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Developing an Instrument for Business Model Dimensions: Exploring Linkages with Firm Competitiveness

Abstract

The paper aims to develop an instrument to measure the position of a firm on business model dimensions (BMDs). The position of firms on the BMDs will help to delineate successful firms from unsuccessful firms. The scale items for the instrument were identified through a literature review. Four scales, one for each of the four BMDs, were developed. All the scales were empirically tested for reliability and validity. The scales proposed in this paper will help managers to locate the position of their firms on four BMDs and the position of a firm on four BMDs can be benchmarked with the industry average or with the best firm to gain competitive advantage. For the academicians, the scale for BMDs will pave the way for empirical studies to analyze the firm’s performance or competitiveness w.r.t to BMDs. The BMDs are used to classify the business model of a firm. However, scales to measure firms’ position on the selected BMDs were not available in the current literature. This paper attempted to address this need.

Introduction

Common reasons attributed for the success of any business are the quality of its products and services, favorable market conditions, and strong competitive advantage to name a few. In contrast to these, the success of some firms such as eBay, Dell, and Amazon is attributed to the way these firms operate or conduct their business (Weill et al. 2005). In their approach, these firms have deployed their resources in such a way as to have efficient operations or create a new business model itself. The business model helps an organization to gain competitive advantage (Malmström et al. 2015) and retain the competitive advantage (Wirtz et al. 2016). According to Purkayastha and Sharma (2016), the business model-related choices, made by Indian firms, have positively affected the competitive advantage of a firm. For example, Indigo Airlines, Jain Irrigation System Limited, and Bharti Airtel Limited, firms from India, have used novel business models for attaining competitive advantage and superior profit. Also, analysis of data from 241 Indian SMEs has indicated that novelty in business model design has benefited newer SMEs (Wirtz et al. 2016). To create novelty in business model design, firms use diverse approaches to develop business models (Pels and Sheth 2017; Velu 2017).

To design the business model, a firm should change the business model elements. A firm’s business model elements cover the value creation, value delivery, and value capture part of the business model. One of the ways to represent business model elements is the business model canvas (Osterwalder and Pigneur 2010). When a firm’s business model is described using business model elements, it is natural that the business model of a firm may differ from the business models of other firms on some aspects and show similarity in other aspects. This will result in the existence of different types of business models. These business models can be classified using taxonomies (Lambert 2015; Morris et al. 2006) or typologies (Choon Seong et al. 2004; Lambert 2015; Sinha 2007).

Different researchers have proposed different business model typologies, around 37 as indicated by Panchal and Krishnamoorthy (NNNN). All of the available typologies do not have dimensions that can be used to measure the business model of a firm. The evaluation done by Panchal and Krishnamoorthy (NNNN), shows that business model typology proposed by Baden-Fuller and Mangematin (2013), appropriately fulfills the characteristics of a “good classification scheme” (Bailey 1994). Hence, in this paper, the typology proposed by Baden-Fuller and Mangematin (2013) was considered as a basis for measuring a firm’s business model. Baden-Fuller and Mangematin (2013) identified four business model dimensions (BMDs). Each dimension has two levels which are the two ends of the spectrums.

  • Customer identification: one-sided to multi-sided

  • Customer engagement: standardized to customized

  • Monetization: direct to indirect

  • Value chain and linkages: integrated to networked

A firms’ position on these dimensions can be used by researchers or industry professionals to explain the variation in the performance or competitiveness of a firm with reference to other firms. For this, it is necessary to measure a firm’s position on the four BMDs for empirical research and for application in the industry by professionals.

The current literature has covered the antecedents of the business model types (Rumble and Mangematin 2015); implementation of business model in health-care industry (Pownall and Sakinskaite 2016); business model portfolio (Aversa et al. 2017); and longitudinal case study (Höök et al. 2015). A number of studies have also been conducted to explain the variation in performance of the firms using the BMDs as independent variables. For example, in a study conducted by Weill et al. (2005), researchers have used two BMDs, each having four categories. A total of 16 combinations of the categories of two BMDs are possible. These combinations were used as business model types and 1000 US firms were classified into 16 business model types to find out which business model type performed better than other business model types. In a similar study, Lai et al. (2006) used the same 16 business types and found that business model types explain variance in performance better than industry effect. In both these studies, firms were classified into 16 categories, using a computer program and reliability of classification was confirmed by sample classification by experts. Unlike these studies, Pownall and Sakinskaite (2016) attempted to measure the business model of a firm on two dimensions—novelty and efficiency—, using available scales. Sometimes researchers use the case study method to analyze the performance of a firm (Purkayastha and Sharma 2016).

It is evident that the extant literature has covered empirical studies where business model was used as construct. In some cases, the business model was measured using the available scale. But, the four BMDs, mentioned in the typology given by Baden-Fuller and Mangematin (2013), were not included in such studies. The main reason for this is the unavailability of the measurement scales for the four BMDs given by Baden-Fuller and Mangematin (2013). This paper aims to fill this gap by developing an instrument for measuring a firm’s position on these four BMDs.

The instrument, in this case, consists of four scales—one for each of the four BMDs. To develop a scale, the process given by Mishra et al. (2015), Saraph et al. (1989), and Schriesheim et al. (1993) was followed. The process starts with the review of past literature to identify scale items for each of the four BMDs. It is followed by a pre-test and final test along with the required statistical analysis. The paper concludes with the scales for four BMDs covered in business model typology given by Baden-Fuller and Mangematin (2013).

