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Innovation and business models. In Oxford Research Encyclopedia of Business and Management. Oxford University Press.
Abstract
Starting from the mid-1990s, business models have received increased attention from both academics and practitioners. At a general level, a business model refers to the core logic that a firm or other type of organization employs to achieve its goals. Thus, in general terms, the business model construct attempts to capture the way organizations “do business” or operate to create, deliver, and capture value. Business model innovation (BMI) constitutes a unique dimension of innovation, different from and complementary to other dimensions of innovation, such as product/service, process, or organizational innovation. This distinction is important in that different dimensions of innovation have different antecedents, different processes, and, eventually, different outcomes.
Business models have been the subject of extensive research, giving birth to several lines of inquiry. Among them, one line focuses on business models in relation to innovation. This is a vast, somewhat fragmented, and evolving line of inquiry. Despite this limitation, it is possible to recognize that, at the core, business models are relevant to innovation in at least two main ways. First, business models can act as vehicles for the diffusion of innovation by bridging inventions, innovative technologies, and ideas to (often distant) markets and application domains. Therefore, business models speak to the phenomenon of technology transfer from the point of view of academic entrepreneurship and of corporate innovation. Thus, an important role of the business model in relation to innovation is to support the diffusion and adoption of new technologies and scientific discoveries by bridging them with the realization of economic output in markets. This is a considerable endeavor that relies on a complex process entailing the search for, and recombination of, complementary knowledge and capabilities. Second, business models are a subject of innovation that can become a source of innovation in and of themselves. For example, offerings that reinvent value to the customer—as opposed to offerings that incrementally add value to existing offerings—often involve designing novel business models. Relatedly, BMI refers to both a process (i.e., the dynamics involved in innovating business models) as well as the output of that process.
In relation to BMI as a process, the literature has suggested distinguishing between business model reconfiguration (BMR; i.e., the reconfiguration of an existing business model), and business model design (BMD; i.e., the design of a new business model from scratch). This distinction allows us to identify three possible instances, namely general BMR in incumbent firms, BMD in incumbent firms, and BMD in newly formed organizations and startups. These are arguably different phenomena involving different processes as well as different moderators. BMR could be understood as an evolutionary process occurring because of changes in activities and adjustments within an existing configuration. BMD involves facing considerable uncertainty, thus putting a premium on discovery-driven approaches that emphasize experimentation and learning and a considerable degree of knowledge search and recombination.
... Therefore, although earlier research suggests that sensemaking and learning are relevant factors in strategic foresight (Gordon et al., 2020;Schoemaker and Day, 2021;Marinković et al., 2022;Fergnani, 2022) and BMI (Massa and Hacklin, 2020;Wirtz, 2020;Andreini et al., 2021;Schneckenberg et al., 2022;Loon and Quan, 2020;Massa and Tucci, 2021) and can justify the nature of their relationship, no systematic or theoretic research has thus far examined their overall interaction. That is, they have not been examined as part of a single model and their degree of relationship has not been empirically measured. ...
... Strategic foresight can influence the cognitive capability to make sense of changes and uncertainties. Sensemaking concretely connects strategic foresight to BMI in practice by facilitating the interpretation of images or cognitive representations of a new BM and organizing an understanding of the underlying design logic of new BMs' value-creating activities (Massa and Tucci, 2021;Doz and Kosonen, 2010;Martins et al., 2015). In addition, in the entrepreneurial context that is usually full of uncertainties due to disrupting the established ways of doing things, sensemaking is very vital for understanding the inherent ambiguity and developing the mental models of how the business works (Whittle et al., 2023). ...
... At the same time, sensemaking and learning function differently regarding BMI. Although earlier studies suggested the potential promotion of BMI (Andreini et al., 2021;Schneckenberg et al., 2022;Loon and Quan, 2020;Massa and Tucci, 2021), our findings indicate more complex connections. Learning and related creative leaps allow the organization to move beyond the scope of previous experiences when exploring new BMs (H3b and H3c). ...
Foresight is fundamental to strategy scholarship and can affect organizational outcomes such as innovation. However, few attempts have been made to link foresight with business model innovation (BMI). Therefore, it remains empirically unclear whether and through which mechanisms strategic foresight influences BMI development. To address these shortcomings, this study analyzes the direct effect of strategic foresight on BMI and the mediating effects of sensemaking and learning. The data were derived from surveying a sample of senior managers at 146 Finnish organizations (both large firms and SMEs) and the analysis was conducted by applying structural equation modeling. The findings provide evidence of a direct association between strategic foresight and BMI and suggest a partial mediating effect of learning and, more importantly, sequential mediating effects of sensemaking and learning. This study offers valuable insights into the relationships among BMI, strategic foresight , sensemaking, and learning. It enriches theory and practice by providing empirical support for the direct effect of strategic foresight on BMI, uncovering the multifaceted roles of the mechanisms that influence BMI, and proposing a model that could help managers handle barriers to BMI robustly and systematically.
... BM and BMI have become an important top management priority due to increasing environmental volatility and market dynamics; the rapid pace of technological development, as well as merging industry boundaries (Chesbrough, 2007). BMs exist mainly to deliver offerings designed to reinvent value for customers (Kapoor and Teece, 2021;Massa and Tucci, 2021). It is also known that they are a subject of innovation, typically triggered by perceived environmental changes through problem sensing or creating new opportunities within the existing market and generating profits (Chesbrough, 2010;Amit and Zott, 2012;Foss and Saebi, 2017;Massa et al., 2017). ...
... This can be achieved by adding new activities, linking activities in new ways, or changing the parties that carry out these activities (Zott and Amit, 2010;Amit and Zott, 2012). This conceptualization of BMI, in essence, incorporates the activitybased system and dynamic vision of BM components, alongside the value-centric nature of BMs and BMI (Chesbrough, 2010;Zott and Amit, 2010;Clauss, 2016;Massa et al., 2017;Massa and Tucci, 2021;Tykkyläinen and Ritala, 2021). It is widely recognized that the process of BMI changes the logic of value creation and the core activities themselves. ...
