The Business Model Concept

1. The Business Model Concept and its Utility in Advancing NABCI Joint Ventures Joint Venture Conservation Business Model Roundtable December 12, 2006 Austin, TX

2. Central message or thesis… The Business Model Concept, a relatively recent and not yet fully mature construct of the business world, has substantial utility to the “business” of conservation agencies, organizations, and partnerships.

3. Objectives… • Provide an overview of the concept emphasizing its origins and perceived utility within the business world. • Identify broadly the concepts and elements of a business model and translate them into those of a “conservation business model.” • Provide observations on the utility and application of the concept in furthering the “business” of NABCI Joint Ventures.

4. Topics… • The Business Model Concept: An Overview • Origin and Antecedents • Key Drivers Behind the Emergence of the Concept • Key Terms, Elements, and Associated Concepts • Perceived Utility Within the Business World • Adapting the Business Model Concept to the Conservation Enterprise • Observations on Applying the Concept to NABCI Joint Ventures

5. Origins… “The term ‘business model’ is a recent addition to the management literature and largely a product of the dot com era.” Through the mid- to late-1990’s the term is “entirely absent from all the most influential books on organizational design, business strategy, business economics, and business theory”. At the height of the dot.com bubble, the term was “almost every where in books on e-commerce, both scholarly and business trade press…a marketing catchphrase for IT vendors.” Keen, P. and S. Qureshi. 2006. “Organizational Transformation Through Business Models: A Framework for Business Model Design.” Proceedings of the 39th Hawaii International Conference on System Science

6. Origins… “…the number of times the term ‘business model’ appeared in a business journal (peer-reviewed and non-peer reviewed) follows a pattern that resembles the shape of the NASDAQ market index.” “The literature shows that the topic of business models is often discussed superficially and frequently without any understanding of its roots, its role, and its potential.” Osterwalder, A, Y. Pignuer, and C.Tucci. 2005. “Clarifying Business Models: Origins, Present, and Future of the Concept.” Communications of the Association of Information Systems, Vol 15, May 2005

7. Origins… Hedman, J. and T. Kalling. 2001. “The Business Model: A Means to Understand the Business Context of Information and Communication Technology.” Institute of Economic Research Working Paper Series, School of Economics and Management, Lund University, Sweden. Chesbrough, H. and R.S. Rosenbloom. 2002. “The role of the business model in capturing value from innovation: evidence from Xerox Corporation’s technology and spin-off companies.” Industrial and Corporate Change, Vol. 11, pp. 529-555

8. Origins… The concept has its roots in and is an extension of “strategy theory.” Strategy theory concerns itself with the analysis and explanation of how individual businesses perform in a competitive environment. It deals with the reasons and rationale for success or failure among businesses and focuses on the forces and factors that lead to competitive advantage.

9. Origins… Three Dimensions of Strategy Theory: • How a firm allocates, organizes, and manages its resources and assets internally. • How a firm perceives external threats and opportunities and positions itself within its external environment. • How and to what extent a firm integrates information technology into its functions and processes. Hedman and Kalling (2001) see the potential of the business model concept as being able to unify these three areas and particularly the last with the first two.

10. Chesbrough and Rosenbloom (2002) • Traced the antecedents of the concept to “Strategy and Structure” a 1962 book by Alfred Chandler. “seminal” “…the first systematic and comparative account of growth and change in the modern industrial corporation.”

11. Chesbrough and Rosenbloom (2002) • Traced the antecedents of the concept to “Strategy and Structure” a 1962 book by Alfred Chandler. • Referenced writings in the 60’s and 70’s that developed and differentiated the concepts of “business strategy” and “corporate strategy.” Business strategy: the “how, when, where” of bringing a product to market. Corporate strategy: the “what and why” that determines a business’ reason for being.

12. Chesbrough and Rosenbloom (2002) • Traced the antecedents of the concept to “Strategy and Structure” a 1962 book by Alfred Chandler. • Referenced writings in the 60’s and 70’s that developed and differentiated the concepts of “business strategy” and “corporate strategy.” Seemed to perceive a utility of the business model as being able to integrate the firm’s business strategies with its overarching corporate strategy.