Business Model Dimensions

The business model typology given by Baden-Fuller and Mangematin (2013) includes four BMDs: customer identification (the number of separate customer groups); customer engagement (the customer value proposition); monetization (payments and pricing); and value chain and linkages (firm’s internal governance). These four BMDs address either value creation or value capture or both (Baden-Fuller and Mangematin 2013).

Dimension 1: Customer Identification

Customer identification refers to the process of understanding customer needs and expectations. It is possible that a firm deals with a one-sided customer group or multi-sided customer group. One-sided customer group refers to the customer group where users pay for the product or services they availed. While in the case of the multi-sided customer group, someone other than the users pay for the products or services availed by the users. For example, in the case of newspaper, television, Internet, etc., generally users do not pay completely or partially. In these cases, part or entire payment to the owners, channel and Internet providers could be from advertisers (Baden-Fuller and Haefliger 2013). To serve the multi-sided customer group, firms should have appropriate or multiple value delivery systems for each set of customers forming part of the multi-sided customer group. In most of the cases, multi-sided customer groups and firms serving them exhibit the following characteristics (Parmentier and Gandia 2017).

  • In the case of multi-sided customer groups, each side consists of a homogeneous group of customers.

  • The multi-sided customer groups...

    • complement each other;

    • interact with each other on a multi-sided platform deployed by a firm;

    • are distinct but interdependent, i.e., presence or activities of one group increases the value for other groups. This further attracts more customers or users due to the network effect.

  • The firms understand the interdependence between customer groups to offer appropriate value propositions for each customer group.

  • While serving the multi-sided customer groups, firms take advantage of economies of scope by delivering complementary products or services, so that the customer groups become interdependent.

  • The firm’s value creation and/or delivery processes are open to some extent, where one or more of the customer groups contribute.

Dimension 2: Customer Engagement

Customer engagement is about the value propositions which can be standardized (i.e., pre-designed services and products) or customized (such as consulting projects or tailor-made products). In the case of standardized value propositions, the firm would create value by producing goods and/or delivering services in a repetitive manner through mass production setups. As against this, in the case of customized value propositions, the firm would create value by involving the customer to a larger extent (Baden-Fuller and Haefliger 2013). For customized offerings, firms would show a high level of responsiveness to customer needs and execute non-routine complex tasks. In doing so, firms will perform essential reconfiguration of organization structure, resources, processes, capabilities, and technologies. Also, firms will integrate the diverse body of knowledge into firms’ processes (Baden-Fuller and Haefliger 2013).

Additionally, the following characteristics would be visible in firms focusing on customized offerings (Amit and Zott 2001; Lampel and Mintzberg 1996).

  • Customization of products and services to individual specification or needs is emphasized to increase the sales and most of the internal discussion happens with reference to the specification given by customers.

  • Customer preferences or requirements, either specified or ascertained, will have a significant impact on the design, production, and distribution or delivery of products and services.

  • New combinations of products, services, and information will be offered to address customer-specific needs or requirements.

  • Customer involvement takes the form of customers either getting customized products and services offered by the firm or customers doing customization by themselves.

  • As customers are involved extensively in the value creation process, the firm is able to retain its customers.

Dimension 3: Value Creation–Value Chain and Linkages

Every firm will have its own arrangement for value creation. Value creation in its basic form can be shown as “Input → Process → Output” (Momaya 2001). These three components can be considered as three aspects of competitiveness: competitive assets, competitive processes, and competitive performance. This BMD is concerned with the internal aspects of the firm, i.e., mechanisms used to create and deliver value to the customers. These mechanisms can be in the form of vertical linkages or horizontal contracting or more sophisticated forms like network value chain (Baden-Fuller and Haefliger 2013). Firms whose value chain is closer to network type, as compared to firms where the value chain is integrated, exhibit the following characteristics (Amit and Zott 2001; Stabell and Fjeldstad 1998).

  • Value creation logic is based on linking customer.

  • Primary technology is mediating.

  • Primary activities are network promotion, contract management, service provisioning, and infrastructure operations.

  • Activities are executed simultaneously.

  • The firm’s network partners (suppliers and service providers, etc.) are...

    • able to make informed decisions;

    • have access to the information about the range of products and services;

    • linked to transactions in the novel or innovative ways;

    • familiar with transaction environment and processes.

  • These firms are able to create communities or social groups that bond customers and network partners to the firm to ensure a long-lasting relationship with them.

Dimension 4: Monetization

Monetization deals with the value capture aspects of the business model. It includes pricing basis and scope for negotiation, timings of payments, and methods of payments (Baden-Fuller and Haefliger 2013). Also, monetization includes the role of complementary assets which can leverage monetizing opportunities (Teece 1986). Monetization could be indirect which involves negotiation or dynamic pricing and recurring payments. The following characteristics are visible if the firm uses indirect monetization (Parmentier and Gandia 2017).

  • The firm has recurring revenues for delivering value propositions or providing post-purchase customer support.

  • The firm’s revenue stream is enhanced by…

    • the use of a particular service— more the service used, more does the customer pay;

    • giving continuous access to services for a more or less fixed payment for a particular time period (say month or year);

    • temporarily granting a buyer exclusive right to use a particular asset for a fixed period;

    • by intermediation services performed on behalf of two or more parties.

  • The price of the product or service depends on…

    • number of value proposition features;

    • quality of value proposition features;

    • available inventory at the time of purchase;

    • the type and characteristics of the customer segment.

