Stamp FL 2016

The Process of Business Model Innovation
Georg Stampfl
The Process of Business

Model Innovation
An Empirical Exploration
Georg Stampfl
Vienna, Austria
Dissertation University of Innsbruck, Austria, 2014
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DOI 10.1007/978-3-658-11266-0
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Acknowledgements
After reaching the end of this exciting, inspiring, and unforgettable journey that was only
possible because I am surrounded by wonderful people accompanying me along the way, I
would like to take the opportunity to express my sincerest gratitude
to my academic advisors Prof. Dr. Kurt Matzler and Prof. Dr. Reinhard Prügl for the time
you spent with me to discuss, frame, and shape this research project as well as for the
guidance and continuous encouragement throughout the last years,
to my fellow PhD colleagues for the feedback and inspiration you gave me, for the fun time
we had together, and for your hospitality and friendship,
to my family and to the woman I love for the ongoing support, for giving me the opportunity
and freedom to pursue my dreams, for the faith in me, and for the love you give me.
Thank you!
Georg Stampfl
Abstract
Innovation pressure has been rising constantly over the last decades. Many companies try to
master this challenge by aiming at the development of innovative products and services. In
times of fast changing business environments, this is to an increasing extent not sufficient to
maintain competitiveness. Research and managerial practice have acknowledged that in the
years ahead, business model innovation will become as important as product or process
innovation. A company’s long-term success is increasingly determined by the ability to re-
configure the existing or to develop completely new business models. However, so far very
little is known why and especially how established organizations successfully innovate the
business model.
The main objective of this work is therefore to empirically explore the nature of business model
innovation processes in incumbent firms on the organizational as well as the individual level.
Two retrospective in-depth case studies of business model innovation processes undertaken by
established companies serve as the basis to study in detail when and why the process of business
model innovation is started, how the process of business model innovation unfolds, and what
contributes to or inhibits success. Furthermore, nine longitudinal case studies of business model
design projects provide rich data to “dig deeper” and investigate how people collaborate in
order to develop new business models, how the search and discovery processes pertaining to
the design of new business models unfold, and what the individual perceptions regarding
business model innovation projects are.
By linking the findings from the empirical research with prior literature, a model of business
model innovation processes at the organizational level and a model for business model design
processes at the individual level are developed. To put business model innovation processes in
context, the business model environment framework is conceptualized as a new perspective.
The theoretical implications of this work advance academic research in the field and allow to
provide guidelines to managerial practice for successful business model innovation in
incumbent firms.
Table of Contents
Acknowledgements ...................................................................................................................V
Abstract ..................................................................................................................................VII
List of Figures ........................................................................................................................XV
List of Tables...................................................................................................................... XVII
List of Abbreviations ........................................................................................................... XIX
1 Introduction...................................................................................................................... 1
1.1 Background and Research Context .................................................................................... 2
1.2 Research Objective and Research Question ...................................................................... 3
1.3 Structure of Dissertation .................................................................................................... 6
2 State of Research.............................................................................................................. 9
2.1 Introduction........................................................................................................................ 9
2.2 Innovation in General ........................................................................................................ 9
2.2.1 Definitions of Innovation ....................................................................................... 9
2.2.2 Types of Innovation .............................................................................................. 11
2.3 Innovation Processes ....................................................................................................... 15
2.3.1 Linear Processes ................................................................................................... 15
2.3.2 Iterative Processes ................................................................................................ 17
2.3.3 The Role of Uncertainty in Innovation Processes ................................................ 22
2.4 The Business Model Concept .......................................................................................... 24
2.4.1 Definitions of the Business Model ....................................................................... 27
2.4.2 Business Model vs. Strategy ................................................................................ 30
2.4.3 Business Model Frameworks & Components ...................................................... 32
2.4.3.1 Frameworks ............................................................................................ 32
2.4.3.2 Components............................................................................................ 35
2.5 Business Model Innovation ............................................................................................. 37
X Table of Contents
2.5.1 Definitions of Business Model Innovation ........................................................... 37

2.5.2 Types of Business Model Innovation ................................................................... 39
2.5.3 The Business Model Innovation Process.............................................................. 40
2.5.3.1 Origins .................................................................................................... 40
2.5.3.2 Outputs ................................................................................................... 42
2.5.3.3 Characteristics ........................................................................................ 44
2.5.3.4 Startups vs. Incumbent Firms ................................................................. 46
2.6 Summary – State of Business Model Research ............................................................... 48
2.7 Research Gap ................................................................................................................... 49
3 Methodology ................................................................................................................... 51
3.1 Process Research ............................................................................................................. 51
3.2 Research Design & Methods ........................................................................................... 54
3.2.1 Research Design & Course of Research ............................................................... 54
3.2.2 Case Study Research ............................................................................................ 58
3.2.3 Synergistic Use of Longitudinal and Retrospective Research ............................. 59
3.2.4 In-Depth Retrospective Case Studies (Organizational Level).............................. 61
3.2.4.1 Case Selection Strategy .......................................................................... 61
3.2.4.2 Data Collection ....................................................................................... 63
3.2.4.3 Data Sources ........................................................................................... 64
3.2.4.4 Data Analysis ......................................................................................... 65
3.2.5 Longitudinal Case Studies (Individual Level) ...................................................... 67
3.2.5.1 Case Selection Strategy .......................................................................... 67
3.2.5.2 Data Collection ....................................................................................... 67
3.2.5.3 Data Sources ........................................................................................... 70
3.2.5.4 Data Analysis ......................................................................................... 71
3.2.6 Conceptual Model Development (Contextual Level)........................................... 73
3.2.6.1 Literature Review ................................................................................... 73
3.2.6.2 Analysis & Model Development ............................................................ 74
3.3 Summary .......................................................................................................................... 77
4 Business Model Innovation at the Organizational Level (In-Depth Retrospective

Case Studies) .................................................................................................................. 79
4.1 Introduction...................................................................................................................... 79
4.2 In-Depth Case Study I: Company A ................................................................................ 80
4.2.1 Description Company A ....................................................................................... 80
Table of Contents XI
4.2.2 The Business Model Innovation at Company A .................................................. 82

4.2.2.1 The Traditional and the New Business Model ....................................... 82
4.2.2.2 Innovativeness & Risk of the New Business Model .............................. 86
4.2.3 Triggers ................................................................................................................ 87
4.2.4 Impact of the New Business Model...................................................................... 88
4.2.5 Main Stages of the Business Model Innovation Process ...................................... 90
4.2.6 Designing and Implementing a New Business Model ......................................... 95
4.2.6.1 Business Model Ambidexterity .............................................................. 97
4.2.6.2 Barriers & Drivers .................................................................................. 99
4.2.7 Learnings and Future Business Model Innovations ........................................... 102
4.3 In-Depth Case Study II: Company B ............................................................................. 105
4.3.1 Description Company B ..................................................................................... 105
4.3.2 The Business Model Innovations at Company B ............................................... 107
4.3.2.1 Weaving Metals – The Core Business ................................................. 107
4.3.2.2 Architecture – Company B's First Business Model Innovation ........... 110
4.3.2.3 From a Manufacturing Organization to a Service Provider ................. 112
4.3.3 Triggers of Business Model Innovations............................................................ 117
4.3.4 The Anatomy of Developing from Product to Service....................................... 120
4.3.4.1 The Basics of a Strategic Shift from Product to Service ...................... 120
4.3.4.2 Development of a Service Provider Business Model ........................... 124
4.3.4.3 Business Model Ambidexterity ............................................................ 127
4.3.4.4 Barriers and Drivers ............................................................................. 129
4.3.5 Experience in Business Model Innovation ......................................................... 135
4.3.5.1 Ten Patterns .......................................................................................... 135
4.3.5.2 The Business Model as a Core Competence ........................................ 138
4.3.5.3 Future Business Model Innovations ..................................................... 139
4.4 Analytical Generalization: Cross-Case Analysis ........................................................... 140
4.5 Conclusion ..................................................................................................................... 151
5 Business Model Innovation at the Individual Level (Longitudinal Case Studies) . 153
5.1 Introduction.................................................................................................................... 153
5.2 Nine Longitudinal Case Studies .................................................................................... 153
5.3 Descriptive Data ............................................................................................................ 154
5.4 A Model of Business Model Design Processes ............................................................. 158
5.5 Emergent Process Stage Themes ................................................................................... 162
5.5.1 Information Gathering ........................................................................................ 162
XII Table of Contents
5.5.2 Idea Casting & Construction .............................................................................. 163

5.5.2.1 Idea Generation .................................................................................... 163
5.5.2.2 Excursus – Analogous Applications of Business Models .................... 167
5.5.2.3 Idea Evaluation, Idea Selection & Prototype Construction.................. 169
5.5.3 Delivery .............................................................................................................. 174
5.6 Emergent Process Influencing Themes ......................................................................... 176
5.6.1 Context, Collaboration & Team Composition.................................................... 176
5.6.1.1 Context ................................................................................................. 176
5.6.1.2 Collaboration ........................................................................................ 177
5.6.1.3 Team Composition ............................................................................... 181
5.6.2 Artefacts ............................................................................................................. 182
5.7 Individual Perceptions of Business Model Innovation .................................................. 187
5.8 Conclusion ..................................................................................................................... 190
6 Business Model Innovation at the Contextual Level (Conceptual Model

Development)................................................................................................................ 193
6.1 Introduction.................................................................................................................... 193
6.2 Business Model Innovation Processes & Environmental Characteristics ..................... 194
6.3 Perspectives on Business Environments ........................................................................ 196
6.4 Scanning the Environment of Business Models ............................................................ 198
6.5 Conceptualizing the Environment of Business Models ................................................. 199
6.5.1 The Business Model Environment Framework .................................................. 199
6.5.2 The Business Model Environment Map ............................................................. 202
6.5.3 The Dimensions of the Business Model Environment ....................................... 203
6.5.4 The Interface Business Model to Business Model Environment –
Opportunities for Business Model Innovation ................................................... 203
6.6 Exemplary Application of the BME Framework ........................................................... 210
6.7 Conclusion ..................................................................................................................... 214
7 Summary & Discussion ............................................................................................... 217

7.1 Theoretical Implications ................................................................................................ 218
7.1.1 Theoretical Implications at the Organizational Level ........................................ 218
7.1.2 Theoretical Implications at the Individual Level................................................ 223
7.1.3 Theoretical Implications at the Contextual Level .............................................. 228
7.2 Managerial Implications ................................................................................................ 230
7.3 Limitations & Further Research .................................................................................... 232
Table of Contents XIII
Bibliography ......................................................................................................................... 237
Appendix I ............................................................................................................................. 271
Appendix II ........................................................................................................................... 281
Appendix III.......................................................................................................................... 333
Appendix IV .......................................................................................................................... 419

List of Figures
Figure 1: Increasing Use of the Term “Business Model” .......................................................... 1

Figure 2: Research Focus ........................................................................................................... 5
Figure 3: Scope of Innovation .................................................................................................. 11
Figure 4: Internal/External – Continuous/Discontinuous Innovation ...................................... 14
Figure 5: Cooper’s Stage-Gate Model ..................................................................................... 16
Figure 6: Coupling Model (Rothwell, 1994) ............................................................................ 17
Figure 7: Spiral Development in the Stage-Gate Model .......................................................... 18
Figure 8: New Concept Development Model (NCDM) ........................................................... 19
Figure 9: The Innovation Cycle Model .................................................................................... 20
Figure 10: Blank’s Four Steps of Customer Development ...................................................... 21
Figure 11: Build – Measure – Learn Cycle by Eric Ries ......................................................... 22
Figure 12: Business Model Article in the Business/Management Field .................................. 24
Figure 13: Possible Overlap between the Concepts “Strategy” and “Business Model” .......... 30
Figure 14: Relationship between Strategy and Business Model .............................................. 32
Figure 15: The Business Model Canvas ................................................................................... 35
Figure 16: Starting Points for Business Model Innovation ...................................................... 41
Figure 17: Assumed Rates of Business Model Innovation in the Industry Life Cycle ............ 42
Figure 18: Research Design ..................................................................................................... 56
Figure 19: Case Study Design – Organizational & Individual Level ...................................... 61
Figure 20: Business Model Canvas .......................................................................................... 69
Figure 21: Conceptualization of BME-Framework ................................................................. 76
Figure 22: Traditional Business Model Company A ............................................................... 82
Figure 23: New Business Model Company A .......................................................................... 83
Figure 24: Development of Revenues II – New Business Model ............................................ 85
Figure 25: Development Companies with Access-Right – New Business Model ................... 86
Figure 26: The Course of Company A’s Business Model Innovation Process ........................ 94
Figure 27: Strategies Managing Dual Business Models .......................................................... 98
Figure 28: Individual Task Assessment ................................................................................. 102
Figure 29: Company B’s Core Business – Weaving Metals .................................................. 110
Figure 30: Changes in the Business Model for Architecture in Comparison to Core
Business Model ..................................................................................................... 111
Figure 31: Business Model for Filtration Services................................................................. 114
Figure 32: Preliminary Business Model for Media Facades .................................................. 116
XVI List of Figures
Figure 33: Focus of Analysis – Company B .......................................................................... 121

Figure 34: The Anatomy of Developing from Product to Service ......................................... 123
Figure 35: Analytical Model of Business Model Innovation Processes in Incumbent
Firms ..................................................................................................................... 146
Figure 36: Average Minutes per Building Block - Team E ................................................... 156
Figure 37: Example from Project Documentation by Team G - I .......................................... 160
Figure 38: Example from Project Documentation by Team G - II ........................................ 160
Figure 39: Emergent Model of Business Model Design Processes ....................................... 161
Figure 40: Prior Experiences as “Seeds” for Business Model Ideas (Case E) ....................... 165
Figure 41: Idea Generation Theory ........................................................................................ 169
Figure 42: Lean Startup / Customer Development Theory .................................................... 170
Figure 43: Observed Idea Evaluation and Selection .............................................................. 172
Figure 44: The Process Stage “Delivery” .............................................................................. 174
Figure 45: Collaboration Tools Used by Team F ................................................................... 179
Figure 46: The Business Model Environment Framework ................................................... 201
Figure 47: The Business Model Environment Map ............................................................... 202
Figure 48: Business Model Environment of Company B in 1992 – Architecture ................. 211
Figure 49: Business Model Environment of Company B in 2004 – Filtration Services ........ 213
List of Tables
Table 1: Research Question – Sub-Questions ............................................................................ 4

Table 2: Definitions of Key Terms ............................................................................................ 5
Table 3: Types of Innovation ................................................................................................... 12
Table 4: Innovation Classification – Academic Literature and Practitioners .......................... 13
Table 5: Factors of Uncertainty and Their Manifestations in Innovation Processes ............... 23
Table 6: Business Model – Research Streams ......................................................................... 26
Table 7: Business Model Definitions ....................................................................................... 27
Table 8: Elements/Building Blocks of Business Models ......................................................... 34
Table 9: Business Model Components ..................................................................................... 36
Table 10: Types of Business Model Innovation....................................................................... 39
Table 11: Performance Implications of Business Model Innovation ....................................... 43
Table 12: Similarities and Differences between Product and Business Model Innovation ..... 45
Table 13: Characteristics of Innovative Companies ................................................................ 47
Table 14: Process Definitions .................................................................................................. 52
Table 15: Typology of Approaches for Studying Organizational Change ............................... 53
Table 16: Research Methods .................................................................................................... 57
Table 17: Comparison Longitudinal and Retrospective Case Studies ..................................... 59
Table 18: Sample Selection Criteria I – Company Characteristics .......................................... 62
Table 19: Sample Selection Criteria II – Business Model Innovation Characteristics ............ 63
Table 20: Interview Partners Company A ................................................................................ 64
Table 21: Interview Partners Company B ................................................................................ 64
Table 22: Overview of Data Sources (Retrospective Case Studies) ........................................ 65
Table 23: Content Analysis – Coding Examples* ................................................................... 66
Table 24: Case Selection – Longitudinal Cases ....................................................................... 67
Table 25: Longitudinal Cases – Overview ............................................................................... 68
Table 26: Data Sources – Longitudinal Studies I ..................................................................... 70
Table 27: Data Sources – Longitudinal Studies II ................................................................... 71
Table 28: Data Analysis – Longitudinal Studies ...................................................................... 73
Table 29: Data Structure – BME Framework .......................................................................... 75
Table 30: Expert Sample – Conceptual Model ........................................................................ 77
Table 31: Fact Sheet Company A ............................................................................................ 81
Table 32: Comparison Traditional and New Business Model ................................................. 84
Table 33: Development of Revenues I – New Business Model ............................................... 84
XVIII List of Tables
Table 34: Development Number of Companies with Access-Right – New Business Model .. 85
Table 35: Main Stages of Company A’s Business Model Innovation Process ........................ 91
Table 36: Reflections on Organizational Culture and Structure ............................................ 103
Table 37: Fact Sheet Company B ........................................................................................... 105
Table 38: Overview Business Model Innovations Company B ............................................. 109
Table 39: Uncertainty in Company B’s Business Model Innovation Process ....................... 134
Table 40: Statements on Patterns in Business Model Innovation .......................................... 137
Table 41: Barriers and Drivers of Successful Business Model Innovation ............................ 149
Table 42: Factors of Uncertainty and Their Manifestations in Business Model
Innovation Processes ............................................................................................. 151
Table 43: Changes in Business Models – All Cases .............................................................. 155
Table 44: Changes in the Business Models ............................................................................ 157
Table 45: Process Themes ...................................................................................................... 159
Table 46: Business Model Analogies Used by Project Teams ............................................... 166
Table 47: Artefacts (Business Model Canvas) – Summary of Quotes ................................... 185
Table 48: Individual Perceptions of the BMI Process............................................................ 188
Table 49: Perspectives on Business Environments ................................................................ 197
Table 50: Relevant Publications for the Conceptualization of the BME ............................... 200
Table 51: Theoretical Implications of Major Findings – Organizational Level .................... 220
Table 52: Theoretical Implications of Major Findings – Individual Level ............................ 226
Table 53: Theoretical Implications of Major Findings – Contextual Level ........................... 229
List of Abbreviations
BM Business Model
BMI Business Model Innovation
SQ Sub-Question (of Research Question)
IR Individual Reflection
TR Team Reflection
WPD Written Process Documentation
1 Introduction
Due to growing R&D costs on the one side and steadily shortening product life cycles that limit
revenues on the other side, innovation pressure has been rising constantly over the last decades.
Many companies try to master this challenge by aiming at the development of breakthrough
products and services that promise higher returns on investment (e.g., Lilien et al. 2002; von
Hippel 2005). An alternative strategy gaining attention recently is to come up with innovative
business model designs (e.g., Osterwalder et al. 2005; Markides 2006; Teece 2007; Johnson et
al. 2008; Markides 2008; Zott & Amit 2008), i.e. an innovative and sometimes game-changing
approach towards value creation and the related business architecture. According to a recent
study from KPMG (2013), on average 34% of the interviewed organizations expect
fundamental changes to their business model until 2020, whereas only 3% expect no changes
at all.
Figure 1: Increasing Use of the Term “Business Model”
Average use of the term “business model” in annual reports*
* The figure illustrates the average number of times the term “business model” was mentioned in the annual
reports of the firms that belong to the specific index as of May 2013. All publically available annual report
documents for the years 1999 to 2012 were considered.
Source: Schneider 2013
These transformation processes and the shift of focus towards innovations in the business model
are increasingly getting attention from academia as well as managerial practice (Figure 1).
Nevertheless, empirical studies and a basic understanding of underlying processes and strategic
decisions related to the reconfiguration of business models are still lacking. This serves –
together with the circumstances described above – as the major inspiration and driver to devote
this doctoral dissertation to the empirical investigation of business model innovation processes.
G. Stampfl, The Process of Business Model Innovation,

DOI 10.1007/978-3-658-11266-0_1, © Springer Fachmedien Wiesbaden 2016
2 Introduction
1.1 Background and Research Context

In the 21st century, shorter product or design life-cycles, intra-industry competition and
disruptions from new business models that offer new and unique customer experiences have
led to a dramatically increased pace of change (McGrath 2011). Many micro and macro trends,
such as globalization of markets, increased competition, rapid technological change (for
instance in information technology), increasing customer sophistication, changing
demographics, new forms of employment, increasing rate of accumulation of knowledge, or
changing societal norms have been identified as catalysts for ongoing transformation processes
(Volberda 1996; Djelic & Ainamo 1999).
Researchers argue that flexible organizational solutions are necessary in order to adapt to these
changing environmental conditions (March 1981; Lewin & Stephens 1993; Volberda 1996).
The dominant paradigm of sustainable competitive advantage is already being challenged
increasingly. Transformation processes in the world’s economies call for new ways to create
value. The limits of traditional organizational structures and strategies are disclosed (Djelic &
Ainamo 1999). Companies no longer have the chance of relying on a given competitive
advantage during rather stable periods, but as Volberda (1996) puts it: “In the new mode of
hypercompetition, […] rents do not derive from specialized routines but from adaptive
capability” (p.360). Teece et al. (1997) share this view, as they argue that regimes of rapid
change demand an “ability to achieve new and innovative forms of competition” (p.516) – also
referred to as “dynamic capabilities” by the authors. In a later study Teece (2007) disaggregates
these capabilities into the capacity to recognize and shape opportunities and threats, to seize
opportunities, and to maintain competitiveness by reconfiguring the company. These
capabilities also embrace the ability to adapt to a changing ecosystem and to design and
implement viable business models: “The capacity an enterprise has to create, adjust, hone, and,
if necessary, replace business models is foundational to dynamic capabilities” (Teece 2007,
p.1330). Consequently, a firm’s survival and growth increasingly depends on organizational
issues such as the design of new and viable business models fitting the environmental conditions
(e.g., Voelpel et al. 2004; Markides 2008).
Leading scholars in the field of innovation research, such as Henry Chesbrough, outline that in
the decade ahead, “business model innovation will become as important as technological
innovation” (Chesbrough 2011). Studies from scholarly as well as practitioner-oriented
domains (e.g., Lai et al. 2006; Pohle & Chapman 2006) show that business model innovators
are financially more successful than their peers exclusively concentrating on either product or
process innovations: The category of business model innovation enjoys higher rates of return
on innovation investment than any other innovation category.
Research Objective and Research Question 3
1.2 Research Objective and Research Question

Taking into account the importance of the business model concept in managerial practice, it
does not come as a surprise that research on business models has gained increasing importance
also in scholarly debate. Even though business model research is quite a new discipline, it is,
today, high on the agenda in several research streams, such as strategic management, marketing,
entrepreneurship, organization science and innovation research. The number of articles on
business models published in academic and non-academic management journals has
dramatically increased since 1995 (Zott et al. 2011). From that time on, business model research
has developed in very different directions. In earlier years it has been criticized for its
conceptual ambiguity, resulting in “an invitation for faulty thinking and self-delusion” (Porter
2001, p.77). Chesbrough and Rosenbloom (2002) note that the concept “draws from and
integrates a variety of academic and functional disciplines, gaining prominence in none” (2002,
p.553). However, meanwhile a common ground has been reached: The business model has been
established as a new unit of analysis that offers a systemic perspective on boundary-spanning
activities to create and capture value (Zott et al. 2011).
Nonetheless, so far the process of business model innovation, although already identified as an
important avenue in prior business model research (e.g., Mitchell & Coles 2003; Pateli &
Giaglis 2004; Morris et al. 2005; McGrath 2010; Zott & Amit 2010; Bucherer et al. 2012) has
hardly been researched. The suggested research project shall be a first step in closing this gap.
As Markides (2008) puts it, “the point is that innovation is not one thing. It comes in different
types – product, technological, business model, and so one – all of which are capable of creating
new market space. And it should come as no surprise to hear that what a company needs to do
to achieve one type of innovation, is totally different from what it must do to achieve another
type of innovation” (p.20).
Even though the importance of gaining insights on business model innovation processes has
been recognized in scholarly debate, knowledge about when and how incumbent companies
change their business models is scarce. This doctoral thesis is supposed to address this research
gap (Figure 2). It is intended to explore the specific characteristics and peculiarities of business
model innovation processes. The results will allow to compare business model innovation
processes to other types of innovation processes. Furthermore, it positions business model
innovation in the research field of organizational innovation and aims at providing first
propositions for a process theory of the business model innovation.
Consequently, the following major research question shall be addressed to explore the
phenomenon of business model innovation processes:
4 Introduction
Research Question: Why and how do incumbent companies re-configure their existing
business model and/or why and how do they develop new business models?
Following prior innovation management research (e.g., Ibarra 1993; Glynn 1996; Oldham &
Cummings 1996; Baer & Frese 2003; Gumusluoglu & Ilsev 2009; Lin & Feng-Chuan 2012;
Choi et al. 2013; Park & Kim 2013), it is differentiated between the organizational, the
individual, and the contextual level of business model innovation to specify this research
question. Accordingly, the following sub-questions have been defined (Table 1):
Table 1: Research Question – Sub-Questions
Level of Analysis Sub-Questions (SQ)
Organizational SQ1: Why and when is the process of business model innovation started in
incumbent organizations?
SQ2: How does the process of business model development and business model
implementation unfold in an incumbent organization and what are the most
important phases of business model innovation processes?
SQ3: What are barriers and drivers to successful business model innovation
processes?
Individual SQ4: How do people collaborate in order to develop new business models?
SQ5: What is the nature of the processes pertaining to the search and discovery
of new business models designs?
SQ6: What are the individual perceptions of team members regarding business
model innovation projects?
Contextual SQ7: What constitutes the context of business model innovation processes?
By finding answers to these questions, this research aims at contributing to theory and
managerial practice regarding the management of business model innovations.
Research Objective and Research Question 5
Figure 2: Research Focus
Source: own representation, adapted from Langley 1999; Poole et al. 2000
The following guiding definitions are adopted to serve as the basis of this research effort:
Table 2: Definitions of Key Terms
Term Definition
Incumbent company Whereas, in absence of a formal or legal definition, the term “startup”
generally describes a new venture in an early phase of the life-cycle of
an enterprise, the term “incumbent company” is used to describe an
established business that already exists since many years.
Business model For the purpose of this research effort the definition of a business model
suggested by Teece (2010, p.173) is adopted:
“A business model articulates the logic and […] demonstrates how a

business creates and delivers value to customers. It also outlines the
architecture of revenues, costs, and profits associated with the business
enterprise delivering that value” (Teece, 2010, p.173).
This definition is deemed most comprehensive as it integrates the

aspects of value creation, value delivery and value capture logic
frequently found also in other definitions.
Business model innovation Business model innovation describes the process of finding new ways
of how business is done (e.g., revenue models, distribution channels,
value propositions, etc.). The following definition provided by
Casadesus-Masanell and Zhu (2013) is adopted for this research effort:
“At root, business model innovation refers to the search for new logics
of the firm and new ways to create and capture value for its
stakeholders; it focuses primarily on finding new ways to generate
revenues and define value propositions for customers, suppliers, and
partners” (p.464).
6 Introduction
This definition synthesizes definitions of business model innovation

found in studies most often cited in the field (e.g., Amit & Zott 2001;
Magretta 2002; Zott & Amit 2007; Zott & Amit 2008; Baden-Fuller &
Morgan 2010; Casadesus-Masanell & Ricart 2010; Gambardella &
McGahan 2010; Teece 2010). A company reconfigures its business
model, when changes are made to the model currently in operation. In
developing a new business model, there is no preexisting model in the
particular field. Hence, the incumbent operates an existing model
(which remains unchanged) while it develops another business model
in parallel.
1.3 Structure of Dissertation

The doctoral dissertation is a monograph and comprises seven Chapters: (1) Introduction, (2)
State of Research, (3) Methodology, (4) Business Model Innovation at the Organizational Level
(In-Depth Retrospective Case Studies), (5) Business Model Innovation at the Individual Level
(Longitudinal Case Studies), (6) Business Model Innovation at the Contextual Level
(Conceptual Model Development), (7) Summary & Discussion.
Chapter 1 explains the background and the context of the research project. It outlines the
research objective, the research question, and the structure of the doctoral dissertation.
Chapter 2 presents the theoretical foundation of this research. It starts by reviewing innovation
management and business model literature. Innovation definitions and types of innovation
processes are examined. Subsequently, the business model as a concept is reviewed, followed
by a look at business model innovation as a process. Based on the comprehensive literature
review the identified research gaps are clarified.
Chapter 3 outlines the methodological approach of the dissertation. The chapter starts with a
review of “process” definitions provided by the literature. It is continued by a presentation of
different approaches on how to investigate organizational change. Based on the theoretical
implications, the chosen research design is explained in detail. This is continued by an outline
on the different methods applied, a detailed account of how the research was carried out, and
how data has been analyzed.
Chapter 4 explores the nature of business model innovation processes at the organizational
level in incumbent firms. Based on two in-depth retrospective case studies it is investigated
why and when the process of business model innovation is started, how the process of business
model development and implementation unfolds, and what potentially represents barriers or
drivers to successful business model innovation. The chapter starts with the within-case analysis
of both cases. The subsequent cross-case analysis allowed to link research findings to prior
Structure of Dissertation 7
literature, generalize the research outcomes, and derive an analytical model of business model
innovation processes in incumbent firms.
Chapter 5 explores the nature of business model innovation processes at the individual level.
Based on nine longitudinal case studies it is investigated how people collaborate in order to
develop new business models. It is explored how the search and discovery processes pertaining
to the design of new business models unfold and what the individual perceptions of team
members regarding business model innovation projects are. Furthermore, a model for business
design processes is derived from the rich data collected through longitudinal research.
Chapter 6 is intended to provide a framework that serves to analyze and understand why and
when the process of business model innovation is started in incumbent organizations. It
contributes to existing theory by suggesting a new perspective on business environments, the
business model environment. The business model environment is further specified through
conceptualization of the “business model environment framework” and the “business model
environment map”.
Chapter 7 represents the overarching bracket reviewing and discussing the major theoretical
and managerial implications that can be drawn from this research effort. The limitations of this
study are discussed and trajectories for further research are outlined.
2 State of Research
2.1 Introduction
The objective of this chapter is to review the status quo of innovation management and business
model research. The discussion of the theoretical foundation of this study aims at generating an
understanding of the relevance of the business model concept in engaging in new business
activities. The literature review starts with a look at general innovation definitions, types of
innovation and innovation processes. The subsequent section reviews the business model as a
concept, followed by a look at business model innovation as a process. In the last section, the
identified research gaps are summarized.
2.2 Innovation in General
2.2.1 Definitions of Innovation

The latin verb “innovare”, built from “in-“ (=into) and “novus” (=new), is translated as “to
renew” or “to change”. The term innovation goes back to Austrian economist Joseph A.
Schumpeter quite exactly 100 years ago (Schumpeter 1912). He defined innovation as “the
doing of new things or the doing of things that are already done, in a new way“ (Schumpeter
1947, p.151). In his seminal work “The Theory of Economic Development” (1934) he provides
the following examples for innovation:
“(1) The introduction of a new good — that is one with which consumers are not yet familiar —
or of a new quality of a good.
(2) The introduction of an improved or better method of production, which need by no means
be founded upon a discovery scientifically new, and can also exist in a better way of handling
a commodity commercially.
(3) The opening of a new market that is a market into which the particular branch of
manufacture of the country in question has not previously entered, whether or not this market
has existed before.
(4) The conquest of a new source of supply of raw materials or half-manufactured goods, again
irrespective of whether this source already exists or whether it has first to be created.
(5) The carrying out of the better organization of any industry, like the creation of a monopoly
position or the breaking up of a monopoly position” (p.66).
Innovation differs from invention in the sense that innovation is an invention which became
successful either in a market or within an organization (Hauschildt 1997). Whereas the

10 State of Research
invention is simply the first manifestation of an idea for a new product or process. The literature
provides various definitions of innovation (e.g., Kieser 1969; Zaltman et al. 1973; Rickards
1985; Hauschildt 1997). Some authors focus on novelty while others see the process which
changes elements in the market as a vital element of innovation (Stummer et al. 2010).
However, for all definitions innovation is much more than finding a solution to a technological
product. This implies that innovation is an intended introduction and application of ideas,
processes, products, and methods that are new to the relevant target group and result in
advancement (West & Farr 1990, p.9). A recent definition which is even broader is provided
by the Oslo Manual developed by the OECD1:
“An innovation is the implementation of a new or significantly improved product (good or

service), or process, a new marketing method, or a new organizational method in business
practices, workplace organization or external relations” (p.46, Paragraph 146).
“The minimum requirement for an innovation is that the product, process, marketing method
or organizational method must be new (or significantly improved)to the firm. This includes
products, processes and methods that firms are the first to develop and those that have been
adopted from other firms or organizations” (p.46, Paragraph 148).
“Innovation activities are all scientific, technological, organizational, financial and

commercial steps which actually, or are intended to, lead to the implementation of innovations.
Some innovation activities are themselves innovative, others are not novel activities but are
necessary for the implementation of innovations. Innovation activities also include R&D that
is not directly related to the development of a specific innovation” (p.47, Paragraph 149).
The definition of innovation activities provided by the Oslo Manual and the fact that innovation
is more than just the solution of a technological problem call for a differentiation between
innovation in the narrow sense and innovation in the broader sense (Figure 3).
1
Oslo Manual – Guidelines for collecting and interpreting innovation data, Third Edition (Lewin 1951; Schein
1980; Mantere et al. 2012).
Innovation in General 11
Figure 3: Scope of Innovation
Innovation in the broader sense
Innovation in the narrow sense
R&D Production Dealing with

Market launch Market Success
launch competition
Development cycle Market cycle
Source: adapted from Stummer et al. 2010 (p.13)
For a more detailed description and classification, innovation can be categorized based on
different characteristics. These different types of innovation are explained in the subsequent
chapter.
2.2.2 Types of Innovation

According to Thom (1980) all types of innovation have four dominant characteristics in
common which exacerbate innovation related tasks:
novelty (the higher, the more challenging it is to manage innovation),

uncertainty / risk (of failure),
complexity, and
potential of conflicts (intellectual, social-emotional and cultural conflicts; as a result of the
other three characteristics).
Besides these communalities, various types of innovation can be differentiated (Table 3). The
following criteria are most frequently suggested in the literature (e.g., Kupsch et al. 1991; Vahls
& Burmester 2002; Stummer et al. 2010).
Table 3: Types of Innovation
Differentiation
Core Question Innovation Types
Criterion
Product innovation, process

Domain What is the focus of the innovation? innovation, market innovation,
social innovation
Objective innovation (new to the

world) vs subjective innovation
Degree of Novelty How new is the innovation?
(new to a specific group or
organization)
What kind of changes are necessary

Degree of Change Radical vs incremental
within the organization?
Pull innovation (triggered by

market demand) vs push innovation
Trigger What initiated the innovation?
(triggered by newly developed
technologies)
Source: based on Vahls & Burmester 2002 (p.73), Kupsch et al. 1991 (p.1077), and OECD 2005 (p.17)
The domain is one of the most frequently used criteria to differentiate innovation types.
Typically in the academic literature these four types are known (Stummer et al. 2010):
Product innovation (improvement and renewal of products and services)
Process innovation (aims at a more efficient production of products and services)
Market innovation (competitive development of existing markets and identification of
potential new markets)
Social innovation (changes on the organizational level)
Also the OECD adopts these types in the Oslo Manual. However, in managerial practice there
has been a tendency towards “inventing” new types of innovation. For instance, innovation
consultant Jeffery Philips2 suggests nine types of innovation3, Doblin strategy firm4 presents 10
different types5 (Table 4)
2
http://www.ovoinnovation.com/about/ovo-team-leaders/
3
Available at: http://cirf.pbworks.com/f/Examination+of+Innovation+Types+Final.ppt, last time accessed on
July 8, 2014.
4
www.doblin.com /
5
Available at: http://www.doblin.com/tentypes, last time accessed on July 10, 2014 (OECD 2005).
Innovation in General 13
Table 4: Innovation Classification – Academic Literature and Practitioners
Innovation
Classification
Frequently
Innovation Classification Suggested Mainly by Practitioners
Used in
Academic
Literature
Philips Doblin Sniukas
Product
Technology Led
Performance
Innovation
Innovation
Product Product & Service
Product System
Innovation R&D Innovation Innovation
Innovation
Design Led
Innovation
Process Operational
Process Innovation Operational Innovation
Innovation Innovation
Business Model Profit Model

Innovation Innovation
Needs based
Service Innovation
Innovation
Market
Service / Experience Strategic Innovation
Innovation Channel Innovation
Innovation
Brand Innovation
Customer
Engagement
Management
Network Innovation
Social Innovation
Management Innovation
Innovation Structure
Open Innovation
Innovation
Source: own representation
The trend towards introducing new types of innovation in managerial practice might lead to
confusion and partly overlapping terms. Consequently, innovation expert Marc Sniukas
suggests to segment innovation based on two criteria (Figure 4):6
6
Explained during personal interview, also available at http://de.slideshare.net/sniukas/the-innovation-map-a-
framework-for-defining-innovation-outcomes, last time accessed July 12, 2014.
How innovative wants the company to be (i.e. continuous/evolutionary versus

discontinuous/revolutionary innovation)?
What is the direction of the innovation efforts (i.e. internal versus external innovation)?
Figure 4: Internal/External – Continuous/Discontinuous Innovation
Source: adapted from Sniukas 2014
According to Sniukas (2014) operational innovation is defined as technological innovation in

manufacturing, making processes for established offers in established markets more effective
or efficient. Product and service innovation refers to making surface modifications that improve
customers' experience of established products and improving established offers in established
markets. Strategic innovation includes the development of new business models, new markets
and the increase of value for both the customer and the company (e.g., Markides 1997;
Govindarajan & Trimble 2012). Management innovation “is anything that substantially alters
the way in which the work of management is carried out, or significantly modifies customary
organizational forms, and, by doing so, advances organizational goals“ (Hamel & Breen 2007,
p.19).
Quite recently the academic literature has specified another three types of innovation which
have found general acceptance in innovation management research: Open innovation is an
approach where internal and external sources of information are used throughout all phases of
the innovation process (von Hippel 1988; Cohen & Levinthal 1990). It is “the creation of
something of economic value based on new jointly generated ideas that emerge from the sharing
of information and knowledge” (Miles et al. 2006, p.2). To broaden and deepen the available
knowledge (Gassmann 2006), companies collaborate with external partners such as customers
Innovation Processes 15
(e.g., Prügl & Schreier 2006; Paladino 2007), users and lead users (e.g., von Hippel 1986;
Schreier & Prügl 2008; Magnusson 2009), suppliers (e.g., Petersen et al. 2003; Johnsen et al.
2006), or other organizations and companies (Griffin & Hauser 1996; Powell et al. 1996;
Laursen & Salter 2006). In disruptive innovation a new product is initially lower performing
on some metrics used to typically specify established products, but offers other benefits
appealing to nonusers or low-end users in new markets such as being cheaper, simpler, or more
convenient. Although the new product is not as good as what existing customers are currently
using, it improves over time until it is good enough to eventually meet the needs of existing
markets (e.g., Christensen 1997; Christensen & Raynor 2003; Christensen 2006; Hwang &
Christensen 2008; Lindsay & Hopkins 2010). According to Christensen (Christensen 1997;
Hwang & Christensen 2008) a disruptive innovation is usually based on three enablers: a
simplifying technology, a new value network, and a business model innovation. Although the
business model concept has initially been criticized for its conceptual ambiguity (Porter 2001)
and as being a concept that “draws from and integrates a variety of academic and functional
disciplines, gaining prominence in none” (Chesbrough & Rosenbloom 2002, p.553), in recent
years the business model has been established as a new unit of analysis, providing the possibility
of gaining a holistic view on how companies do business (Zott et al. 2011). Consequently, the
business model can itself be a subject of innovation (Mitchell & Coles 2003). This research
effort will focus on this type of innovation. The relevant literature on the business model
concept and on business model innovation will be further discussed in Chapter 2.4 and 2.5.
2.3 Innovation Processes

As has been outlined above, innovation aims at commercializing ideas. The transformation of
ideas into new products, processes, and business models underlies a (multi-)phased process.
Various scholars have developed conceptual process models structuring the innovation process
through a variety of dissimilar, but highly interconnected phases (Taran 2011). However, in the
literature there are dissenting opinions regarding the extent to which innovation processes
should be structured and standardized (Verworn & Herstatt 2007). On the one hand, there are
studies confirming that formalization and standardization have positive influence on success in
innovation and new product development (NPD) processes (e.g., Cooper & Kleinschmidt 1991;
Ernst 2001). On the other hand, there is evidence that especially in early phases a structured
approach might limit creativity (e.g., Stevens 2004; Verworn & Herstatt 2007).
2.3.1 Linear Processes

The most classical innovation processes are strictly linear, typically comprise some form of
search, selection, implementation, and capture phases (Tidd & Bessant 2009) and are R&D
focused. Hence, these processes are geared towards (mostly incremental) product innovation
and do not take into account other types of innovation. For instance, such a process consists of
idea generation, idea screening, business analysis, development, test and validation, and
commercialization (Griffin 1997). One of the most frequently discussed linear innovation
process models is Coopers Stage-Gate Model (Cooper 1990) (Figure 5). As a “roadmap from
idea to launch consisting of discrete stages, each stage preceded by a Go/Kill decision point of
gate" (Cooper 1990, p.4) this process provides measurable objectives at the end of every phase
(Buggie 2002). Predefined activities (stages) need to be completed before the outcome is
evaluated based on predefined criteria (gates). Once the requirements of the gate are met, the
project moves on to the next stage.
Companies such as 3M, Procter & Gamble or Hewlett Packard have adopted Stage-Gate-
Models (Ettlie & Elsenbach 2007; Mathews 2011) and various studies underline the benefits
(Cooper & Kleinschmidt 1990; Cooper & Kleinschmidt 1991; Rundquist & Chibba 2004).
However, the strict sequential procedure of the Stage-Gate-Model might lead to delays in the
innovation process as missing information at a gate potentially inhibits progression.
Consequently, Cooper himself suggests to include iterative elements to make the process more
flexible, adaptive, and less bureaucratic (Cooper 2008).
Figure 5: Cooper’s Stage-Gate Model
Source: Cooper 2008
Increasing competitive pressure has led to a new paradigm in innovation processes. It became
evident that innovation shall not be structured solely as linear “technology push” process, but
needs to be more open and “need pull” oriented (Taran 2011). Such processes are better suited
for more radical innovation and allow to integrate external sources of information (open
innovation). In times of fast changing environments it’s not possible to make stable and rigid
product definitions before an idea moves on to development – a fundamental principle of
Coopers Stage-Gate Model from the 1980s (Cooper 2014). As linear approaches tend to
generalize causalities as driving mechanisms and to neglect iterations and feedback loops
occurring between different process stages (Lassen 2007), more adaptive, agile, and flexible
idea-to-launch process models emerged (Cooper 2014). Consequently, for more radical types
of innovation the literature suggests to move to iterative innovation processes, which will be
discussed below in more detail.
2.3.2 Iterative Processes

According to the “Coupling Model” Theory (Rothwell & Zegveld 1985), the innovation process
“can be divided into a series of interdependent stages and feedbacks to the previous stage”
(Galanakis 2006, p.1224). In this non-linear model of innovation, the process is presented as
series of interactive and interdependent stages, which are not necessarily sequential.
Figure 6: Coupling Model (Rothwell, 1994)
Source: Galanakis 2006
In line with the Coupling Model, iterative innovation processes are characterized by an
independent sequence of the process phases (Koen et al. 2001). This type of process models is
geared towards more radical innovation projects where in early phases uncertainty regarding
markets and technologies is much higher. Consequently, in comparison to Stage-Gate Models,
definitions and formalizations are found much later in the process (Veryzer 1998; Mascitelli
2000). Process phases might be repeated (Smith & Reinertsen 1991) or designed to be partly
overlapping (Sandmeier & Jamali 2007). One of the earliest iterative models is proposed by
Kline and Rosenberg (1986). The authors suggest a “Chain Linked Model” incorporating (1)
“technology push” and “market pull” innovation aspects, (2) a sequential procedure, and (3)
feedback loops helping to connect perceived market needs to iterations in product and service
design (p.289).
Quite recently, Cooper has revised his Stage-Gate-Process from the 1980s to be more adaptive
and flexible (2014). The author picks up the idea of integrating feedback loops into the various
stages to account for the impossibility of 100 percent accurate product definitions in earlier
phases of the innovation process. As “people don’t know what they want until you show it to
them” (famously stated by Steve Jobs, cited in Isaacson 2011, p.567) and as product
requirements may change during the innovation process (e.g., new customer needs, new
competitive situations, new technologies), Cooper suggests to integrate “spirals” or “iterations”
thus promoting experimental elements to be integrated in the innovation process (Figure 7).
Spirals or iterations consist of
a building phase to develop a prototype, a working model or an early beta version which
can be shown to the customer,
a testing phase to have customers use these early product versions,
a feedback phase to collect feedback from customers,
a revision phase to rethink value propositions, benefits and product design.
Figure 7: Spiral Development in the Stage-Gate Model
Source: Cooper 2014
Even more emphasis on the iterative nature of innovation related activities is found in
innovation cycle models. Koen et al. (2001) suggest for the front end of innovation, i.e. the early
stage of the innovation process starting with opportunity identification and ending with idea
selection and business case development (e.g., Moenaert et al. 1995; Eldred & McGrath 1997;
Khurana & Rosenthal 1998), the New Concept Development Model (NCDM). The NCDM
consists of three elements: (1) the center (“engine”) representing organizational leadership and
culture, (2) the environment reflecting organizational capabilities, business strategy and the
business environment in general, and (3) the five key elements of the process (opportunity
identification, opportunity analysis, idea genesis, idea selection and concept & technology
development) (Figure 8). Ideas are supposed to flow, circulate, and iterate among these five key
elements. The authors suggest that this model is followed by a more formal New Product
Development (NPD) process. In contrast to the NCDM, the latter is defined as a series of
sequential, well-structured, and chronologically ordered steps (Koen et al. 2001, p.51).
Figure 8: New Concept Development Model (NCDM)
Source: Koen et al. 2001
Schoen et al. (2005) suggest another innovation cycle model. Contrary to the NCDM, this
model aims at covering the whole innovation process, from basic research to successful
commercialization. This model values the role of basic research. However, it also emphasizes
the importance of the business model as an important part of the innovation process (Figure 9).
The model deliberately refrains from including neither clearly defined outcomes nor a clearly
defined process as Schoen et al. underline that “innovation is not a step-by-step, set the pins up
and knock them down type of operation and regularly requires mating a good product idea with
an even better business concept. Even if a system is in place for performing research, it does
not mean new product innovation will spring forth” (2005, p.5).
Figure 9: The Innovation Cycle Model
Source: Schoen et al. 2005
Based on four empirical studies of management practices associated with radical or

discontinuous innovations Lynn et al. (1996) suggest the “Probe and Learn Process”. The
authors underline the importance of an iterative approach: early versions of a product are
introduced to test markets, modified based on the gathered learnings and subsequently revised
versions are tested again. Hence, the probe and learn process is a “vehicle for gaining insight
into what markets to pursue, which technologies to use, and what benefits to incorporate” (Lynn
et al. 1996, p.29). However, the authors underscore that although the focus lies on learning-
based knowledge accumulation and not on process efficiency, probing and learning is not
simple trial and error. It rather represents an experimental design and exploration to iteratively
approximate to a successful market – product combination.
Building on the ideas of the innovation cycle model and the probe and learn process, quite
recently entrepreneurial business practice has coined two approaches, “customer development”
and “lean startup”, which have gained increasing attention in entrepreneurship and innovation
practice. Customer development (Blank 2006) is an innovation process aiming at avoiding
innovations for which there is no demand. It “favors experimentation over elaborate planning,
customer feedback over intuition, and iterative design over traditional ‘big design up front’
development” (Blank 2013, p.4). The basic idea is that additionally to a process for “product
development”, there is also a need for a process of “customer development”. Blank (2006)
defined four key steps of customer development (Figure 10):
1) Customer discovery: investigation of potential customer groups and market segments,

validation if the planned solution solves a real customer problem worth tackling.
2) Customer validation: investigation of market size, customers’ willingness to pay, and
economically viable ways to serve the market.
3) Company creation: building of a scalable business with focus on sales and marketing.
4) Company building: preparation for company growth by developing business processes and
organizational structures.
Figure 10: Blank’s Four Steps of Customer Development
Source: Cooper & Vlaskovits 2010, p. 18
The lean startup methodology (Ries 2011) builds on the basic idea of the customer development
approach. Reflecting the idea of innovation cycles, it aims at building a continuous feedback
loop with users and/or customers during various cycles of product development (Maurya 2012).
Taking up the idea of probe and learn cycles, the main advantage of the lean startup approach
is to test hypotheses on problems or solutions early in the innovation process – sometimes even
before any kind of real product is built at all (Mueller & Thoring 2012). According to Mueller
and Thoring (2012), the build-measure-learn cycle (Figure 11) can be compared to a classical
scientific hypothesis-metric-experiment cycle, “starting with the learning goal (theory or
hypothesis)” and “ending with an experiment (prototype) to test the hypothesis” (p.3).
Figure 11: Build – Measure – Learn Cycle by Eric Ries
Source: Ries 2011
The practitioner-oriented processes of customer development and lean startup have been
initially developed for startups. However, the underlying definition of a “startup” is rather
broad. Ries defines a startup as “human institution designed to create new products and services
under conditions of extreme uncertainty” (2011, p. 8). Hence, also innovation departments and
similar entities of large incumbent firms meet that definition. It does not come as surprise that
there is increasing interest of established companies to integrate the key principles of customer
development and lean startup into their innovation processes (e.g., Metz 2014; Owens &
Fernandez 2014).
2.3.3 The Role of Uncertainty in Innovation Processes

