Investigating the Antecedents and Consequences of Business Model Innovation: A Literature Study

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Investigating the Antecedents and Consequences of Business

Model Innovation: A Literature Study

Author Arien Hendriksma

Student number s1879618

University University of Groningen

Topic Business Model Innovation

Supervisor K.R.E. Huizingh

Second supervisor F. Noseleit

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Investigating the Antecedents and Consequences of Business

Model Innovation: A Literature Study

Arien Hendriksmaa

a_{Faculty of Economics and Business,Strategic Innovation Management, Rijksuniversiteit Groningen,}

Netelbosje 2, 9747 AE Groningen, The Netherlands

Abstract

The purpose of this study is to provide a comprehensive definition of business model innovation, based on literature from strategy- and innovation streams. Furthermore, this study identifies the antecedents and consequences of business model innovation, provides a broad overview, and suggests propositions. The identified antecedents are: entrepreneurial orientation, customer-centric orientation, underutilized resources and capabilities, decreasing firm performance, changing customer preferences, technological developments, legal/regulatory changes, and competitive threats. The identified consequences are: sustainable competitive advantage, corporate transformation, differentiation, and improved financial performance. The findings provide a theoretical foundation for future empirical research on business model innovation. The definition could lead to increased cumulative research as it provides a common understanding of business model innovation. Furthermore, the propositions of the antecedents and consequences are ready to be empirically tested.

Keywords: business model innovation, antecedents, consequences, innovation, business model.

Amount of words (excluding references and appendix): 8008

1. Introduction

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Eisert, and Gassman, 2012; Aspara, Hietanen, and Tikkanen, 2010). Furthermore, in trying to circumvent the confusing terminology surrounding BMI, many authors study the concept without giving an explicit definition (Zott et al., 2011), which increases the need for a common understanding.

Next to gaining more knowledge about BMI itself, it is important to investigate the antecedents of BMI to obtain a more thorough understanding of the concept and its drivers. Even though scholars have suggested various antecedents of BMI, these are scattered throughout the literature and a clear overview is lacking. A more thorough understanding of the drivers of BMI is therefore of crucial importance (Schneider and Spieth, 2013).

It is also not clear what the consequences of BMI are for the firm, as investigation of the effects is at an early stage (Zott et al., 2011; Schneider and Spieth, 2013). Therefore, more research is required to understand the potential benefits of BMI for the firm (Hummel, Slowinski, Mathews, and Gilmont, 2010; Schneider and Spieth, 2013).

The literature gaps addressed above provide the scope for this literature study, and result in the following research question:

Main research question: What are the antecedents of business model innovation, and what are its consequences?

In order to answer the main research question, it is necessary to first discuss three sub-questions. These can be found below.

Sub-question 1: What is business model innovation?

Sub-question 2: What are the antecedents of business model innovation?

Sub-question 3: What are the consequences of business model innovation for the firm? This study provides a comprehensive and up-to-date literature review on BMI, which results in three main contributions. First, a new definition of BMI is provided, which incorporates elements of earlier definitions and properly acknowledges the various perspectives within the BMI literature. Second, this study identifies the antecedents, categorizes them into internal and external antecedents, provides a broad overview, and suggests propositions that can be readily tested in future empirical research. Lastly, the consequences of BMI are identified and listed in a broad overview, and propositions are suggested which can be tested in future empirical research. These contributions are visualized in the conceptual model of this study, in Figure 1. This systematic review yields more consolidation for the fragmented BMI field, and will enable more cumulative research on BMI.

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suggested propositions. Finally, this study concludes with a discussion, including findings, contributions, implications for management, limitations, and future research directions.

2. Methodology

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one article, but mostly multiple articles, that is published in a journal qualified by the University of Groningen as a ‘very good’ or ‘top’ journal. Second, every element in the definition, as well as the selected antecedents and consequences, is supported by both conceptual (or literature) and empirical (or case) studies. This criterion is applied to ensure that the selected elements, antecedents and consequences not only find support in theoretical studies, but also prove their value in business contexts. Lastly, the selected elements, antecedents and consequences of BMI are supported by multiple scholars. The following section will discuss the concept of BMI and concludes with a definition, derived from the available BMI literature.

3. Defining Business Model Innovation

In exploring the antecedents and consequences of BMI, it is first necessary to define the concept. Research on BMs and BMI has largely occurred in ‘silos’ which prevents cumulative research (Zott et al., 2011; George and Bock, 2010), and none of the various definitions proposed by scholars has been fully accepted by the business community (Shafer, Smith, and Linder, 2005). This may be due to the fact that authors from different backgrounds (for example strategy, IT, and technology) perform research on BMI and take their own area of expertise as a departure when defining the concept. Morris, Schindehutte and Allen (2005) conducted a content analysis of key words of 30 BMI definitions, and identified that the definitions can be divided into three different categories: economic, operational, and strategic. Logically, scholars from the economics stream will, in their definitions, focus on the logic of profit generation (Morris et al., 2005), which will be different from the focus of the operational stream, where efficiency may play a larger role. This study does not aim to integrate all the elements proposed by these different literature streams. Rather, it is written from the strategic innovation perspective as the majority of the papers on which the definition is based, is published in strategy-oriented journals (e.g. Strategic Management Journal), and journals categorized by the University of Groningen as being innovation-oriented (e.g. Journal of Product Innovation Management; International Journal of Innovation Management; Technovation). Therefore, the definition in this study can deviate from definitions composed by scholars from different fields.

