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10 Guidelines for Business Model Innovation in Established Companies

guidelines for business model innovation

By: Georg Stampfl

Leading CEOs worldwide expect major changes to their company’s business model until 2020. As a consequence, organizations are currently about to realize that, today, business model innovation has become as important as technological innovation. However, developing new and viable business models still represents a serious challenge for large incumbent firms despite their resources, know-how, and key technologies. This article provides 10 guidelines for mastering business model innovation challenges in established companies.

We have conducted extensive empirical research on business model innovation processes in incumbent firms and condensed our experiences in working with established companies on developing new business models. Based on these findings the – what we call – “anatomy of business model innovation” has emerged. Besides other insights, it provides 10 important guidelines that need to be considered when tackling the business model innovation challenge.

1. Business model innovation is a top management issue

Business model innovations requires a top-down approach. Top management involvement and support are prerequisites for success. However, this type of innovation represents a significant challenge for business leaders as they have to:

  • show strategic foresight and a long term perspective,
  • manage the process of organizational change and development of new organizational structures required by new business models,
  • promote new business models internally and externally,
  • strengthen a supporting corporate culture,
  • support employees in taking initiatives and risks,
  • handle the ambidextrous operation of the existing and the new model in parallel, and secure sufficient funding and investments required for the development of new business models.

2. Proactive discovery of new business models

In times of fast changing business environments, incumbent organizations seem to be well advised to proactively search and discover new business model opportunities while their current business model is still successful. Industry boundaries are increasingly blurring and business models far from being stable anymore. As companies are more familiar with product and process innovations, existing organizational abilities and investments might become “rigidities” in moving towards the development of a new business model.

3. Monitoring of business model environments

It is of great importance to implement a structured approach for monitoring business model environments and to provide answers to questions such as:

  • What are other business models in the market and how are they changing?
  • What are the business models of suppliers, customers, competitors and how are they changing?
  • What business models in adjacent markets are emerging?
  • What key trends and macroeconomic forces are shaping the business model environment?

It is vital to understand external forces of change in order to anticipate relevant impacts in the business model design. We have developed the “Business Model Environment Map” and the “Business Model Environment Framework” as a structured approach for general environment and trend assessments as well as for the analysis of the links between a specific business model and its environment. Executives and innovation managers are well advised to use available tools to identify business model innovation opportunities in a more structured way.

Figure 1: Business Model Environment Map.

guidelines for business model innovation

Figure 2: Business Model Environment Framework.

guidelines for business model innovation

4. Focus on organizational learning and on an iterative approach

Business model innovation processes show specific characteristics that make them costly and complex. Business model innovation projects are characterized by a high degree of various uncertainties (e.g., regarding markets, customer needs, or technologies). Markets are ill-defined, as is the evolving offer which makes it quite impossible to predict project outcomes. Therefore, the focus must lie rather on organizational learning based on an iterative approach for finding a successful business model design than on efficiency. An experimental instead of a purely analytical logic is required. Strategically relevant and promising opportunities build the playground for an iterative approximation towards a first fit between new business model prototype and market. Hence, classic linear innovation processes (e.g., stage-gate models) are not well suited to develop new business models.

5. New organizational capabilities and structures

The development and implementation of a new business model entails the development of new organizational capabilities and structures as well as the establishment of relationships to new suppliers, customers or other business partners. Important decisions on how to handle the simultaneous operation of the existing business model(s) and the new model need to be taken. It also imposes the challenge to find out how a market can be entered the most effective and efficient way. Learning to “speak the language of the (new) market” is key in this respect.

6. Failure is the rule, not the exception

Even for an experienced business model innovator, failure during a business model innovation process is the rule, not the exception.

Research data shows that even for an experienced business model innovator, failure during a business model innovation process is the rule, not the exception. Success is not around the corner. Incumbents have to accept that a new business model is likely to remain unprofitable for a longer period. Increasing the pressure on the new business model by wrongly applying existing KPIs from established businesses units is dangerous and likely to kill the new business model project too early. The process is not completed with the implementation of a first viable version of the new model. Constant adjustments to the business model are required in order account for heterogeneous customer needs and changing business environments.

7. Supporting the collaboration in business model design projects

In various business model design projects it became evident that – despite all modern communication technologies – face-to-face meetings are most effective in putting ideas forward. However, the abundance of information that has to be processed throughout business model development calls for technological support. Collaboration needs to be supported by

  • a platform for process management allowing to document the design process, to organize work, to report on completed tasks, and to communicate quickly (e.g., giving immediate feedback to spontaneous ideas), and by
  • a knowledge repository where new information is collected, refined, and easily shared with others.

8. The use of templates – clearly outline underlying hypotheses

The use of visual business model templates to design business models helps to provide structure, a shared language, and simplification. Moreover, it allows to concentrate on the essential components of the business model. However, it must be noted that the downside of templates is limited creativity and the template itself might need more specification. Still, templates are useful to develop ideas for new business models into full business model prototypes. Such prototypes represent an accumulation of various hypotheses, for instance regarding customers, markets, or the business model’s economics that need to be clearly outlined. Clearly stating the hypotheses makes the assumptions underlying the business model prototype more tangible and testable.

9. Use of business model analogies to learn from proven patterns

Analogies are an important catalyst for generating new business model ideas.

Analogies are an important catalyst for generating new business model ideas. Being inspired by proven business models from other domains sparks creativity, helps do generate new business model designs, and, by building on proven elements of other business models, the pitfalls of a particular business model pattern can be anticipated. Hence, it is advisable to capitalize on the fact that (1) most “new” business models are not completely new, but rather adaptions or refinements of existing business models (Stampfl 2015; Gassmann, Csik, et al. 2012) and (2) that business model patterns are successfully applicable across industry boundaries. As a consequence, we decided to develop a knowledge-hub on business models (the “ Business Model Gallery ”) as a resource for learning about various business models from different industries. A catalogue of “business model design themes” allows to “borrow” ideas for own business model design tasks.

10. Expect (positive) “side effects”

Last but not least, chances are high that there are (positive) “side effects” of developing new business models. The development of new products frequently represents a primary trigger for developing new business models. However, the work on a new business model might result in important inputs and new ideas for product development. As there is a strong interplay between product and business model innovation, the development of a new product can be a positive side effect (i.e. a result) of business model innovation. Vice versa, the work on a new business model often provides inputs and new ideas for new products or improved processes.

Let’s keep this list of guidelines going! What are your experiences and learnings from business model innovation projects in a larger company? Post your comments, thoughts and feedback below or get in touch with me .

By Dr. Georg Stampfl

About the author

guidelines for business model innovation

  • Gassmann, O., Csik, M., & Frankenberger, K. (2012). Aus alt mach neu: Ein Fahrplan für Innovationen. Harvard Business Manager, 34.
  • Stampfl, G. (2015). The Process of Business Model Innovation. Springer Gabler, forthcoming Summer 2015

Photo: Business Model by Shutterstock.com

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What is Business Model Innovation? Definition, Framework, Examples and Best Practices

By Nick Jain

Published on: July 13, 2023

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Table of Contents

What is Business Model Innovation?

Business model innovation framework: key components, 12 key examples of business model innovation, top 10 best practices for business model innovation.

Business model innovation is defined as the process of creating, modifying, or defining the fundamental structure and components of a business model to create new value propositions, capture new market opportunities, and gain a competitive advantage. It involves developing innovative ways to generate revenue, deliver products or services, and create and capture customer value.

Traditional business models typically consist of various elements such as target customer segments, value propositions, distribution channels, revenue streams, key activities, resources, and cost structure. Business model innovation challenges existing assumptions, norms, and industry practices to explore new avenues for growth and profitability.

Business Model Innovation Forms:

Business model innovation is essential in today’s dynamic and rapidly changing business environment. It enables companies to adapt, stay relevant, and seize new opportunities, particularly in the face of digital innovation , disruptive technologies, and evolving customer expectations. Successful business model innovation can lead to improved competitiveness, increased market share, higher profitability, and sustainable growth.

  • New Revenue Models: Introducing novel ways of generating revenue, such as subscription-based models, freemium models, licensing, or pay-per-use.
  • Value Proposition Innovation: Developing innovative products, services, or features that offer unique benefits to customers and differentiate the business from competitors.
  • Cost Structure Innovation: Identifying cost-saving opportunities, optimizing resource allocation, or leveraging technology innovation to reduce costs and improve profitability.
  • Distribution Channel Innovation: Finding new channels or leveraging existing ones in innovative ways to reach customers more effectively and efficiently.
  • Platform and Ecosystem Innovation: Building platforms or ecosystems that connect different stakeholders and create value through network effects and collaborations.
  • Business Model Reinvention: Completely reimagining the business model to adapt to changing market conditions, emerging trends, or disruptive innovation .

Importance of Business Model Innovation

Importance of Business Model Innovation

Business model innovation is crucial for companies to remain competitive, respond to market changes, and create sustainable growth. It enables companies to deliver enhanced value to customers, optimize operations, and seize new opportunities, ultimately driving long-term success in a rapidly evolving business landscape. Business model innovation is significantly important for businesses due to the following reasons:

1. Competitive Advantage

Business model innovation allows companies to differentiate themselves from competitors by offering unique value propositions, exploring untapped market segments, or leveraging emerging technology innovation . It enables businesses to gain a competitive edge and stay ahead in the market.

2. Adaptation to Changing Environment

Business environments are subject to constant change, driven by technological advancements, evolving customer preferences, regulatory shifts, and market disruptions. By innovating their business models, companies can adapt to these changes, mitigate risks, and capitalize on emerging opportunities.

3. Revenue Growth

Effective business model innovation can lead to new revenue streams or increased revenue generation. By exploring new business models or modifying existing ones, companies can tap into previously unexplored markets, attract new customers, and capture additional value from their existing customer base.

4. Operational Efficiency

Optimizing and innovating the various components of a business model can lead to increased operational efficiency. By streamlining processes, leveraging technology, digital innovation , and optimizing resource allocation, companies can reduce costs, improve productivity, and enhance overall performance.

5. Improved Customer Value

Through business model innovation, companies can elevate the value they deliver to customers. By understanding customer needs and pain points, businesses can develop innovative value propositions, personalized experiences, and tailored solutions that meet customer expectations and create long-term loyalty.

6. Business Resilience

A well-designed and innovative business model is more likely to withstand market disruptions and economic downturns. By diversifying revenue streams, exploring alternative business models, or building resilient ecosystems, companies can improve their ability to navigate uncertainties and maintain long-term sustainability.

7. Organizational Renewal

Business model innovation promotes a culture of innovation , creativity, adaptability, and continuous improvement within organizations. It encourages employees to think outside the box, challenge conventional wisdom, and contribute to the ongoing evolution of the business. This fosters a dynamic and innovative organizational culture.

8. Attracting Investment and Partnerships

Business model innovation often attracts the attention of investors, partners, and stakeholders who recognize the potential for growth and profitability. Innovative business models demonstrate a forward-thinking approach and can enhance a company’s attractiveness for funding, partnerships, and strategic alliances.

Learn more: What is Continuous Innovation?

When approaching business model innovation, several frameworks and key components can guide the process. Here are some commonly used components in a business model innovation framework:

  • Value Proposition: This component defines the unique value that a business offers to its customers. It encompasses the products, services, features, and benefits that address customer needs, solve their problems, or fulfill their desires.
  • Customer Segments: Identifying and understanding the target customer segments is crucial for effective business model innovation. It involves analyzing customer feedback , behaviors, preferences, and pain points to tailor the value proposition and business model accordingly.
  • Revenue Streams: This component focuses on how the business generates revenue from its value proposition. It includes pricing strategies, revenue models (e.g., one-time sales, subscriptions, licensing), and potential sources of income from customers, partners, or other stakeholders.
  • Channels: Channels represent the distribution and communication channels used to reach and engage customers. This component considers both physical and digital channels, such as direct sales, online platforms, retail partnerships, or mobile applications.
  • Innovation Mechanisms: This component focuses on fostering a culture of innovation within the organization and implementing mechanisms to encourage and support business model innovation. It can involve innovation processes , idea platforms, cross-functional teams, experimentation, or learning loops.
  • Key Activities: Key activities encompass the core processes, operations, and actions required to deliver the value proposition effectively. It includes activities such as research and development, manufacturing, marketing, sales, customer support, and strategic partnerships.
  • Key Resources: Key resources refer to the essential assets, capabilities, and infrastructure needed to operate the business model. These resources can include physical assets, intellectual property, technology, human capital, supplier networks, or financial resources.
  • Innovation Drivers: The external and internal factors that push a company to reconsider and evolve its business model to remain competitive, relevant, and adaptable in the ever-changing business landscape. Identify the factors driving the need for business model innovation, such as technological innovation , changes in customer behavior, or industry disruptions.
  • Partnerships and Ecosystems: This component involves identifying and leveraging strategic partnerships or building ecosystems that complement the business model. Collaborations with suppliers, distributors, technology providers, or complementary businesses can enhance value delivery and create new opportunities.
  • Cost Structure: The cost structure defines the expenses associated with operating the business model. It includes costs related to production, marketing, distribution, infrastructure, talent, and any other resources required to deliver the value proposition.

10 Key Examples of Business Model Innovation

There are numerous examples of business model innovation across various industries. These examples illustrate how business model innovation can lead to industry disruption, improved customer experiences, and increased efficiency. Adapting to changing market dynamics and exploring innovative business models can be key to long-term success.

  • Netflix (Transforming Entertainment Distribution): Netflix revolutionized the home entertainment industry by introducing a subscription-based model for streaming movies and TV shows. Instead of traditional DVD rentals, Leveraging technology innovation they shifted to a digital platform that allows users to access content on-demand for a monthly subscription fee.
  • Uber (Disrupting Transportation Services): Uber disrupted the transportation industry by introducing a peer-to-peer ride-sharing platform. They created a business model that connects riders and drivers through a mobile app, providing convenient, affordable, and flexible transportation services.
  • Airbnb (Redefining Accommodation): Airbnb transformed the hospitality industry by offering a platform that allows individuals to rent out their homes or spare rooms to travelers. They created a marketplace that connects hosts and guests, enabling people to find unique and affordable accommodations worldwide.
  • Apple (Integrated Ecosystem): Apple’s business model revolves around an integrated ecosystem of hardware, software, and services. Products like the iPhone, MacBook, and Apple Watch seamlessly work together, creating a cohesive user experience.
  • Tesla (Electric Vehicles and Beyond): Tesla disrupted innovation in the automotive industry by introducing electric vehicles (EVs) with a vertically integrated business model. They not only manufacture and sell EVs but also build and operate their own charging infrastructure, providing a comprehensive solution for sustainable transportation.
  • Spotify (Transforming the Music Industry with Streaming): Spotify changed the music industry with its streaming service that offers access to a vast library of music. They introduced a freemium model, providing both free and premium subscription options, while compensating artists based on streaming plays.
  • Amazon (E-commerce Ecosystem): Amazon transformed e-commerce by creating a comprehensive online marketplace that offers a wide range of products, competitive prices, and fast delivery. They also introduced Prime membership, providing additional benefits like free shipping and access to streaming services.
  • Alibaba (E-commerce Ecosystem): Alibaba revolutionized e-commerce in China by creating a business-to-business (B2B) online marketplace that connects manufacturers with buyers. They expanded their business model to include business-to-consumer (B2C), consumer-to-consumer (C2C), and other services like digital innovation such as cloud computing and digital payments.
  • Google (Monetizing Search and Advertising): Google’s business model innovation lies in its search engine and advertising platform. They provide free access to their search engine while generating revenue through targeted advertising based on user data and search queries.
  • Patreon (Empowering Creators with Fan Support): Patreon introduced a membership platform that allows creators, such as artists, musicians, and podcasters, to receive ongoing financial support from their fans. It enables fans to become patrons and support their favorite creators through this innovation .
  • Dollar Shave Club (Subscription-based Razors): Dollar Shave Club disrupted the shaving industry by offering a subscription-based model for razors and grooming products. They eliminated the need for purchasing expensive razors in stores and instead provided affordable, high-quality products delivered directly to customers’ doors.
  • IKEA (Flat-Pack Furniture and In-Store Experience): IKEA’s business model innovation includes flat-pack, self-assembled furniture and a unique in-store experience. This approach allows for cost savings and a distinctive shopping environment.

Learn more: What is Discontinuous Innovation?

When engaging in business model innovation, it’s important to follow certain best practices to increase the chances of success. Outlined below are several essential best practices to consider:

1. Customer-Centric Approach

Start by deeply understanding customer needs, pain points, and behaviors. Identify unmet needs and gaps in the market to develop innovative solutions that deliver superior value to customers.

2. Embrace a Growth Mindset

Foster a culture of continuous innovation like learning and experimentation. Encourage employees to challenge assumptions, take calculated risks, and learn from failures. Embrace an entrepreneurial mindset that embraces change and seeks out new opportunities.

3. Collaborative and Cross-Functional Approach

Involve diverse perspectives from different teams and departments within the organization. Collaborate across functions to generate innovative ideas, validate assumptions, and ensure alignment and buy-in throughout the organization.

4. Data-Driven Decision Making

Leverage data and analytics to inform decision-making processes. Gather insights on customer feedback , behavior, market trends, and industry dynamics to support business model innovation efforts. Use data to validate assumptions and iterate on the business model.

5. Iterative and Agile Approach

Adopt an iterative approach to business model innovation. Start with small experiments, test assumptions, gather feedback, and iterate based on the results. Embrace agile methodologies to quickly adapt and respond to changing market dynamics.

