The Three Stages of Business Model Development

Chapter
Part of the essentials book series (ESSENT)

Abstract

The three stages of business model development represent the dynamic element of the iOcTen Integrated Business Model. These stages and the subordinate idea, analysis, design, implementation and improvement phases are systematically assigned to the ten elements of the business model core as outlined in Sect. 3.5.

The three stages of business model development represent the dynamic element of the iOcTen Integrated Business Model. These stages and the subordinate idea, analysis, design, implementation and improvement phases are systematically assigned to the ten elements of the business model core as outlined in Sect.  3.5.

Using the ten elements of the model core, management can develop a structured design and selection process for potential business models at a very early stage. Complete and systematic allocation of all business content to the various phases of development minimizes the risk of important content being forgotten, and of seemingly unimportant aspects carelessly being ignored in business model design. Carefully considering the comprehensive set of criteria for all ten elements also obviates the need to run through the entire business concept development process: the structured procedure flags up possible weaknesses. In such cases, the entrepreneur should consider appropriate exit strategies if the major weaknesses in the business model idea cannot be eliminated in the course of this process (cf. Wirtz 2011, p. 233). Incidentally, this structured design and selection process is one of the key strengths of the iOcTen Integrated Business Model.

A distinction is generally drawn between two main uses for business models. Business models can be developed for implementing completely new business ideas, or what is for the enterprise in question a new business. The business model design process can also be applied to further develop an existing, established business. As shown in the schematic diagram in Fig. 4.1, the former case covers the two stages of development business concept development and business model introduction; in the latter case, the focus is on the continued evolution of existing models.

Fig. 4.1

Development path in the iOcTen Integrated Business Model

As we are distinguishing here between new business models that are yet to be implemented, and established business models, we will return to the distinction drawn in the definitions section above between business concept and business model. Section 4.1 below details the modeling of business models yet to be implemented, and therefore uses the term business concept. Section 4.2 outlines the introduction of a business concept in practice, closely connected to modeling, and therefore uses the term business model. Section 4.3 then examines the further development of existing business models.

4.1 Developing a Business Concept

The first stage of business model development is to draft the business concept. This part of the business model development path can in turn be divided into three phases: idea, analysis and design. In practice, these phases and all the activities that they involve are seldom completed in such a strict order as this list would suggest. Many activities belonging to the analysis and design phase are in fact conducted simultaneously for practical reasons.

Phase I: Idea

In the case of established enterprises in particular, the idea phase generally starts with an assessment of the current situation: establishing the general status quo at the enterprise, comparing objectives with progress, gaining an understanding of the industry environment, and evaluating relevant environmental conditions. This very early stage of the project is when the core team is put together (team set-up).

Business concept development proper starts with a—usually vague—notion of the overall objective to be pursued and an idea, more specifically a business idea, or the search for such an idea.1 Apart from the occasional spontaneous or chance inspiration, business ideas are usually produced through systematic application of creativity techniques. For those on a quest for visionary business ideas, the driving incentive is to recognize, now, potential that no one else has yet discovered. The challenge is therefore to describe the markets of the future (cf. Wolf and Hänchen 2012, p. 52). Of course, business ideas need not necessarily be groundbreaking innovations to be worthy of a business model. Substantial improvements and innovative modifications to existing business can also be the trigger and basis for business models.

Creativity techniques—the best-known methods include brainstorming, mind mapping, method 635, bionics and morphological boxes—frequently produce multiple proposals for potential business ideas. Unquestionably, it is simply not economic to examine each and every one of these ideas in detail. The next step is therefore an evaluation of all preliminary ideas on the table so far. In the iOcTen Integrated Business Model, this preliminary evaluation is conducted in two stages. The usefulness and feasibility of the idea in principle are explored—at this early stage fairly briefly—first on the basis of decision-making scope and then with the core normative framework element. In the light of the key role of value and the value proposition in the ultimate success of a business model, the ideas are then examined in terms of their benefits for customers and business partners (core element: value).

At the end of the idea phase, a provisional rough concept for the planned business is drafted, primarily using the elements normative framework, value and strategy. The next steps in developing the business concept are also roughly planned to move forward from this early stage of the project.