In the following subsections, various BMI definitions are compared and contrasted. Furthermore, as more in-depth research is necessary, the scope of the BM is investigated, and lastly, relevant findings are applied in constructing the definition of BMI.

3.1. Comparing BMI definitions

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cause disagreement are discussed, and those form the foundations for research in further sections of this study.

3.1.1. Consensus concerning BMI

First of all, many scholars agree that BMI can be considered an activity that the firm undertakes. For example, Seddon, Lewis, Freeman and Shanks (2004) and Zott and Amit (2010) argue that when firms innovate their business model, they redesign their activity system to capture and create value. Others do not explicitly mention BMI being an activity, but rather describe the activities that are necessary to innovate (e.g. Bucherer et al., 2012; Chesbrough, 2007; Chesbrough and Rosenbloom, 2002; Johnson et al., 2008; Magretta, 2002; Mitchell and Coles, 2003; Osterwalder and Pigneur, 2010).

Secondly, BMI is not restricted to the firm itself, but involves the firm’s network as well (Lindgren, Taran, and Boer, 2010; Loss and Crave, 2010; Calia, Guerrini, and Moura, 2007). By collaborating with partners, such as suppliers, firms can often increase the speed and quality of their innovation process in order to react faster to market changes and respond to the increasingly demanding customers (Loss and Crave, 2010).

Third, scholars agree that BMI is aimed towards improving the value proposition of the customer, by for example, satisfying existing but unanswered market needs (e.g. Osterwalder and Pigneur, 2010; Moore, 2004; Johnson et al., 2008). Creating value through BMI can both occur in existing markets (e.g. Markides, 2006; Moore, 2004) and by means of creating new markets or market niches (e.g. Osterwalder and Pigneur, 2010; Mitchell and Coles, 2003). This shows that the effects of BMI not only affect the firm and its network, but also its (potential) customers.

In conclusion, in the BMI literature, scholars agree that BMI comprises a set of activities, both within the firm and its network, which may affect both the firm and its (potential) customers.

Lastly, ever since BMI became a popular concept in the 90s, a debate is ongoing concerning the differences and similarities between BMI and strategic innovation. According to Magretta (2002), some authors even use the concepts interchangeably (e.g. Casadesus-Masanell and Ricart, 2010). This study will not go into detail on this debate as it has been discussed by other scholars extensively (e.g. Zott et al., 2011; Chesbrough and Rosenbloom, 2002). However, to increase clarity and understandability, it must be noted that this study views the two concepts as linked, but not the same. BMI plays an important role in the firm’s strategy, as it explains how the activities work together to execute the strategy (Richardson, 2008).

3.1.2. Disagreements concerning scope of BMI

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Table 1

BMI elements causing agreement and disagreement

Elements of agreement Elements of disagreement

BMI is an activity Which elements does BMI comprise?

(scope)

BMI takes place in the firm’s network Is BMI a simultaneous change of multiple elements? (scope)

BMI affects both the firm and its

(potential) customers What type of innovation is BMI? (scope) (Timmers, 1988) of value. Furthermore, delivering value to customers is also considered an important element by some scholars (e.g. Teece, 2010, Seddon et al., 2004). As can be seen, none of the above-mentioned scholars state that BMI consists of all three elements, but there are different scholars advocating one or two.

Second, while some authors see BMI as an all-encompassing innovation, changing multiple elements of the business model (Bucherer et al., 2012; Mitchell and Coles, 2003), others state BMI can also be a new pricing model (Giesen, Berman, Bell, and Blitz, 2007).

Lastly, it is not clear which type of innovation BMI encompasses. While Osterwalder and Pigneur (2010) state that BMI is about bringing new products, services, and technologies to the market, other scholars state BMI is a different type of innovation distinct from product innovation (Markides, 2006; Bucherer et al., 2012).

Table 1 summarizes the elements that cause agreement and disagreement among BMI scholars.

From the above analysis it becomes clear that there is no agreement on the scope of BMI, and a clear focus is missing. However, it is of vital importance to adopt more precise terminology, as this will greatly enhance clarity. In order to accomplish this, it is necessary to investigate BMI more in-depth.

When looking at the basis of BMI, being the BM, there is no agreement in literature on what a BM actually is (Zott et al., 2011; Johnson et al., 2008). Therefore, before being able to properly define BMI, it is necessary to investigate the BM itself. As there is no agreement on the scope of BMI, section 3.2. will examine how broadly the BM is defined and apply the findings from the BM literature in constructing a proper definition on BMI. 3.2. The scope of BM

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elements is clearly visible in the BM literature, these will also be incorporated in defining BMI.

