Professional Documents
Culture Documents
Volume 46 Number 2
April 2015
Peter Lindgren
Department of Business and Social Sciences, Aarhus University, Birk Centerpark 15, 7400
Herning, Denmark, e-mail: peterli@hih.au.dk
ABSTRACT
An effective business model is the core enabler of any companys performance. Business
model innovation is not only becoming more and more important due to increasing
and globalizing competition, but also an enormous challenge, both theoretically and
practically. Although many managers are eager to consider more disruptive changes
to their business model, they often do not know how to articulate their existing or
desired business model and, even less so, understand the possibilities for innovating it.
One of the steps toward developing more theoretical insight and practical guidelines
is the identification of types and the development of a typology of business model
innovations. Ten retrospective case studies of business model innovations undertaken
by two industrial companies provide the empirical basis for this article. We analyzed
the characteristics of these innovations as well as their success rates. The findings
suggest that there are indeed various business model innovation types, each with its own
characteristics and challenges. [Submitted: March 1, 2013. Revised: January 8, 2014.
Accepted: January 16, 2014.]
INTRODUCTION
Due to todays intense competition (e.g., Skarzynski & Gibson, 2008; Tidd &
Bessant, 2009; Hult, 2012) in increasingly global markets, companies in all industries worldwide find themselves competing under ever-changing conditions. Those
changes force companies to rethink their operational business models more frequently and fundamentally, as innovation based solely on new products and aimed
at local markets is no longer sufficient to sustain competitiveness and survival.
Competitors can relatively easily copy products, and local market segments today
are often quickly captured by global rivals located elsewhere.
We appreciate the constructive comments from the editor, the associate editor, and two anonymous review-
ers, and thank Lee Ann Iovanni for her assistance in developing this article.
Corresponding
author.
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The IBM global chief executive officer (CEO) survey also supports the claim
that business model innovation matters. With approximately 30% of CEOs pursuing such initiatives, business model innovation is much higher than expected on
industrial priority lists. Moreover, [c]ompanies that have grown their operating
margins faster than their competitors were putting twice as much emphasis on
business model innovation as underperformers (IBM, 2006, p. 12). Four years
later, IBM (2010, p. 10) reports: Previously, CEOs recognized the need for business model innovation, but today they are struggling to find the requisite creative
leadership to produce such innovation.
The aim of this article is to develop a business model innovation typology.
Such a typology can support strategic decision makers in identifying and analyzing
various options, evaluating their consequences including performance effects, and
determining the business model innovation(s) most suitable for their company.
For researchers, typology development presents an important step in the theorybuilding process (Christensen, 2006).
Business Model
The business model literature has grown exponentially since the end of the 1990s.
However, before the term business model gained popularity, many models related to the effective functioning and performance of businesses had been proposed, especially in organization theory. Miller & Rice (1967, p. 6) conceived an
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Innovation
Although there are many definitions of innovation, they all point toward (doing)
something new. Schumpeter (1934, p. 66), possibly the first writer on innovation,
mentions (1) The introduction of a new good . . . (2) The introduction of a new
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method of production . . . (3) The opening of a new market . . . (4) The conquest
of a new source of supply . . . (5) The carrying out of a new organization . . . .
Most innovation researchers have essentially adopted Schumpeters categorization.
Recognizing that pure innovations are actually very rare, Boer & During (2001,
p. 84) define innovation as the creation of a new product-market-technologyorganization-combination. Tidd & Bessant (2009) discuss product, process, position, and paradigm innovation. While the first three go back to Schumpeters new
good, new method, and new market, one of the forms of paradigm innovation
(Francis & Bessant, 2005) is business model innovation.
RESEARCH OBJECTIVE
Business model innovation matters, but the question as to how to achieve it has
been largely neglected. This article aims to address this deficit.
The term business model innovation can be interpreted in two important
ways: (i) as a process and (ii) as an outcome. This article focuses on the second
interpretation, considering that process follows intended outcome. That is, the
better a decision maker is informed about the envisaged outcome of a process, the
better the decisions s/he can make about the design, organization, and management
of that process. There is no reason to assume that this law in, for example,
operations management would not hold in innovation management.
