Do we teach what we research? Unfolding absorptive ...

Do we teach what we research? Unfolding absorptive capacity, Open innovation, Management innovation and Clusters

BUSINESS MODEL INNOVATION AS A NEW DISCIPLINE IN THE FIELD OF STRATEGIC MANAGEMENT Kasper V. Roldsgaard 1+2 1Universitat Politècnica de València, Faculty of Management 2Copenhagen Business School, Department of Innovation and Organizational Economics

ABSTRACT The business model has received growing attention in the recent decade (De Miguel Molina, Roldsgaard, Segarra Oña, De Miguel Molina 2011), but the business model as a concept remains under-‐estimated (Teece 2010). The growing public recognition of the usefulness of the business model seems to fly against an academic reluctance to acknowledge the term, its uses and its consequences (Baden-‐Fuller and Morgan 2010). Management academics rarely put the concept at center stage as they prefer their established concepts such as absorptive capacity, open innovation, management innovation and clusters, but the global economy’s punctuated equilibrium has shifted strategic management in a new direction concentrating on the company’s business model with emphasis on sustainable economics. The paper suggests that the business model as a concept is highly relevant and topical for teaching at university because companies are challenged to find new ways to sustain growth in a time of sustained crisis. Keywords: Business model innovation; Sustainable economics; Strategic management; University teaching

1. Introduction In economics, sustainable growth refers to increases in profits, adjusted for changes in the relationship between revenues and costs, which can be sustained over long periods of time. The global economy has shifted direction in 2008 for which reason this paper suggests that the concept of ‘management innovation’ (e,g. Birkinshaw et. al. 2008) may need some re-‐formulations to adjust and

ACEDE 2012 Strategic Management Conference. Valencia, Spain. ISBN: 978-84-8363-910-8

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Do we teach what we research? Unfolding absorptive capacity, Open innovation, Management innovation and Clusters adapt to the challenges after the financial crisis in 2008. The increasing cost focus in the global economy is observable in almost all industries; from public-‐private organizations in national settings to multinational enterprises in international settings; from universities to hospitals; onto football clubs; from large corporations to small businesses. The different types of business organizations have in common that they are challenged to restructure and adapt their business model to turbulent environments. The financial crisis is accompanied by accumulating levels of uncertainty from the volatility stock crisis, which have changed the context for strategic management. Metaphorically, an accumulated “double dip” wave has swung across companies; across industries; across economies; with double force. The accumulated wave of uncertainty is observable in the increasing number of corporate and governmental spending programs, which indicates that the conditions for managing innovation are changed. The management challenge is presently to explore new routes for organizational reorientation and recreation with emphasis on sustainable economics.

2. From the electronic business m odel crisis to the corporate business m odel in a sustained crisis Discussions about the business model started to take form, but did not originate from the collective collapse of the electronic business models in 2001. In the early post-‐ Internet bobble burst years there is a growing debate about the business model, but they are mostly related to the electronic business model. The strategic management academic curiosity is fueled by questions such as ‘why did these internet companies fail?’ and ‘how did these companies get access to financial funding in the first place?’ These questions attract attention from management academics across different research communities with different research norms and traditions, but the business model is also misused by practicians to get funding from banks – and business models have ignored competition and strategy. Michael E Porter (2001:73) explains the problem: Words for the Unwise: The misguided approach to competition that characterizes business on the Internet has even been embedded in the language used to discuss it. Instead of talking in terms of strategy and competitive advantage, dotcoms and other Internet players talk about “business models.” This seemingly innocuous shift in terminology speaks volumes. The definition of a business model is murky at best most often, it seems to refer to a loose conception of how a company does business and generates revenue. Yet simply having a business model is an exceedingly low bar to set for building a company.


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Do we teach what we research? Unfolding absorptive capacity, Open innovation, Management innovation and Clusters Magretta (2002) responds the business model is the managerial equivalent of the scientific method because the hypothesis is the starting point, which is tested and corrected when necessary. Teece further develops the concept of a business model and its inherent relation to the management hypothesis (2010:172): A business model reflects the management’s hypothesis about what customers want, how they want it, and how the enterprise can organize to best meet those needs, get paid for doing so, and make a profit.