The literature review of various innovation process models (see above) unveiled that the level
of uncertainty is an inherent factor in innovation and thus influences process designs.
Consequently, there is a plethora of studies investigating how uncertainty affects organizational
innovation processes (e.g., Tushman 1978; Souder & Moenaert 1992; Damanpour 1996;
Tatikonda & Rosenthal 2000; York & Venkataraman 2010). In discontinuous or radical
innovation, a high level of uncertainty is found especially regarding customer needs and market
characteristics as well as product design (e.g., Leifer et al. 2001; McDermott & O’Connor 2002;
Heiskanen et al. 2007). Aiming at increasing the understanding of factors that create
uncertainty, Jalonen (2012) reviewed 101 studies from academic innovation management
literature. Based on that systematic review, the author suggests that innovation uncertainty can
be classified into eight categories: (1) technological uncertainty, (2) market uncertainty, (3)
regulatory/institutional uncertainty, (4) social/political uncertainty, (5) acceptance/legitimacy
uncertainty, (6) managerial uncertainty, (7) timing uncertainty, and (8) consequence uncertainty
(Table 5). Although some uncertainty factors are derivative by nature (e.g., consequential
uncertainties), the results of Jalonen’s study are helpful to clearly identify and avoid possible
bottlenecks in innovation processes.
Table 5: Factors of Uncertainty and Their Manifestations in Innovation Processes
Uncertainty factor Manifestation of uncertainty
(1) technological uncertainty due to the novelty of technology its details are
unknown
uncertainty regarding knowledge required to use
new technology
(2) market uncertainty unclear customer needs
lack of knowledge about the behavior of
competitors
difficulties in predicting the price development of
raw materials and competing products and services
(3) regulatory/institutional ambiguous regulatory and institutional
uncertainty environment
(4) social/political uncertainty diversity of interests among stakeholders of

innovation processes
power struggle
(5) acceptance/legitimacy necessary skills and knowledge contradict existing
uncertainty skills and knowledge possessed by perceived users
of innovation
innovation threatens individual’s basic values
and/or organization’s norms
(6) managerial uncertainty fear of failure
lack of requisite tools to manage risk inherent in
innovation process
(7) timing uncertainty lack of information in the early phases of
innovation
ambiguity of information in the late phases of
innovation
temporal complexity
(8) consequence uncertainty indirect consequences
undesirable consequences
unintended consequences
Source: Jalonen 2012

2.4 The Business Model Concept

Growing R&D costs on the one and steadily shortening product life cycles limiting revenues
on the other side have led to constantly rising innovation pressure. To master this challenge,
many organizations aim at developing breakthrough products and services promising higher
returns on investment (e.g., Lilien et al. 2002; von Hippel 2005). Within the last decade, the
business model has gained increasing attention both within scholarly debate as well as within
business practice (Osterwalder et al. 2005; Markides 2006; Teece 2007; Johnson et al. 2008;
Markides 2008; Wirtz et al. 2010; Zott et al. 2011; Foss & Stieglitz 2015). Developing
innovative business model designs, i.e. new approaches towards value creation, value capture
and towards the related architecture of a company, has been identified as a fruitful strategy. The
important role of the business model concept in innovation is beautifully described by Hamel:
“Innovation also encompasses the business model used to commercialize the product. Without
a successful business model, there is no innovation, just invention” (Hamel 2000; cited by
Schoen et al. 2005).
The increasing attention to the business model is also reflected in a recent review on the
business model literature from Zott et al. (2011). The authors stress that academics’ interest in
the business model concept has “virtually exploded” (p.4) since 1995 (Figure 12).
Figure 12: Business Model Article in the Business/Management Field
Source: Zott et al. 2011

The Business Model Concept 25
From that time on, business model research has developed in very different directions. The
literature on business models is quite dispersed can be divided in ten different tracks (Table 6):
I – Studies investigating what a business model is:

(1) definitions, typologies and taxonomies,
(2) elements and components of business models,
(3) reference models and frameworks,
II – Studies on the relationship to other concepts

(4) the relationship between the business model concept and technology,
(5) the relationship between the business model concept and strategy,
III – Studies on business models and organizations

(6) the business model and its impact on corporate performance
(7) business models and leadership & organizational capabilities
(8) business models and entrepreneurship
IV – Studies on the development and implementation of new business models

(9) business model design, implementation & innovation
(10) the business model innovation process
The literature on business models is quite young: an abundance of studies is from around 2005
or later. Looking at the publishing journals it becomes obvious that business model research is
just about to move closer towards top management journals. It also noticeable that earlier
research focuses more on defining what a business model is and how to apprehend it whereas
more recent work has shifted to the design and implementation of new business models. Early
business model research frequently disapproves the concept. Porter criticized business model
research for its conceptual ambiguity, resulting in “an invitation for faulty thinking and self-
delusion” (2001, p.77). In a similar vein, Chesbrough and Rosenbloom underscore that the
concept “draws from and integrates a variety of academic and functional disciplines, gaining
prominence in none” (2002, p.553).
Table 6: Business Model – Research Streams
Topic Literature
e.g., Timmers 1998; Linder & Cantrell 2000; Magretta 2002; Rappa
Definitions, typologies, and 2002; Ghaziani & Ventresca 2005; Osterwalder et al. 2005;
taxonomies Schweizer 2005; Lecocq & Warnier 2006; Doganova & Eyquem-
Renault 2009; Perkmann & Spicer 2010; Fielt 2011
e.g., Linder & Cantrell 2000; Amit & Zott 2001; Magretta 2002;
Elements and components of business
Afuah & Tucci 2003; Hedman & Kalling 2003; Casadesus-
models
Masanell & Ricart 2007
e.g., Gordijn & Akkermans 2003; Morris et al. 2005; Greiner 2006;
Reference models and frameworks
Shi & Manning 2009; Osterwalder & Pigneur 2010; Wirtz 2010
e.g., Calia et al. 2007; Chanal & Caron-Fasan 2007; Chesbrough

The relationship between the business
2007; Gambardella & McGahan 2010; Silva 2011; Dmitriev et al.
model concept and technology
2014; Wei et al. 2014
e.g., Seddon & Lewis 2003; Lehmann-Ortega & Schoettl 2005;

The relationship between the business
Morris et al. 2005; Ammar 2006; Casadesus-Masanell & Ricart
model concept and strategy
2010; Teece 2010; Hacklin & Wallnöfer 2012
e.g., Chesbrough & Rosenbloom 2002; Lai et al. 2006; Zott & Amit
The business model and its impact on
2007; Patzelt et al. 2008; Zott & Amit 2008; Nielsen & Montemari
corporate performance
2012
e.g., Brink & Holmén 2009; Dottore 2009; Doz & Kosonen 2010;
Business models and leadership &
Day 2011; Govindarajan & Trimble 2011; Klang 2012; Foss &
organizational capabilities
Stieglitz 2015
e.g., Verstraete & Jouison-Laffitte 2011; George & Bock 2011;

Business models & entrepreneurship
Nielsen & Bukh 2013; Spieth et al. 2014
e.g., Chesbrough 2007; Moingeon & Lehmann-Ortega 2010;

McGrath 2010; Wirtz et al. 2010; Zott & Amit 2010; Casadesus-
Masanell & Ricart 2011; Cavalcante et al. 2011; Girotra &
Business model design, Netessine 2011; Hienerth et al. 2011; McGrath 2011; Verstraete &
implementation & innovation Jouison-Laffitte 2011; Zook & Allen 2011; Casadesus-Masanell &
Zhu 2013; Cocchi 2013; Holm 2013; Matzler et al. 2013; Demil &
Lecocq 2014; von den Eichen et al. 2014; Khanagha et al. 2014;
Spieth et al. 2014
e.g.,; Mitchell & Coles 2004, Santos et al. 2009; Sosna et al. 2010;
Taran 2011; Gassmann, Friesike, et al. 2012; Gassmann, Csik, et al.
Business model innovation process
2012; Bucherer et al. 2012; Frankenberger et al. 2013; Taran et al.
2013
However, in the last ten years the business model has been established as a new unit of analysis,
providing the possibility of gaining a holistic view on how companies do business (Zott et al.
2011). Some common ground has been reached accepting that the business model concept
focuses on organizational activities emphasizing how companies create, deliver, and

appropriate value. There is even a worldwide debate in managing reporting about including the
business model as a mandatory part or business reporting (Beattie & Smith 2013).
2.4.1 Definitions of the Business Model

The concept of a business model was first mentioned more than 50 years ago (Bellman et al.
1957; Jones 1960), there has been ongoing research in that field to a strongly increasing extend
within the last 15 years, but still, there is no single, clear, unifying and widely accepted
definition of the construct. As has been shown in Table 6, many authors tried to more clearly
define the business model concept. Table 7 provides an overview on selected definitions from
the academic literature.
Table 7: Business Model Definitions
Author, Year Definition

Timmers (1998) The business model is “an architecture of the product, service and
information flows, including a description of the various business actors
and their roles; a description of the potential benefits for the various
business actors; a description of the sources of revenues.”
Venkatraman & Henderson (1998) “An architecture along three dimensions: customer interaction, asset
configuration and knowledge leverage.”
Selz (1999) “A business model is architecture for the firm’s product, service and
information flows. This includes a description of the various economic
agents and their roles. A business model also describes the potential
benefits for the various agents and provides a description of the potential
revenue flows”.
Stewart & Zhao (2000) A “business model is a statement of how a firm will make money and
sustain its profit stream over time”.
Linder & Cantrell (2000) “The business model is the organization’s core logic for creating value”.
Hamel (2000) “A business model is simply a business concept that has been put into
practice. A business concept has four major components: Core Strategy,
Strategic Resources, Customer Interface and Value Network.”
Amit & Zott (2001) A business model unveils “the content, structure, and governance of
transactions designed so as to create value through the exploitation of
business opportunities.”
Petrovic et al. (2001) A “business model describes the logic of a business system for creating
value that lies behind the actual processes”.
Weill & Vitale (2001) “A description of the roles and relationships among a firm’s consumers,
customers, allies and suppliers that identifies major flows of product,
information and money and the major benefits to participants”.
Chesbrough & Rosenbloom (2002) A business model is “the heuristic logic that connects technical potential
with the realization of economic value”.
Magretta (2002) Business models are “stories that explain how enterprises work. A good
business model answers Peter Drucker’s age old questions: Who is the
customer? And what does the customer value? It also answers the
fundamental questions every manager must ask: 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?”.
Osterwalder et al. (2005) A conceptual tool that contains a set of elements and their relationships and
allows expressing the business logic of a specific firm. It is a description
of the value a company offers to one or several segments of customers and
the architecture of the firm and its network of partners for creating,
marketing and delivering this value and relationship capital, to generate
profitable and sustainable revenue stream”.
Morris et al. (2005) A business model is a “concise representation of how an interrelated set of
decision variables in the areas of venture strategy, architecture, and
economics are addressed to create sustainable competitive advantage in
defined markets”.
Chesbrough (2006) “The business model is a useful framework to link ideas and technologies
to economic outcomes.”
“It also has value in understanding how companies of all sizes can convert
technological potential (e.g. products, feasibility, and performance) into
economic value (price and profits).”
“Every company has a business model, whether that model is articulated
or not”.
Johnson et al. (2008) Business models “consist of four interlocking elements, that, taken
together, create and deliver value”: customer value proposition, profit
formula, key resources, and key processes.
Skarzynski & Gibson (2008) “The business model is a conceptual framework for identifying how a
company creates, delivers, and extracts value. It typically includes a whole
set of integrated components, all of which can be looked on as
opportunities for innovation and competitive advantage”.
Casadesus-Masanell & Ricart (2010) “A business model is […] a reflection of the firm’s realized strategy.”
Teece (2010) “A business model articulates the logic, the data and other evidence that
support a value proposition for the customer, and a viable structure of
revenues and costs for the enterprise delivering that value.”
Zott & Amit (2010) A business model is “a system of interdependent activities that transcends
the focal firm and spans its boundaries”.
Source: based on Zott et al. 2011 and Taran 2012
Although business model definitions vary considerably, it is possible to catalyze five different
roles attributed to business models by academics:7
(1) Business models as a real-life phenomenon

Although many executives struggle with articulating the business model of their company
(Linder & Cantrell 2000), every company has a business model, whether it is explicitly defined
or not (Chesbrough 2007; Casadesus-Masanell & Ricart 2010). In that sense, the business
model simply refers to the way a company does business (e.g., Galper 2001; Gebauer &
Ginsburg 2003; Osterwalder et al. 2005).
(2) Business models as models

The business model is also used as a simplification and conceptualization of the way a company
does business (e.g., Gordijn & Akkermans 2003; Osterwalder & Pigneur 2004; Baden-Fuller &
Morgan 2010). In that sense, it is – similar to the architectural small-scale models of buildings
– a simplification of the real-world phenomenon. The objective of such a model is to display
key principles and to identify elements and relationships.
7
This categorization was developed based on an exchange of views with fellow PhD student Marc Sniukas.
(3) Business models as a tool to structure organizations

Business models are also identified as a tool to configure various components within an
organization (Winter & Szulanski 2001). Various organizational variables need to be
orchestrated to increase business performance (e.g., Yip 2004; Casadesus-Masanell & Ricart
2010). Following this notion, the concept serves as “as a blueprint for the coherence between
core business model components” (Demil & Lecocq 2010, p.227).
(4) Business models as a mediator between technology and markets

The business model concept has also been described as an intermediating factor between
technological innovations and market outcomes (e.g., Chesbrough & Rosenbloom 2002;
Chesbrough 2007; Doganova & Eyquem-Renault 2009). Due to shortening product life cycles,
today it cannot be relied solely on paramount technologies to generate satisfactory profits
(Chesbrough 2007). Hence, firms need to develop new business models to capture the economic
potential of new technologies (e.g., Calia et al. 2007; Björkdahl 2009). Companies
commercialize new technologies through their business models by making various choices of
organizing the firm around the technology (Perkmann & Spicer 2010).
(5) Business models as a strategic variable

The business model can also be defined as a strategic variable as it represents an important
source of competitive advantage (Christensen 2001). The literature suggests that a key element
of corporate strategy is the choice of a business model. The particular business model in turn
determines different sets of tactics available to the firm (Casadesus-Masanell & Ricart 2010).
There is a common conception of strategy and business models being closely related, but still
different concepts. The relationship of strategy and business models is intensively discussed in
the literature and will be explained in more detail in Chapter 2.4.2.
Considering the different roles of a business model it also becomes evident what a business
model is not (Ghezzi 2014, p.3):
instrument for business planning,
instrument for external market attractiveness analysis,
instrument for in-depth internal core resources, competencies and dynamic capabilities
assessment,
instrument for comprehensive and holistic strategy formulation,
instrument for strategy monitoring and performance measurement,
substitute for strategy.
Zott et al. (2011) disapprove in their comprehensive review of the business model literature the
fact that researchers study business models without providing an explicit definition of the
concept. This has to be considered a procedural weakness contributing to the fuzziness of
business model research and hence shall not be repeated here. For the purpose of this research
effort Teece’ (2010) definition of a business model is adopted:
“A business model articulates the logic and […] demonstrates how a business creates and
delivers value to customers. It also outlines the architecture of revenues, costs, and profits
associated with the business enterprise delivering that value” (Teece 2010, p.173).
This definition is deemed most comprehensive as it integrates the aspects of value creation,
value delivery, and value capture logic frequently found also in other definitions. The specific
role of a business model is highly context specific and thus depends on the particular focus of
inquiry.
2.4.2 Business Model vs. Strategy

In the early phases of this research project, the author has frequently been confronted with the
argumentation of fellow scholars presuming that strategy and business model represent
identical concepts. Hence, according to them, business model research would not represent a
new research stream – it would rather be simply strategy research. However, meanwhile the
literature supports a different view, i.e. the notion of strategy and business model being closely
related but still different concepts. Exploring the relationship between strategy and business
model is a difficult task, as these terms are “among the most sloppily used terms in business;
they are often stretched to mean everything – and end up meaning nothing” (Magretta 2002,
p.9). This fuzziness leads to various potential overlaps between the concepts of strategy and
business model as outlined by Seddon et al. (2004) (Figure 13).
Figure 13: Possible Overlap between the Concepts “Strategy” and “Business Model”
Source: Seddon et al. 2004

The authors review the literature examining the leading authors’ definition of strategy and
business model. In their study, they conclude that the business model can be viewed as abstract
representations of a firm’s strategy. In line with Magretta (2002) they outline that only strategy
does take into account the competitive landscape, while the business model details the value
proposition and the activity system used to create and deliver value to customers. For Onetti et
al. (2012) the business model “acts as a strategy ‘enabler’, supporting the implementation of
the company’s strategy” (p.360). A different view on the subject is provided by Teece (2010).
For the author a business model is more “generic” and “transparent” than strategy. He argues
that business strategy adds the relevant details to a the general business model in order to
achieve competitive advantage.
Although business models are sometimes defined as subordinate and sometimes superordinate
to business strategy (Foss & Stieglitz 2015, p.4)), recent research provides indications on how
both concepts can be related: Companies may pursue similar strategies but might do so with
different business models (Zott & Amit 2008). This can be interpreted as a subordinate
relationship of the business model concept to strategy, which is further supported by Richardson
(2008) and Shafer et al. (2005) stressing the business model’s executing role in realizing
strategies. This notion is in line with Casadesus-Masanell and Ricart (2010) viewing the
business model as reflection of a firm’s realized strategy. The authors see the experimentation
with different business models and the choice of a specific model through which the company
competes in the market as a central task of corporate strategy (Figure 14). While the business
model focuses on the mechanisms of creating, delivering, and capturing value, strategy is more
outward oriented and focuses on scanning the business landscape and accordingly shaping the
competitive positioning (Chesbrough & Rosenbloom 2002, Magretta 2002). In this research
effort, the understanding of the relationship between strategy and business model suggested by
Casadesus-Masanell and Ricart (2010) is adopted.
Figure 14: Relationship between Strategy and Business Model
Source: Casadesus-Masanell & Ricart 2010
2.4.3 Business Model Frameworks & Components
2.4.3.1 Frameworks
Linder and Cantrell (2000) outline that business models are common talk amongst managers
and executives, but 99 percent are lacking a clear framework for describing the model. In
absence of a framework providing a common language, it remains impossible to share the
business model effectively throughout the organization. The development of such a standard
framework characterizing a business model is a quite difficult task considering the absence of
a widely accepted business model definition. Moreover, according to Morris et al. (2005) such
a framework needs to be simple, logical, measurable, comprehensive, and operationally
meaningful. Various researchers (e.g., Gordijn & Akkermans 2003; Morris et al. 2005; Greiner
2006; Shi & Manning 2009; Osterwalder & Pigneur 2010; Wirtz 2010) rose to the challenge of
closing the aforementioned gap. Also managerial practice has devoted considerable efforts
regarding the development of a coherent business model framework. Fellow business model
researcher Anders Sundelin8 has compiled an excellent overview of (presumably all known)
business model frameworks including graphical representations, significant publications, and
books on the subject.9 One of the first frameworks can be found in the practitioner-oriented
8
About Anders Sundelin: http://tbmdb.blogspot.co.at/2008/12/about-anders-sundelin.html.
9
The author of this dissertation has contributed to this work by adding a few business model frameworks not
included in a draft received from Anders Sundelin. The final work is also available at
http://tbmdb.blogspot.co.at/2010/09/evolution-of-business-model-concept.html (last retrieved August 18, 2014).
work from Linder and Cantrell (2000) suggesting an “operating model framework” to highlight
various business model choices. The more recent framework from Wirtz (2010) divides a
business model in various sub-models, including a procurement, financial, manufacturing,
market offer, revenue, and customer model and adds strategy, competences/resources, and
network as complementing elements.10
Templates in terms of frameworks are providing focus and structure (Henderson 1991) as well
as a common understanding and language (Shi & Manning 2009). Hence, for this research, the
framework suggested by Osterwalder (Osterwalder 2004; Osterwalder & Pigneur 2010) is used
for mapping and visualization. The suggested ontology has gained significant recognition and
is widely used among scholars (e.g., Chesbrough 2007; Tankhiwale 2009; Chesbrough 2010)
and practitioners due to a well-balanced compromise between detail and abstraction. Moreover,
it covers and provides additional detail to the main elements
value proposition,
customers,
infrastructure and processes, and
revenues and cost structure
frequently found in various frameworks (Table 8). Hence, it provides answers to the central
questions suggested by Markides (1999) to be asked for every business strategy: who is the
customer, what is offered, and how is the offer being delivered?
10
See Appendix I for the full overview on business model frameworks. The full appendix is available online in
the OnlinePLUS-Program at www.springer.com under Georg Stampfl.
Table 8: Elements/Building Blocks of Business Models
Key Questions of Frequently Used Business Model Description of Building Blocks

Business Strategy Business Model Building Blocks (Osterwalder 2004, p. 43)
(Markides 1999) Elements (Osterwalder
(Various 2004)
Frameworks)
“A Value Proposition is an overall view of a
What Value Proposition Value Proposition company's bundle of products and services that are
of value to the customer.”
“The Target Customer is a segment of customers a
Target Customer
company wants to offer value to.”
Distribution “A Distribution Channel is a means of getting in
Who Customers Channel touch with the customer.”
“The Relationship describes the kind of link a
Relationship company establishes between itself and the
customer.”
“The Value Configuration describes the
Value
arrangement of activities and resources that are
Configuration
necessary to create value for the customer.”
“A capability is the ability to execute a repeatable
Infrastructure &
How Capability pattern of actions that is necessary in order to create
Processes
value for the customer.”
“A Partnership is a voluntarily initiated cooperative
Partnership agreement between two or more companies in order
to create value for the customer.”
“The Cost Structure is the representation in money
Cost Structure
Revenues & Cost of all the means employed in the business model.”
-
Structure “The Revenue Model describes the way a company
Revenue Model
makes money through a variety of revenue flows.”
Source: based on Markides 1999 and Osterwalder 2004
The ontology has been developed by Osterwalder in his doctoral dissertation (2004) by
reviewing and summarizing previous research, thus adding new theoretical perspectives. The
author has later expanded the ontology into a more visually refined “business model canvas”
(Osterwalder & Pigneur 2010; see Figure 15). Working visually with business models allows
to experiment with different alternatives, protoype various possibilities, and, hence, allows to
theoretically re-configure business model elements (Chesbrough 2010). Moreover, the visual
work with business models using a framework was found to spur creativity, facilitate team
knowledge work, and foster participation (Okhuysen & Eisenhardt 2002; Eppler et al. 2011).
Figure 15: The Business Model Canvas
Source: Osterwalder & Pigneur 2010
Due to its widespread use and popularity, the business model canvas has recently been modified
by various practitioners to meet context-specific requirements. For instance, Sniukas (2013)
suggests to add “customer value proposition”, „firm value proposition“, and „ecosystem value
proposition” to get a more holistic view. A different modification is suggested by Maurya
(Maurya 2010), aiming at incorporating the key principles of customer development and lean
startup (cf. Chapter 2.3.2). This version targets primarily startups and consequently replaces
“key partners” and “customer relationship” with “problem” (i.e. a customer problem to be
solved) and “solution” (i.e. a solution offered by the company) to put more focus on early
product development.
2.4.3.2 Components
Considering the disparity regarding business model definitions and frameworks, it is not
surprising that researchers consider different elements as constituting components of a business
model. However, by reviewing the literature Morris et al. (2005) were able to detect
commonalities among the various perspectives. According to the authors, the most consistently
used components are related to the value proposition, the customer, the internal processes and
competencies, and to how the firm makes money. An overview on various business model
components suggested in the literature is shown Table 9.
Table 9: Business Model Components
Source Business Model Components

Horowitz (1996) Price, product, distribution, organizational characteristics and technology
Viscio & Pasternack (1996) Global core, governance, business units, services and linkages
Timmers (1998) Product/service/information flow architecture, business actors and roles, actor benefits,
revenue sources and marketing strategy
Markides (1999) Product innovation, customer relationship, infrastructure management and financial aspects
Donath et al. (1999) Customer understanding, marketing tactics, corporate governance and intranet/extranet
capabilities
Mahadevan (2000) Value stream for partners and buyers network, revenue stream and logistical stream
Chesbrough & Rosenbloom Value proposition, target markets, internal value chain structure, cost structure and profit
(2002) model, value network and competitive strategy
Gordijn & Akkermans (2001) Actors, market segments, value offering, value stakeholder network, value interfaces, value
ports, activity and value exchanges
Linder & Cantrell (2000) Pricing model, revenue model, channel model, commerce process model, Internet-enabled
commerce relationship, organizational form and value proposition
Hamel (2001) Core strategy, strategic resources, value network and customer interface
Petrovic et al. (2001) Value model, resource model, production model, customer relations model, revenue model,
capital model and market model
Afuah & Tucci (2001) Customer value, scope, price, revenue, connected activities, implementation, capabilities
and sustainability
Weill & Vitale (2001) Strategic objectives, value proposition, revenue sources, success factors, channels, core
competencies, customer segments and IT infrastructure
Applegate (2001) Concept, capabilities and value
Amit & Zott (2001) Transaction content, transaction structure and transaction governance
Alt & Zimmerman (2001) Mission, structure, processes, revenues, legalities and technology
Rayport & Jaworski (2001) Value cluster, market space offering, resource system and financial model
Dubosson-Torbay et al. (2002) Products, customer relationship, infrastructure and network of partners and financial aspects
Osterwalder (2004) Value proposition, target customer, distribution channel, relationship, value configuration,
core competence, partner network, cost structure and revenue model
Morris et al. (2005) Offering, market, internal capabilities, competitive strategy, economic factors and growth
model
Bonaccorsi et al. (2006) Products and services delivery, customers, cost structure, income and network
Brousseau & Penard (2007) Costs, revenue stream, sustainable income generation, goods and services production and
exchanges, relationships and network externalities
Source: based on Morris et al. 2005 and Zott et al. 2011
As has been outlined above, in this study business models are visualized using the methodology
suggested by Osterwalder and Pigneur (2010), i.e. the business model canvas. Hence, the nine
components used here for describing business models are value proposition, customer
segments, customer relationships, channels, key activities, key resources, key partners, cost
structure, and revenue streams. The canvas deliberately omits a direct link to strategy as can
be found in the work of others (e.g., Timmers 1998, Chesbrough & Rosenbloom 2002, Hamel
2001, Morris et al. 2005). This particular issue, namely the relationship between the business
Business Model Innovation 37
model and strategy, is frequently discussed in the literature, as will be shown in the following
Chapter.
2.5 Business Model Innovation

The previous chapter was dedicated to conceptualizing the business model. However, in times
where product or process innovations alone are not sufficient (Chesbrough 2007), the ability of
systematically developing and implementing new business models has become increasingly
important both in academic literature and in managerial practice. As was shown in Table 6,
business model research has only quite recently shifted from the rather static perspective of
describing and defining business models to a more dynamic perspective of focusing on the
design and implementation of business models. Business model innovation is a cross-sectional
matter showing a high degree of interconnectedness with concepts such as resources,
competitive advantage, strategy, dynamic capabilities, path dependency, and business model
(Beattie & Smith 2013).
2.5.1 Definitions of Business Model Innovation

The most common innovation types found in academic literature are product, process, market,
and social innovation (Chapter 2.2.2). However, the business model itself has been recognized
as a subject of innovation (Mitchell & Coles 2003). The literature accepts business model
innovation now as a new type of innovation which is different from traditional product or
process innovation (OECD 2005; Comes & Berniker 2008; Bucherer et al. 2012). This is largely
because business model innovation involves products, processes, distribution channels,
corporate architectures, and activities (Amit & Zott 2001). Also, managerial practice has now
defined business model innovation as a distinct activity.11 In general, business model innovation
involves changes around the architecture – the content (“what”), the structure (“how”), and the
governance (“who”) – of a business activity (Zott & Amit 2010). Casadesus-Masanell and Zhu
(2013) beautifully summarize the essence of what business model innovation is:
“At root, business model innovation refers to the search for new logics of the firm and new
ways to create and capture value for its stakeholders; it focuses primarily on finding new ways
to generate revenues and define value propositions for customers, suppliers, and partners”
(p.464).
11
In April 2013 The European Committee for Standardization (CEN) has approved a Technical Specification (TS)
“to guide organizations to introduce, develop, and maintain a framework for systematic innovation management
practices” (p.4), a state-of-the art Innovation Management System (CEN/TS 16555-1:2013). The TS explicitly
acknowledges product, service, process, organizational design, and business model innovations as different types
of innovation.
The definition provided by the authors synthesizes extant definitions of business model
innovation found in work most often cited in the field (e.g., Amit & Zott 2001; Magretta 2002;
Zott & Amit 2007; Markides 2008; Zott & Amit 2008; Casadesus-Masanell & Ricart 2010;
Baden-Fuller & Morgan 2010; Gambardella & McGahan 2010; Teece 2010). However, it still
needs to be clarified what “new” means in the context of business model innovation. Building
on the work of Magretta (2002), Taran (2012) generally describes a business model as “new”
if one of the components of the business model (i.e. for instance one of the nine building blocks
of Osterwalder’s business model canvas) is new. Zollenkop (2006) differentiates between
modular and architectural business model innovation to define “new”. In line with Taran (2012)
and Magretta (2002), modular business model innovation requires a change of at least one
element of the business model. In the case of architectural business model innovations, business
model components remain largely unchanged, but the relationship between the components
needs to be changed. Hence, the same elements are put together differently, resulting in a new
business architecture. A quite similar notion is followed by Amit et al. (2012). The scholars
outline that business model innovation can either occur by adding new activities (e.g., forward
or backward integration), by linking activities in a new way, or by changing the parties
performing an activity.
Sniukas (2012) suggests that business model innovation is a “strategic experiment”. According
to Govindarajan and Trimble (2005) strategic experiments share the following characteristics:
“They require departure from the corporation’s proven business definition as well as its
assumptions about what makes a business successful (i.e. they require forgetting).
They leverage some of the existing assets and capabilities of the corporation (i.e., they
require borrowing—they are not simply financial investments in startups).
They are not simply product-line extensions, geographic expansions, or technological
improvements that enhance proven businesses.
They target emerging and poorly defined industries created by non-linear shifts in the
industry environment.
They are launched before any competitor has proved itself, and when there is no clear
formula for making a profit.
They have very high potential for revenue growth (for example, 10X over 3-5 years.)
They require development of at least some new knowledge and capabilities.
They are led by general managers who face multiple dimensions of uncertainty across
multiple functions. Potential customers are often mere possibilities. Value propositions are
often just guesses, because customers themselves have yet to figure out exactly what they
want.
The value chain and underlying technologies for delivering the new products or services
are often unproven.
They are expected to remain unprofitable for several quarters or more.
They are too expensive to repeat.

It can remain difficult to know whether the experiment is succeeding or failing for several
quarters. Feedback is delayed and ambiguous” (Govindarajan & Trimble 2005, p.48).
2.5.2 Types of Business Model Innovation

As explained above the degree of novelty, the degree of change, and the trigger (i.e. what
initiated the innovation) are used to differentiate innovation types (Table 3). Regarding business
model innovation, the most relevant differentiation concerns the trigger (Bucherer et al. 2012,
Sniukas 2012). The core element of every business model, the value proposition, is greatly
influenced by the products and services offered and the particular processes associated with that
particular offering. Consequently, product or process innovations might lead to (Bucherer et al.
2012) or even require (Chesbrough 2007) business model innovations. However, transforming
the core elements of the business model without changing products or processes can also form
the basis of a business model innovation. Such independent business model innovations are
often seen as the key to corporate survival in markets where products and processes are stable
or have become commodities (Boutellier et al. 2010; Osterwalder & Pigneur 2010; McGrath
2013).
Table 10: Types of Business Model Innovation
Differentiation
Business Model Innovation Types
Criterion
(1) Business model innovations initiated through product or process innovations

Trigger
(2) Independent business model innovations
(1) Re-configuration of existing business model

Degree of Change
(2) Development of new business model
(1) Business model is new to the world

Degree of Novelty (2) Business model is new to the industry/market
(3) Business model is new to the company
Source: own classification based on Stummer et al. 2010
Depending on the degree of change, a business model innovation can either be characterized
by a re-configuration of (existing) business model components or by departing from the current
business in order to develop and implement a completely new business model (Zollenkop 2006;
Sniukas 2012).
Looking at the degree of novelty, research shows that new-to-the-world business models have
become a rather rare species as most “new” business models are just a recombination of existing
ideas, concepts, and patterns. According to Gassmann, Csik, et al. (2012) around 90% of “new”
business models are rooted in either an adoption of existing business model patterns from other
domains, a transfer of successful patterns to foreign domains, or a combination of at least two
existing business model patterns.12 New-to-the-company business models are probably in most
cases not sufficient to create sustainable competitive advantage. Consequently, the major part
of business model innovation research focuses on new-to-the-industry/market business model
innovations.
A different approach to differentiate business model innovation types is suggested by Giesen et

al. (2007). In their practitioner-oriented study, the authors subclassify business model
innovation types based on their scope: industry model innovation (innovations in the industry
value chain), revenue model innovation (innovations in how companies generate revenue), and
enterprise model innovation (innovations in the structure of an enterprise and the role it plays
in new or existing value chains).
2.5.3 The Business Model Innovation Process

Although the number of studies published in the field of business model innovation research
has increased tremendously in recent years, so far, there has only been very limited research
focusing explicitly on the nature and characteristics of business model innovation processes.
This is quite surprising as there are several studies outlining the importance of innovating a
firm’s business model to overcome disruptions and secure future growth (Johnson et al. 2008;
Zott & Amit 2010; McGrath 2013). In the following, the relevant process literature is reviewed.
2.5.3.1 Origins
What are the starting points for business model innovation? Based on a review of 11 cases of
business model innovation Bucherer et al. (2012) suggest to differentiate between situations
where companies proactively start to innovate a business model (“opportunity”) and situations
where companies a forced to innovate (“threat”). Linking it to existing innovation literature
discriminating between external and internal stimuli for innovation (Schroeder et al. 1986;
Comes & Berniker 2008), the authors categorize four origins of business model innovation:
internal threat, external threat, internal opportunity, and external opportunity. Besides that
fundamental classification, the literature suggest typically five different starting points for
business model innovation (e.g., Chesbrough 2007, Johnson et al. 2008, Ostweralder & Pigneur
2010, Teece 2010) (Figure 16):
the demise of the current business model
12
Also reported by Prof. Dr. Elgar Fleisch, Presentation “Business Model Innovation: Importance and
Applications”, WU Competence Day “Business Model Innovation”, November 13, 2012.
the need for adaption to changing business environments by re-configuring, improving or

defending the existing business model
bringing a new technology, product or processes to the market
aiming at generating growth by growing with a new business model (e.g. by addressing
unmet needs of existing customers or by alluring new customers)
experimenting with and exploring new business models for the future which eventually
might create completely new markets
Figure 16: Starting Points for Business Model Innovation
Source: based on Chesbrough 2007, Johnson et al. 2008,

Ostweralder & Pigneur 2010, Teece 2010, and Bucherer et al. 2012.
Moore (2004) has shown that, depending on the industry life cycle, different types of innovation
are required. Generally, new technologies and market disruptions are defined on the one hand
as opportunities to develop new business models and on the other hand as threats to existing
business models. Business models are becoming increasingly instable (Kaplan 2012) and
competitive advantage increasingly transient (McGrath 2013). Shorter product life cycles, inter-
industry competition (i.e. competition increasingly comes from unexpected areas other than the
own industry), and converging industries (i.e. seemingly unrelated businesses suddenly become
competitors) are key factors requiring companies to reconfigure their business models
(McGrath 2012; Hacklin et al. 2013). Research suggests that business model innovation is
particularly important in later stages of the industry life cycle (Sabatier et al. 2012; Massa &
Tucci 2014). At this stage, markets become commoditized, i.e. purely price-driven (McGrath
2011). Based on theoretical considerations Waldner et al. (2014) assume that industries see high
rates of business model innovation in the early stage of industry development, as well as
towards the end of an industry life cycle (Figure 17). However, based on the preliminary
findings of their ongoing research project, the authors can so far only confirm a high degree of
business model changes in the emergent life cycle stage (stage I), suggesting that firms are
experimenting with various configurations of their business model until it becomes stable and
it is exploited over time (Waldner et al. 2014). In general, Downes and Nunes (2013) note that,
today, market disruptions are happening faster. Business models are destroyed by companies
from other industries which never explicitly intended to do so. For instance, Garmin (a
manufacturer of mobile navigation devices) has been put under severe pressure by smartphones
including a navigation app by Google. In a recent study from KPMG (2013), on average 34%
of the interviewed organizations expect fundamental changes to their business model until 2020
whereas only 3% expect no changes at all.13
Figure 17: Assumed Rates of Business Model Innovation in the Industry Life Cycle
Source: based on Waldner & Eurich (2013)
2.5.3.2 Outputs
Several studies, mainly conducted from practitioners and consultants, show positive
performance implications of business model innovation on firm performance and thus sparked
enthusiasm for business model innovation in managerial practice. Many major consulting
13
In the automotive industry only 20% of respondents are expecting fundamental business model changes. This is
in stark contrast to the telecommunications and media industry (60%).
companies have investigated the impact of business model innovation on corporate

performance. The following table summarizes the major findings of the four most prominent
and most often cited studies (Table 11).
Table 11: Performance Implications of Business Model Innovation
Authors, Year Major Findings
IBM Global Business “Companies that have grown their operating margins faster than their competitors
Services (2006) were putting twice as much emphasis on business model innovation as
underperformers.” (p. 14)
“Companies that are using business model innovation enjoyed significant

operating margin growth, while those using products/services/markets and
operational innovation have sustained their margins over time.” (p. 19)
IBM Global Business “Outperformers are pursuing even more disruptive business model innovations
Services (2008) than their underperforming peers.” (p. 47)
“CEO s […] are changing their business models because it is increasingly difficult
to differentiate based on products and services alone.” (p. 48)
69% of CEOs interviewed in the study are planning to implement extensive

business model innovations within the next three years.
The Boston “While both types of innovators [business model and product/process innovators]
Consulting Group achieved a premium over the average total shareholder return for their industries,
(Lindgardt et al. business model innovators earned an average premium that was more than four
2009) times greater than that enjoyed by product or process innovators. Furthermore,
business mode innovation delivered returns that were more sustainable; even after
ten years, business model innovators continued to outperform competitors and
product and process innovators.” (p. 2)
Arthur D. Little “Business model innovation will be the most important type of innovation in the
(Gissler et al. 2009) future. Old system boundaries will lose validity, making disruptive business
models necessary. Successful business models will stimulate the internal
dissemination of the best ideas and drive the overall process from idea generation
to market launch.”
(p. 17)
Also in academic research, there is an increasing consensus that business model innovation is
a key factor in securing corporate renewal, growth and survival (e.g., Chesbrough &
Rosenbloom 2002; Zott & Amit 2007; Patzelt et al. 2008; Zott & Amit 2008; Nielsen &
Montemari 2012). The moderating role of the business model design on corporate performance
was empirically investigated by Zott and Amit (2007). Their most robust finding shows that
novelty-centered business models do matter to the performance of entrepreneurial firms. In a
later study from the same authors it is shown that novelty-centered business models have a
positive effect on performance in cases of an early entry into a market (Zott & Amit 2008).
Patzelt et al. (2008) identified the business model as a moderator of the effect of top
management team composition on organizational performance. It has been found that business
models can explain performance heterogeneity in U.S. firms. The effects of business models
are larger than year and industry effects (Lai et al. 2006). Although these findings clearly
indicate the performance relevance of business model innovation, there is – besides a few
exceptions (e.g., Bouchikhi & Kimberly 2003; Hayashi 2009; Chesbrough 2010; McGrath
2010) – hardly any research linking a process perspective of business model innovation to
performance.
2.5.3.3 Characteristics
Research on the key characteristics, similarities, and differences of business model innovation
processes in comparison to product and process innovation is still scarce. Bucherer et al. (2012)
provide one of the first studies shedding more light specifically on this issue (Table 12). Their
findings suggest that business model innovations shares some major aspects such as the need
for process models to provide guidance, fuzziness in early process phases, internal and external
resistance, or the need for organizational anchoring with product innovation. Hence, business
model innovation can benefit from the extensive body of knowledge available for product
innovation. However, the authors also highlight important differences between business model
and product innovation. In general, business model innovation does affect the organization
more than product innovation. Consequently, top management involvement is of higher
importance for business model innovations. Moreover, it is stressed that business model
innovation – although a distinct type of innovation – needs to be aligned with other corporate
innovation activities.
Other scholars describe the business model innovation process as a process of experimentation.
Especially in uncertain, complex, and fast paced environments the development of new
business models cannot be based on preceding analyses, but has to be rooted in rapid
experimentation and evolutionary learning (McGrath 2010). Similar findings are reported from
Moingeon and Lehmann-Ortega (2010). In their study of a French enterprise the authors
highlight the importance of organizational learning needed to create new business models. The
authors refer to this as “strategic experimentation phase”. The findings from these studies are
in line with Verworn and Herstatt (2007) suggesting that sequential innovation processes (e.g.,
stage-gate models) are rather suited for incremental innovations. Consequently, more radical
innovations, characterized by latent customer needs, do require more iterative approaches.
According to Han (2011) the exploration of new business models is rather emergent than
deliberate. In in his study on business model innovation in an incumbent firm the author
concludes that the process is shaped by “the evolution of fit among design elements of its
business model” (p. 1).
Table 12: Similarities and Differences between Product and Business Model Innovation
Similarities Differences
Origins of Distinction between internal and Distinction between opportunities

innovations external triggers and threats for business model
innovations
Innovation Logical sequence of process steps Detailed process steps

process Rather chaotic process at least in
early phases
Normative process models can be
used for guidance
Organizational Difficulties for existing New business models are affecting

implementation organizations to serve the old and organizations usually in a broader
the new concurrently manner and enforce organizational
Independent organizational units restructuring more often
can resolve this conflict
Organizational Dedicated organizational units and Top management involvement

anchoring responsibilities are required more essential for business model
Often internal and external innovations
resistance
Concept of sponsors or ‘power
promoters’ and champions or
‘specialist promoters’ can be
helpful
Degree of Distinction between incremental Technology (product innovations)

innovativeness and radical innovations vs. Industry (business model
Market breakthrough innovation) breakthrough
Source: Bucherer et al. 2012
In their work on investigating best practices in business model innovation processes, Mitchell
and Coles (2004) outline that business model innovation starts with a definition of best practices
in the current business models, followed by a series of tests with potential improvements to the
current business model. They further stress the importance of involving all relevant
stakeholders in the process. In a similar vein, Santos et al. (2009) underscore the necessity of
considering the social context of organizations. As business models also involve relationships
among organizational units, a favorable context needs to be generated by establishing a network
of loosely coupled business units enforcing mutual engagement within the incumbent firm.
Matzler et al. (2013) synthesize the key elements of a successful business model innovation
process. According to the authors, it is key to develop (1) an innovative, unique positioning, (2)
a consistent product and service logic, (3) an appropriate value creation architecture, (4) an
effective sales and marketing logic, and (4) a sustainable profit formula.
Academic research calls for the creation of more formalized processes for business model
innovations as in order “to become business model innovators, companies need to create
processes for making innovations and improvements” (Mitchell & Coles 2003, p.5). Business
practice treats business model innovation as a so rarely happening event that it usually refrains
from developing formalized processes or assigning clearly defined responsibilities – which is
clearly a misconception according to Bucherer et al. (2012). Although empirical investigations
on the nature and key characteristics are still scarce, there are first suggestions attempting to
provide a guiding process structure. Sinfield et al. (2012) developed a template to examine
alternative approaches to value creation. The template contains questions regarding the target
customer, the customer needs, the offer made by the company, the distribution, the position in
the value chain, and potential sources of revenue. Sheehan and Stabell (2007) propose a three-
step approach for knowledge intensive organizations to analyze their competitive space.
Bucherer (2010) developed a structured process model based on a series of short case studies.
The process model follows a sequential procedure starting with analysis of the status quo (i.e.
current business model and influencing factors), followed by a design phase (including idea and
scenario development), followed by an implementation phase (detailing a selected scenario and
implementing a new business model), and eventually a control phase (i.e. monitoring the
success of the new model). However, the author admits that “the theoretical foundation in the
area of business model innovation is not in the desired state” (p.xi).
2.5.3.4 Startups vs. Incumbent Firms

Innovation management research has devoted considerable efforts to investigate the
characteristics that make companies “innovative”. Sniukas (2010) comprehensively reviewed
the relevant literature and provides an overview on the key characteristics of organizations that
are successful in strategic innovation (Table 13).
Table 13: Characteristics of Innovative Companies
Dimension Characteristics
Culture Questioning attitude

Rewards success and failure, punishes inaction
Tolerates mistakes
Welcomes change
Supports risk taking and change
Supports teamwork and collaboration
Structure Fast and flat
Small units
Encourages collaboration
Autonomous teams at the front line
Process Fast and unbureaucratic
Decentralized decision making
Support idea generation, experimentation and execution
System Support the process of strategic innovation
Enable collaboration
Enable the use and creation of knowledge
Reward risk taking and action
Used to create relationships with customers
People Variety (internal and external)
Collaboration
Educated in regard to the strategy and skills needed
Source: Sniukas 2010
Looking at Table 13 it becomes obvious that startups, more frequently than established
organizations, tend to match these characteristics (e.g., flat hierarchies, simple organizational
structures, risk-taking attitude, fast and unbureaucratic processes, questioning attitude). The
newness and small size of startups result in many disadvantages in comparison to incumbent
firms (Dean & Meyer 1996). At the same time, however, these characteristics lead also to “an
agility that enables entrepreneurial firms to respond to changing competitive conditions quickly
by introducing new business models” (Stampfl et al. 2013, p.228). A startup usually
reconfigures its business model four times or more before it reaches a profitable configuration
(Johnson et al. 2008). Hence, new companies are accustomed to handling various forms of
uncertainties related to developing an understanding of their particular business environment
(McMullen & Shepherd 2006) which is typically related to business model innovation
(Markides 2008). Taking this into consideration, it is not surprising that many game-changing
business model innovations originate from new ventures.
Despite much bigger financial resources, incumbents usually struggle with business model
innovation. According to Sniukas (2012) the particular challenges are: (1) business model
innovation challenges, (2) organizational challenges, and (3) individual challenges.
(1) Business model innovation challenges

Business model innovation is a specific type of innovation. Companies cannot simply transfer
the product or process innovation related knowledge and processes, which have been developed
over years, to business model innovation. For instance, the literature outlines that stage-gate
models are not appropriate for business model innovation (Markides 2008; Koen et al. 2010).
Consequently, companies are lacking functional expertise and experience regarding this type
of innovation (Koen et al. 2010). According to McGrath (2010) the outcome of business model
innovation projects is to a great extend unpredictable. Thus, experimentation is key and the
focus shifts from the resources a company has how it uses them.
(2) Organizational challenges

Chesbrough (2010) found that the configuration of existing assets impedes companies to
develop new business models potentially rendering previously taken investments obsolete.
While new ventures exclusively focus on developing a new business model, incumbents need
to orchestrate the existing as well as new business models. The ambidexterity of parallel
business models represents a significant challenge (Markides & Charitou 2004; Moingeon &
Lehmann-Ortega 2010). Moreover, new business models might not comply with existing
corporate structures (Koen et al. 2010).
(3) Individual challenges

For managers and employees, “the dominant logic of ‘how things are done around here’, how
value is traditionally being created and captured is hard to break” (Sniukas 2012, p.13).
Prevailing mental maps and corporate culture define how a company is strategically configured.
Chesbrough (2010) refers to this as “cognitive barriers” that lead to an inability of managers to
remain receptive for innovations that do not fit with the current business model.
2.6 Summary – State of Business Model Research

The review of the innovation literature shows that the term “innovation”, initially mainly related
to new products, has received a broader connotation now including process, market, and social
aspects. Innovation processes from the 1970s and 80s were traditionally assumed to be
predominantly R&D based (“technology push”). The combination of constantly increasing
competitive pressure and quickly changing environmental conditions as well as the
development of a broader sense of innovation has led to the adoption of more user-driven (“need
pull”) approaches. Moreover, with a shift from (mostly incremental) product innovation to more
Research Gap 49
radical, discontinuous innovation, customer feedback and learnings from early market testing
have gained great importance in innovation processes. Hence, a shift from strictly linear to
iterative approaches can be observed. Various kinds of uncertainties are an inevitable
component of every type of innovation project. There is strong effort to reduce them as early
as possible resulting in a movement from a “get it right the first time” mentality to a learning-
based knowledge accumulation approach.
The issue of business model innovation has gained significant prominence in various research
streams especially in recent years. It has overcome initial critics and is now recognized as a
distinct type of innovation. Moreover, there is consensus that the ability to develop business
models that meet the requirements of fast changing business environments is key to corporate
survival. However, so far very little is known why and especially how companies re-configure
their existing, or develop completely new business models (Morris et al. 2005). Hence, it does
not come as a surprise that research into the process and the factors of business model change
can be found on the "agenda for future research on business models" published by Pateli and
Giaglis (2004, p.312). Whereas startups usually revise their business model up to four times or
more before they make profit (Johnson et al. 2008) and, as a consequence, are generally
acquainted with business model change, most incumbent organizations a fairly inexperienced
in that field. They rather concentrate on long-standing, usually well-understood activities,
although a re-configuration of their existing business model would be needed to account for
altered environmental conditions (Mitchell & Coles 2004). At present, there is extensive
knowledge on product or process innovation, but only little is known about how to innovate
business models in incumbent companies.
2.7 Research Gap

In reviewing the literature, the following inconsistencies and research gaps could be identified:
There is a lack of a consistent definition of the term “business model” and there is no clearly
uniform agreement regarding the understanding of what business model innovation is.
However, it has been shown quite recently by Zott et al. (2011) that progress can be made
even in the absence of a single, unified definition.
There is hardly any research on what factors shape successful business model innovations.
Most studies in the field are conceptual. There are only few empirical studies.
The few empirical research on business model innovation processes are retrospective
studies. To the best of the author’s knowledge, there is no longitudinal research available.
Existing studies focus almost entirely on the organizational level of analysis, resulting in a
lack of research shedding light on the individual level. There is hardly any research
generating an understanding of the process through which individuals develop new business
models. Moreover, the collaboration and the search and discovery processes pertaining to
the design of new business models as well as the individual perceptions regarding business
model innovation projects are largely unknown.
Business model innovation is most often related to the business-to-consumer (B2C) sector.
Research has – with a few exceptions (e.g., Bucherer et al. 2012; Schneider et al. 2013) –
mostly ignored business model innovations in the business-to-business sector.
The research gaps identified warrant the effort of continuing and extending research in the field.
Consequently, this doctoral research project focuses on the empirical exploration of the
business model innovation process on the organizational, the individual as well as on the
contextual level (see above Chapter 1.2 for details regarding the research question and
objectives).
3 Methodology
The following chapter outlines the methodological approach of the doctoral dissertation. This
study focuses on business model innovation processes. Thus, the chapter starts with a review
of “process” definitions provided by the literature. It is continued by a presentation of different
approaches on how to investigate organizational change. In the subsequent chapter, the research
design is presented and explained in detail. This is continued by an outline on the different
methods applied and how they concur as well as a detailed account of how the research was
carried out and how data has been analyzed.
3.1 Process Research

This research effort aims at investigating a strategic process. In order to warrant a solid research
foundation, the widely accepted propositions by Van de Ven (1992) for studying such processes
are followed. The author underlines the importance of selecting a particular process definition
before choosing the appropriate research approach. The literature offers three major definitions
of what processes are (Van De Ven 1992; Sminia 2009):
A process is…
1. …a logic used to explain a causal relationship in variance theory,
2. …a category of concepts that refers to activities of individuals or organizations,
3. …a sequence of events that describes how things change over time.
The implications of the three definitions are explained in detail in
Table 14 . For this research effort, the third definition is adopted as only this perspective allows
to describe and account for how some entity or issue develops and changes over time (Van De
Ven 1992; Sminia 2009).

