This paper aims to review and synthesise the recent advancements in the business model literature and explore how firms approach business model innovation.
A systematic review of business model innovation literature was carried out by analysing 219 papers published between 2010 and 2016.
Evidence reviewed suggests that rather than taking either an evolutionary process of continuous revision, adaptation and fine-tuning of the existing business model or a revolutionary process of replacing the existing business model, firms can explore alternative business models through experimentation, open and disruptive innovations. It was also found that changing business models encompasses modifying a single element, altering multiple elements simultaneously, and/or changing the interactions between elements in four areas of innovation: value proposition, operational value, human capital and financial value.
The conflicting approaches exist in the literature on how firms change their business models, this review synthesises these approaches and provide a clear guidance as to the ways through which business model innovation can be undertaken.
Hutahayan, B. and Wahyono, (2019), "A review and research agenda in business model innovation", International Journal of Pharmaceutical and Healthcare Marketing, Vol. 13 No. 3, pp. 264-287. https://doi.org/10.1108/IJPHM-12-2017-0073Download as .RIS
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According to Christensen et al. (2001), the definition of a business model is as a source of all competitive advantages possessed by an organisation (politics, economy, health and others) that distinguish it from other company products or services. Business model innovation is an organisational innovation through which firms explore new ways to define value proposition, create and capture value for customers, suppliers and partners (Gambardella and McGahan, 2010; Teece, 2010; Bock et al., 2012; Casadesus-Masanell and Zhu, 2013). Business model and business model innovation was a growing topic that could be explored to studied. An extensive body of the literature asserts that innovation in business models is of vital importance to firm survival, business performance, and as source of competitive advantage (Demil and Lecocq, 2010; Chesbrough, 2010; Amit and Zott, 2012; Baden-Fuller and Haefliger, 2013; Casadesus-Masanell and Zhu, 2013). It is starting to attract a growing attention, given the increasing opportunities for new business models enabled by changing customer expectations, technological advances and deregulation (Casadesus-Masanell and Llanes, 2011; Casadesus-Masanell and Zhu, 2013). Thus, it is essential to comprehend this literature and uncover where alternative business models can be explored.
Conflicting approaches exist in the literature on how firms change their business models. One approach suggests that alternative business models can be explored through an evolutionary process of incremental changes to business model elements (Demil and Lecocq, 2010; Dunford et al., 2010; Amit and Zott, 2012; Landau et al., 2016; Velu, 2016). The other approach, mainly practice-oriented, advocates that innovative business models can be developed through a revolutionary process by which existing business models can be replaced (Bock et al., 2012; Iansiti and Lakhani, 2014). The fragmentation of prior research is due to the variety of disciplinary and theoretical foundations through which business model innovation is examined. Scholars have drawn on perspectives from entrepreneurship (George and Bock, 2011), information systems (Al-debei and Avison, 2010), innovation management (Dmitriev et al., 2014), marketing (Sorescu et al., 2011) and strategy (Demil and Lecocq, 2010). Also, this fragmentation is deepened by focussing on different types of business models in different industries. Studies have explored different types of business models such as digital business models (Weill and Woerner, 2013), service business models (Kastalli et al., 2013), social business models (Hlady-Rispal and Servantie, 2016) and sustainability-driven business models (Esslinger, 2011). Besides, studies have examined different industries such as airline (Lange et al., 2015), manufacturing (Landau et al., 2016), newspaper (Karimi and Walter, 2016), retail (Brea‐Solís et al., 2015) and telemedicine (Peters et al., 2015).
As the first comprehensive review of business model literature was carried out by Zott et al. (2011), several reviews were published recently (George and Bock, 2011; Schneider and Spieth, 2013; Klang et al., 2014; Spieth et al., 2014; Wirtz et al., 2016). Our review builds on and extends the extant literature in at least three ways. First, unlike previous reviews that mainly focussed on the general construct of “Business Model” (George and Bock, 2011; Zott et al., 2011; Wirtz et al., 2016), our review focuses on uncovering the “business model innovation” phenomenon and sheds some light on new ways through which firms change their existing business model(s) by altering their value proposition, value creation and value capture. Second, previous reviews do not provide a clear answer as to how firms change their business models. Our review aims to synthesise these conflicting approaches (i.e. evolutionary versus revolutionary perspectives) and provide a clear guidance as to the ways through which business model innovation can be undertaken. Third, compared to recent reviews on business model innovation (Schneider and Spieth, 2013; Spieth et al., 2014), which have touched lightly on some innovation aspects such as streams and motivations of business model innovation research, our review will uncover the innovation areas where alternative business models can be explored. Taking Teece’s (2010) suggestion, “A helpful analytic approach for management is likely to involve systematic deconstruction/unpacking of existing business models, and an evaluation of each element with an idea toward refinement or replacement” (p. 188), this paper aims to develop a theoretical framework of business model innovation.
Our review firstly explains the scope and the process of the literature review. This is followed by a synthesis of the findings of the review into a theoretical framework of business model innovation. Finally, avenues for future research will be discussed in relation to the approaches, degree and mechanisms of business model innovation.
Based on research by Chesbrough (2007), every company has a business model, whether they articulate it or not. At its heart, a business model performs two important functions: value creation and value capture. First, it defines a series of activities, from procuring raw materials to satisfying the final consumer, which will yield a new product or service in such a way that there is net value created throughout the various activities. This is crucial, because if there is no net creation of value, the other companies involved in the set of activities won’t participate. Second, a business model captures value from a portion of those activities for the firm developing and operating it. This is equally critical, for a company that cannot earn a profit from some portion of its activities cannot sustain those activities over time.
