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Typology of Innovative Activities in Business Models

Innovation in business models can be considered using various typologies. Schallmo (2013) proposes a three-dimensional classification that allows for a subject context (relating to the business model elements), entity context (including the reference unit), and the intensity level of changes introduced.

According to the subject criterion, changes in a business model relate to its elements. Such an approach requires first the identification of components based on one of the concepts referring to the business model architecture. It should be emphasized that the literature presents various proposals for determining this structure, which often illustrate large discrepancies between the concepts of particular researchers of this subject. They show different areas of the business model optics and indicate their generalized or detailed nature (more on this subject see Chapter 3). Hence, innovative activities implemented in the area of different elements are of ununiform nature. Ununiform level of interference in the model overall structure, in this case, means a change in a single component, in greater number of components, or in all components of the business model.

Grabowska (2015) notices that subject changes are implemented considering specific business model stakeholders. In general terms, the basic recipient of business model changes, and the subjects verifying these changes are customers, who respond adequately to the changed value proposition. Nevertheless, some other value recipients are indicated that respond to changes in the business model of a given company. These include competitors from the sector where the company operates, or key business partners.

"Die level of intensity or novelty of the business model changes may take various formats related to the scope of interference in a given model. Bieger and Reinhold (2011), given these formats, distinguish three basic patterns of a company development, resulting from the business model transformations. These changes can take the form of quantitative growth, incremental innovation, and radical innovation.

The quantitative growth refers to the increase in the number of transactions or the frequency of transactions with existing customers. In this case, there are no innovative activities, thus quantitative changes do not cause a transformation in the business model architecture (Grabowska and Otola, 2016). Creation of new value uses the existing model. It remains unchanged, but is extended. Calling it an innovative business model is inappropriate in this case.

On the other hand, incremental and radical activities are innovative activities and contribute to changes in the business model. In the case of incremental innovation, base components of the business model are smoothly modified, or mutual relations between its elements are evolutionary modified. Incremental innovation is an innovation of low novelty level, which usually translates into lower risk and lower costs, but also has lower effect on the financial result (Damanpour, 1996; Martinez-Ros and Orfila-Sintes, 2009; Souto, 2015). Incremental changes are gradual and do not interfere deeply in the architecture of the business model. This remains in accordance with the overall characteristics of incremental innovation, which refer to relatively small adaptations of existing products, that is, only small changes in technology, design, product restart, and the line extension, adding an attribute to existing service (Lennerts et al., 2019; Souto, 2015).

The radical approach to innovation in business models is associated with the process of creative destruction proposed by Schumpeter (1942), which involves a constant internal revolutionization of existing technologies and production methods, continuous destruction of the old ones and creation of the new, more effective ones. Such an approach to innovation indicates their high novelty level and thus incorporates high risk and also great opportunities and challenges. When relating radical innovation to the business model, it should be stated that it causes fundamental transformations in the model elements or construction. Hence, innovative activities are of an intense nature. Zentes et al. (2013) emphasize that overall radical changes in the business model usually include focusing on new markets, new customer segments, but also relate to the company response to new challenges and customer needs, aimed at providing them with innovative value. In addition, radical transformations of the business model may affect the competitiveness of the industry, resulting in the alteration of its existing principles of market conduct.

Conclusion

The considerations resulting from the literature studies illustrate the variety of definition approaches to the business model concept. Currently, business models become a noticeable subject of scientific discourse. Studies on this subject may be considered with the distinction of a broader (detailed) and narrower (general) attempts to explain this issue. The management science literature highlights the importance of business models in shaping competitive position and establishing competitive advantage. A number of considerations on business models focus on generating, delivering, and capturing value. It has been noticed that business models, being the login of companies’ operations, describe how these companies build value. In this situation, it is important to ensure the ability of business models to compose value through their development and implementation of innovative solutions.

Ever-changing competitive environment makes enterprises introduce activities adapting them to new conditions. The impulse to introduce changes in company operation is one of the factors that originate inside the enterprise. Business models become an important area of innovative activities being introduced. "Die implementation of innovative solutions in business models of a given company increases its toughness in the competitive market.

In addition, theoretical considerations indicate that innovation in business models can take various forms. In general, they are being implemented in relation to the business model elements, reference units (stakeholders), or with regard to the level of intensity and novelty of changes introduced. In the latter case, changes in the business model take the form of quantitative growth, incremental innovation, and radical innovation. It should be emphasized that the scope of innovative activities in the business model depends on the current needs of a given enterprise. The proper recognition of these needs is therefore a crucial factor of success in value composition.

 
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