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According to Christensens (2006) three-step procedure for building descriptive theory, one of the steps toward developing more theoretical insight is
the development of a typology. As they are also useful in guiding managerial
decision making, various different typologies have been used or developed in decision science research (e.g., Jarvenpaa & Ives, 1993; Hahn, 2003; Abdinour-Helm,
Chaparro, & Farmer, 2005; Tangpong, Michalisin, & Melcher, 2008; Paswan,
DSouza, & Zolfhagharian, 2009; Ravichandran & Liu, 2011). The objective of
this article is to propose a qualitative (Bailey, 1994) business model innovation
typology.
A business model innovation typology reduces the variability and diversity
of the real world to a small number of richly defined types (cf. McKelvey, 1982;
Jarvenpaa & Ives, 1993; Tangpong et al., 2008; Paswan et al., 2009). Consisting of
a limited number of constructs and relationships between these constructs (Doty &
Glick, 1994), a typology can support strategic decision makers in identifying and
analyzing various options, evaluating their consequences including performance
effects, and determining the business model innovation(s) most suitable for their
company.
Ten retrospective case studies of business model innovations undertaken by
two industrial companies provide the empirical basis for this article. We selected
these companies based on their (relatively) successful yet somewhat different
innovation experiences.
Despite the observation that organization, strategy, innovation, and business
model theory have not dealt with business model innovation, notions from these
theories are useful in the development of an analytical framework to guide the
case studies. After a presentation of that framework, we describe and account for
the research design. Subsequently, we present, analyze, and discuss the case study
findings. Next, we present and explain the typology of business model innovation
that emerged from the research. We conclude the article with a summary of its
theoretical contribution and limitations, propositions and suggestions for further
research, and recommendations for decision makers.
ANALYTICAL FRAMEWORK
Similar to Paswan et al. (2009) who developed a service innovation typology, we
take our starting point in the fundamental questions that management needs to
answer when considering innovating their business model. The first question is:
what should we innovate? The answer to this question is related to innovation
content, that is, the business model building blocks. The second question is: how
far do we go? This question essentially inquires about the innovativeness of the
new business model. The third and fourth questions are how will the innovation
support our business strategy? And, do we adopt a closed or open approach
to the innovation? These two questions consider the strategic context and the
organizational setting in which the business model innovation takes place. The
fifth question is: when do we consider the business model innovation a success?
The answer to this question is crucial input to the development of normative theory
and robust recommendations for strategic decision makers.
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Description
Incremental
Innovation
Radical
Innovation
What do we provide?
Value proposition
Offering something
different (at least
to the company).
Target customers
New market.
Customer relations
Actual interactions
established with
these customer
segments.
Continuous
improvements of
existing channels.
Value chain
architecture
Exploitation (e.g.,
internal, lean,
continuous
improvement).
New relationship
channels (e.g.,
physical/virtual,
personal/peers/mass
awareness).
Exploration (e.g.,
open, flexible,
diversified).
Core competences
Familiar
competences
(e.g.,
improvement of
existing
technology).
Disruptive new,
unfamiliar,
competences
(e.g., new
emerging
technology).
Continued
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Table 1: Continued
Building
block
Description
Incremental
Innovation
Radical
Innovation
Partner network
Familiar (fixed)
Partners who engage
network.
in different kinds of
cooperation with a
company, with the
goal of achieving
economies of scale,
reduction of risks
(e.g., joint venture)
or tapping into new
knowledge or
resources
(Osterwalder &
Pigneur, 2010).
How do we make money?
New (dynamic)
networks (e.g.,
alliance,
joint-venture).
Profit formula
Including revenue
model, cost
structure, margin
model, and
resource velocity
(e.g., Johnson
et al., 2008).
New processes to
generate
revenues, or
disruptive cost
cutting in existing
processes.
Incremental cost
cutting in existing
processes.
Accordingly, any change can rightfully be called a business model innovation, but some changes are more radical and/or complex than others, and some
(e.g., radical product innovation, incremental process improvement) are better understood than others (e.g., a holistic, new to the world departure from all business
models known so far). Consequently, we sidestep the eternal discussion of when
an innovation is radical or incremental, complex or simple, far-reaching or not,
and, instead, portray the space in which any business model innovation can be
positioned in terms of its degree of radicality, reach, and complexity. As will be
discussed below, these three characteristics are not only important to describe but
also to preassess before making important decisions about the organization and
management of business model innovation processes.
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Medium
4
7
Low
Company
Market
Industry
Complexity
(number of building
blocks changed)
Reach
World
Defender companies primarily stay in their existing domains and stable market
niches, and limit their product development efforts to improving existing products.
