DEVELOPING THE BUSINESS MODELLING METHOD
L. O. Meertens, M. E. Iacob and L. J. M. Nieuwenhuis
University of Twente, PO Box 217, Enschede, The Netherlands
{l.o.meertens, m.e.iacob, l.j.m.nieuwenhuis}@utwente.nl
Keywords: Business modelling, Modelling method, Business models.
Abstract: Currently, business modelling is an art, instead of a science, as no scientific method for business modelling
exists. This, and the lack of using business models altogether, causes many projects to end after the pilot
stage, unable to fulfil their apparent promise. We propose a structured method to create “as-is” business
models in a repeatable manner. The method consists of the following steps: identify the involved roles,
recognize relations among roles, specify the main activities, and quantify using realistic estimates of the
model. The resulting business model is suitable for analysis of the current situation. This is the basis for
further predictions, for example business cases, scenarios, and alternative innovations. We offer two extra
steps to develop these innovations and analyse alternatives. Using them may enable successful projects to be
implemented, instead of ending on a shelf after the pilot stage.
1 INTRODUCTION: BUSINESS
MODELLING BACKGROUND
A business model is critical for any company, and
especially for any e-business. Its importance has
been recognized over the past few years by several
authors that have created different business model
frameworks aimed at identifying the main
ingredients of a business model (for example,
Osterwalder (2004); for an overview, see Pateli &
Giaglis (2004), and Vermolen (2010)). However, the
state in which this field finds itself is one of
“prescientific chaos” (Kuhn 1970): there are several
competing schools of thought, and progress is
limited because of a lack of cumulative progress.
Because of this, there are no clear and unique
semantics in the research related to business models.
The very concept of “business model” is associated
with many different definitions (Vermolen 2010).
The elements of such a business model differ
significantly from one approach to another.
Furthermore, to the best of our knowledge, there are
no methodological approaches in the literature for
the design and specification of business models
(Vermolen 2010). This lack of cohesion in the field
clearly diminishes the added value of business
models for companies and makes business
modelling an art, rather than a science. This state of
affairs motivated us to propose such a method,
which enables the development of business models
in a structured and repeatable manner. Thus the
contribution of this paper is three-fold:
A business model development method;
A definition of the concept of business model and
the identification of its core elements, captured by
the deliverables of the method steps;
An illustration of the method by means of a case
study from the healthcare domain.
The paper is structured as follows. Section 2 focuses
on the discussion of the main concepts addressed in
the paper, and positions our approach with respect to
the existing design science and method engineering
literature. In Section 3, we describe the steps of our
business model development method. In Section 4,
we demonstrate the method by means of a case study
concerning the development of a qualitative business
model of the elderly care in The Netherlands.
Finally, we conclude our paper and give pointers to
future work in Section 5.
2 THEORETICAL
BACKGROUND
A simple analysis of the two words “business
model” already gives an idea of what a business
model is about. On the one hand, there is “business”:
the way a company does business or creates value.
On the other hand, there is “model”: a
88
Meertens L., Iacob M. and Nieuwenhuis B.
DEVELOPING THE BUSINESS MODELLING METHOD.
DOI: 10.5220/0004458900880095
In Proceedings of the First International Symposium on Business Modeling and Software Design (BMSD 2011), pages 88-95
ISBN: 978-989-8425-68-3
Copyright
c
2011 by SCITEPRESS Science and Technology Publications, Lda. All rights reserved
conceptualization of something – in this case, of
how a company does business.
We extend this common and simplistic
interpretation of a business model as “the way a
company earns money”, into a broader and more
general definition of the concept: “a simplified
representation that accounts for the known and
inferred properties of the business or industry as a
whole, which may be used to study its characteristics
further, for example, to support calculations,
predictions, and business transformation.”
The last part of the definition above, namely the
indication of the possible uses of a business model is
of particular importance in the context of this paper.
The method we propose not only facilitates the
development of such a design artefact - a business
model - but also takes a business engineering
perspective. Thus, its application will result in two
(or more) business models: one that reflects the “as-
is” situation of the business and one or more
alternative “to-be” business models that represents
possible modifications of the business as result of,
for example, adoption of innovative technologies or
more efficient business processes.
To the best of our knowledge, such a method
does not exist yet for what we define as business
models (Vermolen 2010). In the remainder of this
section, we position our work in the contexts of
design science and method engineering, to which it
is related.
2.1 Design Science
A business modelling method can be seen as a
design-science artefact. It is the process of creating a
product: the business model. We use the seven
guidelines of Hevner et al. (2004) to frame how we
use the methodology engineering approach from
Kumar & Welke (1992) to create our method.
