From single firm to network-based business model innovation. Peter Lindgren*, Yariv Taran and Harry Boer

Transcription

1 Int. J. Entrepreneurship and Innovation Management, Vol. X, No. Y, xxxx 1 From single firm to network-based business model innovation Peter Lindgren*, Yariv Taran and Harry Boer Aalborg University, Center for Industrial Production, Fibigerstræde 16, 9220 Aalborg Ø, Denmark pl@production.aau.dk yariv@production.aau.dk hboer@production.aau.dk *Corresponding author Abstract: In today s complex, knowledge and innovation-driven economy, innovating business models and their architecture is in growing demand. Innovating business models to become network-based is a complex venture, but critical for the survival of many companies. Business model innovation is not widely researched, though. This paper examines the development of new business models in three networks and focuses on the challenges related to that. A key finding concerns the network partners very different business models and success criteria related to the innovation process and outcomes. The network partners value equation in a new network-based business model is complex to understand but nonetheless important to drive and lead the model from idea through the innovation process to the market. Another interesting finding is the big difference in network construction and demand of change to the individual network partners business models. Keywords: innovation; business model; BM; network; multiple case studies. Reference to this paper should be made as follows: Lindgren, P., Taran, Y. and Boer, H. (xxxx) From single firm to network-based business model innovation, Int. J. Entrepreneurship and Innovation Management, Vol. X, No. Y, pp Biographical notes: Peter Lindgren, PhD, is an Associate Professor of Innovation and New Business Development at the Center for Industrial Production at Aalborg University. He holds a BSc in Business Administration, an MSc in Foreign Trade and a PhD in Network-based High Speed Innovation. He has co-authored numerous articles and several books on subjects such as product development in network, electronic product development, new global business development, innovation management and leadership and high speed innovation. His current research interest is in new global business models, i.e., the typology and generic types of business models and how to innovate these. Yariv Taran is a PhD student at the Center for Industrial Production at Aalborg University. He received his Bachelor s degree in Management and Sociology at the Open University of Israel and an MSc in Economics and Business Administration at Aalborg University. His research focuses on business model innovation. Other areas of research interests include intellectual capital management, knowledge management, entrepreneurship and regional systems of innovation. Copyright 200x Inderscience Enterprises Ltd.

2 2 P. Lindgren et al. Harry Boer, PhD, is a Professor of Strategy and Organisation at the Center for Industrial Production at Aalborg University. He holds a BSc in Applied Mathematics and an MSc and PhD both in Management Engineering. He has co-authored numerous articles and several books on subjects such as organisation theory, flexible automation, manufacturing strategy and continuous improvement. His current research interest concerns continuous innovation, i.e., the interaction between day-to-day operations, incremental change and radical innovation. 1 Introduction What is it about business models (BMs) that make them so difficult to comprehend? What do we really know about the rationale of BMs? What is the difference between innovation of a product and innovation of a BM? Most managers, asked to present their company s BM, would not have a ready answer to give and when they do come up with one they will most likely draw their organisational structure. But does this represent a holistic BM? And if they do have an explicit model of their own business, do they know how to continuously develop it successfully? The state-of-the-theory is not much better. Today, we know a great deal about innovation in general (Ulrich and Eppinger, 2000; Tidd et al., 2005) and how to innovate products (Wind, 1973; Cooper, 1993; Baker and Hart, 2007) in particular, but we know very little about BM innovation. The aim of this article is to shed light on the development of and innovation through, network-level BMs. 2 Definition of the BM concept The term business model has become increasingly popular since the dot com era of the mid-1990s. As business ecosystems emerged, many companies started to rethink their BM and structure by shifting to an e-form business (Moore, 1998). As shown in Appendix, many authors have attempted to define the BM concept. Some authors took a narrow (e.g., technological/financial) focus, while others adopted a more general perspective. Some have incorporated corporate strategy in their BM concept, while others left it out. However, it seems that most (if not all) authors agree that a BM is simply defined by the combination of the two terms business and model. Osterwalder et al. (2004) define a BM as: A blueprint of how a company does business. It is a conceptual tool that contains a set of elements and their relationships and allows expressing a company s logic of earning money. It is a description of the value a company offers to one or several segments of customers and the architecture of the firm and its network of partners for creating, marketing and delivering this value and relationship capital, in order to generate a profitable and sustainable revenue stream.

