Investigation of How a Startup’s Existing Offering Matches Market Needs A Study from the Swedish Market for B2B Budgeting Solutions Master’s Thesis in the Master’s Programme Management and Economics of Innovation ALEXANDER FASTBERG MINH BANG NGUYEN Department of Technology Management and Economics Division of Entrepreneurship and Strategy CHALMERS UNIVERSITY OF TECHNOLOGY Gothenburg, Sweden 2017 Report No. E 2017:041 MASTER’S THESIS E 2017:041 Investigation of How a Startup’s Existing Offering Matches Market Needs A Study from the Swedish Market for B2B Budgeting Solutions ALEXANDER FASTBERG MINH BANG NGUYEN Tutor, Chalmers: Marouane Bousfiha Examiner, Chalmers: Henrik Berglund Department of Technology Management and Economics Division of Entrepreneurship and Strategy CHALMERS UNIVERSITY OF TECHNOLOGY Gothenburg, Sweden 2017 Investigation of How a Startup’s Existing Offering Matches Market Needs A Study from the Swedish Market for B2B Budgeting Solutions ALEXANDER FASTBERG & MINH BANG NGUYEN © ALEXANDER FASTBERG & MINH BANG NGUYEN, 2017. Master’s Thesis E 2017:041 Department of Technology Management and Economics Division of Entrepreneurship and Strategy Chalmers University of Technology SE-412 96 Gothenburg, Sweden Telephone: + 46 (0)31-772 1000 Chalmers Reproservice Gothenburg, Sweden 2017 i Acknowledgements This research has been conducted during the spring of 2017 as the thesis to finalize the master’s programme Management and Economics of Innovation at Chalmers University of Technology in Gothenburg, Sweden. It concludes five intensive and incredibly rewarding years of studies for both authors. We would like to express our gratitude to the representatives at Startup X for the opportunity to conduct this thesis in such a dynamic research area. Furthermore, we would like to thank our supervisor Marouane Bousfiha for great guidance and support. Lastly, we are grateful to all participating interviewees providing their time and insights to make this research possible. _____________________ _____________________ Alexander Fastberg Minh Bang Nguyen ii Abstract Rising opportunities and challenges in the business context are becoming increasingly important to consider. This has been especially evident within technology and software industries, where startups have been able to compete with existing and established actors. However, in order for startups to be successful, it is important to understand the market and its perception of value. Yet, a primary reason to why startups fail is associated with a lacking ability to design the value proposition in accordance to market needs. The purpose of this research is to investigate how Startup X meets the market’s perception of value in supporting the budgeting process with their existing offering. Startup X operates on the Swedish B2B budgeting and planning solution market and targets clients with yearly revenues exceeding 1B SEK. In order for this research to be conducted, literature in the areas of, for instance, business modelling, value proposition design, IT evaluation and budgeting have been reviewed. Furthermore, data has been collected through sales material from Startup X to understand how its value proposition intends to provide value, as well as from 25 interviews with a complementary survey to understand the market’s perception of value. The research suggest that Startup X’s existing value proposition is relatively well-designed according to market needs, but specific areas for improvement have been identified. Thus, potential improvements and adjustments to the value proposition can be made to better meet the market’s perception of value. Keywords: value proposition, customer value, customer development, startup, budgeting, IT evaluation, problem solution fit iii Definitions Business-to- Business (B2B) Relating to business arrangements or trade between different businesses, rather than between businesses and the public, especially when this takes place over the internet (Cambridge Dictionary, 2017). Budget A plan that shows how much money an organization expects to earn and spend during a particular period of time, and how it will spend its money (Cambridge Dictionary, 2017) . Cost Center A part of a company or organization considered as unit so that the costs relating to it can be calculated for the company's accounts (Cambridge Dictionary, 2017). Excel Refers to Microsoft Excel as part of the Microsoft Office suite. Gains All outcomes and benefits that the market indicates to want or desire. Pains All aspects which the market indicates to be more or less of annoyance. Planning The process of planning activities or events in an organized way so that they are successful or happen on time (Cambridge Dictionary, 2017). Profit Center A part of a company that is treated as a separate business and that is expected to make a profit (Cambridge Dictionary, 2017). Software- as-a-Service (SaaS) Software that is owned, delivered and managed remotely by one or more providers (Gartner, 2017). Solution A solution is an implementation of people, processes, information and technologies in a distinct system to support a set of business or technical capabilities that solve one or more business problems (Gartner, 2017). Startup A temporary organization in search of a scalable, repeatable, profitable business model (Blank & Dorf, 2012). Value Creator Explicit features of an existing value proposition which intend to create customer value by creating gains and/or alleviating pains which clients are believed to emphasize. Value Proposition Describes the bundle of products and services that create value for a specific customer segment (Osterwalder & Pigneur, 2010). iv List of Contents ACKNOWLEDGEMENTS ................................................................................................................... I ABSTRACT ........................................................................................................................................... II DEFINITIONS .................................................................................................................................... III LIST OF FIGURES ............................................................................................................................. VI LIST OF TABLES ............................................................................................................................. VII 1. INTRODUCTION ......................................................................................................................... 1 2. LITERATURE REVIEW ............................................................................................................. 4 2.1 BUSINESS MODEL .......................................................................................................................... 4 2.1.1 Business Model Definitions ...................................................................................... 4 2.1.2 Business Model Design............................................................................................. 6 2.2 VALUE PROPOSITION ..................................................................................................................... 8 2.2.1 Concept of Value ...................................................................................................... 8 2.2.2 Value Proposition Design ....................................................................................... 10 2.3 CUSTOMER DEVELOPMENT PROCESS .......................................................................................... 13 2.3.1 Customer Discovery ................................................................................................ 15 2.4 CUSTOMER ROLES IN ORGANIZATIONAL BUYING ...................................................................... 16 2.5 EVALUATION OF IT SOLUTIONS ................................................................................................... 16 2.5.1 Evaluation of General IT Solutions ........................................................................ 17 2.5.2 Evaluation of Software-as-a-Service Solutions ...................................................... 17 2.5.3 Evaluation of ERP Solutions .................................................................................. 17 2.6 TECHNOLOGY ACCEPTANCE ........................................................................................................ 18 2.7 PLANNING AND BUDGETING ........................................................................................................ 19 3. THEORETICAL FRAMEWORK ............................................................................................ 21 3.1 THEORETICAL BASE ..................................................................................................................... 21 3.2 PROPOSED THEORETICAL FRAMEWORK ...................................................................................... 22 3.2.1 Map Value Creators ................................................................................................ 22 3.2.2 Map Gains & Pains ................................................................................................. 23 3.2.3 Match Value Creators with Gains & Pains ............................................................. 24 4. METHODOLOGY ...................................................................................................................... 26 4.1 RESEARCH STRATEGY ................................................................................................................. 26 4.2 RESEARCH PROCESS .................................................................................................................... 27 4.3 LITERATURE REVIEW ................................................................................................................... 27 4.4 EMPIRICAL FINDINGS ................................................................................................................... 29 4.5 ANALYSIS OF DATA ..................................................................................................................... 30 4.5.1 Qualitative Data Analysis ....................................................................................... 31 4.5.2 Quantitative Data Analysis ..................................................................................... 32 4.6 RESEARCH QUALITY .................................................................................................................... 32 4.6.1 Credibility ............................................................................................................... 33 4.6.2 Transferability ......................................................................................................... 33 4.6.3 Dependability .......................................................................................................... 34 4.6.4 Confirmability ......................................................................................................... 34 v 5. EMPIRICAL STUDY ................................................................................................................. 35 5.1 STARTUP X ................................................................................................................................... 35 5.1.1 The Startup .............................................................................................................. 35 5.1.2 The Offering ............................................................................................................ 35 5.2 MARKET INSIGHTS ....................................................................................................................... 36 5.2.1 Strategic Perspective ............................................................................................... 36 5.2.2 Operational Perspective .......................................................................................... 39 5.2.3 Client Survey: Ranking of Evaluation Criteria ....................................................... 