More on Business Model Innovation

11 February 2014 at 11:57 am 3 comments

| Nicolai Foss |

I am intrigued by notions of “business models” and “business model innovation.” Many academics dismiss these notions, arguing that they are too fluffy or too much overlapping with established thinking in strategic management. I understand both objections, but still think there is something to these notions. Specifically, they capture  the need for integration of and coherence among strategic choices related to value proposition, segments, value appropriation models, and value chain organization in a way that I don’t see clearly reflected in mainstream strategy thinking. And yet, it is also clear that the basic unit of analysis, the busines model, remains un-dimensionalized, even though business models and the innovation thereof clearly differ–and therefore pose different leadership, management and organizational design challenges. In other words, extant research does not adequately represent the heterogeneity of business models (innovation), and therefore does not dimensionalize them.

In a new paper,  Nils Stieglitz and I  argue that a key dimension along which business models (and hence the innovation thereof) differ is the strength of the interdependences, or, complementarities, between their constituent components. Thus, some business model innovations are more modular, while others are more architectural. Also, business model innovations can be dimensionalized in terms how radical they are. We argue that leadership challenges systematically depend on the nature of the relevant business model innovation. To our knowledge this is the first dimensionalization exercise in the literature and the first attempt at building a contingency theory of business model innovation.

Entry filed under: - Foss -, Strategic Management. Tags: .

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3 Comments Add your own

  • 1. Randy  |  11 February 2014 at 1:26 pm

    Interesting thesis, Nicolai. As I read the linked paper and try to sort out the relationships between the constructs “strategy” and “business model”, I have anchored to the idea that the business model is architectural, as you propose. My question is. that given the architectural nature, is it possible then to study micro foundations of the business model in any meaningful way? That is, can the micro-elements of the model be separated effectively from a strong (fully insinuated) architecture so that the components can be analyzed externally to the systemic control of the architecture?

  • 2. Nicolai Foss  |  11 February 2014 at 1:29 pm

    Randy, Why not? There people doing activities relating to the revenue model, people doing value chain activities, etc — but surely we can talk about their actions and how they connect “architecturally.” The economics of complementarity, which we build on, is IMHO entirely consistent with methodological individualism.

  • 3. Randy  |  11 February 2014 at 4:32 pm

    Good! This is exactly the kind of discourse that we need in the field. I do not disagree in principle, but I will need to be convinced that all architectures permit the requisite localization of micro processes. I believe that some (many?) architectures do, but not all. To be pursued over good beer.

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Nicolai J. Foss and Peter G. Klein, Organizing Entrepreneurial Judgment: A New Approach to the Firm (Cambridge University Press, 2012).
Peter G. Klein and Micheal E. Sykuta, eds., The Elgar Companion to Transaction Cost Economics (Edward Elgar, 2010).
Peter G. Klein, The Capitalist and the Entrepreneur: Essays on Organizations and Markets (Mises Institute, 2010).
Richard N. Langlois, The Dynamics of Industrial Capitalism: Schumpeter, Chandler, and the New Economy (Routledge, 2007).
Nicolai J. Foss, Strategy, Economic Organization, and the Knowledge Economy: The Coordination of Firms and Resources (Oxford University Press, 2005).
Raghu Garud, Arun Kumaraswamy, and Richard N. Langlois, eds., Managing in the Modular Age: Architectures, Networks and Organizations (Blackwell, 2003).
Nicolai J. Foss and Peter G. Klein, eds., Entrepreneurship and the Firm: Austrian Perspectives on Economic Organization (Elgar, 2002).
Nicolai J. Foss and Volker Mahnke, eds., Competence, Governance, and Entrepreneurship: Advances in Economic Strategy Research (Oxford, 2000).
Nicolai J. Foss and Paul L. Robertson, eds., Resources, Technology, and Strategy: Explorations in the Resource-based Perspective (Routledge, 2000).

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