3 From single firm to network-based business model innovation 3 According to this definition, a BM serves as a building platform that represents a company s operational and physical manifestation. Thus, the challenge for BM designers is to first identify the key elements and the key relationships that describe the company s as-is BM before innovating it. 3 Components of a BM As part of the ongoing process of defining the BM concept, many authors have attempted to clarify the components (building blocks) constituting a generic BM. Morris et al. (2003) presented an overall view, with a strong focus on an entrepreneurial understanding of BMs. They tried to build what they call a unified perspective of BMs derived from various academic studies published since the late 1990s. Based on the findings of their cross-theoretical study, the authors concluded that no single theory could fully explain the value creation potential of a business enterprise. Consequently, it is impossible to identify a holistic building block framework for a generic BM depending merely on one author s perspective. However, they proposed an interactive framework that includes three specific decision making levels (rules, proprietary and foundation) with respect to six basic decision areas, namely factors related to services and products, the market, internal capabilities, the competitive strategy, economics and growth/exit. Table 1 Pillar Nine BM building blocks BM (the nine building blocks) Content and description Product Value proposition Gives an overall view of a company s bundle of products and services. Customer interface Infrastructure management Financial aspects Target customer Distribution channel Relationship Value configuration Core competency Partner network Cost structure Revenue model Source: Osterwalder et al. (2004) Describes the segments of customers a company wants to offer value to. Describes the various means the company uses to get in touch with its customers. Explains the kind of links a company establishes between itself and its different customer segments. Describes the arrangement of activities and resources. Outlines the competencies necessary to execute the company s BM. Portrays the network of cooperative agreements with other companies necessary to efficiently offer and commercialise value. Sums up the monetary consequences of the means employed in the BM. Describes the way a company makes money through a variety of revenue flows.

4 4 P. Lindgren et al. Similarly, Osterwalder and Pigneur (2004) also developed a framework for BMs. They, too, summed up previous academic work on BMs (Stähler, 2001; Weill and Vitale, 2001; Petrovic et al., 2001; Gordijn, 2002; Afuah and Tucci, 2003; Tapscott et al., 2000; Linder and Cantrell, 2000; Hamel, 2000; Mahadevan, 2000; Chesbrough and Rosenbloom, 2000; Magretta, 2002; Amit and Zott, 2001; Applegate, 2001) and arrived at the nine BM building blocks presented in Table 1. We used these elements as point of departure for our research on BM innovation. 4 When is a BM new? Having a conceptualisation of BMs is one thing, innovating them is quite another. According to Magretta (2002), new BMs are variations on a generic value chain underlying all businesses, which eventually can be divided into two categories: 1 all the activities associated with production; e.g., designing, purchasing and manufacturing 2 all the activities associated with selling something; e.g., finding and reaching customers, sales transactions and distributing the products/services. For that reason, according to her, a new BM can be seen as a new product for unmet needs (new customer segment) or it may focus on a process innovation and a better way of making/selling/distributing an already proven (existing) product or service (to existing and/or new customer segments). Or, formulated more generally, a BM is new if one of the building blocks is new. According to Amit and Zott (2001), BM innovation refers not only to products, production processes, distribution channels and markets, but also to exchange mechanisms and transaction architectures. Therefore, they propose to complement the value chain perspective by concentrating also on processes that enable transactions. In view of that, they conclude that BM innovation does not merely follow the flow of a product from creation to sale, but also includes the steps that are performed in order to complete transactions. Therefore, the BM as a unit of analysis for innovation potentially has a wider scope than the firm boundaries, since it may encompass the capabilities of multiple firms in multiple industries. Also, Chesborough (2007) and the IBM global CEO Study (2006) emphasise the importance of BM innovation to appear in the form of organisation structure and network relationship changes, such as alliances, joint ventures, outsourcing, licensing and spin-offs. 5 Levels of BM change The eternal question in the innovation literature is when can we call something an innovation? Is it enough that one of the participants in the network thinks it is new or must all the participants agree that it is new before it is? Is it new if it is new to the participants but not within the industry as such? Is it new if the BM is used elsewhere but not in the participants industry? Or should it be completely new to all, like e.g., the internet and online shopping in the mid-1990s (Lindgren et al., 2008)?