Hamel (2000) suggests that a business model is a business concept that has been put into practice, while Gambardella and McGahan (2010) conclude that the business model is a ‘mechanism for turning ideas into revenue at reasonable cost’. Until 2008, the discussions about business models are often related mostly to the crisis of the electronic business model in 2001, but the progression from financial crisis in 2008 to the stock crisis in 2011 gradually shifts focus of the business model from the electronic business model to the corporate business model with emphasis on its economic-‐ financial sustainability.

3. M anagem ent academ ics rarely put the concept of a business m odel center stage even though it is profoundly im portant to the world of work Business models have been examined from very different perspectives and the interest has increased greatly during the past 10 years (De Miguel Molina et. al. 2011). Start-‐up entrepreneurs and corporate executives have long exploited the business model as a tool for innovation, but in management academia everyone talks about the business model, but nobody knows what it is -‐ or how to do it (Johnson et. al. 2008). Baden-‐Fuller and Morgan (2010:156) explain this point of criticism: Business models are profoundly important to the world of work -‐ yet management academics rarely put the concept centre stage … Public perception of its usefulness seems to fly against this academic reluctance (in main-‐stream journals and texts) to acknowledge the term, its uses and its consequences.

The point of criticism indicate that the business model deserves a level of attention more in line with its widespread and increasing use in the field of strategic management (see figure 1). Baden-‐Fuller and Morgan (2010) indicate that the business model embodies multiple and mediating roles: from business concept; to contexts for scientific investigation; onto recipes for creative managers. The


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Do we teach what we research? Unfolding absorptive capacity, Open innovation, Management innovation and Clusters business model is a concept, a visual mapping tool, a calculative model, a social-‐economic construction of a common language about how the company makes a profit, and therefore an instrument to respond to the challenge of sustainable growth in a sustained crisis. The business model as a concept is cross disciplinary in nature, but particularly relevant within the field of strategic management because it sets the boundaries for how (and why!) the company makes money or fails to do so. Despite different definitions of the business model, a company’s business model is ultimately evaluated upon its ability to make money. In sum, the business model refers to the company’s ability to maintain or increase profits over long periods of time, which is increasingly relevant in a time of sustained crisis.

Number of hits searching for 'business model' 32.000.000

Number of hits

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30.000.000 25.000.000

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20.000.000 15.000.000 10.000.000 5.000.000

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0 May 2000

May 2011

August 2011

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Timeline

Figure 1. Googling ‘Business m odel’ for 11 years.

4. Building risk into the business m odel (beyond intellectual properties) After 10 years of research within the area of technological innovation, Teece (2010:175) sugggests that the absence of business models in economic theory ‘probably stems from the ubiquity of theoretical constructs that have markets solving the problems that – in the real world – business models are created to solve’. Doz and Kosonen (2010) explain the problem with reference point to the case of Nokia Corporation:


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Do we teach what we research? Unfolding absorptive capacity, Open innovation, Management innovation and Clusters Many companies fail not because they do something wrong, but because they keep doing what used to be right thing for too long -‐ and thus suffer from the rigidity of their own business models.

The example of Nokia Corporation re-‐opens an important chapter in the strategic management book. Alan Afuah (2004) describes the business model as a framework for making money, while Itami and Nishino (2010) suggest that the learning system behind the business model is the ‘real meat’. In any case, the financial sustainability of the business model depends on the management’s ability to respond and adapt to changing conditions in the present, while preparing for the future. An exemplary case is evident in the comparison of Sony’s Walkman and Apple’s series of iPods. The visible difference is easy to see, but the difference between the two products is much more than the design of the product. The intuitive approach to product innovation promoted by Steve Jobs is decisive for success, but the business model behind the iPods may be perceived even more important (Johnson et. al. 2008). Apple’s series of products and cross-‐ services have developed new ways to make money. Apple has reinvented the profit model by launching the iTunes software program. The iTunes software program is an integrated system with low cost music tracks, which has disrupted the portable music player industry and challenged the established music industry. The platform innovation is an example of how a company has changed the rules of competition by developing a low cost structure with redefined the revenue streams. The example of Apple indicates that the business model is much more than ‘a complex set of interdependent routines that is discovered, adjusted, and fine-‐tuned by doing’ (Winter and Szulanski 2001). The radical-‐disruptive business model has changed the rules of competition and changed customer behaviors. Business model innovation is not only about technology, but increasingly about designing the right business model to commercialize the technology. Chesbrough (2010) specifies that the same technology yield different returns different business models. An overlooked outcome of the sustained crisis is the necessity to build risk into the business model. Building risks into the business model is increasingly important in a time of market disorder, which is the context in which many companies find themselves at the present (Girotra & Netessine 2011).

