A Business Model Competition Analysis – Focused … business model competition analysis is an...

A Business Model Competition Analysis – Focused on Cases of Korean Information Security Companies

1Dong-Heon Yang, 2Yen-Yoo You

1, First Author Doctoral student, Department of Knowledge Service & Consulting, Hansung University, Seoul Korea. [email protected]

*2, Corresponding Author Professor, Department of Knowledge Service & Consulting, Hansung University, Seoul Korea. [email protected]

Abstract

This research is a business model competition analysis to select the targets of benchmarking through a competition analysis. A business model competition analysis is an analysis on the competitors in the existing market by quantifying the relative efficiency of an evaluation index in a business model, and for a quantitative analysis, relative efficiency analytical tool, Date Envelopment Analysis (DEA) was used. This research has been performed as follows: First, through a literature review, the existing scholars’ researches were advanced to develop a competition analysis model using a business model. At this time, the evaluation index of the competition analysis model was defined as four fields: product (value proposal), customer (target customer, distribution channel, customer relations), company (core activity, core resource, key partners) and profit model (costs, profit) . Next, for an empirical study, a competition analysis was carried out on 12 enterprises of information security listed to the Korea Exchange. Through the results of the research, the targets of benchmarking by the four fields from the business model perspective were provided for the relative efficiency and new entrants between the existing enterprises in the information security industry.

. Keywords: Business Model, Competition Analysis, DEA, Information Security Industry,

Benchmarking 1. Introduction

Competitions in the business world take place in diverse forms from various competitors, and the challenges gradually increase. A successful analysis on business competition is a very important factor in determining how a company competes and provides values for interested parties [6].

Understanding the competitive composition and the type of competitors of the existing industry provides an opportunity for new entrants who are planning to enter an industry in which a high growth is expected while optimizing their competencies to the market. From this perspective, in the information protection industry, one of the most promising industries with the development of IT, an opportunity to enter the market can be expected. It is predicted that the Korea’s knowledge information security industry will have a high growth of more than 14% annually until 2016 and the business model competition analysis will be a good alternative for the company that plans to newly enter the information security industry.

For this purpose, this research developed a competition analysis method using the business model of information security companies based on the business model of information security companies by Fleisher & Bensoussan (2007) [7] using the existing six business model components by Chesborough & Rosenbloom (2002) [5] and proposed the targets of benchmarking for new entrants to enter the market. 2. Previous Researches 2.1. Business model

In recent years, a business model became the focus of considerable interest in both academics and practitioners, and since 1955, the publication in academic journals on business models have exceeded 1,177 [16]. The existing papers on business model have mostly researched the definitions of business model, components, classification systems, plan tools and evaluation methods [12]. As a result of an

A Business Model Competition Analysis – Focused on Cases of Korean Information Security Companies Dong-Heon Yang, Yen-Yoo You

International Journal of Digital Content Technology and its Applications(JDCTA) Volume7, Number13, Sep 2013

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analysis on the type of recently released papers, business models are divided into four types: new analysis units, the description of business methods of companies, the conceptualized corporate activities in the business models and the description of the method of creating values [16]. Here, what is noticeable is that the business models are gradually used as analysis and evaluation tools apart from the level of companies’ profit models, which is a result that proves that the business models have a room to develop into an analysis technique of management consulting. Research on business models used as tools of evaluating companies’ performances is as follows:

Recently, the Russia-food service industry carried out research on the business models and companies’ performances [11]. Hamel (2000) [8] and Afuah & Tucci (2001) [1] studied the evaluation and measurement of the business models. Hamel (2000) [8] insisted on business concept innovation and four types of components: customer interface, core strategy, strategic resources and value network of the business model, and four types of evaluation factors such as efficient, unique, fit and profit boosters. Afuah & Tucci (2001) [1] evaluated the business model at three levels: i.e. profitability measurement, profitability prediction and the measurement of business model component characteristics. Among them, the business model component measurement was carried out on customer value, scope, pricing, revenue source, connected activities, implementation, capabilities and sustainability. 2.2. Competition analysis of business model

Fleisher & Bensoussan (2007) [7] used business models as competition analysis tools. By examining the components of the business models in detail based on the research of Chesborough & Rosenbloom (2002) [5] in Figure1, which argued that a business model analysis provides a tool to quantify a business model that creates economic profits from a product or a service and plays a role in linking the social area in which economic profits are created to the creative zone in which products and services are conceptualized, they explained the reason why a consultant judges a specific business model better than other business models and argued that a more effective understanding of the correlations between economic profits and services will be possible. In addition, they insisted that a business model cannot exist alone, and it should be viewed through a lens of competition [7].

