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21 Business Model Innovation

Lorenzo Massa, Researcher, University of Bologna and Vienna University of Economics and Business.

Christopher L. Tucci is Associate Professor of Management of Technology at the École Polytechnique Fédérale de Lausanne (EPFL), where he holds the Chair in Corporate Strategy & Innovation. Prior to joining EPFL, he was on the faculty of the NYU Stern School of Business. He is interested in technological change and how waves of technological changes affect incumbent firms. For example, he is studying how the technological changes brought about by the popularization of the Internet affect firms in different industries. He has published articles in Management Science, Strategic Management Journal, Research Policy, IEEE Transactions on Engineering Management, Journal of Engineering and Technology Management, and Journal of Product Innovation Management. In 2003, he was elected to the leadership track for the Technology & Innovation Management Division of the Academy of Management.

• Published: 01 October 2013
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This chapter offers a broad review of the literature at the nexus between Business Models and innovation studies and examines the notion of Business Model Innovation in three different situations: Business Model Design in newly formed organizations, Business Model Reconfiguration in incumbent firms, and Business Model Innovation in the broad context of sustainability. Tools and perspectives to make sense of Business Models and support managers and entrepreneurs in dealing with Business Model Innovation are reviewed and organized around a synthesizing meta-framework. The framework elucidates the nature of the complementarities across various perspectives. Finally, the use of business model-related ideas in practice is discussed, and critical managerial challenges as they relate to Business Model Innovation and managing business models are identified and examined.

Introduction

In the past fifteen years, the business model (BM) has become an increasingly important unit of analysis in innovation studies. Within this field, a consensus is emerging that the role of the BM in fostering innovation is twofold. First, by allowing managers and entrepreneurs to connect innovative products and technologies to a realized output in a market, the BM represents an important vehicle for innovation. Second, the BM may be also a source of innovation in and of itself . It represents a new dimension of innovation, distinct, albeit complementary, to traditional dimensions of innovation, such as product, process or organizational.

This chapter serves to introduce the notion of Business Model Innovation (BMI) and has four main objectives, to: (1) clarify the origins and notion of the BM; (2) organize the literature on BMI around emerging literature streams; (3) offer an overview of the various tools that have been proposed in supporting managers and entrepreneurs in dealing with BMI; and (4) offer a discussion of the principal managerial challenges related to managing BMs and BMI.

As a starting point, we seek to introduce and clarify the notion of the BM. We review the received literature, highlight the origins of the BM and clarify the nature of the construct. Next, we introduce the notion of BMI and define it as the activity of designing—that is, creating, implementing and validating—a new BM and suggest that the process of BMI differs if an existing BM is already in place vis-à-vis when it is not. Accordingly, for analytical purposes, we distinguish between BM design in newly formed organizations, and BM reconfiguration in incumbent firms. We note that these literatures tend to focus on the antecedents and mechanisms at the background of BMI. We suggest that a new literature is emerging focusing on the consequences of BMI, and pointing to the role of BMI in unlocking the private sector potential to contribute to solving environmental and social issues. We offer a review. Finally, we analyse various tools and perspectives that seek to make sense of the BM and support BMI and business modelling (the set of activities supporting BM representation, sense-making and strategic planning for BMI). We highlight the complementary nature of different perspectives and organize them in a conceptual meta-framework. In doing so, we also provide evidence of the current use of BM-related ideas in practice. We conclude with a discussion of some of most salient managerial challenges related to managing BMs and BMI.

What is a Business Model? Definition and Emergence of the Concept

In the past several years, interest in the concept of BMs has virtually exploded, attracting the attention of managers and academics alike. Zott and colleagues ( Zott, Amit, and Massa, 2011 ) searched for the use of the term business model in general management articles and noted a dramatic increase in the incidence of the term in the fifteen-year period between 1995 and 2010, in parallel with the popularization and broad diffusion of the Internet.

Teece (2010) notes that BMs have been an integral part of economic behaviour since pre-classical times. Indeed, firms have always operated according to a business model but, until the mid 1990s, firms traditionally operated following similar logics, typical of the industrial firm, in which a product/service—typically produced by the firm (and its suppliers)—is delivered to a customer from which revenues are collected. Even if instances of firms and organizations adopting innovative BMs have been recognized in business history (cf. Osterwalder and Pigneur, 2010 ), it is only recently that the scale and speed at which innovative BMs are transforming industries and, indirectly, civil society, has attracted the attention of scholars and practitioners. Thus, BMs seek to make sense of these novel forms of ‘doing business’. According to Magretta (2002) , the BM is a story that answers Peter Drucker’s age old questions: (1) who is the customer, (2) what does the customer value, (3) how do we make money in this business, (4) and what is the economic logic that explains how we can deliver value to customers at an appropriate cost? The emergence of novel logics employed by firms in doing business as they go to market has increasingly popularized the notion of BM.

Several scholars agree that the Internet, together with related advances in information and communication technologies (ICTs), acted as catalysis for BM experimentation and innovation (e.g, Timmers, 1998;   Amit and Zott, 2001 ; Afuah and Tucci, 2001 ), opening up new opportunities for organizing business activities. Entire industrial sectors have evolved along radically new trajectories of innovation and offered new logics of value creation not seen in recent business history.

Casadesus-Masanell and Ricart (2010) have observed that two other phenomena have been accompanied by considerable innovation in the way firms ‘do business’. These are: (1) the advent of post-industrial technologies ( Perkmann and Spicer, 2010 ), and (2) efforts by the corporate sector to enter new markets in developing or underdeveloped countries and reach customers at the Bottom of the Pyramid 1 (BoP) ( Prahalad and Hart, 2002 ; Prahalad, 2005 ). A third one, related to BoP, is represented by ‘sustainability’. Let us discuss each of these in turn.

Scientific and technological advances in so-called post-industrial technologies (e.g., software or biotechnology) have been accompanied by a surge of organizational architectures and governance structures which radically differ from those observed in traditional manufacturing organizations (e.g., Bonaccorsi, Giannangeli, and Rossi, 2006 ). Firms, for example, have emerged that host and maintain IT applications across the Internet, offering software as a service (rather than a product: Susarla, Barua, and Whinston, 2009 ). The Open Source software movement has been accompanied by the emergence of new governance structures ( Bonaccorsi et al., 2006 ) and novel forms of collaborative entrepreneurship ( Miles, Miles, and Snow, 2006 ). Similarly, the biotechnology sector has been the locus of considerable BMI (e.g., Pisano, 2006 ), with firms emerging that focus on specific tasks and relative services along the product development value chain ( Konde, 2009 ). Innovative BMs are observed in other sectors as well. Firms such as ARM (semiconductors), Dolby (sound systems), CDT (electronic displays) or Plastic Logic (plastic materials) all have specialized in the management of intellectual property and operate in the ‘market for ideas’ (see chapter 12 by Gambardella, Giuri, and Torrisi) by licensing the rights of their innovative technologies and solutions rather than commercializing the products themselves. Whether post-industrial technologies can be properly considered an antecedent of BM innovation vis-à-vis other explanations such as the intellectual property revolution ( Pisano, 2006 ), the disintegration of the value chain observed in many industries, or the institutionalization of Open Innovation as a way to organize innovation activities outside the traditional boundaries of the firm (see chapter 22 by Alexy and Dahlander), remains an unexplored research question. Certainly, however, post-industrial technologies have been accompanied by the emergence of novel ways to conduct business.

Opportunities to address economic needs at the BoP in emerging markets ( Ricart, Enright, Ghemawat, Hart, and Khanna, 2004 ) have also pointed researchers and practitioners towards the systematic study of BMs. The core argument in the BoP literature is that the vast, untapped market of the world’s poor represents a large opportunity for companies to both serve customers and make a profit. However, business opportunities at the BoP challenge conventional ways of doing business. Due to the fundamentally different social, economic, and cultural environments that characterize emerging markets, companies are urged to rethink every step in their supply chain and develop novel BMs ( Prahalad and Hart, 2002 ). In addition, existing models may have limited applicability and need to be adapted ( Seelos and Mair, 2007 ). Chesbrough, Ahern, Finn, and Guerraz (2006) , studying product deployment in the developing world, highlight that while the ‘right’ product design is a necessary condition for penetrating low income markets, those companies that ultimately succeed in generating commercially sustainable operations are those that put in place the right BM. These BMs play a crucial role in creating key elements, such as distribution channels, supplies and sales channels necessary for the successful execution of business transactions. Thus, enterprises that aim at reaching the BoP constitute an important source of BM innovation ( Prahalad, 2005 ).

While the study of BMs has traditionally focused on business activities, the emergence of new organizational architectures designed for purposes other than economic profits, such as solving social problems and sustainability issues, has started to attract the attention of scholars studying BMs ( Seelos and Mair, 2007 ; Yunus, Moingeon and Lehmann-Ortega, 2010 ). For example, Nobel laureate Mohamed Yunus has been pioneering the concept of microfinance and designed a novel organization, the Grameen Bank, whose main purpose is the eradication of poverty (cf. Yunus et al., 2010 ), a critical issue in the discussion on sustainability (cf. WCED, 1987 ). Scholars increasingly employ the term BM in referring to the way such organizations operate and in capturing instances of value creation whose nature is not necessarily economic (see chapter 16 by Lawrence et al.).

To conclude this section, the BM is an elusive concept allowing for considerable interpretative flexibility ( Bijker, Hughes, and Pinch, 1987 ). Zott et al. (2011) have recently reviewed the most recent literature on the topic and noted that various conceptualizations of the BM exist that often serve the scope of the particular phenomenon of interest to the researcher. There are, however, some emerging common themes that act as a common denominator among the various conceptualizations of the BM that have been provided. In particular scholars seem to recognize—explicitly or implicitly—that the BM is a ‘system level concept, centered on activities and focusing on value’ (2011: 1037). It emphasizes a systemic and holistic understanding of how an organization orchestrates its system of activities for value creation. In addition, they noted that the phenomenon of value creation as depicted by the BM typically occurs in a value network (cf. Normann and Ramirez, 1993 ; Parolini, 1999 ), which can include suppliers, partners, distribution channels, and coalitions that extend the company’s resources. Therefore they suggest that the BM also introduces a new unit of analysis in addition to the product, firm, industry, or network levels. Such a new unit of analysis is nested between the firm and its network of exchange partners.