5. Conclusion The paper describes the transition from the electronic business model to the corporate business model with emphasis on sustainable economics. The focus of innovation management has shifted from ‘further organizational goals’ (Birkinshaw et. al. 2008) to sustainable economics in a time of sustained crisis. Companies fight for survival and they need new concepts and tools for innovation.


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Do we teach what we research? Unfolding absorptive capacity, Open innovation, Management innovation and Clusters Business model innovation is a response to the challenge of sustaining growth in a sustained crisis. The sustained crisis tends to emphasize negatively related elements such as corporate and governmental cost cutting programs, but it also offers an opportunity to re-‐build the company's business model. Apple has changed the business model for these products, which has enabled it to building a ‘shield’ around its business model to protect it. The absence of protecting the business model is risky particularly in a time of sustained crisis. The paper concludes that the bottom line remains a decisive factor in the capitalists system, despite much talk of a promising triple bottom line, because making money remains a necessity for any company to stay in business. An overlooked outcome of the sustained crisis is the rise of a strategic space for the study of the company’s business model (see figure 2).

Stock crisis (2011)

Internet crisis (2001)

Oil crisis (1973)

Financial crisis (2008)

”Value maximization with social objectives is clearly problematic ... Despite CSR advocates proposing a ‘triple bottom line’, only one ultimately matters in the capitalist system.”

Yunus et. al. (2010:309)

Figure 2. The business m odel as a new strategic space for m anagem ent academ ics


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Do we teach what we research? Unfolding absorptive capacity, Open innovation, Management innovation and Clusters References Afuah, A., Business Models, A Strategic Management Approach, New York: McGraw-‐Hill Education (2004). Baden-‐Fuller, C. and Morgan, M. S., Business Models as Models, Long Range Planning 43 (2010) 156-‐ 171. Birkinshaw, J., Hamel, G. and Mol, M. J., Management Innovation, Academy of Management Review (2008) 825–845. Chesbrough, H., Business Model Innovation: Opportunities and Barriers, Long Range Planning 43 (2010) 354-‐363. De Miguel Molina, M., Roldsgaard, K.V., Segarra Oña, M.V., De Miguel Molina, B., Nuevos Modelos de Negocio en el Sector Ferroviario de Dinamarca y España y su Impacto Medioambiental, Forth International Conference on Tourism and Environment, University of Extremadura (2011). Doz, Y. L. and Kosonen, M., Embedding Strategic Agility: A Leadership Agenda for Accelerating Business Model Renewal, Long Range Planning 43 (2010) 370-‐382. Gambardella, A. and McGahan, A. M., Business-‐Model Innovation: General Purpose Technologies and their Implications for Industry Structure, Long Range Planning 43 (2010) 262-‐171. Girotra, K. & Netessine, S., How to Build Risk into Your Business Model, Harvard Business Review (2011) 100-‐105. Hamel, G., Leading the revolution, Harvard Business School Press (2000). Itami, H. and Nishino, N., Killing Two Birds with One Stone, Profit for Now and Learning for the Future, Long Range Planning 43 (2010) 364-‐369. Johnson, M. W., Christensen, C. M. and Kagermann, H., Reinventing Your Business Model, Harvard Business Review (2008) 51-‐59. Magretta, J., Why Business Models Matter, Harvard Business Review (2002) 86-‐92. Porter, M. E., Strategy and the Internet, Harvard Business Review (2001) 2-‐19. Teece, D. J., Business Models, Business Strategy and Innovation, Long Range Planning 43 (2010) 172-‐ 194. Winter, S. and Szulanski, G., Replication as Strategy, Organization Science 12 (2001) 730-‐743. Yunus, M., Moingeon, B. and Lehmann-‐Ortega, L., Building Social Business Models: Lessons from the Grameen Experience, Long Range Planning 43 (2010) 308-‐325.


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