41 6. ANALYSIS ................................................................................................................................... 42 6.1 MAP VALUE CREATORS ............................................................................................................... 42 6.2 MAP GAINS & PAINS .................................................................................................................... 44 6.2.1 Strategic Gains & Pains .......................................................................................... 45 6.2.2 Operational Gains & Pains ...................................................................................... 47 6.3 MATCH VALUE CREATORS WITH GAINS & PAINS ....................................................................... 50 6.3.1 Linking Gains & Pains with Evaluation Criteria .................................................... 50 6.3.2 Prioritization of Gains & Pains using Evaluation Criteria ...................................... 53 6.3.3 Problem Solution Fit ............................................................................................... 55 7. DISCUSSION .............................................................................................................................. 63 7.1 FACTORS INFLUENCING RESEARCH OUTCOMES ......................................................................... 63 7.2 CONTRIBUTION AND FURTHER RESEARCH .................................................................................. 64 8. CONCLUSION ............................................................................................................................ 66 REFERENCES ..................................................................................................................................... 67 APPENDIX A: INTERVIEW TEMPLATE ..................................................................................... 72 APPENDIX B: CLIENT INTERVIEWS .......................................................................................... 74 APPENDIX C: CLIENT SURVEY .................................................................................................. 123 APPENDIX D: PRIORITIZATION OF GAINS & PAINS ........................................................... 125 vi List of Figures FIGURE 1 BUSINESS MODEL CANVAS (OSTERWALDER & PIGNEUR, 2010) ...................................................................................... 6 FIGURE 2 VALUE PROPOSITION CANVAS (OSTERWALDER ET AL., 2014) ....................................................................................... 10 FIGURE 3 PRODUCT INTRODUCTION DIAGRAM (BLANK & DORF, 2012) ....................................................................................... 13 FIGURE 4 CUSTOMER DEVELOPMENT PROCESS (BLANK & DORF, 2012) ...................................................................................... 14 FIGURE 5 TECHNOLOGY ACCEPTANCE MODEL (DAVIS ET AL., 1989) ............................................................................................. 19 FIGURE 6 PROPOSED THEORETICAL FRAMEWORK .............................................................................................................................. 22 FIGURE 7 RESEARCH PROCESS ................................................................................................................................................................. 27 FIGURE 8 THE LITERATURE REVIEW PROCESS (EASTERBY-SMITH ET AL., 2015) ......................................................................... 28 FIGURE 9 MATCHING VALUE CREATORS WITH STRATEGIC GAINS & PAINS .................................................................................... 55 FIGURE 10 MATCHING VALUE CREATORS WITH OPERATIONAL GAINS & PAINS ........................................................................... 58 vii List of Tables TABLE 1 NINE BUILDING BLOCKS IN THE BUSINESS MODEL CANVAS (OSTERWALDER, 2004; OSTERWALDER & PIGNEUR, 2010) ................................................................................................................................................................................................. 7 TABLE 2 THE CUSTOMER DEVELOPMENT PROCESS STEPS (BLANK & DORF, 2012) .................................................................... 14 TABLE 3 ATTRIBUTES FOR EVALUATION OF ERP SYSTEMS (WEI ET AL., 2005) ........................................................................... 18 TABLE 4 BUDGETING PURPOSES (DRURY, 2013; AX ET AL., 2009) ............................................................................................... 20 TABLE 5 RELATION BETWEEN RESEARCH QUESTIONS AND SOURCES OF EMPIRICAL DATA ........................................................... 29 TABLE 6 CLIENT INTERVIEWS .................................................................................................................................................................. 30 TABLE 7 SUMMARY OF THE SEVEN STEPS OF A GROUNDED ANALYSIS BY EASTERBY-SMITH ET AL. (2015) ............................. 31 TABLE 8 SUMMARY OF SURVEY RESULTS .............................................................................................................................................. 41 TABLE 9 MAP OF VALUE CREATORS ....................................................................................................................................................... 42 TABLE 10 MAP OF STRATEGIC GAINS .................................................................................................................................................... 45 TABLE 11 MAP OF STRATEGIC PAINS .................................................................................................................................................... 47 TABLE 12 MAP OF OPERATIONAL GAINS .............................................................................................................................................. 48 TABLE 13 MAP OF OPERATIONAL PAINS ............................................................................................................................................... 49 TABLE 14 LINK BETWEEN STRATEGIC GAINS AND EVALUATION CRITERIA ................................................................................... 50 TABLE 15 LINK BETWEEN STRATEGIC PAINS AND EVALUATION CRITERIA .................................................................................... 51 TABLE 16 LINK BETWEEN OPERATIONAL GAINS AND EVALUATION CRITERIA .............................................................................. 52 TABLE 17 LINK BETWEEN OPERATIONAL PAINS AND EVALUATION CRITERIA .............................................................................. 53 TABLE 18 EVALUATION CRITERIA SORTED ACCORDING TO THEIR DEGREE OF IMPORTANCE. ...................................................... 53 TABLE 19 ALL CLIENT ANSWERS REGARDING THE RANKING OF EVALUATION CRITERIA (1 = MOST IMPORTANT, 9 = LEAST IMPORTANT) ................................................................................................................................................................................. 123 TABLE 20 NUMBER OF CLIENTS WHO CHOSE THE EVALUATION CRITERIA FOR EACH SPECIFIC RANK (RANK 1 = MOST IMPORTANT, RANK 9 = LEAST IMPORTANT) ........................................................................................................................... 123 TABLE 21 EVALUATION CRITERIA SORTED ACCORDING TO AVERAGE IMPORTANCE SCORE ..................................................... 123 TABLE 22 PRIORITIZATION OF STRATEGIC GAINS ............................................................................................................................ 125 TABLE 23 PRIORITIZATION OF STRATEGIC PAINS ............................................................................................................................. 125 TABLE 24 PRIORITIZATION OF OPERATIONAL GAINS ...................................................................................................................... 125 TABLE 25 PRIORITIZATION OF OPERATIONAL PAINS ....................................................................................................................... 126 1 1. Introduction Due to an accelerating pace of change in today’s global economy (McKinsey, 2014), rising opportunities and challenges in the business context are becoming increasingly important to consider. This has been especially evident within technology and software industries, where innovations in business as well as technology have given rise to opportunities for new ventures, or startups, to create new markets or establish a competitive presence in existing markets. In order to do so, the goal of startups is not only to build products, services or solutions in generic terms but rather to build the right products, services or solutions that customers find attractive and are willing to purchase as quickly as possible (Ries, 2011). This goal alludes to the need for startups to manage both product development to build the product, service or solution quickly as well as customer insights to understand what the right products, services or solutions actually are. However, startups in general have limited knowledge of the market they are trying to serve (Blank & Dorf, 2012). This stress the importance of listening to what the market actually wants or needs as well as being agile and having the flexibility to adapt to those market needs. This demand for flexibility in startups’ way of working naturally extends to the need for flexible business models where all aspects of businesses can be adapted (Blank & Dorf, 2012). Indifferent of whether an organization is a startup or an established company, a proper business model in general is essential for business success (Magretta, 2002) which stresses the importance of a proper understanding of the business model concept. However, this understanding is currently hindered since there is no widely accepted definition of the business model concept (e.g. Casadesus-Masanell & Ricart, 2010; Zott et al., 2011), which may affect organizations’ abilities to design business according to the needs of the market. Market needs is especially important to consider when designing the value proposition. The value proposition is a major reason as to why customers choose one offering over another since it satisfies customer needs or solves customer problems (Osterwalder et al., 2010). Moreover, only two out of ten startups succeed within the initial three years of operations (Feinleib, 2011) and a primary reason to this challenge is associated with startups’ inability to appropriately design the value proposition according to the market needs. The challenge of managing customer insights, in order to build and design value propositions successfully, is aligned with what is referred to as market risk, which describes the uncertainty of whether customers will choose to adopt a technology (Blank & Dorf, 2012). Startup X was founded in 2015 and rather than being in a position to develop a new offering, the startup already has an existing offering based on iterative customer development work through a handful of commercial pilot projects. The offering is a solution for the B2B planning and budgeting market and version 1.0 of the software is planned to be ready in late 2017. Therefore, the startup is preparing a market strategy for the product launch in order to mitigate the previously discussed market risk that is prevalent for startups in general. Considering this, it is necessary to complement Startup X’s market insights gained in conducting the pilot projects with an understanding of whether the startup’s offering is aligned with the needs and preferences of the target market in general. Hence, the purpose of this research is formulated as the following: To investigate how Startup X’s existing offering meets the market’s perception of value in supporting the budgeting process. 