Q: Where is the boundary/difference between classic strategy as competitive positioning and the business model? For example, is offering a distinctively more reliable dishwasher a "new" business model? Is having only female drivers a novel business model for ride-sharing companies?
- The business model as we define it refers to the content, structure, governance and value logic of a focal firm’s activity system; it is indeed important to understand what a business model is not!
- The business model is not product-market positioning strategy, so offering a distinctively more reliable dishwasher is not a new business model
- The business model is also not about conducting a single activity within a focal firm in a different manner, so having only female drivers is not a novel business model for ride-sharing companies
Q: At the core of a business model is the firm’s value proposition. How does this relate to BMI strategy?
- A value proposition is a hypothesis formulated by a focal firm about how much value it creates for a stakeholder by way of providing tangible as well as intangible benefits that fulfill the stakeholder’s needs, net of any costs that the stakeholder incurs and/or perceives
- BMI strategy, on the other hand, refers to the choices entrepreneurial leaders must make with respect to:
- The design of a new system of activities (What? How? Who? Why?);
- The processes, including their antecedents, by which the new activity system is created and implemented;
- The management and ongoing adaptation of the new activity system to ensure coherence (i.e., internal, external and strategic fit), with the objective of sustaining and improving the focal organization’s key performance metrics
- It follows from these definitions that a desired value proposition (i.e., value proposition viewed as a goal) can drive the design of a new activity system; it is an antecedent to the design process and therefore part of BMI strategy
- In addition, each business model also has a realized value proposition, which is part of its value logic (captured by the Why? question)
- Therefore, both desired and realized value propositions are an integral part of BMI strategy
Q: May I respectfully challenge you on your framework: How "significantly different" is your framework from the "Business Model Canvas," which basically also features the "Who? What? How? Why?" questions, yet with other (sub-)dimensions?
- The Business Model Canvas contains nine distinct fields, each representing one of the following concepts: key activities (KA), key resources (KR), key partners (KP), value propositions (VP), customer relationships (CR), channels (CH), customer segments (CS), cost structure (C$) and revenue streams (R$). These concepts, taken together, are intended to depict how a firm as a whole—i.e., through its products, services and strategic choices—creates, delivers and captures value
- In contrast, we focus on activities (not products and services) and define the business model as the system of interdependent activities that are performed by a focal firm and its partners, and the mechanisms that link these activities to each other
- In a nutshell, the Business Model Canvas is broader and at the same time more detailed than our concept of the business model
- Here is a comment from a viewer of our SIF presentation in that regard: “I thank you for your approach to generic business model innovation! More detailed approaches to business model generation or crafting easily become too operative, such as Osterwalder and Pigneur’s 9-element canvas or Porter’s activity system”
- In our view, our concepts present an important step forward in several aspects: first, by emphasizing the business model as a system-level, holistic concept; second, by providing an actionable framework for business model innovation that focuses on needs and activities; third, by highlighting the strategic aspects of business model innovation; and, third, by adding a dynamic dimension that considers the entire process—from inspiration to implementation of business model innovation
- We do believe, however, that the Business Model Canvas can be a very useful tool for translating a new business model design into a business plan
Q: I am not sure of how stable the "business model innovation" construct is? If we strip away your examples from the technological innovations, would the business model still occur?
- Technology is certainly an enabler of new activities and interactions, and it thereby facilitates new business models. But one does not need a technological innovation to create a new business model; it is neither necessary nor sufficient
- Many of today’s business models are built with off-the-shelf technology. And many of the great business model innovations introduced before the advent of the internet (like those of Spanish clothing retailer Zara or PC manufacturer Dell) relied on pretty mundane technologies to facilitate a “customer first” approach
Q: I'm curious as to an example of a truly innovative business model that failed? If so, what was the major reason for their failure?
- A well-documented failure case is a startup called Better Place, which wanted to revolutionize the automobile industry through an innovative business model centered on electric vehicles and battery swapping stations. Many things went wrong—the company wanted to go global too fast, its cars were not attractive for users, and the idea was probably ahead of its time. Today, there are companies doing exactly what Better Place had intended to do, so the time for the opportunity may finally have come
Q: Some innovations are new to an industry but not new to the world. Others are new to the world (e.g., Uber and Airbnb). Are the two types the same, and should we be interested in both in equal measure? (Or are we more interested in the new-to-the-world innovations)? And when we say BMI is a "different" (or "new" or "novel") way of doing business, how do we measure "difference" (or "newness" or "novelty")? Some innovations are more novel than others; does the degree of novelty matter?
