Building Better Business Models: Capturing the Transformative Potential of the Digital Economy

This research project is exploring how firms are applying and engaging with new digital technologies to become more efficient, profitable and dynamic. While there is considerable understanding about how digital technologies allow firms to create value, there is much less understanding of how firms can use DE to sense what consumers and society needs and monetize that value and turn it into financial returns for investors, entrepreneurs and shareholders. This is part of a more general concern that the UK economy is relatively good at invention but less good at producing firms that capture its benefits in new, fast growing markets. By exploring how digital technology is transforming the three elements that make up a business model - how firms understand customers' needs, how they create value for customers, and how they capture and monetize this value - this project will generate new understanding about how digital technology can be commercialised more effectively. This knowledge will help firms in the UK generate more jobs, more economic growth and improved services to firms and the general public.

The empirical part of the project will conduct research on (a) sectors that generate digital technology such as open-source software (b) sectors that use digital technology in products of services such as digital entertainment and (c) sectors that use DE in their processes such as B2B financial services. The results will help us understand:
- (a) how firms sense and understand what their customers (and society) want using digital technologies. For example, there are now large data-sets being generated about how individuals interact with new products and services, which can increasingly be collected in real time to allow much faster feedback from customers about their likes and dislikes. Similarly, new sensors are allowing firms to monitor how other firms are using their products and services. This information, and the closer engagement with customers digital technologies allow, can be used to inform better decisions about customers' needs and faster and more effective decision making about the design of new commercial offerings.
- (b) how they create value for their customers. For example, new digital technologies allow a much larger information content to be provided with goods and services, they enhance the allocation of resources, they allow pre-emptive maintenance and allow improved financial modelling, etc. These changes are increasing the commercial opportunities between traditional sectors, where firms can create value in areas where there is limited competition.
- (c) how they capture (and monetize) that value. Digital technologies can fundamentally change markets. As a result, it is often unclear how they capture the value that they create. This was seen in the failure of many dot.com firms, but even today many firms are failing to turn the value they generate through innovation into commercial returns and profits.

The project will also engage in fundamental theoretical research about the nature of models, and modelling in the economy and explore how managers can and should use models. For this work the project draws on expertise from a wide range of academic disciplines, including philosophy of science, sociology, engineering and the natural sciences.

In all this work, the project team will engage closely with industrialists and non-academic research users in the UK government and civil society. A key part of the project involves building capacity in this area, which will be achieved through a significant investment of time and effort in training for the wider academic community and career development for junior researchers able to work closely with a wide body of other researchers across the boundaries that separate industry, academia and government.

The 'Building Better Business Models' project will conduct cutting edge, industry-focused research on how business models can be better designed, built and implemented to capture the transformative potential of digital technology. The research will be undertaken by a team of leading international business model researchers (from Sussex, Glasgow, Reading, Grenoble and Wharton) that crosses disciplinary boundaries, bringing with them an understanding of what digital technology can achieve and extensive experience engaging with the industrial and public policy communities.

Impact with Industry that uses digital technology
Our impact strategy for engagement with industry is divided in three to address the sectors and companies that we are studying directly through our case studies, and a wider community of larger businesses and smaller entrepreneurial firms that should be involved in our work and hear about our results.
1. As mentioned in Work Package 2 and 3, we will engage directly with executives from the industries we are studying as part of a two way knowledge exchange process to validate our ideas, and inform them of our research findings and their implications - and we already have some letters of support that indicate enthusiasm for this work. This will include the writing and disseminating of cases and tool kits. These will include videos (that typically embody tool kits), cases that executives find motivating and revealing about good and less good business model practices relevant for DE, and other forms of electronic media communications.
2. We will also link our engagement activities to the wider business audiences. We will sharpen our tool kits and business cases for communicating to this wider audience to clarify understanding of what business models are and how they can be profitable used to exploit novel digital technologies (see also some of the other letters of support that also express enthusiasm for this activity). As noted above, cases will also address the thorny issue of how to execute new business models, which can be particularly difficult when they cut across existing activities.
3. We will undertake more directed engagement events for smaller high technology companies in this sphere. Silicon Roundabout is walking distance to Cass, and the research team is well connected to the vibrant community of smaller high technology firms.

Impact with Policy Makers and the City
We will target policy makers in various government departments, particularly BIS, and the investment funds located in the City of London that invest in both digital technology for their own use and are responsible for governance of major listed firms that are adopting new technology. Here we note it is not the size of the activity that counts, but its quality and focus - this is a small busy group.
a. Research suggests that many leading UK firms are relatively weak in their thinking about the transformative impact of digital technology, and even firms that have adopted novel digital technologies find it difficult to use it to sense customers' needs and monetize the value their investments generate. We will reach out to major City firms that include major asset management companies who pay a key role in the governance of large public companies and venture capital firms that fund and govern many mid-sized firms to communicate directly to the boards of major companies about our findings and the importance of acting quickly.
b. Improving the design and implementation of business models that exploit the potential of digital technology is also a major concern of public policy makers. Using long standing links with public policy makers across many parts of the UK government we will open up lines of communication in this arena. Effective engagement with policy makers requires a) very clear, simple messages, b) sophisticated understanding of the drives of policy making, and c) alignment with powerful actors.