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ORIGINAL ARTICLE
Strategic reasoning about business models: a conceptual
modeling approach
Reza Samavi ÆEric Yu ÆThodoros Topaloglou
Published online: 29 February 2008
Springer-Verlag 2008
Abstract Strategic reasoning about business models is an integral part of service
design. In fast moving markets, businesses must be able to recognize and respond
strategically to disruptive change. They have to answer questions such as: what are
the threats and opportunities in emerging technologies and innovations? How
should they target customer groups? Who are their real competitors? How will
competitive battles take shape? In this paper we define a strategic modeling
framework to help understand and analyze the goals, intentions, roles, and the
rationale behind the strategic actions in a business environment. This understanding
is necessary in order to improve existing or design new services. The key compo-
nent of the framework is a strategic business model ontology for representing and
analyzing business models and strategies, using the i* agent and goal oriented
methodology as a basis. The ontology introduces a strategy layer which reasons
about alternative strategies that are realized in the operational layer. The framework
is evaluated using a retroactive example of disruptive technology in the telecom-
munication services sector from the literature.
Keywords Business modeling Strategic reasoning Requirement engineering
Business model ontologies Service science
R. Samavi (&)T. Topaloglou
Information Engineering Center, Department of Mechanical and Industrial Engineering,
University of Toronto, 8140 Bahen center for Information Technology, 40 St George St,
Toronto, ON M5S3G8, Canada
e-mail: samavi@mie.utoronto.ca
T. Topaloglou
e-mail: thodoros@mie.utoronto.ca
E. Yu
Faculty of Information Studies, University of Toronto, 140 St George St,
Toronto, ON M5S3G6, Canada
e-mail: eric.yu@utoronto.ca
123
Inf Syst E-Bus Manage (2009) 7:171–198
DOI 10.1007/s10257-008-0079-z
1 Introduction
In the new economy that is driven by the growth of the Internet, businesses struggle
with two interrelated challenges: the pressure of change, and the search for
technologies to build flexible operating infrastructures that allow them to respond to
change. Changes come from different sources such as new entrants, customers,
suppliers, technology providers, investors, stock market, and government. The
success or failure of businesses in such an environment highly depends on the
Business Models they choose in order to react to change. Their success or failure in
technology investments such as the adoption of Service Oriented Architectures
(SOA), also depends on an articulation of the vision for the business which is
expressed by a business model. A business model is an important artifact that
conveys a high-level understanding of the overall vision and strategic goals of a
business (Alt and Zimmermann 2001). As businesses must be able to recognize and
respond strategically to disruptive change, they rely on business models to answer
crucial questions. What specific innovations matter for the business? What customer
groups should they watch? Which emerging technologies may consumers embrace?
Is the new technology disruptive? Who are the competitors? How will the
competitive battle form? How may the environmental factors and non-market
players affect the battle (Christensen et al. 2004)? Our work aims to provide an
appropriate modeling framework in order to systematically tackle such questions.
The two major requirements that hamper existing business modeling approaches is
the widening scope of business models, and the need to focus on strategy.
1.1 Widening scope of business models
In this new and globalized world, the role of corporations widens beyond just
maximizing investor returns (Bonini et al. 2006). Economic development, consumer
goods, social justice and an environmentally friendly attitude are among the societal
expectations from global organizations. The new role for corporations comes along
with new stakeholders, new objectives and more importantly creates a more
pluralistic, externally mediated discourse that may be outside the realm of the
organization’s ability to control (Wheeler 2003). In this new role stakeholders are
not limited to those who directly participate in value creation and exchange. There
are other non-market players such as government, unions, social justice advocacy
groups that can significantly influence a firm’s business model (Christensen et al.
2004, p. 20). These players shape the context for business models that wider scope
and capacity to consider for goals, motivations, intentions and opportunities they are
seeking to pursue.
1.2 Focus on strategy
The success of a business depends heavily on its strategic positioning in the market
(Porter 1985). The corporate strategy provides the driving force behind the activities
in a firm’s business model and its interaction with rivals (Magretta 2002). Therefore,
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an integrated approach to investigate and analyze corporate strategies together with
business models is required. In recent years, graphical models have been used
widely to visualize and understand business relationships (e.g., Kaplan and Norton
2000; Weill and Vitale 2001). Current business modeling techniques have been
proposed to address a variety of needs, e.g., to understand target customers, product
and service offerings, business processes for creating a value proposition, and other
value-oriented issues in businesses. Yet to date, most of them have focused on the
structure and functions of transactions in a value network. These approaches do not
take into account the intentional dimensions of stakeholders participating in a
business. Creation and exchange of value in a business is triggered and influenced
by the goals and motivations of stakeholders. Goals and desires are more
fundamental concepts while exchange is derivative. Exchange of value is a
consequence of the pursuit of goals by participants. Furthermore, a value-centered
view of business limits attention to those players who are participating directly in a
value exchange. Therefore, we hypothesize that a goal-oriented modeling technique
which expresses business models in terms of relationships among diverse
stakeholder interests and how these interests materialize into strategic actions
would provide better support for strategic business reasoning.
This paper defines a strategic modeling framework to help understand and analyze
the goals, intentions, roles, and rationales behind the strategic actions of each
participant that motivate the exchange in a business environment. We apply
systematic goal modeling and strategy analysis techniques and show how they help
to analyze a current business model, subsequent market change, and the strategic
repositioning of the business to that change. The technique defines the concepts of
the state of a business model and business model dynamics in order to analyze the
effects of change and predict strategic movement trajectories. The concept of state
allows to depict the model before and after a transition in response to market change.
For each state, we distinguish the strategy and operational concerns and explicitly
represent the interconnections among their respective elements. The framework also
aims to express intentions of business actors, such as ‘‘improve customer
satisfaction’’, and mechanisms to represent and reason with them in the strategy
and operational levels. It also supports representation and analysis of available
alternatives in the course of changes that help to manage competing interests and
exploit opportunities in a way that satisfies stakeholders’ strategic goals.
The core of the framework is an informal strategic business model ontology that
offers the conceptual abstractions needed to represent and analyze a business
situation. The ontology is developed using i*, a goal-oriented conceptual modeling
framework that supports strategic reasoning (Yu 1995). The i* framework has been
applied in different modeling situations such as requirements engineering (Chung
et al. 1999;Yu1999), business process reengineering (Cysneiros and Yu 2004;Yu
1999) and modeling trust, security and privacy in social settings (Liu and Yu 2002;
Yu and Cysneiros 2003). The i* based business model ontology enables business
people and analysts to identify the reasons behind a player’s actions, explore
alternatives, rationalize the process of making a choice, and briefly manage the
evolution of business models over time. A distinctive feature of the proposed
framework is its support for expressing intentions which is not supported by other
Strategic reasoning about business models 173
123
existing business modeling techniques. As a result, it should be seen as
complementary to most existing modeling methods, rather than as an alternative.
The rest of the paper is organized as follows. In Sect. 2, we review the current
state of the art in business modeling. In Sect. 3, we introduce the main constructs
and elements of the strategic business model ontology (SBMO) where we map the
responses of a business to a disruptive technology change to SBMO. In Sect. 4,we
specify a methodology for applying the SBMO in a business problem. Finally, in
Sect. 5, we summarize the contributions of the paper and discuss future work.
