CHAPTER 3 - RESEARCH FRAMEWORK
3.2 The eleven components as decision areas
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Value Service Offering Service Position
Back end Supporting Process Front end
Delivery Process
A supporting process is the back-end of service process and is defined as
“where processes that do not directly involve customers are carried out.” A firm configures its business activities that are associated with offering ser-vices through supporting processes. In the supporting process, a firm con-siders what resources are needed, what activities are performed, and with whom they need to cooperate to bring value to its business model.
Value
To achieve a business model’s sustainability, a firm obtains financial value to sustain its business, it creates customer value to retain them, and it ob-tains operating value to sustain its business.
Mitchell and Coles (2003) conclude that, from a hierarchy perspective, a busi-ness model conveys more comprehensive concepts from the economic to the opera-tional to the strategic levels. In our business model, each pillar emphasizes hierar-chical perspectives. Value, at the foundation of a business model, represents the eco-nomic level, which concerns the value generation that is required to sustain the busi-ness. The middle of the business model includes the supporting process, service of-fering and delivery process, which refers to the operational level. On this level, the focus is on creating and delivering value. Service position is at the top of the business model, and it represents a firm’s strategy to shape its overall direction (see Figure 7).
Figure 7 The pillars on hierarchical perspectives
Moreover, in Osterwalder’s (2004) opinion, the pillars are a rough categorization, and the interrelated components are the core of the business model. Therefore, we will introduce the eleven components in the next section.
3.2 The eleven components as decision areas
As mentioned above, components are the core of a business model. Each one of them is viewed as a decision area, but there are interrelated relationships among them.
There are components that correspond to each pillar: the service position includes or-ganization and customer segments; the delivery process contains service delivery and
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service encounter; service offering represents service proposition; the supporting pro-cess comprises key resources, key activities and key partners; and, finally, value con-sists of financial, customer and operating values. Therefore, the eleven components in our business model are as follows:
Organization
Organization describes a firm’s structure, systems, environment, culture, missions, objectives, goals, differentiation, advantages, strategies, chal-lenges and problems, which is a decision area for a firm. An organizational structure, its systems, and environment create the best fit for its connected components (Afuah and Tucci, 2001). Culture involves the shared orienta-tions that hold a firm together and give it a distinctive identity that distin-guishes it from others (Hoy et al., 1991; Mintzberg, 1989). A business mis-sion captures a firm’s vimis-sion from an overall viewpoint (Hamel, 2001). In addition, the time, scope and size of a firm’s investment also need to be ad-dressed (Michael et al., 2005), including a firm’s objectives, long-term, me-dium-term and short-term goals. Strategy helps a firm to position itself in the industry and to distinguish itself from its competitors. It is defined as the way in which a firm forms methods of sustaining its competitive advantage (Afuah and Tucci, 2001). A firm retains its advantageous position by com-peting differently or better than other firms (Hamel, 2001) and strives to maintain its advantages with evolutionary business strategies (Applegate, 2001). Moreover, a firm also should consider challenges and problems fac-ing the development of services.
Customer Segments
Before developing a service proposition, identifying the right market for a firm is of great importance. Different markets have diverse characteristics, and therefore a firm should segment its customers and provide appropriate services for each segment (Chesbrough and Rosenbaum, 2002). Addition-ally, after gaining an understanding of who its target markets are, a firm’s purpose is to match or exceed the market’s needs and expectations (Slack et al., 2004), to manage customer retention, and to acquire new customers.
The question of how to satisfy customers is addressed in the service en-counter description below.
Service Proposition
After it has determined its market’s demands, a firm develops service prop-ositions to satisfy its customers’ expectations. From the customers’ view-point, a service proposition emphasizes the services that an organization can
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offer to solve their problems and match their needs (Chesbrough and Ros-enbaum, 2002). The service proposition is considered to be service package, a bundle of services or products, service offerings, or service outcomes (Roth and Menor, 2003; Lovelock and Wirtz, 2004).
Service Encounter
A service provider contacts and interacts with its customers, matches their needs and expectations, and creates excellent experiences for them in the service encounter. The service encounter plays a critical role in the deliver-ing process because it balances the relationships among a service organiza-tion, its contact personnel and its customers. To ensure that services are positively perceived by customers, an organization is responsible for taking control over the service encounter (Elnaghi et al., 2008); contact personnel, in the front line of the service process, are dedicated to meeting customers’
needs (Fitzsimmons and Fitzsimmons, 2001); customers, who also partici-pate in the service coproduction, must interact with contact personnel, and follow a script that is defined by the organization (Fitzsimmons and Fitz-simmons, 2001; Solomon et al.,1985).
Service Delivery
A service organization offers customer service through the service delivery system. Service delivery refers to “how” and “where” service delivery and affects stakeholders (Mitchell and Coles, 2003). It is a means of reaching customers to deliver services, including the process of awareness, evalua-tion, contact, delivery, and after services (Osterwalder et al., 2005). In addi-tion, through the execution of service delivery, an organization is capable of collecting information from customers and analyzing customer behavior (Hamel, 2001) as well as establishing service encounters with its customers.
