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FInES Cluster

Task Force: Business Values, Business Scenarios &

Business Models (Re-visited)

Man-Sze Limsli@icfocus.co.uk

FInES Cluster meeting, Brussels, 25 January 2011 2

Key Drivers for Enterprise Transformation and Future

Enterprise Environments• The Overall Context: Digitalisation, Individuals and Enterprises

– Europe is set to become ever more digital in the years to come.• Policy & Governance: Knowledge, Ownership and Control

– Knowledge as a fifth freedom and the “European Knowledge Area”• Technology: Infrastructure Models

– In the future, a potentially unlimited array of high value-added capabilities, fine-tuned to the precise needs of the end-user, will be enabled by software-based services, delivered on-line, on-demand and in real-time… the need for a universal ICT infrastructure model that all could exploit

• Business & Economics: Towards a New Value System– Our present system of business values is no longer adequate in

supporting the full range of business goals that future enterprises would consider as relevant and important … enterprises should be given new rights to capabilities that would help them to innovate in a changing world, of which ICT should be a key enabler

Source: FInES Research Roadmap

FInES Cluster meeting, Brussels, 25 January 2011 3

EI Research Roadmap V4/5 (2006/8)

Business-Economic as 1 of 3 dimensions of the research framework, with a focus on b-e environment, b-e scenarios & b-e impact

Value Proposition for EI Report (2008)

Changing business context analysis, EIVP Framework, Business model analyses & categorisation, Direction towards a new value analysis at Enterprise/Individual/Society levels

FInES Cluster Position Paper (2009)

Business-Economic context analysis, discussion of a new way of doing business, The future of European enterprises: sustainable value creation, new business models, flexible & agile business processes, research recommendation on a new notion of ‘enterprise’ & ‘enterprise network’

Overview of the State-of-the-Art Research in Business Models (2009)

Snapshot of the status, available results & prelim conclusions of business model research work

FInES Research Roadmap

(2010)

Towards a new business value system

Re-consideration of: how to create value, how to capture value

State of the Art and Analyses within the FInES Cluster

(2005 to present)

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FInES Position Paper on Orientations for FP8 (2011)

From the Recommendations section • The Socio-Economic circle. A new scientific approach

to finance and economic science is urgently required … At the macro-economic level, there is a need to re-define key notions of business and economic theories such as value, growth and competitiveness, taking account of profound changes at all levels of society in recent decades, the emerging world order, new visions and alternative future scenarios. Ultimately, the impact of the immaterial economy on businesses and society will have to be systematically and comprehensively analysed, leading to better insights and potentially better policy making and governance.

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TF activities – implementation of FInES RR ambition on value system

• Update of Cluster publication on Overview of State of the Art Research in Business Models

• Interfacing with projects (within & outside Cluster) working on business model related research– Address new ideas early– Facilitate ideas sharing & collaboration– Publish joint work– Support and consolidate the development of new concepts,

metrics, and tools (1) within the Cluster; (2) in other research domains; (3) in the market?

• Initial timeframe: one year

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Task Force Members

• NEFFICS (Lead): Man-Sze Li (IC Focus), Andrew Hinchley (IC Focus), Peter Lindgren (Aalborg University), Henk de Man (Cordys), Cyril Carrez (SINTEF)

• NisB: Victor Shafran (SAP Israel), Boris Otto (University of St Gallen), Verena Ebner (University of St Gallen)

• COIN: Daniel Field (Atos)• VENTURE GATE, ACCESS ICT & YMIR (ICT Financial Marketplace related

projects): Anton Theuma• OPAALS & its follow-up Open Knowledge Space Initiative: Paolo Dini• ADVENTURE: Americo Azevedo (INESC)• ComVantage: Lior Fink (BGU), Sigal Berman (BGU), Reinhard Willfort (ISN),

Dimitris Karagiannis (UNIVIE)• ExtremeFactories: Eero Korhonen (VAIBMU), Aitor Elorriaga Elorza

(INNOPOLE)• Additional Interested Parties:

TAHI: Stephen Pattenden; ActionPlanT: Klaus-Dieter Platte; UNIVERSELF: Makis Stamatelatos; Telenor Group: Hanne Stine Hallingby

