1. The Business Model Ontology
a proposition in a design science approach
PhD Defense
February
HEC/UNIL, Lausanne
Alexander Osterwalder
HEC Lausanne
(+41 21)

2. A Short Reflection on Science
The origin of the word science comes from the Latin scire, which simply means "to know."
theorize
justify
observe phenomena
develop theory
explain phenomena
test theory
Social or natural phenomena
refute theory
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3. A Short Reflection on Science - Story of the Village... An Analogy
Pressure to explore: fast moving complex environment with new threats and opportunities (Outsourcing, SCM, CRM, ...)
Search: New business models & introduction of the concept of business models as a new unit of analysis (ad hoc, explorative)
Plan & Build: Instrumentalizing the business model concept by building tools on the basis of an ontology
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4. Research Question
How can business models be described and represented in order to build the foundation for subsequent concepts and tools, possibly computer based?
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5. Methodology: Design Science (March and Smith 1995)
RESEARCH ACTIVITIES
Design Science
Natural Science
Build
Evaluate
Theorize
Justify
Construct
BM Building Blocks
Complete?
Model
BM Ontology
Fidelity with Real World Phenomena?
Method
XML
Appropriate?
Instantiation
BM2L
Applicable?
RESEARCH OUTPUT
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6. Main contributions
Update of the knowledge in the business model domain
Consolidation into a business model ontology
Provide a specification of a conceptualization in the business model domain
Software tool prototype: Business Model Modeling Language BM2L
A tool to capture and represent business models
Outlook on possible business model tools
How can the business model concept be applied
Proposition of Business / Information Systems alignment tool
Align in an environment underpinned by ICT and e-business
This is not about modeling the whole enterprise
It is not an attempt to explain business model success
The goal is not to re-write strategy.
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7. The Business Model Ontology
How?
What?
Who?
Partnership
Actor
Relationship
INFRASTRUCTURE
MANAGEMENT
CUSTOMER
INTERFACE
Agreement
PRODUCT
Mechanism
Capability
Value Configuration
Value Proposition
Channel
Customer
Resource
Activity
Offering
Link
Criterion
Cost
Profit
Revenue
FINANCIAL
ASPECTS
Account
Pricing
How much?
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8. The Nine Elements Compared to the Business Model Literature
Business model ontology
Value Proposition
Target Customer
Distribution Channel
Customer Relationship
Value Configuration
Capability
Partnership
Cost Structure
Revenue Model
Hamel √
Linder and Cantrell
Tapscott, Ticoll et al.
Afuah and Tucci
Gordijn
Petrovic, Kittl et al.
Weill and Vitale
Stähler
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9. Have we Made any Progress: Modeling Rigor
Mentioning Elements
Describing Elements
Modeling Elements
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10. Modeling Distribution Channels
delivered
through
delivered to
Value Proposition
Distribution Channel
Target Customer
setOf
isA
Offering
Distribution Channel Link
isA
Reasoning
Customer Buying Cycle
Value Level
Price Level by
Actor
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11. Capturing Business Model Information
A model to...
Define
Seize
Describe
Store
...the logic of what a firm does and how it does it
unstructured
information
Semi –structured information
formalization
bla bla
Application
manager
formal model
seize
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12. Business Model with XML: Conceiving BM2L
Computer-aided
business modeling
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13. Application Prototype: The Business Model Modeling Language BM2L
<Product>
<ValueProposition ValuePropositionID="vp1" BasedOnCapabilityIDREF="cp4 cp3 cp1" AddressesCustomerIDREF="tc4">
<ValuePropositionCharacteristics>
<Name>MJF Concerts</Name>
<Description>The main attraction and VALUE PROPOSITION of the MJF are its prestigious concerts with stars from jazz, pop, rock, hip-hop and more. The MJF has made itself a name with the regular by unforgettable jazz musicians like Miles Davis, Keith Jarett, Charlie Mingus, Ella Fitzgerald and later from other fields like Bob Dylan, Phil Collins or Guru's Jazzmatazz. The 2003 event featured artists across the musical range, such as George Benson, Joao Gilberto, Simply Red or Cypress Hill. </Description>
<Reasoning>
<Use>For the customer the value essentially lies in going to the concert of the artist of his choice.</Use>
</Reasoning>
<ValueLevel>
<MeToo>The MJF may be special because of its quality but it is not substantially different from other jazz festivals throughout the world.</MeToo>
</ValueLevel>
<PriceLevel>
<Market>The MJF ticket prices are comparable to the market prices of what is paid for other concerts.</Market>
</PriceLevel>
</ValuePropositionCharacteristics>
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14. Application Prototype: Generating documents from a BM2L document
HTML
Document
e.g. a two page overview of a company’s business model
XSL
Processor
PDF
Document
BM2L
Document
e.g. a ten page report of a company’s business model
Word
Document
e.g. a detailed n-page description of the company’s business model
BM2L
Schema
XSL Stylesheet
Document
SVG
Document
e.g. a graphical view of a business model issue such as the channel strategy
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15. Montreux Jazz Festival Business Model
illustration
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16. Distribution Channel Strategy at the Montreux Jazz Festival
illustration
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17. Value proposition, capabilities and customers at the MJF
illustration
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18. Evaluating the Business Model Ontology
Positioning the ontology to the existing business model literature shows which domains are covered or not and is an indicator of completeness.
Compare ontology with literature
Evaluate ontology by practitioners
Letting managers and consultants pronounce themselves on the ontology gives an indication on its ability to describe the business logic of a firm.
Test ontology with case studies
Describing a real world business model through the ontology's rigorous formalism tests its applicability to a case.
Evaluation
Interest by the research community
