The Business Model Innovation Process

Preparation, Organization and Management

Yariv Taran, Harry Boer, Christian Nielsen

• Publisher: Routledge
• Year: 2021
• Print ISBN: 9781032103884
• eBook ISBN: 9781000521238
• Edition: 1
• Topic: Commerce
• Subtopic: Développement commercial

Business Model Innovation Process: Preparation, Organization and Management examines a range of critical questions that merit thoughtful interdisciplinary consideration, such as: Why do business models, and their innovation in particular, matter today? How can the process of business model innovation be understood, organized and managed adequately under increasingly volatile, uncertain, complex and ambiguous technological, business and geo-political conditions? What should decision-making and risk-management look like under these conditions, with managers whose rationality is bounded?

The book offers a detailed account of the relatively unknown process of business model innovation by looking into the intersection of strategic, operations and innovation management, organizational design, decision-making and performance management. In doing so, this book addresses fundamental issues, and introduces new ideas and theoretical perspectives. In envisioning and thinking about various potential scenarios of business model innovation and understanding how to organize for each of these under different conditions, the book provides original arguments and suggestions for practitioners. For that purpose, the book also offers many compelling real-life examples of business models and their innovation.

Combining theory and practice, this book is an essential read for researchers and academics of business model innovation, as well as strategic management, digital transformation, innovation management and organizational change. It will also be of direct interest to practitioners and business leaders seeking new perspectives to increase their competitive advantage.

1 The basics

Business modeling

DOI: 10.4324/9781003215097-2

This chapter answers a fundamental question, namely, why does business modeling in general, and its innovation in particular, matter?¹

The main aims are:

• To describe the relevancy and origins of business model thinking, followed by an evolutionary research timeline.
• To explain the main reasons for the fuzziness of the “business model” concept.
• To introduce our understanding of this research domain and present a comprehensive business model framework template.

1.1 Introduction

An effective business model is a tremendously valuable asset to a company.² However, when asked to explain their company’s business model, most executives do not have a ready answer – they know what business they are in, talk about business models, but have no clear framework for describing their own company’s business model.³ If they have an answer, they are most likely to refer to their organizational structure, products, and markets. However, a business model is much more than that, and if managers are unable to describe their business model clearly, they cannot share it effectively throughout their organization, let alone innovate it successfully.

Several lead authors argue that “business model” is among the most sloppily used terms in business, “often stretched to mean everything – and end up meaning nothing”.⁴ Professor Michael E. Porter from Harvard Business School agrees: “The definition of a business model is murky at best. Most often, it seems to refer to a loose conception of how a company does business and generates revenue”. He continues: “Yet simply having a business model is an exceedingly low bar to set for building a company. Generating revenue is a far cry from creating economic value”.⁵

Thus, although academics and practitioners alike recognize and appreciate the potential and practical value⁶ of the business model concept, they share a common difficulty, namely that in spite of all the research carried out in this field in the past two decades, the concept still remains very fuzzy in its definition, purpose, and operationalization. The aim of this chapter is to present and discuss previous and present business model research and provide the basis for the rest of the book by defining our understanding and use of the business model concept.

1.2 Origins

The business model literature has grown exponentially since the end of the 1990s. However, before business model thinking gained popularity, many models related to the effective functioning and performance of businesses had been proposed, especially in organization theory. Many of these models are process-based, recognizing that organizations accomplish their tasks by doing things, i.e., performing processes. Miller and Rice⁷ conceive an organization as a task system defined as a “system of activities [required to complete the process of transforming an intake into an output] plus the human and physical resources required to perform the activities”. Primary (i.e., operational), maintenance (or support), and regulatory (i.e., management) processes are at the core of these authors’ organizational model. Mintzberg⁸ depicts organizations as having formal and informal flows of authority (hierarchy), work materials (i.e., production processes), communication/information (e.g., management and control), and decision making. Also, the famous value chain model,⁹ which consists of primary and support activities whose goal it is to create a profit margin by offering the customer a level of value that is higher than the cost of the activities, provides a solid foundation to business model studies.

Influenced by operations and organizational studies, it has been argued¹⁰ that there is no best way of organizing; it all depends on the fit between the structure and factors such as the environment, strategy, technology, and size of the organization.¹¹ This insight is at the core of so-called contingency models of organization.¹² One such example is the 7S model of McKinsey,¹³ which depicts organizations as systems with seven elements (strategy, structure, systems, shared values, style, staff, and skills) that must be aligned for the organization to perform well.

The process-based contingency model of organization¹⁴ combines these approaches, and essentially holds that the effective performance of an organization depends on the consistency among process design choices (including process technology), organizational arrangements (i.e., organizational structure and culture), and contextual factors such as the organization’s strategy, size, and environment.

Amit and Zott¹⁵ approach the business model construct as a unifying unit of analysis. Their cross-theoretical research and perspective led them to believe that no single theory can fully explain the value creation potential of a business enterprise. Indeed, different authors present different perspectives that, however, share several common traits:

1. Business models are built upon ideas advocated by important bodies of research such as strategic management¹⁶ and entrepreneurship¹⁷ theory.
2. The business model concept stresses the importance of transaction efficiency, emphasized by transaction cost economics,¹⁸ as well as the value chain concept and the extended notions of value systems and strategic positioning.¹⁹
3. Business model thinking also builds on the resource-based view of the firm,²⁰ which, amongst others, considers the ways in which resources can be made more valuable, more productive, and more difficult to imitate.
4. Business models are essentially open. Building on insights from strategic network theory into the link between network configuration and value creation,²¹ inter-firm cooperative arrangements are considered to be essential for becoming and remaining profitable.

1.3 Innovative business models – examples

In spite of its roots going back much further, the term “business model” gained immense popularity since the “dot com era” in the mid-1990s.²² Facilitated by new information and communication technologies (ICT), new companies embarked on, and existing companies shifted to, some e-business or e-commerce format,²³ which includes a range of business-to-business (B2B) and business-to-consumer (B2C) transaction modes such as e-procurement, e-sourcing, e-collaboration,²⁴ e-auctions, and e-shopping.²⁵ These essentially internet-enabled applications lead to less friction in supply chains and create new value propositions, value streams, and revenues.²⁶ Famous examples of e-commerce companies include Amazon (1994), e-Bay (1995), Alibaba (1999), and Zalando (2008). Other examples of internet-based companies include Google and Yahoo (search engines), Facebook, LinkedIn, and Twitter (social media), Expedia, TripAdvisor, and Booking.com (travelling), and Netflix and Spotify (entertainment). Many “traditional” companies also sell their products and services through the internet: virtually all airline companies have a booking site, supermarket chains have their online grocery systems, e.g. Walmart, Koninklijke Ahold Delhaize, Safeway, and Tesco, and logistical service providers such as DHL (DHL eCommerce), FedEx (FedEx tracking), and Schenker (eSchenker) have websites supporting shipping, tracking, and tracing so as to provide a seamless user experience to their customers.

While many innovative business models are inevitably technology-based, others are...

Table of contents

• Cover
• Half Title Page
• Series Page
• Title Page
• Copyright Page
• Contents
• List of figures
• List of tables
• Preface and acknowledgements
• Introduction
• 1 The basics: business modeling
• 2 Business model innovation
• 3 A business model innovation typology and taxonomy
• 4 Preparing, organizing, and managing the process of business model innovation
• 5 Business model performance
• 6 Future trajectories in business model studies
• Index