2 Business models representations
The term business model is used with different meanings. This is partly because of
the absence of consensus on the definition of a business model and partly because of
the different contexts in which the term is used. The most common conceptual-
ization of the term is as a description of the way a firm does business at the strategic
level (Osterwalder 2004, p. 14).
Many different approaches have been proposed and studied for representing
business models. Graphical notations are very common in business modeling as they
render a semi-abstract visualization that improves understanding of the business
logic. There is a growing body of literature that describes general classifications of
business modeling approaches and representations (Alt and Zimmermann 2001;
Afuah and Tucci 2003; Linder and Cantrell 2000; Osterwalder 2004; Rappa 2007;
Timmers 1998; Weill and Vitale 2001). Business modeling approaches are classified
as strategy analysis based (Porter 1996,2001; Kaplan and Norton 2000; Magretta
2002), business model taxonomies (Afuah and Tucci 2003; Linder and Cantrell
2000; Rappa 2007; Timmers 1998; Weill and Vitale 2001), ontology based business
modeling (Gordijn 2002; Osterwalder 2004), and goal oriented approach on
business and organization architecture (Yu 1999; Yu et al. 2006,2001). The last two
are the most relevant to our research.
Several prominent existing business model ontologies, e.g., BMO (Osterwalder
2004), REA (Hruby 2006), and e
3
value (Gordijn 2002), focus on modeling business
actors, and the way they create and exchange value. With the exception of BMO,
there is little attention to the modeling of strategy. BMO builds a rigorous conceptual
model that provides generic definitions for all constructs of business models in order
to be used in the analysis of strategy and information system alignment of a firm,
however, it excludes elements related to the competitive landscape in which a
business model is located. In a recent work, Andersson et al. (2006) complements
these three ontologies by proposing a reference ontology for business modeling
which focuses on value exchange, but makes no reference to a firm’s strategy.
The concept of business strategy has also received different interpretations in the
business model literature (Kaplan and Norton 2000; Porter 1996; Magretta 2002).
However, it is commonly accepted that business modeling, analysis, and reasoning
should bring into play elements such as business drivers (Amit and Zott 2001),
presence of rivals (Magretta 2002), strategic positioning, trade-offs, differentiation
(Porter 1996,2001), and other strategic goals (Kaplan and Norton 2000). For
174 R. Samavi et al.
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example, Porter’s activity system map (Porter 1996) visualizes the relationship
between a firm’s strategy and the activities in the business model that can deliver
those strategies. Kaplan’s strategy map (Kaplan and Norton 2000) is another
visualization tool to show how operations in different sections of an organization
contribute to the pre-defined strategic objectives. Kaplan’s framework provides a
practical way to group high level activities and their relationships to strategic goals.
While both of these frameworks are helpful for connecting a firm’s activities with its
high-order strategic themes (Porter 1996), the concept of different actors involved in
a business model and their motivations and intentions are not addressed in these
frameworks. Andersson et al. (2007) identified needs for an integrated framework
for analyzing business model and enterprise goals. They formulated how to
construct business models based on goal models.
It is evident that an effective business modeling framework should bring closer
the concepts of business model ontology and strategy modeling techniques. Our
work aims to address this gap. We extend business modeling ontology with strategy
modeling features (see Sect. 3) and we provide a visual modeling framework with
rich semantics that is suitable for describing and analyzing a firm’s strategy,
business actor’s goals, intentions, and motivations, and the exploration of alternate
ways of exploiting business mechanisms. A holistic modeling framework is
necessary to meet contemporary business modeling challenges outlined in Sect. 1.
For example, the switching of a firm to service oriented architecture involves
technological and strategic changes. The technological implementation of SOA is
usually not the major issue. The success or failure of an SOA adoption depends on
cultural, organizational and managerial, and behavioral aspects (Marks and Bell
2006). In situations like this, our proposed framework allows the formulation of
stakeholder goals and motivations which are rooted in the corporate strategy. It then
establishes the correspondence between strategic concerns and the operational level
of a business in order to analyze and evaluate the consequence of the SOA
implementation. As illustrated later, our modeling framework offers a systematic
method to make corporate strategy explicit, connect it with the realization of that
strategy at the operational level, and formulating its reaction to change.
3 Strategic business model ontology (SBMO)
Strategic business modeling requires conceptual abstractions to express stakehold-
ers’ goals, motivations, intentions, and relationships. Ontologies typically provide
these. The development of a strategic business model ontology (SBMO) will
establish a common understanding of the concepts that are needed in order to
facilitate communication between stakeholders (Fensel 2001). The effectiveness of
a business model ontology increases if it is associated with a visual representation.
SBMO is developed using the i* strategic modeling framework as a basis. The i*
framework provides support for representing participants and their different roles
and goals in a business, their strategic relationship, and their rationale behind their
strategic moves. In addition to the ontology, business modeling requires a usage
methodology to conceptualize and generate insights about a firm. Although there are
Strategic reasoning about business models 175
123
no standard methodologies for business modeling, in Sect. 4we propose a set of
practical steps required to systematically analyze a business.
3.1 SBMO scope
The focus of SBMO is on business participants and their goals as opposed to
conventional business modeling, where the focus is on the creation and exchange of
value between business players. Therefore, support of the following key five
intuitions is central to the ontology:
3.1.1 Network of dependencies
Typically, a participant cannot achieve a business goal alone and hence has to
depend on other participants, forming a dependency network. In the i* framework, a
dependency relationship involves two participants: a depender and a dependee. The
depender depends on the dependee for certain things, such as achieving a goal,
performing a task, or obtaining a resource. In SBMO, a business model will be seen
as a network of dependencies among stakeholders trying to achieve their goals, each
with their internal motivations and rationales.
3.1.2 Reasoning
The focus on goals of participants, as opposed to flow of money or value, demands a
higher-level, more abstract characterization of participants’ behavior in a business
model. This characterization amounts to an understanding the participant’s
intentions (Yu 2001a). The explicit representation of intentions or goals in a
business model allows the modeler to explore the motivations and rationales of the
participants. Consequently, capturing motivations and rationales builds up an
opportunity for analyst to ask and answer ‘‘why’’ questions in a business model.
3.1.3 Stakeholders’ autonomy
Participants in a business model are able to act freely. Even if the relationships are
bound to an agreement, participants such as customers, partners or channels
significantly have freedom for their actions. This autonomy and unpredictability of
behavior may seem a barrier for business model analysis. However, the use of
intentional elements, such as goals, makes possible to model freedom of the
participant in a business model. By using goals and methods for achieving goals in
our ontology, we are able to explicitly define the spaces of possible freedoms for a
participant (Yu et al. 2006).
3.1.4 Strategic reflectivity
Autonomy of participants in a goal-oriented environment leads to different ways of
achieving one goal, necessitating dealing with alternatives. Reasoning about
176 R. Samavi et al.
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alternative arrangements of mechanisms in a business model is a reflective process.
Each participant in a business model needs to refer and compare alternate ways of
performing tasks, rather than executing the tasks without question (Yu 2001b). The
reflective process is strategic because participants in a business model want to
determine which changes would better serve their strategic interests.