These considerations suggest that, at first glance, the BM may be conceptualized as depicting the rationale of how an organization (a firm or other type of organization) creates, delivers, and captures value (economic, social, or other forms of value) in relationship with a network of exchange partners ( Afuah and Tucci, 2001 ; Osterwalder, Pigneur, and Tucci, 2005 ; Zott et al., 2011 ). This broad definition is elastic with respect to the nature of the value created, and serves the scope of introducing the topic of BMI.

Business Models and Innovation

The literature at the intersection of the BM concept and the domain of innovation has advanced two complementary roles for the BM in fostering innovation. First, BMs allow innovative companies to commercialize new ideas and technologies. Second, firms can also view the BM as a source of innovation in and of itself, and as a source of competitive advantage.

The first view is mainly rooted in the literature on technology management and entrepreneurship. It is recognized that innovative technologies or ideas per se have no economic value. It is through the design of appropriate BMs that managers and entrepreneurs may be able to unlock the output from investments in R&D and connect it to a market. By allowing the commercialization of novel technologies and ideas, the BM becomes a vehicle for innovation. Xerox invented the first photocopy machine, but the technology was too expensive and could not be sold. Managers at Xerox solved the problem by leasing the machine, inventing a new BM for doing so. In this view, the BM is a manipulable device that mediates between technology and economic value creation ( Chesbrough and Rosenbloom, 2002 ).

The second view is that the BM represents a new dimension of innovation itself, which spans the traditional modes of process, product, and organizational innovation. This new dimension of innovation may be source of superior performance, even in mature industries ( Zott and Amit, 2007 ). Dell in the computer industry, Southwest in the airline industry, or Apple with iPod and iTunes in the music industry, just to mention a few known cases, secured impressive growth rates and outperformed the competition by establishing innovative BMs.

This suggests that firms can compete through their BMs ( Casadesus-Masanell and Ricart, 2007 ). Novel BMs may be a source of disruption ( Christensen, 1997 ), changing the logic of entire industries and replacing the old way of doing things to become the standard for the next generation of entrepreneurs to beat ( Magretta, 2002 ). According to Chesbrough, BMI may have more important strategic implications than other forms of innovation, in that ‘a better BM will beat a better idea or technology’ (2007: 12).

Building on the literature at the nexus between BMs and innovation, we propose that BMI may refer to (1) the design of novel BMs for newly formed organizations, or (2) the reconfiguration of existing BMs. We refer to the first phenomena by employing the term business model design (BMD) , which refers to the entrepreneurial activity of creating, implementing and validating a BM for a newly formed organization. We use the term business model reconfiguration (BMR) to capture the phenomenon by which managers reconfigure organizational resources (and acquire new ones) to change an existing BM. Thus, the process of reconfiguration requires shifting, with different degrees of radicalism, from an existing model to a new one. We contend that both phenomena are change phenomena and could lead to BMI. Xerox’s design of a leasing model to market the Xerox 914 in the late 1950s or Gillette’s design of the ‘Razor and Razor Blade’ model can be considered innovative designs. Indeed, they led to the emergence of new BMs not seen before. Not all design or reconfiguration efforts will necessarily lead to BMI, however. To be a source of BMI, the output of design or reconfiguration activities should be characterized by some degree of novelty or uniqueness. In other words, while in principle BMI may result as the product of design and/or reconfiguration of new and existing BMs, respectively, it constitutes a subset of the larger set comprising the whole product of BM design and reconfiguration activities (see Figure 21.1 ).

Business model innovation as a subset of business model design and reconfiguration

While sharing the potential for the same outcome (namely BMI), reconfiguration and design are two distinct activities that imply important differences. For example, because reconfiguration assumes the existence of a BM, it involves facing challenges that are idiosyncratic to existing organizations, such as organizational inertia, management processes, modes of organizational learning, modes of change, and path dependent constraints in general, which may not be an issue in new firms. On the other hand, newly formed organizations may face other issues such as considerable technological uncertainty, lack of legitimacy, lack of resources and, in general, liability of newness, which do influence the design and validation of new BMs (cf. Aldrich and Auster, 1986 ; Bruderl and Schussler, 1990 ). Because of these differences and for analytical purposes, we treat the above phenomena separately in the next two sections. 2

Business Model Design

As mentioned above, BMD refers to the very first instance of a new BM and is usually associated with entrepreneurial activity. The process of BMD could be considered a process of entrepreneurial venture creation involving the design of the content, structure, and governance of the transactions that a firm performs in cooperation with a network of exchange partners so as to create and capture value ( Amit and Zott, 2001 ). It involves traditional entrepreneurial activities such as internally and externally stimulated opportunity recognition, organization creation, linking with market ( Bhave, 1994 ), and also the design of boundary spanning organizational arrangements ( Zott and Amit, 2007 ). According to Zott and Amit (2007) , the latter is a critical feature of BMD in that ‘a BM elucidates how an organization is linked to external stakeholders, and how it engages in economic exchanges with them to create value for all exchange partners’ (2007: 181). Thus, BMD is concerned with traditional entrepreneurial choices (product/market mix, organizational design, control systems, etc.) as well as the design of a boundary spanning activity system, so as to link an offering (technology or service) to a realized output market. In a nutshell, BMD includes designs that take place across as well as within firms ( McGrath, 2010 ).

Uncertainty associated with the viability of new BMs may be considerable. Uncertainty arises not only because of entrepreneurs’ inability to predict customers’ response to their offering, future market conditions and dynamics, but also because of the computational and dynamic complexity associated with BM planning and design. Computational complexity arises because of the large number of logically possible combinations between BM components ( Afuah and Tucci, 2001 ), activities ( Zott and Amit, 2010 ) and/or choices ( Casadesus-Masanell and Ricart, 2010 ). Dynamic complexity arises because of the non-linear interdependencies—including delays and feedback loops—between BM components, activities, and/or choices. Both computational as well as dynamic complexity increase uncertainty surrounding BMD. Even if it were possible to detect future trends and changes, uncertainty would not be entirely eliminated, only reduced.

Uncertainty affects modes of BMD and associated entrepreneurial tasks. According to McGrath (2010) , unlike traditional concepts in entrepreneurship, such as business planning and business plan design, ‘strategies that aim to discover and exploit new models must engage in significant experimentation and learning’ (2010: 247). BMs cannot be fully planned ex ante . Rather, they take shape through a discovery-driven process; this process places a significant premium on experimentation and prototyping ( Sosna, Trevinyo-Rodríguez, and Velamuri, 2010 ; McGrath, 2010 ). Hayashi (2009) noted that many companies have had original BMs that did not work. This does not necessarily imply failure if companies are able to shift to Plan B . Hayashi proposes that in order to shift to plan B and ‘find’ the right business model, managers and entrepreneurs should engage in experimentation and challenge their initial assumptions. Investigating numerous ‘what if’ questions may be a useful strategy. The discovery-driven nature of BMs also affects the effectiveness of different design and planning approaches. Financial tools that make sense in an experimental world (e.g. real-options reasoning) may be more appropriate than more deterministic ones (e.g. projected economic value added and net present value) in supporting BMD ( McGrath, 2010 ).

While many new BMs may fail before a viable model is ‘found’, these (new BMs) may be a source of abnormal returns. As Ireland, Hitt, Camp, and Sexton (2001) note, entrepreneurs are often interested in finding fundamentally new ways of doing business and work on new models that have the potential to disrupt an industry’s competitive rules. According to McGrath (2010) , BM disruption may occur following Christensen’s model of disruptive innovation. At the beginning, these new models are more like experiments than proven business ideas and may not attract the scrutiny of incumbent firms. Newly formed ventures employing novel BMs often operate in market niches, serve customers that incumbents do not serve, and at price points they would consider unattractive, and rely on novel resources that are not necessarily under the control of incumbents. The latter may ignore the threats coming from innovative BMs. 3 And entrants could progressively experiment with their businesses and find disruptive channels.

Business Model Reconfiguration

The increasing consensus that BMI is key to firm performance (e.g. Ireland et al., 2001 ; Chesbrough, 2007 ; Johnson, Christensen, and Kagermann, 2008 ) has brought scholars working on the BM to focus on issues related to BM renewal and innovation in incumbent firms.

Considerations of issues related to BMI in incumbent firms were already present in Chesbrough and Rosenbloom’s study (2002) of the Xerox Corporation and its research center at Palo Alto (PARC). According to the authors, the BM as an heuristic logic might act as a mental map, which mediates the way business ideas are perceived by filtering information as valuable or not. This filtering process within a successful established firm is likely to preclude the identification of models that differ substantially from the firm’s current BM. In its cognitive dimension, the BM concept is similar to Prahalad and Bettis’ (1986) notion of a dominant logic . The dominant logic represents prevailing wisdom about how the world works and how the firm competes in the world. It can act as a filter of information, preventing managers from seeing opportunities and removing certain possibilities from serious consideration, when they fall outside of the prevailing logic and driving firms into a dominant logic trap ( Chesbrough, 2003 ).

Bouchikhi and Kimberly (2003) have referred to a similar phenomenon as the identity trap . In their view, an organization’s identity can become a trap when it so constrains strategic options that the organization cannot cope effectively with a changing environment. Attempts to change that are in conflict with this core identity are often doomed to failure. Chesbrough (2010) suggests two types of barriers to BMI in existing firms. The first type of barrier is structural. Barriers exist in terms of conflicts with existing assets and BMs (i.e. inertia emerges because of the complexity required for the reconfiguration of assets and operational processes). The second type of barrier is cognitive. It is manifested by the inability of managers who have been operating within the confines of a certain BM to understand the value potential in technologies and ideas that do not fit with the current BM.

Three tools are suggested that could help to overcome these barriers ( Chesbrough, 2010 ). The first consists of constructing maps of BMs to clarify the processes underlying them which then become a source of experiments to consider alternative combinations of the processes. The second involves conferring authority for experimentation within the organizational hierarchy. The third is experimentation itself. Experimentation is conceptualized as a process of discovery aimed at gaining cumulative learning from (perhaps) a series of failures before discovering a viable alternative to the BM. Sosna et al. (2010) have analysed the case of a Spanish family-owned dietary products business facing a threat to their BM of obsolescence from unforeseen external changes. The company was able to successfully reconfigure its BM thanks to experimentation, evaluation and adaptation—a trial and error learning approach—involving all echelons of the firm.