... BMs and BMI from cognitive/narrative perspective have been linked to sensemaking theories (Chesbrough and Rosenbloom, 2002;Sosna et al., 2010;Massa and Tucci, 2021) which generally reflect the idea that managers interpret the images of a real BM system shaped by their own cognitive frames when making decisions and they do not hold the real BM system itself (e.g., real value creating and capturing activities, potential outcomes, and organizational structure) (Massa et al., 2017). Accordingly, BMs can be seen as cognitive instruments that contains causal links between the customers and how value is delivered and captured (Baden-Fuller and Haefliger, 2013). ...
It is well-established that technology-and particularly the uncertainties caused by emerging disruptive technologies-has an impact on industrial dynamics, forcing organizations to reimagine their business models. The in-depth qualitative case study of a Nordic telecom organization shows that the uncertainties created by disruptive technologies initiate a process of sensemaking and business model innovation, while the new business model becomes manifested at the final phase of the process (i.e., enactment). The newly developed business model has three dimensions reflecting value-centric activities, internal changes, and attempts to capitalize on external opportunities. Investigating the way in which managers handle uncertainties related to 5G, this research argues that business model innovation emerges from a future-oriented sensemaking process. The process model developed in this study entails three distinct phases disaggregated into eight underlying dimensions. The present study contributes in two ways: first, it advances our understanding about managing future uncertainties regarding business model innovation by identifying future-oriented sensemaking as a mechanism to manage these uncertainties. Second, it sheds light on the process model underpinning future-oriented sensemaking for business model innovation.
... The research on business model innovation for a CE has mainly emerged in response to the need for rethinking business models (Pieroni et al., 2019). Innovating a business model can include reconfiguring the existing business model or designing a new one (Massa and Tucci, 2021). The principles of narrowing, slowing, closing and regenerating material and energy flows inform CE implementation in innovating business models to facilitate absolute reductions in energy and material throughput and create the preconditions for the enhancement of social and environmental well-being (Nuβholz, 2017). ...
Transitioning to a circular housing economy necessitates innovative business models informed by Circular Economy (CE) principles. Yet, a business viewpoint is almost absent from the current circular housing discourse. Of various applicable business approaches, the Product-Service System (PSS) has frequently been put forward due to its resource reduction capacity. Nonetheless, its practical application within the realm of circular housing remains an uncharted territory. To address this knowledge gap, this study employed a multiple-case study, investigating the practices of five frontrunners in the field through interviews and document analysis. The findings informed an empirically grounded framework of 14 guiding principles that provide actionable knowledge for deploying the PSS for a CE in housing across the value proposition, value creation and delivery, and value capture components of the business model concept. Additionally, the findings highlighted the role of intermediary-led collaborative value networks as catalysts for PSS and CE implementation in housing. Beyond these theoretical contributions, the findings and framework presented herein can serve as a dependable point of reference for practitioners in their quest to explore and capture the potential of the PSS towards a CE in housing.
... Many researchers have proposed original concepts in this area (Slywotzky et al., 2007;Afuah and Tucci, 2001;Johnson et al., 2008;Osterwalder and Pigneur, 2010;Amit, 2007, 2010;Prahalad and Krishnan, 2008;Gassmann et al., 2020). The last platform is about adapting the business model, giving it a specific character or type, e.g., innovative business model (Massa and Tucci, 2021;Ibarra et al., 2018;Schaller and Vatanan-Thesenvitz, 2019;Filser et al., 2021), sustainable business model (Schaltegger et al., 2016;Evans et al, 2017;Geissdoerfer et al.;Bilan et al., 2020;Minatogawa et al., 2022;Pan et al., 2023), business models and Industry 4.0 (Ibarra et al., 2018;Dobrowolska and Knop, 2020;Agostini and Nosella, 2021;Grabowska and Saniuk, 2022), business models and digitalisation (Caputo, 2021;Del Giudice et al., 2021;Mostaghel et al., 2022). Wider research in this area is presented by Ryszko and Szafraniec (2022). ...
... Whether business modelist and business strategy scholars consider GBM competence innovation, GBM competence innovation strategy research and GBM behavior as a new and important field is related to the fact that the BM competence perspective until now is challenged by the assumptions of traditional linear BM competence theories, frameworks and practice [26][27][28][29][30]. This focuses on limited parts of the GBM competence and GBMI competence spectrum -mainly GBM competence creation, especially creation of GBM technologies. ...
Increased focus and vision on faster circular green and sustainable transformation in businesses and research have now turned out to be highly linked to also the social and the competence dimension of “the triple bottom line” approach and measurements. The social economic part of the triple bottom line approach has shown to be increasingly important, but very challenging to operate under the existing Privacy and GDPR regulations. To fulfil and measure how green the human, organizational systems and culture competence components actually are in business models today is not that much investigated. Focus has more been on “greening” the technology part of the competence components but now a number of advanced technologies seems promising to help measure green competences. It opens up for measuring circular, green and sustainable business model competences in some new and more advanced ways, but it could potentially result in the business do not comply with Privacy and GDPR regulations. Ever since the branching of the scholarly literature on competences of the early 1960’s businesses have constantly being experimenting with business model competence design, reengineering, development and measuring. Creating Green Business Model (GBM’s) competences is no exception. Designing TO BE GBM’s and reconfiguration of AS IS BM’s to become GBM’s and later develop these is in focus – but until now the main focus has been on greening technologies. Very few knows how to “greening” and measure green related to human competences, organizational systems and culture. GBM competence reconfiguration has also mainly focused on changing or reconfiguring AS IS Business Models technology competences. More and more businesses have realised that investing in new technologies or changing existing technologies are not enough to reach the vision and goals of green transformation. Technologies alone cannot release the full potential and requests of green transformation – reduce the use of material and resources, reduce the waste and spill, reduce the pollution including Co2 and increase biodiversity. The Business will simply not by technologies alone be able “to climb” and “pass” “the Green Wall” without innovating, developing the BM competences – HR, Organizational systems and Culture into becoming greener and thereby support green transformation in the businesses. Reconfiguring AS IS business model competences to become greener is complex and calls for new and advanced approaches that challenge classical BM competence frameworks and understanding. Green Parameters and Profit are no longer the main focus in GBMI and changing some BM dimensions and components – or even adding new business model dimensions to the BM is neither enough. If business want to remain competitive, efficient and at the same time green, it requires a different GBMI approach and mindset – including measuring BM Competences. This challenges the compliance of Privacy and GDPR related to both businesses and research. The request for circularity and sustainability just adds to the complexity of measuring. We offer a review of three Privacy and GDPR GBMI compliance cases and challenges in three different businesses with the aim of achieving greater understanding of Privacy and GDPR challenges both for businesses and researchers. We identify issues behind the apparent challenges of Privacy and GDPR in GBMI and discuss how strategic GBMI can contribute to further research on Privacy and GDPR in different fields of Green Business Modelling, offering future research directions of Privacy and GDPR.
