Master Thesis: Revenue Model Innovation for (Dutch) Strategic Consultants in an International Environment.

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1 Zwolle, May 2013 Master Thesis: Revenue Model Innovation for (Dutch) Strategic Consultants in an International Environment. by Ernst Vossers B.Eng Automotive Engineering Student identity number in partial fulfillment of the requirements for the degree of Master of Science in Innovation Management Supervisors: dr. U. Konus, TU/e, ITEM dr. J.J.L. Schepers TU/e, ITEM 1

2 TUE. School of Industrial Engineering. Series Master Theses Innovation Management Subject headings: Business Model Innovation, Revenue Model Innovation, Internationalization, Barriers for Internationalization, Strategic consultancy, Professional Service Firms. 2

3 Table of Contents Table of Figures... 5 Table of Tables... 5 List of Abbreviations... 6 Management Summary... 7 Preface / Acknowledgements Introduction Inducement for the research Personal Inducement for the research Definitions Problem definition Research objective Main research question Research questions Relevance Report Outline Research Methodology Research classification Research strategy Unit of analysis Part 1 Literature review Part 2, Case study Selection of the cases Data collection Interviews Data analysis Research quality Part 1 Literature Review Theoretical background Strategic Consultancy Business Models Business Model Framework Business Model Development Business (Revenue) Models of Consultants Business (Revenue) Model Innovation Barriers for Business and Revenue Model Innovation Discussion and conclusion of the literature review

4 Part 2 Field Research Results and Analysis Introduction Case Descriptions Presentation of results Results Revenue Model Innovation (International) Barriers for revenue model Innovation (Q2) (International) Revenue model innovation risks (Q3) Revenue Model Innovation Opportunities (Q1) Costs (Q1A) Revenue stream (Q1B) Analysis Revenue Model Innovation Framework Conclusion Discussion Managerial Implications Limitations Bibliography Appendix I Appendix II Appendix III Appendix IV Appendix V Appendix VI Appendix VII Appendix IIX Appendix IX Appendix X Appendix XI Appendix XII Appendix XIIV Appendix XIV Appendix XV Appendix XVI Appendix XVII

5 Table of Figures Figure 1 Research objective Figure 2 Reflective cycle Figure 3 Policy Cycle Figure 4 Business Triangle, (Osterwalder et al., 2005) Figure 5 Business model blocks linkage Figure 6 Pricing factors, (Owusu-Manu et al., 2012) Figure 7 Revenue model innovation appropriate? Figure 8 Revenue model innovation framework Figure 9 Offices ARCADIS Figure 10 Top 10 design firms Figure 11 Osterwalder and Pigneur s BMC Figure 12 Patrick Stähler, Revised BMC Figure 13 Value Proposition Canvas and Business model Canvas Figure 14 Business model innovation epicenters Figure 15 Six dimensional model of service innovation and the dynamic capabilities for realizing new service experiences and solutions Figure 16 Business Model Innovation according to IBM Figure 17 Successful business model innovation results Figure 18 Fee range according to project complexity, APPEGA Figure 19 The value of new revenue models in public firms Figure 20 Barriers for internationalization Figure 21 Revenue model innovation Figure 22 Earnings Model Game Table of Tables Table 1 Function overview of interviewees Table 2 Factor identification Table 3 Barriers identified Table 4 Risks for revenue model innovation Table 5 Revenue model innovation opportunities Table 6 Explanation of the factors of the general model Table 7 Types of consulting services Table 8 Change opportunities costs Table 9 Clients of consultancy firms

6 List of Abbreviations PSF BMC CEO SCA CA S&B D&R R&D CSR OPCO SME MNE MNC EU GDP B2B B2C EPC D&C DBFM(O) PPS T&G NS VRM DTG TUe ZZP OLI FDI VPC BMF Professional Service Firm Business Model Canvas Chief Executive Officer Sustainable Competitive Advantage Competitive Advantage Department of ARCADIS: Strategy and Policy making Department of ARCADIS: Delta s and Rivers Research and Development Case Study Research Operating Company Small and Medium Enterprise Multi National Enterprise Multi National Client European Union Gross Domestic Product Business to Business Business to Consumer Engineering-Procurement-Construction Design & Construct Design, Build, Finance, Maintain, (Operate) Public Private Collaboration (publiek private samenwerking) Twynstra & Gudde Dutch Railroads: Nederlandse Spoorwegen Value Reference Model Deutsche Treuhand-Gesellschaft Technical University Eindhoven Dutch: Zelstandige Zonder Personeel Ownership Location Internalization Foreign Direct Inverstment Value Proposition Canvas Business Model Framework 6

7 Management Summary In current competitive environment firms need to be able to adapt their-self s successfully in a short period of time. Moore (2008) states that innovation and continual adaptation is essential for the survival of organizations. This adaptation can often be found in business and revenue models. Wirtz et al., (2010) support this with their finding that firms have to innovate their business models constantly if they want to match the needs of the market, be unique and optimize the value delivered. Further there is relatively little known about how firms (and thus managers) can go about achieving this transformation, and how, and to what extent, different types of business models should be adapted. Developing and adapting their firm s business model has become a major task for many executives in their efforts to cope successfully with technological progress, competitive changes, or governmental and regulatory alterations (Wirtz et al., (2010), pg 2). According to Teece (2009) a business model demonstrates how a business creates and delivers value to customers. This value delivered is outlined by elaborating the revenues, costs, and profits associated with the business enterprise delivering that value. The cost, revenue streams and profits are representing the revenue model. This research is aiming to provide insights how revenue model innovation successfully can be used by strategic consultants in their international environment. The main research question is therefore: What changes in the revenue model need to be made in order to be successful as strategic consultant in an international environment? This topic is currently under researched and thus the amount of quantitative data is limited. Therefore this qualitative and explorative research serves as a starting point for further quantitative research. In order to do so, a general framework (Figure 8) is developed that can be further tested by other researchers. To provide meaningful insights and to ensure relevance, ARCADIS (a major player on environmental consultancy and engineering) offered the opportunity to conduct the research at their advisory Strategy and Decision making. The research question was addressed by means of case study research and therefore 8 distinctive cases are developed by interviewing several experts (consultants). In order to ensure the academic quality of the research, the reflective cycle of Van Aken et al., (2007), as shown in Figure 2, is used. Trends and developments are identified with use of the findings of the literature review and the findings from the interviews. It needs to be remarked that the answer on this question goes further than just a few things that need to be changed in the revenue model itself. This answer would be relative straightforward, namely the cost or the revenues need to be changed. This implies minimizing cost and maximizing revenues with use of several interventions in the current business process of strategic consultants. For both, this is not possible without developing a good offer (value proposition). Moreover this value proposition or offer is 7

8 regarded as the heart of the business model, and therefore it influences the revenue model (Osterwalder and Pigneur 2010). The direct and indirect costs of revenue models can be innovated. The pricing model, the pricing methodology, the payment structure, pricing strategy and payment timing are opportunities to innovate the revenue streams on. The revenue streams offer more opportunities for these firms to innovate on then the costs offer. The direct costs of consultants are rather stable in their home environment, thus only by leveraging these additional revenues can be gathered. In contrast to the direct costs, the overhead (indirect costs) offers more opportunities to innovate. Nevertheless firms such as ARCADIS are always aiming to provide their solutions against the lowest costs. And thus the topic of overhead cost reductions is daily business. Each change inevitably comes with risks. These risks can be either internal or external of nature. These risks are essential to take into count during the revenue model innovation process. Not only risks will be faced during this change in revenue model. There will be some hurdles that need to be taken. These hurdles are better known as barriers and these barriers are of internal and external nature. Both the risks and barriers are therefore taken into count in the revenue model framework. It can be concluded that barriers such as threshold limits and regulations, corporate culture and risk adversity, country factors (language and culture) and a firms strategy, influence the successful implementation of revenue models. If firms are able to take these hurdles effectively many opportunities lay ahead. The resistance against a change can be expected from both the market and the own employees. Therefore a certain level of managerial support is needed to align the innovations with the company strategy. Moreover the consultants need to develop relationships with clients, in order to gain trust and provide them with insights on the benefits of revenue model innovation. This last remark is a difficult one. Due to the nature of the clients, their thoughts on projects and the costs associated with the projects differ. Private firms are currently more open for the usage of other revenue models than fixed price and hourly fees. Therefore this group of client offers the most opportunities to do so. Nevertheless the majority of clients of consultancy firms are public firms. Therefore the usage of other revenue models needs to be stimulated and the public market should be educated what the benefits of revenue model innovations are for their projects (read: what the benefits in terms of costs are). So revenue model innovation offers opportunities to secure market share and growth for strategic consultancy firms in their international environment. To do this effectively, these previous mentioned factors need to be carefully considered. If the focus is only on the revenue model this is not the solution. The total offer combined with these revenue models need to be aligned, to come up with the best solution for both the client and the consultant. 8

9 Preface / Acknowledgements The last deliverable before receiving the Master of Science in Innovation Management title is a master thesis project report. After more than three years of pleasure, having a job and of course studying hard this was the last hurdle to take. Not only ARCADIS is broadening their scope of interest, so did I. After finishing my bachelor degree Automotive Engineering it was time to learn some managerial skills. Innovation Management at the TU/e was, and still is the best choice I have ever made. Together with my classmates I had a lot of fun during the hours we have spent working on the several topics. Besides this fun we have learned a lot from each other, for example how to work in groups, how to divide the work, etc. Furthermore we have learned (how) to be critical on each other s work to improve the final outcomes. My personal interest was triggered by some topics like Marketing and Innovation, Service Engineering, Strategy and Technology Entrepreneurship and New Media. Although the last topic will not be covered in the research project, I think it is an interesting medium to reach (potential) customers. Started on the 10th of November 2012 this master thesis project is finished within 21 weeks. This document presents the outcomes of the master thesis project at ARCADIS Netherlands Division Water, Market group Delta s and Rivers, advisory Group Strategy and Decision making (S&B), (see Appendix I). Before the reader starts I would like to thank my supervisor in ARCADIS Dhr. Marius Kiers and sponsor Mrs. Ursula Blom for offering me the opportunity to do a project at ARCADIS. Furthermore I would like to thank all other colleagues for their input and support. I appreciate the time Dr Umut Konuş and Dr. Jeroen Schepers are spending, and are willing to spend to be the master thesis supervisors. Finally I would like to thank my family, my parents for their support, which made me able to do a Master. And of course my girlfriend who was my motivator to finish the project, and who supported me during the hours I was working on this project. For me remains nothing more than to wish you a pleasant reading. Ernst Vossers 9

10 1. Introduction The goal of this section is to elaborate the context in which the research takes place, and what the drivers or motivations are. In order to do so, both sections 1.1 and 1.2 explain the inducements for the research. Section 1.3 clarifies the definitions used during the research and section 1.4 identifies the problem definition. Finally section 1.5 elaborates the structure of this report Inducement for the research Services are becoming more important by the day and a shift from manufacturing to services is evident in many Western economies (Cicic et al., 1999). Services have grown to almost 75 percent of the GDP (Gross Domestic Product) in higher income countries, such as the Netherlands (Francois and Hoekman, 2009). Professional Service Firms (PSF s) and their internationalization process receive particular attention in research during the last decade. PSF s that are securing revenues by internationalization is very common nowadays, this is a result of the world wide globalization (Stumpf et al., 2002) and innovation performances, (Cainelli, et al., 2006). A special group of PSF s are the (strategic) consultancy firms. These firms are also broadening their scope of interest by providing their services across their national borders. The generalisability of current research findings for service firms is limited. Javalgi et al., (2003) support this finding that the amount of empirical research of internationalization of service firms is low. Moreover Deprey and Lloyd-Reason (2009) stated in their research that all the previous work was sector specific, focused on small and medium firms, and that none of these previous studies pertain directly to (strategic) consultancy firms. This leaves us with an understudied topic in current literature. The organic growth at ARCADIS (a large environmental consultancy and engineering company) is concerning the management at ARCADIS. To prevent ARCADIS from stagnation, an internationalization project is thought to be a good opportunity to secure revenues. Not only ARCADIS is facing difficulties in their organic growth. (Strategic) Consultancy firms like McKinsey, The Boston Consultancy Group and Roland Berger are struggling in this competitive environment. In general, there are four pressures that indicate the difficulties for these firms. First the economic conditions (recession) have forced (strategic) consultancy firms to reevaluate their current business model(s). Their clients are demanding higher flexibility in pricing of the consultants' advice. Secondly, the consulting services tend to be seen as overpriced and suspected for not always delivering the expected value. As a result, their current (often traditional) revenue model is outdated. Third, (strategic) consultants are forced to track the internal performance and the work they provide. This implies working more efficient, effective and delivering higher quality in a shorter period of time. Finally, in order to deliver this higher quality work internal pressure arises for the management to develop or hire more experienced experts. The positive side of this is the significant amount of hands-on knowledge, as they are able to generate well and operationally straight-forward advice in the shortest period of time. The negative side of this is that these experts are more costly, and leverage logic of the firms is disturbed. This leverage logic is very common and very important for these firms. 10

11 In contrast what people might expect, the economic crisis also offers opportunities. In the Marketing Tribune Colum of Joris van Zoelen it is stated that every organization will face a few crises during their life. These crises force firms to reevaluate their current situation and strategies. The topic of revenue models is underexposed, and thus requires more attention. Firms can stay one step ahead of the competition if opportunities are carefully considered and converted into goals. These goals need to include potential solutions to overcome the previous mentioned pressures. One of them might be changing the revenue model with its corresponding business model (Osterwalder and Pigneur, 2010). Both consultants and a majority of their existing clients are thought to be thinking traditional, so a good moment to introduce these changed models is during the internationalization of their professional services. Internationalization (Ruigrok and Wagner, 2003, and Hitt et al., 2006a), international diversification (Hit et al., 2006b, and Capar and Kotabe, 2003), international expansion (Contractor et al., 2003), and (Sarkar et al., 1999)), globalization and multi nationality (Sullivan, 1994) are topics of recent research focusing on the same strategic management issue. The two most used terms, 1) international diversification, is explained as a strategy through which firms expand their sales of goods and or services across the borders of global regions and into different geographical locations or markets (Hit et al., 2006b), and (Capar and Kotabe, 2003). 2) Internationalization refers to the process in which a firm gradually increases their international involvement (Johanson and Vahlane, 1977). The clients and or services provided are new, thus a changed revenue model is more likely to succeed. The combination of the topics: international oriented strategic consultancy firms and revenue model innovation (business model innovation) are not found in the literature. To fill this theoretical gap the project at ARCADIS will be used to provide both practical and theoretical support. This means that this study will try to solve a gap in the literature as well as improve the process at ARCADIS Personal Inducement for the research My personal interest focuses on service development. An important aspect of service development is the selection and usage of the appropriate business model. My personal interest is further triggered by the revenue model that is a part of the business model. This topic receives not only on the University attention, but the market is also innovating. Well respected researches as for example Chesbrough, Osterwalder and Pigneur, and Amit and Zott have been previously researching this topic. One of the topics that is understudied are the new types of contracts and thus sources of revenue. These are of high importance in the current turbulent environment. The master thesis project is supposed to provide the scientific world with new or changed findings that are not yet elaborated. Secondly ARCADIS is willing to provide me with the practical insights on this issue. ARCADIS is also dealing with issues caused by the crisis and the competitive environment. Furthermore ARCADIS is interested in the international aspect of these developments Definitions This section explains the key definitions used in the research, in order to develop a clear understanding of the research and the parameters. First the definitions of PSF s and strategic 11

12 consultancy are explained. Followed by the definitions of a business model and business model innovation. Finally the concept of the international environment is explained. Professional Service Firms Kaiser and Ringsletter (2011) explain the definition as follows: Professional Services Firms (PSF s) are firms like; consultancies, auditing firms etc. These firms provide their clients with services based on the knowledge available in the firm. This knowledge comes from skilled and independent contractors or consultants whose occupation is the rendering of such services. The critical success factors for these firms are the knowledge, the relational competence and the reputation. Furthermore it is argued that service characteristics create a context in which the consultant has to convince the client that consultants have something of value to offer (Lu, and Beamish, 2004). Strategic Consultancy There are many different areas in which consultants are active. One could think of strategy, human resources, internet, process public relations, performance, and engineering. In all these different areas the consultants are providing the client with advice or information on the topic of interest for their projects. These projects can be divided according to Kaiser and Ringsletter (2011) into three categories, namely: brain, gray hair and procedure projects. The Brain projects are usually executed when the client is dealing with problems which are of strategic importance for the client. The client does not have the knowledge in-house to solve the problem, thus external knowledge of the consultant is needed. The nature of these projects is quite different. For sake of this research ARCADIS, and its subsidiaries (see Appendix I) and competitors such as RoyalHaskoningDHV, Twynstra & Gudde are regarded as a strategic consultancy firm because they provide their clients with strategic advice for environmental issues. The topics for these environmental advises are really broad, just as the clients; from SME s (Small Medium Enterprises) and local governments to MNE (Multi National Enterprises)/MNC (Multi National Clients) and the EU (European Union). The department S&B (strategy and policy making) is a good example of a department within ARCADIS providing these services. Business Model (innovation) Business Model (innovation) is one of the hottest topics in current business research. The concept of a business model is explained in various ways; see Appendix III for an overview. This research will use the concepts for Business Models and Business model Innovation of: Amit and Zott (2010), Osterwalder and Pigneur (2010). Osterwalder and Pigneur (2010) described the business model as the rationale of how an organization creates, delivers, and captures value. For the explanation of the components of a business model the Business Model Canvas (BMC) of Osterwalder and Pigneur (2010) is used (see Appendix IV). Business model innovation occurs when a firm adopts a novel approach to commercializing its underlying assets (Gambardella, and McGahan, 2010). This innovation leads to a change in one of the 9 building blocks of the BMC (see Appendix IV ). According to Amit and Zott (2010) business model innovation consist of adding new activities, linking activities in novel ways or changing which firms performs an activity. 12

13 Revenue Model Innovation: In contrast to business model innovation, revenue model innovation is an understudied topic in current research. The combination of the building blocks cost structure and revenue streams of the BMC are representing the revenue model (see Figure 11). The changes in the current revenue model in this context will be further described as revenue model innovation. The term innovation in this context requires some further explanation. Innovation is conventionally referred in the marketing literature as a technology breakthrough. In this research innovation will described as a pervasive attitude that allows businesses to see beyond the present and create a future vision (Kuczmarski, 1996). This future vision is needed for the development of new customers value. This can be done through solutions that meet inarticulate, new and or change (market) needs in value adding new ways. International Environment Finding markets for products is not bounded within the home countries border. Firms are actively seeking markets across the borders (market expansion), introducing new services in well-known markets (product expansion), or introducing something completely new in a new market (diversification). Recent research has been done on: international diversification, international expansion or internationalization. Because of the nature of these terms they will be used interchangeably throughout this research. Research of Johanson and Vahlane (1977) identified that internationalization of a firm is a process in which the firm gradually increase their international involvement. The international environment for this research is bounded within Europe. Furthermore the Netherlands is regarded as home country for ARCADIS (based on the history and the location of the headquarters) Problem definition In the current turbulent economic environment many western consultancy companies, such as ARCADIS, are facing slowing organic growth perspectives. ARCADIS is one of the top 3 professional service providers that focus on global environmental engineering and consultancy. To stay in the top 3, ARCADIS must stay one step ahead of the competition. Within this environment providing (high) quality services is not good enough anymore. Innovation and a new ways of earning money is necessary, otherwise the fall of ARCADIS is near (Robert Kroon, ARCADIS, 2012). This view is not a unique idea. Moore (2008) states that innovation and continual adaptation is essential for the survival of organizations. This idea is not developed in the last years. Early research of Kash (1989) introduced the concept The new World of Competition Based on the literature gap, the four premises combined with the problems and opportunities of ARCADIS have been translated into the following problem definition: It is unknown how innovation of business models (with innovated revenue models) during internationalization can be used to strengthen ARCADIS top 10 position (see Appendix I, Figure 10) as a global strategic consultancy firm. Furthermore it is unknown if (new) clients are accepting a change in the revenue model for new or existing services of ARCADIS. This problem is translated into a research objective with corresponding research questions. These questions will be explained in the next sections. 13

