AARHUS UNIVERSITY, SCHOOL OF BUSINESS AND SOCIAL SCIENCES
BACHELOR THESIS
Externally Driven Business
Model Innovation
The Case of Danske Spil
May 2014
Author
Christian Jantzen (303104)
BSc in Economics and Business Administration
Academic Supervisor
Peter Kesting
Associate Professor
Department of Marketing and Organisation
Characters including tables and figures, excluding blanks: 93.105
Abstract
The purpose of this paper is to investigate how Danske Spil changed their business
model to overcome the changes following the market liberalisation of 2012. The
paper chooses to mainly feature the subsidiary company DLI (Danske Licens Spil),
which is the part of the group operating on the free market. Through the appliance
of Ostenwalder and Pigneurs (2010) framework the Business Model Canvas, the
entities of Danske Spil’s business model are analysed before and after the external
changes. Furthermore, the framework of Cavalvante et al. (2011) is applied to
determine the nature of the changes. The analysis finds that change has occurred in
all areas of the business model. The main changes occurred in the fundamental
activities, shifting the focus of the company to be entirely profit-oriented, which in
turn influenced the changes in all other areas, thus following the trend of business
model revision. The analysis further concludes that the main reasons for a
successful transition was the abilities of leaders and the structural changes made
prior to the liberalisation. Following the changes a series of challenges also
occurred. Here the main challenge were the gap between two groups of employees,
where one group is operating on the free market, and the other in a monopoly.
Using the findings in the analysis the paper discusses the theoretical fit and
prospects for future research in the area. It finds that some theory fit better than
other and that researchers in turn should focus on creating literature and theory
that can be used to generalise case, thus creating a mean for comparison.
Key words: Business models, business model innovation, business model
change, market liberalisation, business model canvas, change management,
business model revision, challenges of change.
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Table of Contents
1. INTRODUCTION
4
1.1 BACKGROUND
5
2. THEORY
6
2.1 WHAT IS A BUSINESS MODEL?
2.2 BUSINESS MODELS, INNOVATION AND CHANGE
2.2.1 BUSINESS MODEL DESIGN
2.2.2 BUSINESS MODEL RECONFIGURATION (BMR)
2.2.3 VISUALIZING BUSINESS MODEL INNOVATION
2.3 CONCEPTUALIZING AND ILLUSTRATING THE BUSINESS MODEL
2.3.1 THE BUSINESS MODEL CANVAS
6
9
10
11
14
16
20
3. DATA & METHOD
22
3.1 METHODS
3.2 LITERATURE
3.3 DATA
22
23
24
4. FINDINGS
26
4.1 THE BM CANVAS PRIOR TO THE LIBERALISATION
4.2 THE BM CANVAS AFTER THE LIBERALISATION
4.3 ANALYSING THE CANVASSES
26
28
31
5. DISCUSSION
41
5.1 DISCUSSION OF THE FINDINGS
5.2 THE THEORETICAL FIT
41
43
6. CONCLUSION
45
6.1 LIMITATIONS OF THE STUDY
6.2 SUGGESTIONS FOR FURTHER RESEARCH
6.3 ACKNOWLEDGEMENTS
46
47
47
7. REFERENCES
48
8. APPENDICES
55
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1. Introduction
Change is inevitable. This is the reality that all companies are faced with at
certain points of their existence. Whether the change is of a radical or milder
nature differs, but one thing is for sure; change is inevitable. It is in dealing with
these changes that companies show their true character and survival instinct.
Because failing to deal with changes in the right way, can ultimately cause a
company to fail. Therefore, the process of change is a rather interesting matter,
which will be investigated further in this paper.
The paper will revolve around the case of Danske Spil, a Danish sports betting
and online casino carrier, who is mostly owned by the Danish state. In 2012 they
faced radical changes in their market; however, still they managed to maintain a
leading position in their core areas and expand the company to serve a new
range of customer demands. The paper will thus be asking the question: How has
Danske Spil changed their business model to cope with the changes from 2012? The
paper aims to answer this through an investigation of how these changes have
influenced the business model (shortened BM from here on) of Danske Spil
(shortened DS from here on). Through the appliance of relevant theory the paper
will analyse the BM prior to the changes thus creating ground for comparison
with the BM today, in order to analyse how external changes has led to internal
changes. Through an analysis of both fundamental processes and micro-activities
the end product of the research will be an in-depth analysis of what was changed
inside the company, what were the challenges, and what was important in the
process of change. Furthermore, the paper aims to discuss the theory developed
in the area of BM and the change process, through a discussion of how the theory
held up through the actual findings of the case.
This case is particularly interesting to study due to a range of factors. It is the
story of a small state-owned company which has historically operated as a
monopoly in more than 60 years with a strong identity of donating their profits
to charity and local associations. Without any real experience of competition and
competitors their market is all of a sudden opened up to a big group billion-dollar
cooperation hungry to take over the new market, since it is no longer protected
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by monopoly. The interesting part is now following how the company deals with
these radical changes and what consequences this have had inside the company.
It may thus paint a picture of what it takes to survive a transition from a
monopoly-company to a perfectly competitive company, operating on equal
terms with the market competitors.
1.1 Background
Following the years after WW2, DS was formed in 1949 by the Danish
government. Back then the company was named Dansk Tipstjeneste, and all their
profits where donated to local society, such as sport clubs etc. The company has
had a strong corporate identity as a company whose existence was purely for
doing good, manifested in their slogan “For joy and benefit”. Up until 2012 DS had
a monopoly in the Danish market, and their main activities was to run the
national lottery as well as related games such as sports betting and lottery
coupons. This meant that no other carriers had access to the market, and they
could not market or sell their products in the market. All this changed when the
Danish government decided to liberalise part of the market on 01.01.2012. This
now means that every company who buys a license in the Danish market can
compete on equal grounds, upon paying a state fee of 16% of their revenue. The
liberalisation concerned part of the market, such as sports betting and online
casinos whereas the national lottery is still protected by a monopoly. DS
responded to the liberalisation by dividing the group into three companies; Elite
Gaming which is a company operating on the market of physical gaming
machines, Danske Lotteri Spil (DLO) which is the part of the company still
operating on the monopoly protected part of the market - here all profits are
donated to local associations, and Danske Licens Spil (DLI) representing the last
part of the group. DLI is the company that will be dealt with in this paper; they
operate on the liberalised part of the market. The liberalisation is an opportunity
for DS since their competitors used to have an advantage with lower taxes (Danes
could still access their products online), whereas now they compete more
equally. However, it also means that other companies now can market and
promote themselves in the Danish market, meaning that they can actively
compete for market share with DS (Lind Nielsen).
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2. Theory
This part of the paper will be presenting the existing relevant literature inside
the field of business models and business model change. It will introduce the
concept of business models itself, and present different views upon what a
business model is. The paper will then take a deeper look at models used to
describe and analyse a BM, and argue why some are preferred over others. I am
also going to be dealing with the notion of BM change to see what parts of
literature can be applied to the specific case of Danske Spil. Since the field is still
quite small and emerging it should be possible to paint a rather complete picture
of the existing research conducted.
2.1 What is a Business Model?
In terms of academic interest the term Business Model can be said to be a very
recent phenomena. In the period up until 1995 there were virtually no articles
published on the matter. But searching for articles published after 1995 will
show that the interest in BM’s has exploded over the last 20 years time (C. Zott,
Amit, & Massa, 2011). I decided to test this claim myself, using EBSCO Business
Source Complete, and this confirmed previous results. Using the key word
“Business Model”, but limiting publication years to 1994 and before gave me
1,588 results. From 1995 to present EBSCO presented me with 30,672
publications and therefore it is safe to say that the interest in this research area
has exploded during the last 20 years.
Although popularized around 1995, Teece (2010) points out that BM’s have been
a part of economic behaviour since pre-classical terms, thus arguing that it is not
necessarily a new term. In relation to this it is argued by Massa & Tucci (2013)
that up until the mid 1990s firms operated with a much more industrial view in
mind. They acknowledge that firms have always operated after a BM and even
though some have been innovative, it is only since the mid 1990s that BM
innovation has moved with such a pace, that it has the power to transform
industries and thus attract the interest of scholars and practitioners. Today, BM’s
actually create means for competition and companies create and deliver value
through a strong and unique BM as seen in for instance Apple and Amazon.
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One of the earliest authors to define a BM is Timmers (1998) who argues; The
business model is “an architecture of the product, service and information flows,
including a description of the various business actors and their roles; a
description of the potential benefits for the various business actors; a description
of the sources of revenues” (p. 2). The definition clearly strives to perceive all
elements of what a BM contains, however, the definition can be hard to work
with due to the predefined nature of it. Although Amit & Zott’s (2001) definition
focuses on the value creation through business opportunities, it has certain
similarities with the definition by Timmers through the emphasis on structure
and content. They argue that a BM is “a set of structure, content and governance
of transactions that is created to help businesses exploit opportunities” (p. 511).
