Voluntary Disclosure of the Business Model in Italian IPO Prospectuses: a Comparative Analysis

Carlo BagnoliDept. of Management

Università Ca’ Foscari, Veneziabagnoli@unive.it

Giulia RedigoloDept. of Management

Università Ca’ Foscari, Veneziagredigolo@unive.it

ABSTRACT

How do companies to be listed actually deal with voluntary disclosure of their business model? Is it true that firms with greater knowledge-based resources and technological innovation endowments have a lower propensity to adopt fully open communication behaviors? This paper aims to identify the voluntary disclosure choices adopted by three Italian companies in their Initial Public Offering (IPO) prospectuses to investigate whether any differences may depend on the type of innovation underlying each business model. A series of interviews conducted with the top management allows to understand more deeply the business model of each company. Further, a content analysis is performed to compute a measure of disclosure and point out the strategic concepts and their relevance. The study provides evidence that companies with a business model based on technology-push innovation have a lower propensity to full disclosure of their intangible components, particularly of those mainly based on knowledge as these are also invisible. The study aims to make a contribution to the ongoing debate on business and financial reporting.

KEYWORDS: Voluntary Disclosure, Initial Public Offering (IPO), Business Model, Innovation, Intangible Resources.

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Voluntary Disclosure of the Business Model in Italian IPO Prospectuses: a Comparative Analysis

1. INTRODUCTION

In recent years, there has been a strong debate among business and financial

reporting scholars on the role of mandatory financial reporting with respect to the

emergent knowledge economy based on innovation. Many of them agree on the

limits of such information in enabling the effective communication of the even more

complex firm’s value creation mechanisms (Francis and Shipper, 1999; Lev and

Zarowin, 1999), leading to emphasize the importance of voluntary disclosure of

intangible resources since they are key drivers for product and process innovation

(Leitner, 2011; Subramaniam and Youndt, 2005).

At the same time, another intense debate has taken place among strategy scholars

about the relative importance of product and process innovation compared to

business model innovation. More and more management scholars believe the latter to

be at least as important as the more traditional product and process innovation

(Govindarajan and Gupta, 2001; Markides, 1997). However this debate is quite

recent and has been highlighted only in a marginal way in the business and financial

reporting studies (ICAEW, 2010; Novak, 2011).

This study aims to fill this gap and claims a need to shift the focus of voluntary

disclosure from the intellectual capital to the business model. The latter, in fact,

allows us to understand a company’s intangible resources and how these interact with

the other components of the business model in order to create value.

More precisely, this study aims to identify the business model voluntary

disclosure choices made by three Italian manufacturing companies in Initial Public

Offering (IPO) prospectuses in order to investigate whether any differences may

depend on the type of innovation underlying the firms’ business models.

The research is carried out on the narrative sections of the IPO prospectuses of

three Italian companies. The analyzed companies are located in the North-east region

of Italy and listed on Borsa Italiana Stock Exchange. They presents similarities with

respect to the traditional variables that the accounting literature identifies as the main

determinants of voluntary disclosure (Chavent et al. 2006) and to the timing and

outcomes of the listing process. They rather differ in terms of business model

composition and innovation type standing at the basis of their value creation.

We chose a case study as the preferred methodology to address the research

questions given its ability to “illuminate” a decision or a set of decisions (Yin,

1984/2009). A series of in-depth interviews with the top management of the

companies allows to better understand the companies’ mechanisms of value creation

and their choices in terms of voluntary disclosure of the business model.

To investigate the level of disclosure a content analysis is performed by means

of a text analysis software (T-LAB), which provide a measure of frequency and

commonality for each strategic item disclosed in the IPO prospectus. Further, the

software allows to recognize the concepts holding more associations within each

other in order to ensure a most effective interpretation of the outcome and their

relations with the other business model components.

The results shows that all companies put similar emphasis on the description of

the customers, product and processes components of the business model.

Particularly, all companies describe in detail the first two and adopt an outside-in

strategic perspective. The companies placed rather different emphasis on the

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description of the suppliers and especially the resources components. What appears

differentiating most the voluntary disclosure choices of companies to be listed lies in

the scant disclosure of resources (and their interactions with other components),

whenever the latter are “invisible” rather than intangible. These findings suggest that

the type of innovation underlying the business model of a company can significantly

affect business model voluntary disclosure choices in the IPO setting.

The paper contributes to the financial and reporting literature in various ways.

First, it adds to the ongoing debate on corporate reporting practices by focusing on a

new object of inquiry, that is the business model, and investigating its disclosure. The

existing strategic management literature concentrates on the role of the business

model as a useful tool to explain how value is created, delivered and captured

throughout the company’s life. This research indicates that the business model plays

an even important role in allowing external actors to understand a company’s value;

thus companies’ strategic communication should be shaped accordingly. Despite the

number of research papers devoted to exploring business models over the last few

years, structured research bridging the former with business and financial reporting

topics is still rare.

Further, this study differs from previous literature in that it uses Italian

manufacturing companies in the IPO setting. The Italian financial systems presents a

set of unique characteristics, while the IPO is an interesting setting since it offers a

unique opportunity to investigate the amount and the type of voluntary information

given that the company has a full incentive to present itself in the best possible light

in order to maximize the proceeds of the share issuance.

The paper is organized as follows: In the first section, voluntary disclosure, its

implications, and the concept of the business model are illustrated through a review

of prior studies. Then we frame the research question and the theoretical propositions

of the study. In the third section, we justify the choice of the companies and explain

why we perform the analysis on the IPO documents. Then, the methodology is

described. In the fourth section, we show and discuss the results. The last section is

dedicated to concluding remarks, limitations and suggestions for further research.

2. LITERATURE REVIEW AND RESEARCH QUESTIONS

Since the early Nineties, several accounting associations and regulatory bodies

put forward guidelines and proposals to improve the ability of the annual report’s

narrative sections to communicate a company’s mechanisms of value creation

(AICPA, 1994; CICA, 2001; FASB, 2001). Some research emphasizes the

increasing relevance of narrative reporting, as well as the declining

value of information conveyed within financial statements (Francis

and Shipper, 1999). New intangibles such as staff competencies, customer

relationships, models, and computer and administrative systems receive no

recognition in the traditional financial and management reporting model.