14 Research objective The project consists of two sub projects (parts), a scientific and a practical part which are related to each other. The scientific part will focus on the theoretical applicability of the results. Combining the findings from the literature with practical findings from case studies and interviews will result in a scientific explanation of the research question. In the next section both the theoretical and practical relevance are elaborated. In order to fill the gap in the current literature, and providing ARCADIS with managerial insights for the current problem, this project is started. Further, the practical part will provide insights from the market by interviewing several experts in this field. The information of both will be used to develop a comprehensive and unifying model to successfully change the revenue model (as part of the business model) for strategic consultancy. Several questions are raised: What needs to be changed in the revenue model in order to become successful in this environment? Is it possible to change the revenue model of strategic consultants? What needs to be changed in the revenue model to become successful? The different steps (see Figure 1) before the actual start of the research are as follows: Step 1, my personal interest combined with the challenges of ARCADIS has triggered my attention for different topics. A logical consequence of this is that the literature review is done on the topics, to gain more scientific knowledge. Step 2, the actual literature review is conducted. The topics of this review are: internationalization, business model innovation, and strategic consultancy. Only studying these topics did not identify a gap, (see chapter 5, Theoretical Relevance). So step 3 the orientation interviews are conducted. These 6 interviews have shown that there is a need for strategic consultancy firms to start changing their revenue model/ earnings model, (see chapter practical relevance). By combining both step 2 and step, the gap in the literature is explained (see chapter 2.4). This gap has shown the necessity to start elaborating the main research topic (and question). Based on this, the research (sub) questions are derived. Figure 1 Research objective Main research question As explained in the problem definition the usage of revenue model innovation is currently understudied. In order to propose a solution for this problem the following main research question is elaborated: What changes in the revenue model (as part of the business model described with use of the theory Osterwalder and Pigneur (2010)) need to be made in order to be successful as strategic consultant in an international environment? 14

15 To answer this question the previous mentioned definitions will be used. The main research question is further divided into some sub questions. These sub questions are elaborated in the next section Research questions A theoretical framework is developed in order to gain insights in the usage of revenue model innovation by strategic consultants in an international environment. As been elaborated the research questions address the different topics. Each of these topics is explained in research with use of several theories. Theories that are applicable for the situations will be included in the research. These theories will be further used to develop the comprehensive and unified framework. The following sub questions are derived: 1) Which internal and external changes are necessary for the revenue model in the cost structure (Q1A), and the sources of (Q1B)? This question is answered as follows: First a clarification of the revenue models currently used by strategic consultancy firms, such as ARCADIS, are given. Thereafter an elaboration is given how these firms use these or other models in the international environment. In order be successful it is essential to stay one step ahead of the competition. Trends and developments from revenue models in the Netherlands form the basis for this. These developments are elaborated and will also provide me with suggestions for changes. Each change inevitably comes with risks. So the next sub question is: 2) Are there potential internal and external risks associated with these changes, and if so what are those? This question will be answered as follows: What are the risks for the firm to start using new revenue models? Is there a risk of cannibalization of their products? Are they becoming competitors of their own OPCO s (operating companies)? Are these revenue models hard to copy, and do they involve more risk taking activities of the firm itself? All of these factors might hinder the change of revenue models of the firm, and thus need to be incorporated. Not only risks will be faced during this change in revenue model. There will be some hurdles that need to be taken. These hurdles are better known as barriers. These barriers are of internal and external nature and will be elaborated. So the last sub question is: 3) What internal and external barriers will hinder the successful implementation of these revenue model innovation(s)? Business model innovation and internationalization both need to deal with barriers. As the revenue model is a part of the business model, there are also barriers. The revenue model innovation takes place in the international environment, and thus the barriers for internationalization will also hinder this change. This question will be answered as follows. First the internal barriers and their impact on the revenue model are explained, followed by the external barriers that are hindering revenue model innovation. Both will be incorporated in the final comprehensive and unifying model. 15

16 Relevance The relevance of this project is twofold, namely practical and theoretical. In this section both the practical and theoretical relevance for the research will be explained Theoretical relevance Based on the previous conducted literature review it can be concluded that the topics of internationalization, business models and business model innovation are hot. Some wellknown and respected researchers are developing new models and theories about these topics. Chesbrough (2007) states that companies have a business model innovation leadership gap. Furthermore Chesbrough (2010) explains business model innovation with opportunities and barriers. There are two drivers for this research. The first is based on the research of Kujala et al. (2010). Kujala et al. (2010) states that further research should be conducted to determine the contextual factors or the drivers and barriers that affect the choice of the business model in project-based firms. The second is based on Deprey and Lloyd-Reason (2009), who stated in their research that all the previous work on internationalization of PSF s was sector specific, focused on small and medium firms, and that none of these previous studies pertain directly to (strategic) consultancy firms. Furthermore the model of Patrick Stähler, (see Figure 12) has triggered my attention. This model builds up on the previous model of Osterwalder and Pingeur (2010). Stähler added the culture and value blocks to the model. In these blocks leadership style, relationship style and values are included. These three points are of particular interest for strategic consultancy firms in their relationship with their clients. As has been elaborated previously the following topics received my attention. 1) Internationalization or international diversification as a strategic development option to secure market share and profits. 2) The usage of innovative business model (and their underlying revenue model), and the rationale behind business model innovation. 3) The topic of consultancy, and the characteristics of these types of services. These topics are addressed in several researches, for example: Appelbaum and Steed 2005, Osterwalder and Pigneur 2010, and Chesbrough The literature review is used as input for 6 orientation interviews. These interviews combined with the fields of interest have been directing the research (see section practical relevance). With use of the interviews and the literature review I identified a gap. This gap shows there is relevance to study this topic further. Practical relevance It has become clear that ARCADIS might be facing difficulties and opportunities in their current environment. This section will indicate the practical relevance (and thus opportunities) to start with an internationalization process at ARCADIS Netherlands. This relevance will be supported by examples from the six interviews conducted before the start of this project. As globalization increases, so does the attention paid to the internationalization of Dutch companies. The appearance of new players on the (European) market means on the one hand 16

17 that Dutch companies are being confronted with greater (foreign) competition on their domestic market. On the other hand, the same circumstances also create more opportunities on foreign markets. Not only strategic consultancy firms such as ARCADIS are focusing on expanding their market to foreign countries. In a letter ( Buitenlandse markten, Nederlandse kansen (2011)) to the House of Representatives, (currently ex) Minister Verhagen emphasizes the need for companies to expand their foreign market involvement. This further internationalization is necessary for a prosperous, sustainable and entrepreneurial Netherland. More recently the Dutch House of Representatives identified several topsectors in the Netherlands of which water is an important sector. The Netherlands is known as Waterland, our source of growth and prosperity. With the innovation contract, Nederland Waterland the ambitions for the topsector are emphasized and the responsibility for further expansion throughout the world are shown. One of the targets is to double the industry by 2020, in order to show the Dutch identity and power to innovate (Ministry of Economic affairs, 2012). The share of services in total Dutch exports remained approximately 20 percent (CBS, 2010). The first two quarters of 2012 indicated growth revenues of PSF s, but the expectations are not as good as before. PSF s are facing these unexpected challenges today (Stumpf et al. 2002). The conjunctuurenquête van July 2012 of the CBS indicated a trend in which 18% of the PSF s are expecting a negative economic climate. In order to prevent PSF s from (further) stagnation, internationalization is a potential solution. Internationalization deals with expanding their offerings and office locations in response to the changing situations more comprehensive and integrated services are a potential solution (Stumpf et al. 2002). There are four important motives to start operating in a foreign country: Securing the market share, and thus profit in order to reach the targets (supported by Marjolein Van Wijngaarden, Ursula Blom and Harm Albert Zanting, ARCADIS 2012) Securing the organic growth, (supported by Ursula Blom and Harm Albert Zanting, ARCADIS 2012) Attracting the right human resources, (supported by Harm Albert Zanting, ARCADIS 2012) Supporting key clients across the national borders, (supported by Marjolein Van Wijngaarden, ARCADIS, 2012). Reihlen et al. (2009) provides some examples of PSF s that were engaged in moving advisory activities (services) across borders. Accounting firms such as Deloitte and Haskins Sells or Price Waterhouse have followed their industrial clients since the late 19th century to the United States (Aharoni, 1999). Moreover Reihlen et al., (2009) explains the internationalization process of Deutsche Treuhand-Gesellschaft (DTG, a KPMG company). DTG was not only a particular relevant case for the study of Reihlen et al., (2009), but today as part of KPMG, it is one of the top 4 largest international accountancy/ advisory firms worldwide and is the only Big 4 accounting/ advisory firm with an European origin. Reihlen et al., (2009) identifies that PSF s are able to create a significant part of their competitive advantage by defining a competitive strategy as a direct result of their foreignbased activities. The purpose of this competitive strategy is to achieve sustainable competitive advantage and thereby enhance the business's performance (Bharadway et al., 1993). 17

18 The 6 orientation interviews identified the need to further study the internationalization strategy of ARCADIS. The public market in the Netherlands is saturated. The Dutch market doesn t offer many opportunities anymore. The competition is increasing, and appears from unexpected competitors (Marjolein van Wijngaarden, ARCADIS, 2012). There are lots of opportunities outside the national borders (Harm Albert Zanting, ARCADIS, 2012). To be successful, a sound (Ursula Blom, ARCADIS, 2012), and a throughout the firm supported (Harm Albert Zanting, ARCADIS, 2012) internationalization strategy is necessary. A part of this strategy is the innovation of business models, and their underlying revenue model. Only focusing on providing high(er) end value services with potential better margins isn t the best solution. Extending the service range will improve the profits of ARCADIS. The revenue model of consultants is becoming outdated. The prices cannot be increased, but the services need to be extended (Marjolein van Wijngaarden, ARCADIS, 2012). That the topic of revenue model innovation is hot is supported with the report of Agentschap NL (2012) (De waarde van nieuwe verdienmodellen). The report provides findings of innovations on value creating with use of revenue model innovations in urban delta developments. This is one of the markets ARCADIS is proving it s strategic services for Report Outline In order to guide this study the reflective cycle by van Aken et al., (2007) is used. This document is structured as follows. In section 2 an elaboration is presented on how the research is conducted. This includes the methodology used, the data collection and analysis procedure. Thereafter the quality issues regarding the used methods. Chapter 3, the theoretical background provides a literature overview of the topics that will be addressed in the research. Followed by chapter 4 that provides the information gathered from the field research. Further the analysis of the results and the final general and comprehensive model (framework) are elaborated. Chapter 5 will answer the questions as proposed in section 1. Further the conclusions and limitations are elaborated. The appendixes starting after the reference list can be used to gain more insights in this project. The appendixes are readable without background knowledge, but with use of the information throughout this proposal the relevance becomes clear. 18

19 2. Research Methodology After elaborating the problem definition, research objectives and their corresponding research questions the research methodology is elaborated. This section will provide a framework for the guidance of the researcher to ensure the quality of the deliverables. The main question discussed in this chapter is: Which steps need to be taken during the research to ensure this delivery? The regulative model cycle of Van Strien (1986) that is following the business problem solving approach, describes the knowledge (internationalization, business model innovation) deducted from literature which is used to improve the current situation of strategic consultants, such as due to the stagnating growth of ARCADIS. Furthermore the reflective model cycle of Van Aken et al., (2007) reflects how the integration between a proposed solution and the current situation works, as shown in Figure 2. According to van Aken et al., (2007) projects related to business problem solving can be divided into three phases: design, change and learning. These phases consist of the following five chronological steps: 1) Problem definition, 2) Diagnosis, 3) Design, 4) Intervention and 5) Evaluation. The reflective cycle by Van Aken et al., (2007), as shown in Figure 2, will be used to ensure the academic quality and outcome(s) of this project. This research is divided into a practical part and a theoretical part. The practical part concerns a set of explorative qualitative in-depth interviews. As van Aken et al., (2007) describes, the qualitative research is conducted when qualities of things should be assessed. The explorative nature of this research is identifying the factors influencing the success of revenue models in the given context. The theoretical part of this research, the literature review, which is also explorative qualitative of nature is providing insights in topic of business and revenue models (innovation) in the international context for strategic consultants Research classification Verschuren en Doorewaard (2005) explain the difference between practical and theoretical research. Both are applicable for this research, but the main focus is on the theoretical research, because this research aims to provide theoretical scientifically insights. Verschuren en Doorewaard (2005) further explain the difference between theory development and theory review. This research focuses on theory development. A smaller part of this research includes a review of the proposed solutions, but not the theory itself will be reviewed Research strategy The selection of the appropriate research strategy is the most important decision, this further influences the whole research. The research has an explorative problem definition, so unstructured qualitative research is preferred (Van Der Velde et al., 2000). The usage of quantitative research is not appropriate because of this explorative nature. Furthermore the Analysis Evaluation Intervention Other Input Reflection Reflective Cycle Regulative Cycle Plan Figure 2 Reflective cycle Documentation Problem Definition Diagnosis 19

20 absence of scientifically explanations on the topics is another reason to do quantitative research. A drawback of this type of unstructured research is the fact that it takes more time to gather qualitative data, although these insights are often regarded as really valuable. Qualitative research targets at developing an understanding and insights gathered with use of observation, interviews, ethnographic fieldwork, discourse analysis or textual analysis based on small samples on the topic of the research. The researcher is interpreting and reporting verbal and contemplative the findings (Verschuren en Doorewaard 2005). The theoretical part describes literature related to the topics, and will be assessed on the relevance and quality before it is included. The literature review provides the research with secondary data, which will be combined with the primary data gathered by interviews to support the findings (Blumberg et al., 2005). These interviews are one of the different types of case studies. CSR (Case Study Research) is appropriate for this project, because it focuses on describing, understanding, predicting and/or controlling: process, organizations, groups, industries, cultures, or nationality that allows us to perform in-depth investigation (Fellows and Liu, 1997) to gain insight why and how to design a solution for ARCADIS and comparative firms (Woodside & Wilson 2003, Yin 2009, Blumberg et al., 2005). The results of the CSR will be used to support the general (framework) model. Each research strategy and methodology has benefits and drawbacks, so it is essential to assess the data on the quality. First the unit of analysis is further explained in the next section Unit of analysis Before suggesting a set of criteria for judging the project, (an) appropriate selection unit(s) of analysis is determined (Shrivastava, 1997). In the most ideal project, the unit of analysis is an existing theory in the research field. According to Shrivastava (1997) a research project delineates the content domain that is the focus of the research. This focus implies that a set of questions of interest and a set of research methods are determined for the project. A sound research is supported by a set of underlying theoretical findings from the literature. The units of analysis in this project are strategic consultancy firms. As this study will be a qualitative study, this section will explain the used sources to collect the data. An overview of the used sources will be given in the next sections Part 1 Literature review A literature review is conducted before the final thesis question development, see Step 2 of Figure 1. After the elaboration of the problem definition and the corresponding research questions a more extensive literature review is conducted. Different types of literature are used during the project, scientific and some popular nonscientific materials. The literature is reviewed as follows: First the most relevant literature is reviewed. From this relevant literature the references are scanned and reviewed if these were relevant to gather new insights, finding new keywords and elaborating new terms. After a few rounds a state of theoretical and empirical saturation is reached. This saturation point implies that reviewing more literature doesn t add any new and significant insights to the research (Yin, 2009). A 20

21 great advantage of (scientific) literature as a source is that it adds various insights from different fields that can be used as theoretical explanations of the research questions Part 2, Case study There are several reasons why case study research is suitable for this research: 1) The main research question and the sub questions are suitable for case study research, due to nature of the what, why and how (Yin 2009) questions that are used for explanation. The main research question: What changes in the revenue model (as part of the business model described with use of the theory Osterwalder and Pigneur (2010)) need to be made in order to be successful as strategic consultant in an international environment? describes the changes needed for this situation. The sub questions are further identifying barriers and risks for these thought to be successful changes. 2) Yin (2009) explains that CSR is more suitable when the phenomenon cannot be completely isolated and tested with experiments. The factors influencing this phenomenon cannot be isolated and explained systematic and directly. 3) Case studies are used aims to explain the current situation, and not the historical situation. Based on the reasoning of Yin (2009), case study research is an empirical research whereby the current situation is explained when the context and boundaries are not clear, and there are multiple sources of evidence used. Based on Yin (2009) the best way to answer the main research question and give a clarification for the problem definition is to use an explorative qualitative research that will make use of multiple case studies. Further to ensure external validity, multiple case studies are preferred (Yin 2009). Multiple case studies are useful because the goal of the research is to develop a general framework with a set of thought to be relevant variables. Moreover multiple case studies are preferred above a single case study, because the lack of precious found empirical data/ cases that are: 1) crucial 2) typical or representative, 3) long lasting, 4) sensational or revealing, and 5) unique or extreme (Yin 2009) Selection of the cases Before the selection of case studies can be made, an accurate elaboration of the case itself must be made. The unit of analysis, as previous explained, is not a single person or an organization. Unfortunately some researchers make a mistake by selecting a single person or a single organization (Gomm et al., 2000). In this research it is not ARCADIS that is the case, but the strategic consultancy firms, such as ARCADIS. The interviews conducted are not bounded within ARCADIS, or within a specific division of ARCADIS. Other Firms like NPC (RoyalHaskoningDHV), Syntens and The Bridge are also included in the research. The selection of interviewees is done by accidental sampling (Powel, 1997). Accidental sampling is also known as grab, convenience or opportunity sampling. This type of sampling is a nonprobability sampling method, which involves the sample of interviewees being drawn from that part of the population which is close to hand, in my own network. The population can be regarded as readily available and convenient. The interviews are taken in a face to face setting 21

22 in the Netherlands, and with use of communication tools outside the Netherlands. A drawback of this methodology is that the results cannot be generalized scientifically. The total population might differ too much from the taken sample, and thus this would not be representative enough. Several important considerations for researchers using convenience samples include (Powel, 1997): 1) Are there controls within the research design or experiment which can serve to lessen the impact of a non-random convenience sample, thereby ensuring the results will be more representative of the population? 2) Is there good reason to believe that a particular convenience sample would or should respond or behave differently than a random sample from the same population? 3) Is the question being asked by the research one that can adequately be answered using a convenience sample? Data collection Choosing between the data collection methods (documents, archival records, interviews, direct observation, participant observation, and artifacts (Rowely, 2002)) depends on the type of data best illuminates the research topic on practical considerations (Patton 2002). The data gathered with these methods can be divided into primary and secondary data. In this research both types of data will be used in this research. The primary data is gathered by in-depth interviewing. This information will form the basis of this research, and will be combined with secondary data that is gathered from journals, books, internet, brochures, presentations, annual reports, and some other interesting sources. By using multiple sources of evidence, and research methodologies the triangulation will be improved (Golafshani, 2003). The considerations to use a certain type of data depends on 1) if the data already exist, 2 ) the nature of data, 3) the subject matter and the study population (Ritchie et al., 2003). There is some information available on the individual topics of this research. This data is therefore regarded to be secondary data (part 1 of this research). This primary data (Part 2 of this research) is found by the researcher himself, and can be directly linked to the actual research objective. There are five key features that are in favor of using in-depth interviewing in this research above other methods (Legard et al.,2003). First, in-depth interviewing allows more flexibility than other methods Secondly this method allows interaction between researcher and interviewee. Thirdly, the researcher can ask why and how questions to elaborate topics of interest deeper. Fourthly, new knowledge and insights can be created because of the interactions and the deeper elaboration. Finally, in-depth interviewing is done in a face to face setting. Interviewing by phone is not supportive for the method. Because of the four previous mentioned features combined with the interpretation of the researcher when he/she is not present (read: in a face to face setting, or by video conferencing) during the interview. Focus groups offer another opportunity to gather primary data, nevertheless based on the following explanations of these issues in depth interviewing is preferred above focus groups. Revenue model innovation of strategic consultants is an understudied topic. Therefore elaborating this linkage is a new research topic. Questions such as: What are motivations of 22

