1

Kim Anh Pham

VISOR BUSINESS MODEL ANALYSIS

Case: DERIGO Oy

E-Commerce Assignment Department of Information Systems Åbo Akademi University Åbo 2015

2

3

Acknowledgement

This report analyzed the business model of the case company, Derigo Oy. This report could not have been done without assistance from my research partner, Mr. Pasi Ojala and a great support of Derigo Company.

Thank you very much Derigo company, particularly Mr. Pellas for the interview in order to help the writer complete this report.

For further contact: Mr. Marcus Pellas - CTO Adresss: Derigo Oy

Vistantie 24 A 12 FI-21530 Paimio, Finland Phone: +358 40 596 9913 Email: Marcus.pellas@derigo.fi Website: www.derigo.fi

4

Table of Contents Acknowledgement ........................................................................................................................................ 3

1. INTRODUCTION ..................................................................................................................................... 5

1.1 Case Description ................................................................................................................................. 5

1.1.1 Derigo Company ........................................................................................................................... 5

1.1.2 Product and Services .................................................................................................................... 6

2. VISOR BUSINESS MODEL ANALYSIS....................................................................................................... 7

2.1 Value Proposition ................................................................................................................................ 8

2.1.1 Targeted Customer Segment ....................................................................................................... 8

2.1.2 Delivered Value ............................................................................................................................ 9

2.2 Interface ............................................................................................................................................ 10

2.3 Services Platform .............................................................................................................................. 10

2.4 Organizing Model .............................................................................................................................. 11

2.4.1 Key partner ................................................................................................................................. 11

2.4.2 Customer Relationship ............................................................................................................... 11

2.4.3 Company’s operation ................................................................................................................. 11

2.5 Revenue Model ................................................................................................................................. 12

2.5.1 Revenue model .......................................................................................................................... 12

2.5.2 Cost structure ............................................................................................................................. 12

3. BUSINESS MODEL INNOVATION (BMI) AND KEY PERFORMANCE INDICATORS (KPI) ......................... 13

3.1 Key performance indicators .............................................................................................................. 13

3.2 Business Model Innovation ............................................................................................................... 13

4. CONCLUSION ....................................................................................................................................... 14

REFERENCES ................................................................................................................................................ 15

5

1. INTRODUCTION

This essay discusses the case of Derigo Company focusing on understanding their business model. The writer uses VISOR business model (Sawy, O.A.E and Pereira, F., 2013) as a fundamental methodology to analyze this case. The main research objective that the writer wants to reach are: (1) whether Business Model Innovation (BMI) succeeds in this case, and (2) how to measure its performance by key performance indicators. The introduction chapter presents the overall portrait of the case Derigo Company, products and services, mission and vision of the company. The second chapter concentrates on analyzing Derigo’s business model based on VISOR theory. Chapter 2 describes BMI and metrics used to assess accomplishments that company has achieved by applying BMI. The findings and the limitations of the report are presented in the conclusion chapter.

1.1 Case Description

1.1.1 Derigo Company Derigo is a private microenterprise established in 2008. Derigo’s headquarters locates in Paimio, Finland. The company mainly operates in management consulting industry focusing on project business solutions. The company currently has 9 personnel working in three different offices in Paimio (headquarters), Lahti and Espoo. The company has gradually increased revenue since it was established, except the year 2010 when capital was used to investments. In 2013, company’s revenue gained more than one million euro.

Figure 1: Derigo’s revenue 2009-2013 (Fonecta Finder)

Company’s mission is providing effective services to improve business efficiency, productivity, communication of customers, system implementation, and development project management.

Derigo expects to build a relationship with good partners to expand the cooperating network in the industry. Moreover, the company will continue to keep a dynamic organizational operation to maintain effectiveness and efficiency. The company wants to concentrate on developing core products and services to the market and partnerships. Additionally, maintaining customer satisfaction is one of Derigo’s focuses.

6

1.1.2 Product and Services For many years of operation in project business solution, Derigo has non-stop developed services and improved quality to meet the demand of customers. Derigo offers products and services to their clients mainly in implementation services, cloud-based hosting, and support and training services. Besides, the company also provides their clients customized technical solutions, business consultancy, and project management system. The company offers services in different areas: sales and customer, operational activities, operation development, ICT, human resource management, and financing.