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The European Internet Economy: State of Play

• The Internet economy contributes 4.1% of EU GDP; projected to grow 7 times as fast

• Growth is currently driven more by demand than investment; size and embeddedness are therefore uncertain; PPP will rebalance towards productivity as main driver

• Revenues are dominated by telecoms; this may not continue• Measured revenues far understate true contributions – infra marginal gains,

unmonetised benefits, indirect productivity improvements and broader societal contributions

• Performance is less strong in services and other rapidly-innovating sectors; • Largest sectors have lowest intensity; this is linked to the ‘productivity gap’ and

is expected to reverse• Future challenges are to build and sustain domestic presence in innovative

and/or service layers; increase competitiveness; produce greater innovation-friendliness; rebalance returns towards end-user-facing part of value chain; increase societal benefits

• FI PPP could potentially raise Internet contribution to GDP by 5.7%

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Evolution of Business Models

A wide spectrum of scenarios for the future of businesses on the Internet, e.g.

• Utility business models and Web enterprises (Rappa, 2004)• “IT doesn’t matter” and the “Big Switch” (Carr, 2003, 2004,

2008)• “Open Business Models” (Chesbrough, 2007)• The “generative” argument (Zittrain, 2008)• The business models of “free” (Anderson, 2009)• A new framework for the evolution of specific technologies

(Arthur, 2009)• The rise and fall of “information empire” (Wu, 2010)• The “Apple / i-xxx” ecosystem (2009 onwards)

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From service platforms to service ecosystems:

business model implications

• Value-added applications based on a generic technology platform >> generic technologies in creating markets

• Business partnerships based around a provider’s core offering, typically for expanding and/or customising the functionality of the offering for broadening market reach>> collaboration with a wider range of partners including third party developers, consultants and channels in expanding a specific, chosen market (segment)

• A system of relationships and the supporting infrastructures (technical and business) involving suppliers and customers, potential or actual, that are tightly aligned with the activities, characteristics, objectives and value proposition of a company>> new types of market and even mode of exchange brought about by Internet and especially Web native companies

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12-04-23Lindgren and Taran 2011

www.ici.aau.dk

Table 4: Core components of the business model

Core building block Core question

Value proposition/s (products, services and processes) that the company offers (Physical, Digital, Virtual)

What do we provide?

Target customer/s, (customers, users, market segments that the company serves – geographies, physical, digital, virtual).

Who do we serve?

Value chain [internal] configuration.(physical, digital, virtual)

How do we provide it?

Competences (technologies, human resources, organizational systems, culture -).(Physical, digital, Virtual)

What are our competences?

What are our core competences? Network - Network and Networkpartners (e.g. strategic partnerships, supply chains and others (Physical, digital, virtual)

What is our network?

Relations(s) Relationship(s) (e.g. physical, digital and virtual relations, personal, peers). (Physical, digital, virtual)

What are our relations?

Profit formula – both Turnover structure, cost structure and revenue flow. (physical, digital, virtual)

How do we make money and business value?

Table 4: Core components of the business model

”The 7 building blocks of a business model”

1

2

3

4

5

6

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Source: Lindgren and Taran 2011 / FP7 NEFFICS, 2011

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Transaction cost theory

ValueChain

Resource-based view

Game theory Coordination theory

Network economics

New institutional economics

Innovation economics

Neoclassical economics

Focus

Transaction as an organisational concept and cost as an economic friction

Competitive differentiator (margin) & competitive strategy

Competency as key resource & the application of a bundle of heterogeneous and not perfectly mobile resources for creating sustainable competitive advantage

Decisionsupport to prevent lock-in situations for software services; argument for commonly defined solutions

Coordination of structures, resources, people for advancing economic welfare

Positive feed-back and critical mass as features of network economy; new notions of network externalities and demand side economies of scale

“Institutions matter” – broadening the scope of economics from resource allocation to the broad context for institutional arrangements

Assessment of innovation uncertainty and success; argument for innovation as a growth driver

Efficiency driven competition & competitive markets

Utility service sup

port

No compelling support as focus is on transactions between organisations and transactions as differentiator for different market types .