These intuitions define the building blocks of the SBMO strategic business model
ontology. Instead of constructing the ontology from the ground up, we adopt the i*
modeling framework as the starting point, as described in Sect. 3.2. Therefore i*
acts as the scaffold ontology upon which we develop SBMO. Our goal is to present
SBMO as a fairly informal ontology (Ushold and Gruninger 1996), i.e., avoid user-
unfriendly axiomatic definitions of its concepts. Instead we use a restricted and
structured form of natural language to state and clarify the definition of its concepts.
The details of SBMO may be found in (Samavi 2007). A brief description of its
elements and how they are mapped to the i* ontology is introduced in the following
sections.
3.2 A strategic actor modeling framework
Goal modeling aims to determine what various actors want and how (and whether)
those wants are achieved. The name i* stands for distributed intentionality (Yu
1995), referring to the premise that actors are intentional and that they do not
necessarily share common goals. An actor ( Actor ) interacts with other actors not only
through actions or information flows but also relate to each other at an intentional
level. They depend (
D
) on each other to achieve goals, perform tasks, and
furnish resources. While each actor has strategic goals to pursue, they are achieved
through a network of intentional dependencies. The following terms and their visual
notations are adopted from i*:
•Goal ( ) is a condition or state of affairs to be achieved. An actor can choose
freely among different ways to achieve a goal.
•Task ( ) is a course of action to be carried out. It specifies a particular way of
doing something, typically to achieve some goal.
•Resource ( ) is a physical or informational entity needed to achieve some
goal or to perform some task.
•Softgoal ( ) is a goal without a clear-cut criterion for achievement, thus
requiring further refinement and judgment. Softgoals are typically used to
represent quality goals.
Goals, tasks, resources, and softgoals are used to distinguish the nature of the
dependency links between actors. These intentional elements are also used to
analyze the reasoning structure within each actor, using these additional types of
links:
•Means-ends ( ). Shows a particular way (typically a task) to achieve a goal.
•Decomposition ( ). Shows how an intentional element (typically a task) is
decomposed into sub-elements, which can include goals, tasks, resources, and
soft goals.
Strategic reasoning about business models 177
123
•Contribution (
Help
). Shows a contribution toward satisfying a soft goal,
typically from a task or another soft goal.
The process of analyzing a softgoal into subgoals that contribute towards it is called
refinement. The process of reducing goals into tasks that can be implemented is
called operationalization.
Arole () conveys the notion of an abstract actor. An agent (Agent ) is a concrete,
physical actor. A role can be played by one or more agents. Actors in i* are strategic
in that they seek relationships that will best suit their strategic interests.
Dependencies offer opportunities but can also create vulnerabilities. Through the
goal structure, represented as a graph, an analyst can construct and explore the space
of alternatives available to each actor. Graph-based algorithms, such as qualitative
label propagation, can be applied to interactively evaluate whether goals are
achieved (Mylopoulos et al. 2001; van der Raadt et al. 2005; Gordijn et al. 2006).
Five type of qualitative i* labels satisfied ,denied ,weakly satisfied ,weakly
denied ,unknown , and conflict are used for this purpose.
3.3 Main components of SBMO
We present the main components of SBMO using a motivating example from the
historical emergence of mobile telephone services (Christensen et al. 2004).
Consider an incumbent (Telco) in the telecommunication industry, which provides
wired voice services, facing disruptive change in the market by a new entrant
(Cellco) that starts offering wireless voice services. Telco, a traditional incumbent,
has always focused on its high-end market with a strategy to incrementally improve
its wired voice services by offering products with higher performance and with new
features for its high-end market. A disruptive innovation is a change in technology,
product or a process that targets low-end market (those who are usually ignored by
incumbents) of an existing business, threatening to replace it. Cellco’s wireless
offering is disruptive in the sense that it could completely replace the wired voice
service or at least cause the incumbent Telco to dramatically lose its market share.
Therefore, Telco needs to know how it should react to this change, and how it can
make its existing business model sustainable while embracing this change.
Furthermore, since a change in the (operational) business model needs support
from the corporate strategy, Telco needs to consider its strategic moves. For
example, currently Telco follows a positioning strategy
1
(Mintzberg et al. 1998,p.
83) and differentiates itself from other competitors with its leadership in the market
and a high quality image positions. Telco then enjoys higher profits than others in its
current business model while occupying this position in the market.
It is said that enterprises react to the market changes based on their strategies
(Christensen et al. 2004, p. 30). When encountering a disruptive wave, the Telco
strategist may ask—should we invest in this new technology? If so, should we
change our positioning strategy? Should we form a partnership with Cellco? If we
1
In a positioning strategy, a firm believes that there are a few positions in the economic marketplace for
any given industry. A firm that occupies those positions can defend itself from existing and future
competitors (Mintzberg et al. 1998).
178 R. Samavi et al.
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partner with Cellco, what are the consequences if it requires a change in the
configuration of my services from an integrated process (where Telco has
proprietary rights to everything in the value chain) to a modular process
(conservation of integration, Christensen et al. 2004, p. 19)? In such a scenario,
the incumbent first needs to identify the signals of change, then analyze how the
battle may form between the firm and new entrants, and finally identify its strategic
choices.
This kind of analysis goes beyond the traditional view of value creation and
exchange analysis in business modeling which deals with the structure of revenue
generation (Rappa 2007) in a business. It demonstrates that strategic and operational
decisions are tightly linked and therefore should be supported by the ontology and
modeling methodology. SBMO provides new ontological support where the
strategic goals are integrated with the operational structure of doing business in
an organization. According to Mintzberg et al. (1998, p. 35) in an organization the
structure follows strategy the way the left foot follows the right foot. This analogy
provides the intuition for SBMO that the corporate strategy and the operational
structure of business model must be analyzed together, with changes in one
affecting the other, although not in a definite sequence. We capture this intuition in
SBMO by introducing the three concepts of strategy layer,operational layer, and
layer interface.
The second intuition for SBMO stems from the fact that business modeling in this
new economy inevitably should embrace the concept of change and provide insight
about how a business will change over time to remain sustainable in a dynamic
environment (Linder and Cantrell 2000). This intuition is captured by the concepts
of state, transitional state,as-is and to-be business models. All these concepts are
further elaborated in the following sections using the example outlined above.
Figure 1a and b schematically shows the main components of SBMO and their
relationships. The strategic aspects and operational aspects are grouped in two
layers based on the common semantics declared in the layer’s definition, with an
interface in between (Fig. 1a). The intuition behind the layering includes hiding the
complexity of each layer, flexibility in using different modeling approaches for each
layer, and the coherence of the ontology by grouping components with similar
properties in the same layer. The dynamics of business model is represented as a set
of ‘‘as-is’’ and ‘‘to-be’’ models, while the transitional states are represented as
interim models (Fig. 1b).