The growing globalization of the markets, the rapidity of technological

development - primarily of ICTs - and the evolution of consumers’ behavior (who are

increasingly interested in the intangible components of the value proposition), push

companies to innovate their products, processes, and especially their business models

with greater frequency (Amit and Zott, 2012; Teece, 2010). Consequently, the value

creation mechanisms become more complex and difficult to understand by only

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means of the rigid financial statements required by law (Francis and Shipper, 1999;

Lev and Zarowin, 1999). Preceding literature put a great deal of emphasis on the

disclosure of intangible resources, recognizing the latter as key drivers for

innovation.

In the business and financial reporting literature the intellectual capital disclosure

has assumed a greater importance as an object of research, leading to the production

of reports and empirical research on the topic with specific reference to the Italian

context (Bozzolan et al. 2003; Upton, 2001; Zambon, 2003). The latter provide

evidence of an increasing disclosure of intellectual capital made especially by high

tech companies, whose mechanisms of value creation are largely based on intangible

resources (Cordazzo, 2007). However, it is noticeable that even though disclosure of

information by companies has been increasing, there are no clear signs that investors’

and analysts’ information demands have been met and an information gap still exists

between companies and investors, meaning that disclosure contained in the financial

reporting is still insufficient to allow a complete understanding of the value creation

mechanisms (Bagnoli and Vedovato, 2004; Eccles et al. 2001).

Nielsen and Bukh (2011) suggest the need to shift the focus of disclosure from

intellectual capital to the business model, in order to fill this gap. The business

model, in fact, allows to understand a company’s intangible resources but also their

interactions with the other components of the business model (product, processes…)

in order to create value. In 2010 also the International Accounting Standards Board

(IASB) recognized the role of the business model as a preeminent factor in

classifying a company’s financial assets by issuing the International Financial

Reporting Standard (IFRS) 09.

According to Nielsen and Bukh (2011), the above-mentioned gap is an

understanding gap, which depends on company’s inability to effectively

communicate its own business model rather than on its will to retain strategically

sensitive information.

However, research on voluntary disclosure claims that a listed company may

have incentives, especially if operating in highly uncertain markets, to not disclose

strategically “sensitive” information in order to avoid the risk of a competitive

disadvantage, even though this would reduce information asymmetry and thus the

cost of risk capital (Verrecchia, 2001). That is why a company’s business model

might be regarded as the most strategically “sensitive” information to be

communicated. One of the reason why a company might want to withhold

information is concerned with the presence of a large base of intangible resources.

Indeed, from a strategic perspective human, relational and structural capital, as part

of the intangible base of resources, are used to create knowledge to enhance firm

value.

This study therefore suggests that the information gap between companies and

investors does not depend on the inability of the former to effectively describe their

business models, rather it depends on their will to keep information private.

The study relies on the hypothesis that different types of innovation underlying a

company’s business model give rise to differing levels of disclosure in IPO

prospectuses. In particular, innovation can be regarded as relating to the following

three classes (Verganti, 2008):

- Market-pull innovation, which comes from the analysis of users’ needs and the

search for technologies that can satisfy them better. It implies an incremental

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improvement of existing products and services to meet existent customer needs

(consolidation of existing markets and minimum level of uncertainty in development

forecasts);

- Design-driven innovation, which acts on emotional and symbolic aspects and

results in radically new meanings and languages of existing products or services to

meet customers’ latent needs (reconfiguration of existing markets and average level

of uncertainty in development forecasts);

- Technology-push innovation, which derives from the exploration of new

patterns of technological opportunities and is characterized by radical improvement

in product performance to generate non-existent customers’ needs (creation of new

markets and maximum level of uncertainty in development forecasts).

The types of innovation mentioned above may be associated with different and

increasing level of market uncertainty, that is why the descriptions of each business

models might represent a strategically more “sensitive” information with respect to

others. The study therefore suggests that companies adopting a business model based

on market-pull, design-driven and technology-push innovation are progressively

more reluctant to pursue full disclosure.

The trade-off between the opportunity to communicate the value creation

mechanisms and the threat that this might attract the interest of competitors is even

more critical during the listing process (Jenkinson and Ljungquist, 2001). Admission

for listing on the stock exchange has a powerful meaning since companies to be listed

do not have a publicly available track record of past financial performances. This

contributes to explaining why a company needs to communicate its business model in

the most effective way in its IPO prospectus.

The IPO prospectus plays an important role in fund-raising. Consequently, its

content is more exposed to legal liabilities than is the annual report and it represents

an additional incentive to full disclosure (Trueman, 1997). The listing process attracts

also competitors’ interest, since they could benefit from the information included in

the IPO prospectus, thus acting against the company and causing competitive

disadvantages (Healy and Palepu, 2001).

The requirements imposed by law and regulations allow some degree of

discretion regarding the form of the document at the time it is issued, contributing to

explain a further incentive to not disclose strategically “sensitive” information. For

all these reasons the IPO prospectus represents a meaningful context for the

recognition of costs and benefits associated with the voluntary disclosure of the

business model (Beattie, 1999).

The study attempts to identify the business model voluntary disclosure choices of

Italian manufacturing companies hypothesizing that different types of innovation

pursued by a company might lead to different levels of disclosure of the business

model in the IPO prospectus (given the degree of uncertainty to which each

innovation type is associated).

This consideration leads to the following research questions: “How do

manufacturing companies actually deal with voluntary disclosure of their business

model given the trade-off between costs and benefits of communicating strategically

sensitive information?”, and “How do different types of innovation underlying a

company’s business model affect voluntary disclosure choices?”

The research questions can be reported in brief in the form of the following

theoretical propositions, which are subject to further refinement:

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P1: companies characterized by a business model based on technology-push

innovation are less prone to full disclosure of the business model in the IPO

prospectus compared to those based on market-pull and design-driven innovation;

P2: companies characterized by a business model based on market-pull

innovation are more prone to full disclosure of the business model in the IPO

prospectus compared to those based on technology-push and design-driven

innovation;

P3: companies characterized by a business model based on design-driven

innovation are more prone to full disclosure of the business model in the IPO

prospectus compared to those based on technology-push innovation but less prone

compared to those based on market-pull innovation.