  • The price of the product or service is…

    • established dynamically based on supply and demand;

    • a function of the quantity purchased;

    • determined by the outcome of competitive bidding.

  • For value capturing, the firm could deliver part of the value proposition free of cost or at lower costs and attract a large number of users. Such a large volume of customers creates value due to its size. This value is then monetized by the transfer of a portion of the free users to the paid users. Alternatively, monetization takes place by charging other users or customer groups who are willing to pay for this value, say, advertisers.

As mentioned earlier, the above four BMDs are a continuum between two levels. To measure firms’ business models on these four BMDs, the scales were developed to indicate the extent to which a firm shows an inclination toward the following levels of the BMDs.

  • Multi-sided customer.

  • Customized product and service.

  • Networked value chain and linkages.

  • Indirect payment—recurring payment with negotiated and/or dynamic pricing.

Construction of Scales for Business Model Dimensions

Methodology

The scale development process, followed in this study, is similar to the process followed by Mishra et al. (2015), Saraph et al. (1989), Schriesheim et al. (1993), and Sellitz et al. (1976). Refer Fig. 1 for the process details.

Fig. 1
figure1

Scale development process

Step-1 of the process has been discussed in the previous section. Also, Step-2 is not required in this study, as business model typology which is considered in this study has well-defined factors (in this study, they are referred to as BMDs).

Developing List of Scale Items

Scale items help in clarifying the scope and meaning of each BMD. From the literature, the characteristics of a firm which depicts the right end of each BMDs were listed. Refer to “Business Model Dimensions”. From these characteristics, a list of scale items were framed. A total of 62 scale items, for four BMDs, were identified. This list was reviewed by the academicians and industry experts. The reviewers were asked to check each scale item using the questions proposed by Dillman (1978).

  • Will the words be uniformly understood?

  • Does the question contain abbreviation or unconventional phrases?

  • Is the question too vague?

  • Is the question too precise?

  • Is the question biased?

  • Is the question objectionable?

  • Is the question too demanding?

  • Is it a double question?

  • Does the question have a double negative?

  • Are the answers mutually exclusive?

  • Does the question assume too much about what respondents know?

  • Is the question technically accurate?

  • Is an appropriate time referent provided?

  • Can the question be understood when taken out of order or context?

  • Can responses be compared to existing information?

This critical review resulted in elimination, reclassification, and rewording of certain scale items. The refined list consisted of 52 scale items for four BMDs. For each scale item, a five-point Likert scale was assigned from available Likert scales, presented by Vagias (2006). In addition to the five-point options of the Likert scale, one more option was included as “Not Clear” at the end of the Likert scale options. This survey form was pre-tested by conducting a survey, involving 21 managers from different industry sectors.

During the pre-test, the managers or respondents were asked to provide their responses for each scale item by selecting the appropriate option from the corresponding Likert scale options. If any of the scale item statement was not clear or corresponding Likert scale options were not appropriate, managers were asked to select “Not Clear” as the option. Subsequently, detail explanations or suggestions were taken from these managers to refine the scale items.

The refinement of scale items was done with the following actions

  • Rewording of scale items statements.

  • Including examples in some cases.

  • Modifying Likert scale.

  • Combining scale items wherever required.

  • Breaking down one scale item into two or three separate scale items.

  • Deleting some scale items as they were not relevant for their corresponding BMD.

The input received from the pre-test was used to refine the scale items for each BMD. Table 1 shows the number of scale items for each BMD, before and after the refinement. Also, appropriate tags were assigned to each scale item (refer to the last column of Table 1).

Table 1 Scale items for business model dimensions

Content Validity

Content validity checks how well the scale covers all aspects of the BMD being measured (Nunnally 1967). For a detailed assessment of content validity, the procedure suggested by Schriesheim et al. (1993) was used. The survey form for content validity assessment was in two parts. In Part-1, all four BMDs were explained briefly, and their levels were presented in the form of the spectrums (as explained earlier). In Part-2, 45 scale items were presented in random order and without any classification w.r.t their corresponding BMDs. Respondents were asked to rate the relevance of each scale item for the measurement of each of the four BMDs. Likert scale used for this rating had four levels—Not Applicable–Somewhat Applicable–Applicable–Strongly Applicable. The data for content validity were collected from working professionals. All respondents were asked to read and understand Part-1 of the form. Their doubts, if any, were cleared by researchers. In all, 15 respondents were approached. Out of these, 11 completed forms were received with a total of 44 responses (4 responses from each respondent) for content validity assessment.

The content validity assessment was done using an exploratory factor analysis procedure (with extraction method: principal component analysis and rotation method: varimax with kaiser normalization). Kaiser–Meyer–Olkin Measure of Sampling Adequacy was 0.474 (It is slightly less than 0.5, as required) and Bartlett’s test of sphericity was significant (p < 0.05), indicating sufficiency of data (Hair et al.1995).

During the content validity assessment, few scale items were removed as these did not have factor loading of more than 0.50 on any one of the BMD. Balance scale items had the factor loadings of more than 0.50 on to their respective BMD. A total of four factors (corresponding to four BMDs) were extracted during factor analysis. These factors could explain 71% of the total variance. The factor loadings for all factors were well above the threshold proposed by Tabachnick and Fidell (2001). Table 2 shows the outcome at the end of the analysis for content validity.

Table 2 Result for content validity

The refined list of scale items, for all four BMDs, was included in the survey form for final testing. The final test of the scales was done with the larger group of respondents covering a wide array of industry sectors, role profiles, and organization hierarchies.

