Business Model Innovation Strategy

Transformational Concepts and Tools for Entrepreneurial Leaders

Raphael Amit, Christoph Zott

• Publisher: Wiley
• Year: 2020
• ISBN:
  9781119689676
• Edition: 1
• Topic: Business
• Subtopic: Entrepreneurship
• Index: Business

The most comprehensive, global guide to business model design and innovation for academic and business audiences.

Business Model Innovation Strategy: Transformational Concepts and Tools for Entrepreneurial Leaders is centered on a timely, mission-critical strategic issue that both founders of new firms and senior managers of incumbent firms globally need to address as they reimagine their firms in the post COVID-19 world. The book, which draws on over 20 years of the authors collaborative theoretical and rigorous empirical research, has a pragmatic orientation and is filled with examples and illustrations from around the world.

This action-oriented book provides leaders with a rigorous and detailed guide to the design and implementation of innovative, and scalable business models for their companies. Faculty and students can use Business Model Innovation Strategy as a textbook in undergraduate, MBA, and EMBA degree courses as well as in executive courses of various designs and lengths. The content of the book has been tested in both degree and non-degree courses at some of the world's leading business schools and has helped students and firm leaders to develop ground-breaking business model innovations.

This book will help you:

• Learn the basics of business model innovation¯including the latest developments in the field
• Learn how business model innovation presents new and profitable business opportunities in industries that were considered all but immune to attacks from newcomers
• Learn how to determine the viability of your current business model
• Explore new possibilities for value creation by redesigning your firm's business model
• Receive practical, step-by-step guidance on how to introduce business model innovation in your own company
• Become well-versed in an important area of business strategy and entrepreneurship

Authors Amit and Zott anchored the book on their pioneering research and extensive scholarly and practitioner-oriented publications on the design, implementation, and performance implications of innovative business models. They are the most widely cited researchers in the field of business model innovation, and they teach at the top-ranked Wharton School of the University of Pennsylvania and the prestigious global business school IESE with campuses in Barcelona, Madrid, Munich, New York, and São Paulo.

PART I
Foundation and Mindset for Business Model Innovation

1
Why Do Business Models Matter? The “What, How, Who, and Why” Framework for Understanding Any Business Model

Why Do Business Models Matter?

In the past few decades, innovations in computing and information technologies have accelerated, instigating a fundamental shift in the economic and competitive landscapes. The changes that this shift has been fueling are pervasive, comprehensive, and disruptive. Often touted as the “digitalization of business,” they go far beyond increasing firm efficiency and profitability through digitizing individual processes or functions within firms. They are profound, holistic, and may shake firms to their core. They encompass every industry in every corner of the world. They present new and exciting business opportunities in industries that were considered all but immune to attacks from newcomers. These developments present enormous opportunities for aspiring entrepreneurs whose innovative business models can disrupt entire industries, as Airbnb did in the hospitality industry, or Uber did in the industry for personal transportation. Managers of incumbent firms need to explore new possibilities for value creation that are anchored in the redesign of their firms' business models, as Charles Schwab, the financial services firm, did when it transformed its business model from call center‐assisted trades to enabling clients to trade electronically themselves using a web‐based platform. On the flip side, every manager of every well‐performing firm needs to take seriously the possibility of eroding margins that result from competitors' business model innovations.

A business model is about “how to do business,” and business model innovation is about “how to do business in new ways.” Together, they have become crucial strategic issues for general managers, entrepreneurs, investors, and all those aspiring to assume any of these important roles at some point in their professional careers. Hardly recognized or talked about until the end of the last century, the concept of the business model suddenly became “en vogue” in the mid‐1990s, emerging as a key topic in conversations about new business opportunities and how to capture them (see Exhibit 1.1). It has since become a core ingredient for opportunity analysis and development, and has yielded the development of important new tools such as the Business Model Canvas.¹ Our book presents an important step forward in several aspects: first, by offering a unique blend of scientific concepts and insights with practical tools and examples; second, by providing an actionable framework for business model innovation that focuses on needs and activities; third, by highlighting the strategic aspects of business model innovation; and, last but not least, by adding a dynamic dimension that considers the entire process – from inspiration to implementation of business model innovation.

Exhibit 1.1 Interest in Business Models as Measured by Published Articles

The “take‐off” of the business model as an important determinant of a company's financial performance occurred in parallel with the introduction of the internet, the development of the first browsers (such as Netscape) that made the internet technology accessible to the broader public, and the ability to monetize business model innovation, as evidenced by the sky‐high valuations of IPOs (Initial Public Offerings)² in the second half of the 1990s and the early 2000s. This period saw the first wave of companies, including Amazon, eBay, Google, and Yahoo, that used internet technology to power their innovative business models and thereby reach millions of customers. Three of these firms had their IPOs in 1996–98 (Google went public in 2004). Compared to their established competitors, these companies introduced entirely new ways of doing business.

Amazon began as an online bookseller, which fundamentally changed the way customers shopped for books. eBay established an online platform where individuals could buy used goods from specific sellers, not unlike a flea market but on a much larger scale, and without requiring the physical presence of either buyer or seller (or, for that matter, the goods being sold). And Google and Yahoo offered new ways for people to search for and consume information, thus also offering new opportunities for advertisers to deliver their messages to large numbers of potential target customers in a highly tailored and personalized fashion.

These early success stories suggested that something about business had fundamentally changed. It was not, as some pundits had initially believed, that the world had entered a new era of boundless opportunities and goldilocks economies in which the received economic laws were no longer valid. The stock market crash of 2001 and the subsequent failures of firms that had once been much hyped about and had attained high valuations (such as Webvan or Boo.com) made this abundantly clear. Yet, despite all the skepticism that followed the initial hype in the wake of the stock market bust, Amazon, eBay, Google, and Yahoo managed to survive, and with them the insight that technology‐enabled business model innovations had become a new reality for managers to be reckoned with; that is, managers realized that leveraging and deploying advanced computing and communication technologies in order to create value for a firm's stakeholders presented a fundamental challenge to the status quo of their firms. So, what exactly had changed? What was new?

Quite simply, the business model had become one of the core strategic choices that general managers and entrepreneurs (and those who support and invest in them) need to consider. It answers the question: How should the firm do business?³ For decades, the key strategic decisions that managers and entrepreneurs were asked to address, which were also highlighted in management courses, centered on: (i) corporate strategy issues, and (ii) business strategy issues. Corporate strategy issues concern the scope of the firm and include such questions as: What industries and product market segments should the firm be in? How should the firm enter these markets (i.e., through mergers and acquisitions, joint ventures, or de novo entry)? When should the firm enter these markets? Business strategy...