Secondly, some scholars argue that the value derived from a BM originates from small changes and only a few elements of the model are involved. For example, Giesen et al. (2007) distinguish between three different types of BMs, being the industry model, the revenue model, and the enterprise model. Whereas the industry and enterprise model involve multiple changing elements in, for example, the value chain, the revenue model is more restricted and derives value from only one or a few elements of the BM. According to Giesen et al. (2007), the revenue model concerns innovating the firm’s pricing strategy, which only emphasizes the value capture aspect of BMI. Furthermore, Markides (2006) also agrees that BMs do not have to be firm-wide changes, but may involve minor changes in the distribution or delivery, thereby targeting customer niches. However, the majority of the authors agrees that value is derived from the interaction of multiple sources within the BM. For example, Bucherer et al. (2012) state that new BMs encompass a simultaneous change of various elements, where value is captured arising from multiple sources (Amit and Zott, 2001). This view is supported by various other scholars who state that value is created through the interplay of different elements of the business model (Johnson et al., 2008; Zott et al., 2011; Teece, 2010; Sinfield et al., 2012; Mitchell and Coles, 2003), and should be as comprehensive as possible, not simply one or two components (Shafer et al., 2005). Magretta illustrates the above ideas in stating that “business models are stories that explain how enterprises work. It is a system that shows how the pieces of the business fit together.” As the importance of multiple interacting elements is clearly visible, this will be applied in defining BMI.

Lastly, there is confusion about whether product and process innovation are part of BMI, or that they are not within the scope of the concept. However, in contrast to the disagreement among scholars in the BMI field, in the BM literature scholars explicitly distinguish between BMs and products or processes. George and Bock (2010) state that a business model is a component of innovation commercialization, which is not identical to product and process innovation. This notion is supported by Giesen et al. (2007), who found that products and services can be copied, whereas the business model is the differentiator for increased financial performance. Lastly, in a study of IBM (2006), researchers also distinguished between products and business models, where the latter was said to be related to the structure of an enterprise or its role in the value chain, which is substantially different from the role of a product or process. Therefore, the above-mentioned authors argue that BMs encompass more than products or processes. Even though new products or processes may be a result of innovation in the current business model, they do not constitute new business models themselves. When applying this to BMI, product and process innovation can, among other things, be the result of innovations in a firm’s business model. Product and process innovation are therefore part of BMI, indicating that BMI itself is a broader concept.

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the interaction of multiple elements in the BM. Lastly, even though new products and processes may be the result of innovating the current BM, BMI itself is a broader concept.

3.3. Defining BMI

The definition of BMI as it is applied in this study, is constructed from the different analyses of the above sections. What can be concluded, is that value is created, delivered, and captured through innovating and coordinating multiple activities of the BM, which can affect both the firm and its (potential) customers. A change in, for example, the pricing or distribution system, will therefore not be seen as an innovation of the BM. Lastly, BMI occurs within the firm itself but also in the firm’s network, and is different from product and process innovations.

By applying this definition, the intention is not to render all other definitions obsolete, but rather provide the reader with more clarity as to in what light BMI is analyzed in this study.

The following definition of BMI is therefore applied:

BMI is an activity where multiple elements within the firm and its network are renewed and orchestrated to create, deliver, and capture value, both for the firm and customer. Unfortunately, the field of BMI is scattered and is developing in silos (Zott et al., 2011). However, this definition deviates from earlier definitions as it builds upon elements that have been previously identified in literature. It focuses on the entire concept of BMI, instead of only a small part (such as the value creation or value capture process). Therefore, the individual elements in the definition are not new, as they are based upon previous work, but the definition as a whole contributes to the understanding of BMI and adds to the field.

The following section will discuss and categorize the antecedents of BMI.

4. Antecedents of Business Model Innovation

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degree of how often companies engage in BMI is variable. Therefore, the antecedents should not be seen as triggers that lead companies to start engaging in BMI, but instead increase how often the BM is innovated.

The following subsection explains the concept of internal antecedents and discusses and categorizes four antecedents identified in literature. Consequently, section 4.2 discusses and categorizes external antecedents. A proposition is formulated after each antecedent, which can be tested in future empirical research.

4.1. Internal antecedents

Internal antecedents are firm-specific factors that drive the need for BMI (Comes and Berniker, 2008). The literature review identified four internal antecedents of BMI. Table 2 gives an overview of each identified antecedent, including authors, methodology and the study’s contributions, and can be found in the Appendix. The internal antecedents that did not meet the requirements set in the methodology are excluded from this section, but are listed in Table 3, in the Appendix. The internal antecedents are discussed in the following subsections.

4.1.1. Strategic orientation

Strategic orientation has been referred to as the “strategic directions implemented by a firm, to create the proper behaviors for the continuous superior performance of the business” (Gatignon and Xuereb, 1997). It is important to emphasize a certain strategic orientation that increases BMI. The literature review identified two main orientations, being entrepreneurial orientation, and customer-centric orientation. Below, the orientations are further discussed.