Based on research by Giesen et al. (2007) IBM Consulting researchers first identified the main types of business model innovation, which can be used alone or in combination. They then compared these three types of business model innovation across 35 best practice cases. The study found that all new business models can be classified into three types: innovations in industry models; in revenue models and in enterprise models. A key finding was that each type of business model innovation, with the right strategy and strong execution can generate success.
Several previous studies were used as references in this research, such as the business model by Cantù (2015), Daly (2017), Hossain (2017), Philipson (2016), Sandberg (2013). The innovation by Allio (2005), Bukowitz (2013), Johannessen (1994), Oke (2007), Sousa (2006). The value proposition by Leavy (2012), Matthews (2013), Miciunas (2003) and Thomas (2015). The value creation by Lautermann (2013), Shamah (2012) and Shamah (2013). The value capture by Khalifa (2010), Philippart (2016) and Töytäri (2015). No previous study has comprehensively studied the business model innovation: a review and research agenda.
2. Scope and method of the literature review
Given the diverse body of business models literature, a systematic literature review was carried out to minimise research bias (Transfield et al., 2003). Compared to previous business model literature, our review criteria are summarised in Table I. The journal papers considered were published between January 2010 and December 2016. Most contributions in this field have been issued within this period since previous developments in the literature were comprehensively reviewed up to the end of 2009 (Zott et al., 2011). Using four databases (EBSCO Business Complete, ABI/INFORM, JSTOR and ScienceDirect), we searched peer-reviewed papers with terms such as business model(s), value proposition, value creation and value capture appearing in the title, abstract, or subject terms. As a result, 8,642 peer-reviewed papers were obtained.
Studies were included in our review if they specifically address business models and were top-rated according to The UK Association of Business Schools list (ABS, 2010). This rating has been used not only because takes into account the journal “Impact Factor” as a measure for journal quality, but also uses in conjunction other measures making it one of the most comprehensive journal ratings. By applying these criteria, 1,682 entries were retrieved from 122 journals. By excluding duplications, 831 papers were identified. As Harvard Business Review is not listed among the peer-reviewed journals in any of the chosen databases and was included in the ABS list, we used the earlier criteria and found 112 additional entries. The reviewed papers and their subject fields are highlighted in Table II. Since the focus of this paper is on business model innovation, we selected studies that discuss value proposition, value creation and value capture as sub-themes. This is not only because the definition of business model innovation mentioned earlier spans all three sub-themes but also because all three sub-themes have been included in recent studies (Landau et al., 2016; Velu and Jacob, 2014). To confirm whether the papers addressed business model innovation, we examined the main body of the papers to ensure they were properly coded and classified. At the end of the process, 219 papers were included in this review. Table III lists the source of our sample.
The authors reviewed the 219 papers using a protocol that included areas of innovation (i.e. components, elements and activities), theoretical perspectives and key findings. To identify the main themes of business model innovation research, all papers were coded in relation to our research focus as to where alternative business models can be explored (i.e. value proposition, value creation and value capture). Coding was cross-checked among the authors on a random sample suggesting high accuracy between them. Having compared and discussed the results, the authors were able to identify the main themes.
3. Prior conceptualisations of business model innovation
Some scholars have articulated the need to build the business model innovation on a more solid theoretical ground (Sosna et al., 2010; George and Bock, 2011). Although many studies are not explicitly theory-based, some studies partially used well established theories such as the resource-based view (Al-Debei and Avison, 2010) and transaction cost economics (DaSilva and Trkman, 2014) to conceptualise business model innovation. Other theories such as activity systems perspective, dynamic capabilities and practice theory have been used to help answer the question of how firms change their business models.
Using the activity systems perspective, Zott and Amit (2010) demonstrated how innovative business models can be developed through the design themes that describe the source of value creation (novelty, lock-in, complementarities and efficiency) and design elements that describe the architecture (content, structure and governance). This work, however, overlooks value capture which limits the explanation of the advocated system’s (holistic) view. Moreover, Chatterjee (2013) used this perspective to reveal that firms can design innovative business models that translate value capture logic to core objectives, which can be delivered through the activity system.
Dynamic capability perspective frames business model innovation as an initial experiment followed by continuous revision, adaptation and fine-tuning based on trial-and-error learning (Sosna et al., 2010). Using this perspective, Demil and Lecocq (2010) shows that “dynamic consistency” is a capability that allows firms to sustain their performance while innovating their business models through voluntary and emergent changes. Also, Mezger (2014) conceptualised business model innovation as a distinct dynamic capability. He argues that this capability is the firm’s capacity to sense opportunities, seize them through the development of valuable and unique business models, and accordingly reconfigure the firms’ competences and resources. Using aspects of practice theory, Mason and Spring (2011) looked at business model innovation in the recorded sound industry and found that it can be achieved through various combinations of managerial practices.
Static and transformational approaches have been used to depict business models (Demil and Lecocq, 2010). The former refers to viewing business models as constituting core elements that influence business performance at a particular point in time. This approach offers a snapshot of the business model elements and how they are assembled, which can help in understanding and communicating a business model (Eyring et al., 2011; Mason and Spring, 2011; Yunus et al., 2013). The latter, however, focuses on innovation and how to address the changes in business models over time (Sinfield et al., 2012; Girotra and Netessine, 2014; Landau et al., 2016). Some researchers have identified the core elements of business models ex ante (Demil and Lecocq, 2010; Wu et al., 2010; Huarng, 2013; Dmitriev et al., 2014), while others argued that considering a priori elements can be restrictive (Casadesus-Masanell and Ricart, 2010). Unsurprisingly, some researchers found a middle ground where elements are loosely defined allowing flexibility in depicting business models (Zott and Amit, 2010; Sinfield et al., 2012; Kiron et al., 2013).