2 The intention of this purpose is not to provide explicit recommendations but rather qualitative material for discussion that may be used as an input for Startup X’s market strategy development. Furthermore, three research questions are outlined to facilitate the fulfillment of the research purpose: RQ1: How does the existing offering intend to provide value to the budgeting process? RQ2: How does the market perceive value in terms of supporting the budgeting process? RQ3: How well does the existing offering meet the perceived value of the market? Besides fulfilling the research purpose, an example of how to contextualize value proposition theory, for instance by using industry-specific literature, will be provided. The scope of this research is to address the value that Startup X’s existing offering provides to a budgeting process, identify the aspects that the budgeting and planning market perceive as value-adding, and lastly assess the match between the value that Startup X’s current offering provides with what the market perceives to be value-adding. Furthermore, since Startup X’s target market includes sizeable companies with yearly revenues exceeding 1B SEK, the research only focuses on these types of companies as potential clients. The research is also delimited geographically to the Swedish market due to Startup X’s current intended presence on the market. Lastly, the technical depth discussing the actual system will be kept on a high level in line with the requirements and the time frame of this research. This thesis is structured according to the following eight chapters: Chapter 1: This chapter provides an understanding of the background to the research. In addition, the purpose and the research questions to be answered are outlined, followed by a presentation of the scope and delimitations. Chapter 2: This chapter outlines a summary of reviewed areas of literature relevant to this research, which is used as a base for a theoretical framework to guide the analysis. Chapter 3: This chapter presents the theoretical framework to be applied in the research as well as the reasoning behind the framework and how it aims to guide the research towards answering the outlined research questions. Chapter 4: This chapter outlines the research methodology applied to fulfill the research purpose and the reasoning behind the chosen methodology. Chapter 5: This chapter provides the empirical findings that concern Startup X’s current offering as well as a summary of market findings based on interviews. The chapter also presents results from a survey concerning how companies rank different criteria in a solution evaluation. Chapter 6: This chapter presents the analysis of the empirical findings and is structured according to the theoretical framework outlined in Chapter 3. The analysis is 3 conducted in harmony with the literature review and all research questions are answered in sequence. Chapter 7: This chapter outlines a reflection on the analysis outcome in Chapter 6 as well as a discussion concerning future research and how that would provide value. Chapter 8: This chapter presents a general conclusion of the thesis. 4 2. Literature Review In this chapter, the areas of literature which have been identified as relevant for the research are outlined. The review begins by outlining general business model literature for contextual purposes before moving on to literature concerning value proposition design, customer development and organizational buying. Thereafter, more industry-specific areas in regards to Startup X is presented with literature covering evaluation of IT, technology acceptance and lastly planning and budgeting. 2.1 Business Model As per Chesbrough (2007), all companies have business models even if they are not articulated. Moreover, Magretta (2002) argues that a good business model is a necessity for every organization to be successful, and this is independent of whether the organization is a new venture (start up) or an established player on the market. This is supported by Baden-Fuller & Morgan (2010) who suggest that “the ubiquity of the term and the plethora of its uses” point to the importance of business models in the world of business. In the research by Amit & Zott (2001) of how value can be created by businesses conducting economic transactions over the internet (referred to as e-business), the business model concept is applied as a unit of analysis. The research explains the business model concept’s relevance for internet-based businesses and coincides with the period of time where the business model concept began its gain in prominence, as found by Osterwalder et al. (2005). Accordingly, the Internet was a major driver in the increased attention drawn to the business model concept during the shift to the 21st century (Magretta, 2002). 2.1.1 Business Model Definitions Considering the importance of a well-developed business model for any enterprise, it is argued that the business model concept needs to be properly understood by business practitioners before it is applied (Magretta, 2002). Among others, Morris et al. (2005) and Casadesus- Masanell & Ricart (2010) highlight that there is no widely accepted definition of the business model concept, and this creates a challenge for both practitioners and scholars to understand the concept. The lack of an accepted definition is further supported by Zott et al. (2011) in their literature review of the business model concept. A comparison of business model definitions applied by scholars in selected research areas are presented, and while it is concluded that the topic of business models has gained increased attention over recent decades, the definition of a business model is not agreed upon. Moreover, the definitions applied were found to be defined in the interest of respective research area and the three main research areas that have applied the business model concept are: (1) e-business, (2) strategic issues, and (3) technology and innovation management. As there are a numerous definitions of business models currently being used without one being more accepted than another, a more thorough understanding of the differing definitions is needed. E-business is the research area in which business models have received most attention in the past and refers to doing business electronically, including e-commerce, e-markets and Internet- based business (Zott et al., 2011). One business model definition used in the research area was coined by Amit & Zott (2001) where a multitude of theories contributed to the definition, including virtual markets; value chain analysis; Schumpeterian innovation; the resource-based view of the firm; strategic networks; and transaction cost economics (Amit & Zott, 2001). This research resulted in the following definition: 5 “A business model depicts the content, structure, and governance of transactions designed so as to create value through the exploitation of business opportunities.” (Amit & Zott, 2001) The area of strategy has applied the concept of business models to explain firms’ abilities to create and capture value by conducting activities, and establish competitive advantage (Zott et al., 2011). Magretta (2002) applies a less formal approach to understanding the business model concept (Casadesus-Masanell & Ricart, 2010) by comparing business models to stories, where all stories are more or less variations of old ones. Thus, with business models being stories that explain how enterprises work by describing their underlying logic, she argues that all new business models are variations of old underlying business logic. In essence, Magretta (2002) is applying a simplified version of the value chain concept of a firm, developed by Porter (1985), in her reasoning by arguing that a business model deals with describing the two main parts of a firm’s value chain to make a profit for shareholders: (1) making or providing a product or service, which entails how to identify and create value for customers and (2) selling that product or service which related to how to capture a part of the created value as profit. As a result, her definition of a business model is as follows: “Business models are stories that explain how enterprises work. A good business model answers Peter Drucker’s age-old questions: Who is the customer? And what does the customer value? It also answers the fundamental questions every manager must ask: How do we make money in this business? What is the underlying economic logic that explains how we can deliver value to customers at an appropriate cost?” (Magretta, 2002) The focus of applying the business model concept in technology and innovation management is on the appropriation of value from technological innovations. Chesbrough and Rosenbloom (2002) argue that the inherent value of a technology remains latent until commercialization, which in turn is reliant on a business model. Moreover, Chesbrough (2010) entertains the thought that a mediocre innovation may be more valuable within a great business model than a great innovation within a mediocre business model. This emphasizes the importance of a business model, and in a research to distinguish between business models, business strategy and innovation, Teece (2010) further supports this by emphasizing that innovators need business models to both deliver and capture value from their innovations. This importance of a suitable business model for technological innovations is described as especially applicable for Internet companies, which is explained by customers expecting basic services to come free of charge and thus results in creating revenue streams challenging. Their definitions are as follows: “The business model is the heuristic logic that connects technical potential with the realization of economic value.” (Chesbrough & Rosenbloom, 2002) “A business model articulates the logic, the data and other evidence that support a value proposition for the customer, and a viable structure of revenues and costs for the enterprise delivering that value.” (Teece, 2010) 6 The evident inconsistency in the definition of the business model concept may be attributed to the concept’s function of having multiple roles, as argued by Baden-Fuller & Morgan (2010). In their research, the authors investigate the applicability of business models and try to conclude why business models are important and meaningful as a concept. In large, the authors conclude that business models have different purposes and thus play different roles: (1) to describe and in general categorize businesses based on their descriptions, (2) to act as models for scientific enquiry which is trying to understand businesses in a passive sense, and (3) to act as “business recipes” and enable business practitioners to proactively experiment with businesses. Even though the business model concept is defined differently in explicit terms between scholars, there are still commonalities that can be observed in the different definitions (Zott et al., 2011). Among the commonalities, the concept of value is considered to be prevalent and is referred to in a multitude of the definitions presented. The value proposition concept is seen as playing a central role in the main research areas that have applied the business model concept: (1) e-business, (2) strategic issues and (3) technology and innovation management. Moreover, an emphasis is on both value creation and value capture and this is manifested in the following definition of a business model: “A business model describes the rationale of how an organization creates, delivers, and captures value.” (Osterwalder & Pigneur, 2010) 2.1.2 Business Model Design Figure 1 Business Model Canvas (Osterwalder & Pigneur, 2010) In research by Osterwalder (2004) to conceptualize the business model, a generic framework to describe business models was generated based on the synthesis of existing business model literature. The generated framework is referred to as a “business model ontology” by the researcher himself but has since become refined by Osterwalder & Pigneur (2010) and is known as the Business Model Canvas (BMC), which can be seen in Figure 1. The BMC is described as a tool that assists in creating value for a business venture (Osterwalder et al., 2014) and should be used as “a shared language for describing, visualizing, assessing, and