Changing Business Model dynamics by means of Social Media

S. Rodriguez-Donaire1
Department of Management, Technical University of Catalonia, ETSEIAT-UPC, Barcelona, Spain (silvia.rodriguez.donaire@gmail.com)

Abstract - The aim of this research has a two-fold objective. On the one hand, it attempts to assist employers of Catalan micro-retailers in designing, implementing and developing their Social Media strategy as a complementary channel of communication. On the other hand, it attempts to contribute to the research community with a better understanding on how a set of mediator variables incise in the transformation of the activity system of the microretailers Business Model. Keywords Social Media, Web2.0, Business Model, Small-Medium Enterprises (SMEs)

I. INTRODUCTION Currently, Business Model (BM) literature sees the consumer as a simple buyer of products. Some researchers with the emergence of the Web2.0 technologies, referred as Social Media [1], refer to the role of the consumer as an active player in the BM (e.g. [2]) that participates in the redefinition of some activities of the business (e.g. [3]). On the one hand, Social Media makes the interaction of the consumer on the activities of the BM obvious as a player, a partner or a participant in the redefinition of the activities of the business. On the other hand, to implement Social Media within the business, the employer needs to acquire specific knowledge and to understand that the desired transformation requires efforts, implication and continuous adaptation to change. So, the use of the Social Media is an element of change in businesses. However, the research on this topic is limited. The paper seeks to shed light on which mediating factors facilitate the transformation of the micro-retailer BM, allowing the emergence of a new Participatory micro-retailer BM. This research has been conducted via Participatory Action Research (PAR) Methodology, which contribution has two-fold: one is a more practitioner and the other is more academic. An incipient transformation on the BMs of the microretailers is observed. This transformation is motivated not only by the definition and implementation of the Social Media strategy, but also by a number of mediating factors. The results show that some mediating factors facilitate the transformation of the studied micro-retailers BM such as the ability of learning included in the cognitive framework (past experiences and relationship with the

environment and family context), the effort made to design and implement the Social Media strategy, the dynamic capabilities they posses and partially the time of Social Media implantation. The incipient transformation stage of the microretailers BM sample can be justified by a lack of effort made, by the fact of it being a Small-Medium Enterprises (SMEs) and by not always having a team easily adaptable to changes, as well as, the short time the social tool has been implemented in the business. This paper develops as follows. Firstly, the internal and external pressures that transform the BM is presented. Secondly, the Participatory Action Research (PAR) methodology and its limitations, as well as, the design of the strategy followed used are explained. Thirdly, the story of the five case studies used as a sample to assess the micro-retailer business model transformation is explained. Fourthly, the observed transformation regarding on the strategy design implementation is discussed. Finally, a briefly summing up of the paper as well as further research have been highlighted. II. INTERNAL AND EXTERNAL PRESSURES TRANSFORM BUSINESS MODELS The mid-1990s was a period of cultural change called the New Economy [4]. The broad claims in this period were that the Internet and the World Wide Web (WWW) had rewritten the basic rules of the economy and hence made novel strategies for commerce possible [5]. Particularly, the BM concept has acquired prominence in the lexicon at the end of 1990s with the emergence of new business at the Internet era (ecommerce), even though the origins of the expression BM can be traced back to the writings of Peter Drucker [6]. Later, [7] defined a BM as stories that explain how enterprises work (pp.87). In short, what business does and how businesses make money. Businesses are transformed by the way not only they create and capture value, but also how they face external pressures from markets and technology that are key drivers of BM transformation. A. Business Model In the 2000s, BM concept had essentially been related to value creation and appropriation in the management community. For instance, [8] tried to highlight the drivers of value creation of a firm (novelty, lock-in,