Giesen, Berman, Bell, and Blitz (2007) have proposed that BMI in incumbent firms can be classified into three groups: (1) industry model innovation, which consists of innovating the industry value chain by moving into new industries, redefining existing industries, or creating entirely new ones; (2) revenue model innovation, which represents innovation in the way revenues are generated, for example through reconfiguration of the product-service value mix or new pricing models; and (3) enterprise model innovation, changing the role a firm plays in the value chain, which can involve changes in the extended enterprise and networks with employees, suppliers, customers, and others, including capability/asset configurations. They analyse each type of innovation with respect to firm performance, and report two key findings: (1) each type of BMI can generate success, and (2) innovation in enterprise models focusing on external collaboration and partnerships is particularly effective in older companies relative to younger ones. Zott and Amit (2010) , who view the BM as a system of boundary spanning interdependent activities, have built on their decade-long research program on the BM and recently proposed that managers can fundamentally innovate a BM in three ways: by (1) adding new activities, (2) linking activities in novel ways, or (3) changing which parties perform an activity ( Amit and Zott, 2012 ). In other words, from a managerial standpoint, BMI consists of innovating the content (i.e. the nature of the activities), the structure (i.e. linkages and sequencing of activities) or the governance (the control/responsibility over an activity) of the activity system between a firm and its network ( Zott and Amit, 2010 ).

To become BM innovators, companies need to create processes for making innovation and improvements ( Mitchell and Coles, 2003 ). Doz and Kosonen (2010) have proposed a leadership agenda for accelerating BM renewal. To overcome the rigidity that accompanies established BMs, companies should be made more agile, which can be achieved by developing three meta-capabilities: strategic sensitivity, leadership unity, and resource flexibility. Doz and Kosonen point to the importance of the top management team to achieve collective commitment for taking the risks necessary to venture into new BMs and abandon old ones. Santos, Spector, and Van der Heyden (2009) have proposed a theory of BMI within incumbent firms in which they emphasize the importance of the behavioural aspects involved through mutual engagement and organizational justice. BMI, they argue, should not only consider the structural aspects of the formal organization (typically activity sets), but should also focus on informal organizational dynamics.

More recently, Bock, Opsahl, and George (2010) have linked the research on the BM with the notion of strategic flexibility ( Shimizu and Hitt, 2004 ) and proposed that firms engage in BMI to gain strategic flexibility by enhancing capabilities to respond to environmental complexity while decreasing formal design complexity.

The fragmented and young literature on BMR in incumbent firms implicitly offers a snapshot of the theoretical richness and challenges associated with studying the phenomenon as well as with carrying out the managerial tasks associated with the process of reconfiguration. Johnson et al. (2008) , perhaps not surprisingly, have noted that during the past decade of the major innovations within existing corporations ‘only a precious few have been business model related’ (2008: 52). BMR may well represent an extension of what Henderson and Clark (1990) initially conceived as ‘architectural’ innovation, that is, complex innovations that require a systemic reconfiguration of existing organizational and technological capabilities. Indeed, BMR is a complex art. As Teece (2007) notes, it requires ‘creativity, insight and a good deal of customer-competitor and supplier information and intelligence’ (2007: 1330). Additional complexity is added in incumbent firms by the existing repertoire of capabilities that constrain managers’ ability to innovate the BM, either blinding it ‘from seeing novel opportunities to innovate or acting upon those opportunities when they see them’ ( Pisano, 2006 : 1126).

Business Models and Sustainability

While studies of the BM have traditionally emphasized its importance for firms’ success, a new literature is emerging that studies the role of BMI in promoting sustainability (cf. WCED, 1987 ), analysing BMI from the point of view of its consequences in terms of either corporate social and environmental impact or as a strategic implication for sustainability (i.e. a way to align firms’ search for profits with innovations that would ultimately benefit society and help solve sustainability issues—see chapter 15 by Berkhout).

Firms could create value for sustainability in two ways: (1) by adopting more sustainable practices and processes that would reduce (or prevent the occurrence of) ‘end-of-pipe’ negative impacts (for example, reducing energy, water consumption and material intensity or social problems such as work place stress); or (2) by engineering and marketing new technologies that would help solve sustainability problems (for example, renewable energies, electrical vehicles [EVs], or green materials). In other words, value for sustainability may exist in a firm’s practice(s) or in a firm’s product(s), or both.

While there are different strategic alternatives along the product-practice mix to develop solutions for sustainability issues and improve corporate sustainability performances, market externalities of various forms could prevent profit-seeking firms from fully embracing sustainability and dilute the effectiveness of their initiatives. Activities that have an adverse environmental impact (such as pollution) or a negative social impact (such as exploitation of labour in marginalized and disadvantaged groups) are not fully internalized in the costs of enterprises’ products/services ( Cairncross, 1993 ). Accordingly, firms wanting to improve their environmental and social performance face a structural constraint (i.e. the risk associated with the implementation of sustainability when the market does not reward sustainability initiatives). Similarly, in the absence of appropriate government incentives or market regulation, green technologies may be more expensive than traditional ones—for decades an impediment to the market diffusion of certain technologies related to renewable energies.

Another problem is related to a different type of network externality in complex technological systems. Many technologies provide no value for customers unless necessary complements are also available and this problem applies to traditional and sustainable technologies alike. EVs are of no value if there is no necessary complementary technology (e.g. batteries) or infrastructure such as battery charging stations. The same two- (or three-) sided market argument can be reversed. For example, developing an infrastructure for EVs makes no economic sense if there is no available technology for producing reliable and cost-efficient EVs. The market diffusion of greener technologies may be hampered because firms may not control the full technological architecture necessary to realize the value of a technology.

Some authors have suggested that by innovating their BM, firms could overcome these barriers and make profits while benefiting the environment. For example, service-based BMs (selling a service rather than a product) could contribute to aligning firms’ search for profitability with innovating for sustainability. For example, when the carpet company Interface shifted from selling carpets to a ‘floor covering service’ ( Lovins, Lovins, and Hawken, 1999 ), it started to research, design, and manufacture more recyclable carpets. Under the new BM, when the carpets become worn, Interface replaces them and re-introduces the old ones back into the supply chain; if carpets are highly recyclable, the firm profits from this operation while benefiting the environment. The carpets themselves are eventually designed as tiles so that only consumed parts need to be replaced. The recyclable, modular carpets significantly reduce material and energy consumption, allowing Interface to deliver a better service that costs far less to create and capture the value arising from the new operations ( Lovins et al., 1999 ). Offering services rather than products, and working innovative pricing strategies and novel revenue streams, would also help firms marketing more expensive green technologies and spread their market adoption. As Wüstenhagen and Boehnke (2006) have noted, ‘Given the capital intensity of sustainable energy technologies…reducing the upfront cost for consumers is one of the key concerns in marketing innovation in this sector’ (2006: 256). BMs based on leasing or contracting, or a mix of products/services may represent a solution to the problem ( Wüstenhagen and Boehnke, 2006 ). Finally, new BMs could also help overcome issues of strategic complementarities and solve coordination issues. Better Place, the global provider of EV networks and services, worked to accelerate the transition to sustainable transportation by facilitating the market diffusion of EVs. The company’s BM was not based on EV manufacturing; rather, it was based on alliances with EV manufacturers, utility companies, governments, battery manufacturers, and others to produce a market-based transportation infrastructure that would support EV diffusion. By positioning itself upstream in the value system, and by orchestrating the network with a unique BM, the company attempted to solve two-sided market issues in sustainable transportation. However, Better Place’s bankruptcy in May 2013 demonstrates some of the complexity associated with developing new BMs for sustainability.

Business Model-related Ideas: The Theory and Practice of BMI

The BM is a systemic and conceptually rich construct, involving multiple components, several actors (boundary spanning) and complex interdependencies and dynamics. Because of that, the managerial cognitive effort required to visualize and explore possibilities for BMI as well as the effort for orchestrating (implementing and managing) the architecture of innovative BMs may be considerable.

Awareness of the complexities associated with BM cognition—description of existing BMs or design of new ones—coupled with the increasing relevance of BMs and business modelling for practice (cf. Zott et al., 2011 ), have led academics and practitioners to propose several avenues and tactics in support of BMI. Different tools such as perspectives, frameworks, and ontologies have been proposed that employ a mix of informal textual, verbal, and ad hoc graphical representations. These tools ascribe, with varying degrees, to three core functions at the nexus between the theory 4 and practice of BMI. First, they offer a ‘ reference language’ that fosters dialogue, promotes common understanding, and supports collective sense-making (cf. Amit and Zott, 2012 ). Second, by offering scaled-down simplified representations of BMs, they allow for graphical representations that simplify cognition and offer the possibility of virtually experimenting with BMI (for example, by supporting the formulation and elaboration of important ‘what if’ questions and the evaluation of strategic alternatives: Osterwalder and Pigneur, 2010 ). Third, they offer representations—both graphical as well as verbal—that allow managers and entrepreneurs to articulate and instantiate the value of their venture and to support the engagement of external audiences so as to gain legitimacy, activate resources, and foster action. We note that different tools and perspectives tend to emphasize certain functions while overlooking others. For example, the strength of certain perspectives resides in their simplicity and parsimony. As such, these perspectives are particularly effective in supporting collective sense-making around a BM. Other perspectives are more articulated; their development may be slightly more arduous but allow for a better appreciation of the dynamics occurring between the various components of a BM (cf. Casadesus-Masanell and Ricart, 2007 , 2010 ).

More broadly, we note and illustrate in Figure 21.2 that tools supporting BMI could be structured into several levels of decomposition with varying depth and complexity depending on the degree to which they abstract from the reality they aim to describe. 5

At the highest level of abstraction is a view of the BM as a narrative ( Perkmann and Spicer, 2010 ). According to Magretta (2002) , the BM is a story, a verbal description of how an enterprise works. It should be noted that BM narratives not only entail a descriptive function, but also a normative one. According to Brown (2000) , narratives represent an important way in which people seek to infuse ambiguous situations with meaning and persuade sceptical audiences that their account of reality is believable. Perkmann and Spicer (2010) have suggested that because of their forward-looking character, BM narratives play an important role in inducing expectations among interested constituents about how a business’s future might play out. Narratives of the BM can be constructed by managers and entrepreneurs and used not only to simplify cognition, but also as a communicative device that could allow achieving various goals, such as persuading external audiences, creating a sense of legitimacy around the venture (for example, by drawing analogies between a venture’s BM and the BM of a successful firm) or guiding social action (for example, by focusing attention on what to consider in decision-making and instructing how to operate).