6. External Insights and Open Innovation

Look beyond internal resources for inspiration and insights. Engage with external stakeholders, such as customers, partners, industry experts, and academia, to gain diverse perspectives and identify emerging trends and technologies that can drive innovation .

7. Prototyping and Minimum Viable Products (MVPs)

Develop prototypes or MVPs to quickly test and validate different aspects of the business model. Use rapid prototyping techniques to gather feedback from customers and stakeholders and make necessary refinements before scaling.

8. Intellectual Property Protection

Evaluate the intellectual property (IP) aspects of the business model to protect any unique innovations or competitive advantages. Secure patents, trademarks, copyrights, or trade secrets where appropriate to safeguard the business model and prevent imitation.

9. Scalability and Long-Term Viability

Consider scalability and long-term viability when designing the business model. Ensure that the model can be effectively scaled as the business grows and that it aligns with the organization’s strategic goals and capabilities.

10. Continuous Monitoring and Adaptation

Business model innovation is an ongoing process. Continuously monitor market trends, customer feedback , and competitive landscape to identify opportunities for refinement and adaptation. Stay agile and be prepared to adjust the business model as needed to maintain relevance and competitiveness.

Learn more: What is Business Innovation?

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Business Model Innovation

Product and service innovation are essential, but business model innovation can deliver more lasting competitive advantage, particularly in disruptive times. BCG helps leaders leverage innovative business models to tackle their most pressing challenges and capture their greatest opportunities.

In the past 50 years, the average business model lifespan has fallen from about 15 years to less than five. As a result, business model innovation is now an essential capability for organizations seeking to drive breakout growth, reinvigorate a lagging core, or defend against industry disruption or decline.

What Is Business Model Innovation?

Business model innovation is the art of enhancing advantage and value creation by making simultaneous—and mutually supportive—changes both to an organization’s value proposition to customers and to its underlying operating model. At the value proposition level, these changes can address the choice of target segment, product or service offering, and revenue model. At the operating model level, the focus is on how to drive profitability, competitive advantage, and value creation through these decisions on how to deliver the value proposition:

  • Where to play along the value chain
  • What cost model is needed to ensure attractive returns
  • What organizational structure and capabilities are essential to success

Business model innovation is also critical to business transformation . Many organizations share a common set of concerns: What type of business model innovation will help us achieve breakout performance? How do we avoid jeopardizing the core business? How do we build the capability to develop, rapidly test, and scale new models? Inspiring an organization to change is not a trivial undertaking, but given the current strategic environment, it’s a critical one.

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Our Approach to Business Model Innovation

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Companies hoping to drive growth through business model innovation face a number of critical questions: How broad should the scope of the effort be? What’s the appropriate level of risk to take? Is it a onetime exercise, or does it call for an ongoing capability?

To answer those questions, it’s important to realize that not all business model innovation efforts are alike. Understanding the four distinct approaches to business model innovation can help executives make effective choices in designing the path to growth:

1. The reinventor approach is deployed in light of a fundamental industry challenge, such as commoditization or new regulation, in which a business model is deteriorating slowly and growth prospects are uncertain. In this situation, the company must reinvent its customer-value proposition and realign its operations to profitably deliver on the new superior offering. 

2. The adapter approach is used when the current core business, even if reinvented, is unlikely to combat fundamental disruption. Adapters explore adjacent businesses or markets, in some cases exiting their core business entirely. Adapters must build an  innovation engine  to persistently drive experimentation to find a successful “new core” space with the right business model. 

3. The maverick approach deploys business model innovation to scale up a potentially more successful core business. Mavericks—which can be either startups or insurgent established companies—employ their core advantage to revolutionize their industry and set new standards. This requires an ability to continually evolve the competitive edge or advantage of the business to drive growth. 

4. The adventurer approach aggressively expands the footprint of a business by exploring or venturing into new or adjacent territories. This approach requires an understanding of the company’s competitive advantage and placing careful bets on novel applications of that advantage in order to succeed in new markets. 

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The eight essentials of innovation

Updating a classic.

January 4, 2024

In the years since this article was first published, McKinsey has continued to explore the topics it covers. Read on for a summary of our latest insights.

Innovation may sound like a creative art: hard to quantify, dependent on lightning-bolt inspiration, subject to the availability of magic dust and luck. It’s true that innovation relies, to an extent, on the vagaries of ingenuity. But according to McKinsey research, innovation—and, crucially, the type of outperformance that innovation can spark in organizations—is much more likely to happen when there is a rigorous process  in place to bring ideas to fruition.

The simple fact is that innovation translates to growth : innovation leaders generate almost twice as much revenue growth from innovation as their competitors. Our research in the years since the COVID-19 pandemic has found that these organizations, which we call “innovative growers,” do this by cultivating four best practices :

  • Link innovation to growth aspirations and reinforce its importance in strategic and financial discussions.
  • Pursue multiple pathways to growth, both in core businesses and when entering adjacent customer segments, industries, or geographies. Innovative growers also only enter markets where there are clear opportunities to create value.
  • Invest productively in all innovation capabilities, including research and development, resourcing, and operational agility.
  • Cultivate strong M&A capabilities, particularly programmatic dealmaking.

Innovation can be especially rewarding when deployed as a crisis-management measure . During periods of uncertainty, organizations that invest in innovation—contrary, perhaps, to the impulse to batten down the hatches—are also more likely to emerge ahead of competitors. More specifically, innovative organizations are more likely to find emerging pockets of growth  in times of uncertainty.

Looking ahead, we expect innovative organizations to keep outpacing their peers. Our 2023 McKinsey Global Survey  reveals a striking connection  between organizations’ innovation capabilities and their abilities to increase value through the newest digital technologies, including generative AI. Everyone is talking about gen AI, but organizations with strong innovative cultures are walking the walk, too: thirty percent of top innovators we surveyed said they are already deploying gen AI at scale in their innovation and R&D functions, more than six times the rate of companies that are lagging on innovation. Top innovators are also already reaping significantly better business outcomes from their AI investments than slower-moving competitors.

Articles referenced:

  • “ Companies with innovative cultures have a big edge with generative AI ,” August 2023
  • “ Innovation: Your solution for weathering uncertainty ,” January 2023
  • “ Committed innovators: How masters of essentials outperform ,” June 2022
  • “ Innovation in a crisis: Why it is more critical than ever ,” June 2020

It’s no secret: innovation is difficult for well-established companies. By and large, they are better executors than innovators, and most succeed less through game-changing creativity than by optimizing their existing businesses.

Yet hard as it is for such organizations to innovate, large ones as diverse as Alcoa, the Discovery Group, and NASA’s Ames Research Center are actually doing so. What can other companies learn from their approaches and attributes? That question formed the core of a multiyear study comprising in-depth interviews, workshops, and surveys of more than 2,500 executives in over 300 companies, including both performance leaders and laggards, in a broad set of industries and countries (Exhibit 1). What we found were a set of eight essential attributes that are present, either in part or in full, at every big company that’s a high performer in product, process, or business-model innovation.

Since innovation is a complex, company-wide endeavor , it requires a set of crosscutting practices and processes to structure, organize, and encourage it. Taken together, the essentials described in this article constitute just such an operating system, as seen in Exhibit 2. These often overlapping, iterative, and nonsequential practices resist systematic categorization but can nonetheless be thought of in two groups. The first four, which are strategic and creative in nature, help set and prioritize the terms and conditions under which innovation is more likely to thrive. The next four essentials deal with how to deliver and organize for innovation repeatedly over time and with enough value to contribute meaningfully to overall performance.

To be sure, there’s no proven formula for success, particularly when it comes to innovation. While our years of client-service experience provide strong indicators for the existence of a causal relationship between the attributes that survey respondents reported and the innovations of the companies we studied, the statistics described here can only prove correlation. Yet we firmly believe that if companies assimilate and apply these essentials—in their own way, in accordance with their particular context, capabilities, organizational culture, and appetite for risk—they will improve the likelihood that they, too, can rekindle the lost spark of innovation. In the digital age, the pace of change has gone into hyperspeed, so companies must get these strategic, creative, executional, and organizational factors right to innovate successfully.

President John F. Kennedy’s bold aspiration, in 1962, to “go to the moon in this decade” motivated a nation to unprecedented levels of innovation. A far-reaching vision can be a compelling catalyst, provided it’s realistic enough to stimulate action today.

But in a corporate setting, as many CEOs have discovered, even the most inspiring words often are insufficient, no matter how many times they are repeated. It helps to combine high-level aspirations with estimates of the value that innovation should generate to meet financial-growth objectives. Quantifying an “innovation target for growth,” and making it an explicit part of future strategic plans, helps solidify the importance of and accountability for innovation. The target itself must be large enough to force managers to include innovation investments in their business plans. If they can make their numbers using other, less risky tactics, our experience suggests that they (quite rationally) will.

Establishing a quantitative innovation aspiration is not enough, however. The target value needs to be apportioned to relevant business “owners” and cascaded down to their organizations in the form of performance targets and timelines. Anything less risks encouraging inaction or the belief that innovation is someone else’s job.

For example, Lantmännen, a big Nordic agricultural cooperative, was challenged by flat organic growth and directionless innovation. Top executives created an aspirational vision and strategic plan linked to financial targets: 6 percent growth in the core business and 2 percent growth in new organic ventures. To encourage innovation projects, these quantitative targets were cascaded down to business units and, ultimately, to product groups. During the development of each innovation project, it had to show how it was helping to achieve the growth targets for its category and markets. As a result, Lantmännen went from 4 percent to 13 percent annual growth, underpinned by the successful launch of several new brands. Indeed, it became the market leader in premade food only four years after entry and created a new premium segment in this market.

Such performance parameters can seem painful to managers more accustomed to the traditional approach. In our experience, though, CEOs are likely just going through the motions if they don’t use evaluations and remuneration to assess and recognize the contribution that all top managers make to innovation.

Fresh, creative insights are invaluable, but in our experience many companies run into difficulty less from a scarcity of new ideas than from the struggle to determine which ideas to support and scale. At bigger companies, this can be particularly problematic during market discontinuities, when supporting the next wave of growth may seem too risky, at least until competitive dynamics force painful changes.

Innovation is inherently risky, to be sure, and getting the most from a portfolio of innovation initiatives is more about managing risk than eliminating it. Since no one knows exactly where valuable innovations will emerge, and searching everywhere is impractical, executives must create some boundary conditions for the opportunity spaces they want to explore. The process of identifying and bounding these spaces can run the gamut from intuitive visions of the future to carefully scrutinized strategic analyses. Thoughtfully prioritizing these spaces also allows companies to assess whether they have enough investment behind their most valuable opportunities.

During this process, companies should set in motion more projects than they will ultimately be able to finance, which makes it easier to kill those that prove less promising. RELX Group, for example, runs 10 to 15 experiments per major customer segment, each funded with a preliminary budget of around $200,000, through its innovation pipeline every year, choosing subsequently to invest more significant funds in one or two of them, and dropping the rest. “One of the hardest things to figure out is when to kill something,” says Kumsal Bayazit, RELX Group’s chief strategy officer. “It’s a heck of a lot easier if you have a portfolio of ideas.”

Once the opportunities are defined, companies need transparency into what people are working on and a governance process that constantly assesses not only the expected value, timing, and risk of the initiatives in the portfolio but also its overall composition. There’s no single mix that’s universally right. Most established companies err on the side of overloading their innovation pipelines with relatively safe, short-term, and incremental projects that have little chance of realizing their growth targets or staying within their risk parameters. Some spread themselves thinly across too many projects instead of focusing on those with the highest potential for success and resourcing them to win.

These tendencies get reinforced by a sluggish resource-reallocation process. Our research shows that a company typically reallocates only a tiny fraction of its resources from year to year, thereby sentencing innovation to a stagnating march of incrementalism. 1 1. See Stephen Hall, Dan Lovallo, and Reinier Musters, “ How to put your money where your strategy is ,” McKinsey Quarterly , March 2012; and Vanessa Chan, Marc de Jong, and Vidyadhar Ranade, “ Finding the sweet spot for allocating innovation resources ,” McKinsey Quarterly , May 2014.

Innovation also requires actionable and differentiated insights—the kind that excite customers and bring new categories and markets into being. How do companies develop them? Genius is always an appealing approach, if you have or can get it. Fortunately, innovation yields to other approaches besides exceptional creativity.

The rest of us can look for insights by methodically and systematically scrutinizing three areas: a valuable problem to solve, a technology that enables a solution, and a business model that generates money from it. You could argue that nearly every successful innovation occurs at the intersection of these three elements. Companies that effectively collect, synthesize, and “collide” them stand the highest probability of success. “If you get the sweet spot of what the customer is struggling with, and at the same time get a deeper knowledge of the new technologies coming along and find a mechanism for how these two things can come together, then you are going to get good returns,” says Alcoa chairman and chief executive Klaus Kleinfeld.

The insight-discovery process, which extends beyond a company’s boundaries to include insight-generating partnerships, is the lifeblood of innovation. We won’t belabor the matter here, though, because it’s already the subject of countless articles and books. 2 2. See, for example, Marla M. Capozzi, Reneé Dye, and Amy Howe, “ Sparking creativity in teams: An executive’s guide ,” McKinsey Quarterly , April 2011; and Marla M. Capozzi, John Horn, and Ari Kellen, “ Battle-test your innovation strategy ,” McKinsey Quarterly , December 2012. One thing we can add is that discovery is iterative, and the active use of prototypes can help companies continue to learn as they develop, test, validate, and refine their innovations. Moreover, we firmly believe that without a fully developed innovation system encompassing the other elements described in this article, large organizations probably won’t innovate successfully, no matter how effective their insight-generation process is. 

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Business-model innovations—which change the economics of the value chain, diversify profit streams, and/or modify delivery models—have always been a vital part of a strong innovation portfolio. As smartphones and mobile apps threaten to upend oldline industries, business-model innovation has become all the more urgent: established companies must reinvent their businesses before technology-driven upstarts do. Why, then, do most innovation systems so squarely emphasize new products? The reason, of course, is that most big companies are reluctant to risk tampering with their core business model until it’s visibly under threat. At that point, they can only hope it’s not too late.

Leading companies combat this troubling tendency in a number of ways. They up their game in market intelligence, the better to separate signal from noise. They establish funding vehicles for new businesses that don’t fit into the current structure. They constantly reevaluate their position in the value chain, carefully considering business models that might deliver value to priority groups of new customers. They sponsor pilot projects and experiments away from the core business to help combat narrow conceptions of what they are and do. And they stress-test newly emerging value propositions and operating models against countermoves by competitors.

Amazon does a particularly strong job extending itself into new business models by addressing the emerging needs of its customers and suppliers. In fact, it has included many of its suppliers in its customer base by offering them an increasingly wide range of services, from hosted computing to warehouse management. Another strong performer, the Financial Times , was already experimenting with its business model in response to the increasing digitalization of media when, in 2007, it launched an innovative subscription model, upending its relationship with advertisers and readers. “We went against the received wisdom of popular strategies at the time,” says Caspar de Bono, FT board member and managing director of B2B. “We were very deliberate in getting ahead of the emerging structural change, and the decisions turned out to be very successful.” In print’s heyday, 80 percent of the FT ’s revenue came from print advertising. Now, more than half of it comes from content, and two-thirds of circulation comes from digital subscriptions.

Virulent antibodies undermine innovation at many large companies. Cautious governance processes make it easy for stifling bureaucracies in marketing, legal, IT, and other functions to find reasons to halt or slow approvals. Too often, companies simply get in the way of their own attempts to innovate. A surprising number of impressive innovations from companies were actually the fruit of their mavericks, who succeeded in bypassing their early-approval processes. Clearly, there’s a balance to be maintained: bureaucracy must be held in check, yet the rush to market should not undermine the cross-functional collaboration, continuous learning cycles, and clear decision pathways that help enable innovation. Are managers with the right knowledge, skills, and experience making the crucial decisions in a timely manner, so that innovation continually moves through an organization in a way that creates and maintains competitive advantage, without exposing a company to unnecessary risk?

Companies also thrive by testing their promising ideas with customers early in the process, before internal forces impose modifications that blur the original value proposition. To end up with the innovation initially envisioned, it’s necessary to knock down the barriers  that stand between a great idea and the end user. Companies need a well-connected manager to take charge of a project and be responsible for the budget, time to market, and key specifications—a person who can say yes rather than no. In addition, the project team needs to be cross-functional in reality, not just on paper. This means locating its members in a single place and ensuring that they give the project a significant amount of their time (at least half) to support a culture that puts the innovation project’s success above the success of each function.

Cross-functional collaboration can help ensure end-user involvement throughout the development process. At many companies, marketing’s role is to champion the interests of end users as development teams evolve products and to help ensure that the final result is what everyone first envisioned. But this responsibility is honored more often in the breach than in the observance. Other companies, meanwhile, rationalize that consumers don’t necessarily know what they want until it becomes available. This may be true, but customers can certainly say what they don’t like. And the more quickly and frequently a project team gets—and uses—feedback, the more quickly it gets a great end result.

Some ideas, such as luxury goods and many smartphone apps, are destined for niche markets. Others, like social networks, work at global scale. Explicitly considering the appropriate magnitude and reach of a given idea is important to ensuring that the right resources and risks are involved in pursuing it. The seemingly safer option of scaling up over time can be a death sentence. Resources and capabilities must be marshaled to make sure a new product or service can be delivered quickly at the desired volume and quality. Manufacturing facilities, suppliers, distributors, and others must be prepared to execute a rapid and full rollout.