Analyzers combine the prospectors innovativeness with the defenders ability to
serve existing markets effectively with existing products. These companies pursue
efficiency in the stable markets they serve, and try to be adaptive to and prepared for
change in the dynamic markets in which they are also active. However, rather than
being first movers (e.g., Lieberman & Montgomery, 1988, 1998), analyzers focus
on the quick adoption of new concepts launched by prospector companies. Finally,
reactors are companies without a consistent strategy. They perceive changes in
the markets in which they operate, but are not able to respond effectively to these
changes.
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choice for companies to make. For example, Chesbroughs (2006) business model
framework is partly based on this dimension.
A company has essentially three options. First, it may support a business
model innovation using and staying within its existing organization. Alternatively,
it may change its existing organization, start internally and spin off later, or even
establish a separate business unit specifically for the purpose of the innovation. In
none of these cases are external partners involved. Third, in an open setting, the
business model innovation is conducted with one or more external partners, involved through an acquisition (possibly followed by a merger), a strategic alliance,
or a joint venture (e.g., Chesbrough, 2006). An important notion in this context is
the distinction Boer & During (2001) make between organizational innovation and
organizing for innovation. In business model innovation, these two analytically
different concepts are difficult to distinguish empirically often organizing for
innovation is part of the business model innovation itself. That is, the organizational setting established to develop the business model innovation will also be
responsible for serving an existing or new market with existing, improved, or new
products and/or services.
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involved, their perception of the innovation and the innovation process, and the
way these perceptions are effectuated in the organization of the process.
We expect that fit between the innovativeness (radicality, reach, complexity), strategic context and organizational setting of the business model innovation
affects the success of the innovation positively, and hope to find a number of
ideal types, that is, effective (successful) configurations of these constructs, cf.
Mintzberg (1979), who hypothesized five structural configurations and Miles and
Snow (1978), who posited four strategic types. Although Doty, Glick, & Hubers
(1993) studies support Miles and Snows (1978) but not Mintzbergs (1979) theory; the issue is that these and other authors equate ideal types with successful
configurations.
RESEARCH DESIGN
Methodology
Consistent with the explorative nature of the study, we conducted case studies.
The case study method is particularly suitable for developing new theory, in
that it lends itself to early, exploratory investigations where the variables are still
unknown and the phenomenon is not at all understood and allows the questions
of why, what and how to be answered with a relatively full understanding of
the nature and complexity of the complete phenomenon (Voss, Tsikriktsis, &
Frohlich, 2002, p. 197). We studied multiple cases, as this can . . . augment
external validity, and help guard against observer bias (Voss et al., 2002, p. 202).
Finally, the case studies were retrospective, rather than real-time longitudinal. This
allowed us to actually assess the success rate of the business model innovations.
Eisenhardt (1989) gives an overview of important steps to be taken in the
process of building theory from case study research. Getting started involves
defining a research problem and, possibly, constructs. This step was reported in the
previous sections. The next steps, selecting cases (i.e., sampling) and crafting
instruments and protocols (in particular choice of [multiple] methods) are reported
below. The step following entering the field and collect data, is analyzing data.
Following Eisenhardts (1989) recommendation, we perform both within-case as
well as cross-case analyses. The final steps are shaping hypotheses, enfolding
literature, and reaching closure. We infer a business model innovation typology
from our findings, which, in a way, is a complex hypothesis on the relationships
between the key constructs embedded in the typology. We then discuss our findings
in view of existing literature, as recommended by Eisenhardt (1989) and reach
closure not so much through theoretical saturation, as this is not possible given the
current state of the theory, but rather by inferring propositions from the research,
discussing the limitations of the study, and developing suggestions for further
research aimed at enriching and generalizing the typology.
The five research design components identified by Yin (2003) largely overlap
with Eisenhardts (1989) steps, with one exception: choice of unit of analysis, in
our case a business model innovation with its immediate context. Furthermore, Yin
(2003) identifies and discusses four criteria to assess the quality of research designs,
namely construct validity, internal validity, external validity, and reliability. Internal
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validity is of no concern for exploratory studies (Yin, 2003), while external validity,
through analytical replication (Yin, 2003), is difficult to assess at this stage of the
theory development. The procedures we adopted to ensure construct validity and
reliability are described in a subsequent subsection.
Sample
Ten retrospective case studies of business model innovations undertaken by two
industrial companies provide the empirical basis for this article. We selected these
companies based on their experience with a range of different business model
innovations, some of which were more successful than others.