... Throughout the whole process, we distinguish different types of BMI: business model design and business model reconfiguration (cf. Massa & Tucci, 2021). The innovation of a business model can be achieved by making novel changes to one or more key elements of the business model or reconfiguring the architecture of the business model by exploiting internal or external knowledge flows. ...
This Handbook is the first reference created for the large, diverse, and growing field of Open Innovation. Four editors, 75 reviewers, and 136 contributors collaboratively developed 57 handbook chapters. These present the current state of the growing body of work in Open Innovation from leading scholars and researchers in the field. It brings together 48 chapters on academic aspects of the theory, and 9 chapters that show Open Innovation in practice in different industries. The empirical, conceptual, and practical insights of the Handbook highlight the importance of strengthening practice-inspired research, and purposeful knowledge exchanges between individuals, organizations, and ecosystems. The Handbook is a great place to start learning about Open Innovation for beginners and an authoritative reference for those with more experience.
... Research has moved away from the definitional debate on what business models are. Scholars are accepting high-level definitions of the construct and, in general, the idea that it offers a valuable lens and unit of analysis (e.g., see Massa and Tucci, 2021). ...
A conversation with Lorenzo Massa – interviewed by Christian Nielsen
... or blockchain technologies(Morkunas et al., 2019). While business model innovation cannot be fully planned(McGrath, 2010;Massa & Tucci, 2021), more incremental, agile changes of an existing business model can benefit from a more standard planning activity aimed at understanding which parts of the business model to change, and when(Tura et al., 2017). 7. Support pedagogical goals in entrepreneurship: Traditional entrepreneurship courses teach methods based on financial forecasting which, given the uncertainty related to new ventures, may be inappropriate ...
Modeling languages for business models are a powerful and flexible means of representing and communicating knowledge related to business models. More than fifteen years after Osterwalder et al. (2005) clarified the ontology for the business model concept in this journal, we offer a systematic and cross-disciplinary assessment of the literature on business model modeling languages (BMMLs) that facilitates the visualization of this concept. In so doing, we synthesize and organize the knowledge dispersed across different disciplines in which BMMLs have originated and highlight the potential weaknesses in this literature to offer solid insights for future research. Our analysis reveals the existence of 17 BMMLs that have originated in traditional domains such as strategy and information systems, but also emerging domains such as sustainability. We contrast and compare these BMMLs along three dimensions: semantics, syntax, and pragmatics. We also analyze research that has made use of these BMMLs, differentiating between research that is conducted with a given BMML and research that is conducted about a given BMML. We conclude by offering a research agenda in which we illustrate the main challenges associated with the lack of well-accepted semantic, syntactic, and pragmatic foundations of BMMLs and outline opportunities for future research.
Research Summary
The question of how a new venture designs and innovates on its business model (BM) to leverage digital technology to address multiple grand challenges has received little attention in the literature. We address this through a longitudinal case study of a new social enterprise in China. We develop an accessing‐embedding‐strengthening‐expanding process model of BM design and innovation by which a venture may increase both the scale and scope of its impact as a complementor in ecosystems addressing grand challenges. We identify the specific actions and contingencies underlying this process. Our findings contribute to the understanding of BM design and innovation based on digital technologies and propose that assessment of a BM's impact on grand challenges may be in terms of scope as well as scale.
Managerial Summary
How may founders build a BM that exploits a technology's potential to address diverse sustainability challenges? Our study derives insights from one for‐profit Chinese venture whose founders had the explicit objective of leveraging remote sensing data and analytics to address important and diverse social and environmental challenges. We identify the steps in its ecosystem‐based strategy (accessing, embedding, strengthening, and expanding) by which the founders targeted and entered successive application ecosystems as a complementor. This strategy has enabled them to achieve financial goals and also increase their contribution to sustainability objectives in terms of both scale (vis‐à‐vis one grand challenge) and scope (across multiple grand challenges). We also identify the specific questions that the founders had to answer in the process of executing this strategy.
Research Summary
Building on business model research and the social entrepreneurship literature, we conceptually develop a set of business model choices for social ventures. These choices specify the scope of venture beneficiaries, the extent that customers and beneficiaries overlap, and how social meaning is attached to the venture's value proposition. Concurrent configurations of these choices give rise to four types of social business models: (1) Social Stimulators, (2) Social Providers, (3) Social Producers, and (4) Social Intermediaries. We illustrate this typology using data from seven social ventures and formulate propositions about the implications these business model choices have for a venture's value creation and value capture potential. We then discuss contributions to the literature on social ventures and social entrepreneurship, and the literature on business models.
Managerial Summary
In this article, we propose a framework outlining key business model choices for social ventures. These choices include the scope of target beneficiaries of the venture, the degree of overlap between customers and beneficiaries, and how the venture communicates its social mission through its value proposition. By combining these choices in different ways, we identify four distinct types of social business models which we call Social Stimulators, Social Providers, Social Producers, and Social Intermediaries. To bring this framework to life, we have examined data from seven real‐world social ventures, offering concrete examples to illustrate each type. For each of these four types of social business models, we have also formulated propositions about how the business model choices impact a venture's value creation and value capture potential.
Purpose
Artificial Intelligence (AI) and the more recent generative technologies are disrupting many activities related to strategy and operations within organizations. Business model design is no exception.
We define business model design as an iterative process involving a combination of creativity, decisions, and tests, consisting in envisioning and creating a business model (for a brand-new activity) or a new business model (for an existing activity), to change an existing situation into a preferred one.
In this paper, we discuss the potential impact of generative technologies on the business model design process, highlighting the opportunities and challenges that these technologies present and suggesting some methods for using generative technologies for business model design.