Phase II: Analysis

Once the idea has undergone initial evaluation and a rough concept has been drafted, the analysis phase then evaluates in depth those aspects which are essential to realization of the business idea.

The main focus at the start of the analysis phase is to understand the concerns and interests of potential customers or business partners and to draw the necessary conclusions (core element: customer). Assumptions on value from the idea phase, so far only preliminary, are now also explored and specified in detail (core element: value).

A subsequent environmental analysis returns to the findings on decision-making scope reached in the idea phase and explores these in more detail. Relevant industry and market parameters are then analyzed in depth using the core element market. A range of professional market research methods and sources are used in this market analysis, for example databases, primary and secondary studies, and information from associations and public authorities. Such extensive research should build up a strong understanding of the target markets in question (cf. Wolf and Hänchen 2012, p. 53).

If an idea is to lead to a useful business concept and ultimately to a business model, decision-makers must be absolutely clear about the skills and resources available within their enterprise and network (core elements: enablers, partners and finance). Without an objective assessment of the enterprise’s economic and technical options, there is a serious danger of business concept implementation failing due to a lack of resources.

On the basis of data from the idea phase and their understanding of the enterprise’s abilities, decision-makers then evaluate the need for action before pinpointing the critical success factors for the business model.

An initial assessment of potential for the business idea or the later business model is conducted on the basis of an analysis of the customer, value, environment, market and need for action aspects. At this point at the latest, the management must critically examine the idea in the light of economic considerations (core element: revenue). In business practice, this is not infrequently the point at which a new business idea is abandoned.

Phase III: Design

The design phase draws on the findings of the two preceding phases, idea and analysis. Various conceivable options are established and carefully examined. As outlined in Sect.  3.4, success factors operate together with ‘need for action’: possible options can be pinpointed by applying and considering the factors for success.

Once the options for business action are known and the results of the idea and analysis phase have been processed, one or more detailed concepts are drafted or prototypes designed. This involves designing the processes required for output (core element: processes) and defining suitable forms of cooperation (core element: partners).

Prototypes should then be tested extensively, if possible in real market conditions or failing that in the laboratory. These tests are extremely important, as they can uncover any problems with the idea at an early stage. Should significant flaws in the concept emerge during prototyping, alternative solutions must be found or in some cases even new business concepts developed. In these cases, an enterprise must return to start of the development process.

Prototyping ends with the selection of the best overall solution. At this point in business concept development, however, the four core elements enablers, processes, partners and finance have yet to be evaluated in depth. Using these four elements, the enterprise now specifies in detail just how the business concept is to create value. These findings, together with data from the remaining six core objects, are the basis for subsequent design work.

Following prototyping, management reaches a final decision on which of the business concepts developed are to be implemented. A business plan is drawn up for the most promising development paths or prototypes; business plans provide a detailed cost-benefit analysis for business models and can uncover possible weaknesses (cf. Wirtz 2011, p. 235 f.). A business plan is also the main planning tool for later business model implementation. Business plans contain information on the human, material and time resources required for introducing and operating a business model.

Each completed business plan is checked against findings from the ten core elements to pick up on any conflicts or contradictions that may still exist, and to uncover and address any logical inconsistencies. On the basis of the fully developed business plans, management then decides which of the business concepts or detailed concepts developed is to be translated into a business model and implemented. The final step in the design phase is therefore management’s decision whether to implement the business concept in the planned form, or to modify it, or to abandon implementation entirely (cf. Doleski 2012, p. 140).

4.2 Introducing Business Models

Now that the business concept has been drafted, the second stage of business model development is actual implementation in business practice. Section 2.2 introduced the distinction between a business concept that has yet to be implemented and a business model that is already in place. As the concept has now been realized, the following paragraphs refer to the “business model”.

Phase IV: Implementation

Rough implementation planning was part of the idea phase, and detailed concepts were developed in the design phase. Now comes planning in detail on the basis of this data. The aim of detailed planning is to develop as accurate as possible a picture of the best possible implementation procedure for the business model. This aspect of business model introduction therefore includes a precise definition of all critical activities in the implementation project, and the production of a realistic project plan. Each plan consists of multiple, coordinated aspects including at the least the following planning modules: structural, activity, schedule, milestone and resource planning (cf. Doleski and Janner 2013, p. 115).