5 From single firm to network-based business model innovation 5 Skarzynski and Gibson (2008) argued that in order to understand how to innovate a BM, you must need first to unpack it into individual components and understand how all the pieces fit together in holistic way. Furthermore, according to them, in order to build a breakthrough BM that rivals will have difficulty to imitate, companies will need to integrate a whole series of complementary, value creating components so that the effect will be cumulative. Another approach to BM innovation, suggested by Linder and Cantrell (2000), regards the level of radicality of BM innovation and presents four, what they call, change models, i.e., realisation models, renewal models, extension models and journey models. In realisation models, where most companies are situated, the main issue is to exploit the current potential within an existing operational framework. This BM is considered to be the one with the least actual change like, for example, geographical expansion of the firm, minor changes in a product line and customer service improvement. Renewal models are firms that leverage their core skills to create a possibly disruptively new position on the price/value curve. Examples include the revitalisation of product/service platforms, brands, cost structures and technology bases. Extension models include radical changes by developing new markets, value chain functions and product/service lines. Finally, journey models involve a complete transformation of the original BM. Here, the company moves deliberately and purposefully to a new operating model. The debate on defining incremental and radical innovation concerns the how new question (Rosenau, 1993; Leifer, 2002; Tidd et al., 2005). Incremental innovation involves making small-steps, mainly using existing knowledge to improve, for example, existing products/services, practices and structures. It is short-term-based and it focuses on the focal company performing better than it already does. Radical innovation, also called quantum leap innovation, is the ability to develop new knowledge and may even be based on competences the company does not possess at the start of the process and result in products/services that cannibalise or remove the basis of existing products/services (Tidd et al., 2005). 6 From single firm to network-based BM The focus of most BM research so far, has mostly been limited to that of individual firms. However, we have learned to understand that we live in a network economy. Consequently, the BM concept is being challenged from serving merely as [a] blueprint of how a single company does business, as suggested previously by Osterwalder et al. (2004) and transforming more into a blueprint that explains how network partners do business together and a platform at which partners may compensate for their own weaknesses by exploiting other network partners competences and skills and tune its own competences to the other network partners core competences so as to achieve synergetic, network-level benefits. In view of that, the objective of this article is to shed light on the development of network-level BMs and network-based innovations-based on such models.

6 6 P. Lindgren et al. 7 Research design 7.1 Sample and method Three network-level BM innovations involving small and medium sized companies provide the empirical basis for this article. The study was conducted from 2005 to 2007 as part of the New Global ICT-based business model (NewGIBM) project funded by the Danish Ministry of Science, Technology and Innovation. Our chief research method was participative observation, with a strong explorative component, as very little research in this field was available at the start of the study. We were involved in the three networks from their inception and took active part in their formation by screening potential network partners before the network development process even began. Furthermore, we participated as group members in the networks during their development and took part in the discussion, development and screening of BM ideas and concepts. This was both done at individual meetings with network partners and at group meetings. 7.2 Operationalisation and data collection In addition to making observations through active participation, we conducted mail, telephone and face-to-face interviews and organised focus group meetings with the individual network partners. In the initial phase, we talked to the person in charge of the new business development initiative in each of the companies involved in most cases the CEO, business manager and/or innovation manager. Later on, more people were involved in the innovation process and interviewed. Given the mostly explorative nature of our research, we used a semi-structured questionnaire, which allowed the individual network partners maximum freedom to explain their views on the new BM and their understanding of the innovation process, and enabled us to collect the data we felt we needed for the purpose of our research at the same time. Table 2 Data sources The Intelligent Utility case The Master Cat case The Smart City case Individual meetings Individual interviews Meetings with two or more persons from the same company Meetings with board Group interviews Focus group interviews Meetings with two or more network companies Seminars/workshops Questionnaire quantitative Questionnaire qualitative Total