Design/Methodology/Approach
We build on knowledge about business model design and on documentation from forums, social networks, and media about generative technologies. We also used generative AI platforms to test dozens of prompts related to business model design.
Findings
We propose the IDEATe process for business model design and identify six major changes in the process or the outcome of business model design that generative technologies can trigger. We also discuss blind spots and risks associated with the use of generative technologies for business model design. Finally, we advance some functions of generative technologies that may support this process.
Originality/Value
Instead of focusing on how generative technologies could change business models, we investigate how these technologies could impact the design of business models. We make propositions to use these technologies properly for business model design.
Lean Startup has been impacting how startups and incumbents innovate their business models. However, academic understanding of Lean Startup and the associated experimentation process is only emerging. Recent academic critique of Lean Startup by Felin and colleagues (in press) highlights the inadequate guidance provided for hypotheses generation; limits of experiential learning from customer feedback; and the incremental nature of experimentation outcomes. Yet, Lean Startup has not been conceived for ideation, but rather for fostering iterative experimentation to reduce uncertainty, engage stakeholders, and promote collective learning. Taking a process perspective on experimentation, we suggest that novel business models can emerge during experimentation. We contribute a more positive perspective on the opportunities of Lean Startup and highlight how it can enable continuous innovation and stakeholder engagement for novelty and impact.
In this research, we ask whether and how founders bring about business model innovation. Grounded in an in-depth longitudinal multiple-case study, our analysis reveals three practices that help explain how founders’ thinking patterns and behaviors shape business model innovation in their ventures: industry-spanning search, complex system thinking style, and powerful centralized decision-making. Three corresponding yet opposing founder practices are present in cases with low business model innovation. When interpreted through the lens of imprinting theory, our findings reveal how founders achieve novelty imprinting, which we conceive as imprinting processes that result in novel imprints. Our emergent theoretical framework affirms the possibility of novelty imprinting and so explains a puzzle: the coexistence of imprint stability and novel structure. It also delineates the nature of cognitive imprinting and explains how cognitive imprints reinforce structural imprints in the context of business model innovation, thus expanding the scope of imprinting and business model research.ng in the context of business model innovation, thus expanding the scope of imprinting and business model research.
Purpose: To offer a -necessarily non-exhaustive- analysis of the meaning and significance of the notion of a complex system for research on the Business Model (BM).
Design/Methodology/Approach: Conceptual paper Findings: Drawing from early research in complexity and debates that have inspired work in General System Theory, system thinking and cybernetics, we identify four insights, notably i) modeling of complex systems, ii) interdependencies, iii) nested hierarchies and iv) information processing that, we contend, have the potential to shed light on novel possibilities for understanding BMs. We offer an analysis.
Research Limitations/Implications: Limitation: exclusive focus on early interpretation of the notion of complexity as referring to a characteristic of a system. The paper does not explore the implications of the more modern under- standing of complexity as referring to the ‘behavior’ of a system (complex system vs. complex behavior)
Practical Implications: we may be attempting to represent a system which is very complex, the BM and the organization behind it, at the level of the anatomy, only reflecting its main components. This is subject to inherent limitations.
Originality/Value: To show that, within the line of inquiry understanding the business model (BM) as some reality existing at the level of the firm, a BM may resemble what students of complexity refer to as a complex system. To explore the meaning and significance of the notion of complexity and of a complex system for research on the BM.
Shared value is the idea that by addressing society’s needs and challenges, companies can create economic value in a way that also benefits society. Shared value seems promising, but many managers struggle to make it happen. This executive guide provides a new approach to pursuing shared value by focusing on business models. Prepared by researchers Lorenzo Massa, Florian Lüdeke-Freund, and Nancy Bocken, the guide draws on a systematic review of research and practice, gleaning insights from more than 180 articles and interviews with leaders and managers.
The literature on sustainable business models (SBMs) offers different classifications of the available kinds of SBM. Our careful reading of this literature reveals that the received classifications have developed ad-hoc from multiple divergent perspectives. As a consequence, the proposed classifications are only partly overlapping and difficult to reconcile, thus hampering cumulative progress. Building on this premise, we offer a synthesis and consolidation of the available knowledge about SBMs. Following the notion of patterns as problem–solution combinations, we developed, tested, and applied a new multi-method and multi-step approach centred on an expert review process that combines literature review, Delphi survey, and physical card sorting to identify and validate the currently existing SBM patterns. Ten international experts participated in this process. They classified 45 SBM patterns, assigned these patterns to 11 groups along ecological, social, and economic dimensions of sustainability and evaluated their potential to contribute to value creation. The resulting taxonomy can serve as a basis for more unified and comparable studies of SBMs and for new business model tools that can be used in various disciplines and industries to analyse and develop sustainability-oriented business models in a consistent manner.
Digital startups in the early stages of their development frequently undergo innovation to their value architecture and Business Model. A set of pragmatic methods drawing on lean and agile principles has recently been proposed to support digital entrepreneurs facing Business Model Innovation (BMI), known as Lean Startup Approaches (LSAs). However, the theoretical and practical relationship between BMI and LSAs in dynamic digital environments has seldom been investigated. To fill this gap, our study draws on an exploratory multiple-case study based on three digital multisided platform startups to craft a unified framework that can disclose the relationship between BMI, LSAs and Agile Development (AD), within the context of Strategic Agility. Our findings, which emerge from the unified framework, show that LSAs can be employed as agile methods to enable Business Model Innovation in Digital Entrepreneurship. These findings are then organized around a set of propositions, with the aim of developing a research agenda directed towards integrating BMI, LSAs and AD processes and methods.
Prior research indicates that search practices are an important part of the innovation process. But where established firms search for different innovation types is not clear. Drawing on knowledge-based theory of innovation and using state-of-the-art statistical techniques (copula with Bayesian inference), we find that established firms predominantly rely on several external sources (broad external search) when introducing new business models, on internal and external sources with high intensity (deep search) when innovating processes, and on broad and deep external search when innovating products. We explain that broad external search is important for business model innovation (BMI) because increased exploration is needed when introducing new business models that rely on general rather than specialized technical or tacit business knowledge. We contribute to the innovation and business model literatures by nuancing the differences between innovation types (BMI, product, and process innovation) and the associated search behavior. It is important to consider these differences because they give us clues to understand how established firms can explore unfamiliar territories through BMI.
