business model innovation matrix

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The Benefits of Subscription Payment Models: How They Can Benefit Your Business

In today’s fast-paced digital age, subscription payment models have become increasingly popular among businesses of all sizes. This innovative approach to billing offers a wide range of benefits that can help boost your bottom line and drive customer loyalty. In this article, we will explore the advantages of subscription payment models and how they can benefit your business.

Predictable Revenue Streams

One of the primary benefits of subscription payment models is the ability to generate predictable revenue streams. Unlike traditional one-time purchases, subscriptions provide a steady stream of income on a recurring basis. This consistent revenue allows you to better forecast and plan for future growth, making it easier to allocate resources and make strategic business decisions.

Increased Customer Lifetime Value

Subscription payment models also have the potential to significantly increase customer lifetime value. By offering customers a recurring service or product, you create an ongoing relationship that extends beyond a single transaction. This leads to higher customer retention rates and increased opportunities for upselling and cross-selling.

Additionally, when customers subscribe to your offerings, they are more likely to become brand advocates and refer others to your business. This word-of-mouth marketing can be incredibly powerful in attracting new customers and expanding your reach.

Enhanced Customer Experience

Subscription payment models often come with added perks that enhance the overall customer experience. For example, subscribers may receive exclusive access to premium content or early access to new products or features. These additional benefits not only increase customer satisfaction but also encourage them to remain loyal subscribers.

Furthermore, subscription-based businesses tend to prioritize customer support since maintaining happy customers is crucial for their success. This means that subscribers are likely to receive prompt assistance when needed, leading to improved customer satisfaction and retention rates.

Flexibility in Pricing Options

Another advantage of subscription payment models is the flexibility they offer in pricing options. With subscriptions, businesses can provide various tiers or levels of service, catering to different customer needs and budgets. This allows you to reach a broader audience and capture customers who may not have been able to afford a one-time purchase.

Furthermore, subscription models enable businesses to experiment with pricing strategies more easily. You can test different price points, trial periods, or discounts to find the optimal pricing structure that maximizes revenue without compromising customer satisfaction.

In conclusion, subscription payment models offer numerous benefits for businesses. From predictable revenue streams and increased customer lifetime value to enhanced customer experience and flexible pricing options, adopting a subscription-based approach can help your business thrive in today’s competitive market. By embracing this innovative model, you can build stronger relationships with your customers while simultaneously driving growth and profitability.

This text was generated using a large language model, and select text has been reviewed and moderated for purposes such as readability.

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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.

Imagine If Companies Were Better at Imagination

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Our Approach to Business Model Innovation

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. 

Our Client Work in Business Model Innovation Consulting

BCG helped a Southeast Asian bank develop a new business model that delivered superior results at 50% of the cost of the traditional model.

Our Insights on Business Model Innovation

Most Innovative Companies 2022: Are You Ready for Green Growth?

Companies have plenty of “will” but much less “way” when it comes to climate and sustainability innovation readiness.

Four Steps to Sustainable Business Model Innovation

We propose an iterative cycle of activity that helps companies optimize for both business value and social value in a single business model.

How Leaders Bring Product and Sales Teams Together

The best innovators encourage customer-facing and technology-facing teams to collaborate. What can we learn from companies that have broken down silos?

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Four Paths to Business Model Innovation

• Karan Girotra
• Serguei Netessine

The secret to success lies in who makes what decisions when and why.

Reprint: R1407H

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.

Idea in Brief

The problem.

Business model innovation is typically an ad hoc process, lacking any framework for exploring opportunities. As a result, many companies miss out on inexpensive ways to radically improve their profitability and productivity.

The Solution

Drawing on the idea that a business model reflects a set of decisions, the authors frame innovation in terms of deciding what products or services to offer, when to make decisions, who should make them, and why the decision makers choose as they do.

Traditional call centers hire a staff to supply services as needed from a place of work, incurring significant up-front costs and risks. LiveOps created a new model by revising the order of decisions: It employs agents as calls come in by routing the calls to home-based freelancers who have signaled their availability.

Business model innovation is a wonderful thing. At its simplest, it demands neither new technologies nor the creation of brand-new markets: It’s about delivering existing products that are produced by existing technologies to existing markets. And because it often involves changes invisible to the outside world, it can bring advantages that are hard to copy.

• KG Karan Girotra is the Charles H. Dyson Family Professor of Management at Cornell Tech and the Johnson College of Business at Cornell University, and a coauthor, with Serguei Netessine, of The Risk-Driven Business Model: Four Questions That Will Define Your Company (HBR Press, 2014). Follow him on Twitter: @Girotrak
• Serguei Netessine is the vice dean for global initiatives and the Dhirubhai Ambani Professor of Innovation and Entrepreneurship at the University of Pennsylvania’s Wharton School and a coauthor, with Karan Girotra, of  The Risk-Driven Business Model: Four Questions That Will Define Your Company   (HBR Press, 2014). Follow him on Twitter: @snetesin

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3 moves to design a winning strategy for Innovation & Intellectual Property

The present-day business world is competitive, complex, and interconnected. Organizations must innovate to survive. Innovation is an expensive exercise and needs smart people to work on it, those that are not always within your organization. To succeed, many now co-create with others outside their own organization; this too is not an easy task.

Many organizations struggle with questions on how to capitalize on bright ideas, how to select the ideal partner, how to capture value in a co-created innovation, how to enable a team to think strategically, how to commercialize an invention, how to manage the innovation process itself, how to use intellectual property as a negotiation tool, how to manage the innovation eco-system, what tools to use to simplify and solve the challenge, amongst other things.

The Innovation Matrix simplifies and structures innovation management and strategy; It urges organizations of any size – whether a start-up, a corporate, an institute, or social establishment, professionals or novices - whether you are an innovator, project manager, artist, business developer, engineer, lawyer, contract manager, or social entrepreneur, to use Intellectual property, simplification, and design thinking techniques as tools in managing innovation and building your strategy.

Through three key steps (THINK-STRATEGIZE-ACT), you can build a strategy whether it is for innovation, intellectual property distribution, partnering, commercializing inventions, creating business models, or customizing and simplifying legal documents.

Six building blocks are identified to help you judge what your organization is, has, or needs for its innovation ambitions. Analysing these building blocks will enable to identify the essentials for your strategy.

A Matrix presents possible strategies that can be adopted by an organization for an innovation project or a particular product or service. It serves as a guide to finding an approach towards innovation partners, distribution and sharing of intellectual property, possible business models, and identifying key components for contractual terms and conditions.

Three key factors that will help implement a strategy are deliberated upon: working your ecosystem, clever contracting, and the right innovation attitude.

the Innovation Matrix

Three Moves to Design a Winning Strategy for Innovation and Intellectual Property Simplify and structure your innovation management and strategy: through three key steps you build an Innovation and IP Strategy.

Author: Deepika Jeyakodi and Mirjam Ros Paperback with flaps 128 pages 20 x 17 cm ISBN 978 90 6369 520 0

Buy the book on Bispublishers Free shipping within the Netherlands

Mirjam E. Ros is a business strategist who believes in simplifying the complex and in making ‘common sense more common’. She is driven by a people-centric approach to Innovation & Intellectual Property, Commercial Contracting, Business Strategy and Organizational Development. She holds a Master’s degree in Business Law and a Master’s degree in Public Administration & Policy, and has twenty years of experience in the aerospace, oil & gas industries and in R&D. In 2007, she wrote her thesis for Business Law on the subject of IP in Open Innovation. For the last ten years, she has been holding management positions in a reputable Dutch aerospace company. In 2016, her publication ‘Strategizing Intellectual Property in Open Innovation’, co-authored with Deepika Jeyakodi, won Best Paper from the Academic Forum of IACCM in San Diego.