The first guideline advises to design as an
artefact. Design-science research must produce a
viable artefact in the form of a construct, a model, a
method, or an instantiation. As said, we produce a
method.
The second guideline tackles relevance. The
objective of design-science research is to develop
technology-based solutions to important and relevant
business problems. Viable business models lie at the
heart of business problems. However, our solution is
not yet technology-based. Partial automation of the
method is left for future research.
The utility, quality, and efficacy of a design
artefact must be rigorously demonstrated via well-
executed evaluation methods. We demonstrate the
business modelling method using a case study. We
leave more rigorous evaluation for further research.
Research contribution is the topic of the fourth
guideline. Effective design-science research must
provide clear and verifiable contributions in the
areas of the design artefact, design foundations,
and/or design methodologies. We provide a new
artefact to use and study for the academic world.
The methodology may be extended, improved, and
specialized.
Guideline five expresses the scientific rigour:
Design-science research relies upon the application
of rigorous methods in both the construction and
evaluation of the design artefact. We aim to be
rigorous through using the methodology engineering
approach. Existing, proven methods are used as
foundation and methods where applicable.
Evaluation was handled in the third guideline.
The sixth guideline positions design as a search
process. The search for an effective artefact requires
utilizing available means to reach desired ends while
satisfying laws in the problem environment.
Whenever possible, we use available methods for
each of the steps. Following the methodology
engineering approach helps us to satisfy the laws for
creating a new methodology.
The final guideline instructs us to communicate
our research. Design-science research must be
presented effectively both to technology-oriented as
well as management-oriented audiences. This article
is one of the outlets where we present our research.
2.2 Methodology Engineering
Methodologies serve as a guarantor to achieve a
specific outcome. In our case, this outcome is a
consistent and better-informed business model. We
aim to understand (and improve) how business
models are created. With this understanding, one can
explain the way business models help solve
problems. We provide a baseline methodology only,
with a limited amount of concepts. Later, we can
extend, improve and tailor the methodology to
specific situations or specific business model
frameworks.
The business modelling method has both aspects
from the methodology engineering viewpoint:
representational and procedural (Kumar & Welke
1992). The representational aspect explains what
artefacts a business modeller looks at. The artefacts
are the input and deliverables of steps in the method.
The procedural aspect shows how these are created
and used. This includes the activities in each step,
tools or techniques, and the sequence of steps.
DEVELOPING THE BUSINESS MODELLING METHOD
89
3 DEFINING THE BUSINESS
MODELLING METHOD
We define five individual step of business
modelling, which the rest of this section elaborates.
To describe each step, we use the following
elements:
inputs of the step,
activities to perform during the step,
possible techniques to use during the step’s
activities, and
deliverables resulting from the step.
Each step in the proposed method requires specific
methods, techniques or tools that are suitable for
realizing the deliverables. We will mention
examples of those. However, others may also be
useful and applicable, and it is not our aim to be
exhaustive in this respect. Table 1 shows an
overview of our method.
3.1 Create As-Is Model
As mentioned in the previous section, our business
model development method takes business
engineering perspective. Thus, the first four steps of
our method focus on creating a business model that
reflects the current state of the business. Therefore,
steps one through four create an as-is model.
3.1.1 Step 1: Identify Roles
Identifying the relevant parties (which we refer to as
roles) involved in a business model should be done
as systematically as possible. The aim is
completeness in this case. The business modeller
must carry out a stakeholder analysis, to identify all
roles. The input to this step includes for example,
documentation, domain literature, interviews,
experience and previous research. The output is a list
of roles.
For an example of stakeholder analysis method,
we refer to Pouloudi & Whitley (1997). They
provide an interpretive research method for
stakeholder analysis aimed at inter-organizational
systems, such as most systems where business
modelling is useful. The method consists of the
following steps:
1. Identify obvious groups of stakeholders.
2. Contact representatives from these groups.
3. (In-depth) interview them.
4. Revise stakeholder map.
5. Repeat steps two to four, until...
Pouloudi and Whitley do not list the fifth step,
but mention that stakeholder analysis is a cumulative
and iterative approach. This may cause the number
of stakeholders to grow exponentially, and the
question remains when to stop. Lack of resources
may be the reason to stop the iterative process at
some point. Closure would be good, but seems hard
to achieve when the model is more complex.
Probably, the modeller has to make an arbitrary
decision. Nevertheless, one should choose stop
criteria (a quantifiable measure of the stakeholder’s
relevance for the respective business model and a
threshold for the measure) before starting the
process (Pouloudi 1998).