13. Chesbrough and Rosenbloom (2002) Addressed the role and significance of the business model concept in determining whether and how a company captures value from its technological innovations. And concluded that a company unable to adapt a technological innovation to its current business model or bring it to market with a different model will see value foregone and may ultimately reduce or withdraw from its commitment to technological innovation.

14. Differentiating between “business model” and “strategy”… Neither Hedman and Kalling (2001) nor Chesbrough and Rosenbloom (2002) equated business model with strategy and both saw the former as being more encompassing than the latter.

15. Differentiating between “business model” and “strategy”… Keen, P. and S. Qureshi. 2006. “Organizational Transformation Through Business Models: A Framework for Business Model Design.” Proceedings of the 39th Hawaii International Conference on System Science “the two terms… are often used interchangeably. This both weakens the value of the sharp logic of an effective business model and makes it a redundant concept if it is just a variant on strategy.” The “business model establishes the principles and axioms on which strategy is built.” “To some extent the business model is the ‘what’ of business innovation and the strategy the ‘how’”.

16. Key Drivers behind the emergence of the concept… • Globalization of economies • The transition from an industrial, manufacturing- based economy to a knowledge/service-based economy. • Rapid advances in IT that have on one hand enabled and on the other required businesses to rethink, fundamentally, their business processes, business structure, and business networks.

17. Key Terms, Elements, and Associated Concepts… • Value Proposition • Value Chain • Value Network (Business Ecosystem) • Core Competencies (of the organization) • “The Theory of the Business”

18. Value Proposition… The unique added value an organization offers its customers through its operations. An organization’s reason for being as expressed through the products, goods, and services it intends to provide to its customers.

19. Value Chain… The stream of processes, activities, and functions operating within a business that are most responsible for the realization of its value proposition. Porter, M. 1985. Competitive Advantage: Creating and Sustaining Superior Performance. Free Press, MacMillan, New York.

20. Value Chain… The stream of processes, activities, and functions operating within a business that are most responsible for the realization of its value proposition. Primary Activities: Secondary Activities: • Inbound logistics • Procurement • Operations • Technology Development • Outbound logistics • Human Resources Mgmt • Marketing and Sales • Firm infrastructure • Service

21. Value Chain… The stream of processes, activities, and functions operating within a business that are most responsible for the realization of its value proposition. value chains are not as a matter of business well defined or mapped. Presumption: the more clearly a business can map its value chain, the more efficient it will be in maximizing the profits or competitive advantage associated with its value proposition. Assumption:

22. Value Network… “a web of relationships that generates economic value and other benefits through complex dynamic exchanges between two or more individuals, groups or organizations. Any organization or group of organizations engaged in both tangible and intangible exchanges can be viewed as a value network, whether private industry, government or public sector.” www.vernaallee.com

23. Value Network… Business Ecosystem Moore, J.F. 1993. “Predator and Prey: a New Ecology of Competition”, Harvard Business Review Vol. 71(3), pp.75-86 Used the ecosystem analogy to explain the complex interrelationships between otherwise independent businesses functionally allied through supply chains, distribution chains, technology development, etc. Moore, J.F. 1996. The Death of Competition; Leadership and Strategy in the Age of Business Ecosystems. 303 pp. HarperBusiness

24. Value Network… Business Ecosystem Iansiti, M. and R. Levien. 2004. The Keystone Advantage: What the New Dynamics of Business Ecosystems Mean for Strategy, Innovation, and Sustainability. Harvard Business School Press, Boston. 253 pp. “biological ecosystems can serve as a source of vivid and useful terminology as well as provide specific and powerful insights into the different roles played by firms.”

