Conceptual and Business Models for Customer ...

Conceptual and Business Models for Customer-Centric Business Ecosystems1 Garyfallos Fragidis1,2, Konstantinos Tarabanis1 and Adamantios Koumpis3 1

Department of Business Administration, University of Macedonia, 156 Egnatia str., Thessaloniki, Greece, e-mail: (garyf,kat)@uom.gr 2 Institute of Technology and Education of Serres, Terma Magnisias, 62124 Serres, Greece, e-mail: [email protected] 3 Research Programs Division, ALTEC S.A, 5 M. Kalou str. 54629, Thessaloniki, Greece, e-mail: [email protected]

Abstract—Information technology and the Internet favour the development of business networks, in which business partners cooperate to produce composite products and services that meet the customer needs. Customer participation in these networks, even though necessary, is usually neglected or submissive to the needs of the business enterprises. Based on the metaphor of ‘business ecosystems’, this paper argues for the need to introduce customers as active members of business networks and proposes a conceptual and a business model of customer-centric business ecosystems. The business model is based on a technological platform, which enables the development, the dynamic configuration and the coordination of the customer-centric business ecosystem. The operations of the platform follow the paradigm of service oriented architectures and they can be implemented with the use of web services. The paper discusses also the strategic aspects of the development of customer-centric business ecosystems. This version presents parts of the paper presented in Digital EcoSystems and Technologies Conference, 2007. DEST'07. The full paper can he found here: http://ieeexplore.ieee.org/xpl/login.jsp?tp=&arnumber=42336 86&url=http%3A%2F%2Fieeexplore.ieee.org%2Fxpls%2Fa bs_all.jsp%3Farnumber%3D4233686 Index Terms—business networks, business ecosystems, customer-centric, SOA, web services.

I. INTRODUCTION It is obvious that in e-business information becomes the main medium through which business transactions are performed and a significant economic resource as well. In ebusiness information begins to play a strategic role in itself, by increasing the opportunities to add value into any particular product [1]. General trends for value creation in ebusiness [2] are that value is found near the customer and derives from product modularity and orchestration, that is the composition of single product modules into composite products that can offer valuable outcomes for the customer. As products become more complex and varied, so do the relationships necessary to produce them. As a result, in the modern business world value is created in business networks, in which a variety of suppliers of complementary products cooperate to produce valuable outcomes for the 1 Fragidis, G., Tarabanis, K., & Koumpis, A. (2007, February). Conceptual and business models for customer-centric business ecosystems. In Digital EcoSystems and Technologies Conference, 2007. DEST'07. Inaugural IEEE-IES (pp. 94-99).

customer. The development of business networks, trend which is sometimes described as the ‘network economy’, was supported by the development of the Internet and the ICT. From one point of view, business networks can be thought as information networks, because information is in essence the substance that flows in them, in order to make negotiations, perform transaction and achieve coordination. For example, Wal Mart’s business network is based on an information system that is the second biggest in the world [3, p.167]. Is Wal Mart a retailer only, or perhaps it is also an information technology company? In sum, there seems to be a reciprocal relationship between business networks and information systems: business networks are based on information systems, which in turn should be developed with the purpose to support the business needs and operations of business networks. Critical needs in business networks are interoperability and integration. Service-oriented architectures (SOAs) and web services have received significant attention as new paradigms in the fulfilment of these needs. In the most literal sense, web services should be services provided over the Web. Web services are, in fact, an interface that allows applications to communicate with other applications to exchange business data or functional services over the Web. The fact that (business) services are different from web services does not mean, however, that they are unrelated. Web services, when used in applications that support the operations of business networks, are in fact the technological interface that permits the activation, coordination and execution of business services and business processes in general. Notice also that business services, the role of which in the modern economy is increased, are by definition intangible and information-based and, hence, can be effectively supported and performed with the use of information systems. This paper considers the new evidence in the business literature that proposes the participation of the customer in the configuration of composite products and services that are produced in inter-enterprise business networks. Based on the metaphor of business ecosystems, that is a type of business networks that accommodate large populations of business entities that are associated with co-evolutionary relationships, the paper proposes a conceptual and a business model for the development of customer-centric business ecosystems. Contrary to traditional approaches, such