4.1.2. Entrepreneurial orientation

An entrepreneurial orientation reflects a firm’s propensity to engage in “the pursuit of new market opportunities and the renewal of existing areas of operation” (Hult and Ketchen, 2001). Highly entrepreneurial firms promote values such as being proactive to market opportunities, risk taking, and innovation (Lumpkin and Dess, 1996; Matsuno, Mentzer, and Ozsomer, 2002). This orientation can increase BMI as experimentation will motivate and enable firms to discover viable new business models (Chesbrough, 2010; McGrath, 2010). This idea is supported by Osterwalder and Pigneur (2010), who state that organizations that are proactive and explorative, prepare for the future by testing new business models that may replace their existing models. Furthermore, IBM (2008) and Giesen et al. (2009) found that firms which continuously question industry norms have a larger emphasis on innovation, and consequently innovate their business model more often. This leads to the following proposition:

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4.1.3. Customer-centric orientation

A customer-centric orientation implies that a firm has a sustained focus on improving the customer experience (Sorescu et al., 2011). This is an important internal driver of BMI (Sorescu et al., 2011), as an increased focus on the customer stimulates the firm to identify innovative ways to align its activities (Zomerdijk en Voss, 2010), thereby increasing the need for BMI. A customer orientation is an inseparable part of market orientation (Rajala, Westerlund, and Möller, 2012), but market-oriented firms take into account competitor’s actions and overall changes in the market environment as well (Jaworski, Kohli, and Sahay, 2000). However, current research has not extensively covered the relationship between a market orientation and BMI.

This leads to the following proposition:

Proposition 2: A customer-centric orientation has a positive effect on BMI. 4.1.4. Underutilized resources and capabilities

A firm’s underutilized resources and capabilities are adequate and necessary, but not used to their full extent. Instead, they could be leveraged for additional purposes and trigger BMI (Comes and Berniker, 2008). For example, when a firm possesses high amounts of underutilized development capabilities, it has the ability to bring new technologies, products or services to the current, or a completely new, market (Osterwalder and Pigneur, 2010; Johnson et al., 2008). When a new product, service, or technology requires a fundamental change in the creation, delivering, and capturing of value, this increases BMI (Giesen et al., 2009), as the existing BM may no longer be compatible with the new activities (Osterwalder and Pigneur, 2010).

Proposition 3: Underutilized resources and capabilities have a positive effect on BMI. 4.1.5. Decreasing firm performance

When firms are in a period of decline or negative growth relative to their industry, they may increasingly engage in BMI when the current business model is no longer viable, in order to counter the negative performance effects (Giesen et al., 2009; Osterwalder and Pigneur, 2010; Sinfield et al., 2012). The decrease in performance may be caused by the increasing costs of resources, which puts great pressure on the firm (Giesen et al., 2009). Resources that become too costly or unnecessary over time, can enforce a change in the business model (Bucherer et al., 2012), in order to seek new ways of cost advantages (Giesen et al., 2009). This leads to the following proposition:

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4.2. External antecedents

External antecedents are factors that cannot be influenced by the firm itself, but are the result of changing industry dynamics. These industry dynamics can cause the firm to increase their innovation efforts, as its current business model may restrain the firm from seizing new opportunities, or fail to adequately respond to upcoming threats. The literature review identified four main external antecedents of BMI, that are listed in Table 4 and can be found in the Appendix. The external antecedents that did not meet the requirements set in the methodology are excluded from this section, but are listed in Table 4, in the Appendix. The external antecedents are discussed in the following subsections.

4.2.1. Changing customer preferences

Customer preferences are not a constant factor, as these may change over time with regard to goods, services, and channels (Giesen et al., 2009). Furthermore, customers’ values and norms evolve, such as the current fashion of favouring ‘green’ products (McGrath, 2010). When firms focus more on customer value creation and adapt to changing preferences, this could result in an increase of BMI (McGrath, 2010; Enkel and Mezger, 2013; Soresco et al. 2011; Giesen et al. 2009). This is supported by IBM (2008), as they state that increasingly demanding customers may force the firm to innovate its BM, as it is no longer compatible with the new preferences of the market. Not all changing customer preferences require an increase in BMI, as minor adaptations in an offering can still be delivered by the current BM. Firms can keep their current BM when they can fulfil the new customer value proposition by using the same profit formula, thereby using most of the firm’s current key resources and processes, and the same core metrics, rules and norms (Johnson et al., 2008).

Proposition 5: Major changes in customer preferences have a positive effect on BMI. 4.2.2. Technological developments

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models incrementally (Bourreau, Gensollen, and Moreau, 2012). However, Bourreau et al. (2012) indicated that radical technological innovation increases BMI, rather than incremental adjustments of the current BM. Therefore, when a technology leads to profound changes in the market structure, firms will react by engaging in BMI (Bourreau et al., 2012).

