Business Models

Innovation, Digital Transformation, and Analytics

Iwona Otola, Marlena Grabowska, Iwona Otola, Marlena Grabowska

• Publisher: Auerbach Publications
• Year: 2020
• ISBN:
  9781000097795
• Edition: 1
• Topic: Informatique
• Subtopic: Bases de données

Since the beginning of time, running a business has involved using logic by which the business operates. This logic is called the business model in management science, which increasingly is focusing on issues surrounding business models. Research trends related to business models include value creation, value chain operationalization, and social and ecological aspects, as well as innovation and digital transformation. Business Models: Innovation, Digital Transformation, and Analytics examines how innovation, digital transformation, and the composition of value affect the existence and development of business models.

The book starts by addressing the conceptual development of business models and by discussing the essence of innovation in those models. Chapters in the book investigate how:

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• Business models can analyze digital transformation scenarios

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• Individual business model elements effect selected performance measures as well as how the elements are significant for the enterprise value composition

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• The environment effects the profitability of the high-growth enterprise business models

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• Employer branding business models are perceived by the generation Z workforce

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• To implement responsible business models in the enterprise

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• Cyber risk is captured in business models

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• Decision algorithms are important to business analytics

This book is a compendium of knowledge about the use of business models in the context of innovative activities, digital transformation, and value composition. It attempts to combine the theory and practice and offers a look at business models currently used in companies, especially high-growth enterprises, in various countries of the world and indicates the prospects for their development.

1

Innovation in
Business Models

MARLENA GRABOWSKA,
IWONA OTOLA, AND
KATARZYNA SZYMCZYK

Contents

• 1.1 Introduction
• 1.2 Development of the Business Model Concept
• 1.3 Essence of Innovative Activities in the Business Model
• 1.4 Typology of Innovative Activities in Business Models
• 1.5 Conclusion
• References

1.1 Introduction

Modern organizations are being put under pressure related to maintaining the competitive advantage in the ever-changing environment. The heterogeneous economic conditions for enterprises' operation often impose the need for innovative solutions in various areas of their activity. Jensen and Sund (2017) suggest that awareness of the need to find new solutions in a business model is usually initiated by changes perceived in the external environment, such as changes in customer expectations. Enterprises continuously look for new operation methods, which could improve their competitive position. An effective way of confronting environmental challenges is the implementation of innovation into a business model (Fjeldstad and Snow, 2018). Innovative solutions may be introduced in the product, process, or organization areas. The system of connections and cause-effect relations established between individual elements of a business model should be flexible enough to accept modifications and support innovation. A new solution implemented in a business model not always equals the achievement of market success. Nevertheless, enterprises decide to introduce innovation related to their business model in order to maintain the value generated at the previous level or to try to increase this value creation level.

The purpose of this chapter is to discuss, based on literature studies, the concept of innovative solutions in business models. The theoretical nature of this analysis imposes two significant diagnostic requirements related to the problem research procedure. The first is the necessity of introducing theoretical foundation for the importance of innovation in business models being discussed, and the second is the identification of key directions of innovative activities. The basis for achieving such purpose is the analysis of the business model interpretation and its features that allows to discover the conceptual assumptions for the business model as well as innovative activities implemented in it.

1.2 Development of the Business Model Concept

The problem of business models has been becoming more important recently, both in theoretical and practical context. It is the subject of numerous scientific and popular science publications, the issue addressed and discussed at scientific conferences, and also the essence of business meetings and the subject of discourse at meetings of various management bodies. In scientific terms, the source of this concept should be identified with the 1957 publication of Bellman et al. on multiplayer business games. However, only in the late 1990s the issue of business models became broadly discussed and cited in the subject literature. Sorrentino and Smarra (2015) indicate that it is a direct consequence of three different factors: the advent of the Internet, rapid growth in emerging markets, and the development of the industry and organizations dependent on post-industrial technologies.

The growth of the business model topic is also related to its multi-criteria concept and the emphasis on its various aspects. The following overview of selected definitions of the business model idea allows to extract the key concepts that reflect the basic approach to this problem as well as the development of its perception in the subject literature.

One example of the early attempts to interpret the business model concept can be the publication by Boulton et al. (1997), who emphasize this is a unique combination of tangible and intangible assets, providing an organization with the ability to create value. Timmers (1998) defined the business model as an architecture for products, services, and information streams, containing a description of various business activities and their roles. The author also stated that it is a description of benefits for various business entities and also of revenue sources. On the other hand, Venkatraman and Henderson (1998) indicated that the structure of a business model is created through the harmony of three vectors (i.e., customer interaction, acquiring resources, and expanding knowledge) and a strong IT platform.

Some approaches may be distinguished from the later studies on the business model that define it as a concept consisting of numerous related elements. Amit and Zott (2001) indicated the business model as describing a transaction element's design, structure, and management in a way that allows for value creation based on the use of emerging business opportunities. Hamel (2000) identifies the business model concept as customer relations, compositions of key strategies, strategic resources, and value networks. Magretta (2002) investigates this issue from a more general perspective and states that business models are stories explaining how a company operates. The author also claims that a good business model should answer the following questions: Who is the customer? What is the value for the customer? How do we make money in this business? What is the underlying economic logic that explains how we can deliver value to customers at an appropriate cost?

Definitions of the business model often point various factors characterizing this problem out. However, scientific studies reveal leading and often similar categories emphasizing the essence of the business model. Wagner et al. (2015), in this context, note that approaches interpreting the business model may demonstrate similar elements describing this issue.