For example, when TomTom launched its first touch-screen navigational device, in 2004, the product flew off the shelves. By 2006, TomTom’s line of portable navigation devices reached sales of about 5 million units a year, and by 2008, yearly volume had jumped to more than 12 million. “That’s faster market penetration than mobile phones” had, says Harold Goddijn, TomTom’s CEO and cofounder. While TomTom’s initial accomplishment lay in combining a well-defined consumer problem with widely available technology components, rapid scaling was vital to the product’s continuing success. “We doubled down on managing our cash, our operations, maintaining quality, all the parts of the iceberg no one sees,” Goddijn adds. “We were hugely well organized.”

In the space of only a few years, companies in nearly every sector have conceded that innovation requires external collaborators. Flows of talent and knowledge increasingly transcend company and geographic boundaries. Successful innovators achieve significant multiples for every dollar invested in innovation by accessing the skills and talents of others. In this way, they speed up innovation and uncover new ways to create value for their customers and ecosystem partners.

Smart collaboration with external partners, though, goes beyond merely sourcing new ideas and insights; it can involve sharing costs and finding faster routes to market. Famously, the components of Apple’s first iPod were developed almost entirely outside the company; by efficiently managing these external partnerships, Apple was able to move from initial concept to marketable product in only nine months. NASA’s Ames Research Center teams up not just with international partners—launching joint satellites with nations as diverse as Lithuania, Saudi Arabia, and Sweden—but also with emerging companies, such as SpaceX.

High-performing innovators work hard to develop the ecosystems that help deliver these benefits. Indeed, they strive to become partners of choice, increasing the likelihood that the best ideas and people will come their way. That requires a systematic approach. First, these companies find out which partners they are already working with; surprisingly few companies know this. Then they decide which networks—say, four or five of them—they ideally need to support their innovation strategies. This step helps them to narrow and focus their collaboration efforts and to manage the flow of possibilities from outside the company. Strong innovators also regularly review their networks, extending and pruning them as appropriate and using sophisticated incentives and contractual structures to motivate high-performing business partners. Becoming a true partner of choice is, among other things, about clarifying what a partnership can offer the junior member: brand, reach, or access, perhaps. It is also about behavior. Partners of choice are fair and transparent in their dealings.

Moreover, companies that make the most of external networks have a good idea of what’s most useful at which stages of the innovation process. In general, they cast a relatively wide net in the early going. But as they come closer to commercializing a new product or service, they become narrower and more specific in their sourcing, since by then the new offering’s design is relatively set.

How do leading companies stimulate, encourage, support, and reward innovative behavior and thinking among the right groups of people? The best companies find ways to embed innovation into the fibers of their culture, from the core to the periphery.

They start back where we began: with aspirations that forge tight connections among innovation, strategy, and performance. When a company sets financial targets for innovation and defines market spaces, minds become far more focused. As those aspirations come to life through individual projects across the company, innovation leaders clarify responsibilities using the appropriate incentives and rewards.

The Discovery Group, for example, is upending the medical and life-insurance industries in its native South Africa and also has operations in the United Kingdom, the United States, and China, among other locations. Innovation is a standard measure in the company’s semiannual divisional scorecards—a process that helps mobilize the organization and affects roughly 1,000 of the company’s business leaders. “They are all required to innovate every year,” Discovery founder and CEO Adrian Gore says of the company’s business leaders. “They have no choice.”

Organizational changes may be necessary, not because structural silver bullets exist—we’ve looked hard for them and don’t think they do—but rather to promote collaboration, learning, and experimentation. Companies must help people to share ideas and knowledge freely, perhaps by locating teams working on different types of innovation in the same place, reviewing the structure of project teams to make sure they always have new blood, ensuring that lessons learned from success and failure are captured and assimilated, and recognizing innovation efforts even when they fall short of success.

Internal collaboration and experimentation can take years to establish, particularly in large, mature companies with strong cultures and ways of working that, in other respects, may have served them well. Some companies set up “innovation garages” where small groups can work on important projects unconstrained by the normal working environment while building new ways of working that can be scaled up and absorbed into the larger organization. NASA, for example, has ten field centers. But the space agency relies on the Ames Research Center, in Silicon Valley, to maintain what its former director, Dr. Pete Worden, calls “the character of rebels” to function as “a laboratory that’s part of a much larger organization.”

Big companies do not easily reinvent themselves as leading innovators. Too many fixed routines and cultural factors can get in the way. For those that do make the attempt, innovation excellence is often built in a multiyear effort that touches most, if not all, parts of the organization. Our experience and research suggest that any company looking to make this journey will maximize its probability of success by closely studying and appropriately assimilating the leading practices of high-performing innovators. Taken together, these form an essential operating system for innovation within a company’s organizational structure and culture.

Marc de Jong is a principal in McKinsey’s Amsterdam office, Nathan Marston is a principal in the London office, and Erik Roth is a principal in the Shanghai office.

The authors wish to thank Jill Hellman and McKinsey’s Peet van Biljon for their contributions to this article.

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Business model innovation: a review and research agenda

New England Journal of Entrepreneurship

ISSN : 2574-8904

Article publication date: 16 October 2019

Issue publication date: 13 November 2019

The aim of this paper is to review and synthesise the recent advancements in the business model literature and explore how firms approach business model innovation.

Design/methodology/approach

A systematic review of business model innovation literature was carried out by analysing 219 papers published between 2010 and 2016.

Evidence reviewed suggests that rather than taking either an evolutionary process of continuous revision, adaptation and fine-tuning of the existing business model or a revolutionary process of replacing the existing business model, firms can explore alternative business models through experimentation, open and disruptive innovations. It was also found that changing business models encompasses modifying a single element, altering multiple elements simultaneously and/or changing the interactions between elements in four areas of innovation: value proposition, operational value, human capital and financial value.

Research limitations/implications

Although this review highlights the different avenues to business model innovation, the mechanisms by which firms can change their business models and the external factors associated with such change remain unexplored.

Practical implications

The business model innovation framework can be used by practitioners as a “navigation map” to determine where and how to change their existing business models.

Originality/value

Because conflicting approaches exist in the literature on how firms change their business models, the review synthesises these approaches and provides a clear guidance as to the ways through which business model innovation can be undertaken.

  • Business model
  • Value proposition
  • Value creation
  • Value capture

Ramdani, B. , Binsaif, A. and Boukrami, E. (2019), "Business model innovation: a review and research agenda", New England Journal of Entrepreneurship , Vol. 22 No. 2, pp. 89-108. https://doi.org/10.1108/NEJE-06-2019-0030

Emerald Publishing Limited

Copyright © 2019, Boumediene Ramdani, Ahmed Binsaif and Elias Boukrami

Published in New England Journal of Entrepreneurship . Published by Emerald Publishing Limited. This article is published under the Creative Commons Attribution (CC BY 4.0) licence. Anyone may reproduce, distribute, translate and create derivative works of this article (for both commercial and non-commercial purposes), subject to full attribution to the original publication and authors. The full terms of this licence may be seen at http://creativecommons.org/licences/by/4.0/legalcode

1. Introduction

Firms pursue business model innovation by exploring new ways to define value proposition, create and capture value for customers, suppliers and partners ( Gambardella and McGahan, 2010 ; Teece, 2010 ; Bock et al. , 2012 ; Casadesus-Masanell and Zhu, 2013 ). An extensive body of the literature asserts that innovation in business models is of vital importance to firm survival, business performance and as a source of competitive advantage ( Demil and Lecocq, 2010 ; Chesbrough, 2010 ; Amit and Zott, 2012 ; Baden-Fuller and Haefliger, 2013 ; Casadesus-Masanell and Zhu, 2013 ). It is starting to attract a growing attention, given the increasing opportunities for new business models enabled by changing customer expectations, technological advances and deregulation ( Casadesus-Masanell and Llanes, 2011 ; Casadesus-Masanell and Zhu, 2013 ). This is evident from the recent scholarly outputs ( Figure 1 ). Thus, it is essential to comprehend this literature and uncover where alternative business models can be explored.

Conflicting approaches exist in the literature on how firms change their business models. One approach suggests that alternative business models can be explored through an evolutionary process of incremental changes to business model elements (e.g. Demil and Lecocq, 2010 ; Dunford et al. , 2010 ; Amit and Zott, 2012 ; Landau et al. , 2016 ; Velu, 2016 ). The other approach, mainly practice-oriented, advocates that innovative business models can be developed through a revolutionary process by replacing existing business models (e.g. Bock et al. , 2012 ; Iansiti and Lakhani, 2014 ). The fragmentation of prior research is due to the variety of disciplinary and theoretical foundations through which business model innovation is examined. Scholars have drawn on perspectives from entrepreneurship (e.g. George and Bock, 2011 ), information systems (e.g. Al-debei and Avison, 2010 ), innovation management (e.g. Dmitriev et al. , 2014 ), marketing (e.g. Sorescu et al. , 2011 ) and strategy (e.g. Demil and Lecocq, 2010 ). Also, this fragmentation is deepened by focusing on different types of business models in different industries. Studies have explored different types of business models such as digital business models (e.g. Weill and Woerner, 2013 ), service business models (e.g. Kastalli et al. , 2013 ), social business models (e.g. Hlady-Rispal and Servantie, 2016 ) and sustainability-driven business models ( Esslinger, 2011 ). Besides, studies have examined different industries such as airline ( Lange et al. , 2015 ), manufacturing ( Landau et al. , 2016 ), newspaper ( Karimi and Walter, 2016 ), retail ( Brea-Solís et al. , 2015 ) and telemedicine ( Peters et al. , 2015 ).

Since the first comprehensive review of business model literature was carried out by Zott et al. (2011) , several reviews were published recently (as highlighted in Table I ). Our review builds on and extends the extant literature in at least three ways. First, unlike previous reviews that mainly focused on the general construct of “Business Model” ( George and Bock, 2011 ; Zott et al. , 2011 ; Wirtz et al. , 2016 ), our review focuses on uncovering how firms change their existing business model(s) by including terms that reflect business model innovation, namely, value proposition, value creation and value capture. Second, previous reviews do not provide a clear answer as to how firms change their business models. Our review aims to provide a clear guidance on how firms carry out business model innovation by synthesising the different perspectives existing in the literature. Third, compared to recent reviews on business model innovation ( Schneider and Spieth, 2013 ; Spieth et al. , 2014 ), which have touched lightly on some innovation aspects such as streams and motivations of business model innovation research, our review will uncover the innovation areas where alternative business models can be explored. Taking Teece’s (2010) suggestion, “A helpful analytic approach for management is likely to involve systematic deconstruction/unpacking of existing business models, and an evaluation of each element with an idea toward refinement or replacement” (p. 188), this paper aims to develop a theoretical framework of business model innovation.

Our review first explains the scope and the process of the literature review. This is followed by a synthesis of the findings of the review into a theoretical framework of business model innovation. Finally, avenues for future research will be discussed in relation to the approaches, degree and mechanisms of business model innovation.

2. Scope and method of the literature review

Given the diverse body of business models literature, a systematic literature review was carried out to minimise research bias ( Transfield et al. , 2003 ). Compared to the previous business model literature, our review criteria are summarised in Table I . The journal papers considered were published between January 2010 and December 2016. As highlighted in Figure 1 , most contributions in this field have been issued within this period since previous developments in the literature were comprehensively reviewed up to the end of 2009 ( Zott et al. , 2011 ). Using four databases (EBSCO Business Complete, ABI/INFORM, JSTOR and ScienceDirect), we searched peer-reviewed papers with terms such as business model(s), innovation value proposition, value creation and value capture appearing in the title, abstract or subject terms. As a result, 8,642 peer-reviewed papers were obtained.

Studies were included in our review if they specifically address business models and were top-rated according to The UK Association of Business Schools list ( ABS, 2010 ). This rating has been used not only because it takes into account the journal “Impact Factor” as a measure for journal quality, but also uses in conjunction other measures making it one of the most comprehensive journal ratings. By applying these criteria, 1,682 entries were retrieved from 122 journals. By excluding duplications, 831 papers were identified. As Harvard Business Review is not listed among the peer-reviewed journals in any of the chosen databases and was included in the ABS list, we used the earlier criteria and found 112 additional entries. The reviewed papers and their subject fields are highlighted in Table II . Since the focus of this paper is on business model innovation, we selected studies that discuss value proposition, value creation and value capture as sub-themes. This is not only because the definition of business model innovation mentioned earlier spans all three sub-themes, but also because all three sub-themes have been included in recent studies (e.g. Landau et al. , 2016 ; Velu and Jacob, 2014 ). To confirm whether the papers addressed business model innovation, we examined the main body of the papers to ensure they were properly coded and classified. At the end of the process, 219 papers were included in this review. Table III lists the source of our sample.

The authors reviewed the 219 papers using a protocol that included areas of innovation (i.e. components, elements, and activities), theoretical perspectives and key findings. In order to identify the main themes of business model innovation research, all papers were coded in relation to our research focus as to where alternative business models can be explored (i.e. value proposition, value creation and value capture). Coding was cross checked among the authors on a random sample suggesting high accuracy between them. Having compared and discussed the results, the authors were able to identify the main themes.

3. Prior conceptualisations of business model innovation

Some scholars have articulated the need to build the business model innovation on a more solid theoretical ground ( Sosna et al. , 2010 ; George and Bock, 2011 ). Although many studies are not explicitly theory-based, some studies partially used well-established theories such as the resource-based view (e.g. Al-Debei and Avison, 2010 ) and transaction cost economics (e.g. DaSilva and Trkman, 2014 ) to conceptualise business model innovation. Other theories such as activity systems perspective, dynamic capabilities and practice theory have been used to help answer the question of how firms change their existing business models.

Using the activity systems perspective, Zott and Amit (2010) demonstrated how innovative business models can be developed through the design themes that describe the source of value creation (novelty, lock-in, complementarities and efficiency) and design elements that describe the architecture (content, structure and governance). This work, however, overlooks value capture which limits the explanation of the advocated system’s view (holistic). Moreover, Chatterjee (2013) used this perspective to reveal that firms can design innovative business models that translate value capture logic to core objectives, which can be delivered through the activity system.

Dynamic capability perspective frames business model innovation as an initial experiment followed by continuous revision, adaptation and fine-tuning based on trial-and-error learning ( Sosna et al. , 2010 ). Using this perspective, Demil and Lecocq (2010) showed that “dynamic consistency” is a capability that allows firms to sustain their performance while innovating their business models through voluntary and emergent changes. Also, Mezger (2014) conceptualised business model innovation as a distinct dynamic capability. He argued that this capability is the firm’s capacity to sense opportunities, seize them through the development of valuable and unique business models, and accordingly reconfigure the firms’ competences and resources. Using aspects of practice theory, Mason and Spring (2011) looked at business model innovation in the recorded sound industry and found that it can be achieved through various combinations of managerial practices.

Static and transformational approaches have been used to depict business models ( Demil and Lecocq, 2010 ). The former refers to viewing business models as constituting core elements that influence business performance at a particular point in time. This approach offers a snapshot of the business model elements and how they are assembled, which can help in understanding and communicating a business model (e.g. Eyring et al. , 2011 ; Mason and Spring, 2011 ; Yunus et al. , 2010). The latter, however, focuses on innovation and how to address the changes in business models over time (e.g. Sinfield et al. , 2012 ; Girotra and Netessine, 2014 ; Landau et al. , 2016 ). Some researchers have identified the core elements of business models ex ante (e.g. Demil and Lecocq, 2010 ; Wu et al. , 2010 ; Huarng, 2013 ; Dmitriev et al. , 2014 ), while others argued that considering a priori elements can be restrictive (e.g. Casadesus-Masanell and Ricart, 2010 ). Unsurprisingly, some researchers found a middle ground where elements are loosely defined allowing flexibility in depicting business models (e.g. Zott and Amit, 2010 ; Sinfield et al. , 2012 ; Kiron et al. , 2013 ).

Prior to 2010, conceptual frameworks focused on the business model concept in general (e.g. Chesbrough and Rosenbloom, 2002 ; Osterwalder et al. , 2005 ; Shafer et al. , 2005 ) apart from Johnson et al. ’s (2008 ), which is one of the early contributions to business model innovation. To determine whether a change in existing business model is necessary, Johnson et al. (2008) suggested three steps: “Identify an important unmet job a target customer needs done; blueprint a model that can accomplish that job profitably for a price the customer is willing to pay; and carefully implement and evolve the model by testing essential assumptions and adjusting as you learn” ( Eyring et al. , 2011 , p. 90). Although several frameworks have been developed since then, our understanding of business model innovation is still limited due to the static nature of the majority of these frameworks. Some representations ignore the elements and/or activities where alternative business models can be explored (e.g. Sinfield et al. , 2012 ; Chatterjee, 2013 ; Huarng, 2013 ; Morris et al. , 2013 ; Dmitriev et al. , 2014 ; Girotra and Netessine, 2014 ). Other frameworks ignore value proposition (e.g. Zott and Amit, 2010 ), ignore value creation (e.g. Dmitriev et al. , 2014 ; Michel, 2014 ) and/or ignore value capture (e.g. Mason and Spring, 2011 ; Sorescu et al. , 2011 ; Storbacka, 2011 ). Some conceptualisations do not identify who is responsible for the innovation (e.g. Casadesus-Masanell and Ricart, 2010 ; Sinfield et al. , 2012 ; Chatterjee, 2013 ; Kiron et al. , 2013 ). Synthesising the different contributions into a theoretical framework of business model innovation will enable a better understanding of how firms undertake business model innovation.