Many empirical studies investigate the voluntary disclosure choices of companies

in their annual reports and the related determinants, namely: industry, size,

profitability, age, ownership, internationalization, type of management and country

(Chavent et al. 2006). Fewer studies address the issue considering the IPO prospectus

(Bukh et. al., 2002; Bukh et al. 2005; Cordazzo, 2007), and very few focus on

voluntary disclosure choices of Italian companies in their annual reports (Bagnoli,

2005; Bagnoli and Mantovani, 2012). This study differs from previous literature in

that it considers the business model as object of voluntary disclosure choices using

Italian manufacturing companies in the IPO setting.

The lack of business and financial reporting studies on the business model as

object of analysis is mostly likely due to the difficulties in defining the concept itself,

given that it has only recently been explored in the strategic literature (Teece, 2010).

However, several authors agree on the recognition of the business model’s

fundamental components: suppliers, resources, processes, products and customers,

emphasizing the need to investigate voluntary disclosure of the business model as a

whole.

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This paper contributes to fill an important gap in the literature of business and

financial reporting borrowing ideas that have recently emerged in the strategic

management literature.

3. RESEARCH DESIGN AND METHODOLOGY

To address the research questions we rely on a case study given its ability to

“illuminate” a decision or a set of decisions (Yin, 1984/2009). The case study is the

preferred methodology to build knowledge about the phenomenon because the

existing contributions on voluntary disclosure of the business model in IPO

prospectuses are still limited. The research method is also justified by the difficulty

of isolating what we refer to as a new determinant of business model disclosure - the

innovation underlying business models -, compared to other determinants of

voluntary disclosure choices (sector, size, profitability, etc.). The case study, in fact,

is useful for in-depth analysis of a real phenomenon when the boundaries between the

latter and its context are not clear.

However, case study research suffers from a lack of rigor and an excess of bias.

There is no assurance of either reliability or internal validity. That is why using a

case study for anything more than exploratory purposes is risky (Bromley, 1986). In

addition, this method does not provide experimental controls. Therefore it is assumed

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to not allow for “scientific distance”, it has no built-in corrective against the possible

biases of the researcher who will tend to confirm his/her assumptions (Flyvbjerg,

2006). Critics also claim that the case study does not accurately measure independent

and dependent variables (Stoecker, 1991).

Nonetheless, the study resorts to multiple case studies as they provide a logic of

replication and each case is treated as a single experiment to confirm or reject

inferences arising from others. The logic adopted is “theoretical” rather than “literal”

(designed to obtain similar results) in order to obtain expected but mixed results (Yin,

1984/2009). The use of multiple case studies within a “theoretical” logic makes it

possible to achieve more robust results and a level of generalization that a single case

per se does not permit (Santos and Eisenhardt, 2009).

The research focuses on three manufacturing companies located in the North-east

region of Italy and listed on Borsa Italiana Stock Exchange (STAR segment),

namely: Eurotech, Nice and Zignago Vetro. The choice of manufacturing companies

is related to the greater complexity of their business models compared to those of

commercial or service companies, thus provides the best setting in order to carrying

out the research.

The focus on the Italian context depends on the deep differences with respect to

the U.S. context, where most of the studies on voluntary disclosure have been

developed. Italian listed companies are characterized by the scarce

presence of institutional investors within their ownership structures,

as well as by the low percentage of shares traded on the market. In

addition, the entire financial system presents a lower legal protection of investors,

increasing competition for government securities and dominance of the banking

system. Thus, the generalization of preceding results to the Italian financial context is

still dubious (Francis et al. 2005).,

We selected the STAR segment of the Italian Stock Exchange as it is reserved for

mid-size companies with high transparency and communication requirements, as well

as high liquidity and rules aligned to the international standards of corporate

governance.

With respect to the type of innovation as a determinant of business model

disclosure, the choice of the three companies is related to the deep differences

characterizing their business models.

With respect to the IPO setting, the companies present similarities in terms of

timing and results of the listing process. Eurotech, Nice and Zignago Vetro are the

last north-east manufacturing companies to be listed on the STAR segment of the

Italian Stock Exchange before the 2008 crisis. The crisis increased the level of

uncertainty, thus modifying the voluntary disclosure strategies at least with reference

to the external environment (Bagnoli, 2009). We therefore choose not to consider

companies listed after 2008. With regard to the listing process outcomes, all the three

companies stand out for the positive market reaction at the time of listing. The

outcome translates into a positive bid-ask spread, as well as an increase in the share

prices in the first fifteen days after listing (Schrand and Verrecchia, 2005).

As for the traditional variables that literature identifies as main determinants of

voluntary disclosure choices, the three companies operate in the same industry -

manufacturing -, but in different sub-industry. They are similar in size and level of

profitability at the time of listing. Although they show clear differences in numerical

terms, they all can be refer as to mid-size profitable companies .

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Eurotech and Nice are founded in the same period, while Zignago Vetro shows

some changes in the ownership structure due to a variation of its shareholders base in

the same years. At the time of listing all three companies are characterized by a small

ownership, and after IPO only Eurotech become a public company. Finally, the

companies share the same geographical region (north-east of Italy), operate in an

international context, and are led by powerful, charismatic leaders.

The analysis is carried out on IPO prospectus (1), with particular reference to its

narrative sections. Managers use the latter to report past economic and financial

results in order to foster investors’ confidence. The goal is to recount the past in order

to create an expectation for the future (Gioia et al., 2002). They then describe the

logic underlying the achievement of economic results and the business model, while

avoiding the disclosure of strategically sensitive information. Hypotheses about

future performances and the definition of a business plan seem to be implicitly left to

analysts.

