Business School
ENHANCING COMPETITIVENESS WITH DIGITAL PLATFORM BUSINESS MODEL IN B2B CONTEXT: A DYNAMIC CAPABILITY PERSPECTIVE
Master’s Thesis International Business and Sales Management Eveliina Salmivuori (297622) 30 April 2020
Abstract
UNIVERSITY OF EASTERN FINLAND Faculty
Faculty of Social Sciences and Business Studies
Department
Business School
Author
Eveliina Salmivuori
Supervisor
DSc. Irina Mihailova
Title
Enhancing competitiveness with digital platform business model in B2B context:
A dynamic capability perspective
Main subject
International Business and Sales Management
Level
Master’s degree
Date
30.4.2020
Number of pages
94+2
Abstract
Technology is proposing opportunities and threats for B2B companies on how to create new types of value for their customers. B2C platforms have gained foothold among academics but studies in the B2B context are yet scarce. The objective of this thesis is to explore how traditional B2B companies can create competitive advantage through building a digital platform. The phenomenon is studied utilizing a conceptual framework derived from recent literature of competitive strategy, dynamic capabilities, and business models. The conceptual framework forms an expectation that the external environment as well as dynamic capabilities both influence competitive strategy and integration of a new business model. Competitive advantage derives from the integration of a digital platform business model with new value creation opportunities enabled by dynamic capabilities and specific resources.
The empirical part of this thesis is carried out as a qualitative multiple case study. The empirical data was collected through semi-structured interviews targeted at people working with building of a digital platform. The case companies are KONE Oyj and Posti Group Oyj, who are applying digital platform business model in the B2B context in Finland.
The findings suggest that company’s strategy is influenced by company’s external environment and dynamic capabilities derived from internal environment. Consequently, strategy triggers the integration of a new business model. Digital platform business is eventually formed in orchestration with external environment influencing the industry and business itself, dynamic capabilities as well as with focus on how business creates value to its customers i.e. how a part of the business model is formed. The process of building of a digital platform is enhanced with partner network, multi-disciplinary team, new development methods and customer interaction, of which all are influenced by internal dynamic capabilities. In the end, the competitive advantage is seen to derive from new type of value creation, which
previously was not possible but responds to customer needs and overall improves the customer experience. The findings offer novel insights focusing on integration of a digital platform business in B2B context and furthermore, how it can enhance companies’ competitiveness.
Key words
business model, platform business, digital platform business model, dynamic capabilities
Tiivistelmä
ITÄ-SUOMEN YLIOPISTO Tiedekunta
Yhteiskuntatieteiden ja kauppatieteiden tiedekunta
Yksikkö
Kauppatieteiden laitos
Tekijä
Eveliina Salmivuori
Ohjaaja
KTT Irina Mihailova
Työn nimi (suomeksi ja englanniksi)
Kilpailukyvyn edistäminen digitaalisen alustaliiketoimintamallin avulla B2B - kontekstissa: Dynaamisten kyvykkyyksien perspektiivistä
Pääaine
Kansainvälinen
liiketoiminta ja myynnin johtaminen
Työn laji
Maisteritutkinto
Aika
30.4.2020
Sivuja
94+2
Tiivistelmä
Teknologia tuo mukanaan sekä mahdollisuuksia että uhkia kuinka B2B -yritykset voivat tuottaa uudenlaista arvoa heidän asiakkailleen. B2C -alustat ovat saaneet jalansijaa tutkijoiden keskuudessa, mutta tutkimukset alustataloudesta B2B -kontekstissa ovat vielä vähäisiä. Tämän tutkielman tarkoituksena on tutkia kuinka perinteiset B2B -yritykset voivat luoda kilpailuetua digitaalisen alustan avulla. Ilmiötä tutkitaan konseptuaalisen viitekehyksen avulla, jossa yhdistyvät kilpailustrategia, dynaamiset kyvykkyydet ja liiketoimintamallit. Viitekehys on rakennettu viimeaikaiseen kirjallisuuteen pohjaten. Viitekehys esittää, että sekä ulkoinen liiketoimintaympäristö että dynaamiset kyvykkyydet vaikuttavat kilpailustrategiaan ja uuden liiketoimintamallin implementointiin. Kilpailuetu syntyy uuden digitaalisen alustaliiketalous- mallin arvonluontimahdollisuuksien avulla, jonka syntyä edistävät dynaamiset kyvykkyydet ja yrityksen resurssit.
Tutkimuksen empiirinen osa on toteutettu laadullisena monitapaustutkimuksena. Empiirinen data kerättiin puolistrukturoiduilla haastatteluilla henkilöiden kanssa, jotka ovat olleet
digitaalisen alustaliiketoimintamallin kehityksessä mukana. Haastattelukysymykset muotoiltiin konseptuaalisen viitekehyksen ohjaamana. Yritystapaukset tutkimuksessa ovat KONE Oyj ja Posti Group Oyj, joilla molemmilla on digitaalinen alustaliiketoimintamalli osana toimintaansa Suomessa.
Tutkimuksen tulokset osoittavat, että yrityksen strategiaan vaikuttavat sekä yrityksen ulkoinen ympäristö että dynaamiset kyvykkyydet, jotka kumpuavat yrityksen sisältä. Johdonmukaisesti yrityksen strategialla on vaikutusta uuden liiketoimintamallin implementointiin. Ulkoinen liiketoimintaympäristö, dynaamiset kyvykkyydet ja liiketoimintamallin eri elementit vaikuttavat edelleen digitaalisen alustaliiketoimintamallin syntyyn. Digitaalisen alustan rakennusprosessissa korostuu yhteistyökumppaniverkosto, monialainen tiimi, uudet
kehitysmetodit ja vuorovaikutus asiakkaiden kanssa, ja näihin kaikkiin vaikuttavat yrityksen sisäiset dynaamiset kyvykkyydet. Kilpailukyky juontaa uudenlaisesta arvontuotosta, joka ei aiemmin ole ollut mahdollista, mutta vastaa asiakkaiden tarpeeseen sekä kokonaisvaltaisesta asiakaskokemuksen parantumisesta. Tutkimuksen tulokset tarjoavat uutta tietoa digitaalisen alustaliiketoimintamallin rakentamisesta ja implementoinnista B2B -kontekstissa ja kuinka se voi parantaa yrityksen kilpailukykyä.