Following implementation planning, the implementation team is formed and officially installed. Unlike the core team established in Phase I, this is the business model development team responsible for operational implementation.

Once detailed planning is complete, the organization must inform its internal and external stakeholders about the upcoming implementation of the new business model. A suitable, target group-specific communication strategy is required that responds as effectively as possible to all the interests of the various stakeholders or others affected by the project. Communication relating to business model introduction is therefore aimed at staff, managers, owners, customers, network partners and where applicable also at selected representatives of the business sector and of the public. Communication is designed not just for a general announcement of the new business; it should also explain the objectives and approach of the new implementation project. Early communication helps to increase acceptance of the business model both amongst internal organization staff and on the part of customers and the value creation partners involved (cf. Wirtz 2011, p. 259). A well-structured information campaign through a range of channels counters the ‘fear of the new’ that is often encountered amongst staff in particular (cf. Osterwalder and Pigneur 2011, p. 261).

Staff training is also recommended as an accompanying measure, either prior to or in parallel to business model introduction.

The new business model is then finally introduced in accordance with the detailed planning undertaken at the start of this phase. All findings from all core elements in the Integrated Business Model gathered in the previous phases are considered and implemented in accordance with the proposed integrative approach.

The process of business model introduction ends with implementation of the new business. Ideally, however, project performance is evaluated and the main findings of the design and implementation process are first recorded in a final report; this stage of project completion comes before the final handover. The final report sets out the lessons learned and is of direct use in subsequent business model initiatives (cf. Doleski 2012, p. 141).

4.3 Developing Business Models

As outlined at the beginning, even established products and services that have been bringing an enterprise a steady yield with high margins for decades can come under pressure due to changing conditions, increasing competition, technological developments, etc. Modern management cannot content itself with merely reacting to these changes. Business opportunities often lie in a combination of great industry expertise and experience, and innovative ideas for the relevant business environment of the future. ‘Yesterday is the seeds of today, and today decides tomorrow’2 (Bleicher 2011, p. 74). To carry this approach to its logical conclusion, the survival of existing business models—not just the development of wholly new business concepts—can be secured through systematic further development.

Phase V: Improvement

Enterprises must continuously evaluate their existing business models. All strengths and weaknesses of established product and service portfolios should be monitored on an ongoing basis in the light of dynamic environmental conditions: this gives enterprises a useful indication of the continuing viability of their portfolio. Monitoring and evaluation processes draw on the ten core elements of the iOcTen Integrated Business Model (cf. Wirtz 2011, p. 288).

If a routine evaluation of an established business model finds that the existing business no longer meets the demands of the relevant market and therefore requires modification, this sparks the development of ideas for steps ranging from evolutionary development to complete and radical overhaul. Practical implementation of the ideas developed follows the procedure in Phase I ‘Idea’.

Business success depends on a range of factors, one of which is an organization’s ability rapidly to adapt to changing conditions and thus secure its economic survival. Yet to adapt to new conditions, an enterprise must follow the evaluation of its business model with a precise analysis of the relevant environment for its business activities and draw the necessary conclusions (Phase II: ‘Analysis’). Ultimately, changes ranging from minor modifications to major upheavals in the external business environment are the main triggers for change to established business models.

Now that an idea for business model innovation stands, the improved business model can be designed. As for re-evaluation of the original business model, the ten core elements of iOcTen are also used to develop a new, viable business model. As this step in practice follows the procedure in Phase III, ‘Design’, it usually involves drafting and testing at least one prototype and a subsequent decision-making phase.

Once management has agreed in principle on the implementation of the business model innovation, i.e. has decided either to develop or completely overhaul the original business model, the model can then be introduced and subsequently operated.

A special case of improvement is business model extension: the application of a business model to new markets and/or regions in order significantly to extend the reach of existing business.

Footnotes

  1. 1.

    This aspect is represented in the Integrated Business Model by the ‘idea’ component.

  2. 2.

    Das Gestrige ist die Wurzel des Heutigen und dies wiederum entscheidet über das Morgen.

Copyright information

© Springer Fachmedien Wiesbaden 2015

Authors and Affiliations

  1. 1.MunichGermany

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