M.Morris et al./Jourmal of Business Research 58 (2005)726-735 where the forme is conc nee with a to a set of guiding rules in the formation of ness of the configuration given critical part of the firm's business model.At Dell Computer, ule might invo e tuming inventory in nter udes both ncy and reinfo ce to hasic n mendel.An d and model with high companies having otherwise similar models low margins,moderate volumes,and fixed revenue sour the economic 3.4.Applying the framewor ents ode kah Southwest Airlines has a robust business model that has selling in a regional b-to-b market where investment in customer relationships is required or when tragedy that the value custor ied in art by othe A 6 nd high fixed c ts this value p osition that centers on medium to low quality worthy performance,none of these firms has achieved the a target market that is fairly broad and relatively pric evel of as yin head-to -he toning base on cost exploiting this model also makes it clear that a well- Ulimately ach com ent affects and is affected by ceptualized business model affects and is affected by the other While ables as culture and leadership de 1s10I the Table 3.the Southw nodel is firs h This level is concerned with not pr ome relationship n's app山e in term one is b o ha market focus. may be more dep endent on custome relationships,and is likely tor e an economic mode that inclu volume ve y Lo inv ch yle model's ante model centers on Southwest's core competencyits unique fit is concemed with consistency between operating system. This operating system (e.g. employee airport and route selection, n exte environm makes nossible a uniaue value r monosition (short haul low Rindova and Kotha(2001)describe the "morph fare,direct service that is on-time andfu).Finally.it ing" of Yahoo's business model from provider of search would be easy to deviate from this model given un supphier of conte source of interactive y rd ber of 'n ng mg that e th n ada inconsistent with the model.Rules regarding maximum the face of a poor external fit.Companies must work to fares or flight turnaround times effecti ely delimit appr rupt their own advantages and those of competitors orcing the aptability may the dynamics among existing elements. 4.Business model fit,evolution,sustainability 4.2.Emergence and evolution of models 4 1.The issue of fit neurs have a clearly formulat ed model when undertaking a venture.many start with Sustainability requires that model components demon- partially formed models and incomplete strategies. of exampl roces al rules’’ that govern the types of movies Miramax decides to make. Girotto and Rivkin (2000) explain how Yahoo! adheres to a set of guiding rules in the formation of partnerships, a critical part of the firm’s business model. At Dell Computer, a rule might involve turning inventory in 4 days or less. Rules are important at the level of execution of the business model. Consistent adherence to basic principles can distinguish two companies having otherwise similar models. 3.4. Applying the framework Southwest Airlines has a robust business model that has sustained company growth for 30 years, including the aftermath of the 9/11 terrorist tragedy that devastated the industry. Not surprisingly, the Southwest model has been copied in whole or part by others (e.g., JetBlue, RyanAir, United Express). While some have achieved achieve note￾worthy performance, none of these firms has achieved the level of success as Southwest, especially in head-to-head competition with the firm. Southwest’s superiority in exploiting this model also makes it clear that a well￾conceptualized business model affects and is affected by such organizational variables as culture and leadership quality. In Table 3, the Southwest model is first captured at the foundation level. Here, the focus is on what the firm is doing, as opposed to how. This level is concerned with basics of the firm’s approach in terms of a standardized set of questions. Next, at the proprietary level, Southwest’s model reflects innovation that has changed the ways in which other airlines operate, while reflecting an approach that is difficult to replicate. From Table 3, it can be seen how the model components are exploited for advantage in an innovative yet internally consistent manner. The proprietary model centers on Southwest’s core competency, its unique operating system. This operating system (e.g., employee policies, airport and route selection, no code sharing, independent baggage handling, standardization of aircraft) makes possible a unique value proposition (short haul, low￾fare, direct service that is on-time and ‘fun’). Finally, it would be easy to deviate from this model given competitive and regulatory pressures. However, a number of ‘rules’ help management avoid strategic or tactical moves that are inconsistent with the model. Rules regarding maximum fares or flight turnaround times effectively delimit appro￾priate courses of management action, while reinforcing the strategic intent of the firm in the minds of employees. 4. Business model fit, evolution, sustainability 4.1. The issue of fit Sustainability requires that model components demon￾strate consistency, as in the Southwest example. Consisten￾cy can be described in terms of both internal and external ‘‘fit,’’ where the former is concerned with a coherent configuration of key activities within the firm and the latter addresses the appropriateness of the configuration given external environmental conditions. Internal fit includes both consistency and reinforce￾ment within and between the six subcomponents of the model. An economic model with high operating leverage, low margins, moderate volumes, and fixed revenue sour￾ces may, by itself, be untenable. Further, the economics must fit with the other components of the model. A given economic model might not be workable when selling in a regional b-to-b market where significant investment in customer relationships is required or when selling a value offering involving extensive customiza￾tion. If the economic model calls for penetration pricing with low margins and high fixed costs, this may imply a value proposition that centers on medium to low quality, a target market that is fairly broad and relatively price elastic, competitive positioning based on cost leadership, and a growth-oriented investment model. Ultimately, each component affects and is affected by the other components. While each is vital, the firm’s investment model effectively delimits decisions made in all the other areas. For instance, a speculative business, with its shorter time horizon, may require a cost structure with lower operating leverage and a customer focus that is not predicated on long-term customer relationships. Alternatively, if one is building a lifestyle business, the firm is apt to have a more narrowly defined product and market focus, may be more dependent on customer relationships, and is likely to require an economic model that includes lower volumes. With the lifestyle venture, it may not be necessary to invest as much in the model’s proprietary elements. External fit is concerned with consistency between choices in the six areas of the model and conditions in the external environment. As environmental conditions change, the model may require adaptation or wholesale change. Rindova and Kotha (2001) describe the ‘‘morph￾ing’’ of Yahoo’s business model from provider of search functions to supplier of content to source of interactive services. When confronting highly turbulent conditions, a strong internal fit can undermine the firm’s adaptability in the face of a poor external fit. Companies must work to disrupt their own advantages and those of competitors. Adaptability may require models with loosely fitting elements or introduction of new elements that change the dynamics among existing elements. 4.2. Emergence and evolution of models Although some entrepreneurs have a clearly formulat￾ed model when undertaking a venture, many start with partially formed models and incomplete strategies. A process of experimentation may be involved as the model emerges (and a viable model may never emerge). Lessons 732 M. Morris et al. / Journal of Business Research 58 (2005) 726–735