changing business models” (Osterwalder & Pigneur, 2010). Its importance and usefulness is emphasized 7 by Blank (2013b), who views the BMC as a standard framework for entrepreneurs who are able to experiment to find a sustainable business models. The BMC helps to structure and design business models and is in the original research based on four business model pillars which can be regarded as companies’ four primary areas of business: (1) customer interface, (2) product (3) infrastructure management and (4) financial aspects (Osterwalder, 2004). From these four areas of business, nine interrelated business model building blocks are outlined that intend to describe any company and how the company intends to be profitable. The centrality of the value proposition in a business model, as argued by Osterwalder & Pigneur (2010), is visualized by having the value proposition building block in the center of the BMC. In Table 1, all nine building blocks are outlined in accordance with the refined research by Osterwalder & Pigneur (2010) and are sorted according to the business model pillars in the original research by Osterwalder (2004). Table 1 Nine building blocks in the business model canvas (Osterwalder, 2004; Osterwalder & Pigneur, 2010) Business Model Pillar Business Model Building Block Description Product Value Propositions Describe the different products or solutions that a company offers. Every value proposition is a “bundle of products and/or services” and should solve a customer problem or satisfy a customer need. Customer Interface Customer Segments Describe the people or groups which the company intends to reach and serve as customers of the company’s value proposition. Customers can be grouped into different segments according to specific attributes, such as needs or behaviors. Channels Describe the way a company interacts with its customer segments. This includes all means to reach customers through communication, distribution and sales channels. Customer Relationships Describe the relationships a company have with its customer segments. These relationships can differ significantly between customer segments and influences the customer experience. Infrastructure Management Key Resources Describe the most essential assets necessary in order for the business model to be viable. The assets enable companies to create and offer the value they intended to their respective customer segments, as well as capture parts of that value as revenue. Key Activities Describes the most essential activities a company must conduct in order for the business model to be viable. Similar to key resources, key activities are essential and enable companies to create, offer and capture value. Key Partnerships Describe the network of partners and suppliers needed in order for a business model to be viable. The partnerships enable companies to create and offer the value propositions intended to their respective customer segments. 8 Financial Aspects Revenue Streams Describe how a company generates revenue and what revenue a company can generate from the different customer segments. Cost Structure Describe the different costs incurred as a result of operating the specific business model, as the creation and offer of value generates costs. 2.2 Value Proposition In a research paper by Kambil et al. (1996), the importance for companies to re-invent their value propositions to generate superior returns and shareholder value is emphasized. This focus on value propositions is not only important for established businesses but also for new ventures which is why the value proposition concept is such an integral piece to business modelling in general, as argued by Byers et al. (2013); this importance is exemplified by business model definitions converging toward focusing on value propositions and the BMC is centered around the value proposition concept. Even though the value proposition is seemingly commonly understood and a widely-used concept by both scholars and business practitioners, there is a lack of an explicitly agreed upon definition (Kambil et al., 1996). Osterwalder et al. (2010) describe the value proposition as a primary reason to why a customer would pick one company over another and sees the value proposition as either solving a customer problem or satisfying a customer need. Moreover, they view each value proposition as consisting of a bundle of products and/or services that are purposely selected to accommodate the needs of a specific customer segment. While largely in line with this view, Kambil et al. (1996) suggest the following definition of the value proposition concept: “We suggest that value propositions define the relationship between what a supplier offers and what a customer purchases, by identifying how the supplier fulfills the customer's needs across different customer roles. Specifically, it defines the relationship between the performance attributes of a product or service, the fulfillment of needs across multiple customer roles (e.g., acquiring, using, and disposing of products/services), and the total cost.” (Kambil et al., 1996) The suggested definition by Kambil et al. (1996) is in agreeance with the description of value propositions satisfying or fulfilling customer needs (Osterwalder et al., 2010). A superior understanding and ability to serve the customers’ needs is the reasoning as to why certain companies are superior performers, in terms of profitability, within a specific industry (Kambil et al., 1996). This is aligned with Lindic & Marques da Silva (2011) who argue that customers do not buy characteristics of an offering but rather the benefits that the offering provides. Therefore, the success of a value proposition design is reliant on a proper understanding of what customers truly value. 2.2.1 Concept of Value From a marketing perspective, customer value is emphasized. However, the importance of value in general is grounded in its essential character for company success, and the traditional focus of companies has been to maximize shareholder value; in other words, to primarily please investors. In a research paper focused on loyalty-based management as a means to maximize profitability of a company, Reichheld (1994) emphasizes the need to look beyond this 9 simplified view of only looking at shareholder value as a one-goal pursuit. He argues that such an approach will increasingly be too focused on maximizing profitability that it will undermine and, perhaps even more worryingly, ruin essential elements driving profitability. Reichheld (1994) proposes the need for a company to create value from a larger stakeholder perspective which in addition to serving investors also serves both employees and customers. This larger stakeholder proposition is also supported by Treacy & Wiersema (1997) who describe customer value, shareholder wealth and employee satisfaction as being highly interrelated. An argument is being made that for a business to maximize profitability, the business must maximize retention rates of stakeholders and thus build a stable business; business stability is emphasized in order for a business to be sustainably capable of creating value for stakeholders in exchange for their contributions to the business (Reichheld, 1994). This argumentation is in line with the loyalty-based management approach as increasing retention rates imply a focus on loyalty. However, as the loyalty of customers is considered to be the most mobile, due to customers usually having low switching costs (Reichheld, 1994), serving customers as a stakeholder group needs to be prioritized ahead of investors and employees. The sustainability of customer loyalty is directly dependent on the value received by customers, and Treacy & Wiersema (1997) further points to the importance of customer value by viewing it as “an indispensable source of both shareholder value and employee satisfaction”. Lam et al. (2004) further extends on the research area by moving away from a B2C focus. The research investigates the linkages and interrelationships between perceived customer value, satisfaction, switching costs and loyalty as constructs in a B2B service context and aims to detail how these underlying constructs may underlie customer loyalty. The results of the research support the fact that customer value is positively related to customer satisfaction, which in turn is positively related to customer loyalty. Thus, customer value is linked with customer loyalty in B2B which is in agreeance with previous research on customer loyalty in a B2C context (e.g. Reichheld, 1994). In a review, synthesization and extension on the customer value concept, Salem Khalifa (2004) concludes that it is a commonly used concept in both strategy and marketing literature. Woodruff (1997) claims that an increased focus on customer value arose as a result of companies trying to find new ways to reach and sustain competitive advantage in an increasingly competitive environment. Companies are described as previously being internally focused to improve their products and internal operations processes. While this inside-out approach results in quality improvements and organizational changes, which in turn leads to efficient operations, whether the approach is effective as means of competition is not conclusive. This doubt is supported by Baker (2010) who outlines the importance of effective business rather than efficient business. In this view, effectiveness highlights the end-goal that is to be sought which is delivering what customers are subjectively valuing. Thus, both Woodruff (1997) and Baker (2010) emphasize the movement from an inside-out approach that begins with looking at internal operations to an outside-in approach which starts with a customer focus. While the customer value concept is common in accordance with the perceived importance to business success (Woodruff, 1997), Leszinski & Marn (1997) express their concern for a distortion in the actual meaning of the concept; they state that the value is one the most overused and misused terms in the areas of marketing and pricing. The authors argue that the most essential aspect of value is to focus on the trade-off between the benefits that customers perceive to receive from an offering and the costs that customers incur in order to receive those perceived benefits. This is aligned with the benefits/costs ratio models that Salem Khalifa (2004) proposes 10 in order to evaluate perceived customer value. The author finds that there are numerous of different ways that researchers have defined customer value in which they use the constructs of benefits and sacrifices in terms of costs. 