Proposition 6: Radical technological developments have a positive effect on BMI. 4.2.3. Legal/regulatory changes

Legal or regulatory changes in the environment concern rules, taxes, subsidies and other regulations that influence a firm’s business model (Osterwalder and Pigneur, 2010). Various authors support this as an antecedent of BMI (e.g. Giesen et al., 2009; Osterwalder and Pigneur, 2010; Teece, 2010), as they state that a change in the regulatory environment, either by industry or geography, may impact the firm’s current BM to a great extent, and can consequently increase BMI. Examples of legal changes that may have a large effect on BMI are antitrust laws, placing firms with innovative BM’s at a comparative disadvantage (Tennis and Schwab, 2012), and increasing strict environmental regulations (Nidumolu, Prahalad, and Rangaswami, 2009), which may put restraints on the creation of value.

Proposition 7: Legal/regulatory changes in the firm’s environment have a positive effect on BMI.

4.2.4. Competitive threats

A competitive threat entails a shifting basis of competition (Johnson et al., 2008), where competition catches up, and firms need to take action to remain viable (Linder and Cantrell, 2000). Various studies have identified competitive threats as an important antecedent to BMI (Markides, 2006; Johnson et al., 2008; Linder and Cantrell, 2000; Giesen et al., 2009; Osterwalder and Pigneur, 2010). It may be the case that the firm enters a new market and must increase its innovation efforts to overcome the first-mover advantages of entrenched competitors (Markides, 2006). Another case is that a firm may need to fend off low-end disrupters (Johnson et al., 2008), or respond to innovative propositions by competitors (Giesen et al., 2009), by innovating its BM. Therefore, firms may be forced to innovate their BM as it is necessary to respond to competitive moves in order to defend their position. This leads to the following proposition:

Proposition 8: Competitive threats have a positive effect on BMI.

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5. Consequences of BMI

As research on the effects of BMI is at an early stage (Zott et al., 2011), this section investigates the consequences of BMI for the firm, and excludes potential effects on industry- and market structures. Table 6 presents an overview of the consequences and the supporting scholars, and can be found in the Appendix. Equal to the previous section, BMI is regarded as a continuum, where the degree of how often companies engage in BMI is variable. Furthermore, the selection criteria for the consequences are equal to those earlier established for the antecedents.

Four effects of BMI on the firm have been identified: sustainable competitive advantage, corporate transformation, differentiation, and increased financial performance. The relationships between the four consequences must not be seen as independent, as the first three consequences will eventually have an effect on the financial performance of the firm. Furthermore, sustainable competitive advantage, corporate transformation, and differentiation are not fully independent either, as, for example, the latter two may increase the sustainable competitive advantage for the firm. However, as these relationships have not been discussed thoroughly in the BMI literature, and are not within the scope of this study, they will not be included. Hence, the consequences are discussed as indicated in Figure 2.

The following subsections will discuss the identified consequences of BMI and provide a proposition for each consequence.

5.1. Sustainable competitive advantage

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replicate it without disturbing their supplier relationships (Teece, 2010), and if barriers to entry are low, the competitive advantage is not sustainable (Sorescu et al., 2011; Günzel and Holm, 2013).

Proposition 9: BMI has a positive effect on the firm’s competitive advantage, and is sustainable if it is inimitable and has high entry barriers.

5.2. Corporate transformation

This study applies Blumenthal and Haspeslagh’s (1994) definition, which states that a corporate transformation entails that the majority of the individuals in the firm must change their behaviour. This distinguishes transformation from other changes, such as restructuring of the firm without affecting the nature of managers’ and employees’ work. According to Zott et al. (2011), a significant amount of scholars see BMI as a vehicle for corporate transformation (e.g. Hass, Pryor and Broders, 2006, Sosna, Trevinyo-Rodríguez, and Velamuri, 2010; IBM, 2006; Johnson et al., 2008). This leads to the following proposition:

Proposition 10: BMI has a positive effect on corporate transformation. 5.3. Differentiation

Differentiation implies that the firm develops a different BM to distinguish itself from the competitors, thereby allowing to target customers other than those that buy simply upon price and availability (Chesbrough, 2007). This may result in serving a different and less congested segment than its competitors (Chesbrough, 2007). Various scholars indicate that the more the firm engages in BMI, the more likely it will differentiate from the competition (Bucherer et al., 2012; Chesbrough, 2007; Casadesus-Masanell and Zhu, 2013; Pohle and Chapman, 2006; Osterwalder and Pigneur, 2002; Zott and Amit, 2008; Amit and Zott, 2012). Furthermore, the empirical studies of IBM (2006 and 2008) and Bucherer et al. (2012) show that, in contrast to process and product innovations, BMI allows for more comprehensive differentiation. However, BMI will only be beneficial for the firm when the model is sufficiently differentiated from its competitors, and hard to replicate (Teece, 2010). Here, ‘sufficiently differentiated’ implies that customers clearly understand and see the difference between the offering of the firm and that of its competitors.

Proposition 11: BMI has a positive effect on firm differentiation, provided that the firm’s offering is substantially different from that of the competitors.