networks are committed to the needs of the customers; they are by definition loosely coupled and their operations are dynamically configured by the customers themselves. SOAs and web services technologies can support the development of this kind of networks. Given that each individual customer cannot possess the necessary technological infrastructure for web services applications, a new kind of business role is necessary, that will act as an intermediary that provides the technological platform for the configuration and operation of the customer-centric business ecosystems. The paper is organized as follows: in section 2 we discuss the significance of business ecosystems and stress the need for customer participation in the configuration of composite products. In section 3 we analyze customer participation in business ecosystems and propose a conceptual model for the development of customer-centric business ecosystems. In section 4 we propose a business model for customer-centric business ecosystems and analyze its operations. In section 5 we examine SOAs and web services as technological enablers for the development of the business model. In section 6 we discuss the business prospects of the model. II. CUSTOMER PARTICIPATION IN BUSINESS ECOSYSTEMS During the 1990s technological developments and new managerial trends (e.g. focus on core competencies and outsourcing) boosted the growth of networks of business collaboration. The focus of strategic analysis has moved from the single company to different forms of business networks, such as business constellations [1], extended enterprises [4], value nets [5] and strategic networks [6]. The concept of business ecosystems is a recent addition in the literature of business networks. Based on concepts and insights from biological systems and complexity theory [3, p. 9-10], it is a powerful metaphor that steps forward the movement towards symbiotic and co-evolutionary business networks. A business ecosystem is “an economic community comprised of a number of interacting organisations and individuals, including suppliers, producers, competitors, customers and other stakeholders, that produces goods and services of value for the customers” [3, p.26]. Business ecosystems can be thought, therefore, as a sophisticated kind of business networks. The majority of arguments proposed in this paper can hold in a similar way both for business ecosystems and business networks. The concept of business ecosystems has several advantages over other forms of business networks. For example, business ecosystems concentrate large populations of different kinds of business entities. They transcend industry and supply chain boundaries and assemble a variety of organisations that can complement each other and synergistically produce composite products. Interdependence and symbiotic relationships are inherent attributes in business ecosystems; as a result, the participants counter a mutual fate and co-evolve with each other. But in parallel, members compete with each other for the acquirement of resources and the attraction of customers. Co-opetition [8],

the concurrent cooperation and competition of business entities, is another intrinsic attribute of business ecosystems. Such structures are extremely favourable for small business entities (SMEs), which can coalesce around, be supported by and co-evolve with larger and keystone corporations [3 p.45, 7 p.10]. Even though business ecosystems –and business networks in general– sponsor customer participation [1, 3, 5, 7], they reserve a boundary role for customers. Customer participation is focused on the business needs and devoted to serve business benefits (e.g. inspiration for innovations). Customer participation becomes, therefore, submissive to the needs of business enterprises. This way, the concept of co-evolution in business ecosystems is incomplete. Customers can only receive benefits indirectly, from the improved coordination and reduced transaction cost achieved among the business enterprises. Customers seldom participate actively to resolve their problems by participating in the configuration of goods and services; usually business firms perceive and interpret customer needs into fixed or customizable product offers. There is new evidence in business literature, however, that customers do not seek products but solutions to their needs and they are interested in outcomes, utility, value and experiences. Customers combine usually single offers from different suppliers to create valuable outcomes for themselves [9, p.10]. Drucker emphasizes that “what the customer buys and considers of value is never the product; it is always utility, that is, what a product does for him” [in 10]. Normann and Ramirez [1] use the manufacturing metaphor to describe customers’ function: customers use a wide range of inputs in order to create value. It is the customers, therefore, not the business enterprises that have valueadding activities. Other authors [3, 9, 11] suggest that the outcome for the customer frequently has the form of experiences, which the customers (want to) shape by themselves. III. A CONCEPTUAL MODEL FOR CUSTOMER-CENTRIC BUSINESS ECOSYSTEMS Based on their large scope and inter-sectoral nature, as well as the complementarity of offers and the synergetic relationships among business entities, we consider that the concept of business ecosystems is suitable for the development of customer-centric business models that can bring utility, significant outcomes and valuable experiences to customers. In such contexts customers will have the opportunity to synthesize their own value-adding chains. However, the development of such customer-centric business environments is a challenging task, both strategically and technologically. In this section we analyze the business aspects of customer-centric business ecosystems. Customer participation is relatively straightforward when the business ecosystem can fulfil all customer requirements. Such cases are possible sometimes, because of the wide scope and cross-industry orientation of business ecosystem. For instance, Gossain and Kandiah [12] give an example of a business ecosystem in which customers par-

