Open Business Model Analysis

Introduction

The topic of business modeling is relevant in the theory of strategic management, marketing, and the economics of entrepreneurship. One of the main and most effective tools in these sectors today is innovation in business frameworks. As an approach to maintaining sustainable work in these fields, the concept proposed by Chesbrough (2017) may be applied, which involves moving towards an open structure of activities. This transition means the ability of an enterprise to use all available external ideas. These resources, in turn, make it possible to increase the innovativeness of processes in accordance with market requirements.

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The uniqueness of a business model in any company determines its success and opportunity to conduct productive work in a competitive market and in conditions of vibrant consumer demand. Extroversion in entrepreneurship is a modern approach to organizing business activities, which helps strengthen ties with the business environment due to the possibility of increasing profits through modern sources. Openness in the configurations of business models is a significant innovative feature that enterprises can utilize to create and maintain value due to systematic cooperation with external partners.

Concept of an Open Business Model

The movement towards innovation in entrepreneurship plays an important role in creating a sustainable business, and in the modern entrepreneurial environment, such mechanisms contribute to strengthening the position of companies in the market. Chesbrough (2017) defines open models as a framework that allows implementing two significant functions: create the value of specific services or products or capture unique resources to optimize activities to enhance a competitive advantage.

Both properties play an essential role in the formation of business stability since today, a focus on attracting new approaches can allow companies to not only develop demanded offers but also improve work processes inside enterprises. Alcalde and Guerrero (2016) note that open innovation makes it possible to coordinate both internal business contexts, for instance, the target audience, revenues, or sales volumes, and external strategic solutions (entering new markets, overcoming a competitive barrier, and other aspects). To address all these challenges successfully, open business models are valuable frameworks that add value to interventions and, at the same time, help attract consumer interest.

The business models under consideration may be valuable in the work of both young and new companies and large enterprises that have been operating in the market for a long time. Alcalde and Guerrero (2016) argue that start-up firms can engage in experimental methods of business, thereby realizing new market opportunities and increasing commercial success. For large organizations, updating obsolete and ineffective approaches through open innovation is a common method of stimulating profit growth and engaging stakeholders (Alcalde and Guerrero, 2016).

In both cases, the introduction of changes by involving external resources and restructuring internal organizational regimes can help enhance productivity and increase profits, which is the ultimate goal of entrepreneurship. Therefore, open innovation models may be applied as growth mechanisms for individual companies and tools to expand business opportunities.

The implementation of the considered models through innovation often occurs due to the introduction of the necessary digital technologies. Colombo et al. (2016) connect contemporary models with progressive software that optimizes the operation of enterprises, thereby speeding up all production processes and simplifying evaluation algorithms. According to the authors, one of the main advantages of this practice is the availability of digital systems because today, a wide variety of virtual tools for business exists (Colombo et al., 2016).

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In addition, there are no formal conditions and requirements for companies using innovative products in their operations. As a result, any organization can optimize its work through the rational application of external resources and the use of innovative mechanisms of openness and inclusion. Therefore, the framework of an open business model is a valuable area for research in the context of various industries related to entrepreneurship and marketing.

Henry Chesbrough: The inventor of Open Innovation

Henry Chesbrough is the creator of the term “open innovation” and the founder of the theory of business models that apply this approach to optimizing performance. West and Bogers (2017) note that for the first time, Chesbrough utilized this definition in his monograph in 2003 by using numerous supporting references. In the future, the creator of the concept under consideration improved work in this area and developed individual strategies to make the field of open innovation an independent and unique approach.

According to the author of this theory, the rapid development of digital technologies in the early 20th century led to his work on revising the traditional and outdated mechanisms of business enterprises’ operational activities (Chesbrough, 2017). The situation in the entrepreneurship market contributed to reassessing standard practices, which entailed work in this direction. Subsequently, the concept of an open business model became widespread, which proves its relevance as an algorithm of change.