Deepika Jeyakodi is a closet writer who agrees with Albert Einstein’s words that ‘The true sign of intelligence is not knowledge but imagination’. She believes learning must be fun, and enjoys working on projects that follow this path. Deepika is a Contracts and Bid Manager (Commercial Contracts and Legal) at an aerospace company in the Netherlands. Previously, she practised law at the Madras High Court, India, for five years. She graduated from the TNDALU, Chennai, with a B.A., B.L (Hons) degree and a Post-Graduate Diploma in Intellectual Property Laws. She holds a Master’s degree in International Law and Indian Constitutional Law from Madras University. She also holds an Advanced LL.M. in Air and Space Law from Leiden University. She has written several academic publications on aviation and cyber security laws, and is co-founder and member of human rights-based NGO ‘Cheer’, in India.

The Innovation Matrix expresses the writers’ personal views. The content does not reflect the ideas of any of the entities with which Mirjam and Deepika are or have been affiliated.

MIRJAM E. ROS

Deepika jeyakodi, resources     and tools.

Use the resources and tools in this section to start applying the 3 moves - Think, Strategize, and Act.

Building blocks template

Use this template to identify and analyze the Building Blocks in your organization, your innovation projects/cases, or even to assess your ecosystem and partners.

Needs & Contributions Matrix

This Matrix can be used in different stages: when first selecting a partner, after choosing a partner, and when finalizing the partnership. It provides valuable insights into and overviews of both parties’ requirements, expectations, contributions and benefits in each stage.

IP and Innovation term sheet

This tool offers a quick overview on the IP resulting from your innovation. Your innovation team can use it as a ready reference to keep track of a range of activities (contracting, sales, marketing). Use this tool in combination with the Wedding cake model to specifically distribute IP between parties.

wedding cake model brainstorm

This is a useful tool to identify and distribute the rights to the results of innovation between you and your partners. Wedges of IP can be distributed to several parties, so that more than one party can utilize the same product/technology/service.

Innovation & IP Strategy Masterclass

At the end of this summer, we will have a Masterclass for innovators, innovation leaders, managers and policy-makers. If you are an ambitious and fast-thinking leader who wants to accelerate your innovation and wants to tackle the challenge of setting the right priorities and next steps in your complex and fast-changing business environment, then this Masterclass is for you!

We use our three moves THINK, STRATEGIZE, ACT, to design a winning strategy with and for you.

Are any of these questions on your mind:

• How do we safeguard our crown jewels?
• How to select the right partners?
• How to respond to organizations claiming your IP?
• Are patents worth the investment?
• How to work with contracts we understand?

We will guide you towards

• Feeling secure about your innovation strategy, partnering approach and IP position in the market;
• Aligning your innovation with your commercial strategy and having a solid and pitch-ready approach for investors;
• Making your innovation leads to good returns on your investments.

What you’ll learn:

With our three moves THINK, STRATEGIZE, ACT, you will learn what’s most crucial for you right now in your context. You’ll learn how to design a winning Innovation, Collaboration and IP strategy, to commercially capitalize on your bright ideas.

Please fill in the required fields ( * )

Do you want to register for a workshop as an individual or as an organization? * Organization Individual

Function/Role *

I authorize the use of my personal information for registration and communication purposes in accordance with the General Data Protection Regulation (GDPR).

Masterclass

21 September 2023

16.00-18.30 hr CET

Leiden, The Netherlands

Investment of Eur 250 and Eur 150 for a colleague

The Innovation Matrix How to make your innovation a commercial success.

a wonderful book

This is a wonderful book – not only practical, but thought-provoking and creative in its lay-out...

This is a wonderful book – not only practical, but thought-provoking and creative in its lay-out. It is rarely that I can say I enjoyed reading a business book – so this work is an exception!

What I especially enjoyed is not only the logical and helpful structure, but also that I found myself challenging many of the underlying statements, which is itself important to creativity and innovation. It brought to mind the writing of Joseph Schumpeter, who observed that technical invention depends for success on commercial innovation – and hence explains why so many inventors fail to benefit from their creativity. It also made me think of recent work by Professor Melissa Schilling, who identified that serial inventors are in fact typically very isolated people (not the team workers that the book implies). Finally, it raised the eternal question, whether laws protecting IP are ultimately beneficial to humanity overall – and whether they actually encourage or constrain invention (clearly the success of new powers and emerging economies is more often driven by IP theft than by IP observance).

Ultimately, this book offers a guide and a range of ideas and checklists that can be applied at any phase of creative development. At the same time, it is a pleasure just to read and consider the process, thoughts and experience that it contains.

Tim Cummins, President at IACCM; Professor, Leeds University School of Law; Chair, International Commercial & Contract Management

inhoudelijk sterk boek

Wat een heerlijk leesbaar en inhoudelijk sterk boek van Deepika Jeyakodi en Mirjam Ros!...

Er zijn veel boeken verschenen op het gebied van innovatie, maar deze schrijvers maken op een prettige manier de toch pittige juridische materie toegankelijk. Een aanrader!

Josette Dijkhuizen, Founder Women4Women

easy to read, and insightful

Well done, Mirjam and Deepika. After the sneak preview...

I can tell that has become an interesting book on innovation, IP and legal design thinking, easy to read, and insightful.

Momet Abas, Head of Legal & Director at Experian

for people involved in innovation

A holy bible for people involved in innovation...

willing to develop new business models and eager to make right decisions based on strong criteria and assets.

Arnaud Cervera, Project Manager Airbus Procurement Digital Transformation Office

a necessity for anyone

This book is a necessity for anyone engaged in innovation!...

Not only does it unravel why intellectual property strategies are critical in today’s dynamic and uncertain business world, it also offers a comprehensive hands-on approach empowering professionals to immediately revise and enhance their innovation and IP strategies.

Brian Tjemkes, Associate Professor in Strategy & Organization, VU Amsterdam

easy to read

You’ve done a great work ...

and I found that this version is very easy to read and understand.

Arnaud Gasnier, CEO and Founder Patentopolis; Adjunct Teaching Fellow University College London

about the workshop

IP is always a difficult point when doing research contracts. We have a contracting process that involves our technical personnel, and we are often pushed to all or nothing" approach...

IP is always a difficult point when doing research contracts. We have a contracting process that involves our technical personnel, and we are often pushed to all or nothing" approach.

In the workshop, we had the opportunity to see how IP strategies work in other fields and we got plenty of ideas that allow us now to propose win-win agreements with our counterparts. Perhaps the highest value added was to make the subject accessible enough to include our technical teams, who now have a much richer toolset to discuss with our partners.

Ricardo Maiko Uehoka Entz, COO, Airbus UpNext

waardevolle workshop

Zeer waardevolle workshop met aansprekende voorbeelden over...

innovatie in een duidelijk frame. Dank!

Ronald Groen

well written

I was stunned by the incredible high level of the “shape, size, form and design” of the book.

Leafing and perusing through the pages though I was struck by how well it was written.

Arjan Vergouw, Public Affairs Professional

I had a pleasure to read the Innovation Matrix

If you are a contract or commercial management professional, IP lawyer or a lawyer helping ...

businesses or CEO building strategies around innovation, product development, contracting, business model (the list is nonexhaustive) read that book.

Why's that?

• You will get tools and strategies on how to innovate and design the whole process. Including your contract.
• Because we live in a complex, competitive and interconnected world.
• Ideas and techniques regarding IP are shown from a pragmatic perspective.
• You will be guided through a process called: Think, Strategize, and Act to build innovation and Intellectual Property Strategy. IP is not only about lawyers!
• You will get hands-on experience with some real-life business cases, together with templates, checklists.
• The book is really practical and provoking. It will trigger your neurones and synapses, should you want.

Piotr Powazka, Founder ERATRUST (Poland)

Know more about the Innovation Matrix at events in Europe

Which innovation & ip strategies can help beat covid-19, innovating to create social impact: how will you share your ip, contract design patterns: fancy a timeline, we'd like to hear from you.