complementarity and efficiency) by analyzing a sample of 59 American and European e-businesses; [9] tried to emphasize the blend of the value stream for buyers and partners, the revenue stream, and the logical stream (the design of the supply chain); [10] tried to stress the operating BM that explains the firms core logic for creating value for the customers within an organization; among other authors. Currently, BM is essentially a matter of value and revenue generation. According to [11], BM is defined as the choices made by an organization (whether for profit or not) to generate revenues in a broad sense (turnover but also royalties, rents, interests, subsidies). These choices encompass resources and competences to value, products and/or services supplied and the internal and external organization of the business. In addition, [12] defined a BM as a set of choices made by the firm and the set of consequences derived from those choices (pp. 2). Of course, choices are relevant since they identify the way the management would like the firm operates. In sum, these definitions of BMs share an emphasis on how a firm makes money through the configuration of value chain [13], the formation of strategic networks among firms [14], or the exploitation of firm-specific core competences 1 [15]. Elements that affect firms possibilities for value creation and value capture as well as for learning. Additionally, it has to be taken into consideration that businesses are also continuously facing external pressures from markets, technology and regulation, which are key drivers of BM transformation. B. Web2.0 technologies, Social Media According to [16], almost all the companies of its sample make adjustments to existing BMs in order to deal with new technologies or customer needs. Recently, according to [17], customers have become the primary force behind digital transformation in all industries, since they have higher access to online information through different channels increasing their expectations. At the beginning of 1990s, [18] described the web as a collaborative medium, which allows information providers in remote sites to share ideas without boundaries. Initially, Internet was focused on the command and control of information itself that enabled daily communications and increasingly cheap ways to transmit large amount of one-directional information. David Weinberger, one of the authors of the Cluetrain Manifesto [18], suggested that a new wave of Internet would allow users keep conversations that they simply never could have done before. The main difference between this new wave of Internet and the old one is based on users participation. OReilly [1] officially introduced the term Web2.0 as a set of online web-based
1

collaborative tools, commonly referred as Social Media, that encourage and enable people to interact, communicate, participate, collaborate, share, create, add to and edit the information easily and in real time. For instance, social networks like Facebook, blogs, wikis, RSS (Really Simple Syndication) feeds, etc. According to [19], Web2.0 fosters fundamental changes in consumer behavior and enables business efficiency. Social Media enable consumers interaction with content and with each other whenever and however they like. Additionally, these tools enable firms to enhance stronger relationships with their customers, improve their loyalty and redefine their business relationships. As a result, Web2.0 technologies are making human-centric processes more efficient and flexible by not only providing easy access to data, content, and co-workers expertise, but also allowing businesses to make better decisions. Particularly, the ability to collaborate with users may be a competitive advantage as the ability to deploy the Web2.0 technologies. So, businesses are transforming BMs activities concerning value creation and value capture, firms positioning, value network, competitive advantage and open innovation [20]. C. Catalan Micro-Retailer framework A large number (around 85%) of Spanish SMEs are family businesses and some 66% of them are located in Catalonia. These SMEs are very important to the Catalan Economy because they account for 81% of Gross National Product (GNP) compared with only 19% for large companies. Due to Internet expansion, the Web2.0 phenomena and the new pattern of consumer participation, companies should promote a change in their operative processes in order to adapt to those changes. According to the study "Barometer of Catalan Family Businesses [21], employers recognize the importance of innovation and adaptation to new market environments and the lack of definition in their business model management. Although the research is focused on Spain, specifically Catalonia, this situation is similar across the world. For instance, it was in 1999 when The Economists (June 1999), entitled Business and the Internet: The rise of the infomediary, article said that most bosses know what they should be doing regarding having presence on Internet, but have not yet got around to it. It is easy to understand why. Knowing that you need a coherent ebusiness strategy is one thing, getting one is altogether more difficult. And until you decide precisely what your strategy should be, it will not be clear what kind of IT infrastructure investments you will need to make. Currently, the special report on social networking at The Economists (January 2010), entitled A peach of an opportunity, small businesses are using networks to become bigger, highlighted a survey of 500 small businesses in America conducted by Citibank on October 2009 found that most of them had not use online networks at all, because they thought they would be a waste of time.