The recognition of patterns in the structure of BMs has led to the introduction of typologies and BM archetypes . An archetype can be understood as an ideal example of a type, in this case a BM. A well-known example is the Freemium BM, adopted by firms such as Acrobat: its core logic lies in delivering a basic version of the product for free and charging for a premium version. Gillette popularized what today is known as the Razor and Razor Blade BM, which rests on ‘selling cheap razors to make customers buy its rather expensive blades’ ( Zott and Amit, 2010 : 218). This model is now popular in other industries where products such as printers (and cartridges) or game consoles (and software games) are brought to market relying on a similar logic. Archetypes are often presented with an identifying label (a ‘title’ that identifies the BM type) followed by a short description of the core essence of the BM. Archetypes perform several functions, including offering descriptions of ‘role models’, that is, models to be followed and imitated ( Baden-Fuller and Morgan, 2010 ).

While narratives and archetypes may serve several important purposes, they tend to be difficult to manipulate and manoeuvre (e.g. it is difficult to evaluate the likely consequences of changes in one part of the BM on the entire system on the basis of a narrative or an archetype). Higher descriptive accuracy, and perhaps a more rigorous approach to structuring and organizing plans for BMI, are offered by graphical frameworks of the BM, which are conceptualization and formalization of the BM obtained by enumerating, clarifying and representing its essential components (see Figure 21.2 ). A popular example among managers and practitioners is represented by the Business Model Canvas 6 (Osterwalder and Pigneur, 2002). The Business Model Canvas offers a scaled-down representation of the generic BM that is obtained by enumerating and visualizing what the authors consider to be the nine critical components of a BM. Similarly, Johnson and colleagues ( Johnson, Christensen, and Kagermann, 2008 ; Johnson, 2010 ) have proposed a simple framework comprising four interdependent elements; customer value proposition, profit formula, key resources and key processes. By focusing on these elements the framework offers a synthetic ‘representation of how a business creates and delivers value, for both the customer and the company’ ( Johnson, 2010 : 22).

Business models at different levels of abstraction from ‘reality’

We contend that the power of frameworks and archetypes, and perhaps the explanation of their popularity among practitioners, stands in their simplicity and parsimony, which, however, come at the expense of descriptive depth. In particular, frameworks and archetypes have shortcomings in their inability to offer a full account of the dynamic aspects associated with a particular BM. Meta-models 7 of the BM may help to overcome this limitation. Casadesus-Masanell and Ricart (2010) have built on system dynamics ( Sterman, 2000 ) and offered a way to conceptualize and represent BMs based on choices and consequences, and on an evaluation of the degree to which consequences are flexible vs. rigid (an important aspect to consider in dealing with BM reconfiguration). Causal loops (both damping and self-reinforcing) support understanding of how the architecture of choices drives the overall behaviour of a BM and leads to a configuration of consequences. This perspective allows for a more fine-grained description of existing BMs supporting the use of ‘theories’ to describe and understand the link between choices and likely consequences.

Gordijn and Akkermans (2001) have proposed a conceptual modelling approach that they call the ‘e3-value ontology’, designed to help define how economic value is created and exchanged within a network of actors. This modelling technique takes a value viewpoint, unlike other traditional modelling tools that take either a business process viewpoint (typical of operations management) or a system architecture viewpoint (typical of the information systems literature). The proposed meta-model borrows concepts from the business literature such as actors, value exchanges, value activities, and value objects, and uses these notions to model networked constellations of enterprises and end-consumers who create, distribute, and consume things of economic value.

In a similar vein, Zott and Amit (2010) have proposed an activity system perspective for supporting the design of new BMs. This perspective relies on an understanding of the BM as a system of interdependent activities (rather than choices and consequences) centered on a focal firm and including those conducted by the focal firm, its partners, vendors or customers, and so on. As such, it allows describing and conceptualizing BMs with considerable depth and accuracy. According to the authors, ‘an activity in a focal firm’s BM can be viewed as the engagement of human, physical and/or capital resources of any party to the BM (the focal firm, end customers, vendors, etc.) to serve a specific purpose toward the fulfillment of the overall objective’ (2010: 217). To better understand the BM as a set of interdependent activities, Zott and Amit differentiate between design elements (i.e. content, structure, and governance) and design themes (efficiency, novelty, complementarities, and lock-in). Design elements comprise the selection of activities (content), the sequencing between them (structure) and choices concerning who performs them (governance) within the network. Taken together, design elements comprise the infrastructural logic of a BM’s architecture. In addition, managers could structure the activity system around different design themes . For example, ‘efficiency-centred’ design (with efficiency being a design theme) refers to how firms use their activity system design to aim at achieving overall greater efficiency through reducing transaction costs. Other design themes are ‘novelty’ (innovation in the content, structure, or governance of the activity system), ‘lock-in’ (BM whose central feature is the ability to keep third parties attracted as a BM participant) or ‘complementarities’ (bundling activities within a system so as to produce more value than running activities separately).

Managing Business Models

Challenges associated with managing BMI go beyond the complexities related to managerial cognition and sense-making. While BMI has the potential for transformative growth and exponential returns for the innovator, it is a highly risky move that may involve changing the entire architectural configuration of a business. Accordingly, a critical challenge for managers is understanding when new BMs are needed ( Johnson, 2010 ). Once opportunities have been identified whose exploitation requires the development of new BMs, managers in incumbent firms may be confronted with problems related to simultaneously managing multiple BMs ( Markides and Charitou, 2004 ). Firms entering the BOP, or addressing new needs or new customer segments, are challenged by the potential conflicts between dual BMs (cf. Markides and Charitou, 2004 ). In this section we describe some of the key findings and insights from research in this important area of organization studies.

BMI can support companies in exploiting new opportunities (seizing ‘white space’) in three different ways ( Johnson, 2010 ): (1) by supporting the development of new value propositions that would address an unsatisfied ‘job-to-be-done’ for existing customers; (2) by tackling new customer segments that have traditionally been overlooked by existing value propositions; or (3) by entering entirely new industries or a ‘new terrain’. These instances present different managerial challenges and opportunities related to BMI.

First, the extent to which the development of new value propositions for an existing customer base requires BMI is a function of the shifts in the basis of competition (cf. Moore, 2004 ). At different stages in market development companies compete and innovate on different dimensions as illustrated in Figure 21.3 .

At early stages, customers’ unsatisfied needs mostly relate to product features and functions. Companies compete accordingly on functionality and focus on product innovation. When functionality-related needs are mostly fulfilled, the basis of competition shifts as customers require higher quality and reliability. In these cases, innovation is mostly process-oriented. When quality and reliability have improved sufficiently, customer value is provided by convenience, customization, and finally, when the market starts becoming commoditized, by lower costs. According to Johnson, managers should focus on BMI at these stages in market evolution, in that innovative BMs may allow developing new customer value propositions in response to commoditization in a way that product and process innovation would not. Innovative BMs may allow developing entirely new value propositions tailored to the customers’ individual needs, or may be able to lower costs significantly. 8

Second, innovative BMs may unlock opportunities to serve entirely new customer segments. These instances correspond to a process of democratization (cf. Osterwalder and Pigneur, 2010 ) in that they allow extending products and services to potential customers who are non-consumers, for instance because existing offerings are too expensive (with respect to potential customers’ wealth), complicated (with respect to potential customers’ skills) or because potential customers lack access (both geographical distances, lack of information and/or time) to them. Attempts to reach customers at the BOP, as previously discussed, fall into this category.

While serving existing customers in innovative ways or reaching new potential customers may require developing new BMs in response to identifiable and somehow predictable market-driven circumstances, a third category of opportunities is offered by less predictable tectonic industry changes, resulting, for example, from technological discontinuities or dramatic shifts in government policy and regulation. BMI can support companies creating new business platforms uniquely suited to the radically altered terrain, such as the innovative BM developed by Better Place, which attempted (unsuccessfully, in hindsight) to exploit opportunities arising from a complex plethora of forces increasingly supporting demand for sustainable greener transportation.

Market development and BMI

Kaplan (2012) proposes that BMI should in fact be treated with equal importance to product innovation and provides a practical guide for incumbents, starting with fifteen principles for BMI divided into three major categories: connect, inspire, and transform. Connect concerns the ‘team sport’ nature of BMI and how to nurture it, for example enabling chance meetings between innovators outside of normal ‘silos’, putting into place structures enabling flexible collaborative networks from across the company, and emphasizing collaborative design thinking. Inspire refers to injecting a sense of meaning into developing new ideas, encouraging systems-level thinking, challenging current assumptions, and experimenting rapidly. Transform is about encouraging large-scale rather than incremental changes, constantly trying new things, and building urgency to innovate. Kaplan also tackles the important problem of how to conduct R&D for BMI, returning to the theme of experimentation and proposing a ‘BMI factory’ that is a ‘connected adjacency’ with the current one (rather than trying to destroy the current one), championed by top management, explicitly desired, staffed with innovators taking on diverse roles (such as idea generators, ethnographers, and BM designers) and maintained as a separate activity from product innovation that supports the current BM.

A critical managerial challenge related to the management of BMs is represented by the conflicts arising from multiple BMs ( Markides and Oyon, 2010 ). Seizing new opportunities by developing new BMs may involve, for existing firms, operating (or considering) two BMs at the same time ( Markides and Oyon, 2010 ). For example, to tap potential customers in India, Hindustan Unilever (the Indian subsidiary of Unilever) operates with a BM that is different from the parent’s BM. ING Group started the highly successful ING Direct to tap into not only Internet financial services users, but the different ways those users utilize such services. Singapore Airlines has launched SilkAir to appeal to customers in the low-cost segment of the market in addition to its traditional operations.