23 both clients and consultants to use these model, etc? are raised. The employees of ARCADIS are located at several offices, that are easy accessible for me as researcher. The other interviewees are located near the TU/e and the offices of ARCADIS. All the interviewees have a full agenda, therefore visiting them on their site was required to gather the information. The topic of revenue model is investigated by the researcher in detail. Involving creativity to come up with new models is not required. It is preferred for identification of barriers, risks and opportunities to use different insights of the problems Interviews The in- depth interviewing methodology, conducted by employees of ARCADIS, experts from the fields and with employees of competitors is used to gather (a wide diversity of) information or knowledge on the topic of interest. This information is relatively easy accessible, and can be gathered in a short period of time. Patton (1987) suggests three basic approaches (based how structured they are) to conduct qualitative interviews, namely: 1) informal and conversational, 2) a general interview with a guided approach, 3) standardized, open-ended interview. The more structured the interview, the less room for natural interaction between researcher and interviewee. A general interview, also known as semi structured, is the most suitable for this research. By developing a set of questions the topics of interest will be covered, but the depth of the questions depends on the interaction between researcher and the interviewee. The interview will be held in the following languages: English or Dutch. After the interview the interviewee received a short summary for confirmation of the findings. After the conformation that the gathered data is correct, the data is suitable to be analyzed. In Appendix V a list of the interviewees is presented. In the next section the rationale of this selection is explained. Rationale The rationale behind the selection of the interviewees within ARCADIS is the following: All the employees are regarded as senior consultant, or have been promoted to a (senior) management position. Therefore these employees are not new to the market and thus have enough knowledge on these topics. All these field experts have affinity with strategic consultancy and/or business model innovation and/or internationalization. By selecting the managers and consultants with different functions inside of the firm, the possible findings will have a wide support throughout the several departments of ARCADIS. Managers have different views of the market compared to their subordinates. By incorporating the opinions of several managers, with different positions within the firm, the generalizability is enhanced. Furthermore managers are selected both within and outside of ARCADIS. This makes the findings generalizable outside of ARCADIS. The director(s) and the employees of the business development department are, as the department name already suggest, working on developing (new) services. Their focus is on using new types of contracts, finding new markets, finding new customers and developing new alliances for each of these topics. Further their knowledge of the market is broad, which is useful to identify trends. 23

24 Data analysis As elaborated, several methods of gathering data/information will be used. This information is further analyzed and translated into concrete findings and recommendations. The concepts found in the secondary data (literature) are used for the interpretation of the primary data (interviews). The primary data is analyzed by making use of content analysis. This method is summarizing a quantitative analysis of the findings that rely on a scientific method. Further this method is not limited to the types of variables that may be measured, or the context in which the messages are created or presented. This method includes taking attention to objectivity, inter-subjectivity, a priori design, reliability, validity, generalizability, reproducibility and hypothesis testing. Interpreting and analyzing data in research comes with the following epistemological assumptions Travers (2001) even when they are not aware of it: Positivism, interpretivism and positivism realism. Furthermore the rigor relevance debate of Shrivastava (1997) is one of the concerns for the case study. Rigor refers to the question whether the research is well grounded in existing theories, in contrast to relevance that refers to the usefulness of a research outcomes project for managers. The criteria of Shrivastava (1997) for assessing the rigorousness of a research project are taken into count as follows; First the conceptual adequacy, that is taken into count with the literature review, measure the extent to which a research project applies the knowledge of its base disciplines to create an adequate conceptual framework. Secondly, methodological rigor focuses on the research methods used. Because of subjective methods used the researcher needs to deal with qualitative data, interpretive data analysis and intuitive inferences (Morgan and Smircich, 1980). Shrivastava (1987) discusses that it is possible to evaluate these techniques on a subjective-objective continuum. Therefore the usage of multiple sources of data in this project ensures that the used methods give different (supporting) views of the problem statement and the potential solution(s). The third rigor criterion of Shrivastava (1987) is the extent of accumulated empirical evidence supporting the theory used in this project. In this project a case study will be conducted, and according to Yin (2009) case studies can be regarded as a threat to empirical evidence. The case study focuses on the impact of revenue models on the internationalization process of strategic consultancy firms. The evidence found will be compared with previous comparable research to be able to generalize the findings. The theories used on the earlier mentioned topic are all proved by scientific literature. The relevance criteria of Shrivastava (1987) will be ensured as follows. The work should be meaningful and the goal must be relevant, that is ensured with the fact that the project is initiated and conducted by ARCADIS. The operational validity will be taken into count by designing a theoretical model for revenue/business model innovation. Innovativeness focuses on the added value by providing non-obvious and new insights into the practical problem revenue/business model innovation by strategic consultants in an international environment. The actual implementation, and the cost acquiring with this are out of scope. 24

25 2.6. Research quality Research comes with assumptions, and these assumptions always imply a debate on the quality and generalizability of the findings. According to Yin (2009) case study research needs to deal with four types of criteria to assess the quality of the research: reliability and three types of validity (construct, internal and external). Reliability The reliability of the results in this research are regarded as reliable when they are independent of the particular characteristics and can therefore be replicated in other studies (Van Aken et al., 2007). According to van Aken et al., (2007) reliability of interviews can be influenced by four different variables: the researcher, the measurement instruments, the situation and the respondents. In order to prevent this research from non reliable results the interviews are standardized. Therefore explicit procedures for data collection, followed by the analysis and the interpretation are used. The semi structured interview method, that is used, is suitable for this, because the answers are given in a format which can be evaluated. Triangulation (Golafshani, 2003) is used to further improve the validity and reliability of research or evaluation of the results. This strengthens a study by combining different research methods that differ in type of data, or in the combination of research methodology. In this study triangulation is incorporated by using several sources of data and interviewing different stakeholders. Validity Validity (Construct, Internal and External) of this project refers to the ability of this study to scientifically answer the questions it is intended to answer (Blumberg et al., 2005). Construct validity refers to the extent to which operationalization of a construct does actually measure what the theory says it should measure (Bagozzi, 1991). Yin (2009) explains three methods to do so. First construct validity is enhanced by making sure of several sources of evidence. Secondly the chain of evidence used in this research is kept as clear as possible. Third point wise transcripts of the interviews are made, and send to the interviewees to comment on the interpretation of the researcher. After an approval the findings are suitable for the research. Internal validity is an inductive measure of the degree to which the outcomes of this study about causal relationships can be drawn, based on the following three points: 1) the measures used, 2) the research setting, 3) the whole research design. Good experimental techniques are experiments in which the effect of an independent variable on a dependent variable is studied under highly controlled conditions. Within this project, the research design, research setting and the measures used will be considered well in order to prevent a validity discussion. External validity concerns the extent to which the outcomes of this study can be held to be true for other cases. In other cases the people, time or place are different, but the outcomes must also be identical. In order to prevent the study from this discussion, the research conditions will clearly be elaborated. 25

26 Part 1 Literature Review 3. Theoretical background This chapter provides an overview of the theoretical background that has been deducted from the secondary sources. These secondary data sources are academic researchers in the area s related to the topic of this research. The information from these sources will be later on combined with the primary data to answer the main research question, in order to provide new insights for the scientific world. This chapter is build up as follows; first an elaboration of strategic consultancy firms is made. After this elaboration the topic of business models is addressed. The link with strategic consultancy firms is also explained. There-after the topic of business model/ model innovation is elaborated. As has been done before, this topic is linked with strategic consultancy firms too. Finally a short conclusion and discussion of the literature is provided Strategic Consultancy Strategic consultancy is a collective noun for the field of expertise of advisors that are focusing on projects with a strategic nature. Their customers hire a consultant if they don t have the knowledge their self s to achieve this result. For sake of this research ARCADIS, its subsidiaries (see Appendix II) and the competitors are regarded as a strategic consultancy firm because they provide their clients with strategic advice for environmental issues. The topics for these environmental advises are really broad, just as the clients; from SME s (Small Medium Enterprises) and local governments to MNE (Multi National Enterprises)/MNC (Multi National Clients and the EU (European Union). In (Appendix I) Table 7 an overview of the types of consulting services is presented. Another important characteristic of the consultancy market is the relationship building between client and consultant. A consensus driven relationship, which is open for affiliations and comments, allows consultants to develop the most suitable solution for their client. Finally it is important for consultants to build their network within and outside the firm. To provide their clients with new solutions building this network is essential. Without a good reputation the relational competence is hard to achieve. High reputation therefore can be deemed as a door opener and pre-condition for firms to award a project, (Kaiser and Ringlstetter, 2011). The reputation of the firm (branding the name), should be shown by using adequate references of successfully terminated projects. The back-office should document all these references well, to be able to provide them whenever needed. The new World of competition (Kash, 1989) has four underlying premises to be successful: 1) Aiming at hassle-free services is not possible; clients are demanding instantaneous, flawless en effortless services. 2) Good basic services are not good enough. Clients demand premium services, and these clients change their standard continually. 3) Companies can no longer compromise on quality and or product capabilities. Moreover a superior combination of both is needed. 4) Raising prices is not possible. Reduction of costs and working more billable are essential in order to stay competitive. In the world of strategic consultants the competition is high. Small firms with only one or a few employees are delivering services for prices far 26

27 below the market price. These called self-employed consultants (in Dutch: ZZP s (zelfstandige zonder personeel)), or SME s are providing services that are valuable for their money. But they cannot reach the high quality standard of the well-respected larger consultancy firms. The so called pricing paradox (Owusu-Manu et al., 2012) is of less of concern of these consultants in contract to the consultants of the larger MNE/MNC. Furthermore the job tile consultant is in contrast to many other job titles (such as lawyer, engineer, etc.) not a legally protected occupational title. Since there is no standardized training and or discipline-specific academic degree is required. This results in the fact that everybody may call their self consultant. This makes it easier for a person to start his own consultancy firm. Strictly translated the term consultant explained as specialist who gives expert advice or information. The bigger and more respected strategy consultancies (Booze, PWC and Deloitte for e.g.) recruit graduates, who do not have an economic background, but come with the necessary expertise (e.g. physicians, engineers or theologians). Nonetheless it is essential to have some intellectual abilities, such as analytical skills and problem solving competence. Furthermore some other characteristics like objectivity, discretion, willingness to learn, flexibility and the ability to cope with pressure and behavior, like e.g. communication skills are necessary. In Figure 3 the field (red cycle) in which the advisory S&B is mainly operating is graphically depicted. This cycle is known as the Policy Cycle. The baseline for this cycle is the Plan, Do, Check, Act model of Deming (1986), who is regarded as an expert on the topic of quality management. This cycle is translated into the Policy Cycle. The clients of firms such as ARCADIS Netherlands (and advisory S&B) can be roughly divided into three main categories: governmental, semi-governmental and public Business Models As the term business model intuitively suggests it has something with both with business and with models. Osterwalder et al., (2005) explains this as follows: Evaluatie Uitvoering Beleidsontwikkeling Implementatie (planvorming) Figure 3 Policy Cycle Business is the activity of buying and selling goods and services, or a particular company that does this, or work you do to earn money, pg (14); A Model is a representation of something, either as a physical object which is usually smaller than the real object, or as a simple description of the object which might be used in calculations, pg (14). PSF firms often offer several services, and thus the usage of multiple business models within a single firm would be beneficial. These business models can differ within a firms division or department. These findings are supported by den Hertog et al., (2010), who state that service firms can have different business models in their portfolio and that these firms may combine various new business models in one strategy. Business models are a trending topic in research. Good and sometime innovative business model(s) are essential for firms to survive in the current environment. The IBM CEO study 27

28 (2006) showed that business model innovation has a higher correlation with operating margin growth than any other type of innovation. This is in line with Osterwalder et al., (2005), who states that focusing on product innovations is not enough anymore. Osterwalder et al., (2005) presents a few reasons why business models fail. Understanding these risks help managers manage risks better. In his blog on he broadly categorized business model failures into four main reasons: 1) solving an irrelevant customer job, 2) flawed business model, 3) external threats, and 4) poor execution. Researchers are using business model and strategy interchangeably while others use them as two different concepts. Before the elaboration of the business model itself, a clarification of both concepts is needed. Despite all the literature and words spoken, business models are still relatively poorly understood (Linder and Cantrell, 2000). Firms have to develop a more sustainable competitive position and a strategy in order to adapt to the changing environment (Vanhaverbeke, 2003). The competition is increasing, and new entrants are entering the market with new and innovative business models (Vanhaverbeke, 2003). These new business models are sometimes disruptive for the market, and thus established firms have to adapt their current models. Firms innovating their business models have two choices in their strategy according to Chan Kim and Mauborgne (2000), [7]. (Business) Strategy refers to the choices made by the firm in respect to what, how and where they will do business. The business model then, elaborates on an architectural level rather than on a visionary level, the implementation and operationalizing of this strategy (Osterwalder et al., 2005). Teece (2010) even states that a business model is more generic. According to Magretta (2002) there is a practical difference between a strategy and a business model. A business model explains how the different (puzzle) parts fit to each other. In contrast to the strategy, that also describes how this enhances the competiveness of the firms with its product or service in the market. The business model is a blue print that allows designing and realizing the business structure and systems that constitute too the operational process and physical form of the company. This relationship (the Business Triangle (Figure 4) Osterwalder et al., (2005)) between strategy, the technology and the business organization are constantly subject to external pressures, like competitive forces, social change, technological change, customer opinion and legal environment. The definition of business models is explained in different ways. Osterwalder et al., (2005) describes the business model's Figure 4 Business Triangle, (Osterwalder et al., 2005) place in the firm as the blueprint of how a company does business. It is the translation of strategic issues, such as strategic positioning and strategic goals into a conceptual model that explicitly states how the business functions. The business model serves as a building plan that allows designing and realizing the business structure and systems that constitute the company s operational and physical form. Further some well-known explanations are: 1) the architecture for products, services and information flows, including a description of various business actors and their roles, the potential benefits for the various business actors, and the 28

29 sources of revenues (Timmers, 1998). 2) A statement of how a firm will make money and sustain its profit stream over time (Steward and Zhao, 2000). 3) A summation of the core business decisions and trade-offs employed by a company to earn profit (Hamermesh et al., 2002). 4) The more recent research of Osterwalder and Pigneur (2010) described the business model as the rationale of how an organization creates, delivers, and captures value. This last definition is very similar with the business model definition of Timmers (1998). Amit and Zott (2010) describe it as the bundle of activities that are conducted to satisfy the perceived needs of the market, including the specification of the parties that conduct these activities, and how these activities are linked to each other. These mentioned explanations are just a few of the many definitions of business models. In Appendix III a recent overview of the used definitions is presented. As can be deducted from this overview, there is not a single accepted definition of the business model. Nor is there a consensus on the components or attributes of which a business model is build up. This difference of views is caused by the abstraction level the researchers are evaluating this concept. From a more generic level (Magretta 2002) to a more concrete level (Timmers, 1998 and Osterwalder et al. 2005). A further discussion about the appropriate definition is out of scope of this research. According to Chesbrough (2007) a business model performs two important functions: value creation and value capture. There are several ways to look at business models. In general business models are examined on the firm-level, but Chesbrough and Rosenbloom (2002) are suggesting that a firm can have several distinctive business models. The theory of Osterwalder and Pigneur (2010) in combination with the theory of Chesbrough (2007) will be used during this project Business Model Framework There are many definitions of a business model, nevertheless in essence all these definitions share the same baseline. A business model consists of different building blocks (or components) that are beneficial to each-other. These blocks elaborate the way a firm executes and governs its business processes, creates the value proposition for a service Figure 5 Business model blocks linkage. for a group of specific customers, and thus yields a profit in the end. Osterwalder and Pigneur (2010) elaborated the definition of a business model with use of their business model canvas (see Appendix IV, Figure 11). This model consist of the following nine building blocks: value proposition, customer segments, distribution channel, customer relationships, revenue streams, key resources: key activities, key partners, and cost structure. In Figure 5 the link between the individual blocks is depicted. Figure 5 shows that the 9 building blocks are grouped into 4 sets. These sets are: 1) activity perspective (or 29

30 infrastructure), 2) product/service (or offer), 3) client perspective (or customer) and 4) financial perspective (or finance). Partner Network: It is the network of suppliers and partners that make the business model work successfully. Firms seek partners and create alliances to optimize their business models in order to reduce risk, or acquire resources. Osterwalder and Pigneur (2010) distinguish four different types of partnerships: 1) Strategic alliances between non-competitors, 2) Coopetition: strategic partnerships between competitors, 3) Joint ventures to develop new businesses, and 4) Buyersupplier relationships to assure reliable supplies. For consultancy firms like ARCADIS these partners can even be in-house partners of different departments, and other OPCO s (Operating Companies). External partners will differ on the project initiated by the client, (when needed). Key activities The key activities refer to the most important things a firms needs to do in order to make its business model work, and thus to operate successfully. For consultancy firms like ARCADIS key activities include their problem solving capacity. Key Resources The most important assets required to make a business model work are the key resources. Key resources allow an enterprise to create and offer a value proposition, reach markets, maintain relationships with their clients, and generates. The type of resources needed depends on the business model, and on the product or service provided. Key resources can be physical, financial, intellectual, or human. Key resources can be owned or leased by the firm or acquired from partners. The key resources for consultancy firms like ARCADIS are the consultants. Offer The offer or value proposition is the main reason why clients choose a firm (with their service(s)) over another. It solves a clients problem or satisfies a client s needs. The offer is often not a single thing but a bundle of products and/or services that caters to the requirements of a specific customer segment. The offer can be innovative and represent a new or disruptive product/service. Different offers may be similar to existing products/service, but with added features and attributes. For consultants it is sometime hard to explain what the offer is. In general it can be stated that consultants are aiming to offer added value for the customer in their projects. Client Segments: The client segments are the different groups of people or organizations a firms aims to reach and serve. Customers comprise the heart of any business model. Without (profitable) customers, no company can survive for long. In order to better satisfy customers, a company may group them into distinct segments with common needs, common behaviors, or other attributes. A business model may define one or several large or small customer segments. An organization must make a conscious decision about which segments to serve and which segments to ignore. Once this decision is made, a business model can be carefully designed 30

31 around a strong understanding of specific customer needs. The client segments for consultants can be divided into three groups; governmental, semi governmental and private (see Table 9). Client relationship The Customer Relationships describes the types of relationships a company establishes with their intended clients. A firms needs to clarify the type of relationship it wants to establish with each type of clients, based on the customer segment. Relationships can range from personal to automated. According to Osterwalder and Pigneur (2010) these relationships are driven by one of the following motivations: 1) Customer acquisition; 2) Customer retention; and 3) Boosting sales (up/cross selling). For consultancy firms this customer- consultant relationship is essential for success (Deprey et al., 2012). It is worth the cost associated to maintain this (good) relationship. Distribution channels The distribution channels describe how a firm communicates and reaches its customer segments to deliver the offer. The communication, distribution, and sales channels comprise a company's interface with customers. These channels are essential for a customer to develop a customer experience, in order to: Raising awareness among customers about a company s products and services; Helping customers evaluate a company s offer; Allowing customers to purchase specific products and services; Delivering the actual offer to customers; Providing post-purchase customer support/service. Consultancy firms reach their clients in two different ways. The first method is by a public tender procedure. Competitors are al presenting their own offers, or a price for a project. The best, or the cheapest gets the project awarded. The second method is by personal contact. Consultants visit potential clients where they explain their offer. If the potential client agrees on the offer, the consultant will start to elaborate it, and presents this most often in a report. Cost structures The cost structure describes all costs incurred to operate a business model, creating and delivering value, maintaining customer relationships, and generating. These costs can be calculated after defining key resources, key activities, and key partnerships. In case of consultancy firms the key resources are the consultants. The key activities are providing solutions with the knowledge of the consultants. The key partners differ for each project. This can be a contractor during an integrated solution, or a zzp er when specialized knowledge is needed. Revenue (model) The (model) represents the cash a firm generates from each customer segment. As stated before customers comprise the heart of a business model, the revenue streams are its arteries. It is essential for a firm to identify the price each customer segment or individual client is truly willing to pay for the value delivered. A revenue model may have different pricing 31