4. Business model innovation framework

Our framework ( Figure 2 ) integrates all the elements where alternative business models can be explored. This framework does not claim that the listed elements are definitive for high-performing business models, but is an attempt to outline the elements associated with business model innovation. This framework builds on the previous work of Johnson et al. (2008) and Zott and Amit (2010) by signifying the elements associated with business model innovation. Unlike previous frameworks that mainly consider the constituting elements of business models, this framework focuses on areas of innovation where alternative business models can be explored. Moreover, this is not a static view of the constituting elements of a business model, but rather a view enabling firms to explore alternative business models by continually refining these elements. Arrows in the framework indicate the continuous interaction of business model elements. This framework consists of 4 areas of innovation and 16 elements (more details are shown in Table IV ). Each will be discussed below.

4.1 Value proposition

The first area of innovation refers to elements associated with answering the “Why” questions. While most of the previously established models in the literature include at least one of the value proposition elements (e.g. Brea-Solís et al. , 2015 ; Christensen et al. , 2016 ), other frameworks included two elements (e.g. Dahan et al. , 2010 ; Cortimiglia et al. , 2016 ) and three elements (e.g. Eyring et al. , 2011 ; Sinfield et al. , 2012 ). These elements include rethinking what a company sells, exploring new customer needs, acquiring target customers and determining whether the benefits offered are perceived by customers. Modern organisations are highly concerned with innovation relating to value proposition in order to attract and retain a large portion of their customer base ( Al-Debei and Avison, 2010 ). Developing new business models usually starts with articulating a new customer value proposition ( Eyring et al. , 2011 ). According to Sinfield et al. (2012) , firms are encouraged to explore various alternatives of core offering in more depth by examining type of offering (product or service), its features (custom or off-the-shelf), offered benefits (tangible or intangible), brand (generic or branded) and lifetime of the offering (consumable or durable).

In order to exploit the “middle market” in emerging economies, Eyring et al. (2011) suggested that companies need to design new business models that aim to meet unsatisfied needs and evolve these models by continually testing assumptions and making adjustments. To uncover unmet needs, Eyring et al. (2011) suggested answering four questions: what are customers doing with the offering? What alternative offerings consumers buy? What jobs consumers are satisfying poorly? and what consumers are trying to accomplish with existing offerings? Furthermore, Baden-Fuller and Haefliger (2013) made a distinction between customers and users in two-sided platforms, where users search for products online, and customers (firms) place ads to attract users. They also made a distinction between “pre-designed (scale) based offerings” and “project based offerings”. While the former focuses on “one-size-fits-all”, the latter focuses on specific client solving specific problem.

Established firms entering emerging markets should identify unmet needs “the job to be done” rather than extending their geographical base for existing offerings ( Eyring et al. , 2011 ). Because customers in these markets cannot afford the cheapest of the high-end offerings, firms with innovative business models that meet these customers’ needs affordably will have opportunities for growth ( Eyring et al. , 2011 ). Moreover, secondary business model innovation has been advocated by Wu et al. (2010) as a way for latecomer firms to create and capture value from disruptive technologies in emerging markets. This can be achieved through tailoring the original business model to fit price-sensitive mass customers by articulating a value proposition that is attractive for local customers.

4.2 Operational value

The second area of innovation focuses on elements associated with answering the “What” questions. Many of the established frameworks included either one element (e.g. Sinfield et al. , 2012 ; Taran et al. , 2015 ), two elements (e.g. Mason and Spring, 2011 ; Dmitriev et al. , 2014 ). However, very few included three or more elements (e.g. Mehrizi and Lashkarbolouki, 2016 ; Cortimiglia et al. , 2016 ). These elements include configuring key assets and sequencing activities to deliver the value proposition, exposing the various means by which a company reaches out to customers, and establishing links with key partners and suppliers. Focusing on value creation, Zott and Amit (2010) argued that business model innovation can be achieved through reorganising activities to reduce transaction costs. However, Al-Debei and Avison (2010) argued that innovation relating to this dimension can be achieved through resource configuration, which demonstrates a firm’s ability to integrate various assets in a way that delivers its value proposition. Cavalcante et al. (2011) proposed four ways to change business models: business model creation, extension, revision and termination by creating or adding new processes, and changing or terminating existing processes.

Western firms have had difficulty competing in emerging markets due to importing their existing business models with unchanged operating model ( Eyring et al. , 2011 ). Alternative business models can be uncovered when firms explore the different roles they might play in the industry value chain ( Sinfield et al. , 2012 ). Al-Debei and Avison (2010) suggested achieving this through answering questions such as: what is the position of our firm in the value system? and what mode of collaboration (open or close) would we choose to reach out in a business network? Dahan et al. (2010) found cross-sector partnerships as a way to co-create new multi-organisational business models. They argued that multinational enterprises (MNEs) can collaborate with nongovernmental organisations (NGOs) to create products/or services that neither can create on their own. Collaboration allows access to resources that firms would otherwise need to solely develop or purchase ( Yunus et al. , 2010 ). According to Wu et al. (2010) , secondary business model innovation can be achieved when latecomer firms fully utilise strategic partners’ complementary assets to overcome their latecomer disadvantages and build a unique value network specific to emerging economies context.

4.3 Human capital

The third area of innovation refers to elements associated with answering the “Who” questions. Most of the established frameworks in this field tend to focus less on human capital and include one element at most (e.g. Wu et al. , 2010 ; Kohler, 2015 ). However, our framework highlights four elements, which include experimenting with new ways of doing business, tapping into the skills and competencies needed for the new business model through motivating and involving individuals in the innovation process. According to Belenzon and Schankerman (2015) , “the ability to tap into a pool of talent is strongly related to the specific business model chosen by managers” (p. 795). They claimed that managers can strategically influence individuals’ contributions and their impact on project performance.

Organisational learning can be maximised though continuous experimentation and making changes when actions result in failure ( Yunus et al. , 2010 ). Challenging and questioning the existing rules and assumptions and imagining new ways of doing business will help develop new business models. Another essential element of business model design is governance, which refers to who performs the activities ( Zott and Amit, 2010 ). According to Sorescu et al. (2011) , innovation in retail business models can occur as a result of changes in the level of participation by actors engaged in performing the activities. An essential element of retailing governance is the incentive structure or the mechanisms that motivate those involved in carrying out their roles to meet customer demands ( Sorescu et al. , 2011 ). For example, discount retailers tend to establish different compensation and incentive policies ( Brea-Solís et al. , 2015 ). Revising the incentive system can have a major impact on new ventures’ performance by aligning organisational goals at each stage of growth ( Roberge, 2015 ). Zott and Amit (2010) argued that alternative business models can be explored through adopting innovative governance or changing one or more parties that perform any activities. Sinfield et al. (2012) suggested that business model innovation only requires time from a small team over a short period of time to move a company beyond incremental improvements and generate new opportunities for growth. This is supported by Michel’s (2014) finding that cross-functional teams were able to quickly achieve business model innovation in workshops through deriving new ways to capture value.

4.4 Financial value

The final area of innovation focuses on elements associated with answering the “How” questions. Previously developed frameworks tend to prioritise this area of innovation by three elements (e.g. Eyring et al. , 2011 ; Huang et al. , 2013 ), and in one instance four elements (e.g. Yunus et al. , 2010 ). These elements include activities linked with how to capture value through revenue streams, changing the price-setting mechanisms, and assessing the financial viability and profitability of a business. According to Demil and Lecocq (2010) , changes in cost and/or revenue structures are the consequences of both continuous and radical changes. They also argued that costs relate to different activities run by organisations to acquire, integrate, combine or develop resources. Michel (2014) suggested that alternative business models can be explored through: changing the price-setting mechanism, changing the payer, and changing the price carrier. Different innovation forms are associated with each of these categories.

Business model innovation can be achieved through exploring new ways to generate cash flows ( Sorescu et al. , 2011 ), where the organisation has to consider (and potentially change) when the money is collected: prior to the sale, at the point of sale, or after the sale ( Baden-Fuller and Haefliger, 2013 ). Furthermore, Demil and Lecocq (2010) suggested that changes in business models affect margins. This is apparent in the retail business models, which generate more profit through business model innovation compared to other types of innovation ( Sorescu et al. , 2011 ).

5. Ways to change business models

From reviewing the recent developments in the business model literature, alternative business models can be explored through modifying a single business model element, altering multiple elements simultaneously and/or changing the interactions between elements of a business model.

Changing one of the business model elements (i.e. content, structure or governance) is enough to achieve business model innovation ( Amit and Zott, 2012 ). This means that firms can have a new activity system by performing only one new activity. However, Amit and Zott (2012) clearly outlined a systemic view of business models which entails a holistic change. This is evident from Demil and Lecocq’s (2010) work suggesting that the study of business model innovation should not focus on isolated activities since changing a core element will not only impact other elements but also the interactions between these elements.

Another way to change business models is through altering multiple business model elements simultaneously. Kiron et al. (2013) found that companies combining target customers with value chain innovations and changing one or two other elements of their business models tend to profit from their sustainability activities. They also found that firms changing three to four elements of their business models tend to profit more from their sustainability activities compared to those changing only one element. Moreover, Dahan et al. (2010) found that a new business model was developed as a result of MNEs and NGOs collaboration by redefining value proposition, target customers, governance of activities and distribution channels. Companies can explore multiple combinations by listing different business model options they could undertake (desirable, discussable and unthinkable) and evaluate new combinations that would not have been considered otherwise ( Sinfield et al. , 2012 ).

Changing business models is argued to be demanding as it requires a systemic and holistic view ( Amit and Zott, 2012 ) by considering the relationships between core business model elements ( Demil and Lecocq, 2010 ). As mentioned earlier, changing one element will not only impact other elements but also the interactions between these elements. A firm’s resources and competencies, value proposition and organisational system are continuously interacting and this will in turn impact business performance either positively or negatively ( Demil and Lecocq, 2010 ). According to Zott and Amit (2010) , innovative business models can be developed through linking activities in a novel way that generates more value. They argued that alternative business models can be explored by configuring business model design elements (e.g. governance) and connecting them to distinct themes (e.g. novelty). Supporting this, Eyring et al. (2011) suggested that core business model elements need to be integrated in order to create and capture value ( Eyring et al. , 2011 ).

6. Discussion and future research directions

From the above synthesis of the recent development in the literature, several gaps remain unfilled. To advance the literature, possible future research directions will be discussed in relation to approaches, degrees and mechanisms of business model innovation.

6.1 Approaches of business model innovation

Experimentation, open innovation and disruption have been advocated as approaches to business model innovation. Experimentation has been emphasised as a way to exploit opportunities and develop alternative business models before committing additional investments ( McGrath, 2010 ). Several approaches have been developed to assist in business model experimentation including mapping approach, discovery-driven planning and trail-and-error learning ( Chesbrough, 2010 ; McGrath, 2010 ; Sosna et al. , 2010 ; Andries and Debackere, 2013 ). Little is known about the effectiveness of these approaches. It will be worth investigating which elements of the business model innovation framework are more susceptible to experimentation and which elements should be held unchanged. Although business model innovation tends to be characterised with failure ( Christensen et al. , 2016 ), not much has been established on failing business models. It is interesting to explore how firms determine a failing business model and what organisational processes exist (if any) to evaluate and discard these failed business models. Empirical studies could examine which elements of business model innovation framework are associated with failing business models.

Another way to develop alternative business models is through open innovation. Although different categories of open business models have been identified by researchers (e.g. Frankenberger et al. , 2014 ; Taran et al. , 2015 ; Kortmann and Piller, 2016 ), their effectiveness is yet to be established. Further research is needed to examine when can a firm open and/or close element(s) of the business model innovation framework. Future studies could also examine the characteristics of open and/or close business models.

In responding to disruptive business models, how companies extend their existing business model, introduce additional business model(s) and/or replace their existing business model altogether remains underexplored. Future research is needed to unravel the strategies deployed by firms to extend their existing business models as a response to disruptive business models. In introducing additional business models, Markides (2013) suggested that a company will be presented with several options to manage the two businesses at the same time: create a completely separate business unit, integrate the two business models from the beginning or integrate the second business model after a certain period of time. Finding the balance between separation and integration is of vital importance. Further research could identify which of these choices are most common among successful firms introducing additional business models, how is the balance between integration and separation achieved, and which choice(s) prove more profitable. Moreover, very little is known on how firms replace their existing business model. Longitudinal studies could provide insights into how a firm adopts an alternative model and discard the old business model over time. It may also be worth examining the factors associated with the adoption of business model innovation as a response to disruptive business models. Moreover, new developments in digital technologies such as blockchain, Internet of Things and artificial intelligence are disrupting existing business models and providing firms with alternative avenues to create new business models. Thus far, very little is known on digital business models, the nature of their disruption, and how firms create digital business models and make them disruptive. Future research is needed to fill these important gaps in our knowledge.

6.2 Degrees of business model innovation

Business models can be developed through varying degrees of innovation from an evolutionary process of continuous fine-tuning to a revolutionary process of replacing existing business models. Recent research shows that survival of firms is dependent on the degree of their business model innovation ( Velu, 2015, 2016 ). This review classifies these degrees of innovation into modifying a single element, altering multiple elements simultaneously and/or changing the interactions between elements of the business model innovation framework.

In changing a single element, further research is needed to examine which business model element(s) is (are) associated with business model innovation. It is not clear whether firms intentionally make changes to a single element when carrying out business model innovation or stumble at it when experimenting with new ways of doing things. It may also be worth investigating the entry (or starting) points in the innovation process. There is no consensus in the literature on which element do companies start with when carrying out their business model innovation. While some studies suggest starting with the value proposition ( Eyring et al. , 2011 ; Landau et al. , 2016 ), others suggest starting the innovation process with identifying risks in the value chain ( Girotra and Netessine, 2011 ). Dmitriev et al. (2014) suggested two entry points, namely, value proposition and target customers. In commercialising innovations, the former refers to technology-push innovation while the latter refers to market-pull innovation. Also, it is not clear whether the entry point is the same as the single element associated with changing the business model. Further research can explore the different paths to business model innovation by identifying the entry point and subsequent changes needed to achieve business model innovation.

There is little guidance in the literature on how firms change multiple business model elements simultaneously. Landau et al. (2016) claimed that firms entering emerging markets tend to focus on adjusting specific business model components. It is unclear which elements need configuring, combining and/or integrating to achieve a company’s value proposition. Furthermore, the question of which elements can be “bought” on the market or internally “implemented” and their interplay remains unanswered ( DaSilva and Trkman, 2014 ). Casadesus-Masanell and Ricart (2010) argued that “[…] there is (as yet) no agreement as to the distinctive features of superior business models” (p. 196). Further research is needed to explore these distinctive elements of high-performing business models.

In changing the interactions between business model elements, further research is needed to explore how these elements are linked and what interactions’ changes are necessary to achieve business model innovation. Moreover, the question of how firms sequence these elements remains poorly understood. Future research can explore the synergies created over time between these elements. According to Dmitriev et al. (2014) , we need to improve our understanding of the connective mechanisms and dynamics involved in business model development. More work is needed to explore the different modalities of interdependencies among these elements and empirically testing such interdependencies and their effect on business performance ( Sorescu et al. , 2011 ).

It is surprising that the link between business model innovation and organisational performance has rarely been examined. Changing business models has been found to negatively influence business performance even if it is temporary ( McNamara et al. , 2013 ; Visnjic et al. , 2016 ). Contrary to this, evidence show that modifying business models is positively associated with organisational performance ( Cucculelli and Bettinelli, 2015 ). Empirical research is needed to operationalise the various degrees of innovation in business models and examine their link to organisational performance. Longitudinal studies can also be used to explore this association since it may be the case that business model innovation has a negative influence on performance in the short run and that may change subsequently. Moreover, it is not clear whether high-performing firms change their business models or innovation in business models is a result from superior performance ( Sorescu et al. , 2011 ). Further studies are needed to determine the direction of causality. Another link that is worth exploring is business model innovation and social value, which has only been explored in a few studies looking at social business models (e.g. Yunus et al. , 2010 ; Wilson and Post, 2013 ). Further research is needed to examine this link and possibly examine both financial and non-financial business performance.

6.3 Mechanisms of business model innovation

Although we know more about how firms define value proposition, create and capture value ( Landau et al. , 2016 ; Velu and Jacob, 2014 ), what remains as a blind spot is the mechanism of business model innovation. This is due to the fact that much of the literature seems to focus on value creation. To better understand the various mechanisms of business model innovation, future studies must integrate value proposition, value creation and value capture elements. Empirical studies could use the business model innovation framework to examine the various mechanisms of business model innovation. Also, the literature lacks the integration of internal and external perspectives of business model innovation. Very few studies look at the external drivers of business model innovation and the associated internal changes. The external drivers are referred to as “emerging changes”, which are usually beyond manager’s control ( Demil and Lecocq, 2010 ). Inconclusive findings exist as to how firms develop innovative business models in response to changes in the external environment. Future studies could examine the external factors associated with the changes in the business model innovation framework. Active and reactive responses need to be explored not only to understand the external influences, but also what business model changes are necessary for such responses. A better understanding of the mechanisms of business model innovation can be achieved by not only exploring the external drivers, but also linking them to specific internal changes. Although earlier contributions linking studies to established theories such as the resource-based view, transaction cost economics, activity systems perspective, dynamic capabilities and practice theory have proven to be vital in advancing the literature, developing a theory that elaborates on the antecedents, consequences and different facets of business model innovation is still needed ( Sorescu et al. , 2011 ). Theory can be advanced by depicting the mechanisms of business model innovation through the integration of both internal and external perspectives. Also, we call for more empirical work to uncover these mechanisms and provide managers with the necessary insights to carry out business model innovation.