Fig. 1 a State of a business model. bBusiness model dynamics
Strategic reasoning about business models 179
123
3.3.1 Modeling operational aspects
A business model in SBMO is a representation of the logic of doing business by a
firm of interest (FOI) (Weill and Vitale 2001). It depicts the network of
dependencies among participants who exploit certain mechanisms to pursue their
objectives over time. In this view, a business model is an abstract concept
comprising of elements, components and relationships in strategic and operational
levels while dealing with change. As Fig. 1a and b depict, SBMO separates
operational and strategic concerns in a business, while representing their coupling
through a Layer Interface. The operational layer describes the working structure of a
business model in terms of its participants, mechanisms and activities which form
the relationships among these participants. For instance, the pricing method of
products or services, the kind of processes that a firm deploys to produce or deliver a
service, the revenue model, cost structure, partnership mechanism are examples of
operational concerns in a business model. The operational components that are
included in SBMO are selected from Afuah and Tucci (2003), Osterwalder (2004),
and Linder and Cantrell (2000), however, the SBMO provides a framework that can
capture any other components in business model that can be represented in a
network of actor dependency as described below. With the inclusion these
components in SBMO, the operational layer intends to answer questions such as
how value is created in a business; who the target customers are; who the firm’s
partners and allies are; who the rivals and their roles are, and what the participant’s
goals are. Participants in the operational layer are connected to each other via a
network of dependency links to achieve their goals, perform their tasks and/or
furnish a resource. This dependency network in the operational layer answers the
‘‘why’’ questions that reveals the reason for dependency among participants.
Figure 2shows the operational layer of Telco’s business model. We use the i*
concept of Actor (Actor ) to represent participants in SBMO. We understand that Telco
plays different roles in the business model. Its Management role provides resources
for the business, while its Value Creator and CRM role configures the process of
offering value proposition and manages relationships with customers. In the model,
we include Telco customers’ goals to understand why they are doing business with
Telco. We understand that they depend on Telco for Voice service to be provided.
This relationship is modeled as a goal ( ) dependency, since the customer does
not care how Telco provides the service technically (e.g., whether it uses an
integrated proprietary network and process, or a modular process). Furthermore, it is
modeled as a goal, as opposed to a softgoal, in that its achievement can be clearly
judged. In addition to this goal dependency, the current customer wants the service
always to be in its highest performance in the market. They will continue to do
business with Telco if Telco continues to be the leader in the market and offers
leading edge products. These attitudes are modeled with Higher Performance
Product and Most Improved Product softgoals dependencies ( ), because there
are no ‘‘clear-cut’’ criteria to judge their achievements. On a different front, Telco
depends on its shareholders for investment. This dependency is modeled as a
resource dependency ( ). As we proceed to represent Telco’s business model in
SBMO, we examine the nature of the relationships involved in Telco’s business
180 R. Samavi et al.
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model one by one. For example the nature of the Billing Mechanism dependency
that Telco has on its customer (payment for services) is revealed to be a resource
dependency.
While the network of dependencies (Fig. 2) depicts external relationships among
actors, we need to know the rationale behind those external relationships. In another
modeling step, we examine the intentional elements that make up the actor’s
reasoning structure. We use a dashed circle to represent an actor’s boundary ( Actor )
to show its internal elements. Telco has a top level goal which is Value Proposition
Be Created. This goal needs to be refined in order to understand how Telco achieves
this goal. For example the Value Proposition Be Created goal can be decomposed to
subgoals such as Process Be Configured (how the service is created), Channel
Mechanism Be Configured (how Telco delivers its services to its clients), Billing
Mechanism is configured (how the services are priced), and a resource Network
Assets are available (what are the required infrastructure). We use the i*
decomposition link ( ) to describe the decomposition of a goal to its subgoals.
The example model is greatly simplified but provides some hints on the type of
reasoning to be supported. These include the identification of alternatives and
Fig. 2 Telco’s simplified as-is operational business model
Strategic reasoning about business models 181
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recognition of correlated issues. For example, Telco has the option to align its value
configuration using Time based Payment or Fixed Price for its Billing Mechanism,
or configure its process as an Integrated Process or a Modular Process. The impacts
of each alternative on relevant softgoals, Technology Leadership and High
Performance Product, are different. While Integrated Process helps to increase
product performance, Modular Process hurts it. The i* means-ends link ( )
captures the alternate ways for achieving a goal. Contribution (
Make
) and
correlation (
Help
) links show the impact of each choice. We use the ‘‘Satisfied’’
label ( ) to indicated that an intentional element is sufficiently satisfied or achieved.
We also use it to indicate the current selected mechanisms in the Telco business
model (Fig. 2). In this example, propagation of this label via contribution links and
dependency links shows that currently customers who are always looking for higher
performance products are satisfied in Telco’s as-is business model.
During the course of modeling, we apply the goal evaluation procedure to the
model to better understand other alternatives. In the case of Telco, we may ask if all
of its customers are the same. This leads us to consider subclasses of customer
groups to see how their needs are addressed in the current business model. We
represent the needs of each customer group with its associated goals in the
dependency network. It turns out that currently Telco only targets Undershot
Customers—customers who are looking for high performance products (Fig. 3).
However, there are two other customer groups—customers not consuming Telco’s
services or customers who are consuming the service only in an inconvenient setting
(non-consumers); and customers for whom the current product exceeds their
expectations and is simply too good for them (Overshot Customers) (Christensen
et al. 2004). The is-a specialization link in the i* model (shown in Fig. 3)is
introduced to separately analyze these three customer groups. Unlike in conven-
tional modeling, our aim in the SBMO ontology is to analyze how these customers
differ at an intentional level—what strategic interests they have and whether they
are met. Qualitative evaluation of stakeholders’ goals shows that non-consumers
and overshot Customers have goals that are different from those of Undershot
Customers, and that these goals are not satisfied in Telco’s current business model.
We have presented the operational layer of SBMO in terms the graphical notation
of the i*framework. i*modeling is implemented on top of the Telos conceptual
modeling language (Mylopoulos et al. 1990), which offers knowledge structuring
mechanisms (classification, generalization, aggregation, attribution, and time).
Generic knowledge codified in terms of methods and rules provide semi-automatic
support from a knowledge base. A number of software tools have been developed to
support i* modeling and goal evaluation (Horkoff and Grau 2007).
3.3.2 Modeling strategy
In the above, we presented how SBMO captures the operational aspects of a
business model. However, there are sets of policies in a firm that drive the
operational directions. The SBMO should also be able to capture these drivers in a
business and identify how changes in some components of the business model will
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affect the firm’s strategy. Conversely, if a firm’s strategy changes, it should capture
the implications of these changes in a firm’s business model. The decision of which
components need to be included in the SBMO strategy layer and their relationship to
the operational layer is influenced by a review of the literature on strategy definition.