Chesbrough & Rosenbloom (Chesbrough & Rosenbloom, 2002) link the technical
potential to the realization of economic value. They argue that the two are
connected by a heuristic logic and it is this that defines the BM. Although
acknowledging the importance of value creation, they do not point to specific
factors that are included in the BM like Timmers for instance. Magretta (2002),
takes a somewhat different and more abstract stance when presenting his paper
“Why business models matter”. In here, he states that a BM should answer Peter
Druckner’s four questions: “1) Who is the customer? 2) And what does the
customer value? 3) How do we make money in this business? 4) What is the
underlying economic logic that explains how we can deliver value to customers at
an appropriate cost?”(p. 4). Again no specific factors are mentioned. The next two
definitions can be said to be very specific in addressing what factors are included
in a BM, and they can thus be said to eliminate some of the abstraction created in
the two definitions above. Morris et al. (Morris, Schindehutte, & Allen, 2005) do
this through a description of the BM as how a set of decision variables is dealt
with in order to create a competitive advantage. They address six fundamental
components: Value proposition, customer, internal processes/competencies,
external positioning, economic model, and personal/investor factors. Johnson,
Christensen & Kagermann (2008) also mention specific factors that create a BM.
Their definition involves “4 interlocking elements, which when taken together
creates and delivers value” (p. 52). These are customer value proposition, profit
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formula, key resources, and key processes. It is through defining the different
factors included in a BM that research is moving closer to a practical appliance of
BM theory, such that practitioners have real-life tools that can be applied to their
companies and the context which they operate within.
Looking at more recent definitions of the BM (2010 and onwards), CasadesusMasanell & Ricart (2010) are short and concise, when describing a BM as: “a
reflection of a firm’s realized strategy”. Along the line with Magretta their
definition is somewhat more abstract and less applicable for businesses as a
single tool, but can be used in coherence with other theoretical frameworks.
Finally going back to Teece (2010) who argues that a BM articulates different
factors such as the logic and the data that make up a value proposition for the
customer, but also represents a cost and revenue structure of the company that
delivers this value to the customer. The definition thus links the notion of value
proposition with internal processes of a company, thus emphasising that the
ultimate focus should be the customer.
Since the paper will be revolving around the term BM, it is very appropriate to
pick out one definition that will describe what is meant upon using the term. This
is done in order to avoid ambiguity about what is meant with the term. As shown
above defining a BM is not a simple task. Although there seems to be an overall
coherence between the definitions, some of the definitions are different in their
meaning and focus points, and it is therefore important to pick one that can
create coherence and meaning with the rest of the theoretical framework. This
paper will not be using any of the definitions above, however, it will use a
definition evolved from the theory above.
Zott and Amit (2010) evolved their 2001 definition off a BM and it is this
definition that will be used as a point of reference inside this paper. Their
definition of a BM is: “a system of interdependent activities that transcends the
focal firm and spans its boundaries” (2010: 216). The reason for choosing this
definition is two-fold; First of all, it acknowledges that a BM is not just a single
system that should be seen upon as a whole. The emphasis on interdependent
activities will help create coherence with the rest of the theory used for this
8
framework. Secondly, it is still a rather open definition. It does not try to define
the specific entities thus maintaining an open scope open for individual
interpretation.
Some of the other definitions would have fitted the somewhat same needs
however; they lack the complete two-sided focus. For instance, Teece (2010),
Morris et al. (2005) & Johnson et al. (2008) all put an emphasis on the fact that
business models have different entities that make up a whole, but it is when
trying to define these that they fall through. Upon doing this, they close down the
scope and the openness thus limiting the definition. This would damage the
coherence with the rest of the theoretical framework and is therefore not ideal
for this paper. Others, like Magretta (2002) and Casadesus-Masanell & Ricart
(2010) have a definition which is simply too open thus failing to be accurate
about what a BM actually is and therefore again lacking coherence with the
theoretical framework of this paper.
2.2 Business Models, Innovation and Change
The term innovation has been used to describe many different phenomena and
has been popularized a lot during the last years. Therefore, it is necessary to
specify what is meant when using the definition in this relation, different angles
on the term inside the field and in general present the existing theory already
made in the field. Massa & Tucci have to be acknowledged for their 2013 work on
a literature review which sums up the literature created, very clearly and in a
brilliant way.
Like mentioned above the term innovation can lead us on to many pathways
inside the field. Mainly the term can be said to describe two different phenomena;
1) the entrepreneurial novel BM in which a BM is developed from the start of a
setup or 2) when changing an existing BM to fit either new challenges or to gain
competitive advantages (Massa & Tucci, 2013). Since this case is dealing with DS
who is an established company that already had a BM up and running, the main
focus of this theoretical review will lay on the second term. Massa & Tucci (2013)
distinguish between the concepts by using the terms business model design
(BMD) and business model reconfiguration (BMR), which are terms this paper
9
will also be using for convenience. BMD refers to novel start-up BM’s and BMR
refers to changing existing BM’s.
2.2.1 Business Model Design
The reason for still briefly including BMD is that there may be some relevance for
the case to collect from this particular framework. We will thus look at some of
the most significant definitions and proposals. Amit & Zott (Amit, R., & Zott, C.,
2001) describes BMD as an entrepreneurial activity in which you design the
content, structure and governance of the interaction and the transactions that a
firm performs together with its exchange partners, and it is through this that
value is created. BMD is concerned with more classical entrepreneurial activities
like creating an organisation, internal/external recognition of opportunities and
connecting with the market (Bhave, 1994). In a later article Zott & Amit (2007)
argue that the ladder is an important part in connection with BMD in that “a BM
elucidates how an organization is linked to external stakeholders, and how it
engages in economic exchanges with them to create value for all exchange
partners” (p.181). Furthermore, McGrath (McGrath, 2010) elaborates on this by
arguing that BMD is mostly concerned with classical entrepreneurial choices
such as organizational design however, it is also about designing a boundary
system, so that a product or service can be offered to a market. Both authors thus
argue that BMD can mostly be seen as an entrepreneurial activity, establishing
new companies.
An important factor in BMD is the uncertainty associated with the development
of a new business model. Therefore, more scientists have been proposing a
discovery driven approach that puts a significant emphasis on prototyping,
experimentation and testing ideas (Sosna, Trevinyo-Rodríguez, & Velamuri,
2010) and (McGrath, 2010). Prior to this, Hayashi (2009) notes that a lot of
companies have had innovative and original BM’s that still did not create success.
He argues that it should not necessarily be seen as a failure if the companies can
switch to a “plan B”, which through experimentation and “what-if” questions
should challenge the initial assumptions from managers and entrepreneurs, thus
ensuring that they will find the right BM. As an extension of this argument it can
be said that most novel BM’s have a natural experimentation phase, since
10
entrepreneurs often can be interested in finding new radical ways of doing
things, that can forever alternate and disrupt an industry (Ireland, Hitt, Camp, &
Sexton, 2001). Designing your BM should thus be done through experimenting
with your assumptions and beliefs, and entrepreneurs should strive to be
adventures in their designs.
2.2.2 Business Model Reconfiguration (BMR)
Changing your BM can be key to both success and survival if done in the right
way. In can be extremely hurting or even deadly for companies who fail to change
their BM in time to overcome challenges (e.g. the case of Blockbuster). The
increasing popular notion that business model innovation is a crucial key to a
company’s performance has brought an increasing amount of scholars working in
field of BM’s, to dig into changing, renewing and innovating your current BM
(Massa & Tucci, 2013). This has left us with a wide theoretical background when
trying to dissect how businesses can change their setup and the very fundament
of how they create economic value. The paper will review some of the relevant
theories, and clarify which theories will specifically be applied to this case study.
Chesbrough and Rosenbloom’s study (2002) of the Xerox Corporation already
pointed out some of the potential issues and pitfalls when it comes to BMR. In
their study they find that incumbent, successful companies are not considering
changes since these are filtered out of their mental map (The authors view the
BM as an heuristic logic which might act as a mental map in which ideas are
filtered, as reviewed earlier in the paper). The theory builds upon the notion of a
dominant logic. It represents the prevailing wisdom of how things are done inside
a firm and it can lead managers and other decision makers to be blindsided and
not acknowledge opportunity when they see it (Prahalad & Bettis, 1986). This is
further discussed by Chesbrough (2003), who describes the phenomenon as a
firm being drawn into what he describes as the dominant logic trap. Similar to
that notion Bouchiki and Kimberly (2003) have developed a concept, which they
have called the identity trap. They argue that the identity of the organization can
become a trap in which it is constraining itself to deal with changes, because it is
too caught up in maintaining its already established identity. Changes that do not
match the existing identity are therefore bound to fail, they argue. Both sets of
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authors thus mention existing cognitive notions inside an organization as a
barrier to change.
Further elaborating on barriers to change, Chesbrough (2010) is suggesting that
there are two types of barriers to BMR in existing firms. The first is a structural
barrier, which is related to physical limitations such as reconfiguration of assets
and operations. The second is the cognitive barrier, which is simply that
managers have been used to operating within a certain frame, and therefore can
have a hard time relating to potential that lies outside their current BM (very
related to the dominant logic trap and the identity trap). In the same paper
Chesbrough suggests three tools for overcoming these barriers. 1) A company
can map out its BM in order to better understand how processes can be moved
and reconfigured to deal with challenges. 2) The organizational hierarchy can be
manipulated in order to avoid decision makers to be “frozen” in their cognition of
the BM. 3) is the earlier mentioned experimentation in which the company
explores new paths. It is conceptualized as a process in which a company gains
cumulative learning through (perhaps) series of failures, before they finally
discover a more viable and/or innovative BM. The phenomenon is also described
as trial-and-error learning by Sosna et al. (2010) in their case study of
Naturhouse.