Derigo’s core services include: Business and process mapping techniques Developing new processes to enhance business performance by tailoring Pro3 system according to a

particular project or customer’s requirement. Providing project management support through the implementation, training during the delivery

period (about 3 months), continuing business consultancy and after-sales support. Offering data management system and service platform (server, cloud hosting) as a package with

customization. The system can coordinate or integrate with other existing systems of customers such as SharePoint, ERP, Business Intelligence and data warehousing.

Figure 1: Product delivery process Currently, the company has one key product line, Pro3. Pro3 is a project management system using a web browser to manage and utilize data from all business involving in the project such as storing, organizing, sharing documentation and controlling quality. Particularly, Pro3 can be customized according to specific projects and needs of customers. Pro3 system has a reliable base to build upon which is Microsoft SharePoint technology. Therefore, Pro3 can exploit necessary functions of SharePoint to develop based on project and business’ need. Pro3 system can connect and implement to other data sources to extend features and interface of the system. Moreover, Pro3 provides services as hosted cloud solution and local installed solution. Pro3 is fast to implement and easy to maintain. There are two models of delivery Pro3: SaaS-based (software as a service that functions remotely as a web-based service) and on-premise (integrated with existing hardware or other systems) regarding customer’s IT infrastructure and need.

One of the critical functions that Pro3 has provided to its customers is data accessibility. All data are always up-to-date and available. Pro3 users create and share virtual workspace with all partners involving in the project such as project team members, customers, and partners. Standardized

Activation Implementaiton Content production

Training and appliance

Continuous support and

content development

7

documentation and efficient document management tool are other benefits of using Pro3. Furthermore, the service offers real-time of tracking progress, quality follow-up and report of the project. This feature helps to enable quick reaction to unexpected situations and makes it more reliable to manage projects.

2. VISOR BUSINESS MODEL ANALYSIS

Each business model consists of different elements for different industries. Digital business and information system field have covered different components in the business framework than in the others, including hardware, software, procedures, and users (Sawy and Pereira 2013). Those components are categorized into groups as Value proposition, Interface, Service Platform, Organizing Model and Revenue Model forming VISOR model. VISOR model is a unified framework used to define a digital business model.

Value proposition: identify values delivered to customers and end users in order to maximize the customer’s willingness of payment

Interface: user experiences characterized by product’s usage with ease of use, simplicity, applicability and practicality

Service platform: an operating network that users can collaborate. A platform is a place where the values are created and customers will access to those value propositions

Organizing model: consists of relationship between partners and customers (ecosystem) and processes

Revenue model: determine the model of generation revenue, the cost structure of the business to minimize the real cost including tangible and intangible, and maximize profitability.

VISOR is used to help technological firms systematically understand the value proposition in order to shape their strategies in providing profitable and sustainable services through innovation.

Figure 2: The VISOR Model (Sawy and Pereira 2013)

VISOR model is used to analyze Derigo company business model. VISOR model is chosen as an appropriate framework because it specifically emphasizes key elements: user experience of interface

8

factors and service platform in digital business. These factors are not addressed in other models. Derigo is a digital services company, which provides business solutions with a project management system. Derigo has always focused on different perspectives of their business, particularly on understanding value propositions of their targeted customers with a core product and services. They highly pay attention to the user experience of value to design and tailor the product accordingly. In this respect, VISOR model can help the writer understand thoroughly the application of VISOR model in reality. VISOR Business model of Derigo is summarized in table 1 below. Table 1: VISOR analysis of Derigo Company in summary

Derigo Company

Value propositions Give whole service package Create flexibility and convenience during implementation of product Build good customer service with customized product and continuous

development, short time contract Offer cost advantage, no charge during implementation period and

monthly fee service Interface Provide simple and easy-to-use product

Create guiding interface Gather most relevant information based on project type

Service platform Can be integrated with other existing systems SaaS-based and on-premise Create a solid ecosystem between Microsoft, services platform

provider and customers Organizing model Cooperate with key partners to create cooperating network

Keep effective and efficiency organization by staying as a small company

Maintain good customer relationship Revenue model Sell product licenses and monthly subscription

Minimize service platform cost in delivery and share risks by exploiting a free platform and dedicating technical part to partners

2.1 Value Proposition

2.1.1 Targeted Customer Segment Derigo determines small and midsize organizations with growing potential as their targeted customers of their primary business strategy. Due to the scope of the company and the goal of providing a high quality of service, SMEs are their main segment to cooperate. Moreover, doing business with SMEs has

9

certain advantages compared to big companies, for example, flexibility, direct contact, and faster decision-making process. These advantages reduce risks and cost for the company.