32 mechanisms, such as fixed list prices, bargaining, auctioning, market dependent, volume dependent, or yield management. According to Osterwalder and Pigneur (2010) a business model can involve two different types of revenue streams: 1) Transaction revenues resulting from one-time customer payments. 2) Recurring revenues resulting from ongoing payments to either deliver an offer to customers or provide post-purchase customer support. To generate the appropriate business model, the company strategy needs to be taken into count. As explained before, the model of value disciplines of Treacy and Wiersema (1993) can be used in order to choose the right strategy for the business model to deliver value for the client. A firm can focus on one of the following three strategies: operational excellence, customer intimacy or product leadership. A selection in one of these operation modes directly affects the business model generation. Firms providing services need to develop other business models than manufacturing firms. In the next section the topic of business model development is addressed Business Model Development The development of new and innovate business models is a complex process. According to Tavlaki (2005) it is a popular myth that a unique business model, that surprises the market, is completely different from existing ones. Further the design of a successful business model does not happen accidentally, but on the contrary, it is a result of a systematic work, (Tavlaki, 2005, pg4). Further Tavlaki (2005) states that there is fewer research conducted on the actual process of generating new and/or innovative business models. Morris et al., (2005) introduced a standardized framework for characterizing and developing a business model. This framework has three specific levels of decision making, termed the foundation, proprietary, and rules levels. Further, at each level, six basic decision areas are considered. The rationale for these three levels reflects the different managerial purposes of a model. These six questions (components) are: Component 1 (factors related to the offering): How do we create value? Component 2 (market factors): Who do we create value for? Component 3 (internal capability factors): What is our source of competence? Component 4 (competitive strategy factors): How do we competitively position ourselves? Component 5 (economic factors): How we make money? Component 6 (personal/investor factors): What are our time, scope and size ambitions? Currently there is a shift in the elaboration of the value proposition. Osterwalder, Pigneur and Smith introduced the Value Proposition Canvas (VPC). This VPC is a tool that can be used best with the business model canvas. The VPC helps a firm to design, test, and build the company s value proposition to customers in a more structured and thoughtful way. In contrast to the Business Model Canvas hat explains the whole business model, the VPC zooms in on two of those building blocks, the Value Proposition and the Customer Segment. The VPC can be used to describe both in more detail and analyze the fit between these two blocks. To be successful companies need to get both the fit and the business model right. 32

33 The VPC focuses more on the question behind the question (Rob Jansen, ARCADIS, 2013). In Figure 13 (Appendix V) both the VPC and BMC are depicted and elaborated. This VPC is very useful for consultants, because it is in their nature to think one step ahead of their client. Clients have difficulties with communicating their expectations, of which the consultant needs to be aware when they develop a solution (Smith 2002). Further consultants provide a solution due to asking more information for a problem that goes past the actual question. They also need to ask what the reason is why the client asks them to provide a service, in order to relieve them from their pain Business (Revenue) Models of Consultants The topic of this research is: What changes in the revenue model need to be made in order to be successful as strategic consultant in an international environment? The previous explanation of the business model is needed before the step to the revenue model can be taken. The revenue model of consultants is based on two buildings blocks: cost structure and revenue model of the BMC of Osterwalder and Pigneur (2010). The revenue model (or financial perspective Figure 5) depends on the other building blocks. How these building blocks affect the revenue model can also be seen in Figure 5. One key aspect for firms is to understand the different pricing models available, as well as the implications of each of them approach on a specific project. Selecting the right pricing model is one of the levers that can help improve the success rates (Sheedy et al., 2010). Consultancy firms need to ask the following questions in order to select the most appropriate revenue model or combinations of revenue models for a project. Revenues: What are the customers willing to pay? Is there a budget, etc (Client knowledge Deprey et al., 2012, Deprey and Lloyd-Reason, 2009) For what do they pay. (Quality measurements, Deakins and Dillon 2005, Ginsberg 1989, Deprey and Lloyd-Reason, 2009) How are they currently paying or how are they willing to pay? Are there payment restrictions? How much profit does the firm want to make? Costs: What are the costs associated with this project (Owusu-Manu et al., 2012)? What are, and how much are the risks associated with the project? As been elaborated, consultancy firms such as ARCADIS are service firms, thus they need to take into count the factors influencing service firms business models. The cost factor of consultancy firms is usually explained as follows (which is supported by Owusu-Manu et al., 2012). Firms compromise their price according to demand factors, cost factors, the competition, trade factors, legal factors, strategic factors, and geographic factors, see Figure 6. The topic of price has an interface with both blocks of the revenue model of the BMC. The previous elaboration, in section 3.2.1, of these blocks needs to be taken into count. The price of consultants is also influenced by the previous mentioned characteristics, along with objectivity, flexibility, discounts and allowance (Owusu-Manu et al., 2012). There are 33

34 different viewpoints according to Owusu-Manu et al., (2012) in the world of consultants how the price for their services is set. They further introduce a model how the fees of consultants should be calculated. Staff remuneration, contingencies, taxes and duties, mobilization, training, travel, communication, reporting, office, and staff allowance costs determine the cost price of a consultant. This cost price combined with a risk and profit margin determine the actual price of a consultant. These risk and profit margins are often a multiplier for the cost price. For firms such as ARCADIS the cost prices is multiplied with a multiplier in a range of 2,2-2,8. Some nuance should be remarked. This is only the case when the project is done on an hourly fee, or a fixed price base. Cost -Anticipated/ present cost -Profit/ risk Regulatory -Taxation -Restriction -Legislation Strategic -Price objectives -Market Structure Competition -Entry Bariers -Competition objectives Trade -Traditions -Industry standards Demand -Expectation -Value -Experience PRICE Location -Manufacture -Market -Clients Figure 6 Pricing factors, (Owusu-Manu et al., 2012) Consultancy firms often use other or combinations of revenue models than this cost+ method (also called time-and-expense or hourly fee). This depends on the type of projects, and the stage in which a project is, namely: fixed-price, fee as percentage of the total project, cost reimbursable plus overhead, a combination of fixed price and hourly fee, availability only retainer, retainer as deposit against future services, blended hourly rate basis, profit sharing, exchange of services and payments in shares or options (Kaiser and Ringlstetter 2011, Sheedy et al., 2010, and APEGGA 2005). A note for these models is that, the fee charged, depends on the financial risk for both the client and the consultant. If the client is not willing to take a risk, but the consultant is, this risk transfer will be visible in the cost of services (APEGGA 2005). Depending on each type of revenue model, also the dimension stream differs. The duration and the moment of paying differ. Each firm is always trying to reduce the day s receivables for their products or services, and tries to maximize the day s payables (when applicable). This DSO ratio, as it is called in financial management, indicates how much day s payments of clients are outstanding. If this is high this can be an indication of inadequate analysis of applicants for open account credit terms. An increase in DSO can result in cash flow problems, and may result in a decision to increase the creditor company's bad debt reserve. This might affect the price of shares of the firm (when the firm is listed to the stock market). Some of these models might be clear, some require a bit more explanation: 34

35 Hourly basis + (cost + method): The fee of consultants is expressed as a function of their hourly rates, plus the disbursements. Total Costs =. The hourly rate in most case is calculated by making use of the flat rate method. The other method, multiplier method is less used. The flat rate can be calculated with use of the model of Tavlaki (2005). The multiplier method calculates an hourly rate by multiplying the hourly payroll costs by a factor of the operating costs. The hourly payroll costs are defined as. The benefits in this equation are 30 to 40% of the annual salary of the employees. Typically this payroll factor is 2.0 to 5.0, based on the complexity and risks. The annual working hours are calculated to be 1950 hrs/year. This model is suitable for projects where the scope is not clearly defined, and the consultant does not have control in the amount of hours needed for the project. The fixed-price model is as the term already suggests a flat fee for a clearly defined piece of work. The consultant makes a concerted effort upfront to identify and define the scope of the project. The project can be billed in equal amounts at predetermined periods or when certain predetermined key deliverables are completed. The project is priced using a similar calculation. However, in this type of engagement it is standard practice for consultants to include a margin: in the cost per hour, and in the expected hours that each consultant will spend on the project. There are two reasons why firms build in these margins, namely 1) projects do have issues that are impossible to predict in advance but firms are ultimately responsible for the piece of work delivered. And thus the issues need to be resolved. 2) The client is in most cases trying to reduce the number hours and or the cost per hour. If this is not calculated in the offer, there is no room for negotiations of the price. A combination of both fixed price, and hourly rate is suitable for projects when innovation capacity is needed. Due to the fixed price an efficient execution of the project will be stimulated, and the hourly fee enhances the creative and innovative part. A bonus after providing a sound solution is another benefit for this. The fee as a percentage of project costs is a model that is used when the scope of the service provided is predictable. The fee paid is a percentage of the total costs of the project. The risks and rewards are shared by both the consultant and the client. Figure 18 (for consultants in the geology) of APEGGA (2005), can be used as guideline for the percentage of fee for a certain amount of total project costs. A note according to this figure is that for small projects < 200k$ this model is not suitable. In these cases the cost of the consultancy services are often higher than the percentage of costs calculated. The cost reimbursable plus overhead is useful for EPC and D&C type of contracts. At the start of these projects, the scope is not always completely defined. The consultancy firm takes minimal risks, and is paid the actual costs plus a fee to cover the overhead. 35

36 Availability only retainer (in Dutch: Raamcontract met exclusive aflame verplichting) implies that the consultant is available when the client needs their expertise. Pre set prices between client and consultants are made. The client is restricted to hire only the service by the selected firm. If other firms are asking a lower fee, the client is not allowed to switch to the other. Retainer as deposit against future services is assuring a payment for the consultant if the client s integrity is unknown or the financial ability is questionable. This method must be combined with any other method. A blended hourly rate is applicable when the scope of projects is not well defined. A mix of personnel is needed to ensure a good project outcome. The average hourly rate is calculated by the rate for each involved expert. The consultancy firm calculates this mix, and this determines the average price. The consultants job is now to efficiently deliver the project by using the required resources efficient. Or when the project allows, use other cheaper resources to come up with the same solution. For e.g. the work is calculated for a senior consultant, but the actual work is executed by a medior or junior. Of course without informing the client, but the senior must take the responsibility that the work provided is according to the quality requirements. Value added/ profit sharing can be separated into several sub models. 1) In the risk/reward model the consultant gets paid using one of the more traditional models (fixed price, hourly fee) above but also gets either a bonus or pays a penalty based on achieving or missing key project milestones. These methods ensure that the consultant focuses on successful and timely delivery of pre defined project. 2) A results-based model is rather similar to risk/reward in which the consultant is paid based on hitting certain targets. The difference is that resultsbased charging is that it is typically based on meeting business objectives, such as generating a certain amount of for the client or saving some predetermined cost figure. Or even over delivering services to ensure a higher bonus payment at the end. In both cases the consultant is using their (expert) knowledge to provide a value added service for the client, against a most lucrative outcome for their firms. This method enhances creativity, stimulates innovation and forces consultants to work efficient. DBFM(O) are examples in which consultants go a step further. The whole project will be funded by their self s, and the final profits (with or without operation) are for the firm. These projects involve a lot of risks, which of course can be shared when developing strategic alliances with for example contractors. Exchange of service. As this name already suggests, this is an exchange of services that represent an equal value. If they are not equal, an additional payment will be done. In the consultancy world, for firms such as ARCADIS, this is not common nowadays. Payments in share or options are suitable when the consultancy firm is willing to take participation, and thus risks, in a project. A good example might be the advice needed for mining firms. If there are lucrative minerals found, the firm might receive a pre defined amount of stakes. 36

37 3.3. Business (Revenue) Model Innovation The spending on R&D activities can be counted among the most important parameters in determining the pace of innovation of a national economy. Van Looy (2005) states that innovation is acknowledged as crucial for the long-term survival and growth of firms and that technological innovation can be seen as a critical driving force for the economic well-being of people and nations. The higher the spending on R&D, the stronger the economic growth, and thus improved competitiveness. A recent report of the Dutch institute TNO De staat van Nederland Innovatieland 2012 reveals that the Netherlands can be characterized as an innovation follower, and an average R&D performer. The R&D intensity (R&D spending as a percentage of gross domestic product) is 1.84% in the Netherlands, which is below the EU average and well below the Lisbon target of 3%, and the trend is downwards, [6]. Jan Mengelers: Every euro spent on innovation generates much more in terms of economic growth, prosperity and employment. The Netherlands has embarked on the right course with the Top Sectors policy and now has to build on this towards a national and widely supported Knowledge and Innovation pact for the Netherlands. Just holding on to what we have won t get us there; cutbacks threaten to put us far behind our nearest competitors (TNO Report 2012) As competition intensifies (as is the case in current environment) and the pace of change accelerates (shorter project cycles), firms (and thus also consultancy firms) need to renew themselves by exploiting existing competencies and exploring new ones (Floyd and Lane, 2000). Consultancy firms seek opportunities to adapt to environmental changes, explore new ideas or processes, and develop new products and/or services for emerging markets (The reason why ARCADIS initiated the project). These firms need to create a stable situation to leverage current competences and exploit existing products and/or services (Benner and Tushman, 2003). The usage of new and/or innovative business/ models might be an important moderator to improve the current state of the (Dutch) innovation pace. Every organization has to prepare for the abandonment of everything it does (Drucker, 2006). Business model innovation occurs when a firm adopts a novel approach to commercializing its underlying assets (Gambardella and McGahan, 2010). Business model innovation can itself be a path-way to competitive advantage if the model is sufficiently differentiated and hard to replicate for incumbents and new entrants (Teece, 2010 pg 2). More and more attention has been paid to the topic of business model innovation, because it has been shown that this way of innovating pays off. In IBM s CEO study (2006) profit outperformers are focusing on business model innovation more frequently than the underperformers. As stated before it is essential that companies keep innovating their business models before they become obsolete, especially in highly dynamic markets (McGrath, 2009). Moreover Sosna et al., (2010) state that the sustainability of business models is unclear due to quick market changes, and thus making existing business models obsolete or less profitable. This implies that a continuous focus on business model innovation is an important capability for every firm seeking success in the long term. The reason why firms innovate their business models is explained according to theory of Osterwalder and Pigneur (2009). Osterwalder Pigneur (2009) describes four epicentres and one combination epicentres of business model innovation. In (Appendix V) Figure 14 these four epicentres are depicted. The figure shows how these 37

38 epicentres can be used as a starting point for business model innovation. The other eight building blocks are heavily influenced by the change in one of the epicentres. The fifth epicentre is defined as multiple because change can also come from changes in more aspects of the business model. In the IBM CEO Study (2006) a framework is developed on three values on which a business model can be innovated: the industry model, the revenue model and the enterprise model. According to this CEO Study (2006) the revenue model innovation process involves in how firms generate new or more revenues by reconfiguring offerings (product/service/value mix) and/or by introducing new pricing models. Further revenue model innovation leverages customer experience, choices and preferences and that can also leverage new technologies. It should be remarked that often an innovation in one of the three dimensions of business model innovation is also affecting the other dimension(s). The IBM CEO Study (2006) further analyzed which of these three types of innovations was the most successful one. In Figure 17 the results are presented, and as they conclude that all three types (or combinations) of business model innovation can lead to successful financial results. Moreover they dit not found a significant variation in financial performance across the different types of business model innovation. They further have shown that there is a big challenge for firms that are becoming active globally. These firms will face more complex issues related to culture, regulation, technology and other areas. These barriers will be elaborted in section Barriers for Business and Revenue Model Innovation. When developing new business and revenue models, internal and external barriers can influence the process. This topic of barriers for these models is rather un-researched but it is important for the outcome of (new) model introductions. Chesbrough (2010) indicates two internal barriers, namely the inability to choose the right business model and the inability of applying the new business model to the current situation. A logical reason for this might be the support within a firm for the innovation. For business model changes leadership and responsibility in the organization is crucial for success (Chesbrough, 2010). Furthermore the leaders should develop a supportive culture for the change. If this support is developed throughout the firm, the chances for a successful implementation increase. These findings are based on the business model innovation process, nevertheless these also hold true for the revenue model innovation. Most of the barriers are caused by sticking to believes on current (un)successful business models, the so called dominant design trap. The external barriers are not examined in research and thus are not scientifically proved, but one can imagine that due to regulations, competition and culture the barriers can be influenced. These barriers will be further studied in this research Discussion and conclusion of the literature review. Chapter 3 presents an overview of literature regarding several topics of interest for this research. The topic of PSF s (strategic consultancy firms) and business/ model innovation are extensively elaborated. With use of this literature, the important definitions for the research are explained. A clear elaboration of these definitions is needed in order to provide a clear and sound answer of the questions raised by both, the gap in the literature and the practical inducements for the research. The topic of revenue model innovations is currently a rather 38

39 understudied topic in research. This study aims to provide more information on this topic for strategic consultancy firms. These firms are struggling in the current environment, and revenue model innovation is thought to be a solution for their problems. The of topic business model innovation is extensively studied, and shows the importance in current business research. A quick search on ABI Infrom these topics shows more than hits on business model innovation. Science Direct finds more than articles using the term business model innovation. These amounts of hits cannot be directly linked to the amount of academic publications. Amit and Zott (2010) have studied this topic and identified that papers on the topic of business model (innovation) where published so far. A more negative issue of these different studies is that there are several different views. These different views are incorporated in this study when it is thought to be useful. Summarized, strategic consultancy firms are PSF s who provide integrated solutions for their clients who are not able to develop the solutions their s-self. Internationalization is a strategic activity deployed by the firm to secure revenues outside of a home country borders. This is explained by Chetty and Campbell-Hunt (2003) as follows: 1) Internationalization is known as the process of increasing involvement in international operations. 2) Internationalization is known as the process of adapting firms operations to international environments. The definition of the business model in this research is the rationale of how an organization creates, delivers, and captures value Osterwalder and Pigneur (2010). These models can be innovated, and thus business model innovation is explained as follows: Business model innovation occurs when a firm adopts a novel approach to commercializing its underlying assets (Gambardella, and McGahan, 2010). The revenue model consists of two blocks (costs structure and structure) of the BMC of Osterwalder and Pigneur (2010). Part 2 Field Research 4. Results and Analysis This chapter explains the field research, the findings from this research, and the implications and drawbacks are addressed. The goal of the field research is to provide information which can be used to answer both the main and the sub research questions. From a more practical perspective, the findings can be used by firms such as ARCADIS to strengthen their competitive position in an international environment as a global operating strategic consultancy firm. The usage of innovative business models (and their corresponding revenue models) is thought to be an opportunity to do so. This chapter aims to provide an answer to the three sub questions, as fully elaborated in section In section 4.1 the conducted field research (case study), and the rationale are explained, followed by section 4.2 in which the cases are explained. Finally in section 4.3 the results will be presented Introduction The in-depth interviewing technique is chosen to gather the required information to answer the questions. These qualitative, explorative natured interviews are used to provide new insights on the topic of revenue model innovation/ business model innovation for strategic 39