Looking at specific proposals on how a company can change it’s BM (Giesen,
Berman, Bell, & Blitz, 2007) suggests that BMR inside already established firms
can be divided in to three different groups which all differ in the way that they
are innovative. The first is Industry model innovation which implies altering the
way things are done inside the industry, for example by changing the value chain
through moving in to new industries or redefining the existing industry. The
second suggestion is innovating your revenue model. This is representing new
pricing strategies or redefining the product-service proposition. Their third
proposal is called enterprise model innovation and means changing your firms’
role inside the value chain thus altering your networks with employees,
suppliers, customers and configuration of your assets. They further elaborate on
their theory by pointing out two key findings 1) that all of the different ways of
innovation can generate success and 2) innovating your enterprise model
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through external partnerships is particularly effective in older companies
compared to younger ones. The suggestion of specific ways of changing a
company’s BM thus provide managers with a practical way of looking upon
changes. On a similar note Amit and Zott (2012) also point out three ways that
managers can innovate business models. Upon researching the field for a decade
they developed the following ways to innovate your BM: 1) by adding new
activities, 2) link activities in new ways and 3) change who performs activities.
Their theory on BMR builds upon their definition of the BM, seeing it as a system
of boundary spanning interdependent activities, which has been used earlier on
in this paper (Zott & Amit, 2010). Whether or not their theories are caseapplicable will be tested and discussed later in this paper.
Shifting the focus of where changes originate, Doz and Kosonen (2010) see BMR
from a leadership perspective, thus suggesting a leadership agenda that can help
firms innovate their BM’s. They argue that the key is to make companies more
agile and flexible, and they have developed three ways of achieving this through
the following meta-capabilities: strategic sensitivity, leadership-unity and being
flexible with resources. They further argue that it is the responsibility of top
management to take on the risk of venturing in to innovation of BM’s and leave
old ones behind. This should be done through achieving a collective commitment
towards risk taking and experimenting with new opportunities. The proposal of
the leadership gives managers and leaders perhaps even more specific tools to
manage their company with. However, Santos, Spector, and Van Der Heyden
(2009) have a somewhat different view on how companies best can innovate
their business model. They suggest that incumbent companies try to lay
emphasis on the behavioral aspects such as mutual engagement and creating
organizational justice. They argue that BM’s can and should be innovated through
also focusing on organizational dynamics, and not only take the structural
aspects of the organization into account. They thus challenge the views of the
theories developed by Zott & Amit and Geisen and colleagues, shifting their focus
towards a broadening of the developed theory on the matter. Furthermore, Bock,
Opsahl & George (2010) create a linkage between the field of business models
and the concept of strategic flexibility (Shimizu & Hitt, 2004). They propose that
13
companies should engage themselves in business model innovation in order for
their organization to stay flexible and deal with an ever-changing external
environment. Their proposals are somewhat coherent with Doz and Kosonen
(2010) through the emphasis on the creation of an organization that is flexible in
order to overcome changes.
As shown in the literature presented in this paper defining what BMR is and how
it is done can be a very complex task. The field is still relatively young and new
concepts and theories will continue to see the surface every year. There is no
doubt that BMR is a very complex art and Johnson et al. (2008) notice that even
though many major innovations have happened during the last decade or so, only
very few of these has happened inside or can be related to the area of business
models. That BMs is a complex art is also noted by Teece (2007) who states that
it requires “creativity, insight and a good deal of customer-competitor and
supplier information and intelligence” (p. 1330). The fact that managers already
have existing capabilities and beliefs, only increases the complexity of BMR, since
this can blind them and hinder them from seeing new opportunities, thus failing
to act upon these (Pisano, 2006). The rather complex and abstract nature of the
field will probably scare off a good deal of scientists, however, for the ones who
decide to discover and experiment inside the field it is clear that there are some
truly value-creating and groundbreaking discoveries to be made. A lot of theories
have been evolved during the last decade and it will be interesting to follow for
the next decade.
2.2.3 Visualizing Business Model Innovation
In order to ease up the process of dealing with the complexity of BMR it can be
preferable to work with a visualized model. This will help create overview and
for some limit the amount of abstract thinking needed comprehend the ideas
associated with innovating and developing your business model. Models can be
said to create linkage between complex-thinking scholars and more practical
thinking practitioners. This paper will be applying the model developed by
Cavalcante, Kesting and Ulhøi (2011), since it provides links between different
branches of the existing theory and sums of much of the literature described
previously in this paper. Argumentation for the choice of model will be
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elaborated on later on in the paper, however, the model will first be introduced
and briefly explained.
When looking at and putting this model into practice, it is important to note that
inside established firms there are two blocks named II. The first block represents
the current state of the business model whereas the other represents a process.
The model proposes that we can distinguish between four different types of
business model change:
(1) Business model creation (block I); the creation of novel BM’s through the
entrepreneurial act of establishing a new business.
(2) Business model extension (block II (+); adding new activities or extending
already existing core activities.
(3) Business model revision (block II (+)/(-); the act of revision implies
terminating old activities and replacing these with new ones.
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(4) Business model termination (block (-); abandoning existing areas of your BM.
The slashed arrow means that other activities will still be developed.
One of the main reasons for choosing to work with this particular model is that it
does not necessarily rule out the rest of the theory. It merely creates a framework
in which the rest of the theory can be applied. In other words, the model is not
offering specific suggestions on how to change a business model; it is rather
presenting the different ways in which we can categorize our other theoretical
tools. This creates coherence with the rest of our theoretical framework since it is
assuring us that we can work with a broader scope than if we had settled on a
somewhat narrower framework. Using the model thus helps us create an
overview of BMR even though the complexity of the topic is still highly
acknowledged. This also implies that when working with theory further on in the
paper other theories will not be neglected, but rather used in connection with the
model. This will ensure that a complex and nuanced analysis is carried out inside
a clear and visualized framework. Hopefully, the model will also be a tool that
makes it easier for practitioners to comprehend the rather abstract analysis.
2.3 Conceptualizing and illustrating the business model
Capturing the notion of what a business model is can be a complex task. Trying to
visualize it may therefore be an even more difficult manoeuvre. As the interest in
business models has grown over the last 20 some years, trying to conceptualize it
in order to practically implement it has followed the same trend. Since this paper
is working with a practical case study it is highly relevant to use a visualized BM
since this will provide the opportunity of comparing two visualized models with
each other, and thus capture the changes. This part of the paper will review
different conceptualizations of the BM and from that pick out tools that can be
used for the analytical purposes in this particular case. It will of course also argue
why the specifically chosen model is the one decided upon.
Massa and Tucci(2013) propose that the conceptualization of BM’s can be sorted
using their level of abstraction as a parameter. From this they developed a model
showing the different layers of abstraction, and what this means for the
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conceptualization of the BM. The model is illustrated below, but will not be
elaborated further on since the illustration is considered rather self-explanatory.
At the top-level of abstraction we find business models to be conceptualized as
narratives. BM narratives are key to inducing stakeholders on which direction
companies are moving, and how they might act in different situations. Narratives
can be used by both managers and entrepreneurs to help explain the company in
a more simplistic and thus less complex way (Perkmann & Spicer, 2010). A
narrative can thus be used as an overall guidance both internally and externally
inside a company, setting up the framework or the story (Magretta, 2002) of how
an enterprise works, a definition that has already earlier been touched upon in
the paper. Massa and Tucci (2013) argue that a narrative can be used as a device
for communicating, allowing companies to achieve goals like persuading external
audiences, surrounding the company with a sense of legitimacy or guiding social
action. However, it can also be said that narratives can be somewhat hard to use
for analytical purposes.
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Moving downwards in the model we find the notion of BM archetypes. This can
best be described as a pre-set description or recipe on how a business model
works. But as noted by (Baden-Fuller & Morgan, 2010) “not all cooks can make
all recipes work and different combinations (ways to make and bake the cake)
can create success” (p. 167). One example of archetype BMs are the freemium
model in which a company has a free version of a product, and charges for a
premium version (companies such as Spotify and LinkedIn has adopted this).
Another example is the model described by Zott & Amit (2010) as the razor and
razor blade model, in which Gillette sold rather cheap razors and then charged
high prices for the blades. The problem with high abstraction forms of BM
conceptualizations is that they can be somewhat difficult to use for analyzing and
comparing companies. Therefore we must go down the “abstraction-ladder” in
order to obtain specific tools that can be used and applied in a practical oriented
case study.
Earlier on, the paper touched upon definitions of what a BM is and it will return
to some of these. (Johnson et al., 2008) proposed that the BM consist of four
interdependent elements, which are customer value propositions, profit formula,
key resources, and key processes. These four interlocking elements thus make up
their framework for how a business creates value for both itself and its
customers. Similarly (Morris et al., 2005) created their framework around the
assumption that the main objective for a BM is to create a competitive advantage
for the company. They propose that this competitive advantage can be created
through six different factors, which they argue is what a business model is made
of. Their six factors are: Value proposition, customer, internal
processes/competencies, external positioning, economic model, and
personal/investor factors. Since both definitions have been used already they
will not be elaborated further. Creating a more precise and visualized model Lim
(2010) has proposed a business model framework that is based on structure,
operations, strategy and environment, the model is named ESSO. His framework
describes the three as being the interdependent components, which make up a
BM; however, they link together through knowledge management and
operational competitive priorities. His model also factors in the environment in
18
which a company is operating and mentions the PESTEL factors. The over-use of
meta-models can be problematic due to a potential loss of complexity, which is
noted by Massa & Tucci (2013) who argues that although these types of
conceptualizations recently have become popular amongst practitioners due to
their simplicity, they cannot provide analysis with the needed depth and
complexity. They argue that a main problem is that the models do not factor in
the dynamic aspect of the business model, and they can therefore have
shortcomings when they are trying to describe a company’s particular business
model. Meta-models, they argue can make up for these limitations and help giving
a more complete picture of a company’s BM, since these models can help us
understand how different business models operate in a network of other
exchange partners. The author of this paper shares their concern, however, also
acknowledges that the use of more simplistic models is necessary to create a
framework which is clear and structured.
