restricted to the relationship between sales representatives and buyers.

The firms in this group were very aware of the significance of creating customer value, but

with limited information share between firms and functions, they seemed to have little idea of

how to deliver value and how to utilize market intelligence to drive innovation.

Competitor focus was generally very low. A window manufacturer provided a response that

typified those operating transactional relationships downstream. Their Marketing Manager

commented,

“…our products are unique. Nobody makes them like we do so we haven’t really got

any competitors.”

Levels of inter-functional co-ordination were typically very low for the firms in this group.

The pharmaceutical company (a high performer) was particularly effective, using inter-

functional co-ordination to ensure they served target markets effectively. Their market was

described as ‘women’s health’ and they provided two significant products, HRT (Hormone

Replacement Therapy) treatment and the oral contraceptive pill to this market.

The remainder of firms adopting the Agent Business Model were poor at involving senior

functional managers (from R&D, purchasing, supply chain management, manufacturing and

even sales and marketing) in regular customer visits. They were also poor at sharing

information about customer experiences between functions. Instead, managers focused on the

technical innovations and new product developments with suppliers. One Marketing

Manager acknowledged,

“We spend vast resources with suppliers developing new products, packaging (to

make the administration of drugs easier…) and so on, but we’re just not good at

thinking about the needs of other folks in the supply chain – like the doctors and

the hospitals – we just don’t.” (Marketing Manager, Pharmaceuticals)

19

In this way, dealing with the needs of downstream supply chain actors is largely ignored and

consequently there appears to be little flexibility to adapt to changing customer needs in this

business model.

The Sales Oriented Business Model

The Sales Oriented Business Model included firms with transactional relationships upstream

and long-term relationships downstream. In this sense, the sales oriented business model

represented organisations with a ‘sales’ focus; working to understanding the market through

close relationships with downstream retailers, while purchasing supplies purely on the basis

of price and quality. All four firms were involved with the manufacture and/or assembly of

products and as such were labelled as having ownership of that supply chain stage. Two of the

firms had previously been identified as high performance firms and two as low performers.

There was no pattern amongst the industry or product types. However, one commonality

found was that all firms were purchasing commodities (for example, fabrics, chemicals, sugar

cane), to use in their manufacturing or assembly activities.

[Take in Figure 8. Here]

The high-performance firms were found to have a higher level of market focus than the low-

performance firms in this group. Two firms reported particularly high levels of customer

focus on the Narver and Slater (1990) scale, and of these both firms claimed that their

strategies were driven by their aim to innovate to leverage customer value. One firm linked

the ability of a firm to serve its customers directly with the business model adopted,

observing,

“…in the business we’re in, it’s the supply chain that will differentiate us really. I

see it as a sales tool.” (Marketing and Sales Director, pharmaceuticals)

This firm also reported high levels of competitor focus. They were very concerned with

internal information share regarding competitors’ strategies and their ability to react to

competitor actions. A sugar manufacturer also reported high levels of competitor focus but

felt that the power of their key competitor left them seeking out niche markets. By being able

to offer products derived from sugar cane, this company claimed their products were

perceived as,

“...superior baking ingredients”. (Marketing Manager, sugar manufacturer)

The Marketing Manager observed,

20

“…perception is seven tenths of the law.” (sugar manufacturer)

In contrast, the low-performing pharmaceutical firm had an almost fatalistic approach to their

business, not considering themselves as a challenger to the market leader. Their manager

explained that they were not quick to react to competitor’s actions; neither did they target

customers for competitive advantage. One firm adopting this business model reported the

lowest level of competitor focus.

Both high-performance firms reported higher levels of inter-functional co-ordination

compared with the low-performance firms in this group. The pharmaceutical and the sugar

company attached significant importance to managers regularly visiting customers and the

need to share that information between functions within their organisation. Equally, both

firms believed that it was inappropriate to invest in long-term relationships upstream when

purchasing commodities. Long-term relationships were thought to restrict the flexibility to

take advantage of price and quality opportunities in the marketplace. Furthermore,

communication technologies were cited as a significant tool that reduced the need for building

relationships;

“We have technology to enable us full visibility on supply and production …

We’re talking about buying, selling all this through interactive multi-media.”