7 From single firm to network-based business model innovation 7 Every interview and meeting was taped and transcribed to files and then put up on the different projects extranets. The transcribed interviews were sent to the interviewees for comments, correction and final acceptance. All documents from the network partners were available for us to see and even copy for our research files. We also continuously developed reflection and observation papers to compare our understanding with the network partners perceptions. Table 2 provides an overview of the data sources we used in the three cases. 7.3 Data analysis First, we filed the data collected for each of the networks, using the following broad categories: individual partner data network-level data information about the firm- and network-level BMs key aspects of the BM development process. Then, we identified similarities and differences between the three cases, regarding: each of the categories in order to understand the key characteristics of each of the networks, the BM development and innovation processes taking place and the innovations produced by the networks the interactions between the categories in order to understand the dynamics of the BM development process and the collaborative innovations pursued at that level. 8 Short case descriptions 8.1 The Intelligent Utility case Eight companies in the energy industry decided to form a network and develop a new intelligent utility business platform together. The network partners were a mixture of well and lesser known companies, some of which were customers and suppliers to each other. The idea was to develop a new intelligent energy steering concept for private houses (all use of electricity, phone, gas, water was to be steered by an intelligent device and software, which should reduce a household s energy consumption with 70%). The focal organisation envisaged different modules in an intelligent utility platform, which represented an increasingly complex solution: 1 Knowledge about energy consumption: The module would help the costumer to get an overview of the current consumption of electricity, water, heat and gas. 2 Energy surveillance and alarming: This module would provide the costumer with a functionality that signals when the consumption of electricity, water, heat or gas is anomalous.

8 8 P. Lindgren et al. 3 Energy guidance: The guidance functionality would support the customer in reducing their energy consumption through continuous guidance and advice. 4 Smart home services: This module would be based on integrating all the devices in private homes to one central control system. The customer could activate and deactivate the different devices from a distance through mobile solutions and/or internet portals. 8.2 The Master Cat case A Norwegian/Danish consortium decided to develop a new business platform the Master Cat. The vision was to develop a new high-speed ferry concept (1 hour 45 min. normal 3 hours 45 min.) to be operated between Christiansand (South-East Norway) and Hanstholm (North-West Denmark) and priced at only 30% of the normal market price. Characterised by a small number of players and high prices, the market looked basically like the airline industry before the entrance of low-cost carriers. This is why the Master Cat initiative was nicknamed Ryanair on water. Established as a joint venture, the Norwegian part of the network was quite formal: an agreement was signed between the partners in order to ensure accomplishment of the primary objective, namely to establish a profitable business a new, fast and low-priced ferry between Norway and Denmark. On the Danish side, the network was informal. Some of the partners had worked with each other in the past, while others were new to the other network partners. Some pursued the same goal as the Norwegians, while others were more interested in exploiting the new concept as a stepping stone to develop the entire Hanstholm region, with particular emphasis on tourism, which was expected to be able to grow significantly in volume. 8.3 The Smart City case Thirty-seven network partners from Northern Denmark wanted to develop an innovative network-based BM in the construction industry, called the Smart City concept. From the very beginning of the innovation project, they wanted to focus on the global market. The partnership was characterised by a large diversity of competences and skills. Some of the network partners were well-known and established construction companies and had had a long-term relationship with each other. Some, however, were unknown to the other partners and represented other branches, including university researchers, architects and consultancy firms. The network partners agreed on the development of an open BM innovation platform consisting of: a physical Smart House experimentation, where companies, users and researchers could develop future BMs and components in the building industry a virtual Smart House experimentation, where companies, users and researchers could innovate and experiment virtually together around future BMs and components in the building industry. The network partners also agreed on developing:

9 From single firm to network-based business model innovation 9 Smart House components implemented in existing buildings one or more Smart Houses placed in Northern Denmark and on the global market practical realisations of the Smart House concept one or more Smart Cities practical realisations of more Smart Houses together in a whole Smart City. Prior to the implementation phase, the Smart City network partners formalised their network agreement and activities and established an open membership fund called the Smart City. 9 Discussion Competition today is making it increasingly difficult for companies to compete individually. Therefore, in addition to developing their core competence base individually, firms have to become more open to network-based innovation, particularly when the core knowledge and competencies needed to improve their performance are not available in-house. Main potential sources of external competences are knowledge institutions, customers and suppliers, consultants and even competitors. Collaboration helps companies to find and open new markets and obtain a better understanding of what is expected from them (European Union, 2003). Consequently, many companies are finding themselves increasingly tied to other firms. However, this also means they are challenged to adjust their own BM to support their partners core competences so as to create a new and joint platform for collaboration and innovation. In all the three case studies described above, we identified a common understanding from all the network partners, namely that in order to innovate successfully in the network, it would be necessary to change their own BM and adapt it to the overall network-level BM. However, the degree of collaboration, development and innovation differed between the three cases. In the Intelligent Utility case, one core company steered the network towards a network-based BM. The challenge here was to catch the other network partners attention and interest in forming that new model. The network partners were spread all over Denmark and both the BM that emerged and the joint product innovation activity were new to the industry. Hence, the main effort here was to exploit each network partner s competences for the purpose of leveraging the entire network s capability to compete successfully nationally and later on also globally. Although the idea, developing an intelligent utility, triggered the network partners to involve themselves in the innovation process, their expectations were quite different. Some saw the network as a means to seek short-term gains (money now), others engaged with a longer-term focus (learning now and business later). Much of this value was perceptual, firstly, because the new BM was not yet realised and secondly, because it was related to expected future product values and, even more importantly, future network relations. Furthermore, it appeared to be necessary for the partners to consider the whole chain of customers from end-user to producer, so that they could better understand the potential hidden in, as well as the triggers to, the development of their new network-based BM.