Along with a comparative description of old foundations and new approaches to the implementation of innovations, Chesbrough (2017) gives a scheme of open and closed innovations, which has become world-famous. The author uses the tunnel to describe the innovation process, the continuous and discontinuous boundaries of which demonstrate the essence of obsolete and contemporary foundations of technologies (Chesbrough, 2017).

According to Chesbrough (2017), at present, the business sector enters a new stage of innovation when the sources of companies’ entrepreneurial potential are located outside. This theory has become the core of the entire concept under consideration, and subsequently, its provisions were refined and improved so that it could meet the needs of modern markets and be used in different competitive environments.

At the beginning of the 20th century, the business market was not associated with innovations and the implementation of the most advanced methods of searching, processing, and using resources for effective entrepreneurship, which implied optimization as a single improvement strategy. In the introduction to the initial monograph, Chesbrough (2017) shows the principles on which enterprises built innovation management in the past, in the era of closed innovation. As Tucci et al. (2016) state, these include technology management methods, on the basis of which companies operated. It was the time when enterprises tried to solve all the challenges of innovation processes on their own by utilizing internal resources solely.

With the growth of economic integration, the internationalization of financial activities, globalization, and the emergence of new communication opportunities, particularly the Internet, past foundations have become obsolete. Chesbrough (2017) contrasts obsolete approaches with the new modern principles of effective innovation, which many advanced companies apply for today. Thus, the creator of the concept in question has managed to reorganize the business sector and introduce relevant tactical steps to optimize entrepreneurial activities significantly.

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Open Business Model Progression

The rational work of any business company involves the reasonable implementation of innovations based on various criteria, including market needs, growth opportunities, and other relevant criteria that determine the significance of specific interventions. Accordingly, progress may be achieved if an analytical approach to the reorganization of current activities is applied, and on its basis, the necessary changes are introduced.

Ausrød, Sinha, and Widding (2017) mention the open innovation system as a hierarchical algorithm and compare it with a pyramid when the upper level is the most successful and advanced strategy, and the lowest one is its base. Such a structuring of the concept under consideration is a progression that may be implemented in almost any working environment in case efficient tools are utilized. As a result, following the stages of the development of innovative entrepreneurial activities in stages, it is possible to create a sustainable and productive framework that promotes high-performance work and involves using contemporary development tools.

As progressively innovative business models, four key categories may be cited. Müller, Vorraber, and Slany (2019) consider this topic and offer the following options: closed, cooperative, collaborative, and co-creative systems. The whole algorithm of division is hierarchical and mentioned in accordance with the development opportunities that they provide. As Chesbrough (2017) argues, the more participants are involved in building an innovative optimization strategy for any business, the more productive the work is.

Thus, the closed scheme is the basic framework, while co-creative principles are the highest forms of improving current activities. In order to assess the key features of these categories, one can assess each of them individually.

The closed innovation system is the background for all subsequent approaches. It involves working inside the company without displaying the information outside. From a competitive perspective, the situation is as follows: a company wins if it brings innovation to the market first (Müller, Vorraber and Slany, 2019). In case an organization promotes the innovative cooperative model, this allows it to adopt and accumulate the experience of other enterprises. Moreover, the more developed this ability is, the more likely the company will participate in the joint innovation process (Müller, Vorraber and Slany, 2019). The collaborative model is not linear, and its successful implementation can enhance the productivity of the existing factors of production. Based on a single strategy and commitment, stakeholders create an advanced system of optimization procedures (Müller, Vorraber and Slany, 2019).

Finally, the co-creative model is the highest form of interaction, which makes it possible to create value through participation in the productive process of maintaining partnerships (Müller, Vorraber and Slany, 2019). All the strategies considered are relevant mechanisms, and the presented progression manifested in the phased expansion of growth opportunities indicates the flexibility of approaches to innovation management.

Conceptual Framework of Open Business Model

The conceptual framework of open business models involves a set of approaches to creating a sustainable change strategy, in particular, the integration of entrepreneurial approaches with innovation. According to Wirtz and Daiser (2017), as a result of combining these components, an optimization system is formed, which is a network. In such network structures, the focus of competition shifts from an innovative product to other aspects of work, which also influence productivity and business success.