Avainsanat
liiketoimintamalli, alustaliiketoiminta, digitaalinen alustaliiketoimintamalli, dynaamiset kyvykkyydet
TABLE OF CONTENTS
1 INTRODUCTION ... 7
1.1 Background ... 7
1.2 Research gap and research problem ... 8
1.3 Research objective and questions ... 10
1.4 Study structure ... 10
1.5. Definitions ... 11
2 LITERATURE REVIEW ... 13
2.1 Digital platform business ... 13
2.1.1 Digital platform business in B2B context ... 14
2.1.2 Digital platform construct ... 15
2.2 Business model ... 16
2.2.1 Defining business model ... 17
2.2.2 Business model vs. strategy ... 22
2.2.3 Building a new business model ... 24
2.2.4 Digital platform business model ... 27
2.3 Competitive strategy ... 28
2.3.1 Defining competitive strategy and competitive advantage ... 29
2.3.2 Evolution of competitive strategies ... 31
2.3.3 Dynamic capabilities as a strategic view ... 32
2.3.4 External environment’s influence on dynamic capabilities ... 38
2.3.5 Dynamic capabilities in practice ... 40
2.4 Conceptual framework ... 42
3 METHODOLOGY ... 45
3.1 Research method and approach ... 45
3.2 Unit of analysis ... 47
3.3 Data collection ... 48
3.4 Data analysis ... 50
3.5 Research evaluation ... 51
4 DATA DESCRIPTION ... 52
4.1 Description of cases ... 52
4.2 Description of data ... 52
5 EMPIRICAL FINDINGS AND ANALYSIS ... 53
5.1 Company’s reaction to external environment ... 53
5.2 Strategy gives guidelines to business model ... 56
5.3 Customer interaction and increasing demands ... 62
5.4 Company’s internal asset orchestration and operations ... 68
5.5 Building of a partner network ... 75
6 CONCLUSIONS ... 79
6.1 Discussion ... 79
6.2 Managerial implications ... 86
6.3 Limitations and future research ... 87
REFERENCES ... 89
APPENDICES ... 95
LIST OF FIGURES Figure 1. An example of a digital platform business ……….. 16
Figure 2. Business model construct: Activity system perspective ……….……. 19
Figure 3. Hierarchy of capabilities and dynamic capabilities……….……. 36
Figure 4. The elements of dynamic capabilities………..… 37
Figure 5. Conceptual framework………. 44
Figure 6. Conceptual framework revised based on empirical findings………... 85
LIST OF TABLES Table 1. Key definitions of dynamic capabilities……… 34
Table 2. Case interviews………..… 52
1 INTRODUCTION
1.1 Background
Emerging technological advancements are creating opportunities for new products and services, as well as threats for existing companies, who are stuck in the past. Technological transformation forces companies to step out of their comfort zone. I became interested in this topic during a university course focusing on digital channels and B2C platforms. Advancements in technology and changing customer needs are challenging how companies create value for their customers nowadays. I started to view this as an opportunity for B2B companies as well.
Finland is known for its talents in engineering but on the other hand, it is also known for high labor costs, which has an effect on profitability of manufacturing products domestically.
Seasonality in demand, and therefore in producing products and services create uncertainty for companies’ financial situation. Thus, new innovations in emerging digital platform businesses can help Finnish companies to sustain their competitive advantage and be able to compete in the international and global context. This does not necessarily mean that all the companies should create their own digital platforms but to consider the possibility to also join other platforms and re-think the way it creates value to its customers.
It has been reported, that in 2013 none of the studied 51 companies, i.e. Finnish medium-sized industrial manufacturing companies, applied digital platforms in their operations and only seven of those applied digital features in their product and service offering (Castren et al. 2016).
Castren et al. (2016) studied the reasons behind it and came to conclusion that “boundary resources” are the key reasons for the lack of digital platforms. Although, these companies have in-depth knowledge of their area of business, their resources are lacking. (Castren et al. 2016.) Simultaneously, the most valuable companies in the world are platform companies, including digital platforms (Cusumano et al. 2019). Disruptive companies are emerging constantly. The ability to consider internal and external industry-specific opportunities and threats, and to respond to them proactively dictates the way for future success or failure.
Digital platform business itself is not the mean but the result of strategy and business model.
Strategy dictates the companies’ direction, where they compete and how they compete.
Business model derives from strategy and explains how the company creates value to its customers, and thus, digital platform business model might be the result of the chosen business model. All of these concepts are interdependent and to describe the phenomenon, how company
transforms its operations towards digital platform business, throughout consideration of all of the aspects is required.
The main competitive strategy thinking derives from Porter’s (1980) work and focuses on cost leadership or differentiation, which is based on company’s external environment and analysis of five forces (Porter 1985). This theory has been extended by Treacy & Wiersema (1993) by focusing on customer intimacy, operational excellence and product leadership. Yet again, Treacy & Wiersema’s theory concentrates on external environment and how competitive advantage stems from it. These sources of competitive advantage have been challenged by resource-based view (RBV) and dynamic capabilities view, of which both suggest that competitive advantage stems from company’s internal characteristics (Treacy & Wiersema 1993; Teece et al. 1997). Dynamic capabilities theory emerged in 1990s close to the gaining popularity of digital platforms (Teece et al. 1997). Earlier literature has already made connections between digital platform business and dynamic capabilities (Helfat et al. 2015;
Teece 2018).
Whereas dynamic capabilities have been tied to digital platform business, also literature on business models has grown during the last decade due to the popularity of digital platforms (Zott et al. 2011; Fehrer et al. 2018). Literature on business models have been vivid and controversial. There exist two competing views of business model, which are activity system (Zott & Amit 2010) and value system (Teece 2010). Scholars argue that in spite of their differing views, they complement each other rather than compete (Landau et al. 2016).
Although business model has been discussed in practice quite often, it hasn’t gained a strong and clear acceptance among academics. This offers opportunities for academics in the future and provides an interesting challenge to conquer. The purpose of this thesis is to explore how traditional companies can benefit from digital platform business model and provide novel insights how companies can integrate digital platform business model in their operations.
1.2 Research gap and research problem
As described above, both business model and dynamic capabilities as concepts have emerged during the last few decades, and the academic literature has grown substantially only during the past 10 years. Business model literature has concentrated on the reasons why business models are being transformed (see Teece 2010; Zott et al. 2011; Saebi et al. 2017; Tallman et al. 2018)
among defining what business model is (see Zott et al. 2011; Massa et al. 2017). Business model is compared to strategy frequently and some scholars have agreed on how do they relate to each other (see Shafer et al. 2005; DaSilva & Trkman 2014). Teece and Linden (2017) and DaSilva and Trkman (2014) have made the connection between business model and dynamic capabilities, thus they suggest that strong dynamic capabilities are needed in designing and implementing business model. In international and global context, business model literature is narrow and mostly focused on the characteristics of it depending on the context. Business model and its’ characteristics are considered to be changing based on the location (Teece & Linden 2017), but it should originate from a clear structure, which can be adapted easily in various market areas (Tallman et al. 2018).