Key Resources
A firm requires key resources to support the deployment of other compo-nents and use them to execute certain activities to create value for its cus-tomers (Osterwalder et al., 2005). Resources, which can be tangible and in-tangible, include two categories: assets and competencies. Assets refer to certain basic or strategic resources, such as infrastructure, technology, brands and patents (Hamel, 2001). Competencies refer to a firm’s capabili-ties that are distinctive or better than those of other firms, such as knowledge or unique skills (Afuah and Tucci, 2001). Resources have four type, containing physical, intellectual, human and financial resources (Os-terwalder et al., 2005).
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Key Activities
A service organization needs to perform a number of key activities to sup-port the services that it offers. The service organization’s management and operating of activities make its entire business model work (Osterwalder et al., 2005). This decision area concerns those activities in which a firm actu-ally engages and how the firm connects the activities to accomplish its business aims (Hamel, 2001; Afuah and Tucci, 2001). According the past literatures, activities contain production (or operating systems), platform and network, R&D (or technology, creative or innovative capability, intel-lectual), problem solving (or offering service), selling (or marketing, pack-aging), information management and mining, financial transactions and ar-bitrage, supply chain management, networking and resource leveraging, re-cruitment and training, etc.
Key Partners
Cooperating with key partners completes the part of a business model that a firm lacks or in which it demonstrates deficiencies. The cooperative rela-tionship among firms is built up due to certain activities that are outsourced or based on certain resources that have been acquired outside of the firm (Osterwalder et al., 2005). Consequently, a description of a firm’s various business partners and their roles is necessary (Timmers, 1998). Suppliers supply a firm’s critical complements; partners optimize a firm’s business, reduce risk, or acquire resources; alliances between non-competitors can help a firm to fulfill certain strategic purposes (Hamel, 2000).
Financial Value
Financial value comes from the balance between a revenue model and cost structure. It is an economic decision area, which focuses on how much a firm earns. The revenue model explains a variety of revenue flows that are generated from a firm’s customers (Osterwalder et al., 2005). Cost structure represents a firm’s expenses for the services that are included in its business model (Mitchell and Coles, 2003). Consequently, a firm should decide on its mechanisms, such as how much customers need to pay, the level of mar-gins in each of its markets, and how to generate a system of profit between customers, businesses, and partners (Chesbrough and Rosenbaum, 2002).
Customer Value
When providing customers with services in use or after use, a firm delivers value to its customers and helps them in various ways, a process that is de-fined as customer value. We consider customer value to be either tangible
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or intangible. Quality is tangible because it can be measured, such as a cus-tomers’ physical fitness. Satisfaction is intangible, and it is used to judge whether customers are satisfied with services. As a result, customer value, including quality and satisfaction, is important because it can assist a firm in measuring customer acceptance and the benefits that it provides for its cus-tomers.
Operating Value
When developing a business model, operating value is generated from prac-ticing experiences or business benefits to help a firm and its stakeholders.
For example, a firm can cultivate its management performance to decrease time cost or to reduce mistakes. In Applegate (2001)’s opinion, in addition to increasing the market share, offering markets services also help a firm and its stakeholders to develop brands, reputation and benefits. It can be viewed form the perspectives of management and personnel.
In conclusion, our business model framework is composed of five pillars and eleven components. Here is the overview of the business model. See Table 9.
Table 9 The five pillars and eleven components Component Definition
Service Position
Organization
Organization represents a distinctive identity and holds the employees to-gether. It describes the structure, systems, environment, culture, missions, objectives, goals, differentiation, advantages, strategies, challenges and problems.
Customer Segments Customer segments are served in different ways by identifying their di-verse characteristics and needs.
Service Offering
Service Proposition Service proposition is what services a firm provides for customers to match their needs.
Front End- Delivery Process
Service Encounter
Service encounter takes place when services and customers meet and in-teract. It describes relationships among the organization, contact person-nel and customers.
Service Delivery Service delivery is a means of how a firm delivers services to customers, containing awareness, evaluation, contact, delivery, and after services.
Back End- Supporting Process
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Key Resources
Key resources are what resources a firm requires to support other compo-nents and offer services, containing physical, intellectual, human and fi-nancial resources.
Key Activities
Key activities refer to what a firm actually performs to make the business model work, including production, platform or network, R&D, problem solving, selling, information management, financial transactions, supply chain management, networking and resource leveraging, recruitment and training, etc.
Key Partners Key partners are the cooperative firms which acquire some resources or outsource some activities.
Value
Financial Value Financial value generates from the balance between revenues from cus-tomers as well as costs from other components.
Customer Value Customer value is defined as what value customers gain from the service in use or after use, including satisfaction and quality.
Operating Value
Operating value comes from the process of practicing the business model, and it brings benefits to a firm and stakeholders. It can be viewed form the perspectives of management and personnel.