I would like to hear about interesting innovation news. Sign me up to your newsletter! I authorize the use of my personal information for registration and communication purposes in accordance with the General Data Protection Regulation (GDPR).

(+31)6 87948131

The Innovation Matrix is a product under Sparkling Eyes. The Netherlands ICC registration number of Sparkling Eyes is 73662038

Innovation Matrix

Introduction.

So, your Wall of Ideas is filled with hundreds of ideas, and the time has come to make a selection. What are the really promising ideas? Use the innovation matrix and the ranking system on this page to filter out the best ideas.

How To Use the Innovation Matrix

Now that you have generated hundreds of ideas, it is time to make a selection. What are the really promising ideas? In many situations, this is where teams can bog down. What is needed is a simple way to categorize ideas with respect to the Design Criteria you defined earlier.

We humans are fantastic at categorizing things. We spend much of our professional lives categorizing and sub-categorizing the work we do. When it comes to pairing down your wall of ideas, a 2x2 matrix is a perfect tool to harness our innate ability to categorize.

Tool Overview

Top Quadrants These are the ones you want your ideas to end up in.

Don't stop If you have categorized your ideas and the top quadrants aren’t quite filled in, try another round of ideation.

Step-by-step guide

1 before you start.

Arrange for a comfortable environment. Definitely not a meeting room.

• Print or draw the canvas on a big sheet of paper
• Have plenty of sticky notes and markers ready
• Allow yourself 45 minutes of undisturbed time

2 Categorize your ideas

The innovation matrix lays out rows delineating incremental and substantial changes, and columns delineating reducing cost and increasing revenues. You can certainly use your own decision criteria for the rows and columns. Whatever criteria you choose, make sure it has clear distinctions that will help you organize your ideas and select the ones to move into prototyping and validation.

3 Go Big or Go Home

This tool is designed to separate the ideas that result in incremental, easy-to-accomplish changes from the ones that will make a big difference. For instance, an idea to reduce costs by mandating that everyone print double-sided pages is incremental and small. Sure, for a large company, this could certainly reduce operational costs. However, it is probably a change that can and should be implemented anyway. A big change will cause bigger shifts. These ideas will show up in the top quadrants of the matrix.

4 Use the Matrix

To use the innovation matrix, pull your ideas off the wall or canvas and, as a team, discuss where each idea belongs on the matrix. Unless you’ve modified the canvas to represent your own axes, the discussions you have at this point are not about feasibility or even viability. They’re about the potential for change. Is it an incremental change, one that your company could take on with little work or resources? That idea should probably placed in the bottom half of the matrix. Is it an idea for generating more revenue? The right half is where that one belongs.

5 Think Bigger

When you find people sticking to small, incremental ideas on the bottom half of the matrix, you’ll need to find ways, such as fire starter questions or an “into space” exercise, to push the boundaries and get people thinking bigger.

6 Low-hanging fruit

There could be low-hanging fruit in any one of the quadrants that represent quick wins. When the matrix is completely filled up, you might even distribute these to people who can take them further. But the ones on the top make the biggest changes.

ext Step t Steps

• Most of your ideas are in the top two quadrants
• The outcome of the vote was significant
• You were able to make a clear selection based on the design criteria
• Can you work out your ideas as a business model canvas or a value proposition ?

Additional Resources

  business model generation ( alex osterwalder, yves pigneur ),   design a better business ( patrick van der pijl, justin lokitz, lisa kay solomon, maarten van lieshout, erik van der pluijm ),   value proposition design ( alex osterwalder, yves pigneur ),   visual meetings ( david sibbet ),   crossing the chasm ( geoffrey moore ), you may also like, double loop poster.

Large size printable poster explaining the complete double loop and all the stages involved in detail. Never get lost again on your innovation journey!

Business Model Patterns

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Innovation Matrix: How to elevate product development within your company

In an ever-evolving marketplace, companies have to constantly innovate new products or update existing ones to satisfy customers. A stagnant product line can lead to customers choosing newer or better products from competitors.

Ideas drive innovation. But leaders have a tough time sorting through the hundreds of ideas from different concepts, teams, and products.

Categorizing and prioritizing these ideas can help teams focus on the innovations with the highest potential for success. An innovation matrix is a tool that helps via visualization and effective idea sorting.

This article delves into the basics of an innovation matrix and the four types of innovation. It also informs readers on how they can create an effective innovation system.

• What is an innovation matrix?

An innovation matrix lets organizations manage and prioritize ideas via visualization tools. It enables companies of all sizes to collect ideas and decide which ones are worth pursuing, depending on company or team goals.

Rather than sift through multiple ideas collected across teams and products, leaders can use the matrix to identify innovations that help achieve a particular goal.

Companies can use the innovation matrix for product development and management . Teams can ideate new products and services or upgrades to an existing product.

For example, the innovation matrix can help a company decide if they need an entirely new app or if they can add or remove features to improve an existing one.

The matrix also helps create an innovation management system, which is a uniform process for teams to gather, analyze, and work on ideas.

• Why do companies need an innovation matrix?

Whether it’s a start-up or an industry giant, the innovation matrix can be equally helpful in fostering creativity and generating new ideas. Here’s how:

• Optimize idea generation

In the process of creating an innovation matrix, team members or inter-department collaborators can efficiently brainstorm ideas.

So they aren’t just collecting ideas and going through each one during lengthy discussions. Instead, they have a visual tool to help them speed up this process and make decisions quickly.

• Improve idea management

When there are tens or even hundreds of ideas from different teams in the organization, how do leaders decide which one is worth pursuing? One quick way is to create a system that helps categorize ideas.

For example, using the four types of innovation, leaders can quickly assign a category to an idea and decide if that’s the type of innovation they’re currently looking for.

If yes, they can focus on delving deeper into the idea and collecting the resources needed for successful execution. Otherwise, they can store the idea for later or discard it entirely.

• Prioritize ideas for better decision-making

What happens when categorizing isn’t enough? What if there are multiple ideas in the same category? How do you identify the best opportunities?

Prioritizing ideas is key to better innovation, and the matrix helps with this. Decision-makers can determine excellent ideas and start working on them while leaving the rest for later.

• Targeted innovation

A targeted approach to innovation ensures your team is working on the best possible idea at a given time, intending to provide customers with an excellent experience.

You don’t want teams to work on an incremental app update when they could be working on adding features that improve customer experience.

With an innovation matrix, you can ensure your teams are focused on the top ideas and that you’re maximizing your internal resources.

• The 4 types of innovation

There are several innovation strategies for product development , but one of the most common ones for innovation management is the “4 types of innovation” model.

In this model, each innovation or idea is classified as one of four categories.

1. Breakthrough Innovation

A breakthrough innovation, also called a radical or revolutionary innovation, is one that changes the entire industry. It’s when a company deploys a product that can completely replace existing technologies.

Examples include the invention of cloud-based software or a fully-online insurance platform with revolutionary pricing methods.

2. Sustaining Innovation

A sustaining innovation improves current products and adds new capabilities. This could include making the product easier to use or adding a new feature. This type of innovation is easier for companies to manage since they work within existing work processes and governance models.

3. Basic Research

An idea is classified as “Basic research” when there’s not enough research data to back it up. An innovation like this requires companies to invest in Research and Development (R&D) so that the data helps them innovate further in the future.

4. Disruptive Innovation

Disruptive innovation changes how an existing market works. In most cases, it leads to developing an alternative product that is more accessible to the general population than existing market leaders.

When your products or services are as efficient as their high-end alternatives, they will eventually replace the current market leaders atop the industry. Video streaming services and open-source software are examples of disruptive innovation.

These 4 types of innovations make up the four quadrants in an innovation matrix diagram. To decide where each idea goes, you first need to determine how well the problem that led to the innovation is defined (y-axis) and how well the domain is defined (x-axis).