5.4. Improved financial performance

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scholars use various metrics to measure financial performance, such as an increase in revenues (Jacobides, Knudsen, and Augier, 2006), operating profit margin (Giesen et al., 2007), cost reduction (Huang et al., 2012), and more.

When evaluating the performance implications, various literature studies show that a strategic emphasis on BMI increases a firm’s superior financial performance (Chesbrough, 2007). For example, Pohle and Chapman (2006), found that BMI is often positively related to reduced costs and enhanced profits, and Jacobides et al. (2006) state that BMI allows the firm to capture a disproportionate amount of the benefits created by the innovation.

Unfortunately, in contrast to literature studies, there is a clear lack of large-scale, empirical work investigating the financial performance implications of BMI (Aspara et al., 2010; Malone, Weill, Lai, and D’Urso, Herman, Apel and Woerner, 2006). Furthermore, the available empirical studies disagree on the financial performance implications, as some studies report high financial returns (Lindgardt et al., 2009; IBM, 2006), whereas others are more sceptical (Aspara et al., 2010; Simpson, Siguaw, and Enz, 2006). For example, Lindgardt et al. (2009) in their study compared the premium in shareholder return for product/process innovators, and firms engaging in BMI. They found that business model innovators enjoy a net gain compared to product or process innovators, and benefit from long-term profits. Similarly, the longitudinal study of IBM (2006) indicated that firms emphasizing BMI enjoyed higher operating margins than firms less oriented towards BMI. Furthermore, financial outperformers put twice as much emphasis on BMI than financial underperformers (IBM, 2006).

However, other empirical work resists the idea that innovation would have a uniformly positive implication on performance (e.g. Simpson et al., 2006). For example, Aspara et al. (2010), found that the relationship between a strategic emphasis on BMI and financial performance is contingent on firm size. A strategic emphasis on BMI is the independent variable in their study, and relates to the question of how much to emphasize BMI in firm strategy (Aspara et al., 2010). They have found that large firms with a high strategic emphasis on BMI have a lower average financial performance than large firms with a low strategic emphasis on BMI (Aspara et al., 2010). However, small firms do enjoy higher financial performance when emphasizing BMI than larger firms (Aspara et al., 2010). The authors attribute the difference to the fact that large firms generally do not have the flexibility to effectively compete in new market niches, and have more difficulty to move away from the well-functioning aspects of their current BM (Aspara et al., 2010). Therefore, this would imply that BMI on its own does not lead to superior financial performance in all circumstances.

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BMI is a potential strategic orientation of the firm, where the focus is on how much to emphasize the exploitation of the firm’s existing resources versus exploration of new resources (Aspara et al., 2010). Furthermore, besides the diverging definitions, the methodologies of the studies also differ, as Aspara et al. (2010) attribute the difference in financial performance to firm size, whereas the studies of Lindgardt et al. (2009) and IBM (2006) do not distinguish between different firm sizes in evaluating financial performance.

As no uniform message can be distinguished in literature, two propositions are suggested. Future empirical research is required to investigate the financial performance implications of BMI, and one definition needs to be applied in order to compare the results.

Proposition 12: BMI has a positive effect on the firm’s financial performance. Proposition 13: BMI has a negative effect on the firm’s financial performance.

The previous sections defined BMI and discussed its antecedents and consequences. The last section will discuss the findings, contributions, implications for management, limitations and provide possible avenues for future research.

6. Discussion & Conclusion 6.1 Findings

This literature review has shown that BMs and BMI are multi-dimensional concepts, characterized by a lack of clarity concerning their meaning. Since the literature on BMI is relatively young, and scattered throughout different academic fields, its conceptual foundations are quite thin. Furthermore, as research on BMI has proceeded largely in silos, it was necessary to perform a study that provides a clear definition and identifies the antecedents and consequences of BMI, by integrating and building upon the available literature. This is reflected in the main research question of this study. In answering this question, the findings of this study are discussed, namely the elements of the BMI definition, and its antecedents and consequences.

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Second, it is vital to understand which antecedents have an effect on BMI. The four internal antecedents that have been identified are: entrepreneurial orientation, customer-centric orientation, underutilized resources and capabilities, and decreasing firm performance. Furthermore, the four external antecedents are: changing customer preferences, technological developments, legal/regulatory changes, and competitive threats. Even though various scholars have identified a firm’s decreasing performance as an internal antecedent that increases BMI, it is questionable whether this is the main underlying cause. Firms may overlook earlier events, such as the increasing costs of resources, that eventually result in decreasing firm performance. This implies that the actual trigger of BMI is the increase in resource costs, but firms view their declining performance as the antecedent, as this generates awareness. Therefore, future empirical research could investigate the significance of this relationship.