Strategy in management science is defined in different ways. Michael Porter
(Porter 1996,2001) introduced concepts of strategic positioning,trade-offs and fit as
elements of a firm’s strategy. In his view ‘‘strategy is the creation of a unique and
valuable position, involving a different set of activities’’. Porter also argues that if
there were only one ideal position for a firm, there would be no need for strategy
(Porter 1996). As such, the strategy captures presence of the alternatives and
reasoning behind the selected alternatives. Amit and Zott (2001) define four value
drivers, namely efficiency,complementarities,lock-in, and novelty which cover the
area in e-business models that can not be investigated through the configuration of
the value chain (Porter 1985). Their empirical study shows that an e-business may
position itself in the market by efficiency enhancement, or by an offering that
Convenient,
anytime anywhere
[Product]
Voice
service be
provided
Revenue
Minutes of use
Lower Price
[Product]
Higher Profit
& Growth
D
D
D
D
D
D
D
D
D
D
D
Non
Consumer
Overshot
Customer
ISA
ISA
ISA
D
Lower
Functionality
[Product]
D
D
Lower Price
[Product]
D
D
Higher
Performance
[Product]
D
Value
Proposition
be Created
Technology
Leadership
High
Performance
Convenience &
Responsiveness
Integrated
Process
Time
based
Payment
Lower Price
Lower
functionality
Capital
Cost
D
D
Undershot
Customer
Most
improved
[Product]
D
Add on
features be
purchased
Fixed
Price
Subscription
Fee
Hybrid
Channel
Modular
Process
Higher
margin
Voice
services be
provided
D
D
Investment
D
Less Channel
Conflict
Help
Some-
Help
Some-
Network
Assets
Direct
delivery to
customer
Some-
Plays
D
D
D
acquiring
capital
Source
Making profit
& Growth
profit
Growth
Share
Price
D
D
D
Some-
Hut
r
Hurt
Help
Break
1
2
2
3
3
4
Management
Voice Service
Provider &
CRM
Customer be
Satisfied
Help
Channel
Mechanism is
configured
Billing
mechanism
is configured
Process is
Configured
Wired Voice
is configured
Share
Holders
Customers
for Voice
service
Telco
Plays
Task
Goal
Softgoal
Resource
D
Maek
Dependency
Means-ends
Contribution
Satisficed
Denied
Fig. 3 Telco’s as-is operational business model, understanding different customer groups
Strategic reasoning about business models 183
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enhances the complementarity of an existing product and so forth. In their view a
firm defines its strategy with proximity and level of achievement of these four
drivers. Kaplan and Norton (2000) emphasize on role of assumptions and
argumentation of executives, managers, and other key players that form a firm’s
strategy. Kaplan and Norton also introduced improve shareholder value as a high
level strategic goal with different levels of operations in financial, customer, and
internal processes which support this goal. They also offered a traceable cause-and-
effect link among firm’s activities at bottom and this high level goal at top. The
extensive analysis by Mintzberg et al. (1998) on strategic management identifies
five different definitions as five Ps for strategy (Pattern, Plan, Position, Perspective,
Ploy) and ten different schools of thoughts in strategy formation process. The Porter
definition of strategy for instance falls in the positioning school of thoughts in
Mintzberg analysis.
In SBMO, however, the emphasis is on generic elements which are agnostics to
the type of strategy processes in a firm, while captures the common grounds
between them. The top level generic goals in strategy layer of SBMO includes and
not limited to shareholders value,fit,positioning,complementarity,novelty, and so
forth. Depending on what type of strategy process in Mintzberg taxonomy a firm
selects, it may target one of these goals and does not care about the others. For
example in the positioning school of thoughts (Mintzberg et al. 1998, p. 82), the firm
targets fit and positioning high level goals and its strategy delineates based on the
supporting network of operations for these goals. Nevertheless, the strategy formed
based on positioning will have effect on novelty or other strategic goals that were
not the intention of the strategy designers at the first place. In this sense, SBMO is a
framework for analysis of strategic goals regardless of the type of the school of
thoughts for processing strategy.
The following four points about the nature of strategy summarize our intuitions
for strategy layer ontology.
•Strategic goals or quality attributes of a business are beyond the operational
aspects of a business, nevertheless they are influenced directly or indirectly by
the way those actions are decided and implemented.
•Strategic goals cut across the different operational components of a business
model.
•These goals are qualitative, coarse grained and without clear cut for their
achievements.
•The level of proximity or achievement of these goals identifies a firm’s strategy.
These intuitions are reflected in the design of the ontology for the strategy layer in
SBMO. For the representation of strategy layer, we used the NFR framework, which
was originally developed for dealing with non-functional requirements (NFR) in
software engineering (Chung et al. 2000). Evaluation of a firm’s strategy is analogous
to the situation for software quality attribute analysis in requirements engineering.
The NFR consists of defining a set of imprecise nonfunctional goals (softgoals) which
express criteria for system quality (e.g., usability, adaptability), and evaluating the
degree to which an alternative model structure would lead to an information system
(IS) that satisfies those qualitative goals. Links between top level qualitative goals to
184 R. Samavi et al.
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alternative models for IS creates a softgoal interdependency graph (SIG). Argumen-
tation and prioritization are used for justification of one path over the other in SIG
(Mylopoulos et al. 1992). A goal graph provides vertical traceability from high-level
strategic concerns to low-level technical details (van Lamsweerde 2001).
The strategy layer in SBMO is represented as a softgoal interdependency graph.
In this graph, the generic quality attributes, such as positioning,fit,complementarity,
and novelty are resided on top and design choices (mechanisms) at the bottom of
graph (Fig. 4). Having these generic elements on top does not imply that a firm
intends to achieve all of them in its strategy. Therefore some of them may be left
unrefined. As described by Mintzberg et al. (1998), a firm based on the type of the
school of strategic process may target only one or two of them and the firm’s
strategy towards other generic goals might be unknown or even conflicting. As
moving downward (top–down), the generic elements can be refined to some
elements which are contextual and domain dependent (Porter and Siggelkow 2001).
At the end they can be operationalized to mechanisms in operational layer at the
bottom. We use decomposition relationship for this purpose. Conversely, when
moving upward (bottom–up), the graph shows the contribution and correlation of
design choices (mechanisms which come from the operational layer) towards the
Fig. 4 An excerpt of Telco’s as-is strategy layer
Strategic reasoning about business models 185
123
business drivers or strategic goals (positioning, fit, etc.) on top. In this way, the
strategy layer makes the corporate strategy explicit and creates a bridge to the
operational aspect of a business.
Other elements of strategy that need to be captured in strategy layer are reasoning
about alternatives, trade-offs (Porter 1996), and management argumentations and
prioritizations (Kaplan and Norton 2000). Managers prioritize or make argument
about some specific goals in a firm strategy. By doing this, they influence the
operationalization of the top level strategic quality attributes of a business model.
Belief ( ) in the i* framework is mapped to the strategic assumptions in SBMO.
Strategy in our business model ontology is the collective notions of business
players’ visions (argumentation and prioritization), and the alignment of these
visions with the operational mechanisms. Strategy layer captures these notions at
each relevant point of time in a business model. In this sense, strategy layer makes
the relationship between different strategic goals explicit. This expressiveness in
turn helps a firm to reduce the source of inertia (Moore 2005) and enables the firm to
more flexibly change the strategy when it is facing a market change.
In Fig. 4we demonstrated the strategy layer of Telco’s business model. In this
model, the top row displays the quality attributes that are the elements of Telco’s
strategy, and the bottom row displays the support mechanisms which are imported
from the operational layer. Payment based on the Time of Usage is a billing
mechanism introduced in operational layer, Direct Delivery to Customer is a
channel mechanism, and Integrated Process is one kind of value configuration.
These are currently the selected mechanisms in Telco’s business model. Strategic
goals are modeled as softgoals and mechanisms as tasks ( ). Refinement and
operationalization of top level goals allow exploring way to achieving them or
making the rationale behind the strategy explicit. For example, Variety based
Positioning decomposed to Low Price Image and High Quality Image. However,
each of these attributes individually can be used to meet the Variety based
Positioning, therefore the decomposition links for these offspring softgoals are
considered as OR. Correlation links are used to show trade-offs or synergies among
quality attributes. For example, since an Integrated Process positively contributes
towards a higher performance service, it has synergy with Technology Leadership
for Telco. On the other hand, since an Integrated Process is less flexible, it has some
negative correlation with Reorganization Speed as described in (Christensen et al.
