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Essence of Innovative Activities in the Business Model

Modern turbulent economic conditions keep making it necessary to introduce innovation into various areas and spheres of activity. In order to effectively respond to ever-changing market requirements, enterprises have to improve currently manufactured products and work on creating completely new products or technological solutions. Therefore, an organization’s operation is immanently associated with the innovation concept, which should also refer to enterprise activities logic, thus affecting the verification of a business model and adapt it to market conditions. It should be emphasized that the useful life of a business model is limited, and it becomes necessary to introduce innovation into the model.

"Die literature on the subject indicates that innovation in business models is a change in the enterprise business logic (Teece, 2010). Innovation in business models is also interpreted as changes introduced in the area of creating, delivering, and capturing mechanisms that encourage customers to pay for value (Baden-Fuller and Morgan, 2010; Teece, 2010). On the other hand, Johnson et al. (2008) perceive business model innovation as a very strong means of management that helps companies in their struggle with modern global market conditions of competition and dynamic changes. Thus, it has been highlighted that practitioners from a wide variety of industries actively seek guidance on how to innovate their business models in order to improve their ability to both create and capture value (Casadesus- Masanell and Ricart, 2010).

It should be noticed that innovation in business models may refer both to enterprises already operating on the market and holding an established position and to entities creating new business models in the form of a start-up. Much smaller part of the literature focuses on incumbent companies that already have established business models, and their decisions to add new business models that can be disruptive (Bogers et al., 2015; Kim and Min, 2015; Sosna et al., 2010).

Enterprises operating on the market look for new business models that can be added to the models already existing in the enterprise, or can replace some existing model with a new solution. "Die literature on business models indicates that developing new business models in particular (as opposed to simpler incremental product improvements) poses a challenge for innovative entities (Friis-Holm Egfjord and Sund, 2020). The existing cognitive barriers may result in the introduction of incorrect solutions in implemented innovative activities, as innovative directions of business models depend on the interpretation and perception of external factors affecting the companies. Friis-Holm Egfjord and Sund (2020) prove that such perceptual differences can help to explain one of the open questions of innovation management: Why do so many incumbents appear to fail at radical business model innovation? The reason for the failure of innovation in business models may originate from the differences in perception which changes in the environment are the most significant. The diversity of perception of change needs in business models may lead to the assumption of incorrect solutions and failed innovative activities. Hence, the introduction of changes is associated with the risk of mismatching the business model with market requirements that may result in losing customer relations or the part of the market segment. Therefore, it is crucial to determine the way of exercising such actions in business models implemented that allow to achieve market success. It is very important to expertly recognize those changes in the environment, in particular, including customer expectations.

However, McDonald et al. (2019) notice that environmental factors are not only an impulse for innovation in business models. The company management can proactively develop or adapt a business model (Martins et al., 2015). In this case, the reasons for innovative activities are external factors that constrict value generation in the business model. Changes within the organization are also affected by internal stimulants that become determinants of business model development. Reinhold et al. (2011) in such a case distinguish the following factors: organizational culture, available knowledge and skills, diversified resources, and employee skills. Zentes et al. (2013) also indicate that the surplus of organizational resources and competences is a major incentive for the introduction of changes in the existing business model. Therefore, there is a need for management intervention in order to increase the flexibility of the organization. In this situation, it becomes essential to alert internal stakeholders and draw their attention to the factors because of which an existing business model may have worked in the past but is no longer viable. Knowing the elements that have to be changed and when to change them is thus a key component of the business model management.

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