Lastly, the chain of effects is completed by discussing the consequences of BMI for the firm. The following consequences have been identified: sustainable competitive advantage, corporate transformation, differentiation, and increased financial performance. This study found that conceptual and literature studies agree that BMI results in improved financial performance. However, the available empirical studies are not unanimous about the financial performance implications. This dissimilarity in findings may be attributed to the different BMI definitions adopted, and the different methodologies, as some studies incorporate moderators (such as firm size), and others do not. The discussion on the financial performance implications again proves the relevance of this study, as it is vital to adopt one definition of BMI to compare results. 6.2. Contributions to research

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6.3. Implications for management

Even though this study is theory-centered, this does not imply that management cannot benefit from the findings. First of all, it is vital that managers understand that BMI encompasses the creation, delivery and capture of value, as this differs from mere product and process innovation. Second, it is important for management to realize which factors, either external or internal, have an effect on the firm’s incentive, or even necessity, to innovate its BM. The overview of antecedents in this study provides managers with potential factors that indicate in which circumstances, and to what extent, it is necessary to innovate the firm’s BM. Managers should recognize which factors have the largest effect on their firm, and use this information to their advantage. Lastly, managers should be aware of the most important consequences of BMI, before they decide to innovate. BMI should not be taken lightly, as it involves multiple changing elements in the firm and its network, and can drastically change the firm’s value creation, delivery or capture. This increases the necessity that managers are aware of the consequences, as it may have an effect on the entire network.

6.4. Limitations & future research

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on BMI as well. Furthermore, this study suggested that the consequences of BMI may not be fully independent. However, as further investigation was outside the scope of this paper, future research could investigate the relationships between the identified consequences, and see how they interact, and influence each other. Lastly, the chain of effects in this study could be extended by incorporating moderators. Future research could investigate which moderators have an influence on the relationship between antecedents and BMI, and between BMI and firm consequences.

The literature on BMI is relatively young and its conceptual foundations are still quite thin. However, this study attempted to increase the understanding of BMI and move away from the ‘silo-culture’, by performing cumulative research. I hope that scholars become motivated to further investigate, both conceptually and empirically, the various facets of BMI. Various fruitful avenues for future research exist, and this study provides the building blocks for further investigation.

Acknowledgments

First and foremost, I gratefully acknowledge the helpful comments and suggestions of dr. K.R.E. Huizingh, whose support was indispensable for this study. Furthermore, I would also like to thank Marije Bakker, Tymen Jissink, and Charles de Beaufort for their support and feedback during our monthly sessions. Both content-wise and morally, they have been of great value to me. I also acknowledge the objective comments and feedback of dr. F. Noseleit. Finally, I am grateful to Niels and my family, who have been incredibly patient, and provided me with moral support, especially when the completion of this study seemed far away.

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Appendix

Table 2

Internal antecedents of BM

Antecedent Authors Methodology Contributions

Entrepreneurial orientation

Chesbrough (2010) Literature review - Identifies success factors to overcome barriers

- Summarizes two barriers to BMI: confusion and

obstruction

McGrath (2010) Conceptual - Illustrates the importance of a ‘discovery driven’ approach to BMI Osterwalder and

Pigneur (2010)

Conceptual - The book gives insight into the nature of BMs,

describes innovation techniques, and gives advice on how to redesign a firm’s BM

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between responses of financial outperformers and underperformers

Giesen et al. (2009) Multiple case studies - Provide insight in when and how to innovate a firm’s BM

Customer-centric orientation

Sorescu et al. (2011) Conceptual - Retail business models affect three design components

- Propose 6 ways of BMI for retailing companies - Describe drivers and

consequences of BMI Zomerdijk and Voss

(2010)

Multiple case studies - Examine the design of experience-centric services - 7 activities proved

important for experience design

Underutilized resources and capabilities

Comes and Berniker (2008)

Conceptual - Illustrate the importance of BMI, especially in industries facing accelerated change Osterwalder and

Pigneur (2010)

See above - See above

Giesen et al. (2009) See above - See above

Johnson et al. (2008) Conceptual - A BM consists of 4 interlocking elements.

Decreasing firm performance

Giesen et al. (2009) See above - See above Osterwalder and

Pigneur (2010)

Bucherer et al. (2012) Multiple case studies - Investigate similarities and differences between

product innovation and BMI - Provide implications for

BMI management Sinfield et al. (2012) Conceptual - Business model

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Table 3

Internal antecedents not included

Internal Antecedent Scholar(s) Why not selected

Culture Schlegelmilch,

Diamantopoulos, and Kreuz (2003)

IBM (2008)

- Not ‘top’ or ‘very good’ journal

- Not explicitly

mentioned, only weak indications

Processes Schlegelmilch et al. (2003) - Not supported by

other articles

People Schlegelmilch et al. (2003) - Not supported by

other articles

Resources Schlegelmilch et al. (2003) - Not supported by

other articles

Increase collaboration IBM (2008) - Not supported by

other articles

Shorter product life-cycle

Chesbrough (2007) - Not supported by other articles

The use of product-service systems

Velamuri, Bansemir, Neyer and Möslein (2013)

- Not supported by other articles

Table 4

External antecedents of BMI

Antecedent Authors Methodology Contributions

Changing customer preferences

Sorescu et al. (2011) See table 2 - See table 2 Giesen et al. (2009) See table 2 - See table 2