40 consultants in an international environment. These interviews are divided into two rounds. The first six interviews are used to develop insights in the actual problem and the directions of further research. The second round of interviews, consisting of nine interviews is used to gather these insights. Both rounds have a different interview questionnaire, which can be found in the Appendix XV together with the findings. All these interviews (see Appendix V for the overview list) are clustered into eight cases that will be explained in the next section. The interviewed experts can be categorized into both internal and external experts. These experts have affinity with strategic consultancy and/or business model (innovation) and/or internationalization. To be able to generalize the findings for strategic consultancy firms that are providing solutions for environmental issues, the experts interviewed are selected from different departments throughout the firms Case Descriptions As explained before there are eight cases deducted from the interviews 15 (see Table 1). These cases are regarded as 8 different perspectives on which the topic of (and thus business) model innovation is explained. In the Appendix XV the full elaboration of these cases is added. For cases 1 till 4 and 8 the company background can be found in the Appendix I. Tabel 1 Number of interviewees Function Director 3 Manager 4 Strategic Consultant 8 TOTAL 15 Amount of interviewees 14 out of 15 of the interviews where face to face interviews, and they are held in the native language of the interviewees. Only the international sources differ due to time issues (deadline and availability). The agenda of the interviewee was full, and there was no time more to wait for an appropriate moment for a face to face interview. Therefore the scheduled interview with ARCADIS Germany has been changed into a questionnaire. The expert has provided his view on the topics by answering a short questionnaire. The intended duration for each interview was approximately one hour. The majority of the interviews took a bit longer, and just one interview was finished within 50 minutes due to some time constraints of the interviewee. Before the actual start, the goal of the interview was explained, and if required the confidentiality issues were clarified. None of the interviewees requested for confidentiality reasons to not publish the results. After these interviews, which where al recorded with a device (dictafoon), a point wise transcript is carefully elaborated. This transcript is send to the interviewee to check if the results are correct, if not the interviewee was able to correct them, in order to prevent an interpretation bias. In the following table, an overview of the cases and functions (Table 1) the interviewees is presented. Firm Department Interview #, Function Case # ARCADIS NL Business Development 1) Director Business Development, 2) Director Client 1 3 Development Water Europe, 3) Senior consultant Advisory Strategy and Policy Making All senior consultants 2 4 Managerial D&R and S&B 1) Manager market group, 2) Manager Advisory (HAG) # of interviewees

41 Mobility 1) Senior Consultant, 2) Manager advisory 4 2 ARCADIS GE Häfen und Wasserstraßen Manager Division Water (Germany) 8 1 NPC Rail and Stations Strategic consultant 5 1 The Bridge - Director 6 1 Syntens - Strategic consultant 7 1 Table 1 Function overview of interviewees 4.3. Presentation of results The interviews are all elaborated in point wise transcripts that are confirmed by the interviewees. By doing this, the transcripts can be regarded as insights from the interviewees and not form the researchers himself. The results are analyzed with use of content analysis. Of the seven stages of Kvale (1996) of conducting in-depth interview the last three are elaborated in this section. The fifth stage, analyzing the results is an iterative process of re-reading the interview transcripts to identify themes/topics addresses in the respondents answers. The previous set topics: international environment, strategy, revenue model innovation and both the barriers and risk are used to synthesis the answers to the questions that have been proposed. Often this analysis is done with use of statistical software, nevertheless for this type of in-depth interviewing it is not assumed to be beneficial. Therefore the analysis is done without software, the raw results can be found in the appendix. It is for the individual reader possible to re-read the findings of the interviews (insights of the interviewees). The iterative process of data collection and analysis eventually leads to a point in the data collection where no new categories or themes emerge. This is called saturation, which signaling that data collection is complete (Kuzel 1999). For stage six, verifying the credibility of the information gathered, the method triangulation (Golafshani, 2003) is used to achieve this goal. The last stages, stage 7, deals with reporting the results (section 4.4) from the in-depth interviews. This last step has been done by categorizing the interview insights into various (sub-) topics. The results are organized by question and are later on presented (sub) topic wise with use of different tables and figures. Interesting and meaningful insights, based on the frequency it is mentioned or a combination of the topics, are highlight during the analysis of the data and later on citied in this report. The citation is done based on the function and the case with the interview number. For e.g. Manager C2I1, in which C represents the Case, and I the Number of the interview in the case Results Revenue models are an integral part of a business model, and therefore they cannot be explained without the concept of business models (Director, C6). As can be seen in Figure 11 the revenue model is linked to the who, what and how of a business model. The orientation interviews conducted showed that there is an interest for business model innovation and (thus) revenue model innovation. Therefore further emphasis has been laid on the topic of revenue model innovation. In this section an overview of the results of the different case studies will be topic wise presented. First the current environment for strategic consultancy firms and the implications for these firms are elaborated. Thereafter the topic of revenue model (innovation) with the barriers and the risks are elaborated. It is essential to take implications into mind before drawing conclusions. Section 5.2 provides the implications of the research. 41

42 After analyzing the interviews the following factors (topics) (Table 3) are identified to be influential for revenue model innovation in an international environment. Based on the three research questions the findings are grouped on: barriers, risks and opportunities for revenue model innovation (Table 3). Topic Barrier Risk Opportunity Type of client ( Private of Public, the distinction between these two also Y has its effect on the corporate culture and risk adversity of these clients) Size and Type of projects (The scope of the project. Ranging from single Y advice to integrated solution, and the amount of money involved) Rules and regulations Y Pricing of services ( Costs (Direct and Indirect)and Revenue Streams) Y Y Y Consultancy firm strategy (Brand strategy, pricing strategy, internal Y Y Y support) Environment (Country culture, Language (Both the language itself, as Y the usage of definitions (Jargon)) Relationship between client and consultant (Trust, mutual understanding, Y Y learning) Financial performance evaluation (Managers and employee evaluation, stock market, OPCO responsibilities) Y Table 2 Factor identification Before the elaboration of these topics (Table 3), the following environmental issues need to be taken into count. Current ( home ) Environment Strategic consultancy in this research is focusing on high end (highest in the value chain) solutions on environmental issues (Director, C1I2). The strategic level is regarded as the highest possible advice in the value chain. A common shared opinion of all the interviewees is that there is an economical crisis. Only the effects of the western crisis are not the same throughout the world of strategic consultants ((Strategic Consultant, C5), (Strategic Consultant, C3I1), (Director, C1I1), and (Strategic Consultant, C2I3)). In contrast to the Netherlands were prices are under pressure and many competitors are fighting for the same clients. ARCADIS in China for example doesn t feel any crisis (Strategic Consultant, C2I3) International Environment Currently firms are expanding their services across their national borders because they are seeking opportunities (Senior Consultants, C3I1). ARCADIS, The Bridge and NPC are such firms. In order to be successful, strategic choices need to be made. ARCADIS is focusing on countries of which they think it is a home country (Manager, C1I1). This statement intended that local presence in a country is required to be active. If this is translated to a certain entry mode, FDI (Foreign Direct Investment) is the most suitable one. According to Anderson and Gatignon (1986) and Edstrom and Galbraith (1977) the degree of control during a foreign investment does influence risks and returns. High-control modes, or full control entry modes, such as (FDI) can increase return and lower risks. Local presence (that comes with FDI) is essential for consultants. Clients of strategic consultants Strategic consultancy firms provide their services two types of clients, namely private and public firms/organizations. Based on this, (as identified in 8 interviews) most opportunities for business model innovation are expected to be on the private market ((Manager, C3I2) and 42

43 (Senior Consultant, C3I1)). The public market offers also opportunities for business model innovation, but there are more hindering barriers. These barriers can be both internal and external of nature. In the next section the revenue models, barriers and risk will be explained Revenue Model Innovation After the six orientation interviews in which the importance of both revenue and business model innovation became clear, the nine other interviews all addressed this topic in combination with a selection of the topics of Table 2. Business (and thus) revenue models used outside the Dutch borders differentiate not significantly from those within the Dutch borders (Strategic Consultant, C3I3). Therefore there is no further distinction made on Dutch and internationally used revenue models. So, the revenue models in these cases are based on the costs and revenue streams generated by (internationally operating) strategic consultants. Interesting insights are the different perspectives on business model innovation of managers and the strategic consultants. A strategic consultant explains that lower managerial layers are reserved in the usage of innovations in the models (Strategic Consultant, C3I1), despite that the market group manager denials this with: If the model is carefully considered and well elaborated, I m open to use these innovative models (Manager, C3I1). It needs to be remarked that this view differs with other strategic consultants that are more focusing on providing integral solutions with strategic alliances. As explained in 6 interviews, the strategic consultancy market is reserved and therefore they are characterized by the usage of more traditional revenue models and their corresponding revenue streams (Strategic Consultant, C3I1). Hourly fees and fixed prices are the most used revenue streams ((Strategic Consultant, C8), (Strategic Consultant, C5), (Director, C6), (Manager, C3I2), (Director, C1I2), (Manager, C2I4), (Strategic Consultant, C4I1), (Strategic Consultant, C1I3) and (Strategic Consultant, C3I1)). However there is a transition to other revenue streams like; Performance/Penalty based (Strategic Consultant, C3I1), (Strategic Consultant, C5), Bonus- Malus (Manager, C4I2), Profit Sharing (Strategic Consultant, C1I3), no cure- no pay (Strategic Consultant, C2I1), Monthly Fee + Pay for usage (Director, C1I1). These streams involve more risk taking activities by the strategic consultancy firms (and their partners) during projects. Not only the pricing model/revenue stream is changing, but also the way the payments are done is a variable open for change. There are some barriers to do this successfully; these are explained in the next section (International) Barriers for revenue model Innovation (Q2) As been explained by the interviewees, there are two out of the three groups of clients that are not always open to use new and innovative revenue models (Case 5, Strategic Consultant, C3 I1 and I2, Managers). Semi-governmental and governmental clients are therefore regarded as one group (public clients). The other group is the private clients (see Table 9 in Appendix XVI). Revenue model innovation is hindered by two types of barriers, internal and external barriers that are both price and non price related (see Table 3). This table shows, based on the analysis of the data, if these barriers are hindering revenue model innovation in an international environment and what the effect is. A + means that the barriers is of more concern than in the local environment. 0, means that there is no difference. Indicates that the barrier is of less concern. Combinations of the effects mean that the effect could be both. 43

44 Barriers 44 Internal (I) / External (E) Price related (Yes/No) Internatio nal barrier (Yes/No), effect +/0/- Case #, (Intererview #) Tender threshold (The barrier that influences if (semi) governmental clients need to follow European tender procedures) E N Y, 0 C1I1, C1I3, C2I4, C4I1, C4I2, C5, C6, C7 Multiplier range (A multiple of the hourly costs is used to cover the overhead I Y Y, - C1I2, C4I1, C4I2, costs.) Overhead costs (The cost that cannot directly be billed to a project) I Y Y, + C1I1, C4I1, C4I2, Profit and loss accountabilities form both (OPCO/Managers) (The I N Y, + C1I1, C2I4,C3I1, C3I2, C4I1 accountabilities of the stakeholders for the results of there departments/firms) Culture (The culture of a country, how risk adverse are they? Are the open for consultants to think along with them. Or are they exactly describing the E N Y, +/0 C1I1, C1I2, C1I3, C2I1, C3I1, C3I2, C4I1, C4I2, C5, C6, C8 work the consultant needs to provide?) Language (The language itself (often a dialect and the definitions (jargon) used). E N Y, +/0 C1I3, C2I1, C3I1, C3I2, C4I1, C5, C6 Hourly Fees (The hourly fees of the consultant (billed to the client)) I Y Y, + C1I1, C1I2, C1I3, C2I2, C3I1, C3I2, C4I1, C5, C6, C8 Type of Client (The different groups of clients, Private or Public ) E N Y, 0 C1I1, C1I2, C4I1, C4I2, C5, C6, C7, C8 The scope and type of the project (What type of project is it? A small advices or an integral solution?) E N Y, 0 C1I1, C2I1, C3I1, C4I1, C4I2, C5, C6, C7, C8 Project control Barrier (Risk adversity Are the clients willing to loose certain amount of control on the project outcomes) E N Y, + C6 Managerial support and leadership (Are the firm and managers open for revenue model innovation, thus do they support the activities required to be successful?) Firm strategy (Is the firm strategy affecting revenue model innovation. If so, how does it effect this process?) Employee performance evaluation (How are employees evaluated on their performances?) Trust and mutual understanding between client and consultant(is there a relationship between both that influences the outcomes?) Governmental regulations (What are the governmental regulations to select a consultant, besides the tender regulations) Table 3 Barriers identified I N Y, 0 C1I1, C2I1, C2I4, C3I1, C4I1, C4I2, C6, C8 I N Y, 0 C1I1, C1I3, C2I2, C2I4, C3I1, C3I3, C4I1, C5, C8 I N Y, 0 C2I2, C2I4, C3I1, C3I2, C3I3, C4I2, C5, C8 E N Y, + C1I2, C2I1, C2I4, C3I1, C3I2, C3I3, C6, C7, C8 E N Y, + C1I1, C1I2, C2I4, C3I1,C3I2, C4I1, C4I2, C5, C7, C8 The introduction of something new, means that stabilizing this new thing takes time. If there is an internal resistance that is not minimized, a negative outcome is almost certain (Hensele and Schön, 2010). Internal Price Related Barriers The most important internal price related barrier, as identified by the interviewees (see Table 3) is the hourly fee billed by the consultant. 10 Out of 15 interviewees identified this as an important barrier. These interviewees are representing strategic consultancy firms, because they come from different positions within and outside of ARCADIS (3 Directors, 2 Managers and 5 Strategic Consultants). This barrier is linked with the multiplier used (Senior Consultant, C4I1), the hourly rates of the consultants itself (Strategic Consultant, C4I1) and the costs of the overhead (Senior Consultant, C3I4). Consultants need to change their way of thinking on prices (Manager, C4I2). Consultants need to ask clients what is it worth for you as client to have this issue resolved? (Strategic Consultant, C4I1). In order to do so, the question behind the actual question needs to be answered (Strategic Consultant, C4I1). Currently the cost price per day of a consultant ranges from 670 for a junior consultant, to more than 1520 for a senior (ARCADIS cost prices water strategic consultants). This cost price is the basis hourly rate of the consultant (of advisory S&B), multiplied with a standard multiplier of 2.65, to cover the overhead. The costs associated with the overhead are explained in section The multiplier at ARCADIS Netherlands ranges from 2, 2 to 2,8 times the hourly rate of the consultant. As stated by

45 (Strategic Consultant, C4I1): the multiplier used in the Netherlands is disproportionately high. Therefore large firms are losing the battle with smaller firms who are providing (the same) services for a more competitive (read: lower) price. This cost price is further exclusive expenses (see cost + calculations in section 3.2.1). To make a profit as firm another % is added to calculate the cost price. With a margin of 20% the sales prices (per day) range from more than 810,- (junior) to more than 1820,- (senior). Especially for small projects as been identified by 2 interviewees, large strategic consultancy firms are becoming too expensive, in contrast to SME s, ((Strategic Consultant, C1I3) and (Manager, C3I2)). In the international environment the rates (hourly fees)/(sales price) of strategic consultants differ even more. Within a single firm, such as ARCADIS, both the cost prices and hourly fees are fluctuating (Director, C1I2) and (Manager, C3I2)). The cost price of for example English and German consultant is much lower than the cost price of a Dutch consultant (Director, C1, I1 and I2). This cost price is determined by the direct cost of the consultant (salary) and the costs of the overhead. The German ARCADIS colleagues are working in a much more sober work environment (offices) (Director, C1I1). Therefore the multiplier can be lower to gain the same profit margin, and thus they are able to operate against a much more competitive price (see section for the elaboration of this opportunity). A remarkable finding is the team composition of the firms. As been identified in the literature (Kaiser and Ringlstetter, 2011) the ideal team composition for brain projects (see section 3.1) is 1:2:2 (senior: medior: junior employees). Within the advisory S&B there is a different opinion on the team composition for their (brain) projects. The manager (C3I2) and consultant (C2I4) both explain that the current 1:1:1 is not sufficient, and therefore more mediors and juniors need to be attracted. In contrast to their manager (C3I1) and consultant (C2I3) who think the current composition of 1:1:1 is sufficient. This might offer an opportunity for revenue model innovation (see section 4.4.4). Internal Non Price Related Barriers The firm strategy is identified (in 9 out of 16 interviewees) as barriers for revenue model innovation. One of them is the selected/combination of selected value discipline(s), that has been introduced by Treacy and Wiersema (1993). Treacy and Wiersema (1993) state that a firm needs to pick a single discipline to focus on. If a firm is not focusing on a single discipline, the firm might be stuck in the middle. This theory dates form 1993 and is suggested to be not applicable anymore (Manager, C3I2). This idea is also supported by researcher Van Assen [3]. All interviewees have suggested that strategic consultancy firms are focusing on (a combination of) all three value disciplines. It should be remarked that for some departments, there is a focus on one, or on two value disciplines. Strategic consultancy firms focus on product leadership with their services. They want to be the best, with the best solution (product leadership) for the client (customer intimacy), against a certain price that is lucrative for the consultancy firm (operational excellence) (Manager, C3I2). The price of their services is one of the four major elements of the marketing mix (Borden, 1964) and it is an important strategic issue. The price is related to the service positioning, because setting the price wrong is inextricably for loosing clients or assignments (Strategic Consultant, C4I1). 45

46 The second barrier, as been identified by 8 interviewees is the employee performance evaluation system. Only their view on the importance of this barrier differs. The managers (C3I1 and C3I2) are evaluating this barrier as less important than the consultants. The current evaluation system evaluates consultants and their managers on a pre-defined set of criteria of which billability (a percentage of worked hours which are billed to the client for a certain project) is the most important one (Strategic Consultant, C2I1). Each consultant is responsible for their own billability. In general these range from 65%/70% for a senior consultant, to an 80%/85% for a junior. Helping a colleague is of less importance than taking care of your own billability even if this support is beneficial for the whole company (Strategic Consultant, C2I4). Further the project result is of minor importance than their billability targets (Strategic Consultant, C2I4). For example, a project is finished in 5 days while 10 days are calculated and billed to the client. The consultant, based on his incentive, writes 10 days in his timesheet instead of 5 days. Thus they are not using of the opportunity to finishing the project with a better margin. The third barrier leadership and/or organizational support (identified by 8 interviewees) are essential for a successful introduction of new models (Strategic Consultant, C1I3). First of all these managers (for example C3I1, C312) are on their turn evaluated on the results of their subordinates. It therefore is an additional pressure on the evaluation of the project results. Managers might be conservative in implementing new and innovative models (Strategic Consultant, C4I1). Further there is a certain amount of organizational support (or internal willingness) required to use innovative revenue models. First of all there is a discrepancy in thoughts between the senior consultants and their managers. As explained by a strategic consultant (C2I1), a new business/revenue model might be successful, but the senior management is risk adverse. So the actual usage and the change on success are limited. Within the management there are also some different perspectives on this topic. The director (C1I2) stated: the markets are open for revenue model innovation, but the firms are reserved due to the economical crisis/recession. As stated by a manager (C3I2): there is a freedom for consultants to come up with innovative revenue models, as long as they are beneficial for the firm and weigh up against potential risks. Internal freedom for revenue model innovation requires freedom in setting certain prices. Setting a price lower than standard might be a strategic choice to receive a certain project and earn more money with additional work that has not been described before starting this project (Strategic Consultant, C4I1). This additional work (Dutch: Meerwerk) is very lucrative for firms, because this additional work can take enormous proportions (Strategic Consultant, C4I1 and Manager, C4I2). This will be further explained later on in this section. The last barrier that is related with these previous three barriers is the local profit and loss responsibilities (of the OPCO s) (Director, C1I1 and Strategic Consultant, C2I4). It is remarkable, but this barrier holds also true within the same firm within the same country. The majority (5) of these 8 interviewees that identified this barrier are managers of directors. So this barrier is not a view of the senior consultants that think their managers are not aware of this barrier. Despite what the added value of the colleague might be, consultants of the own department will be first assigned to projects, before consultants of other departments or 46

