Relevance and Concept

Busi­ness Model Inno­va­tion

The mana­ge­rial chal­lenge

The 21st century is charac­te­rized by unpre­ce­dented chal­lenges. Tech­no­lo­gical advances and social deve­lop­ments, toge­ther with a high level of inter­con­nec­ted­ness due to globa­liza­tion and the rise of the Internet are drama­ti­cally chan­ging the world’s dyna­mics. Change is happe­ning faster, is more complex, and occurs on a more profound level. To gain sustainable compe­ti­tive advan­tage in such an envi­ron­ment, firms need to go beyond deve­lo­ping new products or services: they need to re-t­hink and re-de­sign their entire busi­ness model.

Busi­ness Model Inno­va­tion matters

Global survey studies of CEOs reveal that they consider busi­ness model inno­va­tion as funda­mental for their future busi­ness. A 2005 survey by the Econo­mist Intel­li­gence Unit revealed that over 50% of execu­tives believe busi­ness model inno­va­tion will become even more important for success than product or service inno­va­tion. A 2008 IBM survey of corpo­rate CEOs confirmed these results. Nearly all of the CEOs inter­viewed reported the need to adapt their busi­ness models; more than two-­t­hirds reported that exten­sive changes were required. Accor­ding to this survey, some CEOs are already looking to busi­ness model inno­va­tion to address perma­nent shifts in their market land­scapes. Yet another study reveals that from those twen­ty­-­seven newly founded compa­nies within the last twen­ty­-­five years that made it into the Fortune 500 within the last ten years, eleven realized this success via busi­ness model inno­va­tion (Johnson et al., 2008). Due to the high import­ance of the topic in corpo­rate prac­tice, acade­mics have also become incre­a­singly inte­rested in the pheno­menon of busi­ness model inno­va­tion as for example reflected in several special Issues in leading academic jour­nals.

What is Busi­ness Model Inno­va­tion?

While prior rese­arch has produced rich know­ledge on ante­ce­dents, conse­quences and the nature of various kinds of inno­va­tions such as incre­mental and radical inno­va­tion (both product and service), archi­tec­tural inno­va­tion or social inno­va­tion, there is considerable lack of insight with respect to busi­ness model inno­va­tion. Despite a large variety of defi­ni­tions on the term, rese­ar­chers gene­rally agree on the follo­wing charac­te­ris­tics of busi­ness model (inno­va­tion):

- A busi­ness model describes the logic of how a busi­ness creates and deli­vers value to users and converts payments received into profits. Accor­ding to Teece (2010), busi­ness models “[…]outline the archi­tec­ture of reve­nues, costs, and profits asso­ciated with the busi­ness enter­prise deli­vering that value”. Further­more, busi­ness models define the struc­ture of the value chain required to create and distri­bute the company’s products and services (Ches­brough and Rosen­bloom, 2002). Thus, they also state who performs which activi­ties in the course of a company’s busi­ness processes.

- A busi­ness models consists of four inter­lo­cking elements that, taken toge­ther, create and deliver value. These elements are deli­very of a new cust­omer value propo­si­tion, a new profit formula, new key processes and new key resources (Amit and Zott, 2001; Baden-­Fuller and Morgan, 2010; Johnson et al., 2008).

- Busi­ness model inno­va­tion is game chan­ging for an entire industry. It has the poten­tial to reshape markets and indus­tries (Bonac­corsi et al., 2006; DiMaggio and Powell, 1983).

- Busi­ness model inno­va­tion is espe­cially chal­len­ging for esta­blished firms which cannot afford to make any mistakes in rede­si­gning their busi­ness models due to poten­tial nega­tive effects on their exis­ting busi­ness (Amit and Zott, 2001;Ches­brough, 2010; Chris­tensen, 2006).