10 10 P. Lindgren et al. In the Master Cat case, the network included local as well as regional (Denmark-Norway) partners. The new ferry business was considered to be a new product/service to the region. However, the interesting conclusion that rises from this case concerns the nature of the network formation and its influence on the individual partners BM value equations (Lindgreen and Wynstra, 2003; Blois, 2004). Whereas in the loose Hanstholm network, the participants value sets were more flexible and diverse and with that also the partners BMs, the partners were more committed to ensuring the overall success of the specific task shared with the more rigid Norwegian joint venture. Consequently, the individual partners adjusted their BM to the network-level model differently. The Norwegian partners primary objective was to establish a profitable business a new fast and low-priced ferry between Norway and Denmark. Some of the Danish partners focused on the same goal while others were more interested in utilising the new creation as a stepping stone to develop the entire Hanstholm area, emphasising in particular the tourism potential, which was expected to grow significantly in volume. In the Smart City case, the new (local) network was rather diversified and more open in its structure both in terms of the partners represented and the products/services they produced. This was beneficial to the radical innovation or blue ocean strategy (Chan and Mauborgne, 2005) pursued. However, the greatest challenge was (and still is) to get the various partners interested and committed to forming a collaborative network, as well as in capturing common values. This interest is strongly related to the network partners value equation what is in it for me?. The entire Smart City concept is therefore steered by the North Jutland County, to avoid suspicion and mistrust ( serves only one company s interest ) and to support the network throughout the innovation process. Similar to the other two cases, the individual network partners value equations varied considerably ranging from narrow to wide and involving short-term and long-term, as well as financial and non-financial criteria (e.g., money now versus learning now, business later). Our findings show that network-based BM configuration and possible network-based innovations requires individual companies to adjust their BM to the common value chosen by the network. In most cases, the dominant company in the network, usually one of the larger ones, will experience the least change to its core as-is BM, while the smaller partners tend to be more open to at least considering more radical changes to their BM. Yet, on the level of individual firms, the changes are generally limited. On network level, the impact of these small changes may be significant. In all three cases, the network partners brought established technologies, markets and customers together but the new network ties enabled them to develop a radically new business platform and products. As Table 3 shows, the Intelligent Utility network innovated seven building blocks (value proposition, distribution channel, customer relationship, value configuration, network partners, cost structure, revenue model), the Master Cat network innovated three building blocks (value proposition, core competency, cost structure) and the Smart City network is strategically planned to innovate seven building blocks (value proposition, customer relationship, value configuration, core competency, network partners, cost structure, revenue model).

11 From single firm to network-based business model innovation 11 Table 3 Configuration of building blocks (network-based) innovations Network-level BM building blocks Value proposition Target customer The Intelligent Utility case Develop a new intelligent energy steering product for private houses. All private households in Denmark. No change of customer segments has been sighted to any of the network partners. The Master Cat case Norwegian Group: develop a new product/service a profitable high speed and cheap ferry business. Danish Group: develop new product and services a profitable ferry and new tourism businesses in order to develop the entire Hanstholm region. Both groups share the same target customer ferry passengers and cargo customers. No change of customer segments has been sighted to any of the network partners other then growth in volume. Distribution channel New virtual channel. Existed physical channel, but also new virtual ordering channel. Relationship Value configuration Core competency New virtual relationship steered by an intelligent device and software. New partners and suppliers in servicing target customers. Joint combination of known core competences. Electricity, telephone, gas, water and software programs. Existed relation channels but grown in volume. Diverse values and perceptions. Known value chains with several partners and suppliers in servicing target customers. Both existed and new core competences. Fast ferry, low-price tickets, harbour and harbour resources. The Smart City case Strategically planned for new value propositions. To develop new smart houses, within a smart city, located in North Jutland, Denmark. All private households, hospitals and other public sector institutions. Strategically planned for known local customers. Existed physical, digital and virtual channel. Strategically planned for new physical, digital and virtual relationships. Diverse values and perceptions (shortvs. long-term perceptions). Strategically planned for new value configurations. Strategically planned to develop and utilise new core competences. Building materials, architecture, research experts, IT, etc.