“Revising the stakeholder map” (step four) could
use extra explanation, which can be found in the
description of the case Pouloudi and Whitley use to
explain the method. The stakeholders gathered from
interviews can be complemented with information
found in the literature. The business modeller then
refines the list of stakeholders by focussing,
aggregating, and categorizing.
3.1.2 Step 2: Recognize Relations
The second step of our method aims to discover the
relations among roles. The nature of these relations
may vary substantially, but it always involves some
interaction between the two roles and may assume
some exchange of value of some kind. Much of the
work and results from the previous step can be
reused for this as input. In theory, all roles could
have relations with all other roles. However, in
practice, most roles only have relations with a
limited number of other roles. Usually, these
relations are captured in a stakeholder map, which
often follows a hub-and-spoke pattern, as the focus
is on one of the roles. This pattern may be inherent
to the approach used, for example if the scope is
defined as a maximum distance from the focal role.
To specify all relations, we suggest the use of a
role-relation matrix with all roles on both axes as
technique. Of this matrix, the cells point out all
possible relations among the roles. Each of the cells
could hold one or more relations between two roles.
Assuming that roles have a limited number of
relations, the role-relation matrix will be partially
empty. However, one can question for each empty
cell whether a relation is missing or not.
Cells above and below the diagonal can represent
the directional character of relations. Usually,
relations have a providing and consuming part. The
providing part goes in the upper half of the matrix,
and the consuming part in the bottom half. This
BMSD 2011 - First International Symposium on Business Modeling and Software Design
90
Table 1: Business Modelling Method.
Step Inputs Techniques or Tools Deliverables
Identify
Roles
Documentation, domain literature,
interviews, experience, previous
research
Stakeholder analysis (Pouloudi & Whitley
1997)
Role list
Recognize
Relations
Role list, Stakeholder map, value
exchanges
e3-value (Gordijn 2002) Role-relation matrix
Specify
Activities
Role-relation matrix, Role list,
business process specifications
BPM methods, languages and tools List of activities
Quantify
Model
Process specifications, accounting
systems and annual reports
Activity based costing Total cost of the business
“as-is
Design
Alternatives
As-is business model, Ideas for
innovations and changes
Business modelling method (steps 1 to 4),
Brainstorming
One or more alternative
business models
Analyse
Alternatives
Alternative business models Sensitivity analysis, technology assessment,
interpolation, best/worst case scenarios
Business case for each
alternative
especially helps with constructions that are more
complex, such as loops including more than two
roles.
The output of this step is a set of relations.
3.1.3 Step 3: Specify Activities
For a first qualitative specification of the business
model, the next step is to determine the main
activities. Relations alone are not sufficient: the
qualitative model consists of these main business
activities (business processes) too. These activities
originate from the relations identified in the previous
step. Each of the relations in the role-relation matrix
consists of at least one interaction between two
roles, requiring activities by both roles. Besides
work and results from the previous steps, existing
process descriptions can be valuable input.
Techniques from business process management may
be used.
The output from these first three steps is a first
qualitative business model, including roles, relations
and activities. It reveals what must happen for the
business to function properly.
3.1.4 Step 4: Quantify Model
Quantifying the business model helps us to see what
is happening in more detail and compare innovations
to the current situation. To turn the qualitative model
into a quantitative model, numbers are needed. The
numbers are cost and volume of activities (how
often they occur). Together, these numbers form a
complete view of the costs captured by the business
model.
Several sources for costs and volumes are
possible, such as accessing accounting systems or
(annual) reports. The resulting quantitative business
model shows the as-is situation.
3.2 Develop To-Be Model
The as-is model, created in previous steps, is
suitable for analysis of the current state only.
However, from the as-is model, it is possible to
derive alternatives. Such alternatives can be created
to assess how reorganisations, innovations or other
changes influence the business. These are the to-be
models.
3.2.1 Step 5: Design Alternatives
From here on, we aim to capture a future state of the
business in a business model. To make predictions,
the model may need further instantiations. Each
instantiation is an alternative development that may
happen (to-be). Using techniques such as
brainstorming and generating scenarios, business
modellers create alternative, qualitative, future
business models. These alternatives are used to
make predictions. Usually, such alternatives are built
around a (technical) innovation. This may include
allocating specific roles to various stakeholders. A
base alternative, which only continues an existing
trend without interventions, may help comparing the
innovations. Next to the business model, ideas for
innovations serve as input. The resulting alternative
business models show future (to-be) possibilities.