Core competence will be called distinctive competence only if they are based on a collection of routines, skills, and complementary assets that are difficult to imitate. (Teece et al., 1997)

Some of these thoughts are common today in Catalan micro-retailers as well as small American companies. These also could be explained through the literature, since SMEs are perceived as being limited by resource constraints [22], especially in terms of human, organizational (size and lack of procedures) and financial ([23] and [24]). According to [25], although SMEs are being limited in terms of resources they rely on the personal involvement of the entrepreneur to effectively deliver their business concepts and the meaning of their transformations to the market. III. METHODOLOGY The research has been conducted as an epistemological study that attempts to describe and understand the influence of Social Media on family micro-retailers (2-3 persons) by actively participating in the research process and designing and monitoring the implementation of the situation using Participatory Action Research (PAR) methodology. Due to the author involvement in all the phases of the project and the close friendship with the employers involved, she may bring certain biases to this research. Although every effort will be made to ensure objectivity, these biases may shape the way she views and understands the data she collects and the way she interprets the strategy implementation experiences. For this reason, a second researcher has been involved in the transcription of the interviews with the micro-retailers and results discussion. A. Study Research This research is focused on businesses in the municipality area of Cerdanyola del Valls. Cerdanyola is a small town near Barcelona, Spain, with nearly 59,000 residents. Currently it has four Local Commercial Associations, one of them being part of our research, called lEix Comercial Estaci Centre Cerdanyola. Its main aim is to change the perception of consumers of all the shops that belong to the Association and see them as an open shopping center and bring consumers closer to the shops that belong to the Association by offering promotions and actions within the metropolitan area of Cerdanyola. At the end of 2009, due to the crisis and exacerbated by the new buying trends of the user, lEix along with other Catalan institutions - Generalitat de Catalunya and la Cambra de Comer de Catalunya -, have signed a collaboration agreement to promote actions to improve competitiveness and business services for SMEs in the town of Cerdanyola. To promote these actions, the Association has designed an action plan that seeks to stimulate commercial activity in Cerdanyola, including training courses, individual and personalized expert assessment for the interested retailers of the Association. To carry out these activities - design, implementation and assessment of the social media strategy -, the

assistance of the author was requested, assistant lecturer at the Technical University of Catalonia, UPC, specifically from the School of Industrial and Aerospace Engineering of Terrassa, ETSEIAT. The authors task is based on instructing, advising, assessing and motivating lEix, as well as, its interested retailers in the design, implementation and monitoring of the social media strategy. Specially, the Association came to the author because they were concerned on both the fast-changing environment due to the appearance of the Web2.0 phenomenon and the new trends in customer purchasing. Specifically, this research involves four micro-retailers (23 employees) and the Local Commercial Association, lEix. B. Research Design: Social Media Strategy The author will conduct a serial of training activities related to Web2.0 and social media strategy design, giving expert advice and collecting data (forms, surveys and interviews) in all the 6 different steps of the PAR process (fig. 1).

Fig. 1. Participatory Action Research Process (source: by the author).

Specifically, the training activities are related to: (1) raise awareness about the changes in the pattern of customer participation and how companies are changing their way of doing businesses through the use of Social Media; (2) explain what Web2.0 is and its benefits; (3) explain the design of the social media strategy to follow; and (4) explain which type of Web2.0 tool is the most appropriate for each case and its deployment. The author advice attempts to (1) help in designing each specific Social Media Strategy in each microretailer, and (2) follow up on the design of the Social Media strategy and its implementation. The data was collected from April 2010 through June 2011 along the 6 steps of fig. 1. The type of data collected was mainly structured and unstructured open-ended interviews to the employers, which have been recorded and transcribed. This included one questionnaire after each training activity, three recorded face-to-face

interviews during the Social Media strategy implementation (one at the beginning and two at the end of the process) and an active observation of their social media actions through their Web2.0 tool of communication. From the interviews the author obtained relevant information about the story of the micro-retailers both before and after the research process was implemented. Fig. 2 shows how the data analysis procedure was conducted.

Some authors emphasize the importance of clearly defining what is wanted to be achieved before designing the strategy to choose Web 2.0 technologies. Companies that do not properly plan their strategy are quite likely to fail when executing the implementation of social media tools.

Fig. 3. Design of the Social Media Strategy (source: by the author). Fig. 2. Data Analysis procedure.