12 12 P. Lindgren et al. Table 3 Configuration of building blocks (network-based) innovations (continued) Network-level BM building blocks The Intelligent Utility case The Master Cat case The Smart City case Partner network Cost structure Revenue model National network. Incremental changes, involving new network partners into the existing core (national) network. New cost structure (diminishing costs) to some network partners. New revenue stream to some of the network partners. No change local/ regional network. New and cheaper virtual ordering system, but also higher transportation cost due to the high speed, but lowpriced, ferry measured up to competitors. Minor change in the revenue model. Strategically planned to develop new local, regional and global networks. Strategically planned to reduce cost and increase value for upcoming planned innovations. Strategically planned for new revenue streams. Table 4 Building blocks of a network-based BM Pillar Product (physical, digital, virtual) Customer interface (physical, digital, virtual) Infrastructure management Financial and non-financial aspects Network-level BM building blocks Value proposition Target customer Distribution channel Relationship Value configuration Core competency Partner network Cost structure Revenue model Description Gives an overall synergistic view of the network partner s bundle of products, processes and services. Describes the customer segments that the network partners offer value to. Describes the various means that the network partners uses (or will use) to get in touch with their target customers. Explains the kind of links the network partners establishes between themselves and their different customer segments. Describes the synergistic arrangements of activities and resources. Outlines the synergistic competencies of the entire network partners necessary to execute the innovation. Portrays the cooperative agreements (of the network partners necessary to efficiently offer and commercialise value. Sums up the synergistic monetary and nonmonetary consequences of the means employed in the network-based BM. Describes the synergistic way of the network partners to make money and/or creates other nonfinancial values and defines the benefits between the various network partners.

13 From single firm to network-based business model innovation 13 Overall, our case studies therefore confirm that it is useful not only to study the BM concept at the level of individual firms, but also at that of networks. This, however, calls for some adjustments to the BM building blocks suggested by Osterwalder et al. (2004) see Table 1. In Table 4, these network-level building blocks are summarised. Relative to the intra-firm version (Table 1), we added the role of non-financial aspects and specified some of the building blocks in more detail. Otherwise, the elements are essentially the same; the main difference concerns the unit of analysis the network instead of the individual firm, which stresses the power of synergistic effects that eventually result in a collaborative innovation efforts. Our case studies provide real-life examples of how to leverage and form such network ties; most of its success depends on the ability of the network partners to understand first what a network-based BM means. What are its components? And how can one leverage such platform to secure continuous innovation capabilities. 10 Conclusions Most of the innovation literature is concerned with incremental and, especially, radical product innovation taking place within firms and/or in dyadic collaborations. In practice, however, innovation is moving to the level of networks and consequently, the need emerges to tie several firm-specific silos of business expertise together, create synergies and design a platform to compensate for individual firms BMs deficiencies. The aim of this paper was to shed light on the development of network-level BMs and network-based innovations-based on such models. We took our point of departure in the core elements of firm-level models (Osterwalder et al., 2004). Our case studies suggested the following differences between firm-level and network-level BMs: A network-level BM is a powerful tool for individual companies to innovate with, particularly when the partners recognise that important competencies needed but not available in-house can be accessed through a partnership with other firms. The partners value equations (expectations, success criteria) trigger and drive their participation. Collaboration between partners who have (access to) the required competencies and markets provides the basis for successful innovation. Bringing these equations and competences together by actually establishing collaboration is a major challenge. A small network or the presence of a lead partner in a larger and/or more diversified network reduce that challenge. The level of innovation is potentially high with a network-based BM, due to the large variety of competences and ideas available within, as well as the technologies, products, markets or even industries accessible to, the network. Relative to single-firm models, the network-level BM has a much stronger focus on the basics of how joint innovation can ultimately create new value(s) accompanied by diminishing costs for the stakeholders involved. Incremental changes in each of the partners structures, systems, technologies, approaches and/or products/services may have radically innovative effects.