47 competitors will de assigned (Director, C1I1 and Strategic Consultants, C2I4). A possible explanation might be that the billability (and thus evaluation of the consultant managers) is of higher importance, than delivering the best solutions as a firm. The managers/directors personal evaluation depends on the performance of the subordinates, thus this seems rather logical. This own people first idea is even worse for cooperation with other OPCO s, because of the billability of the own consultants combined with the price differences. The internal barrier hourly costs, (Strategic Consultants C2, I1 and I2) make it impossible to use consultancy knowledge from consultants of other OPCO s, (Strategic Consultant, C5). The consultants and their managers don t think of the bigger picture of ARCADIS Global, (Director, C1I1) and thus they often hire, despite the benefits a competitor, instead of their own colleagues from a different OPCO (Director, C1I1). External Barriers The most barriers for revenue model innovation (in an international environment) are external barriers (8 external versus 6 internal). Despite the internal barriers that also are essential to minimize, the external barriers are more difficult to minimize. The strategic consultancy firms have no direct influence on these barriers. An interesting finding is that directors, managers and strategic consultants are identifying the same external barriers, and have often the same thoughts how to take care of these barriers. In contrast to the internal barriers, where the thoughts and barriers where often different. As been deducted from Table 3 there are no price related external barriers found, therefore all the external barriers are regarded as non price related. The most important external barrier, as been identified by 8 interviewees is the tender (and thus governmental) rules and regulations. Because of these rules (semi) governmental clients are bounded during the selection of an appropriate consultant by tender regulations, which they have introduced their selves (Strategic Consultant, C4I1 and Manager, C4I1). This barrier is not affecting private firms. As can be deducted from Appendix XVI for the services provided this threshold starts at 130k for central governments, and 200k for local governments. Above these thresholds it is mandatory to post projects (tenders) on a tender site (like: Below these thresholds there are no regulations for these governments to follow (Stuiveling and Scholten 2012), and thus these offer direct opportunities for revenue model innovation Director (C1I1). Local and regional governments are in favor of the flexibility they have below this threshold. Moreover they are often not willing to follow their own procedures (Stuiveling and Scholten 2012). Due to this disobedience it is interesting for strategic consultants to introduce an innovative revenue model. Currently the price is the most dominant factor during these tenders (Dutch: aanbestedingen) on which a public client selects a consultant (Director, C1I1). A change is expected because the governments have faced debacles in large tender projects that are only based on price awarding (Director, C1I1). One of the most recent examples is the Fyra high speed train, where the manufacturer was selected on the price, and not on the quality (Director, C1I1). 47

48 The more recent development is that the quality of the tender offers becomes more of importance. This is the case for projects, above (Director, C1I1) and below the tender thresholds (Strategic Consultant, C1I3). For projects below the thresholds the experience of strategic consultants, and their references are of importance (Strategic Consultant, C2I2). The value of the brand name of the strategic consultancy firm becomes of higher importance than before (Strategic Consultant, C2I2). Harming the brand name value is therefore regarded as a risk, and will be explained later on. For larger projects the quality becomes of importance due to new governmental regulations that are causing a shift in the selection of tenders based on the EMVI criteria (Dutch: Economisch Meest Voordelige Inschrijving) (Strategic Consultant, C4I1 and Manager, C4I1). The EMVI criteria (which the Dutch government uses in infrastructural projects) are combining quality and price during tenders, and during the evaluation of the offers both will be taken into count. The quality aspect of the offer, which is qualitative of nature, will be translated into a quantitative value. These values will be on a certain way combined with the price. And then the best offer based on both (quality and price) will be selected [2]. Direct related with this tender threshold barrier is the type of client barrier. Due to these barriers the way of reasoning of the public clients is regarded as traditional (Managers, C4I2 and C8). These public parties have been rewarding projects for longer periods only on the price (Manager, C4I2). The following is stated by one of the interviewees: If consultants come up with new models, the change on success is limited for public clients. Those clients tend to think traditional, in terms of costs and not in terms of savings (Manager, C3I1). This way of reasoning has to do with both corporate culture, and the culture of the environment (country). These two are therefore regarded as two additional barriers. As stated by 2 Interviewees (Strategic Consultant, C1I3 and Manager, C4I2) private clients have a more entrepreneurial character by nature and thus they are willing to take risks, making money (profits) (for the different stake/ share holders). Therefore they are regarded to be more open for revenue model innovation (Strategic Consultant, C1I3). The economical situation made these private clients more risk conscious, this might hinder revenue model innovation. Nevertheless these firms are also interested in transferring parts of their own risk (Strategic Consultant, C4I1 and Manager, C4I2) and revenue model innovation is again interesting. Transferring risks often goes hand in hand with transferring responsibilities. The risk adversity barrier, as identified by (Director, C1I1 and C6, Manager, C4I2 and C8 and Strategic Consultant, C2I3 and C4I1) interviewees proposes another barrier. This risk adversity holds true for both type of clients, but the impact is smaller for private firms. Private parties like contractors are in favor of transferring risk to their subcontractors (Manager C412). The risk adversity barrier is direct linked with the type of project control barrier. A current trend, possible driven by the economical situation is the fact that projects are becoming larger (Strategic Consultant, C1I3 and Director, C6). The scope and type of the projects (another barrier identified by 9 interviewees) are therefore regarded as an additional barrier. The scope has to deal with the size (amount of money involved) of the project and 48

49 thus there is a relation with the tender thresholds for public firms. The type of project deals with the project itself. Is it a single small advice of an integral solution? Of course this nature of the projects has again effect on the scope. The larger the project, the more risks are involved. Therefore there is also a relation with the risk adversity (and thus transfer of risk sharing). Because of the intangibility of the work consultants provide, trust between the client and the consultant to deliver what is expected is required (Director, C6). This trust is therefore needed if consultants are introducing performance based models. DBFM(O) and D&C projects are examples of integral solution projects (Manager, C4I2), that are providing clients with a total solution for their problem. Due to their political and social responsibilities (Strategic Consultant, C1I3), governmental parties, like RWS (Dutch: Rijkswaterstaat) don t always want to bring these type of projects on the market. They are afraid that the best solution will be developed for the consultant and its partners, instead of the best solution for the community (Manager, C4I2). The Director (C6) introduces this as the project control barrier, which is the case when the client is losing control on the outcome/ process during projects (D&C and DBFM for example). Despite the fact that D&C and DVFM projects allow the strategic partners (contractors and consultants) to come up with the best solutions against the best price. And thus the usage of revenue model innovation would be beneficial for all. The clients are more afraid of losing control on the outcome (Manager, C8) The other culture related barrier is the culture barrier of a country (Directors, C1 I1 and I2) and (Managers, C3, I1 and I2), or even a region (Strategic Consultant, C2 I1 and I2). As explained by a strategic consultant (C2I1): the culture of a country determines how risk adverse the firms are. A good example are Germany clients, these tend to be more risk adverse than the Dutch clients. Moreover German clients have a clear view of the product or service that need to be provided and are thinking along with them. To provide a potential better solution with another revenue model is not appreciated (ING Business Conference presentation (Evoluon Eindhoven) of Enrico Kretschmar 2012, Director of Gateway to Germany). Besides culture, speaking the language is of importance (Strategic Consultant, C2I2, and Manager, C4I1) Language is identified by 7 interviewees as a barrier. Speaking the language is twofold. First the language itself, the second one is the usage of the same definitions/jargon (Strategic Consultant, C2I2). If the client and the consultant are not speaking the same jargon, noise influences the relationship, mutual understanding and trust between them. The last barrier that is of prime importance is trust. This barrier is identified by 9 interviewees and can be regarded as the most important factor for receiving new assignments ((Director, C1I1 and C1I2), (Strategic Consultant, C2I3), and (Manager, C3I1)). Receiving assignments based on the relationship between consultant and clients is the best method (Manager, C8). If the focus is on winning tenders only, the chances to win is relatively small (Director, C1I1). Nevertheless bidding on these tenders is necessary in order to gain new clients (Director, C1I1). 49

50 Not only barriers are hindering successful implementation/usage of innovative revenue models, there are always risks involved. These risks will be explained in the next section (International) Revenue model innovation risks (Q3) Risks can also be seen as an additional barrier for firms to introduce new and/or innovative revenue models. Because of their importance these risks are elaborated as an individual topic. In Table 4 an overview of the risks associated with revenue model innovation are presented. This will be further elaborated in the next section. If firms do not adapt their selves, and are not changing their current traditional revenue models, loosing assignments is the largest risk (Strategic Consultant, C4I1). Risk Internal/ Effect in international Case #, Interview # External environment, Yes/No Strategic alignment How well is the strategy of the firm aligned with the revenue models I Y C1I1, C1I3, C4I1, C3I4, C4I2, C8 Harming brand name (Negative activities that influence the I Y C1I1, C3I4, C4I1 reputation of the brand name) Cannibalization Harming the own current competitive position, I Y C1I1, C1I3, C4I1 by introducing the same service against another price Setting wrong prices (Introducing a service with a too high or E Y C3I4, C5, C8 too low price) Ignorance of added value (benefits) for the client. (education) E Y C1I1, C1I3, C6 Noise between client and customer The communication has E Y C1I1, C3I4, C4I1, C6 effect on the outcomes of the project Lack of credibility New in an environment comes with a lack of E Y C6 credibility. That is needed for trust and relationships. Table 4 Risks for revenue model innovation As can be deducted from Table 4 managers, directors and strategic consultants all identified some risks for and caused by revenue model innovation. The effects are regarded to be the same in the international environment, based on the fact that the services provided by these firms do not differ. There is no clear difference found in the perspectives of these three types of interviewees. Therefore the difference on this topic will not be explained for the different groups. The most mentioned risk is the strategic alignment risks (identified by 6 interviewees). Firms such as ARCADIS are based on billing (selling) hours and not on selling complete solutions with innovate business and revenue models (Directors, C6 and C1I1). The barriers that affect the corporate culture (internal non price related barrier) and managerial support (internal non price related barrier) are therefore of prime importance (Strategic Consultant, C1I3). If there is no strategic alignment in the firm with the usage of the revenue models and the services provided, the brand name might be damaged. The brand name value (internal barrier) and the reputation of consultancy firms are of high importance (Director, C6). Another risk (identified by three interviewees) that is in line with the strategic alignment is cannibalization of the own profits (Director, C1I1). Currently firms are stimulating their consultants to sell as much hours as possible (Director, C1I2), against the highest rate possible for the clients specific situation. Therefore the consultant needs to find out how much the client is willing, or is allowed to pay for a certain service (Strategic Consultant, C4I1). With use of new and innovative revenue models consultants are not focusing on selling as many as possible hours against a certain rate. They should be aiming to develop a solution for the client, which is best for both against a certain price that the client is willing to pay 50

51 (Director, C1I1 and Manager, C4I1). If the consultant is not able to address the added value for the client, noise (another risk, which is explained later on) is almost certain the result, with possible negative outcomes. The second most identified risk is noise between client and consultant. In 4 cases this has been stipulated as an important risk for consultancy firms. The barriers that involve communication, mutual understanding and trust between client and consultant are the reasons why this risk should be carefully considered. When a certain credibility (another risk) and thus trust between the firm and the new client are build, they are becoming open for innovative revenue models (Director, C6). Furthermore clients are often thinking traditional, and thus are not willing to see the benefits of other revenue models (Strategic Consultant, C4I1). This barrier is further influenced by the intangibility of the work of consultants and the evaluation method used (Director, C6). Therefore the scope of work must be clear, in order to develop certain milestone/performance parameters (Directors, C6 and C1I1). As mentioned by two interviewees, the question behind the question must be clear (Strategic Consultants, C4I1 and C2I4). This understanding of the benefits for the client can be further risky because of the conventional market rates (Strategic Consultant, C2I4). Public firms are more traditional in their way of doing projects, and thus in the billing methods for these projects also. Risk taking activities implies that clients (firms/ governments) need to pay for this (Strategic Consultant, C2I4). Currently firms and governments are willing to pay for transferring the risks (Director, C6). But setting the initial price to high, based on the innovative revenue model, the firm might lose assignments (Strategic Consultant, C5). Clients might not see the benefits from a certain revenue model (Strategic Consultant, C1I3 and Director, C6). As been identified in three out of eight cases, the brand name of service firms is a risk for revenue model innovation. Or the other way around, revenue model innovation is a risk for the brand name. Clients are familiar with a certain brand and the services they provide. According to Owusu-Manu et al., (2012) the success of service branding depends on the brand name. This brand name creates a personified relationship with the client, and influences price levels. As identified by a strategic consultant (C2I1) clients are willing to pay more for a certain qualitative advice provided by a well respected strategic consultancy firm. The added value provided by the consultancy firm must therefore become clear. Currently consultants are often not able to show clients their added value (Strategic Consultant, C1I3). Owusu-Manu et al., (2012) support this with their argument that service branding significantly depends on the perception of the client of the service offered. If the consultants do not constantly improve this brand strength, the customers positive perception decreases Revenue Model Innovation Opportunities (Q1) There are besides barriers and risks also many opportunities for revenue model innovation, if they are carefully and judiciously considered and introduced. This section presents an overview of the opportunities for revenue model innovation. The director (C6) stated that the revenue model cannot be evaluated without taking into mind the other building blocks of the BMC. Based on his suggestion and literature findings it is assumed that the revenue model 51

52 can only be innovated on cost and revenue streams. The opportunities are clustered on both, as can be seen in Table 5. Opportunity Costs (C) / Case #, Interview # Revenue (R) Profit sharing (revenue model type) R C2I1, C3I1, C3I2 No cure, no pay (revenue model type) R C2I1, C2I2 Crowd funding (revenue model type) R C2I1, C3I2 Strippenkaart (revenue model type) R C2I1, C3I1 Bonus Malus (revenue model type) R C3I2 Stimulating Entrepreneurship (stimulating entrepreneurial activities of the employees) R C1I3, C4I2 Usage of technical tools (Internet, mobile communication, etc) C and R C1I3, C2I4, C4I1, C4I2, C7 Partners (internal and external) (Picking the right partners that are supportive to C and R C1I1, C1I3, C2I4, C4I1, C4I2, C6, C7 provide a certain service) Other brand/label introduction (Providing services under another brand name/label C and R C1I3, C6 against other sales prices ) Basis fee+ Pay for usage (revenue model type) R C1I1 Overhead reduction (reduction of the costs associated with the overhead) C C1I1, C4I1, C4I2 Lower rates ( The hourly rates of the consultants are to high) C C1I1, C2I4,C6, C8 Buying large quantities of equipment/ attributes C C1I1 Broadening service range (Offering more services to the current clients) R C2I4, C6 Minimizing costs of acquisition (cost associated with gaining assignments) C C6, C7 Employee leverage (The leverage between junior:medior:senior consultants in the firm) C C2I4, C4I2, C7 Using ZZP ers (using ZZp ers to executed certain tasks for projects) C C1I1, C4I2, C4I1,C1I3, C5 Table 5 Revenue model innovation opportunities As can be deducted from Table 5 there are not many significant opportunities identified by the interviewees. There are three important opportunities identified, namely 1) the usage of technical tools, 2) the selection of partners, and 3) the usage of lower rates during the different type of projects. The interviews conducted did not provide many insights on this actual problem. The strategic consultants and their managers interviewed are not familiar with the topic of revenue model innovation and all it facets. The employees of the department Business Development, and strategic consultant (C4I1) are the most familiar with this topic. Therefore the amount of insights on this topic is rather limited. This section is further provided with some literature findings, to come up with insight for the final general framework Costs (Q1A) According to Osterwalder and Pigneur (2010) a business (and thus revenue) model can be cost driven or value driven. Consultancy firms can innovate their costs related to their key resources on one of these three variables: hourly costs of the consultant, costs related to the overhead, or the margin. Key Resources As identified by 4 interviewees, the current rates of the consultants are too high. In order to gain more assignments these should be changed (Director C1I1, Strategic Consultant, C2I4, Director,C6, Manager, C8). Nevertheless the hourly costs of consultants are not easy to change. Employees are not willing to work for a lower salary at the end of the month. There are two opportunities to use cheaper consultants within the own firm. The first one is leveraging high cost senior employees with lower cost medior and junior employees (Strategic Consultants, C2I4 and C7, Manager, C4I2). This doesn t change the actual cost of the employees, but it changes the profitability of the projects (Maister, 2004). The second method is to use partners (internal and external) for certain tasks (Directors, C1I1, C1I3, and 52

53 C6, Strategic Consultants, C2I4, C4I1, and C7, Manager, C4I2). If there is a surplus of consultants in a country/department of the firm, these consultants should be allocated to projects of other departments (in other countries ) (Strategic Consultants, C2I4 and C7, Manager, C4I2). This should be done despite what the (internal) cost prices are. These managers should take into mind the global picture for the firm. The consultant can better work for less, and be billable, than not being billable at all (Director C1I1). A more rigorous way to minimize costs is making use of zzp ers (Director, C1I1 and Manager, C4I2, Strategic Consultant, C4I1,C1I3 and C5). These zzp ers are (in most cases) cheaper than the own consultants, and they can be used when certain resources (and knowledge) are scarce, additional capacity is needed, or when (standardized) tasks can be executed by ZZP ers against lower costs. If this person is also on the payroll of the consultancy firm, there must be a certain workload to make them billable. Hiring them sporadic is cheaper than having them on the payroll. Having more people on the payroll is not always better (Strategic Consultant C4I1). Changing and reducing the cost related to the overhead is the second option to change the costs (Director, C1I1, Manager C4I2 and Strategic Consultant, C4I1). The overhead costs of consultants are based on information of APPEGA (2005). In Table 8 (Appendix XIIV) there are some opportunities elaborated, based on assumptions the researchers which can be potentially changed for strategic consultancy firms. The last opportunity is the margin, nevertheless current environment makes it hard to charge a high price for a consultant and therefore the margins are small. Currently ARCADIS has the margins (on the hourly cost rate) for the consultant in a range from 10% to 20%. Key Activities The key activities, the services (strategic advices) that consultants are providing, are based on the knowledge of those consultants. These activities can be gathered by tender procedures, or by personal interaction between consultant and client (Director, C1I1 and Manager, C4I2 and C8). If a consultancy firm is willing to grow in terms of revenues, other or more activities (other services, or the integral solutions) need to be provided by the firm (Director, C6). Osterwalder and Pigneur (2010) explain this as economies of scope or scale. Providing these integral solutions a good network (Strategic Consultant, C7) and key partners are essential (Strategic Consultant, C4I1). In order to provide the services of the consultants, the usage of technical tools such as mobile communication (LYNC, Skype) (Strategic Consultant, C7), allow firms to minimize costs. Strategic consultant (C2I4) stated that also the internet, and the tools that can be developed for this medium, offer another interesting opportunity. An online quick scan for example can provide clients a fast insight for their challenges that can be later on solved adequately. Asking them to rethink their current situation enhances the client to elaborate their own question behind the question. 53