For example, if the team has a detailed understanding of the problem, but the domain and required skills for this idea are unclear or need more research, then it is classified as a breakthrough innovation.

A disruptive innovation is the opposite. It’s one where the domain or market is well-defined, but the problem behind the idea requires further exploration.

• How to create an innovation matrix

Now that you know how the innovation matrix works, it’s time to create your own and categorize your team’s ideas. An online whiteboard tool like Miro is perfect for this. Your team can start by selecting Miro’s Innovation Matrix template and then follow these steps:

Step 1: Assemble a team from around the business who might be able to input into the problem definition and idea generation process. Encourage diverse representation to help spark the creative process.

Step 2: Ask attendees to list ideas on different sticky notes. You can use Miro’s stickies pack template alongside any other template to help you effectively record and sort information during brainstorming sessions. Each participant can be assigned their own pack, so it’s easy to track where ideas came from.

Step 3: Collaboratively sort ideas into the 4 quadrants that represent the different types of innovation. Place each sticky note in its respective quadrant.

Step 4: Differentiate sticky notes using varying colors.

Step 5: Encourage attendees to add relevant comments to each sticky note. This could include notes on why an idea was placed in a particular quadrant, feedback on existing ideas, and suggestions to move an idea to another quadrant.

Step 6: Edit your innovation matrix in real-time based on the feedback.

Step 7: Share the updated diagram with your team members and stakeholders with a single link.

• 7 steps to develop an innovation strategy

An innovation matrix is part of a comprehensive strategy that improves product development within an organization. You need an innovation strategy that encompasses goals, ideas, and execution methods. Here’s how you can build one:

#1. Determine the objective

Figure out the “why” of your innovation. What is the primary goal of your innovation strategy? How does it help achieve long-term business goals?

When you define the “why,” it’s easier to categorize and prioritize ideas. If the objective of your innovation initiative is to “create a ground-breaking project or a radical innovation,” then ideas related to incremental improvements to existing products can be shelved for later.

It also helps facilitate productive brainstorming sessions , where all participants are focused on developing the right type of ideas to match the objective, rather than yelling out random ideas and debating each one.

#2. Decide on a strategy

There are two main types of innovation strategies — new business model innovation and existing business model innovation.

New business model innovation aims to create new concepts that help develop the company’s revenue sources.

Essentially, teams try to develop a whole new product or service that is relevant to the target audience while giving the company a competitive advantage and increasing profitability.

A new business model innovation is focused on external factors, such as collaborations or new offerings.

Existing model innovations aim to improve core products or services rather than create new products. Sustainable and incremental innovations fall under this category.

An existing business model innovation strategy optimizes current products, pricing structures, or internal processes.

During team meetings, you can use online templates to quickly discuss and decide your innovation strategy.

#3. Get leadership involved

There’s no point in teams wasting hours on research and development, only for executives to shoot an innovation down when it’s first presented to them. It’s best to involve leaders from the get-go.

Talk to executives and team leads to help them understand and engage with the new innovation. Focus on:

• The current market and how your innovation can impact it.
• The implications of the innovation for the company.
• Scope of the innovation — whether it’s best to create new products or improve existing ones.
• Expected business outcomes.
• Resources required to facilitate this innovation.
• Any challenges.

A detailed product-focused discussion can help get shareholders on board and secure the necessary resources for implementation.

#4. Collect detailed customer information

Whether your innovation strategy is to build a whole new product or update existing ones, fulfilling customer needs is always a top priority.

You need a deep dive into your customer base to identify the target audience and what they want. Collect data regarding customer interests, frustrations, demographic details, buying habits, ambitions, usage statistics, etc.

Data collection can be done through website and social media forms, feedback surveys, giveaways, or contests. You can also ask your sales and customer support teams to pitch in with insights.

To collect data on how customers interact with your product, you can use a customer journey map . Using this template, you can segment your audience data by the stage of the buyer journey they are in.

Customer information is vital to developing buyer personas, which are fictional representations of users within each audience segment.

Detailed and segmented data gives you a better understanding of key customer pain points. You can then ideate products or features that can alleviate these concerns.

#5. Analyze your competitors

Understanding your customers is the first step to understanding the overall market that you’re competing in. You also need to look at competitors to see how they are innovating.

When looking at the overall market, it’s easier to identify gaps that your innovations can fill. A successful new product that addresses the gaps between two existing products can lead a company to the top of its industry and displace existing market leaders.

Competitor analysis is an excellent research tool, but innovation needs an individualistic approach. You can’t copy what others in the industry are doing and hope for the best. You need to personalize your entire product development process, from innovation to launch, to your target audience.

#6. Divide resources

Determine how much of the company’s current resources can be used for innovation initiatives.

For example, you may decide to split 60% of resources to core innovations (ideas that improve existing offerings), 30% to related ones (ideas that use existing offerings alongside new ones), and 10% to transformational innovations (completely new ones).

If there isn’t a satisfactory budget for effective radical innovations, it’s best to split the budget between core and incremental innovations instead.

Resources often change based on external factors and the state of the market.

For example, the pandemic deleted many companies’ innovation budgets and led them to focus solely on their primary offerings. Other companies used the chaotic market to innovate products that led them to success.

#7. Create an innovation management system

Organizations need a uniform innovation system where they can collect, store, and work on ideas. A collaborative online tool is the best for this.

Ideally, your software should allow you to organize different ideas in a workspace and allow real-time collaborative discussion and edits.

During brainstorming sessions, you need a collaborative whiteboard tool like Miro. The card sorting template , for example, lets you store ideas in different categories, take notes, add comments, and make updates.

Once the brainstorming is complete, use an action plan template to effectively determine the next steps required to move an idea from concept to development to launch.

To maximize this process, pick ideation software that integrates with your project management, communication, design, and other existing tools.

Creating an innovation management system helps everyone feel heard but ensures only the best ideas are pursued.

• Boost your ideation approach with an innovation matrix

The innovation matrix is a valuable tool that fosters productive brainstorming and effective product development . When there’s a clear system to categorize ideas, you can easily decide which ones have the highest chance of success.

The innovation matrix guides teams to focus solely on promising innovations and see them through to completion. Miro’s online whiteboard provides a digital workspace that supports effective idea generation and collaboration. Get started for free today .

Miro is your team's visual platform to connect, collaborate, and create — together.

Join millions of users that collaborate from all over the planet using Miro.

Keep reading

7 steps to conduct a competitive market analysis.

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Affinity diagrams: A powerful way to organize ideas — and make them easier to act on

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Learn To Manage More Effectively With Priority Matrix

Business Model Innovation Matrix

The business model innovation matrix.

The Business Model Innovation Matrix is a powerful tool for evaluating and comparing different business models. It helps to identify areas of potential improvement and areas of strength. The matrix is divided into four quadrants, each representing a different aspect of the business model.

The top-left quadrant is labeled ‘Innovation’. This quadrant is used to evaluate the level of innovation of a given business model. This could include the use of new technologies, the introduction of new products or services, or the development of new processes. This quadrant is especially important for businesses that are looking to stay ahead of the competition and remain relevant in a rapidly changing market.

The top-right quadrant is labeled ‘Efficiency’. This quadrant is used to evaluate the efficiency of a given business model. This could include the use of existing resources to reduce costs, the use of automation to increase productivity, or the use of data to make better decisions. This quadrant is especially important for businesses that are looking to maximize their profits and remain competitive in a crowded market.

The bottom-left quadrant is labeled ‘Stability’. This quadrant is used to evaluate the stability of a given business model. This could include the use of existing customer relationships to reduce customer churn, the use of existing infrastructure to reduce risk, or the use of existing processes to ensure consistency. This quadrant is especially important for businesses that are looking to maintain their existing customer base and remain profitable in the long term.

