STOF Model: This framework for business model focuses on customer value creation, the arrangements required from the organisational, financial and technological point of view, for creating a new service. These four dimensions address how value is delivered to the customer and similarly how the service provider can gain value from the service offered.
The four dimension of the framework are service domain, technology domain, organisational domain and finance domain. In the following sections, these dimensions will be explored in detail.
STOF Business Model Domains
Since it is essential that the service offered by the firm should meet the demands of the customer, the new service definition is used as the central reference for all other domains. In customer’s viewpoint the technology is an enabler of the service, from the firm’s perspective it is the driver. Organisational domain describes how the resources in the firm will made available and used. Financial domain, stress on the pricing model, investment and other cost based risks involved in providing the service.
Critical Success Factor and Critical Design Issues for Customer Value
A successful business model should balance the value created for the customer to that for the service provider. To achieve this there should a balance between the different domains of the business model. A critical design issue is variable which is of importance for the feasibility and sustainability of the business model. Understanding of critical design issues (CDI) and its linkages is critical for designing balanced business model.
Service domain requirements guide the choice of technology to be used for the service delivery. Furthermore, it affects the organisational and financial domain.
Critical Design Issues in Designing Business Model
For each business model domain, we identify the respective CDIs. The identification of different CDIs is based on the literature review. In case of service domain the CDIs are target customers, value creating elements and customer retention.
Target customers: Service requirements and the customer need are different for each target group. The target group definition, whether it is B2C or B2B is necessary. And it is therefore fundamental to have a clear segmentation of the customers to address respective value proposition.
Value creating elements: To provide a compelling value proposition to the targeted customers, factors like relevance, ease of accessibility, accuracy, quality and trust are critical. It is therefore, the core service offering as well as support service being offered to the customer.
Branding (removed in the diagram) : To get a better recognition for the new service , brand image is essential. It can also increase the trust and awareness of the service being offered.
Customer Retention: It defines the ways to keep the customer loyal and satisfied. It is also need to develop recurrent use of the service by the customer.
Critical design issues for Technology domain:
Factors like security, integration of the existing system and accessibility are key design criteria for the technology domain.
Security: The way information is stored in the technical architecture and how the access is granted to the customer is essential to avoid security breaches. The trade off between ease of accessibility and data privacy should be addressed to reduce the risk of improper use of the services.
Quality of Service: The ability to provide different priority to maintain a certain level of performance based on the users, context and importance. The incurred cost in the technological infrastructure should be balanced with that of the quality of service. It can also be argued that the technological architecture or infrastructure influences the technical functionality, which in turn affects the customer’s perceived value of the service.
System Integration: The extent to which the new service offering can be integrated with that of the existing ones determines the adaptation of the service. Cost and flexibility of the new technology affects the system integration. In the case of ICT , firms with open standards bring down the level of integration required in the technical side.
Accessibility: There two factors which affect the accessibility of a service by the customer, first preference of service platforms and second the architecture. If there is a closed or controlled environment, it can make way to a restricted access to a particular group of customers. This also increases the security at technology level.
Critical Design Issue at Organisational Domain:
Partner Selection: This design criterion is based on the strategic interest that the firm has, based on it suitable partners can be chosen. It is also vital, to get hold of the required resources and capabilities by the firm.
Openness of Network: It is the extent to which new business can link to the value network. There can be two scenarios, first a closed network and second an open network. The closed network is mostly used to create higher quality of service and new partners are chosen by certain set of rules. Open network, gives an opportunity to deliver services to a wider audience than the closed network.
Network Governance: Establishment of set rules by which the partner businesses should operate and can be monitored. This is usually done by the most dominant actor in the value network. Access to the end-users is the key determinant of an actor’s dominant role in the collaboration.
Network Complexity : The number of relationships that has to be maintained with other businesses in providing the services act as the determinant of the network complexity. If the complexity is reduced , or in other words, less number relations increases the security and quality of service.
Critical Design Issue in the Finance Domain:
Pricing: Pricing of the service plays an critical role in the service adaptation and its use. The perceived value by the customer should be greater than or at least equal to the delivered value by the service provider. The pricing strategy should address whether the firm is aiming for maximising the market share or maximising the profitability from delivering the service.
Risk and Investment: The uncertainty about return on investment is the fundamental risk involved in developing and delivering a new service to the market. A division of investment and risk among the actors can reduce the degree of impact to the actors involved.
Cost and Revenue: The division of cost and revenue between the businesses is not the same in all cases, it differ from case to case. For instance, the service provider can share the revenue with the other actors in the service delivery or it can be based on the subscription fee. The revenue sharing is based on the underlying business logic either value based or on cost basis. The division of cost and revenue depends on the division of risk and investment also.
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The CDIs play a significant role in the process of creating value to the customer as well as to the service provider therefore it act as the starting point. The next step is the identification of Critical Success Factors (CSFs). A minimum group of areas in which satisfactory outcome is required to make certain that the business model generates value for both the service provider and to the customer is called the Critical Success Factor(Rockart and Bullen ,1981). Then the linkage between CDI and CSF , will aid for generating a feasible business model.
Critical Success Factor and Critical Design Issues for Network Value
Critical Success Factors (CSF) For creating value to the customer :
Compelling value proposition: It is related to value creating element CDIs in the service domain and it is a critical criterion for creating value to the customer. Value proposition is the overall benefits that are delivered to the customer by the service provider. Bouwan et al (2008) argues that the value proposition should be based on the customer needs and requirements and not to be based on the technological possibilities. Customer’s perspective of value also depends on the pricing (CDI) of the service. Similarly, Kotler (2000) points out that ‘brand’ (CDI) influences the customer perspective of value proposition.
Defined target customer: The CDI ‘targeting’ is related to this CSF. Defined target customer will help the firm to focus on the targeted customers, as the customer needs are different for different customer group. The assumed customer needs by the service provider can be nullified by segmenting the customer base (Kotler, 2000). Accessibility CDI of technology domain also affects this CSF.
Customer Retention: Customised or personalised service delivery to the customers will help retain the customer, mainly influenced by customer loyalty and customer experience. The unconstructive occurrence in service can affect the experience and frustrate the customer(Strauss, Schmidt, &Schoeler, 2005).
Quality of Service: Grönroos, 1994 suggests that the quality of service output and service process are equally important. CDIs from technology domain are closely related to QoS.
CDIs in the technology domain demands an adequate level of quality, since the service being delivered is technology based. Security and system integration
To summarize a high score in these CSFs will grantee that the service being provided will meet the customer expectations and create value to the customer.
CSF for creating value to the network:
The actors in the value network will cooperate for generating value on mutual interest and also compete for value on individual interest (Brandenburg & Nalebuff, 1996). Another framework, Porter’s five forces model stress on competition between the actors (Porter, 1980). For creating value in the network, balance between financial and organisational domain is critical, mover over it should be acceptable by the collaborating actors.
Profitability: There should be a acceptable profit for the firms, according to the division of cost and revenue (CDI). Other domain issues like customer group and pricing will affect the profitability.
Risk: An agreeable division of risk among the participating actors should result from the division of investment CDI. Since, there is a high uncertainty of service acceptance and due to the investment in IT infrastructure.
Network Strategy: This CSF is required to effectively manage the different relation in the value network, from the organisation domain perspective. Division of roles and Network Governance CDIs is directly related to the network strategy. Partner selection and network complexity is also interlinked with this CSF.
To summarise a high score on these CSFs will create benefit for the firms that are involved in the service. Organisational CDIs help in allocation resources and capabilities, similarly the CDIs in finance domain is instrumental in directing to a profitable service.
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