54 Revenue stream (Q1B) Based on the BMC of Osterwalder and Pigneur (2010) the revenue stream of (strategic) consultancy firms is influenced by the selection of the pricing model, the methodology, the payment structure, the pricing strategy and the payment timing. In section an overview of pricing models that are used by comparative firms of ARCADIS is presented. Pricing Methodology The pricing methodology is related to the concept of how a price is set. Is this for example a cost + approximation, or is the market scanned for a price the client is willing to pay for a certain solution/project? According to several strategic consultants (C4, I1 and I2), the last method offers the most opportunities for strategic consultancy firms. In order to do so, consultants need to show their added value in the project, and must ask their selves and the client how valuable (in terms of money) the solution is worth (Strategic Consultant, C4 I1 and I2). This is better known as the pricing strategy. Further, as stipulated in all the 15 interviews, there is always the price versus quality debate. Due to the intangibility of the projects of consultants, this is of prime importance (Director, C6). The pricing strategy The pricing strategy for consultants deals with both the price and the value for a client. The pricing paradox (Owusu-Manu et al., 2012), as it is often called, is of prime importance for firms to take into count. Setting a price to high can directly reduce profits via a reduction of the firms market share, while setting the price to low can directly reduce a firm s profit though a low profit margin (Owusu-Manu et al., 2012, pg 362). The pricing strategy offers another option for revenue model innovation. Owusu-Manu et al., (2012) provided in their research an overview of these strategies. Consultancy firms are often characterized by the high costs of their services. As identified by 4 interviewees, the current prices are too high. Because of this firms such as ARCADIS are often too expensive for the small projects (Strategic Consultants, C2I1 and C1I3). A drawback of this premium pricing strategy is that there is a tradeoff between price and quantity. The higher the price, the lower the amount of services sold. The following pricing strategies as identified by the interviewees are opportunities when starting to operate in an international environment: loss leader (Strategic Consultant, C4I1), penetration pricing and bundle pricing (Director, C6). Combining the pricing strategy with the usage of ZZP ers and introducing a new brand name/label enhances the revenue stream. These ZZP ers that are working for lower rates, can be hired to work for the other label. And thus firms such as ARCADIS can also gain revenues with routine and smaller assignments executed by these ZZp ers. ARCADIS provides the project and network that are of prime importance (Strategic Consultant, C7) to gain the assignments. ZZp ers is ensured from a more stable work offers, and thus will have to fight against the intense competition. (Strategic Consultant, C1I3, C2I4, C5 and C7, Manager, C4I1 and Director, C1I1 and C6) Strategic consultant (C4I2) elaborates a current issue the mobility department is facing. If large projects are executed, in this case the client is a contractor, the client always start to ask 54

55 for discounts because of the amount of consultancy hours needed in a project. From the consultants perspective this is called a multiple pricing strategy. The customers buy greater quantities of a certain service, against a discount rate. Payment Structure The current payment structure for strategic consultants can be regarded as traditional, selling hours (Director, C1I2). The payments are usually done in cash. Nevertheless there are some examples of other payments structures. As identified by 2 interviewees, strategic consultants should act more as entrepreneurs (Strategic Consultant, C1I3, and Manager, C4I2) to gain more assignment, and should not wait for the clients to come to them to use their services (Manager C4I2). Profit sharing, as identified by three interviewees (Strategic Consultant, C2I1 and Managers, C3I1 and C3I2) is the most promising payment structure for strategic consultants. The consultants will aim to provide the best solution for the client that maximizes their result. In order to gain the highest return for their services. This profit sharing is not always paid in cash, but this can be done in shares, goods or future services. As been elaborated in the APPEGA (2005) report, this payment in goods is regularly done in the mining industry. If the mining company finds valuable minerals, the consultant receives a part of this (They don t receive the actual goods, but the value of these good if they are sold). Another upcoming payment structure is crowd funding (Ordanini, 2009 and Ordanini et al., 2011). As identified by strategic consultant (C2I1) and manager (C3I2), more clients of strategic consultancy firms are actively participating in the initiatives with crowd funding. By choosing the right partners the costs can be minimized and for all the parties the outcomes can be maximized. Strategic consultant (C2I2) provided the example of crisis evaluation that is suitable for crowd funding. Another option is to pay in shares or options. This is more a kind of strategic alliance forming, but it can be very lucrative if the prospects are promising. The revenues from the share might be much higher than the payments in cash. Nevertheless there are always risks associated with this speculative method of paying, and therefore the risks need to be taken into count. An example of such a payment is the participation in The Moerdijk Port Authority, in which ARCADIS developed the concept of park management. Payment timing Payment timing is the last factor that can influence the revenue stream. Payments are usually done at the end of a project or after a certain period (month). Nevertheless the moment of the actual payment is influencing the liquidity of the firm. The strippenkaart revenue model offers an opportunity for this (Strategic Consultant, C2I1 and Manager, C3I1). The client buys in advance a certain amount of consultancy hours that can be used whenever needed. If the client wants that a specific consultant is direct available on request, additional payments can be done. The cash is received before the actual service is provided, enhancing the firms liquidity. For projects that have a fixed price revenue model, a down payment or a partial down payment enhances the liquidity. These projects are suitable for this method, because the scope and the price of the project are determined before the actual start. 55

56 4.5. Analysis As can be deducted from the answers of the strategic consultants, managers and the directors, there are opportunities for revenue model innovation. Nevertheless there are barriers and risks for this process. This section presents a general framework based on the outcomes of the case studies combined with findings of the literature review. Both result in a unified and comprehensive model (called: revenue model innovation framework) on how to successfully use revenue model innovation as a strategic consultant in an international environment. The answers on the main research question (to identify opportunities to change the costs and revenue stream of the revenue model) are rather straightforward. Therefore the decision is made to develop a more elaborated model that also takes into count all the barriers, risks and clustered opportunities Revenue Model Innovation Framework Figure 7 Revenue model innovation appropriate? The most important barrier, as identified by the different interviewees in section is the threshold barrier. Revenue model innovation is not always possible because of this barrier. Figure 7 shows graphically when revenue model is appropriate for both type of clients (public and private). (Strategic) Consultancy firms are not facing problems for their private clients with this barrier, in contrast to public firms that need to deal with tender thresholds. Figure 7 explains what the maximum project size (in terms of money) for a certain (semi) governmental client 56

57 is, when the threshold barrier is influencing the project. The colored lines are representing the type of client, and the numbers are representing the maximum size in euro s the project may cost. When revenue model innovation is possible, (read: when the threshold barriers are of no concern) the following general model (Figure 8) is applicable. When the threshold barriers are of no concern, this does not directly imply that revenue model innovation always will be beneficial/successful. Therefore the effect of all the other barriers and risks should be minimized first. Figure 8 Revenue model innovation framework Besides the threshold barrier, the client(s) need to be willing to participate in a project (that is suitable for revenue model innovation) to actually use a innovative revenue model. If this is the case this model (Figure 8) graphically explains the opportunities, the barriers and risks associated with these innovations. All these factors are deducted from the interviews and are added to this general framework. These barriers, risks and opportunities are extensively elaborated in the previous sections (4.4.2 and 4.4.4) and will not be addressed again in this section. It should be noted that the way (read: direction of their impact) the barrier/risks/opportunities are elaborated depends on how their effect is explained in the 57

58 model. Therefore Table 6 explains this, in order to be sure that there is no discrepancy between the researchers ideas and the readers thoughts. Barrier/Risk/O pportunity Explanation Type of client What is the effect of the type of client on governmental regulations and project scope? M Barrier, Risk or Moderator (Direction) Project scope What is the effect of the scope of project, for e.g. integral solution versus single advice on revenue model innovation? M Governmental regulations 1) What is the effect of governmental regulations on the presence of firms in an environment? 2) What is the effect of governmental regulations on the actual usage of revenue model innovation? 1) B 2) B Language Country culture Consultancy firm strategy The language, and mainly not speaking the same language/jargon influence the mutual understanding and trust. Therefore this barrier is expected to have a negative effect. The culture of a country has an effect on the risk adversity of firms, the corporate culture of a client and on the relationship between client and consultant. This barrier is thought to have a negative effect on these three factors. 1) The strategy itself is both a risk and a barrier for revenue model innovation. If there is no room for revenue model innovation within the current strategy, the chance of success is limited. Furthermore if there is no strategic alignment, revenue model innovations might even become a risk for the current position of the firm. 2) The firm strategy might have a negative effect on the leadership barrier if this is not carefully considered. If there are no leaders that support their employees in their actions, they will act different to stay in their own comfortable zone. 3) The firm strategy has a positive moderating effect on the presence of a firm in a certain environment. This is expected to be beneficial for firms. 4) The strategy of a firm has an effect on the brand name. The brand name is expected to be beneficial for the pricing paradox because clients become familiar with the brand. 5) Finally the firm strategy is expected to be important for the organizational support provided by the managers within the firm. If there is a certain amount of managerial support, the chance of a successful introduction of a new revenue model is higher. This moderator has an positive effect. Local presence 1) The local presence of a firm moderates several effects of barriers for revenue model innovation. The local presence moderates positively the following barriers: country culture and language. 2) Local presence has a positive effect on both the trust and the relationship between client and consultant. Relationship client consultant Risk adversity Economic environment 1) The relationship between client and consultant enhances the usage of revenue model innovation positively. The relationship is needed for gaining trust in each other. 2) If there is a certain amount of trust and a good relation, the client will be more open for revenue model innovation. Risk adversity has a negative effect on revenue model innovation. The more risk adverse clients are, the less they are open for not traditional and more risk involving revenue models. This risk adversity is influenced by several other barriers that further negatively influence this barrier. 1,2) The economic environment makes firms more reservedly. This has an effect on the risk adversity and the corporate culture of the client. These two factors are regarded as negatively associated with revenue model innovation. 3) The economic environment also offers opportunities for revenue model innovation. Both client and consultant have to find ways to secure revenues and save costs. Revenue model innovation poses an interesting opportunity to do so. Brand name 1) The brand name moderates positively the barrier pricing paradox. A well respected brand name is supportive for clients to trust the consultant to deliver the expected project against a certain price. 2) The brand name is negatively related with risks for revenue model innovation. If the revenue model innovation is not carefully elaborated, the brand name could be harmed during the introduction of the new revenue model. Pricing paradox Trust client in consultant Corporate culture Leadership Organizational support The pricing paradox that is related with over and under pricing of services. If the price is not set right, loosing assignments is inevitable. Therefore the price must be set right, also when innovating services with new revenue models. This barrier is therefore negatively related to revenue model innovation. 1) If there is a certain amount of trust form the client in the consultant, this barrier is becoming less of concern for revenue model innovation. 2) This will also affect the risk adversity of clients because they trust the consultant to come up with the best solution. The corporate culture of the client must be ready for revenue model innovation. If this is not the case, the chance of a successful introduction is limited. Leadership is positively related to the actual topic of revenue model innovation, if the leaders are supporting the actual introduction of new revenue models. And if their performance evaluations are aligned with the new models. The organization needs to support and be ready for a new and innovative revenue model. If they are not ready, the chance of success will be much smaller. B B 1) B - and R - 2) B - 3) M + 4) M + 5) M + 1) M+ 2) B+ 1) B+ 2) B+ B - 1) B - 2) B- 3) B + 1) B+ 2) R- B - 1) B+ 2) M+ B- 1) B + 2) M+ B + 58

59 Competition If the competition is intense, revenue model innovation might be a risk. If the introduction of this takes time and costs additional money, the current competitive position might be in danger. Therefore this should be carefully considered. Table 6 Explanation of the factors of the general model R- A successful revenue model innovation based on the opportunities always comes with both risks and barriers. The proposed effect (or direction) of the barriers and risks are shown with a + for a positive effect, a 0 for effect that cannot be linked with a positive or negative effect, and a for a negative effect. Sub question 2 proposed that there are risks associated with revenue model innovation. These risks are indicated with the letter R. The barriers, sub question 3, are indicated with a B in the model. Last, the opportunities for revenue model innovation on both costs and revenue streams are explained (circles). The letter M is thought to be a moderator of the different barriers or risks. In the bottom part of Figure 8 an additional factor is added. The effect of this factor, the offer will not be further researched. The offer, or in this case a service provided by the firm, influences all the factors indicated by the interviews. The offer, as has been indicated by Osterwalder and Pigneur (2010) is the heart of the business model, and therefore it is the most important factor. In this case we assume that the offer provided by the firm is strategic consultancy and that it can be seen as one offer. Therefore the effect is the same in the international environment. In further research this model should be tested in order to verify if the assumed effects are correct, and if the proposed barriers and risks are actual barriers and risks. Further the opportunities will be analyzed if they are actual opportunities for the international environment. In this research the different perspectives of both clients and consultants need to be incorporated to ensure that this model is not only from a consultant s perspective, as it is right now. 5. Conclusion This section provides answers on the main research question, combined with answers on the three sub questions. First the sub questions are elaborated to be able to answer the main research question. This research is inspired by the current environment that is demanding firms to innovate their current business/revenue models. Firms that outperform their competitors often use distinctive business models in their market. Due to this, other firms become imbued that sticking to current believes and processes won t make them a top performer. Furthermore the strategic consultancy market is regarded as traditional in their usage of both business and revenue models. Combining both motivate me to consider options for improvement. Revenue model innovation can be done on both factors, the cost and the revenue streams of the revenue model. There are, as can be seen in Figure 8, some barriers and risks involved in this process. To explain how strategic consultants become successful in their international environment, the following question is answered: Sub question 1: Which internal and external changes are necessary for the revenue model in the cost structure (Q1A), and the sources of revenue (Q1B)? 59

60 The cost-structure (Q1A) of strategic consultantcy firms is, as can be deducted from Figure 8, based on their direct and indirect costs. The projects currently conducted are strategic of nature, and reside on the knowledge of the consultants their selves. These consultants are regarded as the direct costs, and they represent a minor part, around 30% of the hourly rate. The indirect costs, the overhead represents % of the hourly rate. The remaining part, around 10-20% is the profit margin. The cost structure is rather hard to change. The direct costs can only be changed if cheaper colleagues are assigned to projects (Manager, C4I2). This can be done by assigning more junior employees (Strategic Consultant, C2I4), assigning colleagues from other OPCO s (Director, C1I1), or outsourcing certain tasks to ZZP ers (Strategic Consultant, C4I1) or to strategic alliance partners (Manager, C4I2). The indirect costs, which represent the majority of the costs are easier to change than the direct costs. As stated by the director (C1I1) there are currently projects initiated to identify opportunities to minimize the costs of the overhead. If this requires that people are becoming superfluous, dismissing could be a consequence. Furthermore standardized procedures and making more use of technical tools would enhance the competitive position by lowering these costs. The sources of revenue (or revenue streams) offer the most opportunities for strategic consultancy firms to innovate their revenue model(s) on. As can be deducted from Figure 8, the revenue stream is influenced by the following factors: the payment timing, the payment structure, the pricing methodology, and the pricing model. Because of the multiple options to improve the revenue streams, this topic is already addressed by many firms. Initiatives like crowd funding and profit sharing are good examples. Nevertheless there are risks associated with these innovations. Sub question 2: Are there potential internal and external risks associated with these changes, and if so what are those? There are both internal and external risks associated with revenue model innovation. Internal risks are based on the resistance of both the firm and the employees against revenue model innovation. If there is a discrepancy between the strategy and the revenue models used, chances of negative outcomes are increasing. This strategic alignment risk also involves the branding of the brand name strategy. What is the relationship between the brand name and the service provided with both the quality requirements and the price of the services? If this is not carefully considered, cannibalization of the own services and markets might be a result. Further this strategy involves a pricing strategy that needs to be market confirmative. The pricing paradox as explained before must be taken into consideration. The external risks, as identified by the interviewees, are related to setting the wrong price in relation with addressing the added value for the client. In order to do so, a clear understanding of the client and his problem are required. Asking what the question behind his question is, is essential (Strategic Consultant, C4I1). A relationship that involves trust and mutual understanding is essential. If there is a certain noise, or a lack of credibility the real problem 60

61 cannot be explained, and thus not be solved adequately. If there is a performance based revenue model assigned with wrong targets, negative outcomes are posing a high risk for the firm. Managers that provide (intangible) strategic advises are conservative, just like their clients, in introducing new revenue models. This conservativeness is mainly caused by the barriers firms are facing during this process. Sub question 3: What internal and external barriers will hinder the successful implementation of these revenue model innovation(s)? As has been identified by the interviewees, the barriers that are of most concern are external barriers. Not all barriers are of concern for all the clients and projects, rather they are specific for certain groups of clients and certain projects. Some barriers are not of concern in the local country, but during internationalization of these services these become of bigger concern. The most mentioned barriers are the tender threshold and the governmental regulations. Moreover these barriers are hindering the actual introduction of revenue models for public firms. The effect of external barriers such as language, culture of the country or region and local knowledge of rules and regulations could be minimized by operating with a local firm. This can be both an own OPCO or a strategic partner. Nevertheless consultants that are operating internationally need additional training on how to develop relationships and gain trust when operating in an international environment. The last external barrier is the corporate culture of clients and their risk adversity. Private firms are open for revenue model innovation, because they are all focused on maximizing profits and minimizing costs. This is in contrast to public firms; they are spending money because they have to, despite their social responsibility. Secondly they think in costs instead of savings or revenues. Further their time horizon differs from private firms. Private firms have a very long horizon, despite the fact that their financial targets are short time oriented. Public firms have a shorter horizon and they tend to think in periods of maximum four years, a reign period. The job of the consultant in those cases is to answer the question behind the question, in order to provide the client with the actual problem. With use of the VPC the actual problem and the real solution can be elaborated, that solves the real needs. The internal barriers identified differ for certain groups of interviewees. As stated before the different perspectives on business model innovation of managers and the strategic consultants also has its effect on the barriers identified. Lower managerial layers are reserved in the usage of innovations in the models (Strategic Consultant, C3I1), despite that the market group manager denials this with: If the model is carefully considered and well elaborated, I m open to use these innovative models (Manager, C3I1). The strategic consultants identify more performance/ evaluation based barriers as their manager, despite the managers state they are actual open for revenue model innovation. Therefore a well elaborated strategic alignment and organizational/managerial support are required to make revenue model innovation successful for certain clients. A well elaborated answer on the main research question is provided by combining all the interview results: What changes in the revenue model (as part of the business model 61

62 described with use of the theory Osterwalder and Pigneur (2010)) need to be made in order to be successful as strategic consultant in an international environment? It needs to be remarked that the answer on this question goes further than just a few things that need to be changed on the revenue model itself. This answer would be relative straightforward, namely the cost or the revenues need to be changed (see Q1A). This implies minimizing cost and maximizing revenues with use of several interventions in the current business process of strategic consultants. For both, this is not possible without developing a good offer (value proposition that is the heart of the business model, Osterwalder and Pigneur, 2010). Based on the value proposition, the type of client and the type of project, a non traditional revenue model or even an innovative business model can be picked/ developed. There are many factors influencing the projects of strategic consultants and thus have an effect on the offer provided by the consultant. The answers on the main research question are from a Dutch perspective (see limitations of this research). These answers are therefore representing the Dutch perspective on how to use revenue model innovation successfully as a strategic consultant (in an international environment). To be successful as a strategic consultant in an international environment, local market presence and local market knowledge are needed. Both are needed to develop relationships with potential clients, and to gain trust of these clients. Besides this, the market needs to get familiar with the brand name. In order to do so, local consultants are preferred above international consultants. Nevertheless references and previous experiences of these (well respected) consultants need to be used in gathering assignments. This will always be done in cooperation with local colleagues. On the first glance, this has nothing to do with revenue model innovation itself, but this is a method to minimize barriers that might be faced. Private firms are currently open for the usage of other revenue models than fixed price and hourly fees. Nevertheless the majority of clients of the strategic consultancy firms in this research are public firms. Public firms, in contrast to private firms, have to deal with the European tender regulations that are hindering revenue model innovation above the tender thresholds. Therefore it is important to elaborate a firm strategy to work with these regulations, in order to gain more assignments. Below the European tender threshold it is important to develop relationships with the client, in order to receive projects underhand without tender requests. This saves money for both (client and consultant), and therefore the consultant can make a better financial offer. These projects allow also the usage of innovative revenue models, because they are awarded to clients without the long lasting tender procedures. Moreover these projects can grow after the awarding to enormous projects, even far above the tender thresholds. If the consultant is able to develop such a relationship with their clients that they can influence the project scope, their added value becomes clear. That will finally result in better profits for the consultant and often in a better solution for the client. Finally the consultancy firm needs to be ready for the usage of other revenue models. To do so there are some conditions to do this successfully. Both organizational and managerial support is needed. This involves changes within the firms evaluation process of the 62