(Marketing Manager, sugar manufacturer)

In the case of this sugar company, the use of Internet-based communications technologies by

a network of suppliers and customers has reduced the need to build business relationships in

order to share market knowledge.

The Retail Business Model

The retail business model included transactional relationships upstream and corporate

ownership downstream. Downstream customers included retailers and business-to-business

customers. Three firms adopted this business model including one high- and two low-

performance firms.

[Take in Figure 9. Here]

The two manufacturing firms (one high and one low performer) in this group demonstrated

strong market focus. We expected the low-performance firms to have a much lower market

focus. These firms demonstrated strong customer focus, stating that their objectives were

driven by customer satisfaction. Both firms had customer service monitoring systems in place

and systematically measured customer satisfaction. The low performing retailer admitted

21

they gave little attention to after-sales service or developing competitive strategies around

customer needs.

The two manufacturers felt they were able to react quickly to competitor’s actions and that

sales personnel shared information about competitors’ strategies. The retailer demonstrated

low levels of competitor focus and inter-functional co-ordination.

Customer focus took the form of consumer research information purchased from professional

research institutions, together with customer focus panels. The retailer reported two key

difficulties; 1) making information available across functions and 2) dedicating the necessary

resources. Work was duplicated, creating errors.

“…somebody has to key in the information about a single promotion 45 times so that

everybody who needs to know has access to the information they need...”

The high performer/low performer divide in the matched pairs sample was verified by the

business performance data. The high-performance firm considered themselves to have

extremely satisfied customers and described themselves as ‘market leaders’. Two initiatives

were thought to drive shareholder value – new product development and cost reduction

(which increased outsourcing and long-term relationships).

The low performance retailer described efforts to increase their market focus. The Supply

Chain Director acknowledged that their chosen strategy was costly and difficult to implement.

The retailer’s knowledge of customers also shaped their transactional relationships upstream.

The retailer explained that customers,

“…dictate 80% of the stock we carry”, (Supply Chain Director, food retailer)

And in this way, the retailer felt that they were always reactionary, buying as cheaply as

possible and frequently changing product lines. Further, the manufacturers supplying big

brands (for example, Heinz) did not see the retailer as key customer,

“…we are a puddle in their ocean”. (Supply Chain Director, food retailer)

In this regard, firm size, age and industry sector seem likely to have an impact on the

flexibility achieved by any specific business model.

In the bitumen sector, a high-performance manufacturer cited the highly technical nature of

their products as being the main driver behind downstream ownership; not only did they

manufacture bitumen, but they ‘installed’ it on road surfaces and other surfaces. The need to

work closely with customers in developing and delivering tailored ‘surface’ solutions meant

22

that the usual routes to market (such as wholesale or retail) were not an option. Using

bitumen as a surface meant incremental innovation formed part of every product-service

offering.

In sum, our findings suggest that the greater the level of integration downstream, whether that

integration was achieved through corporate ownership or network influence, the greater that

firm’s flexibility in re-orienting itself and its business network to changing markets. This

suggests that corporate ownership and long-term relationships might be considered as

isomorphic (Mahoney, 1992). Further, the positive association between business model

architectures that include downstream integration and business model focus on customer (and

consumer) needs appears to increase the network’s flexibility. Firms demonstrating strong

market-focused behaviour are also likely to benefit from increased business flexibility. In

contrast firms that pursued transactional relationships downstream fared less well on the

market focus and business performance criteria. They appeared distant from their

marketplace, having a poor knowledge of their customer base.

Upstream, the distinction between the integration approach and the level of market focus and

business performance achieved was less clear cut. Firms adopting both long-term and

transactional relationships upstream were found in both the high and low performance groups.

Interviewees emphasised outsourcing as a primary source of cost savings and suggested that

this was likely to increase. None of our cases adopted ownership upstream. Our findings

suggest that transactional relationships upstream in the business model are strongly associated

with the traditional efficiency perspective of networks while upstream network influence in

the business model is associated with product innovation and is typically found in business

models that also incorporate downstream integration through ownership or network influence.