However, Derigo has also collaborated with big corporations. For example, NCC AB, the second largest construction company in the Nordic region. NCC AB has annual revenue SEK 57 billion (about 6 billion euro) (NCC 2014) and about 18,000 employees is one of Derigo’s major customers. Additionally, Hartela Oy, the largest Finnish construction firm is another important customer of Derigo. As said by Mr. Pellas (personal interview, January 28th, 2015), it is difficult to build relationships with these large corporations and more difficult to have a cooperating agreement because of a long decision-making process. The process usually takes approximately a year.

Changes in target customer in the business strategy have brought challenges to the company. Cost investment and risk to deal business with big groups are difficulties for Derigo; however, the company can build reputation and credibility quickly in the market through these key customers and number of users.

2.1.2 Delivered Value Pro3 is modifiable to give flexible solutions for different projects according to customer’s resources. Pro3 provides a consistent and unified working system in a whole organization, regardless diverse existing tools and systems used by different organization units. To be more adaptive and effective, Pro3 can be customized through consultancy service of the company. In other words, Pro3 is very adaptive in helping customer manage projects in the most effective way.

Derigo can provide a whole service package including implementation, training, consultancy, and development and other supports, for example, specific customization and upgrading system. The implementation period or so-called trial period is up to 3 months without charging any cost. Implementation stage includes training customer’s end users. It ensures that all functions are adopted easily and quickly into everyday tasks.

One of the key values that the company offers their customers are flexibility and convenience. Their customers are not necessary to have their own technical environment such as Microsoft SharePoint to adopt Pro3. Derigo’s technical partners will take care of this issue during the implementation period. Furthermore, customers can freely choose the method of implementation. The system can be installed by Derigo’s experts or by customer’s IT staff.

Pro3 system allows customers to improve efficiency and effectiveness through the whole organization operation with convenient data accessibility and time savings. The system increases the productivity of projects management. Furthermore, the product helps to minimize costs for investment on ICT infrastructure (hosting, hardware, etc.) which is huge and time consuming. Moreover, it is less problematic in term of usage agreement for customers owning to short time contract (one month). Customers do not have to be bound by strong commitments with Derigo to use the service compared to other products.

10

2.2 Interface The simplicity of the interface is the goal that Derigo wants to reach and makes it different to other management systems available currently in the market. The company tries to focus on keeping core functions of Pro3 to be simple, easy to use to end users. Basically, Pro3 is a guiding interface to its users. It helps to minimize error and less confusing with the interface. One of the key features that Pro3 interface has an advantage is giving users the optimal solution and most relevant information according to the project type. For example, Pro3 will provide only the related information and the most useful framework focusing on a construction project. Company’s strategy realized that other systems usually try to cover as many features as possible where they contain also unnecessary information to the end users.

Pro3 allows for integrating fast with other existing systems such as data warehouse software, ERP, SAP, and processes in organizational units. Therefore, it enables the cohesive interface to end user and gives better user experience of Pro3 system.

In the current market, there are other project management tools but there is not any strong competitor with Pro3. As explained above, Derigo aims to keep core features of the product customizable and specific to a project type based on customer’s need. It also keeps managing the project at a certain level and tries to avoid covering everything as other existing tools in the market. That differentiates Pro3 from their competitors.

2.3 Services Platform Pro3 is built on Microsoft SharePoint which provides a stable and reliable platform. It also allows huge possibilities of customization for the system. Besides, the product can be integrated with other management systems to utilize pertinent information and features and apply them into Pro3. Pro3 has a feature to support of data storing and sharing the document with cloud hosting service which keeps the data is updated and accessible at any time, from anywhere, and real-time tracking the progress of the project. The detail is shown in figure 3 below.

Figure 3: Pro3’s technical architecture

11

2.4 Organizing Model

2.4.1 Key partner Derigo has been awarded the Microsoft Silver partner level in the Collaboration and Content competency. The partnership level is a testament to Derigo's expertise in developing solutions for Microsoft SharePoint.

In addition, Derigo plans to create a cooperating network where the partnership is a key point of their business strategy. They do not build a platform for their own application but dedicate the work to their partners, particularly for technical part (e.g. server and hosting) to be flexible in utilize resources.

Together with Derigo’s consultancy service, customers contribute to develop the content of the product, for example, templates and framework to the project to improve the user experience. Moreover, Derigo concentrates on enhancing key functions and content by cooperating with existing platforms instead of building their own platform for their product by outsourcing and partnership. As a result, Derigo and Pro3 are building an ecosystem on collaborating with software vendors (e.g. Microsoft), services platform vendor (e.g. server, cloud-hosting providers) and the customers. In other words, this partnership co-produces Pro3 system.