According to Markides and colleagues, there are serious tradeoffs involved in competing with dual BMs, as a new BM risks cannibalizing existing sales and customer bases, destroying or undermining the existing distributor network, compromising the quality of services offered to customers, or simply defocusing the organization by trying to do everything for everybody ( Markides and Charitou, 2004 ). To manage these tradeoffs, strategy experts have traditionally proposed keeping the two BMs separated in two different units (cf. Christensen, 1997 ). Instead, Markides and Charitou (2004) propose a contingency approach, according to which the quest for the best strategy is understood as fundamentally depending on (1) the degree to which the two BMs are in conflict, and (2) the degree to which the two markets related to the BMs are perceived to be strategically similar. Reducing these two dimensions to dichotomous situations (serious vs. minor conflicts and high vs. low strategic relatedness) leads to four logically possible situations with four different strategies. The latter includes both pure strategies (i.e. separate vs. integrate) as well as hybrid ones (e.g. start with integrated BMs while preparing the conditions for future ‘divorce’ or start separate preparing conditions for future ‘marriage’). Hybrid strategies require the organization to become more ambidextrous. Operational tactics for managing dual BMs include conferring operational and financial autonomy to separate units, allowing units to develop their own culture and budgetary system and to have their own CEOs, while, at the same time, encouraging cooperation by means of a common incentive and reward system and by transferring the CEO from inside the organization rather than appointing one from outside.

In this chapter, we have reviewed the small but rapidly growing literature on BMs and BMI. In the course of most industrial sectors and humanitarian undertakings, there will come a time when the traditional way of creating, delivering, and capturing value is no longer valid, efficient, useful, or profitable. In such moments (or perhaps just before!), organizations that embrace BMI will embrace the possibility to reshape industries and possibly change the world. As this exciting field is expanding every day with increasing scholarly and managerial interest, we hope this chapter helps establish a better and more uniform understanding of BMI, and helps bridge the gap between theory and practice.

In economics and business management the Bottom of the Pyramid (or ‘Base of the Pyramid’ or simply ‘BoP’) is the term used to refer to the largest but poorest socio-economic group. The expression is used in particular by people developing new models of doing business that deliberately target that demographic, often using new technology.

As previously noted, the process of reconfiguration also comprises creating, implementing, and validating a BM. In this sense the set comprising reconfiguration activities could be considered a superset of design activities.

However, note the caveats to this aspect of the theory developed in, among others, King and Tucci (2002) .

The term ‘theory’ as related to business model and BMI is used here quite deliberately as resembling van Aken’s notion of Mode 2 knowledge production as the product of a Design Science Research approach ( van Aken, 2005 ) or as comprising an articulated body of knowledge in the form of what Simon (1969) understood as criteria for the design of man-made social artifacts (in this case organizations).

Common across these tools is an (often implicit) understanding of the business model as a model ( Baden-Fuller and Morgan, 2010 ), i.e., a simplified representation of a reality that exists at the level of the firm and its network of exchange partners.

Initially known as the ‘Business Model Ontology’, the framework developed by Osterwalder and Pigneur has become increasingly popular with managers under the label ‘Business Model Canvas’.

We borrow the term meta-model from the literature on systems engineering. In systems engineering, meta-modelling is generally understood as the analysis, construction, and development of the frames, rules, constraints, models, and theories applicable and useful for modelling a pre-defined class of problems.

Johnson (2010) provides several real examples of companies competing through their BM. Zipcar offers car sharing services and competes with traditional car rental companies on convenience. IKEA mixed some degree of convenience and customization with radically lower costs for home furniture.

Afuah, A. , and Tucci, C. L. ( 2001 ). Internet Business Models and Strategies: Text and Cases . New York: McGraw-Hill.

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Handbook of Business Model Innovation

2020, Handbook of Business Model Innovation

New business models are supposed to provide answers to never-asked questions about problems that everyone is waiting for solutions to. This book is for founders and managers who may deal with innovations of business models directly or indirectly. You will find countless tips, recommendations, checklists and methods in this book on how to identify, analyze, develop, change and manage new business models.

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Purpose This paper aims to review and synthesise the recent advancements in the business model literature and explore how firms approach business model innovation. Design/methodology/approach A systematic review of business model innovation literature was carried out by analysing 219 papers published between 2010 and 2016. Findings Evidence reviewed suggests that rather than taking either an evolutionary process of continuous revision, adaptation and fine-tuning of the existing business model, or a revolutionary process of replacing the existing business model, firms can explore alternative business models through experimentation, open and disruptive innovations. It was also found that changing business models encompasses modifying a single element, altering multiple elements simultaneously, and/or changing the interactions between elements in four areas of innovation: value proposition, operational value, human capital and financial value. Research limitations/implications Although...

Mokter Hossain

Purpose – The purpose of this study is to provide state-of-the-art knowledge about business model innovation and suggest avenues for future research. Design – A systematic literature review approach was adopted with thematic analysis being conducted on 92 articles. Findings – The body of knowledge for this concept is in its infancy and is highly fragmented. This study therefore attempts to consolidate this fragmented knowledge. It reveals dominant themes, establishes coherence, and identifies conflicting arguments in the current literature. It also points out gaps in the research and highlights new directions for research. Research limitations – This study analyzed articles that were found based on a systematic literature review approach. Practical implications – This study identifies some fundamental issues that managers need to understand regarding business model innovation. Originality/value – The main value of this study lies in its synthesis of the current knowledge of business model innovation.

Dr. Vincent Göttel

Purpose: Although business model innovation (BMI) has gained substantial importance in recent years, there is still a limited understanding of this phenomenon. Yet, the corresponding scholarly literature has previously been characterized by a heterogeneous comprehension of the concept. This situation demands an analysis that synthesizes current scienti c knowledge, uncovers research gaps and underdeveloped areas, and estab- lishes a solid foundation for future research. Design: The study applies an extensive quantitative and qualitative analysis of extant BMI literature, making the concept more transparent and manageable for science and management. Findings: The study presents a set of yielding de nitions of the extant BMI literature and an integrated de ni- tion to promote a common understanding of BMI. In addition, it classi es the eld into six particular research areas. Given the identi ed dominance of exploratory research designs, future research should put more em- phasis on we...

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Business Model and Innovation

By: Francine Newth

Business Models and Strategic Management: A New Integration is a seven-chapter book published by the Business Expert Press in 2012 and written by Francine Newth, associate professor of strategy at…

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Business Models and Strategic Management: A New Integration is a seven-chapter book published by the Business Expert Press in 2012 and written by Francine Newth, associate professor of strategy at the School of Business at Providence College. The author says that an effective strategy derives from a fundamental understanding of how a company operates, which is defined by its business model. She explains the elements of a business model and how to integrate it with strategic decision making, providing what the she calls a more "real-world" guide to effective management. She provides practical insight for managers and conceptual models grounded in research and current business examples. Each chapter includes discussion guides and a practical exercise based on real-world companies. Chapter 6, Business Model and Innovation (14 pages), explores the nature of innovation and its importance in a sustainable business model. The author explains the types of innovation and characteristics that drive innovation. Her model outlines the innovation process through five components: product (new ideas), process (cost structure), experiments (trials), strategies (innovation capabilities), and teams (employees). There are three discussion guides for innovation, based on RIM, Zynga, and Hewlett-Packard, and an exercise on innovation analysis at Groupon.

Learning Objectives

To learn how to integrate a business model in strategic planning.

Dec 15, 2012

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Business Expert Press

BEP199-PDF-ENG

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Spring 2012

Creating value through business model innovation.

The growing popularity of e-reading devices such as the Kindle is stimulating business model changes in book publishing.

Image courtesy of Amazon.

Companies often make substantial efforts to innovate their processes and products to achieve revenue growth and to maintain or improve profit margins. Innovations to improve processes and products, however, are often expensive and time-consuming, requiring a considerable upfront investment in everything from research and development to specialized resources, new plants and equipment, and even entire new business units. Yet future returns on these investments are always uncertain. Hesitant to make such big bets, more companies now are turning toward business model innovation as an alternative or complement to product or process innovation.

A recent global survey of more than 4,000 senior managers by the Economist Intelligence Unit found that the majority (54%) favored new business models over new products and services as a source of future competitive advantage. EIU analysts concluded that “the overall message is clear: how companies do business will often be as, or more, important than what they do.” 1 And in a similar global study conducted by IBM, in which over 750 corporate and public sector leaders were interviewed on the subject of innovation, researchers found that “competitive pressures have pushed business model innovation much higher than expected on CEOs’ priority lists.” 2 However, this level of interest may not have been too surprising given that the IBM study also found that companies whose operating margins had grown faster than their competitors’ over the previous five years were twice as likely to emphasize business model innovation, as opposed to product or process innovation. 3 One CEO explained why his company’s focus on business model innovation had grown:

In the operations area, much of the innovations and cost savings that could be achieved have already been achieved. Our greatest focus is on business model innovation, which is where the greatest benefits lie. It’s not enough to make a difference on product quality or delivery readiness or production scale. It’s important to innovate in areas where our competition does not act. 4

The Leading Question

What do executives need to know about business model innovation?

• Business model innovation can consist of adding new activities, linking activities in novel ways or changing which party performs an activity.
• Novelty, lock-in, complementarities and efficiency are four major business model value drivers.
• Within organizations, business model choices often go unchallenged for a long time.

Business model innovation can also help companies stay ahead in the product innovation game, where as one CEO from another study explained, “you’re always one innovation away from getting wiped out by a new competing innovation that eliminates the need for your product.” 5 A good product that is embedded in an innovative business model, however, is less easily shunted aside. Someone might come up with a better MP3 player than Apple’s tomorrow, but few of the hundreds of millions of consumers with iPods and iTunes accounts will be open to switching brands.

Business model innovation matters to managers, entrepreneurs and academic researchers for several reasons. First, it represents an often underutilized source of future value. Second, competitors might find it more difficult to imitate or replicate an entire novel activity system than a single novel product or process. Since it is often relatively easier to undermine and erode the returns of product or process innovation, innovation at the level of the business model can sometimes translate into a sustainable performance advantage. Third, because business model innovation can be such a potentially powerful competitive tool, managers must be attuned to the possibility of competitors’ efforts in this area. 6 Competitive threats often come from outside their traditional industry boundaries.