Figure1. Conceptual diagram of business model (Chesborough & Rosenbloom (2002)) [5]

Fleisher & Bensoussan (2007) insisted on the procedures of a business model competition analysis like Table 1. They carried out a competition analysis through an analysis on business model components and an overall analysis through 8 steps.


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Table 1. Competition analysis procedure of business model (Fleisher & Bensoussan (2007) ) [7]

Step Analysis procedure Step Analysis procedure

1 Clarifying value proposal 5 Value network evaluation

2 Clarifying the target market 6 Examination of profit model of the companies

3 Examination of the competitors 7 Examination of the core success factor of the industry

4 Evaluation of value chain and costs model

8 Preparing evaluation sheet

2.3. DEA (Data Envelopment Analysis)

DEA is a non-parametric method of measuring the relative efficiency of same kind of Decision Making Units (DMUs) that produces a large number of output factors using a large number of input factors based on Linear Programming (LP) [3]. The reason why the DEA has widely been used is that it is a measurement of the efficiency of the DMU with a value between 0 and 1, which can make an intuitive, easy-to-use performance analysis. Charnes, et al (1973) developed the basic DEA, a method based on an upfront programming through

a CCR model for the first time [4]. Yet, the CCR model could understand Technical Efficiency (TE) with the assumption of the constant returns to scale of the decision making unit, but had a critical limit that it could not know Scale Efficiency (SE) and Pure Technical Efficiency (PTE) . Accordingly, Banker, et al (1984) applied variable return to scale to develope a BCC model so as to measure PTE and SE [3]. However, the CCR model and the BCC model have a limitation that they cannot decide the order of the efficient DMUs since the efficiency value of their efficient DMU is 1 max. In order to overcome this limitation, Super-Efficiency was developed, and through this model, they came to have an efficiency value over 1, which resulted in the order of the efficient DMUs could be decided [2].

Yang & Yoo (2002)[14] introduced a multidimensional efficiency analytic method using a competition analysis on DEA from a consulting perspective like Table 2. This research is a technique of analyzing the company and competitors from a competitive perspective, which has a merit that it can make various analyses by increasing the level for the target of analysis, not a simple efficiency analysis. Yang & Yoo (2002) [14] carried out a competition analysis at three levels: a time series analysis on Public Enterprise ‘A,’ a domestic public enterprise efficiency analysis and an efficiency analysis of allied overseas enterprises through a case study and used it to draw out the future consulting project.

Table 2. Process of achievement of multidimensional efficiency analytical method

1. Goal setting 2. Analysis plan 3. Multidimensional

analysis 4. Pending issue

deduction

- Goal setting - Consulting purpose and

company strategy (vision) analysis

- Decision of level - Target selection - Input/output selection

- BCC-I, CCR-I - Super-Efficiency - SBM etc.

- Comprehensive analysis

- Project deduction

Deatils of Table 2 process of achievement are as follows: Step 1 is goal setting. Here, the goal is

one of the competitive environment analysis derived from the goal of the consulting project. Step 2 is analysis plan. This is one in which the blueprint of analysis is drawn, which is carried out in the order of level decision, target selection and input/output selection according to the goals confirmed in Step 1. Step 3 is multidimensional analysis. Among the analysis models such as CCR, BCC, Super-efficiency,


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DEA-AR, Teir and SBM, a model consistent with the goal is selected to analyze technical efficiency, pure technical efficiency, scale efficiency and TRS and benchmarking targets and efficiency goals are presented. Step 4 is pending issue deduction. The pending issue deduction is a comprehensive analysis on efficiency analyzed multi dimensionally and deduction of problems or tasks of the company, which sums up all the analyses.