Although, there exists literature on these topics, they lack empirical evidence on how dynamic capabilities can support the integration of new business model and how it results in enhanced competitiveness. Scholars have studied dynamic capabilities’ effect on competitive advantage in various market conditions (Schilke 2014) and additionally, Teece (2018) suggests that future research on business model implementation and change will provide insight of dynamic capabilities. Schilke et al. (2018) state that the studies of the role of dynamic capabilities in configuring markets and ecosystems are not sufficient and require more attention. Literature on digital platforms has managed to make divisions on different type of platforms that can be applied in B2B context, such as transaction, innovation and hybrid platforms. The value creation process is what differentiates these types of platforms from each other. (Teece 2016;
Cusumano et al. 2019) Whereas the platform is not the actual focus of the study, I have found it important to explain it, in order for you as a reader to build a holistic picture of the studied phenomenon. In this thesis, I will combine strategy, dynamic capabilities and digital platform business model in B2B context, which will allow to elaborate on how companies can enhance their competitiveness by integrating digital platforms in their business and creating new value creation opportunities. The conceptual framework is built on dynamic capabilities’ effect on integrating digital platform business model, and how that has an effect on competitive advantage. Research problem guiding this thesis is: “How can traditional companies create competitive advantage through building of digital platform business?”
1.3 Research objective and questions
The objective of this thesis is to describe thorough a qualitative study the integration of digital platform business model and its effects on competitive advantage with a real-life B2B case companies. Whereas, the study focuses on only two companies, the objective of the study is not to provide generalizable results but to act as an eye-opener regarding the characteristics that need to be considered during the process.
Research questions that this thesis aims to answer and then fulfill the overall objective are:
RQ1: What resources and capabilities are needed to integrate digital platform business into the firm’s existing operations?
RQ2: How do dynamic capabilities support the integration of digital platform business?
RQ3: How does a successful integration enhance the firm’s competitiveness through building of new value creation opportunities?
1.4 Study structure
I started this thesis with introduction (chapter 1) to prepare you to read this thesis. At this moment, you should be familiar what is the topic, why it was chosen, understand the research gap and most importantly, what is the problem in question and what questions this thesis aims to answer to. The following chapters are literature review, methodology, data description, empirical findings and analysis, and lastly conclusions. Next, I will describe the chapters more specifically.
Literature review (chapter 2) focuses on main theoretical foundations and constructs related to this thesis. I outline the relevant previous literature, and their findings. In chapter 2.1, I start by explaining the digital platform business and define it from several point of views. The context of this study is B2B companies and therefore the focus is on digital platform businesses and constructs related to them. Secondly in chapter 2.2, I focus on business model, applying business models and business model’s relationship with strategy. Towards the end of this chapter, I examine the fundamentals of digital platform business model and view its differences with pipeline business model. In the chapter 2.3 in this literature review, I concentrate on competitive strategy, its evolution towards dynamic capabilities and the outcome, competitive advantage. I also start to draw lines between dynamic capabilities and business model based on
the reviewed literature. Chapter 2.4 as last part of literature review is focused on building the conceptual framework for the empirical part of this thesis.
Chapter 3 declares the methodology of the empirical part of the thesis. In chapter 3.1 concentrating in research method and approach, I will present and justify my choice of qualitative multiple case study using abductive approach. Secondly (chapter 3.2), I present the unit of analysis in question. In third chapter (3.3), I describe the data collection process and reasons for choosing semi-structured interviews as primary data and public documents as secondary data. Fourthly (chapter 3.4), I provide reasoning for choosing qualitative content analysis as coding as a data analysis method, and lastly (chapter 3.5), I outline the research evaluation principles. Data description is presented shortly in chapter 4 describing the cases and data associated with them.
Chapter 5 is the most insightful part of this thesis and it focuses on empirical findings and analysis. In this chapter I will present the findings divided in five different themes (chapters 5.1-5.5) emerged from the empirical data and aim to build a coherent storyline of the process.
I will also detail in each theme, to which research question the findings provide answers.
In the very last chapter of this thesis (chapter 6), I present the overall conclusion of this master’s thesis. Chapter 6.1 discussion presents this thesis’ contribution for academia and highlights the main findings. Managerial implications i.e. the contribution to practitioners are presented in chapter 6.2. And finally, in chapter 6.3, I examine the limitations of this research and provide propositions for future research.
1.5. Definitions
Business model Business model describes how companies do business and create value. Business model is “the design of transaction content, structure, and governance to create value through the exploitation of business opportunities” (Amit & Zott 2001). One company may apply multiple business models in its operations.
Digital platform business Digital platform business refers to a digital platform, which creates value by allowing transaction, innovation or both between two or more parties. A transaction platform creates value by mediating transactions and applying network effects whereas, an
innovation platform create value by offering complementarities to existing products or services.
(Teece 2017; Cusumano et al. 2019.)
Digital platform business model Digital platform business model means that a company uses a digital platform to do business and create value. Digital platform business model is characterized by the value orchestration, which happens in sync with partners and customers. (Zott et al. 2011; Fehrer et al. 2018.) Traditional pipeline business model can be seen as a predecessor to digital platform business model.
Dynamic capabilities Dynamic capabilities are “the ability to integrate, build and reconfigure internal and external resources to address and shape changing business environments” (Teece 2017). Furthermore, they can be divided in three phases 1) “sense and shape opportunities and threats” 2) “seize opportunities”
and 3) “maintain competitiveness through enhancing, combining, protecting and, reconfiguring the business enterprise’s intangible and tangible assets” (Teece 2007).
Traditional company Traditional company refers to a company producing products or services with no prior experience of applying digital platform business model (described above).
2 LITERATURE REVIEW
In this literature review, I will explain the previous and most recent literature relevant to my research. Literature review is divided into four separate sections, which partly overlap with each other due to interdepending concepts, which cannot be left unnoticed. First section defines the main concepts related to digital platform business, which are vital to understand the purpose of the study and to avoid confusion. Secondly, I will present theories connected to business models and aim to make a clear representation of it. The third section explains competitive strategy and moreover, concentrates on dynamic capabilities. Lastly, I will connect the previous sections and present a conceptual framework for this study.