Subjects and Instrument Administration

To develop an instrument, the subjects should be selected considering the final user of the instrument (Nunnally 1967; Sellitz et al. 1976). The aim of this study is to develop an instrument to measure the position of a firm on four BMDs using mangers’ perceptions about their organization. Hence, managers with experience of at least 5 years were included in the final testing of the instrument. This instrument is developed for service as well as manufacturing organizations of all sizes (in terms of revenue and number of employees). So, service firms as well as manufacturing firms were included in the sample. But for the reason of practicality and convenience, respondents were chosen from firms located in India.

The respondents were briefed about the purpose of the survey and the structure of the instrument. Also, researchers were present during the survey to provide clarification or to resolve respondents’ issues in using the instrument. In all, 105 respondents were approached for the final test. Out of these, 86 responses were received. After reviewing the 86 responses, it was found that 19 responses were incomplete. Also, it was found that eight respondents had filled the survey form without paying much attention. This was revealed, as these respondents have selected the same Likert scale option for all scale items of the instrument. Hence, all incomplete and casually filled responses were not considered for further data analysis. This resulted in 59 usable responses (response rate: 56.2%). The summary of respondents in terms of their industry sectors and their role profiles is shown below in Figs. 2 and 3.

Fig. 2
figure2

Industry sectors of 59 survey respondents

Fig. 3
figure3

Role profile of 59 survey respondents

The experience level of the respondents ranged from 3 years for engineering or analyst role to around 40 years for CXO level.

Analysis of the Business Model Dimension Scales

Reliability

Currently, four methods are available to evaluate the reliability of a scale (Nunnally 1967; Sellitz et al. 1976). They are

  1. 1.

    Retest method.

  2. 2.

    Alternative form method.

  3. 3.

    Split-half method.

  4. 4.

    Internal consistency method.

Out of these, the first three methods have some limitations, particularly for field studies. The fourth one, namely, the internal consistency method is best suited for field studies because it demands only one administration of the instrument. Also, the internal consistency method is the most general form of reliability evaluation (Nunnally 1967). Hence, this method was adopted for this study.

The internal consistency of a set of measurement items evaluates the degree to which items in the sets are homogeneous. Normally, internal consistency is evaluated using the reliability coefficient such as Cronbach’s alpha. Using the SPSS reliability program, the internal consistency analysis was carried out separately for all four scales of BMDs. Table 3 shows the summary of internal consistency analysis.

Table 3 Result for reliability

All scales have Cronbach’s alpha values above 0.7 which is considered a good indicator of internal consistency (Cronbach 1951; Nunnally 1967; Scott 1981). To achieve the internal consistency of more than 0.7, scale item VC-04 and scale item MN-06 were removed from their corresponding scales.

Detailed Item Analysis

To evaluate the assignment of scale items to their respective scales, Nunnally (1967) had developed a method based on the correlation of each scale item with each scale. If a scale item does not have a high correlation with its corresponding scale, it is eliminated. Values for the scales (CI, CE, VC, and MN) were computed by taking the average of the corresponding scale items.

Appendix 2 shows the correlation results for four scales (CI, CE, VC, and MN) and their scale items. For example, CI01 has correlations of 0.63, − 0.05, − 0.01, and 0.21 with CI, CE, VC, and MN scales, respectively. For Scale-CI, the average of CI01, CI02, CI03, CI04, and CI05 (these were the scale items that remained after reliability analysis) was computed. Given this, it was expected to have a high correlation between CI01 and Scale-CI. Also, note that CI01 has relatively smaller correlations with other scales (i.e., CE, VC, and MN). Accordingly, it was concluded that CI01 has been assigned to Scale-CI appropriately. Similarly, all other scale items were examined.

As seen from Appendix 2, most of the scale items have a high correlation with the scales to which they are assigned. However, scale items CE15 and MN01 do not have a high correlation with their respective scales. Hence, these two scale items were eliminated from their respective scales.

Construct Validity

Construct validity checks whether the scale measures the theoretical construct or trait that it was designed to measure. Construct validity was measured for convergence and discrimination (Campbell and Fiske 1959).

To measure convergent validity and discriminant validity, exploratory factor analysis was carried out. In this test, 34 scale items were included. Initial results indicated that few scale items had factor loading on multiple factors. Also, factor loadings in those cases were less than 0.4. Hence, all the scale items where factor loading was less than 0.4 (though the threshold for the factor loading was considered as 0.32 Tabachnick and Fidell 2001) were removed and more iterations were carried out. In this process, six scale items from scale CE and six scale items from scale MN were removed.

The remaining 22 scale items had factor loading of more than 0.4 on their corresponding BMDs. The total variance explained was 60%. Refer Table 4 for the result of exploratory factor analysis.

Table 4 Result of exploratory factor analysis

In the above exploratory factor analysis, Kaiser–Meyer–Olkin Measure of Sampling Adequacy was 0.720 (Required > 0.5) and Bartlett’s test of sphericity was significant (p < 0.05), indicating sufficiency of data (Hair et al. 1995).

To check convergent validity and discriminant validity, average variance extracted (AVE) and composite reliability (CR) were computed. Though factor loading was above the threshold and composite reliability was above 0.8, average variance extracted (AVE) for customer identification and monetization was less than the required value of 0.50 (Fornell and Larcker 1981). To improve the AVE, scale items CI03 and MN04 were removed from their respective scales.