7. Conclusions

The aim of this review was to explore how firms approach business model innovation. The current literature suggests that business model innovation approaches can either be evolutionary or revolutionary. However, the evidence reviewed points to a more complex picture beyond the simple binary approach, in that, firms can explore alternative business models through experimentation, open and disruptive innovations. Moreover, the evidence highlights further complexity to these approaches as we find that they are in fact a spectrum of various degrees of innovation ranging from modifying a single element, altering multiple elements simultaneously, to changing the interactions between elements of the business model innovation framework. This framework was developed as a navigation map for managers and researchers interested in how to change existing business models. It highlights the key areas of innovation, namely, value proposition, operational value, human capital and financial value. Researchers interested in this area can explore and examine the different paths firms can undertake to change their business models. Although this review pinpoints the different avenues for firm to undertake business model innovation, the mechanisms by which firms can change their business models and the external factors associated with such change remain underexplored.

guidelines for business model innovation

The evolution of business model literature (pre-2000 to 2016)

guidelines for business model innovation

Business model innovation framework

Previous reviews of business model literature

Reviewed papers and their subject fields

Source of our sample

Business model innovation areas and elements

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Zott , C. and Amit , R. ( 2010 ), “ Business model design: an activity system perspective ”, Long Range Planning , Vol. 43 Nos 2-3 , pp. 216 - 226 .

Zott , C. , Amit , R. and Massa , L. ( 2011 ), “ The business model: recent developments and future research ”, Journal of Management , Vol. 37 No. 4 , pp. 1019 - 1042 .

Further reading

Weill , P. , Malone , T.W. and Apel , T.G. ( 2011 ), “ The business models investors prefer ”, MIT Sloan Management Review , Vol. 52 No. 4 , pp. 17 - 19 .

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How to Design a Winning Business Model

  • Ramon Casadesus-Masanell
  • Joan E. Ricart

Smart companies’ business models generate cycles that, over time, make them operate more effectively.

Reprint: R1101G

Most executives believe that competing through business models is critical for success, but few have come to grips with how best to do so. One common mistake, the authors’ studies show, is enterprises’ unwavering focus on creating innovative models and evaluating their efficacy in standalone fashion—just as engineers test new technologies or products. However, the success or failure of a company’s business model depends largely on how it interacts with those of the other players in the industry. (Almost any business model will perform brilliantly if a company is lucky enough to be the only one in a market.) Because companies build them without thinking about the competition, companies routinely deploy doomed business models.

Moreover, many companies ignore the dynamic elements of business models and fail to realize that they can design business models to generate winner-take-all effects similar to the network externalities that high-tech companies such as Microsoft, eBay, and Facebook often create. A good business model creates virtuous cycles that, over time, result in competitive advantage.

Smart companies know how to strengthen their virtuous cycles, undermine those of rivals, and even use them to turn competitors’ strengths into weaknesses.

The Idea in Brief

There has never been as much interest in business models as there is today; seven out of 10 companies are trying to create innovative business models, and 98% are modifying existing ones, according to a recent survey.

However, most companies still create and evaluate business models in isolation, without considering the implications of how they will interact with rivals’ business models. This narrow view dooms many to failure.

Moreover, companies often don’t realize that business models can be designed so that they generate virtuous cycles—similar to the powerful effects high-tech firms such as Facebook, eBay, and Microsoft enjoy. These cycles, when aligned with company goals, reinforce competitive advantage.

By making the right choices, companies can strengthen their business models’ virtuous cycles, weaken those of rivals, and even use the cycles to turn competitors into complementary players.

This is neither strategy nor tactics; it’s using business models to gain competitive advantage. Indeed, companies fare poorly partly because they don’t recognize the differences between strategy, tactics, and business models.

Strategy has been the primary building block of competitiveness over the past three decades, but in the future, the quest for sustainable advantage may well begin with the business model. While the convergence of information and communication technologies in the 1990s resulted in a short-lived fascination with business models, forces such as deregulation, technological change, globalization, and sustainability have rekindled interest in the concept today. Since 2006, the IBM Institute for Business Value’s biannual Global CEO Study has reported that senior executives across industries regard developing innovative business models as a major priority. A 2009 follow-up study reveals that seven out of 10 companies are engaging in business-model innovation, and an incredible 98% are modifying their business models to some extent. Business model innovation is undoubtedly here to stay.

guidelines for business model innovation

  • RC Ramon Casadesus-Masanell is a professor at Harvard Business School and the author, with Joan E. Ricart, of “How to Design a Winning Business Model” (HBR January–February 2011).
  • JR Joan E. Ricart ( [email protected] ) is the Carl Schroder Professor of Strategic Management and Economics at IESE Business School in Barcelona.

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Four Paths to Business Model Innovation

By: Karan Girotra, Serguei Netessine

Drawing on the idea that any business model is essentially a set of key decisions that collectively determine how a business earns its revenue, incurs its costs, and manages its risks, the authors…

  • Length: 9 page(s)
  • Publication Date: Jul 1, 2014
  • Discipline: Strategy
  • Product #: R1407H-PDF-ENG

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Drawing on the idea that any business model is essentially a set of key decisions that collectively determine how a business earns its revenue, incurs its costs, and manages its risks, the authors view innovations to the model as changes to those decisions: What mix of products or services should you offer? When should you make your key decisions? Who are your best decision makers? and Why do key decision makers choose as they do? In this article they present a framework to help managers take business model innovation to the level of a reliable and improvable discipline. Companies can use the framework to make their innovation processes more systematic and open so that business model reinvention becomes a continual, inclusive process rather than a series of isolated, internally focused events.

Jul 1, 2014

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Harvard Business Review

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guidelines for business model innovation

  • Open access
  • Published: 24 November 2022

Applying design thinking for business model innovation

  • Xinya You   ORCID: orcid.org/0000-0002-0220-8572 1  

Journal of Innovation and Entrepreneurship volume  11 , Article number:  59 ( 2022 ) Cite this article

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In recent years, there has been an increasing interest in using design thinking for business model innovation. However, few studies have explored the application, potential and challenges of design thinking from a comprehensive perspective. In order to better understand how design thinking can contribute to business model innovation, this paper regards business model innovation as a subject of design research and provides a critical review of researchers’ explorations of how to apply design thinking for business model innovation. In light of the literature review, this paper distils seven key design research themes: (1) design thinking as a mindset and a methodology; (2) designers of business models; (3) design activities for business model innovation; (4) design tools for business model innovation; (5) design approaches for business model innovation; (6) co-creation of new products, services and business models, and (7) evaluating and measuring the impact of design thinking. The themes not only highlight the potential of applying design thinking as a necessary mindset and methodology to business model innovation, but also emphasise the nature of designing as a social process.

Introduction

Over the past two decades, researchers and managers have become increasingly aware of the importance of business models. In the management literature, the business model has become an increasingly important concept in technology and innovation management (Massa et al., 2017 ). The applicability of business models has expanded from focal companies to other types of companies in the ecosystem of the value network (Zott & Amit, 2013 ). The potential to analyse business models from the industry, sector, regional, national, cluster and company levels has been explored (Saebi et al., 2017 ; Zott & Amit, 2013 ). Moreover, researchers’ understanding of business models extends to their sustainability, i.e. their contribution to economic, cultural and social dimensions (Joyce & Paquin, 2016 ). Some researchers have identified the need to build business models for organisations in the non-profit sector, such as social businesses (Seelos & Mair, 2005 ; Yunus et al., 2010 ), and many researchers have collected empirical data to demonstrate the impact of business models on company performance (Morris et al., 2013 ; Saebi et al., 2017 ; Zott & Amit, 2007 ). Successful business practices suggest that continuing business model innovation can bring companies the ultimate competitive advantage (Mitchell & Coles, 2003 ).

Business model innovation requires design knowledge and skills that traditional business schools and management schools do not teach. As a strategic management researcher, McGrath ( 2010 ) pointed out, ‘unlike conventional strategies that [emphasise] analysis, strategies that aim to discover and exploit new models must engage in significant experimentation and learning—a [“discovery driven”], rather than analytical approach’ (p. 247). Some researchers (Amano, 2014 ; Simonse, 2014 ) believe that design thinking can provide managers with a discovery-driven design approach for business model innovation. In the past decade, researchers have explored the methodological value of design thinking for business model innovation from a variety of perspectives (Amano, 2014 ; Simonse & Badke-Schaub, 2014 ). Many business model design tools, such as the business model canvas, have been developed for entrepreneurs and managers to use (Bocken et al., 2013 ; Osterwalder & Pigneur, 2010 ).

Although a number of studies have been carried out on exploring the potential of design thinking, few studies provide a comprehensive view on how to apply design thinking for business model innovation. In addition, the application of design thinking faces some challenges. For example, design thinking as a concept is under-theorised and is often over-simplified as a linear and clear process that can be easily followed (Kimbell, 2011 ; McCullagh, 2010 ). This paper aims to provide a comprehensive perspective to help unleash the potential of design thinking and resolve some of the challenges it faces in its application. It is divided into four sections. Section  2 gives a brief overview of business model innovation as a subject of design research. Section  3 discusses the application, potential and challenges of design thinking in business model innovation. Section  4 introduces the research methodology used in this study and presents the descriptive results of this paper. Section  5 identifies several key themes of applying design thinking to business model innovation. These themes point out some directions for future interdisciplinary research on design thinking and business model innovation.

Business model innovation: a subject of design research

Business model innovation is a popular topic in business model research. Researchers suggest that innovation must include business models because a business model describes the design of a company’s value creation and value capture mechanisms, which together generate profit (Chesbrough, 2007 ; Gay, 2014 ). In general, business model innovation describes the creation of a new business model or a process of transformation from one model to another (Chesbrough, 2010 ; Geissdoerfer et al., 2016 ; Mitchell & Coles, 2004 ). Recent research suggests that business model innovation ‘can comprise the development of entirely new business models, the diversification into additional business models, the acquisition of new business models, or the transformation from one business model to another’ (Geissdoerfer et al., 2018 , p. 406). Learning from a successful business model is also considered valuable for stimulating innovation. For instance, Giesen et al.’s ( 2007 ) research identified three main types of business model innovation based on 35 best practice cases: the innovations in industry model, the revenue model and the enterprise model.

Researchers have proposed many definitions for business model innovation (Geissdoerfer et al., 2018 ). These definitions have several focuses, including making better value configuration (Chesbrough, 2007 ), providing novel product or service offerings to customers and end-users (Mitchell & Coles, 2004 ), experimenting with new business model elements and building blocks (Osterwalder et al., 2005 ), and leveraging a company’s internal capabilities and resources (Amit & Zott, 2010 ). According to these definitions, business model innovations should include the design and implementation of new business models. However, researchers have yet to reach a consensus on the definition of business model innovation. In recent research, Foss and Saebi ( 2018 ) proposed a clear direction for defining business models and business model innovation from a theoretical construction perspective. As they put it: ‘the … [business model] … and … [business model innovation] … constructs are fundamentally about the architecture of the firm’s value creation, delivery and capture mechanism; theoretically the key aspects of … [business models] … is complementarity between activities underlying these mechanisms; … [business model innovation] means novel changes of such complementary relations’ (Foss & Saebi, 2018 , p. 9). Foss and Saebi’s intention is to establish a pre-existing agreement on the nature of the units of analysis (i.e. the business model and business model innovation).

In the business model innovation literature, business model design is described as a source of innovation as well as a key task for entrepreneurs and executives (Chesbrough, 2007 ; Zott & Amit, 2007 ). From this perspective, business model innovation is a design research topic. The literature shows some considerations for the design and implementation of new business models:

The tool attributes of the business model itself, e.g. as a tool for systemic analysis, planning and communication (Doganova & Eyquem-Renault, 2009 ; Geissdoerfer et al., 2018 );

The interrelationship between the different components of the business model, e.g. the value proposition, the market segment, the offering and complementary assets of the cost structure, the revenue generation mechanism, the value chain structure and the value network (Chesbrough, 2010 ; Geissdoerfer et al., 2018 );

The relationship between product market strategy, the business model and organisational design (DaSilva & Trkman, 2014 ; Osterwalder et al., 2005 ; Richardson, 2008 ; Zott & Amit, 2013 );

The design elements that describe the architecture of an activity system and the design themes that describe the sources of the system’s value creation (Amit & Zott, 2010 );

The relationship and conflicts between the new business model and the existing business model (Aspara et al., 2010 ; Massa et al., 2017 );

Business model innovation and sustainability (Carayannis et al., 2014 );

Managers as designers and executives of business models (Chesbrough, 2007 ; DaSilva & Trkman, 2014 ; Eckhardt, 2013 ; Massa et al., 2017 ; Zott & Amit, 2013 ; Zott et al., 2011 ).

Companies’ capability to create, implement, iterate and evolve business models to adapt to changing market conditions is critical to their business success (Geissdoerfer et al., 2018 ; Lindgardt et al., 2012 ; Romero & Molina, 2009 ; Wirtz et al., 2016 ). As Wirtz et al. ( 2016 ) pointed out, ‘… a current business model should always be critically regarded from a dynamic perspective, thus within the consciousness that there may be the need for business model evolution or business model innovation, due to internal or external changes over time’ (p. 41).

In this regard, many design approaches and tools have been created for managers to use. For example, Zott and Amit ( 2010 ) developed a conceptual toolkit for helping managers analyse and improve the current designs to adapt them to the future and to enable entrepreneurial managers to design future models. Similarly, after considering the components of the business model, the process of business model innovation, as well as the competitive strategy of the innovating company, Chesbrough and Rosenbloom ( 2002 ) and Chesbrough ( 2010 ) provide an integrated approach for business model innovation. There are also some researchers trying to design measurement models for business model innovation. One example is Chesbrough’s ( 2007 ) business model framework. It sequences possible business models from basic models to far more advanced models and can be used by companies to advance their business models. Attempts to develop a business model innovation typology through empirical studies have also been made (Cavalcante et al., 2011 ; Koen et al., 2011 ; Taran et al., 2015 ).

Application, potential and challenges of design thinking in business model innovation

Since business model innovation can be regarded as a design research topic, it has attracted the attention of many researchers in the design discipline. One of the reasons is Osterwalder and Pigneur’s ( 2010 ) Business model generation: a handbook for visionaries, game changers, and challengers . This popular book introduces its readers to some design thinking methods (e.g. customer insights, ideation, visual thinking, prototyping and scenarios) and tools (e.g. empathy maps and brainstorming) created and used by design practitioners. It also mentions Roger Martin’s opinion on managers as designers, Fred Collopy and Richard Boland’s ( 2004 ) book Managing as Designing and Tom Kelly’s ( 2001 ) book The Art of Innovation: Lessons in Creativity from IDEO, American’s Leading Design Firm . These scholars and design practitioners are famous ‘design thinking’ advocates in the management field. Their publications are frequently cited by management and design researchers who are interested in design thinking.

From the perspective of design researchers, the applicability of design thinking has expanded from product design to product-service systems and is now extended to business model design (Simonse & Badke-Schaub, 2014 ). Many researchers (Amano et al., 2017 ; Lehmann et al., 2015 ) have explored the value of design thinking to business model design and innovation. Some topics are frequently mentioned in research papers, such as ‘prototypes’, ‘visualisation’, ‘co-design’, ‘participatory design’, ‘value propositions’, ‘product and service innovations’, ‘problem solving’, ‘modelling and mapping process’, ‘iteration’ and ‘activity system architecture’ (Amano, 2014 ; Amano et al., 2017 ; Buur et al., 2013 ; Ceschin et al., 2014 ; Geissdoerfer et al., 2016 ; Gilbert et al., 2012 ; Gudiksen et al., 2014 ; Joyce & Paquin, 2016 ; Simonse et al., 2012 ).

It has been argued that design thinking can play a strategic role in business model innovation. For example, Gilbert et al. ( 2012 ) described design thinking as ‘an effective means in democratizing innovation’ and ‘a key catalyst in linking strategy to action’. They illustrated how design thinking tools and approaches could be used to drive product and service innovation from a business model innovation perspective. Another researcher, Amano ( 2014 ), described design thinking as ‘the strategic role of design’. He discussed five key elements of design thinking—human centredness/field research, collaboration, learning through iterative processes, visual storytelling and concurrency with business analysis—to illustrate its potential impact on business model innovation. Moreover, Simonse and Badke-Schaub ( 2014 ) proposed a concept of strategic design thinking from the perspective of business model innovation:

[Strategic design thinking is] a series of cognitive activities (such as reasoning, creative problem solving, decision-making), which are directed to the understanding of the business problems, its network structure and value exchange possibilities to co-create a design process and outcome which are meant to provide a strategic direction and communication of a shared vision and commitment.

Although researchers have a positive attitude towards the application of design thinking in business model innovation, some of them (Amano, 2014 ; Amano et al., 2017 ) pointed out that the lack of a general definition of design thinking may be a problem of applying it to business model innovation. Many definitions have been proposed to try to describe its nature and application potential, such as ‘a formal creative problem-solving method with the intent to foster innovation’ (Dell'Era et al., 2020 , p. 324), ‘a cognitive style’ (Kimbell, 2011 , p. 297) and ‘Design thinking is a human-centered approach to innovation that draws from the designer’s toolkit to integrate the needs of people, the possibilities of technology, and the requirements for business success’ (IDEO, 2021 ).