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The creators of these structures can capitalize on the innovations of technology partners without even being the creators of unique technologies. In addition, as Wirtz and Daiser (2017) state, the focus of strategic management extends beyond the boundaries of one company and switches from a central organization to the whole network. The emphasis is on the joint creation of value and the processes of the appropriation of collectively created products and services by all participants in a holistic system.

The cooperation of a company with partners for the exchange or integration of resources, including both tangible and intangible assets, can apply to any type of entrepreneurial activity. Chesbrough (2017) describes the algorithm he invented in detail and notes that the characteristic features of such open business models are ecosystems that have become a source of creating and assigning value through the joint actions and relationships of the organization with other stakeholders through the creation of a joint innovation strategy.

Also, the author mentions special platforms that are based on technological assets and allow the founders and owners of these structures to influence the development of their private industries (Chesbrough, 2017). Finally, as key actors, Chesbrough (2017) mentions joint ventures or cooperatives that contribute to analyzing, implementing, and developing appropriate optimization strategies. This whole process forms the structure of open business models and is the basis for maintaining their stability.

Thus, two approaches to understanding an open business model may be distinguished based on the aforementioned structuring. On the one hand, the position of open innovation is taken into account where openness characterizes only innovative activities. On the other hand, a business perspective is considered, which reflects the openness of all processes of the company’s business, its internal and external relationships, as well as its readiness for optimization.

Today, these two positions are often used synonymously since any open model involves movement towards innovation. As Chesbrough (2017) notes, this system works by integrating all the necessary components into a single algorithm, which allows achieving effective development in a particular industry by gaining a competitive advantage and, therefore, attracting customer interest. Therefore, the framework of these models implies a complex and, at the same time, reasonable mechanism of interaction among all involved elements that influence business specifics and success.

Closed vs. Open Business Model

Two key systems that determine the specifics of business development are open and closed models. Their differences are critical factors that influence the nature of optimization procedures in organizations, and often, productivity depends on the ability to implement the provisions of one of the two concepts. As Kortmann and Piller (2016) note, in case a firm adheres to a closed model, all its value chains are based on individual work, and operations are kept secret in order to avoid data leakage.

The authors argue that in such business systems, talent management is appreciated significantly since the ability to develop relevant change projects by attracting internal resources solely makes it possible to maintain high market positions (Kortmann and Piller, 2016). Accordingly, those companies that promote closed models pay special attention to intellectual property and other aspects of copyright protection both at the stage of creating a specific innovation and after its implementation.

An open business model does not imply talent management as an integral component of the company’s HR activities. Conversely, as Bankvall, Dubois, and Lind (2017) remark, in accordance with its provisions, organizations should find both a professional workforce and resources for introducing innovations by themselves. Creating a sustainable and efficient business model is a more important task than maintaining a competitive advantage through the careful observance of corporate secrets.

The utilization of both internal resources (tangible and intangible assets and qualified employees) and external sources of ideas (establishing partnerships or adapting other companies’ work algorithm) can contribute to successful entrepreneurship. According to Bankvall, Dubois, and Lind (2017), any open model suggests that it is essential to profit from the use of its own intellectual property by other organizations. The activity in this concept lies in the search for technologies, ideas, and solutions that may be applied to address existing problems and meet customer needs.

When comparing the two types of business models, one can note that in a modern entrepreneurial environment, when dynamic approaches are more optimal than traditional practices, open systems are more favorable for stimulating innovative development and successful promotion. One of the drawbacks of closed models is that companies adhering to such tactics spend too many assets on introducing the necessary resources, although the desired optimization tools may be available in the market at significantly lower prices. Another advantage of open systems is the variability of the utilization of their developments.

Managers of organizations with a closed type of innovative course often refuse to promote specific areas due to their lack of prospects in relation to a particular business. In open models, many projects can be valuable, and even if they do not fit into the existing algorithm of work, they may be applied profitably, for instance, by selling in the market. Therefore, in terms of flexibility, open systems are more productive than closed ones.

