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Dynamic business models and business model innovation

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A concise lecture on current research on business models and business model innovations. Emphasis on dynamic aspects of business model.

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Dynamic business models and business model innovation

  1. 1. Business Models Strategic Global Marketing Management 25.9.2017 Tommi Rissanen tommi.rissanen@lut.fi Lappeenranta University of Technology School of Business and Management
  2. 2. Background Tommi Rissanen, 45, PhD student Experience - Projects with media and ICT companies in development agencies, universities and as an independent consultant in Lappeenranta, Tampere & Helsinki since 2002 - Thesis on business model experimentation due in 2018
  3. 3. (1) Definition and concept (2) Business model and strategy (3) Business model innovation (4) Business model dynamics and change (5) Business models in practice Agenda
  4. 4. Theoretical background BM exp. BMI BM Innovation Entrepreneurship Strategy Disc. driven planning Entrepr. opportunity Resource-based View of the firm Dynamic capabilities Strategic entrepreneurship Disruptive innovation
  5. 5. Business model definition “The essence of a business model is in defining the manner by which the enterprise delivers value to customers, entices customers to pay for value, and converts those payments to profit. It thus reflects management’s hypothesis about what customers want, how they want it, and how the enterprise can organize to best meet those needs, get paid for doing so, and make a profit.” – Teece (2010) “Business model consists of four elements: a customer value proposition, a profit formula, key resources and key processes.” – Casadesus-Masanell & Ricart (2011) ” Business models are stories that explain how enterprises work. They answer to the following questions: 1) who is the customer, 2) what does the customer value, 3) how do we make money in this business, and 4) what is the underlying economic logic that explains how we can deliver value to customers at an appropriate cost” – Magretta (2002) “two core components: (1) the basic ‘unit of business’, what customers pay for; and (2) process or operational advantages, captured in a set of ‘key metrics’ that allow a firm to deliver superior performance. – McGrath (2010)
  6. 6. What are the common ingredients of business models Value creation - Processes - Resources Value proposition Value capture - Revenue model Business Model Exploitation Exploration Value Creation Value propositi on Value Capture Effects
  7. 7. (1) Definition and concept (2) Business model and strategy (3) Business model innovation (4) Business model dynamics and change (5) Business models in practice Agenda
  8. 8. Relationship between Business Model and Strategy As described, a business model is more generic than a business strategy. Coupling strategy analysis with business model analysis is necessary in order to protect whatever competitive advantage results from the design and implementation of new business models. Selecting a business strategy is a more granular exercise than designing a business model. Coupling competitive strategy analysis to business model design requires segmenting the market, creating a value proposition for each segment, setting up the apparatus to deliver that value, and then figuring out various ‘isolating mechanisms’ that can be used to prevent the business model/strategy from being undermined through imitation by competitors or disintermediation by customers. – Teece (2010)
  9. 9. Business model, strategy and tactics Casadesus-Masanell & Ricart (2010) “A strategy is a contingent plan of action as to what business model to use. The firm’s available actions for strategy are choices (of policies, assets or governance structures) that constitute the raw material of business models. Thus, strategy entails designing business models (and redesigning them as contingencies occur) to allow the organization to reach its goals. Business models are reflections of the realized strategy.”
  10. 10. (1) Definition and concept (2) Business model and strategy (3) Business model innovation (4) Business model dynamics and change (5) Business models in practice Agenda
  11. 11. What is business model innovation Business model innovation can be manifested in three ways: (1) a form of innovation themselves; (2) business model for innovative new technologies or services; and (3) re-formulation of business model to fulfil new customer needs and business environments.- (Trimi & Berbegal-Mirabent 2012) Business model innovation has been argued to represent a firm's response to changing sources of value creation. Meanwhile, minor, continuous changes to the extant business model of a firm primarily require a firm to focus on the usage of its resources and competences as - (Schneider & Spieth 2013)
  12. 12. Business model innovation Schneider & Spieth (2013)
  13. 13. Business model innovation framework (Clauss 2017)
  14. 14. (1) Definition and concept (2) Business model and strategy (3) Business model innovation (4) Business model dynamics and change (5) Business models in practice Agenda
  15. 15. Business model dynamics Business model analysis also gives us a sense of firms in action. But this dynamic perspective is not central to two ideas about the genesis of competitive advantage that are well- accepted in strategy: the industry positioning view or the so-called resource-based or dynamic capability view. The positioning school has long proposed that what firms need to do to succeed is to find a truly differentiated and defensible position within an industry and execute relentlessly against that position. The capability school argues instead that advantage stems from having difficult-to- copy resources that are often built up over long periods of time. - McGrath 2010
  16. 16. Achtenhagen et al. (2013)
  17. 17. Concluding points on business model theories There are various interpretations to the concept, but the core elements in most are value creation, value proposition and value capture Business models and strategy are related concepts, but there is an ongoing discussion on the hierarchy between the two. Business model innovation too can be explained in different ways depending on the context. However, business model innovation leans more towards radical exploitation and exploration activities rather than incremental adjustment and development of existing business models Dynamic nature of business models is an increasingly important and interesting approach aiming to understand the cyclical processes and ways of continuously experimenting with business models. There are discrepancies on the definitions of the concepts – but that is the nature of our field of science. There are no absolute truths
  18. 18. (1) Definition and concept (2) Business model and strategy (3) Business model innovation (4) Business model dynamics and change (5) Business models in practice Agenda
  19. 19. https://strategyzer.com/canvas/business-model-canvas
  20. 20. https://strategyzer.com/canvas/value-proposition-canvas
  21. 21. Primary value proposition Customer need Value prop Value prop Value prop Value prop Customer need Customer need Value propositions and customer needs
  22. 22. Custo- mer seg- ments Processes Resources Value proposition Business model Revenue model
  23. 23. Literature Achtenhagen, L., Melin, L. & Naldi, L., 2013. Dynamics of business models - strategizing, critical capabilities and activities for sustained value creation. Long Range Planning, 46, pp.427–442. Casadesus-Masanell, R. & Ricart, J.E., 2010. From strategy to business models and onto tactics. Long Range Planning. Clauss, T. (2017). Measuring business model innovation: conceptualization, scale development, and proof of performance. R and D Management, 47(3), 385–403. Magretta, J., 2002. Why Business models matter. Harvard Business Review, May, pp.86–92. McGrath, R.G., 2010. Business models: A discovery driven approach. Long Range Planning, 43(2–3), pp.247–261. Schneider ’, S. & Spieth^, P., 2013. Business Model Innovation: Towards an Integrated Future Research Agenda. International Journal of Innovation Management ^ imperial College Press, 1734(1). Teece, D.J., 2010. Business models, business strategy and innovation. Long Range Planning, 43(2–3), pp.172–194. Trimi, S. & Berbegal-Mirabent, J., 2012. Business model innovation in entrepreneurship. International Entrepreneurship and Management Journal, 8(4), pp.449–465.