2004, p. 20).
In developing a strategy, usually managers prioritize some goals against the
others. For example in Telco’s case, the management believes Higher Performance
Product has the most priority in the current Telco’s business model. Therefore, this
softgoal is marked by (!) in order to capture notion of prioritization. Managers also
influence a corporate strategy by their beliefs, claims, and assumptions. In its
extreme, the entrepreneurship school of thoughts in Mintzberg taxonomy is where
every aspect of strategy is delineated by the central leader beliefs and assumptions
(Mintzberg et al. 1998, p. 354). Therefore, these assumptions also need to be
captured in modeling the strategy. For example, Telco’s management believes that
the shareholders are not patient to see the results. This argument is modeled in a
186 R. Samavi et al.
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form of claim ( ) Shareholders are impatient in receiving profit, which is pointed
to the correlation link between the billing mechanism and the Growth softgoal.
As strategy evolves, the model will evolve. We may bring into account other
strategic goals and understand their position with regard to the current business
model. In Telco’s case we need to know how the strategic goal Novelty is
positioned in current strategy. As such, we show a sub part of Telco’s strategy layer
dealing with the high level Novelty goal in Fig. 5. In brief, the strategy layer of
Telco’s business model is made connected the high level strategic quality attributes
and the operational level mechanisms. It also recorded the Telco’s management
argumentation and prioritization. Qualitative evaluation of strategy layer shows how
top level strategic goals are satisfied. For instance, the model in Fig. 4is descriptive
to show that Novelty softgoal is satisfied ( ) by Technology Leadership and the
situation of Disruptive Innovation co-option
2
in current strategy is unknown (?). In
Sect. 3.3.4 we will show the model is also prescriptive in terms of revealing a
circumstance that can lead to achieving Disruptive Innovation co-option goal.
3.3.3 Strategy and operational layer interface
The layer-interface in SBMO manages relationship between operational and
strategy layers. As described in above, the operational layer and strategy layer are
closely related to each other and a change in one layer will affect the other one.
Moving from operational layer to strategy (bottom–up), softgoals with global scope
(softgoals in the operational layer which are strategic and judgment on their
achievement affect the firm’s strategy) will move upward to strategy layer in order
to participate in the strategic goal refinement process. The available alternatives in
the operational layer also move to the strategy layer in order to study their effects on
strategic goals. Conversely, during the course of strategic goals operationalization,
some new alternatives may be identified. In a downwards direction, these
alternatives will be moved to the operational layer in order to investigate their
workability in the business model. The layer interface triggers a change in the other
layer whenever a change in softgoals with global scope or the availability of
alternatives in one layer is identified and explored. In this way the layer interface
provides coupling between two layers.
3.3.4 Managing change in SBMO
Until now, we showed that we can use strategic modeling framework in order to
represent a snapshot of a business. In this sense, the model is descriptive and allows
observing how in a given point of time, strategy and operational business model are
aligned. In this section we will show the ways that strategic modeling can be used in
order to incorporate the element of time in business modeling. Concepts of time and
change are usually used interchangeably to reflect the dynamic nature of business
models. In SBMO, we use the term state in order to reflect the continuous notion of
2
Co-option is a situation in which an incumbent acquires the required skills to mimic the disruptive
technology and integrate it in their own business (Christensen et al. 2004, p. 46).
Strategic reasoning about business models 187
123
a business in a period of time in which the firm’s strategy is aligned with its
operations. Each business has an as-is state reflecting the current state of a business.
In contrast, we use transitional state for when a firm changes its way of doing
business, either because of the change in firm’s vision and strategy on top or a
dramatic change in the business operations at the bottom which affects the strategy.
Ontologically, transitional state is composed of several interim states and concludes
to a new state for a business which we call it to-be state in SBMO. In this sense, the
framework creates a prescriptive view of a business.
Each state comprised of components Operational layer,Strategy layer, and
Layer interface (Fig. 1a).Within a state, at any point in time, a firm of Interest
(FOI), whose business is under analysis by a modeler, operates based on a given
business model. A business model in any state has a collective evaluation property
that depicts the qualitative assessment of participants’ strategic goals. For example,
Fig. 5 An excerpt from Telco’s strategy layer in the first transitional state
188 R. Samavi et al.
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a firm may target different customer groups, while the adapted business model may
not allow satisfying all of them at the same time. In this case the collective
evaluation will generate insight about the business model to show which customer
groups are satisfied and which are left not served.
Transitional state in SBMO visualizes and captures how a business transforms
from a current state (as-is) at the time of analysis to a new state (to-be) in the future
(Fig. 1b). Each transitional state has some elements from old state strategy (arrows
between states in Fig. 1b), because reactions to the change in a business are partially
based on the rooted regiments (Christensen et al. 2004). As-is,to-be, and each
interim state are instances of state of business model and can be modeled as
described in above. The number of interim states may vary based on the complexity
of change, projection of the analysis and other related factors. The collective
evaluation of each state will justify if it can be considered as the ultimate strategic
choice (to-be business model).
Normally, a current state of a business model continues to work unless an input
triggers a change. Input from environment such as, arrival of a new rival, emergence
of a new technology, new regulations and deregulations are examples of such
triggers. In the example outlined in this paper, wireless voice technology is a change
in the technology. This change in the market may trigger a change in the state of a
business model, if the change in the market is recognized as a signal and not as a
noise. For example, as shown in Telco’s business model in Fig. 3having two groups
of customers that their needs are not satisfied in the current Telco’s business model
could be a signal of change. Another signal according to Christensen et al. (2004)is
sensing that a competitor is also capitalizing on this opportunity. Because of the
space limitation we have not covered the latter in this paper and refer you to
(Samavi 2007) for more detail. However, the situation in the example, identified as
signal of change. When there is a signal we expect a battle between incumbent and a
new entrant (Christensen et al. 2004). Interim states formulate how the change
moves the as-is operational and strategy layers to a new interim state. In this new
state, the new participant, Cellco, plays a new role in Telco’s business model.
Presence of Cellco and its perceived actions are reflected as set of assumptions in
Telco’s strategy layer. For instance, Cellco has two alternatives in its own value
configuration, either to Build its Limited Proprietary Network or Sign a Roaming
Agreement with Telco and connect its newly wireless network to Telco’s landline
infrastructure. When Cellco chooses the former, it is required to Comply Telco’s
Pricing Mechanism. In this case, Cellco also should Reveal its Wireless Know-How
in order to get access to Telco’s network. These elements are modeled as
assumptions ( ) in Teclo’s strategy layer (Fig. 5). These assumptions explicitly
reflect the ways Telco’s rival decides based on its own strategy to grow and attack
Telco. Now, the question for the Telco will be how its current business model and
strategy need to be aligned in order to counterattack Cellco’s actions. The battle
starts exactly from here. According to Christensen et al. (2004), an incumbent needs
to know its strategic choices in order to make the right move in the battle. In our
example, for sake of brevity, we only focus on Telco’s business model, however, the
same strategic modeling technique can be used to investigate the new entrants
strategic choices in the battle.