2.1 Digital platform business
Digital platforms have gained foothold in multiple industries during the past decade. In B2C context, digital platforms have been able to revolutionize and change the competitive dynamics in multiple industries forcing the traditional companies to re-think their value creation, delivery and capture processes. In platform business, the value is created together with partners and customers, partially outside the focal company (Van Alstyne & Parker 2017). B2C digital platforms are for example Airbnb, Uber and Apple. Airbnb operates world’s largest (Parker et al. 2016) accommodation company but doesn’t own a single hotel. Likewise, Uber operates world’s largest (Parker et al. 2016) taxi company without owning any cars and Apple creates opportunities for numerous companies to offer their products and services on Apple iOs ecosystem, thus making it more valuable to purchase. Porter and Heppelmann (2015) argue, that smart data-producing products are important for companies pursuing in digital platform business. Nevertheless, the swift into smart products and digital platforms will create organizational challenges.
In this research, I will concentrate on digital platform businesses in B2B context. One example of a digital B2B platform is elevator and escalator manufacturer KONE’s new DX Class elevators. The elevator is the physical platform and its software is the digital part of it. The digital platform connects Kone’s solutions, customers’ own applications and most of all, third party services by secured APIs. (KONE 2020.) This example of KONE’s digital platform is an innovation platform, of which characteristics will be examined in the next following sections.
2.1.1 Digital platform business in B2B context
Digital platforms are scarce in B2B context, where the platform itself facilitates the economic, social or other value exchange between two or more groups. B2B digital platforms are not as visible as B2C platforms, but there are few of them. 67 % German companies in industry or industry-related services were using digital platforms by the end of 2018 and among reasons to use such platform was product and service creation with third parties (BDI 2020). This indicates that companies are not solely using platforms in their operations but trying to create and deliver value with external partners. B2B companies traditionally work with platforms using them in their internal operations but it is not common yet to create and own digital platforms, which will facilitate exchange within their respective industry. Digital platforms propose both threats and opportunities for traditional companies. Van Alstyne and Parker (2017) argue that traditional companies who are unable to create new platforms or integrate their business into other ones will face obstacles in the future.
There are various definitions and characteristics for digital platforms depending on what type of a platform is in question. Teece (2017a) and Cusumano et al. (2019) divide platforms into three groups, which are transaction, innovation and hybrid platforms. On one hand, transaction platform facilitates exchanges and transactions between two or more parties and focuses on network effects. On the other hand, innovation platform offers possibilities to other companies, called complementors, to offer complementary products and services to the platform user, which will increase the value of the entire system. Hybrid platforms are a mixture of these two applying both ways to operate. (Teece 2017a; Cusumano et al. 2019.) The value creation process is different depending on the platform type. Transaction platform’s value creation derives from the platform enabling various parties to make transactions with each other whereas innovation platform’s value emerges as a result of platform enabling other parties to join it by offering complementary products and services. In the latter case, the value increases as other parties join, and it is not based on single transactions. (Teece 2017a; Cusumano et al. 2019). A common example of a transaction platform is Ebay, which facilitates exchange between buyers and sellers of various products. Apple iOs ecosystem is an explanatory case of innovative platform. It offers other companies the possibility to offer their products and services, usually applications, to the iOs users.
2.1.2 Digital platform construct
The exact construct of a platform will vary depending on the platform itself, how value is being created, delivered and captured and who are the actors within it. Platform owner is the focal company who owns, operates and governances the platform. Complements offered by complementors in the platform are in crucial part of the dynamics. Demand for the platform grows higher as the complements become more valuable, thus positive network effects arise (Gawer 2010). This is typical for innovation platforms, where the platform provides an opportunity for other companies to offer their products and services to the platform users.
Platform participants refer to all of the parties taking part in platform (Parker et al. 2016). For example, in transaction platform consumers and producers are the participants in addition to platform owner. One of the central elements of a digital platform is a value unit. Value unit refers to the value exchanged in the platform. Value unit is produced by the one offering the value, be it a producer or a complementor. (Parker et al. 2016)
Network effects is a commonly used term with platforms, which explains part of the success of them. The more users the platform has the more value is created to its users (Parker et al. 2016;
Cusumano et al. 2019) and network effect is created. Users can refer both to complementors to the platform and people using the service or a product. Network effects can also be negative, thus small number of users will result in less value to be created (Parker et al. 2016). Network effects can be seen as a modern counterpart to economies of scale (Parker et al. 2016), which a company aims to achieve to gain competitive advantage. Platform can obtain one- or two-sided network effects and it is a commonly used growth tool to help the platform succeed (Parker et al. 2016).
Platforms have numerous of details to be considered in the development phase. Chicken-or-egg problem is one of the obstacles that needs an answer (Parker et al. 2016; Cusumano et al. 2019).
As the focal company, platform owner, needs other parties to take part in the platform, it needs to make a decision on which side of the platform it will focus first (Cusumano et al. 2019). A careful analysis is important in order to know how the platform will attract other parties to join.
Cusumano et al. state that the reason that new platforms often fail is because they focus on the wrong side of the platform initially. On the other hand, platforms offer also advantages that could be hard to achieve otherwise. For example, traditional supply economies of scale are being replaced with demand economies of scale enabled by digital platforms. Rather than
offering cost advantage in the supply side, demand economies of scale is based on social networks, increasing demand and complementing apps in the demand side, which result in network becoming more valuable and allowing competitive advantage to be achieved. (Parker et al. 2016, 19.)
Figure 1. An example of a digital platform business
Previous literature of digital platform business is focused mostly on the platform mechanism and different types of platforms. Moreover, it is focused largely on platforms in B2C context and does not focus on the process of integration but rather the current state and how the platform works. One reason could be that digital platform businesses in B2C context have been established without any traditional business existing in the background. The business has been started from the scratch with a goal to revolutionize an industry with a new platform. Thus, B2B context and process of traditional companies’ process of integration is still left unstudied.
2.2 Business model
Business model (BM) is another buzzword in today’s business world. It has gained popularity with technology companies, and it is also becoming a popular concept within traditional
companies. BM is discussed in academic literature at some extent, but Teece (2010) states that it is still neglected in social sciences and business studies, thus do not have a place in theoretical world. Massa et al. (2017) argue that BM research is an extension of strategy, but it does not create new field of research. The number of academic research of BMs has grown substantially during the last decade (Zott et al. 2011; Fehrer et al. 2018). Still, BM as a term is used to describe multiple different phenomena depending on the field (Zott et al. 2011).
In this chapter I will examine BM from different point of views. I will start by defining the concept of business model and its different views based on recent literature. Following that, I will explain the differences between BM and strategy and move on to clarify the construct of BM from activity system perspective. Lastly, I will discuss the recent literature on digital platform business model.