14 14 P. Lindgren et al Further research The present article is based on three mostly explorative case studies. There are several well-documented advantages to this methodology, such as richness and depth, but also weaknesses pertaining to, amongst others, generalisation. In other words, we know a lot about these three cases, but are far removed from knowing everything about the whole field of network-level business development and network-based innovation. The conclusions presented above should therefore be regarded as propositions for further research aimed, eventually, at developing more rigorous theory on the management of network-level business development and network-based innovation. Thus, we propose to conduct a mix of comparative and longitudinal further case studies as a first step, aimed at enriching and sharpening the findings presented here. Thereafter, a larger case-based or questionnaire survey may be used to test and generalise the theory developed through the qualitative research suggested above. References Afuah, A. and Tucci, C. (2003) Internet Business Models and Strategies, McGraw Hill Irwin, Boston. Amit, R. and Zott, C. (2001) Value creation in e-business, Strategic Management Journal, Vol. 22, Nos. 6 7, pp Applegate, L.M. (2001) E-business models: making sense of the internet business landscape, in G. Dickson, W. Gary and G. DeSanctis (Eds.): Information Technology and the Future Enterprise: New Models for Managers, Prentice Hall, Upper Saddle River, NJ. Baker, M. and Hart, S. (2007) Product Strategy and Management, pp , Prentice Hall, Harlow. Blois, K. (2004) Analyzing exchanges through the use of value equations, The Journal of Business and Industrial Marketing, Vol. 19, Nos. 4/5, pp Chan, K.W. and Mauborgne, R. (2005) Blue Ocean Strategy. How to Create Uncontested Market Space and Make Competition Irrelevant, Harvard Business School Press, Boston. Chesborough, H. (2007) Open Business Models. How to Thrive in the New Innovation Landscape, Harvard Business School. Chesbrough, H. and Rosenbloom, R.S. (2000) The role of the business model in capturing value from innovation: evidence from Xerox Corporation s technology spin-off companies, Industrial and Corporate Change, Vol. 11, No. 3, pp Cooper, R. (1993) Winning at New Products: Accelerating the Process from Idea to Launch, Addison-Wesley, Reading. European Union (2003) EU Observatory Report of European SMEs on Competence development in SMEs, Vol. 1. Gordijn, J. (2002) Value-based requirements engineering exploring innovative e-commerce ideas, PhD thesis, Vrije Universiteit Amsterdam, The Netherlands. Hamel, G. (2000) Leading the Revolution, Harvard Business School Press, Boston. IBM (2006) Expanding the Innovation Horizon, available at Leifer, R. (2002) Critical Factors Predicting Radial Innovation Success, Technische Universität, Berlin. Linder, J. and Cantrell, S. (2000) Changing Business Models: Surveying the Landscape, Accenture Institute for Strategic Change, Cambridge.

