Institute of Management andOrganizational Behavior

07-03-2014

The Process of Business Model

Innovation in New Ventures

Dipl.-Ök. Christopher Kulins

To be presented at the 2014 EGOS Colloquium, Rotterdam

Dipl.-Ök. Christopher Kulins – Institute of Management and Organizational Behavior

Institute of Management and OrganizationalBehavior

2

Definition: Business Model

“the heuristic logic that connects technical potential with the realization of economic value”

„the content, structure, and governance of transactions designed so as to create value through the exploitation of business opportunities”

“an architecture of the product, service and information flows, including a description of the various business actors; a description of the potential benefits for the various business actors; a description of the sources of revenues”

Working Definition: the business model is understood as a boundary-spanning concept that takes notice of the different components a firm is composed of and points to the interplay between them in order to explain how the focal firm creates and captures

value

Chesbrough, Rosenbloom(2002)

Amit & Zott(2001)

Timmers (1998)

General Topic –Business Models

General Topic –Business Model Innovation

Research Question

Data CollectionandMethodology

Results

Limitations

Contribution

Dipl.-Ök. Christopher Kulins – Institute of Management and Organizational Behavior

Institute of Management and OrganizationalBehavior

3

Business Model Components

General Topic –Business Models

General Topic –Business Model Innovation

Research Question

Data CollectionandMethodology

Results

Limitations

Contribution

Business Model

Compo-nents

Value Proposition

“the value creating insight on which the firm turns” (Magretta 2002)

aggregated view of the firms value bundle a company delivers to its stakeholders in the form of products and services

Resources & Competences

Resources refer to the assets that are necessary to deliver the value proposition and

enable differentiation (Johnson 2008)

Competences describe the abilities and knowledge managers develop in order to advance, recombine or alter the services

their resources can offer (Demil 2010)

Organizational Structure

Referring to the focal firm’s activities and its linkages with other organizations, the organizational structure covers the value chain of activities (Porter 1985) and the value network (Stabell 1998)

Economic Model

provides the logic for capturing part of the value created: revenue model, cost structure, margin model and resource velocity (Johnson 2008; Morris 2005)

Dipl.-Ök. Christopher Kulins – Institute of Management and Organizational Behavior

Institute of Management and OrganizationalBehavior

4

Business Model Innovation (Outcome)

Definition: Business model innovation can be defined as a novel approach of how to create and capture value, which is accomplished through a severe modification of one or various business model components (Amit 2000; Chesbrough 2010; Comes 2008; Demil 2010; Frankenberger 2013; Lindgardt 2013; Mitchell 2003; Santos 2009; Teece

2010)

Economic Model

Resources & Competences

Organizational Structure

Value Proposition

Examples

General Topic –Business Models

General Topic –Business Model Innovation

Research Question

Data CollectionandMethodology

Results

Limitations

Contribution

Dipl.-Ök. Christopher Kulins – Institute of Management and Organizational Behavior

Institute of Management and OrganizationalBehavior

5

Business Model Innovation (Process)

Definition: “the process of designing a new, or modifying the firm’s extant activity system” (Amit and Zott, 2010:2) or as “the discovery of a fundamentally different business model in an existing business” (Markides, 2006:20)

Process

Barriers Tools

Research Focus

Björk, 2012Gnatzy & Moser, 2012Eppler et al. 2011

Bouchikhi & Kimberly, 2013Chesbrough, 2010Doz and Kosonen, 2010

General Topic –Business Models

General Topic –Business Model Innovation

Research Question

Data CollectionandMethodology

Results

Limitations

Contribution

Dipl.-Ök. Christopher Kulins – Institute of Management and Organizational Behavior

Institute of Management and OrganizationalBehavior

6

Business Model Innovation (Process)

Authors Sample Findings

Frankenbergeret al. 2013

Diverse set of 14 German and Swiss firms

The overall structure of the business model innovation process can be described by four iterative phases: Initiation, ideation, integration & implementation.

Bucherer, E., Eisert, U., Gassmann, O. (2012)

Diverse set of 11 American German, Israeli& Swiss

The observed companies started with an analysis of the firm’s environment, followed by the design of several solution alternatives and their evaluation. In the implementation phase the model will be introduced to the market and thereafter continuously monitored in a control phase

Sosna et al. 2010

Naturhouse - Incorporating organizational learning literature- exploration and exploitation phase

... … …

General Topic –Business Models

General Topic –Business Model Innovation

Research Question

Data CollectionandMethodology

Results

Limitations

Contribution

Dipl.-Ök. Christopher Kulins – Institute of Management and Organizational Behavior

Institute of Management and OrganizationalBehavior

7

Research Question

All existing studies derive their insights from large corporations:

were an already existent and ongoing business provided the resources for the development of a new business model

which are often faced with phenomena of inertia as well as path dependency

whereat the business model has to cover various different markets and offerings

which might even run different business models in parallel

How does the process of business model innovation in new ventures take place?