Managers involved in business model innovation (BMI) encounter a series of cognitive challenges. Although cognition research provides important insights into how visual tools can reduce cognitive challenges, it does not address the effective design of business model tools. To advance our understanding in this area, this research applies a cognition-centered perspective to analyze different visual business model representations. It builds upon a systematic literature review that identifies a selection of 45 visual representations from the academic literature and a sample of 50 visualizations from outside the academic realm. A content analysis of the sample reveals that all visual business model representations can be classified into three complementary categories, leading to a novel framework for distinguishing business model understandings. After assigning each visual representation to the framework, we use findings from the cognition literature to derive recommendations on how to select suitable graphic forms for different phases of the BMI process. Thus, this research contributes to the broader understanding of how visual tools can support business model innovation at a cognitive level.
Over the last 15 years, business model innovation (BMI) has gained an increasing amount of attention in management research and among practitioners. The emerging BMI literature addresses an important phenomenon but lacks theoretical underpinning, and empirical inquiry is not cumulative. Thus, a concerted research effort seems warranted. Accordingly, we take stock of the extant literature on BMI. We identify and analyze 150 peer-reviewed scholarly articles on BMI published between 2000 and 2015. We provide the first comprehensive systematic review of the BMI literature, include a critical assessment of these research efforts, and offer suggestions for future research. We argue that the literature faces problems with respect to construct clarity and has gaps with respect to the identification of antecedent conditions, contingencies, and outcomes. We identify important avenues for future research and show how the complexity theory, innovation, and other streams of literature can help overcome many of the gaps in the BMI literature.
This study investigates the decision-making logics used by new ventures to develop their business models. In particular, they focussed on the logics of effectuation and causation and how their dynamics shape the development of business models over time. They found that the effectual decision-making logic was used dominantly to generate a viable value proposition for a specific customer segment. Causal logic is then used dominantly to define the other business model components in relation to the value proposition and customer segment. When a shortage of resources emerges, causal logic is replaced by an increase in effectual decision-making again. They concluded that before investing significant resources in a business model it was crucial for firms to reduce, as far as possible, technological and market uncertainty through effectual strategies to avoid high re-configuration costs later.
Although failure in entrepreneurship is pervasive, theory often reflects an equally pervasive antifailure bias. Here, I use real options reasoning to develop a more balanced perspective on the role of entrepreneurial failure in wealth creation, which emphasizes managing uncertainty by pursuing high-variance outcomes but investing only if conditions are favorable. This can increase profit potential while containing costs. I also offer propositions that suggest how gains from entrepreneurship may be maximized and losses mitigated.
This article contains a theoretical discussion and an empirical test of Stinchcombe's "liability of newness" hypothesis, which assumes higher risks of failure for young organizations compared with old ones. It is shown that this hypothesis is not a good representation of the mortality hazard of West German business organizations. Therefore, we introduce the concept of a "liability of adolescence," which proposes an inverted U-shaped risk pattern. It is shown that mortality, depending on the initial resource endowments of a firm, peaks between one and fifteen years after founding. From this perspective, extended interpretations of the liabilities of smallness and legal form are given. These arguments are well supported by a log-logistic rate model estimated with our data.
The present two studies examine how the participants (i.e., 150 managers) make trust-based employee selection in hypothetical situations, based on five cues of trustworthiness derived from previous surveys. In Study 1, each executive participant is presented with a pair of candidates with different cue profiles so that the choice would favor one of them based upon each of the four following heuristics: Franklin's rule, likelihood expectancy, take-the-best (TTB), and minimum requirement (MR). Study 2 adopting a within-subject design jointly compares the four heuristics. The results show that simple heuristics (MR and TTB) outperform the more complex strategies (Franklin's rule and likelihood expectancy) in their predictive accuracy. The MR heuristic, a heuristic tallying the frequency of passes against a set of minimal rather than optimal or satisfactory requirements, performs even better than the TTB heuristic, particularly when the number of the cues identified as MRs is small.
Business model innovation is receiving increased attention in corporate practice and research alike. We propose in this article a role-based approach to categorize the literature and argue that the respective roles of explaining the business, running the business, and developing the business can serve as three interrelated perspectives to present an overview of the current business model innovation field and to accommodate the selected contributions of this special issue. We refer to contributions from entrepreneurship, innovation and technology management, and corporate strategy to explicate the three elaborated perspectives and to summarize the main contents of the special issue articles. We conclude by reflecting on main theoretical challenges for studies on business model innovation which stem from the uncertain boundaries of the phenomenon, and we propose some theoretical stances and analytic levels to develop future avenues for research.
Effectuation and causation are two contrasting approaches to new business development. We argue that these two approaches are generic decision-making mechanisms that can coexist with one another and that they are configured in specific ways during different phases in the process of new product creation. These decision-making mechanisms are influenced by internal and external market factors: the nature of activities of a phase and the interplay between the business model and tactics. Our research framework is a generic two-stage competitive process that separates business models from tactics. We conducted an in-depth case study of a console game creation project to examine these decision-making mechanisms and to explore how business models are formulated and how each mechanism influences subsequent tactics during the new product creation process. Our findings suggest the following four decision-making configurations with unique modes of interplay between business models and tactics: effectuation centric, discovery centric, causation centric, and tactic centric. The theoretical insights on the linkage between decision-making mechanisms and business models have important practical implications for new product creation.
Business models are fundamentally linked with technological innovation, yet the business model construct is essentially separable from technology. We define the business model as a system that solves the problem of identifying who is (or are) the customer(s), engaging with their needs, delivering satisfaction, and monetizing the value. The framework depicts the business model system as a model containing cause and effect relationships, and it provides a basis for classification. We formulate the business model relationship with technology in a two-way manner. First, business models mediate the link between technology and firm performance. Secondly, developing the right technology is a matter of a business model decision regarding openness and user engagement. We suggest research questions both for technology management and innovation, as well as strategy.