We define a company’s business model as a system of interconnected and interdependent activities that determines the way the company “does business” with its customers, partners and vendors. In other words, a business model is a bundle of specific activities — an activity system — conducted to satisfy the perceived needs of the market, along with the specification of which parties (a company or its partners) conduct which activities, and how these activities are linked to each other. We started our research into business models a decade ago by making in-depth inquiries into the business models of 59 e-business companies in Europe and the U.S. that had undertaken initial public offerings. 7 (See “About the Research.”) Later, we developed a unique data set containing detailed information about the business models of 190 entrepreneurial companies listed on U.S. or European public exchanges between 1996 and 2000. We supplemented these data on companies’ business models with another manually collected data set on business strategy, establishing empirically that a company’s product market strategy and its business model are distinct constructs that affect corporate performance. 8 More recently, we have developed cases on business model choice and evolution. 9

About the Research

The ideas presented in this article are anchored in the authors’ decade-long research program on business models. We started this research with in-depth inquiries into the business models of 59 e-business companies in Europe and the U.S. that had undertaken initial public offerings. Under our guidance, several research analysts investigated each company, using approximately 50 open-ended questions. The analysts wrote up the answers to the questions using information gathered from multiple data sources (such as IPO prospectuses), which we then took to develop an inductive theory on the sources of value creation in e-business.

In our subsequent work, we shifted attention from value creation to value appropriation by linking some of the value drivers of business models (notably, novelty and efficiency) to company performance. To test our hypotheses, we developed a unique data set containing detailed information about the business models of 190 entrepreneurial companies listed on U.S. or European public exchanges between 1996 and 2000. We measured each business model design theme as a variable at a particular point in time, and we regressed these variables on a range of performance measures. We also supplemented these data on companies’ business models with a manually collected data set on business strategy, establishing empirically that a company’s product market strategy and its business model are distinct constructs that affect performance. More recently, we developed cases on business model choice and evolution. These cases have given us additional insights that have led to further conceptual advances. Building on these advances in this article, we focus for the first time squarely on business model innovation in the context of established companies rather than start-ups.

Building on this work, we focus in this article on business model innovation in the context of established companies. However, these ideas are equally applicable to innovators of entirely new business models and to managers of companies who need to adapt their business model incrementally with the objective of achieving business model innovation new to their organization. Even under conditions of resource scarcity, organizations do not need to renounce innovation as a way of enhancing their performance prospects. Rather, managers should consider the opportunities offered by business model innovation to complement, if not substitute for, innovation in products or processes. Business model innovation can allow managers to resolve the apparent trade-off between innovation costs and benefits by addressing how they do business, for example, by involving partners in new value-creating activity systems.

Business Model Innovation in Practice

To illustrate the power of business model innovation, consider two cases: Apple and HTC, the Taiwan-based mobile device manufacturer. For most of its history, Apple was focused on the production of innovative hardware and software, mostly personal computers. By creating the iPod and the associated iTunes, a legal online music download service, Apple introduced a radical innovation of its business model. Apple was the first computer company to include music distribution as an activity, linking it to the development of the iPod hardware and software. By adding this new activity to its business model, which links the music label owners with end users, Apple transformed music distribution. Rather than growing by simply bringing innovative new hardware to the market, Apple transformed its business model to encompass an ongoing relationship with its customers, similar to the “razor and blade” model of companies such as Gillette. This enabled Apple, and its business model partners, to extract ongoing value from the use of the Apple hardware and software. In this way, Apple expanded the locus of its innovation from the product space to the business model — and its revenues, profit and stock price change have reflected that successful business model innovation. (See “Apple’s Performance, Before and After Business Model Changes.”)

Apple’s Performance, Before and After Business Model Changes

View Exhibit

Such performance can be hard for even some otherwise high-performing companies to match if they rely solely on product innovation. HTC has been a very innovative, profitable and growing original equipment manufacturer since its founding in 1997. Initially, HTC manufactured handsets for Microsoft-powered mobile phones for companies such as Palm, HP and T-Mobile. In 2006, it changed its product-market strategy from being a contract OEM manufacturer to selling its own HTC-branded smart phones to wireless network operators and the general public through various distribution channels. HTC has excelled in many ways, recording many firsts in the smart phone product market space and winning numerous awards for its many technological innovations. Yet HTC’s business model has remained centered on hardware design and product innovation. In effect, HTC sells great razors, but no razor blades: Its business model allows it to benefit only from the sale of its innovative, state-of-the-art smart phones and tablets, but not from their use. Comparing the performance of HTC and Apple stock in the past two years highlights the fact that in the fast-moving technology market space, product innovation without business model innovation may not always provide enough competitive advantage. (See “The Stock Price of HTC vs. Apple.”)

The Stock Price of HTC vs. Apple

In contrast to Apple, HTC has not been involved in the creation or delivery of mobile content or services, and its devices function on third-party operating systems such as Google’s, generating revenues for HTC only from the hardware sales. Apple, on the other hand, benefits from economies of scope due to the interoperability of its software base (iOS, iTunes, App Store, iCloud) for its various products including its computers (iMacs), tablets (iPads), phones (iPhones) and MP3 players (iPods). In addition, Apple benefits from direct ownership of its distribution channels (online App Store, brick-and-mortar Apple retail stores). Further, Apple’s business model enables it to derive revenue from App Store sales of third-party applications, from iTune songs, and from AT&T for the use of its iPhone for voice and data.

How to Innovate in Business Model Design

An innovative business model can either create a new market or allow a company to create and exploit new opportunities in existing markets. Dell, for example, implemented a customer-driven, build-to-order business model that replaced the traditional build-to-stock model of selling computers through retail stores. 10

Changes to business model design, however, can be subtle; even when they might not have the potential to disrupt an industry, they can still yield important benefits to the innovator. Consider Taco Bell, the restaurant chain offering Mexican-style fast food, which in the late 1980s decided to turn the restaurant’s kitchens into heating and assembly units. Most chopping, cooking and clean-up activities were transferred to corporate headquarters. The food was sent precooked in plastic bags to restaurants, where it could be heated, assembled and served. 11 This incremental business model innovation was not game-changing for the fast food industry, but it allowed Taco Bell to realize economies of scale and improvements in efficiency and quality control, as well as to increase space for customers within the restaurants. 12 Other companies might wish to change their business models in similar incremental ways or follow a business model innovator in their industry in order to achieve competitive parity.

Business model innovation can occur in a number of ways:

1. By adding novel activities, for example, through forward or backward integration; we refer to this form of business model innovation as new activity system “content.” 13

2. By linking activities in novel ways; we refer to this form of business model innovation as new activity system “structure.”

3. By changing one or more parties that perform any of the activities; we refer to this form of business model innovation as new activity system “governance.”

Content, structure and governance are the three design elements that characterize a company’s business model. 14 (See “Six Questions About Business Model Innovation.”) Change one or more of these elements enough and you’ve changed the model. Consider the following.

Six Questions About Business Model Innovation

The content of an activity system refers to the selection of activities to be performed. For example, Colombia’s largest bank, Bancolombia, adopted activities beyond those of a typical retail bank. The perceived market need for these activities was the demand for microcredit among the more than 60% of Colombians who did not have access to banking services. To perform these new activities — an innovation in the content of its business model — the bank needed to train its top management, hire and train new staff and link the new activities to its existing system (platforms, applications and channels). 15 Another example of business model innovation focused on content is IBM. 16 After a severe financial crisis in the early 1990s, the company shifted its focus from being a supplier of hardware to becoming a service provider. Drawing on know-how built over decades, IBM launched a range of new activities in consulting, IT maintenance and other services. The transformation was substantial: By 2009, more than half of IBM’s $96 billion in revenues came from these activities, which had barely existed 15 years earlier.

The structure of an activity system describes how the activities are linked and in what sequence. Consider Priceline.com. This online travel agency has established links with airline companies, credit card companies and Travelport’s Worldspan central reservation system, among others. By introducing a reverse market in which customers post desired prices for sellers’ acceptance, Priceline developed a fundamentally novel exchange mechanism through which these parties interact and by which items such as airline tickets are sold. Priceline was granted a business method patent on its innovative activity system — a novel structure that continues to distinguish the company from other travel agencies.

When he first began franchising 7-Eleven stores in Japan, Toshifumi Suzuki was introducing a business model innovation in the Japanese market.

Image courtesy of Flickr user marko8904 .

The governance of an activity system refers to who performs the activities. Franchising, for example, represents one possible approach to innovative activity system governance. It can be the key to unlocking value, as when Japanese entrepreneur Toshifumi Suzuki realized in the early 1970s that the franchise system that had developed in the U.S. was an ideal response to the strict regulations imposed by the Japanese government on retailing outlets, which limited their size and restricted opening times. By franchising 7-Eleven stores in Japan, Suzuki adopted a novel type of activity system governance (new to Japan, but not to the rest of the world) and managed to create value through professional management and local adaptation. 17 Another example of an innovative governance structure is the recent formation of a consortium of magazine publishers, including Time, Hearst, Meredith and Condé Nast, to develop an online magazine newsstand using multiple digital formats. The resulting company, Next Issue Media, is jointly owned by industry rivals and is a response by the rival publishers to declining print circulation (and hence print advertising revenue) and the growth of digital media. Fighting for survival, the publishers are looking beyond their otherwise fierce competition to their common interest in inventing a new context for magazines in the digital era. As Ann Moore, the former CEO of Time, stated, “It’s increasingly clear that finding the right digital business model is crucial for the future of our business.” 18

A consortium of magazine publishers is working to invent a new context for magazines in the digital era.

Image courtesy of Next Issue Media.

But how does a company increase the odds of developing the right business model for its situation? In our earlier work, 19 we identified four major interlinked value drivers of business models: novelty, lock-in, complementarities and efficiency.

1. Novelty captures the degree of business model innovation that is embodied by the activity system.

2. Lock-in refers to those business model activities that create switching costs or enhanced incentives for business model participants to stay and transact within the activity system. Consider for example Nespresso, a division of Nestlé Corporation. It introduced a new, low-cost espresso maker that uses Nespresso-produced coffee capsules. Once a customer buys a Nespresso machine, he or she needs to use Nespresso coffee capsules — creating a lock-in that enables Nestle to profit from both the sale of the machine and the use of the machine by selling consumables that machine owners must buy from Nespresso. Launching these products involved a radical redesign of the activity system, for example, by branching out into retailing activities.

