Business model transformation: possible strategies

Shvalev Nikita Sergeevich Senior Lecturer, Department of International Economics and Management, FSAOU VO "UrFU named after the first President of Russia B.N. Yeltsin" 620002, Russia, Sverdlovsk region, Yekaterinburg, Mira str., 19, room I-329a nikitashv@gmail.com

IntroductionA significant number of publications focused on the problems of strategic management are currently devoted to the study of business models.

The transition from the analytical design "strategy" to the design "business model" is caused by the transition from long-term to medium- and short-term planning horizon, as well as the comprehensive coverage of the company's activities ^{[1, p.59]}. The business model includes a whole range of business characteristics, including such as value, logic, architecture, process, business, etc. ^{[2, p. 112]}.

The spread of information and communication technologies and total digitalization in general has predetermined the emergence of new business organization formats, which in themselves are an innovation capable of providing a company with a competitive advantage. Among such innovative business models, first of all, it is necessary to highlight platforms that are widely represented in the e-commerce, intermediary and consulting services sectors. This fact makes it necessary to reformat the design of existing business models.

The purpose of this study is to identify possible strategies for the transformation of business models. The implementation of this goal involves clarifying the essence of the business model and its components. The work is based on the idea that the sequential (or sequential-parallel) change of the components of the business model provides various strategic guidelines for its transformation.

Business model as an analytical constructDespite the "spot" mentions of the term "business model" (see, for example, ^[3,4]), its widespread use for strategic management purposes began in the early 2000s.

Foss N. J. and Saebi T. ^[5] identified three areas of business model research: the basis for the typology of business forms; a factor affecting business efficiency; a special type of innovation.

The vagueness and fragmentarity of the formulations of the business model, characteristic of the formation of a concept in science, persists to this day.  The authors in the study of business models focus on:

- a special configuration of business components (the so-called architecture) ^[6-8];

- ways of monetization of business ^[9];

- ways of interacting with customers and partners, and the transactions that arise ^[2,10,11].

The differences in the interpretation of the term are explained by its dependence on such factors as the industry, the specifics and scale of the business, the stage of the life cycle, etc., as well as the fact that the development of new forms of business models occurs before their theoretical and scientific understanding. Currently, an approach that studies the business model as a special system that is interconnected with the environment and open to mutual influence prevails in research. Various business elements are considered as components of this system. ^{[1, p.65]}

An integrated approach to describing the essence of a business model involves highlighting its components. Conducting a scientometric analysis of business models, 96 constituent elements of business models were identified in ^[1]. Nevertheless, a significant part of researchers (see, for example, ^[12-14]) identifies two main components – consumers and the supply of value. To a lesser extent, components related to monetization, business organization and resources, as well as interaction with the market are mentioned.

It seems that each of these components can be a lever for building a transformational strategy of a business model.

Business Model Transformation strategiesThere are two key reasons that currently determine the transformation of business models ^{[15; 16, pp.19-27]}:

1)                The appearance of a digital shadow among enterprises providing services in the off-line space. The increase in this digital shadow leads to the so-called phenomenon of "digitalization", and in some cases does not contribute to, but hinders the success of the company. Making a decision about what is the main way to offer value and monetize a business – in a virtual or real (physical) space – is key at the moment.

2)                The problem of hybridization, or the transition from a product (implementation of one-time transactions based on the production and sale of products, with independent transactions between transactions) to a service business model (implementation of permanent services based on the maintenance of products / projects, providing access to the product).

Depending on the strategic orientation of the business, K. Linz and co-authors ^{[16, p. 35]} propose four types of business models: product-oriented, project-oriented, platform-oriented and solution-oriented. Expanding this typology, in Table 1 we presented a component analysis of these business models. 

Table 1 – Component analysis of various types of business models

Source: compiled by the author

Having decided on the basic model, it is possible to change one or more components, providing a gradual transition from one type to another. Thus, companies producing a specific product can, based on the principles of customization (that is, other principles of working with customers), start working by offering individual individualized solutions to individual segments of consumers. Using the "business organization" component, it is possible to transform communication and sales channels with the consumer.

The systematization of business model transformation strategies is presented in Table 2.

Table 2 - Systematization of business model transformation strategies

          As a relevant example of the transformation of the company's business model, we can offer the case of Apple. A well-known fact is that the company appeared in the 70s and existed until 2007 under the name Apple Computer, Inc. This name was not chosen by chance, because it described the value proposition of the business model at that time - the production of computer equipment in the best possible way. According to the typology of K. Linz and co-authors, this business model can be classified as product-oriented. The production of standardized computers, and then cell phones, assumed additional ways of monetization in the form of service, which, nevertheless, fully corresponded to the stated business model.

          The emergence of smartphones and technological leadership Apple in this area has made it possible to transform the company's business model. The company has turned into a stable platform ecosystem, offering consumers a whole range of services and solutions related to the functioning of Apple products. The company managed to "link" a material product (the smartphone itself) and electronic products from other manufacturers (applications, programs, electronic services) into a single value proposition. Such changes have led to an explosive growth in the company's profits due to an additional source of monetization: it makes a profit not only from the sale of technical devices to consumers, but also 30% of the revenue of companies producing electronic products. This fact has led not only to an increase in income Apple, but also to increase market power by reducing the number of potential competitors (so-called co-competition).

ConclusionThe proposed business model transformation strategies are the framework tools for determining the directions of the organization's development.

At the same time, it is important to understand that taking into account the specifics of the business itself when choosing a particular strategy, the sectoral and regional features of its functioning, the level of competition in the market and the level of market power of the organization itself, as well as a wide list of other factors are key when choosing a transformation strategy.