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Business Models in Traditional versus Digital Industries

Conference Paper · November 2014

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 BUSINESS MODELS IN TRADITIONAL VERSUS
PURE DIGITAL INDUSTRIES

Marie Hélène DELMOND, HEC

Fabien COELHO, MINES ParisTech

DATA, DIGITAL BUSINESS MODELS, CLOUD COMPUTING AND ORGANIZATIONAL

DESIGN, UNIVERSITÉ PARIS–SUD, FACULTÉ JEAN‐MONNET, NOV. 24‐25 2014
Research
Objectives
 Analyze the evolution of business models in digital economy
 See if those changes also apply to traditional industries
 Understand IT drivers

 Exploratory case-based research

 ISD / Cigref Research Programme

Research
design
 Literature Review (Strategy, Service, Marketing, IS/IT)
 Industryvalue chain and mediation strategies
 Value proposition: products & services
 Business Models: importance of partnerships, value co-creation

2 case studies in Digital / Traditional business environment

 Rexel Case Study:

 Interviews (CIO, Marketing/Customer Relationship, Supply Chain, Strategic Planning)
 Review of publications
 Salesforce.com Case Study
 Interviews (Marketing Director France and several Network Partners)
 Review of publications
Evolution of Industries Value Chain &
Mediation Strategies in Digital Economy

NIT drivers Electronic deliverability Aggregation effects Network effects

Information intensity High contracting risk Standardization benefits

Source: Andal-Ancion, Cartwright & Yip (2003), The Digital Transformation, MIT Sloan Management Review
 Value Proposition:
Products, Services &
Solutions
 Shift from a product-based toward a service-based economy (Vandermerwe
& Rada, 1988)

Differentiation :
high Differientiated Augmented Product + value
Product Product added services
& solutions
Value
Proposition Commoditization
& Price

Basic
low Product Accessory

Accessory Role of services Central

Source: adapted from Karsenti & Ulaga (2010)

Continuous product and service innovation protects from commoditization

and keeps value proposition high
Evolution of Business
Models
Emergence of the concept of Business Model in the 90s
(Internet startups development)

Hamel (2000)

 Building blocks
• Core Strategy (mission, products & services, competitive advantage)
• Strategic Resources (assets, core processes & competencies)
• Customer Interface (Fulfillment, Information, Relationship, Pricing)
• Value Network (Relationship with key partners)
Evolution of Business
Models: Value co-creation
 All stakeholders co-produce value (Normann & Ramirez, 1993)

Partners Customers
(Suppliers, competitors, outsiders)
Develop relationships
Develop relationships
 Customer Knowledge
 Provide key resources
Company  Customization
 Products & services co-creation  Products & services co-creation
 Network effects  Network effects
 Access to customer

Value Co-creation

 Open innovation (Chesbrough & Appleyard, 2007)

Rexel
 Rexel: one of the largest distributors of electrical parts and supplies in the
world
• 28 000 people, Revenue €12 Mds 2010 (19% France)
• 36 countries, 2200 branches, 40+ banners, 98 logistic platforms
• N°1 North America & Asia-Pacific, n°2 Europe
3 end-markets
• Industrial 32%, Residential 25%, Commercial 43%
 Highly varied customer segments
• Electricians & SME
• Key accounts (industrial, commercial, service)
• Large projects, EPCs
• …
 New stakes
• Services & value-added solutions, energy efficiency, renewable energies, movements in the industry
value chain

 Also:strongly local (culture, organization, history…)

 80% to 90% of revenue from products sale
 Rexel - Focus on Customer Segment
1: Independent Electricians & SMEs

 High % of Revenue – traditional activity

Supplier
• Core business, average order €100
Supplier
 Development of value-added services
Procurement Logistics Others Electri
-cian
Pick & pack Information on new products
Rexel
Inventory management Training,
Delivery options Benefits selling
Web site : Inextel TV – trends, market
Rexel
orders fulfillment & tracking, opportunities, partnership with solution
Electrician customized product catalog Rexel
and pricing
New services to be added

 BM evolution: from distributor to pivotal actor

End
Customer
 New BM: direct link with customer, solutions provider End
Customer
• Customer needs awareness, Problem solving, Suppliers & products
selection, Products delivery, Use of electricians’ network (specialty,
proximity)
Rexel - Focus on Customer Segment 2
- key accounts & large projects
Objective: become a multi-services key Sup Sup

partner plier plier

 Mines project in Latin America
• First phase: plant deployment
• Coordination with EPC Rexel
• Logistics services beyond electrical scope (solution)

