Business model innovation
The successfull design of a profitable business model
Bachelor thesis research by Jim de Laat
In December 2016, Jim de Laat graduated from the Tilburg School of Economics and Management at Tilburg University. He followed the BSc Business Economics and wrote his bachelor thesis in the area of business model innovation.
When deciding to start a venture, entrepreneurs need to know exactly what they are going to do before selling their product or delivering their service; they need a well-defined business model as the backbone for delivering economic value to customers and ensuring profitability. In the current competitive entrepreneurial context, companies are looking for ways to outstep the competition, and business model innovation could be the solution. However, since the concepts of business model and business model innovation are relatively new and used in diverse fields of study, they lack a clear definition. This thesis attempts to clarify the two notions, and describe how companies can use business model innovation to ensure profitability.
Previous studies point out a disagreement between researchers about the design of a business model and the execution of business model innovation. While some researchers say that successful business model innovation is a disruptive change for the firm and the industry (Amit & Zott, 2007; Osterwalder & Pigneur, 2010), others argue that it is a trial and error process (Chesbrough, 2010; Sosna et al., 2010). This study aims to determine how organizations can make use of business model innovation to successfully design a profitable business model.
The question was addressed by conducting a literature review on the process of business model innovation. The data were collected based on studies about business models, both in general and in specific disciplines.
The outcomes suggest that, in terms of defining the concepts, a business model is a unit of analysis for all activities, a comprehensive perspective to explain how firms do business, and it explains both value creation and value capturing. Although there is no certainty whether business model innovation is a process or a result, it is generally accepted that it implies moving from one business model to another. Business model innovation is divided into two types: business model as a vehicle for innovation, used to commercialize new ideas or technologies, and business model as a source of innovation, relevant for the central question of this paper. The findings imply that business model as a source of innovation, if executed in the right way, seems the most profitable compared to other forms of innovation. Concerning the recommendations towards designing a profitable business model, firms have to go through the following process: First, existing firms need to be ready for the design of a new business model by describing their motivation and getting top-management support. Newly formed firms start with the second step of the process, since often the founders are the top-management. Second, firms need to obtain as much information as possible about all the factors of the context in which the new model will operate. The next step is to design a prototype that has to be tested on real customers to get the highest possible validity, using the information and ideas brainstormed by all layers of the organization. The implementation of the new business model has to be done with the lowest level of transparency in order to get a competitive advantage.
The findings could be helpful for managers who doubt their existing business model or want to expand their organization, by helping them to achieve a competitive advantage as well as brand new value-capturing processes.
Amit, R., & Zott, C. (2007). Business Model Design and the Performance of Entrepreneurial Firms. Organization Science, 18(2), 181-199
Chesbrough, H. (2010). Business Model Innovation: Opportunities and Barriers. Long Range Planning, 43, 354-363
Osterwalder, A., & Pigneur, Y. (2010). Business model generation. Hoboken, New Yersey: John Wiley and Sons
Sosna, M., Trevinyo-Rodríguez, R. N., & Velamuri, S.R. (2010). Business models innovation through trial-and-error learning: the Naturhouse case. Long Range Planning, 43: 383-407.