From Process to Promise: Business Model Choices of Complex Service Providers

Abstract

While value creation and the capture of strategic choices regarding firm boundaries, such as ‘make’ versus ‘buy’ or different forms of collaboration, have been carefully studied on the individual level from one value-creating lens at a time, their interconnections and the overall ‘gestalt’ of firm transactions and activities are just starting to enter academic discourse through research on business models. Our research on the business model evolution of 12 complex service providers points to strong interconnectedness between boundary choices; all of the firms we studied engaged in the simultaneous extension of transactions on the demand/customer side and the supply/supplier-partner side. For example, a firm moved from providing one service on an ad-hoc basis to guaranteeing the outcome associated with a number of services; to deliver this outcome, it deepened relationships with suppliers and entered into new partnerships for complementary resources. Firms configured the transaction and activity nexus – the business model – to reap value on the demand side (e.g. customer’s economies of scope) as well as the supply side (e.g. resource complementarities and transaction efficiency). This value-creating spiral comes at a price though; by extending transactions on both sides, the firm extends its accountability for a (growing) solution, while loses control over its provision to the ecosystem. We argue that firms need to set their business models so as to balance this ‘accountability spread’ while maximizing enduring sources of value on the demand and supply sides.