Going a couple of steps further into the model Gordijn & Akkermans (2001) have
the approach that conceptual modelling should describe how economic value is
created inside a network of actors. They call their model “e3-value-onothology”
and it is somewhat different since it deals with a value-based view (instead of a
process or system architecture view, as previous models). The approach is
building on terms like actors, value exchanges, value activities, and value objects.
These terms or notions are thus transferred into a model network in which it is
described how companies and consumers interact, and how economic value is
created, distributed and at last consumed by the end-customers. On a somewhat
similar note (Zott, C., & Amit, R., 2010) have proposed an activity system
approach that is based on their perspective that a BM is the set of interdependent
activities. This means that in their model the firm is the center, also taking the
activities of the network surrounding the firm into account. As they describe it:
“an activity in a focal firm’s BM can be viewed as the engagement of human,
physical and/or capital resources of any party to the BM (the focal firm, end
customers, vendors, etc.) to serve a specific purpose towards the fulfillment of
the overall objective” (p. 217). The strength of the meta-models and activitysystems is that they can be used as overall models in which you can still use more
19
specific theories to elaborate further, while still capturing the dynamics of how
business models interact in networks.
2.3.1 The Business Model Canvas
The key analytical tool used for this case study will be the model developed by
(Osterwalder & Pigneur, 2010) called the Business Model Canvas. The model will
form the ground of the entire analysis, however, it will not rule out the use of
other theories or concepts. It will be used for comparing in what areas the BM of
Danske Spil have changed after the liberalisation. It can thus be used as a tool for
seeing whether the external changes actually influenced how DS has gone about
their business. It has been prioritized over other models, since the BM canvas
gives a clear overview of the different activities within the company thus making
it easier and less abstract to create such a comparison.
The canvas proposes that a BM is made up of nine different components that all
together create an overview of businesses’ part and processes. The different
components can be viewed in the illustration above. Through an analysis of each
component we can thus dissect what changed inside the company through a
“before and after” description. The framework also gives us the opportunity to
assess which parts of the company’s BM changed the most thus making it
possible to assess which parts were most important to change in the company.
The theory can again be seen as a framework in which other theories can be used.
20
Using the BM canvas thus allows us to apply more theories to the different parts
of the BM of DS. Furthermore, there is a great coherence between the definition
of a BM created by Zott and Amit (2010) and the framework of the canvas. Their
definition describing the BM as “a system of interdependent activities that
transcends the focal firm and spans its boundaries” (2010: 216) has a great match
with the BM canvas and as mentioned earlier the coherence of the theoretical
framework is important for this paper.
The reason for choosing the BM canvas over other models is that it has more
means for comparison of BMs than other models. It would for instance be very
vague to compare two narratives or archetypes to each other, since they are not
deeply engaged inside a company, making it hard to specify concrete differences.
Therefore, they can be used for other purposes, but in this case they are not
relevant. The reason for not working with meta-models or entity-systems is that
this paper is mainly engaged in the internal processes of the company. It would
be a great perspective to have, but it could be feared that the larger scope of the
model would compromise the internal analysis of the company. It could also be
problematic not to be able to work entirely in depth with a more limited scope,
since the paper may end up becoming to broad, and thus not really be able to
point at specific conclusions. Of course there are certain pitfalls associated with
using the BM canvas. A problem could be the loss of complexity. Since the paper
will be using particular models, which can only capture part of the real world, we
could end up loosing part of the holistic perspective. Hopefully, this can be made
partly up for by using as much supporting literature as possible to carry out the
analysis, as long as there is coherence with other literature being used.
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3. Data & Method
This part of the paper will describe how the framework around this study was
created. It will be described how the literature supporting the study was found,
how the data has been collected and contain a thorough description of what
methods have been used for creating the study. Part of this section will also be
augmenting as to why the choices of data and method are relevant and why these
have been chosen.
3.1 Methods
The study will be set as a single case study only investigating the particular case
of DS. It is designed as an intensive case study, striving to create a holistic
understanding of the case and not create generalizable theory that can be used
for general cases. The reason for this, is the belief that in order for this to be
done, the study must be designed either more longitudinal or with multiple cases,
in order for larger amount of empirical data to base theory upon. The time frame
of the study is approximately 3 months from February to May 2014. The
references used for the study will almost exclusively be based on scientific
research as well as most data will be primary data gathered inside the company
to ensure high quality. The paper will take an abductive approach to the findings
since it will be mixing the approaches of both deduction and induction. The
deductive elements are the theory that changes have occurred due to the
changes, and it is thus this that the paper hopes to prove. The inductive part
comes from the desire to theorise what it takes to successfully overcome radical
changes in the external environment. It can thus be said that the study is based
on exploratory research which will be approached circularly and can be everchanging in the process. But mostly the study will be designed in such a way that
the findings will be open and it cannot in any way be predicted what sort of
outcome the study will have. It is a key factor that the interviewees will be
influenced as little as possible, while still sticking to the agenda, which is
researching the BM. In order to reach the findings the paper will be applying
existing developed theories to the case. Practically, the Business Model Canvas
will be applied to the BM of Danske Spil both before and after the events in 2012.
Upon looking at the results after using the BM canvas, it will then be decided
22
what research can be applied to the newly obtained results. This should ensure a
flow in the research in which it develops as the data is analysed, promoting a
flexible research design rather than rigid research.
The practical implications of the above will include the following; prior to actual
research background knowledge must be obtained. This is done through an
analysis of company materials such as income statements and economical
figures. Furthermore, this will include retrieving recent data from newspapers
and other online sources, creating a knowledge-framework through
understanding the company and its situation. It is important that this framework
is set prior to moving on. Following this, three interviews will be conducted.
These are elaborated further in the data section. From the interviews the analysis
will be carried out, a relevant theory will be applied to the case. It is the author’s
belief that this method should ensure high quality research and create a realistic
and nuanced picture of the case.
3.2 Literature
The main source for finding scientific literature has been through the EBSCO
business source complete database. Here key words have been “business model”,
“business model innovation” and “business model development”. The search has
mainly been limited to include articles from 2000 and onwards since the field has
been under a vast development, and it has been desired to have recent theories
and thoughts since this is when the field has really fallen in the interest of
scholars. This does, however, not imply that no literature prior to that year has
been used. From the database search, two recent literature reviews have been
used for inspiration as to what literature to include in the theoretical section of
the paper. These two papers have also functioned as catalysts into further
research. From the research four papers where picked out to create the overall
theoretical framework for the paper and these have each been described
thoroughly in the theory section above. These are: Business Model Dynamics and
Innovation: (re)establishing the missing linkages (Cavalcante et al., 2011),
Business Model Innovation (Massa & Tucci, 2013), Business Model Generation
(Ostenwalder & Pigneur, 2010) and The Business Model: Recent Developments
and Future Research (Zott et al., 2011)
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3.3 Data
The collection of data will be based on three main sources: company documents,
articles and through in-depth interviews. The company documents will mostly be
used to create overview with regards to the company’s history (thus creating a
historical context), their financial performance and key economic figures before
and after 2012 and their general data. This type of information will not be used
directly in the paper, but it has functioned to create a basic understanding of the
type of company that has been dealt with in the exact study. The articles will
serve the same purpose. Although they may not be used directly in the paper,
they will be used to create a basis for understanding before going into more
direct data collection through the interviews. This should ensure basic
knowledge prior to further investigation, thus ensuring the quality of the
questions and research. Furthermore, DS themselves created a BM canvas that
will be used in the paper. In the data collection that is directly related to the
findings, and what these are based upon three main interviews have been set up:
1st interview w. Project Leader in the department of Business Development, Lotte
Lind Nielsen, on Thursday the 20th of March 2014:
The main focus of this interview will be to get information about what the BM
canvas has been looking like before and after the market changes. It is thus not
subject to many individual thoughts and ideas but will be very structured and
with a tight agenda. The reason for this is that the information is vital for creating
a foundation for the analysis, and it can thus be seen as the building blocks on
which the findings rely.
2nd interview w. CEO in DLI, Niels Erik Folmann, on Wednesday the 2nd of April
2014:
This interview will be concerned with what the changes has been looking like
from the top. This interview will be focusing on how the CEO has felt the changes
and what challenges has been associated with implementing changes in the BM.
It will thus represent the management part of the findings focussing on the role
of management with questions regarding challenges, essential changes and
revenue and cost changes. The interview will have a semi-structured design, thus
allowing it to develop through what sort of answers is obtained. Since no prior
24
knowledge exists at this moment, it is essential that the personal perception of
what has been essential is used to investigate key changes, and this is best
obtained through a semi-structured interview.