2.2.1 Defining business model
There does not exist one common definition of business model and its concept in the academic literature. Scholars are able to recognize commonalities between business model definitions and (Zott et al. 2011). The concept of business model can vary between people working either in business or technology (Osterwalder et al. 2005), and scholars have not been able to agree on one common concept of a business model (Zott et al. 2011). Whereas there does not exist a common definition for business model, it has been agreed at some length what business model is not. It is not a linear value chain from suppliers to customers, it does not equal to product- market strategy and has a little to do with positioning on the market, it is not a corporate strategy and finally, it cannot only concern the internal factors of a firm. Nevertheless, business model can create competitive advantage for a company. (Zott et al. 2011.)
Massa et al. (2017, 97) conclude that there are three different perspectives or interpretations of business models: 1. “an attribute of a real organization” 2. “a cognitive/linguistic schema”
and 3. “a formal conceptual representation of an organization’s activities”. Zott et al. (2011) note that business model studies do not define the concept, in which business model refers to.
Massa et al. (2017) agree and state that current research fails to acknowledge which of the three interpretations is used in a specific study. Although it is not mutually agreed what business model is, business model scholars agree that is an important new unit of analysis (Zott et al.
2011).
At a general level, business model describes how companies do business and create value. It is a steel wire, which composes a structure for company’s value creation and existence. According to Landau et al. (2016), there finds two distinctive concepts of business models that have been accepted by scholars. Teece (2010) introduced value-based perspective whereas Zott and Amit (2010) present activity system perspective based on their earlier research on e-businesses in 2001. Although these views offer different perspectives, it can be argued that they are complementary of each other (Landau et al. 2016). I choose to concentrate on activity system perspective in this thesis, as it is supported by earlier literature, it stresses the importance of holistic view of business operations (Zott & Amit 2010), it is argued to be useful also when analyzing traditional companies (Landeau et al. 2016) and because in business model thinking, scholars’ emphasize systemic approach on doing business (Zott et al. 2011).
Business model is built of different components. While the content of the components is somewhat unique to specific companies, the components themselves should be unified across the businesses. In activity system perspective (Figure 2), Amit and Zott (2001, 494-495) define business model as “the design of transaction content, structure, and governance to create value through the exploitation of business opportunities”. Business model is seen to consist of design elements and design themes. Design elements, content, structure and governance, are the architecture and frame of a business model. Content refers to various activities that link to value creation. Structure refers to the way how activities are linked with each other. Governance refers to the unit, which performs the activities mentioned in content. This part of a business model explains how company does business. The second part, design themes, describe how companies create value. Such themes are novelty, lock-in, complementarities and efficiency.
Business model, that is focused on novelty creates value by introducing new activities in its content, structure of governance. Lock-in refers to a way that company maintains the interest of third parties to take part in the business and it can be a result either from structure, content or governance. When focusing on complementarities, the value created with multiple activities is greater than with separated activities. Finally, business models with efficiency-centered focus minimize transaction costs with the choices of their business model construct. (Zott & Amit 2010.)
Figure 2. Business model construct: Activity system perspective (Amit & Zott 2001; Zott & Amit 2010)
Business model can be seen to consist of two types of elements, choices and consequences. The choices that management makes always lead to a certain consequence. All of the elements will eventually lead to a holistic picture of a business model. (Casadesus-Masanell & Ricart 2010.) Whereas the elements are always choices regardless of a company, it is quite vague to try to
describe elements of a business model as only choices and consequences. It will leave the construct to seem superficial. Casadesus-Masanell and Ricart (2010) argue that strict description of the elements can create boundaries for practitioners on how to build their business models.
Why it is so important to raise questions about business models? And how can business models serve the companies? Business models are not only definitions and tools, they can also serve a bigger purpose in a company. Osterwalder (2004) suggests that business models can help companies understand, share, analyze, manage and prospect the business logic of a company.
Oftentimes, the elements of business model are assumed to be as they are and communicated on an abstract level, without guarantee for understanding. The suggestion of different streams of use for business model (Osterwalder 2004) can help companies to be proactive in communication, educate their employees and encourage masses to suggest changes to it.
Business models are an essential part of innovating new products and services, especially in technology context. Fluctuating competitive environment requires companies to re-think their operations and functions. New technological innovations (Teece 2010; Zott et al. 2011; Tallman et al. 2018) and changes in economy such as global connectivity (Tallman et al. 2018) are key drivers in transforming companies’ business models. Saebi et al. (2017) found empirical proof that threats in the external business environment forecasts forthcoming changes in current business model. Additionally, emerging markets and opportunities related to their economic growth force companies to innovate and re-think their value creation and capture processes (Tallman et al. 2018).
Business models change during company’s lifecycle due to internal or external events. Saebi et al. (2017) propose that business model adaptation occurs when management is proactive in aligning business model to challenge the external opportunities and threats. Additionally, they propose the term business model innovation to be used when a company is proactive in innovating the business model in attempt to disrupt the existing market. The spark for innovation can be caused either by internal or external factors. Companies are more likely to adapt their business models when a threat they are facing is more rigorous, but the adaptability does not increase in a case of a on opportunity (Saebi et al. 2017). Business model can itself represent a new innovation (Teece 2010; Zott et al. 2011). It is found out that novelty-centered business models, introduced before, are associated with positive firm performance even with limited resources and uncertainty of the business model and its reliability (Zott & Amit 2007).
New innovations in ways to organize business models can represent substantial advantage for companies but it also challenges them in investing in people. A company needs employees, who have the talent and ability to challenge the status quo.
Technology and its advantages often offer advantages for start-ups when comparing to multinational enterprises. Company lifecycles are decreasing in time due to rapid growth in adaptation of technology. (Tallman et al. 2018.) However, technology is only a tool in business, and it does not automatically create value. In the context of technological innovations, strategic analysis and business model are required to acquire commercial success (Chesbrough &
Rosenbloom 2002; Teece 2010; Zott et al. 2011). It is a delusion to assume that technology on its own can change company’s path and create success. Carefully designed business model is a key to create and capture value.
Business model design and implementation demand strong dynamic capabilities (Teece &
Linden 2017). Rachinger et al. (2018) found empirical proof that dynamic capabilities are important in designing business model, especially in the early phases. They also state that, dynamic capabilities or the lack of them will bring future challenges to companies trying to adapt their business models. Dynamic capabilities will be discussed in chapter 2.3 Competitive strategy.
Literature of BMs has acknowledged the relationship between changing or creating a new business model and external environment, but it is not yet connected to integrating a new digital platform business model into existing operations and further enhancing the competitiveness.