7. Discussion and Conclusions

Building on an empirical investigation of a matched pair sample of 20 high- performing and

20 low performing firms in the United Kingdom, this study has generated some useful

insights into the flexibility of alternative business models. Examining flexibility within the

specific context of upstream and downstream relationships, we approached business models

as the emergent outcomes of preconceived types of relationship configuration that guide

problem solving. Thus in our approach, business models depict how firms frame their position

and activities within networks of exchange relationships. The analysis of empirical findings

reveals the existence of six distinctive business models that differ in their ability to provide a

23

flexible response to a continuously changing environment. The identification of these flexible

business models contributes in four key areas.

Flexible Business Model through Network Architectures

First, this investigation demonstrates that companies setting out to create and implement

flexible business models adopt an integrative perspective that combines elements of market

focus with network focus. Companies seek to align not just their own organization with

immediate market demands but also their organization’s web of business relationships with

suppliers and customers. This two-tiered approach adds to the existing theory of market

orientation (Narver and Slater, 1990) by suggesting that firms need to develop a supply chain

or business model architecture that can constantly orientate and re-orientate itself to the

market. Furthermore, our approach contributes to the current network theory (Gadde et al.,

2003) by emphasizing how the firm’s network might seek to flexibly re-align itself with

continuously evolving customer needs. The two problems discussed, demonstrate the

importance of creating customer preference in over-supplied markets through the creation of

flexible product and service offerings to their customers. The data show that availability of

technological links with multiple firms and individual actors provides companies with

numerous opportunities for direct contact with end customers.

Flexible Business Models through Market Integration

Secondly, this study shows that business models require downstream integration to create

flexibility. The empirical observation that integration can be achieved through either

corporate ownership or the development of network influence downstream is consistent with

earlier theories which suggest that well-managed inter-firm relationships and corporate

ownership are isomorphic in nature (Mahoney, 1992). The study reveals that positioning of

network influence or corporate ownership downstream facilitates and promotes a vital

interface with the end customer. The need for downstream integration has implications for the

way managers conceive and manage their network relationships downstream. In this regard,

identifying and working with key customers to create a new ethos of co-operation; collecting

and sharing market knowledge that seeks to maximize the creation of joint gains amongst

firms, will form a central part of the routines embedded in the flexible business models.

Flexible Business Models through Co-ordination

24

Thirdly, downstream integration within a flexible business model needs to be accompanied by

inter-functional co-ordination. While existing theories consider inter-functional co-

ordination at the level of the individual firm (Narver and Slater, 1990), our empirical findings

suggest that inter-functional co-ordination is being extended beyond the boundaries of the

firm and into the wider business network. For this reason, flexible business models provide a

new mindset that conceptualizes inter-functional co-ordination at a firm and network level. At

a more practical level, developing flexible business models requires a) structures that define

the connectivity among network members and b) routines and processes developed to support

the structures. Routines and processes, such as the collection, sharing and dissemination of

market data among network members, constitute the pumping of blood into the veins that

structurally connect the firms in the business model. Further, our findings suggest that

communications technologies play a key role in facilitating knowledge sharing.

Flexible Business Models through Business Relationships

Fourthly, flexible business models are often initiated when firms avoid corporate ownership

upstream. This may be attributed to transactional relationships and network influence

upstream. Transactional relationships upstream offer firms the opportunities to source the

most cost efficient supplies. Maximum flexibility appears to be associated with the sourcing

of commodities. When sourcing commodity products, firms often make purchasing decisions

on the basis of quality and price alone. Clearly limiting purchasing decisions to these two

critera would be highly inappropriate when purchasing technically complex products that

require maintenance and care (for example, aero engines or car seats), but when commodity

products such as steel, sugar cane or chemicals are being purchased, price and quality are

often understood as sufficient criteria. In such cases, commodities can be bought on the open

market, through transactional relationships. Such transactional relationships offer more

flexibility to firms. The need for upstream flexibility through transactional relationships has

implications for the way managers need to understand upstream, supply markets. Managers

could seek to map commodity markets and reach purchase decisions on the basis of cost and

quality criteria. In commodity markets, switching costs are low and competition is high,

therefore, companies need to regularly review the efficiencies created through these

transactional relationships.

