Control mechanisms in business models

Developing a successful business model without strong control mechanisms will only generate temporary profits. The purpose of control mechanisms in business models is to protect the created values and profit streams from being reduced by competitors, partners or strong customers.

The last decades have shown a rapid growth in customer power at the same time as new technology and services are being replaced faster. Even though control always has been an important part of the business model, today it is crucial. Predictability is an important factor in analyzing business models, and the greater control mechanisms, the greater the predictability. It is common that more than one control mechanism is used to protect the profit stream from being reduced.

Different types of control mechanisms are used more in some business models and industries and less in other. An important thing to remember is that the goal should be to choose the control mechanisms that maximize the value, not the ones that maximize the protection.

Different control mechanisms

The examples below are simplifications to exemplify different mechanisms.

• an implemented standard (Adobe)
• a strong position in the value network (Coca-Cola)
• an end-customer interface (Microsoft)
• scale of users and partners (Google)
• scale in purchasing (Wal-Mart)
  
• a customer base with switching costs (Microsoft)
• a large development community (Linux)
• a strong brand (Louis Vuitton)
• a development lead (Intel)
• a short product development cycle (Zara)
• a strong IPR portfolio (IBM)
• a cost advantage (Ikea)
• contractual agreements (Apple)

Using control mechanisms in business models is not the same as controlling each part of the business model

Increasingly companies are using open business models for collaborative and external innovation, product development, content creation and commercialization. Still, companies using these models, need to control parts of their business models, to protect the values and profit streams that are being created from being reduced by competitors, partners or strong customers.