25. Value Network… Business Ecosystem Iansiti, M. and R. Levien. 2004. The Keystone Advantage: What the New Dynamics of Business Ecosystems Mean for Strategy, Innovation, and Sustainability. Harvard Business School Press, Boston. 253 pp. • Keystone “species” (value dominator) • Physical dominator • Niche • Commodity

26. Key Terms, Elements, and Associated Concepts… • Value Proposition • Value Chain • Value Network (Business Ecosystem) • Core Competencies (of the organization) • “The Theory of the Business”

27. Core Competencies… Prahalad, C.K. and G. Hamel. 1990. “The Core Competence of the Organization” Harvard Business Review, Vol. 68(3) pp.79-93 The core competencies of an organization like that of an individual can take the form of knowledge, skills, abilities, or expertise in a particular subject matter, process, or function. • Not confined to individuals – traits or characteristics of the organization Honda: an ability to design and manufacture highly efficient internal combustion engines irrespective of size, scale, or intended use.

28. Core Competencies… Prahalad, C.K. and G. Hamel. 1990. “The Core Competence of the Organization” Harvard Business Review, Vol. 68(3) pp.79-93 Presumptions: • If clearly articulated, core competencies will serve as unifying principles for the organization and permeate all its strategies. • If well aligned with mission, value proposition, and value network, explicitly stated core competencies will place the organization at greater competitive advantage.

29. “The Theory of the Business” “These are the assumptions that shape any organization’s behavior, dictate its decisions about what to do and not to do, and define what the organization considers meaningful results.” • Assumptions about the external environment within which the organization operates. • Assumptions about the specific mission of the organization. • Assumptions about the core competencies needed to accomplish the mission. Drucker, P.F. 1994. “The Theory of the Business” Harvard Business Review, Vol. 70 no. 5

30. “The Theory of the Business” “These are the assumptions that shape any organization’s behavior, dictate its decisions about what to do and not to do, and define what the organization considers meaningful results.” • Every organization has one, though rarely is it explicitly stated. • Assumptions are seldom made explicit. • Reassessing assumptions is essential to managing change. Drucker, P.F. 1994. “The Theory of the Business” Harvard Business Review, Vol. 70 no. 5

31. Specifications of a valid “Theory of the Business” • Assumptions about environment, mission, and core competencies must fit reality. • Assumptions in all three areas have to fit one another. • The Theory of the Business and thus its assumptions must be known and understood throughout the organization. • The Theory and its underlying assumptions must be treated as an hypothesis and constantly tested. Drucker, P.F. 1994. “The Theory of the Business” Harvard Business Review, Vol. 70 no. 5

32. Key Terms, Elements, and Associated Concepts of a Business Model • Value Proposition • Value Chain • Value Network (Business Ecosystem) • Core Competencies (of the organization) E x p l i c i t n e s s • “The Theory of the Business” • Assumptions re: external environment • Assumptions re: mission/reason for being • Assumptions re: core competencies

33. “Therefore business – and every other organization today – has to be designed for change as the norm and to create change rather than react to it.” Peter F. Drucker “Management Challenges for the 21st Century” p. 38 Purpose and Utility of the Business Model Concept Purpose: Clarify and unify the purpose, mission, function, and operation of an organizational entity within the framework of its external environment. Utility: Increasing understanding; clarifying relationships; enabling analysis and adaptation; and ultimately managing change.

34. Topics… • The Business Model Concept: An Overview • Origin and Antecedents • Key Drivers Behind the Emergence of the Concept • Key Terms, Elements, and Associated Concepts • Perceived Utility Within the Business World • Adapting the Business Model Concept to the Conservation Enterprise • Observations on Applying the Concept to NABCI Joint Ventures

35. Adapting the Business Model Concept to the Conservation Enterprise “biological ecosystems can serve as a source of vivid and useful terminology as well as provide specific and powerful insights into the different roles played by firms.” Iansiti and Levien (2004) p.9 The Business Model Concept, a relatively recent and not yet fully mature construct of the business world, has substantial utility to the “business” of conservation agencies, organizations, and partnerships.