General Topic –Business Models

General Topic –Business Model Innovation

Research Question

Data CollectionandMethodology

Results

Limitations

Contribution

Dipl.-Ök. Christopher Kulins – Institute of Management and Organizational Behavior

Institute of Management and OrganizationalBehavior

8

Data & Method

Method: Exploratory multi-case analysis using a grounded theory building approach (Strauss and Corbin, 1998)

Unit of Analysis: Business model (Zott, Amit & Massa 2011)

Sample: Four (eight) German ventures which were founded after 2009 and introduced a fundamentally new way of creating and capturing value into their industry. The cases were selected on the basis of the polar sampling procedure suggested by (Eisenhardt, 1989)

Data: Standardized-open, guideline-supported interviews, business plans, balance sheets, magazine articles, company websites, founder’s notes and site visits

General Topic –Business Models

General Topic –Business Model Innovation

Research Question

Data CollectionandMethodology

Results

Limitations

Contribution

Dipl.-Ök. Christopher Kulins – Institute of Management and Organizational Behavior

Institute of Management and OrganizationalBehavior

9

Results

OpportunityRecognition

Design ValidationImplementation

& Refinement

Scaling & Expansion

A prerequisite for the introduction of a business model innovation is the identification of an opportunity (Ardichvili, Cardozo, and Ray, 2003)

In line with the observation made by Bhave, 1994 some of our sample companies decided to start a venture before focusing on an opportunity

In other cases the recognition of an opportunity preceded the decision to found their company

General Topic –Business Models

General Topic –Business Model Innovation

Research Question

Data CollectionandMethodology

Results

Limitations

Contribution

Dipl.-Ök. Christopher Kulins – Institute of Management and Organizational Behavior

Institute of Management and OrganizationalBehavior

10

Results

OpportunityRecognition

Design ValidationImplementation

& Refinement

Scaling & Expansion

The entrepreneurial agents develop a first cognitive map about the business model, whereat the building blocks emerge in the form of first working hypotheses

Thereby, the development and iteration of these hypotheses is not as predictable as activities in other phases, since the magnitude of changes is immense

General Topic –Business Models

General Topic –Business Model Innovation

Research Question

Data CollectionandMethodology

Results

Limitations

Contribution

Dipl.-Ök. Christopher Kulins – Institute of Management and Organizational Behavior

Institute of Management and OrganizationalBehavior

11

Results

OpportunityRecognition

Design ValidationImplementation

& Refinement

Scaling & Expansion

As the entrepreneurial agents formed their mental models about promising business models on imperfect knowledge about market realities, they seek for further validation of their assumptions. Thereby, four different kinds of validation could be distinguished

Conversations with potential customers (The meager resource endowment at this stage is compensated with a broader set of options)

Assessment from industry experts (The establishment of first relevant contacts is a huge challenge, whereat their relevance cannot be overestimated)

Technical Feasibility (required technical competences on board)

Ensure access to financial resources

General Topic –Business Models

General Topic –Business Model Innovation

Research Question

Data CollectionandMethodology

Results

Limitations

Contribution

Dipl.-Ök. Christopher Kulins – Institute of Management and Organizational Behavior

Institute of Management and OrganizationalBehavior

12

Results

OpportunityRecognition

Design ValidationImplementation

& Refinement

Scaling & Expansion

In the fourth phase the business model gets introduced in a well-defined test market, where at the confrontation with market realities triggers further refinements.

As a response, the more successful companies in the sample further were able to craft powerful relationships with key players in the customer’s ecosystem actively incorporating them in their own business model

Apart, from financial benefits the strong incorporation of partners and customers further is used to derisk decisions about additional value propositions

In the context of the business model as a means of communication to external stakeholders the entrepreneurial agents in their need to obtain additional resources for the upcoming scaling phase communicate the model according to investor requirements

General Topic –Business Models

General Topic –Business Model Innovation

Research Question

Data CollectionandMethodology

Results

Limitations

Contribution

Dipl.-Ök. Christopher Kulins – Institute of Management and Organizational Behavior

Institute of Management and OrganizationalBehavior

13

Results

OpportunityRecognition

Design ValidationImplementation

& Refinement

Scaling & Expansion

General Topic –Business Models

General Topic –Business Model Innovation

Research Question

Data CollectionandMethodology

Results

Limitations

Contribution

Dipl.-Ök. Christopher Kulins – Institute of Management and Organizational Behavior

Institute of Management and OrganizationalBehavior

14

Contribution

OpportunityRecognition

Design ValidationImplementation

& Refinement

Scaling & Expansion

Initiation Ideation IntegrationImplemen-

tation

Analysis DesignImplemen-

tation Control

Kulins (2014)

Frankenberger (2013)

Bucherer (2010)

Mahadevan (2004)

Need Design Sustainability

General Topic –Business Models

General Topic –Business Model Innovation

Research Question

Data CollectionandMethodology

Results

Limitations

Contribution

Dipl.-Ök. Christopher Kulins – Institute of Management and Organizational Behavior

Institute of Management and OrganizationalBehavior

15

Limitations & Further Research

The empirical part of our study is restricted to four (eight) cases, which inevitably limits the generalizability of the presented findings

Future research could contribute with large scale empirical studies, considering a diverse set of different cases at the firm level (Schneider & Spieth 2013; Zott, Amit & Massa 2011)

The interdependencies of the business model with its underlying products and technologies were partly neglected

The emerging business practice to couple the product innovation process with a business model innovation process (Blank, 2013; Ries, 2011) hasn’t yet been incorporated into the academic discourse. Also, the enormous technological complexity often associated with radical innovations, for instance, might also impose difficulties on the business model itself, as the incorporation of partners into the firms organizational structure might be more difficult as in the case of incremental innovations

General Topic –Business Models

General Topic –Business Model Innovation

Research Question

Data CollectionandMethodology

Results

Limitations

Contribution

Institute of Management andOrganizational Behavior

07-03-2014

Thank you very much for your

attention!

Dipl.-Ök. Christopher Kulins