Moreover, Tallman et al. (2018) state that technology offers advantages for start-ups but does not acknowledge how more established companies can take the advantage of the technology in regard of integrating a new digital platform business model. Activity system perspective introduced by Amit and Zott (2001) gives guidelines on how business creates value and does business but then again, it has not been applied in B2B context and originally it was introduced in terms of e-businesses. On the other hand, it is seen as a suitable perspective in regard of traditional companies. By concentrating on business model and especially the value creation part, it becomes possible to explain how a company can further enhance their competitiveness.
2.2.2 Business model vs. strategy
BM and strategy are two key concepts that every business should have. All companies have BMs, although they might not be good and profitable, but not all companies have a strategy, an action plan, which guides them to make the suitable choices (Casadesus-Masanell & Ricart 2010). Scholars are divided in two groups regarding the importance of business model. The first group argues that business model is a modern name for strategy and the latter state that traditional strategy research is not considering all the characteristics of business model, such as the assumption that customer will always pay when value is created to them. Internet era and various applications have changed the value capture process for companies. A technological innovation oftentimes does not capture value itself, and this is why business models are needed to finalize the commercialization process. Today, the challenge is not to find a customer but to find a way to make customer pay for creating value to them. (Massa et al. 2017.)
Zott et al. (2011) describe that strategy is extended by business model by concentrating on the central ideas of it. The choice of the most suitable business model is a part of a strategy and business model reflects the strategic choices, that company makes (Teece 2018; Casadesus- Masanell & Ricart 2010). Tallman et al. (2018) describe that strategy is the action part of the business model and how it uses the elements of a business model to create competitive advantage by value creation. Scholars, that agree business model to be separated from strategy, are not completely aligned on how it differs and what are the functions of each of them in company dynamics. I understand the dynamics so that strategy will lead the choice of a suitable business model/s, but certainly strategy exists first. Strategy literature has previously concentrated on business models around the areas of joint value creation, business model and firm performance as well as the differences between business model and strategy (Zott et al.
2011).
Scholars have identified two main factors concerning the difference between strategy and business model. First difference is that business model concentrates on external factors such as cooperation, partners and joint value creation but strategy is focused on competition, value capture and competitive advantage. Secondly, business model is overall more customer-centric than strategy and it focuses on value creation. Strategy literature is not known to emphasize the role of the customer. (Zott et al. 2011.) Massa et al. (2017) support this by proposing three key points, which distinct business model from strategy. The starting point for business models is
the customer point of view and creating value for customers as well as users or other parties involved. Secondly, customers and other actors are able to create value for themselves and are not dependent on the firm’s supply chain. And thirdly, business model is assumed to change. It will reform as new information and knowledge is being obtained. (Massa et al. 2017.) Priem et al. (2018) conclude, that where resource-based strategy concentrates on firm’s value capture and demand-side strategy concentrates on firm’s value creation, business model, on the other hand, covers and links both of these areas to each other. Hence, business model creates a holistic view of two views of strategy.
Shafer et al. (2005) suggest that BM facilitates and reflects the strategic choices a company has made in the past. Therefore, a final BM is a causality of strategy. In a simple business case, strategy will lead to a single BM and contradictory, strategic choices can lead to multiple different BMs that a company has to choose from (Shafer et al. 2005). DaSilva and Trkman (2014) support this view by stating that strategy will enable dynamic capabilities and further enable the adaptation of BMs. Shafer et al. (2005) propose that sustained success emerges from testing strategic options formally and with punctuality with BMs. He stresses that strategies and BMs are continuously developing (Shafer et al. 2005). Strategy views the business from a long- term perspective and BM reflects to the present situation (DaSilva & Trkman 2014). DaSilva and Trkman (2014) suggest that dynamic capabilities act as an intermediary between strategy and BM.
Competition and implementation are excluded from business model but are included in strategy (Magretta 2002; Osterwalder et al. 2005). Magretta (2002) argues that business model can be identical to rivals and company can still create competitive advantage with its strategy. Teece (2010; 2018) supports this view by stating that business model only creates competitive advantage when it is differentiated and also highlight the importance of strategic analysis. Brea- Solis et al. (2015) found out studying Walmart, that the profit stemming from BM emerges mostly on the design and implementation of it. Business model by its very nature does not create competitive advantage. Teece (2010) claims that joint strategy and business model analysis is required in order to maintain competitive advantage resulted from business model innovation and integration. According to Teece (2010), in order to gain competitive advantage from business model, it must be enough differentiated but simultaneously effective and efficient. DaSilva and Trkman (2014) require for more research on how BMs can be a source of competitive advantage. Moreover, the question that is left unanswered is when competitive
advantage can be seen as a result of a business model as DaSilva and Trkman (2014) argue that most of the business model elements can be acquired on the market and simply implemented.
It is possible that competitive advantage cannot be achieved in every industry with a business model. Traditional companies on the other hand present an interesting view to the debate and additionally the digital aspect of business model can offer new knowledge. Thus, it is important to make a deeper analysis of strategy and competitive advantage to fully understand the holistic view of business model innovation. I will clarify competitive strategy further in the literature review.
Academics are taking two stands on whether BM and strategy are different concepts or if they are synonyms. In order to explore the integration of a digital platform business and thus, enhance competitiveness, it is vital to distinct these two concepts. The current literature of strategy and BM comparison does not account the process of change, which is in the focus of this study. To understand the process and how something emerges, it is essential to understand, which of the concepts exist first, strategy or BM. Additionally, the relationship between business model and competitive advantage is acknowledged by previous literature but the empirical evidence is lacking (see Teece 2010; DaSilva & Trkman 2014; Teece 2018).
Moreover, these studies of business model and competitive advantage are focused mostly any business models and not precisely on digital platform business models.
2.2.3 Building a new business model
Company needs resources to successfully apply a new business model. DaSilva and Trkman (2014) supported by Teece (2018) argue that company’s dynamic capabilities are in the key role, when designing a new business model. Tallman et al. (2018) note that business model innovation can also be a result of competitors entering the market with differing business models. Chesbrough and Rosenbloom (2002) call for more information on what results in adaptation on existing business model, but also suggest that business model innovation process itself is more easily adapted by independent ventures than by established firms. Teece (2010) argues that constant search for improvements in the existing business model is needed by the firm itself compared to the threat of having to change the model due to external factors. If a firm wants to create new kind of value to its customers, it should concentrate on business model innovation, either changing the existing one or creating a new one (Massa et al. 2017).
Fast-paced technological innovations, changing competitive environment and varying customer needs are forcing even the most traditional industries to look around for new opportunities and advancements in their operations. Technological advancements (Teece 2010; Teece 2018;
Massa et al. 2017) and open global trade (Teece 2010) results in more choices for customers and enhanced transparent in product offerings, which requires companies to put emphasize on their customer-centric actions, how they can create and capture value. These matters call for deeper analysis on how the business model can better serve the changing business environment and customer needs.