3.2.2 Step 6: Analyse Alternatives
The final step for a business modeller is to analyse
the alternative business models. Besides the
qualitative business models, several sources of input
DEVELOPING THE BUSINESS MODELLING METHOD
91
are possible to quantify the alternatives. Applicable
techniques include sensitivity analysis, technology
assessment, interpolation and using best/worst case
scenarios. Each alternative can be tested against
several scenarios, in which factors change that are
not controllable. We can use the models to predict
the impact. This step and the previous one can be
repeated several times to achieve the best results.
The final output is a business case (including
expected loss or profit) for each alternative.
4 THE U*CARE CASE:
DEMONSTRATING THE
BUSINESS MODELLING
METHOD
U*Care is a project aimed at developing an
integrated (software) service platform for elderly
care (U*Care Project n.d.). Due to the aging
population and subsequently increasing costs,
elderly care - and healthcare in general - is one of
the areas where governments fund research.
However, many projects never get further than pilot
testing. Even if the pilot is successful, the report
often ends on a shelf. By applying the business
modelling method, we plan to avoid this and put the
U*Care platform into practice. Specifically, we aim
to show how the technological innovations built in
the U*Care platform will influence the business
model for elderly care.
The U*Care case is in progress currently, and
therefore, it is suitable for demonstrating the first
three steps of the business modelling method. These
three steps result in a qualitative business model of
the as-is situation of the elderly care. At this time,
we are collecting quantitative data. Therefore, steps
four to six of the method are not yet possible and we
will not address them here. However, they will be
subject of future work.
4.1 Identify Roles
The first step of the stakeholder analysis, led to the
identification of several groups of obvious
stakeholders. The groups include all the project
partners, as their participation in the project
indicates their stake. Another group includes the
main users of the platform: the clients and
employees of the elderly care centre.
After identifying the obvious stakeholders, we
contacted and interviewed representatives from all
the project partners and several people in the care
centre. These interviews did not explicitly focus on
stakeholder analysis, but served as a general step in
requirements engineering.
Table 2 displays a partial
list of identified stakeholders after steps two and
three of Pouloudi and Whitley’s method for
stakeholder analysis have been performed.
Table 2: Partial list of stakeholders after step three of
Pouloudi and Whitley's method for stakeholder analysis.
Clients Care (& wellness) providers
Volunteer aid Hospitals
Nurses Elderly care centres
Doctors Psychiatric healthcare
Administrative employees Homecare
General practitioners Technology providers
Federal government User organizations
Local government Insurance companies
The fourth step includes a search for
stakeholders in the literature. Besides identifying the
extra stakeholders, the literature mentioned the
important issue that some actors in the list are
individual players, while other actors are
organizations or other forms of aggregations
(groups). Consequently, overlap can occur in the list
of actors.
The final action of the first iteration is not a
trivial one. Refining the stakeholder list requires
interpretation from the researcher. Different
stakeholder theories (for example, E. J. Emanuel &
L. L. Emanuel (1996), J. Robertson & S. Robertson
(2000), and Wolper (2004)) act as tools to minimize
subjectivity.
The long list of identified stakeholders is not
practical to continue with and has much overlap.
Therefore, we grouped the stakeholders into a
limited set of roles, shown in
Table 3. This set of
high-level roles is an interpretive choice. The small
set helps to keep the rest of case clear instead of
overcrowded. The larger set is kept in mind for the
to-be situation to find potential “snail darters”:
stakeholders with only a small chance of upsetting a
plan for the worse, but with huge results if they do
(Mason & Mitroff 1981). The small set of
stakeholders was subject to prioritization based on
Mitchell et al. (1997). While the prioritization is
subjective, it shows that all roles in the list are
important.
4.2 Recognize Relations
The current situation consists of five categories of
interacting roles. Table 3 shows them on both axes.
The cells show relations between the roles. While
BMSD 2011 - First International Symposium on Business Modeling and Software Design
92
Table 3: Role-relation matrix.
Consumer
Provider
Care consumers Care providers Technology
providers
Government Insurers
Care consumers X
Pay for care
Pay for AWBZ
Pay for WMO
Pay for
insurance
Care providers Provide ZVW care
Provide WMO care
Provide AWBZ care
X Pay for (use of)
technology or
service
Provide care to
citizens
Provide care
to insured
Technology
providers
Provide technology
or service
X
Government Provide AWBZ
insurance
Provide WMO
insurance
Pay for WMO care
to citizens
X Pay for
AWBZ care to
citizens
Insurers Provide insurance
Refund AWBZ and
ZVW care
Ensure AWBZ care
for citizens
X
the care provider has relations with all the other
roles, it is not a clear hub-and-spoke pattern. Several
of the other roles have relations outside the care
provider.