2.4. Information security industry

In 2012, through a domestic knowledge information security industry status survey [10], classifying the industry into information security, physical security and fusion security, total inspection of 666 companies nationwide was carried out. In particular, the status of the information security industry is examined as follows: There are 278 information security enterprises, and it turned out that the scale of the industry increased from 1.4579 trillion won in 2011 to 1.6642 trillion won in 2012 by 14.2%. In the future, as a result of an estimation of market view, it will be 2.6244 trillion won in 2015, which turned out to be an industry that was predicted to grow by 12.48% a year. The classification of the information security industry still does not have academic definitions, so it was classified by a professional Delphi survey. It was categorized into information security product and information security service, and it was divided into 6 products including network security, system security, contents/information run-off control security, password/authentication, security management and other products, and 5 services such as security consulting, maintenance, security traffic control, education/training and certification service. 2.5. Implications of existing research

From the existing research, a few implications can be found: First, there is no quantitative measurement method for a business model analysis. In the previous research, there were attempts to develop the business models as the evaluation tools of companies or industries; however, by the nature of the business models, it stopped at a qualitative method. Second, there is not sufficient research on the business models of the information security industry. Even though the Korean information security industry has a high growth rate of 12.48% a year, there is no research on the business models beyond the level of products or services about how to provide customer values and create profits. Thus, this research recognizes the necessity of a quantitative measurement method to increase objective performance creditability in evaluating companies or industries based on these implications and proposes a competition analysis on new entrants to the market in the information security industry from a business model perspective. The business model competition analysis developed in this study will be an alternative to meet the needs of the domestic market which claims to stand for the creative economy.

3. Analysis on business model competition 3.1. Development of competition analysis evaluation factors The ultimate goal of this research is to secure the competitiveness for new entrants in the high

growth industry to enter the market by benchmarking efficient existing competitors from a business model perspective. In the existing research, for a business model competition analysis, 6 factors such as value proposal, target market, value chain, value network, profit model and strategy by Chesborough & Rosenbloom (2002) [5] have been used, but for the quantitative efficiency analysis pursued by this research, indices which can be used widely for marketing strategy were developed considering more universal and multi-faceted factors . To draw out evaluation indices for a business model competition analysis, this study referred to the

existing research. As the existing research from a business model perspective, Osterwalder (2004) [12] in his research, referred to Innovation Learning, Customer, Internal Business and Financial Perspective, BSC factors by Kaplan & Norton (1992) [9] for the aspect of evaluation and carried out a comparative study on what, who and how by Markides (1999) from an intuitive perspective. This research, in addition to the research by Osterwalder (2004) [12], made efforts to select more various


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evaluation factors by adding Product, Promotion, Customer, Company, Price and Competitor converging value proposal, customer relations, core activity, profit model and 3C and 4P of marketing strategy by Yang , Byun & Yoo (2012) [13]. As a result, from Table 3, evaluation indices for a business model competition analysis were drawn out into four factors: product, company, customer and profit model.

Table 3. Comparison of analysis evaluation index of business model competition

BM Ontology (Osterwalder, 2004)

BSC (Kaplan & Norton 1992)

Mark ides (1999)

Yang & Yoo (2012)

Marketing strategy (3C+4P)

Chesborough & Rosenbloom (2002)

This research

Product Innovation Learning What Value

proposition Product Value proposition Product

Customer interface Customer Who Customer

relations Promotion customer

Target market Customer

Infrastructure Mgt. Internal Biz How Core

activity Company Value chain Value network

This company

Financial Aspects

Financial Perspective Profit

model Price Profit model Profit model

Strategy Competitor Strategy

The researcher added this to Osterwalder (2004)

To carry out a competition analysis efficiently, this research redefined the existing consulting methodology by Yang & Yoo (2012) [14] for a business model competition analysis like Table 4. This technique was chosen in this research because 1) it was an analysis technique of a consulting technique; 2) it can make the four types of evaluation factors in the business model correspond to multidimensional factors; and 3) it can carry out an efficient analysis using various DEA models.

Table 4. Analytical method of business model competition

1. Goal setting 2. Analysis plan 3. Competition analysis 4. Pending issue deduction

- Target market selection - Purpose of competition

analysis

- Examining analysis factors - Target selection -Input/output selection

- BCC-I, CCR-I - Super-Efficiency

- Comprehensive analysis - Project deduction

3.2. DEA analysis input factors and output factors deduction

Previously there was mostly research on qualitative comparison, but no quantitative research in a business model analysis. This research selected four evaluation indices of business models defined previously for a quantitative evaluation of the business models which had been difficult to try as input factors and output factors for an efficiency analysis. Table 6 drew out the input factors and output factors of a DEA analysis by expanding "nine business model building blocks" by Osterwalder (2004) [12] into conceptual factors in addition to the four evaluation indices. A general perspective and financial perspective were applied to the input factors and a financial perspective was applied to the output factors. However, for various analyses, the input factors and the output factors need to be changed according to the goal of the analyses. The ‘product’ index is a superordinate concept of value proposal, for which the number of related products and the number of product fields were selected