- Both types of innovation—new-to-the-world and new-to-the-industry—can be interesting. They involve different degrees of novelty and different risk-reward tradeoffs. We need more research to better understand the tradeoffs, and we also need more research to develop robust and reliable measures of business model novelty
- We have made some first steps in this direction and have proposed both quantitative and qualitative measures (summarized in Chapter 4 of our new book). We certainly welcome efforts that build on our work
Value Creation vs. Value Capture
Q: While innovation is argued to create value, the private incentives of firms to innovate depend on what part of the value created the firm can appropriate. What makes business models difficult to imitate?
- We call business models that are highly legitimate yet at the same time difficult to imitate strategically robust. Such robustness can be anchored in business model content, structure or governance that are difficult to imitate
- Our forthcoming paper with Yuliya Snihur in Strategy Science addresses this issue in detail (alternatively, you can read through Chapter 5 of our book). The basic idea is that you need to think carefully about the elements of an activity system and how to design them in a way that makes them tough to copy
- Another effective barrier to imitation is how difficult it is to copy the entire system. Imitators may be able to identify parts of a system, but not all the parts or how they interact with each other. Recall that the business model is about the system, not just the individual parts
Q: How can we connect the business model innovation of a firm to the value creation for ecosystem partners and make sure we communicate the value to other involved parties?
- This is important indeed! The business model innovation will only work if it creates enough value for all those involved. That’s why we promote a total value creation perspective, and why we believe that the value to be created for others (anchored on their needs) should be considered an important business model design antecedent. This must be properly communicated and pitched, verbally and through prototypes
Q: A BMI strategy requires a BMI mindset. But if you want to change mindsets, people ask: What is the BMI strategy? So, it is a “chicken & egg” situation. How do you solve this issue?
- A business model mindset denotes a state of mind, attitude or inclination that helps someone consider the firm’s entire activity system, along with its associated dimensions of content (What), structure (How), governance (Who) and value logic (Why), as a potential solution for a business problem or opportunity. Those with a business model mindset do not just take the business model as a given, nor do they simply focus on more familiar units of analysis, such as the product or a function of the business such as sales. Instead, they think pro-actively and holistically about “how to do business”
- There are different ways to create such a mindset, and they do not necessarily require the existence of a full-blown BMI strategy
- One effective way to create a business model mindset, for example, is to explain that innovation can happen at the activity system level, not just at the product or process level, and then illustrate this idea with powerful examples of successful and well-known business model innovators, such as Airbnb, Apple, Netflix or Uber. With the help of such examples, people begin to see fairly quickly that they need to think more broadly about innovation than they have been used to
Q: Do you have a perspective on the conditions that need to be true at the corporate level for BMI to flourish? And where should we put BMI in an existing company? It does not fit in any of the traditional ways in which incumbents are organized (per product, or market...). Do BMIs eventually migrate to more traditional product or service strategy thinking?
- Although research in these issues is still relatively scarce, we have a preliminary understanding about this. Formal programs dedicated to promoting experimentation with new business models and entrepreneurial initiatives by employees, such as accelerator programs, can be helpful in this respect. In general, corporations are increasingly adopting diverse institutionalized approaches for systematically promoting innovation from within. These approaches, which also work in the context of business model innovation, include: accelerators, incubators, innovation labs, cross-functional teams, scouting missions, challenges (e.g., hackathons), and corporate venture capital programs. Such organizational solutions can be exclusively designed for BMI. Alternatively, BMI can be added to existing arrangements as one possible (but not exclusive) form of innovation
- Cross-functional BMI initiatives, in particular, play an important role for business model innovation. According to recent joint research with our colleagues Karolin Frankenberger and Wouter Stam, involving over 140 business model innovation projects in 44 corporations in Germany, Austria and Switzerland, the key parameters of success seem to be:
- High level of task differentiation between the BMI initiative team and the respective business unit (BU);
- High level of social integration between team members and the business unit;
- Adopting the right form of initiative governance; that is, the team needs to be self-directed and should be embedded in a challenging performance context
- Furthermore, firms may not have to create a specific position for formulating a BMI strategy, but it is important that a senior executive (whatever her or his job title is) has the clear responsibility for it. For example, the German engineering company BOSCH a few years ago created the position of "senior vice president for business model innovation." Of course, the person who in our view should be most interested in the business model is the CEO
Q: Is there any pattern in the hierarchy of decisions across the “what, how, who and why” that research has investigated and found?
This is a great question for future research! Intuitively we would think that the “Why” (value logic) would drive choices regarding the “What” (content), “How” (structure) and “Who” (governance), but of course the relationship goes both ways, and we need to learn more about it