In many approaches, the business model is being related to the “dominant logic” concept. Prahalad and Bettis (1986) understood this term as a set of norms and principles that should be followed by managers in order to organize a company operation properly as well as try to pursue and use emerging market opportunities. This approach emphasizes the rationality feature in the company functioning. Osterwalder and Pigneur (2002) wrote in this context that it is natural that every owner and manager is familiar with the principles of their company operations and the logic behind its value creation, meaning that they understand the business model of the company. Many definitions of business models include references to company operation logic. Shafer et al. (2005) indicate that the business model base refers to the logic determining the creation and maintenance of value. This concept is defined in a similar context by Linder and Cantrell (2000), who claim that in brief approach the business model may be described as a basic logic guiding organizations that create value. On the other hand, Chesbrough and Rosenbloom (2002) indicated that the business model is a heuristic logic combining the potential of technology with the outcome of economic value.

Further, interpretations of the “business model” concept introduced above illustrate that its essence is also largely associated with the category of value. The concept of value is one of the basic components of those definitions. However, researches in this field highlight various aspects of value. Osterwalder and Pigneur (2010) indicated that a business model identifies how a given organization creates, provides, and captures value. When referring value to the entity to which it is attributed, the business model definitions also mention direct beneficiaries of value, that is, customers as well as enterprises acquiring value. In this context, Teece (2010) states that a business model is a description of the logic, the data, and other elements that are the basis for value offered to customers, as well as a clear distribution of revenues and costs for enterprises that deliver the value. The subject literature reveals a similar interpretation defining the business model as a method of running the business, expressed by determining how an enterprise produces value, by establishing the place of a given enterprise among its partners in the value chain, and by identifying a form of cooperation with customers who generate revenues (Rappa, 2004). Therefore, the value generated according to the business model construction serves the enhancement of customer relations and thus contributes to the stronger competitive position of the enterprise.

The business model interpretations presented above emphasize its significant role in value creation. In theoretical approach, value is a dominant dimension of a business model. When drawing conclusions from the semantic analysis of the business model concept, it may be indicated that its proper construction and effective implementation into the enterprise favor value creation. Thus, in the context of ensuring the enterprise's ability to generate value, it becomes crucial to be able to introduce changes and innovative solutions in a business model.

1.3 Essence of Innovative Activities in the Business Model

Modern turbulent economic conditions keep making it necessary to introduce innovation into various areas and spheres of activity. In order to effectively respond to ever-changing market requirements, enterprises have to improve currently manufactured products and work on creating completely new products or technological solutions. Therefore, an organization's operation is immanently associated with the innovation concept, which should also refer to enterprise activities logic, thus affecting the verification of a business model and adapt it to market conditions. It should be emphasized that the useful life of a business model is limited, and it becomes necessary to introduce innovation into the model.

The literature on the subject indicates that innovation in business models is a change in the enterprise business logic (Teece, 2010). Innovation in business models is also interpreted as changes introduced in the area of creating, delivering, and capturing mechanisms that encourage customers to pay for value (Baden-Fuller and Morgan, 2010; Teece, 2010). On the other hand, Johnson et al. (2008) perceive business model innovation as a very strong means of management that helps companies in their struggle with modern global market conditions of competition and dynamic changes. Thus, it has been highlighted that practitioners from a wide variety of industries actively seek guidance on how to innovate their business models in order to improve their ability to both create and capture value (Casadesus-Masanell and Ricart, 2010).

It should be noticed that innovation in business models may refer both to enterprises already operating on the market and holding an established position and to entities creating new business models in the form of a start-up. Much smaller part of the literature focuses on incumbent companies that already have established business models, and their decisions to add new business models that can be disruptive (Bogers et al., 2015; Kim and Min, 2015; Sosna et al., 2010). Enterprises operating on the market look for new business models that can be added to the models already existing in the enterprise, or can replace some existing model with a new solution. The literature on business models indicates that developing new business models in particular (as opposed to simpler incremental product improvements) poses a challenge for innovative entities (Friis-Holm Egfjord and Sund, 2020). The existing cognitive barriers may result in the introduction of incorrect solutions in implemented innovative activities, as innovative directions of business models depend on the interpretation and perception of external factors affecting the companies. Friis-Holm Egfjord and Sund (2020) prove that such perceptual differences can help to explain one of the open questions of innovation management: Why do so many incumbents appear to fail at radical business model innovation? The reason for the failure of innovation in business models may originate from the differences in perception which changes in the environment are ...

Table of contents

• Cover
• Half Title
• Series Page
• Title Page
• Copyright Page
• Contents
• Preface
• Editors’ Biographies
• Contributors’ Biographies
• Acknowledgments
• Chapter 1 Innovation in Business Models
• Chapter 2 Business Models in the Digital Transformation Era
• Chapter 3 Value Composition for Business Models of High-Growth Enterprises
• Chapter 4 The Variety of Aspects of Business Models in the High-Growth and High-Tech Enterprises: An Estonian Case
• Chapter 5 External Conditions of Profitability of Business Models of High-Growth Enterprises
• Chapter 6 Analyzing the Employer Branding Business Models Based on Primary Research Results
• Chapter 7 Models of Responsible Business: CSR from Social and Economic Perspective
• Chapter 8 Cyber Protection: Industrialized Assessments for Analyzing Cyber Risk
• Chapter 9 Applied Data Analytics
• Index