No compelling support based on stable markets and static value chains

No compelling support based on competition for scarce resources, which in turn drives an organisation’s network dependency

Provides major insight into the development of utility services, e.g. the Web as a major enabler for all (serendipitous)internet developments; Game theory supports coordinated actions of players to achieve an optimum solution

Provides a useful conceptual basis for assessing utility services as an overall fundamental infrastructure, but not necessarily for coordination of tasks or resources as a determinant for individual utility services

Provides a useful conceptual basis for assessing development of utility services in volatile, dynamic markets; Penguin effect etc. delivers evidence

Critique of assumptions surrounding production-based economies & firms as a “black box”; contribute ideas / conceptual tools for ownership, governance and investment considerations for utility services in information intensive but also information imperfect modern economies

Provides arguments for utility services infrastructure as a growth driver, and potentially as an enabler for radical innovation (and high growth)

No compelling support based on Pareto efficient pricing

Source: Li and Eschenbächer / FP7 COIN, 2011

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Baseline of Value Analysis

Merged

Knowledge

Volatility & Risk

TechnologyRegulationsStructures (intra- & inter- ):

Market / Organisation/

Community

Culture & Social Norms

Value Consumption

(outputs)

Drivers / Factors

Time

Value Distribution

(flows)

Value Creation (inputs)

VirtualRealThingsPeople

WorldsEntitiesMerged

Knowledge

Volatility & Risk

TechnologyRegulationsStructures (intra- & inter- ):

Market / Organisation/

Community

Culture & Social Norms

Value Consumption

(outputs)

Drivers / Factors

Time

Value Distribution

(flows)

Value Creation (inputs)

VirtualRealThingsPeople

WorldsEntities

Source: Man-Sze Li / FP7 NEFFICS, 2011

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Back up slides

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Task Force Focus(initial ideas)

• From NisB: – “Makes value network a tangible asset”, by developing

(1) business model “archetypes”; (2) “Wisdom of the Network” valuation.

• From NEFFICS: – Networked enterprises operating in cloud-based

environment and value creation through innovation: (1) Define the established baseline in Value Networks; (2) Propose a new Definition for Business Values; (3) Define a Value Delivery Model; (4) Define a corresponding Framework for Value Analysis

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Conclusion from Cluster work on Business Models so far

• A variety of business model activities within the FInES Cluster

• The rising prominence of the utility paradigm as a driver for new business models for the supply side of ICT, including in the Future Internet contexts

• There is a critical, but also long and difficult path, to market acceptance

• Balance between state-of-practice, state-of-play and research ambition for “innovation” and “level playing field” (especially relevant for SMEs)

• A challenge to the status quo: economic values and their foundations

• What about the demand side?

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Vision StatementFuture Internet Enterprise Systems

By 2020, the Internet will become a universal business environment on which new values can be created by competing as well as collaborating enterprises through innovation in a level playing field. Within this environment, FInES will become a transparent and invisible part of the business operation, available and affordable to all enterprises as required. It will make optimal use of the capabilities provided by a universal service infrastructure based on the concept of the Interoperability Service Utility (ISU)[1]. It will support and enable the full range of enterprise qualities as described in Chapter 2 of this Research Roadmap.

Source: FInES Research Roadmap

[1] The first Grand Challenge of the Enterprise Interoperability Research Roadmap [European Commission, 2006 and 2008].

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What has changed?

• The exit from the crisis should be the point of entry into a new sustainable social market economy (as already enshrined in the Lisbon Treaty), which is moreover a smarter, green economy

• The new drivers for prosperity and growth will come from innovation and from using resources better, where the key input will be knowledge

• Future competitiveness will be driven by factors far beyond conventional economic dynamics … increasingly the focus is on conserving and making more effective use of energy, natural resources and raw materials; it is also on social cohesion, tackling unemployment and fostering social inclusion

• European enterprises have the opportunity to thrive in the post-crisis landscape by means of environmentally and socially responsible business innovation and creativity

• The time has come to re-consider value creation, business values and practices

Source: FInES Research Roadmap