Prior to 2010, conceptual frameworks focussed on the business model concept in general (Chesbrough and Rosenbloom, 2002; Osterwalder et al., 2005; Shafer et al., 2005) apart from Johnson et al.’s (2008), which is one of the early contributions to business model innovation. To determine whether a change in existing business model is necessary, Johnson et al. (2008) suggest three steps:
Identify an important unmet job a target customer needs done; blueprint a model that can accomplish that job profitably for a price the customer is willing to pay; and carefully implement and evolve the model by testing essential assumptions and adjusting as you learn. (Eyring et al., 2011, p. 90).
Although several frameworks have been developed since then, our understanding of business model innovation is still limited due to the static nature of the majority of these frameworks. Some representations ignore the elements and/or activities where alternative business models can be explored (Sinfield et al., 2012; Chatterjee, 2013; Huarng, 2013; Morris et al., 2013; Dmitriev et al., 2014; Girotra and Netessine, 2014). Other frameworks ignore value proposition (Zott and Amit, 2010), ignore value creation (Dmitriev et al., 2014; Michel, 2014), and/or ignore value capture (Mason and Spring, 2011; Sorescu et al., 2011; Storbacka, 2011). Some conceptualisations do not identify who is responsible for the innovation (Casadesus-Masanell and Ricart, 2010; Sinfield et al., 2012; Chatterjee, 2013; Kiron et al., 2013). Synthesising the different contributions into a theoretical framework of business model innovation will enable a better understanding of how firms undertake business model innovation.
4. Business model innovation framework
Our framework integrates all the elements where alternative business models can be explored. This framework does not claim that the listed elements are definitive for high-performing business models, but is an attempt to outline the elements associated with business model innovation. This framework builds on previous work of Johnson et al. (2008) and Zott and Amit (2010) by signifying the elements associated with business model innovation. Unlike previous frameworks that mainly consider the constituting elements of business models, this framework focuses on areas of innovation where alternative business models can be considered. Moreover, this is not a static view of the constituting elements of a business model, but rather a view enabling firms to explore alternative business models by continually refining these elements. Business model innovation has been advocated by Wu et al. (2010) as a way for latecomer firms to create and capture value from disruptive technologies in emerging markets. Research conducted by Amit and Zott and Amit (2010) states that a company leader in order to make changes on the business model we must pay attention to several important things, namely, the novelty of the program implemented, complementarity and efficiency is the trigger for the proportion of the business model value. There is also physical capital and financial capital that play a role in creating value in the company. Agustin (2003) states that human capital reflects the collective ability of the company to produce the best solution based on the knowledge held by the people in the company. Western firms have had difficulty competing in emerging markets due to importing their existing business models with unchanged operating model (Eyring et al., 2011). Alternative business models can be uncovered when firms explore the different roles they might play in the industry value chain (Sinfield et al., 2012). Arrows in the framework indicate the continuous interaction of business model elements. This framework consists of four areas of innovation and 16 elements (more details are shown in Table IV). Each will be discussed below.
The following is a research flow diagram (Figure 1).
Based on the model above, it can be seen that there is a significant influence between the consumer interests on the Products sold by the company which is equal to 0.288. That is, the higher the consumer interaction, the higher the product sold by the company. Consumer interest also has a positive and significant effect on Corporate Financial Goals with a value of 0.169. That is, the higher the consumer interest will increase the corporate financial goal. Besides there is a direct influence there is also a significant indirect effect between Consumer interest on corporate financial goals through Products sold by the company with a coefficient of 0.103.
4.1 The effect of relationship desire on consumer to business relationships
Raciti et al. (2013) conducted a study entitled “The effect of relationship desire on consumer to business relationships”. The purpose of this study is to examine the extent to which consumers desire to be involved in a relationship has an impact on the perception of cognitive-state acquisition (motivation, trust and affiliation) and the key steps to successful consumer-to-business relationships (relationship of intention to strength, satisfaction and retention) After a qualitative study, the main quantitative study used a self-conducted survey of 334 service consumers to understand the perception of relationships. Structural equation modelling is then used to test the hypothesis. Analysis reveals that consumers' desires to participate in a relationship affect their level of motivation, level of trust and this, in turn, affects the feelings of affiliates with service providers. The sense of consumer affirmation then influences the strength of their relationship and their level of satisfaction with the relationship. In addition, the effect of the desire to relate to the strength and satisfaction of the relationship is obvious. The desire of consumers indirectly impacts retention intentions, indicating that service managers must be careful not to assume that consumers' deliberate choice to participate in a relationship on a regular basis will result in loyalty.
4.2 The determination of front-end financial targets in IJVs: a decision-making model for multinational enterprises
Yang et al. (2001) conducted a study entitled “The determination of front-end financial targets in international joint venture (IJVs): a decision-making model for MNEs”. The purpose of this paper is to determine front-end financial targets at IJVs in this case making a decision-making model for MNE. Trying to make the decision-making model with front-end financial targets multinational companies can be evaluated and determined. Explain and define the financial range and identify their strategic problems to do this. Continued by exploring patterns of variations in front-end financial targets and their determination processes, building demand models and international venture investment offers. As well as describing how contingency factors in international operations have a direct impact on this problem and provide several considerations for future research.
4.3 New product selling challenges (key insights in the information and communication technology sector)
Sharma and Sagar (2018) conducted a research with the title “Key insights in the ICT sector”. The purpose of this study is to identify new product sales in Indonesia. This research uses qualitative techniques with focus group discussions, including semi-structured interviews and thematic content analysis to explore the challenges of selling new products. Total interpretive structuring modelling (TISM) is used to create a hierarchy between the factors and the relationships between them. This study identifies challenges for the ICT sector. The TISM framework helps identify variables and explains the relationships between identified variables. In this case, companies in the ICT sector are eager to develop new products but fail to sell them. Salespeople have an important role in marketing new products on the market. The sales force will increase not only the sales of new products but also the overall operational efficiency of the sales force. Although several studies suggest that labour is a major contributor, especially in connection with the challenges in selling new products.