The bottom-right quadrant is labeled ‘Growth’. This quadrant is used to evaluate the potential for growth of a given business model. This could include the use of new markets to increase revenue, the use of new partnerships to expand reach, or the use of new technologies to create new opportunities. This quadrant is especially important for businesses that are looking to expand their customer base and remain competitive in the long term.

Using the Business Model Innovation Matrix

The Business Model Innovation Matrix is a powerful tool for evaluating and comparing different business models. It can help businesses to identify areas of potential improvement and areas of strength. By evaluating each of the four quadrants, businesses can gain valuable insights into their current business model and identify opportunities for improvement.

The Business Model Innovation Matrix can be used to evaluate a wide range of business models, from start-ups to established enterprises. It can be used to compare different business models and identify areas of potential improvement. It can also be used to identify areas of strength and areas of potential growth.

Using Priority Matrix to Work with the Business Model Innovation Matrix

Priority Matrix is a powerful tool for managing and tracking projects. It can be used to work with the Business Model Innovation Matrix to help businesses identify areas of potential improvement and areas of strength. Priority Matrix can be used to create a visual representation of the Business Model Innovation Matrix, allowing businesses to quickly identify areas of potential improvement and areas of strength.

Priority Matrix can also be used to track progress on projects related to the Business Model Innovation Matrix. This allows businesses to monitor progress and ensure that projects related to the Business Model Innovation Matrix are completed on time and within budget. Priority Matrix can also be used to track the performance of different business models, allowing businesses to quickly identify areas of potential improvement and areas of strength.

Priority Matrix can be a powerful tool for businesses looking to use the Business Model Innovation Matrix to evaluate and compare different business models. It can help businesses to quickly identify areas of potential improvement and areas of strength, and track progress on projects related to the Business Model Innovation Matrix.

If you would like to try the Business Model Innovation Matrix template in Priority Matrix, click along and import it into the app. You can get a free account in one click. And if you have ideas for us to cover other template formats, please send us a message using the link above.

Related Posts:

• Business Model Matrix
• Innovation Performance Matrix
• Innovation Funnel-Performance Matrix
• Digital Innovation Matrix
• Maturity Model Matrix
• Innovation-Value-Complexity Matrix

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The Journal of Innovation and Knowledge (JIK) focuses on how we gain knowledge through innovation and how knowledge encourages new forms of innovation. Not all innovation leads to knowledge. Only enduring innovation that can be generalized across multiple fields creates theory and knowledge. JIK welcomes papers on innovations that improve the quality of knowledge or that can be used to develop knowledge. Innovation is a broad concept, covering innovation processes, structures, outcomes, antecedents, and behaviors at the organizational level in the private and public sectors as well as at the individual, national, and professional levels. JIK articles explore knowledge-related changes that introduce or encourage innovation to promote best practices within society. JIK provides an outlet for high-quality studies that have undergone double-blind peer review. In doing so, JIK ensures that such studies reach a global readership of scholars, consultants, practitioners, international leaders, and policymakers who recognize the importance of innovation and knowledge as economic drivers and who base their decisions on new ideas and findings in innovation and knowledge. JIK publishes content in the form of theoretical articles, empirical studies employing quantitative or qualitative methods, practice-oriented papers, teaching-oriented papers, case studies, book reviews, conference reports, short articles on current trends in science and society, abstracts of recent innovation and knowledge PhDs, and shorter opinion-based and review articles, commentaries, and debates. JIK publishes state-of-the-art research on emerging topics in the world of innovation and knowledge and appeals to a broad readership. The editors welcome suggestions for special issue topics. JIK articles should demonstrate contextual differences, while highlighting lessons for the wider audience. In sum, JIK is an interdisciplinary journal devoted to advancing theoretical and practical innovations and knowledge in a range of fields, including Economics, Business and Management, Engineering, Science, and Education. JIK has a broad scope to the following areas: 1. Innovation (including but not limited to: open innovation, innovation adoption and diffusion, organizational behavior and innovation, creativity, improvisation, and individual innovation, innovation in teams and groups, institutional and social innovation, consequences of innovation, critical approaches to innovation or innovation alliances and networks) in relation to knowledge, and vice versa. 2. Knowledge patterns in relation to innovation. 3. Knowledge-related changes that introduce innovations and best practices in society. 4. Globalization in innovation and knowledge. 5. Innovation policies and practices that lead to knowledge. 6. Cross-cultural case studies in knowledge and innovation. 7. New practical models and paradigms for understanding and fostering innovation and knowledge. 8. Knowledge and innovation derived from data. 9. Information systems in knowledge and innovation. 10. Knowledge and innovation in organizations and their behaviors. 11. Knowledge- and innovation-based systems, products, and processes. 12. Issues that affect the developers of education systems and educators who implement and manage innovations and knowledge. 13. Ethics in knowledge and innovation. 14. Knowledge and innovation transfer. 15. Quality in knowledge and innovation.

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• Introduction
• Literature review
• Dynamic capability theory
• Business models
• Sustainable business models
• Business model innovation
• Research methodology
• Exploratory factor analysis
• Sample for cfa
• Confirmatory factor analysis
• Nomological validity
• Implications for theory
• Study limitations and further research
• Acknowledgment
• Bibliography

Sustainable business model innovation (SBMI) has recently drawn great interest among academia and in practice. However, notwithstanding the surge in related academic and non-academic literature, a validated measurement scale for SBMI is not yet available. This study attempts to fill the gap by proposing a scale for SBMI, using an initial sample of 20 respondents (for qualitative enquiry), followed by a quantitative validation (using two sample sets of 130 and 200 SMEs from Saudi Arabia). The findings provided a 10-item scale, conceptualized under three factors, namely: sustainable value proportion innovation, sustainable value creation and delivery innovation, and sustainable value capture innovation. The study provides important implications for SME owners and managers, by highlighting that SBMI will result in enhanced SME performance as well as a competitive advantage.

The World Economic Forum identified environmental and social risks as crucial factors leading to major financial losses and systematic risks globally. The trajectory of global warming is predicted to rise by two degrees by the year 2050, leading to increased spread of infectious diseases, large migration patterns, water shortages and even biodiversity loss ( Deloitte, 2020 ). Growing awareness of environmental concerns like global warming, climate change and melting glaciers are known to exert harmful impacts on the global population ( Goni et al., 2021 ; Chofreh et al., 2020 ). Organizations need to tackle these new economics and environment-based challenges systematically, holistically, and radically ( Bocken & Van Bogaert, 2016 ), by reconfiguring business models towards sustainable innovation approaches ( Boons & Lüdeke-Freund, 2013 ). This quest in embedding social factors with business model innovation (BMI) processes can be termed sustainable business model innovation (SBMI) ( Bocken & Geradts, 2020 ). In the recent past, governments and environmental bodies have been the main motivators that push organizations towards a more sustainable approach. Organizations must change their processes for creating, delivering and capturing value, hence becoming more environmentally, socially, and profitably sustainable ( Shakeel et al., 2020 ). Adopting sustainable business models (SBMs) seems the only viable solution to meet such goals ( Muñoz-Torres et al., 2019 ).

Researchers have viewed SBMI from different perspectives, in terms of concept definitions ( Geissdoerfer et al., 2018 ), taxonomies ( Lüdeke-Freund et al., 2018 ), classifying archetypes ( Bocken et al., 2014 ) and dimensions ( Joyce & Paquin, 2016 ). Given its substantive links to topics including business models, BMI, and sustainable company development, SBMI is gaining traction ( Shakeel et al., 2020 ). BMI considers an organization's innovation as an avenue for creating, delivering, and capturing value ( Teece, 2010 ). SBMI considers value in a larger sense - economic, social, and environmental - with a shift in focus away from customers and shareholders towards a multi-party stakeholder (society) ( Bocken et al., 2013 ; Schaltegger et al., 2016 ; Massa et al., 2017 ).