52
Table 14: Process Definitions
Definition Description Process Observation Example
1 A logic used to Input-process-output model Not directly Why leads an increase in organization size
explain a causal Process logic explains a causal relationship Process story or logic is used to explain to an increase in structural differentiation
relationship in between observed inputs (independent why an independent (input) variable exerts at decreasing rates?
variance theory variables) and outcomes (dependent a causal influence on a dependent
variables) in a variance theory (Pettigrew (outcome) variable
1997)
2 A category of Category of concepts of individual and Not directly How do strategy making processes
concepts that organizational actions (e.g., Process constructs are defined as attributes influence executive understanding of
refers to activities communication frequency, workflows, of fixed entities cause-effect relationships involving the
of individuals or decision taking techniques) distinguished Measuring only if and not how change firm and its environment?
organizations from other categories (e.g., structure, occurs
performance)
Process concepts are operationalized as
constructs and measured as fixed entities
3 A sequence of Developmental perspective Explicit and direct observation of a Analysis of strategic planning models,
events that Focuses on the sequences of incidents, process analysis of organization development
describes how activities, and stages that unfold over the This type is able to describe and account models
things change duration of a central subject's existence for how some entity or issue develops and
over time Identification of specific events that lead to changes over time (Mohr 1982)
an outcome
Source: Van de Ven 1992, Sminia 2009

Methodology
Process Research 53
After selecting a process definition, it is crucial to select an appropriate approach for process
research which is consistent with this definition (Van De Ven 1992). The literature suggests
four approaches for studying processes related to strategy and organizational change (Van De
Ven 1992; see Table 15). Whereas in variance methods “change is represented as a dependent
variable that is explained with a set of independent variables that statistically explain variations
in the dependent variable of change” (Van de Ven and Poole 2005, p.1380), process methods
provide explanations in terms of the sequence of events (activities, choices) leading to an
outcome. This study follows approach II as this approach is referred to as a process
methodology to study research questions of how change unfolds in organizational entities. “It
conceptualizes change as a succession of events, stages, cycles, or states in the development or
growth of an organization” (p.1389).
Table 15: Typology of Approaches for Studying Organizational Change
Ontology
An organization is represented as being :
A noun, a social actor, a real entity A verb, a process of organizing,
(‘thing’) emergent flux
Variance Approach I Approach IV
method
Variance study of change in Variance study of process
organizations patterns
Causal analysis of independent Quantitative analysis of event

variable explaining change time series
(dependent variable)
Time is a variable of change
Epistemology Newtonian view of time process
(Method for Process Approach II Approach III
studying change) narratives
Process study narrating sequence of Process study narrating emergent
change events in organization organizing activities
Progression of change (stages, Qualitative narrative

cycles, etc.) interpretation of complexity
metaphor
Transaction or event-based view of
time Social construction over time
Source: Van de Ven & Poole 2005

54 Methodology
3.2 Research Design & Methods
3.2.1 Research Design & Course of Research

The methodological orientation of this dissertation is inductive and exploratory in nature. The
reason for the specified methodical grounding is that the current stock of knowledge on business
model innovation is quite limited. Existing studies focus to a large extent on e-business and
startups (Mitchell & Coles 2004; Yip 2004; George & Bock 2011). The predominant static view
of the business model concept neglects the dynamism of business model innovation (Demil &
Lecocq 2010). Only quite recently research has put more emphasis on business model
innovation processes in incumbent organizations (e.g., Koen et al. 2011; Klang 2012; Bucherer
et al. 2012; Schneider et al. 2013; Kastalli & Van Looy 2013; Taran et al. 2013). Despite the
increasing numbers of studies on this particular topic, the process itself has remained only
vaguely understood and a fully developed theoretical framework is still missing. In order to
account for the highly explorative nature of this research, a qualitative, multi-method approach
was chosen, which will be explained in more detail in the following.
First, research began by conducting a broad review of the current literature on business models
and business model innovation (Chapter 2). Besides clarifying issues related to the business
model construct itself, this step helped to clarify the relevance of the business model concept
in engaging in new business activities. Moreover, it allowed to relate the process of business
model innovation to other types of innovation processes.
Second, two retrospective in-depth case studies in incumbent firms allowed to generate insights
on business model innovation processes on the organizational level (Chapter 4). The cases
allowed to study in detail business model innovation in a corporate setting of medium-sized
firms, recognize patterns of multiple business model innovation projects and investigate
strategic aspects. By focusing on companies from the business-to-business (B2B) sector it was
possible to address another research gap as prior research mainly provides examples from the
business-to-consumer area (cf. Chapter 2.6).
Third, in conducting nine longitudinal case studies it was possible to analyze the business model
innovation process on the individual level (Chapter 5). The longitudinal setting allowed to study
in detail how people collaborate in order to develop new business models, to explore the search
and discovery processes pertaining to the design of new business models as well as the
individual perceptions of team members regarding business model innovation projects.
Fourth, as the case studies revealed that business model innovation processes are highly
context-specific and require the assessment of the particular environment, in this step a
Research Design & Methods 55
framework conceptualizing the environment of business models has been developed

(Chapter 7).
Qualitative research allows to adjust the research design and scope during the course of the
research project based on initial findings (Maxwell 2013). Also in this research effort the
author’s knowledge of the subject was enhanced by the implications of the investigation at the
organizational level. It became evident that, on the one hand, there needs to be further research
on the individual level to study in more detail the development and design of new business
models while, on the other hand, the business model innovation process must be put in context.
Consequently, the research design has evolved with the increased understanding of the topic.
Figure 18 serves to illustrate the research design. Table 16 gives an overview on the methods
applied and the associated contribution to finding answers to the research questions. The details
regarding the methods are explained in the following.
56
Figure 18: Research Design

Methodology
Table 16: Research Methods
Research
Method Output Chapter
Question*
Literature Review Essential to develop a sound theoretical Reviews and summarizes the current state of research regarding the --- 2
foundation issues investigated in the empirical studies
Two Retrospective Retrospective case study increases external Insights on business model innovation processes on the 1, 2, 3, 4 4
In-Depth Case validity organizational level
Studies Second case study will increase generalizability The studies focused on incumbents in the B2B sector, hence
Research Design & Methods
Case selection strategy: “most different” making a first step in counterbalancing the dominance of B2C
Analytical generalization based on cross-case studies in business model research
analysis
Nine Longitudinal Longitudinal setting increases internal validity Insights on business model innovation processes on the 3, 4, 5, 6 5
Case Studies The longitudinal setting allows for detail individual level
examination of cause and effect The longitudinal setting allowed to study in detail how new
Analytical generalization based on cross-case business models are designed and how the process of
analysis conceptualizing new or re-configured business models unfolds
Conceptual Model The findings from the case studies, a Development of a new perspective on business environments 1, 2, 3, 7 6
Development comprehensive literature review and expert Provides a contextual basis for the process of business model
interviews allow for the development of a innovation
conceptual model The developed “Business Model Environment Framework”
serves to support managerial practice and further business
model research
* Research Questions (Sub-Questions):
SQ1: Why and when is the process of business model innovation started in incumbent organizations?
SQ2: How does the process of business model development and business model implementation unfold in an incumbent organization and what are the most important phases of business model innovation processes?
SQ3: What are barriers and drivers to successful business model innovation processes?
SQ4: How do people collaborate in order to develop new business models?
SQ5: What is the nature of the processes pertaining to the search and discovery of new business models designs?
SQ6: What are the individual perceptions of team members regarding business model innovation projects?
SQ7: What constitutes the context of business model innovation processes?
57
58 Methodology
3.2.2 Case Study Research

A case study is “an empirical inquiry that investigates a contemporary phenomenon within its
real-life context when the boundaries between the phenomenon and the context are not clearly
evident, and in which multiple sources of evidence are used” (Yin 2003, p.13). Eisenhardt
(1989) sees case studies “as a research strategy that focuses on the dynamics present within a
single setting” (p.534). The literature (Creswell 1998; Eriksson & Kovalainen 2008) defines a
case study as an exploration of :
‘a bounded system’, which can be defined in terms of time and place (e.g., an event, an
activity, individuals or groups of people),
over time and through detailed in-depth data collection,
involving multiple sources of information that are rich in context.
According to Eisenhardt (1989) the potential objectives of case study research lie in describing
phenomena as well as in building and testing theories. This research aims at describing,
analyzing, and comparing multiple cases and subsequently strives to generate new theory
regarding business model innovations. Although the traditional criticism of this method is that
it provides rather little basis for scientific generalization (1989), the advantage of case study
research is the possibility to capture the complexity and the multi-dimensionality of a
phenomenon (Eisenhardt 1989). This method allows to develop a holistic and contextual
understanding and is particular suitable to investigate why and how questions in undiscovered
fields (Eisenhardt 1989). Consequently, the case study method represents an appropriate
method for finding answers to the research questions underlying this research effort (see Table
16).
There are diverging opinions on how to design case study research properly (Eisenhardt 1989;
Dyer & Wilkins 1991; Yin 2003). Yin (2003) underlines the absence of an optimal number of
cases. Even though the author clearly outlines that a single-case design is “justifiable under
certain conditions” (2003, p.45), it is suggested to adopt a multiple-case study approach to
increase external validity (Yin 2003) and to prefer this design based on at least two cases over
a single-case design if possible (Eisenhardt 1989). Building research on two in-depth cases
represents a widely accepted design of case study research (e.g., Fosstenløkken et al. 2003;
Scarbrough 2004; Montgomery & Oliver 2007; Inkpen 2008; Müller-Seitz & Reger 2009; Saur-
Amaral & Kofinas 2010; Remneland-Wikhamn et al. 2011; Gianiodis et al. 2014; Jepsen &
Dietrich 2014). This study adopts a multiple-case study approach based on two in-depth
retrospective (see below 3.2.4.1) and nine longitudinal case studies (see below 3.2.5.1). These
eleven cases studied in detail are sufficient to build theory from process data (Eisenhardt 1989).
3.2.3 Synergistic Use of Longitudinal and Retrospective Research

In investigating the phenomenon of business model innovation processes, the process research
approach suggested by Leonard-Barton (1990) is followed. The author suggests the synergistic
use of real-time longitudinal and retrospective case studies. The combination of these two types
of case studies has a particular strength: each type compensates for a weakness of the other type
(Table 17). Whereas retrospective case studies allow for an identification of patterns of dynamic
processes, the longitudinal studies offer the possibility of a close-up view of how a process
evolves over time (Leonard-Barton 1990).
Table 17: Comparison Longitudinal and Retrospective Case Studies
Research Activities Methodology

1. Data Gathering Longitudinal Retrospective
Single-Site Multiple-Site
Efficiency Low; danger of data overload; much Relatively high; focused data-
unusable data gathering
Objectivity Danger of too deep involvement, Danger of unconsciously accepting
developing unconscious bias respondent bias
Pattern Recognition Microscopic examination of details Recognition of overall patterns in
of process process
2. Establishing
Validity
External Validity Low generalizability Relatively high generalizability;
variety of situations
Internal Validity Relatively high; good opportunity to Lower; potential confusion about
establish cause and effect cause and effect
Construct Validity Opportunity to test sensitivity of Opportunity to validate stability of
construct measures to passage of construct across situations
time
Source: Leonard-Barton 1990, p.253
In forming an appropriate case study design two important issue had to be considered:
(1) Differentiation of Business Model Design and Implementation

Existing business model research underlines the importance of conceptually differentiating
between business model design and business model implementation (Mitchell & Coles 2004;
Pateli & Giaglis 2004; Osterwalder et al. 2005; Shi & Manning 2009; Teece 2010).
“A business model cannot be successful per se. […] A business model can be more or less sound
and coherent but then it still must be implemented. A ‘strong’ business model can be managed
badly and fail, just as much as a ‘weak’ business model may succeed because of strong
management and implementation skills” (Osterwalder et al. 2005, p.13).
60 Methodology
It must be noted, however, that business model innovation practice does not follow a strictly
sequential procedure. Hence, business model design and business model implementation are
more parallel than chronological processes (Sosna et al. 2010; Stampfl et al. 2013). Stampfl et
al. (2013) found in their recent study on business model scalability that entrepreneurs
differentiate between business model conceptualization and business model realization.
Whereas conceptualization is related to designing a model, realization describes its
implementation. Consequently, a separation between business model design and business
model implementation is useful to structure the research approach. Furthermore, it reflects the
prominent notion in innovation management research regarding ambidextrous organizations
engaging in opportunity “exploration” and “exploitation” (e.g., March 1991; Tushman &
O’Reilly 1996; Andriopoulos & Lewis 2009).
(2) The Organizational and the Individual Level of Business Model Innovation
The case study design differentiates between the organizational and the individual level of
analysis. Whereas the former is primarily influenced by the organization itself, its strategy, its
environment, and its value network, the latter focuses on the individual tasks performed to
sketch and conceptualize a new business model. This differentiation is in line with the process
definition underlying this research (see Chapter 3.1) and the definition’s particular focus on
activities taken to reach an outcome.
As outlined above, in this study two retrospective in-depth case studies are combined with nine
longitudinal case studies. Whereas the retrospective cases covered the issue of designing and
implementing a business model primarily on an organizational level, it was also possible to
generate first insights regarding these issues on an individual level. The longitudinal cases
served to more deeply explore these findings, thus focusing primarily on the business model
design process on an individual level (Figure 19).
Figure 19: Case Study Design – Organizational & Individual Level
3.2.4 In-Depth Retrospective Case Studies (Organizational Level)
3.2.4.1 Case Selection Strategy

Eisenhardt (1989) stresses the importance of a theoretically founded sampling strategy,
i.e. selecting cases “that replicate or extend theory by filling conceptual gaps” (p.533).
Pettigrew (1990) outlines that with a limited number of cases studied, it is useful to focus on
cases of extreme or polar nature which provide greatest transparency regarding the research
issues. As recommended in the literature, cases were selected in which the process of interest
(i.e., the business model innovation process) was “transparently observable” (Pettigrew 1990).
It is argued by Yin (2003) that in multiple-case study research, each case should be selected in
a way that it either predicts similar results (literal replication) or produces contrary results, but
for predictable reasons (theoretical replication). In following a literal replication approach, it
was possible to investigate similarities and in particular differences between cases during cross-
case analysis.
In order to gain a broad perspective on business model innovation processes, a “most-different”

sampling strategy was applied. As suggested by Gerring (2004), this strategy intends to select
cases that are different on specific variables. In order to control for company size, both
62 Methodology
companies belong to the category of small and medium sized companies (SMEs).14 The focus
on SMEs is based on the fact that SMEs account for 99,6 % of all companies in Austria 15 and
99,5% of the companies in Germany16. Moreover, both companies are operating in the business-
to-business (B2B) sector and exist for more than 80 years. Founded and headquartered in
Central Europe (Austria and Germany) both companies are comparable regarding cultural
values and risk attitude (Yin 2003). These similarities of the cases allowed to control for
company characteristics and to avoid misleading conclusions (Table 18).
Table 18: Sample Selection Criteria I – Company Characteristics17
Company A Company B
Company Type SME SME
Geographic Location Austria Germany
Date of Foundation 1920 1925
Nature of Business B2B B2B
The companies were deliberately selected regarding their variation in business model
innovation characteristics (Table 19). Such variation is needed to generate theory about variable
elements that explain differences in business model innovation processes (Lynn et al. 1996).
Myers (2013) underlines the importance of selecting “interesting” cases, which display
sufficient evidence, consider alternative perspectives and which are “complete”. This
suggestion is followed by selecting company A which has no prior experience in business model
innovation and company B which is experienced regarding this type of innovation.
Furthermore, company A represents an example of pure business model innovation as the
underlying product remained unchanged. Company B represents a product-driven business
model innovator, i.e. new products require new business models to be brought to market.
Moreover, it completed a strategic shift from a product manufacturer to a full-service provider.
The literature refers to this phenomenon as “servitization” and it represents a challenge
prevailing in many industries, such as automotive, aviation or building and construction (Neely
2007; Roy et al. 2009; Kastalli & Van Looy 2013).
14
Classification based on classification scheme provided by the European Commission (European Commission
2003). Company B has only recently slightly exceeded the limits regarding turnover.
15
According to “Mittelstandsbericht” (BMWFJ 2010).
16
According to statistical data provided by “Institut für Mittelstandsforschung Bonn”, available at:
http://www.ifm-bonn.org/statistiken/mittelstand-im-ueberblick/#accordion=0&tab=0, last retrieved
September 14, .2014
17
Detailed company descriptions are provided in Chapter 4.2.1 (Description Company A) and Chapter 4.3.1
(Description Company B).
Table 19: Sample Selection Criteria II – Business Model Innovation Characteristics
Company A Company B
Business Model Innovation Novice Experienced
Expertise
Core Offer Service Product
Intention for BMI New BM for existing product New products require new BMs
Start of BMI Reactive Proactive
Corporate Strategy Unchanged Changed
3.2.4.2 Data Collection

The case study approach provides the opportunity to collect data from multiple sources. Stake
(1995) identified six different data sources: (1) the case itself, (2) historical background, (3)
physical settings, (4) other contexts (e.g., economic, political, or legal context), (5) other cases
reflecting the researched case, (6) information from people familiar with or involved in the case.
Triangulation of data is a key element of successful case study research, as “a researcher
conducting a case study of one organization might triangulate interview data with data from
published or unpublished documents” (Myers 2013, p.11).
Data collection was based on both desk and field research. The latter was carried out through
in-depth interviews and company visits. To avoid a single-informant bias (Ernst & Teichert
1998), interviews with at least four different persons from different corporate functions and
hierarchical levels were conducted. The multiple informants reduced subject biases (Golden
1992; Miller et al. 1997) and lead to a richer data set (Schwenk 1985). Desk research included
gathering of information through company documents, meeting protocols, internal company
presentations, and secondary sources such as websites and articles.
64 Methodology
Company A
As interviewees of company A were working on different projects and hence relatively hard to
reach, written interviews were conducted with all members of the management team, including
the directors of the company, as well as second-tier managers. The written interviews are
provided in Appendix II.18 In sequence to the written interviews, personal discussions were held
with interviewees to collect further information and discuss research findings. Interview
partners of company A are listed below (Table 20).
Table 20: Interview Partners Company A
Interviewee Level Tenure (years)

1 Managing Director 37
2 Vice Director 23
3 CIO 25
4 Key Account Manager 3
5 Head of Publishing 11
Interviews were held in August 2012.
Company B
In-depth, semi-structured interviews with four members of the management team, including the
CEO and owner of the company were conducted. The interview guide is provided in Appendix
III. Follow-up discussions were held via phone and e-mail to clarify open questions and validate
data interpretation. Interview partners of company B are listed below (Table 21). All interviews
were tape recorded, transcribed, and reviewed by informants to warrant correct interpretation.
Table 21: Interview Partners Company B
Interviewee Level Tenure (years)

1 CEO & Owner 30
2 General Manager of Business Unit 1 28
3 General Manager of Business Unit 2 8
4 Senior Sales Manager Business Unit 2 12
Interviews were held in January 2011 and March 2012 by two different scholars.
3.2.4.3 Data Sources

Table 22 provides an overview on the data sources and the extent of interviews from the case
study research. Interview transcripts are provided in Appendix II and III.
18
The full appendix is available online in the OnlinePLUS-Program at www.springer.com under Georg Stampfl.
Table 22: Overview of Data Sources (Retrospective Case Studies)
Two Retrospective Case Studies

Case Company A Case Company B
Number of interviews total 10 8
Number of interview partners 5 4
Number of follow-up interviews 5 4
Total interview time not known* 720 minutes
Number of transcribed pages 41** 145
Number of internal company documents 4 6
Number of press releases 3 24
* due to written interviews

** number of pages of written interviews
3.2.4.4 Data Analysis

To remain consistency in describing and analyzing business models and business model
changes, the “business model canvas” developed by Osterwalder and Pigneur (2010) was used
to as a tool for conceptualization and visualization of business models. This ontology has gained
significant recognition and is widely used among scholars (e.g., Tankhiwale 2009; Chesbrough
2010; Eppler et al. 2011) and practitioners valuing its ability to reduce complexity while at the
same time providing enough detail to capture all relevant aspects. Data analysis was based on
standard coding procedures (Miles & Huberman 1994) and entailed two analyses: within-case
and cross-case (Taylor & Bogdan 1984; Eisenhardt 1989). As suggested by Eisenhardt (1989),
analysis started by building individual case studies based on interview, observational, and
archival data. A multi-stage content analysis was used to analyze interview data (Miles &
Huberman 1994). In the initial review of the interview transcripts, several issues emerged that
served to preliminarily organize data. In line with Miles and Huberman (1994), the first coding
was based on a provisional list of codes derived from the interview questions. Interview
transcripts were read and reread and archival data was reviewed as additional data was
collected. The second coding procedure served to refine and modify the coding to capture
additional emerging issues and themes as research progressed (Table 23). A central aspect of
compiling each case was triangulating interview data with other data sources to create a more
complete account (Jick 1979). Several follow-ups via phone calls and e-mails helped to clarify
open questions and confirm or further investigate preliminary findings.
66 Methodology
Table 23: Content Analysis – Coding Examples*
Level I Category Level II Category

Definition of old and new BM
Changes of old BM due to new BM
BM ambidexterity
Relationship between old and new BM
Reasons for starting BMI process
Decisions related to initiating Decisions taken explicitly
development of new BM Risk evaluation
…
Design inputs
Information resources
Design of new BM BM prototyping
Parties involved
…
Preconditions
Duration
Course of BMI process
Phases
Coding I
…
&
Coding II External & internal drivers
External & internal barriers
Drivers and barriers for BMI
Organizational structure
…
Performance indicators for new BM
Business case
Financials
Investments
…
Repeated BM innovation
Development of new
Future BM innovations
organizational competencies
…
Formalization of BMI process Communication structures
“Side effects” of BM innovation
Communication structures
Organizational learnings
Corporate Culture
…
Coding I = initial coding scheme, Coding II = emergent coding scheme (in italic)
*See Appendix II & III for complete coding account.19
The in-depth within case analysis served primarily to define the business model innovations
completed by the companies, identify key characteristics of the business model innovation
processes as well as triggers, barriers and drivers, and issues related to the simultaneous
operation of the existing and the new business model.
During the subsequent cross-case analysis similarities and differences between the business
model innovation processes as well as issues related to triggers, to barriers and drivers, and to
business model ambidexterity were investigated. This analysis allowed to generalize findings
related to the different research questions. The researcher iterated between cases and by
comparing findings with existing literature, it was possible to develop a first general model of
business model innovation processes in incumbent firms.
19
3.2.5 Longitudinal Case Studies (Individual Level)
3.2.5.1 Case Selection Strategy

The case selection procedure for the longitudinal studies followed the same strategy as the
retrospective cases: as suggested by Yin (2003), cases were selected in a way that they were
predicting similar results (literal replication). Nine projects in which teams worked on the
development of a new or the reconfiguration of an existing business model were selected and
accompanied for a period of five month. Project teams where homogenous regarding age and
educational background in order to preclude team heterogeneity from influencing processes.
The project objectives covered various starting points for business model development (Table
24). Hence, it was possible to investigate possible differences in the process due to varying
starting points. Additionally, it was required that frequent contact with team members as well
as the observation of team meetings were possible.
Table 24: Case Selection – Longitudinal Cases
BM Development Case
…as a basis for founding a company E
…for an existing startup B, G, H
…for an incumbent seeking to reconfigure its existing model C, I
…for an incumbent seeking to develop a new model. A, D, F
3.2.5.2 Data Collection

An Entrepreneurship graduate course held at Zeppelin University (Germany) which focused on
the development of new business models provided the context for data collection. Nine teams
(with three to four students per team) were given the task of developing a new business model
for a specific company. The teams had a five month working period (January 2011 – May 2011)
before they were ask to present – as a final deliverable – a viable concept for the new model at
the end of the course. In order to capture a variety of different starting points for developing a
new business model there were teams working with startups and teams working with
incumbents, both capturing various industries (Table 25). The teams developed new business
models either (1) as a basis for founding a new company or (2) for an existing startup and (3)
for an incumbent seeking to reconfigure its existing model or (4) for an incumbent seeking to
develop a new model respectively (Table 24).
68 Methodology
Table 25: Longitudinal Cases – Overview
Case Team Type of Partner Company Industry

Case A Team A Incumbent Automotive
Case B Team B Startup Print
Case C Team C Incumbent Media
Case D Team D Incumbent Oil
Case E Team E Startup Social Enterprise
Case F Team F Incumbent E-Commerce
Case G Team G Startup Lifestyle
Case H Team H Startup E- and Social Commerce
Case I Team I Incumbent Automotive
The teams worked closely with partners in the particular companies in order to gain access to
company data, background information, and to receive information on company specific
limitations regarding the possibilities of new business models (e.g., resources, corporate
strategies, taken or planned investments).
This approach provided manifold opportunities to collect data while maintaining a real-life
context:
Participants worked on real business model challenges provided by and in close cooperation
with industry partners.
All students where „first timers” regarding business model innovation, which mirrors the
situation in many companies: employees are usually inexperienced regarding this type of
innovation project as most companies have not completed any business model innovation
projects yet.
The innovation teams where homogenous regarding age and educational background in
order to avoid that team heterogeneity influenced process patterns.
The selected working-period of five month represents a reasonable time frame for
developing new business model concepts.
As the business model literature has so far not been able to develop a compelling method for
business model innovation (Eppler et al. 2011), the teams were not given any inputs on how to
proceed. The only exception was the use of the business model canvas (Osterwalder & Pigneur
2010; Figure 20). The teams were asked to use the canvas to visualize the developed models.
Figure 20: Business Model Canvas
Source: Osterwalder & Pigneur 2010
The reasons for the use of the business model canvas are as follows:
1.) The business model canvas has gained significant recognition among academics and
practitioners worldwide (Chesbrough 2010; Eppler et al. 2011) and, hence, it is a tool
companies a very likely to use in their business model innovation projects.
2.) As there is no single widely accepted understanding of what a business model is, the business
model canvas allowed to establish a common language regarding business models.
Furthermore, it allowed for comparability between the different projects.
3.) Prior research has shown that artefacts, i.e. templates such as the business model canvas, are
frequently involved in innovation projects (Whyte et al. 2007) and might spur creativity and
collaboration (Eppler et al. 2011). Eppler et al. (2011) found that the use of the business model
canvas increases the perceived collaboration while at the same time decreases perceived
creativity. Using the canvas in this research effort allowed to further investigate these effects
of artefacts on innovation processes.
70 Methodology
3.2.5.3 Data Sources

The longitudinal setting allowed to study each project in detail. It was possible to attend several
meetings of the nine innovation project teams, observe how the teams worked on the business
models, track the progress of each team, collect detailed meeting protocols, and secure access
to all project related documents of every team. The teams were accompanied by two
independent investigators. To further increase comprehensiveness of data, the team members
reflected on their progress and on the project outputs on individual and team level: 27 written
individual and 9 written group reflections were collected. The teams were accompanied by two
independent investigators. Table 26 summarizes the data sources.
Table 26: Data Sources – Longitudinal Studies I
Source About
Personal observations Researchers attended several team meetings
Team reflections* Every team submitted one written document containing a
reflection on the process
Individual reflections** Every team member submitted a written documented
containing a reflection on the process
Meeting related material Meeting protocols, notes (e.g., flip charts), etc.
Written process documentation*** Teams documented their activities
Online knowledge repositories Some teams used online tools to document and sort
information
Project related files Access to all team internal project related files was available
Final presentations Presentations of the new business model
* referenced as “TR #”
** referenced as “IR #”
*** referenced as “WPD Team/Case #”
Table 27 provides an overview on the extent of the material collected during the five month
period.
Table 27: Data Sources – Longitudinal Studies II
Nine Longitudinal Case Studies

Data Sources Number
Team meetings attended 36
Meeting protocols 108
Project related team internal documents 336
Written team reflections 9
Individual reflections 27
Relevant websites and articles 25
Field notes related to observations at meetings 34
Field notes pertaining to informal discussions 5
Notes of researcher’s general reflections 3
3.2.5.4 Data Analysis

In line with the explorative and inductive nature of this study, data analysis followed a grounded
theory approach (Glaser & Strauss 1967). Instead of testing predefined hypotheses, it represents
“an organic process of theory emergence based on how well data fit conceptual categories
identified by an observer, by how well the categories explain or predict ongoing interpretations,
and by how relevant the categories are to the core issues being observed” (Suddaby 2006,
p.634). Interpretation of data is based on developing an understanding of team actions and
interactions (Miles & Huberman 1994).
Data analysis followed a multi-phase procedure (Table 28). The first phase of data analysis was
started by collecting, cataloging, and reviewing all gathered documents, notes, protocols as well
as the written individual and team reflections. In order to compile descriptive data, short case
histories were developed. Consistent with the retrospective case studies, the “business model
canvas” (Osterwalder & Pigneur 2010) was used to describe the initial business model as well
as the newly developed concepts of every case. Changes in the business model building blocks
as well as meeting data (e.g., number of meetings, average length of meeting) were documented.
In the second phase of data analysis an open coding procedure (Strauss & Corbin 1990) was
applied to break down data from observations, meeting protocols, online knowledge
repositories, written process documentations, and accessible project related files to allow for
the emergence of themes and patterns regarding the individual level of the business model
design process. One of the most critical aspects of data analysis was how to sort the themes
found in the first coding to allow for deeper analysis. For this task this study builds on the prior
research of Maggitti et al. (2013). In their work on the processes of developing technological
innovations at the individual level, the authors differentiate themes representing process stages
72 Methodology
(i.e. “process stage themes”) and issues that, rather than being part of the process, influence the
process (i.e. “process influencing themes”). Consequently, for further analysis the emerging
themes were attributed either to the “process stage themes” or to the “process influencing
themes”.
The third phase of analysis consisted of coding the individual and team reflections. In the first
person accounts team members could freely reflect on the business model innovation process
experienced. The open format followed the principle of qualitative research of providing
respondents with the opportunity to “express their own understandings in their own term”
(Patton 2002, p.348). It allowed to identify issues member of innovation teams are most
concerned with regarding type of innovation project, the individual perceptions regarding the
task of designing a new business model, and the role of artefacts (such as the business model
canvas). This phase served to more deeply investigate the previously defined process stage and
process influencing themes. The perceptions of the individuals engaged in the business model
innovation projects were compared with the observations of the researcher to warrant a more
holistic view.
The iterative process of triangulating data (Eisenhardt 1989) from the nine cases with the first
person and group accounts as well as analyzing and reanalyzing data allowed to identify
common patterns and to subsequently develop a model of business model design processes.
The final phase of data analysis consisted of confronting arising theory with prior literature. As
is common practice in qualitative research, this phase entailed the iteration between previously
identified themes, newly emerging constructs and existing research (Eisenhardt 1989;
Eisenhardt & Graebner 2007).
Table 28: Data Analysis – Longitudinal Studies
Phase Analysis Procedure Output

(1) Data collection Collecting and Data review Account of descriptive data
cataloging all gathered
information
(2) Coding of Coding of data from Open coding Themes and patterns of
documents observations, meeting process phases and
protocols, online influencing components
knowledge repositories,
written process Process stage themes and
documentations, and process influencing themes
accessible project related
files
(3) Coding of Coding of data from Open coding Deeper understanding of
reflections individual and team process stage themes and
reflection process influencing themes
Individual perceptions
Artefacts
(4) Confronting Emerging constructs and Triangulation Model of business model
arising theory prior research of data design processes
with existing
literature
3.2.6 Conceptual Model Development (Contextual Level)

To develop a framework providing a conceptualization of the context in which business model
innovation processes unfold, a multi-step procedure was followed. The two pillars of this
approach are (1) the review and analysis of the relevant literature as well as (2) the conceptual
model development based on Strauss and Corbin's (1990) approach to data analysis (Figure 21).
3.2.6.1 Literature Review

Articles published in leading academic and practitioner-oriented management journals from the
field of environmental scanning, industry analysis, strategic management, and business model
research were reviewed. To conduct this literature review, a database search using the EBSCO
Business Source Premier and the ABI/Inform Global | T&I ProQuest databases was conducted
(Laplume et al. 2008; Certo et al. 2009; Zott et al. 2011). These databases represent one of the
most complete sources on studies and articles in the field of business (Zott et al. 2011). The
databases were searched for articles containing either the term “strategic fit”, “business
environment”, “environmental scanning”, or “industry analysis” in title, abstract, or key words.
After reviewing article titles, abstracts, and summaries studies that did not cover the subject of
interest as well as articles representing a summary of other studies were excluded. The
remaining 166 articles were reviewed to collect factors that are used to specify business
74 Methodology
environments. In the next step adjacent literatures which were referred to by the initial sample
of articles were included, i.e. the literatures on strategic fit, strategizing by analogies, and cross-
industry innovation. This added another 93 articles to the sample. Drawing on these studies it
was possible to extract 110 terms used in the literature to specify business environments.
3.2.6.2 Analysis & Model Development
The data collected in the literature review was subsequently analyzed using the coding
procedure suggested by Strauss and Corbin (1990). The authors suggest three primary coding
procedures: (1) open coding, (2) axial coding, and (3) selective coding. Open coding serves to
identify emergent issues and categorize them subsequently. This procedure provides the
typological evaluation required for categorizing subjects in the development of the model
(Vandenbosch et al. 2006). In this study, open coding served to identify factors that potentially
represent core elements of the business model environment. Axial coding allows “to establish
connections between constructs by grouping themes based on theoretical considerations, thus
enhancing conceptual coherence and internal validity” (Stampfl et al. 2013, p.232). In this
study, axial coding was used to synthesize factors that are specifically relevant for business
model environments. Selective coding refers to selecting a core category, relating it to other
categories, and validating the emergent links and relationships. Hence, through selective coding
the emergent model is refined and data further integrated. In this study selective coding was
used to aggregate the dimensions of the business model environment to five core layers (Table
29).
To specify business model contexts knowledgeable individuals were invited to provide

feedback. Although this approach is criticized for its subjective nature and the potential of false
statements (Meuser & Nagel 1991), involving experts is an appropriate approach to access
specialized expert knowledge for theorizing in fields hitherto hardly researched (Bogner &
Menz 2005). Experts (Table 30) were contacted via e-mail and the framework was subsequently
discussed in phone calls. Out of the collected environmental factors derived from the literature
review and the factors that were identified as being relevant in the eleven cases studies, the
experts named those factors that seemed to them as specifically relevant for specifying business
model contexts based on their business model related experiences. This data was integrated in
the further conceptualization of the BME-framework and built the basis to extract the factors
specifically relevant for the environment of business models (open coding).
Table 29: Data Structure – BME Framework
1st Order Constructs 2nd Order Themes Aggregate Dimensions
Coding Open coding Axial coding Selective coding

Procedure
Label in BME “Factors” “Dimensions” “Layers”

Framework
Number in 69 13 5
BME
Framework
Examples Customer Needs Customer Interface

Switching Costs Product Asset
Lock-In Institution Market
Price Elasticity Key Technologies Society
Demand Variability Operating Resources Forces
Relevance of Physical Competitors
Distance Other Business Models
Value Network General Market
Market Share Attributes
Resource Intensity Social, Political, Legal
Market Size Dimension
Subsidies Micro & Macro Trends
… Forces of Inertia
In axial coding, following Corley and Gioia (2004), Nag et al. (2007), and Jennings et al. (2015),
dimensions were synthesized by grouping similar factors. In doing so, 13 dimensions were
received constituting the environment of a business model. Subsequently, a second round of
feedback from experts was conducted where they assessed which dimensions do have a more
direct impact on a business model and which are seen as influencing business models rather
indirectly. Again these inputs from and discussion with the experts served as a basis to further
conceptualize the framework. During selective coding, layers were built to aggregate
dimensions that have been seen as being on a similar interaction level with the business model
to complete the framework.
76 Methodology
Figure 21: Conceptualization of BME-Framework
Expert Sample
Expert interviews are an appropriate method of qualitative research to gain initial insights in
hitherto rather unresearched fields by accessing specialized expert knowledge (Patton 2002).
“Experts” are defined as people with deep and accessible knowledge on a specific issue (Meuser
& Nagel 1991; Bogner & Menz 2005). In this research effort a high level of expertise in
designing and implementing business models was chosen as the primary selection criterion.
Moreover, it was required that interview partners had a sound understanding of the analytical
and conceptual aspect of the business model construct.
The expert sample was built by external and internal strategy consultants and by venture
capitalists (Table 30). Consultants and investors are usually confronted with an abundance of
business cases, have different industry backgrounds and therefore rely on a broad knowledge
base regarding business models and different business environments. The selected experts vary
regarding educational background and professional experience to allow for different
perspectives on the topic of business models.
Summary 77
Table 30: Expert Sample – Conceptual Model
Interviewee Profession Level Industry Focus

1 Investor Associate Consumer goods, e-commerce
2 Consultant Head of Inhouse Consulting B2B
3 Consultant CEO & Co-Founder Consumer goods
4 Consultant CEO & Co-Founder Various
5 Investor Senior Executive Telecommunications
3.3 Summary
This chapter started by explaining the fundamentals of process research, i.e. process definitions
and process research methodologies. Subsequently, the chosen research design and research
methods were described and their appropriateness justified. Building on prior research a
combination of various methods (i.e., two retrospective case studies, nine longitudinal case
studies, literature analysis, and conceptual model development based on expert interviews) is
deemed most promising to account for the particularities of the research design and objectives.
The chapter was completed by providing details on the synergistic use of longitudinal and
retrospective case studies, case selection strategy, data collection, data source, and data
analysis, respectively.
4 Business Model Innovation at the Organizational Level
(In-Depth Retrospective Case Studies)
4.1 Introduction
As the relevance of business model innovation in incumbent firms has been clarified by
reviewing the relevant existing literature in chapter 2, this chapter is intended to explore the
nature of this type of innovation in incumbent firms. In particular it aims at clarifying why and
when the process of business model innovation is started (SQ1), understanding how the process
of business model development and business model implementation unfolds in incumbent
organizations (SQ2), and exploring the barriers and drivers to successful business model
innovation processes (SQ3). In following this research agenda, two in-depth retrospective case
studies of incumbent firms form the basis for generating insights on business model innovation
processes on the organizational level.
The cases presented in this chapter were carefully selected based on the following
considerations: Existing business model research tends strongly to focus either on startups or
Fortune 500 companies. Moreover, most studies investigate business-to-consumer business
model innovations. Hence, two medium-sized companies operating in the business-to-business
sector were chosen to address this research gap. As there is hardly any research to build on, it
is intended to gain a broader perspective on business model innovation processes in this area.
Consequently, a “most-different” case selection strategy was followed by selecting cases
differing in specific variables. One of the main differences between company A (Chapter 4.2)
and company B (Chapter 4.3) is (1) their experience level regarding business model innovation
and (2) the intention behind this innovation efforts (for more details on the other sample
selection criteria see Chapter 3.2.4.1). Company A is a first-time business model innovator. It
managed to develop a new business model for a product which remained unchanged. Company
B is an experienced business model innovator having completed four business model
innovations driven by the development of new products.
This chapter is structured as follows: The case of a business model innovation novice, service
company A, is presented and analyzed in “Empirical Investigation I” (Chapter 4.2). In
“Empirical Investigation II” (Chapter 4.3) the case of company B, repeated business model
innovation in a metal-working company is presented and analyzed. The analytical
generalization (cross-case analysis) of Chapter 4.4 reports on emerging patterns of business
model innovation processes as well as the major learnings which can be drawn from the results.
The “Conclusion” (Chapter 4.5) summarizes this chapter on business model innovation
processes at the organizational level.

4.2 In-Depth Case Study I: Company A
4.2.1 Description Company A

The first case study focuses on a service company based in Vienna, Austria. All company
relevant information is anonymized for the purpose of this thesis. Company A is a service
company which operates with two legal entities:
1.) The “A Association” which offers a neutral platform for the development of standards 20 at
national, European and international level. The association’s core business is the coordination
and the management of standardization work of about 6000 experts from different interest
groups, such as enterprises, authorities, testing and research centers, and lobbies.
2.) The “A Ltd. Company” distributes standards, both those developed in the “A Association”
as well as other standards (e.g., foreign standards). Furthermore, the “A Ltd. Company” offers
electronic standards management (content management) and update services, literature related
to standards, training services as well as conformity services (certification).
The split-up in two different legal entities is due to legal and fiscal reasons. From a managerial
and business perspective, the legal entities must be considered as one company, e.g., same CEO
for both legal entities, shared central services such as HR or marketing department.
Consequently, when focusing on the business perspective, there is no need to differentiate
between these two. Hence, in the following it will be referred to simply as “Company A”.
Company A has a budget volume of around € 12 million. This budget comprises:

10 % public contributions,
2 % membership fees, and
88 % sales (of standards within company A and other standards, literature, and services).
The main source of revenue for company A is the sales of standards. The business model
innovation analyzed in this study focuses on this business activity.
Company A manages the development of standards. Standards are developed by and for the
parties concerned. These parties decide on the content of standards. Company A acts as a neutral
manager of this standards development process. 90% of the standards published by Company
A are European standards which are also sold by companies from other countries.
20
A “standard” is a qualified recommendation (not a law), developed in consensus of experts through
internationally accepted methods based on results of science, technics, and practice.
In-Depth Case Study I: Company A 81
Markets & competition

There is a widespread misperception that the experts developing the standards are acting in an
honorary function and for the sake of company A. Standards are created by and for the parties
concerned in order to agree on and document the state-of-the-art in a particular field. Those
agreements (i.e. the standards) are the basis for trade and business transactions. In the
development of European and international standards, company A organizes national input to
those standards and in return gets the license to sell the European standards. In each country
one company is accredited the distribution rights inside and outside of their country. Although
company A is the only distributor (and hence often misperceived as a monopolist), it faces the
competition of the other national distributors of standards as well as a few companies operating
on a global level.
Table 31: Fact Sheet Company A
Company A
Date of Incorporation 1920
Legal Form “A Association” & “A Limited Company”
Ownership Structure 100% of “A Limited Company” is owned by the “A Association”
WZ 2008 code:
Primary code:
S94990 - Activities of other membership organizations n.e.c.
Industry Classification &
Trade Description21
NACE Rev. 2 code
Primary code:
9499 - Activities of other membership organizations n.e.c.
Management Board: One Managing Director

One Deputy Managing Director
Management
Four Directors with procuration
Subsidiaries None
Employees 125
Turnover 2012: 12 Mio EUR
21
According to Amadeus Database, retrieved on November 1, 2012.
4.2.2 The Business Model Innovation at Company A
4.2.2.1 The Traditional and the New Business Model
The traditional model: single-purchase

Company A’s major revenue stream is the sales of standards. Since 1920 the company has been
selling standards to companies ranging from small firms to multinational companies (from all
different kinds of industries), and to the public administration using a single-purchase business
model. Customers purchase the standard in hardcopy or as electronic version (PDF file) via
company A’s web shop or its physical store. Standards are priced per page. Figure 22 provides
a graphical representation of the business model
Figure 22: Traditional Business Model Company A
BUSINESS MODEL – SINGLE PURCHASE
KEY PARTNERS KEY ACTIVITIES VALUE CUSTOMER CUSTOMER

PROPOSITION RELATIONSHIP SEGMENT
European and Distribution of Majority of clients buy

international content on paper or regularly (e.g., new Small to big
standardization electronically editions of previously companies
bodies company A bought standards)
receives the license Access to state-of-the-
for the sales from art know-how Public
administration
KEY RESOURCES CHANNELS
Web shop Web shop
Electronic Publishing Brick& mortar store
COST STRUCTURE REVENUE STREAMS
Promotion costs (promoting new standards) “Pay per paper”

Transaction costs (for each individual purchase) “Pay per PDF”
Source: own representation, “Business Model Canvas” by Osterwalder & Pigneur 2010
The new model: flat rate

At the end of 2009 company A has launched a new business model mainly targeting SMEs.
In this new model A concludes long-term contracts (10 years) with trade associations which are
characterized by an ex-lege membership. Membership to the trade association is obligatory for
all companies of the respective trade, for instance all (non-industrial) construction companies
are member of the “association of building and constructions companies”22. The contract
between company A and the trade association stipulates that all companies, member of the
respective trade association, are entitled to download up to a determined number of standards.
Furthermore, they are provided with an electronic document management system where their
downloaded standards can be archived and repeatedly accessed. New editions of standards are
automatically uploaded into their individual online portfolio of standards. The trade
associations pay a fixed price per member company and per year (flat rate) and in turn increase
their membership fees accordingly. The price is based on the maximum number of standards a
company may download to the company’s individual online portfolio of standards. Example:
If the trade association comprises 1000 member companies and the maximum number of
standards per member company is 200, the trade association is charged EUR 200.000.- per year.
Figure 23: New Business Model Company A
BUSINESS MODEL – FLAT RATE MODEL

European and Provision of a Long-term relationship

international document Trade associations
standardization management system with ex-lege
bodies company A membership
receives the license Provision of Access to state-of- (Contract partner)
for the sales from electronic updates the-art know-how
SMEs
Guarantee of having (End customer)
KEY the latest edition CHANNELS
RESOURCES
Sales based on a long-
Document term contract
management system comprising >200 end
customers
Costs for adapting the document management system Flat rate
Comparison traditional and new business model

In the following (Table 32) the key differences between the traditional model of selling
standards through single-purchase transactions and the new model providing access to content
based on a flat rate are outlined:
22
In German: “Bauinnung”.
Table 32: Comparison Traditional and New Business Model
TRADITIONAL BUSINESS MODEL NEW BUSINESS MODEL

(Single Purchase) (Flat Rate)
Price of standards is based on number of pages, Flat rate for the right to access a predetermined
customers pays per standard number of standards
Price for customer per copy of standard on average Price for customer per standard approx. 1 € per year
80 € without updates including updates
Contribution margin low Contribution margin high
Low market coverage due to lack of customer High market coverage due to high awareness within
awareness and resistance to deal with standards the trade association
Copyright infringements by passing on copies of No copyright infringements as every company within
standards illegally to colleagues the trade pays and gets access
Target group: all companies Target group: SMEs
Applicable to all types of customers Applicable only to customers being member of a
trade association with mandatory membership
Individual purchase decision Trade association needs to convince majority of
member companies to vote for the signing such a
contract
Applicable for all kind of standards (company A Applicable only for company A standards (no license
standards and other standards) for selling other standards via this business model)
Figures of the new business model

Revenues for the new business model have increased constantly. Although revenues generated
per year did not meet the expectations in some periods, they surpassed target numbers in other
periods widely.
Company A uses primarily two indicators to assess the financial success of the new business
model: revenues generated and numbers of companies with access to standards through the flat
rate model (Table 33, Figure 24, Table 34, Figure 25; data obtained from company internal cost
accounting presentations).
Table 33: Development of Revenues I – New Business Model
Year Additional Revenue (in €) Aggregated Revenue Per Year (in €)
2009 485.360 485.360

2010 26.032 511.392
2011 479.050 990.442
2012 571.820 1.562.262
Source: Company A cost accounting documents
Figure 24: Development of Revenues II – New Business Model
Aggregated Revenues per Year (in €)

1 800 000
1 600 000
1 400 000
1 200 000
1 000 000
800 000
600 000
400 000
200 000
-
2009 2010 2011 2012
Table 34: Development Number of Companies with Access-Right – New Business Model
Year New Aggregated
2009 2.974 2.974

2010 860 3.834
2011 4.388 8.222
2012 12.803 21.025
Figure 25: Development Companies with Access-Right – New Business Model
Aggregated Number of Companies

25 000
20 000
15 000
10 000
5 000
-
2009 2010 2011 2012
4.2.2.2 Innovativeness & Risk of the New Business Model

Company A had no prior experiences with a similar business model - the “flat rate” model was
completely new to the company, in particular:
not selling directly to customers, but instead selling through the long-term contracts with
trade association,
the approach of providing access to standards instead of selling each standard individually,
and
prices based on access right and not on number of pages per standard
underline the highly innovative character of the new model.
The high degree of innovativeness of the model implied specific risks. Furthermore, selling
standards is by far the major revenue source of company A.23 According to the Managing
Director, any changes to the core model were very carefully evaluated. He underscored together
with the Vice Director that there were three important areas of risk associated with the new
business model (A | 53, A | 54, B | 61). :
Revenue risk
Customers who have heard about the development of the new model might have waited for
it and refrained to buy standards as “single purchases” meanwhile (D | 62).
Revenues lost through the new model (no single purchases of standards, no update services)
could have been higher than the revenues generated through the new model.
23
Data based on company report.
The new model targeted an important customer group which accounted for a high share of
total revenues. Consequently, the target revenues from the new model had to be very high.
Customer risk
Customers not included in the new model who learned about the low price per standard in the
new model (without understanding the full concept of the model) potentially resisted to pay
what is in their perception “80 times as much” for a standard.
Technological risk
The database running in the background built the basis to realize this business model. A
properly working document management system for a multitude of users with different sized
accounts was a prerequisite in realizing the flat rate concept.
Company A’s top management considered the revenue risk as the most relevant (B | 61). As a
risk reduction strategy, A had limited the application of the new business model to two pilot
projects in the first step. The new model was designed in a way that it would at least match the
revenues from the old model, while the new model still outperformed the old in terms of
contribution margin.
4.2.3 Triggers
As outlined above, company A has not been involved in any kind of real business model
innovation activities until 2008. The traditional business model for selling standards had been
in use since 1920. The following main drivers required a new business model to keep the
company competitive.
Triggers for the need of a new business model