The revised exploratory factor analysis gave AVE more than 0.5 and CR more than 0.8 as shown in Table 5.

Table 5 Result for convergent validity

Discriminant validity was checked with following criteria (Fornell and Larcker 1981).

Average of two constructs AVE > square of correlation between the values of constructs.

The result of the check is shown in Table 6.

Table 6 Result for discriminant validity

Table 6 shows that in all the possible pairs of BMDs, the average of AVE is greater than the square of the correlation between the constructs i.e., BMDs in this study.

Criterion Validity

Criterion validity explains the extent to which the scale relates to an independent measure of relevant criterion. In the existing literature, the independent measures for the selected BMDs are not available. Hence, during the final test, respondents were asked to locate their firms’ business models on the following spectrum for each BMD.

Customer identification position score (CIV):

(1)
Very much single sided
(2)
Somewhat single sided
(3)
Somewhat multi-sided
(4)
Very much multi-sided

Customer Engagement Position Score (CEV):

(1)
Very much standardized
(2)
Somewhat standardized
(3)
Somewhat customized
(4)
Very much customized

Value Creation Position Score (VCV):

(1)
Very much like value chain
(2)
Somewhat like value chain
(3)
Somewhat like value network
(4)
Very much like value network

Monetization position score (MNV):

(1)
Always direct payment—fixed price
(2)
Mostly direct payment—fixed price
(3)
Mostly indirect payment—negotiable price
(4)
Always indirect payment—negotiable price

The responses obtained from these questions were considered as position scores (i.e., CIV, CEV, VCV, and MNV). These position scores were used as independent measures to establish criterion-related validity. Table 7 shows the correlation of CIV, CEV, VCV, and MNV with the scores of CI, CE, VC, and MN.

Table 7 Result for criterion validity

The correlations between CI and CIV; CE and CEV; VC and VCV; and MN and MNV are in the range of 0.529—0.648 (Refer Table 7) and are all statistically significant, indicating a reasonable degree of criterion-related validity.

Final Instrument

Few of the scale items were removed in the process of detailed item analysis and construct validity. Hence, reliability and detailed item analysis was checked once again for the final list of scale items. Table 8 summarizes the values for reliability and detailed item analysis. It also shows value for factor loading, criterion validity, and the number of scale items in each scale.

Table 8 Final result for reliability and detail item analysis

Refer Appendix 3 for the final list of scale items for four BMDs along with the respective Likert scale. Note that the tags for the scale items in the final list are renumbered.

The four BMDs include the following aspects.

Customer Identification

  • The firm’s customer includes several distinct, but interdependent groups (Baden-Fuller and Haefliger 2013)

  • The firm uses a multi-sided platform, a system of components and interactions, which facilitates interactions or transactions between two or more distinct but interdependent customer or user groups (Parmentier and Gandia 2017).

  • The firm uses an open value creation process where customer groups can co-create and collaborate to create value for them and others (Parmentier and Gandia 2017).

  • The firm analyzes interactions between customer groups to identify which groups create value for other(s) (Parmentier and Gandia 2017).

Customer Engagement

  • The firm’s buyers have influence over the design, production, or distribution or delivery of products or services (Ulrike et al. 2015; Zawadzki and Żywicki 2016).

  • The firm attempts to personalize the products or services to increase sales (Baden-Fuller and Haefliger 2013).

  • The firm combines the following to meet customer-specific needs or requirements better than competitors (Amit and Zott 2001; Lampel and Mintzberg 1996):

    • its core offerings with its other related product and service;

    • its capabilities which the firm uses to offer products or services;

    • various technologies which it uses to offer products or services;

    • various resources which it uses to offer products or services.

Value Creation

If the firm relies on network-based value creation process, the firm demonstrates the following characteristics.

  • The firm’s network partners…

    • are able to make informed decisions, because the firm shares the required information with its network partners (Amit and Zott 2001; WANG and WU 2018);

    • have access to the information about the range of products and services (Amit and Zott 2001; WANG and WU 2018);

    • are linked to transactions in a novel or innovative way (Amit and Zott 2001; WANG and WU 2018);

    • would like to continue transactions with the firm because they are familiar with the transaction environment and processes (Amit and Zott 2001; WANG and WU 2018).

  • The firm is able to create communities or social groups that bond customers and network partners to the firm to ensure a long-lasting relationship with them (Amit and Zott 2001; Stabell and Fjeldstad 1998).

Monetization

  • The price of a firm’s product or service…

    • depends on available inventory at the time of purchase (Parmentier and Gandia 2017);

    • is established dynamically based on supply and demand (Parmentier and Gandia 2017).

  • Payments for the products and services, offered by the firm, are made by someone not necessarily the consumer of the products and services (Baden-Fuller and Haefliger 2013).

  • As regards revenue, the firm delivers part of the value proposition as free or at very less cost to attract a large number of users who by their number constitute a source of value. This value is then monetized by…

    • transfer of a portion of the free users to paid users (Baden-Fuller and Haefliger 2013);

    • charging other customer groups that are willing to pay for this value (Baden-Fuller and Haefliger 2013).

Discussion

The four BMDs, included in this study, cover different aspects of business model design. The scales developed for these dimensions, elaborate the content in the form of characteristics exhibited by a firm to differentiate it from other firms. The objective of this differentiation is to gain competitive advantage or better performance. For example, better business model helped banks to increase the productivity in all its branches in Iran (Karimi et al. 2018) and similarly innovativeness in value creation and customer co-creation has a positive effect on customer satisfaction (Clauss et al. 2019).