2.2.2 Value Proposition Design Figure 2 Value Proposition Canvas (Osterwalder et al., 2014) Due to the importance of creating value for customers (e.g. Reichheld, 1994; Treacy & Wiersema, 1997; Blank & Dorf, 2012), it becomes essential for businesses to design their value propositions accordingly. Thus, Osterwalder et al. (2014) present the Value Proposition Design approach that uses the Value Proposition Canvas (VPC) as a tool (see Figure 2). The VPC’s role as a tool is similar to the BMC’s role in Business Model Design. However, while the BMC assists in capturing value for the business, this business value capturing is based on the value created for customers and this is what the VPC assists in (Osterwalder et al., 2014). In essence, the VPC is regarded as an extension of the BMC and the VPC focuses on the fit between two of the BMC’s nine building blocks: (1) Value Proposition and (2) Customer Segment. This is in accordance with the centrality of the value proposition in a business model and the intention of the Value Proposition Design approach is to use the VPC to either invent or improve upon an existing value proposition according to the needs of the targeted customers; the approach is therefore applicable for both startups and established organizations. The Value Proposition Design approach aids the design work by adding structure, enabling communication and managing risk (Osterwalder et al., 2014). In regards to adding structure, the canvas helps organizations to clearly organize their design work in a more detailed way and enables more efficient progress towards meeting the customers’ most essential needs. The structure also enables better visualization of the work for everyone involved and this allows for a common ground to work from. Thus, the VPC functions as a tool for communication that focuses on the needs of customers rather than a product-centric approach revolving around the product or service that a value proposition is built upon. Lastly, concerning the management of risk, Value Proposition Design is based on an iterative approach where continuous testing is essential in order to not waste time, effort and money on non-viable ideas. This is especially applicable in the initial phase of Value Proposition Design, in which you search for suiting value propositions through iterative design work and testing. In the latter “post-search” phase, the Value Proposition Design work becomes more streamlined and linear where focus is on 11 evolving the value propositions to keep them aligned with the customers’ needs. This focus on aligning value propositions and customers’ needs results in three main features of the VPC: (1) Customer Profile, (2) Value Map and (3) Fit. Customer Profile The Customer Profile represents the right side of the VPC and describes a specific target customer segment (Osterwalder et al., 2014). The Customer Profile is in essence a more detailed equivalent of the BMC’s Customer Segment building block, and the idea is to explicitly describe a targeted customer segment based on real observations in order to understand customers’ specific needs. A detailed understanding of customers will enable organizations to design their value propositions accordingly and as can be seen in Figure 2, the Customer Profile is separated into three components to detail this customer understanding: (1) customer jobs, (2) pains and (3) gains. Moreover, it is recognized that in order to design a value proposition properly in a B2B context, the value propositions must generally cater to multiple stakeholders within the business of a client organization (Osterwalder et al., 2014). The reasoning is that stakeholders have the power to influence the purchase process and thus the ultimate purchase decision made by the potential client as an organization. Therefore, since stakeholders may have different needs and desires, each stakeholder’s Customer Profile differs in terms of customer jobs, pains and gains. In addition, since the relevant stakeholders differs in terms of number of stakeholders as well as the roles that stakeholders have in different organizations, all relevant stakeholders in each potential client organization should be identified. Thereafter, a Customer Profile should be outlined for each and every identified stakeholder, which enables the design of different value propositions for each identified stakeholder’s Customer Profile, and this results in several different VPCs. For each Customer Profile, jobs that customers are striving towards completing should be outlined. In order to identify jobs, it is essential to apply a customer perspective in the research and focus should be on specific tasks that customers are looking to complete, problems that they try to solve or needs that they are looking to satisfy. In generic terms, Osterwalder et al. (2014) outline three main categories of jobs that customers need to complete: (1) functional jobs, (2) social jobs and (3) personal/emotional jobs. Functional jobs refer to such jobs needed in order to solve specific tasks or problems and are perhaps the easiest jobs to identify. Social jobs revolve around jobs to satisfy needs to be perceived in certain ways by others in the workplace, for instance in regards to competence. Meanwhile, personal/emotional jobs are more internally oriented where individuals are looking to satisfy personal needs without regard for the environment around them. In addition to these main customer jobs, supporting jobs based on buyers, co-creators and transferrers of value may affect customer needs. All of these main and supporting jobs should be outlined and then ranked based on their importance to customers. This leads to the importance of understanding the job context since this may afflict specific constraints or limitations that make outlined jobs more or less important. After having a more detailed understanding of the different jobs that customers need to complete, the pain and gain points associated with the jobs need to be made explicit. The pain points, or simply pains, represent more or less anything that customers feel to be of annoyance in the whole process of trying to complete the jobs. In order to ease the identification of pains they can be separated into three categories: (1) undesired outcomes and problems, (2) obstacles and (3) risks. Undesired outcomes and problems are such pains that can be directly attributed to the functional, social, personal/emotional and supporting jobs. An obstacle-focus helps to identify pains that is actually hindering customers from completing the intended job. Lastly, risks refer to potential outcomes that have negative consequences and should therefore 12 also be one perspective to use in order to identify pains. As opposed to pains, the gains outline all outcomes and benefits that customers actually do want or desire. The identification of gains is eased by differentiating between four categories of gains: (1) required gains, (2) expected gains, (3) desired gains and (4) unexpected gains. Required gains refer to such gains that must be present in order to do the intended job. Meanwhile, expected gains may not be required to complete the jobs per say but are still assumed to present in a solution. Desired gains are such gains that customers identify as wanted when being asked but is not that they expect from a value proposition; in other words, desired gains go beyond customer expectations but are viewed as beneficial. Lastly, similar to desired gains, unexpected gains also go beyond customer expectations. However, these gains go so far beyond expectations and are so unexpected that customers are not presently able to see the benefits in these gains. Value Map The Value Map represents the left side of the VPC and outlines the different features of a value proposition (Osterwalder et al., 2014). Thus, similarly to how the Customer Profile is the equivalent of the BMC’s Customer Segment building block, the Value Map is the equivalent of the BMC’s Value Proposition building block. In order to outline the different value proposition features in an organized manner, the Value Map describes a value proposition in three components: (1) products and services, (2) pain relievers and (3) gain creators. Products and services refer to those underlying objects that a value proposition is based upon and are crucial in order to complete the jobs outlined in the Customer Jobs component of the Customer Profile. Therefore, the products and services assist in completing functional, social, personal/emotional as well as supporting jobs. In order to assist in identifying products and services, Osterwalder et al. (2014) describe a number of different types of products and services that may be relevant which are physical/tangible, intangible, digital and financial products. However, products and services only provide value if they are paired with the right pains and gains which are associated with a specific customer segment. Therefore, a value proposition needs to alleviate the customer pains and reach customers’ expectations of gains which are all outlined in the Customer Profile. In regards to alleviating pains, Osterwalder et al. (2014) recognize that pain relievers cannot alleviate all pains outlined by customers. Instead, a great value proposition should focus on reducing or eliminating the most pressing customer pains. The same type of reasoning is applied for customer gains; while there might be numerous customer gains outlined in the Customer Profile, a great value proposition should be focused and having gain creators address the most important customer gains in order to make a significant difference for customers. A pain reliever does not necessarily have to address pains but could also create gains and a gain creator could accordingly address pains as well. However, every pain reliever and gain creator outlined should address at least one or more pain or gain; otherwise, it may not create any customer value and should thus not be referred to as a gain creator or pain reliever. Fit The absolute essence of Value Proposition Design is to achieve and sustain a fit between the Value Map and the Customer Profile (Osterwalder et al. 2014). Such a fit refers to the situation when a value proposition addresses the most essential and/or currently insufficiently addressed jobs, pains and gains since that creates the most customer value. Therefore, how well the Value Map and Customer Profile actually fits can also be viewed as how well a value proposition has been designed based on a specific customer segment’s needs. In order to understand whether a proper fit has been achieved, or how well the products and services that is offered actually deliver what customer want, the connection between the Value Map and the Customer Profile 13 must be made explicit. This is done by relating all outlined jobs, pains and gains in the Customer Profile with the outlined products and services, pain relievers and gain creators. The idea is to gain an overview of which jobs that are actually addressed by products and services, which pains that are relieved and which gains that are created. It is once more worth noting that it is not necessary to relieve all pains or create all the gains outlined by customers since that is unreasonable to ask for from a specific value proposition; instead, focus should be directed on the most essential gains and pains. The fit between what an organization offers and what customers actually want or need can be described in three stages (Osterwalder et al., 2014). The first stage is known as the Problem Solution Fit which is achieved when an organization have an explicit understanding of the different jobs, pains and gains that customers prioritizes in combination with a properly designed value proposition that outlines how it intends to address those jobs, pains and gains. In this stage, the value proposition is still merely built on assumptions and has yet to be proven to create value. The second stage, the Product Market Fit, is more of a confirmation stage where the organization’s designed value proposition is tested. The assumptions about how the designed value proposition creates value for customers in practice, in other words if gains are actually created and pains are being relieved, will be validated or invalidated by the customers themselves. This stage allows an organization to redesign their value propositions in an iterative process. The last stage is referred to as the Business Model Fit. Here, the properly designed value proposition as a result of the work in reaching Product Market Fit is tested to see if it can be incorporated into a business model that is profitable and scalable. This stage proves whether or not the organization can use the designed value proposition which has been proven to create customer value by reaching Product Market Fit to create value for the organization itself. Therefore, it is essential to understand that Product-Market Fit is not enough to reach business success; an iterative work process to find a suitable business model for a value proposition that creates value for customers is required. 