Deep understanding of customer needs and knowledge of existing business models are usually the starting points of business model innovation. While it is not impossible to create a new business model in economies which are both competitive and developed, it often requires advancement in technologies. Internet of things might create new possibilities for business models as the data produced by them can guide in decision-making. From a different perspective, organizational resources including dynamic capabilities play a key role in business model innovation and a company might need a specific unit for the new business model. (Teece 2018.) Finding competitor’s pain points can exceed the business model innovation. Teece (2010) describes Dell being a forerunner in business model innovation challenging the traditional value chain thinking and selling personal computers through distributors. It managed to create competitive advantage by starting to sell the devices straight to customers, which was not possible to its competitors due to conflicts with existing distributors. (Teece 2010.)
Business model without implementation is just another concept, that was never utilized.
Osterwalder et al. (2005) state that implementation is neglected in applying business models.
Whether a business model is successful or not is debatable and there is no research to support it. With poor implementation and management, a good business model may fail. On the other hand, with good implementation and great management even a bad business model may succeed. (Osterwalder et al. 2005.) In order for business model to be useful, the concept needs to be transformed into concrete structures, processes and systems (Osterwalder et al. 2005).
Implementation of a business model, aligned with business model innovation, requires strong dynamic capabilities (Teece 2018). As strong is a very subjective term, Teece (2018) describes that strong equals to stronger as competitors.
Implementing business model requires trials and errors. If a company is introducing a new product or service to a market based on initial customer wishes, it is wise to test the commercialization with smaller group of customers. Teece (2018) suggests that companies identify specific customer segments to test the new business model and prove its viability before introducing the new solutions to larger markets. By doing this, companies can make adjustments and minimize the effect of confusion within its customers. In case of a new platform business model, it is important to get the complementing parties on board from the early beginning (Teece 2018).
A company does not necessarily need to apply only one business model. Geissdoerfer et al.
(2018) propose that business model innovation has four sub-modes of which two apply to having more than one business models. Business model diversification applies when a company creates an additional business model and business model acquisition applies when a company first identifies an additional business model and later acquires and integrates it (Geissdoerfer et al. 2018). If an established company is trying to pursue another business model, especially when it is radically different from the existing one in terms of technology or customers, the chances for success are higher when the company has adequate financial resources and determined commitment (Teece 2018).
From the building and implementation perspective, current literature does not provide a holistic picture, which connects the everything from start to the end. It is acknowledged that there are factors in external environment, which will have an influence on changing a business model (Teece 2010; Massa et al. 2017; Teece 2018). Also, suggestions are made that dynamic capabilities deriving from internal environment have a key role (Teece 2018). Nevertheless, these statements fail to acknowledge how these factors influence the integration process of a digital platform. Yet again, the previous studies concentrate more on business models in general whereas this study’s focus is on digital platform business model from traditional company’s perspective. Teece (2018) has made a claim that established companies pursuing another business model advanced by technology or customers have higher changes for success when the financial resources are sufficient and there is commitment. This view is yet narrow in explaining how a traditional company is able to integrate a digital platform business model and thus, needs closer empirical investigation.
2.2.4 Digital platform business model
BM as a concept has been studied by scholars far more in the context of digital businesses compared to traditional businesses (Zott et al. 2011). BM design is based on the assumption that value creation can happen both in supply and demand side. This creates the phenomenon, which allows competitive advantage to derive from both sides. (Massa et al. 2017.) The phenomenon is typical for digital platform BMs, where value cannot be created without another side of the equation, thus competitive advantage will not be acquired. The new and already existing wave of digital platform businesses are changing the value creation processes.
Controversary to previous beliefs, value creation in digital platform businesses occur in sync with partners (Fehrer et al 2018; Zott et al. 2011) as well as with customers and users. For example, Airbnb would not create value to its user if individuals, often called complementors, offering their homes for vacation rentals would not do it. Therefore, its value creation would not be possible for all the parties.
The main difference between a digital platform BM and traditional pipeline BM is how the value is being created. In digital platform BM the value is created together with external partners such as users and complementors (Amit & Zott 2001; Parker et al. 2016) but in traditional value chain, value is created in the internal functions of the company starting from supply. Amit and Zott (2001) state that value can be created by the company, customer or any third-party participant involved in the digital platform. Fehrer et al. (2018) support this by stating that value is cocreated between different participants and it is the network that enables the value to be created.
Fehrer et al. (2018) conclude that platform business can be defined as open business model, which consists of three levels of openness: user, infrastructure and provider. The focal company is most-likely not the only business benefitting of the platform business model. Platform business models can be divided in firm-centered networks, solution networks and open networks, which differ from each other based on the level of its boundaries, access, organization, resources and governance. Open networks can be further divided into multi-sided platforms, platform innovation ecosystems and platform transaction ecosystems, which differ from each other based on the level of their layer of openness and platform properties. (Fehrer et al. 2018.) This business model approach is similar to digital platform business division presented in the beginning of this literature review. Karimi and Walter (2015) suggest that
dynamic capabilities have a positive effect on establishing digital platform capabilities.
Furthermore, dynamic capabilities are seen to influence company’s performance when responding to digital disruption (Karimi & Walter 2015). Dynamic capabilities as a strategic view will be discussed more precisely in the next chapter.
It is obvious that digital platform business model challenges the value creation methods and how competitive advantage is achieved. The antecedent in digital platform business model is that there are other actors than just suppliers and customers. The current research does not account this phenomenon in B2B context and lefts unanswered how competitiveness can be enhances in such context and with external partners. Additionally, literature on digital platform business focuses mainly on platforms which emerge from platform companies and not on traditional companies, who have established their businesses traditionally producing products and services offline and are just now making the integration of this additional business model.
The perspective of digital platform business models is most often in start-ups and digital-first companies. Thus, knowledge on how existing companies can change their operations is scarce.
2.3 Competitive strategy
During the earlier phases of literature review, it has become clear that business model cannot be discussed in isolation without strategy. Strategy is always present and strategic choices guide the choices in business model. While strategy research has been criticized by methodological weaknesses (Powell 1992; Hitt et al. 2005), in this chapter, I will concentrate on the key strategy literature relevant to my research. I will start by defining strategy and competitive strategy resulting in competitive advantage. Then, I will elaborate on the evolution on different competitive strategies and lastly, concentrate on the key strategic concept in my research, dynamic capabilities (DCs), its definition, external environment’s effect on them and how they emerge in practice.