The study relies on a content analysis in order to compute a measure of

disclosure, as it is widely used in the studies on voluntary disclosure (Guthrie et al.,

2004). A text analysis software, T-LAB, is employed to identify the frequency of the

concepts contained in the IPO prospectuses. Successively, a cluster analysis helps to

group them by using a statistical criterion such as the Ward's agglomerative

hierarchical method with Euclidean distance (Lancia, 2004). In this case, the

procedure for choosing the pair of clusters to merge at each step is based on the

optimal value of an objective function. We then rely on the dendrogram (tree

structure representing progressive grouping) in order to make it possible the 1() The Italian IPO prospectus consists of two sections preceded by the following paragraphs:

"Definitions and Glossary", "Company risk factors" and "Summary Note". For our purpose of research, the analysis is limited to the first section, particularly to the first nineteen chapters that show a narrative structure.

identification of each cluster, and cut it exactly at the point where it shows the

highest jump.

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The outcome of this method reflects three main clusters, namely: Corporate

Governance, Economic Value and Business Model. The analysis is then limited to

the concepts included in the “Business Model” cluster, and we observe their

frequency and commonalities with respect to the other IPO prospectuses(2).

Frequency serves a proxy for the relevance of each concept (Beattie and Thomson,

2007), while commonality is used as a measure of the non-specificity of each

concept. As a result, the analysis focuses on two main concept categories: “frequent

and common” and “frequent and exclusive”. T-LAB also allows to recognize the

most associated concepts through the computation of the cosine coefficient(3).

Further, we explore the “elementary contexts” function in order to attribute the right

contextualization and meaning to each concept (4).

The frequent concepts are then linked to the business model components

identified in the literature. For each concept the most associated ones are listed(5).

We provide the reader with one table representing the “frequent and common”

concepts and three different tables (one for each company) representing the “frequent

and exclusive” ones and their associations (see tables 2, 3, 4 and 5).

2() Concepts with a frequency higher than the average of the cluster to which they belong are defined as “frequent". Concepts that are present in at least two IPO prospectuses are defined as “common”.

3() We considered only the concepts that show an association coefficient greater than 20%.4() These represent part of the text corresponding to one or more sentences in which the presence of

a concept is detected. Their analysis allows us to avoid, for example, confusing nouns (i.e. “prodotto”/ “product”) with verb forms (i.e. “prodotto”/ “produced”).

5() The associated concepts are represented in each table following a decreasing order of the value of the association coefficient. We use bold to highlight those concepts considered as highly frequent, (i.e. showing a frequency value at least equal to 35). We then use capital letters for those concepts previously identified as “common and frequent” and “frequent and exclusive”.

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Additional data are collected using interviews. From mid 2009 to late 2011 we

conduct 30 interviews with the top management of the companies (typically with the

chairman/founder and/or CEO)(6), in order to better understand the companies’

mechanisms of value creation and their choices in terms of voluntary disclosure of

the business model. The interviews are structured around a set of questions aimed at

identifying the company’s business model, its fundamental components, and the

interactions among the latter (see Appendix A).

We adopt the open-question technique to leave each party free to express and

enrich their response with details. This allows us to grasp all the subjective

interpretations. Each interview lasts on average two hours and respondents generally

adopt a similar level of depth and precision in dealing with the various issues. The

results are explained by means of a graphic format to make them easier to

understand, and summarized as follows.

The three companies’ business models are respectively based on: technology-

push innovation (Eurotech), design-driven innovation (Nice) and market-pull

innovation (Zignago Vetro) (7). Eurotech operates in the business-to-business sector.

It designs, develops and commercializes miniaturized and high-power computers

used in the defense, transportation and medical industries. Its mission is to foster the

integration of technologies in everyday life making them even more pervasive. The

company generates customers’ non-existent needs through the creation of new

product features. Its vision is about achieving growth by upgrading from the simple

6() The 30 interviews are divided as follows: 5 with the Chairman and MD of Eurotech, 3 with the CFO and 3 with the Investor Relator; 5 with the Chairman and MD of Nice and 3 with the CFO; 5 with the Chairman of Zignago Vetro, 3 with the MD and 3 with the CFO and Investor Relator.

7() In order to make the reader catch the companies’ business models more intuitively, these are graphically represented by an isosceles trapezoid formed by three equilateral triangles. At the top of the left triangle are the inside-out strategic perspective components (i.e. suppliers, resources and processes). At the top instead of the right triangle are the outside-in strategic perspective components (i.e. customers, products and processes). The central triangle is representative of the "economic value" created. See Figures 1, 2 and 3.

production of components to that of “ready to use” products. The company’s

production model is “fabless” as it is characterized by the complete outsourcing of

production. As a result the sale price is related to the value perceived by customers,

thus highlighting the importance of the intangible component of services. For

Roberto Siagri, President of Eurotech: “... the great secret of the knowledge economy

is that the added value of a product consists of a service component that you are able

to identify while your competitors are not”. Technology-push innovation is the key

driver for the company’s success and business growth, and gives rise to the strong

interaction with the research world in order to develop radically new technological

products.

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Nice operates in the business-to-business sector. It designs, develops and

distributes integrated automation systems for gates, roller shutters, garages, etc. Its

mission is to simplify everyday movements through the use of intelligent and easy

automation systems. It creates new meanings for existing products to meet

customers’ latent needs. Lauro Buoro, President of Nice, says: “... we produce

electronic devices which can become symbols or luxury objects. For instance, we

produce some radio devices by using fashion materials such as gold or silver”. The

company’s vision is to foster geographical expansion and growth through the

penetration of young markets. As in the case of Eurotech, the production model is

“fables”. It makes it possible to combine flexibility and efficiency while maintaining

constant supervision of the critical phases of the value chain. Design-driven

innovation is the key driver for success and business growth. The company’s

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business model gives rise to a huge investment in the research and development of

new materials, shapes and colors in order to create radically new products or improve

existing ones (in their technological, aesthetic and ergonomic aspects). As Lauro

Buoro says: “We believe in the diversity of ideas to create innovation”.

