Business model innovation – Part IV

Intro

In previous parts of our business model innovation adventures we have mostly dealt with defining the different elements and building blocks, looked closer into what constitutes a business model innovation and how to build business models from scratch. However, in order to gain impact we need to understand what challenges looms when implementing business model innovation and what tools there are to mitigate such challenges.

Bring it on!

As mentioned in previous posts, business models are abstract ideas that represent and support high-level thinking [1][2][3] ,thus allowing for a holistic picture of a focal subject (be it an organization, a system, a business unit or a technology) [4][5] Consequently, the implementation of a business model generates different barriers depending on the level of abstraction in which the focal subject is set. That is to say, the barriers of implementing a novel business model at an organizational level differ from the barriers of product specific business model change. Additionally, the context in which the focal subject resides also affects the challenges connected to business model change. Thus, business model innovation in the Swedish agricultural industry face different challenges compared to a sustainability business model innovation in the asphalt industry [6][7].

Wow, there is no silver bullet then?

Not really, however Christensen et al. [8] point out that if managers do not fully understand the existing business model, facilitating the creation of a new one is very challenging. Consequently, mapping out the contextual business model (for tools see here) is a crucial step in the business model innovation process. Nevertheless, two types of business model innovation barriers identified by Chesbrough [4] can be assumed to be relatively universal.

1) Re-configuration

2)  Mental models

1) Re-configuration is the barrier crated through the conflict between an already established business model rooted in contemporary resources and capabilities vs the novel resources and capabilities needed to exploit a novel business model. The barrier thus occurs when operational processes are changed as assets need to be re-configured [4].

Incumbent organizations that commit resources to business model innovation take a risk as they are faced with costs related to gaining new resources and capabilities while simultaneously risking that their contemporary core competency is harmed [7]. Consequently, the implementation of business model innovation often requires organizational ambidexterity which can be explained as a capability which allows an organization to capitalize and develop the contemporary business model while simultaneously introducing the new one [9]. Gassmann et al. [2] claim that ambidexterity requires an independent organizational unit in the shape of a spin-off or a business unit which leverages various synergies with other business units. However, “The degree of independence is rather a continuum than two extremes, and companies can leverage all types of organizational set-ups to find the right balance between required independence and the desired utilization of synergies” (Gassmann et al., 2012:191)

2) Mental models are powerful barriers of innovation [4] [10], these are manifested in a common understanding among individuals regarding what business they are in, what it includes and how value is created and captured. On an organizational context mental models are defined as:

“(…) organizations’ past experiences, retained in their routines and beliefs, influence their actions and how they adapt to environmental changes.” (Sosna et al., 2010:386)

Mental models are rigid and are helpful in order to prevent data overload and intolerable levels of uncertainty. Consequently, the mental models act as filters which bring about fast and reliable decisions as well as better forecasting and control of the environment [12]. Furthermore, mental models help avoid inappropriate decisions when social actors are faced with crisis which are perceived as short-lived [13]. Too rigid mental models however limit the ability to interpret information in non-routine situations and can, if seen as “truths”, lead to resistance to change and missed opportunities [9].

So, how are those barriers solved then?

Moingeon et al. [9] argue that in order to break the mental barriers a different form of knowledge acquisition needs to take place. Through an iterative process of trial-and-error desired results as well as results which are discarded due to unsatisfactory results are produced [11]. Furthermore, ideas which are tested through experiments in real life, albeit in a small scale on selected parts of the market, have an increased probability of gaining approval from internal and external stakeholders [2][9][11]. A trial-and-error process differs from other forms of knowledge acquisition such as market research and interviews, as these are more analytical processes. Each trial generates new knowledge regarding a problem where critical information is unavailable and solutions are uncertain [9]. Consequently, such an iterative process highlights what resources are needed while simultaneously builds new and necessary capabilities. Thus, having the ability to learn from failed experiments as well as the resilience to continue experimenting constitutes an important capability for business model innovation [11]. Learning from previous failures however makes business model experimentation highly path-dependent and knowing what type of business model will succeed is practically impossible [14]. Furthermore, in order to be successful in implementing a novel business model the trials conducted and the errors found need to be used to question traditional frames of reference in terms of how value is created as well as how it is delivered using the business model as a holistic tool.

In summary, the core process of business model innovation requires trial – and – error based learning in order to succeed [4][6][9][11][14].

That is mind-blowing! How can I wield this iterative trial-and-error workflow then?

Great question! In order to answer it however, I need to move into the land of agile development and lean start-up methodology. We will get there but first I want to discuss the importance of timing.

//Comments//

WOW! It took a while producing this post but from now on I will try to sustain an Intel style tick-tock pace with the ambition to publish two posts/week. The “tick” would represent a lighter post, i.e. giving tips on an event or a video etc., while the “tock” would be a deeper look into a specific topic. .

Resources

[1] Bryman, A. & Bell, E. (2011). Business research methods. (3. ed.) Oxford: Oxford University Press.

[2]  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.

[3] Harari, Y.N. (2015). Sapiens: en kort historik över mänskligheten. (1. utg.) Stockholm: Natur & kultur.

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

[5] Wirtz, B. W. (2011). Business Model Management: Design – Instruments – Sucess Factors. Speyer : University of Speyer.

[6] Tawakkoli, S-S. (2014). Business model innovation in the context of sustainable development. University of Gothenburg

[7] Sivertsson, O. & Tell, J. (2015). Barriers to business model innovation in Swedish agriculture. Sustainability 7, 1957-1968.

[8] Johnson, M.W., Christensen, C.M. & Kagermann, H. (2008). Reinventing your business model. Harvard business review 35, 12-17.

[9] Yunus, M., Moingeon, B. & Lehmann-Ortega, L. (2010). Building Social Business Models: Lessons from the Grameen Experience. Long Range Planning 43, 308- 325

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

[11] 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

[12] Hill, R.C. & Levenhagen, M. (1995). Metaphors and mental models: Sensemaking and sensegiving in innovative and entrepreneurial activities. Journal of Management, 21(6): 1057-1075.

[13] Gordon, G. G. (1991). Industry determinants of organizational culture. Academy of Management Review, 16(2), 396-416.

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

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