3rd interview w. Head of Business Development Ditte-Maria Heide Kristensen, on the
25th of April 2014:
The last interview will be rather process oriented, investigating how the process
has affected the organisation and where most changes has been done. The main
purpose of this interview is to obtain knowledge about how the process have
behaved with regards to other theories, and questions should mainly seek
information going beyond the content of the BM canvas. Questions will mainly
involve identity, barriers, organisational flexibility and general organisational
behaviour. This interview will have a somewhat tighter structure than the 2nd
interview, but can still be categorized as a semi-structured interview, since it will
take into account what is emphasized by Ditte-Maria, but have more questions
the 2nd meaning that a tighter structure is needed to obtain all the information
required from the interview.
The three interviews will create a foundation for carrying out the analysis. They
will serve different purposes when presenting the findings, as the interviews
made with Niels and Ditte-Maria will not be directly related to the BM canvas, but
will rather be used to analyse how the changes have been seen and felt from
above. Three interviews are considered to be sufficient in creating a foundation
for the analysis since the data obtained can only be delivered by a few people.
With the rather strong defined structure of the paper, it is rather clear what
information needs to be obtained and therefore, it is rather straightforward what
questions need to be asked. However, the structure of the interviews also allows
for unexpected information and findings which can be key to creating a holistic
paper with findings as close to reality as possible.
25
4. Findings
This section of the paper will be presenting the findings made in the study. It can
be broken down into three different sub-sections; presenting the BM-Canvas
before and after the changes, comparing and discussing the canvasses, and
investigating how the process of change has been seen from the management's
perspective. It will be based on interviews with managers and employees as well
as internal documents.
4.1 The BM Canvas prior to the liberalisation
The following work has been done through interviewing employee Lotte Lind
Nielsen who is the project leader inside the department of business development
in DS. She has been a big part of developing the BM and she thus has a deep level
of knowledge about what the BM has looked like before 2012.
Key partners: The gambling authorities were seen as key partners since they
were the ones authorizing and licensing the games that DS was offering. In
extension to this, the politicians were mentioned since DS was striving to
maintain good relationships with the ministries. The shops selling games for DS
and marketing companies were partners on the marketing side. Lastly, upon
integrating an online product, DS became more dependent on IT-companies
creating online platforms for their customers.
Key activities: The aim for DS before 2012 was not necessarily to make the
biggest possible profit. The goal was of course to sell as many games as possible,
but also to take into account that games had to be sold with responsibility, and
they did not want to be too aggressive in their marketing. "We were there to
make the Danes happy" Lotte states. She further notes that back then time was
never really an issue when it came to launching new products, "since there was
no competition it didn't matter whether it took 5 years to develop new games or
not" she says.
Key resources: The main resource was the employees and that they had the
necessary competencies, especially in the departments of marketing and IT. It
was mentioned that there was a strong culture inside the company and
26
employees were proud to be working in the company. Proper IT-systems were
also a key element for DS since it was key that there was trust from the
population that odds were set fairly and that there was truly a safety that the
lottery numbers had not been manipulated.
Value propositions: Before 2012 all profits made by DS went directly to local
sports-clubs and associations. This was a huge value proposition. DS has always
been a part of the Danish culture and providing the Danish people with dreams of
winning the lottery is mentioned to be a key proposition offered. The fact that
they were the only legal supplier of games created a sense of security around the
company and people were never in doubt of whether their money would be paid
out or not.
Customer relationships: The general relationship with costumers was less
commercial and part of the main task was to create a good relationship through
trust in the company. DS mentions that their relationships were very influenced
by their monopoly, meaning that they had a predefined loyalty since people have
nowhere else to go. Being part of the culture meant that creating trust and
security were the main drivers.
Channels: The main channel used was the online platform at Danskespil.dk. Since
the Internet offered more possibilities, DS became more aware of using the
online platform to market and offer different games. However, the more classical
channels like gas stations, supermarkets and kiosks are also emphasized as being
main channels, even some bars gave people the opportunity to buy the games
offered by DS.
Customer segments: DS has always been very aware of who their customers were,
and from this they developed five different customer segments on whom they
have focussed; thrill seekers, casual players, social players, the new winner and
impulsive players (Guldberg Andersen, 2010). Back then Lotte mentions "they
were not as associated with particular games, but used as an overall picture of
our customers".
27
What can mainly be inferred from the interviews is that the organisation as such
has operated more casually prior to the liberalisation. Since there was no
competition and customers who were loyal and had trust in the company (and
nowhere else to go), things where moving more slowly inside DS since there was
less external pressure demanding the company to perform. Like mentioned by
Lotte they were still trying to make money, but in a different way than today
where the organisation's ultimate key performance indicator is how big a profit
they can generate. Since the company is now divided in such a way that a part of
the company is profit based (DLI) and another still donates profits to local
associations, it is mentioned that there has been created a bigger gap between
employees, and even though the culture is still internally strong there is not the
same sense of coherence between employees. CEO Niels Erik Folmann also notes
this phenomenon, describing it as a clash between two cultures from before and
after the liberalisation and that this has been a challenge to manage (This will be
elaborated further in the coming sections).
4.2 The BM Canvas after the liberalisation
DS and their employees have purely done the following work. Upon starting the
research for this paper, I was informed that DS internally already had developed
their own BM Canvas prior to me starting my work, however, it was in no way
related to the research project. I find that their work is ideal to use since it has
been developed by a large group of employees and should hopefully represent a
rather complete picture of their BM (see appendix for the full canvas illustration).
After presenting their work I will comment and elaborate on it, since it has also
been discussed through the interviews.
Key partners: Partners are still mentioned to be shops, it-companies, authorities
and politicians. However, a list of new partners is emphasized. For instance cocreation with customers is now key. Today there is a wide range of software and
game developers involved, prior to before when there were only two external
companies providing everything. An international network is important, since
the market now operates with a different scale, meaning that DS has become
more outwards seeking for software suppliers, also internationally.
28
Key activities: In the activities we see a somewhat different picture than preliberalisation. DS now sees their key activities as product innovation and acting
as the market leader. They now see interaction with customers as a focus point
and they are determined to create entertainment for their customers. They also
work closer with their partners, in trying to create collaborate goals in order to
stay on top of the market. Trend spotting is also mentioned. Perhaps the biggest
difference is that now the emphasis is on operations. Operations are now seen as
the foundation for the company and it is probably the most key of all activities
after the liberalisation.
Key resources: The resources are still somewhat focused on the employees and
their competencies. Collaboration across the organisation is emphasised as being
a big resource for DS along with a good culture. As more rigid assets they
mention liquidity as a key factor, as well as the IT-systems that are used to
provide their online platform and all of their games.
Value propositions: The company is creating value through excitement,
entertainment and the creation of dreams. They put emphasis on the fact that
they are a Danish provider of games, and that they are linked to the state. The
money earned either goes to charity or directly to the state. A high-level of
service is now provided and their identity is well known by most people in the
country. Another big emphasis is put on having a large product range available to
the customers, and making sure that product development is always competing
with the main competitors in the market.
Customer relationships: DS is striving to have a close bond to their customers.
Knowing that they now have a wider range of suppliers to choose from, this is
becoming more of a key factor. They want their games to be both appealing and
interactive thus making them entertaining and not only seen as games played
with the sole purpose of either winning or losing money. However, DS also seeks
to inform their customers about the potential dangers of gambling. DS wants
their customers to absolutely certain that their money is safe and that their
earnings will be paid out.
29
Channels: Today DS is using a wide array of channels to market their products.
They are now operating through more platforms such as a mobile app, emails,
and social medias like Facebook. The main channel is the company website from
which all games and activities are operated. DS is still as the only company in
Denmark supplied through local shops, and this is not yet a market that any
competitors have tried to penetrate. Marketing wise, DS has started to use
sponsorships that are related to their business on for instance football stadiums
and local sports clubs.
Customer segments: DS has not changed the specific customer segments with
which they are operating. However, today they are allocating customer segments
more specifically to particular products, for instance such that online poker is
targeting thrill seekers. Also they now give customers the opportunity to become
"VIPs" targeting the big players spending a lot of money. Furthermore, DS has
created a strategy for future segments to target in which they focus on women
and younger players, since today their target audience and cliental are very
dominated by older players (35+).
Watching the organisation as a whole it is rather clear that the radical external
change has caused just as radical changes on the inside of the company.
Commenting and comparing the specific changes will be the domain of the next
section, so this will be analysed later in the paper. Seen as a whole it can be said
that the company has become more professional and competitive. Today the
company operates with the same parameters as most of their competitors, and
terms like high level of service, liquidity and focus on operations have all of a
sudden become the essentials of the company. Later in the paper I will be looking
at some of the challenges of this transition, and how the mentality inside the
company has been altered. As described earlier this has also created a gap
between some employees and changed the organizational culture. There is no
doubt that the transition into becoming a profit oriented company has required
some internal sacrifices, but it could be argued that this may have been necessary
to compete in the new and different market. The next sections will analyse this
further.
30
4.3 Analysing the canvasses
The following section will compare the findings from the previous section and
analyse specifically what has changed in DS's BM. This section will thus be
elaborating further on the previous findings, compare and comment on the
differences in the two BMs. It will move from more specific observations inside
the different components of the BM canvas framework out into dealing with
larger and more abstract aspects to avoid the loss of analytical complexity. It is
ultimately the goal to structure my work in such a way that the rather complex
notion of a BM becomes structured and straightforward. However, in order to
paint the most realistic and holistic picture, the paper must also incorporate
some of the more complex theories and concepts.