Sustainable technologies challenge prevailing business practices, especially in industries that depend heavily on the use of fossil fuels. Firms are therefore in need of business models that transform the specific characteristics of sustainable technologies into new ways to create economic value and overcome the barriers that stand in the way of their market penetration. A key issue is the respective impact of incumbent and entrepreneurial firms’ path-dependent behaviour on the development of such new business models. Embedded in the literature on business models, this paper explores how incumbent and entrepreneurial firms’ path dependencies have affected the evolution of business models for electric vehicles. Based on a qualitative analysis of electric vehicle projects of key industry players over a five-year period (2006-2010), the paper identifies four business model archetypes and traces their evolution over time. Findings suggest that incumbent and entrepreneurial firms approach business model innovation in distinctive ways. Business model evolution shows a series of incremental changes that introduce service-based components, which were initially developed by entrepreneurial firms, to the product. Over time there seems to be some convergence in the business models of incumbents and entrepreneurs in the direction of delivering economy multi-purpose vehicles.
At first glance, there seems to be a broad understanding regarding business models. However, a more thorough analysis of existing resources paints a different picture. The term 'business model' often remains undefined and a consensus on the elements of business models is lacking. An analysis of various sources, such as electronic databases, conference proceedings, and EM - Electronic Markets itself supports this statement. Nevertheless, business models are largely believed to determine the success of an electronic venture. To establish some structure and to identify the critical components of business models, the existing definitions and approaches were analysed and led to a model, which differentiates six business model elements. This model is also used to position the articles submitted to this special issue of EM - Electronic Markets.
This paper uses a longitudinal case study of the mutual fund provider, The Vanguard Group, to understand the developmental processes that lead to organizational configurations and fit. A new method for determining an organization's core elements is developed, and four processes are identified that describe the creation and subsequent elaboration of these core elements: thickening (reinforcement of an existing core element by new elaborating elements), patching (creation of a new core element and its reinforcement by new elaborating elements), coasting (no further elaboration of a new core element in a given period), and trimming (deletion of a core element and its elaborating elements). The four processes are used to describe organizations' development paths toward configurations and their transitions between configurations, including two new ideal types, termed thin-to-thick and patch-by-patch, as well as two known paths between configurations, the punctuated equilibrium path and reorientation through linear progression.
Purpose
– Seeking to distil and integrate a range of previous definitions, models, frameworks and classifications relating to types of innovation, this paper aims to make a contribution to clarity in innovation research and practice through offering insights into the definitions of the different types of innovation, and, specifically, the relationships between them.
Design/methodology/approach
– This theoretical paper is based on a review of extant models and frameworks of types of innovation, which includes earlier foundation models, and more recent integrative models.
Findings
– This distillation results in a diagrammatic representation of the key frameworks, which is used as a platform to propose a new framework of types of innovation.
Originality/value
– This paper draws on all the terminologies used for types of innovation and creates an innovation type‐mapping tool that can be used to clarify the various definitions and terminologies of the innovation type concept.
A comparative model of organizations as interpretation systems is proposed. The model describes four interpretation modes: enacting, discovering, undirected viewing, and conditioned viewing. Each mode is determined by (1) management's beliefs about the environment and (2) organizational intrusiveness. Interpretation modes are hypothesized to be associated with organizational differences in environmental scanning, equivocality reduction, strategy, and decision making.
A longitudinal study of the functioning of top management teams in 27 hospitals examined relationships between group and organizational factors and team innovation. A model of group inputs, processes, and outputs was used, and it was predicted that group size, resources, team tenure, group processes, and proportion of innovative team members would affect the level and quality of team innovation. The results suggested that group processes best predict the overall level of team innovation, whereas the proportion of innovative team members predicts the rated radicalness of innovations introduced. Resources available to teams do not predict overall team innovation. The quality of team innovation (radicalness, magnitude, and novelty) may be determined primarily by the composition of the team, but overall level of innovation may be more a consequence of the team's characteristic social processes. (PsycINFO Database Record (c) 2012 APA, all rights reserved)
Search and recombination are important mechanisms in the creativity phase of innovation. Digital transformation and the resulting pervasive digitalization of the innovation function have often been associated with increasing possibilities for search and recombination. In this article, by systematically integrating the search and recombination literature with the literature on digitalization, we demonstrate that digitalization may engender new idiosyncratic tensions in the organizational antecedents of search and recombination and, by implication, in their likely outcomes. We propose that, depending on the interactions among the idiosyncratic tensions identified herein, knowledge recombination might spur very different outcomes, including knowledge layering, knowledge integration, knowledge grafting, or even no recombination at all (which we label “search for the sake of search”). These outcomes may not always be the initially planned desired outcomes. Finally, we provide implications of our integrative framework pertaining to product development and to organizing for innovation.
Research Summary
Most theories of strategic change focus on how large, established firms recognize or fail to recognize the need for strategic change. Little research examines how early‐stage entrepreneurs decide when and how to change their strategies. With a longitudinal field study of seven entrepreneurial firms developing innovations in energy and cleantech, we examined 93 strategic decisions at risk for change. We found that decision‐makers chose to change their strategies only after new information conflicted with or expanded their beliefs. Furthermore, a pivot, or strategic reorientation, was not achieved with a single decision, but by incrementally exiting or adding strategy elements over time, accumulating into a pivot. We contribute a grounded definition of what constitutes a pivot and explain when and how entrepreneurial firms pivot.
Managerial Summary
The term “pivot” is used extensively by practitioners and scholars alike, yet little is known about when and how entrepreneurial firms actually choose to change their strategies and when that change constitutes a pivot. We find that entrepreneurial firms choose to change their strategies only after receiving new information that conflicts with or expands their beliefs about their firm or uncertainties they face. However, this is more rare than the norm. Rather than make wholesale change with one decision, firms incrementally exit or add a single element to their strategies. A firm pivots and reorients their strategic direction by reallocating or restructuring the firm's activities, resources, and attention through an accumulated series of decisions to address the on‐going stream of problems and opportunities early‐stage firms confront.