3. Complementarities refer to the value-enhancing effect of the interdependencies among business model activities. Consider, for example, eBay, which offers a platform to conduct sales over the Internet among individual buyers and sellers of used and new products. A key requirement for the platform to function properly is a payment mechanism that allows buyers to make credit card payments even when the seller does not have access to credit card services. PayPal, the online payment company that eBay acquired, offers such a function, facilitating trades that could not otherwise be completed. In other words, PayPal has a value-enhancing effect on the eBay activity system.

4. Efficiency refers to cost savings through the interconnections of the activity system. Consider Wal-Mart, which not only championed the concept of discount retailing but also designed an activity system that supports its low-cost strategy. An important activity within this system is logistics. Over time, Wal-Mart developed highly sophisticated processes, such as cross-docking, unrivalled in the industry. These processes help the company to keep its costs lower than its competitors, giving Wal-Mart an important competitive advantage.

Our research suggests that the presence of each of these value drivers enhances the value-creation potential of a business model. Moreover, we find important synergies among the value drivers. Complementarities, for example, can be more valuable when supported by novel business model design.

Interdependencies in Business Models

Interdependencies in business models are created by entrepreneurs or managers in several ways: when they choose the set of organizational activities they consider relevant to satisfying a perceived market need, when they design the links that weave activities together into a system and when they shape the governance mechanisms that hold the system together.

Interdependence among business model design elements. Content, structure and governance can be highly interdependent. Take the San Francisco, California-based peer-to-peer lending company Prosper, for example. The venture aims at enabling direct, small, unsecured loans between individual lenders and borrowers. Early on, the founders made the conscious decision to let lenders choose the borrowers to whom they wanted to lend their money. This was a structural choice that settled the question of how lending and borrowing activities were linked, but it also constituted a decision about governance because it shifted the evaluation and selection activities to the customers and away from the company.

Interdependencies between business and revenue models. Managers also need to consider the interdependency between a company’s business model and its revenue model. The revenue model refers to the specific ways a business model enables revenue generation for the business and its partners. 20 It is the way in which the organization appropriates some of the value that is created by the business model for all its stakeholders. A revenue model complements a business model design, just as a pricing strategy complements a product design. Consider Better Place, whose business model aims to provide electric vehicle charging services. Like a mobile phone operator whose business model centers on enabling the use of the mobile phone device through its network rather than on the handset device itself, Better Place’s business model centers on providing charging networks and services rather than on the electric vehicle itself. It involves an innovative business model structure with partners ranging from governments, vehicle manufacturers, clean energy producers and others. Just as mobile phone operators charge customers variable or flat rates for telecommunication services, Better Place intends to implement a revenue model as a function of customers’ car usage (miles driven), thus taking into account the interdependency between its business and revenue models. 21

The concepts of business and revenue model, although conceptually distinct, may be quite closely related and even inextricably intertwined. For example, in the product world, Gillette uses its pricing strategy of selling inexpensive razors to make customers buy its more expensive blades. A business model lays the foundations for a company’s value capture by codefining (along with the company’s products and services) the overall “size of the value pie” (that is, the total value that is created), which can be considered an upper limit to the company’s value capture. 22 The greater the total value created through the innovative business model, and the greater a company’s bargaining power, the greater the amount of value that the company can appropriate. 23

Caveats. As the Better Place example suggests, business model innovators need to bear in mind that identifying technologically or strategically distinct activities can be conceptually challenging, because the number of potential activities is often quite large. 24 Many seemingly inseparable activities can now be broken down even further, especially given ongoing advances in information and communications technologies. 25 (This, of course, represents not only a conceptual challenge but also an opportunity for innovative managers to redesign the activity systems of their organizations in novel ways.)

What’s more, making changes to a company’s whole activity system rather than optimizing individual activities (such as production) requires systemic and holistic thinking, which can be demanding. When responding to a crisis, operating in tough economic times or taking advantage of a new opportunity, rethinking an entire business model may not always be the first thing on a manager’s mind. This is particularly true when the level of resistance to change is predicted to be high. As a result, choices on business model design often go unchallenged for a long time.

Six Questions to Ask Before Launching a New Model

Our research shows that in a highly interconnected world, especially one in which financial resources are scarce, entrepreneurs and managers must look beyond the product and process and focus on ways to innovate their business model. A fresh business model can create and exploit opportunities for new revenue and profit streams in ways that counteract an aging model that has tied a company into a cycle of declining revenues and pressures on profit margins. 26 We suggest that managers ask themselves the following six key questions as they consider business model innovation:

1. What perceived needs can be satisfied through the new model design?

2. What novel activities are needed to satisfy these perceived needs? (business model content innovation)

3. How could the required activities be linked to each other in novel ways? (business model structure innovation)

4. Who should perform each of the activities that are part of the business model? Should it be the company? A partner? The customer? What novel governance arrangements could enable this structure? (business model governance innovation)

5. How is value created through the novel business model for each of the participants?

6. What revenue model fits with the company’s business model to appropriate part of the total value it helps create?

To illustrate how managers might productively and proactively use these questions, consider the business model of McGraw-Hill’s book publishing business. 27 In the U.S., general and trade books (including consumer titles and celebrity author books) represent about 55% of industry revenues, while academic and professional books generate the remainder. Until recently, only in business-to-business and academic text segments have websites been a true marketing platform for digital content. While e-readers such as the Kindle and the iPad are now rapidly gaining popularity, the time-consuming and expensive book publishing process had not changed in a material manner in many decades. However, Google, Amazon and other competing information and content providers have stimulated a growing customer interest in electronic formats. Publishers in the U.S. and Europe are searching for solutions to meet the emergent demand for creating and delivering digital content on portable devices while preserving and enhancing value.

Meeting the demand for digital content may require publishers to perform new activities ( new business model content ). Although it is unlikely that the traditional hardback/paperback book will disappear, it is expected that the demand for printed publications will fall sharply. If printing and physical distribution become less relevant in the process, the time it now takes to add a new title to a catalogue and to bookstore shelves will be reduced. Accordingly, designing, uploading and maintaining the most complete online catalogue may become a central new activity in publishers’ business models. In addition, to the extent that publishers decide to bypass traditional retail bookstores in their new business models, they will have to develop a new marketing activity targeting retail buyers. Production will need to change as well. Creating content with a digitally enabled streamlined process is another activity 21st-century publishers will probably need to incorporate into their new business models.

Linking the various activities to each other, sequencing these linkages and deciding how stakeholders will interact with one another in the new business models requires careful consideration ( new business model structure ). For example, the ways in which McGraw-Hill decides to interact with multiple digital distribution partners such as Apple and Amazon, through which McGraw-Hill distributes digital content to retail consumers, will affect the breadth of the company’s access to the retail digital book market. The linkages among content creators, including authors, editors, other publishing professionals and distributors, will constitute the heart of the new business model. These linkages must reflect alternatives available to authors — such as bypassing publishers altogether — as well as approaches adopted by competing publishers.

Determining whether McGraw-Hill or another partner will carry out each of the activities of the new business model requires a careful consideration of trade-offs ( new business model governance ). For example, should the publisher’s content be delivered through a new McGraw-Hill branded device, or by proprietary devices offered by such partners as Amazon (with its Kindle) or Apple (with its iPad), thereby leveraging their existing position in the market? Or should its content be delivered through Internet-based platforms compatible with a broad range of devices, enabling global distribution? These are crucial governance decisions that a new publishing model will answer.

Publishers’ new business models will create value through the complementarities and interdependence among activities and through the enormous efficiencies in the publishing process that the new business models could generate. A number of alternative revenue models associated with these new business models could be considered, such as single subscription pricing independent of the number of downloaded manuscripts, piecemeal pricing and/or value-based pricing for time-sensitive publications.

Taking a Systemic View

Addressing the six questions outlined above can help managers see their companies’ identities more clearly in the context of the networks and ecosystems in which their organizations operate. Without a business model perspective, a company is a mere participant in a dizzying array of networks and passive entanglements. Adopting the business model perspective can help executives purposefully structure the activity systems of their companies; the purposeful design and structuring of business models is a key task for general managers and entrepreneurs and can be an important source of innovation, helping the company look beyond its traditional sets of partners, competitors and customers. Most importantly, perhaps, this approach encourages systemic and holistic thinking when considering innovation, instead of isolated, individual choices. The message to executives is clear: When you innovate, look at the forest, not the trees — and get the overall design of your activity system right before optimizing the details.

Acknowledgments

Raphael Amit acknowledges support from the Robert B. Goergen Chair in Entrepreneurship at the Wharton School. Christoph Zott acknowledges financial support from the IESE Research Division and from the Ministry of Science and Innovation of Spain (grant ECO 2009-12852). Both authors gratefully acknowledge the financial support of the Wharton-INSEAD Alliance Center for Global Research & Development and also thank Yuliya Snihur, Cesar Guzman-Concha and Sylvie Beauvais for valuable research assistance.

1. “Business 2010: Embracing the Challenge of Change,” white paper, Economist Intelligence Unit, New York, February 2005, p. 9.

2. G. Pohle and M. Chapman, “IBM’s Global CEO Report 2006: Business Model Innovation Matters,” Strategy & Leadership 34, no. 5 (2006): 34-40.

3. Ibid., 36.

5. “Business 2010,” Economist Intelligence Unit, 10.

6. R. Casadesus-Masanell and J.E. Ricart, “Competing Through Business Models,” working paper 713, IESE Business School, Barcelona, Spain, November 2007.

7. R. Amit and C. Zott, “Value Creation in e-Business,” Strategic Management Journal 22, no. 6-7 (June-July 2001): 493-520.

8. C. Zott and R. Amit, “The Fit Between Product Market Strategy and Business Model: Implications for Firm Performance,” Strategic Management Journal 29, no. 1 (January 2008): 1-26.

9. C. Loch, C. Zott, A. Guttman, P. Jokela and D. Nahmias, “FriCSo (A): How to Translate a New Technology into a Business (Model),” case no. 608-025-1 (Fontainebleau, France: INSEAD, 2008); C. Loch, C. Zott, A. Guttman, P. Jokela and D. Nahmias, “FriCSo (B): Designing the New Business Model,” case no. 608-026-1 (Fontainebleau, France: INSEAD, 2008); C. Loch, C. Zott, A. Guttman, P. Jokela and D. Nahmias, “FriCSo (C): Executing the New Business (Model),” case no. 608-027-1 (Fontainebleau, France: INSEAD, 2008); and C. Zott, B. Biren and I. Bancerek “Webraska: Evolving with the Wireless Market,” case no. 802-008-1 (Fontainebleau, France: INSEAD, 2003).