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while from a financial perspective, the prime cost of products could be considered from a financial perspective, but it was excluded since it was companies’ internal data, so it was hard to obtain and an objective verification was not easy. The ‘customer’ index was researched by expanding the concept to target customer, distribution channel and customer relations. From a general perspective, it included the number of sale channels, the number of sellers, the number of overseas branches and the number of business organizations while sales, entertainment expenses and sales promotion cost were selected from a financial perspective. The ‘company’ index was researched by expanding the concept to core activity, core resource and key partners. From a general perspective, the number of companies, the number of providers, the number of patents, R&D costs and training expenses were selected. Lastly, the ‘profit model’ index is one that the most direct efficiency may appear in a business model, and sales costs and sales were selected after research by expanding profits and costs. As the output factors, sales, business profits and market share were selected at the companies’ management performance level.

Table 5. DEA analysis input factors and output factors deduction

Business competition analysis evaluation factors Input Output

This research Concept factors (Osterwalder (2004))

General perspective

Financial perspective

Financial perspective

Product value proposal Number of product Number of product field

Sales

Customer Target customer

Distribution channel Customer relations

Number of sale channel Number of seller Number of overseas branch Number of business organization

Sales Entertainment

expenses Sales promotion

cost

Market share (sales)

Company Core activity Core resource Key partners

Number of company Number of patent Number of provider

R & D costs Training expense

Sales

Profit model Costs Profit

Sales cost Sales Business profits

4. Actual analysis: competition analysis of information security industry 4.1. Goal setting and analysis plan In the global economic recession, the information security field of which the importance is rapidly increasing both at home and abroad as an alternative for IT companies to enter the promising high growth market while maintaining the existing capability was selected as the target market of consulting. The task to check through an efficient analysis of companies in the information security industry is to draw out the market status and the target of benchmarking by each of the four types of evaluation index of a business model competition analysis, which new entrants can benchmark. As the subjects of the analysis, among 278 domestic information security companies, which was the population, 22 companies currently listed to the Korea Exchange were selected first, and among the companies, 12 repeated theme stocks of 3 corporations were extracted as a sample. For a DEA analysis, a quantitative


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relative efficiency analysis, the input factors and the output factors were selected based on the DEA analysis input factors and output factors in Table 5 like Table 6. For the actual analysis, the input factors such as the capital, assets, debt, and the output factors such

as the business profits, sales were selected as the comparison targets in the Control Group by referring general efficiency analysis and the analysis on difference between the four types of evaluation index as the competition analysis on the business model was conducted.

Table 6. Input factors and output factors selection

Division Evaluation index Input factors Output

factors Evaluation

index Input factors Output factors

Experimental group

Product Number of productNumber of product

field

Sales business profits

Customer Distribution cost

Number of employees


Company

Research and development costNumber of patentAverage wages


Profit modelSales cost

sales Business profits

Control group Financial statements

Capital, assets, debt


-

3.4. Competition analysis on business model

Through an analysis on CCR-I model, BCC-I model and Super-Efficiency model, an analysis on Technical Efficiency (TE), Pure Technical Efficiency (PTE), Scale Efficiency (SE) and Super-Efficiency were carried out. As a tool for an analysis on DEA, the DEA Frontier 2007 by Zhu (2009) through MS-Excel Solver was used[15]. 3.4.1. Comparative analysis on efficiency Table 7 shows the analysis on the efficiency degree by index of the information sheltered industry by comparing the efficiency distribution of between four indices and analysis on the financial statements efficiency and business model competition. In the result of comparison of efficiency between the finance-product and finance-customer, TE was inefficient but SE showed pretty good efficiency. So it can be seen that the economic competitiveness was sought in economy of scale from the product and the customer field. In the result of a comparative analysis on the finance companies, there were more efficient DMUs than those in other fields, so there were dichotomous markets by competitiveness. So, new entrants will be able to get the chance to dominate the competitive advantage depending on the capability of company field. In the result of a comparative analysis on the finance-revenue, there was a significant difference in the profit model between DMUs. This situation will bring big gap between DMU, so the DMU without any new profit will face difficulties in the management in the long-term.

On the position of new entrants, the analysis on the profit model of efficient DMU should be performed first. It is important for the business model to deliver the value to the customer, but how to secure the value is more important.


