Crafting Business Architecture: The Antecedents Of .
bs bs bannerStrategic Entrepreneurship JournalStrat. Entrepreneurship J., 9: 331–350 (2015)Published online 1 May 2015 in Wiley Online Library (wileyonlinelibrary.com). DOI: 10.1002/sej.1200CRAFTING BUSINESS ARCHITECTURE: THEANTECEDENTS OF BUSINESS MODEL DESIGNRAPHAEL AMIT1 and CHRISTOPH ZOTT2*1The Wharton School, University of Pennsylvania, Philadelphia, Pennsylvania,U.S.A.2IESE Business School, Barcelona, SpainAnchored in the broad design literature, we derive four antecedents of business model design:goals, templates, stakeholder activities, and environmental constraints. These business modeldesign antecedents are illustrated using interview data from nine new ventures in the peer-topeer lending space. We proceed with the theoretical development to link the design antecedentsto the design themes of business models and conclude with implications for business modelresearch and entrepreneurial leaders. Copyright 2015 Strategic Management Society.INTRODUCTIONProgress in information and communication technologies has facilitated new types of technologymediated interactions between economic agents.These developments have enabled firms to fundamentally change the ways they ‘do business,’ in particular, the ways they organize and conductexchanges and activities across firm and industryboundaries with customers, vendors, partners, andother stakeholders (Amit and Zott, 2001, 2012;Chesbrough, 2010). The technological advancesenable entrepreneurs to consider innovative designsof boundary-spanning exchanges and activities. Thisdesign is captured by the firm’s business model.The business model describes the system of interdependent activities performed by a focal firm andits partners and the mechanisms that link theseactivities to each other. An activity in a focal firm’sbusiness model can be viewed as the engagement ofhuman, physical, and capital resources of any partyto the business model (the focal firm, end customers,vendors, etc.) to serve a specific purpose toward theKeywords: business model; design; design antecedents; designthemes*Correspondence to: Christoph Zott, IESE Business School,Av. Pearson 21, 08034 Barcelona, Spain. E-mail: czott@iese.eduCopyright 2015 Strategic Management Societyfulfillment of the overall objectives (Zott and Amit,2010). This activity-system definition is broadlyconsistent with a range of conceptualizations thathave been proposed in the literature (for a review, seeZott, Amit, and Massa, 2011), and also with thevarious ways in which the term ‘business model’ isoften used in practice, for example, as ‘the way yourbusiness is run’ (Economist Intelligence Unit, 2005).While reaching consensus on the concept of business model is important to advance the study ofbusiness models, we believe that the questions ofhow to design a business model and what its antecedents are, are just as important for both scholarsand practitioners. A few articles have begun toaddress this issue. Zott and Amit (2007, 2008), forexample, have introduced the idea of ‘designthemes,’ which orchestrate and connect the elements(i.e., the content, structure, and governance) of abusiness model. But these early contributions havenot considered the question: what are the antecedents that foster a particular design theme? This question is important for two reasons. First, since designthemes are linked with actual value creation outcomes (Zott and Amit, 2007), considering theantecedents of business model design enables researchers to develop more robust theories that linkbusiness model design with the performance of afocal firm. Second, by thoughtfully considering the
332R. Amit and C. Zottrange of antecedents of business model design,entrepreneurs are better able to mitigate blind spotsand cognitive biases and thereby strengthen theoverall value proposition to each stakeholder. Hence,we ask: what are the antecedents of business modeldesign? And, how do these antecedents relate to thedesign themes of business models?In this article, we draw on the design literature asa starting point to address these questions. Sincedesigners are typically faced with the need to designsomething (e.g., a house, a software algorithm, aproduct) from scratch, we focus on the design ofbusiness models for new ventures rather than theredesign of business models for established firms.Building on the received business model literature,we then provide further theory development.Although the design literature allows us to identify aset of design antecedents, it does not tell us preciselyhow they are linked to the design outcomes (e.g.,design themes) that are relevant for business models,as opposed to products, which have been the focus ofdesign in the management literature. This makestheory development necessary.Business model design and product design differin a number of theoretically meaningful ways:product design centers on the broad relationshipbetween the focal firm and its customers (Luchs andSwan, 2011), while business model design includesconsiderations of multiple stakeholders, such