One of the reasons that so many definitions were created is that the term design thinking is derived from Herbert Simon’s thoughts on the cognitive way of problem-solving (Simon, 1969 ), but challenged by Nigel Cross’ ‘designerly ways of knowing’ (it focuses on design practitioners’ ways of problem-solving) (Cross, 1982 ), and used by a famous design consultancy IDEO to name its company methodology (it was frequently mentioned by popular business publications and taught at business schools) (Brown, 2009 ). In addition, in the early days when design thinking became popular, influenced by IDEO’s practice-based company methodology, ‘many disparate, vaguely creative activities are combined under the label of [“Design Thinking”]’ (Dorst, 2011 , p. 531) and design thinking was sometimes over-simplified as ‘as a clear and codified process of methods, tools, and steps that can be learned by nondesigners’ (McCullagh, 2010 , p. 38). This further increased the difficulty of conceptualising and theorising design thinking.

Nowadays, more and more researchers have realised the importance of clarifying the origins of design thinking (Micheli et al., 2019 ; Oxman, 2017 ). Attempts have been made to distinguish design thinking in management and design research paradigms. For example, Johansson‐Sköldberg et al. ( 2013 ) suggest using the term ‘design thinking’ in the management discourse and a new term ‘designerly thinking’ in the design discourse. Nevertheless, as Lucy Kimbell pointed out in her paper ‘Rethinking Design Thinking’ published in 2011, ‘[design] thinking … remain undertheorized and understudied; indeed, the critical rethinking of design thinking has only just begun’ ( 2011 , p. 301). In this regard, some researchers who attempt to use design thinking as a methodology for business model innovation have recognised that it is under-theorised (Amano, 2014 ; Simonse et al., 2012 ). In recent years, many design researchers have tried to better understand design thinking from multiple perspectives, such as revisiting the most influential design thinking publications (Huppatz, 2015 ), mapping out the design cognition landscape (Hay et al., 2020 ) and further conceptualising design thinking (Micheli et al., 2019 ).

Since the theorisation of design thinking is still in progress, researchers have not yet reached a consensus on how to define it. The lack of a unified definition of design thinking has increased the difficulty of knowledge creation and accumulation. For instance, in practice, many organisations had different understandings of what design thinking is and found that it is difficult to measure its impacts on innovation (Schmiedgen et al., 2016 ). Nevertheless, it is unwise to unify the definition of design thinking in the early stages of theorisation—embracing the existence of multiple definitions can help explore its potential. A practical approach is to emphasise the context of research and application when exploring design thinking and ensure that its academic roots are clear. It also applies to the application of design thinking in business model innovation.

In order to provide a comprehensive perspective to help unlock the potential of design thinking and address some of the challenges it faces in its application, a thorough literature review is needed. The next section reviews existing research on applying design thinking for business model innovation, exploring how researchers have defined the role of design thinking in business model innovation, their research and practice on applying design thinking for business model innovation, and how the impact of design thinking on business model innovation can be measured or evaluated. The researcher also seeks to distil some key research themes of applying design thinking for business model innovation from the literature review for future exploration.

Literature review

Research methodology.

The researcher used ScienceDirect and Scopus databases for the literature searching and “business model”, “design thinking” and “innovation” as keywords for Boolean searches (Boolean search: TITLE-ABS-KEY [“business model” AND “design thinking” AND “innovation”] for journal and conference papers). The researcher divided “business model innovation” into two keywords “business model” and “innovation” because in some literature, the creation of new business models is not directly described as business model innovation (Bason, 2012 ; Emili et al., 2016 ). Using business model and innovation as two search keywords can reduce the omission of relevant literature. The Boolean search returned 417 papers from ScienceDirect and 79 papers from Scopus (search date: December 20, 2021; only papers written in English were considered).

The researcher noted that some design research papers do not use the term “design thinking” when discussing how to design business models (Bason, 2012 ). Broadly speaking, the use of design methods to solve management problems can be seen as an application of design thinking (Johansson‐Sköldberg et al., 2013 ). Therefore, the researcher directly searched the websites of some top design journals (searching journals with article titles) and conference proceedings using “business model” as a keyword and included the search results in the review (search date: December 20, 2021). A total of 32 papers were found—all of which were published after 2010. The search results for design journals are (number of papers in brackets): Design Issues (1), The Design Journal (1), Design Management Review (0), International Journal of Design (0), and CoDesign (2). The results for design conferences are (the number of papers is shown in brackets): DRS (3), DRS Learn Xdesign (0), EAD (2), DMI: Academic Design Management Conference (19), ADIM (4) (Note: proceedings for DMI: Academic Design Management Conference published prior to 2012 are not available).

Table 1 shows the search results for ScienceDirect, Scopus and Design Journals and conferences (see Additional file 1 : Appendix A: Sheet 1 for the complete dataset). The search identified a total of 514 papers for review.

As shown in Fig.  1 , publications on the link between design thinking/methods, business models and innovation have grown significantly since 2014, and this trend continues (see Additional file 1 : Appendix A: Sheet 2 tab for more information on the number of publications).

figure 1

Timeline of publications by directory

The researcher conducted an initial review of the 514 papers and found that most of them could not be used for analysis (see Additional file 2 : Appendix B: Data analysis tab). The reasons were as follows: not relevant to applying design thinking for business model innovation ( n  = 451), not available ( n  = 17), not an English-language paper ( n  = 1) and not a conference or journal paper ( n  = 2) (see Additional file 2 : Appendix B: Data analysis tab/column B). The final number of papers used for analysis is 44, including 36 empirical studies, 7 conceptual studies and 2 literature review studies (1 of which is also a conceptual study) (see Additional file 2 : Appendix B: Data analysis tab/column X to column AC).

The analysis of the papers applied a structured content analysis method. Content analysis can be used as a quantitative and qualitative method: quantitative content analysis uses a deductive approach “ based on previous research, which allows for formulating hypothesis about relationships among variables ”, while qualitative analysis adopts an inductive approach, using “ research questions to guide data collection and analysis but potential themes and other questions may arise from careful reading of data ” (White & Marsh, 2006 , p. 35). The analysis approach for this study was to read each paper to answer the following research questions:

How do researchers define design thinking in their papers?

What design thinking publications, scholars and thoughts are mentioned in the paper, why is design thinking valuable for business model innovation, how can design thinking be used for business model innovation, how can the impact of design thinking be measured and evaluated.

The researcher conducted a descriptive statistical analysis to answer the first and second questions. Given the exploratory nature of the next three questions, content analysis was used as a qualitative method. As explained by Hsieh and Shannon ( 2005 , p. 1278), qualitative content analysis is “ a research method for the subjective interpretation of the content of text data through the systematic classification process of coding and identifying themes or patterns ”. Table 2 shows the list of code categories created by the researcher in the course of reading the 44 papers to answer these questions.

The review found that of these 44 papers, 40 mention the term design thinking and 18 provided one or more definition(s) of design thinking ( n  = 14) or attempted to define design thinking ( n  = 4) (see Additional file 2 : Appendix B: Data analysis tab/column D and E and Definitions tab). Table 3 shows the definitions of design thinking in the 18 papers and the sources of the definitions (where applicable). The academic roots of design thinking and the practical value of design thinking in the business world are reflected in the cited literature (e.g. Simon, H., “The sciences of the artificial” ( 1969 ) and Martin, R., “The design of business: Why design thinking is the next competitive advantage” ( 2009 )).

The researcher calculated the number of citations to design thinking publications describing what design thinking is in the 44 papers. In total, 88 publications were found. Some of these ( n  = 25) were cited more than 1 time ((see Additional file 2 : Appendix B: Pivot tables tab/column A and B). Table 4 shows the publications that were cited more than 2 times ( n  = 13). Publications that focused on the practical value of design thinking to the business world and social innovation ( n  = 5) were cited most often (e.g. “Change by design”, “Design thinking” and “The design of business: Why design thinking is the next competitive advantage”). Academic publications ( n  = 8) that contributed to the conceptualisation of design thinking were also cited several times (e.g. “The core of design thinking and its application”, “Rethinking design thinking: Part I” and “Wicked problems in design thinking”). These citations reveal the equally important impact of the practical value of design thinking and the conceptualisation of design thinking in the application of design thinking for business model innovation.

In addition to the number of citations, the researcher analysed the thoughts from these 88 publications that were cited by the papers reviewed (see Additional file 2 : Appendix B: Pivot tables tab/column D and E). The researcher analysed all the thoughts by using NVivo 12 to generate a word cloud based on word frequency (see Fig.  2 ). As shown in Fig.  2 , the most frequently used words highlight the application of design thinking as a human-centred problem-solving process or approach.

figure 2

Word cloud created based on word frequency

The analysis of the 44 papers shows that the value of design thinking (or designers’ way of problem-solving) for business model innovation has been widely explored (see Additional file 2 : Appendix B: Data analysis tab/column H and I). Table 5 shows the categories and codes generated during the data analysis process, as well as examples of the values identified (for more details, see Additional file 2 : Appendix B: Value of DT tab). The numbers in brackets indicate the number of papers that include relevant data. The results show that all the papers examined explored the methodological value of design thinking for business model innovation, and 2 of them also explored design thinking as a way of thinking.

Table 6 shows the categories and codes created during the data analysis process to understand how design thinking can be used for business model innovation. Five categories were created: designers, design activities, design artefacts: design tools, design artefacts: design approaches, and design artefacts: design outputs. Numbers in brackets indicate the number of papers containing relevant data (see Additional file 2 : Appendix B: Data analysis tab/column J to S for model details).

The main results of the data analysis are as follows:

Designers . The majority of the 44 papers show that companies or organisational users are the main designers of their business models (e.g. senior managers, business case representatives, managers, CEOs, CSOs, organisational leaders, social innovators, senior staff, design entrepreneurs, the strategic planning and development groups) ( n  = 32), design researchers/experts are the business model design facilitators ( n  = 28) and multiple stakeholders are participants ( n  = 36). Seven papers show that multidisciplinary teams are the main designers of business models.

Design activities . Three types of design activities were identified in the data analysis—participatory design activities ( n  = 37), design research activities ( n  = 25) and design activities ( n  = 41). Most papers describe design activities conducted by the main designers of the business model ( n  = 41), as well as participatory design activities involving multiple stakeholders, such as workshops ( n  = 37). In addition, 25 papers demonstrate the importance of design research activities for business model innovation, such as participant observation, shadowing and open-ended qualitative interviews. (For more details on participatory design activities and design research activities, see Additional file 2 : Appendix B: Data analysis tab/column L)

Design artefacts: design tools . The results show that the majority of papers ( n  = 40) describe the use of design tools to facilitate business model innovation (see Additional file 2 : Appendix B: Data analysis tab/column N). Of these, 29 papers describe the use of existing tools for business model innovation (e.g. Business Model Canvas and Customer Journey), 18 papers show the application of new business model design tools (e.g. Free Format Sketching and Value Transaction Mapping) (for more details, see Additional file 2 : Appendix B: Using existing tools for BMI tab and New BMD tools tab), and 5 papers mention the use of business analytics tools to support business model innovation (e.g. SWOT analysis, Benchmarking, Logical Model, Social Reporting Standard). There are also 2 papers describing the application of new tools for enabling business model innovation and 1 paper shows the use the existing tools for enabling business model innovation—these tools were not used directly for business model innovation, but for creating new products and services.

Design artefacts: design approaches . Of the 44 papers, 41 describe design approaches for business model innovation (see Additional file 2 : Appendix B: Data analysis tab/column P). 31 papers describe the use of new business model design approaches, of which 18 describe general approaches to business model design and 13 describe user case-specific approaches, such as those for developing sustainability and product-service systems (see Additional file 2 : Appendix B: New BM design approaches tab). The results also revealed several other new approaches to business model innovation: new frameworks of using design approaches for business model innovation ( n  = 2), new design approaches to make business modelling tools ( n  = 1) and new design thinking and innovation approaches ( n  = 2) and new product and service design approaches ( n  = 1). Existing design thinking and innovation approaches ( n  = 3) and existing product and service design approaches ( n  = 1) were also used to enable business model innovation.

Design artefacts: design outputs . All 44 papers describe the design outputs of business model innovation (see Additional file 2 : Appendix B: Data analysis tab/column R). Most of them emphasise the importance of prototypes in business model innovation—35 papers mention prototypes of new products and services, 34 describe prototypes of new business models and 1 mention prototypes of value propositions. About half of the papers describe the creation of new products and services ( n  = 23) and business models ( n  = 23). Fifteen papers notes that design activities can lead to opportunities for transition to new business models. The data analysis also provides an overview of how new products, services and business models can be co-created:

27 papers show that new products and services can be prototyped in the process of business modelling;

4 papers indicate that new business models can be devised around the new products/services;

1 paper gives an example of how new business models can be devised around a new way of co-producing new products/services;

1 paper suggests that the creation of new business model can empower the development of new products and services;

1 paper suggests giving shape to new products/services together with new business model and using new business models as a framework to direct the development of new products/services.

Table 7 shows the results of coding on how the impact of design thinking (or designers’ way of problem-solving) to business model innovation can be measured or evaluated (see Additional file 2 : Appendix B: Data analysis tab/column T to W for details). All the 44 papers describe the impact of design thinking (or designers’ way of problem-solving). 33 papers measured or evaluated the impact—design thinking or designers’ way of problem-solving can help create new products and services ( n  = 29) and new business models ( n  = 33), and by applying design thinking or designers’ way of problem-solving, companies and related stakeholders can learn new knowledge and skills for business model innovation ( n  = 6). The measurement and evaluation methods used are observations ( n  = 32), case studies ( n  = 29), feedback collection ( n  = 9), experiments ( n  = 5), documentary analysis ( n  = 4), reflections ( n  = 3), informal interviews (follow-ups) ( n  = 1) and literature review ( n  = 1). The other 11 papers identified the potential positive impact of design thinking (or designers’ way of problem-solving) on new product and service development and business model innovation, but did not provide evidence to measure or evaluate this impact.

Key theme 1: Design thinking as a mindset and a methodology

The review shows that in the context of business model innovation, design thinking is often regarded as a valuable methodology and/or a way of thinking. In fact, design thinking is often regarded as a mindset characterised by a series of important design principles that are useful for enhancing design processes (e.g. reflective practice, communication through visualisation, empathy, fail quickly and cheaply, and structuring the problem-solving process) (Brenner et al., 2016 ; Gudiksen et al., 2014 ; Lehmann et al., 2015 ). However, the boundaries between design thinking as a way of thinking and as a methodology has not always been well described by researchers. For example, Simonse ( 2014 ) notes that designers’ approach to generative modelling and visual thinking (i.e. communication through visualisation—as part of the design thinking mindset) can be used to make new discoveries about business model inventions.

A promising future research direction could be to explore the value of design thinking as a mindset for business model innovation. Jenkins and Fife ( 2014 ) indicate that design thinking, as a synthetic, holistic and heuristic mode of thinking, complements the analytical thinking that managers rely on when solving problems and making decisions. Wrigley et al.’s ( 2016 ) research points out that design thinking is a necessary mindset for business model innovation and represents the willingness to explore future possibilities. It is worth noting that in recent years, design researchers have expanded their understanding of ‘design thinking as a way of thinking’ (Howard et al., 2015 ; Schweitzer et al., 2016 ). For example, a recent study showed that there are as many as 22 constructs of design thinking mindset (e.g. tolerance for—being comfortable with ambiguity—uncertainty, embracing risk, human centredness, empathy/mindfulness and awareness of process, holistic view [considering the problem as a whole] and problem reframing) (Dosi et al., 2018 ). These constructs of design thinking as a mindset can be further explored in business model innovation research.

The review shows that researchers have extensively explored the methodological value of design thinking for business model innovation. Gudiksen’s ( 2012 ) categories of design thinking—design reasoning, design problems, design learning approaches and design making essentials—can be used to organise some of the key findings, as shown below.

Design reasoning: Applying abductive reasoning (e.g. switching between divergent and convergent reasoning) can lead to the emergence of new business scenarios in the business model design process (Geissdoerfer et al., 2016 ; Gilbert et al., 2012 ). The knowledge funnel is also considered valuable for business model innovations. For example, it has been used by Deloitte to create the Deloitte Digital Business Model Mind Map (Gilbert et al., 2012 ).

Design problems: Several researchers (Bason, 2012 ; Buur & Gudiksen, 2012 ; Gudiksen, 2012 ) pointed out that business model design problems are ill-structured problems or wicked problems. Reflection-in-action can lead to the co-evolution of solutions (various future scenarios and business model prototypes) and problems (business model design problems) (Amano et al., 2017 ; Bucolo & Wrigley, 2012 ; Geissdoerfer et al., 2016 ; Simonse & Badke-Schaub, 2014 ).

Design learning approaches: Designers’ ‘learning through doing’ strategy and material culture are useful for business model innovation. The designers of business models can apply some learning approaches by using specific design methods, design tools and play design games, such as: (1) visual learning through sketches and drawings, e.g. using the Business Model Canvas (Buur et al., 2013 ); (2) tangible learning through materials, e.g. playing design games such as the Distribution Channel Sandplay and Pinball Flow Game (Buur et al., 2013 ); (3) embodied learning or bodystorming, e.g. the design methods of tangible value network mapping and staging business relations (Geissdoerfer et al., 2016 ).

Design making essentials: In terms of design making essentials, designers can use certain mechanisms (e.g. design games and prototyping) to create ‘what-if scenarios’ or ‘future scenarios’ dialogues among stakeholders (Amano et al., 2017 ; Buur & Gudiksen, 2012 ; Gudiksen, 2012 ; Gudiksen et al., 2014 ; Jenkins & Fife, 2014 ). Business model prototyping is a key mechanism throughout the business model design process. Prototypes can be used as learning tools in business model development (including implementation), characterised by an iterative process (Amano et al., 2017 ). Adopting an evolutionary perspective is necessary for the iteration of prototypes—it can deconstruct and rebuild the organisational situation to identify new opportunities for business model innovation (Amano et al., 2017 ). There are many other benefits to using a business model prototype. For example, low-cost business model prototypes allow companies to test and improve them before implementation (Jenkins & Fife, 2014 ).