March and Simon, proposed that organizations can be understood as cognitive phenomena that derive from, and in turn influence, the mental models, frames‐of‐reference, and routinized knowledge structures of their participants. In its emphasis on knowledge representations as the basis for organizing, the Carnegie School preceded by almost twenty years a general cognitive turn that has been evident across the social sciences as a whole. Although this cognitive perspective has been elaborated and debated, it has remained fundamental to organizational theory for the past half century and has triggered robust research literatures on such topics as administrative decision‐making, strategy formulation, organizational learning, and organization‐environment relationships. Indeed, fueled by the growth of cognitive science, the cognitive perspective on organizations has become one generative root of modern organizational theory.
Ever since the Internet boom of the mid-1990s, firms have been experimenting with new ways of doing business and achieving their goals, which has led to a branching of the scholarly literature on business models. Three interpretations of the meaning and function of “business models” have emerged from the management literature: (1) business models as attributes of real firms, (2) business models as cognitive/linguistic schemas, and (3) business models as formal conceptual representations of how a business functions. Relatedly, a provocative debate about the relationship between business models and strategy has fascinated many scholars. We offer a critical review of this now vast business model literature with the goal of organizing the literature and achieving greater understanding of the larger picture in this increasingly important research area. In addition to complementing and extending prior reviews, we also aim at a second and more important contribution: We aim at identifying the reasons behind the apparent lack of agreement in the interpretation of business models, and the relationship between business models and strategy. Whether strategy scholars consider business model research a new field may be due to the fact that the business model perspective may be challenging the assumptions of traditional theories of value creation and capture by focusing on value creation on the demand side and supply side, rather than focusing on value creation on the supply side only as these theories have done. We conclude by discussing how the business model perspective can contribute to research in different fields, offering future research directions.
Technological innovation can alter the competitive status of firms and nations, but its purposeful management is complex, involving the effective integration of people, organizational processes, and plans.
A strong business model is the bedrock to business success. But all too often we fail to adapt, clinging to outdated models that are no longer delivering the results we need.
The brains behind The Business Model Navigator have discovered that just 55 business models are responsible for 90% of the world's most successful businesses. These 55 models – from the Add-On model used by Ryanair to the Subscription model used by Spotify – provide the blueprints you need to revolutionise your business and drive powerful change.
Many executives rely on a process for devising strategy suited to stable, predictable environments even when they know conditions are highly volatile and mutable. Why? Because, the authors contend, they lack a systematic way to match their strategy-making style to the particular circumstances of their industry, business function, or geographic market. These three BCG consultants offer a framework to do just that. It identifies four "strategic styles": classical, adaptive, shaping, and visionary. Which of these is best suited to your situation depends on how far and accurately you can confidently forecast demand, corporate performance, competitive dynamics, and market expectations (predictability) and to what extent you or your competitors can influence those factors (malleability). A classical style, familiar to most managers and business school graduates, is well suited to an industry whose environment is predictable but hard for your company to change. Oil is a good example of this. An adaptive style suits an unpredictable industry, such as fashion, that players can't alter. A shaping style is best when the industry is unpredictable but your company or another has the power to transform it. And a visionary style fits a predictable industry that is nevertheless amenable to change. Too often strategists focus only on how predictable their environment is and not on the opportunities they or others may have to change it. HBR Reprint R1209E
Why is it so difficult for established companies to pull off the new growth that business model innovation can bring? Here's why: They don't understand their current business model well enough to know if it would suit a new opportunity or hinder it, and they don't know how to build a new model when they need it. Drawing on their vast knowledge of disruptive innovation and experience in helping established companies capture game-changing opportunities, consultant Johnson, Harvard Business School professor Christensen, and SAP co-CEO Kagermann set out the tools that executives need to do both. Successful companies already operate according to a business model that can be broken down into four elements: a customer value proposition that fulfills an important job for the customer in a better way than competitors' offerings do; a profit formula that lays out how the company makes money delivering the value proposition; and the key resources and key processes needed to deliver that proposition. Game-changing opportunities deliver radically new customer value propositions: They fulfill a job to be done in a dramatically better way (as P&G did with its Swiffer mops), solve a problem that's never been solved before (as Apple did with its iPod and iTunes electronic entertainment delivery system), or serve an entirely unaddressed customer base (as Tata Motors is doing with its Nano - the $2,500 car aimed at Indian families who use scooters to get around). Capitalizing on such opportunities doesn't always require a new business model: P&G, for instance, didn't need a new one to lever-age its product innovation strengths to develop the Swiffer. A new model is often needed, however, to leverage a new technology (as in Apple's case); is generally required when the opportunity addresses an entirely new group of customers (as with the Nano); and is surely in order when an established company needs to fend off a successful disruptor (as the Nano's competitors may now need to do).
Companies, the authors argue, are increasingly turning toward business model innovation as an alternative or complement to product or process innovation. Drawing on extensive research they conducted over the course of the last decade, the authors define a company's business model as a system of interconnected and interdependent activities that determines the way the company "does business" with its customers, partners and vendors. In other words, a business model is a bundle of specific activities - an activity system - conducted to satisfy the perceived needs of the market, along with the specification of which parties (a company or its partners) conduct which activities, and how these activities are linked to each other. Business model innovation can occur in a number of ways: (1) by adding novel activities, for example, through forward or backward integration, (2) by linking activities in novel ways, or (3) by changing one or more parties that perform any of the activities. Changes to business model design can be subtle, the authors note; even when they might not have the potential to disrupt an industry, they can still yield important benefits to the innovator. The authors offer a number of examples of business model innovation and pose six questions for executives to consider when thinking about business model innovation: 1. What perceived needs can be satisfied through the new model design? 2. What novel activities are needed to satisfy these perceived needs? 3. How could the required activities be linked to each other in novel ways? 4. Who should perform each of the activities that are part of the business model? 5. How is value created through the novel business model for each of the participants? 6. What revenue model fits with the company's business model to appropriate part of the total value it helps create?
The concept of business models has reached global impact, both for company's competitive success and in management science. Its application by authors from diverse areas has led to a previously very heterogeneous comprehension of the concept. Yet, by means of investigating its origin and theoretical development, we state a recently converging business model view. Further, based on analyzing business model definitions, perspectives and components in the literature, we newly define the concept and portray its essential components in an integrated framework. Finally, the compilation of the current state of business model research yields the article's main findings. In this regard, via database search we quantitatively identify 681 peer-reviewed articles. Further, we qualitatively analyze them according to individual research areas that we adopt from an appropriate heuristic frame of reference. In this way, we identify four essential research foci: innovation, change & evolution, performance & controlling and design. In triangulation with assessing future research perspectives through a survey of twenty-one international experts, they also consider the areas of innovation, change & evolution, and design to be significant for the future development of the business model research field.