36. Key Terms, Elements, and Associated Concepts of a Business Model • Value Proposition • Value Chain • Value Network (Business Ecosystem) • Core Competencies (of the organization) E x p l i c i t n e s s • “The Theory of the Business” • Assumptions re: external environment • Assumptions re: mission/reason for being • Assumptions re: core competencies

37. Key Terms, Elements, and Associated Concepts of a Conservation Business Model • Value Proposition • Value Chain • Value Network (Business Ecosystem) • Core Competencies (of the organization) E x p l i c i t n e s s • “The Theory of the Business” • Assumptions re: external environment • Assumptions re: mission/reason for being • Assumptions re: core competencies

38. Value Proposition… The unique added value an organization offers its customers through its operations. An organization’s reason for being as expressed through the products, goods, and services it intends to provide to its customers.

39. Conservation Value Proposition… The value-added products, goods, and services the conservation organization intends to deliver to the conservation community – to include specifying the target audience (customer/market) within the larger community. Functional Elements of the Conservation Enterprise Planning Evaluation Implementation Research Monitoring I & E

40. Site-scale delivery of habitat restoration practices/prescriptions Population management/regulation Project-specific impact assessment Planning Implementation Monitoring Evaluation Research I & E

41. Multi-scale objectives expressed as measurable biological outcomes Decision support tools specific to management practices/prescriptions Site-scale objectives specific to agency program activities Planning Implementation Monitoring Evaluation Research I & E

42. Coordinated bird monitoring Planning Implementation Monitoring “Stand-level forest inventories coordinated across the MAV system of state/federal management areas focused on parameters assumed most responsible for population response of priority wildlife species and linked to partner-specific decision-making processes regarding stand entry and management.” Evaluation Research I & E

43. Value Chain… The stream of processes, activities, and functions operating within a business that are most responsible for the realization of its value proposition.

44. Conservation Value Chain… The stream of processes, activities, and functions embedded within and flowing through the functional elements of the conservation enterprise that are responsible for the realization of the value proposition in question. Functional Elements of the Conservation Enterprise Planning Evaluation Implementation Research Monitoring I & E

45. Business Ecosystem… “biological ecosystems can serve as a source of vivid and useful terminology as well as provide specific and powerful insights into the different roles played by firms.” Iansiti and Levien (2004) p.9 Conservation organizations • What ecological niche does our organization / partnership intend to fill. • What ecological functions and services are we most associated with and responsible to. • What ecological relationships are most critical to our effectiveness.

46. Core Competencies… Prahalad, C.K. and G. Hamel. 1990. “The Core Competence of the Organization” Harvard Business Review, Vol. 68(3) pp.79-93 Presumptions: • If clearly articulated, core competencies will serve as unifying principles for the organization and permeate all its strategies. • If well aligned with mission, value proposition, and value network, explicitly stated core competencies will place the organization at greater competitive advantage.

47. Core Competencies… • Moist soil management • Restoration of longleaf pine stands • Wetland impact assessment • Prescribed burning • Biological planning at landscape scales • Conservation design • Technical assistance to landowners in the restoration and management of native grasslands • Etc.

48. Core Competencies… Prahalad, C.K. and G. Hamel. 1990. “The Core Competence of the Organization” Harvard Business Review, Vol. 68(3) pp.79-93 Presumptions: • If clearly articulated, core competencies will serve as unifying principles for the organization and permeate all its strategies. • If well aligned with mission, value proposition, and value network, explicitly stated core competencies will place the organization at greater competitive advantage.

49. “The Theory of the Business” “These are the assumptions that shape any organization’s behavior, dictate its decisions about what to do and not to do, and define what the organization considers meaningful results.” • Assumptions about the external environment within which the organization operates. • Assumptions about the specific mission of the organization. • Assumptions about the core competencies needed to accomplish the mission. Drucker, P.F. 1994. “The Theory of the Business” Harvard Business Review, Vol. 70 no. 5

50. 1986 NAWMP – New Directions • Management success would be linked to population response at a continental scale and landscape sustainability at ecoregional scales. • Protection, restoration, and management would be formally coordinated through regional partnerships. • Inventory and Monitoring would be undertaken at a scale that would support progressive refinement of population goals and habitat objectives.