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Zignago Vetro operates in the business-to-business sector. It designs, develops,

produces and sells high quality glass containers used in the food, beverages,

cosmetics and perfumery industries. Its mission is to promptly satisfy customers’

needs by offering high quality, innovative and personalized products. The company

pursues an incremental improvement of existing product performance to meet

customer needs. Its vision is related to growth in the glass industry while maintaining

a high level of profitability. The production model operates continuously and is

characterized by flexibility in order to meet customers’ requests in an efficient and

effective way. For Luca Marzotto, President of Zignago Holding: “… there still

exists a market that doesn’t care about the production quantity, instead it is

interested in personalized products. Thus, we must be more flexible and accept

smaller and changing batches, being at the same time very efficient. No other

competitors compete on this idea, since they have larger size and the industry is

highly concentrated”. Market-pull innovation is the key driver for success and

business growth. The company recognizes the importance of combining quality,

innovation, operational efficiency and flexibility to meet market niches demand.

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The three companies’ business models satisfy markets characterized by different

levels of uncertainty. The latter, indeed, affects the ability to forecast market

developments and influence the magnitude of proprietary costs for each company.

Zignago Vetro shows the lowest degree of uncertainty. Uncertainty increases in the

case of Nice, and it is highest for Eurotech, which creates new markets with high

potential growth rates. For Roberto Siagri: “…before the market exists there is

information asymmetry ... afterwards, all producers will offer the same products”.

4. RESULTS AND DISCUSSION

The content-analysis leads to the identification of a set of “frequent and

common” concepts which can be interpreted as the fundamental components of every

business model.

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The presence and description of these concepts appear to be necessary to all the

three companies. The concepts are: industry, market, customer, product,

development, and with a lower level of frequency: commercial, industrial, system,

internal, manufacturing, production.

The high frequency and degree of association between industry and market,

between customer and product and among market, product and development,

highlight the importance attributed by all the three companies to the dynamics of the

industry, in order to create value for customers through an appropriate product

offering.

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Customer and product represent the key components of the business processes, as

shown by the high degree of association between: customer and commercial;

commercial and development; commercial and industrial; product, production and

manufacturing.

The two concepts system and internal are related to the presence of an internal

auditing system that is required by accounting regulations for each company to be

listed. Among at the “frequent and common” concepts, those linked to suppliers and

resources are very few. This confirms the adoption of an outside-in strategic

perspective, which leads to neglect the description of the distinctive resources owned

by a company when describing its business model.

The analysis points out the existence of a set of “frequent and exclusive”

concepts for each company. The latter can be interpreted as the fundamental

components of a business model, whose presence and description is critical only to

one of the companies.

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Eurotech’s “frequent and exclusive” concepts are mostly attributable to the product

component of the business model. Among the most frequent and strongly associated

concepts we find: hpc, computer, nanoPC, solution and technological, which refer

respectively to the two types of products, as well as to the upgrading that the

company is currently engaged in from mere producer of goods to that of ready-to-use

solutions. The two concepts capacity and computation refer to the product’s

performance. Finally, software and modules identify product components.

The only exceptions are the concepts: institute, projects and research. The latter

are related respectively to the suppliers and processes components. Their importance

comes from Eurotech being defined in its IPO prospectus as a “factory of ideas”

focused on research projects through partnerships with universities and research

centers, which act both as suppliers and customers.

For Roberto Siagri, President of the Group: “The partnership has to be made with

suppliers and customers… Nowadays customer relations are essential, unless the

product is a commodity. But if customers don’t want a long-term relationship we tend

to reject them… Indeed, I do not believe that those customers are the right ones for

our type of business”.

Within the category of “frequent and exclusive” concepts any reference to the

resources component is absent, as to demonstrate that Eurotech devotes very little

attention to their disclosure and confirm company’s propensity to an outside-in

strategic perspective.

Although the key driver of the company’s success is the technology-push

innovation which is based on research and development of new scientific knowledge,

there are no references to human capital except for the relational capital as shown by

the association between collaboration and projects.

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INSERT TABLE 4 ABOUT HERE

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As far as Nice is concerned, the “frequent and exclusive” concepts are mostly

attributable to the product component, but also to the processes one.

Among the most frequent and strongly associated concepts we find: line, systems

and automation, which recall the product types and lines; electronic, which identifies

21

the main component of the product. Finally, design, technological and innovation, are

related to the tangible and intangible outcome of the design process.

Also the concepts: distribution, marketing, supply and manufacturing, are

attributable to the processes component. The strategic goal of the company is indeed

to strengthen the relationship with customers in order to spread and increase brand

awareness. The concept brand can thus be interpreted either as an attribute of the

product or as a distinctive resource.

Nice uses product design as its main communication tool. This is shown by the

high degree of association between the concepts marketing and communication,

marketing and design, marketing and brand.

Less relevance is reserved to some concepts related to the processes component

(as for safety and quality), to the product component (as for items, housing, family

and quality) and to the customer component (as for International and Europe).

The only concept that can be related to the suppliers component is

subcontractors, which recalls the main role of partnerships in outsourcing for Nice.

This result confirms company’s propensity to adopt an outside-in strategic

perspective.

Although, the key driver of the company’s success is a design-driven innovation

based on intangible resources (such as design), there are no references to human and

relational capital. The only exception is the concept brand, which refers to the

structural capital.

-------------------------------------------

INSERT TABLE 5 ABOUT HERE

-------------------------------------------

As far as Zignago Vetro is concerned, the “frequent and exclusive” concepts are

mostly attributable to the components product and processes, but also to customers

and resources.

Among the most frequent and strongly associated concepts we find: cosmetics

and perfumery, which identify the markets served by the company. The concepts line,

service, and bottle, identify product types and lines. Finally, quality and shape refer

to the tangible and intangible performances of the product.

Also the concepts: line, capacity, safety and process, are attributable to the

processes component and are characterized by a high degree of association with each

other. The concepts: equipment, factory, furnace and work are instead related to the

resources component, but only the last three are characterized by a high degree of

association with each other as they are tangible resources. The high degree of

association between quality and process, and between process and equipment,

highlights the important role of tangible resources in the development of the

production cycle. In addition, the high degree of association between equipment and

regulation, between work and safety, safety and regulation, emphasizes the

company’s focus on worker safety so as to reduce the associated risks and comply

with current laws and regulations.

The references to human and structural capital, although limited to supply

contracts, show that the company’s propensity to adopt an outside-in strategic

perspective is combined with an inside-out one, despite the fact that the key driver of

success is a market-pull innovation model.