Company Alpha is a large, global company headquartered in Northwest
Europe. The company has 2,100 employees and specializes in developing, manufacturing, and marketing (mostly) professional audio products, which are sold to
consumers (B2C) and businesses (B2B) in more than 70 countries worldwide. In
response to the financial crisis of 20082012, the company developed a new fiveyear strategy, focusing on reestablishing its previous leading position within its
core business areas by developing a more efficient, effective, and global customeroriented organization.
Company Beta is a large global company, specialized in developing, manufacturing, and marketing flexible electrical/electronic control and instrumentation
solutions for the power production, marine and offshore industries. The company
has 300 employees and is also headquartered in Northwest Europe. The company
has eight subsidiaries and 23 distributors worldwide. The development and manufacturing processes take place at the parent company; sales and customization of
the products are performed by both the parent company and its subsidiaries. The
strategic objective of the company for the next couple of years is to continue to develop and provide technology that helps to improve the environment and supports
global green growth.
Data Collection, Validity, and Reliability
To ensure the validity and reliability of the research, multiple qualitative methods
were used. The data collection was done through desk and field research.
The desk research involved collecting background information through
books, articles, Web sites, as well as public and internal documents received
from the two companies, such as annual reports, productmarket trajectories, financial reports, internal PowerPoint presentations discussing current status and
future challenges, and strategic plans.
The field research consisted of face-to-face, mediated, group, and third-party
interviews, along with e-mail correspondence, company visits, and questionnaires.
The interviews were conducted with managers who had actively participated in,
or had been in charge of, a new business development initiative (e.g., innovation
manager, technology manager). Consistent with the mostly explorative nature
of the research, we used a semistructured questionnaire (see Appendix), which
allowed the individual respondents maximum freedom to explain their views on
the new business model. The questions address each of the constructs in the
analytical framework. In company Alpha, we conducted 28 hours and in company
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Beta 18 hours of interviews. All interviews were recorded and most of them were
transcribed. The transcribed interviews were sent to the interviewees for comments,
corrections, and final acceptance, which, together with the use of multiple methods,
enhanced the validity of the data.
Finally, we designed a formal case study protocol (Yin, 2003) to enhance
the reliability of the research. Following Eisenhardts (1989) assertion that it is
legitimate to change and add data collection methods (including adding questions
to an interview protocol), we did not regard this as a static document. Overlap
of data analysis with data collection generated new insights and ideas, and led to
extensions of the analytical framework and the questionnaire.
Data Analysis
Hand-coding the data was the main step in the within-case analysis, and helped
us to describe the 10 business model innovations in terms of the five analytical
constructs. The initial coding was conducted by the lead author and checked later
by one of the other authors. In the cross-case analysis, we tried to find patterns in the
relationships among the content, innovativeness, strategic context, organizational
setting, and success rate of the 10 cases. Content was categorized according to the
seven business model building blocks (Table 1). Innovations in each of these blocks
were described using free text. Following Figure 1, the following terminology
and scales for innovativeness were adopted:
r Radicality: ranging from low (i.e., incrementally new) to high (i.e., radically
new).
r Reach: ranging from low (new to the company or marketplace), to high (new to
the industry or to the world).
r Complexity: ranging from low (any change in 14 building blocks), to high (any
change in 57 building blocks; see Table 1).
Strategic context was described in terms of Miles & Snows (1978) typology
(prospector-analyzer-defender-reactor), and measured in terms of proactiveness
(proactive vs. reactive), a key dimension underlying that typology. Organizational
setting was measured in terms of openness (open vs. closed), and described using
terms such as internal/external, spin-off, acquisition, outsourcing, licensing, and
joint venture. Finally, in order to measure the success of the new business models
as objectively as possible, we inquired about their profitability and rated highly
profitable cases as successful, cases with small profit margins as partly successful,
and cases that failed to produce any profits as failures.
ANALYSIS
We will first present the results of the within-case analyses and describe each of
the 10 business model innovations in terms of the five constructs, that is, their
content, innovativeness, strategic context, organizational setting, and success rate.
In addition, we found risk to play a role in all cases, which we had not foreseen.
Subsequently, we will focus on the cross-case analysis, identify patterns in our
findings, and infer ideal, effective types of business model innovation.