as suppliers and partners, in addition to the firm and itscustomers. In other words, business model designinvolves the conceptualization of a boundaryspanning activity system that includes the mechanisms that connect these interdependent activitiesand the identification of the party that carries outeach of the activities within the system. Productdesign, however, is ordinarily centered on identifying a set of interdependent physical components andfeatures that characterize the firm’s offerings to itsclients. Relevant features of product design, such astechnical functionality or aesthetic appeal, do notreadily apply to business model design. Hence, anytheory that links antecedents and outcomes ofproduct design does not automatically carry over tobusiness model design.Using a conceptual theory development methodology that is anchored in the design literature, alongwith illustrations drawn from interviews with founders and senior executives of nine new ventures in thefinancial services industry, we identify and analyzethe following four design drivers: goals to create andcapture value, templates of incumbents, stakeholdCopyright 2015 Strategic Management Societyers’ activities, and environmental constraints. Ourtheory development suggests that these designdrivers crucially affect the resulting business modeldesigns in terms of their design themes.BUSINESS MODELS AND THEIRANTECEDENTSThe business model concept has rich theoreticalroots. In one research stream, Chesbrough andRosenbloom (2002: 529) link the business model totechnology management and define it as the ‘heuristic logic that connects technical potential with therealization of economic value,’ emphasizing its rolein linking technology to market outcomes. Consistent with this perspective, Casadesus-Masanell andRicart (2010) posit that one important component ofbusiness models is the set of managerial choicesabout how the organization operates, such as compensation practices, procurement contracts, locationof facilities, or assets employed. Another componentof business models, according to this view, relates tothe consequences of these choices, such as low costor culture of frugality, which describe the ‘logic ofthe firm’ (Casadesus-Masanell and Ricart, 2010;Sanchez and Ricart, 2010).Other scholars have promoted a more parsimonious definition of the business model. McGrath(2010) suggests thinking about business models byusing two core ideas concerning managerial choices:units of business (i.e., what you are selling thatsomeone is prepared to pay for) and key metrics (i.e.,the set of activities employed to sell those units). Theidea of business models as boundary-spanningsystems of transactions and activities has been developed in a series of research articles by Amit and Zott(2001) and Zott and Amit (2007, 2008, 2010) tocapture the essence of ‘how firms do business.’ Afocus on the activity system—a ‘system that is madeup of components, linkages between the components, and dynamics’ (Afuah and Tucci, 2000:4)—could indeed provide a useful common perspective across the various conceptualizations of thebusiness model (Zott et al., 2011) and, hence, weadopt it in this study.Zott and Amit (2010) have shown that the designof a business model can be characterized by ‘designthemes,’ which are specific configurations of thecontent, structure, and governance of activities.There are at least four such design themes: novelty,lock-in, complementarities, and efficiency. TheStrat. Entrepreneurship J., 9: 331–350 (2015)DOI: 10.1002/sej
Antecedents of Business Model Designessence of novelty-centered business model design isthe adoption of new activities, new ways of linkingactivities, or new ways of governing activities. Lockin-centered design refers to the elements of businessmodels that help attract and keep customers, partners, or vendors as business model stakeholders.Complementarities-centered design refers to bundling activities and exchanges within a businessmodel to promote synergies among them. Lastly, anefficiency-centered business model design aims atlinking activities in a cost-reducing manner.Although recent work in entrepreneurship and organization theory has begun to address the important roleof design in the entrepreneurship process (Hargadonand Douglas, 2001; Romme, 2003), relatively little isknown about the antecedents of business modeldesign, specifically, what these antecedents are andhow they influence the design themes. Given that thedesign themes, in turn, have been shown to affect firmperformance (e.g., Zott and Amit, 2007, 2008), thereseems to be a ‘missing link’ that prevents the development of a more fully specified model of businessmodel design and performance.Indeed, early contributions to the business modelliterature have focused more on factors that broadlyenable the development of new business models thanon specific design drivers. These broad enablersinclude new technologies and technological change(Chesbrough and Rosenbloom, 2002), changing customer preferences (Teece, 2010), and new capabilities (Seelos and Mair, 2007). While