4.4 Value proposition
The first area of innovation refers to elements associated with answering the “Why” questions. While most of the previously established models in the literature include at least one of the value proposition elements (e.g. Brea‐Solís et al., 2015; Christensen et al., 2016), other frameworks included two elements (Dahan et al., 2010; Cortimiglia et al., 2016) and three elements (Eyring et al., 2011; Sinfield et al., 2012). These elements include rethinking what a company sells, exploring new customer needs, acquiring target customers, and determining whether the benefits offered are perceived by customers. Modern organisations are highly concerned with innovation relating to value proposition to attract and retain a large portion of their customer base (Al-Debei and Avison, 2010). Developing new business models usually starts with articulating a new customer value proposition (Eyring et al., 2011). According to Sinfield et al. (2012), firms are encouraged to explore various alternatives of core offering in more depth by examining type of offering (product or service), its features (custom or off-the-shelf), offered benefits (tangible or intangible), brand (generic or branded) and lifetime of the offering (consumable or durable).
To exploit the “middle market” in emerging economies, Eyring et al. (2011) suggest that companies need to design new business models that aim to meet unsatisfied needs and evolve these models by continually testing assumptions and making adjustments. To uncover unmet needs, Eyring et al. (2011) suggest answering four questions: what are customers doing with the offering? what alternative offerings consumers buy? What jobs consumers are satisfying poorly? What consumers are trying to accomplish with existing offerings? Furthermore, Baden-Fuller and Haefliger (2013) made a distinction between customers and users in two-sided platforms, where users search for products online and customers (firms) place ads to attract users. They also made a distinction between “pre-designed (scale) based offerings” and “project based offerings”. While the former focuses on “one-size-fits-all”, the latter focuses on specific client solving specific problem.
Established firms entering emerging markets should identify unmet needs “the job to be done” rather than extending their geographical base for existing offerings (Eyring et al., 2011). Because customers in these markets cannot afford the cheapest of the high-end offerings, firms with innovative business models that meet these customers’ needs affordably will have opportunities for growth (Eyring et al., 2011). Moreover, secondary business model innovation has been advocated by Wu et al. (2010) as a way for latecomer firms to create and capture value from disruptive technologies in emerging markets. This can be achieved through tailoring the original business model to fit price-sensitive mass customers by articulating a value proposition that is attractive for local customers.
4.5 Operational value
The second area of innovation focuses on elements associated with answering the “What” questions. Many of the established frameworks included either one element (Sinfield et al., 2012; Taran et al., 2015), two elements (Mason and Spring, 2011; Dmitriev et al., 2014). However, very few included more three or more elements (Mehrizi and Lashkarbolouki, 2016; Cortimiglia et al., 2016). These elements include configuring key assets and sequencing activities to deliver the value proposition, exposing the various means by which a company reaches out to customers, and establishing links with key partners and suppliers. Focussing on value creation, Zott and Amit (2010) argue that business model innovation can be achieved through reorganising activities to reduce transaction costs. However, Al-Debei and Avison (2010) argue that innovation relating to this dimension can be achieved through resource configuration, which demonstrates a firm’s ability to integrate various assets in a way that delivers its value proposition. Cavalcante et al. (2011) proposed four ways to change business models: business model creation, extension, revision and termination by creating or adding new processes and changing or terminating existing processes.
Western firms have had difficulty competing in emerging markets due to importing their existing business models with unchanged operating model (Eyring et al., 2011). Alternative business models can be uncovered when firms explore the different roles they might play in the industry value chain (Sinfield et al., 2012). Al-Debei and Avison (2010) suggest achieving this through answering questions such as: What is the position of our firm in the value system? What mode of collaboration (open or close) would we choose to reach out in a business network? Dahan et al. (2010) found that cross-sector partnerships as way to co-create new multi-organisational business models. They argue that multinational enterprises (MNEs) can collaborate with nongovernmental organisations (NGOs) to create products/or services that neither can create on their own. Collaboration allows access to resources that firms would otherwise need to solely develop or purchase (Yunus et al., 2010). According to Wu et al. (2010), secondary business model innovation can be achieved when latecomer firms fully use strategic partners’ complementary assets to overcome their latecomer disadvantages and build a unique value network specific to emerging economies context.
4.6 Human capital
The third area of innovation refers to elements associated with answering the “Who” questions. Most of the established frameworks in this field tend to focus less on human capital and include one element at most (Wu et al., 2010; Kohler, 2015). However, our framework brings together these elements, which include experimenting with new ways of doing business, tapping into the skills and competencies needed for the new business model through motivating and involving individuals in the innovation process. According to Belenzon and Schankerman (2015), “the ability to tap into a pool of talent is strongly related to the specific business model chosen by managers” (p. 795). They claim that managers can strategically influence individuals’ contributions and their impact on project performance.