With this solid cooperating of the network, partnership plays a very important role. Therefore, selecting trustworthy partners and keeping respectable relationships with key partners to prevent them turning into competitors becomes a crucial part of the company’s strategy. Unlike traditional value chain, in the digital business, “eco-system is turbulent because major players competing and cooperating simultaneously” (Sawy and Pereira 2013).

2.4.2 Customer Relationship Currently, Derigo collaborates with customers from different industries from healthcare, entertainment to the construction industry. Their customers are SMEs as well as big corporations with a large number of end users. The key policy of company to maintain good customer relationship is high quality product and good support services before and after sales. Derigo has created a good reputation without marketing through these customers and users.

As the nature of the product, company and customer continuously cooperate to develop the content of the product. The company always tries to give quick reactions and solutions on arising problems to keep customer’s project progressing without interruption. As said by the representative of Derigo, it is quite risky to keep this policy relating to extra cost reimbursement from customers because mostly the errors come from users, not from the system itself. However, it is a rare case in reality.

2.4.3 Company’s operation Derigo determines to keep organizational structure effectively and efficiently by staying as a SME. This aims to enable the possibility of monitoring company’s activities successfully for the managerial level. As said by the company’s representative, Derigo’s CEO always understands fully company’s situations in a whole picture.

12

2.5 Revenue Model

2.5.1 Revenue model The major revenue of the company is generated from selling licenses and service package up to 90% of total revenue.

There are two types of license delivered to customers: advanced license (with the extension of features and upgraded storage space up to 200GB) and standard license. Depending on customer’s IT infrastructure, the price is also slightly different. For example, customers who have their own platform and other running systems, the license fee will vary with those who buy a full package from Derigo including hardware, platform, hosting, and database. With that purpose, the company can strengthen their partnership and ensure the consistency of the product.

Figure 3: Two versions of license of Pro3: Standard (upper) and Advanced modules (lower)

The company also provides consultation service of business process, project management tool and project development.

Revenue stream comes from monthly subscription for using the system and service. The company offers free of charge up to three months for implementing phase including training the end users. Customers can stop using Pro3 when a project is completed or no more utilization of the product in their operations and then can start paying again when there is a new coming project. However, as stated by Mr. Pellas (personal interview, January 28th, 2015), this is an unusual case. A project usually takes many months or years to complete. Moreover, customer continues to use Pro3 for firm’s operation even without any going project because of large data and documentation storage in the system, so that customers can save cost and effort for unnecessary restarting the whole procedure again from implementing and gathering data when there is a new project. Therefore, the company can maintain a stable finance situation as a soft lock-in approach.

2.5.2 Cost structure The company has fixed costs structure for operation and service platform. As mentioned above, Derigo is a silver level partner of Microsoft. Therefore, Microsoft offers Derigo a free standard platform to use. The company exploits Microsoft SharePoint platform to build Pro3 more useful and necessary functions to meet the market’s need. For that reason, they can minimize the production cost in delivered product.

13

The company makes more profit when there are more customers with unchangeable fixed cost. Additionally, other partners contribute in building Pro3, therefore, the company can share the risk and dedicate cost to their partners when problems happen.

3. BUSINESS MODEL INNOVATION (BMI) AND KEY PERFORMANCE INDICATORS (KPI)

3.1 Key performance indicators Key performance indicators (KPI) are metrics used to help a firm measure progress and performance toward its goals. It is an essential navigation for managerial personnel understand the business situation.

In order to measure whether a business is successful, financial performance, specifically revenue growth and profit margin, are important indicators. Derigo has gradually increased the revenue during their operation. Furthermore, increasing sales of licenses and reach more customers ranging from SMEs to large corporations are helping to stabilize revenue stream of the company.

Customer retention is also considered as an important indicator. The company tries to maintain a good customer relationship by minimizing the technical problems. Derigo strives for capturing the overview of the product delivery and project regardless existing platform, integration (related to partners), content, interface (related to Pro3 and users), upgrading and developing a system to have a quick response to problems.

3.2 Business Model Innovation Derigo is a small company; therefore, there is not a clear and proper business model innovation according to a general perception of innovation as we are familiar. However, during operating business, they have transformed at some aspects to adapt to quickly changes of environment. Generally, the company has shifted in expanding ecosystem, organizing model and cost model.