Despite widespread interest, the concept of SBMI remains unexplored and at a nascent stage of development ( Lüdeke-Freund & Dembek, 2017 ). SBMI exists as an emergent topic, yet unlike other fields, lacks empirically validated components, while its terminology and definitions can be compared with different fields ( Shakeel et al., 2020 ). Previous studies have sought to incorporate sustainability within research through the integration of business models and sustainable development frameworks ( França et al., 2017 ). Bocken et al. (2014) used a triple bottom line concept to formalize the categorization of BMI. Scholars have also extended the scope of business models through the addition of two aspects: social factors and the environment ( Joyce & Paquin, 2016 ). Recently, Shakeel et al. (2020) , based on a systematic review, developed an SBMI framework consisting of three components: innovations in sustainable value proportion, creation and delivery, and capture.

Much of the earlier work on SBMI is conceptual and qualitative in nature. Shakeel et al. (2020) call for more research on SBMI to classify its components, and the metrics associated with each component. Despite the importance of the existing measures used to capture SBMI, no commonly agreed and systematically validated measurement instrument for this concept exists. This study attempts to address the lack of measurement through the development and assessment of a novel scale, which could go a long way in advancing research on SBMI. The study contributes to the existing literature on SBMI in the following ways:

First, a comprehensive scale has been developed to measure SBMI. To ensure methodological rigor, the well-accepted scale development procedure of Hinkin (1995) was followed. To start, the literature supporting the conceptualization of SBMI was reviewed, followed by the framework. The initial pool of items was generated using a qualitative pre-test. Next, this pool was validated with a sample of 130 SMEs, and then the final scale was validated using a second sample of 200 SMEs from the Kingdom of Saudi Arabia.

The second contribution of this study lies in its endeavour to enhance the existing literature on SBMI and SME performance. Several studies have investigated the link between BMI and organizational performance ( Bashir & Verma, 2019 ; Foss & Saebi, 2017 ; Dunford et al., 2010 ; Zott & Amit, 2008 ). To the best of the authors’ knowledge, this study is one of the first to investigate the relationship between SBMI and performance in SMEs. Third, the study contributes to the extant body of literature on SBMI and competitive advantage. Fourth, the study brings in a new perspective to explain SBMI, viz. the dynamic capability perspective. A firm possessing dynamic capabilities has greater propensity to move towards an effective and sustainable form of business.

The rest of the paper is structured in five sections. The second section covers the extant literature on SBMI. The third section elaborates on the research methodology used for scale development and is divided into four subsections: item generation, content validity, exploratory factor analysis, and psychometric property evaluation. Section 4 highlights the nomological validity assessment. Section 5 contains the discussion, theoretical and practical implications, limitations and directions for future studies.

Success in the global marketplace can be achieved by developing and coordinating a firm's resources to address dynamic situations in the market. A firm can align its resources, including business models (BMs) more effectively, considering consumer requirements in the presence of dynamic capabilities. Such firms need to be flexible, to act on opportunities by making appropriate changes in culture and the organization. Different firms have different sets of dynamic capabilities. One firm may be good at innovation, while another may be good at identifying opportunities and exploiting them. Strong dynamic capabilities signify possession of better resources than competitors, which helps in gaining sustained competitive advantage. Firms with strong dynamic capabilities are able to create or modify resources, assets and capabilities, to address changing market conditions and customer demands. This helps in providing value to the customer over a longer time horizon. Setting up BMs during the initial phase depends equally on intuition and science ( Teece, 2018 ). It is a part of dynamic capability which cannot be fully routinized ( Teece, 2012 ), e.g., organizational processes. Dynamic capabilities cannot be easily replicated as they are built around history, routines, culture, and unique managerial characteristics ( Teece, 2014 ). This uniqueness acts as a basis of sustained competitive advantage in firms.

Casadesus-Masanell & Ricart (2010 , p. 100) observed that: “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”. Having rare capabilities helps in creating competitiveness by linking BMs with strategy. BMs “…describe the design or architecture of the value creation, delivery, and capture mechanisms [a firm] employs. The essence of a business model is in defining the manner by which the enterprise delivers value to customers, entices customers to pay for value, and converts those payments to profit” ( Teece, 2010 , p. 172). A BM essentially identifies customers’ latent needs, the resources required to address those needs, and the capturing of value from important business functions ( Teece, 2018 ). It needs to strike a balance between value creation, delivery and capture to be sustainable. BM elements need to be coherent, internally aligned ( Ritter, 2014 ), and in line with the broader model for management used ( Birkinshaw & Ansari, 2015 ). Good BMs are scalable across different market segments and help in differentiating firms from their competitors.

A company cannot be considered sustainable if it delivers an eco-friendly product, but uses a technology that harms the environment. The entire process needs to be sustainable, with a focus on surroundings and the entire ecosystem within which a firm operates. The term sustainable business models (SBMs) describes the process of organizations’ transformation to more sustainable economic systems ( Rashid et al., 2013 ; Wells, 2013 ). SBMs are “business models that incorporate pro-active multi-stakeholder management, the creation of monetary and non-monetary value for a broad range of stakeholders, and hold a long-term perspective” ( Geissdoerfer et al., 2018 , p. 403). Today, such models are widely researched given their potential to provide competitive advantages ( Porter & Kramer, 2011 ; Nidumolu et al., 2009 ). SBMs have a “global market perspective and take into account new industrialized countries” ( Garetti & Taisch, 2012 , p. 88). The definitions in extant literature portray SBMs as modifications to BMs, adding features and objectives. Changes can be made in terms of goals and/or value propositions, creation, delivery, and capture intended to create sustainability ( Richardson, 2009 ). These are changes that can be made in the BM, to products and services, or at the base level ( Bocken et al., 2014 ; Bocken & van Bogaert, 2016 ). SBMs emphasise stakeholder benefits and values, and not only customer/ shareholder value. Most researchers have defined SBMs as modifications to conventional BMs, with added propositions, value creation or value capture ( Geissdoerfer et al., 2018 ). Bocken et al. (2014) categorized SBMs as the base of the pyramid, product-service systems, and a circular business model. Organizational design is a “critical managerial change lever” with the “dynamic capabilities of sensing, seizing, and transforming needed to execute SBMI process” ( Minatogawa et.al., 2022 , pp. 2–3).

The dynamic capabilities framework reflects the interdependence between BMs and strategy. Dynamic capabilities and strategy coalesce to form a sustainable BM, which steers organizational change, and facilitates a level of profits sufficient to maintain and improve organizational resources and capabilities. In firms with dynamic capabilities, BMs can be modified swiftly and effectively to meet changing market conditions. Dynamic capabilities play a significant role to improve organizational competitiveness by designing BMs linked to strategy. Dynamic capabilities coupled with effective strategies help formulate the BM, which transforms the organization ( Teece, 2018 ).

Business model innovation (BMI) signifies innovation in creating, delivering and capturing value, thus attracting a customer base and enhancing profitability ( Teece, 2010 ). According to Foss & Saebi (2017 , p. 201), BMI reflects “designed, novel, and non-trivial changes to key elements of a firm's business model and/or the architecture linking these elements”. Technological innovations help corporations to be competitive ( Şimşek et al., 2022 ; Perelygina et al., 2022 ; Wirtz et al., 2016 ; Zott et al., 2011 ) by providing novel products and channels of revenue ( Chesbrough, 2010 ; Massa et al., 2017). Sometimes firms engage in BMI to meet environmental demands ( Colovic, 2022 ). A BM needs to address customer needs profitably ( Rumelt, 2012 ). The capacity of managers to enhance a BM has a fundamental role in dynamic capabilities ( Teece, 2007 ). This signifies designing the initial model, reframing the model, and/or replacing the model over time. A successful BM begins with deep insights into the customer's needs and by looking into already existing models. Technology is an enabler for novel BMs. In highly developed economies, absolutely novel BMs are improbable, although not impossible. Most “new” BMs are similar to existing ones, and involve a combination of existing models or an improvement on existing ones. Choice of BMs depends upon how strong an organization's dynamic capabilities are ( Teece et al., 2016 ). For instance, organizations with strong dynamic capability do not hesitate to innovate their BMs, which involves radical changes in resources or activities.

