1. FP7-ICT-2009.5.1 – Support Action
Directions for ICT Research in Disease Prevention
This project is partially funded under the 7th Framework Programme by the European Commission
The Rules of the Game and Business Models
in Primary Prevention
Henri Hietala
8.11.2010

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Content
1. Concepts & Theory
1. Understanding Business Models
2. Acknowledging the ”Rules of the Game”
3. The Transformation of Business
2. The Business Model Framework & Primary Prevention
3. Discussion

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UNDERSTANDING BUSINESS MODELS
“Competition today is not between different products - it’s between
different business models”
Gary Hamel

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What is a Business Model?

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What is a Business Model?
The business model
illustrates how the
company makes money.
What’s a revenue
model then?
Hmmm???

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What is a Business Model?
• A young concept first introduced in the 1990’s
• Numerous different definitions, but no consensus has
been reached on its meaning
• Business models are not revenue models although the two
concepts are mistakenly used as synonyms
– Financial flows, both revenues and costs, are the consequence of
creating value.
• Business models illustrate how an organization creates
value and captures a portion of this.
– Value is the root of the business model
– This is where managerial focus should be

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What is a Business Model?
Key questions to ask:
Offer &Value proposition: What do you sell? What value does the company create for
customers and partners?
Customer: Who are your customers? How do you reach them?
Infrastructure: What resources do you need for this and how do you organize them?
Finance: How do you translate the created value into earnings and what does creating the value
cost?
COST
STRUCTURE
ACTIVITY
CONFIGURATION
CORE
CAPABILITIES
VALUE
NETWORK
INFRASTRUCTURE
VALUE
PROPOSITION
OFFER
FINANCE REVENUE
STREAMS
CUSTOMER
RELATIONSHIPS
CUSTOMER
SEGMENTS
CUSTOMER
DISTRIBUTION
CHANNELS
Source: Modified from Osterwalder (2007)

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What is a Business Model?
• Business models can also be seen as:
– Narratives that convince, typifications that legitimate, recipes that
guide social action…
– Therefore, we need a common understanding of what it means…
• Business models are sources of competitive advantage
• Business models conceptually vs. Business models in real
life:
– Conceptually built from the same elements
– In practice every business model is unique
What about business models in ICT enabled
primary prevention?

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ACKNOWLEDGING THE RULES OF THE GAME
Prevention of diseases

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What are the ”Rules of the Game”?
1. We are surrounded by rules…
2. The rules are different…

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What are the ”Rules of the Game”?
3. Some also try to bend the rules…
4. Rules are needed…

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What are the ”Rules of the Game”?
• What about business?
• All economic actors act in the context of society, culture, the economy
and politics.
• Economic activities cannot be viewed in isolation from other
institutions or from the technological, political, and social context in
which organizations exist
• Institutions are the rules, consisting of both the formal legal rules and
the informal social norms that govern individual behavior and
structure social interactions
– Institutions = Rules

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What are the ”Rules of the Game”?
• Institutions are constraints devised to structure interaction due to the
uncertainties involved in human interaction.
• For markets, to work as they should, we need institutions that govern
the way business is conducted.
• In other words, rules create “interoperability” in business and
decrease risk for all stakeholders.
• These rules however, are not necessarily or even usually created to be
socially efficient
• Rather they, or at least the formal rules, are created to serve the
interests of those with the bargaining power to create such rules.

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What are the ”Rules of the Game”?
INSITUTIONAL LEVEL: ECONOMY
ORGANIZATIONAL LEVEL:
BUSINESS MODEL
MARKET / INDUSTRY
ECONOMICCONTEXTPOLITICALCONTEXT
SOCIALCONTEXTTECHNOLOGYCONTEXT
LEGAL CONTEXT
• The Rules have a significant impact on the value creation potential of
organizations on a market level.

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What are the ”Rules of the Game”?
• Creating or changing the rules has potential to create markets
– A much greater effect than a change in a single business model
Case A:
The Railway System
Case B:
The Lead Market Initiative
What about the ”Rules of the Game” for ICT enabled
primary prevention?

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THE TRANSFORMATION OF BUSINESS
“The only thing we know about the future is that it will be different. The
best way to predict it is to create it.”
Peter Drucker

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Service Dominant Logic
• The role of services in current economies has grown. S-D
Logic goes further in arguing that everything is a service.
• Foundational premises from S-D Logic:
– 1. Goods are distribution mechanisms for services
– 2. The customer is always a co-creator of value
– 3. All economic and social actors are resource integrators
– 4. The enterprise cannot deliver value, but only offer value
propositions
– 5. Value is always uniquely and phenomenologically determined
by the beneficiary

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Value
• Business models illustrate how an organization creates
value. But what is value?
– Benefits against sacrifices
– Financial and / or non-financial
• Value-in-exchange:
– Value is created by the firm through a series of activities, and is
embedded in the form of products and services that are
distributed in the market to consumers, usually through exchange
of goods and money
– Firms create value, consumers consume/”destroy” it
• Value-in-use:
– Value is fundamentally derived and determined in use (value-in-
use) rather than in exchange
– The roles of producers and consumers are not distinct, meaning
that value is always co-created, jointly and reciprocally

