Purdy, Robinson, and Kuangyi (2012) described three new open business models emerging in the U.S. economy. The models include the harbour and fleet, demand forum, and the multivalent sourcing models. The idea behind these models is for openness to maximize benefits while limiting risks, and to achieve competitive advantage.
The harbour and fleet model offers a mooring of firms for economic gain much “like a fleet of ships in a seaport” (Purdy et al., 2012, p. 36). Small and medium-sized businesses that keep their fixed costs low comprise the fleet. Keeping fixed costs low enables these firms to gain by offering favorable pricing to a large harbour company with excess capacity. A prototypical example of a harbour company is www.amazon.com. A harbour company has the advantage of buying and delivering products much more efficiently than competitors (Purdy et al., 2012).
The demand forum emerged at the height of the 2008 global downturn. The idea behind this model is to combine deals from a wide range of collective buying sites offering customers a broad range of products and services by bundling them. Yipit is a firm targeting deals for specific consumer groups from places like GroupOn and Tippr. Yipit is a clearinghouse that offers mutually worthwhile exchanges by matching buyers with sellers (Purdy et al., 2012).
(Purdy et al., 2012) described multivalent sourcing as a strategy connecting multiple bonds of stakeholders in production. The model controls the supply of materials, talent, innovation, and capital to develop informational exchanges and improve bargaining power over market inputs. Prime Advantage serves as an example. Prime Advantage profits by offering group buying services and negotiating discounts with different merchants. Prime Advantage is a subscription service offering members access to raw materials, components, and business services at reduced rates through a pool of suppliers. Suppliers benefit from access to a broader number of customers that pay a fee to subscribe to the service.
This model allows customers to overcome informational challenges in finding suitable source goods, services, capital, and ideas in an efficient way at low prices. Another benefit of this model is to connect innovators with firms that can use them in efficient ways (Purdy et al., 2012).
Advantages of the Open Business Models
Open business models have the advantage of scalability across borders by reducing barriers to entry into new geographic markets. For example, the harbour and fleet model standardizes logistical arrangements and keeps supply-chain risks to a minimum. The open business models allow companies to tap into global demand from expanded buying power. Companies have improved access to the factors of production allowing them to improve quality at a lower cost. Another advantage of the open business model allows companies to tailor the factors of production to business needs (Purdy et al., 2012).
Challenges of the Open Business Model
(Purdy et al., 2012) characterized the open business model as largely network-based. Because the open business model depends on a network, it carries a responsibility to pay close attention to the quality of the participants and their character to ensure cooperation exists. These relations are important for cross-cultural competencies. The firm must ensure it links the proper network participants with key customers.
A firm employing an open business model can face more complex demand patterns across borders than in the firm’s home market or in regional applications. However, a firm can overcome the problem by grouping customers according to buying power and cultural backgrounds. Another approach is for a firm to adopt a hybrid approach by setting up a physical presence to gather information and improve data analysis. Copying the model poses another challenge because it can cause a firm to lose intellectual property. A firm should consider the locality and its laws to prevent losses (Purdy et al., 2012).
The harbour and fleet model, the demand forum, and the multivalent sourcing model are some of the newest open business models sweeping the U.S. economy. Each of these models have advantages and challenges to consider before deciding on which is proper for a firm to employ.
J. Phillip “Phil” Harris, D.B.A.
Dr. Harris is the founder and principal of Acclaimed Professionals Group. Dr. Harris is an experienced business entrepreneur, a certified public accountant, and teaches at the University of Phoenix. He is also a member of Delta Mu Delta honor society and has a Masters of Business Administration in finance.
Purdy, M., Robinson, M. C., & Kuangyi, W. (2012). Three new business models for “the open firm”. Strategy & Leadership, 40(6), 36-41. doi: 10.1108/10878571211278877