The research shows that all companies put similar emphasis on the disclosure of

some of the business model components identified in the strategic literature, namely:

23

customers, product and processes. Particularly, all companies describe in detail the

first two and adopt an outside-in strategic perspective.

The companies placed rather different emphasis on the description of the

suppliers and especially the resources components.

Eurotech does not provide a description of its resources even though its business

model is based on breakthrough technology-push innovation and characterized by the

importance of scientific knowledge. More precisely, we refer to the knowledge about

new technologies which allows product performance radical improvement or the

introduction of new product features. This choice might be interpreted in the light of

a further distinction within the company’s resource base. Indeed Eurotech owns

resources which are not only intangible but even “invisible”, both to the financial and

competitive market.

Nice does not provide a description of its resources either, even though its

business model is based on design-driven innovation and is therefore characterized

by the importance of human knowledge. We refer to the knowledge related to new

social behaviors which lead to the radical change or new creation of product

meanings. Nice limits its disclosure to the discussion of “visible” intangible

resources, even though these are not reported in the financial statements imposed by

law (e.g. brand), and to the “visible” effects deriving from the exploitation of these

resources (e.g. the design of the products).

Conversely, Zignago Vetro fully describes its resources. This is due to the fact

that its business model is based on market-pull innovation, and therefore

characterized by the preeminent role of tangible and “visible” resources, which are

clearly reported in the financial statements imposed by law (e.g. equipment,

including the furnaces for glass).

5. CONCLUSION

The study aims at identifying the voluntary disclosure choices of the business

models made by three Italian companies - Eurotech, Nice and Zignago Vetro - in

their IPO prospectuses to investigate whether any differences may depend on the type

of innovation underlying each business model.

Assuming that differing types of innovation give rise to likewise differing level

of uncertainty in the markets, the results suggest that the type of innovation

underlying the business model of a company significantly affects its voluntary

disclosure choices in the IPO prospectus. More precisely, the trade-off between costs

and benefits arising from communicating strategically “sensitive” information to the

financial market confirms our initial research propositions. Moreover, what appears

to differentiate most voluntary disclosure choices of companies to be listed lies in the

low disclosure of resources (and their possible interactions with other components)

when these are “invisible” rather than only intangible.

The results partially contradict previous findings pointing out a higher level of

voluntary disclosure of intangible resources in the IPO prospectuses of Italian

companies operating in technology-push innovation industry (IT, biotechnology, etc.)

(Bukh et al., 2001). Nevertheless the different result may depend on the research

method that has been used, being the previous empirical studies. Preceding research

generally uses quantitative methods, allowing a bigger sample to be considered, but

25

at the same time limiting the in-depth analysis of the companies, and thus the

recognition of strategically “sensitive” information to be communicated.

The presence of invisible resources makes a business model more difficult to

understand by only means of the rigid financial statements imposed by law, or by

simply analyzing company products (as they are the most visible component).

The difficulty in disentangle the composition of the resources component of a

business model suggests the need of a deeper level of detail with respect to the

narrative sections of the IPO prospectus, in order to make investors fully aware of the

company’ value and companies able to benefit from the related positive effects

(reduce information asymmetry, reduced cost of risk capital, increased share

performance…).

The study then suggests the need to address the issue of voluntary disclosure of

the business model by first distinguishing “visible” intangible resources (not

necessarily in the rigid financial statements imposed law) from those that are

“invisible” (both to financial and competitive markets). This can be fostered by the

active role of professional associations and regulatory bodies in implementing new

rules and frameworks aimed at improving the ability of IPO prospectuses to

effectively communicate a company’s value and resources. To this end, a greater

focus on the classification schemes that are emerging from the strategic literature

seems necessary.

The importance of these results is strengthened by a series of phenomena (such

as globalization of markets, speed and complexity of technological development,

changes in consumer behavior, etc..) which will increase the importance of invisible

resources within the business model of a growing number of companies, thus making

even stronger the role of technology-push and design-driven innovation, and

consequently making their disclosure more critical.

The study has a major limitation in the generalization of results since it uses

Italian companies. However, Bukh et al. (2002) did not detect significant differences

in the voluntary disclosure of intangible components in IPO prospectuses of

companies from different national contexts.

Concerning the use of the case study method, this clearly represents the main

weakness of the research as it excludes whichever generalization, but at the same

time also its main strength since it allows for a greater level of detail in the study of

the companies.

As a future objective we suggest expanding our analysis to a larger and

diversified sample of companies to be listed, belonging both to the national and

international context. We further suggest the implementation of a quantitative method

of research consistent with the traditional research in business and financial

reporting.

27

APPENDIX A - In-depth interview on business model scheme

COMPANY : ____________________

REPLIER: □ PRESIDENT □ CEO □ CFO □ OTHER___________

DATE: ____________________

MISSION AND VISION - What is the purpose for which your company exist?- Which are your assumptions about the dynamics of the external environment?- Which values characterized your vision?- Do you adopt a strategy focused towards productivity (efficiency gains by

reducing direct and indirect costs) or growth (promote revenue growth with appropriate policies)?

- What are your choices at the corporate level?- What is your business perspective in the medium-long term? What are your

ambitions for the future?

ECONOMIC VALUE

- What about your current economic and financial performance?- How are your costs structured? Are them fixed or variable? - How do you set the prices?- How would you described your revenue model?

SUPPLIERS- Who are your key suppliers?- What kind of relationship do you have with them? Do you have bargaining

power?- Are you integrated with your key suppliers?- Which resources and core competencies do you acquired from them?- To what extent are your mission and goals aligned with those of your

suppliers/partners? - What kind of competitive advantage the relationship with suppliers generate? - Do the supply channels allow you to gather the resources you need when

required?

RESOURCES- What kind of resources do you possess? (Tangible: financial, physical, or

intangible: relational capital, reputational, structural, human …)- Do the resources used belong to your own or to external parties?- How well do they complement and support each other? - To what extent the core competencies allow you to offer benefits to the buyers?

- How unique is your resource base? And how difficult is it for competitors to imitate it?