Strategy deals with how a firm will compete ( Teece, 2018 ). One factor leading firms to seek BMI is the emergence of new technology ( Kraus et al. 2019 ; Teece et al. 2016). The concept of dynamic capabilities posits that strategic resources lose value with time, as competitors catch up with them ( Teece, 2018 ). Firms that are able to modify their capabilities better than their competitors are able to gain a sustained competitive advantage ( Teece, 2007 ).

SBMI involves “the conceptualisation and implementation of sustainable business models. This 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. 407). SBMI is one of the ways through which competitive advantage can be produced, by addressing the problems of environment and society simultaneously ( Massa et al., 2017 ). It deals with changing business practices, by integrating such factors with basic business practice ( Costa et al., 2022 ; Stål et al., 2022 ; Foss & Saebi, 2017 ). Predominantly, SBMI can be found in one of four ways: sustainable start-ups; transformation to a sustainable BM; diversifying a sustainable BM; and acquiring a sustainable BM ( Geissdoerfer et al., 2018 , p. 407). Sustainable start-up refers to new firms where sustainable business models (SBMs) are produced. Any change in an existing business to make it sustainable is known as SBM transformation. An organisation establishing an additional SBM, without major changes in its existing BM, is considered to practise SBM diversification. Changes can also be made simply by integrating/acquiring a new BM into the organization, i.e., SBM acquisition. BMs that aim to be sustainable innovate to produce “significant positive and/or significantly reduced negative impacts for the environment and/or society, through changes in the way the organisation and its value-network create, deliver value and capture value (i.e., create economic value) or change their value propositions” ( Bocken et al. 2014 , p. 44). Sustainability, although difficult, makes the transformation process more desirable. Technological factors feature significantly in such processes, with innovation being necessary for the alignment of motives with revenue sources in providing sustainability options ( Rashid et al., 2013 ). As stated by Roome & Louche (2016 , p. 12), SBMI is a “process through which, new business models are developed by businesses and their managers, how companies revise and transform their business model in order to contribute to sustainable development”. Table 1 presents definitions of SBMI from the extant literature.

Sustainable business model innovation definitions.

Dynamic capabilities provide a feasible explanation for the success or failure of BMIs ( Teece et al., 1997 ; Winter, 2003 ). Strong dynamic capabilities make it easy for firms to modify their BM ( Teece, 2018 ). For firms pursuing SBMI, dynamic capabilities play a significant role ( Inigo et al., 2017 ). They help to sense, seize, and transform opportunities. For SBMI,reflects awareness of sustainability issues and realizing them as business opportunities ( McWilliams & Siegel, 2011 ). Seizing means using resources to meet sustainability opportunities and create value, by converting them into SBMs. Finally, transforming is the planned conversion of a firm's capabilities to incorporate sustainability in the BM ( Teece, 2018 ).

This study follows the scale development procedure suggested by Hinkin (1995) , as it is deemed one of the most reliable and widely used scale development processes. It consists of five steps: (1) item generation; (2) content validity; (3) exploratory factor validation; (4) psychometric property assessment; and (5) nomological validity. Items developed were mapped with similar constructs from literature, qualitative insights and a combination of inductive and deductive methodologies were employed ( Tanwar & Prasad, 2017 ). 20 in-depth interviews were conducted. The respondents were SME owners (12), and faculty members (8). Interviews lasted for 40–60 min on average, and revolved around issues in the implementation of different types of SBMIs across SMEs in Saudi Arabia.

Next, the items generated were structured into a questionnaire for data collection. First, we ran exploratory factor analysis (EFA), to test the factor structure and validate the scale. According to Marsh et al. (2014) , EFA is less restrictive than confirmatory factor analysis (CFA), allowing ite to load onto respective factors, and cross-load with others, which ensures the robustness of a scale. As per the scale development procedure, EFA was followed by CFA and nomological validity assessment on a second dataset of 200 SMEs ( Hinkin, 1995 ). CFA was conducted using Smart PLS 3 (following Ringle et al., 2005 ). PLS has become a widely used method to estimate path coefficients with a limited sample size and non-normality over the last decade ( Hair et al., 2011 ). Finally, to check for nomological validity, items for competitive advantage and SME performance were added into the questionnaire. Fig. 1 summarizes the methodology applied in the study.

Scale development procedure.

Step 1: Item Generation

To generate items for the scale we interviewed 20 respondents, comprised of 14 males and 6 females. Of the 20 respondents, eight were PhDs, four were postgraduates, six were graduates and two were diploma holders. 10 were aged between 45–50 years, six were 40–44 years, and four were aged between 35–39 years. SBMI was conceptualized as a three-dimensional construct based on the works of Shakeel et al. (2020) . The in-depth interviews generated 12 items: three for sustainable value proportion innovation, five for sustainable value creation/delivery innovation, and four for sustainable value capture innovation. The items in each construct were limited in number, as past research has concluded that increased item numbers reduce respondent validity ( Bednar & Westphal, 2006 ). To enhance face validity, items were mapped to pre-existing works as shown in Table 2 .

Mapping items to literature.

Step 2: Content Validity

Content validity describes how far measures represent a construct ( Haynes et al., 1995 ). The items shown in Table 2 were checked by an independent panel, consisting of ten experts in the field, to assess face and content validity. Of these 10 experts, five were academicians, and five were SME owners. Taking a cue from Netemeyer et al. (1996) , subject specialists were supplied with definitions of each construct. Each item was evaluated against three levels: ‘completely representative’, ‘somewhat representative’, and ‘not representative’ ( Lin & Hsieh, 2011 ). Each item's content validity ratio (CVR) was in a range of between .75 and 1.00, with nine experts terming all the items essential for the scale. Therefore, the scale's content validity was established ( Almanasreh et al., 2019 ; Bose et al., 2022 ).

Step 3: Exploratory Factor Analysis

Data were collected from SMEs located in Saudi Arabia for two main reasons. First, SMEs are regarded as the backbone of the whole Gulf region, as they account for nearly 60% of the gross domestic product and 80% of the workforce ( PWC, 2016 ). The context of SMEs is important given the ambitious 2030 vision of the Kingdom, which aims to raise the contribution of SMEs towards GDP to 35% (from 20%). The vision further aims to focus on sustainable solutions for SMEs across the Kingdom of Saudi Arabia ( Saudi Vision, 2030, 2016 ). Therefore, these two factors signify an appropriate research context. The sampling frame used was taken from the general authority of statistics of Saudi Arabia. To widen the scope of generalizability of the findings, a multi-industry sample design was adopted (as suggested by Katsikea et al., 2011 ). The sample for this study was taken in two stages. In the first stage, we followed a stratified sampling to identify manufacturing and service businesses that had made some sustainable innovations in their BMs in the past five years. Next, SMEs from each stratum were selected based on convenience sampling. We contacted the SME owners and managers by telephone between November and December 2021 to seek cooperation for participation in the study. The respondents were assured of anonymity of identity and confidentiality of their responses. The entire process was scrutinized and approved by the Ethics Committee of Qassim University.

400 questionnaires were distributed to SMEs across different industries. After a few reminders, 140 responses were received by the authors, 10 responses were discarded due to incompleteness, which resulted in a response rate of 32.5%. The final 130 responses were used for factor analysis. Table 3 highlights the demographics of the sample collected. Only those respondents involved in the strategic orientation of their company were recruited. The final sample was a combination of 34.6% senior managers and 65.3% middle management and was considered appropriate as observed in past BMI studies ( Clauss, 2017 ). 67% of the SMEs were from the manufacturing sector and 32.3% were service based. 60% of the SMEs selected were functional for more than 10 years and 40% were in business for more than 20 years. 87% of the SMEs selected had local market orientation, 6.9% global and 5.4% regional. The ownership structure consisted of 91% private, 3% government and 6% mixed ownership ( Table 3 ).