15 From single firm to network-based business model innovation 15 Lindgreen, A. and Wynstra, F. (2005) Value in business markets: what do we know? Where are we going?, Industrial Marketing Management, Vol. 34, No. 7, pp Lindgren, P., Taran, Y. and Schmidt, A.M. (2008) The analytical model for NewGIBM, in P. Lindgren and E.S. Rasmussen (Eds.): New Global ICT-Based Business Models, Aalborg Universitetsforlag. Magretta, J. (2002) Why business models matter?, Harvard Business Review, Vol. 80, No. 5, pp Mahadevan, B. (2000) Business models for internet-based e-commerce. An anatomy, California Management Review, Vol. 42, No. 4, pp Moore, J.F. (1998) The new corporate form, in D. Tapscott, A. Lowy and D. Ticoll (Eds.): Blueprint to the Digital Economy Creating Wealth in the Era of E-business, McGraw-Hill, New York. Morris, M., Schmindehutte, M. and Allen, J. (2003) The entrepreneur s business model: toward a unified perspective, Journal of Business Research, Vol. 58, No. 6, pp Osterwalder, A. and Pigneur, Y. (2004) An Ontology for E-business Models, University of Lausanne, Switzerland. Osterwalder, A., Pigneur, Y. and Tucci, L.C. (2004) Clarifying business models: origins, present and future of the concept, Communications of AIS, No. 16, pp Petrovic, O., Kittl, C. and Teksten, R.D. (2001) Developing business models for e-business, Proceedings of the International Conference on Electronic Commerce, Vienna, October November. Rosenau, J.N. (1993). Turbulent change, in P.R. Viotti and M.V. Kauppi (Eds.): International Relations Theory: Realism, Pluralism, Globalism, pp , Macmillan Publishing Company, New York. Skarzynski, P. and Gibson, R. (2008) Innovation to the Core, Harvard Business School Publishing, Boston. Stähler, P. (2001) Geschäftsmodelle in der digitalen ökonomie. Merkmale, strategien und auswirkungen, PhD thesis, University of St. Gallen, Switzerland. Stewart, D.W. and Zhao, Q. (2000) Internet marketing, business models and public policy, Journal of Public Policy & Marketing, Vol. 19, pp Tapscott, D., Ticoll, D. and Lowy, A, (2000) Digital Capital. Harnessing the Power of Business Webs, Harvard Business School Press, Boston. Tidd, J., Bessant, J. and Pavitt, K. (2005) Managing Innovation. Integrating Technological, Market and Organisational Change, John Wiley & Sons, Chichester. Timmers, P. (1998) Business models for electronic markets, Journal on Electronic Markets, Vol. 8, No. 2, pp.3 8. Ulrich, K.T. and Eppinger, S.D. (2000) Product Design and Development, McGraw-Hill, New York. Weill, P. and Vitale, M.R. (2001) Place to Space, Harvard Business School Press, Boston. Wind, Y. (1973) A new procedure for concept evaluation, Journal of Marketing, October, Vol. 37, pp.2 11.

16 16 P. Lindgren et al. Appendix Various definitions to the term BM Timmers, 1998 BM stands for the architecture for the product, service and information flows, including a description of the various business actors and their roles, the potential benefits for these actors and the sources of revenues the BM includes competition and stakeholders. Stewart and BM is a statement of how a firm will make money and sustain its profit Zhao, 2000 stream over time. Linder and The BM is the organisation s core logic for creating value. Cantrell, 2000 Hamel, 2000 A BM is simply a business concept that has been put into practice. A business concept has four major components: core strategy, strategic resources, customer interface and value network (elements of the core strategy include business mission, product/market scope and basis for differentiation. Strategic resources include core competencies, key assets and core processes. Customer interface includes fulfilment and support, information and insight, relationships and pricing structure. The value network consists of suppliers, partners and coalitions). Petrovic et al., 2001 Weill and Vitale, 2001 Magretta, 2002 Amit and Zott, 2001 Osterwalder et al., 2004 Chesborough, 2007 Skarzynski and Gibson, 2008 BM describes the logic of a business system for creating value that lies behind the actual processes. A description of the roles and relationships among a firm s consumers, customers, allies and suppliers that identifies major flows of product, information and money and the major benefits to participants. BM s are stories that explain how the enterprises work BM describe, as a system, how the pieces of a business fit together, but they don t factor in one critical dimension of performance: competition. a good BM has to satisfy two conditions. It must have a good logic who the customers are, what they value and how the company can make money by providing them that value. Second, the BM must generate profits. A BM is the architectural configuration of the components of transactions designed to exploit business opportunities. The transaction component refers to the specific information, service or product that is exchanged and/or the parties that engage in the exchange. The architectural configuration explains the linkages among the components of transactions and describes their sequencing. A blueprint of how a company does business. It is a conceptual tool that contains a set of elements and their relationships and allows expressing a company s logic of earning money. It is a description of the value a company offers to one or several segments of customers and the architecture of the firm and its network of partners for creating, marketing and delivering this value and relationship capital, in order to generate profitable and sustainable revenue stream. The BM is a useful framework to link ideas and technologies to economic outcomes. It also has value in understanding how companies of all sizes can convert technological potential [e.g., products, feasibility and performance] into economic value [price and profits]. Every company has a BM, whether that model is articulated or not. The BM is a conceptual framework for identifying how a company creates, delivers and extracts value. It typically includes a whole set of integrated components, all of which can be looked on as opportunities for innovation and competitive advantage.