Business Model Value Creation, Value Capture, and Information Technologies

Business Model Value Creation, Value Capture, and Information Technologies

Arash Najmaei (Macquarie Graduate School of Management, Australia)
DOI: 10.4018/978-1-4666-5888-2.ch052
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Background

The concept of ‘Business Model’ or interchangeability the business model concept emerged at the dawn of information era and soon after became a key topic in the business and management literature. Emergence of this concept in its current discourse can be traced back to as early as the first half of the 2000s when “e-commerce” firms or “dotcoms” challenged the ways through which traditional brick-and-mortar firms used to create and capture customer value. This change provoked scholars to discover and explain the logic success of Internet-based firms. The result was the concept of ‘business model’ that was intended to capture e-commerce model of doing business or simply “e-business models.” An e-business model was initially an application of information technologies for commercial purposes. In simple terms, e-business models represented the logic behind the operation of e-commerce firms.

The BM concept has, however, evolved into a key strategic term transcending e-commerce. The current conception of business model refers to the way a firm, in its general sense as an economic agent or unit of production creates and captures value for its customers. The term applies to all types of firms, small and large, e-commerce and traditional commerce, manufacturing and service operating in all areas of business.

Therefore, to understand a business we need to understand its business model. To understand a business model we need to understand customer value, value creation, value capture and the model that encapsulates these concepts and represents their associations in the form of a coherent configuration. I posit that Information technologies are instrumental in this context and cannot be separated from business models. That said, to define and explain the concept of “business model” and its building blocks, dimensions and functions within the broader domain of information science and technology defined by Orlikowski and Gash (1992) as any computer-based information system applications. The thesis of this chapter is that, information technologies are strategic necessities (Clemons & Row, 1991), what gives them a unique advantage is the way they fit within business models or create new business models. As a result, contemplating applications of information technologies without considering their role in the business model of the firm is insufficient and to some extent misleading for understanding why, how and to what extent information technologies matter in today’s businesses.

Key Terms in this Chapter

Value Creation: Creating perceived use value.

Information Technology: Any computer-based information system application.

Model: A simplified representation of reality.

Exchange Value: The monetary amount realized at a single point in time when the exchange of the good takes place.

Use Value: The specific qualities of the product perceived by customers in relation to their needs.

Value Capture: Capturing exchange value.

Customer Value: The difference between costs incurred and benefits received by customers.

Business model: The logic of how a business is run, how the enterprise creates and delivers value to customers, and captures value by converting payments received to profits.

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