1.) Price pressure (“T1”)
The price for buying standards was perceived as relatively high by company A’s customers,
especially by small and medium sized companies (D | 5). There was in particular the
misunderstanding of the nature of standards that led to a massive call for lower prices (B | 41,
C | 36): Standards are often perceived as legal documents such as laws and decrees, therefore
it is expected to be granted access free of charge. Customers tend to feel like buying paper
instead of buying know-how. This perception was fostered by the practice of pricing standards
per page.
2.) Low market coverage (“T2”)

In the sector of SMEs, especially handicraft, there was a low market coverage (E | 36). Some
companies were not aware of the importance of standards for their business activities. Others,
in spite of their awareness, were nevertheless reluctant to take the effort of understanding and
implementing standards. They used the argument of “unaffordable standards” as a pretext.
Triggers for the development of a new business model

1.) Customers (“T3”)
In July 2008 a customer being a representative of a trade association where the call for lower
prices of standards was high on the agenda had to ability to evaluate this issue not only from a
customer’s perspective, but also from the perspective of company A: It was obvious that asking
for lower prices alone would not lead to a viable solution as selling standards was a major
income stream for company A. The challenge was to find a model where the income stream
remained at least stable while at the same time allowing for lower prices for customers. He put
it simply: “If we divide your turnover with standards related to our trade by all members of our
trade association, this could lead the way to a solution” (reported by the Vice Director in
personal talk with the author). With this – still vague – idea he approached the top management
of company A. This led to the idea of including the trade association as a new player in a new
solution (B | 41).
2.) Technology (“T4”)

In terms of technology, the prototype of the flat rate business model was based on a document
management system insuring that only members of the trade association were granted access.
Moreover it needed to limit the maximum number of newly downloaded standards according
to the respective contract. Company A had already developed an online platform for medium
sized and big companies for the single-purchase model allowing companies to manage their
standards portfolio electronically. This system served as a basis to develop the document
management system required for the new business model (A | 53).
4.2.4 Impact of the New Business Model

In follow-up discussions the top management team specified the impacts of the new business
model in more detail. It had in particular the following effects on company A:
1. revenue growth, 5. higher contribution margin,

2. stabilization of revenue, 6. enhanced corporate image, and
3. predictability of revenue, 7. a more innovation receptive corporate
4. higher market coverage, culture.
The successful development and implementation of the new business model was as a very
important step for company A (B | 78, C | 83, D | 95). The model is based on long-term contracts
resulting in recurring and projectable revenues in future years. The higher contribution margin
has a very positive impact on the financials. Today, 38% of standard sales come from this new
business model.24
80% of the turnover generated by a new edition of a standard is achieved within three months
after publication. In the following years, there is hardly any turnover generated by this particular
standard. Hence, in its core business, company A strongly depends on the number of on newly
published documents. On top of that, company A cannot influence the number of newly
published standards, because standardization projects are to a large extended at the European
or international level. In the flat rate model revenue is generated irrespective of the number of
new standards.
However, it is not only the sales impact that made this new business model important. By
implementing this model, company A was able to position itself as a open minded and solution-
oriented business partner (B | 66,78). It was able to fend off the call for free access to standards
by providing small and medium sized companies in particular with very reasonably priced
access to standards (C | 83). Furthermore, companies which had accessed standards through
unauthorized channels before were now turned into new customers.
To put it differently, if company A had not been successful in developing the new model, it
would have lost revenues, leadership, but also its image as an important and innovative partner
for Austrian companies: “They would have branded us as a stubborn monopolist!” (Member
of Company A’s Management Board; B | 66)
Last not least, the top management of company A sees the realization of its first business model
innovation as a very important step in making the organization ready and open for further
business model innovations (B | 78). By starting to think about the business model itself and by
considering it not as a given, unchangeable aspect of corporate strategy, but as an important
area of innovation, company A paved the way for dealing with future challenges of
standardization (see Chapter 4.2.7).
24
Data obtained from company internal cost accounting presentations.
4.2.5 Main Stages of the Business Model Innovation Process

Based on the data collected from the interviews, follow-up discussions, and corporate
documents it was possible to derive a model for the main stages of the business model
innovation process within company A that builds on three major phases: sensebreaking,
sensegiving, and freezing.
The concept of “sensebreaking” and “sensegiving” has emerged to describe organizational top-
down processes within organizations (Ashforth et al. 2008; Vuori 2011). Sensebreaking refers
to “finding the void that must be filled” on a strategic and organizational level (Pratt & Foreman
2000, p.464). For the purpose of this study, sensebreaking is understood as the identification of
strategic gaps resulting from a divergence between a company’s offers and the prevailing
market characteristics.
Contrary to sensebreaking, which serves to accentuate gaps, sensegiving describes the process
of finding ways to fill them (in this particular case by developing new business models). The
construct of organizational sensebreaking and sensegiving is related to the theoretical construct
of “unfreeze – change – freeze” (Lewin 1951; Schein 1980). In the model from Lewin (1951)
unfreeze refers to preparing an organization to accept that the status quo needs to be changed.
During change the organization moves into a new direction. In freezing the changes are
embraced, internalized, and institutionalized. This step is only completed after the members of
an organization have had experience with the elements of change (Mantere et al. 2012). While
sensebreaking and sensegiving capture the strategic perspective, the concept of freezing
involves an operational perspective, including the feelings of change recipients and structural
factors.
For this research effort these two theoretical approaches are combined in order to capture the
strategic aspect of business model development (through the concept of sensebreaking and
sensegiving) as well as the operational aspect of rolling-out the business model (through the
construct of freezing).
The main stages of company A’s business model innovation process are described in Table 35.
Table 35: Main Stages of Company A’s Business Model Innovation Process
Major Phases Second Order Themes Notes
Due to the triggers price pressure and

Existence of a divergence
low market coverage
Company A senses this divergence
Realization of need for action between its offer and its capacity to
meet market needs.
Search for a solution without
altering the traditional single-
purchase model
Sensebreaking Due to the trigger “customer”
More of the same
new opportunities for the existing
seemed to appear
Failure to find solutions within
the existing business model
It becomes obvious that only a new
Realization of need for new
business model can be an appropriate
BM
move
Rough sketching of new business
BM design model
The trigger “technology” allows
to design a basic concept
BM detailing Defining legal, commercial,
operational and technical elements
Sensegiving By top management of company
Approval of BM prototype A and by lead customers
Signing of contracts
Test within two pilot projects with
Test of BM prototype
lead customers
Based on new or different needs of
BM adjustments
further customers
Within company A and the direct
Roll-out of the new BM
customer (trade association)
Resistance of marketing and
sales (not-invented-here
syndrome, fear of losing
Internal conflicts
Freezing relevance & job)
New processes had to be
developed
Definition of responsibilities and
Operational improvements processes (e.g., communications,
controlling, work-flows)
Sensebreaking and Sensegiving

Preexisting triggers (price pressure and low market coverage) had led to a divergence between
A’s single-purchase business model and market characteristics. During sensebreaking the top
management had realized the need to address this divergence. However, the search to come up
with new offers was limited by the boundaries of the existing business model. Even with the
idea to include the trade association as a new player in a new solution, the search still focused
on varieties of the traditional business model. Key organizational abilities might become
“rigidities” (Volberda 1996) in identifying strategic gaps regarding innovation activities
(Christensen & Overdorf 2000). Hence, the organization tries to deal with new problems by
applying known and proven solutions. However, this will not help to innovate. In order to
address the divergence, the company needed to “reconsider a number of basic hypotheses,
directive values, presuppositions on which it has based its operations until now” (Moingeon &
Lehmann-Ortega 2010, p.278).
While company A’s supervisory board – besides acknowledging and supporting the business
model innovation activities – had not set any particular objectives, company A’s top
management had set itself three clear “minimum requirements” already during the phase of
sensebreaking (A | 119, B | 124, C | 164, D | 236, E | 113).
1. There must be a solution

This was in particular expressed by one member of the management board in the interviews:
“We had to find an answer to that. Can't do, won't do!” (Member of the management board; B
| 124). As soon as it was clear that this solution lies in the development of a new business
model, additional objectives were set up:
2. No decrease in revenue
The new model had to generate sales which at least compensate for the revenues which would
have been made using the old model for the specific customer group.
3. Higher contribution margin

Besides a clear revenue target, the new business model had to be superior regarding the
contribution margin. It was clear that the ambitious price reduction target needed substantial
changes regarding the cost structure. As in this case production represents fixed costs, the
variable costs (mainly distribution costs) needed to be minimized while the sales volume needed
to be maximized in order account for lower sales prices.
Hence, prior to designing the new business model, there were calculations and financial targets
to be met by the new model. However, company A had not established a separate budget for
the business model innovation effort. There were hardly any external costs (A|130). The major
costs incurred through internal expenditures for human resources, i.e. mainly transaction costs
for designing the business model and for negotiating the contract with the trade associations.
Freezing
Freezing is the phase where the impact of the business model innovation on company A’s
organizational structure and culture became evident. It is the phase where the company and the
individuals have to learn how to deal with new ways of getting things done, stop relying solely
on existing automatisms and familiarize with new ones(Argyris & Schön 1978; Hedberg 1981;
Nystrom & Starbuck 1984; Bettis & Prahalad 1995; Martin de Holan et al. 2004). First of all, a
project-oriented collaboration across departments was required not only to design, but also to
implement the new business model. Second, both directors took over sales negotiations with
lead customers, although the management board is usually not directly involved in sales
activities. Furthermore, one member of the sales management department was made responsible
particularly for the “flat rate” model. Being a key account manager, he was responsible not only
for dealing with the operational implementation of the new business model on the customer
level, but also for internal product management tasks (D | 235).
Interestingly, there was big resistance regarding the new business model within the company
in particular from the sales department. Employees responsible for sales and thus playing an
important role in realizing the new business model, did not believe in the flat rate model
(B | 157; detailed in follow-up talk with the author). Apparently there was a “not invented here”
syndrome (Christensen & Overdorf 2000). A possible explanation for this phenomenon could
be the fact that the sales team had not been involved in designing the new business model (cf.
Chapter 4.2.6). Furthermore, it was clear that the flat rate model would cannibalize the volume
of sales through the single purchase model and was therefore considered as internal
competition. Staff from the sales and marketing department were reluctant to accept and execute
tasks allocated to them for the roll-out of the new business model and for the related up- and
cross-selling activities. Extensive employee training was required to „get the new model into
the heads of the sales staff” (Head of Sales; C | 204).
In general, after completing the first business model innovation process, company A’s
management sees this step as an important catalyst. From the perspective of human resources,
it turned out who shows high reluctance to change, who is supportive to new ideas, and who is
ready to accept challenging tasks. “The importance of having people around who are willing to
deal with a new approach became even more obvious” (Vice Director; B | 165). Besides the
impacts described above – according to both directors of the company – the firm is now more
self-confident and more open regarding the challenging task of business model innovation.
94
Figure 26: The Course of Company A’s Business Model Innovation Process
Existence of a Divergence
SENSEBREAKING
Realization SENSEGIVING
of need
for action BM
design
BM
detailing T… Trigger
More of the same
Approval
of Width of text indicates
Realization BM approximate duration of
of need for prototype item
new BM Test
strategic of BM
Business model adjustments
prototype
T1+ T2 T3 T4
operational Internal conflicts
Roll-out of new BM
Operational improvements
FREEZING
before
2008 2008 2009 2010 2011 2012

Business Model Innovation at the Organizational Level
The course of company a’s business model innovation process

The course of company A’s business model innovation process is depicted above in Figure 26.
The divergence between company A’s offers and market characteristics has been prevailing for
many years (estimations in the interviews ranged from 10-15 years). The directors were well
aware of this issue and had been searching for inspirations from similar standards service
organizations in other countries (D | 170). But they found only exactly a situation similar to the
home market. As awareness of the divergence was high, the phase of sensebreaking was rather
short (approx. 1,5 years). In retrospective, it was not possible to determine the exact duration
of second order themes (Table 35), however, it is interesting to see that the bigger part of the
sensebreaking period related to being caught by looking for more of the same. When it became
clear that the multiple efforts to find a solution with the existing approaches would not lead
anywhere, both, the top management and the customer were encouraged to take the risk of
embarking on a totally new approach.
The phase of sensegiving lasted roughly three years and included a surprisingly short period of
developing the business model prototype (approx. 9 months). The biggest surprise for the top
management was the quasi never-ending need for adapting the business model in view of
heterogeneous customer needs (B | 109).
Although the basic freezing was done within approx. half-a-year, the business model
adjustments at the strategic level entailed continuous operational improvements resulting in a
need for an extended freezing phase (nearly three years). Around 90% of the sensegiving and
the freezing phase proceeded in parallel. This reflects the iterative character of business model
adjustments and their operational implementations.
The second order themes, in contrast, followed a rather sequential path. This was to a large
extend due to the fact that the whole process was mainly driven and piloted by the top
management. In the course of the process, there were many cross-roads were decisions on the
further path of development had to be taken – and could be taken quickly by the top
management.
4.2.6 Designing and Implementing a New Business Model

In company A’s business model innovation projcet, there were especially three groups of people
that worked together in designing a new business model, totaling in five persons who were
directly involved as “business model designers”:
top management of company A (2 persons),

lead customers (2 trade organizations, 1 person each)
IT department (1 person)
The top management of company A was well aware of other business models regarding
standardization in other countries due to a frequent and extensive personal exchange on an
international level (Vice Director in personal talk with the author). The lead customers involved
in the business model design had a great interest in having a new business model as the trade
associations were under pressure from their members to come up with a solution for less
expensive standards. The business model design options were limited by technological
feasibility. Therefore, members of the IT department were part of the “business model design
team”25.
In identifying inputs relevant for the business model design, it became obvious that designing
the new business model is a multi-facetted process comparable to a mosaic. Many inputs were
used to form the business model. It is not possible to identify every single input in retrospective,
but the following main sources were identified by analyzing the interviews and internal
documents from company A:
Analogies from other industries, e.g., the model of leasing copying machines including a
predetermined number of copies,
Market trends (e.g., reduction of number of annually published standards),
Trends regarding other business models (e.g., Internet and phone rates),
Statistics regarding existing customers from the respective trade and related revenues,
Intense talks with lead customers to identify their needs and to understand their legal,
financial, organizational, and political framework, and
Existing technologies within company A.
Based on the inputs outlined above, the first prototype of the new business model was designed.
It is interesting to see that only this one single prototype was developed and no other options
were generated due to the high pressure to find a solution in due time. Furthermore, the model
appealed to the two lead customers. The “business model designers” of company A deemed
this prototype a promising solution to offer standards for a lower price while at the same time
having the potential of offering satisfying revenues. After the technical feasibility had been
checked and the required technical set-up had been established, the first prototype was
immediately tested under real conditions. The high involvement of the lead customers made it
possible that already the early prototype was used in real-life conditions. After the first tests
25
Note: company A did not use this or similar terms for people working on the development of the new business
model.
were accomplished, the flat rate model was continuously refined to accommodate for diverging
needs of further customers (D | 279, D | 235, D | 473).
The process of designing a new business model was characterized by some limitations company
A had to deal with: First of all, it was hard to let go from beaten tracks, i.e., the existing business
model the company has been familiar with for decades. The literature refers to this phenomenon
also as “the difficulty of questioning prevailing mental schemes” (Moingeon & Lehmann-
Ortega 2010, p.278). It has its roots in the interplay of first-order and second-order learning.
These concepts have been introduced by Lant and Mezias (1992) in their seminal work on
organizational learning: First-order learning describes the process of gaining competence in
following existing strategies and, thus, resulting in improvements of what a company is
currently doing, while maintaining organizational consistency. Second-order learning “is
characterized by the search for and exploration of alternative routines, rules, technologies,
goals, and purposes, rather than merely learning how to perform current routines more
efficiently” (Lant & Mezias 1992, p.49). Second, the options regarding new business model
designs were limited by company A’s role as dominant role regarding standards in Austria,
because all customers had to be treated equally. Third, the company was reliant on the political
will of trade associations to embark on such a new service for their members.
4.2.6.1 Business Model Ambidexterity
Company A implemented the new business model in parallel to the old business model. While
the latter still accounts for 62% of the revenue from sales of standards26, the new one is
successful and very important for the company (see above). However, from today’s perspective,
it looks as it will not completely replace the old model due to the following reasons:
The new model is limited to companies which are members of a trade association with
mandatory memberships.
Big and export oriented customers have specific needs which can only be satisfied with
more individually designed solutions based on the single-purchase model.
Thus, company A is confronted with the dual use of business models since its implementation
and will be challenged by this simultaneity also for the next years. It is a challenge for
companies to manage two systems at the same time: they need to stick to existing activities
while they are exploring and implementing new ones. As a consequence, companies must be
ambidextrous (Tushman & O’Reilly 1996). Markides and Charitou (2004) suggest in their study
on dual business models four possible strategies to handle two models at the same time: (A) the
26
According to company internal cost accounting presentation.
separation strategy, (B) the phased integration strategy, (C) the integration strategy, and (D) the
phased integration strategy (Figure 27). The selection of the right strategy is based on the
assessment of two criteria:
1.) How serious are the conflicts between the old and the new business model?
2.) How strategically similar is the new market perceived to be compared to the existing
market?
Figure 27: Strategies Managing Dual Business Models
Source: Markides & Charitou 2004
In the case of company A, the answer to question number 2 is as follows: The “single-purchase”
and “the flat rate” model are basically targeting the same market. There is only a minor
difference: So far, the new model has only been tailored to the needs of rather small companies
which have purchased only few or have not purchased any standards at all. The old model is
still needed to cater to customers ranging from medium-sized to big companies which have
more sophisticated requirements regarding the purchase of standards. These needs cannot be
satisfied through the old model. As there are no fundamental strategic differences between these
two markets, it is interesting to see if there are any conflicts between the two models and if yes,
what they look like (question number 1):
There seem to be cannibalization effects. Some customers who are purchasing standards
through the flat rate model, have bought standards on the basis of the single-purchase
model before. Hence, the new model partly replaces revenues from the old model.
Big existing customers asked why they cannot access standards through the flat rate
model. It must be explained that this model will not suffice to meet their needs. Some
customers have heard about the flat rate model and its relatively low price.
Consequently, there is some demand for switching to the seemingly cheaper model.
However, most of these customers are not eligible for the new model as their particular
trade association has not signed corresponding contracts yet.
The introduction of a second business model has triggered internal conflicts mainly on
the level of the sales and marketing departments (as described above).
Overall, the conflicts involved in the use of two business models at the same time are rather
minor. Thus, according to Markides and Charitou’s (2004) strategic framework for managing
dual business models, company A should have incorporated option C, the “integration
strategy”, “embracing the new model through the firm’s existing organizational infrastructure”
(Markides & Charitou 2004, p.27). The authors suggest this strategy when “in addition to the
absence of conflicts, the two business models serve strategically similar businesses and so stand
to gain from exploiting synergies among them” (p.27).
Company A’s strategic approach matches the recommendation derived from prior research: it
followed an integration strategy. It must be noted, however, that there were no feasible
alternatives for A. First, restrictions regarding assets, resources, and knowledge within
company A would not have allowed for building a separate unit for the flat rate model. Second,
the company’s position as market leader regarding standardization in Austria requires that
customers have one single contact regarding standards. Furthermore, building different
organizational units for the traditional and the new model would have impeded up- and cross-
selling activities.
The management of dual business models does not only have negative effects for company A.
Besides the possibility of leveraging the firm’s existing assets and experiences, there is in
particular the following positive effect: up- & cross-selling. In addition to the basic product
(standards), customers may need services and products related to standards. The new business
model resulted in a long-term relationship with an enlarged customer base and thus represents
a high potential for sales of add-on products services.
4.2.6.2 Barriers & Drivers

In shedding some light on the issues that were supporting the development and implementation
of the flat rate model and those that restrain successful business model innovation, some issues
have already been touched in the previous chapters. In the following, the factors that were found
as being of particularly inhibiting or supporting nature regarding the business model innovation
process of company A shall be summarized. The factors stated below are based on (1) the
interviews and (2) insights generated through follow-up discussions conducted with all
interview partners in which they had the opportunity to resonate and reflect freely.
Internal drivers
There was a “Can't do, won't do” mentality – a strong commitment by the top management
that there will and must be a solution, combined with the management’s strong wish of
“making [company A] a pioneer” (Managing Director, A | 181).
The flat rate model was considered to be unique and created a win-win situation for
company A and its lead customers. Both factors motivated the top management and the
members of the IT department of company A, as well as the lead customers to work
intensively to realize this model (C | 259).
The business model innovation was given high priority and support by company A’s top
management. The latter, furthermore, assured that the required resources where provided
quickly and without bureaucracy (D | 402).
By involving the CIO directly in the business model design process, it was possible to
develop the required technical infrastructures quickly, resulting in an easier and faster
implementation (C | 268).
The top management and the IT department were “business model evangelists”, promoting
and constantly pushing the project forward (B | 213).
External drivers
It was the contribution of the lead customers (i.e., trade associations), their decisions, and
their contributions, which have paved the way to a flat rate model. They provided insights
regarding the particular needs of their members and suggested possible solutions for the
business model design (A | 163, C | 218).
There was a high degree of personal commitment by some representatives of the trade
associations. They strongly supported and promoted the new model within their
organizations. Furthermore, they convinced their colleagues of the innovativeness and of
the viability of the new business model (D | 358).
The trade associations were under pressure (D | 402). They were forced to do something
for their members and had to present them a viable solution. That pressure made them open
for new approaches and increased their motivation to contribute to the development of the
new business model. Furthermore, they had the chance of branding the cheaper access to
standards as a result of their successful cooperation with company A and as success which
was only possible due to the mandatory membership of their members.
Internal barriers
There was a strong reluctance and resistance from the sales department regarding the
viability of the new business model.
The new model was seen as an internal competition to the old model: Some people within
company A feared that the new model will result in a decrease of revenues.
Internal conflicts and people who tried to protect vested interests were impeding the
progress of the implementation of the new business model.
The single-purchase of standards is the core business of company A. Making changes to
this important source of revenues were deemed too risky by some members of the sales
department.
The company internal communication structures had not been adapted to the requirements
of the new business model. As result, it was unclear which person should receive which
kind of information. Some employees weren’t even aware of the new model and some did
not understand its essential features.
External barriers
Lengthy decision processes within the target group of the new business model slowed down
business model development and implementation.
Political and legal questions on the side of the trade associations resulted in uncertainty and
a slow-down of the process.
There was envy between the representatives of the lead customers and their peers who
envied them their success
Some of company A’s other business partners showed a similar behavior: They were jealous
on the successful cooperation between company A and the trade associations.
The data generated through the interviews and follow-up meetings suggests that on a more
aggregated level, there were in particular four major tasks that company A had to deal with
during the business model innovation process: (1) an extensive exchange and a strong
cooperation with lead customers (in the following this issue is referred to as “customer
advocacy”), (2) the development of the new business model, (3) the development of an
appropriate technological solution to implement the model, which is also reflected by the great
involvement of the IT department throughout the whole process, and (4) making organizational
change happen. Consequently, interview partners were asked to rank these four tasks. They
started with the task the was perceived as being most challenging. The results are depicted
below in Figure 28.
Figure 28: Individual Task Assessment
Interview Partner
A B C D E
BM BM BM Customer Customer
1. Development Development Development Advocacy Advocacy
The Development Development Customer BM BM

2. of Technology of Technology Advocacy Development Development
biggest
challenge Customer Customer Development Development Organizational
was…. 3. Advocacy Advocacy of Technology of Technology Change
Organizational Organizational Organizational Organizational Development
4.
Change Change Change Change of Technology
The development of a new business model was the greatest challenge for the company which
had stuck to the same business model for decades. It is rather surprising, however, that
organizational change was seen as relatively easy compared to business model development,
development of technology, and customer advocacy. According to the interviewees, the reason
for that is the relatively small size of the company and hence the relatively small number of
people involved in the design and implementation of the new model.
4.2.7 Learnings and Future Business Model Innovations

Research has shown that on an individual level, prior experiences build cognitive frameworks
that are helpful in detecting and exploiting new business opportunities (Baron & Ensley 2006).
These individual experiences are a key factor for learning on an organizational level, as
organizational learning “is considered as the process of developing new knowledge and insights
derived from the common experiences of people within the organization and it has the potential
to influence behaviors and improve a firm’s capabilities” (Sanz-Valle et al. 2011, p.998). Prior
studies have shown that organizational learning is strongly related to innovation. Whereas
research has provided first evidence that organizational learning enhances product innovation
(Forrester 2000) and process innovation (Jang et al. 2002; Scarbrough 2003), there is no
research on the relationship between organizational learning and business model innovation.
Especially for organizations such as company A, a “first-timer” in business model innovation,
the development of a new business model is a great opportunity to gain experience, learn, and
improve in this particular domain. As was outlined above, the successful business model
innovation is a strong motivator and made the company more self-confident regarding this
issue. So far, company A has no official written documentation regarding the business model
innovation process. However, interviewees reported some important learnings regarding what
has to be improved next time:
For the next business model innovation, the top management strives to tackle this challenge
more systematically and in a more structured way (E | 219). Company A has learned from the
problems with the sales department. For the next business model innovation, setting up a
broader team reflecting all involved parties will be high on the agenda (D | 524). This will
improve internal communication and make sure that all relevant functions within the company
are informed about new activities. Furthermore, the broad and constant search for and
monitoring of interesting business models from other domains is seen as vital to future success
(B | 248).
During the interviews and the follow-up discussions, interview partners – based on their recent
business model innovation experience – reflected also on what the company’s organizational
structure and culture should look like in order to be well prepared for the next business model
innovation. Table 36 gives an overview on typical statements that were given in that context:
Table 36: Reflections on Organizational Culture and Structure
Organizational Culture “You must live the opportunity-oriented culture and you must live with
uncertainty.”; “Taking risks also requires a particular mindset among your
employees. They must be open for new approaches and ready to challenge the
existing.”
Interview Partner A
“You should constantly capture business model ideas from other industries and
reflect on them.”; “The success of the first completed business model innovation
is a strong motivator. […] Employees must be made aware of business models
from other industries.”
Interview Partner B
“All involved parties must be informed why some changes are necessary.”; “I
think that in our company, the management board has a very open mind-set.
[…] Already during my job interview here I was made aware of the fact that
they [the directors] not only support new ideas, but require them from the
employees, while failure is seen as an opportunity to learn. […] However, I feel
that there are also ideas with huge potential that have only been discussed for
years, but have never been realized.”
Interview Partner C
“The company must provide sufficient resources and freedoms in order to
support business model innovation. […] Employees are reluctant to innovation
because they are afraid of the risk and they fear an increased workload. The
main challenge in establishing the innovative culture is to alleviate these fears.”
Interview Partner D
Organizational Structure “Stay in touch with your customers. […] And be creative in collaborating across
the boundaries of organizations.”
Interview Partner B
“There must be an experienced, creative, and interdepartmental team

responsible for innovation. Every team member should know about the strengths
and weaknesses of different business models.”[…] “Communication across the
boundaries of different departments is important”; “In early phases of new
business models, a parallel operation of the old and the new model will be
advantageous, if not necessary.”
Interview Partner C
“It sounds promising to me to build an interdepartmental team of creative and
dynamic people which is responsible for innovation. This team reports directly
reports to the top management. […] A very important aspect is the direct contact
with customers and other stakeholders. […] There should an overview on ideas
and innovation activities (including priorities) accessible to all employees”
Interview Partner D
“Process-orientation and being ready to make relevant decisions quickly is key.”
Interview Partner E
Note: Statements are translated; see appendix27 for the German original version
Future business model innovations

The following challenges will force not only company A, but also its competitors in other
countries and the standardization system as a whole to rethink what the future of standardization
will look like. The main challenges in the future are:
There will be a need to find new business models for electronic content distribution.
There is a request for a more holistic and integrated information offer (standards plus laws,
comments, etc.).
There is a challenge to maintain copyright protection for the standards.
There is an increasing number of copyright infringements (illegal copies are even sold via
several web shops).
Last not least, a fundamental rethinking of the standardization system which is mainly based
on the sales of standards might be necessary.
Prior research underlines the importance of an extended engagement in a particular domain in

order to improve and reach expert performance (Ericsson 2006). Taking into account the future
challenges in the standardization business, a repetitive engagement in business model
innovation of company A is likely and will support corporate expertise in that field.
27
In-Depth Case Study II: Company B 105
4.3 In-Depth Case Study II: Company B
4.3.1 Description Company B

The enterprise of the second case study is a family-owned company headquartered in Germany.
As all company relevant information is anonymized for the purpose of this thesis, in the
following, it is referred to as "Company B" or "B". B's core competence is the weaving of metals
and other materials. It has made the company to one of the world's leading technical weavers.
B was founded in 1925 and is still today lead by two descendants of the founder. The roots of
the company go back to the 18th century when the initial founder started to produce paper filters
for the paper industry. See Table 37 for a summary of the company.
B was able to attain constant growth in recent years (except for a drop in 2009 due to the
economic crisis). Whereas the production and distribution of filter materials sold to OEMs and
end customers is a cornerstone in B's success, the company was able to develop new sources of
revenue by focusing on technological and business model innovations (Chapter 4.3.2). Thus,
company B has abundant experience in re-configuring existing or developing and implementing
new business models.
Table 37: Fact Sheet Company B
Company B
Date of Incorporation 1925
Legal Form AG
100% of shares owned by family

Ownership Structure 63,4% owned by one family line (two brothers à 31,7%)
36,6% owned by second family line
WZ 2008 code:
Primary code:
C13990 - Manufacture of other textiles
Secondary code:
C25990 - Manufacture of other fabricated metal products
A46743 - Wholesale of metal and plastic products for construction purposes
Industry Classification &
Trade Description28 NACE Rev. 2 code
Primary code:
1399 - Manufacture of other textiles
Secondary code:
2599 - Manufacture of other fabricated metal products
4674 - Wholesale of hardware, plumbing and heating equipment and
supplies
CEOs: Two brothers leading the company in 3 rd generation (holding together

Management 63,4% of shares)
28
According to Amadeus Database, accessed on July 3, 2012.
Top Management: 6 Heads of Business Units (2 per business unit)

Head of HR (1 person)
Head of Finance (1 person)
Head of IT (1 person)
Headquarters: Germany
Subsidiaries
Subsidiaries in Chile, China, France, India, South Africa, Spain, United Arab
Emirates, U.K., Qatar, USA
Employees 650 worldwide (400 in Germany)
Turnover 2011: 76 Mio EUR
Today, the company comprises three business units:
Business unit A - Filters and filtration systems

Business Unit A focuses on the production and distribution of highly technical filter media and
filter systems for industrial machinery manufacturers (OEMs) and end customers using B's
products in several industrial applications (e.g., food processing, chemicals, pharmaceuticals,
aerospace, electronics). A business model innovation in this business unit was the basis for B's
development from a manufacturer to a solution provider (Chapter 4.3.2.3).
Business unit B – Process and conveyor belts

Business Unit B is responsible for the production and distribution of process belts made from
metal and synthetic material for various industrial applications, e.g. fruit juice production, wood
working, bio energy (drying wood shavings) or sludge treatment. This unit generates an
important share of B's cash flow and, thus, provides the financial basis for B's innovation
activities.
Business unit C – Architecture

Metal fabric applications in architecture is the core competence of business unit C. B's wire
mesh is applied in exterior architectures (e.g., on facades), interior design (e.g., ceiling systems,
shop designs), and object design. One of B's most recent innovations are transparent media
facades that enable colorful projections or modern media communication on large surfaces.
Business Unit C is a result of company B's first business model innovation in 1992.
Markets & competition

In 2011, Company B made a revenue of 76 Mio EUR compared to 67,8 Mio EUR in 2010
(+12%).29 The company is, with its headquarters in Germany, one of the biggest employers in
the particular region.
The filter business shows a highly fragmented landscape. Many players are operating in many
different niche markets. Therefore, B competes with numerous different players, ranging from
medium to large companies, depending on the specific market. In the architecture market, B
has the favorable position of acting absent relevant competition. A quite similar picture can be
found in the market for process belts: B has only one strong competitor each, for the synthetic
and the metal mesh products.
4.3.2 The Business Model Innovations at Company B

In the following section, B's core business model is explained, followed by descriptions of the
four business models innovations. For an overview on these see Table 38.
4.3.2.1 Weaving Metals – The Core Business

Whereas Company B has developed business models which differ greatly from its core
business, the company still adheres to its roots. B still sees itself as a weaving company, as was
outlined by the CEO:
"We are a weaving company and our absolute intention is to remain a weaving company.
However, we are also much more than that." (K-B|2081)
In weaving, the focus lies in the production and distribution of technical filter media and process
belts. The main costumers are (1) industrial machinery manufacturers (OEMs) implementing
the products in their machines and (2) end customers. The latter buy the products mainly as
spare parts for existing machines bought from OEMs. B's products are used in a wide array of
industrial applications. Thus, the customer group "end customers" represents very different
industries, such as food production, energy, sludge treatment or the metal-working industry.
The major value proposition of B's products is high quality and a long lifetime of the products.
Consistent with that offer, B's products are relatively high priced. The volume of sales is rather
small but results in recurring revenue streams due to a constant demand for spare parts. A
visualization of the business model is provided by Figure 29.
29
According to company reports.
This business is the originator of all subsequent innovations regarding products and business
models. It represents an important and stable business activity generating positive cash flows
(K-B|2041). The constant earnings through this business model are a key factor in financing
corporate innovation activities (K-B|1494).
Table 38: Overview Business Model Innovations Company B
Service Provider
Architecture
Filtration Media Mesh Facades Ceiling Systems
Start 1992 2004 2009 2011
Until 1991, B made ~ 1/3 of revenue Filtration systems were sold like A customer wanted to beam media B discovered that the know-how
in the former Eastern Bloc. As the printers: relatively cheap filter content on wire mesh facades. B regarding architectural wire mesh
USSR dissolved in 1991, B lost an systems required regular change of found an even better solution than can also be applied to ceiling
Initial Situation
important market. This economic filter material resulting in high using projectors by adding LEDs to systems inside buildings.
pressure forced B to identify new maintenance cost. Customers were the wire mesh facades.
In-Depth Case Study II: Company B
sources of revenue. unsatisfied with this BM.
A completely new offer was From just offering filter B developed wire mesh facades to B took know-how and products so
developed by identifying alternative components, B developed to an gigantic screens for all different far applied to the outside of
applications for an existing product expert in filtration processes. B kinds of buildings. B is designer, buildings to the inside. B is
(wire mesh). Wire meshes were now started to offer complete solutions in manufacturer and installer of media currently developing complete
used for architectural applications. filtration including simulations, facades and provides seamless services (planning, installation,
BM Innovation
Starting with a focus on design filter system and filtration process content delivery. maintenance, consulting) for ceiling
aspects, B increasingly added consulting. Customers can now systems.
functional benefits to its meshes concentrate on their production
(e.g. insulation, shading). processes and filtration problems
are solved by B.
Architects are key partners and New key partners as B went from New key partners and customers New key partners and customers.
customers. No revenues from spare selling intermediate goods to selling (building owners, advertising [No more details available as BM is
parts. Project-based business. Great capital goods and services. Spare agencies). B is going to sell hours of currently under development by B]
Major Changes
visibility of meshes. Individual part supply, different legal content delivery instead of wire
in the BM
product development for every new requirements, longer negotiations in mesh for facades.
customer necessary. the selling process, shorter customer
relationships.
109
Figure 29: Company B’s Core Business – Weaving Metals
BUSINESS MODEL

Suppliers Development, Long-term relationship

production & through OEMs
distribution of recurring sales
filter media and End Customers
process belts High quality, long-
life mesh for filter
media and process
belts
KEY CHANNELS
RESOURCES
Direct contact to
Competence in customers through
different kinds of sales team, subsidiaries
weaving processes & authorized dealers
High-qualified
employees
Cost for production & distribution Sales of filter media and process belts (smaller, but
recurring revenues)
4.3.2.2 Architecture – Company B's First Business Model Innovation
The first business model innovation of company B dates back to the year 1992. In the 1980s,
the company made approximately one third of its revenue in countries belonging to the former
Eastern bloc. However, in 1991 the USSR dissolved. The former stable market collapsed, B
lost one third of its revenue, and faced several economic challenges: out-standing debts were
not covered, stock could not be reduced, and production planning had to be revised completely
(K-B|47). This pressure induced a re-thinking of corporate activities and also triggered a
business re-engineering process. This process was the cornerstone of developing a corporate
structure that resembles several small companies within one big enterprise.
In order to broaden business activities and to find new sources of revenue, B was monitoring
different trends. One trend identified was particularly interesting for the company as it was an
opportunity for an alternative application of an existing product: prominent architects were
interested in using wire mesh for decorative applications on buildings. A French architect
became a key partner in developing the first architectural mesh which was similar to a
humongous process-belt (S-B|2476). This new offering was expensive, but still highly
demanded. However, company B realized quite instantly that using wire mesh for aesthetic
purposes only will lose appeal and the life-cycle of this product will be shorter than expected.
Consequently, the company started to add functional benefits such as cooling effects,
ventilation, or draft reduction (K-B|83, S-B|2941).
Company B's completely new offer resulted in major changes of the business model as can be
seen from Figure 30.
Figure 30: Changes in the Business Model for Architecture in Comparison to Core Business
Model
BUSINESS MODEL

Development, Long-term relationship OEMs

production & through
Suppliers distribution of recurring sales End Customers
filter media and
Architects process belts High quality, long- Short-term, project- Architects
architectural mesh life mesh for filter based
media and process
belts
KEY architectural CHANNELS
RESOURCES applications
Direct contact to
Competence in customers through
different kinds of sales team, subsidiaries
weaving processes & authorized dealers
High-qualified
employees
Cost for individual product development & production & Sales of filter media and process belts (smaller, but
distribution recurring revenues)
Project-based revenues (bigger in volume, but
inconsistent)
Changes are marked in strikethrough, new elements in bold and italic

The business model changes depicted in Figure 30 imply some important differences to the
nature of the business company B has done so far:
in architecture, there are no revenues from spare part sales,
architecture mesh has great visibility to the public in opposite to the products sold so far
which remained "hidden" in industrial machines and applications,
every architectural mesh is developed individually according to the architects' preferences
(E-B|2596).
4.3.2.3 From a Manufacturing Organization to a Service Provider

Company B's first business model innovation played an important role for the subsequent major
business model innovation of transforming the firm to an increasing extent into a service
provider. In the architecture business, B was not only selling wire mesh for buildings. Instead,
the company started to offer first additional services related to the installation of the mesh: on-
site construction, infrastructure building or supervision. These additional offers can be seen as
the first steps towards becoming a service provider. The literature refers to this shift from
product to service as “servitization” (Neely 2007; Roy et al. 2009, Kastalli & Van Looy 2013).
In 2004, a clear strategic decision had been taken: company B should increasingly focus on
"adding more value to the product and on providing more value to the customer" (K-B|20). As
a consequence, developing the company to a service provider had been defined as a primary
strategic goal (K-B|14).
The company developed three distinct business models for offering solutions in three different
areas: filtration, media facades, and ceiling systems.
4.3.2.3.1 Filtration
Up to 2004, company B had only been selling weaved products for filtration applications to
OEMs and end customers. In accordance with the new strategy, however, the company started
to increase revenues stemming from filtration solutions.
Selling its products to two different customer groups (end customers are in turn the customers
of OEMs) resulted in a major advantage for B. In doing business with both parties, company B
was able to get important insights regarding the current situation in the market. In talking to
end customers, the company identified two important issues:
1.) End customers showed high discontent regarding the prevailing business model for filtration
systems. Filtration systems were sold like inkjet printers (W-B|415). A relatively low price for
the machines was combined with high prices for replacement media. The filter media used (e.g.,
paper filters) was of low quality and had to be replaced regularly, resulting in high maintenance
cost and increased handling costs.
2.) Furthermore, company B realized that it would be a great advantage for end customers if
they could focus on their own production processes and need not build extensive know-how
regarding filtration processes which are only inevitable chores for them.
As company B was selling filtration products implemented in filtration systems produced by

OEMs, it was also possible to learn more from them about filtration machinery and relevant
applications. End customers were reluctant to talk to OEMs about machinery improvements as
they feared losing their competitive advantages as competitors were also purchasing from the
same OEM.
The radical nature of B's business model innovation is beautifully depicted by the following
example: To become a solution provider, company B had to develop extensive know-how
regarding filtration processes. Whereas a couple of years ago, the company would have invested
in weaving machinery, it now invested heavily in laboratory technology to improve filtration
competence (K-B|174). Customers used to order different types of filter elements according to
B's sample catalogue and B delivered these products, sometimes with only little adaptations
based on customers' needs. In the new model, the customers contact B regarding the particular
substance to be filtered and B analyzes, simulates, and develops the appropriate filtration
solutions avoiding that customers waste time on decisions regarding the selection of the
appropriate filter media. To gain filtration expertise, B cooperated with Universities and
acquired a former customer which specialized on filtration (W-B|507). For the automotive and
metal-working industry, B offers filter systems for cooling lubricants and process media,
increasing efficiency and cost-effectiveness in fluid treatment. Additionally, B sells simulation
of filtration processes as a service paid by the hour to an increasing extent. The new business
model for filtration services is depicted below in Figure 31.
Figure 31: Business Model for Filtration Services
BUSINESS MODEL

Building filtration
expertise Close and long-term End customers in
relationship automotive and
Cooperation with Development of metal working
Universities, filtration systems Development of industry
partner companies Advisory expertise solutions together with
and customers and service from a the customer
single source
KEY High competence in CHANNELS

RESOURCES filtration processes
Intense contact to
Competence in Simulation services customers in
different kinds of developing individual
weaving processes solutions
High-qualified
employees
Investments in infrastructure (e.g., laboratory facilities) High prices charged for high-quality services and filter
and know-how (e.g., hiring experts), higher costs for sales system sales (fewer sales, but greater volumes)
process
4.3.2.3.2 Media Facades

Five years after company B made its first steps towards becoming a service provider, in 2009,
a product innovation based on quite a simple idea has triggered the development of another
(radically) new business model. A famous soccer stadium was covered with architectural mesh
from company B. The owners of the stadium intended to project advertisements with beamers
onto the facades. The stadium was located in a foggy area. Consequently, beamers were not a
viable option to display advertisements on facades.
The idea of illuminating the facades was the basis for developing an additional feature to B's
architectural mesh. Besides cooling effects, ventilation, or draft reduction, adding LED's to the
mesh transformed the mesh facades into humongous screens. While the product innovation was
successful on a technological level, the company is currently developing a new business model
for media facades. Company B realized that selling these facades requires an approach
completely different from selling normal mesh for filtration applications or process belts (K-
B|1906). The sale of LED facades differs widely even from the architecture business model,
particularly due to the following reasons:
Sales mechanisms are different, i.e. company B negotiates business models regarding
operation of the facades instead of selling a certain number square meters of wire mesh.
The major partners and customers are not architects, but media companies and advertising
agencies.
The prime market is the U.S. as – at the moment – legal restrictions in other countries
impede a world-wide roll-out of the product.
In media facades, weaving the metal accounts for only 10% of the whole value creation
process.
Finally, it is very likely that B is not selling the facades itself anymore, but instead charges
customers for seamless provision of content (comparable to a telecommunications company
offering data transfer).
Taking into account the peculiarities of media facade sales, it becomes obvious that company
B is primarily not offering a physical product, but a service for the planning, installation,
operation, and maintenance of media facades (K-B|2008). It is conceivable that customers will
pay the company a certain fee for content provision based on a service level agreement. B also
considers the option of receiving a share of the revenues generated through the advertisements
screened on the media facades as part of the compensation for preparation and installation.
It is important to note that sales of architectural mesh and media facades represent project-
oriented business activities whereas process belts and filtration components are sold through
constant sales processes (E-B|2757). The project orientation in these business models requires
adaptations to the organizational structure.
The transformation from selling a weaved product to selling hours of seamless content
transmission is reflected in the preliminary business model B has developed to successfully
conquer this new market (Figure 32). However, it is likely that B will make changes to the
model. According to internal documents, it still needs to be clarified if the primary customers
are advertising agencies and out-of-home advertising companies or building owners instead.
Figure 32: Preliminary Business Model for Media Facades
BUSINESS MODEL

Establish and
maintain close Short-term, project- Advertising
contact to based agencies
Out-of-home advertising
advertising companies Design, Out-of-home
companies manufacturing, advertising
installation and companies
Building owners operation of media
facades OR
Advertising agency KEY CHANNELS
RESOURCES Provision of seamless Building owners
Architects content Intense contact to
Competence customers in
regarding wire mesh developing individual
and LED technology solutions
for media facades
Cost for individual product development & distribution & Sales of time on a medium to advertisers
operation
4.3.2.3.3 Ceiling Systems

Company B realized that the business model for the outside of buildings could also be adapted
for the interior of buildings. Hence, B transfers know-how and products so far applied to the
outside of buildings to the inside thereof (K-B|2011). B identified, on a product level, several
advantages of using metal mesh for ceiling applications:30
mesh-typical transparencies,
non-combustible,
corrosion resistant,
easy care,
fully adjustable,
improved acoustics,
thermal comfort,
recyclable,
ease of installation,
elegant aesthetics,
30
Information based on company B's product catalogue.
sprinkler-compatible structure,
low maintenance costs.
Besides product-related competitive advantages, company B also identified areas of

applications that require these particular product advantages, thus indicating potential customer
groups:31
conference and meeting rooms,
open plan offices,
reception halls,
waiting rooms,
hotels,
airports and railway stations,
museums and libraries.
B will increase its business activities regarding ceiling systems in the upcoming years and is
already offering the following services for ceiling systems: installation planning, full assembly
and fitting, maintenance, mesh selection, and system design.
In becoming a full service provider for ceiling systems, company B identified five particular
advantages for customers:
(1) matched components from a single source,
(2) sophisticated complete solutions,
(3) certified systems,
(4) optimized logistics, and
(5) one contact throughout all project phases.
At this point in time, it is not clear if one of the business models already existing within
company B will work for ceiling systems as well. However, B has already gained extensive
know-how regarding the development of business models to offer services.
4.3.3 Triggers of Business Model Innovations

From the gathered data four major triggers were identified that either led to a re-configuration
of an existing business model or to the development of a new business model.
1.) Economic pressure

Economic pressure was the main reason why company B started to re-think its business
activities as the USSR collapsed in the early 1990's. B lost almost 1/3 of its revenue (K-B|56,
31
K-B|707). In the need for compensation of this loss, the company was seeking new ways to
generate revenue. Very interestingly, Interview partner E (Head of business unit B – process
and conveyor belts), outlined that there have not been any business model innovations for
process belts as this business unit achieved excellent profits even during the economic crisis
(E-B|2607). The process and conveyor belts business unit is the primary source of free cash
flows.32
2.) Product development

Development of new products, in particular by identifying alternative applications for existing
assets (in this case wire mesh), architecture was discovered as an attractive field for new
business activities. Selling wire mesh for architectural applications, however, required the
development of a completely new business model compared to existing wire mesh sale. A
similar development was found for the ceiling system business. Transferring existing
competences to a new field imitated the development of a new business model.
3.) Customers
3a.) Dissatisfaction with existing business model
Another trigger which was particularly relevant for the development of the filtration system and
the according business model was a dominant business model in the market which did not
satisfy customer needs (W-B|415). The prevailing business model for filtration systems was the
"bait & hook business model": This business model is “characterized by an attractive,
inexpensive, or free initial offer that encourages continuing future purchases of related products
or services” (Osterwalder & Pigneur 2010, p.104). Very often the initial offer is money-losing
or subsidized by the company, but later purchases of related products are eventually generating
profits. Today, many products are sold using the bait & hook business model: razors - razor
blades, printers – ink-cartridges, aircraft engines – service contracts, etc. Existing offers in the
filtration market were based on a rather cheap filtration housing with low-quality filter elements
that must be replaced regularly. Replacement of these filter media was very expensive,
especially considering a machine lifetime of about 20 years. This represented an opportunity
for company B.
3b.) Unmet customer needs

Company B's customers had specific needs that were not met by other offers on the market:
One customer wanted to beam media content on wire mesh facades. There was no feasible
solution in the market as traditional projectors could not be used due to frequent fog in the
particular area. B found a better solution than using projectors by adding LEDs to their wire
mesh and built a viable business model around that new offer. Again the development of a new
product was a trigger for business model innovation (see above 2.) Product Development).
32
According to company internal cost accounting documents.
3c.) Fear of losing important customers

It could also be observed that company B made adaptations to its business model for filtration
solutions in order not to lose important customers (W-B|284, W-B|289):
"Customer relationships are an important asset of a company. 'Okay, I don't want to lose that
customer. I have to re-think my business model.’ In Germany, I cannot reduce the price by 30%.
But I have to offer something appealing to the customer […]. In this situation, you start to think
about what the customer really needs." (Head of Business Unit, W-B|284)
Thinking about real customer needs was important for B to develop its filtration solution (K-
B|169). B discovered that its "customers want to manufacture products and they do not want to
become filtration experts" (CEO, K-A|293).
4.) Price-based competition

As manufacturers and OEMs (B's major customer group for filtration solutions) could not
perceive differences regarding the value proposition of offers in the filtration market, price
became the only purchase criteria. This development played in the hands of competitors from
low-wage countries: An abundance of Chinese metal-weaving companies appeared as
competitors with low-cost offers. B's customers were lured by products which were offered for
half-the-price of B's products. Customers were even aware that the quality of these cheap
products might not be as good as the quality of B's products, but the price difference still
convinced them. Company B was forced to re-think their offers and their value propositions.
The strong need for business model innovation in commodity markets (i.e. price-driven
markets) has also been outlined recently by leading strategy scholars. McGrath sees difficulties
in preserving margins as an important warning sign for an outdated business model.33 In a
similar vein, Plantes and Finrock (2009) who state the following drivers as roots for a shift of
power from sellers to customers (p.14):
“It is easy for competitors to copy each other’s technology and features.
Markets are mature, there are no changes in products or services (they are still solving the
same problems).
A few customers make up a large percentage of a company’s total revenue.
Customers only ask for standard products.
Customers pay low switching costs when changing to new suppliers.
Customers can self-perform the offered service.
There are a number of acceptable suppliers that customer can consider.
The quality of the product or service offered by the supplier is not essential to the customer.
33
Columbia Business School Webinar on “Business Model Competition: A New Dynamic for Strategy”, held by
Rita McGrath on February 15, 2011.
The authors further outline that innovating the business model can help to “escape the
gravitiy of commodization” (p. xiii).
5.) Strategic shift