Strategic reasoning about business models 189
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The first interim state for Telco starts by responding to this strategic question,
saying yes or no to Cellco’s request to Sign a Roaming Agreement with Telco. We
expect the SBMO makes the implication of each strategic choice explicit for Telco.
According to Christensen et al. (2004, p. 66) successful strategy for an incumbent
encountering a disruptive wave is co-option. The incumbent, Telco, my achieve co-
option by reduction of skill asymmetry (capability to internalize the technology used
by new entrant) and motivation asymmetry (if the new entrant targets the current
incumbent market).
This situation is modeled in Telco’s strategy layer (Fig. 5). We introduced, the
Disruptive Innovation co-option as a top level goal, and then we examined a top
down process to refine and operationalize this high level softgoal. Other source of
forces that may affect the achievement of the Disruptive Innovation co-option goal
are the current regime in the firm (e.g., the relationship between mid managers and
high level managers), the management prioritization, their argumentation and so
forth. For example in this interim state, the assumption that Telco’s Investors are
Patient in Growth which positively contributes towards the task Spin out a Firm for
Wireless Services introduced as management assumption which is in conflict with
the assumption in the Telco’s old strategy. This implies that if Telco stays on its old
strategy, it would not be able to satisfy these softgoals and consequently to co-opt
disruptive innovation. Similarly, a conflict ( ) explored in the model between High
Quality Product Image on top and Making the Process Modular at the bottom,
because shifting the process from an integrated process to modular process
negatively contributes towards High Performance Product Image. In summary,
saying yes to Cellco has the following implications on Telco’s strategy.
•A low quality image for Telco is assumed okay in its new strategy
•In its new strategy, Telco can convince its investors to be patient in growth
•Despite that Cellco is Telco’s rival, cooperation with them is okay in new
strategy
We need also analyze Telco’s operational layer in this interim state in order to
evaluate the implication of this new strategy. As shown in Fig. 6, Cellco is now an
active participant in Telco’s business model. However, Cellco’s role is not limited
to its partnership with Telco, it also competes with Telco to capture market share.
Thus, in this state Cellco plays three different roles: Compete with Telco, Wireless
provider, and Partner with Telco. On the other hand, Telco also plays different roles
including the traditional role as Voice Service Provider, and that of the Network
Provider. The latter is a new role to comply the requirements identified in Telco’s
strategy to make partnership with Cellco.
Cellco in the Wireless Provider role depends on Cellco in Partner with Telco role
to provide Network Availability and at the same time depends on Cellco in Compete
with Telco role to Capture Telco’s Market Share. Each role has its own internal goal
that the actor tries to accomplish. In the Partner with Telco role, Cellco’s main goal
is the Network be Available, with the task Conformity in Billing Mechanism, while
in the Compete with Telco role the main goal is Co-option to be Avoided with the
softgoal Higher Skill Asymmetry. On the other hand, a reciprocal relationship
between the Telco’s Voice Service Provider role and Network Provider role is
190 R. Samavi et al.
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identified. The Network Provider depends on the value creator for the resource
Sharable Network Module and in turn, the Voice Service Provider expects the
Network Provider passes the resource Wireless Know-How to them. The top level
goal for Telco in Network Provider role is to take this opportunity and achieve Co-
Convenient,
Anytime, Anywhere
Voice
Service be
Provided
Revenue
Minutes of
Use
Lower Price
[Product]
D
D
D
D
D
D
D
D
Non
Consumers
Overshot
Customers
ISA
ISA
ISA
Lower
Functionality
D
D
Lower Price
Higher
Performance
[Product]
Value
Proposition
be Created
Telco
Value
Config
Speed to
Market
High
Performance
Convenience &
Responsiveness
Modular
Process
Time Based
Payment
Lower
Price
Lower
Functionality
Physical
Medium
Delivery
Most improved
[Product]
Add on
Features be
Purchased
Higher
Margin
Voice
Services be
Provided
D
Minimum
Internal
Conflict
Break
Help
Help
Network
Assets
Direct
Delivery to
Customer
Undershot
Customers
D
D
D
Partnership
with [Cellco]
Modified version
of [wireless voice]
for Low-end
Help
Hl
ep
Some-
Target new
customers in
[Cellco] market
D
Wireless Voice
Services be
Provided
D
Higher Skill
Asymmetry
Plays
Plays
Meet Network
Provider Spec
Billing
Mechanism
Network be
Available
Capture
Telco’s
Market Share
D
D
Network be
Available
Wireless
Know-How
Billing
Mechanism
be Complied
Plays
D
D
Co-option
be Avoided
Adaptable
Revenue
Model
Minimum
internal
conflict
Integrated in
Current Wired
Voice Business
Separate
Business
Unit
Network
Asset Low Capital
Cost
Some-
Some+
Some-
Network
Provider
Lower Skill
Asymmetry
Network
Service be
Shared
Make Pricing
Mechanism
Forcible
Make [Cellco]
Process Know-
How Available
D
Mastering in
Wireless
Tech.
Co-option
be Made
Make
And
And
D
Minimize
Internal
Conflict
D
D
D
Wireless
Know-How
D
Plays
Make
Break
Break
Capture
Telco’s
Market share
D
Roaming
Agreement
Network be
Available
D
D
D
Help
Plays
Sharable
Network
module
D
D
D
Customer
Relationship
Mech.
Customer
equity be
made
Smo e-
Hlep
D
D
D
D
D
D
D
D
Help
Partner
with Telco
Compete
with Telco
Wireless
Provider
Voice
Service
Provider
&CRM
Customer
be Satisfied
Process is
configured
[Wireless]
Channel
Mechanism is
configured
Billing
mechanism
is configured
Partnership
Mechanism is
configured
Conformity
in Billing
System
Process is
configured
Telco
Customers
for Voice
service
Cellco
Current
Customers
Cellco
Task
Goal
Softgoal
Resource
D
Make
Dependency
Means-ends
Contribution
Satisficed
Denied
D
Fig. 6 Telco’s business model operational layer while cooperating and competing with Cellco
Strategic reasoning about business models 191
123
option to be made. The explicit representation of the relationship between roles
helps understand how a chain of dependencies may create opportunity or
vulnerability for a participant in the business model. To investigate each actor’s
goal, we again use the qualitative assessment method, as proposed in i*.
The evaluation shows that in this situation Telco will satisfy goals of previously
unsatisfied customer groups. The situation also is in favor of satisficing the goal co-
option to be made. This implies that the change made by Telco on its strategy paved
the way for a successful internalization of the disruptive wave. The situation might
be opposite if Telco stayed on its current strategy and said no to its rival (Cellco) for
cooperation. Success or failure in a disruptive battle depends on not only the right
strategy, but also the realization of the strategy in the operational business model.
Although this example is historic, we emphasize that our aim is to show how the
strategic modeling generates insight into the future when a business facing strategic
change. In the next section we propose a methodology based on the i* strategic
modeling framework to analyze similar cases. The method potentially helps analyst
answer other real-life strategic changes emerging with service science.
4 A methodology for modeling a business using SBMO
Concepts, their properties and relationships introduced in the last section provide
the necessary building blocks for strategic reasoning on business models. In this
section we propose a set of practical steps to systematically analyze a business
model. The proposed modeling methodology expresses one particular way to model
a business using SBMO, however, this may not be the only way. The characteristics
of the domain and the nature of problem intended to be analyzed may suggest a
different modeling processes.