How Open Business Model Makes Money

In addition to the theoretical benefits of the implementation of open business models due to an opportunity to find a corresponding approach to optimizing activities, real practical benefits may be achieved. Companies adhering to certain entrepreneurial strategies can profit from special solutions aimed at strengthening their financial bases and maintaining stable market performance. As such relevant approaches, Marzocchi, Kitagawa, and Sánchez-Barrioluengo (2019) mention licensing fees and spin-offs. Minbaeva et al. (2018) also highlight that joint ventures may be effective mechanisms for increasing profits. All three aspects of activities are valuable practices that contribute to accumulating capital in the context of business optimization in open models.

Licensing fees is a successful solution if a company is oriented in the field of patenting and certification of goods and services and can implement other companies’ technology programs while receiving dividends. Marzocchi, Kitagawa, and Sánchez-Barrioluengo (2019, p. 169) argue that such “commercialization of research” allows increasing the capacity of entrepreneurial activities and opens up prospects for successful and mutually beneficial collaboration. For instance, a little-known organization that creates a potentially profitable product can establish cooperation with a larger company that, in turn, helps patent this product, thereby receiving a percentage of sales. This approach is successful if innovation is needed in a particular market.

Another strategy that allows an organization with an open business model to make money is an algorithm called a spin-off. Marzocchi, Kitagawa, and Sánchez-Barrioluengo (2019) describe this approach as a mechanism for implementing successful entrepreneurial activity when, by separating its assets and fields, a company selects a specific area for intervention and concentrates on it as an individual field in a wider scope of business.

The authors note that organizations can focus on both intellectual property and practical developments that can be modernized and marketed (Marzocchi, Kitagawa and Sánchez-Barrioluengo, 2019). Thus, even start-up companies are able to profit from following such a strategy due to timely and successful investments in a specific industry and its subsequent strengthening as a result of the reorganization of the entire business.

The formation of joint ventures is a common entrepreneurial practice that, moreover, is promoted in open business models. Minbaeva et al. (2018) describe this approach and compare it with strategic alliances created to strengthen two separate businesses. Joint ventures can be aimed both at promoting a single product through bilateral investments in its development and individual goods but with the use of a mutual capital allocation strategy and marketing practices. As a result, two firms in such an alliance profit from each other’s help. In addition, they establish a productive partnership, which is one of the objectives of open business models. Therefore, this form of cooperation can bring significant benefits to the parties involved.

Why a Business Needs to Be Open

Despite a natural progression in the innovation sphere and the undeniable advantages of introducing useful technologies in entrepreneurial activity, not all company leaders are aware of the importance and relevance of their businesses’ openness. Moreover, such ignorance can be a critical factor hampering the organization’s work and hindering its sustainable development and the ability to overcome a competitive barrier.

Therefore, it is essential to note that one of the main merits of an open business model is creating value, including its subsequent capturing. According to Visnjic, Neely, and Jovanovic (2018), firms that implement partnership practices and enter new markets successfully can accumulate capital more quickly and efficiently due to new prospects and growth opportunities. These possibilities, in turn, serve as a background both for promoting individual values, for instance, goods or services, and adopting other companies’ working methods. Thus, the openness of a business helps maintain the retention of benefits in a highly competitive environment.

In addition to an opportunity to create and maintain value, the significance of an open business model also lies in the effective use of external sources that stimulate the success of activities. Visnjic, Neely, and Jovanovic (2018, p. 52) mention “supplier outsourcing” as one of the important components of such an entrepreneurial strategy and argue that this aspect allows for productive work outside a firm.

Also, a wide range of possibilities is opened up for organizations promoting innovation in their business. As Yun et al. (2017) state, external innovations adopted as a result of utilizing this strategy give companies an opportunity to use appropriate technologies with personal gain, thereby increasing the likelihood of market growth. This advantage reinforced by the active application of an online environment as a productive space for communication and marketing is highly significant in modern business organizations and is an objective reason for introducing an open model.

