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A Primer on Theoretically Exploring the Field of Business Model Innovation

January 20, 2017 • STRATEGY & MANAGEMENT, INNOVATION, Global Business

By Oliver Gassmann, Karolin Frankenberger and Roman Sauer

Companies like Amazon, Uber, and Skype have become business strategy icons and the way they transformed industries can hardly be explained with classic strategy research. This article explores the field of Business Model Innovation which has become the cornerstone for the competitiveness of many successful firms.

 

Amazon became the biggest bookseller in the world without owning a single brick-and-mortar store. Uber revolutionised the taxi industry without owning a single car. Skype is the largest telecommunications provider worldwide without having any network infrastructure at its disposal.

Although all of these firms have become strategy icons, the way they transformed industries can hardly be explained with classic strategy research. To understand the scale and speed of such transformations, the concept of the business model has emerged. It is defined as “the logic of the firm, the way it operates and how it creates and captures value for its stakeholders” (Baden-Fuller & Morgan, 2010; Casadesus-Masanell & Zhu, 2013). The innovation thereof, business model innovation (BMI), refers to a significant change of this logic and studies have shown, that BMI positively affects firm performance (BCG, 2009).

Meanwhile, the ability to develop innovative business models has become the cornerstone for the competitiveness of many successful firms. BMI appears even more important as digitalisation is placing substantial stress on firms. As a consequence, business models and BMI have become buzzwords and their use is inflationary. Thus, it is about time to structure the field and ask questions as to: “How has academia approached the business model concept to understand the phenomenon?”, “How is the business model conceptually distinct from strategy?” In an attempt to answer these questions, we have identified seven schools of thought that have attained hearing.  

 

fieldofbmi_infograph

 

1. Activity System School

A business model is a set of interdependent activities spanning firm boundaries. The activity system perspective stresses that a business model is the formal portrayal of a firm on the level of specific activities. It creates a holistic view on how firms are creating value and how they are performing the activities needed to do so. The school suggests three design elements to this end. The design elements are the structure, content, and governance of transactions. The first, content, refers to the activities being performed by the firm in order to deliver a value proposition. The second, structure, describes how these activities are performed and interlinked with each other. This dimension is closely related to the organisational set-up of the firm and its value chain. The last dimension, governance, defines who is performing the activities. These three design elements are complemented by four design themes which can be seen as the main sources of a firms’ value creation. They are summarised by the acronym NICE: (N) novelty, (I) lock-in, (C) complementarities, and (E) efficiency. Overall, the activity systems school is a widely accepted framework that is based on renowned economic theories and integrates aspects from value chain analysis, the resource-based view, strategic networks, and transaction cost economics. The notion of activity systems puts forward a new understanding of firm boundaries and broadens the scope of a “focal firm” considering it as a network of activities including external resources. As external resources are taken into consideration, they help to explain the sources of competitive advantage. The business model is thus a new unit of analysis in strategy research. (main literature: (Amit & Zott, 2012))



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