2.3 Customer Development Process In Blank & Dorf’s (2012) book The Startup Owner’s Manual, the authors define a startup as “a temporary organization in search of a scalable, repeatable, profitable business model”. This implies that the initial business model for a startup is not clear at the very beginning with uncertainty regarding the market to be served and the associated customers. However, Blank (2013a) outlines how startups commonly make the mistake of ignoring these market uncertainties by being too product-centric in their approach. Figure 3 Product Introduction Diagram (Blank & Dorf, 2012) As described by Blank & Dorf (2012), the traditional approach focuses on some form of product management model (see Figure 3) where a product moves from an initial development stage into a testing stage where customers are able to provide feedback. This is then taken into consideration by developers before the product is launched and made available commercially. However, for startups uncertain about competition and customers, receiving customer feedback only after the product has been developed is too late. As a result, this leads to startups failing to gain traction commercially. Therefore, in addition to this product-centricity and internally focused development model to ensure that a product or service is developed as quickly as 14 possible, a more externally focused approach is needed that recognizes the uncertainties about customers and their willingness to adopt new products or services. For instance, the Lean Startup Methodology by Ries (2011) recognizes this and is, in simplified terms, applying the iterative and incremental agile engineering method for product development and then complementing this with the Customer Development Process for continuous customer feedback to support the product development. Figure 4 Customer Development Process (Blank & Dorf, 2012) The Customer Development Process (see Figure 4) emphasizes the acquisition of an in-depth understanding of customers and markets which is then used to guide the product or service development process (Blank & Dorf, 2012). The Customer Development Process adds value by organizing startups’ search of suitable business models and the process allows for rapid customer feedback from the very beginning, in contrast to the traditional product management model. The premise is that a startup is not merely executing a clear business model but initially also searching for a business model that is viable. Startups do this by testing all types of hypotheses about their respective business models through customer and market interaction, and this means that the startups continuously and iteratively refine their respective business models in the search for the right fit. As can be seen in Figure 4, the Customer Development Process contains four separate but interrelated steps; the first two steps are conducted to search for a fitting business model while the last two steps are conducted to execute on the fitting business model (Blank & Dorf, 2012). Each of these steps are iterative in nature, which is represented with circular tracks and recursive arrows, and followed by a stop sign. The iterative approach is a way to signal the acceptance of making changes after learning and discovering new facts. Meanwhile, the stop-signs are present to make sure that sufficient learning at each stage has been conducted before moving on to next stage. In Table 2 below, brief descriptions of the four steps in the Customer Development Process are provided. Table 2 The Customer Development Process steps (Blank & Dorf, 2012) Process Step Description Customer Discovery This step aims to turn the initial vision for a startup into a number of hypotheses about each component of a startup’s business model. Thereafter, these hypotheses are tested and turned into facts. Customer Validation This step aims to test the business model and see if it is scalable and repeatable. If the answer is no, then the startup needs to pivot back to the Customer Discovery stage to revise the business model. However, if the answer is yes, then the search for a business model has been completed. 15 Customer Creation This step aims to start the execution of the business model by building up demand and initialize sales efforts. Company Building This step aims to transition from being a startup to being an actual company. A more formal approach to operating is implemented in order to execute and scale the company. 2.3.1 Customer Discovery This research is primarily concerned with the first step of the Customer Development Process, the “Customer Discovery” step. The premise of the whole process is that a business model has yet to be found and therefore not to make any assumptions about a business model without actually testing and validating the assumptions; testing and validating the assumptions is a part of the search for the business model (Blank & Dorf, 2012). Therefore, this initial step of the process begins by first concluding the vision that the startup founders have for their startup and future company by detailing business model hypotheses. This work is structured according to the BMC (Osterwalder & Pigneur, 2010) and hypothesis are constructed for each of the nine business model components. Thereafter, all hypotheses and thus all components in the business model are tested by engaging with prospective clients and gaining insights in order to validate the hypotheses. The main objective of the Customer Discovery step is to turn the initial business model hypotheses into facts and will allow the startup founders to make the necessary to changes to their business model. This approach of testing and validating the different parts of the business model by engaging with clients is referred to as the outside-the-building approach (Blank & Dorf, 2012). Clients are the ones who knows about their problems, how they believe these problems can be solved and how the actual procurement process in their companies works. Thus, engaging with clients is emphasized since the Customer Discovery step is not necessarily about collecting feature lists wished by clients in order to build an offering; the Customer Discovery step is about first “defining the product vision and then use customer discovery to find customers and a market for that vision” (Blank & Dorf, 2012). Therefore, it becomes essential for startups to talk to clients and learn about them in order to build a successful product or service and articulate the reasoning to why customers should choose that product or service. The Customer Discovery step can be described in two phases. The first phase is problem- focused and concentrates on problems that clients are perceiving and the customers’ need to actually solve these perceived problems. A thorough understanding of the problem situation will allow the startup to assess whether the problems mentioned by clients are big enough for them to be willing to consider buying a solution. This leads to the second phase of the Customer Discovery step which is solution-focused. In this phase, the startup needs look at their offering and present this to the clients. In essence, the startup needs to test the hypotheses about the offering to see if it is considered to solve a sufficient amount of clients’ problems to motivate purchases. Only when the importance of the problems as well as the offering as a solution to those problems have been confirmed may the Customer Discovery step be considered to be complete. The Customer Discovery step allows a startup to have opportunities to learn and make changes to their business model. By making major changes to any of the nine business model hypotheses based on feedback from clients is known as pivoting and this occurs regularly in the Customer Discovery step (Blank & Dorf, 2012). It should also be noted that a major aspect of the Customer Discovery step is to search and find a sufficient Problem Solution Fit. In essence, the 16 Problem Solution Fit refers to matching a startup’s offering as a solution with the targeted client segments’ problems. 2.4 Customer Roles in Organizational Buying In line with the definition of the value proposition proposed by Kambil (1996), it is important to understand the needs across multiple customer roles. Various customer roles in an organization could be distinguished in different ways, but the set of roles commonly used in the literature is in line with the work of Webster & Wind (1972). This piece of literature presents different roles involved in a buying situation in an organization, which the authors refer to as a buying center. Roles included in a buying center are the following: users, buyers, influencers, deciders and gatekeepers. One role can be held by several individuals, and one individual can hold several roles. Slight adjustments of the buying center have been made during the years where other roles such as initiators and saboteurs have been included (Havaldar, 2005; Osterwalder et al, 2014). However, the roles in the buying center, presented by Webster & Wind (1972), have the following meanings: • Users - those members of the organization who use the purchased products and services • Buyers - those with formal responsibility and authority for contracting with suppliers • Influencers - those who influence the decision process directly or indirectly by providing information and criteria for evaluating alternative buying actions • Deciders - those with authority to choose among alternative buying actions • Gatekeepers - those who control the flow of information into the buying center All roles are obviously important to consider in order to understand factors determining a procurement decision. Furthermore, while Bonoma (2006) emphasizes the importance of roles “behind” the deciders, he also states that many purchases would not be made without these deciders acting as product champions. It is a necessity to understand deciders’ preferences since they, according to Keillor (2007), make the actual purchase decision. Regarding users, they often initiate the buying process and are usually involved in specifying product requirements when evaluating different alternatives (Kotler, 2013; Havaldar 2005). Furthermore, Kekre et al. (1995) state that usability is one of the key factors for driving customer satisfaction in software products. Lastly, Forman et al. (2007) highlight the importance of considering users in order to gain trust in today’s cooperative relationships relying on repeatable transactions. 2.5 Evaluation of IT Solutions Johnston & Lewin (1996) describe the process of understanding organizational buying behavior as complex and that the behavior depends, among other things, on different organizational needs. Building upon this, Nickson (2008) emphasizes the fact that knowing your own needs as an organization could be one of the toughest challenges during the IT procurement process. In addition, organizational needs function as a basis for framing criteria to consider when evaluating an IT solution. However, as per the reasoning of Truex et al. (1999), organizations are continuously evolving and this means that needs and requirements changes continuously as well. Moreover, since organizational needs differ from firm to firm and from situation to situation, customers’ requirements and criteria for evaluating products and services differs from case to case as well. However, Nickson (2008) suggests a list of criteria to consider when evaluating general IT solutions. In addition, research regarding procurement of specific types of IT-solutions, such as Software-as-a-Service and Enterprise Resource Planning (ERP), have been conducted, resulting in suggestions of criteria for these specific types of solutions. 