It is important to be aware of the practical limitations that are inherent in a PAR research. These are real situations in which people are absorbed with solving immediate and pressing problems. The pressures to achieve results are great, and the researcher can seldom grant him long pauses to think or extensive data collecting without the utilitarian value being clear. According to [26], this suggests selecting simple designs and methods that serve several ends, as in our research design. Additionally, involved researchers can often be so trapped by the situation and it may be difficult to get an adequate perspective on what is happening. In such cases, it is an advantage to have ready-established structures that ensure that one is confronted by other experienced researchers. This research has confronted this case interpretation with an experienced researcher who makes contributions, provides and contrasts the assumptions and interpretations and addresses the unestablished structures. C. Design of the Social Media Strategy

As the fig. 3 shows the eight steps required to design the Social Media Strategy according to the author. These steps are: identify online audience, specify online objectives, choose a realistic strategy, select appropriate Web2.0 technology and measure the achieved objectives. IV. STUDIED CASES The sample of this research is four Catalan SMEs as well as LEix Comercial Estaci Cerdanyola Centre Village Association. A. LEix Local Commercial Association (1987-2009) LEix is a non-profit village association, which attempts to enhance the commercial activity at Cerdanyola del Valles. It includes more than 100 establishments, which offer expertise, excellence and close commercial service. The set of establishments are placed on the metropolitan area of Cerdanyola and they attempt to re-create an open-air mall at Cerdanyola. B. Grau Gent Fashion Show Shop (1986 2009)

Based mainly on [27], the author has designed a general Social Media Strategy which encourages businesses to start with a specific initiative, a well-defined audience, specific goals, choosing a realistic strategy, and selecting appropriate technological tools. Nobody has yet established a general design for it. The designed strategy is a back and forward process, as each business requires its own strategy based on a trialand-error learning [28]. The strategy follows the Deming cycle (Plan-Do-Check-Act), since the businesses have to follow four stages: (1) design the strategy, (2) select the social media tool and implement the designed strategy, (3) measure the proposed goals, and finally (4) compare the desired goals with the attained results and suggest improvements (see Fig. 3).

Grau Gent is a family business that came from a small shoe store placed at Ripollet with a big warehouse. Later, it acquired two renting shops at Cerdanyola, one was the current shoe store. Grau Gent business has been evolving up to day, and now it is in a wide fashion store without warehouse. It is focused on youth fashion women (20-25 years old) that will not spend more than 50 and older people that are looking for comfort. Everything at Grau Gent is seen at a glance. Customers can try on one shoe and ask for the pair. Its friendly atmosphere characterizes the shop. Customers can request freely for advice to find what they are looking for and what fits better on them. Additionally, it has a swinging mammoth to entertain customers children that creates a comfortable

atmosphere among customers when they are making their purchases. C. Torre del Pi Hardware Store (1965 2009) At 1965, Torre del Pi, a family business, was formed by three establishments around Cerdanyola del Valles (Ripollet, Cerdanyola and Les Fontetes). At the 1980s, Miquel and his brother acquired one of the hardware stores, the one that was placed on the middle of Cerdanyola del Valles. The other two were closed after three years of the transfer. During these 30 years, the hardware store has evolved to as a domestic store, even though it has maintained the industrial style from its origins. It stresses its personalized advice since the store wants to help people and solve customer problems we dont sell power drill at our store, we sell holes to put your picture. This closer treatment increases customers loyalty, because as Miquel said he wants that when customers have a problem think on you. Additionally, Miquel pointed out that proximity stores have to differentiate themselves by service and not by price. Thus, the main difference between malls and proximity stores are based on their service and qualified employees. D. Florist Morera Shop (1949-2009) Florist Morera stays in its fourth generational grade of family business. It is placed on the center of Cerdanyola del Valles without warehouse. The owner noticed that the audience was looking for advice, transparency and personalized treatment. To add value to its product and engage customers, Morera family sells innovative florist products with competitive prices. Additionally, the way they manipulated the flowers and its excellence of service increase the loyalty of its customers. However, they try to offer good, nice and cheap products for all the customers. During its 61 years of story, they have been evolving up to day and they have learned that everything has to be seen at a glance, because the half of its sales are compulsive. E. Centre Optic Cerdanyola Shop (2008-2009) Centre ptic Cerdanyola (COC) was transferred in September 2008 to the current owner, Yolanda Flores. The store was originally part of a group of optical stores under a different name and using a promotional model. This store differs from the others as it offers complementary and personalized services. These complementary services are special in that they require specific training and are in many cases carried out by ophthalmologists and highly specialized centers. They include visual training therapy for children or special contact lenses, which eliminate myopia during sleep and are offered as individual sessions throughout the stores opening hours. Regarding personalized attendance, Yolanda highlights her philosophy of not entering in a

