© Universität Stuttgart IFF Fraunhofer IPA, Foto: Rainer Bez

Business Models in Internet-Based Value Creation Networks – A Capability Approch

The Ferdinand-Steinbeis-Institute (FSTI) is developing an alternative model for creating digital business models

What are the key success factors when designing digital business models, and what can be done to support SMEs in this area? These are the issues being looked at by the Ferdinand-Steinbeis-Institute (FSTI) as part of the ” Kompetenzzentrums Mittelstand 4.0 – Stuttgart”. For this the FSTI started a series of interviews and workshops with small and medium-sized companies. The resulting insights will be used by the FSTI to develop a so-called capability-based model.

The interviews and workshops that have been carried out until now show that digitization leads to an increase of customer demands and as a result, products and services become increasingly complex. The connection between these two factors can be seen by looking at the example of car dealerships. Until now, dealers have generated revenues by selling and servicing cars. In the course of the electric car, customers are becoming increasingly demanding. No longer do they just want to buy an electric car, they look for an comprehensive solution. This solution encompasses an overall package underscoring the reliability and quality of the vehicle itself, the supporting infrastructure, installation, key information, and services. In most cases, an individual car dealer is simply not in a position to deliver such a complex package of services. To do so, it would have to pull together the capabilities of various companies. This example shows why it is becoming increasingly difficult for small and medium-sized companies to offer their customers a complex performance promise. What they need is a variety of different parties from different domains, so they can pull on the same levers as part of a Internet- based value creation network (also called an ecosystem). By doing so, the different partners join forces and deliver added value for the customer together. A key feature of internet-based value creation networks is that individual elements of a service are broken down into fragments. Each fragment is taken care of by a different partner within the value creation network. Coming back to the example with electric vehicles, this would entail the car dealer managing the service fragment relating to the car sale and service, an energy provider would add its process know-how to the value creation network, and an electrician would input with installation capabilities. It is only when all of the different competences are pulled together that the customer promise of “providing electromobility to the user can be fulfilled.

The question this raises is: How can companies creat their business models within internet-based value creation networks in such a way that they can participate in value creation in the fuhter? To answer this question, the Ferdinand-Steinbeis-Institute started by looking at conventional approaches used to develop innovative business models, including the Business Model Canvas and the St. Gallen Business Model Navigator. These are method-based approaches used to plan and update business models. These approaches usually design business models based on the company strategy (top-down approach). But when they are applied to the example of the car dealership, they are often reaching their limits. For example it is difficult to take a strategy as the basis for developing a business model for a value creation network in a way that exploits the full potential of digitalization. Also, in practice it is often a complex process trying to determine who the customer of a value creation network actually is and develop a common value proposition for this customer.

Based on these insights, the FSTI has been looking into different ways to design digital business models. By drawing on established business model innovation principles, a capability-based approach has been developed. This method is called the Middle-In Approach. The first step involves identifying existing business capabilities held by a company (shown in the blue box). This procedure is not fundamentally new. For example, in strategic management and enterprise architecture (EA), organizations are often categorized according to their capabilities. Despite this, the capability-based approach have not been used much in business practice. One of the reasons for this is that it is a difficult and long-winded process to identify the existing capabilities in order to use these as a basis for adapting business models. Until now, once a company has identified its business capabilities, it has had to ask itself if there are other capabilities it can develop based on these (see model, red box) in order to play a successful role in value creation in the future. The business capabilities within a company also provide a foundation for defining the requirements that need to be met to implement a certain technology.

The Middle-In Model

To use this capability-based approach properly, there needs to be a clear understanding of different terminology, which until now has not been the case in business literature. As a result, the Ferdinand-Steinbeis-Institute has taken established models revolving around resource-based views, core competences, and dynamic capabilities, adding insights from the existing literature on business capabilities to derive the following definitions: Business capabilities are an interdisciplinary package of deliverables, individual to a company, aimed at adding the best possible value. Business competences thus describe what a company does in abstract terms. Based on this definition, the FSTI has developed a structure for designing digital business models based on business capabilities. The first step is to identify the existing business competences of a company. The second is to map the market environment of the company and the competitive situation including the influence of digitalization. This provides a basis for deciding which business capabilities the company can use to position itself in internet-based networks. This approach also helps to highlight the additional business capabilities a company needs to acquire and any business capabilities that will have to come from business partners and subcontractors in the network. Based on this, the digital business model provides a quantified package of business capabilities offered by individual companies. This capabilities-based model for planning digital business models will undergo further development as part of work being carried out at the Competence Center, Mittelstand 4.0 – Stuttgart. The plan is to offer training courses and projects in the coming year.


Patrick Weber

Patrick Weber is a Research Assistant at the Ferdinand-Steinbeis- Institute and is responsible for research in the field of industrial internet/Industry 4.0. Research at the FSTI revolves around the increasing merging of physical objects and embedded IT, taking into account changes in Internet connectivity and the consequent impact on industrial ecosystems, value creation and societal structures.

Patrick Weber
Ferdinand-Steinbeis-Institute (Stuttgart)