17 2.5.1 Evaluation of General IT Solutions Nickson (2008) outlines that criteria for evaluating IT solutions in general could be categorized as either being quantitative or qualitative. He further states that quantitative ones are often easier to work with, since they are easy to compare. In line with this reasoning, he also proposes that qualitative criteria should be framed in way which enhance measurement and thereby makes them easier to compare as well. Within the section of quantitative criteria, Nickson (2008) suggests the following list of 14 criteria important to consider during evaluations; Performance, Capacity, Availability, Price, Timetable, Project or Service Management, Quality (assurance), Financial Track Record, Company Reputation, Service & Delivery Track Record, Flexibility (solution), Capability, Added Value, and Subcontractors. He further on present the following 7 qualitative criteria relevant to consider; Management Approach, Professionalism, Company Credibility, Flexibility (organization), Subcontractors & Third Parties, Comfort or Relationship, and Relative Size. 2.5.2 Evaluation of Software-as-a-Service Solutions Software-as-a-Service Solutions are based upon the concept of cloud computing, where Armbrust et al. (2010) point to the obvious benefit of having the opportunity to scale computer resources according to the clients’ current needs, which enables the ability to pay for computing resources on a usage basis. Polyviou et al. (2014) propose a comprehensive framework for factors relevant when evaluating a Software-as-a-Service solution, based upon information from two bodies of literature: (1) Information Systems and (2) Computer Science. Their framework consists of a list of 23 factors categorized in four groups: (1) Technical, (2) Strategic & Organizational, (3) Economic and (4) Political & Legislative. The Technical category is described as dealing with factors related to the technology and factors like functionality and flexibility are presented here. Factors affecting the buying organization’s objectives and goals are captured in the category Strategic & Organizational, for instance factors such as support level and brand name of vendor. Furthermore, the Economic category concerns factors dealing with the financial aspects of the service offered and examples are pricing and payment methods. Lastly, the fourth category, Political & Legislative, captures factors such as service level agreements and legal compliance. 2.5.3 Evaluation of ERP Solutions In the work of Behrens & Sedera (2004), it is concluded that while ERP systems intend to meet all functional and operational requirements of organizations, it is difficult for one ERP system to fulfill all expectations that complex organizations might have. This is the reason as to why shadow systems, which are defined as “systems which replicate in full or in part data and/or functionality of the legitimate systems of the organization”, may benefit and help individuals within the organization to produce better work outcomes; shadow systems help in adding flexibility and adapting systems according to individuals’ and organizations’ needs; thus, shadow systems bridge the functionality gaps ERP systems leave behind. Furthermore, processes of investing in ERP solutions often lack a systematic approach to evaluation of different alternatives, which is why Wei et al (2005) investigates this topic further and presents a framework for guidance in the selection phase. Their framework per se will not be handled in this research, nevertheless evaluation attributes identified in their case study will be presented. Wei et al. (2005) apply their own framework for ERP evaluation in an empirical case in Taiwan, resulting in nine attributes relevant to consider when selecting an ERP solution. The nine attributes are categorized as either being related to system factors or vendor factors, as visualized in Table 3. Attributes related to system factors are (1) Total Costs, (2) Implementation Time, (3) Functionality, (4) User Friendliness, (5) Flexibility and (6) Reliability, while attributes related to vendor factors are (7) Reputation, (8) Technical 18 Capability and (9) Service. To describe each attribute identified by Wei et al. (2005), a presentation of underlying evaluation items that make up for each attribute is presented in Table 3 as well. Table 3 Attributes for evaluation of ERP systems (Wei et al., 2005) Type of Factor Attribute Underlying Evaluation Items System Factor (1) Total Costs Price, maintenance costs, consultant expenses and infrastructure costs (2) Implementation Time - (3) Functionality Module completion, function fitness and security (4) User Friendliness Ease of operation and ease of learning (5) Flexibility Upgradeability, ease of integration and ease of in- house development (6) Reliability Stability and data recovery Vendor Factor (7) Reputation (of Vendor) Scale of vendor, financial condition and market share (8) Technical Capability (of Vendor) R&D ability, technical support capability and implementation ability (9) Service (of Vendor) Warranties, consultant service, training service and service speed 2.6 Technology Acceptance In order to understand the user perspective during adoption of new software, it is important to identify what determines a user's willingness to use the software. If a user will use a system or not is according to Davis (1986) determined by the users’ attitude toward the system. The attitude depends on the perceived usefulness and the perceived ease of use, which in turn are determined by the system’s design features. Davis (1986) describes perceived usefulness as “the degree to which an individual believes that using a particular system would enhance his or her job performance" and perceived ease of use as “the degree to which an individual believes that using a particular system would be free of physical and mental effort”. These causal relationships constitute the essence of the first version of the Technology Acceptance Model (TAM), proposed by Davis (1986). TAM originates from the psychology field and the Theory of Reasoned Action (TRA), developed by Ajzen & Fishbein (1980), which states that behavior is directly determined by the behavioral intention and indirectly by the attitude. 19 Figure 5 Technology Acceptance Model (Davis et al., 1989) TAM has been revised and modified multiple times by researchers during the last decades, resulting in plenty of existing versions all slightly different from each other (Marangunić & Granic, 2015). A critical component is the “behavioral intention to use”, in line with TRA, which was included in the revised TAM model presented by Davis et al (1989) (see Figure 5) to explain the perceived usefulness direct influence on the actual system use. 2.7 Planning and Budgeting According to Lalli (2011), all planning processes are based on a series of assumptions, regarding both the internal and external environment of a business. The author further explains that in order to plan a business it is important to establish a strategic plan and an operational plan, which also the budget process later on will proceed from. The operational plan is based upon outcomes of the strategic plan, describing in more detail planned activities and aims to function as a guideline for the operational work in all business units (Lalli, 2011). Plans like these, referred to as business plans by Friend & Zehle (2008), serve several functions, including providing a base for operational budgets, targets and management control. In relation to this, Bangs (2001) outlines that policy, described as what the business will do, and control, described as the measurement of accomplish policy goals, are critical factors in order to run a prosperous business. Bangs (2001) continues with highlighting the importance of the accounting system as the core in the operations of control, where a budget is solely a subpart. To understand the role of budgeting when managing a business, it is necessary to understand how budgeting is related to accounting in general. Accounting is, by the academic field, divided into multiple subgroups as stated by Weber & Stevenson (1981), where examples of these subgroups are financial accounting, tax accounting, management accounting and auditing. However, Horngren (2014; 2013) among others (Drury 2013; Coombs et al., 2005) emphasizes the difference between two of these: (1) financial accounting and (2) management accounting. These two subgroups are often distinguished by if they produce information for external use or internal use, which is referred to as financial accounting and management accounting respectively. Horngren (2014;2013) proposes the following description for financial accounting: “The branch of accounting that develops information for external decision makers, such as stockholders, suppliers, banks, and government regulatory agencies.” (Horngren, 2014;2013) He further proposes the following description for management accounting: “The branch of accounting that produces information for managers within an organization. It is the process of identifying, measuring, 20 accumulating, analyzing, preparing, interpreting, and communicating information that helps managers fulfill organizational objectives” (Horngren, 2014;2013) Management accounting in turn contains plenty of concepts and techniques in order to support decisions within the organization. Though, Otley & Emmanuel (2013) among others (Horngren, 2014;2013) state that one of the most commonly used concepts in organizations is budgetary control, or simply referred to as the budget process (Drury, 2013). Budgeting is often a natural part of the implementation of a business plan in an organization, where it is serving multiple purposes and is acting as material to use for decision making (Drury, 2013). Drury (2013) propose six possible purposes for budgeting including planning, coordination, communication, motivation, control and evaluation. A short description of each of these purposes, in line with descriptions provided by Drury (2013) and Ax et al. (2009), is presented in Table 4 below. Table 4 Budgeting Purposes (Drury, 2013; Ax et al., 2009) Budget Purpose Description Planning Refers to the budget as a detailed plan of upcoming activities based upon the strategic plan in order to reach predetermined objectives. Coordination Implies that a budget functions as a way to coordinate operations from various units and thus get all units working in the same direction. Communication Refers to how budgeting facilitates employees’ possibility to influence upcoming activities by involving them in the planning phase. Communication also concerns information flow in the other direction covering guidelines and expectations from management out through the organization. Motivation Regards motivating managers in order to enhance their performance and make them fulfill outlined objectives. Control The process provides a way to compare actual results with the initial plan, and directs focus to deviations and their underlying reasons. Evaluation Similar to control as it is also related to the fact that the process provides a way to compare a manager's actual results with the initial plan, which enables evaluation of managerial performance. A budget process is structured very differently from company to company and it is thereby difficult to describe how a general budget process looks like (Ax et al, 2009). Furthermore, budgeting is generally regarded as a time-consuming process adding relatively little value to the business (Hope & Fraser, 2003). However, it is often possible to determine whether a company uses a top down or bottom up approach to budgeting, depending on how the process is initialized. A top down approach is described in loose terms by Lalli (2011) as a budget which is driven by a strategic plan, while a budget emerging from operational level rather follows a bottom up approach. Ax et al. (2009) further outlines that all employees are involved in the budgeting process to some extent. In addition, a term often mentioned in accordance with budgeting is forecasting. The essential difference between these lies in what they are actually estimating; while budgeting estimates the expectations of the amount of revenues and expenses an organization want to achieve, financial forecasting estimates the amount of revenues and expenses an organization will achieve (Investopedia, 2015). Thus, budgeting results in a plan describing where the business want to go and financial forecasting results in a plan describing where the business is heading. 21 3. Theoretical Framework In this chapter, a theoretical base is outlined that describes the reasoning behind the theoretical framework and its intended use in the study. Thereafter, the theoretical framework itself is detailed. 