Observing the research community's interest in the ontology demonstrates certain aspects of its validity.
Testing the ontology in the field would take place indirectly through applying an instantiation of it to a real-world business setting.
Test ontology in the field
Test ontology vs. other model in the field
Testing two models' performance would also be indirect by applying them to a real-world business setting and compare the outcome.
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19. Compare with Literature
is the ontology complete?
have we made any progress?
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20. Semi-Structured Interviews with Practitioners
Question Domain
Questions
Questions on the use of business concepts & tools
How do you plan the general business objectives of your company? Do you use any conceptual tools to plan your business or to sketch the general direction in which your firm is heading?
If yes, do you use any specific formalism(s) to do this?
If yes, do you use any specific software tool to do this? If yes, which one(s)?
Demonstrations & Explanation of the Ontology
easyJet.com, ColorMailer, Barnes & Noble, Nokia
Questions on the fidelity with real word phenomena
In your opinion, what elements are missing in the model presented before?
In your opinion, what elements should not belong to the model presented before?
How could such a model help you define business indicators?
How could such a model help you or a group of managers make better decisions?
How could such a model improve some parts of strategic planning?
How could such a model make it easier to chose and design appropriate information systems (e.g. software purchases like Customer Relationship Management or Supply Chain Management...)
How would it be able to foster innovation in a company with such a model?
How do you think such a model could improve business process design and engineering?
How could it be helpful to have such a model to communicate your business model. (when making decisions, to communicate with employees)
Final discussion
Do you have any final comments?
use of concepts and tools?
fidelity with real world phenomena?
potential applications of the business model concept and ontology?
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21. Interview Outcome ability to create a transparent big picture
employees
use of concepts
use of tools
trial & error
defining indicators
improving decision making
improving strategic planning
helping in the design of ISs
increasing innovation
improving process design
improving communication
Retail over Internet 3
little no
yes q1 q2 q3 q4 q5
Software in the mobile industry 5 q6 q7 q8 q9
q10
Service over Internet 15
q11
q12
q13
q14
q15
Service in Finance 31
q16
q17
Internet Industry Platform 80
q18
q19
q20
q21
Industry
400
q22
q23
q24
q25
q26
Entertainment
q27
Transport
3'315
q28
q29
q30
q31
Consultant 1 -
q32
q33, q34
q35
q36
q37
q38
Consultant 2
q39
q40
q41
q42
q43
Consultant 3
q44
green = positive answers, red = negative answers, grey = neutral answers, white = not answered q = quotes
ability to create a transparent big picture
creation of a commonly understood language
helps addressing fundamental questions
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22. Case Studies & Use by Others
Company & industry sector
Company information
Logifleet – Fleet management systems provider
Swiss startup founded in 2002
Factory121 – personalized Swiss watch retailing over the Internet
Swiss startup founded in 2003
LeLivre –book retailing over the Internet
Subsidiary of book retailer Librairies La Fontaine SA
Ellipse – bricks & clicks book retailing
Swiss bookstore founded in 1984
NetMovies – DVD rental over the Internet
Subsidiary of Aleance (USA) founded in 2001
MNC – mobile phone services (SMS)
Swiss Telecom service provider founded in 1998
Adrenalink – sports marketing and management consultancy
Swiss consultancy
Phone-Plus – telecommunication services reseller
Belgian venture established in 1999
ZenithVie – life insurance
Swiss company
Masters Students’ Class Work
Closed interview questions rated between 1 and 5 (1 = very definitely not, 3 = to some extent, 5 = very definitely)
average
Did the concepts exposed in the course "Stratégies et technologies de l'information" allow you to accurately describe the business model of the company you analyzed?
3.89
How closely do the elements of the sample document cover the aspects of the business model analyzed? 4
Was the concept "proposition de valeur" relevant to describe the business model you analyzed?
4.44
Was the concept "clients et canaux de distributions" relevant to describe the business model you analyzed?
3.78
Was the concept "relation-client et confiance" relevant to describe the business model you analyzed?
Was the concept "activités et compétence" relevant to describe the business model you analyzed?
Was the concept "partenariat" relevant to describe the business model you analyzed?
4.11
In your opinion is the business model concept useful?
4.33
is the business model concept applicable?
fidelity with real world phenomena?
appropriateness of the building block concepts?
MyChocolat
Masters Thesis
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23. Montreux Jazz Festival Case Study
fidelity with real world phenomena?
applicability of ontology?
applicability of prototype?
completeness?
© 2003, Osterwalder

24. Further Research & Further Validation: Test in the Field
proposition
h1) A business model ontology based visualization tool can help business practitioners more quickly understand a business model and the relationships behind its elements.
h2) A business model ontology based tool creates a common language to address business model issues an in this regard improves communication between business practitioners.
h3) Discussing business model issues with a business model ontology based tool (to understand business models) has an impact on discussion quality.
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25. Exploring the Potential: Alignment
CUSTOMER
INNOVATION
FINANCE
PROCESSES
GOALS
STRATEGY
Balanced ScoreCard
Business
model
BUSINESS/ORG.
IT/IS
STRUCTURE
SYSTEMS
Business Models – the missing link -
Infusion PROSPECTOR
Alliance ANALYZER
Utility DEFENDER
High Potential
Strategic
IS role
IS sourcing
IS structure
Importance of IT Applications
Key OP
Support
Alignment profile
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Strategic impact of IT -

26. Discussion? http://www.hec.unil.ch/aosterwa/PhD THE END...
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