important, thesebroad enablers and change drivers do not answer thequestion of what the resulting business modeldesigns (should) look like. Some of the more recentwork, focusing mostly on business model innovation, has also identified a number of change triggerssuch as external threats and opportunities, competition, technology, regulation, and deep knowledgeabout customers (Casadesus-Masanell and Zhu,2012; Frankenberger et al., 2013). Moreover, it hasemphasized the importance of the individual business model designers, especially their cognitiveabilities and beliefs (Aspara et al., 2011), creativity(Svejenova, Planellas, and Vives, 2010), and persistence (Sosna, Trevinyo-Rodríguez, and Velamuri,2010). Although these general factors explain whymanagers of established firms might wish to reconsider their existing business models and why firmfounders might wish to pay attention to the design oftheir new business models, it is not clear how theycould provide specific guidance about the resultingdesigns which, in turn, affect performance.Copyright 2015 Strategic Management Society333There are also studies that mention certain antecedents such as the use of templates (Chesbrough,2010), environmental constraints or stakeholderactivities (Sanchez and Ricart, 2010), and the importance of value creation and appropriation goals (e.g.,Teece, 2010), which are discussed later in thisarticle. However, these antecedents are often introduced in an isolated fashion. What is more, the linksbetween these factors and possible design outcomes(e.g., design themes) are either missing or underdeveloped. For example, Sanchez and Ricart (2010)note that constraints could either hinder or helpnovelty-centered business model design.To summarize, the received business model literature provides a foundation for the analysis of antecedents of business model design. However, theliterature does not identify what the design-relevantantecedents are, nor precisely how they are linked tothe design themes of business models (i.e., novelty,efficiency, lock-in, complementarities). This is thegap in the literature we are addressing in this article.METHODSResearch design and analytical processGiven the scarcity of prior work in this area, we rely onsources of inspiration outside the received businessmodel literature for identifying and developing theoryon the antecedents of business model design. Specifically, we rely on conceptual theory development, i.e.,theory development by logical reasoning (see Corleyand Gioia, 2011; Sutton and Staw, 1995; Weick, 1995),anchored in the broader design literature. According toSimon (1996: 111), ‘Everyone designs who devisescourses of action aimed at changing existing situationsinto preferred ones.’At the organization level, design isthe process of grouping activities, roles, or positions inthe organization to coordinate effectively the interdependencies that exist (Pfeffer, 1978). More generally,design ‘is concerned with how things ought to be, withdevising artifacts to attain goals’ (Simon, 1996: 114).At the business model level, design can be conceivedas the particular configuration of activities enabled bybusiness model stakeholders and the resources theydeploy.Although it has been emerging since the mid1970s, a commonly accepted, unified science ofdesign does not yet exist (Simon, 1996). Therefore,in our conceptual theory development, we draw onideas from various design fields (e.g., architecture,Strat. Entrepreneurship J., 9: 331–350 (2015)DOI: 10.1002/sej
334R. Amit and C. ZottFigure 1.Antecedents of business model designengineering, sociology, choreography, and music).These fields were reviewed by Boland and Collopy(2004), who synthesized from their analysis of thevarious design literatures a number of design concepts (i.e., design antecedents, design process steps,and design consequences) they deemed as particularly relevant for management. Building onRomme’s (2003) distinction between design content(i.e., what is being designed, including factors thatshape the design and that characterize the designoutcome) and design process (how something isbeing designed), we make a distinction betweenantecedent-related design concepts (referring tofactors that shape the design), consequence-relateddesign concepts (referring to factors that characterize the design outcome), and process-related designconcepts (referring to factors that describe howsomething is being designed). Following that distinction, we classified each of Boland and Collopy’s(2004) 41 design concepts as antecedent, process, orconsequence related. This yielded 12 antecedentrelated concepts, which we retained, and 21 processrelated and eight consequence-related concepts,which we discarded (see Appendix). By groupingsimilar antecedent-related design concepts together,we distilled four factors, which we refer to as ‘antecedents of business model design.’ These include:goals to create and capture value, templates ofincumbents, stakeholders’ activities, and environmental constraints.Our theory development links these antecedents tothe four design themes of business models introduced earlier, namely novelty, lock-in, complementarities, and efficiency. In this exploratory study, wefocused on the primary linkages as suggested by ourCopyright 2015 Strategic Management Societyemerging theory on the role of design in the contextof business models, summarized in Figure 1.Data used for illustrationWe complement our conceptual analysis with datafrom nine new ventures that were collected as part ofa pilot study aimed at better understanding the emergence of new business models. Because of data limitations, however, we did not conduct grounded theorydevelopment. We used our data solely to illustrate therelevance of the conceptually derived antecedents ofbusiness model design. We used data collected frominterviews with executives of nine new ventures in2007 and 2008. The setting for these interviews wasthe emerging global peer-to-peer (P2P) lendingindustry, where Internet-based business models werefirst launched in the United States in 2000, in theUnited Kingdom and Australia in 2005, and subsequently in other countries. The new business modelstackled the established mode for lending and borrowing in the twentieth century, which relied on the use ofa bank as an intermediary. The new business modelsincorporated online tools and marketplaces thatenabled direct lending and borrowing among individuals, thus diminishing the role of the bank as aborrower (of deposits) and lender (of credit). Table 1provides an overview of the companies and interviewsampling data. (For ease of exposition, interviewquotes are italicized in the article.)As can be seen in Table 1, for some companies(e.g., ALPHA and BETA), we have significantlymore data than for others (e.g., EPSILON, LAMDA,SIGMA). Because of this limitation, as well as thescale and nature of the study itself, we use our dataStrat. Entrepreneurship J., 9: 331–350 (2015)DOI: 10.1002/sej
Copyright 2015 Strategic Management SocietyTotal9h15mininterview lengthInterview datesFounding yearInterviewsIntervieweesStart-upU.K., U.S.,Australia20058Cofounder andCEO, CEO (2),CTO, cofounderand businessarchitect,cofounder,manager (2)June 2007 (6),August 2008 (2)Venture typeLocation4h40minMarch 2008 (2),Sept. 2008 (4)DELTA3hSept. 2008 K.Gives alumni theFacilitatesOriginates loansopportunity tomicro-credit toand offers loanmake loans tosmall businessestradingstudentsin developingcountriesEPSILONOMEGAProvides tools suchOperates a Webas legalsite wheredocumentationindividuals canand loaninvest inagreements topersonal loansfacilitate theor request tosetting up ofborrow moneyloans betweenindividuals whoknow each otherStart-upCorporate ventureGermanyU.S.SIGMAOct. 2007, March2008, Sept.20084h1h20minSept. 20084hMay 2008, Sept.2008 (2)1hAugust 20071h15minAugust 20082hAugust 2008, Oct.2008200520062006200720072000313112Founder and CEO Founder and CEO Founder and CEO,Founder and CEO, Founder and CEO Cofounder andarchitect andCEO, cofounderfinance directorhead of softwareand COO(2)developmentCorporate venture Social ventureU.S.U.S.FacilitatesActs as adevelopmentbroker-dealerthroughspecializing inmicro-creditmicro-financesecurities forretail investorsGAMMA2006200662CEO, FounderCofounder andCEO,cofounder,project manager,CFO, CMO (2)Start-upU.S.Operates a WebAllows people tosite wherelend money toindividuals canthose who wishinvest into borrow,personal loansinstead of usingor request tosavingsborrow moneyaccounts andbank loansBETABusinessdescriptionALPHATable 1. Sample characteristics and data collectionAntecedents of Business Model Design335Strat. Entrepreneurship J., 9: 331–350 (2015)DOI: 10.1002/sej
336R. Amit and C. Zottonly for illustration. The interviewees were cofounders and senior executives who were key witnesses tothe development of the business models of theirrespective firms. In the case of ALPHA, the job titleof one cofounder was ‘business architect,’ reflectinghis crucial role in designing the business model. Thatcofounder told us:‘I think my role in ALPHA was always designing thebusiness from the start, designing how the model wasgoing to work and how the business was going towork and creating that vision going forward. So interms of what an architect does: designs a house,how it looks, and how it works.’ (Cofounder andbusiness architect, ALPHA)He went on to elaborate on his particular task todesign the business model (and not, for example, theinternal organizational structure of the venture):‘I designed really only the business model. Themajor design piece was in actually understandinghow to match up lenders and borrowers. How wasthat process going to work? How would we balancesupply and demand across different markets? Howwoul
business model stakeholders and the resources they deploy. Although it has been emerging since the mid-1970s, a commonly accepted, unified science of design does not yet exist (Simon, 1996). Therefore, in our conceptual theory development, we draw on ideas from various design fields (e.g., architecture, Antecedents of Business Model Design
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