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Within-Case Analysis
Innovation content
Throughout the years, company Alpha engaged in the seven business model innovations shown in Table 2. Case A involved the development of a new business
unit offering products based on existing and new technology to a market new for
company Alpha. Case B also involved the establishment of a new business unit
offering products to a market new for the company, but in this case the products
were entirely based on existing technology. Case C had the same characteristics
as case B, but in addition, marketing and sales were outsourced to a partner. Cases
D, E, and F concerned the establishment of a joint venture. In cases D and E,
the joint ventures served one market; in case F it served multiple markets, all of
which were new to company Alpha. In case E, the products were based on existing
technology; in cases D and F, they were based on new technology. Case G involved
the outsourcing of the manufacturing of one product to a supplier.
Company Beta engaged in three business model innovations. Case 1 was a
business process re-engineering project combined with and supporting the penetration of a new market for company Beta, with products that were based on existing
as well as new technological competences. In case 2, company Beta acquired another company operating in a market new for the company. Case 3 concerned the
development and launch of a new product, based on new technology and targeted
at existing markets as well as markets new to the company.
In terms of the building blocks illustrated in Table 1, the more complex
business model innovations (cases A, B, C, G, 1, 2, and 3) involved changes
in the companies value proposition, target customers, value chain, and profit
formula, combined with changes in customer relations (all cases except G), core
competences (cases G, 1, 2, and 3) and/or the partner network (all cases except
2). Simpler business innovations (cases D, E, and F) combined changes in
the companys target customers, core competences, partner network, and profit
formula.
Thus, all the innovations included changes in target customers (market innovation) and profit formula, that is, the companys economic model, which is
concerned with its logic of profit generation and, thus, business model innovation
at its most rudimentary level (Morris et al., 2005, p. 726). However, and in line
with our definition, business model innovation does not always require changes
in all the building blocks. Cases D, E, F, and G did not change the companys
customer relations; cases D, E, and F kept the value chain intact; cases A, B,
and C were based on the companys existing core competences; and in case 2 the
company used its existing partner network.
Innovativeness
As discussed previously, the innovativeness of a new business model can be established looking at its radicality, reach, and complexity.
We rate cases A, D, F, 1, and 2 as radical innovations. Cases B, C, E, G, and 3
were much more incremental. Two examples serve to explain these interpretations.
Case 1 involved a very successful attempt to penetrate the marine industry based
partly on existing, partly on new technological competences, requiring internal
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Case
Content
Organizational Context
Success Rate
Radicality,
Reach, and
Complexity Risk
Case B
Case C
Case D
Case E
Case F
Case G
Case 1
Continued
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Table 2: Continued
Case
Content
Organizational Context
Success Rate
Radicality,
Reach, and
Complexity Risk
Case 3
Strategic context
Both company Alpha and Beta are analyzers. According to Miles & Snow (1978),
companies pursuing an analyzer strategy aim for efficiency in the stable markets they serve (defender behavior), and try to be adaptive to and prepared
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for change in the dynamic markets in which they are also active (prospector
behavior).
For part of their business, both companies proactively pushed innovations
into their industry (cases A, F, 1, and 3) or even the world (case D). The other business model innovations were rather reactive, triggered by (predominantly market)
pull (cases B, C, E, G, and 2) and handled mostly internally, by incrementally
changing the existing core business, which is typical for defenders.
Pursuing an analyzer strategy is consistent with the way both companies describe their business strategy. Company Alphas goal was to reestablish its previous
leading position within its core business areas by developing a more efficient, effective, and global customer-oriented organization. Pursuing efficiency is defender
behavior; customer orientation an important aspect of prospector behavior (Miles
& Snow, 1978). The strategic objective of company Beta was to continue to develop
and provide technology that helps to improve the environment and supports global
green growth. This looks like a prospector strategy. However, company documents
show that all KPIs were expressed in financial terms, which is more reflective of
the defender side of analyzers.
Organizational setting
Some of the innovations presented above were internally generated new business
models developed either in addition to or to replace the existing model, while
others involved the acquisition of, outsourcing to, or a joint venture with, another
company.
Case 1 was a closed business model innovation aimed at penetrating a new
industry, which required a radical re-engineering of company Betas as is organization. Alternatively, yet equally closed, a company may keep its core business
fully operational (as is followed by continuous improvements) and develop an
additional business model aimed at serving a new market and/or operating in
an industry new to the company. Company Alpha was particularly successful in
launching such business model innovations (cases A, B, and C). Case 2, an acquisition that gave company Beta access to a new market, was a more open form of
innovation. Cases D, E, and F were the most open forms in all these cases, a joint
venture was established to conduct the innovation process.