Key theme 2: Designers of business models

In recent years, design researchers have also paid more attention to investigating the capabilities of designers as the primary agents of design activities (Kimbell, 2011 ; Pandza & Thorpe, 2010 ), to understand the socialised, situated, contextual and contingent nature of design activities (Adams et al., 2011 ; Pandza & Thorpe, 2010 ; Smulders et al., 2014 ), and to explore the roles of design artefacts in the design process and different ways artefacts emerge (Kimbell, 2009 , 2011 ; Pandza & Thorpe, 2010 ). This trend is also reflected in the literature applying design thinking for business model innovation (Bason, 2012 ; Buur & Gudiksen, 2012 ; Gilbert et al., 2012 ; Jenkins & Fife, 2014 ).

Most of the papers reviewed have shown that CEOs and senior managers, design researchers and experts, and the company’s key stakeholders all play an important role in the design of business models. CEOs and senior managers who are the key decision-makers in their businesses can be the primary designers of their business models (Bason, 2012 ; Buur & Gudiksen, 2012 ; Gilbert et al., 2012 ; Jenkins & Fife, 2014 ). The facilitation of design experts can help them to apply design thinking for business model innovation (Buur & Gudiksen, 2012 ; Geissdoerfer et al., 2016 ; Gilbert et al., 2012 ; Gudiksen, 2012 ; Jenkins & Fife, 2014 ; Komatsu et al., 2016 ). The design process could engage multiple stakeholders as they can provide various perspectives of value proposition, creation, capture, delivery and exchange, and contribute their knowledge, skills and resources networks for business model innovation (Cautela et al., 2014 ; Geissdoerfer et al., 2016 ; Gilbert et al., 2012 ; Gudiksen, 2012 ; Gudiksen et al., 2014 ; Simonse et al., 2012 ). Multi-disciplinary team collaborations are also valuable for business model innovation (Bryant et al., 2020b ; Unterberger et al., 2018 ).

Key theme 3: Design activities for business model innovation

The review has shown that participatory design activities and design research activities can promote business model design and innovation. Participatory design activities can help design business models by creating settings and activities and developing and using design tools that lead to quality dialogues among participants (Blois, 2015 ; Buur & Gudiksen, 2012 ; Geissdoerfer et al., 2016 ; Gudiksen, 2012 ; Gudiksen et al., 2014 ; Suteu & Perondi, 2016 ). In participatory design activities, professional designers can play the role of facilitator and observer (Gudiksen, 2014 ; Suteu & Perondi, 2016 ). Well-designed workshop protocols can encourage synergy between disciplines and knowledge domains (Blois, 2015 ). Feedback can be collected from participants to improve workshop frameworks and design tools (Bryant et al., 2020b ; Chen et al., 2016 ; Price et al., 2013 ).

Moreover, managers can initiate design research activities to trigger new product and service provisions and business model innovations and to address challenges facing their organisations (Gilbert et al., 2012 ). Various design approaches and methods can be used in research activities (e.g. qualitative and ethnographically inspired design research, user research, co-design processes, rapid prototyping, visualisation, experimentation, and interactive and tangible workshop formats) (Bason, 2012 ; Gilbert et al., 2012 ; Gudiksen, 2012 ; Simonse et al., 2012 ). In design activities, traditional market research tools and the tools of business analytics can be used to support business model innovation, such as collecting and analysing customer data, identifying target markets, conducting future competitor analysis, exploring revenue potential, describing potential cost profile, and developing progression pathway for developing new business models (Garrett & Wrigley, 2019 ; Jenkins & Fife, 2014 ).

Key theme 4: Design tools for business model innovation

The review has shown that a variety of new design tools can be created for business model innovation. The main research findings of new design tools are as follows:

Design tools can be developed and applied to explore and deal with business model problems and to uncover, create and advance perspectives on new business models (Buur & Gudiksen, 2012 ; Ceschin et al., 2014 ; Geissdoerfer et al., 2016 ; Gudiksen et al., 2014 ; Simonse & Badke-Schaub, 2014 ).

Design tools can also be developed for connecting a company’s strategies, business model(s) and operational activities (Bucolo & Wrigley, 2012 ; De Reuver et al., 2013 ; Gilbert et al., 2012 ), or, in other words, market product strategy, business model and organisation design (Gudiksen, 2012 ; Jenkins & Fife, 2014 ).

Design tools can be created based on designerly adaptation and reinvention of methods from other fields. For example, ethnographic methods can be transformed into cultural probes and context mapping tools (Simonse et al., 2012 ).

Many design tools have been proposed and developed for managers to use, such as Business Model Canvas, Actor Maps, Role Perspectives, Activity Maps, Distribution Channel Sandplay, the Partnership Game, the Pinball Flow Game, the Design Led Innovation Integrated Business Model Prototype, the Value Mapping Tool and Business Model Roadmapping (Bocken et al., 2013 ; Bucolo & Wrigley, 2012 ; De Reuver et al., 2013 ; Emili et al., 2016 ; Garrett et al., 2016 ; Gudiksen et al., 2014 ; Komatsu et al., 2016 ; Osterwalder & Pigneur, 2010 ; Short et al., 2012 ; Simonse, 2014 ; Simonse & Badke-Schaub, 2014 ). Some specific design tools were also proposed for non-profit organisations to use, such as Komatsu et al.’s ( 2016 ) Adapted Social Innovation Business Model Canvas and Suteu and Perondi’s ( 2016 ) Business Model Canvas for Non-profit (BM4NP).

The users of design tools can also contribute to the creation and improvement of design tools (Emili et al., 2016 ; Gudiksen, 2014 ; Suteu & Perondi, 2016 ).

Key theme 5: Design approaches for business model innovation

As aforementioned (Sect.  4.2.4 ), researchers created and tested many new generalised or customised design approaches for business model innovation. In addition, researchers have tried different approaches to create design approaches. Some researchers have explored design-led approaches, such as Buur and Gudiksens’ ( 2012 ) design thinking approach with hands and body, which can innovate business models through using design materials to engage cross-disciplinary stakeholders to play with hypotheses and experiment with scenarios; and Bryant et al.’s ( 2020a ) replicable, reflective design-led approach, which uses key tools to implement business model innovation. Jenkins and Fife ( 2014 ) proposed a customer insight-led business model innovation approach and a futures-led business model innovation approach. Some researchers have combined traditional analytical and designerly approaches. For example, Simonse et al. ( 2012 ) adopted the business model concepts from the strategic management fields and adapted the accompanied analytical approach to a designerly modelling approach. Similarly, Komatsu et al. ( 2016 ) made a business model design approach that combines the traditional analytical perspective with a designerly approach through a toolbox. Some researchers have created transdisciplinary research approaches for business model innovation, such as Unterberger et al.’s approach ( 2018 ), which includes the following three phases Co-Design, Co-Production, Co-Communication and Transdisciplinary Re-Integration. The different directions explored by researchers suggest that creating design approaches for business model innovation is an interesting topic that can be further explored.

Key theme 6: Co-creation of new products, services and business models

The review has shown that new business models, new products and new services can be co-created in five different ways: (1) new products and services can be prototyped in the process of business modelling; (2) new business models can be devised around the new products/services; (3) new business models can be devised around new ways of co-producing new products/services; (4) new business model can empower the development of new products and services, and (5) new products/services can be given shape together with new business models, and new business models can be used as a framework to direct the development of new products/services. Each approach is proposed in a specific context and has its own application scenario; for example, some researchers demonstrated that new approaches of product and service development, production, marketing and distribution (e.g. open business models and stakeholder engagement) could lead to business model innovation (Cautela et al., 2014 ; Pisano et al., 2014 ). The review also shows that researchers tend to explore opportunities to create new products and services as a starting point for business model innovation (Bason, 2012 ; Blois, 2015 ; Ceschin et al., 2014 ; Emili et al., 2016 ; Gilbert et al., 2012 ). Since business model innovation often involves the development of new products and services and the creation of business models, it is valuable to further explore how design thinking can support the co-creation of new products, services, and business models in design activities and in the real business worlds.

Key theme 7: Evaluating and measuring the impact of design thinking

Finally, the review shows a number of methods, such as case studies and feedback collection, that can be used to measure and evaluate the impact of design thinking (or designers’ way of problem-solving) on business model innovation. Instead of directly measuring the impact of design thinking, most papers provide case studies of using design thinking (or designers’ way of problem-solving) for business model innovation and describe how design tools, design activities and participatory design activities support the development of new products, services and business models based on observations (Buur & Gudiksen, 2012 ; Simonse et al., 2012 ). Researchers sometimes collect quantitative and qualitative data through questionnaires and interviews to assess the impact of design workshops, approaches, methods and tools on business model innovation (Bucolo & Wrigley, 2012 ; Buur & Gudiksen, 2012 ; Geissdoerfer et al., 2016 ). In the future, evaluation and measurement frameworks can be developed to support the development and improvement of design approaches and tools that use design thinking as a methodology and mindset for business model innovation.

This paper has argued that business model innovation can be regarded as a subject of design research and has discussed the extensive application value, the strategic role and the application challenges of design thinking in business model innovation. It has also provided a comprehensive overview on applying design thinking for business model innovation, based on a literature review. The literature review has revealed how researchers define and describe design thinking in their papers, why they believe design thinking is valuable for business model innovation, how design thinking has been and can be used for business model innovation and how the impact of design thinking can be measured and evaluated. Based on the literature review, this paper has also identified seven key research themes on applying design thinking for business model innovation: (1) design thinking as a mindset and a methodology; (2) designers of business models; (3) design activities for business model innovation; (4) design tools for business model innovation; (5) design approaches for business model innovation; (6) co-creation of new products, services and business models, and (7) evaluating and measuring the impact of design thinking. The seven research themes can be further explored in future research. A special attention can be paid to the socialised, situated, contextual and contingent nature of design activities and extend the application of design thinking to the co-evolution of products, services and business models. Overall, this paper will benefit researchers and practitioners who are interested in applying design thinking for business model innovation, whether they have a background in design, organisational research or management.

Availability of data and materials

Not applicable.

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Business model innovativeness: designing a formative measure for business model innovation

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Business model innovation is attracting increasing attention in corporate practice and academia. Despite strong interest in the phenomenon, no common understanding of the concept’s meaning has yet been established, hindering dialogue and progress in this research field. This study seeks to build a definition of business model innovation, and to provide a measurement index for the extent of innovativeness of a firm’s changed business model. Based on the business model, business model innovation and product innovation literatures, conceptualise business model innovation as a ‘new-to-the firm’ change that affects at least one out of three business model dimensions: value offering, value creation architecture and revenue model logic. Based on a study among 200 German firms, this study further offers an empirically validated measurement model for business model innovativeness comprising three dimensions and nine indicators. We also emphasise the opportunity-centric potentials of business model innovation as well as the potentials of integrating findings from related research streams into business model innovation research.

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Spieth, P., Schneider, S. Business model innovativeness: designing a formative measure for business model innovation. J Bus Econ 86 , 671–696 (2016). https://doi.org/10.1007/s11573-015-0794-0

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Five Steps to Implementing Innovation

guidelines for business model innovation

We’re all familiar with stories about breakthrough products, services, and processes—the disruptors that grab the headlines and garner eye-popping valuations. And then there are the entrepreneurs who end up on the cover of Bloomberg Businessweek and write best-selling books about the keys to their success. The message seems to be that, through good timing or genius, innovation is the purview of a select few.

But at its core, innovation is simply a way to solve problems and create value in new ways. Overhauling an inefficient process, using customer feedback to breathe new life into a stale product—innovations don’t have to be splashy or game-changing to lead to sustained organizational success. These small but mighty initiatives seldom come from top management or an “idea lab,” but rather from individual contributors and frontline leaders who are closest to the customer and best positioned to understand their needs.

When employees from throughout the ranks learn to see themselves as innovators and take steps to make their ideas a reality, the results can be powerful. In addition to furthering a company’s purpose and bolstering its bottom line, employee-driven innovation engages people in ways that carrying out top-down directives never will.

Tips to get you started

Given the growing interest in innovation, it’s no surprise that organizations are looking for clear guidelines on how to implement it. Every innovation is unique. Even so, certain strategies and skills are useful across a range of projects and at all levels of an organization:

  • Spot opportunities for innovation. As innovation expert Greg Satell puts it, “No matter what form innovation takes—short, agile sprints or long-term, grand-challenge investments—innovation is fundamentally about solving problems.” As you think about your organization, what problems need solving? Where do opportunities lie? Once you land on some promising ideas, continue to explore them from different angles. By doing so, you may discover even more exciting possibilities.
  • Prioritize opportunities. You don’t have infinite time and resources, so prioritize potential innovations depending on where you think you’ll get the most bang for your buck. Narrow in on the two or three ideas you think are most worth digging into, testing, and refining. Then express them as hypotheses you can test through targeted experiments.
  • Test your potential innovations. Keep your experiments modest in scope, especially when you’re starting out. You may want to begin with “paper prototypes,” or simple drawings of the new product or process that your end users can interact with to see what works and what doesn’t. They are quick and inexpensive, and they help you figure out where you need to tweak your concept. With each round of testing, move to progressively more complex experiments involving more users.
  • Build support for your innovations. Don’t be shy. Make sure the time is right and tell your story to all your stakeholders, including those whose resource backing you need and those who’ll directly benefit from your innovation. You’ll want to tailor your approach based on what’s important to each person and what you need from them.
  • Learn from your innovation efforts. You’ve probably heard the mantra “fail fast, learn fast.” After each innovation, list what you would do again and what you wouldn’t. And don’t overthink failure; the key is learn from it and apply those lessons to your next innovation.

We’ve seen these steps work at all levels in an organization. In fact, we even followed them when redesigning our Harvard ManageMentor® innovation-related topics. What process do you follow when implementing innovation in your organization?

Janice Molloy is senior manager, online learning at Harvard Business Publishing. Email her at [email protected] .

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Sustainable business model innovation: Design guidelines for integrating systems thinking principles in tools for early-stage sustainability assessment

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  • The Technical Faculty of IT and Design
  • Department of Sustainability and Planning
  • Center for Design, Innovation and Sustainable Transitions

Research output : Contribution to journal › Journal article › Research › peer-review

The need to develop sustainable business models, which have a positive effect on environment and society, has received increasing attention in research and practice in the last years. Describing the sustainability of these business models, however, often takes place without robust assessments and without consideration for the wider system within which they are embedded. Early in the innovation process, in particular, a lack of quantitative data, time, and competencies presents an issue. At the same time, Systems Thinking has long been described as necessary for innovating business models for sustainability, but it has not been made clear how exactly Systems Thinking can be used early in the innovation process to assess the sustainability of a business model innovation. This article develops guidelines for embedding Systems Thinking principles into tools for sustainability assessment for use in the early stages of sustainable business model (SBM) innovation. It does so by exemplifying Systems Thinking principles in the context of SBM innovation and analysing their integration in three selected tools for early-stage sustainability assessment. The article shows how, by embedding Systems Thinking into tools for the SBM innovation process, unintended consequences and negative trade-offs can be reduced and the sustainability of the innovation better understood. Eight design guidelines are proposed for effectively using Systems Thinking in tools for early-stage sustainability assessment of SBMs: (1) Define scope of application, (2) Design for collaboration, (3) Integrate the principles “Interconnections”, (4) “Causal relations & feedback loops”, and (5) “System change & adaptation”, (6) Consider sustainability dimensions, (7) Ensure flexibility of integration, and (8) Ensure compatibility with other assessment tools.

Bibliographical note

  • Business model innovation
  • Life cycle assessment
  • Sustainability assessment
  • Sustainable business model innovation
  • Systems thinking
  • Tool design

This output contributes to the following UN Sustainable Development Goals (SDGs)

Access to Document

  • 10.1016/j.jclepro.2022.135776 Licence: CC BY 4.0
  • Open Access article Final published version, 3.13 MB Licence: CC BY 4.0

Other files and links

  • Link to publication in Scopus

Fingerprint

  • Evaluation Social Sciences 100%
  • Business Model Social Sciences 100%
  • Sustainable Business Social Sciences 100%
  • Design Innovation Social Sciences 100%
  • Sustainability Computer Science 100%
  • Business Model Innovation Computer Science 100%
  • Design Guideline Computer Science 100%
  • Innovation Social Sciences 44%

Projects per year

PhD project: Industrial Ecosystem Orchestration for Sustainable Business Model Innovation

Schlüter, L. , Gjerding, A. N. , Kørnøv, L. & Mortensen, L.

01/01/2021 → 29/02/2024

Project : PhD Project

  • Business Model Innovation 100%
  • Sustainability 78%
  • Business Model 75%
  • Sustainable Business 50%
  • Facilitator 50%

GRØN: Grønne Ressource - Økosystemer Nordjylland

Lyhne, I. , Kerndrup, S. , Schlüter, L. , Kørnøv, L. & Løkke, S.

01/11/2020 → 31/12/2022

Project : Research

  • Sustainability 100%
  • Practice 55%
  • Evaluation 54%
  • Business Model 50%

Sustainable synergies. Facilitated industriel symbiosis for energy- and ressource efficiency

Kørnøv, L. , Lyhne, I. , Schmidt, J. , Løkke, S. , Vester, J., Søndergaard, U. H. , Schlüter, L. , Revsbeck, R., Nors, B., Mortensen, L. & Davila, J. G.