The scale for customer identification emphasizes on identifying distinct customer groups and managing these groups to derive benefits. As Wirtz and Daiser (2018) have found out, successful business model development is customer oriented and takes into account distinctive customer groups. Also, this scale goes further and includes the importance of the customer in the value creation process. The logic is similar to the open innovation concept presented by Chesbrough (2003). It is proved that open innovation leads to higher competitive advantage (Purkayastha and Sharma 2016) and superior customer value (Pynnö Nen et al. 2012).

The next scale is about customer engagement. Its main focus is on customizing products and services to meet customer needs and requirements. To achieve this objective, a firm has to combine its product or services or its network partners’ products and services. This way of integrating different products and services results in better competitive advantage (Lawrence and Lorsch 1967a, b). For example, Apple Inc. integrated multiple services from its associate firms with its products with an objective of creating a better value proposition and finally to gain some competitive advantage (Purkayastha and Sharma 2016). This way of combining the firm’s products and services enables one to create new customer value propositions and ultimately gain sustainable competitive advantages (Čirjevskis 2016).

The scale for value chain and linkages suggests that firms need to trust their network partner and share knowledge and information with network partners (Malhotra 2000). Also, it advocates involving network partners in most of the aspects of the value creation process and, if possible, form a network organization, like a virtual organization (Amit and Zott 2015). The idea of forming a virtual organization with a network of different organizations which includes a focal firm, its suppliers, customers, service providers, etc. has been recognized in the literature (Hallen and Eisenhardt 2012).

The scale for monetization addresses the value capture part of the business model. The scale suggests innovative ways of generating revenue and pricing the products and services to gain better competitive advantage (Purkayastha and Sharma 2016).

Conclusion

The selected business model typology has four BMDs (customer identification, customer engagement, monetization, and value creation). It was found that the current literature has not covered the instrument to measure the position of a firm on these BMDs. This paper successfully developed four scales to measure firms’ business models on the four BMDs. All these scales were empirically tested and found reliable and valid. The reliability coefficients (Cronbach’s alphas) of the scales ranged from 0.777 to 0.860. The appropriate testing of scales as per the requirements ensured content validity, convergent validity, and discriminant validity. Correlation coefficients between the scale scores and the position score, given by respondents for the position of the firm on the four BMDs, were in the range of 0.529–0.669. This indicates good criterion-related validity.

Implications

The scales proposed in this paper will help managers to locate the position of their firms on four BMDs. Also, a firm’s position, on four BMDs, can be compared with the industry average and with the best firm from the same sector or any other sector. The comparing/benchmarking of firm on customer identification, customer engagement, monetization, and value chain and linkages will help the firm to identify the gap and strategically bridge that gap to gain competitiveness in terms of better productivity and improved customer satisfaction. For academicians, the scale for BMDs will pave the way for elaborate empirical studies to analyze the firm’s performance or competitiveness w.r.t to BMDs. Some of the research issues which can be addressed with the instrument developed in this study are: comparing the business model of two or more firms; analyzing the relationship of firms’ business model evolution pattern with their performance; analyzing the diversity and similarity in the business models deployed by different divisions or business groups of a conglomerate; analyzing the similarity in the business model used by best companies of different industry sectors, etc.

Limitations and Direction for Future Research

The main aim of this paper is to develop scales for selected BMDs. Studying the relationship of the position of the firm on BMDs with the firm’s competitiveness will be the next logical step. Few firms in the recent past have deployed a completely new business model and they have grown to become an internationally competitive firm. A research can explore this specific aspect of competitiveness and its relationship with the firm’s position on BMDs. The scales proposed in this paper are considered as distinct from each other. But there are situations in which the four business model dimensions can be interrelated. Hence, for those specific cases, future research can explore the possibility of developing the interrelated scales. In some other cases, there can be a requirement of a measuring business model with higher-order constructs which may include two more of the BMDs, considered in this paper. The scales developed in this paper are for reflective constructs (i.e., BMDs). However, each BMDs can be considered as a formative construct of its scale items and at the next level business model itself as a formative construct of four BMDs. Future research can be focused on developing scales for BMDs as formative construct or for business model as a higher-order formative construct.

Key Questions

  1. 1.

    What are the gaps between best firm and my firm, in terms of customer identification, customer engagement, value creation, and monetization?

  2. 2.

    How do we compare the business model of two firms?

  3. 3.

    To gain competitive advantage, what should be the evolution plan for my business model in the next 5–10 years?

  4. 4.

    What is the diversity and similarity in the business models deployed by different firms of an industry sector?

  5. 5.

    What is the similarity in the business model used by best companies of different industry sectors?

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Acknowledgements

This paper is part of my Ph.D. research work done at NMIMS—School of Business Management. We thank the school management for giving this opportunity; and other faculties for providing their support. We also express our gratitude to all those who have contributed to improving the quality of the paper (including the anonymous reviewers and editors).

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Correspondence to Dinesh Panchal.