Organisational learning can be maximised though continuous experimentation and making changes when actions result in failure (Yunus et al., 2010). Challenging and questioning the existing rules and assumptions and imagining new ways of doing business will help develop new business models. Another essential element of business model design is governance, which refers to who performs the activities (Zott and Amit, 2010). According to Sorescu et al. (2011), innovation in retail business models can occur as a result of changes in the level of participation by actors engaged in performing the activities. An essential element of retailing governance is the incentive structure or the mechanisms that motivate those involved in carrying out their roles to meet customer demands (Sorescu et al., 2011). For example discount retailers tend to establish different compensation and incentive policies (Brea‐Solís et al., 2015). Revising the incentive system can have a major impact on new ventures’ performance by aligning organisational goals at each stage of growth (Roberge, 2015). Zott and Amit (2010) argue that alternative business models can be explored through adopting innovative governance or changing one or more parties that perform any activities. Sinfield et al. (2012) suggests that business model innovation only requires time from a small team over a short period of time to move a company beyond incremental improvements and generate new opportunities for growth. This is supported by Michel’s (2014) finding that cross-functional teams were able to quickly achieve business model innovation in workshops through deriving new ways to capture value.
4.7 Financial value
The final area of innovation focuses on elements associated with answering the “How” questions. Previously developed frameworks tend to prioritise this area of innovation by three elements (Eyring et al., 2011; Huang et al., 2013), and in one instance four elements (Yunus et al., 2010). These elements include activities linked with how to capture value through revenue streams, changing the price-setting mechanisms, and assessing the financial viability and profitability of a business. According to Demil and Lecocq (2010), changes in cost and/or revenue structures are the consequences of both continuous and radical changes. They also argue that costs relate to different activities run by organisations to acquire, integrate, combine or develop resources. Michel (2014) suggests that alternative business models can be explored through five ways: changing the price-setting mechanism, changing the payer, changing the price carrier, changing the timing and changing the segment. Different innovation forms are associated with each of these categories.
Business model innovation can be achieved through exploring new ways to generate cash flows (Sorescu et al., 2011), where the organisation has to consider (and potentially change) when the money is collected: prior to the sale, at the point of sale, or after the sale (Baden-Fuller and Haefliger, 2013). Furthermore, Demil and Lecocq (2010) suggest that changes in business models affect margins. This is apparent in the retail business models, which generate more profit through business model innovation compared to other types of innovation (Sorescu et al., 2011).
5. Ways to change business models
From reviewing the recent developments in the business model literature, alternative business models can be explored through modifying a single business model element, altering multiple elements simultaneously and/or changing the interactions between elements of a business model.
Changing one of the business model elements (i.e. content, structure, or governance) is enough to achieve business model innovation (Amit and Zott, 2012). This means that firms can have a new activity system by performing only one new activity. However, Amit and Zott (2012) clearly outlined a systemic view of business models which entails a holistic change. This is evident from Demil and Lecocq’s (2010) work suggesting that the study of business model innovation should not focus on isolated activities since changing a core element will not only impact other elements but also the interactions between these elements. According to Nurhakim (2018), strategy and business model improvements needed to the development of health care organisation in the future, such as adding outlets in places that are considered strategic, forming a team of marketing, as well as human resources training on a regular basis to optimise the HR function.
Another way to change business models is through altering multiple business model elements simultaneously. Kiron et al. (2013) found that companies combining target customers with value chain innovations and changing one or two other elements of their business models tend to profit from their sustainability activities. They also found that firms changing 3 to 4 elements of their business models tend to profit more from their sustainability activities compared to those changing only one element. Moreover, Dahan et al. (2010) found that a new business model was developed as a result of MNEs and NGOs collaboration by redefining value proposition, target customers, governance of activities, and distribution channels. Companies can explore multiple combinations by listing different business model options they could undertake (desirable, discussable and unthinkable) and evaluate new combinations that would not have been considered otherwise (Sinfield et al., 2012).
Changing business models is argued to be demanding as it requires a systemic and holistic view (Amit and Zott, 2012) by considering the relationships between core business model elements (Demil and Lecocq, 2010). As mentioned earlier, changing one element will not only impact other elements but also the interactions between these elements. A firm’s resources and competencies, value proposition, and organisational system are continuously interacting and this will in turn impact business performance either positively or negatively (Demil and Lecocq, 2010). According to Zott and Amit (2010), innovative business models can be developed through linking activities in a novel way that generates more value. They argue that alternative business models can be explored by configuring business model design elements (e.g. governance) and connecting them to distinct themes (e.g. novelty). Supporting this, Eyring et al. (2011) suggest that core business model elements need to be integrated in order to create and capture value (Eyring et al., 2011).
6. Discussion and future research directions
From the above synthesis of the recent development in the literature, several gaps remain unfilled. To advance the literature, possible future research directions will be discussed in relation to approaches, degree and mechanisms of business model innovation.
6.1 Approaches of business model innovation
Experimentation, open innovation and disruption have been advocated as approaches to business model innovation. Experimentation has been emphasised as a way to exploit opportunities and develop alternative business models before committing additional investments (McGrath, 2010). Several approaches have been developed to assist in business model experimentation including mapping approach, discovery-driven planning and trail-and-error learning (Chesbrough, 2010; McGrath, 2010; Sosna et al., 2010; Andries et al., 2013). Little is known about the effectiveness of these approaches. It will be worth investigating which elements of the business model innovation framework are more susceptible to experiment and which elements should be held constant. Although business model innovation tends to be characterised with failure (Christensen et al., 2016), not much has been established on failing business models. It is interesting explore how firms determine a failing business model and what organisational processes exist (if any) to evaluate and discard these failed business models. Empirical studies could examine which elements of business model innovation framework are associated with failing business models.
Another way to develop alternative business models is through open innovation. Although different categories of open business models have been identified (Frankenberger et al., 2014; Taran et al., 2015; Kortmann and Piller, 2016), their effectiveness is yet to be established. Further research is needed to examine when can a firm open and/or close element(s) of the business model innovation framework. Future studies could also examine the characteristics of open and/or close business models.