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Enkel and Mezger (2013)

Multiple case studies - Abstraction, analogy identification and adaptation can facilitate cross-industry innovation - Propose a process model

for BMI

IBM (2008) See table 2 - See table 2

Johnson et al. (2008) See table 2 - See table 2

Technological development

Sorescu et al. (2011) See table 2 - See table 2 Sood and Tellis

(2010)

Multiple case studies - Propose a predictive model of disruption - New findings on

disruptive technologies Osterwalder and

Pigneur (2010)

See table 2 - See table 2

Bucherer et al. (2012)

De Reuver, Bouwman and MacInnes (2009)

Multiple case studies - Investigate which external drivers are most decisive for changing BMs

- Impact of drivers on startups is largest during service development Padgett and Mulvey

(2007)

Content analysis - Investigate a strategic approach to positioning Johnson et al. (2008) See table 2 - See table 2

Linder and Cantrell (2000)

Multiple case studies - Defines a BM - Lays out the BM

landscape and the

common ways BMs evolve Bourreau, Gensollen

and Moreau (2012)

Multiple case studies - Identify 5 potential digital BMs for the music

industry

- Digitization has led to a big bang of BMs

Legal/regulatory changes

Giesen et al. (2009) See table 2 - See table 2 Osterwalder and

Pigneur (2010)

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Table 5

External antecedents not included

innovation management, and economic theory Tennis and Schwab

(2012)

Conceptual - Antitrust laws place BM innovators at a

comparative disadvantage - Offer recommendations

for policy reform Nidumolu, Prahalad,

and Rangaswami (2009)

Conceptual - Sustainable companies

will achieve a competitive advantage

- Offer recommendations on how to tackle the challenges of becoming sustainable

Competitive threats

Markides (2006) Conceptual - Technological, business model, and new-to-the-world innovations should be treated as distinct phenomena

Johnson et al. (2008) See table 2 - See table 2 Linder and Cantrell

(2000)

Giesen et al. (2009) See table 2 - See table 2 Osterwalder and

Pigneur (2010)

External Antecedent Scholar Why not selected

Shifts in the value chain Giesen et al. (2009) - Not supported by other articles - Not ‘top’ or ‘very

good’ journal

Response to an economic downturn

IBM (2009) - Not supported by

other articles - Not ‘top’ or ‘very

good’ journal

Globalization Lee, Shin, and Park

(2012)

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Table 6

Consequences of BMI

Consequences Authors Methodology Contributions

Sustainable competitive advantage

Sinfield et al. (2012) See table 2 - See table 2

Matthyssens et al. (2006)

Singly case study - Emphasises value

innovation and its impact on marketing,

organizations, and networks

Amit and Zott (2012) Conceptual - Novelty, lock-in,

complementarities and efficiency are value drivers of BMs -

Mitchell and Coles (2003)

Multiple case studies - Emphasize the

importance of continuous BMI to outperform the competition

Günzel and Holm (2013)

Multiple case studies - Distinguish between front-end and back-end BMI processes

- Stress the importance of organizational learning when faced with

disruptive technologies

Corporate transformation

Zott et al. (2011) Literature review - Emphasize the BM as a new unit of analysis - View the BM as holistic,

and an activity system with a cost/revenue structure

Hass et al. (2006) Multiple case studies - Successful renewal requires dramatic changes

- Balancing growth and cash flow return can be difficult in a changing environment

Sosna et al (2010) Single case study - Emphasize the

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trial-and-30

error based learning for BMI

Johnson et al. (2008) See table 2 - See table 2

Differentiation Bucherer et al. (2012) See table 2 - See table 2

Chesbrough (2007) Conceptual - Examines the meaning of BM

- Identifies a BM framework Casadesus-Masanell

and Zhu (2013)

Single case study - Evaluate strategic interactions between an innovative entrant and an incumbent

Pohle and Chapman (2006)

Multiple case studies - Emphasises the importance of BMI Osterwalder and

Pigneur (2002)

Literature review - Describe the logic of a business system for creating value in an

Internet era, and illustrate its four pillars

Zott and Amit (2008) Multiple case studies - Develop a model and analyze the contingent effects of product market strategy and business model choices on firm performance

Amit and Zott (2012) See above - See above

IBM (2006) Multiple case studies - Stress a more expansive view of innovation - Illustrate the importance

of external collaboration and top management support

Teece (2010) See table 4 - See table 4

Improved financial performance

Jacobides et al. (2006)

Conceptual - Evaluate how innovators benefit from value appropriation and creation

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Giesen et al. (2007) Literature review and multiple case studies

- Introduce a framework that identifies three types of BMI: industry model, revenue model, and enterprise model Huang et al. (2012) Hierarchical

regression analysis

- Emphasize the relationship between target costing, BMI, and firm performance

Chesbrough (2007) See above - See above

Pohle and Chapman (2006)

Lindgardt et al. (2009)

Conceptual - Describe the capabilities needed for BMI and identify the pitfalls