Most of the partners that the company are working with have remained
unchanged. Quite naturally when the company is state owned most of their
public relationships like politicians, ministries and authorities will still be key
partners. Also suppliers and distributors have more or less remained partners for
DS. What really changed were two main things; 1) the emphasis that is put on
different partners has been altered, and 2) the amount of partners to distribute
the products of DS has drastically increased. Today DS is putting a larger
emphasis on the IT companies developing their software and ultimately their
products. Previously only two companies where used (Betware and G-tech) and
even though the two are still around today, the total amount of IT developing
companies that DS is cooperating with, has drastically increased. This is merely a
product of the increased competition and the heavy demand on product
development as noted by the CEO. Since the market no longer allows any
company to fall behind on IT development, it has meant that DS not only needs
more suppliers, but they also need their suppliers to be as competitive as
possible in order to meet the high demands on the market. The expansion of
distributors can be seen in that DS now has more ways of getting their games out
into the public, which is probably related to the increased focus on sales. DS thus
obtains more flexibility through less dependency on previous suppliers, which is
important to creating success in BM innovation, towards the goal of strategic
flexibility according to Bock et al. (2009). The new games that were integrated
31
after the liberalisation were mainly casino games with a very high level of
payback percentage to the customers compared to for instance the national
lottery. This also means that DS needs to sell more games in order to earn money,
which of course leads to an increased emphasis on having a strong sales
apparatus that can overcome the challenges. This has been done through
integrating affiliate sales in which partners will share profits with DS on
customers that they provide, as well as cooperating with some supermarkets to
now provide their products. Also as noted by Lotte, “the sales department inside
the company has been heavily increased”. The partners working with DS have
been changed through BM extension, since the main change lies in the addition of
new partners in order to meet the conditions demanded by the market. Amit and
Zott (2012) also propose the addition of activities as a way of changing your BM.
When looking at their key activities several things are interesting to look at. First
and foremost it is rather clear that there is a clash between the large emphases of
profitability and the ethical aspects of people loosing their life savings on
gambling. This has been dealt with through integrating a CSR strategy as a key
activity, highlighting the responsibilities of the company which when all comes to
all is owned and operated by the Danish state. However it cannot be denied that
it is a fact that DS is now aiming to be as profitable as possible and therefore can
have a conflict of interest at this point. During our interview, the CEO noted,
"we'd rather have a million Danish people loose 10 DKK each, than have 10
people loose 1 million". The quote above somewhat sums up the conflict rather
well. He further notes that DS is the only company on the Danish market who has
these kinds of concerns. In general the key activities could be argued to the point
in which DS has seen the most changes. In extension to their conflict of interest of
course comes the fact that today operations are the foundation of all their
activities. It is somewhat unusual for a state owned company to all of a sudden
have profit generation as their number one performance indicator, and there has
been a trickle-down effect to most other areas of the company. And this of course
also influences all other activities. Evidently the changes in activities follow a
strong pattern of revision since fundamental changes have been made which has
altered how business is done in other parts of the company. Mainly the
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fundamental change towards profit-oriented operations supports this. Even
though the main goal before the liberalisation was still to sell as many games as
possible, this was inside a completely different framework in which it was also
emphasized that the company should not be too aggressive and still keep a high
level of responsibility. The somewhat romanticised picture can thus be said to
have changed a bit. And even though it is completely safe to say that part of this
picture is still intact in the self-belief inside the company, it cannot be rejected
that the activities have been commercialised along with the profitability
measures, and all of a sudden activities like trend spotting and lobbying inside
the ministries are mentioned to be key. Another key element DS is now dealing
with is to create coherence and collaboration across the group since the company
is now divided into three. They now emphasize to have a clear vision across the
different parts and they strive to work as a strategic whole. This of course creates
new challenges to a BM, which will also be addressed later on. In terms of the
resources that DS are using to support their operations the changes have been
more modest.
Evidently the volume of resources needed for the company to sustain has
massively increased due to DLI doubling their revenue, which meant that the
assets followed the trend. However, the types of assets needed have remained
rather similar to pre-liberalisation. DS themselves point more towards human
resources. Again the strong cooperation across the group is mentioned as a key
resource, which of course differs from before when the organisation had a preset definition of working as a whole. Another difference is the emphasis on
liquidity as a resource. Since today the company needs to invest heavier in
product development, they are in need of more money to follow the trends in the
market. Again it is key to notice, that since DS are competing with huge
companies who have the sufficient funds to always develop new products, DS are
forced to follow this trend and this is what the resources are focussed towards.
Like with the partners, the changes follow the trend of extension since the
company mostly have been adding to existing processes to serve the new market
situation.
33
How DS are providing value for their customers has also been altered to a certain
degree. Although the basic value that DS are proposing such as entertainment,
excitement and safety has remained somewhat unchanged, it is now being
acknowledged that in order to keep customers coming back to their games other
value propositions are needed to support the basics. Therefore, the list of values
proposed has been extended and especially the development inside two
components are significant; the new found emphasis on having a high level of
customer service and having both a wide and deep product range. These are now
two important factors needed to provide value, and as mentioned earlier they can
be directly related to the increased competition in the marketplace. Perhaps the
most interesting observation is: what has always been taken as a given inside the
company, the fact that the company is Danish and deeply rooted in the people of
the country could be argued to now provide a significant amount of value to the
customers. All of a sudden customers are faced with the decision of either placing
their money with big international carriers with whom profits are placed in the
hands of the investors or DS where the money is either supporting local society
or directly to the state. This has significance for more reasons, 1) it is deeply
anchored in the Danish people and thus creates an advantage, and 2) this is a
value that no other competitor can copy (at least it seems highly unlikely that
they would even try), and it is therefore a value that will always be unique to DS,
creating a sustainable competitive advantage. It is certainly interesting that
something that has always been taken for granted all of a sudden could be argued
to be perhaps the most important provider of direct customer value and give the
company a decisive competitive advantage. In terms of the Cavalvante et al.
(2011) model this one is slightly more ambiguous, since it could be argued that
customer service and more products are additions. However, the changes have a
different nature, since the entire product range was revised to suit the new
market situation which is also why this paper will argue that the changes follows
the trend of BM revision. The example shows that it can be hard to distinguish
between the two in certain cases, which is why it is required to be specific when
analysing the BM.
34
As an analyst you could be suspecting that most monopoly companies would tend
to neglect their customer relationships, since the customers quite frankly have
nowhere else to go. Therefore, it is of course interesting to investigate how the
focus on customers has shifted once the market situation changed. DS themselves
describes this as their promises to customers and their promise is to deliver
games that are appealing, that the company is informative about potential
problems with gambling, as well as they strive to interact and create close bonds
with their customers. On top of this they promise to provide a sense of safety that
the money is secure and that winnings will be paid out. What is interesting is not
necessarily what DS decides to promise their customers, but actual act of creating
promises for their customers. As described before 2012 it was noted that the
company's customer relationship was less commercialized, but also that it was
very influenced by the monopoly situation. All of a sudden customers of DS can
enjoy the benefits of a company with a high level of service and even an emphasis
on co-creation of the company, which is also why we can clearly infer that DS has
revised customer relationships. The fundamentals have simply been changed and
today there is a completely different emphasis on this part of the BM.
When it comes to segmentation of the customers, DS has still been operating with
the same framework as prior to the liberalisation. However, there are two
significant changes to point out; the segments are now used to target specific
products to specific customer types and the integration of special benefits for
larger customers. DS has always tried to be somewhat aware of who their
customers have been, but pre-liberalisation the information has not been used
directly to sell more specific products to target customers. This has now changed,
thus again supporting the image of a more commercialised and profit oriented
relationship to customers. It also points towards the trend of a revision since it is
the way things are done that has been changed rather than an addition.
Furthermore, the linkage of activities follows on of three ways of innovating your
BM proposed by Amit and Zott (2012). The integration of large-scale benefits can
be said to be somewhat contradictory for DS, and it is a rather precise picture of
the moral issues that can be related to the changes. On one hand DS has a
responsibility not to create gambling problems and addiction, but on the other
35
hand they still need to be able to compete and make large profits through
offering what some players want. And no matter how it is put there is a
contradiction between the two. With regards to the channels preferred by DS the
most significant changes have been made through a "technological upgrade" so to
speak, through the integration of social media, mobile phones and applications.
These seem to have been necessary in order to follow the competitors in the
market, since all main competitors are providing these opportunities. As noted
earlier in the analysis, part of the channel extension has been to expand the sales
apparatus through implanting a DS outbound department responsible for direct
sales and campaign information to the customers, again building on the notions
of a more aggressive and commercialised relationship with customers. Channels
follow a clear trend of a BM extension since these have almost exclusively been
changed through the addition of more activities.
In terms of changes in revenue streams and the cost structure there are one main
change to both of them. Upon developing their canvas DS did not touch upon the
two, however through the interview with the CEO the changes were clarified. The
revenue in the liberalised part of the company has doubled after the market
liberalisation (according to the CEO), which in itself of course points towards a
change in how money is generated. Due to new amount of competitors entering
the market, the price setting was radically altered as prescribed by classical
economic theory (monopolies vs. perfect competition). The change in the
margins means that DS now has to shift their focus to increasing their sales
volume in order to generate the same profit as before, since each game will
simply generate less profit. It further proposes revenue model innovation, since
the pricing strategies have been changed in the company (Geisen et al. 2007).
