Business Model Design: An Activity System Perspective Christoph Zott and Raphael Amit Building on existing literature, we conceptualize a firm’s business model as a system of interdependent activities that transcends the focal firm and spans its boundaries. The activity system enables the firm, in concert with its partners, to create value and also to appropriate a share of that value. Anchored on theoretical and empirical research, we suggest two sets of parameters that activity systems designers need to consider: design elements - content, structure and governance - that describe the architecture of an activity system; and design themes - novelty, lock-in, complementarities and efficiency - that describe the sources of the activity system’s value creation. Ó 2009 Elsevier Ltd. All rights reserved. Introduction Consider the case of FriCSo, a young engineering company that has achieved a significant techno- logical breakthrough in friction reduction technology. 1 Friction is the arch enemy of mechanical systems - it reduces the power of machines, leads to overheating, and causes wear, breakdown and seizure in moving parts. Suppose FriCSo’s technological invention can reduce friction by over 15,000%: surely such a staggering technology - with clear and wide applicability to products and industrial applications that involve moving parts (such as machine manufacturing, automobile, shipbuilding, etc.) - will be a sure bet for commercial success? Or will it? Once a target industry (say, automobile) has been chosen, what kind of company should be built to commercialize the intellectual property? What ‘model’ or ‘template’ should a firm adopt in order to embed itself into the existing ecology of original equipment manufacturers (OEMs), and the myriad tier one, two and three industry suppliers? Should it choose to become a machine business model design is a key decision for a new firm entrepreneur .. and a crucial - perhaps more difficult - task for managers charged with rethinking an old model to make their firm fit for the future. Long Range Planning 43 (2010) 216e226 http://www.elsevier.com/locate/lrp 0024-6301/$ - see front matter Ó 2009 Elsevier Ltd. All rights reserved. doi:10.1016/j.lrp.2009.07.004