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Value co-production & -creation
• Value co-production:
– Represents the joint activities of the firm and the customer in the
creation of firm output. It involves the participation in the
creation of the core offering itself. It can occur through shared
inventiveness, co-design, or shared production of related goods,
and can occur with customers and any other partners in the value
network (Vargo, Maglio & Akaka, 2008) .
• Value co-creation:
– Value can only be created with and determined by the user in the
‘consumption’ process and through use or what is referred to as
value-in-use. Thus, it occurs at the intersection of the offerer and
the customer over time: either in direct interaction or mediated
by a good because goods are distribution mechanisms for service
provision. (Vargo, Maglio & Akaka, 2008)

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The N = 1 and R = G World
(a) (b)
”Old World” New N = 1 & R = G World
1900 2015
• N = 1: Refers to a shift from a focus on masses to a focus on the centrality of
the individual.
• R(esources) = G(lobal): Refers to a shift from ownership of resources to access
to resources.
Source: Prahalad & Krishnan (2008)

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Value Networks
• The locus of value creation is no longer perceived to reside
within firm boundaries but value is considered to be co-
created between various actors in the networked market
• Value network: Complex socioeconomic systems that
consist of various actors that form a commercial
infrastructure whose constituent companies have
mutually reinforcing economic models.
• Value networks rely on the capabilities of others to
enhance their value creation potential they tend to be
collections of complementary and substitutive resources
possessed by different economic entities

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Value Networks
TIER 2
ENABLERS
TIER 1
ENABLERS
SERVICE
PROVIDERS
CONSUMERS
AUXILLIARY
ENABLERS
VALUE NETWORK
Source: Basole & Rouse (2008)

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THE BUSINESS MODEL FRAMEWORK & PRIMARY
PREVENTION

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The Business Model Framework
VALUE
PROPOSITION
COST
STRUCTURE
CUSTOMER
RELATIONSHIPS
CUSTOMER
SEGMENTS
ACTIVITY
CONFIGURATION
CORE
CAPABILITIES
VALUE
NETWORK
REVENUE
STREAMS
INFRASTRUCTURE CUSTOMEROFFER
FINANCE
DISTRIBUTION
CHANNELS
ORGANIZATIONAL LEVEL: BUSINESS MODEL
SERVICE SYSTEM LEVEL: VALUE NETWORK
INSITUTIONAL LEVEL: INSTITUTIONAL ENVIRONMENT
”Rules of the Game”

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The Business Model Framework
• 3 layers: Business model, value network, ”Rules of the game”
– Internal fit, external fit, configuration & re-configuration
• Conceptually easy to understand, but in practice:
– Business models are extremely complex
– Value networks are extremely complex
– ”The Rules of the Game” are extremely complex
• Robustness (Aaltonen, 2010): Preferring common sense over lots of
knowledge
– Aristotelian reasoning: It is impossible to know in advance the right
means to any end as the ends emerge in the acting situation of all its
complexities
• The framework does not necessarily give the right answers but helps
in asking the right questions…

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• Guidelines on a conceptual level that will help enhance
value creation potential for individual service providers
The Business Model Framework
VALUE
PROPOSITION
COST
STRUCTURE
CUSTOMER
RELATIONSHIPS
CUSTOMER
SEGMENTS
ACTIVITY
CONFIGURATION
CORE
CAPABILITIES
VALUE
NETWORK
REVENUE
STREAMS
INFRASTRUCTURE CUSTOMEROFFER
FINANCE
DISTRIBUTION
CHANNELS
N = 1R = G
S-D Logic, value co-creation
Value co-production  Open Business Models
Decrease costs through R = G Increase revenues N=1 & R = G

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Primary Prevention:
• 1) What about business models in ICT enabled primary
prevention?
• 2) What about the ”Rules of the Game” for ICT enabled
primary prevention?

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The Value Proposition to End-users
• Value proposition:
– A value proposition is a product or service that helps customers
complete a job they’ve been trying to do more effectively,
conveniently and affordably (Christensen et. al., 2009).
• What is the ”job to be done” in primary prevention?
– Sick population: To get healthy
– Well & At risk population: Stay healthy or not to get sick
• The ”graveyard” of failed products and services: People
didn’t want what they should have wanted
– Consumers are different, do we need different strategies?
– Active Health & Worried Well vs. ”At Risk”

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The Value Proposition for End-Users
COMMON
GOAL:
STAY HEALTHY
CARLO, 10 YEARS
AT RISK
SONJA, 20 YEARS
AT RISK
JENNI, 31 YEARS
AT RISK
ROBERTO, 48 YEARS
AT RISK
Value