01/01/2018 → 30/06/2020

  • Business Model 100%
  • Innovation Process 66%
  • Sustainability 57%
  • Evaluation 50%

Research output

  • 9 Citations
  • 1 Article in proceeding

Research output per year

Including Environmental Impact Considerations in the Business Model Innovation Process for Industrial Symbiosis: The GAIA model

Research output : Contribution to book/anthology/report/conference proceeding › Article in proceeding › Research › peer-review

  • Human Activities Effects 100%
  • Innovation Process 100%
  • Models 100%

Green Business development through Industrial Symbiosis. The GAIA model

Research output : Book/Report › Report › Communication

T1 - Sustainable business model innovation

T2 - Design guidelines for integrating systems thinking principles in tools for early-stage sustainability assessment

AU - Schlüter, Leonie

AU - Kørnøv, Lone

AU - Mortensen, Lucia

AU - Løkke, Søren

AU - Storrs, Kasper David Pedersen

AU - Lyhne, Ivar

AU - Nors, Belinda

N1 - Publisher Copyright: © 2023 The Authors

PY - 2023/2/10

Y1 - 2023/2/10

N2 - The need to develop sustainable business models, which have a positive effect on environment and society, has received increasing attention in research and practice in the last years. Describing the sustainability of these business models, however, often takes place without robust assessments and without consideration for the wider system within which they are embedded. Early in the innovation process, in particular, a lack of quantitative data, time, and competencies presents an issue. At the same time, Systems Thinking has long been described as necessary for innovating business models for sustainability, but it has not been made clear how exactly Systems Thinking can be used early in the innovation process to assess the sustainability of a business model innovation. This article develops guidelines for embedding Systems Thinking principles into tools for sustainability assessment for use in the early stages of sustainable business model (SBM) innovation. It does so by exemplifying Systems Thinking principles in the context of SBM innovation and analysing their integration in three selected tools for early-stage sustainability assessment. The article shows how, by embedding Systems Thinking into tools for the SBM innovation process, unintended consequences and negative trade-offs can be reduced and the sustainability of the innovation better understood. Eight design guidelines are proposed for effectively using Systems Thinking in tools for early-stage sustainability assessment of SBMs: (1) Define scope of application, (2) Design for collaboration, (3) Integrate the principles “Interconnections”, (4) “Causal relations & feedback loops”, and (5) “System change & adaptation”, (6) Consider sustainability dimensions, (7) Ensure flexibility of integration, and (8) Ensure compatibility with other assessment tools.

AB - The need to develop sustainable business models, which have a positive effect on environment and society, has received increasing attention in research and practice in the last years. Describing the sustainability of these business models, however, often takes place without robust assessments and without consideration for the wider system within which they are embedded. Early in the innovation process, in particular, a lack of quantitative data, time, and competencies presents an issue. At the same time, Systems Thinking has long been described as necessary for innovating business models for sustainability, but it has not been made clear how exactly Systems Thinking can be used early in the innovation process to assess the sustainability of a business model innovation. This article develops guidelines for embedding Systems Thinking principles into tools for sustainability assessment for use in the early stages of sustainable business model (SBM) innovation. It does so by exemplifying Systems Thinking principles in the context of SBM innovation and analysing their integration in three selected tools for early-stage sustainability assessment. The article shows how, by embedding Systems Thinking into tools for the SBM innovation process, unintended consequences and negative trade-offs can be reduced and the sustainability of the innovation better understood. Eight design guidelines are proposed for effectively using Systems Thinking in tools for early-stage sustainability assessment of SBMs: (1) Define scope of application, (2) Design for collaboration, (3) Integrate the principles “Interconnections”, (4) “Causal relations & feedback loops”, and (5) “System change & adaptation”, (6) Consider sustainability dimensions, (7) Ensure flexibility of integration, and (8) Ensure compatibility with other assessment tools.

KW - Business model innovation

KW - Life cycle assessment

KW - Sustainability assessment

KW - Sustainable business model innovation

KW - Systems thinking

KW - Tool design

UR - http://www.scopus.com/inward/record.url?scp=85146676223&partnerID=8YFLogxK

U2 - 10.1016/j.jclepro.2022.135776

DO - 10.1016/j.jclepro.2022.135776

M3 - Journal article

AN - SCOPUS:85146676223

SN - 0959-6526

JO - Journal of Cleaner Production

JF - Journal of Cleaner Production

M1 - 135776

Business Model Innovation - Guidelines for a Structured Approach

business studies

MCM -Institute for Me...

guidelines for business model innovation

10 Guidelines for Business Model Innovation in Established Companies

Developing new and viable business models has become a serious challenge for large incumbent firms, despite their resources, know-how, and key technologies. This article provides 10 guidelines for mastering business model innovation challenges in established companies, based on extensive empirical research on business model innovation processes in incumbent firms. The guidelines include the importance of top management involvement, proactive discovery of new business models, monitoring of business model environments, focus on organizational learning and an iterative approach, development of new organizational capabilities and structures, acceptance of failure, supporting collaboration in business model design projects, use of templates, analogies for learning from proven patterns, and expectations of positive side effects.

More Innovation Resources:

Online Vigilante Behavior – Bad Social Media Practices Under Attack?

Online Vigilante Behavior – Bad Social Media Practices Under Attack?

Online vigilantism is a harmful trend on social media, as certain individuals attack bad social media practices in the name of education, but often exhibit disingenuous, vindictive, and narcissistic behaviors.

Role of Innovation in Entrepreneurship - MITID Innovation

Role of Innovation in Entrepreneurship - MITID Innovation

Innovation is crucial for entrepreneurs to succeed in today's competitive market. It helps in creative development, persistent improvement, reinforcing brand, responding to trends, having a unique selling point, and using social media.

Innovation in the Face of Crisis

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Innovation in Behavioral Health (IBH) Model

On January 18, 2024, the Centers for Medicare & Medicaid Services (CMS) announced the Innovation in Behavioral Health (IBH) Model.

IBH is focused on improving quality of care and behavioral and physical health outcomes for Medicaid and Medicare populations with moderate to severe mental health conditions and substance use disorder (SUD). Medicare and Medicaid populations experience disproportionately high rates of mental health conditions and/or substance use disorders (SUD), and as a result are more likely to experience poor health outcomes and experiences, like frequent visits to the emergency department and hospitalizations, or premature death. 

The IBH Model seeks to bridge the gap between behavioral and physical health; practice participants under the IBH Model will screen and assess patients for select health conditions, as well as mental health conditions and/or SUD, in community-based behavioral health practices. IBH is a state-based model, led by state Medicaid Agencies, with a goal of aligning payment between Medicaid and Medicare for integrated services.

CMS will release a Notice of Funding Opportunity (NOFO) in Spring 2024, and up to eight states will be selected to participate. The model will launch in Fall 2024 and run for eight years.

Model Overview

The Innovation in Behavioral Health (IBH) Model is designed to deliver person-centered, integrated care to Medicaid and Medicare populations with moderate to severe mental health conditions and/or substance use disorder (SUD). The practice participants in the IBH Model will be community-based behavioral health organizations and providers, including Community Mental Health Centers, opioid treatment programs, safety net providers, and public or private practices, where individuals can receive outpatient mental health and/or SUD services. These practice participants may include safety net providers who ensure that vulnerable populations are able to access care.

Practice participants will lead an interprofessional care team and be responsible for coordinating with other members of the care team to comprehensively address a patient’s care to include behavioral and physical health, and health-related social needs (HRSN) such as housing, food, and transportation.

The practice participants will conduct an initial screening and assessment, offer treatment or referrals to other care specialists and community-based resources, and monitor ongoing behavioral and physical health conditions and HRSNs. In this value-based care approach, the practice participants will be compensated based on the quality of care provided and improved patient outcomes.

Model Purpose

Innovation in Behavioral Health (IBH) Model: Delivering Coordinated, Whole-Person Care showing Julia’s Outcomes under the IBH Model

Medicaid populations experience disproportionately high rates of mental health conditions and/or substance use disorders (SUD) and account for nearly half of all Medicaid expenditures. Medicare populations also experience higher than average rates of mental illness and/or SUD. Consequently, both populations are more likely to experience frequent visits to the emergency department and hospitalizations, have poor health outcomes, and premature death.

Limited access to care, stigma, and untreated or poorly managed chronic conditions like diabetes and heart disease can contribute to worsening health outcomes for these populations. Behavioral health providers face significant barriers to delivering care due to a lack of resources and a fragmented health care delivery system that does not systematically integrate behavioral and physical health care. The IBH Model aims to help participating practices improve access to and promote high-quality integrated care. By supporting behavioral health practices to lead an interprofessional care team, the model will address patients’ behavioral and physical health and health-related social needs.

Model Design

IBH is a state-based model focused on community-based behavioral health practices that treat Medicaid and Medicare beneficiaries and includes both Medicaid and Medicare-aligned payment models. CMS will first issue awards to Medicaid agencies in up to eight states to implement the model. Practice participants within selected states may volunteer to participate in the Medicare payment model. The selected states will partner with their state’s agencies for mental health and/or SUD to ensure alignment in clinical policies, as well as work with at least one partnering Medicaid Managed Care Organization (MCO) or another intermediary partner, where applicable, to develop and implement the IBH Model in their state.

IBH supports behavioral health practices in delivering integrated care in outpatient settings. This person-centered approach to addressing whole-person health represents a “no wrong door” approach that prioritizes close collaboration with primary care and other physical health providers to support all aspects of a patient’s care.

Community-based behavioral health practices (“practice participants”) will be responsible for conducting screenings and assessments of behavioral and physical health and health-related social needs, offering treatment as appropriate within their scope of practice, providing “closed loop” referrals to other primary care providers, specialists, and community-based resources, and monitoring ongoing conditions. Since people with moderate to severe behavioral health conditions frequently visit behavioral health settings, this approach uses the behavioral health setting as a point of entry to identify and secure further care and facilitate close collaboration with primary and specialty care providers.

The model works to improve care through four key program pillars:

  • Care Integration: Behavioral health practice participants will screen, assess, refer, and treat patients, as needed, for the services they require.
  • Care Management: An interprofessional care team, led by the behavioral health practice participant, will identify, and as appropriate address, the multi-faceted needs of patients and provide ongoing care management.
  • Health Equity: Behavioral health practice participants will conduct screenings for HRSNs and refer patients to appropriate community-based services. Participating practices will be required to develop a health equity plan (HEP). The HEP should stipulate how the practice participant will address disparities that impact their service populations.
  • Health Information Technology: Expansion of health IT capacity through targeted investments in interoperability and tools (including electronic health records) will allow participants to improve quality reporting and data sharing.

The IBH Model is projected to run for eight years and includes a pre-implementation period (model years 1-3). During this period, states and practice participants will receive funding to develop and implement model activities and capacity building. During model year 1, states will conduct outreach and recruit behavioral health practice participants into the model. Practice participants will receive funding to support necessary upgrades to health IT and electronic health records, as well as practice transformation activities, and staffing to implement the model. Practice participants who elect to participate in the Medicare payment model may also be eligible for additional funding to support model activities.

By the start of model year 4, states will implement a Medicaid payment model that supports practice participants in implementing the care delivery framework. Practice participants in selected states who participate in the additional Medicare payment model will receive a per-beneficiary-per-month payment to support their implementation of the care delivery framework. These payments will be further supplemented with additional performance-based payments during the implementation period (model years 4-8). Additional information about eligibility to receive these payments will be provided in the NOFO.

This model is intended to prepare practices for more advanced alternative payment models and accountable care arrangements in the future.

Eligibility Criteria

CMS will award Cooperative Agreements to up to eight state Medicaid agencies (SMAs), through a Notice of Funding Opportunity (NOFO) to participate in the IBH Model.

States, including U.S. territories and the District of Columbia, have the option to apply as a whole state, or a specified sub-state region. If selected, a participating state is required to select practice participants – community-based behavioral health organizations or settings that, at the time of application, meet all the following criteria:

  • Are licensed by the state awardee to deliver behavioral services, either mental health and/or substance use disorders
  • Meet all state-specific Medicaid provider enrollment requirements
  • Are eligible for Medicaid reimbursement 
  • Serve adult Medicaid beneficiaries (age 18 or older) with moderate to severe behavioral health conditions
  • Provide mental health and/or substance use disorder services at the outpatient level of care

Medicare and Medicaid beneficiaries, including those dually eligible, who receive behavioral health care from a participating practice are eligible to receive services as part of the model. All applications will be reviewed by a panel of technical experts.

Health Equity Strategy

The IBH Model supports CMS’ broader efforts to promote health equity and ensure all populations can achieve optimal health outcomes.

People with mental health conditions and/or substance use disorder often experience health disparities. These health disparities are further exacerbated among historically marginalized racial and ethnic groups, low-income, and/or rural populations.

Practice participants are required to create a Health Equity Plan (HEP) using a needs assessment of the population they serve. The HEP should detail steps that practice participants will take to address the population needs and stipulate how the practice participant will address disparities that disproportionately impact their service populations.

Additionally, the IBH Model will require practice participants to annually screen and monitor patients for underlying and/or unmet HRSNs and make necessary referrals to other health care providers or local safety-net services, and that the required care management component will help ensure that Medicaid beneficiaries receive the services needed to address their health-related social needs.

  • February 29, 2024 2:00 - 3:30 p.m. ET

Additional Information

  • IBH Fact Sheet (PDF)
  • IBH Press Release
  • IBH Model Patient Journey Map (PDF)
  • IBH Model Frequently Asked Questions

If you are interested in receiving additional information, updates, or have questions about the Innovation in Behavioral Health Model, please see the resources below:

  • Email: [email protected]
  • Sign Up for email updates from the Innovation in Behavioral Health Model team

Where Health Care Innovation is Happening

EU AI Act: first regulation on artificial intelligence

The use of artificial intelligence in the EU will be regulated by the AI Act, the world’s first comprehensive AI law. Find out how it will protect you.

A man faces a computer generated figure with programming language in the background

As part of its digital strategy , the EU wants to regulate artificial intelligence (AI) to ensure better conditions for the development and use of this innovative technology. AI can create many benefits , such as better healthcare; safer and cleaner transport; more efficient manufacturing; and cheaper and more sustainable energy.

In April 2021, the European Commission proposed the first EU regulatory framework for AI. It says that AI systems that can be used in different applications are analysed and classified according to the risk they pose to users. The different risk levels will mean more or less regulation. Once approved, these will be the world’s first rules on AI.

Learn more about what artificial intelligence is and how it is used

What Parliament wants in AI legislation

Parliament’s priority is to make sure that AI systems used in the EU are safe, transparent, traceable, non-discriminatory and environmentally friendly. AI systems should be overseen by people, rather than by automation, to prevent harmful outcomes.

Parliament also wants to establish a technology-neutral, uniform definition for AI that could be applied to future AI systems.

Learn more about Parliament’s work on AI and its vision for AI’s future

AI Act: different rules for different risk levels

The new rules establish obligations for providers and users depending on the level of risk from artificial intelligence. While many AI systems pose minimal risk, they need to be assessed.

Unacceptable risk

Unacceptable risk AI systems are systems considered a threat to people and will be banned. They include:

  • Cognitive behavioural manipulation of people or specific vulnerable groups: for example voice-activated toys that encourage dangerous behaviour in children
  • Social scoring: classifying people based on behaviour, socio-economic status or personal characteristics
  • Biometric identification and categorisation of people
  • Real-time and remote biometric identification systems, such as facial recognition

Some exceptions may be allowed for law enforcement purposes. “Real-time” remote biometric identification systems will be allowed in a limited number of serious cases, while “post” remote biometric identification systems, where identification occurs after a significant delay, will be allowed to prosecute serious crimes and only after court approval.

AI systems that negatively affect safety or fundamental rights will be considered high risk and will be divided into two categories:

1) AI systems that are used in products falling under the EU’s product safety legislation . This includes toys, aviation, cars, medical devices and lifts.

2) AI systems falling into specific areas that will have to be registered in an EU database:

  • Management and operation of critical infrastructure
  • Education and vocational training
  • Employment, worker management and access to self-employment
  • Access to and enjoyment of essential private services and public services and benefits
  • Law enforcement
  • Migration, asylum and border control management
  • Assistance in legal interpretation and application of the law.

All high-risk AI systems will be assessed before being put on the market and also throughout their lifecycle.

General purpose and generative AI

Generative AI, like ChatGPT, would have to comply with transparency requirements:

  • Disclosing that the content was generated by AI
  • Designing the model to prevent it from generating illegal content
  • Publishing summaries of copyrighted data used for training

High-impact general-purpose AI models that might pose systemic risk, such as the more advanced AI model GPT-4, would have to undergo thorough evaluations and any serious incidents would have to be reported to the European Commission.

Limited risk

Limited risk AI systems should comply with minimal transparency requirements that would allow users to make informed decisions. After interacting with the applications, the user can then decide whether they want to continue using it. Users should be made aware when they are interacting with AI. This includes AI systems that generate or manipulate image, audio or video content, for example deepfakes.

On December 9 2023, Parliament reached a provisional agreement with the Council on the AI act . The agreed text will now have to be formally adopted by both Parliament and Council to become EU law. Before all MEPs have their say on the agreement, Parliament’s internal market and civil liberties committees will vote on it.

More on the EU’s digital measures

  • Cryptocurrency dangers and the benefits of EU legislation
  • Fighting cybercrime: new EU cybersecurity laws explained
  • Boosting data sharing in the EU: what are the benefits?
  • EU Digital Markets Act and Digital Services Act
  • Five ways the European Parliament wants to protect online gamers
  • Artificial Intelligence Act

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IMAGES

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