Since an innovative approach to organizing a business is a key element of an open model, the entire algorithm of work can be used to establish valuable interaction with other firms to increase the capacity of a particular company. Yun et al. (2017) note that in the ecosystem of entrepreneurial collaboration, assets and other resources may be obtained as a result of participation in mutually beneficial projects where the behavior of partners is characterized by a willingness to innovate.

As tools for development, both financial resources can be utilized and intangible elements of activity, for instance, intellectual property objects or methods of technology implementation. All these principles of entrepreneurship can help avoid the suppression of competitors and receive well-deserved dividends through interaction with other market participants. Therefore, business openness is a relevant and potentially profitable feature of work in a modern market environment.

Open Source Model

One of the related areas of an open business policy is the development and exchange of software innovations. This practice is called an open source model and is an algorithm of work, which involves providing access to free programs and services in the field of IT technologies. According to Olson, Johansson, and De Carvalho (2018), this principle of operation may be characterized by two key aspects: providing users with an opportunity to utilize relevant services and encouraging them to generate valuable content on their own. The process itself is dynamic since the free distribution of such platforms helps attract a large number of interested parties.

As a result, the creators of software involve not only individuals but even entire communities. This activity helps optimize the workflow and, at the same time, stimulates user participation in the modernization of a particular interface, content, and other elements for convenient work.

Profit channels generated by introducing an open source model are different. Many modern companies, including large corporations and small firms, support the practice of providing free access to IT innovations, but at the same time, they also receive dividends.

For instance, Pearce (2017) provides an example of continuous technical support that creators provide to users in case of problems with the operation of a particular product. As a rule, communication streams with company employees are stable and convenient, which helps receive positive feedbacks from consumers and increases confidence in a certain platform. Another mechanism of such a structure is advertising, which also serves as a source of profit. Despite free services, many software developers allow implementing promoting materials in their products, thereby making a profit from advertisers (Pearce, 2017). These types of income are common forms of revenue today.

There are also additional mechanisms of open source models, which are less common but also have value as sources of profit for developers. Olson, Johansson, and De Carvalho (2018) note that paying for additional services that are not part of the basic set of IT programs is a common practice. This type of profit may not be as successful as advertising, but its implementation is justified. For instance, in case of providing users with narrow-profile programs, additional services can be offered to expand the functionality of applications and increase productivity. Finally, Olson, Johansson, and De Carvalho (2018) mention cloud technology as a popular mechanism for collecting and storing data.

The authors note that modern software is often designed specifically for a format that differs from the standard one and requires additional investments from users (Olson, Johansson and De Carvalho, 2018). As a result, an open source model should be considered a demanded, valuable, and potentially profitable principle of organizing an open business.

Risks and Benefits of Open Business Model

For a comprehensive assessment of an open business model, it is crucial to consider both its merits and risks that such an entrepreneurship strategy may entail in case of errors. As Brunswicker and Chesbrough (2018) remark, not all managers can be satisfied with this algorithm of work since it requires special approaches to organizing activities and preliminary analytical work. However, in case of analyzing implementation tactics competently, this business model is able to strengthen a company’s position significantly. Thus, a brief evaluation of benefits and potential risks may contribute to describing the considered framework in detail.

All of the aforementioned advantages of an open business model allow talking about its universality and relevance today. Dekkers et al. (2019) argue that this entrepreneurial approach reduces the costs of commercialization, thereby increasing the success of technological development. Accordingly, risks are minimized due to partnerships because potential threats are shared among the organizations involved and are easier to overcome together. A collaborative opportunity enables company executives to adopt and implement valuable experiences, thereby creating more sustainable value propositions (Dekkers et al., 2019).

While taking into account openness as an integral component of such a model, the principle of working in these conditions helps expand the base of potential customers and stimulates the involvement of new market participants who, moreover, can serve as testers. The optimization speed increases, which influences the outcomes of interventions favorably. Thus, an open business model expands the range of opportunities, although some risks arise in case of an unreasonable application of this strategy.