On a more general level, the clear strategic decision of company B’s management to shift from
a product manufacturer to a service provider entailed some new or changed business models.
In the light of the definition of the constructs strategy and business model used for this study
(Chapter 2.4.2), this is a logical consequence as a business model is the reflection of a firm’s
realized strategy (Casadesus-Masanell & Ricart 2010).
Finally, it must be noted that the five triggers above that were found as important catalysts to
start business model re-configuration or development processes, cannot be strictly separated.
In fact, it seems that they are strongly interrelated. For instance, an unmet customer need
triggers are product innovation which in turn results in the need of a new business model. It
was particularly interesting that product innovation and business model innovation were closely
linked in company B's innovation efforts. This will be discussed in more detail below in Chapter
4.3.5.1.
4.3.4 The Anatomy of Developing from Product to Service
4.3.4.1 The Basics of a Strategic Shift from Product to Service
In the previous chapter the four major business model reconfigurations and developments in
company's B recent history have been outlined and their particular triggers have been
investigated. To empirically explore the nature of business model innovation processes in
incumbent firms, this study focuses in the following on company B’s major strategic shift, i.e.
from manufacturer to service provider. Data analysis focused on the development of the
filtration and media facades business model innovations, which are both key to the
transformation from a product-oriented to a service-oriented strategy (Figure 33). The
architecture business model innovation has its roots in the early 1990's. Hence, data on this
business model innovation is not as comprehensive. The ceiling systems business model
innovation, on the other hand, represents a very recent development which has not provided
enough data yet. However, the data of these two business model innovations, as far as available,
was also included in the subsequent analysis to get a more comprehensive picture.
Figure 33: Focus of Analysis – Company B
The need for a strategic shift from a product manufacturer to a service provider is a prevailing
trend in many industries, ranging from consumer electronics to construction companies (Neely
2007; Roy et al. 2009; Kastalli & Van Looy 2013). For instance, in the elevator and escalator
business, companies are selling their products at a relatively cheap price to earn money later on
services. The reasons services are appealing to manufacturers are manifold. In general, they
have higher margins (Anderson et al. 1997) and as they are less visible to competitors compared
to products, they are more difficult to imitate resulting in a sustainable competitive advantage
(Oliva & Kallenberg 2003). However, a study by Baveja et al. (2004) shows that only 21 percent
of companies have had real success with their service strategy. According to the authors the
reason for the low success rate lies in the fact that being successful in services requires a
different organizational system than tangible products (e.g., more project-based and people-
driven) and the focus on services might create unexpected obstacles. Developing a company
from a product manufacturer into a service provider is a major managerial challenge as it
requires not only new capabilities, but also major changes in the business model (Oliva &
Kallenberg 2003).
Company B has already set important steps to make the organization more agile and flexible in
the 1990s. The company went through a process of business reengineering to set the basis for
future innovations. Former separated departments which belonged together from a process
perspective, were grouped as they belonged together from a customer perspective. Office walls
were torn down to increase communication and to reduce physical distance between people
working together.
In 2004, company B has started the transformation into a service provider with a clear strategic
decision taken by management and the supervisory board (K-B|2328): “We did not want to be
a manufacturer of different filter media and products anymore, we wanted to offer complete
filtration solutions” (K-B|14). Although company B has mastered this challenge successfully,
this new strategic approach required major changes within the company, including the
development of a completely new business model (Figure 34). There are especially two factors
that resulted in a need for major adaptations in developing from sales of filter media to a full
service provider in filtration:
“Intermediate goods” v.s. “capital goods”

Company B has gained experience in selling filtration components for several years. In doing
so, the firm has established long-term customer relationships as its customers bought spare parts
for their machines regularly over years. The sales process of these parts was mainly
characterized by promoting technical features and negotiating warranty terms. In selling
complete filtration systems, however, the company was confronted with a new situation:
As the sums to be invested are much higher for B’s customers, the investment decisions
took much longer and customers where extensively negotiating for discounts. Generally,
bargaining was much tougher.
Customers asked for service-level-agreements (SLA) and contingency insurances.
Company B had to develop a spare part supply system for its filtration systems. Although
company was selling single products before, the need for a spare part systems was
something completely new for the company.
In building the filtration systems, company B had to purchase products it had never
purchased before. Hence, there was a need to adapt procurement processes accordingly.
Figure 34: The Anatomy of Developing from Product to Service
In-Depth Case Study II: Company B

123
In order to develop to a full service provider for filtration, offering filtration systems and
filtration services, company B had tremendously enlarged the group of potential partners as
well as potential customers. Consequently, it had to build new distribution channels and deal
with new business partners (W-B|1937)
Disadvantages of a full service provider-model

In developing to a full-service provider, the company started basically from scratch: it had to
become a “process expert” (S-B|2571) regarding filtration. This implies heavy investments in
laboratory infrastructure, simulations, and filtration know-how in general.
“If we want to offer ‘more’ than just wire mesh, we can do that only if we understand what
‘more’ comprises! […] Hence, we have to understand what our customers are doing and we
have to build competence in filtration” (Head of Business Unit A, W-B|2322).
Another disadvantage of this new strategy was that company B had put itself in competition
with its own customers. It was now competing with customers which also bought products from
B for their own filtration systems. What the firm has done to solve this problem will be
discussed below in Chapter 4.3.4.3.
4.3.4.2 Development of a Service Provider Business Model

The strategic shift to become a full service provider and the dissatisfaction of B’s customers
with the prevailing business model in the market (i.e., a rather cheap filtration housing with
low-quality filter elements that must be replaced regularly resulting in high-maintenance costs;
see above Chapter 4.3.3) were the starting point for the development of the new business model
for filtration services. In general, the business model development was strongly interrelated and
partly driven by the product development (i.e., in particular the development of filtration
systems and simulation services).
Company B started by developing a business case for the new filtration business. In one of the
interviews the CEO underlined that it was seen as liability of a public company to start such a
new endeavor with a profound analysis and this was also called for by the supervisory board
(K-B|1753). But there were no KPIs for the new business model determined at the beginning
of its development process.
All of the firm’s investments regarding this innovation effort (e.g., business model
development, product development of the new filtration system as well as the investments in
know-how, laboratories, and human resources that were required to gain competence in
filtration) were financed through cash flows. As a family business, B carefully assesses the risk
of every innovation project irrespective of its nature (product, process, or business model
innovation). Hence, the firm only starts innovation projects where a failure of the project cannot
do lasting harm to the company (K-B|2229). In this case, the failure of the business model would
not have risked the company’s survival. In the beginning, the company would have had even
better financial results without the new business model due to the necessary upfront
investments. However, toady, the company has a much better position in the market thanks to
the service approach.
In order to meet the requirements for an a priori analysis described above, consultants were
hired to write a business case and to develop a new business model based on that case. In
retrospective, the CEO’s résumé regarding the business case was rather negative: “Too much
analysis beforehand will only provide pundits with arguments why the new business model is
going to fail” (K-B|1736) and “the consultancy was completely wrong in what they have
proposed on 250 pages” (K-B-|1758).
The business model suggested by the consultancy was seen as the “ideal” business model and
was based on the assumption that company B could solve all major issues regarding filtration.
However, this model was doomed to fail, because the filtration business is a very fragmented
market. There are many niche players focusing on some specific issues regarding filtration.
There is – up to now – no single company that covers the topic of filtration completely (W-
B|762). Company B started an attempt to implement this model, however, it failed quite soon.
It was confronted with many hitherto unsolved filtration problems from very different
industries. Hence, there was no chance to succeed. “You start extremely motivated until you
realize that you cannot solve all issues from the last 100 years of filtration technique” (Head
of Business Unit A; W-B|769).
Company B had reacted accordingly and began to reconfigure the initial “ideal” business model.
The following agents were particularly involved in developing the reconfigured model: both
CEOs and the head of the business unit “filtration”. However, due to the parallel product
development process, the suppliers and lead customers played also an important role (see also
Chapter 4.3.4.4). For the development of the first filtration system, a cooperation with a
customer was formed and B has acquired this company subsequently – an important step in
gaining filtration know-how. Furthermore, it had been realized that there was too much product
orientation and that dealing with real customer needs was vital for success. As a consequence,
B tried to find answers to the following lead questions: “What does the market need?” and
“What do we need to get there?” (W-B|885, 888, 960). In doing so, it was possible to tailor the
business model to specific niche applications as a starting point and make one step after the
other. As the “ideal” model had resulted in so many unsolved issues, the new approach was to
make one step back and break it all down into smaller problems. Doing so, it was much easier
to handle the product development and the parallel development of the new business model.
This process was described as “learning-by-doing”, resulting in adjustments of the product

offerings followed by adaptations to the business model to meet the customer needs in a market
segment that was new to the company. The filtration know-how the company acquired
throughout the process was a major driver for developing a successful service model.
In general, multiple iterations (10-12 steps were reported in the interviews, W-B|835, 840)
where necessary to find a viable business model. Whereas the development of the “ideal” model
took around two years (2004-2006), the company sees the development of the business model
of B as a provider of filtration services as ongoing process: “You can never consider the
business model innovation process completed!" (W-B|1093). Constant fine-tuning of the model
is necessary as the company is also continually enlarging its filtration competence. This was
also beautifully depicted by the head of the business unit filtration, who warns of giving up a
business model innovation effort to early, as business model innovations would take a couple
of years:
“Business model innovation is like an apple tree: You can't get the cider the year after you have
planted it. But if you are patient enough, you will have apples for the next 80 years" (Head of
Business Unit Filtration A; W-B|748).
The development of a viable business model for building a service business was characterized
by a continuous refinement of and work on one single business model prototype. The iterative
nature of the business model development process found in the case of company B has also
been identified in prior research (Bucherer et al. 2012). While earlier studies have developed
linear models for innovation processes (Cooper & Kleinschmidt 1986; Sabisch & Zanger 1991),
it is now widely acknowledged that business model innovation is of very dynamic nature which
cannot be captured by classic stage-gate models (Koen et al. 2010). “The Stage-Gate system is
not suited to the task of assessing innovations whose purpose is to build new growth businesses,
but most companies continue to follow it simply because they see no alternative” (Christensen
et al. 2008, p.243).
In the literature it is argued that generating many ideas increases the probability of developing
good ideas (Diehl & Stroebe 1987; Simonton 1999). This notion is taken up by the design
thinking approach where the main output is a multitude of tested prototypes (Brown 2008). Also
the recent business model literature suggests parallel development and testing of different
business model prototypes as the key to successful business model development (Osterwalder
& Pigneur 2010). However, in the case of company B, where business model development was
strongly interrelated with product innovation, the development and especially the testing of
different prototypes was not a feasible option. Testing different business model prototypes in a
real-time scenario with real customers was prohibited by the high investments required (e.g.,
especially in human resources to build know-how and develop filtration competence). Hence,
it is easily comprehensible that the firm focused on one single prototype and strived for a
constant, iterative development thereof.
Although the business model process itself might partly be random, the head of the filtration
business unit reported a pattern he has observed during all the years he spent with the company:
launching new business activities follows a periodic cycle (W-B|1547). According to the
informant, this cycle has a duration of about seven years and starts with a phase of enthusiasm
regarding the new business activities. However, “as not everything develops as planned and
some things always go wrong” (Head of Business Unit B in personal talk with the researcher),
this is followed by a phase of uncertainty and disappointment. The interruptions on the path of
success lead to a phase of re-orientation. This is typically the point in time where the key
assumptions regarding the current business model are challenged and a new version of the
business model is developed. The last phase is again enthusiasm (Figure 34). It is reached as
soon as the firm’s new business activity results in first market success. Confidence and
motivation levels regarding the new business activity are eventually rising again.34
4.3.4.3 Business Model Ambidexterity

Since 1992 with the start of the architecture business, the company was running two businesses
with different business models in parallel. With the start of filtration services, a third business
with a distinct business model had to be operated simultaneously: 1.) weaving of filter media
and process belts, 2.) wire mesh for architectural applications, and 3.) filtration services . The
challenge of handling multiple business models at the same time has already been elaborated
on above in the case study of company A (Chapter 4.2.6.1). To analyze the interference of
multiple business models, the key questions suggested by Markides and Charitou (2004) are:
1.) How serious are the conflicts between the old and the new business model?
2.) How strategically similar is the new market perceived to be compared to the existing
market?
Whereas there is no negative interference with the architecture business model as it targets a
completely different market and is independent of both other business activities, there is the
potential of serious conflicts between the model of selling filter media and the filtration
systems/services model.
34
Personal observations from the author in other industrial companies support this notion.
Competition with existing customers

The options for potential business model innovations are usually more restricted for B2B
companies as compared to B2C companies. Hence, B2B business model innovations are usually
focusing on the value chain (Senfter 2011), albeit not only in a linear configuration as suggested
in Porter’s value chain theory (1985). Today prior studies support the notion that a linear
configuration of the value chain does not suffice to explain value creation efforts (Weitzel et al.
2000; Wirtz 2010). New business models result in more than simple one-way value chains
starting from suppliers and ending at customers: Interlinked activities between a company and
its suppliers, business partners, and customers result in a value network. B2B business model
innovations are mostly geared towards positioning the company closer to one of those groups.
In business model innovations that position a company closer to its customers, current customer
relationships might be disturbed. This was also the case for company B. In developing to a full-
service supplier in filtration, company B potentially competes with firms to which B was selling
filters or other weaved products. In general, B was well aware of the fact that it might damage
existing customer relationships and hence acted very carefully (E-B|2583). The filtration market
is very fragmented. There are dominant companies, but they are only dominating in a small
niche market. Thus, company B could clearly analyze in which markets it will be a real
competitor for its clients. In some cases company B approached these companies proactively
to discuss the potential competition in a specific market (E-B|2592). In one case it was even
possible that a client who was competing for the same market was convinced to include B’s
new filtration system in its own product portfolio.
Competition inside the own company

Competition was not only an issue with customers, but also inside company B. The
development of the filtration services was organized as a small startup within the big company.
The investments taken to gain expertise in filtration services, e.g., investments in laboratories,
3D-equipment, simulation software, etc. were very critically observed by employees from other
departments. They envied their colleagues for receiving the newest equipment (W-B|1058). The
opportunity to work with the newest equipment is perceived as a reward by the other employees.
People tend to compare themselves primarily to those who “earn” more, thus the reward results
in a perceived inequity (Martin 1981). According to theory, inequity is a feeling of relative
deprivation and people automatically expend efforts to restore equity (Adams 1963; Martin
1981; Ma & Nickerson 2007). As outlined by Nickerson and Zenger (2008), one of the
strategies to reduce the negative envious emotions created by the perceived inequity is to alter
the outcomes of the work of others. In the case of company B, a very skeptical mindset
regarding the new business activity was found by many employees of other units. Nickerson
and Zenger further note that such a strategy to ameliorate perceived inequity result in “social
comparison costs” (i.e., costs arising through the management efforts required to cope with
these strategies).
The early creation of a separate accounting entity for the new “filtration startup” had contributed
to further increase scrutiny by colleagues from other business units. Due to the high upfront
investments needed, the startup reported negative contribution margins for more than 12 months
(K-B|1689, 1711). This motivated many people within B to prejudge the filtration services as a
failure. There were many who questioned the sense of the new business activity. What was not
covered by cost accounting, however, was how much other departments profited from the
expertise of this small “firm within the firm”. The know-how regarding filtration simulations,
for instance, made these employees a sought-after partner for colleagues from the other business
units. To reduce pressure on the new startup within company B, the management decided to
reintegrate the newly formed entity into the existing organizational structure. This is also
something what the top management of B took away as a major learning: “If we did such a
business model innovation again, we would do exactly the same thing. But we would refrain
from building a separate accounting entity in such an early phase - an entity which has to
legitimate itself already early on due to negative contribution margins” (K-B|1727).
4.3.4.4 Barriers and Drivers
Company B has gained multiple experiences regarding business model innovation. Hence, data
from this study revealed several issues particularly supporting or inhibiting this type of
innovation. While some of the drivers and barriers outlined below seem to be also relevant for
product or process innovations, others are specifically relevant for business model innovations.
4.3.4.4.1 Internal Drivers

The CEO of company B stressed that an innovative company must act, not react. Consequently
“internal drivers must always be stronger than external drivers!” (CEO; K-B|2384). Hence, the
organizational system plays a major role in making innovation happen. The results of this study
are in line with prior research. It is underscored that there needs to be a balance between control
and flexibility in organizational systems (Koen et al. 2010). The main elements of
organizational systems are culture, structure, communication, and people (Markides 2000; De
Wit & Meyer 2004; Govindarajan & Trimble 2005; Sniukas 2010).
Culture
It has become obvious from the interviews and also the visits at company B’s headquarters that
the seemingly most important aspect of a culture supporting innovation is the culture of failure.
As was already expressed by famous Henry Ford: “Failure is simply the opportunity to begin
again, this time more intelligently”. Hence, failure must be allowed as failure represents an
opportunity for organizational learning. However, the interviewees underlined the importance
of establishing mechanisms which avoid that failures happen twice (e.g., W-B|1047, 1432). At
company B, business model innovation is seen as an opportunity to learn something new. The
investments necessary for developing a new business model are also investments in the learning
curve of B’s employees. The development of a corporate culture supporting innovation is a
process which must start top-down (W-B|1053). This kind of culture is also seen as prerequisite
for intrapreneurship. In order to support intrapreneurs, company B sees the following aspects
as particularly important:
no penalization of mistakes, instead awards for taking initiatives,
"doing something" gets more support than "refraining from doing something",
no fight for job positions (due to flat hierarchy),
trust in employees.
Company B is a family business. According to prior studies family businesses generally tend
to avoid risks in order to secure stability of the organization (La Porta et al. 1999). Moreover,
they are often characterized as being resistant to change (Kellermanns & Eddleston 2006) which
in turn leads to missed entrepreneurial opportunities. For company B, however, “the only
constant thing is change” (CEO, K-SK|51).
Structure
New corporate structures are required to account for new business models (Zott & Amit 2008).
In the case of company B, this was for instance the case for the spare part supply that had to be
developed for the filtration systems or the filtration services which were initially operated
through are small startup-like organization within the company. Adaptations to the corporate
structures were also required due to the different natures of the various business activities, i.e.
project-oriented business for architectural mesh and media facades in contrast to a constant
sales processes for process belts and filtration components. In general, company B strives for
building small organizational entities as this is seen as viable approach to reduce risk in
business model innovation.
One of the key aspects in company B’s success in innovation is its flat hierarchy. Strict
hierarchies tend to result in increased internal "politics" and fights for job positions. As a
consequence, employees do not take risks anymore in order not to lose the job position, hence
too much hierarchy kills intrapreneurship (Head of Business Unit A; W-B|1251). A flat
hierarchy and less formalization makes the company more agile and teams can be formed more
quickly as required for particular tasks. For company B’s top management speed in a realizing
ideas and projects is key to successful business model innovation: “A 95% solution quickly is
likely to be more successful than a late 100% solution” (CEO, K-B|2424). The major challenge
of a flat hierarchy, however, is that the top management must be able to deal with the high
degree of self-responsibility and the individual freedom of the employees – it must be able to
let go (W-B|1571).
To spark creativity and let employees tap their full potential, company B fosters
interdisciplinarity. For instance, people with a technical background can also work on rather
business-oriented issues and vice-versa. Furthermore, most project teams are international. As
regards organization of work-flows, company B has taken some very interesting approaches to
support innovation:
B eliminated the barrier between (external) sales and (internal) administration, as this
separation was an artificial barrier to get in touch with customers.
There is no centralized procurement department as this would not match the value chain
(K-B|2157).
B tries to reduce artificial organizational barriers. For instance, sales staff can also
engage in procurement activities (K-B|2176).
In reconfiguring its business models, company B takes an international perspective. It
constantly searches for the most interesting markets. Due to its subsidiaries in several
countries it is possible to allocate the work on new business models to companies in the
relevant markets. For instance, the development of the architecture business model
focused on the Middle-East, the business model for media facades is mainly developed
by the subsidiary in the USA.
Communication
Communication has been found to be an important catalyst for innovation (Stampfl 2010). It is
especially the possibility of communicating with colleagues frequently, quickly, and in an
informal way that is essential for effective collaboration in innovation projects (Katz 1982;
Pinto & Pinto 1990; Sarin 1996; Hoegl & Gemuenden 2001). However, the probability that
people communicate with each other at least twice a week decreases with the physical distance
between their desks (Allen 1977).
Company B has reorganized the office space to increase communication frequency. People
working together are located within 40 meters.
There are management meetings every two weeks to discuss recent market developments.
In those meetings discussions regarding existing and future business models are held
regularly (W-B|2360).
Corporate leaders from the headquarters and all subsidiaries meet once a year to work on
issues related to strategy and innovation.
Daily interdisciplinary meetings strictly limited to one hour are held in the headquarters. At
those meetings there is no hierarchy (participants range from CEO to working-floor level
employees) and participation is voluntary.
Projects are cancelled if there is nobody left who shows a passion for the project. This
passion is seen as an important intrinsic motivator (W-B|1206, 1430).
Already in the 1990s B has set up small round tables everywhere in the company to allow
for easy informal idea exchange.
People
As has been elaborated, business model innovation is a process which needs a great degree of
top management involvement. Not only this study but also recent research has found that
business model innovations involve a top-down approach (Bucherer et al. 2012). CEOs or the
top management teams are the organizational roles that are primarily responsible for business
model innovation. For company B the role of top management in business model innovation is
in particular:
to show strategic foresight and to have a vision supporting the business model innovation
activities,
to strengthen a “culture of initiatives”,
to manage the process of organizational change that is required by new business models,
to nourish business model innovation by providing employees’ freedom in working on
different aspects on the business model, and
to support business model innovation through sufficient funding and investments.
When interviewees were asked regarding their motivation to work on a business model
innovation, three major motivators could be identified:
the joy of discovering new things, i.e. the joy of constantly discovering new problems to be
solved in the market and consider them as challenges (K-B|72, W-B|1573),
the motivation to generate more value, and
the acknowledgement and credits received through first positive market feedback.
Asked about his motivation to work on a new business model, the head of the filtration business
unit made the following statement which underlines the findings presented above:
“Business model innovation involves questioning the success of the whole project, doubts,
thinking, that one will never do it again, envy, increased risk, more work, animosities etc. But
you do it anyway, because you believe in it!” (Head of Business Unit A, W-B|1055)
4.3.4.4.2 External Drivers

Innovation research has underlined the positive effects of involving external stakeholders such
as customers, suppliers or even competitors into innovation processes. Already in the 1990s
Teece et al. (1997) suggested the integration of customers in value creation processes. Long
before the “open innovation” approach has transcended from scientific research into managerial
practice, reseachers have called for more engagement of customers in product innovations
(Chesbrough 2003; Prahalad & Ramaswamy 2004; von Hippel 2007; Füller & Matzler 2007).
But also in developing service innovations, the integration of users and other stakeholders in
the value creation network has found to be highly important (Lusch et al. 2009; Edvardsson et
al. 2012). As regards business models and the role of external stakeholders, research has
revealed the importance of considering customers as an important catalyst in bringing new
products to market (Hienerth & Lettl 2011) and investigated the particularities of implementing
user-centric business models (Hienerth et al. 2011). However, there is hardly any research on
the role of external stakeholders in the process of business model innovation. In the case of
company B, internal aspects are key in making the company proactive regarding innovation.
But there were also some important factors external to the organization that positively
contributed to the progress and the success of business model development and implementation.
The supportive role of customers and suppliers for product and service innovations which has
been found in prior studies (e.g., Prügl & Schreier 2006; Füller & Matzler 2007), seem to be
relevant also in business model innovation. In the case of company B, it was important to find
customers and suppliers who were also open for new approaches. Their openness made it
possible to experiment with new offers and gain important insights regarding customer needs.
Hence, they provided important inputs for product as well as business model development.
Besides that, the power of important customers can lead to business model changes: The fear
of losing important customers has forced company B to adapt its business models according to
their specific needs.
Another external force (on a more general level) that was deemed a supportive factor is trends
(K-B|75). Company B is constantly monitoring trends in the specific markets it is operating in
and sees these trends as an important impetus to rethink and challenge existing business models.
Changes in the market required the firm to make changes in its business models. Company B
sees itself as market-oriented and not a product-oriented company.
4.3.4.4.3 Internal Barriers

Besides the internal competition through the parallel existence of two business models, in
particular the following aspects were seen as impeding the business model innovation process:
Excessively optimistic expectations regarding the new business model

Employees from other business units had critically observed the new business model for
filtration services. They expected it to become an immediate success. It seems that there is a
tendency that people who have never dealt with business model related issues before have
higher expectations regarding new business models.
Uncertainty
The interview partners frequently mentioned in the interviews as well as in informal personal
talks with the researcher that uncertainty represents a very inhibiting factor for business model
innovation (e.g., W-B|1139, K-B|2240). The analysis of the interviews and company
documents35 indicates that in case of company B the following issues led to a high degree of
uncertainty in the process:
Table 39: Uncertainty in Company B’s Business Model Innovation Process
Roots of Uncertainty
Unclear customer needs
Unclear situation regarding filtration services led to a failed business model prototype covering all kinds
of unsolved filtration problems
Positive impact of filtration know-how acquired for the filtration services on other business units was
not taken into account beforehand
Diversity of interests:
competition with existing customers
company internal competition
employees reluctant to innovate
Existing investments of customers kept them from switching to company B’s filtration solutions
Individuals struggle to accept viability of new business model
Employee behavior
Even though there is a distinct culture of failure and company B’s corporate culture supports
intrapreneurship, the behavior of some employees negatively influenced the progress of the
business model innovation. There were still some employees who showed a high reluctance to
innovation. The envy regarding other colleagues working with the newest equipment in the
filtration services “startup” led to animosities. Furthermore, the phenomenon of “free-riding”
or “social loafing” was mentioned to have negatively influenced collaboration in developing
the new business model (W-B|1058). “Social loafing refers to an effect when individuals put
forth less effort working in a group than when working alone. Free riding, a concept similar to
social loafing, occurs when indivisible public goods are involved and one perceives that other
group members will put forth sufficient effort to make his/her own contribution unnecessary to
receive the public goods” (Mulvey & Klein 1998, p.63). The head of the filtration business unit
sensed such a behavior amongst some employees (W-B|933). As long as the business model
innovation project was running well, many jumped on the bandwagon. However, as soon as
first troubles arose, some employees reduced their efforts and stopped to contribute to the
project.
35
E.g., company internal presentation on architectural applications.
4.3.4.4.4 External Barriers

The important role of external partners (customer, suppliers, competitors, etc.) has been already
outlined above. If these partners are not as collaborative and innovative as expected, this
potentially impedes a firms innovation efforts. The CEO of company B underlined that
“sometimes it’s scary how non-receptive to innovation some customers are” (K-B|2252). He
further stressed the importance of “being surrounded by the right [=innovative] customers” (K-
B|2261). It was equally important to collaborate with suppliers that are ready and willing to try
new approaches. However, some important suppliers were not as innovative as was expected
by company B.
In successfully rolling-out the new business model for filtration services, the resistance of
potential customers to switch to B’s new filtration system had surprised the management and
slowed-down the business model innovation process. It were specifically the existing
investments that impeded them to change to a new offer.
The risk to offend existing customers by becoming a competitor (see above) was also seen as
resistance in the business model innovation process. There were even other competitors who
actively informed B’s customers that B is now going to compete with them. In developing the
business model, company B also had to deal with ambiguous decision processes in the target
markets. It was sometimes the customer’s customer who decided whether a new offer was a
success or not (W-B|537).36 Consequently, in working on an appropriate business model, B had
to investigate the decision processes in so far unknown territories and identify decision makers
and gate-keepers (W-B|580).
4.3.5 Experience in Business Model Innovation
4.3.5.1 Ten Patterns

Through company B’s experience based on the four business model innovations the firm had
gone through within the last 20 years, it was possible to detect ten patterns related to this type
of innovation, i.e. challenges and specific characteristics of business model innovations that
company B was confronted with in all its business model innovation efforts.
1. Through its business model innovations, company B has always entered markets that were
completely new to the company.
36
The importance of the customer’s customer in business model innovation has also been outlined in a recent
study from Anderson and Wouters (2013).
2. New markets implied the need for “learning the language of the market” (W-B|250). This
implies establishing relationships to new suppliers, customers, or other business partners. It also
imposes the challenge to find out how a market can be entered the most effective and efficient
way. New procurement processes had to be adopted and B had to familiarize itself with new
distribution structures. Furthermore, it was highly important to identify gate-keepers and
decision-makers (e.g., regarding purchase decisions) in these markets.
3. The development and implementation of a new business model always entailed the parallel
development of new capabilities. In particular new market specific competences were required
in order to compete with players that had gained already many years of experience and to be
able to offer customers convincing solutions for their problems.
4. All new business models have their roots in company B’s core business, the weaving of
metals. It is also a strategic goal of B to stick to its roots. "We are a weaving company and our
absolute intention is to remain a weaving company. However, we are also much more than
that." (K-B|2081). Hence the new business models allowed company B to leverage its assets
and competences (e.g., expertise in weaving, know-how regarding filtration processes).
5. Business model innovation requires a long-term perspective. Immediate success cannot be

expected. The company had to accept that a new business model is likely to remain unprofitable
for a longer period of time.
6. A business model innovation process is not completed with implementation. Constant
adjustments to the business model are required in order account for heterogeneous customer
needs and changing business environments.
7. There is a strong need to manage the complexity inherent in this type of innovation. New
offers had to be simplified in order to produce at reasonable costs and make the new business
model profitable.
8. Business model innovations followed a top-down approach. Top management had been
greatly involved in all four projects.
9. On an organizational level the need for managing organizational change (e.g., creating
openness for new things, forming new organizational structures) that was triggered by the new
business models became evident.
10. There are (positive) “side effects” of developing new business models: The development of
new products was a primary trigger for developing new business models. However, the work
on a new business model also resulted in important inputs and new ideas for product
development.37. Hence, as there is a strong interplay between product and business model
innovation, the development of a new product can be a positive side effect (i.e. a result) of
business model innovation. It was further the competences required for one new business model
(i.e. filtration services) that had tremendously increased the value of the company (W-B|726).
Being an expert in filtration processes allowed for cross-selling activities. For instance, it
became possible for B to enter already earlier phases of customer projects with consulting
services for filtration process design. Later on, B was able to sell theses customer process belts
tailored to their particular needs (S-B|2570). Thus, the competence acquired in one business
unit was also boost for other business units.
Interviewees underlined that they were facing similar challenges regarding business model
innovation across all new business activities. The following statements were given in that
context:
Table 40: Statements on Patterns in Business Model Innovation
CEO “The success of a business model innovation is based on developing some kinds of
solutions every day. These solutions become a toolbox. This toolbox can be applied
across business units. A solution we have found for filtration can also be a solution for
architecture. Consequently, innovation management becomes solution management”
K-B|197
“We are constantly applying very similar approaches to solve problems”
K-B|236
“We have learned from the filtration concept and applied an improved approach to a
similar problem for the media facades.”
K-B|1672
Head of Business “It doesn’t matter if I am founding a company for media facades, for filtration services
Unit Filtration or a different company, the problems, the resistances, the realization – the toolbox you
have to use remains the same.”
W-B|245
“If I talk to colleagues from the media faces business unit about market entry,
competition, trouble shooting, dangers, new suppliers, language of the market, and so on
– it’s exactly the same what I encountered for filtration. I could work in one business unit
or in the other business unit. That doesn't matter. The problems are the same. If you’ve
learned to use the toolbox, that won't make any difference.”
W-B|251
“In one of our management meetings […] we were discussing market related issues and
from time to time also had one of those discussions on business models. Then you realize
that when you share your experiences, this 100% the same with what the colleagues had
experienced.”
W-B|1143
37
The author of this study has made similar experiences in working with companies on business model innovation
projects. Whereas the primary goal of these projects was to develop a new business model, many ideas for new
products were unintentionally generated throughout the course of the project.
4.3.5.2 The Business Model as a Core Competence

The experiences company B has gained in developing a business model for filtration services
were proven extremely valuable to the company for further innovations aiming at making the
firm more service oriented. This reflects Cohen and Levinthal’s (1990) concept of “absorptive
capacity”. The authors describe absorptive capacity as an ability a firm develops over time by
accumulating and utilizing prior knowledge. This concept is closely related to path dependency.
The latter suggests that innovation is not random and prior experiences determine the path or
“trajectory” of future innovations (Coombs & Hull 1998). This serves as an explanation why
companies tend to repeat successful business model innovations (Taran 2011). As a result, some
companies managed to become experts for a specific model. For instance, the British company
“easy Group” has developed expertise in a low-cost, no-frills type of business model with the
following characteristics (Doz & Balchandani 2007):
unit cost savings of 50% compared with best in the market,

zero or very low marginal cost,
possibility to yield manage the price, and
potential to significantly increase utilization rates compared with the industry.
Easy Group has first applied this business model to its subsidiary “easyjet”, which was Europe’s
first low-cost airline which offered a no-frills concept (e.g., no in-flight meals) on point-to-
point flights. easy Group became a specialist in this type of business model and started to take
this model to other markets. In doing so, the company mainly concentrated on price-elastic
consumer markets for non-perishable commodities where incumbents had a high unit cost base
and low-cost competitors were absent (Doz & Balchandani 2007). As a result, the company
today owns 22 brands38, ranging from car rentals, hotel rooms, or DVD rentals to workout
facilities.
Quite similar to the case of easy Group, company B has made the know-how of becoming a
service provider a core competence. It started with developing the service business for filtration
and has quite recently begun to apply a similar approach in developing a business model for
media facades. In this application B goes as far as offering so called OOHs (Out of Home
Advertising Companies) the service of seamless content delivery instead of just selling them a
product based on a combination wire mesh and LEDs.39 In doing so, company B is tackling
challenges it has already mastered for the filtration services, for instance:
Wire mesh is a completely new offer in a market which is completely new to the company.
Customers require service level agreements and B has to develop such or similar contracts.
38
Information based on easy Group website http://www.easy.com/brand.html, accessed November 20, 2012.
39
Data obtained from a company internal presentation on media facades provided by company B’s U.S. office.
Customers are concerned regarding safety issues.

B needs to establish networks with suppliers.
The relevant decision makers must be identified, who, from today’s perspective, seem not
to be the architects or the building owners, but OOHs booking the screening of
advertisements.
Company B’s approach of replicating its service business model in other areas seems to be a
very promising approach. Zook and Allen (2012) have found in their multiyear study of more
than two hundred companies that many of the high performers in their sample concentrated on
a repeatable business model. The authors were able to explain about 50% of performance
variation within an industry through what they call a “great repeatable model”. The authors
define this model as follows: “A clear, repeatable differentiation (design principle 1), makes
common measures and beliefs easier to create and use (design principle 2), which drives more
transparency, learning, and adaptation (design principle 3), which in turn pushes the entire
business down an experience curve faster than less repeatable competitors” (Zook & Allen
2013, p.23).
4.3.5.3 Future Business Model Innovations

Only one and a half years ago, company B has started to concentrate also on the development
of products and services for the interior of buildings. The company is currently working on the
development of a business model for ceiling systems. In doing so, the business model for
filtration services serves as a primer in becoming a full service provider.
The business unit for process and conveyor belts also investigates the potential for new business
models. For instance, the following opportunities are discussed:
The development of a franchise system for company B’s seams for process belts: B has
developed a high-tech seam to account for the different requirements that are imposed on
the seam connection (e.g., flexible, non-marking, temperature-resistant, robust,
stretchproof, chemical-resistant, durable, fine).40 The company is thinking about offering
the exclusive right to use its seams to OEMs that are buying process belts by the meter from
B.
In China the company considers to offer maintenance services for process belts. Hence,
manufacturers do not have to care about the process belts running in their factories anymore
(E-B|2877).
40
In selling standard process belts company B evaluates implementing an electronic sales

platform (comparable to Amazon.com) for providing customers with easier access to its
products while at the same time reducing distribution costs (E-B|2898).
4.4 Analytical Generalization: Cross-Case Analysis

In order to gain a broad perspective on business model innovation processes both cases were
deliberately selected regarding their variation in business model innovation characteristics
(Chapter 3.2.4.1). In doing so, the approach suggested by Myers (2013) was followed. The
author outlines that cases, besides being interesting and complete, need to provide alternative
aspects. Both cases analyzed above meet this criterion as two of the main differences between
company A and company B are (1) their experience level regarding business model innovation
and (2) the intention behind this innovation effort. Company A is a first-time business model
innovator. It managed to develop a new business model for a product which remained
unchanged. Company B is an experienced business model innovator having completed four
business model innovations driven by the development of new products. Comparing both
different settings allowed to investigate business model innovation processes on are more
operational level (company A) and on a more strategic level (company B), which is, in turn, in
line with the major research question and the sub-questions of this study. The analytical
generalization drawn from between-case analysis is outlined in the following.
SQ1: Why and when is the process of business model innovation started in incumbent
organizations?
It was found that the major factors leading to business model innovations in incumbent firms
have roots external to the company. Looking at both cases it becomes clear that economic
pressure and customers play a key role in initiating business model innovation processes. It
must be noted, however, that the processes and projects triggered within the companies were
not labeled as “business model innovations” from the beginning. Instead, innovations regarding
existing products were the first reaction to external pressures or customer demands. It took both
companies some time to realize that product innovation would not suffice to overcome existing
and future challenges.
Factors rooted within the company showed also an important impact on business models.
Changes in corporate strategies are very likely to be followed by changes in the business
models. The case of company B is a beautiful example of the link between strategy and business
models. Following Casadesus-Masanell and Ricart (2010), strategy refers to choosing a
business model through which a company competes in the market. The case of company B
helps to refine this definition. With the strategic shift towards “servitization” (Neely 2007; Roy
et al. 2009; Kastalli & Van Looy 2013), the company has chosen to start the development of
Analytical Generalization: Cross-Case Analysis 141
new business models. Casadesus-Masanell and Ricart’s (2010) definition of the relationship
between strategy and business models implies that a clear set of various distinct business models
is at the company’s disposal. However, as this research shows, the effect of changing corporate
strategy is more about triggering a sequence of iterations until a new viable business model
design emerges than making the choice between well-defined business model options.
Moreover, a close link between technology, product development and business model
innovation became evident in both cases. On the one hand, technologies and new product
development were found to be important enablers and prerequisites for new business models.
On the other hand, new technologies and new products required new business models to be
successfully brought to market. In the case of company B, new products (e.g., media mesh)
imitated a search process for appropriate business models as a link between technology and
market. This confirms the construct’s mediating role between technology and economic value
(Chebrough & Rosenbloom 2002). In case A, the product itself remained untouched. However,
new technologies (e.g., software, content management systems) were required to realize the
new flat rate model.
Case A showed an interesting aspect concerning starting points for business model innovation.
There seems to be two types of triggers for business model innovation processes: there can be
factors that lead to a general need for a new business model for a company (while the company
itself remains inactive as regards business model development) and factors that actually make
the company actively developing new models. Data indicates that the former tend to be in
general more market related and strategic issues (e.g., price pressure, competitive situation)
while the latter are rather “sparks that start the fire” which can be found on a more operative
level, for instance, a customer willing to participate in a pilot project or a working prototype (as
found in case A).
In times of fast changing business environments, incumbent organizations seem to be well
advised to minimize the number and intensity of triggers required to initiate corporate business
model development processes. Companies should move to proactively searching and
discovering new business model opportunities while their current business model is still
successful.
SQ2: How does the process of business model development and business model
implementation unfold in an incumbent organization and what are the most important
phases of business model innovation processes?
Iterative nature of business model innovation processes

In both case studies the business model innovation processes were found to be iterative and
very dynamic. Independent from the experience level a company has regarding business model
innovation processes, it was reported that several iterations (approximately between ten and
twelve were reported in both cases) were required to develop a viable business model.
Moreover, in both studies business model development processes were ongoing even after a
first viable model had been developed. This is line with prior literature stating that “a
sustainable business model is rarely found immediately, but requires progressive refinements
to create internal consistency and/or to adapt to its environment” (Demil & Lecocq 2010,
p.228). As a logical consequence, classical linear innovation processes, such as stage-gate
models (e.g., Cooper 1990; Sabisch & Zanger 1991), are not suited to develop new business
models. Instead, prototyping business models is an approach which has gained increasing
attention recently (Vetterli et al. 2012). Business model prototypes are supposed to make ideas
more tangible, test them in a real-life scenario, learn, and iterate (for more details on this
approach see Chapter 5.4). The experimentation with different prototypes is suggested (1) to
account for the high degree of path dependency in business model development, i.e. early
business model designs influence the trajectory of future models, and (2) as it is almost
unpredictable which business models are going to be successful (McGrath 2010). In this study,
the path dependency became clearly evident as companies started to work on just one single
business model prototype and continuously refined this first approach. There was obviously no
parallel testing of various different prototypes. It is assumable that for medium-sized companies
the approach of simultaneously testing different business model prototypes suggested by
business model innovation practitioners41 is quite hard to follow. Based on the results of this
research effort and taking into account that recent research highlights the importance of
effective resource management in processes of new business development (Clarysse et al. 2011)
it can by hypothesized that two factors primarily influence the viability of corporate business
model prototyping: (1) resource agility, and (2) environmental contingencies.
Large multinational companies are more likely to have sufficient human (Eisenhardt &
Schoonhoven 1990; Macpherson & Holt 2007; Mustar et al. 2008), financial (Davila et al.
2003), social (Yli-Renko et al. 2001), and technological (Avenel et al. 2007) resources to
experiment with new business models. For instance, German car manufacturer Daimler AG has
invested heavily in a project to experiment with a new car sharing model branded “Car2Go”.
According to a Daimler press release, the project has reached break-even only in three out of
25 cities five years after the start of the project.42 Although”Car2Go” is considered as
performing better than expected by Daimler, this project still remains a large-scale business
model experiment. Another example is provided by the world's largest chain of fast food
restaurants, McDonald’s. The company uses India as a market to prototype and experiment with
41
Strategyzer (co-founded by Alexander Osterwalder), https://www.youtube.com/watch?v=iA5MVUNkSkM last
time retrieved September 29, 2014.
42
Source: Daimler Media Press Release, Stuttgart, January 21, 2013
http://media.daimler.com/dcmedia/0-921-614319-1-1567397-1-0-0-0-0-0-11701-0-0-1-0-0-0-0-0.html, last time
retrieved August 3, 2014.
different business models with the intention to eventually transfer them to other emerging
markets (Venkatesan 2013). Although startups usually deal with severe resource constraints
(Storey 1994; Hughes 1996; Brush et al. 2001), successful new ventures show strong
capabilities as regards switching from one business model to another and hence shift (limited)
resources accordingly (Talaulicar et al. 2005; Wu 2007). Company A as well as company B,
both medium-sized companies, seem to fall in between these two categories. On the one hand,
they are not as flexible as startups due to the (successful) operation of existing business
activities and the related required investments. On the other hand, they cannot afford to make
high investments in large-scale business model experiments as done by large multinational
corporations.
As regards environmental contingencies, looking at both cases it can be seen that in particular
the type of business model and the business context influence business model prototyping
possibilities. The full-service provider model of company B required large investments in
technology and know-how. This limited the potential for quick and easy parallel testing of
different business model prototypes as suggested by the literature. Moreover the case showed
that business model innovation in B2B contexts likely results in an enlargement of the value
chain which, in turn, may result in becoming a competitor of existing business partners or
customers. The legal environment was one of the factors that strictly limited company A’s
business model options. Hence, this research shows that classic linear innovation models to not
match the iterative, complex nature of business model innovation processes. The most recent
approach suggesting parallel, “as cheap and quick as possible” testing of different business
model prototypes accounts for the hardly predictable success of different models. However,
there remains a strong need to develop new methods and tools that overcome the limitations of
business model prototyping through limited resource flexibility and environmental
contingencies.
As outlined, business model development is a form of strategic experiment: the outcome of the
project remains unknown for several quarters and such experiments are “too expensive to
repeat” (Govindarajan & Trimble 2005, p.48). This might be one reason why in both cases a
clear preference for developing new products before starting with the development of new
business models was observable. Companies usually have more experience in product and
process innovations and are uncomfortable with the “learning by doing” (Case A, Vice Director,
A | 785) approach required in business model innovations. An abundance of uncertainties (see
below) entailed further contributes to this issue. The unexperienced (case A) as well as the
experienced business model innovator (case B) provide evidence that failures during a business
model innovation process are the rule, not the exception. Company B’s seemingly “ideal”
business model for filtration services failed, company A was in particular confronted with
lacking internal communication leading to resistance and ignorance from the sales department
concerning the new flat rate model. Thus, the complexity of business model innovation requires
the ability of joint organizational learning.
Process phases
The conventional linear product development paradigm focuses on multi-phased, staged
process models. Even though the name of the phases may vary, the models generally include
idea generation, screening and evaluation, idea selection, prototype development, testing,
validation, launch (Khurana & Rosenthal 1998; Cooper 2008). The iterative nature of business
model innovation processes found in this study does not comply with these linear models. Koen
et al. (2001) suggest with the “New Concept Development Model” an iterative approach for the
fuzzy front end of innovation. The five major steps are opportunity identification, opportunity
analysis, idea genesis, ideas selection, and concept & technology development. “Ideas are
expected to flow, circulate, and iterate between and among all the five elements” (Koen et al.
2001, p.48). For radical innovations where the offer and potential customers are unclear at early
stages in the process, Verworn and Herstatt (2007) recommend the “probe and learn process”
(Lynn et al. 1996). The fundamentals underlying this approach suggested by Lynn et al. (1996),
which was initially developed for the front end of new product development, are the following:
The probe and learn process is a “vehicle for gaining insight into what markets to pursue,
which technologies to use, and what benefits to incorporate” (Lynn et al. 1996, p.32).
It was developed for applications where uncertainties are high. These uncertainties can only
be reduced through learning processes.
Hence, the focus lies not on process efficiency but on learning-based knowledge
accumulation.
Probing and learning is not simple trial and error. It focuses on “experimental design and
exploration that must take place within a context of strategic relevance to the innovating
firm” (p.19).
Probing and learning builds on a process of iterative approximation each time aiming at
making one step closer to a successful market – product combination.
The probe and learn process involves extensive amounts of resources and time. No company
can afford to test all possible opportunities. Thus, management has to select the most
promising options.
The process suggested by Lynn et al. (1996) is fundamentally different from classic new
product development processes. The latter are analysis driven and defined by a “get it right the
first time” mentality. With a focus on “developing an understanding of the markets for
discontinuous innovations” (p.28), however, it is surprisingly similar to the characteristics of
business model innovation processes that emerged from the explorative, in-depth case studies
of this research. These involve:
High degree of uncertainties (see below)

Iterative approach to find a successful business model design
Business model prototyping is particularly difficult for medium-sized companies
Costly and complex projects
Top-management involvement
High strategic relevance
Learning is more important than efficiency
Experimental instead of analytical logic
Ill-defined markets as well as ill-defined and evolving offer
Impossibility to predict outcomes
By linking prior literature discussed above with the data gathered and analyzed, the following
model for business model innovation processes in incumbent organizations is proposed (Figure
35):
Figure 35: Analytical Model of Business Model Innovation Processes in Incumbent Firms
146
Business Model Innovation at the Organizational Level