Derigo was originally a small part of a Fujitsu’s project as an extended feature. From own experiences, Derigo’s founders realized the potential of developing it into a core product with more focus on details and other possibilities such as customization, in place of Fujitsu’s product with wider covering. Derigo was founded based on that objective.

Nevertheless, the organizational structure has changed once again. During the development, understand the need of deepening product features, addition to different perspectives on production strategy, business intelligence, and data warehousing unit, these units were spun off into a separate company and become a partner of Derigo. At first, Derigo was established with 15 employees. After the second transformation, currently, the company has 9 employees.

The company does not construct their own platform and hardware but utilize the service platform. They build more relationships with partners to deliver optimal project management tool which gives the most helpful and relevant interface to the users. With the purpose of creating a value network, they

14

determine to collaborate with partners to dedicate technological development. Consequently, Derigo can minimize cost and possible risks.

Derigo has created an innovative cost model. They take good advantage of their partnership with Microsoft to exploit a free platform for the company’s product so that they can lower cost and raise profit. The profit increases when they have more customers but the fixed cost will not rise up because customers share the same platform and hosting service. Besides, the company takes advantages of the network to reduce risk and cost by sharing the responsibility to partners and ensuring the quality of product simultaneously.

4. CONCLUSION The objective of the report was to analyze a case of SME under VISOR business model perspective in order to understand the framework appliance and business model innovation. The report defines different elements of VISOR consisting of value proposition, interface, service platform, organizing model and revenue model. The report used both information from primary data (personal interview with company’s staff) and secondary data (public resources) as a research methodology.

The report has pointed out the gaps in theory and in reality in business strategy, in Derigo’s targeted customer segment. The company’s strategy aims to cooperate with SMEs with many projects and growth potential as their main customer segment. The scope of the Pro3 product line was also built to fit with the scale of projects in SMEs. However, the company has cooperated with several large corporations in various industries. Derigo has rapidly adjusted their plan to adapt changes in business strategy and new demand of customers.

There are many different project management tools and software available in the market, which is a highly competitive field; however, Derigo has grown steadily and expanded the number of customers and end users with their product. Pro3 offers a unique interface which brings pleasing user’s experiences. The company focuses on developing a simple, clear, easy-to-use tool as a guiding interface to minimize possible errors. Moreover, the company realized that most of the current project management system attempts to offer too many features but not so applicable and related to the project type. Customers mainly use very few of necessary functions from those systems. Unlike other software, Pro3 is customizable to best fit with project type by collecting the most important and relevant information and data of the project. In other words, Pro3 concentrates on creating applicable and essential features with core functions which are most useful to users. In additional, the content and framework of the product can be continuously developed with customers’ contribution to create effectiveness in project management. Furthermore, the product Pro3 can be integrated with other platforms and systems such as business intelligence, data warehouse (for example, ERP, SAP) and cloud hosting according to customers’ situations and needs.

Derigo has developed an innovated business model by building a cooperating network working as an ecosystem between Derigo, their partners, and customers. The company uses the free platform Microsoft SharePoint to build the product Pro3 and dedicate other technological parts to their partners,

15

for example, a service platform, hosting, and hardware. Therefore, the company can provide a whole package service to customers and create flexibility for customer simultaneously. Derigo has delivered a distinguish value propositions to their customers. Building the operating network also helps to reduce the cost for the company and their customers. Hence, finding trustworthy partners to create a network is very important for SME as Derigo so that partners are not becoming rivals. The partnership is a key of the whole value chain for Derigo.

In conclusion, Derigo has had business model innovation in creating value propositions, partnerships, and customer segmentation. As discussed in the key performance indicators section, the company has proven to be successful with changes.

There are several limitations of this analysis due to timeframe and scope of the report. One of which was the decision of not going into details the company’s business strategy and technology of the product. Further, language was also on obstacle for doing online research. Most of the information on the company’s website was in the Finnish language. The English version is quite limited in explain necessary information for the analysis.

REFERENCES 1. Derigo website. Retrieved January 26th, 2015 from www.derigo.fi 2. Fonecta Finder. Retrieved January 30th, 2015 from http://www.finder.fi/ 3. NCC Group. Retrieved February 2nd, 2015 from http://www.ncc.fi/en/ 4. Sawy, O. A. El. and Pereira, F. (2013). Business Modelling in the Dynamic Digital Space: An

Ecosystem Approach. Springer Heidelberg New York Dordrecht London.