The relations show that a main goal of the
business is to provide care to the care consumer. The
insurers and government handle much of the
payment. Other (regulating) roles of the government
remain out of scope, as the case is complex enough
as it is.
The insurers handle most of the payments. The
patient has to pay the care provider after receiving
care. The patient can then declare the costs to the
insurance company, which refunds the patient. The
patient pays a premium to the insurance company.
According to the Dutch Healthcare Insurance Act
(Zorgverzekeringswet, ZVW), every citizen has to
have basic care insurance (ZVW). For “uninsurable
care” (including most home healthcare, similar to
USA Medicare), the Dutch government set up a
social insurance fund, termed General Exceptional
Medical Expenses Act (Algemene Wet Bijzondere
Ziektekosten, AWBZ). All employees and their
employers contribute towards this fund. The AWBZ
is similar to the regular insurance companies, except
for collecting the premium. The premium is paid
through taxation by the government, which
outsources most of the further actions to insurers. A
similar system is set up for wellness homecare, such
as cleaning. This is the Social Support Act (Wet
Maatschappelijke Ondersteuning, WMO). In
contrast to the AWBZ, the government takes care of
all actions itself, through its municipalities.
Several issues exist, which we do not handle in
detail here. For example, it is inherent to insurance
that not all people who pay premium are also
(currently) care consumers.
4.3 Determine Behaviour
Most of the relations between the roles in Table 3
start with verbs. This signals that they are (part of)
behaviour. Any relation not beginning with a verb is
a candidate for rephrasing or being split into smaller
parts.
Besides the relations, we focussed on AWBZ to
identify the main activities of the care providers.
“Providing care” has four top-level functions:
personal care, nursing, guidance/assistance, and
accommodation. Each of these functions consists of
many detailed activities, of which Table 4 provides
an example.
We obtained these activities from documents
made available by the government for
reimbursement purposes (Ministry of Health,
Welfare and Sport 2008). As it also provides an
indication of volume (times a day) and a first
indication of costs (minutes spent), it is a first step
towards quantifying the model.
4.4 Further Steps
The other three steps are not possible for now, as
detailed quantitative data is not available yet.
However, when we have developed a quantitative
business model, the final steps of the method help to
generate business cases easily for various services
that could be integrated into the U*Care platform.
This should proof their viability and lead to
implementation, instead of ending on the shelf.
DEVELOPING THE BUSINESS MODELLING METHOD
93
Table 4: Example of personal care activities.
Activity Actions Time in
minutes
Frequency
per day
Washing Whole body
Parts of body
10
20
1x
1x
Dressing (Un)dress completely
Undress partially
Dress partially
Put on compression stockings
Take off compression stockings
15
10
10
10
7
2x
1x
1x
1x
1x
Getting in and out of bed Help getting out of bed
Help getting into bed
Help with afternoon rest (for example, get onto the couch)
Help with afternoon rest (for example, get off the couch)
10
10
10
10
1x
1x
1x
1x
Eating and drinking Help with eating cold meals (excluding drinking)
Help with eating warm meal (excluding drinking)
Help with drinking
10
15
10
2x
1x
6x
5 CONCLUSIONS: A FUTURE
FOR BUSINESS MODELLING
Three contributions are made in this paper.
Primarily, we created a business model development
method. Secondly, we defined the concept of
business model and identified its core elements,
captured by the deliverables of the method steps.
Finally, we demonstrated the method by means of a
case study from the healthcare domain.
The business modelling method provides a way
to create business models. Innovators can apply the
steps to create business cases for their ideas
systematically. This helps them to show the viability
and get things implemented.
We provide a new design-science artefact to use
and study for the academic world. As business
modelling has several goals, conducting only the
first few steps may be enough. For example, if your
goal is to achieve insight in the current state only,
the last two steps are not useful.
The business modelling method may be
extended. Situational method engineering seems
suitable for this (Henderson-Sellers & Ralyté 2010).
For example, for information system development, it
is interesting to research if steps towards enterprise
architecture can be made from business models. This
can be seen as a higher-level form of, or preceding
step to, the BMM proposed by Montilva and Barrios
(2004). On the other side, a step could be added
before identifying roles. Other domains require
different improvements.
In addition, the steps in the method can be
further specified. The steps can be detailed further.
One of the ways to do this is to tailor the techniques
at each of the steps of this method. In the future, new
tools and techniques may help provide partial
automation.
ACKNOWLEDGEMENTS
This work is part of the IOP GenCom U-CARE
project, which the Dutch Ministry of Economic
Affairs sponsors under contract IGC0816.
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