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Table 7. Comparison of efficiency between financial statements VS four indices

Comparison

TE PTE SE Super

Finance- Product

Finance- Customer

Finance- Company

Finance- Revenue

3.4.2. Analysis on benchmarking target selection by index

This aims to select the target of benchmarking by four analysis indices such as P, Cu, Co and R through the analysis on the competition by DMU. The DMU for benchmarking was selected based on the radial diagram of analysis on efficiency by the DMU of the following Table 8. 3.5. Deduction of pending issue

The relative efficiency of DMU of the information security industry by four types of evaluation index was analyzed through the business model competition analysis. As the result of analysis, 12 DMUs are companies listed in Korea Exchange, and it was found efficient by the analysis on the efficiency of the Control Group from the finance activity. But the result of the analysis on efficiency by four types of evaluation index of business model competition analysis was as <Table 9>, as the deduction of the differentiated implications. In the comprehensive result of analysis, new entrants should establish the project plan and develop the business model by selection of field to focus on the core competency after analysis on the competence of company.


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Table 8. Competition analysis by DMU

DMU TE PTE SE Super type

IS01

Co type

IS03

Cu type

IS06

Cu type

IS07

Cu type

IS08

Co type

IS10

P type

IS11

R type

F: Financial Statement, P: Product R: Revenue, Co: Company, Cu: Customer


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Table 9. Analysis results and benchmarking deduction

Types of analysis

Market analysis Benchmarking

- Product

- The current efficiency about the goods or service is not high in the information security market. It is analyzed that caused by a small number of key products or absence of service. So there will be many chances to enter the product field.

- IS10

- Customer - Approximately, the market was formed by using the economy of scale. So the distribution cost and human resources are required for securing customer.

- IS03, IS06, IS07

- Company

- There were competitiveness in R&D cost and the number of patents in the capability of the company. So enough development of human resources and objective patents are necessary to enter the market.

- IS01, IS08

- Revenue

- The type profit model is hard to examine by only analysis of this study, but there was the considerable polarization between DMUs about efficiency through the objective competition analysis. So it is analyzed that there are market preemption opportunities by the profit model in this market.

- IS11

4. Conclusion

This study aimed to analyze benchmarking companies appropriate to the each type and field of the company by examining the existing companies quantitatively for the new entrants in the industry expected to have a high growth. There were the various analytical tools for the quantitative analysis, but a more specific result could be obtained by using DEA as the relative efficiency analytical tool. For the availability of the basic data acquisition for review about the existing research and DEA analysis by the evaluation index of competition analysis model, four types of fields were defined such as the products (value proposal), customer (target customer, distribution channel, customer relations), the company (core activity, core resource, key partners), and the profit model (costs, profit).

For the proof-of-concept studies, the competition analysis was conducted based on 12 enterprise listed in the Korea Exchange among the information security companies. As a result of a study, the efficiency index for new entrants and benchmarking by four fields were provided to the research result, information security industry. In the analysis result, it can be seen that twelve rival enterprises are managed financially and efficiently. It is analyzed that the financial stability was secured as a KSE company by the shareholder value maximization and transparent management. But, in four types of field through the competition analysis of the business model in this study, there was a difference between the companies, so this crack was analyzed to provide the enough market opportunity to new entrants. In addition, the concrete benchmarking enterprise was able to be drawn, and the product was IS10, the customer was IS03, IS06, IS07, the company was IS01, IS08, and the profit model was IS11 in the analysis.

Mentioning the academic contribution of this study is as follows. First, the market segmentation in the marketing perspective was conducted by using a business model, second, the multidimensional analysis on four fields was able to be conducted by grafting the quantitative analysis method onto the existing qualitative business model analysis, third, the business model research about the information security industry which was not conducted at home and abroad was able to be conducted.


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But, there was the critical limit of research. There were the limitations of securing basic figures about the input factors for DEA analysis. There was the limit to obtain the most of basic data for the analysis from the internal data of companies, so when it was not corresponded to the input factors drawn out from the research, the most similar accounting information was used by referring the published business reports or each company homepage etc. Second, there were 12 enterprises which were selected for the case study, so there was a limit to be used immediately by new established companies. Those companies are listed with the various market tested powers but the quantitative analysis was a priority in this research, which means there was no analysis on the internal capability of the companies. Third, the analysis by information security industry field was not conducted. The information security industry was composed with two categories and ten divisions, but it was used only for the collection of data in the product field but there was no analysis on it. To compensate the critical limit in this study, it is expected to provide the various information for the establishment company through the analysis by the company about ten multiple classifications of the information security industry. 5. Acknowledgements

This research was financially supported by Hansung University. 6. References

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