Success rate
Company Alphas experiences with business model innovation are mixed. Cases
A, D, E, and F were very successful, case B a partial success, while cases C and
G were failures. The experiences of company Beta are mixed, too. Cases 1 and 2
were very successful; case 3 was terminated and should therefore be regarded as a
failure.
Risk
Perhaps not surprising, but unforeseen in our analytical framework, we found
that risk played a role in all business model innovations. However, rather than
describing this factor in detail here, we prefer addressing it in the cross-case
analysis.
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Context (Type)
Open proactive
Closed proactive
Open reactive
Case
D, F
A, 1 (3)
Low
High
High
Radicality
High
High
High
Reach
Innovativeness
Low
High
Low
Complexity
Continued
Key Characteristics
Low
B (C, G, 3)
Radicality
High
Context (Type)
Case
Table 3: Continued
Low
Low
Reach
High
High
Complexity
Innovativeness
Variant B:
Internal/external change: Acquisition, followed by radical
changes to the core business of the acquired company, which will,
however, result in a me-too business model.
Risk level/failure effects: Medium risk of failure. If the acquisition
would fail, the company still has its existing business as a basis for
continuity.
Internal/external change: Many incremental changes to the core
business of the company, conducted mostly internally (except for
outsourcing e.g., cases C and G).
Risk level/failure effects: Low to medium risk of failure (except for
3: high risk of failure). The focus is on continuous improvement
(e.g., Kaizen) initiatives, and will result in a me-too business
model, with very limited effects in case of failure
Key Characteristics
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A Business Model Innovation Typology
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likelihood of success. The finding that fit plays an important role is concurrent
with various bodies of theory, including manufacturing strategy (e.g., Hayes &
Wheelwright, 1984; Skinner, 1985), organization theory (e.g., Mintzberg, 1979),
and innovation theory (e.g., Boer & During, 2001).
On the aggregate innovativeness scale combining radicality, reach, and complexity, all successful cases, A, D, E, F, 1, and 2, were more innovative than the
partially successful case B and the failures C, G, and 3. All successful cases were
high in reach, except case 2, and highly radical, except case E. In contrast, cases
B, C, G, and 3 were low in radicality, low in reach, and high in complexity.
A deeper look into the failure cases suggests a pattern. First, complexity
hardly seems to explain the difference between success and failure, but radicality
and reach do. Case C involved the establishment of a new business unit offering
incremental improvements to existing products, combined with outsourcing of
marketing and sales to a partner. Case G concerned outsourcing of manufacturing
to a partner, which, however, failed to result in a competitive product. Company
Alpha is, indeed, a highly competent design company, accustomed to pushing
new products into the marketplace and with a successful history of technology
development collaborations. However, the company may have underestimated
the complexities involved in establishing a successful operational collaboration
through outsourcing. Case 3 failed because company Beta tried to push a new
product into the market they improved (low radicality) many of the building
blocks (high complexity) to develop a new product for (mostly) existing market
segments (low reach), without, however, having any idea of how customers would
respond. In other words, the innovativeness characteristics are associated with a
(partly) closed/reactive innovation, rather than the closed/proactive innovation it
actually is.
Accepting the organization theory notion (e.g., Doty et al., 1993) that effective configuration implies ideal type, the open/proactive configuration, the two
forms of closed/proactive configuration, and the open/reactive configurations represent ideal types. The closed/reactive configuration may also be an ideal type, but
we do not have sufficient evidence for that, as the three failures are examples of
business model innovations that fall between the (other) ideal types; they are either
not entirely closed, or represent some mix of proactive and reactive behavior.
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Proposition 1: Companies pursuing a proactive, that is, high radicality and high
reach, business model innovation, best adopt an open approach aimed at establishing a new business outside their existing core business or some form of external
collaboration, with a limited number of new building blocks.
A proactive company pursuing a highly complex business model innovation
takes serious risks and the consequences of failure may be disastrous, especially if
it adopts a closed approach. The company should be prepared to take and actively
manage the risks involved in innovating its entire core business. We propose:
Proposition 2: Successful companies pursuing a proactive, that is, high radicality
and high reach, as well as high complexity business model innovation, and adopting
a closed approach, take and actively manage the risks involved in innovating their
entire core business.
A company pursuing an open, reactive business model innovation is cautious.