When looking at business model innovation processes, the iterative nature explained above
leads to the fact that process phases are not as strictly separated as this is the case for instance
in the stage-gate models. However, there are three major milestones in the process: the
emergence of a (latent) need for a new business model, the point where the company recognizes
that a new business model has to be developed, and finally the achievement of a first viable
new business model matching environmental conditions (“1st business model fit”).
“Sensebreaking” is the phase in which a company starts to sense the divergence between its
existing offers and market requirements. As companies are more familiar with product and
process innovations, existing organizational abilities might become “rigidities” in moving
towards the development of a new business model. A (still) successful existing business model
is a double-edged sword in this phase: on the one hand it is limiting the ability to develop
completely different models, on the other hand, the cash from this model will be required to
fund the development of new models during the next phase (“business model ambidexterity”).
It can be said that sensebreaking should kept as short as possible. Companies that are
proactively experimenting with new business models are even skipping this phase and
immediately move on to the phase of “sensegiving”. The phase is characterized by the
development of a business model prototype. This represents an organizational activity
involving strategic as well as operational levels as business model design and implementation
(“freezing”) cycles are rather parallel and continuous than sequential. On a strategic level, the
development of business model prototypes is limited by path dependency (first business model
design ideas influence the subsequent designs), by environmental contingencies and by limited
resource agility (particularly relevant for medium-sized companies). On an operational level,
various barriers impede business model development (explained below in more detail), while
the direct involvement of customers seems to be crucial (cf. “external drivers” below). As
business model success is relatively unpredictable (McGrath 2010), sensegiving should be seen
as a phase in which the focus cannot lie on process efficiency but on learning-based
accumulation of knowledge regarding the new business model. Moreover, this phase surfaces
interdependencies between new products, new technologies, and new business models
(explained above in more detail). After a first viable model has been developed, the subsequent
phase of “refinement” is characterized by a continuous process of making adaptations on a
strategic and operational level.
The business model innovation process is accompanied by (1) a high degree of top-management
involvement and commitment (2) the parallel existence of two or more business models
(“business model ambidexterity”).
Research has investigated which factors support not only the development of innovative ideas,
but also the successful implementation of these (Tushman & O’Reilly 1997; Markides 2000;
De Wit & Meyer 2004; Govindarajan & Trimble 2005; Stampfl 2010). Sniukas (2010)
developed, based on a comprehensive review of innovation and strategic management
literature, a framework of dimensions to assess general corporate innovativeness. These
dimensions are culture, structure, processes, systems, and people. This framework builds the
basis for structuring supporting and inhibiting factors identified in this study. However, based
on the findings for business model innovation processes of this study, two dimensions shall be
added to the framework: context and stakeholders. Table 41 summarizes the barriers and drivers
to successful business model innovation processes found in this study:
Table 41: Barriers and Drivers of Successful Business Model Innovation
Dimension Barriers Drivers
Culture Reluctance to change the status quo Proactive organizational mindset

regarding business model innovation
(“act” instead of “react)
High failure tolerance combined with
mechanisms avoiding repetition of
failures
Business model innovation treated as
an opportunity for organizational
learning
Open and opportunity oriented culture
Structure New corporate structures required Collaboration across organizational
Communication structures do not boundaries
comply with new business model Interdisciplinary teams working on
business model development
Process Lengthy decision processes Top-management involvement and
commitment
All involved parties informed about the
reasons for developing new business
models
System Limited resource agility Systematically creating awareness
Wrong KPIs & performance amongst employees regarding various
assessment of new business model too business models from other industries
early
Separate accounting entities increase
pressure on business model prototype
People Reluctance and resistance from employees: Existence of an “evangelist” internally
Unfamiliar with new business model promoting the new business model
Fear of an increased work load Joy of discovering new opportunities
Fear of losing job Considering problems as challenges to
Expectations regarding new business be solved
model are too high Motivation to generate more value
Envy (e.g., investments in new
equipment required for new business
model)
Context Various forms of uncertainty Acknowledgement and credits received
Existing business model limits ability through first positive market feedback
to leave proven tracks
Environmental contingencies (e.g.,
legal or technical limitations)
Need of understanding the mechanisms
of hitherto unknown markets
Incompatibilities between existing and
new business model
Stakeholders Customers are not responsive to new Involving external stakeholders such as
approaches and/or show high risk customers, suppliers or even
avoidance competitors into business model
Most relevant gate-keepers are development
unknown (e.g., who is making the Contribution and commitment of lead
purchase decision?) customers
Solutions that help customers in
solving their own business problems
From the drivers summarized in Table 41 it became clearly evident in both studies that top
management involvement and commitment represents one of the most important – if not the
most important – driver for successful business model innovation. Corporate leaders play a key
role as they need to
show strategic foresight and a long-term perspective

manage the process of organizational change and development of new organizational
structures required by new business models,
promote new business models internally and externally,
strengthen a supporting corporate culture,
support employees in taking initiatives and risks,
secure sufficient funding and investments required for the development of new business
models.
Looking at barriers to business model innovation, two factors shall be emphasized at this point:
First of all, it must be noted that business model innovation involves corporate change and
transformation. Change management literature outlines that the most common obstacles
blocking organizational change are issues related to the people in the organization (Piderit 2000;
Schroeder 2013). Business model innovation itself represents, to a large extent, a people issue.
Secondly, uncertainty is inherent in every type of innovation. Relating the findings of both case
studies to the eight uncertainty categories and their manifestations suggested by Jalonen (2012),
uncertainty in business model innovation is likely to have the following roots (Table 42):
Conclusion 151
Table 42: Factors of Uncertainty and Their Manifestations in Business Model Innovation
Processes
Uncertainty Factor Manifestation of Uncertainty
(1) Technological uncertainty New business model requires unfamiliar technologies

(2) Market uncertainty Nebulous market definitions
Unclear customer needs
Unknown implicit market rules and structures
(3) Regulatory/institutional Ambiguous regulatory and institutional environment
uncertainty
(4) Social/political uncertainty Diversity of interests, e.g.:
o Competition with existing customers
o Company internal competition
o Employees and customers reluctant to innovate
(5) Acceptance/legitimacy uncertainty New business model conflict with individual’s basic values
and/or organization’s norms
Existing investments keeps customers from switching to new
offers
Individuals struggle to accept viability of new business model
(6) Managerial uncertainty Fear of failure
Lack of requisite tools to manage change inherent in business
model innovation process
(7) Timing uncertainty Lack of information in the early phases of business model
innovation process
Ambiguity of information in the late phases of business model
innovation process
Temporal complexity
(8) Consequence uncertainty Indirect, undesirable, or unintended consequences, e.g.:
o Competition with existing customers
o Company internal competition
o Impact on other business units hard to predict
This multitude of uncertainties underlines, once again, the relevance of a business model
innovation process which aims not at efficiency or failure avoidance, but which strives for
systematically reducing uncertainties by learning through experimental design and
explorations. Strategically relevant and promising opportunities build the playground for an
iterative approximation towards a first fit between new business model prototype and market.
4.5 Conclusion
The aim of this chapter was to explore the nature of business model innovation processes in
incumbent firms. Two retrospective case studies of medium-sized companies operating in the
business-to-business sector were conducted to empirically investigate why and when the
process of business model innovation is started (SQ1), to learn how the process of business
model development and business model implementation unfolds in incumbent organizations
(SQ2), and to identify the barriers and drivers to successful business model innovation
processes (SQ3). As the companies were deliberately selected regarding their variation in
business model innovation characteristics it was possible to gain a broader perspective on
business model innovation processes. Empirical Investigation I (company A) provided rich
information on triggers, the main stages of designing and implementing a new business model,
and the individual organizational learnings of a first-time business model innovator. In
Empirical Investigation II (company B) it was possible to investigate triggers of four business
model innovations and how the strategic shift of the company towards “servitization” has led
to new business models. Moreover, based on the experience the company had with multiple
business model innovations in recent years, ten patterns, i.e. challenges and specific
characteristics of business model innovations that company B was confronted with in every
business model innovation project, could be detected. Following the in-depth analysis of both
cases, the analytical generalization based on cross-case analysis allowed to provide conclusions
and the formulation of explicit findings.
Although this chapter focused on the organizational level of business model innovation
processes, it became evident, amongst other things, that business model innovation is also a
“people issue” – an issue of individuals and teams working within organizations. Hence, it is
appropriate to extend the research from the organizational level to the individual level.
Consequently, in the following chapter it is intended to explore how people collaborate in
business model innovation projects (SQ4), to shed more light on the characteristics of search
and discovery processes for new business model designs (SQ5), and to investigate how
individuals experience the work on such projects (SQ6).
5 Business Model Innovation at the Individual Level
(Longitudinal Case Studies)
5.1 Introduction
While the previous chapter focused on the business model innovation process primarily on the
organizational level, this chapter aims at exploring the individual of business model innovation.
It is intended to learn how people collaborate in order to develop new business models (SQ4)
and to explore the search and discovery processes pertaining to the design of new business
models (SQ5) as well as the individual perceptions of team members regarding business model
innovation projects (SQ6). As existing research is geared towards the organizational level of
analysis, this chapter shall provide first insights regarding the nature of the business model
innovation process on the individual level. Hence, this chapter can be understood as a "zoom
in" relating to the analysis on the organizational level in the previous chapter.
The chapter is structured as follows: in complementing Chapter 3.2 (Research Design &
Methods), the following Chapters 5.2 and 5.3 provide more details on how the study was
executed and summarize general data of the nine longitudinal case studies. A general model of
business model design processes derived from cross-case analysis is outlined in Chapter 5.4
and Chapter 5.5. Issues found to be potentially influencing these processes are described in
Chapter 5.6. This part of the doctoral thesis concludes with Chapter 5.7 providing insights on
“what it feels like” for people to work on a business model design project for the very first time
and how this task is perceived by the individuals. The conclusion in Chapter 5.8 summarizes
this chapter on business model innovation processes at the individual level.
5.2 Nine Longitudinal Case Studies

In investigating the individual level of business model innovation processes, there are only a
few studies to build on: Vetterli et al. (2012) found in their study on the impact of different
innovation tasks (including business model, service and product innovation) on design thinking
teams, that it is primarily the team processes that impact the quality of the (business model)
prototypes. Eppler et al. (2011) investigated how artefacts, i.e. business model templates such
as the business model canvas (Osterwalder & Pigneur 2010), can affect team processes in
developing ideas for new business models. The authors conclude that artefacts “can have
considerable power in shaping group interactions and idea generation in the context of business
model innovation” (p.1336). Taking into account prior research, this part of the thesis focuses
on the search and discovery processes as well as the individual perceptions of team members

associated with business model related tasks. As it is critical to maintain a real-life context in
such a study (Vetterli et al. 2012), a multiple exploratory case study design was chosen (Yin
2003; Eisenhardt & Graebner 2007).
Nine projects in which teams worked on the development of a new or the reconfiguration of an
existing business model were selected and accompanied for a period of five month. In all these
nine cases project teams needed to develop a viable concept for a new business model either
(1) as a basis for founding a new company, or (2) for an existing startup, or (3) for an incumbent
seeking to reconfigure its existing model, or (4) for an incumbent seeking to develop a
completely new model. All teams succeeded in developing innovative concepts for new
business models while maintaining a high degree of feasibility.43 The quality of the work was
underpinned by the fact that three concepts were immediately realized by the respective
industry partners: For instance, the business model developed in Case A convinced the partner
company from the automotive industry. It was adopted and is currently being implemented.44
The management of the startup of Case G showed also a positive attitude regarding the
suggested new business model based on a mass-customization approach. It decided to
incorporate major parts of the new concept into its existing business model. The sfounding team
of the startup of Case H presented the new model to its investors who accepted the business
model with only minor adaptations.
5.3 Descriptive Data

The nine cases of business model development processes covered a great variety of different
types of business models. Table 43 gives an overview on the old model and the new business
model developed by the innovation teams.
43
It was deliberately refrained from conducting a more detailed performance assessment of the business model
prototypes developed by the innovation teams. Business models can only be assessed against a particular business
environment (Tecce 2010; see also Chapter 6). Moreover, business model research has so far only provided vague
indications regarding performance determinants of business models (e.g., Amit & Zott, 2001; Hamel 2000; Morris
et al. 2005). Recent business model practice suggests that business model prototypes can only be validated by real
market tests (Ries 2011; Blank 2013).
44
Last update of project status received in November 2011.
Descriptive Data 155
Table 43: Changes in Business Models – All Cases
Focus of Old Business Model Major Changes in New Model
Case A Car sharing platform for short term A broader approach for “mobility seekers” (private &
and short range rentals. business customers), short & long range, embedded in a
network of partner companies.
Case B Sales of printing machines. New offers: customized designs via online tool and printing
services
Case C Operation of a music TV channel. Easy-to-use web platform for music video enthusiasts
providing access to music videos including background
information.
Case D Licensing of a technology to From a purely licensing-based approach to a full production
produce fuels out of regenerative and wholesale approach. Cooperative farmer model: waste
sources such as biomass as well as oil and waste fat disposal contractors secure access to
several sorts of plastic waste. required raw materials.
Case E n.a.* Social enterprise aiming at selling a product (e.g., bicycle)

in an industrialized country. The sales margin allows to
finance aid projects in a developing country. The startup
serves as an intermediary/broker between customers and
development agencies.
Case F n.a. ** An online grocery shopping model combining a new
Internet platform with existing assets such as logistics
know-how and a strong brand.
Case G Sales of flashy plastic watches as a Adoption of a mass-customization and self-assembling
trendy accessory for fashion approach for watches aiming at generating higher revenues.
victims.
Case H Offering applications for e- Developed a model for an online service agency focusing
commerce through social media on social commerce, which generates (besides commission
(“social commerce”), based on a fees) revenues through agency services and a licensing
commission fee. model for web applications.
Case I Sales of a ultra-low cost car in Offering mobility services in European urban areas by using
developing countries. an intelligent IT infrastructure combined with a dynamic
system of prices and rewards. By using the existing ultra-
low cost car prices can be much lower compared to existing
rental services.
* Case E: Team E worked on the development of completely new business model as a basis for a social
enterprise, hence changes in the business model cannot be reported.
** Case F: Team F worked on the development of completely new business model for a company group
operating in various different industries, hence changes in the business model cannot be reported.
On average, the teams held 12 personal and 5 virtual meetings (e.g., via Skype or phone) to
work on business model related tasks. The meeting time varied greatly with a duration between
40 minutes and 6 hours, with an average duration of 135 minutes. It was interesting to see that
the duration of the meetings followed a declining path in 6 out of 9 cases, in other words
meetings became shorter throughout the process. For instance, the meeting duration of team E
went down as the business model canvas building blocks were developed step by step (Figure
36). In earlier meetings elements such as the value proposition or customer segments were
developed, which took much longer than the work on the remaining building blocks.
Figure 36: Average Minutes per Building Block - Team E
Source: WPD Case E
Table 44 depicts that all teams developed new models that differ fundamentally from the initial
models. The high degree of changes in business model components found in this study is similar
to the findings of Kiron et al. (2013). The authors report an average extent of business model
change ranging between four and five out of six business model elements.
Descriptive Data 157
Table 44: Changes in the Business Models
Building blocks of new business model compared to old model

Case Case B Case Case Case E Case F Case Case Case
A C D G H I
Value
P P X - n.a.* n.a.** P X X
Proposition
Customer n.a. n.a.
P P X X P P X
Segments
Customer n.a. n.a.
X P X P X P P
Relationships
Channels P - X X n.a. n.a. - P X
Key Activities X P X X n.a. n.a. P P X
Key Partners P P P P n.a. n.a. - P X
Key n.a. n.a.
P P P P - P P
Resources
Cost Structure - P P P n.a. n.a. P - X
Revenue n.a. n.a.
P P X X P X X
Streams
P…partly changed
X…completely changed
-... no change
* Case E: Team E worked on the development of completely new business model as a basis for a social
enterprise, hence changes in the business model cannot be reported.
** Case F: Team F worked on the development of completely new business model for a company group
operating in various different industries, hence changes in the business model cannot be reported.
Although the context of the business model projects (i.e., industry, company size) varied, Table
44 illustrates that in this study particularly “key resources”, but also “key partners”, and “cost
structure” seemed to be more stable than other building blocks. In most cases they were only
partly changed, indicating that the teams tended to build on and leverage existing assets. This
is in line with the notion that business model innovation projects are strategic experiments
where the expanded use of assets and capabilities represents one way to reinvent a company’s
business model (Sniukas 2012).
While the teams were given the task to innovate the business model, nearly all teams chose to
develop a completely new business model and would not settle for incremental innovations. In
this context a team member further explained that for her
“Business model innovation does not mean just to make one little change to one specific
building block of a business model. Rather it requires a series of changes in the entire business
model” (IR 5/Case H).
That leads to the hypothesis that the framing of the innovation project impacts the output and
scope of the project. While this seems to be rather obvious at first glance, it carries important
implications for innovation management. Framing an innovation activity as “business model
innovation project” seems to enhance the openness regarding radically new ideas. Social
psychology literature supports this notion. It was found that the framing of a brainstorming-
session dramatically influences the output regarding idea quality (Diehl & Stroebe 1987).
5.4 A Model of Business Model Design Processes

Data analysis allowed to detect emergent patterns in business model design processes at the
individual level. To organize data, the approach of Maggitti et al. (2013) was followed. In their
study on the process of developing technological inventions, the authors identified themes
representing process stages (“process stage themes”) and issues that, rather than being part of
the process, had an influencing impact (“process influencing themes”). In this study, four
themes were found that constitute phases or stages teams went through during their search for
a new business model design (emergent process stage themes). Four issues were found to be
influencing the process (process influencing themes). Using these stages, it was possible to
derive a basic model of business model design processes (see Table 45 and Figure 39).
As regards the process stages, the first stage is characterized by mapping existing and acquiring
additional information (“information gathering”). The second stage was determined by
collecting some early ideas, discussing and refining them and then deciding on a general
direction for the new business model (“idea casting”). The third stage was characterized by
integrating different ideas in order to compile and refine the business model prototype
(“construction”), while the fourth stage focused on extracting the key features of the new model
in order to present the business model prototype in a convincing manner (“delivery”).
A Model of Business Model Design Processes 159
Table 45: Process Themes
Information gathering
Idea casting
Process Stage Themes
Construction
Delivery
Context
Collaboration
Process Influencing Themes
Team Composition
Artefacts
Source: own categorization, inspired by Maggitti et al. 2013
Even though the identified stages are linear and rather simple, the way in which the innovation
teams progressed through these stages was highly complex and non-sequential. The teams
iterated back and forth between stages. This resulted in several parallel activities, which was
also described by one of the teams in a group reflection on its process:
“Our process was in retrospect rather simple, the main source of inspiration was the
combination of an analysis of the competitors and several reference models. However
describing the process in a strictly chronological manner was impossible because it consisted
of several parallel strings of action rather than subsequent ones” (TR/Case G).
The project documentation of team G (WPD Case G) also depicts the parallel strings of action
in the GANTT chart and the flow chart Figure 37 and Figure 38). Another important statement
regarding the nature of the process was given by a member of team D:
“Business model innovation seems to be a reoccurring/circular process as one goes back and
forth in-between the different categories and sections to add more detail, adapt and ameliorate
the sections as the idea takes on shape" (IR 22/Case D).
Figure 37: Example from Project Documentation by Team G - I
Source: WPD/Case G
Figure 38: Example from Project Documentation by Team G - II
Source: WPD/Case G
The non-linear, iterative and recursive character of the process found in this study on business
model design processes is partly consistent with the nature of search processes for technological
inventions described by Maggitti et al. (2013). The authors describe the process as a linear set
of stages through which the inventors “undertake a complex progression” (p. 2) and they further
note that the “inventor’s new ideas lie at the intersection of existing, yet seemingly disparate,
landscapes that requires them to manage interdependencies and react to a complex system of
continuously changing internal and external factors” (p. 2). Hence, it seems reasonable to claim
A Model of Business Model Design Processes 161
that the process of crafting a new business model shows similarities to search processes for new
technologies.
Developing a new business model, as an entrepreneurial task, requires the ability to recognize
opportunities (Bygrave & Hofer 1991). Opportunity recognition builds on discovery and
evaluation phases (Hills et al. 1999; Lumpkin et al. 2004). Lumpkin (2005) sees the iterative,
recursive nature as a key characteristic of opportunity recognition: “insights are contemplated,
new information is collected and considered, and knowledge is created over time” (p.457). The
general model of opportunity recognition is “a staged process that involves a discovery phase
consisting of preparation, incubation, and insight, and a formation phase consisting of
evaluation and elaboration” (p.457).
Figure 39 depicts the emergent model of the business model design process found in this study.
It is inspired by the model for search and discovery processes of inventions developed by
Maggitti et al. (2013).
Figure 39: Emergent Model of Business Model Design Processes
Source: own representation, inspired by Maggitti et al. 2013

5.5 Emergent Process Stage Themes
5.5.1 Information Gathering

The first stage in the business model development process consisted of compiling all existing
information and locating additional knowledge sources. The teams tried to gain expertise
regarding the business model, the technology (if relevant), and the particular industry:
“We first went through an analysis phase where we tried to become experts for the company
and the environmental factors influencing the company. This included both an internal and
external analysis” (IR 26/Case C).
Hence, focusing on the business model itself was not enough. Instead, environmental scanning
(for more details on environmental scanning see Chapter 6.4) and (basic) know-how on relevant
technologies were required. Consequently, teams argued that they had to combine the role of
inventors, entrepreneurs and innovation managers (IR 2/Case E; IR 27/Case F).
Information gathering not only comprises collecting information, but also interpreting,
selecting and framing collected data. A very important step at this stage was the definition and
visualization of the existing business model of the particular company. It could be observed by
the researchers (particularly by attending several team meetings) that many early ideas for a
new business model were generated during this process. Different team members showed
different perceptions of what constitutes the current business model. While these differences
led to intense discussion on the status quo, they were a valuable source for new business model
ideas and an important catalyst for further search processes. This was amongst others outlined
by a member of team C:
“The information from the status quo business model analysis set an important frame. Problems
became apparent; early ideas have been rejected or supported and first variations of ideas were
developed” (IR 16/Case A).
During information gathering the teams searched not only within the boundaries of the
particular industry. They expanded their search activities to ideas and inputs from other
industries. The teams started by analyzing the current business model and the competition in
the industry, followed by an examination of other business models in the same industry. Finally,
the search went beyond industry boundaries. Relevant business models from other industries
were investigated. This search behavior underlines the notion of increasingly irrelevant industry
boundaries.45
45
As a consequence, in Chapter 6 of this dissertation a new perspective on business environments is suggested
and the business model environment as well as the business model environment framework are developed.
Emergent Process Stage Themes 163
It was observed by the researchers and further supported by the reflections of the individual
group members that in this early stage of the business model development process, information
gathering was characterized by a rather random search for relevant information. Teams did not
proceed in a clearly structured manner. Some statements that were given in this context are:
“It was very hard to steer the innovation process. It was very dynamic. Especially identification
of relevant sources of information for background information on the old business model
remained a challenge” (IR 2/Case E).
“It was quite hard to keep track of all the relevant information and analysis we have done
before developing the new model” (IR 5/Case H).
“Our group had quite a few different ideas while developing our business model. Even when
we thought that we eventually found our new business model, we suddenly realized after some
more research that our idea might not be realistic." (IR 12/Case I).
“One of our key take-aways: A careful and structured market research is key” (TR/Case C).
Although the business model canvas provided some structure in later stages of the business
model development process (the effects and impacts of artefacts in business model development
will be further discussed in Chapter 5.6.2), it did not lead to a more structured modus operandi
in the stage of information gathering.46
5.5.2 Idea Casting & Construction

The step of idea casting comprises the generation, evaluation, and selection of ideas for new
business models in order to develop a business model prototype. Each task will be explained in
detail in the following.
5.5.2.1 Idea Generation

This task refers to the process of searching new ideas for new business models. While the
literature on search processes in general focuses more on organizational search processes, only
few studies investigate the search process of individuals and their quest for new solutions
(Maggitti et al. 2013). According to Maggitti et al. (2013) “how individuals search for the ideas
that they discover is not well-understood” (p.90). This research effort aims at shedding more
46
To allow for a more structured approach towards information gathering, the “business model environment
framework” was developed to allow for a thorough investigation of relevant parameters of the business
environment (Chapter 6).
light on the quest for new business model ideas. It was possible to detect some patterns which
are described in the following.
The team reflection of Case C beautifully depicted the ubiquity and spontaneity of ideas, which
were reported to be often rooted in sudden flashes of inspiration:
"Ideas, thoughts and impressions do not follow a linear and chronological order. Every group
member reported, that the main inputs, important thoughts and key ideas came into one's mind
while doing something totally different. Hence, we experienced that the creation of ideas could
not be forced to happen in group meetings. […] It seemed important that group members
constantly keep the general business model concept in mind and then relate it to impressions
they make during their everyday life, without forcing ideas to develop during group work. Yet,
we found it extremely difficult to document the source of ideas and arguments for our business
model development process. Sometimes a single thought takes only a few seconds." (TR/Case
C)
As a consequence of the ubiquitous and spontaneous nature of ideas, their original source of
the idea remained veiled despite the longitudinal setting of this research effort. However, it was
possible to specify important catalysts for idea generation. These are:
Definition of existing business model
Prior experiences
Analogies
Face-to-face meetings
Idea generation started already during “information gathering”. As outlined above, the process
of information gathering was also a starting point for the development of new business model
ideas. The definition of the existing business model using the business model canvas led to the
emergence of first early ideas on how the model could be improved or changed. This underlines
the close links between the four identified stages and the iterative nature of the business model
development process, where “information gathering” and “idea casting” are to a large extent
simultaneous stages. Furthermore, it was reported by the innovation teams that prior
experiences were the primary triggers to develop new ideas.
"Every team already had a rough idea for a business model innovation in mind when they
started working on the business model project. This idea based on knowledge about the
company, the market, the environmental factors, or other existing information. So the first
frame for a new business model was already set when starting with the process." (IR 22/Case D)
Hence the knowledge and experiences of each team member (e.g. from internships, private use
of online tools and so on) had been the basis for all the ideas." (TR/Case C)
The impact of previous experiences was further depicted in the group account of team E on
their business model development activities, stressing the importance of “seeds” as a starting
point for business model innovation.
Figure 40: Prior Experiences as “Seeds” for Business Model Ideas (Case E)
Source: WPD/Case E
Face-to-face meetings of the innovation teams played an important role in generating new ideas.
Team members reported that, in general, ideas came to their mind very spontaneously and on
an individual level (i.e. working independently from fellow team members; see statements
above). However, it was observed that during face-to-face team meetings numerous new ideas
were generated. At team meetings, the joint discussion and evaluation of individually developed
ideas often resulted in another, different idea. Hence, one idea led to another. This supports the
suggestion from the idea generation literature to first develop ideas in individual sessions and
next discuss and evaluated these ideas in group sessions (Diehl & Stroebe 1987). A recent study
by Girotra et al. (2010) found that groups organized in a hybrid structure, i.e. at first individuals
work independently and then work together, are more successful. They are “able to generate
more ideas, to generate better ideas, and to better discern the quality of the ideas they generate”
(Girotra et al. 2010, p.591).
Prior research argues for the use of analogies in innovation management: Analogies are helpful
in making strategic choices (Gavetti et al. 2005). Solutions originating from contextually distant
but analogous domains (i.e. domains linked by similar problems) score significantly higher on
novelty than solutions originating from the target domain (Pötz & Prügl 2010). As a
consequence, concepts based on analogies are likely to be highly innovative while at the same
time reducing risk by adopting already proven approaches from other industries (Franke & Pötz
2008; Enkel & Gassmann 2010; Keinz & Prügl 2010). Moreover, analogies provide support in
making sense of technological change and other innovations (Bingham & Kahl 2013). Also in
this study the importance of analogies became evident. Across all nine cases, it was obvious
that the innovation teams had developed business models that were not completely new. They
are mostly adaptations or refinements of existing business model elements, often taken from
other industries. Hence, the use of analogies can be seen as an important catalyst for “new”
business model ideas. The groups capitalized on the fact that business model patterns are
successfully applicable across industry boundaries (Enkel & Gassmann 2010; Gassmann et al.
2013).47 The innovation teams used between one and six (case G) analogies with other business
models to develop the new business model. For instance, the following analogies served as a
source of inspiration (Table 46):
Table 46: Business Model Analogies Used by Project Teams
Analogy Transfer Used in
Software-as-a-Service (Saas) Mobility-as-a-Service Case A, Case I
Mass Customization Individually designed watches Case G

(e.g., Toolkits, MyMuesli)
Outsourcing of Value Creation Outsourcing of the assembly process for Case G

Processes (e.g., IKEA) watches (comparable to IKEA furniture)
Design Communities Submission and rating of designs to be printed Case B

(e.g., Threadless) on tiles
Cooperatives Community owned and managed by Case D

(e.g., in agriculture) stakeholders using its services and assets
Deal-of-the-day websites Viral distribution mechanism and distribution Case E

(e.g. Groupon) channels in general
Low cost carrier Aspired to develop a model for becoming Case A

(e.g. Ryan Air) “Ryan Air of car rentals” (no-frills concept)
Other business models in same Recombination of elements from other business Case C
industry models in the music industry (e.g., Freemium
(e.g., Soundcloud, Spotify, from spotify, community aspect from
tape.tv) Soundcloud, legal regulations from tape.tv)
47
See also below the excursus on the analogous applications of business models (Chapter 5.5.2.2).
The importance of analogies in business model design became also evident in reviewing the
team reflections:
“The analysis of similar business models was therefore without doubt essentially helpful to the
development of our model” (TR/Case C).
“What one knows about a company and the industry limits the imagination of how a business
model could look like for the company. Therefore it is hard to invent something completely new
to the world but much easier to put together different business elements in a new way” (TR/Case
A).
“The main source of inspiration was the combination of an analysis of the competitors and
several reference models” (TR/Case G).
“By transferring other business models to our project, it was often quite easy to come up with
good solutions” (TR/Case D).
These findings are in line with a study from Gassmann et al. (2012) noting that most “new”
business models are a recombination of existing ideas, concepts and patterns. It is reported that
90% of “new” business models are rooted in either
a transfer from a business model pattern from another industry to the domestic domain,
a transfer from an organizations successful business model to other domains, or
a combination of at least to existing business model patterns.48
Analogies are an important catalyst for developing business model ideas. The following
excursus describes in more detail the mechanisms behind the analogous application of a
particular business model.
5.5.2.2 Excursus – Analogous Applications of Business Models
The “bait & hook” business model

This business model is “characterized by an attractive, inexpensive, or free initial offer that
encourages continuing future purchases of related products or services” (Osterwalder & Pigneur
2010). Very often, the initial offer is money losing or subsidized by the company, but later
purchases of related products are eventually generating profits.
48
Reported by Prof. Dr. Elgar Fleisch, Presentation “Business Model Innovation: Importance and Applications”,
WU Competence Day “Business Model Innovation”, November 13, 2012.
In general, it is crucial to assure these purchases by closely linking the free or inexpensive initial
product with the follow-up item, which earns a high margin for the company. This “lock-in” is
vital to the success of the bait & hook business model.
The bait & hook business model is more than just a pricing model (as it is often referred to
incorrectly). The model requires the establishment of a more or less proprietary “lock-in”
platform and keeping the control over it. Also (cheap) substitutes must be avoided.
Keys elements of the business model

(1) Establishing a lock-in platform
Technology: incompatibilities with other spare parts
Contracts or legal binding: e.g. service or maintenance subscriptions (mobile phones, pay
TV, alarm systems, etc.)
(2) Product sold at a low price is

usually a long-lasting product (>2-3 years)
needs complementary products/services, maintenance or spare parts on a regular basis
Risks of the business model

A bait & hook business model is “risky when the control over the lock-in platform is shared
among more than a handful of other economic actors; or, it may be risky when the underlying
technology of the lock-in platform is faced with increasing threat of a substitute” (Shi &
Manning 2009). For example, computer printer manufacturers have gone through extensive
efforts to make sure that printer ink cartridges are not interchangeable.
Moreover, bait & hook models are vulnerable to unlocking procedures making the product sold
at a low price open for other applications or cheaper related products, e.g. SIM-locks of mobile
phones are removed to use the phone in other networks, printer cartridges are refilled instead
of exchanged.
Analogous applications
The bait & hook business model has become very popular and has been applied in various
sectors:
Consumer goods: e.g., Gilette razors and blades
Electronics:
o Inkjet printer
o Video games (rather cheap consoles and expensive games)
Polaroid (Tripsas & Gavetti 2000)
Alarm systems (including connection to security center)
Pay TV
Telecommunication: mobile phones
Elevators: product codes are concealed in order to prevent third party service companies to
offer maintenance plans for the elevators.
Aircraft engines
Transfer of a business model to other domains
See above Chapter 4.3.5.2 to read more about the “easy Group”, a company that developed
expertise in a specific business model and transferred this model to analogous markets with
similar key characteristics.
5.5.2.3 Idea Evaluation, Idea Selection & Prototype Construction

"During our business model innovation process, so many new ideas came up.”
(IR 10/Case I)
What idea generation literature suggests…

Research argues that the number of ideas developed increases idea quality (Diehl & Stroebe
1987; Simonton 1999). However, it is outlined that the quality of ideas depends heavily on the
type of measure used (Diehl & Stroebe 1987). Therefore research has moved on to the
assessment of the quality of the best idea (Vetterli et al. 2012). As the focus of the existing
literature lies on the process of idea creation, omitting the selection process, it is suggested to
start concentrating more on the group’s ability to select the best idea (Girotra et al. 2010)
(Figure 41).
Figure 41: Idea Generation Theory

What entrepreneurship and business model research suggests…

The design thinking approach, a method which has its roots in mechanical engineering and
product innovation, aims at the development of tangible prototypes which is followed by testing
and subsequent redesign of these prototypes (Brown 2008). This approach builds on the
experimentation with various prototypes before detailing the one prototype that best meets
customer needs. Quite recently, the method of design thinking has undergone a broader
application. Vetterli et al. (2012) describe prototypes as “tangible ideas, which are more and
more refined in the course of the process” (p.3) and underline their usefulness for complex
innovation processes such as business model innovation.
A quite similar approach has gained increasing attention, especially in the startup scene: The
“lean startup methodology” (Ries 2011; Blank 2013). This approach “favors experimentation
over elaborate planning, customer feedback over intuition, and iterative design over traditional
‘big design up front’ development” (Blank 2013, p.4) in order to transform ideas into viable
business models.
Both concepts suggest building parallel prototypes quickly and evaluating them based on “real
world” feedback (Figure 42). The importance of experimentation has also been underscored for
business model development. McGrath (2010) explains with experimentation is so important:
“Business model evolution is highly path-dependent – early experiments often shape the
trajectory for models yet to come; […] It is nearly impossible to tell in advance which design
will win” (p.254).
Figure 42: Lean Startup / Customer Development Theory

What business model innovation teams really do…

As outline above, in the sample of this study most ideas were generated individually and further
developed on a group level. In doing so, the teams were able to generate a multitude of different
ideas throughout the process. However, these ideas were very rarely developed in complete
prototypes. The teams were confronted with what they called “idea dead-ends”:
"In our project ‘idea-dead-ends’ were very laborious and not really integrated into the process.
Either it was not clear what the impact of the idea would look like or we just skipped the idea
because some other ideas had captured our attention" (IR 3/Case A).
"Our group had quite a few different ideas while developing our business model. Even when
we thought that we eventually found the right idea, we suddenly realized after some more
research and a brainstorming session or group discussion that our idea might not be realistic"
(IR 12/Case I).
Different perceptions and understandings regarding the same idea made idea selection even
more difficult. This issue was explicitly reported in case C:
“What is important is the perception of ideas. When explaining an idea roughly there are
variations of how the idea is understood by each team member. This became particularly
evident when we talked about revenue streams or the idea that premium user can have offline
availability of videos. We’ve been discussing for a long time what the difference between free
user, community user and premium user would be because one team member thought
community users are free users and others thought community users are free users but get some
videos for free. Only when trying to concretize the building block this misunderstanding became
obvious” (TR/Case C).
As described above, the teams evaluated and selected isolated ideas instead of complete
business model prototypes. This finding is supported by decision theory, underpinning the
tendency of decision makers of not considering all outcomes of their alternatives. Available and
relevant information is often dismissed (March 1994). Consequently, teams felt uncertainty
regarding the outcomes of their own project:
“Therefore our decisions were not fully rational, but instead moderated by a feeling of what
could work - in the end we tried to verify our feeling” (TR/Case G).
Out of the nine cases investigated, only in case H more than one prototype was developed (two
distinctive prototypes were developed by team H). These findings suggest that in business
model development it is a big challenge to develop a multitude of ideas into different prototypes.
Teams tend to adopt a business model idea and to develop just one single business model
prototype using the canvas. This prototype kept them from developing other prototypes. Instead
of generating alternatives, the groups tried to constantly refine their first prototype based on
theoretical assumptions (Figure 43). This observation is supported by decision theory: decision
makers typically tend to consider only a few alternatives and evaluate them sequentially rather
than simultaneously (March 1994).
"We’ve used the business model canvas very late during the course of the innovation process.
At this point of time, we’ve been very settled on one version of a new business model. Hence,
we weren’t able to develop more than one business model using the canvas" (IR 17/Case C).
“Each group member reported on his/her individual analysis and research as assigned in the
prior meeting. Usually this resulted in a lengthy group discussion on the newest developments,
new ideas and input. In regards to this, the greatest challenge was to channel the discourse
towards the actual business model, avoiding getting lost in excessive discussion" (TR/Case F).
"It opened my eyes that one should never be too focused on just one idea but always be flexible
and open for new thoughts, critic and influences" (IR 12/Case I).
Figure 43: Observed Idea Evaluation and Selection
Taking into account the theoretical approaches of idea generation and lean startup shortly
summarized above, there seems to be some untapped potential. If the theory is applied to the
context of business model development, it is conceivable that the probability of selecting the
best business model prototype is increased by (a) developing a high number of prototypes and
(b) testing full prototypes instead of single ideas covering only a few aspects of the business
model. However, the findings of this study indicate a contradiction between theory and practice.
Theory suggests the development of various different prototypes. The development of the first
prototype (and the associated investments regarding research efforts and time), however, kept
teams from developing alternatives. They focused on the refinement of their first concept
instead.
Across all cases the business model prototypes were innovative while at the same time
maintaining a high degree of feasibility. As Table 43 depicted, teams had changed – at least
partly and with a few exceptions – every building block of the business models. However, the
teams still had the feeling of not developing something radically new:
"Our group felt that it had developed very interesting new concepts, but nothing ground-
breaking new” (IR 24/Case H).
There might be several reasons for this impression:
- As outlined above, „new“ business models are often rooted in the recombination of existing
business models or the transfer of existing business model patterns to other domains. Hence, it
is unlikely to develop a completely new business model pattern. Teams were already familiar
with the main characteristics of a particular business model. While the business model itself
might not be new, the application in a different domain might have considerable potential.
- Although the ideas generated in the early phase of the process seemed to be quite radical at
first sight, they might have lost their ground-breaking nature during their transformation into
business model prototypes.
- Departing from the old business model and the status quo is difficult. This issue has been
discussed already in Chapter 4.2.6 in the retrospective analysis of the business model design
process of company A. The same issue appeared also in the longitudinal case studies.
"Overcoming the limitations of the status quo was from my point of view one of the main
challenges for us" (IR 19/Case C).
"What one knows about a company and the industry limits the imagination of how a business
model could look like for the company" (TR/Case C).
5.5.3 Delivery
Recent innovation management literature has underlined the importance of considering not only
the front-end, but also the back-end of innovation processes. Whereas the front-end of
innovation deals with the exploration of opportunities and generating possible solutions for
customers problems, the back-end of innovation aims at the conversion of concepts into
successful new products or services (Deschamps 2005). In their recent study Günzel and Holm
(Günzel & Holm 2013) underline the particular importance of the back-end of business model
innovation processes. Chief innovation officers have the integrative function of aligning
different interests, especially in innovation back-ends (Servatius 2012). There is a strong need
for communication between innovators and C-level managers to realize new products or
services (Collins 2012). Consequently, the stage of “delivery” refers to the process of presenting
the new business model prototype to various stakeholders and builds the bridge between
conceptualization and realization, i.e. the front-end and the back-end of business model
innovation processes. In line with existing studies on product or process innovation, the findings
of the in-depth case study I (Chapter 4.2) indicated the need of communicating a business model
concept to all relevant parties within the organization. In the longitudinal case studies, the
presentation of business model concepts to industry partners and to other innovation teams
completed the business model development work at the end of the five-month working period.
“Delivery” links the front-end of business model innovation, i.e. business model
conceptualization, to its back-end, i.e. business model implementation (Figure 44).
Figure 44: The Process Stage “Delivery”
As the focus of the longitudinal case studies lies on the search and discovery processes of
business model design as well as the individual perceptions associated with this task, our data
provides only first insights regarding the nature of the stage of “delivery”. However, the
following issues became evident:
The business model prototypes presented to industry partners, investors, and other innovation
teams represent to large extent an accumulation of hypotheses about the product, the market, or
the customer needs. Hence, when presenting the new model to other stakeholders, it is necessary
to document and state clearly which hypotheses underlie every building block of the business
model. This allows to follow the steps taken by the innovation teams and to recognize the
interdependencies between the business model elements.
"Business model innovations could be understand and followed easier, if the underlying
assumptions were made perfectly clear. [...] If a group did well in pointing out their hypotheses,
their solutions became logical and were easy to follow” (IR 25/Case E)
"This project has shown how important proper documentation is in order to see at which points
which decisions were taken etc. […] Proper documentation of the process serves as
legitimization and explanation in front of others" (IR 23/Case C).
"The teams discovered that documentation is really important in this environment. Because it
helps to remember how and why specific decisions were made" (IR 13/Case H).
“There is a strong need of documentation of decision making. It is important to know why and
when a decision was made” (IR 5/Case H)
During the “delivery” of a business model prototype, there is a strong need to catalyze the
important points and to make it comprehensible. Artefacts, such as the business model canvas,
are valuable tools in doing so. Besides the important role of visualization in the phase of
business model development, it does not come as a surprise that a visual tool is needed to
explain assumptions and interdependencies regarding particular business model elements at the
stage of “delivery”.
"For me, a business model has to be stated precise and clear" (Case E, statement by an investor
during the presentation of the new business model by team E).
The results from the retrospective case studies (Chapter 4.2 and Chapter 4.3) have shown that
new business models are likely to trigger resistance within organizations and, in the case of
company A, some employees did not even understand the new model (Chapter 4.2.6.2). To
reduce resistance, skepticism, and make business model implementation easier, a clear
explanation of the new model is key to success. Hence, during the stage of “delivery” making
new business models understandable is crucial. Moreover, this issue might also influence
business model success later on when it is introduced to the market: a recent study by Stampfl
et al. (2013) has found that business models that are easy-to-understand by customers show
higher scalability and are more likely to succeed.
5.6 Emergent Process Influencing Themes

In following the approach of Maggitti et al. (2013), issues that, rather than being part of the
business model innovation process, had an influencing impact on it were categorized. The
issues of “context, “collaboration”, “team composition”, and “artefacts” appeared to influence
business model development processes across cases.
5.6.1 Context, Collaboration & Team Composition
5.6.1.1 Context
Maggitti et al. (2013) found in their study on the process of technological invention that a search
process is “greatly influenced by the nature of the context in which it takes place” (p.7). A
similar phenomenon was found in this research effort. While in case A, D, F, and I teams
worked together with an incumbent company on a new business model design, in case B, E, G,
and H the partner company was a startup. These two different contexts seemed to influence the
focus on different elements of the business model during development work. There was a
tendency of teams working on startup business models to concentrate more on value proposition
and customer segments. Teams working with incumbents also started with the value
proposition, but during the course of the process, they were apt to concentrate more on revenue
streams, key activities, key resources, and key partners. The tendency of focusing on existing
assets when working with incumbents is comprehensible because business model innovation is
a possibility of leveraging the firm’s existing resources and capabilities. However, existing
investments and resources might reduce innovativeness of new approaches and openness
regarding completely new business designs (Doz & Kosonen 2010; Chesbrough 2010).
The researchers had the impression that groups working with startups felt more freedom in
designing completely new business models. In contrast, teams working on business models for
incumbents were prone to implement existing key resources and key activities in their concepts
for new business models which, to some extent, limited innovativeness. These impressions were
supported by statements given in the individual process reflections:
“I noticed differences between those teams innovating a business model for a previously non-
existing company and those innovating a business model for an established company. One can
assume that the assumptions made for the latter are based on figures experienced in the past
whereas the figures for the fictional company are just assumptions. The results are both
informative and convincing, but maybe not comparable" (IR 11/Case G).
"While we and some other groups were able to work with a young company and present a
business model innovation that would have changed their main business model, groups working
with larger companies such as company XXXX or company XXXX had to implement their
Emergent Process Influencing Themes 177
business model innovation in a much tighter corporate setting and therefore had to present a
more sophisticated calculation of a possible benefit”
(IR 17/Case G).
It was particularly interesting to see that in the context of incumbents, teams felt the need to
present detailed calculations of possible financial outcomes and other benefits of the new
business model concept, although their new model was, similar to the startup cases, based only
on a set of hypotheses.
5.6.1.2 Collaboration
As was outlined above (Chapter 5.5.1), business model design requires the processing of an
abundance of new information, for instance regarding markets, trends or technologies. Many
ideas are developed individually. Group discussions and ongoing research led to the
identification of “idea dead ends” or the discovery of new business model design opportunities.
Hence, effective and efficient collaboration management is required to keep the business model
design process going.
In this study, it became evident that collaboration in business model design projects requires
a sufficient amount of time spent in face-to-face meetings,

a platform for process organization, and
a knowledge repository (for documentation).
Face-to-face meetings
The importance of personal team meetings for idea casting has already been discussed in detail
above. However, these meetings were not only important to evaluate, select and develop new
ideas, but generally vital to push the business model innovation project forward. Whereas some
work was done by using communication tools such as Skype, e-mail, or social media, this was
primarily to organize work and to quickly report on new research findings or ideas. For business
model design, face-to-face meetings were essential to work with a paper version of the business
model canvas using sticky notes, brainstorm ideas on flipcharts, or discuss research findings.
This process is of very creative nature and requires sufficient time working together.
“Regular team meetings were crucial for the progress” (TR/Case H).
“Our face-to-face meetings proved most productive” (TR/Case D).

