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Digital Transformation of Business Models in the Creative Industries: The Emergence of the Portfolio Model Professor Feng Li, PhD, FBAM Cass Business School City University London Research Seminar at Kent Business School Kent University, 4 February 2015 © Feng Li, 20151
Introduction Why the creative industries A holistic business model framework Emerging trends The portfolio models Discussions © Feng Li, 20152
My Research Focus Strategic and organisational changes facilitated by digital technologies in different sectors and domains How firms manage the transition to new digital technologies, new business models and new organisational forms Research projects on ‘Sustainable and Scalable Business Models in the Digital Economy’ Addressing ‘Societal Challenges’ by following robust business principles (ageing, social inclusion, sustainable development) SiDE, SALT, LimbsAlive, NEMOG … © Feng Li, 20153
What are the creative industries? ‘What began as an opportunistic yoking together of art and industry in cultural policy for purposes of advocacy and investment has now been enthusiastically adopted by politicians, analysts and educators around the world as an umbrella term covering all or some of the arts, media and entertainment industries and associated branches of the knowledge economy.’ (Bilton, 2007: xvi). © Feng Li, 20154
The creative industries An umbrella term for those industries ‘based on individual creativity, skill and talent and have the potential to create wealth and jobs through developing intellectual property’ 13 sub-sectors explicitly identified A significant and rapidly growing segment of the economy © Feng Li, 20155
Sectors of the creative industries 1Advertising8Film and video 2Architecture9Music 3Art & antiques markets10Performing arts 4Computer & video games11Publishing 5Crafts12Software 6Design13Television and radio 7Designer fashion 14 Others © Feng Li, Source: UK Department of Culture, Media and Sports (DCMS)
Why creative industries? An ideal domain for systematic examination of the digital transformation of business models Full range of organisations - from large multinationals to micro-businesses Full range of activities – – digital native sectors (such as digital games) where many new business models are developed and adopted – traditional sectors that have been significantly affected by digital technologies (e.g. Publishing, design and music) – areas where the full impacts of digital technologies are still to emerge (e.g. fine art, cultural heritage) © Feng Li, 20157
This research Systematic literature review Two strands of empirical research Primarily qualitative to identify emerging trends Initial ideas in a pilot project Primarily funded by the Research Councils UK (RCUK) under SiDE (£12.6m) Follow up project – NEMOG (£1.2m) © Feng Li, 20158
A holistic analytical framework of business models © Feng Li, 20159
The case studies Mini Case StudiesMain Case Studies Total Number of Cases3050 Advertising-3 Architecture-2 Art and antiques markets44 Computer and video games24 Crafts13 Design55 Designer fashion52 Film and video13 Music119 Performing arts-4 Publishing13 Software-3 Television and radio-2 Others (e.g. Museums)-3 Sizes (No. of Employees) < >50149 Market Orientation UK428 European412 Global2210 © Feng Li,
How digital technologies changed business models? 30 Mini Case Studies50 Main Case Studies EnhanceExtendTransformEnhanceExtendTransform Value proposition Product offering3 (10%)14 (47%)13 (43%)32 (64%)17 (34%)1 (2%) Market segment2 (7%)12 (40%)16 (53%)32 (64%)18 (36%)0 (0%) Revenue model5 (17%)7 (23%)18 (60%)37 (74%)10 (20%)3 (6%) Value Architecture Value sensing1 (3%)3 (10%)26 (87%)24 (48%)20 (40%)6 (12%) Value creation5 (17%)15 (50%)10 (33%)40 (80%)9 (18%)1 (2%) Value distribution1 (3%)9 (30%)20 (67%)26 (52%)20 (40%)4 (8%) Value capture1 (3%)5 (17%)24 (80%)32 (64%)12 (24%)6 (12%) Functional Architecture Product innovation2 (7%)10 (33%)18 (60%)34 (68%)12 (24%)4 (8%) Infrastructure mgt2 (7%)16 (53%)12 (40%)30 (60%)19 (38%)1 (2%) CRM1 (3%)2 (7%)27 (90%)25 (50%)20 (40%)5 (10%) © Feng Li,
Emerging trends Exclusivity through personalisation Association and brand extension Pay as much as you like and dynamic pricing ‘Wisdom of the crowd’ Significant changes in - – Revenue models in value propositions – Value sensing and value capture in value architecture – Customer relationships management in activity architecture © Feng Li,
Three levels of changes Digital information and interaction Digital extension of traditional business models Digital transformation of traditional business models Limited evidence on the emergence of unprecedented, genuinely novel business models © Feng Li,
Digital transformation of business models Original objective: To identify new or radically reconfigured business models enabled by digital technologies Key finding: Digital technologies primarily used to reconfigure key components of traditional business models, or deploy other types of business models to supplement or replace traditional business models Reconfigured or ‘other’ business models are often not new or novel - clear antecedents can be found elsewhere. The digital transformation of business models is not necessarily about creating radically novel or new business models that did not exist before, but in allowing organisations to deploy a wider range of business models than previously available to them © Feng Li,
What is a NEW business model? Unprecedented new idea – very rare Unprecedented context – borrow ideas from one area and apply in new areas Unprecedented impact – modify and scale up a business model to produce significant impact Unprecedented combinations – the portfolio models? © Feng Li,
The portfolio models: Four variants The market portfolio model - deploy two or more business models to tackle different markets or market niches (e.g. design) The product portfolio model - new niche products from different stages of work-in-progress (e.g. digital arts) The product-service portfolio model – sell experience as well as final product (e.g. the 360 room) Multi-sided business model - interactions with multiple stakeholders upstream, downstream and horizontally in a complex value network or eco-system (ebay, alibaba, 360 degree contract etc.) © Feng Li,
Different levels of integration A loose collection of discrete business models The hybrid models where some key components are shared Full integration of multiple business models as new business model © Feng Li,
Financial sustainability & stakeholder credibility Maximising revenues from different markets or market niches, different stages of work in progress, or multiple sides of the market - reduces risks and increases resilience Previously insignificant markets or market niches grow in business volume and the traditional main market declines, the nature of the business is transformed Increase stakeholder credibility © Feng Li,
Conclusions Pervasive change of business models in the creative industries All layers and all components of value proposition, value architecture and activity architecture All sectors of creative industries in different types of organisations Significantly affect financial sustainability and stakeholder credibility © Feng Li,
Conclusions …. cont Not about creating radically new or novel business models that did not exist before Enable the deployment of a wider range of business models than previously available Traditional business models adapted and applied to different ranges of products online Increasing adoption of the portfolio model across different sectors © Feng Li,
Future research Define conditions when particular business models can be deployed - long term financial sustainability and stakeholder credibility Methodological challenge - very early stage of development with limited empirical presence Policy interventions and incentives © Feng Li,
Thank you! Any questions? Acknowledgements: We acknowledge the financial support by the Economic and Social Research Council [ESRC Grant number RES : Identify and Promote Sustainable Business Models in the Creative Industries]; and The Research Councils UK Digital Economy Programme [grant number EP/G066019/1 - Social Inclusion through the Digital Economy]. © Feng Li,
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