In variant A (Table 3), the company reaches out to the world but stays close to
home at the same time, by only pursuing incremental innovation of a limited
number of building blocks. Alternatively, in variant B (Table 3), the company may,
for example, acquire an existing company in a different industry, which provides
it with several radically different buildings blocks that the company may further
develop based on its own experiences. The result, however, is a mostly new
to the company business model. The risk level is low (variant A) to medium
(variant B) and the effects of failure are limited as the companys existing business
is not affected.
Proposition 3: Companies pursuing an open, reactive business model innovation
are cautious, keep the risk involved relatively low, and go for low radicality, high
reach, and low complexity or, alternatively, high radicality, low reach, and high
complexity, which, in both cases leads to limited effects, should the innovation
fail.
Closed, reactive business model innovations are associated with low radicality, low reach, and high complexity, low to medium risk and limited failure effects.
As our research did not provide evidence of successful cases of this type, further
research is needed to investigate if closed, reactive business model innovations can
be successful.
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The study suggests that the success of the innovation depends on, among
others, the companys appreciation of the new business models innovativeness and
the extent to which the company achieves fit between the innovativeness (radicality,
reach, complexity), strategic context (proactiveness), and organizational setting
(openness) of the innovation.
These factors define four types of business model innovation. The case
studies showed that three of these types present ideal types, that is, effective forms
of business model innovation, but did not provide enough evidence to conclude the
same about a fourth type. The four types are essentially different in the way they
were triggered (strategic context), the locus of the process (organization setting),
the innovativeness of the business models pursued and the risk involved, as well as
the consequences of failure. A companys risk appetite and mitigation seem to be
major factors explaining the existence of the four types. The association between fit
among the innovativeness, strategic context, and organization setting of a business
model innovation on the one hand, and success, on the other, together with our
arguments for the central role of risk (appetite and mitigation), led us to develop
three propositions for further research.
325
thereof) and lack data about culture and (senior management and organizational)
commitment. Furthermore, our insight into the role of strategy and organization
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product) innovation, organization, and strategy, in addition to the authors referred
to above, which may help in developing propositions on the influence of each of
these five categories on the success of business model innovation, which can be
operationalized and tested through the survey suggested above.
326
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Innovation Content
(1) How many business model innovations did the company experiment with
over the past couple of years?
(2) From a business model perspective, what did these innovations involve,
that is, which building blocks were changed?
Business Model Innovativeness
(3) Please map each of the business model innovation initiatives according
to the three-dimensional innovativeness space (Figure 1 in the article).
331
Strategic Context
(4) Why did you choose to engage in each of these business model innovations? Was it a response to some kind of threat (reactive) or did you take
an advantage from an emerging opportunity (proactive)? Which of the
innovations would you rate as idea push, which as market pull?
Organizational Setting
(5) Which of the business model innovations were mostly conducted internally, which involved with external partners? How? Why?
Innovation Success
(6) In terms of profitability, which of the business model innovations do you
consider to be successful, partly successful, or a failure?
Dr. Yariv Taran is an assistant professor in innovation and organization at the
Center for Industrial Production at Aalborg University. He received a BSc in management and sociology at the Open University of Israel, and an MSc in economics
and business administration at Aalborg University, from where he also received his
PhD in business model innovation. His research focuses on business model innovation. Other areas of research interests include intellectual capital management,
knowledge management, entrepreneurship, and regional systems of innovation.
Dr. Harry Boer is professor of strategy and organization at the Center for Industrial Production at Aalborg University. He holds a BSc in applied mathematics and
an MSc and PhD both in management engineering. He has (co)authored numerous
articles and several books on subjects such as organization theory, flexible automation, manufacturing strategy, and continuous improvement. His current research
interest concerns the organizational aspects of continuous innovation studied as
the effective integration of day-to-day operations, incremental improvement, and
radical innovation.
Dr. Peter Lindgren is professor of multi business model innovation and technology at Aarhus University. He holds a PhD in network-based high-speed innovation
from Aalborg University. He has (co)authored articles and books on (multi)business
model innovation and technology. He was a visiting researcher at Politechnico di
Milano and Stanford University. He founded the International Center for Innovation and the research group Multi Business Model Innovation and Technology
(MBIT) at Aalborg University. Currently, he is a thematic leader at The Center for
TeleInFrastruktur (CTIF) at Aarhus University and editor of the Journal of Multi
Business Model Innovation and Technology.