4.1 Modeling the state of a business
First, we must express the state of a business model. Figure 7describes a proposed
set of steps for modeling the current state of a given business. The resulting artifact
is called the ‘‘as-is business model’’ and is comprised of an operational and a
strategy layer.
4.1.1 Operational layer
The systematic analysis of a business suggests to establish first the operational layer,
i.e., to explore the participants (steps O1), their roles (step O2) the mechanisms they
are involved and so forth. While we explore mechanisms such as pricing,
partnership, and value configuration in step O3, we also map out how participants
depend on each other. A partnership mechanism for instance, brings a dependency
from FOI to its partner on different goals and resources. When the network of
dependency is created in step O4, we apply a qualitative evaluation method, as
provided in the i* framework (Sect. 3.2), to assess the operational business model.
192 R. Samavi et al.
123
We assume that a working business has a workable business model, thus the purpose
of modeling in this stage is to make the reasoning behind this business model
explicit. Since usually there is more than one way to achieve stakeholders’ goals in a
business model, SBMO allows the modeler to express available alternatives in the
model in step O6a.
As not all objectives that are defined in the operational layer are strategic, the
modeler identifies the objectives with global and strategic scope that need further
refinement in the strategy layer, in step O6b. These objectives (soft goals with
global scope) and workable alternative mechanisms will move to the strategy layer
via the layer interface. Any change in the operational layer that affects these two
artifacts will trigger a possible change in the strategy layer and vice versa.
4.1.2 Strategy layer
The purpose of modeling the strategy layer is to make the as-is strategy of a firm
explicit. In step S1a the modeler places the generic elements of strategy like novelty,
efficiency, and other business model quality attributes at the top, and the
Fig. 7 Process overview to model a state of a business model
Strategic reasoning about business models 193
123
mechanisms imported from operational layer at the bottom. In steps S2, S3 and S4,
the modeler refines top level quality attributes and connects them to the imported
mechanisms as operationalization of the current strategy. Since a major part of any
strategy is based on a set of assumptions and beliefs in the minds of the executives
and managers, step S5 encodes these assumptions into the model. If the strategy
layer belongs to a transitional state, elements from the old strategy will also be
presented as assumptions in the strategy layer. During the course of refinement and
operationalization, contribution and correlation links between elements of strategy
will be established. Conflicts and/or synergies between strategy elements will be
explored by the qualitative assessment of strategy layer in step S6. Any change in
mechanisms in order to realize the strategy in the operational layer will trigger a
possible change in the operational layer via the layer interface.
A state of a business model is sustainable when its operational layer is workable
and its strategy and operational business model are aligned. Therefore, the resulting
artifacts of modeling the state of a business will be an explicit representation of
strategy and operational aspects of a firm in a point of time.
4.2 Modeling business model dynamics
Figure 8shows generic steps towards modeling the dynamics of a business model.
The detailed steps typically depend on the problem domain and type of change that
is being analyzed. The first major step is to understand the change in the market
place.
Fig. 8 Process overview to model business model dynamics
194 R. Samavi et al.
123
4.2.1 Understanding the change
An operating business receives input from its environment such as presence of a
new rival, a new technology and regulation or deregulation by government. In step
C1 the new information will be incorporated into the as-is state of the business.
Then in step C2, objectives of stakeholders will be assessed in order to identify
whether the change in the market is a real signal for the firm or it is just a noise that
can be ignored.
4.2.2 Transitional states
A signal of change triggers a new state. In order to analyze the change aftermath, the
modeler adds new set of assumptions and suggests strategic moves in step T2 and
then analyze the state as described in Sect. 4.1 in step T3. SBMO helps analyze and
understand whether the new set of assumptions satisfies the FOI’s goals, and that its
strategy is aligned with the workable operational layer. If yes, the business model is
sustainable to respond to the change, otherwise more strategic moves need to be
investigated and source of conflicts between firm’s strategy and operation need to be
explored. Furthermore, a strategic move may change the situation and trigger new
moves from other stakeholders in the business. In step T4, the model is re-assessed
in order to accommodate the reaction to the evaluation of the first move. If the
reaction causes another signal of change a new state will be triggered and the
investigation will continue. The resulting artifact of modeling business model
dynamics will be the to-be business model.
5 Conclusions and future work
Strategic business modeling complements current business modeling techniques by
shifting focus from value exchange and creation to stakeholder goals, motivations,
and intentions. The systematic application of strategic business modeling requires
an appropriate business modeling framework. In this paper, we presented such a
framework. The strategic business model ontology (SBMO) is defined as a layer on
top of the i* goal-oriented modeling framework. The main contribution of the
SBMO ontology is its ability to express the overall decision making process by
capturing the cooperation and communication between different stakeholders inside
and outside a firm. SBMO is one of the two parts that a practical strategic business
modeling framework requires: the representation language. The second part is a
modeling methodology, that is, a sequence of steps that enable us to build and
reason with the states of a business from ‘‘as-is’’ to ‘‘to-be’’. In order to manage the
complexity and large number of parameters in business modeling we introduced a
layered methodology. Layering and separation of concerns in business models
facilitates understanding and reduces complexity. This approach also paves the way
for the future to incorporate other modeling techniques for one layer while using a
strategic reasoning framework for the other. Finally, we developed an integrated
Strategic reasoning about business models 195
123
approach towards business model and strategy analysis. It helps managers describe
their strategies in a more unambiguous and disciplined way.
Modeling intentions and motivation in business modeling has received more
attention in recent years. For example the Business Motivation Metamodel (BMM)
(Business Rules Group 2007) focuses on modeling intentionality by providing a
scheme for developing, communicating and managing business plans in an
organized manner. This study can be seen as a complementary work, where it
takes advantage of i* framework ability to determine whether goals can be achieved
in a business settings. The viability of strategy in its operational business model can
be qualitatively evaluated. Such an intentional evaluation mechanism allows for
reasoning about intentionality and for exploring solutions and choosing among
alternatives. We are currently working on incorporating the concept of ‘‘strategy
score card’’ within the strategic modeling framework. Using a score card
representation, we intend to improve description of a firm’s strategy and help
managers to switch between different alternatives in a more structured way. Another
direction for extending our work is to strengthen the formal framework behind
SBMO. This will enhance the model with reasoning operations with well-defined
semantics that will enable more efficient, tool-assisted creation of models and
automation of business model reasoning tasks. Additional areas for future research
also include the definition of a multi-actor view for strategy layer, and the exploring
of other business modeling frameworks, for instance e
3
value (Gordijn 2002)or
BMO (Osterwalder 2004), as candidates for the operational layer while i* is used for
the strategy layer.
Strategic reasoning about business models is an important part of a service
design. As we demonstrated with the application of SBMO in analyzing a disruptive
innovation example in telecommunication services, businesses (the incumbent) had
to modify their operating strategy which leads to modifying business process or
introducing new ones. We envision that modeling tools with strategic business
reasoning capability will be used for designing new services as well as for
retrospective analysis.
Acknowledgments Financial support from the Natural Sciences and Engineering Research Council of
Canada and Bell University Labs are gratefully acknowledged.
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