“And the third communication way consists of team meetings. No matter how well structured
or explicit documentation is, in creative processes you will always need the personal exchange
and discussion” (IR 3/Case A).
This finding is supported by recent studies on collaboration management: cooperation declines

in teams as they become more virtual (Erickson & Gratton 2007). Teams with fewer face-to-
face meetings are likely to have process losses and decreased performance (Lipnack & Stamps
2000; Kirkman et al. 2004). More importantly, existing literature notes that teams working face-
to-face show higher communication frequency and a broader approach towards solving various
issues (Hiltz et al. 1986; Siegel et al. 1986), which in turn leads to higher creativity
(Chidambaram & Jones 1993). Very recent practitioner-oriented research confirmed these
results by showing that face-to-face meetings produce “more ideas, a ‘marginally’ higher
quality of ideas, and greater variety of ideas than either phone or video chat”.49
Platform for process organization

Maggitti et al. (2013) outline that “the search and discovery process of technological invention
is inherently complex: nonlinear and disjointed rather than linear and cumulative” (p.90).
According to their research “successful inventors are skilled at managing such obscurity: they
make complex systems simple by abstracting out the unnecessary and minor, and use negative
feedback to start over and change course” (p.90). A similar process characteristic has been
found in this study. Hence, the business model design process can be seen as a “complex
system”. In order to manage this system, it was observed that a platform is required, which
allows to
document the process,

organize work (e.g., schedule meetings, assign tasks),
report on completed tasks, and
communicate (e.g., give immediate feedback to ideas) .
This became also evident in the team as well as the individual reflections:
“Reviewing the process, I see the need of a tool that brings together the features of a blog or
Facebook group, so that one can document the development of the idea/project, the features of
Dropbox, as a collaborative online storage space, and a visualization tool like a mind map
which can give a fast overview of the idea/project” (IR 24/Case H).
49
Study by IMEX Group in partnership with Meetology Group, accessed on June 6, 2013 at
http://www.successfulmeetings.com/Conference-News/Research-White-Papers/Articles/Face-to-Face-Meetings-
Generate-Most-Ideas,-Scientific-Study-Finds/.
“I would assume a group with an innovation mission needs tools to support work coordination,
information conservation, and group communication” (IR 3/Case A).
"Depending on group composition and individual preferences, the ways of communication may
differ but […] there has to be some tool for coordinating and setting up the collaboration”
(TR/Case C).
“The teams discovered that documentation is really important in this environment. Because it
helps to remember how and why specific decisions were made.” (IR 13/Case H).
“This project has shown how important proper documentation is in order to see at which points
which decisions were taken etc. This renders it possible to track down decisions, correct
mistakes, change little issues to improve the model. Also proper documentation of the process
serves as legitimization and explanation in front of others” (IR 23/Case C).
“We saw that the documentation of the business model innovation process was very important
and helpful” (TR/Case H).
“Do not use too many tools for documentation, as it will result in inefficiency” (IR 12/Case I).
The teams used tools that were at their immediate disposal, such as Facebook, Blogs, or
Dropbox (Figure 45). However, neither of these tools fulfilled all requirements. It is conceivable
that existing collaboration or project management software would serve as a helpful basis
building a platform for process organization in business model development.
Figure 45: Collaboration Tools Used by Team F
Source: IR 7/Case F
Knowledge repository
Throughout the business model design process an abundance of new information has to be
collected and processed. Across all cases it could be observed that innovation teams sought to
keep colleagues up-to-date by immediately sharing newly collected data and ideas. This was
important because research was conducted and ideas were generated mostly on an individual
level.
“The teams need some kind of knowledge storage space every member can access. With this
platform information can be preserved which is a big part of making data usable for everyone”
(IR 3/Case A).
“Our group used too many documentation tools, so that in the end there was too much
information in too many tools. One or two [tools] would have been enough” (IR 6/Case I).
“When everyone had finished his or her task, we tried to make everyone in the team aware of
the results and discussed the implications immediately. Nevertheless, it was not possible that
every team member had the same knowledge base. Instead, there are always experts for certain
topics“ (TR/Case C).
“A selection of a few tools is enough to collect and arrange information efficiently”

(IR 12/Case I).
Research argues that improvements of team-based processes are rooted in team learning
(Redding 2000). Edmondson (1999) defines team learning as “activities carried out by team
members through which a team obtains and processes data that allow it to adapt and improve”
(p.351). Sharing information with and seeking feedback from colleagues helps teams to learn
about customer needs, to improve the collective understanding of a situation, or to identify
alternative outcomes (Edmondson 1999; Kirkman et al. 2004). Hence, a repository where
individually collected information and ideas can be collected, shared, and discussed seem to be
a means to improve team learning which, in turn, likely improves business model design
processes. Again, teams used tools such as Facebook, Blogs, Dropbox, or e-mail to share
knowledge. It is supposed that a software tool tailored to the needs of business model designers
can strongly facilitate the development process.
5.6.1.3 Team Composition

In all nine cases, teams were homogenous regarding age and educational background.
Furthermore, team members did not have prior experience regarding business model innovation
projects. This allowed precluding team heterogeneity from potentially influencing process
patterns.
There is a plethora of studies in innovation management, entrepreneurship, strategy, or human

resources research investigating the impact of team composition (e.g., Timmons 1977; Roure
& Maidique 1986; Bantel & Jackson 1989; Pinto & Pinto 1990; Song et al. 1997; Song & Parry
1997; Teal & Hofer 2001; Ernst 2002; Hoegl et al. 2003; Ensley & Hmieleski 2005; Henneke
& Lüthje 2007). The research setting of this study – in accordance with the defined research
objectives – aimed at controlling for variance in team composition. However, two interesting
issues were observed by researchers and mentioned in one individual reflection. They go
beyond the scope of this research and need further exploration, but still shall be mentioned here:
(1) “close-friends-teams” seemed to produce business model ideas that are more innovative,
and (2) team member personality appears to influence business model idea perception.
(1) It appeared that in innovation teams whose members knew one another well or were close
friends, creativity regarding new business model ideas was higher. This was also observed by
a member of team F:
“My very subjective impression is that in groups whose members are close friends, creativity
had been higher than in other groups. An explanation could be that groups who often work and
spend time together are more likely to fool around, think of all kinds of funny things, talk about
a project at a shared dinner, and so on. This behavior might set up a frame spurring creativity
and the invention of entirely new business models” (IR 27/Case F).
In their recent study on creativity in collaborative teams, Erickson & Gratton (2007) outline
that if team members perceive themselves as being alike, they collaborate more easily and
naturally. Furthermore, the authors found that knowledge sharing and collaborative behaviors
are reduced in groups where team members work with people they have never met before or
know only superficially.
(2) The characters and personalities of team members play an important role regarding
creativity in teams and the quality of their work. As stated by Chang (2011) “team creativity is
fostered by imaginative and original thinkers, who enthusiastically express ideas, while being
more concerned with the novelty of ideas than project grade. Outcome quality, on the other
hand, is contributed by people who are deliberate, thorough, and careful” (p.272). The notion
outlined by Chang is further supported by a statement that was given by team C:
“Also the different characters of the team members mattered. The ideas of some team members
were more accepted by the team than ideas from others. This phenomenon was caused by
different knowledge levels. For example the idea about a technological issue was approved
more easily when it came from an expert in that field” (TR/Case C).
There is no more detailed data available on this issue. However, this seems to be an important
factor as research has identified various expertise effects. Experts show greater ability to
influence group decisions (Kirchler & Davis 1986) and their contributions are given a higher
level of consideration (Alkire et al. 1968). Acknowledged expert status regarding task-related
issues possibly increases confidence (Stasser et al. 2000) and willingness to contribute to group
assignments (Dovidio et al. 1988). Moreover, perceived experts participate more in discussions
and are more likely to share their knowledge (Thomas-Hunt et al. 2003).
Although data regarding the two issues mentioned above was quite limited and they both
exceeded the scope of this research, they are worth considering. This is particularly true for the
context of incumbent, large organizations where issues such as hierarchy, tenure, or power
come into play. These factors have the potential to sustainably influence decision taking in
business model innovation processes and, hence, eventually determine the design of the new
business model.
5.6.2 Artefacts
Artefacts, i.e. sketches, objects, or visual templates, such as the business model canvas
(Osterwalder & Pigneur 2010), are supposed to affect business model development. Eppler et
al. (2011) developed a model to explain the impact of artefacts on creativity and collaboration
in business model innovation processes. The boundary object theory (Star & Griesemer 1989;
Carlile 2002) serves as theoretical basis of their research. Boundary objects can be visual
representations such as sketches or drawings (Henderson 1991; Hales & Tidd 2009). It was
found that boundary objects are often involved in innovation projects (Whyte et al. 2008).
According to the authors, artefacts such as the business model canvas can increase perceived
collaboration while at the same time might lead to decreased perceived creativity.
The business model canvas has gained significant recognition among academics and
practitioners worldwide (Chesbrough 2010; Eppler et al. 2011). Consequently, the canvas
represents an artefact that is used in many business model innovation projects in companies
ranging from startups to large publicly traded organizations. Also in this study the canvas was
used in all nine cases. This represented the opportunity to shed some more light on issues related
to the use of such an artefact in business model development projects.
It became evident that the use of an artefact in business model development influences the
process. In case E and G teams decided to structure the process based on the nine building
blocks of the canvas. In hindsight, this seems to have reduced perceived creativity. As team G
states in the team reflection of their process:
“We are supposing that as we proceeded relatively sequential (based on the building blocks),
this has limited our ability to come up with radical ideas and innovations” (TR/Case G).
A member of a different team reported a similar impression:
“I like the practical applicability of the business model canvas. However, I believe that this
theoretical framework might be too strict. We felt that we had to stick very closely to the
structure of the canvas” (IR 15/Case C).
This finding resonates with the study from Eppler et al. (2011), who found that the use of
artefacts in business model innovation projects significantly lowered perceived creativity as
teams are “relatively fixed and forced to think ‘within’ the given domains of the template”
(p.1335). The impact of the artefact on the process design has further been mentioned by team
E:
“The decrease in meeting duration over time has to be explained with the business model canvas
itself. The first discussed parts of the business model canvas forced the group to make
assumptions in order to develop a business idea, which would later on define all the remaining
parts of the canvas” (TR/Case E).
In the group as well as the individual process reflections many comments regarding the artefact
used in the projects were collected. In reviewing these statements, it was possible to extract four
issues specifying how the team members experienced the use of the business model canvas (see
Table 47 for details). The artefact brought more structure to the process and allowed to
concentrate on the essential components of the business model. But it was also stressed that the
tool itself needs more specification regarding the meaning of every single building block. The
canvas is very supportive, but not sufficient for business model design. As was outlined above,
the research necessary (especially in the phase of “information gathering”) to build a new
business model meeting market requirements calls for the use of additional artefacts.50 In the
phase of “delivery” it was found that assumptions and hypotheses underlying each building
block must be stated clearly (Chapter 5.5.3). The canvas does not provide room for this purpose.
Also practitioner oriented research emphasizes that the business model canvas must not be
50
The business model environment framework developed in the following Chapter 6 could be such a tool.
reduced to just filling out the template and underlines the importance of a more holistic
perspective on value creation.51
51
See for instance Fielt 2013: “Business model canvas or business model thinking?”, Business Models &
Business-IT Research, http://fieltnotes.blogspot.co.at/2013/05/business-model-canvas-or-business-model.html,
last retrieved on May 29, 2013.
Table 47: Artefacts (Business Model Canvas) – Summary of Quotes
Artefact Representative Quotes Reference
Supporting function “The more I work with it, the more I find it useful. Also because the concept is easy to explain and it is easy to communicate IR 12/Case I
the results to others.”
“It is great to consolidate all information. You have to understand the overall picture. The good thing about it [the canvas], is IR 10/Case I
that it can be applied to any firm or branch systematically.”
“I found the canvas very helpful.” IR 1/Case H
Tool ambiguity “It is crucial that all people involved need to have sound understanding of the building blocks.” IR 1/Case H
“A common understanding of building blocks is very important.” IR 5/Case H

Emergent Process Influencing Themes
“At first it seems that working with the canvas is very intuitive and simple. But the results and also the workshop with company IR 5/Case H
XXX showed that this isn’t the case. The better the understanding regarding what is meant by every building block and how
the building blocks are connected the better and more logical is the result.”
“I find the business model canvas alone is not sufficient as each block of it needs more investigation and research.” IR 10/Case I
Provision of “The canvas is a practical tool to structure any sort of business model analysis and innovation.” IR 2/Case E
structure & focus
“The canvas helped to focus on the central elements of a business model and led to clear and well-structured results that were IR 8/Case A
understandable for the listener, especially against the backdrop that we were all new to the topic before.”
“I suggest the Canvas as a rolling and dynamic document on which the final results after each group meeting are noted. By IR 7/Case F
doing so and strictly keeping to the business canvas structure there is an enforcement to note only the most important results”
“Canvas helps to work in a more structured way. It is one approach to analyze the potential strengths and weaknesses of a IR 18/Case G
company while understanding their key factors of their business model.”
“The decrease in meeting duration over time has to be explained with the business model canvas itself. The first discussed TR/Case E
parts of the business model canvas forced the group to make assumptions in order to develop a business idea, which would
later on define all the remaining parts of the canvas.”
Limitations “Most business models get their uniqueness and innovation through a profound study of what's going on around them. The IR 8/Case I
business model canvas doesn't necessarily include this – at least there is no building block to emphasize it.”
“The canvas provides information on decisions and assumptions only implicitly. There is the need to make them explicit.” IR 1/Case H
185
186
“The weaknesses are similar to the SWOT analysis. One can fill in all fields within 10 minutes and you will miss out the most IR 10/Case I
important things without realizing it.”
“I like the practical applicability of the business model canvas. However, I believe that this theoretical framework might be IR 15/Case C
too strict. We felt that we had to stick very closely to the structure of the canvas.”
“We are supposing that as we proceeded relatively sequential (based on the building blocks), this has limited our ability to TR/Case G
come up with radical ideas and innovations.”
Business Model Innovation at the Individual Level
Individual Perceptions of Business Model Innovation 187
5.7 Individual Perceptions of Business Model Innovation

This chapter reporting on the findings of business model innovation processes at the individual
level shall be concluded in the following by providing some insights on “what it feels like” for
people working on a business model design project for the very first time and how this task is
perceived. Statements that were given either during meetings attended by the researchers, in the
individual reflections, or in the team reflections are summarized in Table 48.
As regards the nature of the business model innovation process, the iterative and complex way
in which sequential stages are passed has already been discussed earlier in this chapter. The
individual perceptions of the process support this observation across cases. Again, designing a
new business model is described as a dynamic, spontaneous, and intuitive process, where many
new ideas and turning points have to be processed. It is further described as a circular, recurring,
and ongoing process. The complexity of the process and the need for constant adaptations to
the business model found in the longitudinal studies match the particular findings in the
retrospective cases of company A and company B (Chapter 4.2 and Chapter 4.3).
The observed individuals report a multifaceted character of the business model development
projects and underline some major challenges. For instance, it was experienced that multiple
roles (inventor, innovator, entrepreneur, and innovation manager) had to be combined to
overcome the status quo and the challenge of steering the process towards a new business
model. It was further sensed that great personal engagement and interest in the project of every
team member represents a prerequisite for success. Whereas the business model concept was
new to the team members, they were all familiar with a business plan. Consequently, they were
missing some elements in the business model templates (e.g., cost or revenue calculations)
known from business planning.
Moreover, the need for an open mind towards various new ideas and the constant rethinking
and challenging of the existing business model was mentioned multiple times. Hence, the
(regarding business model innovation) inexperienced team members recognized some key
factors of business model development early on and their statements are, again, in line with the
results of the retrospective case studies where similar issues have been reported (cf. Chapter
4.2.6 and Chapter 4.3.4.4.)
Table 48: Individual Perceptions of the BMI Process
188
Themes Representative Quotes Reference
Nature of a BMI “Innovating a business model is not a statically process it needs a lot of time and an ongoing rethinking of the present business model.” IR 6/Case I
process
“The project and the process were very dynamic.” IR 2/Case E
“Business model innovation does not only mean one change in one specific building block of a business model but can also mean a series IR 5/Case H
of changes in the entire business model.”
“During a business model innovation process, many new ideas come up.” IR 10/Case I
“Business model innovation is the development of a new business model through a flexible combination of the researched ideas and best IR 12/Case I
practice models and new/challenging thoughts.”
“It seems quite natural that you face turning points or breakthroughs as you move from the original to the new business model IR 20/Case F
innovation.”
“It seems to be a recurring/circular process as one goes back and forth in-between the different categories and sections to add more IR 22/Case D
detail, adapt and ameliorate the sections as the idea takes on shape.”
“I realized that innovations do not necessarily lie in the detail. I think, innovations are more about ideas, broad concepts and creativity IR 25/Case E
than about specific details of every business process. Hence, developing innovations is also about accepting that one innovation always
leads to another. Every innovation forces other innovations in order to realize the first one. Therefore innovating a business model is a
constant process that cannot be finished, or presented in a finished status.”
“As long as some structural guidance is offered, the business model innovation process could be interpreted as superior to other TR/Case C
approaches in the sense that it is less restrictive and more creative and therefore presents more open results. In this context it shouldn't
be disregarded that this could have severe implications for the practical side of a business model: In other words, the more creative and
innovative a model, the higher the obstacles to put it into being.”
“BMI process in general is very spontaneous and intuitive.” TR/Case C
“A business model innovation can sound as impressive as it is, but if it doesn't go in line with the business needs of the company, it may IR 8/Case A
be redundant.”
Major challenges in “We had to combine the role of inventors, innovators, entrepreneurs, and innovation managers.” IR 2/Case E
a BMI process
“It was very hard to steer the innovation process.” IR 16/Case A

Business Model Innovation at the Individual Level
“Overcoming the limitations of the status quo was from my point of view one of the main challenges for us.” IR 19/Case C
“During the process it turned out to be sometimes cognitively hardly viable to leave out certain characteristics of a business plan TR/Case C
which are not specifically required in a business model innovation, in particular the monetary side of a business. This approach naturally
makes the process in general more creative but also leaves a sense that the economical verification is missing. Therefore the importance
to make this distinction needs to be stressed as clearly and early as possible.”
“It [the business model development process] demands a high-level of flexibility in communication to discuss ideas as they come.” TR/Case C
“The business model innovation approach “forbid” a thorough application of cost and income calculations.” IR 15/Case F
“The task of developing a business model innovation forces to develop something totally new.” IR 3/Case A
“Most of the time when I read about business models in general, I miss the focus on the business model parts that really matter to the IR 8/Case A
innovation itself.”
Prerequisites for a “Innovating a business model does not follow a rigid scheme - it needs a lot of time and an ongoing rethinking of the present business IR 6/Case I
successful BMI model.”
process
“It is vital for a successful project that the participants are totally convinced of the project. Without a personal interest and fun it IR 6/Case I
makes no sense to innovate a business model”
“The team must be open for new ideas and have the right spirit and the aspiration to create something new. I assume in teams which IR 10/Case I
usually work together with hierarchies and are forced to innovate, it will be difficult to achieve good results.”
Individual Perceptions of Business Model Innovation
“It opened my eyes that one should never be too focused on just one idea but always be flexible and open for new thoughts, critic and IR 12/Case I
influences.”
“Companies have to initiate a constant process of innovation that drives the entire business. It seems important to implement IR 25/Case E
structures, as we did in our group work, that force people to think about their current businesses and become creative and open
minded for possible future developments and opportunities”
189
5.8 Conclusion
The aim of this chapter was to draw more concrete conclusions regarding the process of
business model development on the individual and the team level. It was found that business
model development already starts by framing innovation projects accordingly. Labeling a
project as “business model innovation project” seem to have important implications regarding
expectations and openness for new ideas of team members.
Based on the nine longitudinal studies it was possible to derive a model for business design
processes. The business model design process is based on four linear stages: information
gathering, idea casting, construction, and delivery. It was observed that innovations teams
progressed through these linear stages in a complex and non-sequential manner, iterating back
and forth between stages.
In this study it became obvious that a key challenge in designing new business models lies in
converting a multitude of various ideas into quickly testable business model prototypes. A
business model prototype is based on several hypotheses regarding, for instance, customers, the
market, trends, or technology. Clearly outlining these hypotheses helps to test them as well as
to explain concepts for new business models to other stakeholders. It is conceivable that by
developing a high number of prototypes and testing full prototypes instead of isolated ideas for
new business models, the chances to select the best option can be significantly increased.
Another viable strategy to be more successful in developing new business models could be the
deliberate use of analogies. It was found that analogies with business models from other
domains are an important source of inspiration. In most of the cases the “new” business models
developed by the innovation teams were based on already existing business models. This is in
line with prior research from colleagues Gassmann, Csik, et al. (2012) noting that most “new”
business models are recombinations of existing ideas, concepts, and patterns. By adopting
proven elements of other business models, the pitfalls of a particular business model pattern are
well known (e.g., the need for an effective “lock-in” mechanism in “bait and hook” business
models; cf. Chapter 5.5.2.2) and can be anticipated in business model design.52
The inherently sophisticated nature of the business model design process has surfaced the need
for a tool to manage this complex endeavor. A tool which allows to document the design
process, organize work, report on completed tasks and to communicate (e.g., giving immediate
52
Aiming at immediately transferring the know-how regarding the use of analogies in business model design
(gained through this research effort) into tangible results for managerial practice, the author started a project for a
database on business models in May, 2013. The “Business Model Gallery” (www.businessmodelgallery.com) shall
enhance business model development by providing comprehensive data on various business models for
entrepreneurs, (innovation) managers, and business model designers.
Conclusion 191
feedback to spontaneous ideas) is required to support the work in business model innovation
projects. Such a tool would be even more useful if it contained some form of a “knowledge
repository”. The abundance of information which has to be processed throughout business
model development calls for a platform where relevant knowledge can be shared easily with
other team members.
As regards business model tools, this study further confirms the usefulness of artefacts, such as
the business model canvas, in business model innovation projects. By providing structure and
a shared language, the canvas helped innovation teams to focus on the essential components of
a business model. However, it was also found that the business model canvas is not sufficient.
Especially during the stage of “information gathering” teams progressed in a quite unstructured
manner and their approach towards collecting relevant information was rather random.
Research, however, has shown that a structured approach for monitoring business environments
is vital to understand external forces of change (e.g., Hambrick 1982; Jennings & Lumpkin
1992; Hagen et al. 2003; Chi et al. 2009). In order to develop a structured tool enhancing
“information gathering” and to account for the phenomenon of increasingly irrelevant industry
boundaries, the next chapter focuses on the environment of business models: A new perspective
on business environments is suggested and the “business model environment framework” is
developed.
6 Business Model Innovation at the Contextual Level
(Conceptual Model Development)
6.1 Introduction
In the retrospective and the longitudinal case studies it was found that the environment of a
business model plays a key role in developing new models and that analogies with business
models from other domains represent an important mechanism for business model design,
especially in times were industry boundaries are increasingly blurring. It becomes obvious that
business models must be designed to account for the particular environmental characteristics to
be successful. “A business model is not absolute, but must adapt to environmental change”
(IBM 2006, p.28), or as Teece (2010) puts it, “a business model cannot be assessed in the
abstract; its suitability can only be determined against a particular business environment or
context” (p.191). According to the fundamentals of system thinking, external forces
surrounding a system might influence the system as much as the system itself. Hence, business
model innovation processes must always respect the specific context in which they are
embedded. So far, the industry concept has been dominant to describe markets and business
environments. Although Porter’s Five Forces Model is still very valuable for environmental
scanning, recent research has underlined that the industry concept itself loses its importance in
times of economic change (Short et al. 2007; Teece 2007) .
As a consequence, this chapter is intended to provide a framework that helps to analyze and
understand the context of business model innovation processes in incumbent organizations
(SQ7) and to contribute to existing theory by suggesting a new perspective on business
environments, the business model environment (Chapters 6.2, 6.3, and 6.4). Moreover, the
“business model environment framework” and the “business model environment map” are
developed based on a comprehensive literature review and expert interviews (Chapter 6.5).
These tools might provide a structured approached for environment and trend assessments in
business model innovation processes, especially in the phase of “information gathering” (cf.
above Chapter 5.5.1). The framework is used in an exemplary application to specify the
business model environment of one of the in-depth case studies (Chapter 6.6). The conclusion
(Chapter 6.7) summarizes this chapter on business model innovation processes at the contextual
level.

This chapter is based on a working paper53 which was presented at the occasion of the 2011
Academy of Management Conference in San Antonio, Texas (USA). The presentation
represented an excellent opportunity to discuss the suggested new perspective on business
environments and the identified major dimensions of the business model environment with a
multitude of researchers representing various backgrounds and countries. The author greatly
values this experience as it had substantially contributed to the further development of the
business model environment framework and business model environment map presented in this
chapter.
6.2 Business Model Innovation Processes & Environmental

Characteristics
Researchers argue that flexible organizational solutions are necessary in order to adapt to
changing environmental conditions (March 1981; Lewin & Stephens 1993; Volberda 1996).
The dominant paradigm of sustainable competitive advantage increasingly going to be
challenged. Transformation processes in the world’s economies call for new ways to create
value. The limits of traditional organizational structures and strategies are disclosed (Djelic &
Ainamo 1999). Companies no longer have the chance of relying on a given competitive
advantage during rather stable periods, but as Volberda (1996) puts it “in the new mode of
hypercompetition, […] rents do not derive from specialized routines but from adaptive
capability” (Volberda 1996; p.360). Teece et al. (1997) share this view as they argue that
regimes of rapid change demand an “ability to achieve new and innovative forms of
competition” (1997; p.516), also referred to as “dynamic capabilities” by the authors. In a later
study Teece (2007) disaggregates these capabilities into the capacity to recognize and shape
opportunities and threats, to seize opportunities, and to maintain competitiveness by
reconfiguring the company. These capabilities also embrace the ability to adapt to a changing
ecosystem and to design and implement viable business models: “The capacity an enterprise
has to create, adjust, hone, and, if necessary, replace business models is foundational to dynamic
capabilities” (Teece 2007; p.1330). Consequently, a firm’s survival and growth increasingly
depends on organizational issues like the design of new and viable business models fitting their
environmental conditions (e.g., Voelpel et al. 2004; Markides 2008).
Structural changes within entire industries or the emergence of new industries create threats,
but innovation opportunities as well. Thus, if companies do not react to the changes in their
environment, they are likely to fail (Tucker 2001). A perfect example of how environments
change and, hence, find themselves in the need of new business models is the music industry.
53
Stampfl, G. & Prügl, R., 2010. Business models in context: conceptualizing the environment of business models,
Zeppelin University Working Paper.
Business Model Innovation Processes & Environmental Characteristics 195
The Internet enabled consumers to (illegally) download copies of their favorite recordings.
Online platforms such as YouTube allow to access music for free from anywhere in the world,
anytime. However, the Internet is also a new distribution channel enabling downloads of digital
music to compete with traditional (i.e. physical) product sales. In 2008 the online music store
“iTunes” has made Apple the biggest music retailer in the USA.54 The convergence of industries
(i.e. music and mobile communications) is beautifully depicted by a former product from
Nokia: “Nokia Comes with Music” was a handset that came with “free”, unlimited music
downloads. It made Nokia an important player in the entertainment business. The fast pace of
change in today’s economy is underlined by the fact that meanwhile Nokia had to find new
business models (e.g., a cooperation with Microsoft) in order to survive in a market dominated
by relatively new players such as Samsung or Apple.
A need for a continuous business model innovation process has been identified, because new
market conditions frequently require new business models that account for the altered context
(Mitchell & Coles 2004). Companies that continue with what has worked in the past are often
put at a disadvantage when the competitive environment changes. In other words, the business
model must match the new environmental conditions. The influence of the external
environment on the business model has quite recently been recognized in the literature: Zott
and Amit (2007) see environmental conditions as an important moderator of the relationship
between business model design and the performance of a company. In a similar vein, Demil
and Lecocq (2010) underscore that the environment has the potential to influence the core
components of a business model. Consequently, the specific components of a business model
must be designed with reference to the environment of the business model (Teece 2010).
In transforming conditions, business models are far from being stable. In fact they are
provisional in the sense that parts of the business model (or even the whole business model)
might be replaced by new parts (or models), which better fit the altered external environment
(Shirky 2008). In this context the business model innovation process has three functions: find
a business model, test it, and adapt it to its environment. By anticipating, mirroring, and
adopting future trends in the business model, a company should be able to effectively
differentiate itself from competition through a unique way of adding value for the customer. If
the company succeeds in developing a differentiated, effective, and efficient business model,
this can be a pathway to a major competitive advantage. As the company must continuously
monitor if the business model still fits the respective environment (Morris et al. 2005), the
following questions are raised:
1. Which dimensions build the context of a business model?
2. What factors influence a business model?
3. On which dimensions does the business model interact with its environment?
54
Apple Press Release, April 3 2008, https://www.apple.com/pr/library/2008/04/03iTunes-Store-Top-Music-
Retailer-in-the-US.html, last retrieved December 12, 2014.
6.3 Perspectives on Business Environments

Although management literature agrees that environmental characteristics have implications for
all aspects of the management of organizations (Prescott 1986; Boyd et al. 1993) and
acknowledges the high importance of monitoring changes in the environment, it is rather
surprising that in scholarly debate “only little agreement exists on what the environment is and
how to apprehend it” (Frishammar 2006, p.22). So far, there is no widely accepted set of
constructs and measures of business environments. Sharfman and Dean (1991) underline that
research has been unable to build a comprehensive and coherent literature about business
environments due to the fact that no single approach to conceptualizing or measuring
environments has gained widespread acceptance. Even though the extreme degree of theoretical
and empirical diversity regarding research on business environments seems to impede the
development of more unified theory and research, one of the strengths of this multiplicity of
approaches is the provision of richer insights and increased number of alternatives (Sharfman
& Dean 1991).
Frishammar (2006) revisits research on organizational environments and identifies four

different schools of thought: the adaptive, the resource-dependence, the cognitive, and the
population-ecology perspective. He concludes that the seemingly dominant adaptive-
perspective is not enough to capture environmental complexity, as the sole reliance on one
perspective might lead to a too narrow approach. Consequently, he calls for a broader
perspective on the environment, accounting for the idea that environment is partly enacted by
its participants. A similar approach towards the relationship between business environment and
the players within is proposed by Teece (2010). The author sees business environments as a
choice variable, being partly shaped by the firms acting within.
This study builds on the notion of Teece (2010) in developing a business model environment
framework. Thus, it is proposed to see business models and business model environments as
partly interacting phenomena. In line with Frishammar (2006) the term “perspectives” is used
as a conceptual umbrella to gather related views and approaches regarding the characterization
of business environments. To give an overview on the main characteristics of different concepts
of business environments, the following business environment perspectives are differentiated:
industry environments, organizational environments and business model environments (Table
49).
Perspectives on Business Environments 197
Table 49: Perspectives on Business Environments
Organizational Business Model

Industry Environments
Environments Environments
How the micro- & macro How the business

Focus of inquiry How the industry affects
environment affects the model and its
the organization
organization environment interact
Frame of reference Industry Ecosystem Ecosystem
Assumption regarding
strict strict blurring
industry boundaries
Source for economic Dynamic business

Industry environment Stable business models
rents models
Source: own categorization based on an extensive literature review
The industry environment perspective has been mainly dominated by the structure-conduct-
performance paradigm, most prominently represented by Porter’s Five Forces Framework
(Porter 1985). It is out of question that the Five Forces Model has put industry analysis to the
next level. However, in times of dynamic business environments “the concept of an industry is
itself of questionable value” as outlined by Teece (2007, p.1324) in a recent study. The author
outlines that the Five Forces Model “is compromised because it has insufficient appreciation
(a) for the importance of and nature of innovation and other factors that change the “rules of
the game”, (b) for factors inside the business enterprise that constrain choices, (c) for factors
that impact imitation and appropriability issues, (d) for the role of supporting institutions,
complementary assets, cospecialization, and network externalities, or (e) for the blurred nature
of industry boundaries” (Teece, 2007, p.1325). Furthermore, research indicates that industry
effects on firm performance have been overrated so far: industry specific effects are a much
less important source for economic rents and are outweighed by business specific effects (such
as the business model) (Short et al. 2007; Zott & Amit 2007).
In today’s dynamic business environments where industry boundaries are faint to an increasing
extent (see above), the notion of stable business models within clearly defined industry
boundaries is more and more challenged. Hence, there is a need for a new perspective on
business environments besides the organizational environment perspective that covers the
multidimensionality of business model innovation processes. Business models transcend
blurring industry boundaries and the analogous application of business models from other
domains has been identified as valuable source for generating business model innovation
options (Gavetti et al. 2005; Enkel & Gassmann 2010; Gassmann, Csik, et al. 2012; Gassmann
et al. 2013). The importance of analogies in the business model innovation process has been
explained in more detail above in Chapter 5.5.2.2.
6.4 Scanning the Environment of Business Models

In the literature the scanning of the environment is described as an important process of strategic
management: “scanning is the first link in the chain of perceptions and actions that permit an
organization to adapt to its environment” (Jennings & Lumpkin 1992, p.791). In a similar vein,
Hambrick (1982) sees environmental scanning as a key step towards organizational adaption.
The business environment has been identified as an important contingency for competitive
strategy and supply chain management (Chi et al. 2009). In strategic management the
importance of a structured approach for monitoring a firm’s environment has been recognized
and consequently organizations scan their environment to understand external forces of change
(Hagen et al. 2003).
The literature on environmental scanning defines the latter as the analysis of “information about
every sector of the external environment that can help management to plan for the
organization’s future. Scanning covers not only competitors, suppliers and customers, but also
includes technology, economic conditions, political and regulatory environment, and social and
demographic trends” (Choo 1999, p.21).
Environmental scanning plays an important role in strategy development and influences

corporate performance: Murphy et al. (1992) observed that firms involved in environmental
scanning activities were significantly larger and more profitable than non-scanning firms. These
findings are coherent with the results of a study from Subramanian et al. (1993) indicating a
strong relationship between the performance of a firm (in terms of profitability and growth) and
the existence of scanning systems.
Environmental scanning can be conceived of as a key step in achieving alignment between a

firm’s strategy and its outside environment (Beal 2000; Hagen et al. 2003). Taking up the notion
outlined above that the selection or configuration of a powerful business model is a major task
of strategy work, it seems obvious that environmental scanning is a prerequisite for anticipating
changes of the environment in the business model. Organizations thus seem to benefit from
scanning the environment of a business model to understand external forces of change so they
may develop adjustments or reconfigurations for the existing business model to secure or
improve corporate performance.
As Hagen et al. (2003) outline, profound environmental analysis is not only about gathering
information about the environment, but also classifying the significance for the organization,
monitoring high priority issues, and forecasting future developments. As remarked by Smircich
and Stubbart (1985), strategists must be able to “access, organize, and evaluate data without
mistakes. Strategists overcome the problem of deciding what information is worth bothering
about by using frameworks or lists” (1985, p.725). Consequently, a first step towards a
Conceptualizing the Environment of Business Models 199
framework for the analysis of environmental factors that significantly affect a firm’s business
model is needed.
6.5 Conceptualizing the Environment of Business Models
6.5.1 The Business Model Environment Framework

The concept behind the business model environment framework (BME framework) is based on
the seminal work of Duncan (Duncan 1972). The author states “if a theory of organization-
environment interaction is to be developed to facilitate empirical research, it is necessary that
the […] dimensions of the environment be more clearly defined” (1972, p.313). The BME
framework consists of 13 dimensions (Table 50 and Figure 46). Each dimension is specified
through factors, representing a non-exhaustive enumeration.
According to Johnson et al. (2006), the simple identification of influences is not enough. In
fact, the challenge for strategists lies in understanding the impact of these forces. This is
necessary because dimensions of the environment differ in importance (Garg et al. 2003).
Consequently, dimensions with similar impact on the business model are grouped to one layer
(Figure 46).
In the suggested BME framework, the environment is conceptualized from a business model’s
perspective. In other words, the environment is not seen from an organizations point of view as
it has been done so far in the literature on business environments. Instead, the business model
is the view from which the environmental scanning process is conducted.
Consequently, in the BME map (Figure 47) the business model builds the core. To assess the
impact of different environmental factors on the business model, it is necessary, at first, to
achieve a sound understanding of what the latter is like, what components is it made of and
what is included in the business model concept. Only after a common understanding of the
business model construct has been established, a scanning process of the environment can be
initiated.
Table 50: Relevant Publications for the Conceptualization of the BME
Dimension Relevant Publications
Duncan 1972; Bourgeois 1980; Kast 1980; Jauch et al. 1980; McCann 1985; Choo 1999; Beal
Customer 2000; Nadkarni & Narayanan 2007; Nadkarni & Barr 2008
Product Beal 2000; Nadkarni & Narayanan 2007; Naesens et al. 2007
Duncan 1972; Jelinek & Burstein 1982; McCann 1985; Dess & Rasheed 1991; Boyd et al.
Institution 1993; Choo 1999; Johnson et al. 2006; Naesens et al. 2007
Duncan 1972; Neubauer & Solomon 1977; Kast 1980; Jauch et al. 1980; Jelinek & Burstein
Key
1982; Dutton & Abrahamson 1989; Subramanian et al. 1993; Choo 1999; Beal 2000; Nadkarni
Technologies & Barr 2008; Teece 2010
Operating Dill 1958; Kast 1980; McCann 1985; Beal 2000; Nadkarni & Narayanan 2007; Nadkarni &
Resources Barr 2008
Dill 1958; Duncan 1972; Bourgeois 1980; Kast 1980; Jauch et al. 1980; McCann 1985; Dutton
Competitors & Abrahamson 1989; Beal 2000; Johnson et al. 2006; Nadkarni & Narayanan 2007; Nadkarni
& Barr 2008; Demil & Lecocq 2010
Other Business Nadkarni & Narayanan 2007; Johnson et al. 2008; Markides 2008; McGrath 2011; Gassmann,
Models Csik, et al. 2012
General Market Dill 1958; Neubauer & Solomon 1977; Jelinek & Burstein 1982; Choo 1999; Huffman 2001;
Attributes Johnson et al. 2006; Nadkarni & Narayanan 2007; Nadkarni & Barr 2008
Duncan 1972; Neubauer & Solomon 1977; Bourgeois 1980; Kast 1980; Jauch et al. 1980;
Social
Dutton & Abrahamson 1989; Subramanian et al. 1993; Choo 1999; Beal 2000; Huffman 2001;
Dimension Johnson et al. 2006; Demil & Lecocq 2010
Dill 1958; Duncan 1972; Neubauer & Solomon 1977; Bourgeois 1980; Kast 1980; Jauch et al.
Political
1980; McCann 1985; Dutton & Abrahamson 1989; Subramanian et al. 1993; Beal 2000;
Dimension Johnson et al. 2006; Nadkarni & Barr 2008
Dill 1958; Duncan 1972; Neubauer & Solomon 1977; Bourgeois 1980; Kast 1980; Jauch et al.
Legal 1980; McCann 1985; Subramanian et al. 1993; Beal 2000; Johnson et al. 2006; Nadkarni &
Barr 2008
Micro & Macro Neubauer & Solomon 1977; Bourgeois 1980; Huffman 2001; Osterwalder & Pigneur 2010;
Trends Demil & Lecocq 2010; Teece 2010
Forces of Tripsas & Gavetti 2000; Trader-Leigh 2002; Sommerlatte 2005; Markides 2008; Fosfuri &
Inertia Rønde 2009; Self & Schraeder 2009; Smith et al. 2010
Figure 46: The Business Model Environment Framework
Interface Layer Asset Layer Market Layer Society Layer
Dimensions
Legal
Models
Product
Customer
Operating
Attributes
Institution
Dimension
Competitors
human, natural)
Other Business
General Market
Social Dimension
Key Technologies
Political Dimension
Resources (financial,
needs high / low quality size life cycle resource intensity competitive other BM inside market size culture political stability (de-)regulation
(duration of, pressure firms using the
segmentation involvement / market share position on) cost of resources respective BM entry barriers demographics single markets litigations
emotionality number of
homogeneity / multinationality state of available access to competitors BM external to fragmentation income subsidies certifications /
heterogeneity complexity / technology resources the company but distribution accreditations
functionality core competencies risk of new in the specific growth potential moral suasion
power of technological competitors environment level of education IPR
customer: complementary / ability to access standards potential for
supplementary required resources cost structure BM from other economies of moral suasion tax
Factors
loyalty dominant designs environments scale
life cycle flexibility pricing employment laws
switching costs (duration of, patents market
position on) value network margins transparency health & safety
Conceptualizing the Environment of Business Models
lock-in laws
demand organizational
brand relevance variability structure compliance
role of substitutes corporate culture

customer
relevance of technological
price elasticity physical distance development level
stakeholders
Forces Layer
Micro & Macro Trends Driving forces on a micro level (=depending on environment in consideration): e.g., increased importance of social networks or technological convergence; mega trends
(=independent of environment in consideration) such as aging society, urbanization, connectivity, new work forms, increased mobility etc.
Forces of Inertia Forces that result in resistance and reluctance to changes in the current environment, e.g., technology lacking behind, current business model is still successful, bureaucracy,
inflexible organizational architectures etc.

201
6.5.2 The Business Model Environment Map

The closer the layer to the business model, the higher is the impact on it. In some cases this
relationship seems to be bidirectional, so that a closer layer means also a higher level of
interaction. Of course the intensity of influence or interaction depends on the business model
environment in consideration, but some dimensions are – one a general level – more closely
linked to the business model and thus more relevant when adapting, re-configuring, or creating
business models. This relationship is indicated in the business model environment map (Figure
47).
Figure 47: The Business Model Environment Map

6.5.3 The Dimensions of the Business Model Environment

As has been already elaborated above, the factors deemed relevant for the context of business
models by the experts were aggregated to 13 dimensions layer. The dimensions of the “interface
layer” are discussed in more detail in the following section. Many of the other dimensions are
well-known either from traditional “organizational environment” or “industry” analysis and
quite straightforward. This does not come as a surprise, as the three perspectives on business
environments identified are partly overlapping (Table 49).
The dimension “other business models” accounts for the fact that the business model which
meets the requirements of the relevant ecosystem best is one of the major sources of competitive
advantage in dynamic environments. As a company has to constantly monitor alternatives for
its existing business model, it is in competition with other business models, be it from within
the company (e.g. from other business units), from other business models within the same
business environment (but incorporated from a different institution), or even from completely
different contexts.
The dimension “micro & macro trends” describe forces that are motors for change. Whereas
micro trends are business model environment specific, macro trends are ubiquitous. For
example, a micro trend is a technological development (e.g., increased mobility of computing
devices), resulting in a change of lifestyles (e.g., increased flexibility regarding work forms in
terms of time and location), which then alters consumer behaviors, and finally result in new
customer needs to be addressed in a new business model. This source of dynamism of business
model environments is partly countered by “forces of inertia”. This dimension covers those
factors that result in a resistance to change. Naturally, these are very context specific. In the
development of smart grids, for instance, these forces could be a lack of energy storage capacity,
low economies of scale for renewable energy generation, strong market position of power
suppliers, conventional thinking and behavior of power users, or complexity of the existing
power distribution network.
6.5.4 The Interface Business Model to Business Model Environment –

Opportunities for Business Model Innovation
Johnson et al. (2008) suggest that established companies cannot succeed with new offerings as
long as they do not understand how the business opportunity is related to the business model.
Following this notion, it is necessary to learn more about the customer, the product, and the
company in the first place. These three dimensions are closely enmeshed with the concept of
the business model, sometimes even seen as part of the business model itself (Osterwalder &
Pigneur 2010) and hence referred to as “interface layer”.
Customer
When designing, re-configuring, or adapting the business model, the value proposition is a
central aspect. In the literature it is emphasized that satisfying real customer needs by
developing a strong value proposition is a key to corporate success. The basic question is: What
kind of needs can be identified in a given environment? Learning more about the needs of
people helps to detect groups of potential customers: assessing the homogeneity / heterogeneity
of needs leads to a natural segmentation process. After identifying segments of (potential)
customers, a firm can decide whether it wants to serve one or more groups of customers and,
depending on the extent of heterogeneity, whether one business model or different business
models are necessary to best fulfill the needs of customers.
The power of customers determines the leeway in several decisions regarding the business
model. For instance in food retailing, the suppliers of foods usually have very limited room for
negotiations with their customers, the big supermarket chains. The latter often threaten with
delisting, i.e., removing products from the shelves, to apply pressure in pricing negotiations
(the options regarding the revenue model are tremendously reduced in this case). In specific
environments it is possible to circumnavigate or ease off the great power of customers by
tapping additional customer segments resulting in reduced dependency from a specific
customer segment. The power of customers is often a consequence of their loyalty, the existence
of switching costs, or a lock-in mechanism in the environment. Customer loyalty is increased
when switching costs are high. For instance when changing from one software system to
another, a company is likely to run into high costs for installing the new system and for training
employees. Customer lock-in and switching costs are a great example of the interplay between
business model and business model environment. Both can be either determined by the
environment or by the business model, as the following example shows: In the 1970s retailing
in the consumer electronics industry was characterized by many small retailers offering only a
limited selection of products and consumers had more commitment to national brands than to
retailers – all resulting in low switching costs. Circuit City (a consumer electronics reseller;
bankruptcy in 2008) invested in large stores (offering a wide selection of brands and products),
in automated distribution centers (increasing availability of products), and in brand building
measures (Gavetti & Rivkin 2005; Gavetti et al. 2005). As a consequence the attractiveness for
customers to switch from one retailer to another was reduced significantly.
In some environments corporate success is primarily based on a strong brand. In the case of
high brand relevance a purchasing decision is based primarily on the fit between the values and
the message the brand stands for and the customer’s personal preferences. In such environments
the brand building process builds the basis for a powerful business model. But even in
environments where brands are very important, such as the fashion business, some innovative
business models can be successful although the firm cannot rely on a strong brand: Threadless
is a fashion company with a completely disruptive business model compared to the

conventional apparel industry.55 Threadless focuses on a well-known fashion item: T-shirts
with colorful graphics. This type of product is typically hit or miss, with success contingent on
a company’s ability to identify fast changing trends and the ability to develop a hip and trendy
brand. Despite neither having a strong brand, nor sophisticated market research, nor forecasting
capabilities, none of Threadless’ hundreds of products has ever flopped. Rather, Threadless
relies on a community of customers, including hobbyists as well as professional graphic
designers, who submit, inspect, and approve all designs. In this way, Threadless can exploit a
pool of talent and ideas that is much larger than the company could possibly afford if it relied
instead on an internal process. Moreover, Threadless will manufacture only those designs that
have garnered the necessary number of preorders from interested customers, thereby ensuring
each product’s success. Each week on the Threadless website, customers can evaluate between
400 and 600 new submissions on a scale from zero to five. On average, each design is rated by
1,500 people (Chafkin 2008). In addition, customers can express their desire to purchase a
submission, and Threadless uses that information to determine which products should be
developed and manufactured.
The Threadless example clearly depicts that questioning the current role of customers helps to
create new business models. For a long time the prevailing strategic approach saw the company
and the customer as two different and separated entities, resulting in the basic assumption that
the firm strives to create value whereas the exogenous customer is only seen as the passive
recipient of the company’s value creation efforts. In several environments companies are
increasingly intensifying relationships and cooperation with resources located outside the firm.
One possibility is to use innovative users and customers as a resource; this idea is referred to as
community sourcing. In a recent study of Schau et al. (2009), it was shown that users and
customers are able to be active co-creators of value (Payne et al. 2008), co-create competitive
strategy and collaborate in the firm’s innovation process (von Hippel 2005a; Prügl & Schreier
2006). The systematic integration of the customer in the process of value creation has triggered
the development of game-changing business models. Communities of users have taken center
stage in media and entertainment businesses where user-generated content is increasingly
replacing that of traditional providers (e.g., YouTube or Wikipedia). Similarly, products in both
high-tech industries (e.g., medical equipment, biotechnology, nanotechnology) and low-tech
industries (e.g., sports equipment) increasingly are being developed by communities of users
either independently or in collaboration with incumbent firms (Keinz & Prügl 2010).
55
For more details on Threadless see the report from Chafkin (2008), available at
http://www.inc.com/magazine/20080601/the-customer-is-the-company.html, last retrieved on December 13,
2014.
Finally yet importantly, it is vital to know how people react on changes in the prices of a
product, which is expressed as the price elasticity. In inelastic environments, i.e. when the
absolute value of price elasticity is less than one, changes in the price of a product or service
result in relatively small changes in the quantity of goods demanded. In elastic environments,
i.e. when the absolute value of price elasticity is greater than one, changes in price have a
relatively strong effect on the demand for a product or service. Assessing the price elasticity of
a business model environment helps to construct or adapt a revenue model that meets the
requirements of the environment. Price sensitive environments boost business models that
reduce costs in the value creation process (e.g., by establishing partnerships with other
companies, entering joint ventures, or shortening the value-chain through new distribution
channels).
Product
An important differentiation has to be made at this point: In the business model literature it
seems that the terms “product” and “value proposition” are often used interchangeably. The
author deems this synonymous use erroneous. He sees the value proposition as part of the
business model as it describes the benefit of the offer the company makes to its customers, what
problems are solved and which needs are satisfied. The products are the means to achieve this
value proposition. In a business model environment there are usually different products
available to fulfill the same value proposition. In the current discussion on the future of the
automotive industry, electric cars are playing an increasingly important role and are high on the
agenda on every big car manufacturer’s priority list. E-mobility nurtures the re-thinking of
mobility concepts. The value proposition could be to offer the customer comfortable,
environmentally friendly mobility at a fair price. In this case different products might be able
to deliver this value: e-cars, conventional eco-friendly combustion engine powered cars, or
increased public transportation services. The variety of products with the same value
proposition, in turn, leads to different business models. For e-mobility this could be car sharing,
a combination of power supply contracts and ownership of e-cars subsidized by utilities, the
lease of e-cars, or short-term rentals.
Many companies have invested heavily in the development of a specific product (in this context
the term product is used for physical products as well as services). Thus, the product and its
properties influence the choices regarding the business model. High quality products for
instance often can (or must) be combined with additional services related to the product as
customers are expecting a more comprehensive product experience. A low quality product on
the other hand might require more attention regarding the cost structure of the financial model
as it supposed to be relatively cheap. The former is particularly influenced by the resources
needed (“operating resources” dimension), the potential of economies of scale (“general market
attributes” dimension), and the size of the company (“institution” dimension).
Especially when companies are developing new business models or want to transfer existing
business models from other domains, it is necessary to assess if these business models reflect
the product involvement and the emotionality regarding their own products. A business model
based on a “no-frills” concept will be effective in rather commoditized areas, such as flights,
train tickets, or car rentals, while it is likely to fail for wedding planning services. Involvement
and emotionality regarding a product may change over time. In a recent pan-European study 4
out of 10 car owners consider getting rid of at least one of their cars or consider doing so in
next 12 months.56 Their decision is primarily based on economic and ecological reasons. Kruse
(2009) concludes in one of his studies that, whereas the car was the status symbol number one
for the last decades, it has now lost its pole position in the emotional space. Ownership of a car
is constantly losing importance in favor of car-rental or car-sharing concepts.
A product’s complexity and functionality respectively are factors that have similar impact on
the appropriateness of a business model. A highly sophisticated product needs more interaction
with the customer, resulting for instance in the need for better trained and more sales staff, in a
reduced number of options regarding the distribution channels or in possibilities to sell
additional services for customers such as trainings or workshops. When a product is
complementary or supplementary to other products, this definitely has to be taken into account.
The success story of Apple’s iTunes, iPod and iPhone, often named as a perfect example for
business model innovation, clearly depicts the value of a business model that is tailored around
“linked” products.
As a product runs through the different phases of its lifecycle, the business model has to be
adapted accordingly. During the development/R&D phase, the emphasis is likely to be on the
development of a suitable production model that allows capitalizing on, for example, a new
technology. During the implementation/roll-out phase, the business model should allow to go
into the market quickly and to get feedback from customers as early as possible. New businesses
bringing a new product to the market “revise their business models four times or so on the road
to profitability” (Johnson et al. 2008, p.59). Especially when the product is on the declining
path of its life cycle, an improved business model could guarantee constant revenues. The latter
is something that products with great demand variability hardly deliver. If sales depend on
external factors like the seasons or the weather respectively, the business model must deal with
volatile revenue streams.
Substitutes are often seen as a threat. However, they can be a source or driver for business model
innovation as well. Postal services are currently threatened by increased use of e-mails instead
of conventional mailings and by electronic media in general. New offers, such as the e-
56
According to „European Transportation & Mobility Observatory 2009”, Ipsos Market Research, available at
http://germany.europcar.de/eci_pdfs/europcar_mobility_survey_10.pdf, last retrieved on December 2, 2014.
postcards, combine the advantages of both worlds. The user creates individual postcards by
uploading a digital picture either via computer or directly from a smartphone, which are
subsequently printed and delivered by the postal service company. The Internet and related
technological developments led to a decrease in the relevance of the physical distance. This
factor describes how important it is for a company to position its value creating efforts close to
the customer’s location. In many environments physical proximity has become almost
irrelevant (e.g., service centers or call centers are outsourced to low cost countries). In other
environments, though, open innovation, a more integrated value-creation process, joint R&D
efforts, and organizational networks require low physical distance (e.g., automotive clusters),
networked business models, and new business models on the interorganization level (Provan et
al. 2007).
Institution
This dimension characterizes the organization that incorporates the business model: In most
cases that are profit-oriented businesses or not-for-profit organizations, but the factors are also
applicable to asses an association, a government or any other entity that creates and captures
value.
Markides and Oyon (2010) outline that the attractiveness of a new market space which has been
created by a new business model depends on factors like the size or the competencies of a firm.
The authors state accordingly “this might seem like an obvious point but it is amazing how many
established firms plunge into the new markets without giving careful consideration to whether
the new market is right for them” (2010, p.7).
Of course, size, market share, and multinationality, i.e., managing production or delivering
services in more than one country, have impact on the selection and the design of a business
model. Some business models can only be operated by big companies as they demand, for
instance, specific assets and, hence, challenge the ability to access required resources. Big
multinationals eventually gain advantage through greater bargaining power and more
possibilities to realize economies of scale. Some business models, though, require high
organizational flexibility and consequently are especially relevant for small companies or
startups.
Amor all, a company offering tire shining products, managed to reach 300 million dollars of
revenue with only five employees. By assigning third parties with all tasks that did not belong
to its core business, Amor all, kept its flexibility high and payroll costs low – resulting in a
business model easily scalable up and down as outlined by Jim Muehlhausen from the Business
Model Institute.57
57
http://businessmodelinstitute.com
A factor that has become even more important in the last couple of years is the network a firm
is embedded in. New business models are increasingly based on a corporate environment where
networking, sharing, and acting globally are at the center stage of value creation. As many
different actors (suppliers, business partners, alliances, and customers) are involved in the co-
creation of value, mastering the design and the management of interconnected, co-productive
offerings become a central aspect of the business model. This is also involves the
reconfiguration of roles, relationships, and structures. Traditionally in Porter’s value chain
theory (1985) value activities are regarded as linear. However, the notion that a linear
configuration does not suffice to explain value creation efforts in dynamic environments has
gained more and more attention in academic literature (Weitzel et al. 2000; Wirtz 2010). New
business models result in more than one-way value chains, starting from suppliers and ending
at customers: The complicated linkages of value chains between firms, customers, and suppliers
constitute a value network, where all the value creation and capture activities happen.
The case of Nespresso shows, that organizational structure, and corporate culture define
whether a business model works in a specific company. The basic idea behind Nespresso –
selling Coffee as a luxury good – met with resistance and reluctance of Nestlé’s managers. As
they had a fast moving consumer good (FMCG) background, they didn’t see a point in selling
coffee at a high price with an expensive machine through mail order (later complemented with
high-end retail stores at premium locations) – a disruptive business model for selling coffee.
Nestlé is tailored to sell mass market products (e.g, Nescafé) – and this was entrenched in its
corporate culture. Selling a luxury good was completely new to the company and its employees.
Nestlé and Nespresso had very different business models: Nescafé focuses on instant coffee
sold through mass-market retailers, while Nespresso concentrates on direct sales in the premium
segment. As the potential of the Nespresso concept had been recognized, the company decided
to create a separate unit to solve these incompatibilities (Markides & Oyon 2000). When Nestlé
introduced Dolce Gusto (a rather low-priced coffee compared to Nespresso), however, it
decided to house it within the existing Nescafé division, using the Nescafé business model.
The success of many companies originates in their ability to exploit the relevant technologies
in their specific environment. By investing in new technologies, the firm reaches a higher level
of technological development which in turn results in new business model opportunities.
Consider the Circuit City example outlined above: One of the advantages that Circuit City
offered its customers in comparison to small retailers back in the 1970’s was the availability of
a great variety of products (contrary to small retailers only offering a limited selection of
products and brands with many items often not available). To realize this advantage, the
company had to invest in information technology that allowed sales tracking (recognition of
sales patterns) in combination with automated distribution centers. Tracking information
allowed another company to gain competitive advantage: By making information on parcel
tracking available to customers on its website, UPS was able to significantly reduce customer
service costs to a few cents compared to a couple of dollars for an incoming phone call at the
UPS customer service center.
In the BME framework several groups of stakeholders (e.g., suppliers, customers, and
employees) are represented. Suppliers are part of a company’s value network, customers build
one of the most important dimensions, and employees influence organizational culture and
represent a key resource. One group that particularly influences the business models of startups
or young companies are shareholders. The expectations of shareholders must be considered
when defining a business model. What does an investor expect from a company? Are investors
willing to further invest in a specific business model? Is the short-term financial success a major
goal of the investment or is it sustainable long-term growth? This has been also previously
outlined above in the light of business model delivery (Chapter 5.5.3).
6.6 Exemplary Application of the BME Framework