ticipate directly in product configuration. In their example, a garment store offers the opportunity to order personalized clothes, buy other related products (e.g shoes, backpacks, etc.) and make the travel arrangements for a weekend excursion that is offered as promotion. Payment is made through a combination of complex transactions that involve the use of a credit card, coupons and a frequent-flyer program. Even though this example illustrates the variety of opportunities to compose unique products in business ecosystems, it is obvious that the offers are in fact restricted to some predetermined combinations. For example, the customer cannot select other means of transport or other transport company. Hence, such business ecosystems operate mostly as alliances with strict relations among the members. In most cases a single business ecosystem will not be able to cover all the customer requirements that are related with a customer need. For example, Moore [3, p.167] refers to the business ecosystems of Ford and General Motors. They include a great variety of suppliers, as well as the dealers and service providers, but ignore the customers who want to buy a new car and their needs that derive from this event. For example, the buyer of a new car has to recycle the old one (which may involve multiple transactions with various public administration agencies, the need to carry the old car to the recycler, etc.). The new car can not be moved without a car licence (issued by the cooperation of a series of public administration agencies) and an insurance contract (issued by private insurance companies). The customer needs could be much more complex if the customer takes a loan, sells the old car, etc. Notice that we restrict our scope only in the event of the purchase and totally ignore the customer needs during the use period of the new car. Customer needs can be so much heterogeneous that a single business ecosystem cannot normally address them. Figure 1 depicts a conceptual model of a customer-centric business ecosystem. It is a constellation of other business ecosystems and individual business entities that are dynamically developed around the customer, according to his/her preferences and needs. Connections among business entities are flexible and temporary and dissolve after the fulfilment of the customer needs. Public administration participates in the model as a separate ecosystem, which performs activities that either add value in product compositions or regulate the provision of other services and products. For example, when a customer wants to travel abroad, public administration adds value by providing health insurance for travellers and regulates the travel by imposing passport and visa requirements [13]. The public administration ecosystem is formed around a ‘one-stop shop’ or a governmental portal, which provide the infrastructure for electronic access to public services and information and coordinates public agencies in the delivery of public services.

Fig. 1: The conceptual model for customer-centric business ecosystems

In the example of the purchase of a new car, the customer-centric business ecosystem involves the car producer’s business ecosystem, the recycler’s business ecosystem, the insurance company (probably a part of an insurance/ financial services business ecosystem) and the public administration ecosystem. If the car buyer is to drive the new car soon, these ecosystems have to collaborate closely. A customer-centric business ecosystem has the following key attributes: - It is formed around the customer. The customer determines the objectives and the composition of the ecosystem. - Its purpose is to permit the customer configure unique composite offers that provide utility, outcomes and value. - It is unique, because utility, outcomes and experiences are unique to each customer. - It is usually short-lived and dissolves as soon as the delivery of the offers is completed. - It is a composition of (business-oriented) business ecosystems and other individual business entities that otherwise are not directly related. It may incorporate public administration agencies. - It can be thought of as a higher order business ecosystem (because it encompasses other business ecosystems). - It inherits the key attributes of business ecosystems (interdependence, co-evolution, co-opetition, etc.). Business participants, even though by definition competitors, are obliged to cooperate in order to meet customer needs. IV. A BUSINESS MODEL FOR CUSTOMER-CENTRIC BUSINESS ECOSYSTEMS A business ecosystem is usually built around a keystone enterprise, which undertakes the development, direction and coordination of activities among business participants [3 p.32, 7 p.66]. In this section we analyze the technological infrastructure that is required for the development and operation of customer-centric business ecosystems. Iansity and Levien [7 p. 148-150] stress the importance of platforms, usually based on information systems, as foundations for the development of business ecosystems. Equivalent platforms could be developed for the development of customer-centric business ecosystems. The purpos-

es of such platforms are twofold: a) to provide the means for the configuration of customer-centric business ecosystems and b) to monitor and coordinate the business activities that derive from these configurations. The configuration of customer- centric business ecosystems includes the search for products and services, their engagement and their configuration into composite offers that are meaningful to the customer. Coordination is achieved either by regulating directly business activities or by providing critical information to the participating business entities, which can mutually adjust their activities then. It would be unrealistic and impractical if every customer was required to create an individual platform in order to compose his/ her business ecosystems. A common platform should be developed instead, with which every customer should be able to develop his/ her unique configurations. Hence, the platform is the technological foundation that enables the development of customer-centric business ecosystems; it holds a distinct mediating role that provides solutions and enables the interaction between customers and businesses; this role is neutral and does not attempt to determine and control the business relationships. The business model that illustrates the operation of customer-centric business ecosystems is depicted in fig. 2. The platform is placed at the centre; it is a hub that interconnects the customer, business firms and other organisations that participate in the production of composite unique products and services.

