Professor Feng Li, PhD, FBAM Cass Business School Research Seminar at Kent Business School Kent University, 4 February 2015 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 Feng.li.1@city.ac.uk © Feng Li, 2015

Introduction Introduction Why the creative industries A holistic business model framework Emerging trends The portfolio models Discussions © Feng Li, 2015

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, 2015

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, 2015

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, 2015

Sectors of the creative industries 1 Advertising 8 Film and video 2 Architecture 9 Music 3 Art & antiques markets 10 Performing arts 4 Computer & video games 11 Publishing 5 Crafts 12 Software 6 Design 13 Television and radio 7 Designer fashion  14  Others Source: UK Department of Culture, Media and Sports (DCMS) © Feng Li, 2015

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, 2015

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, 2015

A holistic analytical framework of business models © Feng Li, 2015

The case studies © Feng Li, 2015 Mini Case Studies Main Case Studies   Mini Case Studies Main Case Studies Total Number of Cases 30 50 Advertising - 3 Architecture 2 Art and antiques markets 4 Computer and video games Crafts 1 Design 5 Designer fashion Film and video Music 11 9 Performing arts Publishing Software Television and radio Others (e.g. Museums) Sizes (No. of Employees) <10 13 23 11-50 12 51-500 6 >501 Market Orientation UK 28 European Global 22 10 © Feng Li, 2015

How digital technologies changed business models? 30 Mini Case Studies 50 Main Case Studies Enhance Extend Transform Value proposition Product offering 3 (10%) 14 (47%) 13 (43%) 32 (64%) 17 (34%) 1 (2%) Market segment 2 (7%) 12 (40%) 16 (53%) 18 (36%) 0 (0%) Revenue model 5 (17%) 7 (23%) 18 (60%) 37 (74%) 10 (20%) 3 (6%) Value Architecture Value sensing 1 (3%) 26 (87%) 24 (48%) 20 (40%) 6 (12%) Value creation 15 (50%) 10 (33%) 40 (80%) 9 (18%) Value distribution 9 (30%) 20 (67%) 26 (52%) 4 (8%) Value capture 24 (80%) 12 (24%) Functional Architecture Product innovation 34 (68%) Infrastructure mgt 30 (60%) 19 (38%) CRM 27 (90%) 25 (50%) 5 (10%) © Feng Li, 2015

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, 2015

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, 2015

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, 2015

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, 2015

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, 2015

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, 2015

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, 2015

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, 2015

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, 2015

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, 2015

Any questions? Thank you! Feng.li.1@city.ac.uk Acknowledgements: We acknowledge the financial support by the Economic and Social Research Council [ESRC Grant number RES-185-31-0017: 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, 2015