PROCESSES- Which are the main processes that characterize your company? (Production,

distribution ...)- Does your industry include companies that enjoy significant cost advantages

deriving from their experience in performing some activities?- Which are your most critical processes (the processes that create more value for

customers and have a high degree of specialization)?

PRODUCT- What kind of product do you offer? (commodity, good, service, experience ...)- How do you characterize your value proposition? (Price, reliability, availability,

performance, quality, technology, safety, image, style, customization ...)- Is your product a standard one?- What architecture does your product have? And how is it designed? - What is the final destination of your product?- What is the role of each of your products in the range offer?- What is the level of financial feasibility of each of your products?- Which factors affect competition for substitute products?- How important are R & D activity and product innovation? And what is the role

of technological progress within your industry?

CUSTOMERS- What value or benefit do you distribute to customers? - What is your target market? Is it segmented? And which are the segmentation

variables that you use?- What is the rate of growth of each market segment? - Do some buyers have bargaining power due to a high volume of purchase?- What kind of relationships do you establish with customers? (Price, benefit

offered, confidence, know-how possessed ...)- Which communication channels do you use?- Which distribution channels do you use? Do you have a strong network of

distributors and dealers?

29

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33

FIGURE 1 - The business model of “Eurotech”

FIGURE 2 - The business model of “Nice”

FIGURE 3 - The business model of “Zignago Vetro”

SUPPLIERS

RESOURCES PROCESSES

PRODUCT

CUSTOMERS

ECONOMIC VALUE

ORGANIZATION FUNCTIONS

OUTSIDE-IN

INSIDE-OUT

R&D DESIGN

OUTSOURCING OUTSIDE-IN

INSIDE-OUT

SUPPLIERS

RESOURCES PROCESSES

PRODUCT

CUSTOMERS

ECONOMIC VALUE

PROCESSESEFFICIENCY QUALITY

OUTSIDE-IN

INSIDE-OUT

SUPPLIERS

RESOURCES PRODUCT

CUSTOMERS

ECONOMIC VALUE

FIGURE 4 - The dendograms

Eurotech

Nice

Zignago Vetro

35

Table 1 - Business model’s fundamental components in the strategic literature

1

Author/Authors Title Year Product Processes Resources Suppliers CustomersAl-Debei, Avinson Developing a unified framework of the business model concept 2010   P   P   P   P   P

Chesbrough, RosenbloomThe role of the business model in capturing value from innovation: evidence from Xerox Corporation's technology spin

‐off companies

2002   P   P   P

Eyring et al. New Business Models In Emerging Markets. 2011   P   P   P   P   PGoethals Mindfully innovating your Business Model. 2011   P   P   P   P   PJohnson, Christensen, Kagermann Reinventing Your Business Model 2008   P   P   P   P   PJouison, Estèle, Verstraete Business Model and firm foundation 2008   P   P   P   P   P

Lehmann Ortega, SchoettlFrom buzzword to managerial tool: The role of business models in strategic innovation

2005   P   P   P   P   P

Linder, Cantrell So what is a business model anyway 2000   P   P   P   P   PMason, Spring The sites and practices of business models 2011   P   P   P   P   P

Moingeon, Bertrand, Lehmann-OrtegaCreation and Implementation of a New Business Model: a Disarming Case Study.

2010   P   P   P   P   P

Morris, Shindehutte, Allen The entrepreneur's business model: toward a unified perspective 2005   P   P   P   P   P

Osterwalder, Pigneur, TucciClarifying business models: Origins, present, and future of the concept

2005   P   P   P   P   P

RichardsonThe business model: an integrative framework for strategy execution

2008   P   P   P   P   P

Sahffer, Smith, Linder The power of business models 2005   P   P   P   P   PTorbay, Osterwalder, Pigneur E-Business Model Design, Classification, and Measurements. 2002   P   P   P   P   P

Voelpel et al.The wheel of business model reinvention: how to reshape your business model to leapfrog competitors

2004   P   P   P   P   P

Table 1 shows that several authors investigated the business model in the strategic literature. Almost all of them agree on the recognition of the business model’s fundamental components, namely: suppliers, resources, processes, products and customers.

TABLE 2 - “Frequent and common” concepts

Suppliers freq.E freq.N freq.Z Ass. > 0,20 Resourcesfreq.E freq.N freq.Z Ass. > 0,20 Processes freq.E freq.N freq.Z Ass. > 0,20 Product freq.E freq.N freq.Z Ass. > 0,20 Customers freq.E freq.N freq.Z Ass. > 0,20

COMMERCIAL 41 125 123 industrial SYSTEM 85 99 62 control DEVELOPMENT 98 68 66 research PRODUCT 137 245 215 innovation INDUSTRY 80 76 75 experiencerelation internal activity finshed operatesupplier management product customer market

corporate new development developmentINTERNAL40 35 91 control market market area

system commercial new MARKET 123 131 272 productprocedure industry technological segments

area developmentINDUSTRIAL 48 50 102 commercial growth

activity geographicalsystems industry

MANUFACTURING 21 27 66 process operatephase CUSTOMER 65 37 108 needproduction productproduct commercial

PRODUCTION 34 57 149 quality servicemanufacturing qualityproduct COMMERCIAL 41 125 123 industrialfactory customer

developmentrelation

INSIDE-OUT PERSPECTIVE OUTSIDE-IN PERSPECTIVE

Table 2 shows the  set of  “frequent and  common” concepts which  can be interpreted as  the fundamental components of  the  business model. Concepts with a frequency higher than the average of the cluster to which they belong are defined as “frequent". Concepts that are present in at least two IPO prospectuses are defined as “common”. The table indicates the frequency of each concept for the three companies (freq E, freq. N,  freq. Z) and the most associated concepts (ass.>0,20).

TABLE 3 - “Frequent and exclusive” concepts, Eurotech

3

Suppliers Associations Coef. Resources Associations Coef. Processes Associations Coef. Product Associations Coef. Customers AssociationsCoef.