Fig. 2: The business model for customer-centric business ecosystems

The platform can be seen as the keystone entity of the customer-centric business ecosystem. It offers the mechanism for customer participation and leverages recourses and capabilities offered by business entities. This way it creates value directly and indirectly and supports the distribution of the value in the network. It sets the technological and business standards for the interaction of the participants, coor-

dinates interactions and controls their technical aspects. The platform is the customer’s agent in the configuration of the customer-centric business ecosystem. It is neutral towards the business enterprises. It is not a retailer of products and services and does not possess the offers. Its revenue should come from the services it provides. A typical scenario of the business model is described as follows: the customer communicates with the platform by the use of common Web. The platform provides a webbased environment through which the customer can select products and services. The customer makes his/her choice and places a request. The platform finds suitable offers and presents the alternatives. The customer picks out the alternative of preference. The configuration process is modular and is performed with the iterative execution of the typical process described above. The process continues, therefore, by adding new products or services that complement and expand the existing composition. At each step the platform examines the compatibility of the configuration. It is important that the customer is the one that makes all the decisions about the product configuration. The platform is not required to be intelligent during this phase, for example in order to try to interpret or guess customer’s needs and preferences and automate somehow the configuration process. The platform’s intelligence is required only during the coordination of the business activities that derive from the selected product composition. As firms tend to get allied in business networks and business ecosystem, during the product configuration phase the platform searches for the synergies that are created in such structures. For instance, in the example of the garment store referred in [12], the platform should present the offers of the garment store as part of the business ecosystem and describe the complementarities and promotions that are related with these offers. When the configuration is complete, the platform monitors the execution of the transactions and performs the coordination of the business activities. Monitoring and coordination should be automated in order to be effective and should be performed intelligently by the platform, with the minimum intervention of the customer. The benefits of coordination are not limited to the customer, but refer also to the business partners, that get early informed of any changes in the execution of the configuration plan. To illustrate the operational attributes of the platform, we will use a simple example of a travel arrangement that includes the reservation of a flight, a hotel room, a car and a ticket for the theatre. Travel arrangements can become more complex by increasing the number of products and services (e.g. composite itineraries with multiple means of transport, information and reservation for multiple activities, etc). The traveller should not be guided to make the arrangements following a predetermined decision model. He/she should be able to begin the composition by any product, for example the one that he/she finds more important. If the traveller reserves the flight at the beginning, all the subsequent steps should take into consideration the

restrictions set (e.g. with regard to time, place, etc.) and the opportunities offered by this choice (e.g synergies in business ecosystems). For example, if the selected air company participates in a business ecosystem that incorporates hotels and car rental companies, the traveller should become aware of the composite packages of this business ecosystem. This way the customer can knowledgeably accept a composite package or search for other alternatives. There are some other similar business models in the literature. For example, in a previous work we [13] proposed the value integration model as a mechanism for the configuration of composite products, the integration of disparate value chains and the coordination of business activities in electronic markets. Anderson and Anderson [14] proposed the service hub model, in which a central coordinating organization assembles the customer’s value chain and calls on and coordinates other members. Feeny [15] defined the e-service business model as the customer's agent in achieving value added activities. V. TECHNOLOGICAL ENABLERS OF THE BUSINESS MODEL - - - - Missing part - - - - - The full paper can he found here: http://ieeexplore.ieee.org/xpl/login.jsp?tp=&arnumber=4233686& url=http%3A%2F%2Fieeexplore.ieee.org%2Fxpls%2Fabs_all.jsp %3Farnumber%3D4233686

VI. THE BUSINESS PROSPECTS OF THE PLATFORM - - - - Missing part - - - - - The full paper can he found here: http://ieeexplore.ieee.org/xpl/login.jsp?tp=&arnumber=4233686& url=http%3A%2F%2Fieeexplore.ieee.org%2Fxpls%2Fabs_all.jsp %3Farnumber%3D4233686

VII. CONCLUSIONS - - - - Missing part - - - - - The full paper can he found here: http://ieeexplore.ieee.org/xpl/login.jsp?tp=&arnumber=4233686& url=http%3A%2F%2Fieeexplore.ieee.org%2Fxpls%2Fabs_all.jsp %3Farnumber%3D4233686

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