Appendices

Appendices

Appendix 1: Initial List of Scale Items

No. Descriptions
CI01 The firm’s customers include several distinct but interdependent groups (i.e., presence or activities of a group increases the value for other groups)
For example, if more people subscribe to a particular newspaper, the advertisers will be willing to pay more for an advertisement in that newspaper
CI02 The firm uses the multi-sided platform (a system of components and interactions) which facilitate interactions (or transactions) between two or more distinct, but interdependent customer or user groups
CI03 The firm offers several value propositions that target a large number of market segments, which are profitable together
CI04 The firm uses open value creation process where customer groups can co-create and collaborate to create value for them and others
CI05 The firm analyzes the interactions between customer groups to identify which groups create value for other(s)
CE01 The firm’s buyers have influence over design, production, or distribution or delivery of product or services. That is, customer preferences or requirements will have significant impact on the design, production, or distribution or delivery of product or services
CE02 The firm attempt to personalize the products or services to increase sales.
CE03 The firm creates value by interacting with specific clients to solve specific problems
CE04 The firm offers new combinations of products, services, and information to solve customer-specific needs or requirements
CE05 The firm bundles its core offerings with its other related product and service to meet customer-specific needs or requirements
CE06 The firm bundles its core offerings with product and service from partner firms and customers to meet customer-specific needs or requirements
CE07 The firm combines its capabilities which firm uses to offer products or services to meet customer-specific needs or requirements
CE08 The firm combines various technologies which it uses to offer products or services to meet customer-specific needs or requirements
CE09 The firm combines various resources which it uses to offer products or services to meet customer-specific needs or requirements
CE10 The firm’s systems and structure are kept agile (flexible) to respond to changing customer needs
CE11 The firm’s machines and routines (procedures) are kept agile (flexible) to respond to changing customer needs
CE12 The firm is able to retain its customers because its customer can customize products, services, and information to their individual needs
CE13 The firm is able to retain its customers because the firm is personalizing its products, services, and information for the customers
CE14 The firm’s offerings include: combination of different products or combination of different services or combination of products and services
CE15 The firm offers multiple products or services (which complement each other, i.e., increase value for each other) to serve multiple group of customers which are interdependent
VC01 The firms’ primary activity includes “network promotion and contract management”, i.e., invite the customers to join the network; select customers who are allowed to join; and initialize and manage contracts with the selected customers
VC02 The firms’ primary activity includes “service provisioning”, i.e., establishing, maintaining, and terminating links between customers and billing for value received by customers
VC03 Firms’ primary activity includes “infrastructure operations”, i.e., maintaining and running a physical and information infrastructure. Keeping network in alert status, ready to serve customer request
VC04 Activities in the firms are executed in parallel
VC05 The firm’s value creation logic is based on linking customers (example—telephone services or retail banking where a group of customers are linked to a group of fund providers)
VC06 The firm’s network partners (suppliers, service providers, etc.) are able to make informed decisions, because firm shares the required information with its network partners
VC07 The firm’s network partners (suppliers, service providers, etc.) have access to the information about the range of products and services
VC08 The firm’s network partners (suppliers, service providers, etc.) are linked to transactions in novel or innovative ways
VC09 The firm’s network partners would like to continue transactions with the firm because they are familiar with the transaction environment and processes
VC10 The firm creates communities or social groups that bond customers and network partners to the firm to ensure long-lasting relationship with them
MN01 The firm has recurring revenues for delivering value propositions or providing post-purchase customer support
MN02 The firm’s revenue stream is generated by the use of a particular service; the more the service is used, the more the customer pays
MN03 The firm’s revenue stream is generated by giving continuous access to a service for more or less fixed payment for a particular time period (say month or year)
MN04 The firm’s revenue stream is generated by temporarily granting the buyer the exclusive right to use a particular asset for a fixed period
MN05 The firm’s revenue stream is generated by intermediation services performed on behalf of two or more parties: for example, broker in case of real estate or share market transactions; aggregators such as Uber and Ola
MN06 The firm’s revenue stream is based on price that is dynamic
MN07 The price of product or service depends on the number of value proposition features or quality of value proposition features
MN08 The price of product or service depends on available inventory at that time and time of purchase
MN09 The price of product or service depends on the type and characteristics of the customer segment
MN10 The price of product or service is established dynamically based on supply and demand
MN11 The price of product or service is a function of the quantity purchased
MN12 The price of product or service is determined by the outcome of competitive bidding
MN13 Payments for the products and services offered by the firm are made by someone not necessarily the consumer of the products and services. For example, in case of newspaper, the total cost is recovered from subscription and advertisers. Similarly, Wi-Fi is provided to the users as free and the cost is recovered from someone else (in some cases advertisers)
MN14 Revenue structure of firm: deliver part of the value proposition as free or at very less cost to attract a large number of users who by their number constitute a source of value. This value is then monetized by transfer of a portion of the free users to a paid user
MN15 Revenue structure of firm: deliver part of the value proposition as free or at very less cost to attract a large number of users who by their number constitute a source of value. This value is then monetized by charging other customer groups who are willing to pay for this value, for example, advertisers