pricing policy as her main interest is to retain an audience which values her tips, advice and information on the use and care of the glasses, lenses and accessories. Other elements, which added value are the location, offering exclusive products and visibility in the window allowing consumers to see what is on display. Despite not entering into a pricing policy, it offers competitive prices, which are even below the suggested retail price. This is possible since they have always formed part of an association called CECOP, which offers a group of certain brands with special discounts and deals. The only existing communication channel until now has been the mouth-to-ear, which has helped spread the brand in the town of Cerdanyola over that year. In addition, some suppliers have included COC in their websites within their list of stores selling the products. V. RESULTS To explain which mediating elements help to explain how transformation on micro-retailers are actually achieved, a set of elements related to company strategy and capabilities and/or resources were needed. They have been extracted from the results during the implementation of Social Media Strategy at the research sample. Table I relates the key points of the different cases studied. Each marked item indicates a factor, which has negatively affected the micro-retailer in the achievement of the strategy implementation. The first six points in Table I show a set of items which refer to internal capacities of the company such as available time and resources, technical skills, support, complementarity and the level of team support in the company. The remaining points show a set of items, which help to improve the Social Media Strategy designed. TABLE I FACTORS THAT NEGATIVELY AFFECT STRATEGY ACHIEVEMENT
Micro-retailers EIX Florist Hardware Shoe weaknesses shop INTERNAL CAPACITIES Level of team x x x involvement Lack of employees x x with technical skills Lack of available x x time Lack of available x x x resources Lack of support x x within the company Complementary x x people SOCIAL MEDIA STRATEGY DESIGN IMPROVEMENT Redefinition of x x objectives without a key objective Lack of alignment x x between objectives, actions and emotive thread Lack of a capture x x x technique COC x x x x x x x x

Lack of a story (value x x offering) Lack of a dinamizing x x action schedule base Focused on click for x a gift campaigns Lack of a website x x giving continuity to the activities and content Sources: Cases lesson learned (author dissertation)

x x x x

x x

intensity of change as a result of the introduction of social media tools in the Catalan micro-retailers BM. Table II shows the results from this last interview in reference to the seven mediator categories before. TABLE II CATEGORIES MEDIATING INFLUENCE OF THE TRANSFORMATION
CATEGORIES Ability of learning Firm size Dedicated efforts Time of implantation Environment Dynamic Capabilities Cognitive Framework Real average 2.522 2.400 2.822 3.000 3.844 2.578 2.667 Ideal average 4.200 2.867 4.311 4.289 2.600 4.222 3.600 Difference 1.667(*) 0.467(**) 1.489(*) 1.289 -1.244(**) 1.644(*) 0.933(**)

Most of the items related to skills and/or resources, i.e. the first six points in Table I, are related to the obstacles identified by [25] and [29] in SMEs such as financial constraints, small size, lack of expertise, scarce use of specialists, efforts and processes. Items related to internal factors of the company are facilitators of change. They are grouped into three categories (dedicated effort, the ability of learning and dynamic capabilities). This categories help to explain the transformation of the micro-retailers BM beyond that of a correctly designed and implemented strategy. Thus, the transformation of the micro-retailers BM is motivated both by implementing social media following a strategy (Part 2 of Table I) and the mediating factors (Part 1 of Table I). To explain to what extent mediator elements are of influence, seven categories have been built and asked in the last interview. Some of these mediator categories are formulated from the detected elements in Table I. Environment refers to the evolution of the sector in financial, legal and technical terms. Implementation time refers to the time using a social media on the Internet (in most cases, Facebook). Company size refers to the size of the company (less than 5 workers is considered micro-retail, however, more than 10 workers or 3 outlets considered SMEs). Dedicated efforts refer to the time, actions and resources to carry out the implementation and development of the social media strategy. Dynamic capabilities refer to the strategic capabilities of the firm which help to modify the company structure by combining resources, such as support, complementarity and the level of team involvement of the company, in order to adapt to change in a flexible and quick way. Cognitive framework refers to the set of past experiences and relationship network. Ability of learning refers to the ability of the team to adapt to changes such as technical ability or willingness to learn. In the last interview, the author asked the incidence of each of the above categories. On the one hand, the author asked the incidence these mediators could exercise in their particular business. On the other hand, she asked about the impact of these categories if they had all the resources necessary to successfully implement the Social Media Strategy. These categories seek to explain the