Network influence upstream towards sources of supply offers firms the opportunity to identify

and sometimes influence technological innovations through a process of intensified

25

interaction with suppliers. Such product innovations may open the doors to new business

opportunities and drive market change. This may provide opportunities for companies to

develop innovation through an enhanced involvement of suppliers in generating customer

solutions. Companies need to identify and develop network relationships that drive effective

customer solutions and transcend the problem of over capacity through tailored customer

offerings.

8. Research Limitations and Future Research

Flexible business models help companies conceptualize their business relationships as they

seek to adapt to continuously changing customer needs. Further research in this area would

enrich our knowledge about how companies initiate, test and develop new, flexible business

models. The present research identified six key types of business model which appeared to

facilitated different types and levels of flexibility. While this research enabled us to identify

six alternative business model architectures, three business models architectures suggested by

the taxonomy were not identified through the data. This is a limitation of the present

research and future research could seek to identify the existence of business models that use

ownership upstream and ownership, influence or transactional relationships downstream.

Further research could also explore the flexibility of these business models as well as the

nature and dimensions of flexibility that are of most value to organisations. In this sense, a

second limitation of our research is that it does not explore the relationship between the

different flexible business model typologies and firm performance.

A third limitation of the study is that while we identified alternative flexible business models,

the data we collected did not enable us to identify firm size, industry or sector patterns

associated with any single business model architecture. Such knowledge might generate

insights for our understanding of more appropriate business models in certain sectors and the

appropriateness of the co-development of shared or overlapping business models in specific

industries. Our exploratory findings suggest that firm size, age and industry sector seem

likely to affect the appropriateness of different business model architectures. These

contingency factors require further investigation together with exploration of intervening

factors such as the evolution of corporate power within the network as organisations improve

their business performance.

26

Fourth, our research revealed that flexible business models often cross national boundaries.

The influence of country culture seems likely to affect the development of such business

models. In this sense, it may be that some flexible business models are better suited to

offshoring objectives. A focus on Offshore Business Models fell beyond the remit of our

research. However the exploration of flexible business models that incorporates firms from

more than one national base is likely to be informative.

Finally, while our research identified alternative flexible business model architectures, it

revealed little about the strategic and market practices that underpin their existence. We need

to learn about the activities and routines developed to bring flexible business models to life.

This research might be most effective if it is conducted through a carefully-designed

comparative study of different business models. Similarly, as companies develop flexible

business models and experiment with their development before rolling out the model to other

parts of their business, it may be useful to investigate the learning organizations go through

when developing flexible business models. This study has provided a platform from which to

start such exploration.

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Figure 1: The Sequential Business Model

End Customer

Downstream Upstream

Raw Material Supplier (Focused on manufacturer

customers)

Manufacturer

(Focused on retailer customers)

Retailer

(Focused on consumers)

31

Figure 2: The Network Focused Approach

Represents relationships with other network organisations (immediate and end customers)

Retailer

(Focused on consumers)

Raw Material Supplier (Focused on manufacturers

and retailers)

Manufacturer

(Focused on retailers and consumers)

Retailer

(Focused on consumers)

Raw Material Supplier (Focused on manufacturers

and retailers)

Manufacturer

(Focused on retailers and consumers)

Retailer

(Focused on consumers)

Raw Material Supplier (Focused on manufacturers

and retailers)

Manufacturer

(Focused on retailers and consumers)

Retailer

(Focused on consumers)

Raw Material Supplier (Focused on manufacturers

and retailers)

Manufacturer

(Focused on retailers and consumers)

32

Business Model Focus: � Customer Focus � Competitor Focus � Inter-functional Co-ordination

Business Model Flexibility

Figure 3: Flexibility, Business Model Architecture and Focus

Business Model Architecture:

Network Structure: � Upstream � Downstream

Relationship Typology � Transactional Relationship � Network Influence � Corporate Ownership