63 employees. Moreover, the strategic alignment of service firms with their revenue models needs to be reconsidered. Leadership within firms is needed to support employees to come up with new revenue models. The leaders must enhance employees to stimulate clients to be more open for revenue model innovation Discussion This section provides a short discussion of findings deducted from the interviews in relation with the findings that are deducted from the literature. Business model innovation strategies of firms are regarded as important to achieve superior performance (Kim and Mauborgne, 2005). Revenue models are a part of the business models, and therefore their importance is evident. In recent years there has been growing academic interest in how firms use and innovate their business model (Aspara et al., 2009). Consistent with this academic interest, also practitioners (managers and entrepreneurs) see that it is one of their core tasks to make strategic decisions on how innovate their business models (Tollin 2008). Innovation is regarded as a continuous strategic orientation of a firm (Siguaw et al., 2006). From this stance business model innovation is regarded as an indication how innovative a firm might be. This innovativeness is related to the corporate culture and innovative capabilities. ARCADIS, a strategic consultancy firm in this research, states that they are innovative; nevertheless they keep using their outdated and traditional business model of selling hours in most projects. Thus these strategic consultants are far from innovative on this topic, and in order to excel in the market they need to reevaluate their current business model(s). As identified by Chesbrough (2010) organizational processes need to be changed in order to be successful in business model innovation. Furthermore firms need to identify leaders for changes in business models. These two findings are in line with the barriers identified by the interviews. The absences of leadership, managerial and organizational support are identified as barriers for revenue model innovation. Therefore these need to be taken into count when the business/revenue model is actually innovated. Chesbrough (2010) further states that the discretion and judgment of middle managers must be subjected to empirical data if local objectives are to be subordinated to those of the overall organization (pg 362). This is in line with the identification of the performance evaluation barrier. If the consultants and their managers are evaluated on personal performances, they will not think in favor of the global picture. The selection of the revenue mechanisms (revenue stream) depends on several parameters, namely: 1) the customer maturity, 2) the focus of the service provider on the client and the clients business. These clients become more and more mature in terms of buying services, and the service providers become more adept in understanding the client s needs, more advanced revenue models can be put in place (Kindström, 2010, pg 485). Strategic consultancy firms aim to gain a deep understanding of the client and their clients problem. Despite this, their actual usage of advanced revenue models (Kindström, 2010) is limited. Furthermore Kindström (2010), states that these service providers need to understand their 63

64 internal cost structure better before being able to settle on appropriate revenue mechanisms. This is in line with the question raised, how to innovate on the costs of the consultants. Finally, as identified by Kindström (2010), service providers struggle with the idea to move from standard price contracts to more innovative variable value-based contracts. In these contracts the value depends on several performance indicators, such as profitability. In the research of Kindström (2010) several firms have been incorporated. One of them provides services that are hard to charge on a different method than by billable time. This finding is in line with the strategic consultancy firms of this research; nevertheless as also identified by the interviewees the usage of advanced models is possible. Before the actual service is provided, the consultant and client must agree on what the service provided is and how the performance is measured (Kindström, 2010) Managerial Implications The different management layers in firms must be aware of the barriers they might face during the internationalization process of their services with the innovative revenue models. The first implication is their leadership role in the firm. If the managers are not supporting their employees to come up with innovative revenue models, they do not come up with new revenue models. In order to do so, the billability target is hindering this actual process. The employees first focus on reaching their own billability target instead of elaborating and introducing an innovative revenue model. This is mainly caused by the performance evaluation of these employees. This evaluation is currently mainly done on billability and not on project results. When focusing on project results, the most lucrative revenue model is more of interest for the consultants. The second implication is the language and culture barrier of the consultants. As stated by a manager (C3I1), the current knowledge of the consultants on the topics of cultures and languages is not sufficient. Managers need to support their subordinates to work internationally to gain more knowledge on both topics. Furthermore it is important to gather experience on how to work in an international environment. International flex working is one of the solutions and this is already possible within ARCADIS. Nevertheless employees are unknown with these possibilities and thus managers should elaborate these opportunities to their subordinates. The last implication is the tender threshold barrier. As been stated in a report of the Dutch Rekenkamer : the cost related to awarding projects without tender procedure are much lower than with a tender procedure. So the consultants need to inform their clients what the benefits are for awarding projects without tender procedures. If these clients are forced to award projects by tender procedures, the projects should be integral projects. These integral solution projects allow consultants to come up with innovative revenue models. As been elaborated previously, integral solutions are beneficial for both, because the costs and the quality of these projects are best for both. In order to do so, the strategic consultants need a more entrepreneurial attitude. These consultants are experts in their field of expertise (environmental engineering), thus they are often regarded as the technical guy. Generalized, the technical guys have more interest in developing a high tech solution, than in providing a 64

65 very profitable project. Additional training on how to sell their-selfs and their services is required to make revenue innovation successful in the firm Limitations Although this research project has found interesting insights on the research topics that are not yet addressed in existing literature, limitations should be noticed. One of limitations of this research are based on the gathered data with use of interviews. The conducted interviews are all held within the Netherlands. Therefore the goal of developing an integrated model for revenue model of strategic consultants within an international environment is bounded. This model must be regarded as the view (perspective) of Dutch strategic consultants on the mentioned topics. Further the interviews are mainly conducted within a single firm, only 3 other cases where selected. Therefore the generalizability for the whole Dutch market is doubtful. The largerst competitor was also not providing answers on all the questions, because the researcher was linked with ARCADIS. Additional interviews with an independent researcher with other comeptitors might help to overcome this limitation. Further the barriers are identified based on opinions of the consultants, and not on the opionions of clients for example. Therefore barriers as risk adversity, language and culture are perhaps not as influential as currently expected. Therefore further research should be conducted. The limitation to the narrowed topic of business model innovation to revenue model innovation confused some interviewees. There is often an answer provided that goes further than only the topic of revenue model innovation. Within the firm the type of projects regarded as strategic also differed. Besides the strategic advice of the consultants there are other projects that are more realization type of projects. These projects are sometimes better suitable for other business and revenue models. Due to the interconnectiveness of both business and revenue model it would be more usefull if the topic of business model innovation was researched. Further the topic op strategic consultancy need to be changed in more environmental oriented consultancy. The strategic natured focus hinders the actual topic of revenue model innovation, because of the projects that are regarded by the literature as pure strategic. The last limitation is the research methodology used. This in depth interviewing technique and the reporting technique requires interpretation of the researcher. Despite the confirmation of the interviewees of the found information, there will always be a certain interpretation of the researcher. Future research therfore should be conducted on the sceintifc significance of the integrated framework of section This is currently lacking, because of the research methodology used. Further additional factors influencing the current behavior of clients can be integrated, to improve the outcomes. 65

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73 Appendix I In the following figure the organizational chart of ARCADIS Netherlands is presented. A further company background is provide after this Organizational chart 73

74 Company Background ARCADIS is an international (operating) company providing consultancy, design, engineering and management services in the fields of infrastructure, water, environment and buildings. ARCADIS mission is to enhance mobility, sustainability and quality of life by creating balance in the built and natural environment, in order to produce exceptional value for their clients, employees and shareholders. ARCADIS as a global company, is committed to three core values: Integrity, Entrepreneurship and Agility in every service provided. 1 In order to produce exceptional value for their clients, employees and shareholders, ARCADIS organizes their services based on the previous mentioned fields into the four main divisions, each with its own area of strength and strategies. At the same time, these segments are naturally and inextricably woven together, inspiring ARCADIS to work across disciplines and geographies to deliver exceptional solutions to complex issues. ARCADIS has respect for local laws and cultures, in order to be a reliable an integer partner for clients. 1 Furthermore ARCADIS aims to deliver services without jeopardizing the interests of society, employees and shareholders. The services offered do not compromise ARCADIS independent professional judgment and aim to create optimal value for clients. 1 The history of ARCADIS is dating back to 1888 when the Heidemaatschappij was founded as Association for wasteland redevelopment. From this day the company started growing, and identifying new business opportunities. With 21,000 employees worldwide and 2.4 billion of revenues the firm has an extensive international network that is supported by strong local market positions. 1 ARCADIS is ranked among the top 10 management and engineering consultancies in the world. In Europe, Brazil and Chile ARCADIS has even a top 5 position. In the global environmental market ARCADIS is positioned in the top 3. 1 ARCADIS. Figure 9 Offices ARCADIS ARCADIS has over 291 offices throughout the world 1, as can be seen in Figure 9. As stated before, ARCADIS is global by making use of local operating companies. These operating companies (OPCO s) are mainly located in Europe and Northern America. In Europe, the majority of the offices are located in the Netherlands. This is a result of the foundation in 1888, when the Heidemaatschappij or Heidemij was founded as association for wasteland redevelopment. In 1995 the Heidemij was listed to the stock market, and in 1997 the name is changed to From the early nineties ARCADIS started to enter new markets by their acquisition strategy. From that day more than 50 companies are acquired (see 74

75 Appendix II). This strategy not only extended the portfolio of ARCADIS, but it also strengthens the global presence. The growth of ARCADIS is not exceptional. Monnoyer (1993) supports this creation of large independent consultancy companies, of which ARCADIS is an important payer. Overview of Services provided by ARCADIS Table 7 Types of consulting services The implementation services and preparation are done by one of the four business lines, namely: Water, Environment, Infrastructure and Buildings. The advisory services are less suitable for ARCADIS, but the advisory S&B has some interface with these services. The preparation services are of strategic nature, and thus as stated before firms such as ARCADIS can be regarded as strategic consultancy firm. ARCADIS in Top 10 ARCADIS is a pure play global engineering and consultancy firm that has a leading position in Europe, South America and in building-related consulting in Asia. In the United States, ARCADIS is currently in the top 10. In the global environmental market, ARCADIS is positioned in the top three, and we are the largest environmental services provider to the private sector globally. Figure 10 Top 10 design firms. 75

76 Appendix II The following list presents the acquisitions of ARCADIS from 1993 till nowadays Grabowsky&Poort - Netherlands 1993 Trischler und Partner - Germany 1993 Asal Ingenieure - Germany 1993 Geraghty & Miller - U.S., U.K Ekokonrem - Poland 1995 Gedas - Belgium 1995 EP Group (Eptisa) Spain 1996 Piedmont Olsen, Hensley - U.S Starke Diekstra - Netherlands 1996 Sageos (Antea, Arios) - France 1997 Geotecnica Consultores - Chile 1997 Articon Netherlands 1998 Grebner Germany 1999 Giffels U.S Logos-Brazil 2000 WSBC Civil Engineers U.S Enerconsult Brazil 2001 Hidro Ambiente - Brazil 2002 Casta - Spain 2002 FC International - France 2003 Homola - Germany 2003 Finkbeiner, Pettis & Strout - United States 2003 Reese, Macon Associates - United States 2003 Lawson, Noble & Webb - United States 2003 PRC Bouwcentrum - Netherlands 2004 Profil - Poland 2004 Bessent, Hammack & Ruckman, Inc.- United States 2004 Diversity Partners, Inc. - United States 2005 Greystone - United States 2005 AYH - UK 2005 BBL - United States 2006 DGC - Germany 2006 Berkeley Consulting - United Kingdom 2006 BCT, Ecolas - Belgium 2006 In Situ - Netherlands 2006 PinnacleOne - United States 2007 BFB - Netherlands 2007 Alkyon - Netherlands 2007 RTKL - United States 2007 APS Project Management - United Kingdom 2007 Vectra - United Kingdom 2007 Idesol - Chile 2008 LFR - United States 2008 Elekol - Poland 2008 SET - Italy 2009 Malcolm Pirnie United States 2009 Bohemiaplan Czech Republic 2010 Plan & Projectpartners BV Netherlands 2010 AHS International - China 2010 GFOEB - Germany 2010 Rise - United States 2011 EC Harris - United Kingdom 2012 Davis Langdon & Seah - Hong Kong, China 2012 BMG Engineering - Switzerland 76

77 Appendix III A unified framework of the business model concept. By: Al-Debei1, M and Avison, D., European Journal of Information Systems (2010),

78 78

79 Appendix IV Business Model Canvas, Osterwalder and Pigneur (2010) Figure 11 Osterwalder and Pigneur s BMC Figure 12 Patrick Stähler, Revised BMC 79

80 Appendix V Value Proposition Canvas Figure 13 Value Proposition Canvas and Business model Canvas 1. Customer Jobs describes what the customers you are targeting are trying to get done. It could be the tasks they are trying to perform and complete, the problems they are trying to solve, or the needs they are trying to satisfy. 2. The Customer Pains describes the negative emotions, undesired costs and situations, and risks that your customer experiences or could experience before, during, and after getting the job done. 3. The Customer Gains describes the benefits your customer expects, desires or would be surprised by. This includes functional utility, social gains, positive emotions, and cost savings. The value proposition can be described by the following three factors: 1. Products and Services All the products and/or services your value proposition is built around need to be listed. These products and services offered by the firm need to help the customer get either a functional, social, or emotional job done, or help him/her to satisfy their basic need. These products and/or services may either by tangible, digital/virtual, intangible, or financial. 2. Pain Relievers describe how the firms products and/or services alleviate customer pains. Further it describes how they eliminate or reduce negative emotions, undesired 80

81 costs and situations, and risks your customer experiences or could experience before, during, and after getting the job done. 3. Gain Creators describe how the firms products and/or services create customer gains. How do they create benefits that your customer expects, desires or would be surprised by, including functional utility, social gains, positive emotions, and cost savings. Business model innovation Epicenters Figure 14 Business model innovation epicenters 81

82 Appendix VI This list presents an overview of (orientation) interviewees, Market Group Rivers and Delta Area s, ARCADIS 1. Harm Albert Zanting, (Director Market Group), Strategy and Decision making, ARCADIS 2. Ursula Blom, (Manager advisory group) 3. Marius Kiers, (Senior Consultant) 4. Bert Smolders, (Senior Consultant) Market Window Managers, ARCADIS 5. Jeroen Klooster economic analysis, (Senior Consultant) 6. Patrick Kalders policy analyses and Administrative advice, (Senior Consultant) Business Development ARCADIS 7. Don Hardy (Director Business Development) 8. Marjolein Wijngaarden (Director Client Development Water Europe) 9. Robert Kroon (Senior Consultant) Other interesting employees of ARCADIS 10. Rob Jansen (Senior Consultant) 11. Rob Snijders ( Manager Urban Transport) 12. Mark Mainz (ARCADIS Germany) Competitors 13. Hans Bakker, Director Twynstra and Gudde / The Bridge 14. Melchior Verboekelt, NPC RoyalHaskoning DHV, (senior strategic consultant) Experts from the different fields 15. Rene de Groot, Syntens Case overview Case nr Interview Case 1, Business Development 1) Don Hardy,2) Marjolein van Wijngaarden, 3) Robert Kroon Case 2 S&B 1) Jeroen Klooster, 2) Patrick Kalders, 3) Bert Smolders 4) Marius Kiers Case 3 Managerial 1) Harm-Albert Zanting, 2) Ursula Blom Case 4 Mobility 1) Rob Jansen, 2) Rob Snijders Case 5 NPC Melchior Verboeket Case 6 The Bridge Hans Bakker Case 7 Syntens Rene de Groot Case 8 ARCADIS GE Mark Mainz 82

83 Appendix VII The following contingency model of Bharadwaj et al. (1993) presents the SCA of service firms. 83

84 Appendix IIX Hertog, den P., van der Aa, W., de Jong, M, W. (2010). Capabilities for managing service innovation. Figure 15 Six dimensional model of service innovation and the dynamic capabilities for realizing new service experiences and solutions Appendix IX Value reference model 84

85 Appendix X Successful business model innovation results. IBM CEO study (2006) Figure 16 Business Model Innovation according to IBM Figure 17 Successful business model innovation results 85

86 Appendix XI Fee range according to project complexity, APPEGA 2005 (Figure 18), and The value of new revenue models in public firms Figure 18 Fee range according to project complexity, APPEGA 2005 Figure 19 The value of new revenue models in public firms 86

87 Appendix XII The following model Leonidou (2004) present the internal and external barriers for internationalization. Figure 20 Barriers for internationalization 87

88 Appendix XIIV Innovation opportunities on indirect costs of consultants Costs Office rental, Operating costs and Furnishings (Usual) engineering, special tools and software Receptionists and clerks Innovation opportunities Stimulating flex working. Stimulate working at the clients site. Both are lowering the occupancy of the different offices of the consultancy firm. The firm thus can downscale the offices. This further enhances lowering the operating costs and the amount of furnishings needed. If these software/tools/ engineering are regularly needed, the tools should be bought by the firm. Employees should be trained how to use these tools/software. Further this knowledge of these tools/software can be provided to the market as a new service. If software/tools/engineering capacity is indecently used, considerations need to be made if these are rented for a period of time. Outsourcing to specialized firms is the last option. The consultancy firms don t need to regularly update the software and to train the consultant how to use it. Moreover experts that are working daily with certain tools/software are providing the firms faster with often a more qualitative outcome that further shortens the whole project period. Outsourcing or centralizing. Centrally located receptionists can take care of the incoming calls for the whole firm. So each location doesn t need an own receptionist. Clerks can be outsourced to a specialized company, who can also be responsible for the cleaning of the office. Communication equipment Making use of technological opportunities. LYNC, SKYPE, Video conferencing, etc are options. These can be used both within the firm as with clients and partners outside the firm. Extending the period that these tools are used, and not replacing them if the economic lifetime is zero, but when the technological lifetime is zero. If the maintenance costs are becoming higher than the cost of replacement, these products need to be replaced. Switching between providers can also be very lucrative. At the end of each contract period new offers need to be compared. The most suitable for the specific situation must be selected. Business and professional licenses; professional and general liability insurance; audit and legal fees; Business licenses, or assigning to a consultancy association is not always needed. A good example is the absence of the big four accountancy firms in the German. BDU example. In this case the four largest German consultancy firms (McKinsey, Roland Berger, BCG and AT Kearny) are not assigned to the association ( Insurance and tax payments are not easy to change. These are based on certain set of (location) criteria. When the firm is outsourcing certain departments/tools, and enhances flex working, the amount of payables to the insurance companies and governments decreases by: 1) the value of the inventory is lower and 2) the amount and size of the offices/workspaces are smaller Resulting in lower taxation payments and lower period payments to insurance companies. 88

89 These tax and insurance payments hold also true for the amount of employees on the payroll. If this amount is smaller, the firms have to pay less for the employee insurance and social contributions. Switching between insurance providers can also be very lucrative. At the end of each contract period new offers need to be compared. The most suitable for the specific situation must be selected. Stationery and office supplies; HRM, Education and Training, and Training Materials Implementing a paperless office. Using tablets for the consultants can be a good solution. Moreover centralizing copier points that are using green printing policies. The printers have a mailbox, and only when the user gives the local print approval the printing is started. This saves many unneeded prints. Large consultancy firms often have an in-house copy shop. This shop can be shared with other firms (neighbors) to cover and minimize the costs. Hard to change. Trainings can be centralized, even throughout the whole firm. The travel expenses must outweigh the expenses of taking care of own trainings and education programs. Training and education opportunities are nowadays common to offer with use of technological tools, such as computers and tablets. HRM must be centralized within an OPCO. No further changes needed. Financing costs; For integral projects, strategic consultancy firms need to seek partners. These partners need to be able to finance the whole or parts of the project. This minimizes the cost for the consultancy firm. Finance costs for the consultancy firm itself are hard to minimize. This has to do with growth targets, replacement rates etc. The last replacement rate, could perhaps be extended. Of course the benefits must outweigh additional cost to keep these products working. Business development; Administrative salaries such as accountants Essential for businesses to survive. Downsizing their budget is a bad option. Outsourcing, or centralizing these functions. Table 8 Change opportunities costs 89

90 Appendix XIV Thresholds for tenders. Source: 90

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