Table II shows the averages of the real and the ideal case, as well as their difference. Differences greater than 1.4 are marked with (*), giving us information on that a transformation in the micro-retailers BM has occurred, while differences of less than 1.2 are marked with (**), not giving us information that any transformation has occurred. A difference between 1.4 and 1.2 means the micro-retailer entrepreneurs have not found it important to see it as a facilitator of change. As shown in Table II, to explain the transformation of the business model only some of the mediator categories, such as the ability of learning, the dedicated efforts and the dynamic capabilities, are helpful. On the other hand, it has been observed that the implementation time has a certain incidence on the transformation of the business model but to a lesser extent. However, the size of the company, the economic environment and the cognitive framework do not influence the transformation of the micro-retailers BM. In particular, the cognitive framework has been interpreted as the ability of learning. VI. CONCLUSION From PAR the author has found facts on the transformation of the micro-retailers BM as a consequence of the implementation of social media. Because of the structure of the Catalan micro family business, the transformation observed is scarce. However, it is significant enough to be considered as more than just a simple adoption of an alternative way of communication. From the research, the author has found evidence that the transformation of the micro retailers BM is motivated not only by the implantation of the social media following the designed strategy, but also by mediating factors such as the ability of learning, dynamic capabilities, effort made and time of social media implementation. These mediating factors are related to the capabilities and/or resources of the company. They help us to explain the transformation of the micro-retailers BM beyond the implemented designed strategy. These facts help us to understand how the social

media transform the way micro-retailers create value in a broader dynamic ecosystem and without zero-sum games. This transformation leads to a Participatory Business Model, which is driven by (1) the dynamic capabilities, (2) the ability of learning, (3) the effort made, (4) the implementation time and (5) the customer participation. Therefore, the Participatory Business Model has been achieved by: (1) adapting their value proposition by reconfiguring strategy development in order to remain competitive; (2) possessing strong sensing capabilities in order to identify relevant changes in their environment, listen to customers and acknowledge these customers power of participation; and (3) developing new capabilities, e.g. technical, which allow micro-retailers to adapt different ways of delivering and receiving information. Particularly, the defined Social Media Strategy helps the employer in the task of defining, planning and verifying the achievement of the planned objectives as well as implementing the social media. That is why we believe the employer finds the following up of a planned strategy as extremely helpful. It also helps the design of an action plan and a clear view of the objectives to be achieved. The definition of a Social Media Strategy, however, is not enough to lead to the micro-retailers transformation. Micro-retailers consequently need other mediating factors that help them in the change. This research was carried out for approximately 14 months. This period has been enough to observe and understand how the transformation of the micro-retailers BM is made. However, to be able to see the consolidation of this transformation as well as the influence of the customers in the businesses, the author would need to continue evaluating and measuring the development progress of the social media strategy, since it is a trialand-error process. Four further research areas have been identified: (1) conduct a quantitative study with micro-retailers to test mediator variables and customer participation influence in the BM activity system; (2) conduct a longitudinal PAR in order to observe the consolidation of the transformation inside the BMs of the current micro-retailers; (3) contrast the results obtained with the PAR methodology with other successful cases such as La Fornal del Ferrers; and (4) assess what differences are observed when using the same Social Media Strategy definition with medium-sized companies, like La Fageda and La Fundaci Tallers. ACKNOWLEDGMENT The author thanks the participation of the five Catalan Micro-retailers employers as a sample of my dissertation, especially to Jordi Morera, President of the Local Commercial Association. Especially, I would like to acknowledge Professor Garcia-Almiana for his support and motivation through all the development and review of my dissertation. Finally, I thank the unconditional

motivation of my family all over the process and my supervisors inputs, advices and feedback.

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