Business model innovation – part II

Intro

In part I of our exploration of the concept of business model innovation the different elements and building blocks of the business model were elaborated upon. In part II I will focus on what constitutes a business model innovation.

So get to it, what is business model innovation?

There is no precise definition of what constitutes a business model innovation in literature, however there are two main perspectives. One perspective sees the business model as static over time and the innovation of it occurs when a fundamentally different business model in an existing business is discovered [1]. The other perspective has a more dynamic approach and acknowledges that business models are in a constant state of disequilibrium [2]. In the dynamic perspective business model innovation is a continuous process in which a business model evolves over time as opposed to a static state to state change [3][4][5].

Ok ok, it is a process but when does the actual “innovation” occur?

Using the canvas perspective of the business model presented in part I a business model innovation basically occurs when at least one of the nine different building blocks changes in any way [6][7][8]. The potential impact of the innovation on the focal subject (be it a business unit, an organization, system or a technology) and the context in which the business model operates increases with the amount of changes made in the elements of the business model. As with any innovation, the changes in the business model need to create value in some way in order to qualify as an innovation [9][10].

Wow that seems easy enough! So can I manage business model innovation in any way?

There is limited research done on the process of business model innovation within incumbent organizations [2][11]. However, two main perspectives can be discerned where business model innovation can be pro-actively managed [12] or where it is mainly an evolutionary learning process [13][14].

I will be focusing on the managerial perspective but it should be noted that business model innovation is a non-linear and chaotic process which often evolves through trial – and – error based learning where formal experiments are often needed in order to succeed [11][12][14][15][16].

According to Gassmann et al., (2012) managing business model innovation can be broken down into four generic phases:

  1. Analyze
  2. Design
  3. Implement
  4. Control

1 ) This phase might last several years, it is primary concerned with gaining insights and thoroughly understanding changes affecting your specific industry and in the long term your business model. The analyze phase often runs in parallel with the other phases [11].

2 ) The design phase includes iterative build –measure-learn cycles where business model prototypes and hypothesis are tested in real life in small scale on selected parts of a market [7][11][17]. A deeper look at the build-measure-learn cycle and hypothesis driven development will be explored in a future blog post.

3 ) This phase differs from the design phase as the results of experimentation are fine-tuned. Fine-tuning is necessary to ensure long-term value creation and scalability of the business model. Additionally, the implementation phase can require mobilization of scarce resources, structures which promote learning as well as organizational realignment [14][17]. Implementation often requires ambidexterity, that is to say the capability to sustain a current business model while simultaneously introducing a new one [17].

4 ) The final phase is characterized by monitoring and measuring all internal and external changes to the business model and ensuring internal and external alignment. The control phase is a continuous activity which runs in parallel to other phases [4].

Great, it all sound very fluffy and nice but how can I utilize the managerial perspective in my organization?

Stay tuned for part III where I will go in depth into how you can utilize tools in order to manage business model innovation and gain competitive advantage =D.

Resources

[1] Markides, C. (2006) Disruptive Innovation: In Need of Better Theory. Journal of Product Innovation Management. 21(1) 19-25. found in Tidd, J. & Bessant, J.R. (2013). Managing innovation: integrating technological, market and organizational change. (5. ed.) Chichester: Wiley.

[2] Demil, B. & Lecocq, X. (2010). Business Model Evolution: In Search of Dynamic Consistency. Long Range Planning 43:227-246

[3] Amit, R. & Zott, C. (2010). Business model innovation: creating value in times of change. Working paper, Madrid: IESE Business School – University of Navarra

[4] Lambert, S.C & Davidson, R.A. (2013) Applications of the business model in studies of enterprise success, innovation and classification: An analysis of empirical research from 1996 to 2010. European Management Journal) 31, 668– 681

[5] SustAinability (2014). Model Behavior: 20 Business Model Innovations for Sustainability, SustAinability inc. New York.

[6] Johnson, M.W.; Christensen, C.M. & Kagermann, H. (2008): Reinventing Your Business Model, Harvard Business Review, 86 (12): 50-59.

[7] Osterwalder, A. & Pigneur, Y. (2010). Business model generation [Elektronisk resurs] : a handbook for visionaries, game changers, and challengers. Hoboken: John Wiley & Sons.

[8] Schaltegger, S., Lüdeke-Freund, F. & Hansen, E.G. (2012). Business cases for sustainability: the role of business model innovation for corporate sustainability. International journal of innovation and sustainable development, 6(2): 95-119

[9] Dodgson, M., Gann, D. & Salter, A. (2008). The management of technological innovation: strategy and practice. ([2. ed.], completely rev. and updated). Oxford: Oxford University Press

[10] MIT, (2014) https://www.youtube.com/watch?v=oD7X3KvJAVk accessed: 2015-08-09 14:33

[11] Bucherer, B., Eisert, U. and Gassmann, O. (2012) Towards Systematic Business Model Innovation: Lessons from Product Innovation Management. Creativity and innovation management, 21(2): 183-198.

[12] Chesbrough, H. (2010). Business model innovation: Opportunities and barriers. Long range planning 43, 354-363

[13] McGrath, R. G. (2010). Business Models: A Discovery Driven Approach. Long Range Planning 43:247-261

[14] Sosna, M., Trevinyo-Rodrıguez, R. N. & Ramakrishna Velamuri, S. (2010) Business Model Innovation through Trial-and-Error Learning: The Naturhouse Case. Long Range Planning 43:383-407

[15] Utterback, J.M. & Abernathy, W.J. (1975) A dynamic model of process and product innovation. Omega, 3(6):639–656

[16] Wells, P.E. (2013). Business models for sustainability [Elektronisk resurs]. Cheltenham: Edward Elgar Publishing.

[17] Moingeon, B. & Lehmann-Ortega, L. (2010) Creation and Implementation of a New Business Model: a Disarming Case Study. M@n@gement, 13(4), 266 – 297

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