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The Value Proposition for End-Users
CARLO, 10 YEARS
AT RISK
SONJA, 20 YEARS
AT RISK
JENNI, 31 YEARS
AT RISK
ROBERTO, 48 YEARS
AT RISK
Value
Value
Value
Value
1) UNIQUE PERCEPTION OF WHAT
VALUE IS
2) VALUE PERCEPTION MAY NOT BE
HEALTH RELATED
1) LONG TERM HEALTH RELATED VALUE HIDDEN
BEHIND OTHER PERSONAL VALUE PERCEPTIONS
HEALTH &
WELLNESS

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What kind of Value is the Goal?
• Hidden health benefits are needed because the end-user
does not necessarily pay for the service:
– Individual: Unique perception of value, ”perceived ROI”
– Corporate Wellness: ROI
– Society: ROI
• Why not just a health related value proposition?
– All health related value is dependent on the end-user in the long-
term (value-in-use)
– If health is not the job end-users want to do they will not use and
no value will be created
• Personalized value propositions with hidden health
benefits

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Technology & Resources
• Technology:
– New technologies have no intrinsic value
– The value of technologies stems from the ability of entrepreneurs
and firms to construct, often ex novo, organizational structures
and networks of stakeholders and audiences in ways that allow for
value realization ( = business model)
– ”The Engineer way of developing”
– Technology & Value-in-use:
– S-D logic: Goods are distribution mechanisms for services
– Value is created through use
• Resources:
– Emphasizing the behavioral context of primary prevention
– Healthcare and ICT professionals alone is not enough

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HealthMedia
• Personalized Digital Health Coaching:
– N = 1 & R = G
– ICT enabled synergy and scale effects

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What about the ”Rules of the Game”?
Hospital
Pharmacy
Specialist-
centre
General
Practice
Home
Restaurant
Super-
market
Museum
Sports centre
Farm
Work
Car

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What about the “Rules of the Game”?
• Regulated health market: Loop 1
– Growing demand for healthcare services, shortages of resources
– Strict rules to assure safety and create trust
– Structures do not sufficiently support personalized primary prevention
(system triggered for acute care)
– Difficult to conduct business for prevention service providers
• If we know prevention is a good thing why not change the rules?:
– Case Railway: One change created a market
– Case Prevention: Would one change be enough? What would it be?
– Much more complex: Changing an existing system with long traditions,
both the ”old” and ”new” system are needed, cross-sectoral politics
(horizontal and vertical), conflicting value perceptions and different
emphasis (electric cars or healthcare?), bargainning power & lobbying…

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What about the “Rules of the Game”?
• “Unregulated market”: Loop 2
– Co-Producers as the drivers of primary prevention: 1) The healthcare
system is a small part of our lives when we are healthy 2) Factors
contributing to positive or negative health = Life
– Creating a favourable market for this by changing the ”Rules of the
Game”. Policy tools including taxation, subsidies, R&D…
• Making creating wellness / health lucrative
– Service Providers in this market could create more attractive services to
consumers
– Liability issues, trust issues, validation of value proposition…
• Integrating the two loops:
– HSR’s vision: Engineering Awareness
– Co-producers supporting the healthcare system in achieving the same
goal: creating ”health”
– The current way has not worked, we need new ways of thinking to solve
the problem

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• Positioning of market has major implications for business
models because the rules may be different
What about the “Rules of the Game”?
REGULATED HEALTHCARE MARKET:
PRIMARY PREVENTION
”UNREGULATED” MARKET:
WELLNESS OR JUST LIFE
HEALTHCARE PROVIDERS:
Rules A
CO-PRODUCERS:
Rules A or Rules B?

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Where to begin?
• Who are / will be the innovators and early adopters?
INNNOVATORS
2,5%
EARLY
ADOPTERS
13,5%
EARLY
MAJORITY
34%
LATE
MAJORITY
34%
LAGGARDS
16%
100%
75%
50%
25%
0%
MARKETSHARE%
Current market
”THE CHASM”
REALIZING POTENTIAL MARKET WILL REQUIRE
SYSTEM LEVEL CHANGES

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“Doggy Bag”
• Business models:
– Not the same as revenue models. Conceptual models of creating and
capturing value, but in real life all business models are unique.
– N = 1: Shift from a focus on masses to a focus on the centrality of the
individual.
– R(esources) = G(lobal): Shift from ownership of resources to access to
resources.
• The ”Rules of the Game”:
– Market creators
– Much greater impact than a change in an individual business model
• Primary prevention:
– We need rules that support prevention oriented value creation
– Sustainable business models will be a consequence of these rules

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• Complexity: A little luck never hurts the business model…
”Doggy Bag”
Rovio Oy: Angry Birds – They could have not seen it coming…

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THANK YOU & DISCUSSION
Prevention of diseases

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PREVE partners
Valtion teknillinen tutkimuskeskus, VTT
Aarhus University
Fondazione Centro San Raffaele del
Monte Tabor
Universidad Politécnica de Valencia