The Value of Choices: A Business Model Approach to Value

The Value of Choices: A Business Model Approach to Value

Fabian Salum (Fundação Dom Cabral, Brazil & Pontifícia Universidade Católica de Minas Gerais, Brazil), Karina Garcia Coleta (Pontifícia Universidade Católica de Minas Gerais, Brazil & Fundação Dom Cabral, Brazil), Dalini Ferraz (Pontifícia Universidade Católica de Minas Gerais, Brazil) and Humberto Elias Garcia Lopes (Pontifícia Universidade Católica de Minas Gerais, Brazil)
DOI: 10.4018/978-1-5225-7265-7.ch009

Abstract

Scholars and practitioners have proposed different frameworks to make business model representation easier. However, more information is still required to understand their applicability, especially concerning value perspective. This chapter focus on three of them: the Choices/Consequences, the RCOV, and the Business Model Canvas. This chapter (1) provides a comparative analysis; (2) discusses their design under the concept of value creation; (3) synthesises a new structure which contemplates their core elements, goes beyond their limitations and constitutes an alternative and useful tool. The new framework is called ‘(the) value of choice's (VoC). It points out – but is not limited to – the value offering architecture and enables strategic analysts to keep focus on a broad range of value outcomes: created value, appropriated value, generative value, and distributed value. The VoC is illustrated with a Brazilian tourism company's case.
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Background

Business models have become an increasingly relevant international theme both in academic and in practical terms. Around three thousand articles have been published in high-impact periodicals since the beginning of 2000 (Massa et al., 2017; Wirtz, Pistoia, Ulrich & Göttel, 2016). Among executives there is considerable interest in the subject. In the end of the 1990s, they promoted debates on value creation in e-businesses by means of business models. Since then, the specialised literature has been trying to understand and to demonstrate the utility of the concept for the field of Strategic Management (Baden-Fuller & Morgan, 2010; DaSilva & Trkman, 2014; Wirtz et al., 2016).

Topics constantly debated include the concept’s definition and application, since there is still disagreement over its nature (what it is) and its function (what is it for?). Because of that, the debate suffers from some terminological inconsistency, thus hindering integrated research efforts and blurring its differences regarding related concepts such as ‘strategy’, for example (Arend, 2013; Massa et al., 2017).

The progress of studies on the business model field does not depend on consensual definitions because different viewpoints coexist and influence each other, showing the multidimensionality of the idea (Jensen, 2013). It is, however, important to explicitly mention the point of view adopted throughout this chapter. The business model is the logic of operation of a company. By means of that logic, internal and external resources and capabilities are dynamically mobilised, enabling a competitive positioning for the offering of products and services to the target public. Therefore, business models express the understanding of how companies organise themselves to generate value (Baden-Fuller & Mangematin, 2013; Casadesus-Masanell e Ricart, 2009; Demil e Lecocq, 2010; Wirtz et al., 2016).

Business models may be conveyed as narratives (Magretta, 2002) or as frameworks (Demil & Lecocq, 2010; Casadesus-Masanell & Ricart, 2007). This chapter is concerned with the second option and explores the instrumental character of the concept. A business model framework is a tool to depict the company’s operation logic in a systemic and simplified way. It facilitates the reading and understanding of the business model an organization performs. It further allows a comparative and interrelated view of the strategic formulation’s core components Many different frameworks have been proposed to make easier the identification of a business model’s components (Alberts, 2011).

However, the review carried out by Massa et al. (2017, p. 97) emphasises that the specialised literature lacks “information necessary to understand their relative merits”, especially concerning value perspective. It is expected, therefore, that both practical and academic debates benefit from the comparative analysis of these tools herein conducted, as well as from a proposition that relates components theoretically consistent and empirically aligned with value generation.

This chapter focuses on the analysis of three frameworks: the first one will be called here “Choices and Consequences” (C/C) and has been proposed by Casadesus-Masanell and Ricart (2007). It suggests a cause-and-effect logic acting on the components of the value creation and capture model and represents an outside-in perspective of the business strategy.

Key Terms in this Chapter

Business Model Framework: A business model framework is a tool to depict the company’s operation logic in a systemic and simplified way.

Value Architecture: Combination of company’s choices concerning to its management, positioning and resources which result in a value offering.

Value Dimensions: It is the way the concept of value can be approached in its different facets such as creation, capture, distribution and generation.

Generative Value: It is a capacity that indicates the potential for the generation of future value coming from innovations, which have not been appropriated by the company yet.

Distributed Value: It refers to the tangible or intangible fraction of value that is captured by a given company’s stakeholders (except shareholders).

Business model: The business model is the logic of operation of a company. By means of that logic, internal and external resources and capabilities are dynamically mobilised, enabling a competitive positioning for the offering of products and services to the target public.

Created Value: Given the fact that value creation is a concept open to many different interpretations, this chapter considers it as an expression of the company’s competitive advantages. In other words, to what extent do the choices made help the company differentiate from or overcome direct and indirect competition.

Appropriated Value: It is a predominantly economical and financial component that indicates how much the company has captured out of its transactions in the market, in other words, it is the result, for the company and its shareholders, of the production and the marketing of the offered value.

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