PROJECTS (32) university 0,2981 HPC (77) computation 0,3143 TECHNOLOGICAL (32) market 0,2913collaboration 0,2471 capacity 0,3026 INSTITUTE (26) centre 0,4529research 0,2396 high 0,2810 university 0,3264

INSTITUTE (26) centre 0,4529 COMPUTER (58) embedded 0,4170 physical 0,2720university 0,3264 miniaturized 0,3032 research 0,2454research 0,2454 computation 0,2769 customer 0,2730

high 0,2590NANO PC (55) area 0,2911

miniaturized 0,2725industry 0,2714hpc 0,2151modules 0,2147

SOLUTION (47) product 0,2492standard 0,2366technological 0,2063development 0,2015

CAPACITY(41) computation 0,3800hpc 0,3026high 0,2824need 0,1998

COMPUTATION (38) capacity 0,3800hpc 0,3143high 0,2934miniaturized 0,2810

TECHNOLOGICAL (32) solution 0,2063MODULES (21) architecture 0,3381

standard 0,3217integrate 0,2421

SOFTWARE (19) operational 0,3059hardware 0,2767system 0,2392standard 0,2291

INSIDE-OUT PERSPECTIVE OUTSIDE-IN PERSPECTIVE

Table 3 shows the set of “frequent and exclusive” concepts of Eurotech, their frequency in brackets, the most associated concepts and the relative coefficient of association. The concepts  considered  as highly  frequent  (i.e. showing  a frequency value  at least equal  to 35) are highlighted in bold. There are no “frequent and exclusive” concepts belonging to the resources and processes components.

TABLE 4 - “Frequent and exclusive” concepts, Nice

Suppliers Associations Coef. Resources Associations Coef. Processes Associations Coef. Product Associations Coef. Customers AssociationsCoef.SUBCONTRACTORS (37)production 0,2613 BARND (38) product 0,2969 DISTRIBUTION (37) organized 0,6587 LINE (113) Gate 0,5913 INTERNATIONAL(31) growth 0,2880

phase 0,2289 unique 0,2947 channel 0,4293 screen 0,4793 foreign 0,2155quality 0,2215 range 0,2529 technician 0,2877 curtains 0,2186 strategy 0,2008semi-finished 0,2055 marketing 0,2352 wholesaler 0,2847 SYSTEMS (99) automation 0,3372 business 0,2006manufacturing 0,2013 MARKETING (36) communication 0,4854 gate 0,3159 EUROPE (28) France 0,3224relation 0,2016 design 0,2830 screen 0,2959 geographical 0,2818

external 0,2361 product 0,2633 Italy 0,2654brand 0,2352 line 0,2458 area 0,2476

DESIGN (32) realization 0,2652 DESIGN (68) ergonomics 0,4201 size 0,2336development 0,2358 technological 0,3895

SAFETY (29) instruction 0,2026 innovation 0,3208technology 0,2008 blue 0,2970

QUALITY (27) control 0,2901 AUTOMATION (43) systems 0,3372subcontractors 0,2215 gate 0,2641process 0,2213 garage 0,2226

SUPPLY (27) component 0,3339 screen 0,2199production 0,3059 ELECTRONIC (42) technic 0,2415supplier 0,2722 component 0,2372

MANUFACTURING (24) external 0,3651 product 0,2279semi-finished 0,3062 BRAND (38) product 0,2969component 0,2708 unique 0,2947cost 0,2341 range 0,2529phase 0,2132 marketing 0,2352subcontractors 0,2013 TECHNOLOGICAL (35) innovation 0,6389

design 0,3895new 0,2070development 0,1955

INNOVATION (28) ergonomics 0,4910attention 0,3381design 0,3208

ITEMS (28) family 0,6558engine 0,2303automation 0,2279

HOUSING (26) building 0,5708garage 0,4498industrial 0,2838

FAMILY (24) items 0,6558automation 0,2802remote 0,2357

INSIDE-OUT PERSPECTIVE OUTSIDE-IN PERSPECTIVE

Table 4 shows the  set of  “frequent and  exclusive” concepts of Nice, their frequency in brackets, the most associated concepts and the relative coefficient of association. The concepts  considered  as highly  frequent  (i.e. showing  a frequency value  at least equal  to 35) are highlighted in bold. The majority of the concepts belong to the processes and product components.

TABLE 5 - “Frequent and exclusive” concepts, Zignago Vetro

5

Suppliers Associations Coef. Resources Associations Coef. Processes Associations Coef. Product Associations Coef. Customers Associations Coef.

SUPPLY(32) gas 0,2622 EQUIPMENT (116) furnace 0,2829 LINE (55) furnace 0,2239 QUALITY (89) product 0,3325COSMETICS/ PERFUMERY bottle 0,2679

performance 0,2581 investment 0,2309 CAPACITY (48) manufacturing0,2777 customer 0,2448 global 0,2368contract 0,2429 flexibility 0,2313 SAFETY (44) regulation 0,2876 need 0,2332 market 0,2061agreement 0,2326 production 0,2257 health 0,2768 service 0,2040 segments 0,2007

FACTORY (94) surface 0,2945 work 0,2645 LINE (55) product 0,2747 glass 0,1979furnace 0,2896 process 0,2208 SHAPE (43) colours 0,2160 CAPACITY (48) colours 0,2457specialized 0,2567 place 0,2202 need 0,2135 shape 0,2321production 0,2397 guarantee 0,2114 batches 0,2068regulation 0,2176 PROCESS (39) manufacturing0,2957 bottle 0,2032

WORK (43) place 0,3835 safety 0,2892 SERVICE (43) customer 0,3054safety 0,2989 technical 0,2212 quality 0,2940prevention 0,2757 equipment 0,2108 product 0,2664health 0,2682 quality 0,2018 BOTTLE (37) wine 0,4658worker 0,2358 level 0,1992 liqueur 0,3691duty 0,1953 colours 0,3245

FURNACE (58) reconstruction 0,5319 food 0,3017factory 0,1996

INSIDE-OUT PERSPECTIVE OUTSIDE-IN PERSPECTIVE

Table 5 shows the set of “frequent and exclusive” concepts of Zignago Vetro, their frequency in brackets, the most associated concepts and the relative coefficient of association. The concepts considered as highly frequent (i.e. showing a frequency value at least equal to 35) are highlighted in bold. The concepts disclosed belong to all the five components of the business model.