Strategos is Greek and refers to the ability to lead a war and naturally, the goal of a strategy is to win the war. Consequently, strategy in business aims to outrunning the competition. It should explain why and what a company is doing and partly consider how. Strategy is a plan to succeed and beat the competition by making choices while considering company’s internal and external environment. (Kamensky 2003.) The main domains of strategy were discovered from 1960s to 1980s (Kamensky 2003; Ala-Mutka 2008) although first strategies emerged in military context
by Sun Tsu (Hitt et al. 2004). The rise of an internet era in 1990s resulted in creation of companies, whose strategies were not pre-defined due to the fuzziness about the future (Ala- Mutka, 2008). Ala-Mutka (2008) states, that megatrends in the society result in shorter product lifecycles, diffused customer segments with various needs and local product innovation collaborations, thus strategy is an on-going process and divided into the different parts of the company. Competition is the central view in strategy (Kamensky 2003), which builds the foundation for the choice to concentrate on competitive strategy in this thesis.
Business strategy occurred from Industrial Organization research from 1930s to 1950s, but the focus was on industries instead of companies (Pisano 2012). Saebi et al. conclude previous research and note that strategic orientation influences company’s response to external events and dictates the actions to be taken to achieve superior performance (Saebi et al. 2017). They propose that it is more likely to undertake actions in business model adaptation when a company is strategically focused on market development. Companies, that are experiencing turbulence caused by changing environment find strategy helpful to deal with it (Chaffee 1985). On the other hand, changing and turbulent business environment leads companies to find new ways on how to compete differently (Casadesus-Masanell & Ricart 2010). The most successful companies are the ones that have managed to change their business models and are able to compete differently (Casadesus-Masanell & Ricart 2010), thus they have been able to reform their strategy and change the existing dynamics of the company. Strategy can vary between corporate’s different areas of business. It is commonly divided in three levels, which are corporate strategy, business unit strategy (Chaffee 1985; Kamensky 2003) and operational strategy (Kamensky 2003). Corporate strategy makes decisions on which businesses the company should compete in and the business unit strategy, specific to each unit, defines how the company should compete (Chaffee 1985). Competitive strategy discussed in the next sections refer to business unit level of strategy.
2.3.1 Defining competitive strategy and competitive advantage
Competitive strategy aims to creating competitive advantage. It explains how the company should compete, relates the company into the environment where it competes (Porter 1980, 5) and determines the competitive position for the company (Porter 1985, 1). Additionally, competitive strategy is either taking an offensive or defensive action to fight the industry forces (Porter 1980, 34). Competitive advantage is achieved when a company establishes a
competitive strategy using its core competences (Pisano 2012), which is not simultaneously implemented by other companies (Barney 1991). Porter (1980, 5) stresses the importance of assessing industry competition with five forces model, which ultimately will result in a feasible competitive strategy, which creates the company a chance to challenge the industry forces and compete profitably. Sustained competitive advantage, on the other hand, is achieved, when the competitive strategy cannot be imitated by other companies (Barney 1991) and therefore, companies must take action to prevent the imitability (Porter 1985, 20). It is worthwhile to note, that competitive advantage is not lost if another company is able duplicate the benefits of their advantage as long as the strategy itself is not duplicated (Barney 1991).
According to Porter, competitive advantage can be seen to be built of separate activities within a company’s value chain. Company produces value, which is based on the amount that customers are willing to pay for such a product or service. The basis for any strategy is to have greater value than the cost of producing it and hence, to be profitable. (Porter 1985.) Changing megatrends, business environment and customer needs force companies to re-consider their competitive advantage and how to sustain it. What once was an advantage, might not be relevant today. Regardless of the view how competitive advantage is created, the need to assess the internal and external factors stays relevant. Barney (1991) states that changes in the industry or competition might result in decreasing the value of current resources and leaving them useless in their future operations.
Scholars have identified three leading domains of competitive strategy during the past decades (Pisano 2012). In 1980, Porter introduced the competitive strategy as either cost leadership, differentiation leadership or focalization strategy (Porter 1980; Pisano 2012), which will result in competitive advantage (Porter 1985). In the 1990s, a resource-based view (RBV) scholars started to concentrate on a competitive strategy, which derives from company’s unique resources as a source of an advantage. After criticism on how the previous strategies are too dependent on the current environment and being too firm centered, third domain, dynamic capabilities (DCs), emerged. (Pisano 2012.) Next, I will elaborate on the evolution of competitive strategies.
2.3.2 Evolution of competitive strategies
Porter (1980) introduced three generic competitive strategies in 1980, which have remained relevant and much used during the past decades both in academia and practice. It is important to note, that these strategies existed before Porter’s introduction, but he is seen as a father of the concept. Generic competitive strategies emphasize three approaches, that company can choose from, which are either, cost leadership, differentiation or focus. Porter agued, that it is a must for a company to choose between these strategies to compete in an industry, unless it
“stuck in the middle” and will not be able to fight the competitive forces and maintain its profitability (Porter 1980, 35). Campbell-Hunt (2000) supports Porter’s views and states that cost and differentiation are dominant competitive strategies, when separating different designs into groups.
Treacy and Wiersema (1993) introduced another view to market leadership by presenting three competing approaches to Porter’s competitive strategies. They discriminate strategies into customer intimacy, operational excellence and product leadership. The basis of these views underlies behind customers’ changing expectations for value and companies’ exploitation of them. (Treacy & Wiersema 1993.) The similarities between these and Porter’s approaches are, that both of them concentrate in the industry forces and focal company’s ability to challenge them. The creation of these competitive strategies is always in relation to industry’s other actors and the ability to perform the strategies is interdependent on other companies.
RBV has been acknowledged and developed by various scholars but Barney (1991) is seen as the first to popularize it and create a theoretical framework, which is both comprehensive and formal (Wang & Ahmed 2007; Newbert 2008). In 1991, Barney (1991) introduced a theory contradicting previously existing competitive strategies. In RBV, competitive advantage is seen as a result from company’s internal characteristics (Barney 1991) instead of focusing on external forces (Porter 1985). This view stemming from the internal characteristics is seen to complement Porter’s strategy, which focuses more on the industry structure (Eisenhardt &
Martin 2000). The resources a company controls are heterogenous and immobile to a certain extent and assessed by their value, rareness, imperfect imitability and substitutability, thus create sustained competitive advantage. The human, organizational and physical resources consist of all company’s assets, tangible or intangible, that it uses to implement their strategies and compete against its rivals. (Barney 1991; Barney 1995.) Newbert (2008) supports RBV