In responding to disruptive business models, how companies extend their existing business model, introduce additional business model(s), and/or replace their existing business model altogether remains to be unexplored. Future research is needed to unravel the strategies adopted by firms to extend their existing business models as a response to disruptive business models. In introducing additional business models, Markides (2013) suggests that a company will be presented with several options to manage the two businesses at the same time: create a completely separate business unit, integrate the two business models from the beginning, or integrate the second business model after a certain period of time. Finding the balance between separation and integration is of vital importance. Further research could identify which of these choices are most common among successful firms introducing additional business models, how is the balance between integration and separation achieved, and which choice(s) prove more profitable. Moreover, very little is known on how firms replace their existing business model. Longitudinal studies could provide insights into how a firm adopts an alternative model and discard the old business model over time. It may also be worth examining the factors associated with the adoption of business model innovation as a response to disruptive business models.
6.2 Degree of business model innovation
Business models can be developed through varying degrees of innovation from an evolutionary process of continuous fine -tuning to a revolutionary process of replacing existing business models. Recent research shows that survival of firms is dependent on the degree of their business model innovation (Velu, 2015, 2016). This review classifies these degrees of innovation into modifying a single element, altering multiple elements simultaneously and/or changing the interactions between elements of the business model innovation framework.
In changing a single element, further research is needed to examine which business model element(s) are associated with business model innovation. It is not clear whether firms intentionally make changes to a single element when carrying out business model innovation or stumble at it when experimenting with new ways of doing things. It may also be worth investigating the entry (or starting) points in the innovation process. There is no consensus in the literature on which element do companies start with when carrying out their business model innovation. While some studies suggest starting with the value proposition (Eyring et al., 2011; Landau et al., 2016), others suggest starting the innovation process with identifying risks in the value chain (Girotra and Netessine, 2011). Dmitriev et al. (2014) suggest two entry points namely value proposition and target customers. In commercialising innovations, the former refers to technology-push innovation while the latter refers to market-pull innovation. Also, it is not clear whether the entry point is the same as the single element associated with changing the business model. Further research can explore the different paths to business model innovation by identifying the entry point and subsequent changes needed to achieve business model innovation.
There is little guidance in the literature on how firms change multiple business model elements simultaneously. Landau et al. (2016) claim that firms entering emerging markets tend to focus on adjusting specific business model components. It is unclear which elements need configuring, combining and/or integrating to achieve a company’s value proposition. Furthermore, the question of which elements can be “bought” on the market or internally “implemented” and their interplay remains unanswered (DaSilva and Trkman, 2014). Casadesus-Masanell and Ricart (2010) argue that “… there is (as yet) no agreement as to the distinctive features of superior business models” (p. 196). Further research is needed to explore these distinctive elements of high-performing business models.
In changing the interactions between business model elements, further research is needed to explore how these elements are linked and what interactions’ changes are necessary to achieve business model innovation. Moreover, the question of how firms sequence these elements remains poorly understood. Future research can explore the synergies created over time between these elements. According to Dmitriev et al. (2014), we need to improve our understanding of the connective mechanisms and dynamics involved in business model development. More work is needed to explore the different modalities of interdependencies among these elements and empirically testing such interdependencies and their effect on business performance (Sorescu et al., 2011).
It is surprising that the link between business model innovation and organisational performance has rarely been examined. Changing business models has been found to negatively influence business performance even if it is temporary (McNamara et al., 2013; Visnjic et al., 2016). Contrary to this, evidence show that modifying business models is positively associated with organisational performance (Cucculelli and Bettinelli, 2015). Empirical research is needed to operationalise the various degrees of innovation in business models and examine their link to organisational performance. Longitudinal studies can also be used to explore this association since it may be the case that business model innovation has a negative influence on performance in the short run and that may change subsequently. Moreover, it is not clear whether high-performing firms change their business models or innovation in business models is a result from superior performance (Sorescu et al., 2011). Further studies are needed to determine the direction of causality. Another link that is worth exploring is business model innovation and social value, which has only been explored in a few studies looking at social business models (Yunus et al., 2010; Wilson and Post, 2013). Further research is needed to examine this link and possibly examine both financial and non-financial business performance.
6.3 Mechanisms of business model innovation
Although we know more about how firms define value proposition, create and capture value (Landau et al., 2016; Velu and Jacob, 2014), what remains as a blind spot is the mechanism of business model innovation. This is due to the fact that much of the literature seems to focus on value creation. To better understand the various mechanisms of business model innovation, future studies must integrate value proposition, value creation and value capture elements. Empirical studies could use the business model innovation framework to examine the various mechanisms of business model innovation. Also, the literature lacks the integration of internal and external perspectives of business model innovation. Very few studies look at the external drivers of business model innovation and the associated internal changes. The external drivers are referred to as “emerging changes”, which are usually beyond manager’s control (Demil and Lecocq, 2010). Inconclusive findings exist as to how firms develop innovative business models in response to changes in the external environment. Future studies could examine the external factors associated with the changes in the business model innovation framework. Active and reactive responses need to be explored not only to understand the external influences, but also what business model changes are necessary for such responses. A better understanding of the mechanisms of business model innovation can be achieved by not only exploring the external drivers but also linking them to specific internal changes. Although earlier contributions of linking studies to established theories such as the resource-based view, transaction cost economics, activity systems perspective, dynamic capabilities and practice theory have proven to be vital in advancing the literature, developing a theory that elaborates on the antecedents, consequences and different facets of business model innovation is still needed (Sorescu et al., 2011). Theory can be advanced by depicting the mechanisms of business model innovation through the integration of both internal and external perspectives. Anggraeny's research (2013) applies a business innovation model to health services in health centres for the improvement process of the existing system. An innovation is carried out, namely innovation in the opinion of Damanpour with new product/service innovations consisting of equipment innovations and new services, as well as innovation in the one-door payment process and queue registration services.