The retrospective case studies of company A and company B revealed the importance of the
business model environment regarding decisions taken by management about strategies and
business models (Chapter 4.2 and Chapter 4.3). In the following, in an exemplary application
of the BME framework, the most important factors in the business model environment that
contributed to (1) company B’s development of a new business model for architectural
applications of wire mesh in the 1990s (Figure 30) and to (2) company B’s decision to become
a filtration service provider (Figure 31 and Figure 34) are highlighted.
(1) As has been outlined already, the first business model innovation of company B dates back
to the year 1992. The BME framework for company B (Figure 48) depicts the changes in the
society layer of the business model environment, i.e. political instability due to the
disintegration of the USSR, resulted in a more fragmented and smaller market (changes
regarding market layer > general market attributes) and an altered competitive landscape
(market layer > competitors). Company B saw shrinking market shares and times of a steady
demand for its products in the former Eastern Bloc were over (interface layer > institution and
product). As the company had lost one third of its revenue and faced several economic
challenges (e.g., out-standing debts were not covered, stock could not be reduced, and
production planning had to be revised completely), B started to look for alternative revenue
sources and finally developed a new offer by identifying alternative applications for an existing
product (wire mesh). Wire mesh was now used for architectural applications. In order to meet
the requirements regarding organizational structure opposed by the new business model, a
higher degree of organizational flexibility was demanded.
Figure 48: Business Model Environment of Company B in 1992 – Architecture
Interface Layer Asset Layer Market Layer Society Layer

Legal
Models
Product
Customer
Operating
Attributes
Institution
Dimension
Competitors
human, natural)
General Market
Other Business
Social Dimension
Key Technologies
Political Dimension
competitive market size political
demand market share pressure reduced stability
variability reduced increased lost
increased fragmentation
more flexibility risk of new increased
needed competitors
increased
organizational
structure cost structure
changed to changed
meet new
requirements pricing under
pressure
Forces Layer
Micro & Macro Trends

Forces of Inertia
211
(2) The prevailing business model in the filtration business (Figure 49; market layer > other
business models) was characterized by a relatively low price for machines combined with high
prices for replacement media. As filter media (e.g., paper filters) was of low quality and had to
be replaced regularly, high maintenance cost and increased handling costs resulted in discontent
of customers. Such unmet customer needs (interface layer > customers) opened the opportunity
for company B to develop high quality solutions for various filtration tasks. This required the
development of new competences as well as access to and hiring of various experts (interface
layer > institution). Moreover, filtration systems and simulation services became essential
elements of the company’s portfolio of key technologies (asset layer).
Figure 49: Business Model Environment of Company B in 2004 – Filtration Services
Interface Layer Asset Layer Market Layer Society Layer Legal
Models
Product
Customer
Operating
Attributes
Institution
Dimension
Competitors
human, natural)
General Market
Other Business
Social Dimension
Key Technologies
Political Dimension
needs for a high quality new core technical resource pricing of BM external
new offer in solutions vs. competencies development of intensity high services to the
filtration so low quality had to be filtration regarding HR higher through company
far unmet filter spare developed solutions and simulation high level of but in the
parts facilities expertise filtration
role of access to business
customer required access to human (selling
changes as resources resources filtration
it became (e.g., difficult (e.g., systems as
an laboratory search for inkjet-
important facilities, HR) experts) printers)

partner resulted in
value network an unmet
was extended customer
(new need
cooperations)
Forces Layer
Micro & Macro Trends
Forces of Inertia
213

6.7 Conclusion
The empirical studies conducted in this research effort – in accordance with prior literature –
have suggested that the business environment is an important issue that needs to be considered
in business model innovation processes as the isolated consideration of a business model omits
important business model design implications posed by the environment. Despite the recent
increase in business model research and the notion that a business model can never be assessed
in abstract, there is no pioneering research on business environment concepts that account for
the phenomena of blurring industry boundaries and increasingly unstable business models. As
a consequence, in this chapter a new perspective for business environments was developed.
Whereas existing research mainly differentiates between industry and organizational
environment, in this chapter the business model environment was conceptualized as an
alternative approach. The BME framework and the BME map, both developed based on a
comprehensive literature review and expert interviews, serve to specify this new perspective.
The BME map and the BME framework encompass five layers: the interface, asset, market,
society, and forces layer. The interface layer (comprising the dimensions customer, product,
and institution) is most closely linked to the business model itself and illustrate those factors
that seem to exert the greatest impact regarding business model design. The asset, market, and
society layer build some form of business model “ecosystem” which needs to be thoroughly
investigated in business model design processes. Especially the ability to anticipate changes in
this ecosystem as well as to anticipate the impact on the interface layer and the business model
itself seem to be a crucial element of business model innovation processes. This notion is further
supported by studies showing that companies that engage in environmental scanning activities
are more profitable than non-scanning firms (Murphy et al. 1992; Beal 2000; Hagen et al. 2003).
Such changes in the business model environment are often rooted in context specific micro or
ubiquitous macro trends. These “motors of change” of business model environments are partly
countered by “forces of inertia”. This dimension result in a slowdown of changes in the business
model environment.
In identifying relevant dimensions which must be considered when assessing business models
environments, the framework and the map provide a basis for further studies and might serve
as a catalyst for a unified research on the interaction between business models and their
respective environments. Moreover, the tools represent a structured approach for general
environment and trend assessments and for the analysis of the links between a specific business
model and its environment. The framework could be used to identify business model innovation
opportunities as it allows for comparability of trends and developments beyond the boundaries
of industries and it serves as a basis for the development of scenarios describing future
conditions potentially requiring tremendous shifts in the current business model of a company.
Conclusion 215
As has been explained in detail above (Chapter 5.5.2.1, Table 46) analogies with business
models were found to be an important source for inspiration in developing new business model
ideas. However, it is important to avoid “superficial mappings” (Gavetti et al. 2005). Gavetti et
al. (2005) provide an interesting example of how poor analogies might lead to wrong decisions:
„In the context of business strategy, the observable characteristics of an industry may constitute
the dimensions of a representation. Three features of any industry, for instance, are the size of
economies of scale, the size of customer switching costs, and the heterogeneity of customer
tastes. Suppose a manager in a novel setting opts to represent her target problem along these
dimensions. On the basis of an initial assessment of the target, the manager judges that the
target industry is characterized by modest economies of scale, large switching costs, and
diverse customer tastes. The manager then engages in a simple computational procedure:
where has she seen modest economies of scale, large switching costs, and diverse tastes before,
in other industries? The manager reviews her experience and realizes that, in a specific industry
that was similar along these three dimensions, a particular niche provider of high-end,
premium products was highly successful. She then transfers this solution to the target industry,
adopting a small-scale manufacturing policy, a cream-skimming pricing policy, a targeted
sales policy, and so forth. If the dimensions she chose to focus on are the ones that best
summarize the true drivers of performance, the firm improves its odds of success.
The difficulty that faces the analogizing manager is that there are innumerable dimensions
along which one can form a representation and some dimensions may be misleading. Suppose,
for instance, that a different manager facing the same target industry ignores economies of
scale, switching costs, and customer heterogeneity. Instead he pays attention only to the
prevalence of Internet technology in the industry. He notes that the target industry relies heavily
on the Internet for sales, marketing, and distribution.
In his experience with Internet-based industries, successful companies in such settings spend
aggressively in order to get big fast. He deploys this candidate solution in the target industry.
If the prevalence of Internet technology does not truly shape the target landscape, he may find
that his mass-market product is far less appealing to diverse customers than the offerings of
niche competitors and that his large-scale manufacturing operations do not lower his costs. By
focusing on an irrelevant dimension and ignoring three other, more pertinent characteristics,
he has been led to a poor analogy“ (p.695).
The BME framework might help to avoid such “superficial mappings” by comparing the
business model environments of different business models in a structured and more detailed
manner and thus help to explore similarities and differences that need to be considered when
adapting business model patterns from other domains. Hence, its application seems to be
particularly valuable in the phase of “information gathering” (Chapter 5.5.1) in business model
innovation processes. Besides the development of new business models, a regular assessment
of the fit between a company’s existing business model and the particular environmental
conditions needs to be completed on a regular basis to timely uncover the need of business
model re-configuration.
7 Summary & Discussion
This work has been started with an extensive literature review to determine the status quo of
business model research and to understand the relevance of the business model concept in
engaging in new business activities. It was shown that the term “innovation”, initially mainly
related to new products and processes, has received a broader connotation now also including
the business model. However, so far only few studies have empirically investigated business
model innovation processes. To contribute to the further development of theory and managerial
practice regarding the management of business model innovations, this research is based on
three pillars:
(1) Two in-depth retrospective case studies of established companies operating in the business-
to-business sector were conducted to empirically investigate why and when the process of
business model innovation is started (SQ1), to learn how the process of business model
development and business model implementation unfolds in incumbent organizations (SQ2),
and to identify the barriers and drivers to successful business model innovation processes
(SQ3).
(2) Nine longitudinal case studies of innovation teams working on the development of new
business model designs provided rich data to learn how people collaborate in order to develop
new business models (SQ4), to explore the search and discovery processes pertaining to the
design of new business models (SQ5), and to shed more light on the perceptions of individuals
engaging in business model innovation projects (SQ6).
(3) The findings from the empirical studies conducted in this research effort have suggested
that the business environment plays an important role in business model innovation. Despite
the recent increase in interest the business model concept, there is no pioneering research on
business environment conceptualizations that account for the phenomena of blurring industry
boundaries and increasingly unstable business models. Whereas existing research mainly
differentiates between industry and organizational environment, in this chapter the business
model environment (BME) was conceptualized as an alternative approach (SQ7). The suggested
BME framework and the BME map serve to specify this new perspective.
This chapter represents an overarching bracket reviewing and discussing the major implications
of this research project. For minor findings and detailed results see the corresponding chapters
above.

7.1 Theoretical Implications

In the following, the major theoretical implications of this study are summarized and discussed
at the organizational (Chapter 7.1.1), the individual (Chapter 7.1.2), and the contextual level
(Chapter 7.1.3) of business model innovation processes. Table 51, Table 52, and Table 53
outline the theoretical implications by providing a short summary of the finding and an
explanation of the relationship between the results and theoretical viewpoints in extant
literature.
7.1.1 Theoretical Implications at the Organizational Level

SQ1: Why and when is the process of business model innovation started in incumbent
organizations?
The research findings suggest that it must be differentiated between factors that lead to a general
need for a new business model for the company and factors that actually make the company
actively develop new models. In the former phase, primarily market related and strategic issues
(e.g., increasing price pressure or competition) result in a gap between the company’s offerings
and the requirements opposed by the business environment. To close this gap, both companies
investigated remained inactive as regards business model development and primarily looked
for solutions based on product or process innovations. Only as those innovations did not suffice
to solve the business problems, the scope of innovation was broadened and also encompassed
the business model. Consequently, projects are not clearly labeled as “business model
innovation projects”. This is in particular an important issue as it was found in the longitudinal
studies that the project title impacts expectations and attitudes of people regarding the project
as well as their openness for new ideas.
The study reveals economic pressure in general and customers (e.g., dissatisfaction with current
business model, unmet needs, willingness to participate in pilot projects) as highly important
external triggers for business model innovation processes. Looking at company internal factors,
a close link between technology, product development, and business model innovation became
evident in both cases. On the one hand, technologies and new product development were found
to be important enablers and prerequisites for new business models. On the other hand, new
technologies and new products required new business models to be successfully brought to
market. Moreover, it is indicate that changes in corporate strategies are likely to be followed by
changes in the business model. The findings of this study help to extend the conceptual link
between strategy and business model. According to Casadesus-Masanell and Ricart (2010),
strategy refers to choosing a business model through which companies compete in the market.
The definition suggested by the authors implies that a clear set of various distinct business
models is at the company’s disposal. However, as this research showed, the effect of changing
Theoretical Implications 219
corporate strategy is more about triggering a sequence of iterations until a new viable business
model design emerges than making the choice between well-defined business model options.
Table 51: Theoretical Implications of Major Findings – Organizational Level
220
SQ1 SQ2 SQ3

Why and when is the process of BMI started? How does the process unfold and what are the What are the barriers and drivers?
most important phases?
Findings The study suggests that it is required to differentiate Three distinct phases were identified: Various barriers and drivers identified on the
between factors leading to a general need for a new BM following dimensions:
and factors triggering BM related initiatives of Sensebreaking: the company senses a divergence culture
incumbents. between its existing offers and market requirements. structure
This phase is characterized by “more of the same”, processes
It was found that companies tend to focus on product or product focus, and limitations through the existing systems
process innovations before turning to BMI. The scope of BM. people
innovation is broadened only after isolated product and
context
process innovations proof not to be sufficient. Sensegiving (SG) & Freezing (FG): is characterized stakeholders
by repeated probe and learn cycles of BM design and
Major external triggers for BMI are economic pressure implementation on strategic and operational level. SG
(e.g., price pressure, low market coverage) and customers [see Table 41 for details]
is characterized by path dependency, unpredictability
(e.g., dissatisfaction with current BM, unmet customer of BM success, resource agility, and environmental
needs). Top-management involvement and commitment
contingencies. FG is characterized by failures,
(processes) as one of the most important drivers.
disappointment, resistance, development of new
Major internal triggers for BMI are changes in corporate capabilities, and new organizational designs.
strategy (e.g., strategic shift from a product manufacturer Various forms of uncertainties (e.g., related to issues
to a full-service provider) and the interplay of technology, such as technology, market, management, and timing)
Refinement: sees adjustments and improvements of a
new products, and BMs (e.g., new products require the as well as corporate change and transformation as
first viable BM.
development of new BMs to be successfully brought to major barriers.
market).
Three milestones of BMI processes: BMI as “people issue” (e.g., reluctance and resistance
1. emergence of need for new BM, from employees, unrealistic expectations regarding
2. recognition of need for new BM, the new business model, envy).
3. achievement of first fit between BM and
environment
The BMI processes is of iterative nature. BM design BMI process cannot aim at efficiency or failure
and BM implementation are more parallel than avoidance, but needs to aim at systematically reducing
sequential. uncertainties by organizational learning through
experimental design and failures.
High degree of top-management involvement and
commitment.
BM ambidexterity with positive and negative effects

on new BMs.
Summary & Discussion
Relationship to The identified interplay of technology, new products, and The concepts of sensebreaking and sensegiving This study fully supports the finding from Bucherer et
existing BMs does confirm the BM’s mediating role between describe strategic organizational top-down processes al. (2012) showing that, in comparison with product
literature & technology and economic value underscored by within organizations (Ashforth et al. 2008; Vuori innovation, top management involvement is even
theoretical Chesbrough and Rosenbloom (2002). [IL] 2011). Freezing involves an operational perspective, more important for business model innovations.
including the feelings of change recipients and Additionally, the rather iterative and non-sequential
viewpoints structural factors (Lewin 1951; Schein 1980; Mantere nature of BMI processes described by the authors is in
et al. 2012). This study extends these two theoretical line with the findings of this study. [IL]
approaches to BM research in order to capture the
[IL] = in line with strategic aspect of business model development Verworn and Herstatt (2007) recommend the “probe
existing theoretical (through the concept of sensebreaking and and learn process” from Lynn et al. (1996) for radical
viewpoints
Theoretical Implications
The study adds to existing BM research by outlining a sensegiving) as well as the operational aspect of innovation projects where the offer and potential
differentiation between factors leading to a need for a new rolling-out the business model (through the construct customers are unclear. This study underlines that the
[EX] = extending of freezing). [EX] “probe and learn” approach, originally aiming
existing theoretical BM and factors triggering BM related initiatives of
incumbents. This partly resonates with the study from systematically reducing uncertainties in product and
viewpoints In line with prior studies (Markides & Charitou 2004; process innovation projects, seems to be also
Bucherer et al. (2012) suggesting a distinction between
situations where companies are forced to change the BM Markides & Oyon 2010), BM ambidexterity has been particularly valuable for BMI projects. [EX]
[CH] = challenging identified as central issue in BMI. [IL]
existing theoretical and situations where companies change the BM in order
viewpoints to capture opportunities. [EX]
The effects of BM ambidexterity found here add to the
existing knowledge in the field. [EX]
Casadesus-Masanell and Ricart’s (2010) definition of the On a conceptual level it is reasonable to differentiate Uncertainty is a key issue in innovation management
relationship between strategy and business models between BM design and BM implementation as (e.g., Tushman 1978; Souder & Moenaert 1992;
implies that a clear set of various distinct business models sequential steps (Mitchell & Coles 2004; Pateli & Damanpour 1996; Tatikonda & Rosenthal 2000; York
is at the company’s disposal. However, as this research Giaglis 2004; Osterwalder et al. 2005; Shi & Manning & Venkataraman 2010). Based on an extensive
shows, the effect of changing corporate strategy is more 2009; Teece 2010). This study, however, underscores literature review, Jalonen (2012) differentiates eight
about triggering a sequence of iterations until a new that in BM practice design and implementation are categories of uncertainties and their general
viable business model design emerges than making the more parallel than sequential. [CH] manifestations. This study identified uncertainty
choice between well-defined business model options. manifestations of business model innovation projects
[CH] The iterative nature of the BMI process found here is and thus extends prior work in that area. [EX]
in line with prior research (Demil & Lecocq 2010;
McGrath 2010). [IL] Research has investigated factors supporting the
development and implementation of innovative ideas,
The relevance of linear innovation process models (Tushman & O’Reilly 1997; Markides 2000; De Wit
(Cooper 1990; Griffin 1997) for BMI is increasingly & Meyer 2004; Govindarajan & Trimble 2005;
challenged by the findings of this study. [CH] Stampfl 2010). Sniukas (2010) developed, based on a
comprehensive review of innovation and strategic
management literature, a framework of dimensions to
assess general corporate innovativeness. These
dimensions are culture, structure, processes, systems,
and people. The findings suggest that context and
stakeholders should be added as additional
dimensions. [EX]
221
SQ2: How does the process of business model development and business model implementation
unfold in an incumbent organization and what are the most important phases of business model
innovation processes?
By linking the data from the case studies with prior literature, it was possible to develop an
analytical model for business model innovation processes in incumbent firms (Figure 35). Three
major milestones build the cornerstones of the process:
1) the emergence of a (latent) need for a new business model,
2) the point where a company recognizes that a new business model has to be developed, and
3) the achievement of a first viable new business model matching environmental conditions
(“1st business model fit”).
The iterative nature of business model innovation processes results in permeable boundaries
between process phases. However, it is still possible to differentiate the distinct phases
sensebreaking, sensegiving, freezing, and refinement. Business model innovation requires a
high degree of top-management involvement and commitment and the parallel existence of two
or more business models (business model ambidexterity) needs to be mastered.
During sensebreaking the firm starts to sense a divergence between its existing offers and
market requirements. Although the firm sensed the need for action, the corporate answers were
insufficient and ineffective (e.g., “more of the same”, strict product focus, corporate myopia
rooted in existing business model). Sensegiving on the strategic level and freezing on the
operational level are phases aiming at the development and implementation of a first viable
business model prototype. Business model success is relatively unpredictable (McGrath 2010).
Consequently, independent from a company’s experience regarding business model innovation,
several iterations are required to develop a viable business model. In this phase the focus lies
rather on iterative probe and learn cycles than on process efficiency. Moreover, business model
design and implementation are rather parallel and continuous than sequential. This is in stark
contrast to traditional process designs used in product innovation (e.g., Cooper 1990; Griffin
1997; Tidd & Bessant 2009). On a strategic level, sensegiving is limited by path dependency,
environmental contingencies, and limited resource agility. During freezing (i.e., the operational
implementation of the business model prototype) it must be dealt with failure, disappointment,
and resistance from customers and employees. Moreover, new organizational capabilities have
to be developed and new organizational designs realized. After a first fit between the new
business model and the specific business environment has been achieved, the subsequent phase
of refinement is characterized by a continuous process of making adaptations to the business
model prototype on a strategic and operational level. Systematically operational improvements
increase financial viability. The need for ongoing business model development processes
identified is in line with prior literature stating that “a sustainable business model is rarely found
immediately, but requires progressive refinements to create internal consistency and/or to adapt
to its environment” (Demil & Lecocq 2010, p.228)
In this research effort various barriers and drivers to successful business model innovation were
identified (Table 41). They can be categorized as culture, structure, process, system, people,
context, and stakeholders. It became evident that top management involvement and
commitment is one of the most important – if not the most important – driver for successful
business model innovation. Corporate leaders play a key role as they need to show strategic
foresight as well as a long-term perspective, to manage the process of organizational change,
and to provide sufficient funding and investments.
Looking at the different barriers to business model innovation, two factors shall be emphasized
at this point. First of all, business model innovation shares an important commonality with other
types of innovation: inherent uncertainty. During the design and implementation of a new
business model, a multitude of uncertainties related to issues such as technology, market,
management, and timing need to be dealt with as has been shown in Table 42. This underlines
again the relevance of an approach that aims not at efficiency or failure avoidance, but which
strives for systematically reducing uncertainties by learning through experimental design and
explorations. Second, business model innovation in incumbent companies involves corporate
change and transformation. The most common obstacles blocking organizational change are
issues related to the people in the organization
(e.g., Piderit 2000; Schroeder 2013). Hence, business model innovation itself represents largely
a people issue. Reluctance and resistance from employees, unrealistic expectations regarding
the new business model, and envy are examples of issues in this regard.
7.1.2 Theoretical Implications at the Individual Level

SQ4: How do people collaborate in order to develop new business models? and
SQ5: What is the nature of the processes pertaining to the search and discovery of new business
models designs?
Building on the work of Maggitti et al. (2013) and the findings from the nine longitudinal
studies, a basic model of business model design processes was developed. The model
differentiates between process stage themes and process influencing themes. The process stages
business model design teams went through during their search for a new business model design
are information gathering, idea casting, construction, and delivery. During information
gathering teams mapped the existing information relevant for the business model and tried to
close knowledge gaps by acquiring additional information. In the next stage (i.e. idea casting)
early ideas for new business model options (which partly appeared already during information
gathering) were discussed, refined, and eventually selected to be worked on more intensively.
The subsequent stage (i.e. construction) was characterized by integrating different ideas in order
to build a business model prototype. The final stage (i.e. delivery) refers to the process of
presenting the new business model prototype to various stakeholders and builds the bridge
between business model conceptualization and realization.
Data clearly illustrate the need of communicating a business model concept to all relevant
parties inside and outside the organization. This finding is supported by the results from the
retrospective case study of company A and recent innovation management literature
underscoring the importance of communication in innovation projects (Collins 2012; Servatius
2012). Although the indicated stages of designing a new business model are linear and rather
simple, the way in which teams progressed through theses stages were highly complex and non-
sequential. Teams iterated back and forth between stages, resulting in several parallel strings of
action. The non-linear, iterative, and recursive process pattern found for the search of a new
business model design is similar to the findings reported from Maggitti et al. (2012)
investigating the nature of search processes for technological inventions.
The following process influencing themes appeared across all investigated cases: context,
collaboration, team composition, and artefacts. Similarly to search processes for technological
inventions (Maggitti et al. 2012), the context in which the process takes place impacts outcomes
(in this study the major difference regarding context was the nature of the companies teams
worked for - startups vs. incumbents). The abundance of new information that needs to be
processed throughout the design process requires effective and efficient collaboration to keep
the business model design process going. In line with prior research (Lipnack & Stamps 2000;
Kirkman et al. 2004; Erickson & Gratton 2007) it was found that face-to-face meetings are,
despite the use of modern communication technologies, most productive and crucial for the
progress. As regards team composition, data suggests (1) that teams whose members know each
other well seem to produce more innovative business model ideas and (2) that team member
personality influences business model idea perception. Data regarding these two issues is
limited and they go beyond the scope of this study. However, further research should shed more
light on the effects of team composition on business model design. The results regarding the
use of artefacts (i.e. sketches, objects, or visual templates such as the business model canvas)
are summarized in Table 47. Besides a supporting function providing structure and focus, the
downside of the use of templates is reduced creativity. This finding resonates with the study
from Eppler et al. (2011), who found that teams are “relatively fixed and forced to think ‘within’
the given domains of the template” (p.1335).
The study further reveals three important issues regarding the design of new business models:
1) A major challenge in designing new business models lies in converting a multitude of
various ideas into testable business model prototypes.
2) Every business model prototype is based on several hypotheses (e.g., regarding customer
needs, the market, trends, or technology). Clearly outlining and communicating these
presumptions supports the further development.
3) It was found that analogies with other business models are an important source of inspiration
and support business model design. In this study most of the “new” business models
developed by the innovation teams were based on or inspired by already existing business
models. This is in line with prior research from colleagues Gassmann, Csik, et al. 2012)
noting that most “new” business models are recombinations of existing ideas, concepts, and
patterns.
Table 52: Theoretical Implications of Major Findings – Individual Level
226
SQ4 SQ5 SQ6

How do people collaborate to develop new BMs? What is the nature of the search and discovery What are the individual perceptions regarding
processes pertaining to new BM designs? BMI projects?
Findings Most ideas generated individually, but further developed in Identification of sequential stages through which Designing a new business model is described as a
groups. teams moved in a circular and recurring process: dynamic, spontaneous, and intuitive process, where
many new ideas and turning points have to be
Ubiquity and spontaneity of ideas. Origin of ideas not Information gathering: collecting, interpreting, processed.
traceable. selecting, and framing data. Definition and
visualization of the existing business model of the Business model development was sensed as a circular,
Collaboration requires support through collaboration tools particular company. Characterized by a rather random recurring, and ongoing process.
for process organization and knowledge repositories. search for relevant information.
Individuals reported that multiple roles (inventor,
Different team members showed different perceptions of Idea casting: process of idea generation, evaluation, innovator, entrepreneur, and innovation manager) had
what constitutes the current business model. While these and selection. The teams evaluated and selected to be combined to overcome the status quo and the
differences led to intense discussion on the status quo, they isolated ideas instead of complete business model challenge of steering the process towards a new
were a valuable source for new business model ideas and prototypes. business model. It was further sensed that great
an important catalyst for further search processes. personal engagement and interest in the project of
(Information gathering and idea casting are to a large every team member represents a prerequisite for
Developing a multitude of ideas into full business model extent simultaneous stages) success.
prototypes represents a challenge for individuals. Path
dependency regarding early ideas. Construction: BM idea developed into a full BM The need for an open mind towards various new ideas
prototype. and the constant rethinking and challenging of the
Documenting and clearly stating the hypotheses underlying existing business model was mentioned multiple
every building block of the business model is of high Delivery: the process of presenting the new business times.
importance in presenting business model ideas to other model prototype to various stakeholders. It builds the
stakeholders. bridge between BM conceptualization and realization.
Non-linear, iterative and recursive character of the business Context: BM design for a startup versus for an
model design process. incumbent.
Catalysts for idea generation: Collaboration: see SQ4.

Definition of existing business model Team composition: indication that “close-friends
Prior experiences teams” produce more innovative ideas. Team member
Analogies personality appears to influence perception of
Face-to-face meetings business model ideas.
Artefacts: provide more structure, but tend to reduce

perceived creativity.
Summary & Discussion
Relationship to Path dependency has been identified as a central issue in The evaluation of isolated ideas instead of complete Existing studies have investigated individual
existing business model development (McGrath 2010). In line with business model prototypes is supported by decision perceptions in relation to various issues in innovation
literature & prior research, it was found in this study that early ideas theory underpinning the tendency of decision makers management, such as creativity (Oldham &
theoretical shaped the further development of business model of not considering all outcomes of their alternatives Cummings 1996), entrepreneurial innovativeness
prototypes and inhibited the design of alternatives. [IL] (March 1994). [IL] (Koellinger 2008), or adoption of technological
viewpoints innovation (Quazi & Talukder 2011). Eppler et al.
The literature outlines that opportunity recognition builds Prior research has shown that artefacts are frequently (2011) investigated the individual perceptions
on discovery and evaluation phases (Hills et al. 1999; involved in innovation projects (Whyte et al. 2007; regarding the use of artefacts in business model
[IL] = in line with Lumpkin et al. 2004). The development of new business Whyte et al. 2008). Eppler et al. (2011) found that the design. However, to the best of the author’s
existing model designs seem to follow a similar pattern. [EX] use of the business model canvas increases perceived knowledge, there is no prior research on the individual
theoretical
collaboration while at the same time decreasing perception of business model innovation projects in
viewpoints Analogies have been found to support strategic decision perceived creativity. The results of this study resonate general. Consequently, the findings are a first step in
taking (Gavetti et al. 2005) and technological innovation with the findings from Eppler et al. (2011) regarding building more knowledge in that aspect of business
[EX] = extending (e.g., Franke & Pötz 2008; Enkel & Gassmann 2010; Keinz lowered creativity and provision of structure and model research. [EX]
existing & Prügl 2010). This study supports earlier findings from focus. By identifying tool ambiguity as an issue for
theoretical Gassmann, Csik, et al. (2012) underlining the importance unexperienced innovation teams this study adds to the
viewpoints of analogies also in the field of business model innovation. existing knowledge in the field. [EX]
[IL]
[CH] =
challenging The non-linear, iterative and recursive character of the In the context of technological invention, Maggitti et
existing business model design process identified in this study al. (2013) developed a model consisting of basic linear
theoretical conflicts with traditional linear innovation process models stages through which individuals progress in a non-
viewpoints (e.g., Cooper 1990, Griffin 1997). This finding indicates linear process. This study indicates a similar process
that iterative innovation processes, as suggested in more model for the development of new business model
recent innovation management literature (Koen et al. 2001; designs and thus extends the findings from the
Schoen et al. 2005; Cooper 2014), are favorable approaches technological to the business model context. [EX]
for business model innovations. [CH]
In contrast to the suggestions from idea generation
theory (Diehl & Stroebe 1987; Simonton 1999) and
practitioner-oriented entrepreneurship literature (e.g.,
Ries 2011; Blank 2013) teams neither developed a
multitude of ideas nor tested fully developed business
model prototypes. [CH]
227
SQ6: What are the individual perceptions of team members regarding business model
innovation projects?
In Table 48 the perceptions of individuals working on the design of a new business model were
summarized regarding the perceived nature, the major challenges, and the perceived
prerequisites of the design process. It is described as a dynamic, spontaneous, and intuitive
process, where a multitude of different ideas and turning points have to be mastered. It is further
characterized as a circular, recurring, and ongoing process. Team members underlined the need
for constant adaptations to the business model as well as the need for an open mind towards
various new ideas. Continuously rethinking and challenging the existing business model was
deemed a crucial steps. Moreover, the complexity of the process was recognized by the
individuals. For instance, it was experienced that multiple roles (e.g., inventor, innovator,
entrepreneur, and innovation manager) had to be combined to overcome the status quo. It was
challenging to steer the process towards a new business model. It was further sensed that great
personal engagement and interest in the project of every team member represents a prerequisite
for success. These findings from the longitudinal studies further detail the issues which have
been previously identified in the retrospective cases of company A and company B.
7.1.3 Theoretical Implications at the Contextual Level

SQ7: What constitutes the context of business model innovation processes?
The case studies showed that the business environment plays a key role in developing new
business models. Today, business models are increasingly instable and must be adapted to
changing environmental conditions. As has been described by Teece (2010), “a business model
cannot be assessed in the abstract; its suitability can only be determined against a particular
business environment or context” (p.191). Moreover, the business environment is an important
factor influencing business model innovation processes. As a consequence, in this study a new
perspective for business environments was developed. Whereas existing research mainly
differentiates between industry and organizational environment, the business model
environment (BME) was conceptualized as an alternative approach. The suggested business
model environment perspective accounts for the issues of increasingly blurring industry
boundaries and dynamic business models. It is further specified through the BME framework
and the BME map. In identifying relevant dimensions which must be considered when assessing
business model environments, the framework and the map provide a basis for further studies
and might serve as a catalyst for a unified research on the interaction between business models
and their respective environments.
Table 53: Theoretical Implications of Major Findings – Contextual Level
SQ7
What constitutes the context of business model innovation processes?
Findings Findings from Literature Review:
Existing literature indicates that the environment plays a key role in business model design:
Environmental conditions represent an important moderator of the relationship between business model design and the performance of a company (Zott & Amit 2007).
The environment has the potential to influence the core components of a business model (Demil & Lecocq 2010).
The components of a business model must be designed with reference to the environment of the business model (Teece 2010).
Moreover, prior studies underline the importance of environmental scanning

as a key step to adapt organizations to their changing environments (Jennings & Lumpkin 1992; Beal 2000; Hagen et al. 2003), and
as a moderator of firm performance (Murphy et al. 1992; Subramanian et al. 1993).
Existing perspectives on business environments focus either on how the industry affects organizations (industry environments) or on how the micro- and macro
environment affects the organization (organizational environments). Both perspectives do not account for increasingly blurring industry boundaries (Ilinitch et al. 1996;
Smith & Zeithaml 1996; Teece 2007) and more and more instable business models (Voelpel et al. 2004; Markides 2008; McGrath 2010).
Consequently, the Business Model Environment is suggested as a new perspective with a focus on the interaction between the business model and its environment.
Conceptualization of the Business Model Environment Framework (see Figure 46)
Interface Layer: Customer, Product, Institution

Asset Layer: Key Technologies, Operating Resources
Market Layer: Competitors, Other Business Models, General Market Attributes
Society Layer: Social, Political, and Legal Dimension
Forces Layer: Micro & Macro Trends, Forces of Inertia
Relationship to The conceptualization of the “Business Model Environment” as a new perspective builds on prior literature showing (1) that the environment plays a key role in business
existing model design and (2) that environmental scanning is an important activity to improve corporate performance (see above). [EX]
literature &
The suggested view is in line with existing business model research demonstrating a close link between business model design and the environment (Zott & Amit 2007;
theoretical Demil & Lecocq 2010; Teece 2010). [IL]
viewpoints
Existing approaches focus either on industry (e.g., Caves & Porter 1977; Porter 1985) or organizational environments (Emery & Trist 1965; Egri & Pinfield 1996;
Frishammar 2006). Both perspectives do not account for increasingly blurring industry boundaries (Ilinitch et al. 1996; Smith & Zeithaml 1996; Teece 2007) and more
and more instable business models (Voelpel et al. 2004; Markides 2008; McGrath 2010). [CH] The business model environment framework closes this gap and extends
business model literature by providing a generic framework containing a comprehensive list of factors which need to be considered in business model development. [EX]
[IL] = in line with existing theoretical viewpoints | [EX] = extending existing theoretical viewpoints | [CH] = challenging existing theoretical viewpoints
229
7.2 Managerial Implications

The managerial implications that can be drawn from this research are summarized in ten
guidelines for business model innovation in incumbent organizations.
(1) In times of fast changing business environments, incumbent organizations seem to be well
advised to proactively search and discover new business model opportunities while their current
business model is still successful. Industry boundaries are increasingly blurring and business
models far from being stable anymore. As companies are more familiar with product and
process innovations, existing organizational abilities and investments might become “rigidities”
in moving towards the development of a new business model.
(2) This research underlined the importance of implementing a structured approach for
monitoring business model environments as a starting point for business model innovation.
Consequently, it is vital to understand external forces of change in order to anticipate relevant
impacts in the business model design. The suggested “Business Model Environment
Framework” and the “Business Model Environment Map” represent a structured approached
for general environment and trend assessments as well as for the analysis of the links between
a specific business model and its environment. Executives and innovation managers could use
such tools to identify business model innovation opportunities.
(3) Business model innovation processes show specific characteristics that make them costly
and complex: Business model innovation projects are characterized by a high degree of various
uncertainties (e.g., regarding markets, customer needs, or technologies). Markets are ill-
defined, as is the evolving offer which makes it quite impossible to predict project outcomes.
Therefore, the focus must lie rather on organizational learning based on an iterative approach
for finding a successful business model design than on efficiency. An experimental instead of
a purely analytical logic is required. Strategically relevant and promising opportunities build
the playground for an iterative approximation towards a first fit between new business model
prototype and market. Hence, classic linear innovation processes (e.g., stage-gate models) are
not well suited to develop new business models
(4) Business model innovations requires a top-down approach. Top management involvement
and support are prerequisites for success. This type of innovation represents a significant
challenge for business leaders as they have to:
show strategic foresight and a longterm perspective,
manage the process of organizational change and development of new organizational
structures required by new business models,
promote new business models internally and externally,
strengthen a supporting corporate culture,
Managerial Implications 231
support employees in taking initiatives and risks,

handle the ambidextrous operation of the existing and the new model in parallel, and
secure sufficient funding and investments required for the development of new business
models.
(5) The development and implementation of a new business model likely entails the
development of new organizational capabilities and establishing relationships to new suppliers,
customers or other business partners. It also imposes the challenge to find out how a market can
be entered the most effective and efficient way.
(6) This research showed that, even for an experienced business model innovator, failure during
a business model innovation process is the rule, not the exception. Success is not around the
corner. Incumbents have to accept that a new business model is likely to remain unprofitable
for a longer period. The process is not completed with the implementation of a first viable
version of the new model. Constant adjustments to the business model are required in order
account for heterogeneous customer needs and changing business environments.
(7) Chances are high that there are (positive) “side effects” of developing new business models:
The work on a new business model might provide inputs and new ideas for new products or
improved processes.
(8) Regarding collaboration in business model design projects, it became evident that face-to-
face meetings are most effective in putting ideas forward. Collaboration should be further
supported by (a) a platform for process management allowing to document the design process,
to organize work, to report on completed tasks, and to communicate quickly (e.g., giving
immediate feedback to spontaneous ideas) and by (b) a knowledge repository where new
information is collected shared, and refined. The abundance of information that has to be
processed throughout business model development calls for a way to share relevant knowledge
with others easily. However, currently there is no such tool available particularly tailored to
business model related projects.
(9) The use of artefacts (e.g., visual business model templates) to design business models helps
to provide structure, a shared language, and simplification. Moreover, it allows to concentrate
on the essential components of the business model. However, it must be noted that the downside
of templates is limited creativity and the template itself might need more specification. Still, in
line with prior research (Vetterli et al. 2012) this study indicates that templates are useful to
develop ideas for new business models into full business model prototypes. Such prototypes
represent an accumulation of various hypotheses, for instance regarding customers, markets, or
the business model’s economics that need to be clearly outlined. Clearly stating the hypotheses
makes the assumptions underlying the business model prototype more tangible.
(10) Analogies are an important catalyst for generating new business model ideas. Being
inspired by proven business models from other domains sparks creativity, helps do generate
new business model designs, and, by building on proven elements of other business models, the
pitfalls of a particular business model pattern can be anticipated. Hence, it is advisable to
capitalize on the fact that (1) most “new” business models are not completely new, but adaptions
or refinements of existing business models (Gassmann, Csik, et al. 2012) and (2) that business
model patterns are successfully applicable across industry boundaries (Gassmann et al. 2013).58
7.3 Limitations & Further Research

The major objective of this dissertation was to explore the specific characteristics and
peculiarities of business model innovation processes. In particular, it aimed at empirically
investigating the nature of business model innovation processes in incumbent firms. By
focusing on the process aspect of business model innovation, this work addresses an important
research gap which has also been previously highlighted by other scholars in the field (e.g.,
Mitchell & Coles 2004; Bucherer et al. 2012). The research questions were answered through
a combination of longitudinal and retrospective research. The synergistic use of real-time
longitudinal and in-depth retrospective case studies is an established methodology specifically
suggested for investigating processes (Leonard-Barton 1990). It offers the opportunity for
complementary and synergistic data gathering and analysis. The particular strength of this
approach is that each type of case study compensates for a weakness of the other type. Whereas
the two in-depth retrospective case studies allowed to focus on the organizational level of
business model innovation processes, the nine long longitudinal cases allowed to “dig deeper”
by zooming into the individual level of business model innovation projects.
This doctoral dissertation has been composed with great diligence to comply with the
requirements of state-of-the-art research in the field of innovation management. The results
have been constantly reviewed in light of the issues derived from prior literature and anchored
in the research context. The author is confident that the findings of this multi-case study
approach provide a solid foundation for future research on business model innovation processes
as several measures suggested in the literature were taken to increase validity and reliability
58
Aiming at immediately transferring the know-how regarding the use of analogies in business model design
(gained through this research effort) into tangible results for managerial practice, the author started a project for a
database on business models in May, 2013. The “Business Model Gallery” (www.businessmodelgallery.com) shall
enhance business model development by providing comprehensive data on various business models for
entrepreneurs, (innovation) managers, and business model designers.
Limitations & Further Research 233
(Duffy 1987; Lewis 1998; Maxwell 2013). Interviews were recorded, transcribed, and reviewed
by interview partners. Multiple sources of evidence such as interviews, protocols, company
documents, observations were used to triangulate data. Informants (i.e., interview partners and
project team members) double-checked the drafts of the in-depth case studies. Findings were
constantly reviewed in the light of prior research. Data gathering and analysis was focused on
pre-defined and similar criteria to increase external validity.
However, despite all efforts, as argued by Thorngate (1976), there is no research in social
sciences that can simultaneously achieve the goals of generalizability, accuracy, and simplicity.
Also in this study several limitations apply. In qualitative research the researcher itself insures
credibility (Patton 2002). In other words, reliability is restricted by the single-observer setting
of this work as data analysis and categorization is subjective and influenced by the researcher’s
involvement in the study for a longer period of time. In order to reduce the room for individual
interpretation of data, research findings were regularly discussed with the relevant informants
who provided data. Looking at the lack of research on business model innovation processes, it
is reasonable to differentiate between the individual and the organizational level of business
model innovation. While this distinction helps to extend theory, the differentiation between the
two levels is not always clear-cut. As with every case study based research, caution must be
applied regarding generalizability (Yin 2003). As the sample is neither comprehensive nor
representative, it does not allow for statistical generalization. Notwithstanding the
methodological care, due to the small sample size of the empirical investigation at the
organizational level, there might be industry or firm specific circumstances that differ from the
described contexts. However, the “logic of replication” still allows for “analytical
generalization” (Yin 2003). In the case of company B, some of the investigated business model
innovation projects lie in the distant past. This might lead to partly distorted information
regarding the sequence and the timing of events. To limit this possible time span bias, multiple
informants were utilized to assess reliability of information received. Moreover, this helped to
avoid a single-informant bias (Ernst & Teichert 1998). In this research, it was deliberately
refrained from taking into account or discussing in detail the insights from change management
theory. With the results from this study serving as a basis for further research, future studies
could take a change management perspective to further investigate business model innovation
at the organizational level. In particular, differences, similarities, and linkages between business
model change and organizational change need to be understood.
As regards the longitudinal studies, two major limitations need to be considered. First, data
were obtained from an Entrepreneurship lecture in which student teams faced the challenge of
either developing a new or re-configuring an existing business model in close cooperation with
a partner company. This setting provided many opportunities to collect data through personal
observation at group meetings as well as group presentations. Moreover, access to all meeting
protocols and project related documents was secured. However, this setting does not take into
account potential firm specific mediators such as hierarchies, compensation, or corporate
culture. It has been shown that the context (e.g., startup vs. incumbent firm) influences the
process. Consequently, other issues related to a corporate setting might affect the nature of the
business model design process. This limitation represents another opportunity for further
research in a corporate setting. Second, the innovation teams where homogenous regarding age
and educational background. Although this was deliberately chosen to preclude team
heterogeneity from influencing the process, it does not represent the (heterogeneous) team
structure usually found in innovation teams (Stampfl 2010). The effects of multidisciplinary
collaboration in innovation projects in general have been extensively investigated (Fay et al.
2006), however the impact on business model innovation projects remains relatively unknown.
In addition to the multi-case study approach to understand the organizational and individual
level of business model innovation processes, the conceptualized perspective of the business
model environment aims at extending the view by putting them into the environmental context.
The factors describing the business environment have been derived from a wide array of
literature streams. The literature is widely divergent and a considerable part of the literature
dates back 30 years or more. Hence, it is quite challenging to make sense of it in the context of
the business model environment. The studies take either an industry or an organization-
environment perspective. Consequently, there is a considerable potential that there exist factors
influencing business model environment that have not yet been discussed in the literature. The
factors attributed to the dimensions in the suggested framework must be considered as a non-
exhaustive enumeration. The framework is generic in nature and, hence, the layers indicating
the different degrees of interaction with the business model might differ widely, depending on
the business model environment in consideration. Further research needs to develop empirical
foundations of the dimensions constituting the “outer context” of business models. As the
suggested frameworks facilitates the identification of different types of environments, future
research needs to shed light on the particularities of specific business model environments (e.g.,
internet-based businesses, not-for-profit business models, or industry 4.0). Clarity needs to be
established on how specific environments are changing, where this dynamism comes from, and
how it could be transformed in business model innovation opportunities.
Besides the research opportunities directly emerging from the limitations of this study, there
are some other important future research trajectories scholars need to focus on in order to
contribute to the development of the field. In general business model research still lacks
quantitative research based on large samples. The results from this study could be sharpened
by additional retrospective and longitudinal case studies. Thereafter a larger quantitative
research approach may be used to test and generalize particular findings. On the organizational
level, the question of how business model innovation can be measured, especially in the light
Limitations & Further Research 235
of organizational learning, is unexplored. Moreover, further research needs to investigate how

stable and defensible business model innovation is and what the costs of business model
innovation are. Additionally, research needs to shed more light on the impact of new
organizational designs and corporate roles (e.g., “head of business model innovation” or
“corporate business model innovation officer”) aiming at supporting business model
innovation. On the individual level, future research should seek to understand to which extent
existing methods known from product innovation represent a suitable approach also for
business model innovation. For instance, is it possible to crowdsource new business model
designs? This study also highlights that there remains a strong need to develop methodologies
to more easily convert business model ideas in business model prototypes and to overcome
limited resource flexibility and environmental contingencies in testing these prototypes.
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Appendix
To access the book’s appendices, please visit www.springer.com and search for the
author’s name.
Appendix I ............................................................................................................................. 271
Appendix II ........................................................................................................................... 281
Appendix III.......................................................................................................................... 333
Appendix IV .......................................................................................................................... 419

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The Process of Business Model Innovation

The Process of Business

Dissertation University of Innsbruck, Austria, 2014

OnlinePlus material to this book can be available on

ISBN 978-3-658-11265-3 ISBN 978-3-658-11266-0 (eBook)

Library of Congress Control Number: 2015949401

Printed on acid-free paper

Springer Gabler is a brand of Springer Fachmedien Wiesbaden

List of Figures ........................................................................................................................XV

List of Tables...................................................................................................................... XVII

List of Abbreviations ........................................................................................................... XIX

2.5.1 Definitions of Business Model Innovation ........................................................... 37

4 Business Model Innovation at the Organizational Level (In-Depth Retrospective

4.2.2 The Business Model Innovation at Company A .................................................. 82

5.5.2 Idea Casting & Construction .............................................................................. 163

6 Business Model Innovation at the Contextual Level (Conceptual Model

7 Summary & Discussion ............................................................................................... 217

Bibliography ......................................................................................................................... 237

Appendix I ............................................................................................................................. 271

Appendix II ........................................................................................................................... 281

Appendix III.......................................................................................................................... 333

Appendix IV .......................................................................................................................... 419

Figure 1: Increasing Use of the Term “Business Model” .......................................................... 1

Figure 33: Focus of Analysis – Company B .......................................................................... 121

Table 1: Research Question – Sub-Questions ............................................................................ 4

Figure 1: Increasing Use of the Term “Business Model”

Average use of the term “business model” in annual reports*

G. Stampfl, The Process of Business Model Innovation,

1.1 Background and Research Context

1.2 Research Objective and Research Question

Table 1: Research Question – Sub-Questions

Level of Analysis Sub-Questions (SQ)

Figure 2: Research Focus

Table 2: Definitions of Key Terms

“A business model articulates the logic and […] demonstrates how a

This definition is deemed most comprehensive as it integrates the

This definition synthesizes definitions of business model innovation

1.3 Structure of Dissertation

2.2 Innovation in General

2.2.1 Definitions of Innovation

G. Stampfl, The Process of Business Model Innovation,

“An innovation is the implementation of a new or significantly improved product (good or

“Innovation activities are all scientific, technological, organizational, financial and

Figure 3: Scope of Innovation

Innovation in the broader sense

Innovation in the narrow sense

R&D Production Dealing with

2.2.2 Types of Innovation

 novelty (the higher, the more challenging it is to manage innovation),

Table 3: Types of Innovation

Product innovation, process

Objective innovation (new to the

What kind of changes are necessary

Pull innovation (triggered by

Table 4: Innovation Classification – Academic Literature and Practitioners

Philips Doblin Sniukas

Business Model Profit Model

Source: own representation

 How innovative wants the company to be (i.e. continuous/evolutionary versus

Figure 4: Internal/External – Continuous/Discontinuous Innovation

Source: adapted from Sniukas 2014

According to Sniukas (2014) operational innovation is defined as technological innovation in

2.3 Innovation Processes

novelty (the higher, the more challenging it is to manage innovation),

How innovative wants the company to be (i.e. continuous/evolutionary versus

(4) social/political uncertainty diversity of interests among stakeholders of

They are too expensive to repeat.

the demise of the current business model