Business Model Innovation and the Balanced Scorecard

Business Model Innovation and the Balanced Scorecard

Stephanie Black (University of Texas at San Antonio, USA), Montressa Washington (Case Western Reserve University, USA) and Howard Rasheed (University of North Carolina Wilmington, USA)
Copyright: © 2014 |Pages: 11
DOI: 10.4018/978-1-4666-5202-6.ch036
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Background

Business Model

Strategy scholars have described the business model as the logic and rationale for creating economic value in an organization for the benefit of its stakeholders. For example, Casadesus-Masanell and Ricart (2010) characterized the business model as a locus of innovation, planning tool, heuristic logic, or market device. Amit and Zott (2001) defined it as the content structure and governance of transactions designed to create value by exploiting business opportunities. The business model defines the total value created in transactions from a firm’s products and services (Zott & Amit, 2010) and provides a coherent framework that takes technological characteristics and potentials as inputs and converts them through customers and markets into economic outputs.

Chesbrough and Rosenbloom (2002) outlined the basic functions of the business model:

  • 1.

    Articulate the value proposition, i.e. the value created for users by offering based on the technology;

  • 2.

    Identify the market segment, i.e. the users to whom the technology is useful and for what purpose, and specify the revenue generation mechanisms for the firm;

  • 3.

    Define the structure of the value chain within the firm required to create and distribute the offering, and determine the complementary assets needed to support the firm’s position in this chain;

  • 4.

    Estimate the cost structure and profit potential of producing the offering, given the value proposition and value chain structure chosen;

  • 5.

    Describe the position of the firm within the value network linking suppliers and customers, including identification of potential complementors and competitors;

  • 6.

    Formulate the competitive strategy by which the innovation firm will gain and hold advantage over rivals (pp. 533-534).

Collectively these functions provide justification for the financial capital needed to realize the model and help the organization define a direction to take.

The traditional organization business model was focused on adhering to pre-specified plans to ensure efficiencies and achieve established goals (Malhoutra, 2001). However, this model was best suited for more stable and predictable environments. Organizations faced with more dynamic and uncertain environments have been forced to reevaluate their traditional business models and best practices. Many successful organizations have refocused their efforts on knowledge management systems for BMI. The application of this framework enables organizations to develop new business models that are more flexible, adept, and adaptive to the ever-changing environment. BMI enables organizations to create new markets or transform existing markets into significant market value and have an impact on the long-term success of a company (Comes & Berniker, 2008). Managers who understand their organization’s business model have better insight into metrics and management levers. BMI can create tremendous growth, reshape companies and industries, and redistribute billions of dollars of value.

Key Terms in this Chapter

Revenue Model: How organizations create value for themselves by generating sources of revenue, competitive pricing strategies, and price points.

Balanced Scorecard: A strategic planning and management framework that helps organizations align business activities with organizational objectives, improve internal and external communications, and monitor organizational performance against strategic objectives (Ashu, 2009, p. 7). The balanced scorecard uses traditional measures of business unit performance and other measures, including financial performance, customer relations, internal business processes, and learning and growth.

Value Configuration: The offering of a firm that creates value. This value can be in the form of new technology, new products or services, market applications, production efficiency, or process improvement. It can also incorporate new distribution channel partners, network affiliates, software revisions, and technology platforms. According to the resource-based view of the firm, a value configuration should be valuable, rare, inimitable, and non-substitutable.

Performance Measures: Metrics used by management as analytical tools for decision-making.

Core Capabilities: Internal knowledge, skills, and competencies of the employees inherent in the functional areas.

Vision or Destination Statement: A statement describing what strategic success or the strategic end-state should look like within an organization.

Business model: The content structure and governance of transactions designed to create value by exploiting business opportunities. The business model defines the total value created in transactions from a firm’s products and services as the informal and formal core aspects of an organization that mediate between technology development and economic value creation.

Value Chain: Primary functions in which an organization engages to create value for its customers.

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