This can be used to explain the change of strategy with regards to sales,
marketing and the altered customer relationship. Changing cost from fixed to
variable has been at focus in DS. Through revenue share models with some of
their game developers, they have tried to accomplish this. The vision behind this
strategy has been to minimize the risk when moving into new markets in which
the company has no know how. Since most of the competitors in market already
had a well-developed portfolio of games, a lot of product development was
36
needed in order to keep up. Therefore, making costs more flexible has been the
way to make ensure that the company can keep up with the demand for larger
investments in the market although it has the potential to influence the earnings
per game negatively.
To sum up the overall changes, a series of interesting findings were made. First
and foremost it can be concluded that the liberalisation has definitely altered the
different components in the BM of DS. The by far most influential change has
been the fact that DS' performance is now measured in pure profit. The reason
for this particular change to be highlighted is that this is ultimately the factor that
has caused most of the other changes. As a company the changes can be said to
have followed a pattern of BM revision since the overall and fundamental changes
have caused other parts to change. The emphasis on profitability has made DS
shift their focus in many parts of their BM, such that it can now compete with
other suppliers of games in the marketplace. This means that the parts that have
been changed through the extension trend have mostly been in order to serve the
main purpose of revision. The CEO, when asked what has been the most
significant change, also mentions: "today we are being controlled by KPIs from
top to bottom meaning that the group has goals which are transferred down
through the departments and even employees. This means that we not only
measure sales and income, but also the waiting time in customer service for
instance. This is very unusual for a state-owned company". And it is indeed
somewhat unusual. When entering the headquarters of the company, you do not
in anyway get the feeling that you are entering anything related to the state, but
rather that you are entering a company as anywhere else. They are now by far
the company in the entire country spending most money on ads and commercials
(Christiani & Høst, 2013), and they have even implemented a bonus system
rewarding the high performing employees and departments. There is no doubt
that inside the part of the company operating on the liberalised part of the
market it can be hard to distinguish between them and any other company
striving to make profits and keep their investors happy. However, it is also clear
that the changes have caused certain challenges especially related to the
organisational identity that DS has always been associated with. As noted by the
37
CEO one of the main challenges has been to manage the relationship between the
"monopoly-employees" and the more performance and competition minded
employees. Since the liberalisation meant a fast organic growth for the company
this also meant hiring a lot of new employees who came in with another mindset. It is a phenomenon like this that means we cannot neglect the management
side of dealing with BM changes, and as the CEO notes "this is not something that
can be taught in any of the theory books". It was further noted that the change of
pace in DLI due to the competitive nature of their market situation has been a
subject of conflict. Since both DLI and DLO are operating under the same
organisation but now has a different customer-supplier relationship, they have
been experiencing internal conflicts since employees in DLI seem to move at a
higher pace, demanding work assignment fulfilled faster and more effectively
than the employees of DLO.
Therefore, a vital part of the analysis is also to acknowledge that the management
plays a large role in implementing and managing changes in an organisation and
this has certainly also been the case here. The problem of the "culture-clash" as it
is described by the CEO has been dealt with through the creation of common
goals, such that employees will be working together towards the new order.
Another problem that DS was faced with was the contradiction of being a
responsible company that did not create gambling addiction and still trying to
earn as much money as possible. This issue could be somewhat more serious
since it is threatening part of the deeply rooted identity in the company saying
"we are here to benefit and make people happy". Although it may be near
impossible to overcome the problem completely due to the direct contradiction,
the management has tried implementing and emphasising a new CSR-strategy
which has an important role in the company in order to maintain as much
responsibility as possible. As mentioned earlier the right management is an
absolute key to implementing changes, and there is no doubt that the situation in
DS could have been completely different, had the management not had the
willingness and readiness to change. What was emphasised as the most
important leadership factor was the change of structure that followed the BM
changes, meaning that the organisation has become more flat, and the companies
38
are now operating as separate entities. As analysed below, this can be said to
have helped DS overcome a lot of the traditional barriers to change and this has
certainly been a valuable decision made by the leaders. According to Doz and
Kosonen (2010) it is the leaders that drive changes of a company's BM, and it is
their responsibility to create a more flexible and agile organization, as well as
taking on the risk of venturing into new areas and experiment with the BM.
Although the changes have also created more flexibility through separation and a
flatter organization there is still work to do, as noted by Ditte-Maria. She argues
that even though the company has become more flexible they are still somewhat
rigid in their it-department, which has caused frustration with suppliers since
products are hard to scale to the needs of DS. Employees also expressed
frustration, that the company is not as agile as their competitors. She further
notes however, that it is a clear goal to improve upon the flexibility of the
organization, and she expects the company to improve further over the next
couple of years. Another way of innovating a BM is through leaders creating
mutual engagement of employees as proposed by Santos et al. (2009). This has
been done by the company through giving out more responsibility to each
employee, making them feel as a bigger part of the whole. Also, the creation of
common goals has been contributing to mutual engagement. In order for the
organization to stay flexible in the future, leaders should engage in one or more
of the three meta-capabilities developed by Doz and Kosonen (2010), strategic
sensitivity, leadership-unity and being flexible with resources as well as engaging
themselves in further BM innovation, to stay flexible (bock et al. 2010).
As described by the authors the process of revising a BM does not come without
challenges. Some of the key challenges mentioned besides the uncertainty when
revising a BM are the lack of knowledge and skills and a general resistance. The
lack of knowledge became evident through the presentation of new products.
Since all of the competitors had been operating with casino games for many
years, DS fell a bit behind. However, a strong preparation a year in advance
meant that they quickly overcame this problem. They even had a competitive
advantage the first six months since competitors were not used to the market and
the regulations. The challenges of resistance and blinders go very well hand in
39
hand with the already mentioned notion of a "dominant logic" (Prahalad, 2004)
and as well argued by Pisano (2006) and Chesbrough (2010). In this case
however, DS has been able to simply overcome all potential resistance through
hiring and creating a new team of managers. In the liberalised part of the
company a new CEO was hired as well as a lot of new manager positions was
created, thus meaning that the managers have been able to come in with a rather
"fresh" view on things which could be argued to have had a significant positive
effect on the company's readiness to undergo changes. Therefore, DS seems to
have avoided classical barriers through new management, but it could also be
argued that the separation of the companies has played a significant role. Today
the part of the company operating on the liberalised market has been able to
incorporate a large amount of changes, however, you could suspect that if the
companies had not been separated as clearly, DS could have been facing some of
the problems above. The alteration of management positions is also addressed as
being an effective way of overcoming potential barriers to change, and is
mentioned as one of three tools to overcome these by Chesbrough (2010). An
interesting concept that can be linked to the case is that of an "identity trap"
which can hinder progress and change due to the fact that a company has a
strong sense of identity which it fights to stick with (Bouchiki and Kimberly,
2003). DS historically has a very strong identity as a responsible company
serving the people's interests and their slogan "for benefit and joy" somewhat
supports this picture. Therefore, naturally it could be feared that this identity
could cause a barrier to change and that part of the organization would be
resisting. What can be inferred is that again the separation of the activities into
different companies operating on different markets could have helped overcome
this barrier. Since a new branch of the group was founded, they have had time to
build their own identity and since the old monopolistic branch was separated as
well, this part of the organization does not necessarily have to associate itself
with the liberalized branch and their values. In DLI the CSR-strategy now plays a
larger role helping employees not loosing the sense that they are here to do good,
and this can also be said to have helped DS maintaining an overall identity similar
to old times, thus enabling them not to fall into the identity trap.
40
5. Discussion
The last part of this paper will be discussing the findings made in the study as
well as a discussion of the structure of the case study. From this discussion, it will
furthermore be discussed how theory has seemed to fit with the particular case,
and whether or not there have been pitfalls and lack of theoretical framework to
use as an analytical tool in this study. Furthermore the section will round up by
drawing conclusions on the study as a whole and answer the questions proposed
in the introduction of this paper.
5.1 Discussion of the findings
Generally the biggest insecurity inside the case is the level of abstraction needed
to develop a BM framework. By this is meant that it can be a rather tough job to
develop a precise and clear framework as to what the BM actually looks like. This
has particularly caused problems with regards to mapping out what the BM
looked like prior to the liberalisation. Since it is no longer a part of the everyday
life in the company, and it is a rather complex notion it can be a hard task
determining whether or not the data put into the framework is sufficient or
reliable. Since knowledge about what your BM may look like is not written down
anywhere, we can discuss whether the picture that has been painted of the preliberalisation BM is actually complete. The concern is that the employees and
managers may not entirely remember the old situation in detail and therefore,
they can miss out on important elements. In contrast the updated BM canvas has
been developed by a larger group of employees who are all engaged in the
company's processes as of right now, and can therefore go into concrete detail.
There is no doubt that this has influenced the "completeness" of the preliberalised canvas, but on the other hand this is almost inevitable since we are
dealing with a complex notion that is not even recent since even if you were to
gather more data from a larger group of people, differences in perceptions of
what were important factors may have played a role, thus making the picture
more blurred. Therefore, it was chosen to have only few people describing the
canvas, and thus inserting data in the framework that could be used to actually
compare the two situations before and after the liberalisation. But no matter how
this task had been gone about, the discussion of this problem was inevitable and
41
has to be assessed by the individual researcher. It can be discussed how much
actual innovation went into developing a new BM. Since changes were forced
upon the company externally, you could argue that the innovation that went into
changing the BM were a result of this force and rather made out of necessity than
actual innovative thinking. Whether or not the changes in DS can be categorized
as true innovation can be discussed, but whether or not there have been changes
cannot. And in order to incorporate changes, it is required that some parts of the
organisation have the ability to think in new directions. Further you could argue
that even though external changes were forced upon the company, it did not
necessarily imply that DS would change things as fast and in the particular way it
did. We could thus have been dealing with the case of an old state-owned
monopoly that did not have the willingness to change and adopt to the market,
and therefore were now performing poorly and loosing market share. Therefore,
the case definitely has its relevance in terms of comparison to different case
studies, and it can be acknowledged as being the same sort of innovation as in
other cases. Although this argument justifies the use of theory developed to
analyse BM's and BM innovation, it cannot be neglected that this particular case
also has some sort of oddness to it.