10. E. Brynjolfsson and L. Hitt, “Intangible Assets and the Economic Impact of Computers,” in “Transforming Enterprise,” ed. W. Dutton, B. Kahin, R. O’Callaghan and A.W. Wyckoff (Cambridge, Massachusetts: MIT Press, 2004), 27-48.

11. See L. Applegate, L. Schlesinger and D. Delong, “Taco Bell, Inc.: 1983-94,” case no. 9-398-129 (Boston: Harvard Business School, 2001).

12. J. Santos, B. Spector and L. Van Der Heyden, “Toward a Theory of Business Model Innovation Within Incumbent Firms,” working paper 2009/16/EFE/ST/TOM, INSEAD, Fontainebleau, France, 2009.

13. We note in this context that although the “what” of the business model may change (i.e., what activities are included), the “what” of the customer offering (i.e., what product or service the customer buys) may or may not remain unchanged.

14. Amit and Zott, “Value Creation.”

15. S. Banerjea, R. Kahn, C. Petit and J. White, “Dare to be Different: Why Banking Innovation Matters Now,” executive brief, IBM Institute for Business Value, Somers, New York, 2006.

16. H. Chesbrough, “Open Business Models” (Boston: Harvard Business Review Press, 2006).

17. K. Nagayama and P. Weill, “7-Eleven Japan Co. Ltd.: Reinventing the Retail Business Model,” CISR WP 338 and MIT Sloan WP no. 4485-04 (Cambridge, Massachusetts: MIT Sloan School of Management, January 2004).

18. B. Stelter, “Group of Magazine Publishers Is Said to Be Building an Online Newsstand,” New York Times, Nov. 25, 2009, sec. B, p. 3; also see www.nextissue.com.

19. Amit and Zott, “Value Creation.”

21. www.betterplace.com .

22. A. Brandenburger and H.W. Stuart, Jr., “Value-Based Business Strategy,” Journal of Economics and Management Strategy 5, no. 1 (March 1996): 5-24.

23. C. Zott and R. Amit, “Business Model Design and the Performance of Entrepreneurial Firms,” Organization Science 18, no. 2 (2007): 181-199.

24. M.E. Porter, “Competitive Advantage: Creating and Sustaining Superior Performance” (New York: The Free Press, 1985).

25. F. Santos, “Toward an Entrepreneurial Theory of Boundaries: The Scalability of Firms in Nascent Markets,” unpublished manuscript.

26. Zott and Amit, “Business Model Design”; Zott and Amit, “Fit Between Product Market Strategy and Business Model.”

27. The McGraw-Hill Companies are active in the financial services, education and business information markets through leading brands such as Standard & Poor’s, McGraw-Hill Education and J.D. Power and Associates.

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RESTART Sustainable Business Model Innovation

• Open Access
• © 2018

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• Sveinung Jørgensen 0 ,
• Lars Jacob Tynes Pedersen 1

Inland Norway University of Applied Sciences, Lillehammer, Norway

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NHH Norwegian School of Economics, Bergen, Norway

• Outlines a new framework for sustainable business model innovation: RESTART
• Combines theory with contemporary case studies
• Offers practical recommendations for companies and organizations to contribute to a sustainable future

Part of the book series: Palgrave Studies in Sustainable Business In Association with Future Earth (PSSBAFE)

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Table of contents (17 chapters)

Front matter, why sustainable business model innovation.

• Sveinung Jørgensen, Lars Jacob Tynes Pedersen

The Seven Steps of the RESTART Framework

Restart: what, why, how and so what, roadmap to a restart, redesign rather than standstill, experimentation rather than turnaround, service-logic rather than product-logic, the circular rather than the linear economy, alliances rather than solo-runs, results rather than indulgences, three-dimensionality rather than one-dimensionality, restart before it is too late, a recap of the restart framework, a process model for sustainable business model innovation, avenues for future research, case study: a restart for scanship.

• business model innovation
• circular economy
• sustainability
• sustainable business
• corporate responsibility
• open access
• corporate social responsibility

About this book

Taking the business model as point of departure, this open access book explores how companies and organizations can contribute to a more sustainable future by designing innovative models that are both sustainable and profitable. Based upon years of research, it draws together theoretical foundations and existing literature on the topic of sustainable business alongside case studies and practical solutions. After examining the theoretical foundations of sustainable business model innovation, the authors present their own framework – RESTART. Consisting of seven factors, this framework can be the basis for restarting any business model. The final section outlines a research agenda for sustainable business informed by the perspectives and frameworks put forward in this book.

“The sustainable business agenda is mainstreaming at last, a process that coincides with the evolution and deployment of radically different mindsets, technologies and business models. Entire industries and economies will be disrupted. In RESTART , Sveinung Jørgensen and Lars Jacob Tynes Pedersen indicate where this grand convergence is now headed – and explain how business leaders and their organisations can help drive the necessary system change. Recommended reading.” (John Elkington, Chairman & Chief Pollinator, Volans)

“RESTART represents a thoughtful, well-researched and extremely practical approach to making business models sustainable for the future. Thefield of sustainability has lacked a comprehensive and practical approach for sustainable business model innovation, and RESTART fills this vital need. The case studies illustrate the framework in illuminating ways that senior executives can readily understand and use.” (Ram Nidumolu, CEO, Academy for Innovation & Management, award-winning HBR author)

“In the effort to solve the big sustainability challenges of our time, innovative business models are essential. In this book, Jørgensen and Pedersen show how companies can turn problems into solutions by giving their business models a RESTART. This book gives managers the tools for contributing to build a sustainable future.” (David Katz, Founder and CEO, The Plastic Bank)

“In RESTART Sustainable Business Model Innovation , Jørgensen and Pedersen offer a practical and inspiring framework for designing more sustainable business models. The book offers rich material on companies that aim to align sustainability and profitability, both in the Nordic setting and beyond. RESTART is a valuable read for practitioners and scholars alike.” (Robert Strand, Executive Director & Lecturer, Center for Responsible Business, Haas School of Business, University of California, Berkeley and Associate Professor of Leadership & Sustainability, Copenhagen Business School)

“Sustainability-oriented business models and their practical development are an increasingly important topic – for both academics and practitioners. To this day, we are missing consistent educational materials and frameworks that can be used in the classroom and in practice. Jørgensen and Pedersen address this gap with their innovative and well-crafted RESTART framework. A must read for every instructor, manager, and entrepreneur aiming for business models that contribute to sustainable development while they are successful in the market.” (Florian Lüdeke-Freund, Chair for Corporate Sustainability, ESCPEurope Business School, Berlin)

“The RESTART framework is a guideline to manage sustainability in the 4th Industrial Revolution. Sustainability continues to be unescapable for business managers but its challenges have now been combined with those of the 4th Industrial Revolution and its massive need for business innovation. This book will interest those operating in developing countries, such as Brazil, because some of the solutions to our social and environmental challenges are already a great business opportunity, with sustainability and innovation walking hand in hand.” (Annelise Vendramini, Professor, Sao Paulo School of Business Administration, Fundação Getulio Vargas)

 “Jørgensen and Pedersen have written an authoritative book that draws together theories on innovation, business models, and sustainability in the unified RESTART framework. Their book may help resolve societal challenges related to climate, health, food waste, energy and many others. I was fascinated by their illuminating examples and case descriptions which explained theoretical insights and made the book  easy to read. RESTART Sustainable Business Model Innovation is a must read for researchers, managers, and policy makers!” (Per Skålén, Professor of Business Administration, Service Research Center, Karlstad University)

“What we need now more than anything is to co-create a regenerative world where people thrive, do business consciously, lead with compassion and where our production is based on circularity. With RESTART the academic sustainability rock stars Jørgensen and Pedersen show how companies can contribute to such a thriving, regenerative future. Read their book. Get inspired, motivated and then get to work. We can do this.” (Laura Storm, Founder of Regenerators, Co-creator of Sustaina)

“Jørgensen and Pedersen explain how to avoid trade-offs between financial performance and externalities. They have developed a good frameworkthat emphasize the need for innovation and new business models that also serve the customers better in order to achieve this, hence creating win-win. A RESTART is needed to future-proof your business.” (Reynir Indahl, Managing Partner, Summa Equity)

Authors and Affiliations

Sveinung Jørgensen

Lars Jacob Tynes Pedersen

About the authors

Sveinung Jørgensen is Associate Professor at Inland Norway University of Applied Sciences, Norway. He holds a PhD degree from Karlstad University. He does research on the design and innovation of sustainable business models and field experiments on socially and/or environmentally beneficial behaviours. He serves on numerous boards, acts as a strategic business advisor and is an active public speaker.

Lars Jacob Tynes Pedersen is Associate Professor and head of the Centre of Ethics and Economics at NHH Norwegian School of Economics, Norway. He holds a PhD degree from the same institution. He does research on the design and innovation of sustainable business models and field experiments on socially and/or environmentally beneficial behaviours. He is an active public speaker and strategic business advisor.

Bibliographic Information

Book Title : RESTART Sustainable Business Model Innovation

Authors : Sveinung Jørgensen, Lars Jacob Tynes Pedersen

Series Title : Palgrave Studies in Sustainable Business In Association with Future Earth

DOI : https://doi.org/10.1007/978-3-319-91971-3

Publisher : Palgrave Macmillan Cham

eBook Packages : Business and Management , Business and Management (R0)

Copyright Information : The Editor(s) (if applicable) and The Author(s) 2018

Hardcover ISBN : 978-3-319-91970-6 Published: 13 August 2018

Softcover ISBN : 978-3-030-06338-2 Published: 08 January 2019

eBook ISBN : 978-3-319-91971-3 Published: 31 July 2018

Series ISSN : 2662-1320

Series E-ISSN : 2662-1339

Edition Number : 1

Number of Pages : XXIII, 253

Number of Illustrations : 26 b/w illustrations

Topics : Sustainability Management , Corporate Social Responsibility , Business Strategy/Leadership

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