3.1 Theoretical Base The research will be revolving around the concepts of the value proposition and customer value. This is in accordance with a more customer-centric approach due to the importance of creating customer value for business success (Reichheld, 1994; Treacy & Wiersema, 1997) and thus managing the market risk that all startups face due to the lack of market knowledge (Blank & Dorf, 2012). In order to put the value proposition focus into context, the research makes use of literature on business modelling as a stepping stone in which value propositions play an essential role. All startups are searching for viable business models (Blank & Dorf, 2012) and is dependent on the ability for business models to both create and capture value, which business model literature emphasizes (Zott et al., 2011). This search alludes to a degree of experimentation in order to find a suiting business model and is aligned with using business models as “business recipes” (Baden-Fuller & Morgan, 2010). The creation of value that business modelling emphasize may be regarded as the creation of customer value through value propositions, while the capturing of value may be regarded as the creation of business value (e.g. in terms of monetary profit) based on the initial creation of customer value. The point of emphasis in this research is on the initial customer value creation and this can be associated with the first step of the Customer Development Process: Customer Discovery (Blank & Dorf, 2012). However, while the Customer Discovery in its entirety is focused on constructing and validating assumptions about all nine components in a business model according to the BMC (Osterwalder & Pigneur, 2010), this study will only focus on the value proposition and customer segment components. Considering the focus on the value proposition and customer segment, the study will be structured based upon the work of Osterwalder et al. (2014) and their Value Proposition Canvas (VPC). The VPC is structurally aligned with the research and the use of the VPC as a base will allow the research to be structured in order to find what Osterwalder et al. (2014) refer to as Problem Solution Fit. This fit is highly relevant in regards to the research purpose and structuring the research in line with the VPC will allow for a closer understanding of the hypotheses that a startup has about its value proposition and the companies that the startup are pursuing; these companies will hereby be referred to as clients or client companies. This is aligned with constructing assumptions about the value proposition and client segment that Blank & Dorf (2012) emphasize as part of the Customer Development Process and is highly relevant in regards to the two initial research questions. For a more explicit reasoning behind structuring the research based on the VPC, consider the following: RQ1 is addressed by outlining the VPC’s Value Map and thus detailing the specifics about a startup’s current value proposition, which enables the research to present how Startup X’s current offering intends to provide value to clients. Moreover, the research addresses RQ2 by outlining the VPC’s Customer Profile and describing prospective clients’ current ways of working, their associated needs and desires and thus what aspects Startup X’s intended market values. Lastly, by comparatively analyzing how well the outlined Value Map addresses the Customer Profile, the research is able to present how well Startup X meets the perceived value of the clients, which addresses RQ3. 22 3.2 Proposed Theoretical Framework To conduct this research, a theoretical framework is proposed and presented in Figure 6. Based on previous reasoning, the theoretical framework is structurally based on Value Proposition Design and the VPC, and the three main steps of the theoretical framework are: (1) Map Value Creators, (2) Map Gains & Pains and (3) Match Value Creators with Gains & Pains. These steps are sequentially aligned with the research questions and individually correspond to outlining the VPC’s main features of Value Map, Customer Profile and Fit respectively (Osterwalder et al., 2014). However, the theoretical framework diverges from Value Proposition Design and the VPC to some extent in terms of both intention and context in order to suit the specific research purpose. Value Proposition Design and the usage of the VPC as a tool is applicable for designing new value propositions as well as improving upon existing value propositions (Osterwalder et al., 2014), and the latter is relevant for this research. However, the primary intent of Value Proposition Design of determining Fit affects the usage of the VPC in the sense that outlining the Value Map is dependent on a prior outlining of a Customer Profile; for instance, the gains and pains in the Customer Profile determine whether something may be regarded as a gain creator or pain reliever in the Value Map. While this research is focused on assessing fit, in order to answer RQ3, the research also values the information provided by outlining the Value Map and Customer Profile in isolation from each other, in order to answer RQ1 and RQ2 respectively. Accordingly, the theoretical framework has made certain adjustments to the VPC and a description of the theoretical framework, and how it diverges from Value Proposition Design in general and the VPC in particular, will proceed by presenting the steps of the theoretical framework individually in sequence. Figure 6 Proposed Theoretical Framework 3.2.1 Map Value Creators The first step of the theoretical framework structurally corresponds to outlining the Value Map in the VPC. This step is designated to describe how Startup X intends to provide value to clients and answers RQ1 by identifying all value creators, as opposed to gain creators and pain relievers. The value creators are described as the following: 23 Value Creators: Explicit features of an existing value proposition which intend to create customer value by creating gains and/or alleviating pains which clients are believed to emphasize. Thus, it is evident that one of the fundamental differences between the theoretical framework and the VPC is that the theoretical framework outlines all features that intend to create customer value, while the VPC’s Value Map only outline those features that address a gain/pain in the Customer Profile; these are referred to as either gain creators or pain relievers. In other words, the theoretical framework presents all features that may be value-adding, referred to as value creators, while the VPC’s Value Map intentionally only presents a selection of those potentially value-adding features. Therefore, the intent of the Value Map is to only list those features that are confirmed to add value and this is not in line with answering RQ1. Furthermore, it is not perceived as necessary to divide value-adding features into either being gain creators or pain relievers, as suggested by Osterwalder et al. (2014). The distinction between gain creators and pain relievers could possibly enhance the process of matching value- adding features with identified gains and pains. However, since gain creators could address both gains and pains, and pain relievers could address both gains and pains as well (Osterwalder et al., 2014), it is not motivated to say that separating features into gain creators and pain relievers would add any value to the process of finding the fit in this research, in comparison to having a unified category of value creators. Therefore, the theoretical framework also differs from the VPC in the sense that it ignores the concept of gain creators and pain relievers by merging them into one unified category named value creators. Moreover, the theoretical framework overlooks the concept of Products & Services that is part of the VPC’s Value Map. Osterwalder et al. (2014) regard the products and services as the underlying objects that a value proposition is based upon and are used to ease identification of features in a value proposition. Thus, it is argued that this is more applicable to cases where value propositions have yet to be specified. However, the research proceeds from a situation where value propositions are existing, specified and thus well-understood, which makes the Products & Services concept redundant. The operational process of mapping value creators is based on internal sales material and other information related to a startup’s offering that is to be investigated. That information is then dissected and analyzed using literature to extract relevant value creators. To identify and map value creators, relevant literature is related to business planning and budgeting processes to, for instance, understand the purposes of planning and budgeting, as well as relevant literature related to technology acceptance, since the usage of an offering is required in order for the startup to provide customer value. 3.2.2 Map Gains & Pains The second step of the theoretical framework corresponds to outlining the VPC’s Customer Profile. It is intended to provide an answer to how companies within the target market perceive value and thus, the step intends to provide an answer to RQ2 by identifying all gains and pains which are emphasized by prospective clients. Gains and pains are described, based on Osterwalder et al. (2014), as the following: 24 Gains: All outcomes and benefits that clients indicate to want or desire. Pains: All aspects which clients indicate to be more or less of annoyance. The mapping of gains and pains is based on empirical data where prospective clients have had the chance to outline their current situations in terms of needs and problems. Osterwalder et al. (2014) emphasize the importance of identifying different stakeholders and roles within the client organization in a B2B context. This identification has been inspired using literature regarding organizational buying behavior and the Buying Center presented by Webster & Wind (1972). With this in consideration, the gains and pains that are identified and mapped are divided into either being (1) strategic or (2) operational, as visualized in Figure 6. This explicit separation between strategic and operational gains and pains differs from the VPC’s Customer Profile. Among the roles presented in the Buying Center (Webster & Wind, 1972), focus in this research is on deciders, which represent the strategic perspective, and users, which represent the operational perspective, due to their impact on the buying process. Users are important since they often initiate the buying process (Kotler, 2013; Havaldar 2005) while the deciders may act as product champions to drive the buying process (Bonoma, 2006) and they also make the final purchase decision (Keillor, 2007). While Osterwalder et al. (2014) do highlight the need to separate between buyer roles in B2B transactions, they propose separate canvases for each role which creates an issue when an individual can hold multiple roles in an organization (Webster & Wind, 1972). Furthermore, the theoretical framework differs from the VPC’s Customer Profile since it does not make the Customer Jobs concept explicit. The reasoning is that while the intention with customer jobs is to create an understanding for what customers want to have accomplished, the research is grounded on a situation where that understanding is already clear on a market with existing solutions and offerings. In order to map the gains and pains from the strategic perspective, literature considering planning and budgeting in organizations has been included in the theoretical framework. This piece of literature presents the relation between the budgeting process and the overall business planning, as well as purposes with budgeting, in order to understand what decision makers from a strategic perspective values in a budget process and what role systems have to support this process. Furthermore, literature regarding users’ technology acceptance has been included in the theoretical framework in order to map gains and pains from the operational perspective. The Technology Acceptance Model (TAM) represents this piece of literature and states in simplified terms that a user’s attitude towards a system will determine if the user will use the system or not (Davis, 1986). Since a user’s attitude towards a system is dependent on both perceived usefulness and perc