The aim of this review is to explore how firms approach business model innovation. The current literature suggests that business model innovation approaches can either be evolutionary or revolutionary. However, the evidence reviewed points to a more complex picture beyond the simple binary approach, in that, firms can explore alternative business models through experimentation, open and disruptive innovations. Moreover, the evidence highlights further complexity to these approaches as we find that they are in fact a spectrum of various degrees of innovation ranging from modifying a single element, altering multiple elements simultaneously, to changing the interactions between elements of the business model innovation framework. This framework was developed as a navigation map for managers and researchers interested in how to change business models. It highlights the key areas of innovation namely value proposition, operational value, human capital, and financial value. Researchers interested in this area can explore and examine the different paths firms can undertake to change their business models. Although this review pinpoints the different avenues for firm to undertake business model innovation, the mechanisms by which firms can change their business models and the external factors associated with such change remain unexplored. Future research is expected to develop innovative solutions. This can be done through developing a mindset in solving problems that start from consumers and focussing on the human demand side, based on the results of research, collaborative and iteration. The application of business models and strategies is needed for future organisational development.
Previous reviews of business model literature
|Zott et al. (2011)||George and Bock (2011)||Schneider and Spieth (2013)||Klang et al. (2014)||Wirtz et al. (2016)||Our review|
|Term(s)||Business model||Business model||Business model innovation||Business model (s)||Business model||Business model (s); value proposition; value creation; value capture|
|Period||1975-2009||Up to 01 Dec 2008||1981-May 2012||Up to Jan/Feb 2010||1965-2013||2010-2016|
|Search||Title; Keywords||All Text Topics||Keywords||Title; Abstract; Keywords||Title||Title; Abstract; Keywords|
|Databases||Business Source Complete||EBSCO Business Source Premiere||N/A||N/A||EBSCO Business Source Complete||EBSCO Business Complete; ABI/INFORM; JSTOR; Science Direct|
|Type||Peer-reviewed papers; Books; Reports; Magazines||Papers; Books; Websites; Unpublished manuscripts||Peer-reviewed journals; Recent working papers||Papers; reviews; Editorials; Books; Reviewed publications||Papers in peer-reviewed and non-peer-reviewed journals||Peer-reviewed papers with the exception of Harvard Business Review; Top-rated Papers|
Reviewed papers and their subject fields
|No. of papers/Year|
|Subject fields||No. of journals||2010||2011||2012||2013||2014||2015||2016||Total no. of papers||% of papers|
|Enterpreneurship and small business management||6||9||4||3||13||3||14||7||53||5.6|
|Business ethnic and governance||2||11||5||4||7||6||5||6||44||4.7|
|Human resources management and employment studies||2||2||–||1||3||–||1||2||9||1.0|
|Business and area studies||5||5||2||4||3||2||5||5||26||2.8|
|Operations, technology and management||8||6||9||10||14||14||11||19||83||8.8|
|Operations research and management science||5||4||6||2||4||2||2||5||25||2.7|
|International business and are studies||–||–||–||–||–||–||1||1||0.1|
Source of our sample
|Journals||No. of papers||Weighting (%)|
|Harvard Business Review||42||19.2|
|Long Range Planning||28||12.8|
|Industrial Marketing Management||21||9.6|
|MIT Sloan Management Review||15||6.8|
|Journal of Business Research||11||5.0|
|California Management Review||10||4.6|
|Strategic Entrepreneurship Journal||8||3.7|
Business model innovation areas and elements
|Areas of innovation||Elements||Relevant questions||Studies|
|Value Proposition (why?)||Core offering||Why our products/ services?||Value proposition||Al-Debei and Avison (2010)|
|Value proposition||Dahan et al. (2010)|
|Value proposition||Demil and Lecocq (2010)|
|Value proposition||Wu et al. (2010)|
|Value proposition||Yunus et al. (2010)|
|Type of offering||Eyring et al. (2011)|
|Offering||Rajala et al. (2012)|
|Offering||Sinfield et al. (2012)|
|Product/service offering||Kiron et al. (2013)|
|Customer value proposition||Dmitriev et al. (2014)|
|Change in offering||Sinkovics et al. (2014)|
|Product selection||Brea‐Solís et al. (2015)|
|Value propositions||Kohler (2015)|
|Value proposition||Taran et al. (2015)|
|Offering||Landau, et al. (2016)|
|Value proposition||Christensen et al. (2016)|
|Value proposition||Cortimiglia et al. (2016)|
|Value proposition/offering||Hartmann et al. (2016)|
|Value proposition||Mehrizi and Lashkarbolouki (2016)|
|Market offering||Wirtz et al. (2016)|
|Customer needs||Why customers purchase our products/services?||Customer needs||Eyring et al. (2011)|
|Perceived needs||Amit and Zott (2012)|
|Customer need||Sinfield et al. (2012)|
|Customer engagement||Baden-Fuller and Haefliger (2013)|
|Target customers||Why target the current||Target customers||Dahan et al. (2010)|
|Target customers||Sinfield et al. (2012)|
|Customer identification||Baden-Fuller and Haefliger (2013)|