33

Figure 4: The Network Influence Business Model

Upstream

Our Firm

SUPPLIERS

Network Influence

MANUFACTURER

Ownership

CUSTOMERS

Network Influence

Downstream

34

Figure 5: The Transactional Business Model

Downstream Upstream

Our Firm

SUPPLIERS

Transactional

MANUFACTURER

Ownership

CUSTOMERS

Transactional

35

Figure 6: The Franchise Business Model

(a)

(b)

Our Firm

Downstream Upstream

Our Firm

SUPPLIERS

Influence

MANUFACTURER

Ownership

CUSTOMERS

Ownership

SUPPLIERS

Influence

RETAILER Ownership

36

Figure 7: The Agent Business Model

Downstream Upstream

Our Firm

SUPPLIERS

Influence

MANUFACTURER

Ownership

CUSTOMERS

Transactional

37

Figure 8: The Sales Oriented Business Model

Downstream Upstream

Our Firm

SUPPLIERS

Transactional

MANUFACTURER

Ownership

CUSTOMERS

Influence

38

Figure 9: The Retail Business Model

(a)

(b)

Our Firm

Downstream Upstream

Our Firm

SUPPLIERS

Transactional

MANUFACTURER

Ownership

CUSTOMERS

B2B

SUPPLIERS

Transactional

RETAILER

Ownership

39

Table 1: Market Orientation Scale

Dimension Items

Customer Orientation

Our firm’s objectives are driven by customer satisfaction

Our commitment to serving customer needs is monitored

Our competitive advantage strategy is based on customer needs

Our strategies are driven by our beliefs about creating customer value

Customer satisfaction is frequently and systematically measured

Close attention is given to after-sales service

Competitor Orientation

Our sales people share information on competitors’ strategies

We respond rapidly to competitors’ actions

Our top managers regularly discuss competitors’ strengths and weaknesses

Our customers are targeted for competitive advantage

Inter-functional Co-ordination

Our top functional managers regularly visit customers

We share information about customers and experiences between functions

Our business functions are integrated to serve target market needs

Our managers understand how everyone can contribute

(source: adapted from Narver and Slater 1990)

40

Table 2: Sample by Industry Sector

Industry Sector No. of Firms by Industry Sector Interviewees

Pharmaceutical 6

General Managers Purchasing Managers Marketing Managers Sales & Marketing Directors Managing Directors Supply Chain Directors CEOs

Aerospace 2

Food Manufacturer/ Provider 8

Apparel Manufacturer 4

Retail 4

Construction 6

Health & Beauty Products 4

Industrial Parts/ Electronics 6

TOTAL 8 40 101

41

Table 3: A Summary of the Business Models Identified

Business Model Type

Business Model Architecture

Business Performance

Total no. of firms

Upstream Downstream Level No. of firms

Network Influence Model

Network Influence Network Influence High 9

18 Low 9

Transactional Model

Transactional Relationship Transactional Relationship High 0

3 Low 3

Franchise Model Network Influence Corporate Ownership High 7

8 Low 1

Agent Model Network Influence Transactional Relationship High 1

4 Low 3

Sales-Led Model Transactional Relationship Network Influence High 2

4 Low 2

Retail Model Transactional Relationship Corporate Ownership High 1

3 Low 2

Total 40

42

Table 4: Business Model Architecture and Focus

Business Model Type

Business Model Architecture Total No. of Firms

Business Model Focus

Upstream Downstream Level Customer Focus

Competitor Focus

Inter-functional Co-ordination

Network Influence Model

Network Influence

Network Influence 18

High 11 8 6

Medium 5 4 8

Low 2 6 4

Transactional Model

Transactional Relationship

Transactional Relationship

3

High 0 0 0

Medium 1 1 3

Low 2 2 0

Franchise Model Network Influence

Corporate Ownership

8

High 5 7 6

Medium 3 1 1

Low 0 0 1

Agent Model Network Influence

Transactional Relationship

4

High 1 1 0

Medium 1 2 3

Low 2 1 1

Sales-Led Model Transactional Relationship

Network Influence 4

High 2 2 2

Medium 1 1 1

Low 1 1 1

Retail Model Transactional Relationship

Corporate Ownership

3

High 2 2 1

Medium 0 0 1

Low 1 1 1

Total No. of Firms 40