We advance a theory of how business models can be innovated proactively in the absence of exogenous changes, through processes of generative cognition. We contribute to the cognitive perspective in strategy by analyzing business models as schemas that organize managerial understandings about the design of firms' value-creating activities and exchanges and by theorizing how they can be innovated through processes for proactive schema change. Drawing on cognitive psychology research on two major cognitive processes through which individuals change their schema to cope with novelty, analogical reasoning and conceptual combination, we theorize firm-level strategic processes for designing innovative business models. Copyright © 2015 Strategic Management Society.
The relationship between bureaucratic structure and innovative behavior is examined by comparing the conditions within the bureaucratic structure with the conditions found by psychologists to be most conducive to individual creativity. The conditions within bureaucracy are found to be determined by a drive for productivity and control, and inappropriate for creativity. Suggestions are made for alterations in bureaucratic structure to increase innovativeness, such as, increased professionalization, a looser and more untidy structure, decentralization, freer communications, project organization when possible, rotation of assignments, greater reliance on group processes, attempts at continual restructuring, modification of the incentive system, and changes in many management practices. It is suggested that bureaucratic organizations are actually evolving in this direction.
Consumers often choose products by first forming a consideration set and then choosing from among considered products. When there are many products to screen (or many features to evaluate), it is rational for consumers to use consider-then-choose decision processes and to do so with heuristic decision rules. Managerial decisions (product development, marketing communications, etc.) depend upon the ability to identify and react to consumers' heuristic consideration-set rules. We provide managerial examples and review the state-of-the-art in the theory and measurement of consumers' heuristic consideration-set rules. Advances in greedoid methods, Bayesian inference, machine-learning, incentive alignment, measurement formats, and unstructured direct elicitation make it feasible and cost-effective to understand, quantify, and simulate “what-if” scenarios for a variety of heuristics. These methods now apply to a broad set of managerial problems including applications in complex product categories with large numbers of product features and feature-levels.
The business model has become a popular concept in business and management fields. Yet, it is suffering from a paradox between outstanding popularity and severe criticism, which appears to impede the positive development of the scholarly discourse on the business model concept. Against this background, the purpose of this study is to provide insight into the antecedents of this paradox and to understand their implications for the future development of the concept. The following contributions are made. First, the authors apply a narrative approach to recognizing and interpreting the paradox, and introduce the analysis of syntactics of scholarly discourse as a novel method of investigating management concepts. Second, as a result of elaborating on recurrent themes and tensions in scholarly discourse, the authors extend the literature on business models through theorizing on the core of the concept along the dimensions of classification, constitution and configuration. In particular, they identify the simultaneity of separation and attachment as the main antecedent of the business model paradox. Third, the authors offer implications for further advancing the development of this management concept, and highlight the need for spurring integrative research while at the same time maintaining a plurality of perspectives.
In this interview, international strategy guru Gary Hamel explains the thinking behind his new book, Leading the Revolution. He believes that the impetus for radical change in a business must come from the ideas and energies of the people within the company, not from consultants or external advisors. He also believes that innovation and radical change will be necessary for wealth creation in the coming years – change not only in products and processes, but change in entire business models as well. The interview includes Hamel’s guidelines for those at any level of an organization who may have ideas about new opportunities that can revolutionize the company or the industry.
Strategic discontinuities and disruptions usually call for changes in business models. But, over time, efficient firms naturally evolve business models of increasing stability - and therefore rigidity. Resolving this contradiction can be made easier by developing three core meta-capabilities to make an organization more agile: strategic sensitivity, leadership unity and resource fluidity. This article reviews the underlying determinants of these capabilities, based on detailed research undertaken in a dozen companies who were re-conceiving their business models - among others, Nokia, easyGroup, HP, SAP and Kone are used as examples. We propose a repertoire of concrete leadership actions enabling the meta-capabilities needed to accelerate the renewal and transformation of business models. To organize our argument we borrow the three main dimensions of the strategic agility framework presented in our earlier work, and develop corresponding vectors of leadership actions, each of which can enhance a firm's ability to renew its business models.
There is empirical evidence that established firms often have difficulty adapting to radical technological change. Although prior work in the evolutionary tradition emphasizes the inertial forces associated with the local nature of learning processes, little theoretical attention has been devoted in this tradition to understanding how managerial cognition affects the adaptive intelligence of organizations. Through an in-depth case study of the response of the Polaroid Corporation to the ongoing shift from analog to digital imaging, we expand upon this work by examining the relationship between managers' understanding of the world and the accumu- lation of organizational capabilities. The Polaroid story clearly illustrates the importance of managerial cognitive representations in directing search processes in a new learning environ- ment, the evolutionary trajectory of organizational capabilities, and ultimately processes of organizational adaptation. Copyright © 2000 John Wiley & Sons, Ltd.
This paper briefly reviews some history of the concept of dominant logic, and then elaborates some of the ways in which the authors have further developed this concept in recent years. Discussion focuses on the dominant logic as a filter, on the dominant logic as a level of strategic analysis, on the unlearning (forgetting) curve, on the dominant logic as an emergent property of organizations as complex adaptive systems, and on the relationship between organizational stability and the dominant logic. Throughout emphasis is given to the inherent nonlinear nature of organizations and the mental models that they create.
This paper discusses a number of complex and currently unresolved conceptual issues arising in research on innovation in complex organizations. In an effort to link the issues they are approached through an exploration of the factors responsible for instability in empirical findings. Four separate sources of instability are defined and their theoretical and methodological implications are treated at some length. The analysis of the relative adoptability of innovations and the innovativeness of organizations are found to be related by mirror-image theoretical symmetry. The four sources of instability are seen to have the same implications for the development of a theory of adoptability. Seven prescriptions for research on innovation are suggested. Although this study suggests how one might arrive at a general theory of innovation, it does not actually construct any specific theory.