Appendix 2: Scale Items to Scale Correlation Matrix

Scale Item Scale
CI CE VC MN
CI01 0.63 − 0.05 − 0.01 0.21
CI02 0.78 0.33 0.24 0.37
CI03 0.61 0.51 0.41 0.49
CI04 0.76 0.39 0.45 0.49
CI05 0.87 0.31 0.31 0.38
CE01 0.24 0.65 0.11 0.22
CE02 0.10 0.63 0.37 0.33
CE04 0.16 0.68 0.19 0.14
CE05 0.32 0.70 0.31 0.36
CE07 0.17 0.70 0.29 0.33
CE08 0.30 0.77 0.26 0.49
CE09 0.30 0.63 0.17 0.42
CE10 0.24 0.59 0.37 0.44
CE11 0.07 0.53 0.29 0.30
CE12 0.23 0.65 0.28 0.44
CE13 0.35 0.78 0.33 0.43
CE14 0.25 0.54 0.13 0.07
CE15 0.52 0.49 0.16 0.17
VC06 0.40 0.27 0.81 0.38
VC07 0.33 0.22 0.86 0.37
VC08 0.40 0.33 0.82 0.44
VC09 0.12 0.32 0.71 0.33
VC10 0.25 0.40 0.80 0.41
MN01 0.28 0.72 0.31 0.49
MN02 0.23 0.47 0.48 0.66
MN03 0.25 0.58 0.34 0.67
MN04 0.45 0.42 0.35 0.67
MN07 0.34 0.24 0.27 0.39
MN08 0.39 0.06 0.30 0.58
MN09 0.23 0.09 0.43 0.46
MN10 0.23 0.10 0.18 0.53
MN11 0.10 0.04 0.19 0.48
MN12 0.38 0.36 0.09 0.52
MN13 0.37 0.23 0.29 0.67
MN14 0.40 0.29 0.21 0.70
MN15 0.33 0.25 0.25 0.73

Appendix 3: Final Instrument for Business Model Dimensions

No. Descriptions Select one of the following options
CI01 Firm’s customers include several distinct, but interdependent groups (i.e., presence or activities of a group increases the value of other groups) All of them Almost all of them Some of them Few of them None
For example, if more people subscribe to a particular newspaper, the advertisers will be willing to pay more for an advertisement in that newspaper
CI02 Firm uses multi-sided platform (a system of components and interactions) which facilitate interactions (or transactions) between two or more distinct, but interdependent customer or user groups To a very great extent To a great extent To a moderate extent To a small extent Not at all
CI03 The firm uses open value creation process where customer groups can co-create and collaborate to create value for them and others To a very great extent To a great extent To a moderate extent To a small extent Not at all
CI04 The firm analyzes interactions between customer groups to identify which groups create value for other(s) Always Often Sometimes Rarely Never
CE01 The firm’s buyers have influence over design, production, or distribution or delivery of products or services. That is, customer preferences or requirements will have a significant impact on the design, production, or distribution or delivery of products or services To a very great extent To a great extent To a moderate extent To a small extent Not at all
CE02 The firm attempts to personalize the products or services to increase sales To a very great extent To a great extent To a moderate extent To a small extent Not at all
CE03 The firm bundles its core offerings with its other related product and service to meet customer-specific needs or requirements To a very great extent To a great extent To a moderate extent To a small extent Not at all
CE04 The firm combines its capabilities to offer products or services to meet customer-specific needs or requirements To a very great extent To a great extent To a moderate extent To a small extent Not at all
CE05 The firm combines various technologies which it uses to offer products or services to meet customer-specific needs or requirements To a very great extent To a great extent To a moderate extent To a small extent Not at all
CE06 The firm combines various resources which it uses to offer products or services to meet customer-specific needs or requirements To a very great extent To a great extent To a moderate extent To a small extent Not at all
VC01 Firm’s network partners (suppliers, service providers, etc.) are able to make informed decisions, because the firm shares the required information with its network partners To a very great extent To a great extent To a moderate extent To a small extent Not at all
VC02 The firm’s network partners (suppliers, service providers, etc.) have access to the information about the range of products and services To a very great extent To a great extent To a moderate extent To a small extent Not at all
VC03 The firm’s network partners (suppliers, service providers, etc.) are linked to transactions in a novel or innovative way To a very great extent To a great extent To a moderate extent To a small extent Not at all
VC04 The firm’s network partners would like to continue transactions with the firm, because they are familiar with transaction environment and processes Extremely likely Likely Neutral Unlikely Extremely Unlikely
VC05 The firm creates communities or social groups that bond customers and network partners to the firm to ensure long-lasting relationship with them To a very great extent To a great extent To a moderate extent To a small extent Not at all
MN01 The price of firm’s product or service depends on available inventory at that time and time of purchase To a very great extent To a great extent To a moderate extent To a small extent Not at all
MN02 The price of the firm’s product or service is established dynamically based on supply and demand To a very great extent To a great extent To a moderate extent To a small extent Not at all
MN03 Payments for the products and services offered by the firm are made by someone not necessarily the consumer of the products and services. For example in case of newspaper, the total cost is recovered from subscription and advertisers. Similarly, Wi-Fi is provided to the users as free and the cost is recovered from someone else (in some cases advertisers) Always Often Sometimes Rarely Never
MN04 Revenue structure of firm: deliver part of the value proposition as free or at very less cost to attract a large number of users who by their number constitute a source of value. This value is then monetized by transfer of a portion of the free users to a paid user To a very great extent To a great extent To a moderate extent To a small extent Not at all
MN05 Revenue structure of firm: deliver part of the value proposition as free or at very less cost to attract a large number of users who by their number constitute a source of value. This value is then monetized by charging other customer groups who are willing to pay for this value, for example, advertisers To a very great extent To a great extent To a moderate extent To a small extent Not at all

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Panchal, D., Krishnamoorthy, B. Developing an Instrument for Business Model Dimensions: Exploring Linkages with Firm Competitiveness. JGBC 14, 24–41 (2019). https://doi.org/10.1007/s42943-019-00004-1

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Keywords

  • Business model
  • Business model dimension
  • Business model typology
  • Measuring instrument
  • Competitive performance