• Second phase : exploitation

• Multiservices solution
End
 Strong competition Customer
• Ex Schneider Electric (Bechtel – gas liquefaction plant in
Australia)

 Strategic risk S Solution

S End
• Be second row provider Customer
(services)
Rexel
S (products)
Rexel – remaining
questions
 Global / local Balance
 Services monetization
 New value added services for electricians
 Energy efficiency
• Attracts new entrants
• Ability to provide full solution?
• Ability to establish partnerships?
Salesforce.com
(SF)
 Emblematic player in cloud computing business
 More than 3M users worldwide
71% America, 18% Europe, 11% Asia Pacific

 Abundant offer, relying on multiple partnerships

 Software as a Service (Saas) offer: subscription/user/month

• Sales Cloud (for sales agents)
• Service Cloud (for marketing & support functions)
• AppExchange
 Platform as a Service (Paas) offer
• Force.com
• AppExchange
Salesforce.com Ecosystem & value co-
creation
 Salesforce.com co-produces value with its various partners :
• Customers,
• Consulting partners integrating SF applications in their missions,
• and Sellers/ISV partners providing solutions using AppExchange.

Customers

Big Companies

New functionalities
Specific devt (CISCO)
Idea Exchange

AMD, Nokia,
Cisco…
Salesforce.com
Ecosystem
Numerous and various Business Models on
AppExchange and also different levels of cooperation

• Co-investment: financial contribution by SF

• Co-development: shared development teams
• Co-commercialization: product sold both by SF and its partners
• Co-sales: joint bid proposal
• Co-mplement: new value added functionalities to SF offer
• Co-nnexion between applications
• Co-llaboration: working together, e.g. with integrator
• Co-opetition: added functionality competing with SF product
• Co-integration: upward compatibility with SF new releases (3 / year)
Salesforce.com
Strategy
SaaS Business Model: ‘risk-free offer for the customer, which can be
easily augmented according to its needs’
 Payas you go - volatile Business Model, you have to keep on developing
new services to achieve stickiness

Average Monthly revenue per subscription

100
80
60
40
$/subs/m
$

20
0
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31
2003-2011

PaaS offer Force.com and cooperation through AppExchange aim at

developing new services and sustain SaaS offer
 PaaS results on its own still difficult to assess
Salesforce.com – key
elements
2 complementary Business Models,
Software as a Service & Platform as a Service
 SaaS basic offer: low cost (risk = turn commoditized)
 PaaS / AppsExchange: customization & value added services

 Reinforce SF.com offer through Value Net with partners

 Share tools
 Share customer knowledge
 Flexibility & diversity of relationships
 Open innovation
Digital vs
Traditional
 Industry value chains evolve in both contexts
 Positions adopt various ad-hoc configurations
 Companies struggle to have direct access to
customers
 Salesforce’s platform enables the company to
keep the leading role in its ecosystem

 Rexel
• From a traditional wholesaler pattern, Rexel tries do assess its intermediation
role in the value chain. E.g. support the electrician in order to provide global
solution to its customer; and compete as a complete provider in case of big
market.
 Salesforce.com
• SalesForce is well known as a SaaS Pioneer. Nowdays SF is able to build a
customized service within a specific context, integrating various applications by
using its PaaS offer
Digital vs
Traditional  Both companies offer embedded
customized solutions and improve their
technical core offer with high value services.
 Salesforce relies on its ecosystem to create
new products and services
 Rexel relies mostly on itself to create new
products and services

 Rexel
• Core competency: supply chain
• Customization: application customized for each electrician, multi-service
provider for large accounts
 Salesforce.com
• Core competency: CRM as a Service
• Customization: AppExchange, PaaS
View publication stats

Digital vs
Traditional  Both companies objective is to build
a global solution around its core
competency
 SF successfully organized its
ecosystem around its platform
 Rexel has huge difficulties building
an ecosystem

 Rexel
• Core Competency: supply chain
• Global solution (mines) or specialized solution (smart grid, energy savings) but
real difficulties to establish partnerships
 Salesforce.com
• Core Competency : Software as a Service, Platform as a Service
• Contributions of various partners following various business models enrich
Salesforce SaaS or PaaS core systems.