Perhaps what a great deal of the findings are actually inferring is that changes a
long way down the road boil down to the abilities of managers and their
readiness to change. As shown in the analysis DS overcame a big part of the usual
barriers through simply selecting the right management structure and through
hiring the right people to implement the new structure. There is no doubt that
management decisions have highly influenced how changes have been dealt with,
but what the paper is also inferring is the inter-connectivity of changes. What we
saw was that when revising a BM, in order to change fundamental parts of a
companies' BM other changes must be made in order to actually sustain the
fundamental changes proposed. Therefore, changes cannot be seen as static
individual events but rather a chain of phenomena that are highly correlated with
each other when dealing in the domains of BM revision and the field of
innovating a companies BM.
42
5.2 The theoretical fit
It can therefore be discussed whether the case was actually ever a great match
for theory. The case can be described as being quite odd since the external
changes were actually influenced by themselves. The case seems to fit some
theories better than others. For instance the frameworks like the BM canvas
seem to have a great fit, since it has been somewhat straightforward to obtain the
data needed to even make this theory say something about the company in detail.
However, part of theoretical framework does not seem to really match the case
all that well. Since most theory is designed to infer things about a variety of cases,
it causes problems in that some theory simply lacks the ability to actually work in
depth with a case. For instance a lot of the theories aiming to describe ways of
innovating your business model can be too broad to actually have the ability to
specifically analyse in detail which changes have been made. It is therefore
combinations of theories have been chosen, in order to best help analyse the case
of DS. Since analysing change is a rather complex thing, models need to have in
mind that they may not be able to describe processes in the required detail to
actually infer anything crucial about the case. It can thus be preferred to use
broader models such as the BM canvas and Cavalcante et al. (2011) to help the
overall understanding, and from these see the process of change as a complexity
so abstract that detailed descriptions and comparison is needed to ever imply
anything about the process of change.
This paper thus implies that an over-use of meta models to describe a process
can be lacking vital perspective since these can often fail to describe the complex
process that change is. An example is the models mentioning very specific ways a
company can change its BM, simply failing to at all fit the case and even if there is
a slight fit, there is not enough detail to actually infer something significant which
can be at use. It is thus more effective to analyse changes through the connection
of events and thus investigate the "why" of the changes, instead of striving to fit
your findings into predefined models. Based on the above statement the findings
in this paper thus support viewing changes on a higher level and from that
framework analyse the specific case through this perspective. I will thus hope
that the future research and frameworks developed will be able to be applied in a
43
broader range of cases such that the process of change and innovation can be
more generalized, however, still taking into account the uniqueness of the
particular context inside a case. Since we are dealing with a very complex
process, rigid and narrow theories will not be able to serve a broad purpose.
However, this do not suggest that specific theories on change is never useful.
Specific theory could be useful if it is somewhat related to a different subcategory of cases or has significant similarities with the case. For instance the
experimentation approach from the Naturhouse study (Sosna et al., 2010), can be
very useful, however, it implies that there is an actual case in which the theory is
applicable. The same goes for theories developed by Geisen et. al. (2007) and
Amit and Zott (2012) since they are definitely applicable and relevant but need a
specific case fit to ever infer much about the actual case. Theories that have a
greater fit for the purpose of our case are for instance Santos et al. (2009)
proposing a dynamic view on change through organizational dynamics. Theories
like these are more applicable to the DS case since they work as broad
frameworks, in which you can insert data specific to the particular case. Other
examples of theories fulfilling these characteristics are Doz and Kosonen (2010)
and Bock, Opsahl & George (2010) (besides already mentioned Cavalcante et al.
(2011) and Ostenwalder & Pigneur (2010)). Through the emphasis on theoretical
tools like these a case study can be conducted without the loss of context, and
thus the practical applications.
To sum up the discussion it can be argued that the case shows us that
generalizing particular ways of changing a company's BM can be dangerous since
trying to fit the process into already developed framework can blindside us as
researchers. The case further implies that with the right mind-set from the
management, barriers of change can be overcome, however, it requires
awareness of the issue and a structural setup that can carry the process of change
without falling apart. Although the odds seemed to be against DS when their
monopoly days came to a hold they had the willingness to adapt to the new
situation rapidly, and have been very successful in implementing the first wave of
changes to follow the market. Whether or not this readiness for constant
alteration will stick is going to be interesting to follow. It is likely to be needed.
44
6. Conclusion
The paper began by asking how Danske Spil had changed their business model to
cope with the market liberalisation. It is this question that the paper has tried to
provide a thorough answer to, and through the analysis of the findings, the paper
can now conclude:
First, that DS did in fact have to change their BM to deal with the changes. These
changes included altering the business processes in nearly all areas, although
some more drastically than others. The changes spanned from adding activities
to changing already existing processes. The changes can be said to have been
rather fundamental and radical since the main focus of the company shifted into
being purely profit oriented, inside the part of the company operating on the
newly liberalised market. The main changes occurred in the key activities and the
value propositions of the BM
Secondly, the kind of changes implemented followed a pattern of BM revision.
The changes consisted of changing core processes, which pointed to the
conclusion of BM revision, although a lot of the changes were made through
adding new activities to the BM. This paper has contributed with research on
what elements can play a role when companies are seeking to change their
business models through revision
Third, the changes can be described as a "chain-phenomena" in which overall
fundamental changes worked as a catalyst for changes on the micro level. This is
thus the overall description of how changes have behaved in this case, and the
paper further argues that the changes cannot be seen as static entities since they
do not necessarily behave in a specific way or order. This is truly a highlight that
should be taken from this paper if ever used in further research.
Fourth, the paper found that management played a large role in overcoming the
potential pitfalls and barriers associated with the process of changing a firms BM.
It was through a structural change in how management were put together and an
overall change of the company's structure, which led to the breaking down of the
potential barriers and avoiding resistance from the organization.
45
Fifth and last, the paper has contributed to the discussion of what sort of theory
should be developed in further research, in order to serve the demand of future
case studies and to be applicable to practitioners. It is argued in the paper that
scientists should avoid the trap of fitting their findings into too many specific and
predefined models. They should instead seek to use broader theoretical literature
and from this derive specific knowledge about the case through comparison and
discussion thus avoiding the loss of context.
The author of this paper hopes that the research presented can further
contribute to the field with research inside the field of BM innovation and the
change process. Nevertheless, the paper has provided research contributing to
the process towards creating a stronger theory-based approach in the future.
Hopefully, the paper has also eliminated some of the abstract thinking
surrounding part of the field and presented findings in a clear and direct enough
way such that not only abstract-thinking scholars will be able to benefit from the
research conducted.
6.1 Limitations of the study
Since this study has been done as a bachelor’s dissertation there are some
limitations worth mentioning. The main limitation has been the time-constraint.
Since the timeframe for the research has been limited to three months it has not
been possible to follow the process over a longer period, thus ruling out the
opportunity of doing a longitudinal study. Another limitation has been a limited
amount of characters available for use in the paper. Although it has helped
narrow the subject down it has also implied that the full scope of the paper has
been narrowed a bit, meaning that certain possible focus points and perspectives
have been ruled out in advance, due to the constraint regarding space. The
limitations of this study also make it relevant to address some further research
that can be done with regards to this case and hopefully this paper will have laid
the groundwork for such potential studies.
46
6.2 Suggestions for further research
Since it is the author's belief that we are truly dealing with an interesting case it
is the hope that researchers may conduct further studies. An interesting angle
could be on the cognitive aspects such as the loss of an old identity or looking
further into the behaviour of employees after the changes. This is interesting
since DS historically has had a strong identity, and this paper found some
evidence that there may have been a barrier here although it is far from a
conclusion. Another perspective could be a study purely focussing of how the
management has acted to implement changes and their general role in the
innovation process. As the study finds, good management has played a vital role
for the changes to be successful, and a further analysis in the area of changemanagement may provide more thorough and in-depth results. In less related
fields it could be interesting to investigate how consumer perceptions have
changed due to the BM change, or inside the field of economics where the
transition from monopoly to perfect competition could be looked upon.
6.3 Acknowledgements
First and foremost, a big thanks to Danske Spil and especially Ditte-Maria Heide
Kristensen who has acted as my contact person during the research period.
Without their openness and large engagement the results in this paper may not
have been as concise and, conclusive. Secondly, a big thanks to professor Peter
Kesting for his supervision and general sparring on this paper. Without his
knowledge and guidance this research had not been possible. Last but not least, a
thanks to my co-students with whom ideas and thoughts has been tossed around.
47
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8. Appendices
The original inter BM Canvas developed by the employees of Danske Spil.
Source: Danske Spil A/S
55
Financial figures from years 2009 to 2013.
Source: Danske Spil A/S
Interviews can be found on the USB handed in with the paper.
56