Why business models matter

10th Feb 2016

Business models can be used to make decisions about competition, enterprise, innovation, investment and skills that drive growth and have been used to revolutionise and reshape markets. More specifically, Professor Katy Mason from the University of Lancaster believes they can be used to learn more about which products and services are best suited to organisations’ target markets. We caught up with her to learn more.

How do markets and business models inform one another?

Market sensing techniques such as following discussions at trade fairs, reading in-trade journals and using market reports from professional agencies are important mechanisms for noticing changes in and around markets. Listening to your sales force can be just as important. This information can inform routine reviews and strategic planning cycles about market innovation. Effective firms use this market knowledge to shape their business models. This might mean redefining your customer base, or re-describing a market segment that opens up to a more diverse or different customer base.

How can organisations put this into practice?

My research identifies three groups of promising practices that managers can develop to interact with their market context over time. The first is ‘imagining markets’ – in other words, envisaging what a market could or should look like, its geographic and demographic spread and what shared problem or challenge might need a solution. The second is ‘calculating and circulating market representations’ – the idea that businesses need to put values on markets. The final practice is ‘co-developing business models’, which involves networking with multiple institutions, potential customers and even legislators or regulators to work out how a market might be shaped.

What are the advantages to co-developing business models?

Business models are almost always inter-organisational, but innovation can lead to a blurring of the boundaries within the business network as the relationships that support such innovations emerge. Firms benefit from relationships, for example, through the combination of distributed capabilities and expertise as they work out how to do new things between them.

Have many companies tapped into this?

Yes. Famously, Sony and Philips worked together to develop the technologies for the compact disc. They each had to know their own expertise, what capabilities they were likely to need from another company, who that might be and how to work together to develop a new product. Through the development of their business models, Sony and Philips were able to access, assemble and reassemble different combinations of capabilities internally and in the wider business network, and transform this into revenue.

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