In case managers interpret the possibilities of external cooperation incorrectly, this may lead to losses caused by the improper use of the model. In addition, as Brunswicker and Chesbrough (2018) note, the loss of control over assets is a negative result of creating incorrect or unclaimed value propositions. If a company has poor control over its internal resources, this can lead to the leakage of crucial data without any benefits and dividends.

Dekkers et al. (2019, p. 210) remark that “some companies are unfamiliar with the innovation ecosystem and how to access it”, which results in asymmetric profit sharing even if two or more organizations are equally involved in the partnership. When establishing leadership for such a model, the costs of compliance with all conventions can be high, including the distribution of roles and the creation of a holistic system for monitoring activities. Therefore, when planning the implementation of this entrepreneurship strategy, it is essential to take into account the risks considered and avoid rash decisions since maintaining this model of work requires attention to details and a careful assessment of possible benefits.

Conclusion

The considered features and implications of open business models suggest that these entrepreneurial strategies help maintain and capture values and create sustainable collaboration practices based on engaging innovation. The creator of this approach has done everything possible so that his efforts are not in vain, and as a result, an expanded program of openness has been developed. The structural components of such a system make it possible to create several variants that progress due to the expansion of influence.

The difference between closed and open systems is significant, but the possibility of making a profit through the use of any of these strategies is real if relevant business principles are promoted, for instance, advertising or licensing fees. An open source model is a variation of this approach, but it manifests itself in the IT sector solely. Despite potential risks, the advantages of open models are crucial, and the development of innovative implementation methods to optimize all work processes is a modern and relevant practice in a business environment.

Reference List

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Ausrød, V. L., Sinha, V. and Widding, Ø. (2017) ‘Business model design at the base of the pyramid’, Journal of Cleaner Production, 162, pp. 982-996.

Bankvall, L., Dubois, A. and Lind, F. (2017) ‘Conceptualizing business models in industrial networks’, Industrial Marketing Management, 60, pp. 196-203.

Brunswicker, S. and & Chesbrough, H. (2018) ‘The adoption of open innovation in large firms: practices, measures, and risks’, Research-Technology Management, 61(1), pp. 35-45.

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Colombo, M. G. et al. (2016) ‘Open business models and venture capital finance’, Industrial and Corporate Change, 25(2), pp. 353-370.

Dekkers, R. et al. (2019) ‘Engaging with open innovation: a Scottish perspective on its opportunities, challenges and risks’, Journal of Innovation Economics Management, 1(28), pp. 193-226.

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Marzocchi, C., Kitagawa, F. and Sánchez-Barrioluengo, M. (2019) ‘Evolving missions and university entrepreneurship: academic spin-offs and graduate start-ups in the entrepreneurial society’, The Journal of Technology Transfer, 44(1), pp. 167-188.

Minbaeva, D. et al. (2018) ‘Disseminative capacity and knowledge acquisition from foreign partners in international joint ventures’, Journal of World Business, 53(5), pp. 712-724.

Müller, M., Vorraber, W. and Slany, W. (2019) ‘Open principles in new business models for information systems’, Journal of Open Innovation: Technology, Market, and Complexity, 5(1), p. 6.

Olson, D. L., Johansson, B. and De Carvalho, R. A. (2018) ‘Open source ERP business model framework’, Robotics and Computer-Integrated Manufacturing, 50, pp. 30-36.

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Visnjic, I., Neely, A. and Jovanovic, M. (2018) ‘The path to outcome delivery: interplay of service market strategy and open business models’, Technovation, 72, pp. 46-59.

West, J. and Bogers, M. (2017) ‘Open innovation: current status and research opportunities’, Innovation, 19(1), pp. 43-50.

Wirtz, B. and Daiser, P. (2017) ‘Business model innovation: an integrative conceptual framework’, Journal of Business Models, 5(1), pp. 14-34.

Yun, J. J. et al. (2017) ‘Growth of a platform business model as an entrepreneurial ecosystem and its effects on regional development’, European Planning Studies, 25(5), pp. 805-826.

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