|Target segments||Kiron et al. (2013)|
|Target market segment(s)||Dmitriev et al. (2014)|
|Target customers||Sinkovics et al. (2014)|
|Customer segments||Kohler (2015)|
|Target customers||Taran et al. (2015)|
|Target customers||Landau et al. (2016)|
|Value delivery||Cortimiglia et al. (2016)|
|Market/customer segment||Hartmann et al. (2016)|
|Customer segment||Mehrizi and Lashkarbolouki (2016)|
|Customers||Wirtz et al. (2016)|
|Customer perceived value||Why customers choose us?||Meeting local needs||Wu et al. (2010)|
|Affordability||Eyring et al. (2011)|
|Satisfy perceived needs||Amit and Zott (2012)|
|Operational Value (What?)||Key assets||What assets do we need?||Key resources||Eyring et al. (2011)|
|Resources||Rajala et al. (2012)|
|Key assets||Dmitriev et al. (2014)|
|Key resources||Kohler (2015)|
|Resources||Christensen et al. (2016)|
|Value creation||Cortimiglia et al. (2016)|
|Key resources||Hartmann et al. (2016)|
|Key resources||Mehrizi and Lashkarbolouki (2016)|
|Resources||Wirtz et al. (2016)|
|Key process||What processes do we require?||Key processes||Eyring et al. (2011)|
|Technologies||Mason and Spring (2011)|
|Investment in technology||Brea‐Solís et al. (2015)|
|Processes||Christensen et al. (2016)|
|Value creation||Cortimiglia et al. (2016)|
|Partners network||What relationships should we?||Value network||Al-Debei and Avison (2010)|
|Value network||Demil and Lecocq (2010)|
|Value network||Wu et al. (2010)|
|Network architecture||Mason and Spring (2011)|
|Relationships||Rajala et al. (2012)|
|Value chain linkages||Baden-Fuller and Haefliger (2013)|
|Partners’ network||Dmitriev et al. (2014)|
|Partner network||Sinkovics et al. (2014)|
|Partner network||Taran et al. (2015)|
|Key partners||Kohler (2015)|
|Partner network||Peters et al. (2015)|
|Value networking||Cortimiglia et al. (2016)|
|Supply chain||Mehrizi and Lashkarbolouki (2016)|
|Network||Wirtz et al. (2016)|
|Distribution channels||What channels can deliver our products/ services?||Distribution channel||Wu et al. (2010)|
|Channel||Eyring et al. (2011)|
|Customer access||Sinfield et al. (2012)|
|Distribution channel||Sinkovics et al. (2014)|
|Sales channels||Mehrizi and Lashkarbolouki (2016)|
|Value delivery||Cortimiglia et al. (2016)|
|Human capital (Who?)||Organisational learning||Who should be engaged in knowledge transfer activities?||Double loop learning||Yunus et al. (2010)|
|Experimentation process||Sinfield et al. (2012)|
|Human resource practices||Brea‐Solís et al. (2015)|
|Skills and competencies||Who should execute specific activities?||Resources and competencies||Al-Debei and Avison (2010)|
|Core competency||Wu et al. (2010)|
|Resources and competencies||Demil and Lecocq (2010)|
|Core internal competencies||Morris et al. (2013)|
|Core competency||Sinkovics et al. (2014)|
|Core competences||Taran et al. (2015)|
|Domain-specific know-how||Peters et al. (2015)|
|Incentives||Who should be reward?||Incentives||Sorescu et al. (2011)|
|Human resource practices||Brea‐Solís et al.. (2015)|
|Crowd rewards||Kohler (2015)|
|Training||Who requires development to carry out specific activities?||Human resource practices||Brea‐Solís et al. (2015)|
|Financial Value (How?)||Revenue streams||How do we generate revenue?||Value finance||Al-Debei and Avison (2010)|
|Volume and structure of revenues||Demil and Lecocq (2010)|
|Revenue model||Wu et al. (2010)|
|Sales revenues||Yunus et al. (2010)|
|Revenue model||Eyring et al. (2011)|
|Revenue model||Rajala et al. (2012)|
|Monetization||Baden-Fuller and Haefliger (2013)|
|Revenue model||Kiron et al. (2013)|
|Revenue drivers||Morris et al. (2013)|
|Revenue model||Dmitriev et al. (2014)|
|Revenue streams||Kohler (2015)|
|Type of revenue||Peters et al. (2015)|
|Value appropriation||Cortimiglia et al. (2016)|
|Revenue stream||Hartmann et al. (2016)|
|Revenue model||Mehrizi and Lashkarbolouki (2016)|
|Revenue||Landau et al. (2016)|
|Revenues||Wirtz et al. (2016)|
|Cost structure||How do we cost our products/services?||Value finance||Al-Debei and Avison (2010)|
|Volume and structure of costs||Demil and Lecocq (2010)|
|Cost structure||Wu et al. (2010)|
|Cost structure||Yunus et al. (2010)|
|Cost structure||Eyring et al. (2011)|
|Cost model||Kiron et al. (2013)|
|Pricing approach||Morris et al. (2013)|
|Cost structure||Dmitriev et al. (2014)|
|Cost structure||Sinkovics et al. (2014)|
|Cost consciousness||Brea‐Solís et al. (2015)|
|Company cost structure||Kohler (2015)|
|Cost drivers||Peters et al. (2015)|
|Value appropriation||Cortimiglia et al. (2016)|
|Cost structure||Hartmann et al. (2016)|
|Costs||Landau, et al. (2016)|
|Cost structure||Mehrizi and Lashkarbolouki (2016)|
|Finances||Wirtz et al. (2016)|
|Cash flow||How should we manage cash-flow?||Capital employed||Yunus et al. (2010)|
|Monetization||Baden-Fuller and Haefliger (2013)|
|Margins||How much surplus can we make?||Margin||Demil and Lecocq (2010)|
|Profit formula||Wu et al. (2010)|
|Economic profit equation||Yunus et al. (2010)|
|Profit formula||Eyring et al. (2011)|
|Profit model||Sinfield et al. (2012)|
|Margins||Morris et al. (2013)|
|Estimation of profit potential||Dmitriev et al. (2014)|
|Profit formula||Taran et al. (2015)|
|Profit formula||Christensen et al. (2016)|
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