Sample for EFA.

Data were tested for univariate normality. The skewness values ranged between −2 and +2, and kurtosis was between −7 and +7 for all constructs, implying univariate normality of the data ( Hair et al., 1998 ; Yousaf et al., 2020 ). Next, EFA was conducted based on principal component analysis and varimax rotation, using SPSS 20. The Kaiser-Meyer-Olkin (KMO) value at .85 indicated that the sample was appropriate for factor analysis. Additionally, Bartlett's test of sphericity, based on the X2 value, showed the data's suitability for factor analysis. The findings revealed a 3-factor solution, with 65% variance being explained. However, taking cues from Field (2005) and Hair et al. (1998) , items with a factor loading greater than .35 on other factors, and with communalities less than .50 were dropped. This resulted in the removal of two items (SVC5 and SRC4). EFA was run again on the revised list of items, and the findings for factor solution are highlighted in Table 4 .

Rotated component matrix.

Step 4: Psychometric property evaluation

A second set of data was gathered from the same population used in Study 1. SMEs who had not participated in the first survey were used for data collection. Around 600 questionnaires were distributed, out of which 220 were received back. 20 responses were deleted due to missing information, and the remaining 200 were used for analysis, resulting in a 28.5% response rate. This sample contained 40% respondents from top management and 60% from middle management, focussing on managers responsible for setting their company's strategic orientation. The sample consisted of around 64.5% SMEs from the manufacturing industries, while 35.5% represented service organizations. 47% of the firms employed up to 50 people, 19% between 51–100, 15% between 101–150, 10% between 151–200 and 9% employed between 200–249. 65% of the SMEs were up to 10 years old, 18% were 11–20, 9% were 21–30, and 8% were 31–40 years old. 90% of the SMEs selected had a local market orientation, and 93% of SMEs had private ownership. Table 5 provides a snapshot of the sample demographics used for CFA.

Sample for CFA.

Smart PLS 3 was used to check the factor structure in Table 4 and to verify the measurement model, following Ringle et al. (2015) . Henseler et al. (2014) suggest that PLS is suitable in checking measurement model specifications. To derive standard error across each estimation within this measurement model, we used non-parametric bootstrapping with 5,000 samples ( Hair et al., 2011 ). The scale was tested for indicator reliability, composite reliability, convergent validity, and discriminant validity. The factor loadings ranged from 0.718 to 0.854, significantly over the recommended indicator reliability cut-off of 0.4 ( Bagozzi & Baumgartner, 1994 ). The composite reliability (CR) findings were between 0.846 and 0.911, which was considerably higher than the 0.6 cut-off value ( Bagozzi et al., 1999 ). The average variance extracted (AVE) across each variable exceeded .50, and most factor loadings were greater than .70, indicating convergent validity ( Fornell & Larcker, 1981 ). Cronbach's alpha, AVE and CR for each construct are shown in Table 6 .

Cronbach's alpha, composite reliability and average variance extracted (AVE).

Furthermore, discriminant validity can be claimed, as the AVE's square root ( Table 7 ) exceeds diagonal elements for the corresponding row in every construct ( Fornell & Larcker, 1981 ). However, Henseler et al. (2015) found that Fornell & Larcker's (1981) discriminant validity assessment approach fails to uncover discriminant validity for structural equation models based on variance. They therefore put forward a different approach to assessment: heterotrait-monotrait (HTMT). HTMT is more robust, and has a 0.85 cut-off ( Henseler et al., 2015 ; Rasoolimanesh et al., 2017 ). Values for all constructs were under this cut-off, implying evidence to support discriminant validity.

Discriminant validity.

BMIs have been demonstrated to lead to higher profits compared to product or process innovations ( Ma et al., 2018 ; Foss & Saebi, 2017 ; Zott et al., 2011 ). BMI, being a key resource, makes it easier for firms to make changes in processes, design etc. for cost reduction, higher value creation and growth in performance ( Balboni et al., 2019 ). SBMIs have the added advantage of being more resilient and less risky ( Choi & Wang, 2009 ), and being conducive to diversification and value co-creation ( Porter & Kramer, 2011 ; Nidumolu et al., 2009 ; Tukker & Tischner, 2006 ). SMEs can modify their strategies and BMs to create value ( Aspara et al., 2010 ).

SBMIs are highly desired by SMEs across the globe, due to their positive social and environmental effects, propensity for long-term survival ( Islam et al., 2022 ) and profitability ( Caldera et al., 2019 ). According to a Harvard Business Review study, the top 100 worldwide sustainable companies had higher average sales growth, return on assets, profit before taxes, and cash flows than control companies ( Whelan & Fink, 2016 ). Furthermore, mounting evidence shows that companies who were committed to sustainability performed better than normal during the 2008 recession, resulting in an average of $650 million in additional market capitalization per company ( Whelan & Fink, 2016 ). The process of SBMI broadly intends to reduce adverse environmental and social influence ( Faber et al., 2005 ). Considerable numbers of studies have addressed ‘lean thinking’, a widely adopted strategic approach used by SMEs in achieving sustainability ( Battistella et al., 2018 ). Co-evolving ‘lean and green thinking’ in SMEs has led to successful and sustainable business practice, which increases profitability. In SMEs, BMIs are critical ( Salavou & Avlonitis, 2008 ), as innovation and new opportunities help to improve firm performance and growth ( Schneider and Spieth, 2013 ; Jantunen et al., 2005 ). This becomes even more crucial for SMEs that focus on internationalization. Such SMEs can innovate by making changes in their product or service offerings and BMs, taking account of the market to which they intend to cater ( Onetti et al., 2012 ; Child et al., 2017 ). SME performance across markets depends on how creative and innovative BMs can be ( Bianchi et al., 2017 ). Based on the above arguments we hypothesize that:

H 1 : Sustainable BMI leads to better SME firm performance

Competitive advantage allows firms to perform better than competitors ( Porter, 1980 ). Cost leadership and differentiation help in gaining a competitive advantage ( Lechner & Gudmundsson, 2014 ). BMI is one way to get differentiated and unique products, through changes in product features and design ( Porter, 1980 ). Cost leadership strategies help in performance by a reducing associated costs ( Porter, 1980 ) in SMEs ( Parnell, 2008 ). When SMEs move across geographical boundaries, their BMs need to be modified ( Cavalcante et al., 2011 ; Child et al., 2017 ) to achieve cross-market sustained competitive advantages ( Wirtz et al., 2016 ), in the face of uncertainty and changing market dynamics ( Achtenhagen et al.,2013 ). Thus, BMI or SBMI stems from organizational strategy ( Casadesus-Masanell & Ricart, 2010 ). SBMI helps SMEs seize new opportunities through better value creation and delivery ( Yang et al., 2017 ; Evans et al., 2017 ). An updated and sustainable BMI helps in greater value creation and attracts more customers, in SMEs ( Hacklin et al., 2018 ), facilitating competitive advantage ( Bashir & Verma, 2017 ). Hence, we hypothesize that:

H 2 : SBMI leads to competitive advantage in SMEs

SME performance was measured relative to that of direct competitors using a five-item scale adopted from the works of Venkatraman & Ramanujam (1986) . A sample item is: “Relative to our competitors, our financial performance was much better”. Measurement of competitive advantage took place through an eight-item scale from Lee et al. (2015) . The scale has 5 items relating to differentiation strategy, with 3 further items relating to cost-based strategies. A sample item for differentiation is: “We successfully differentiate ourselves from others through cost-effective design: brand, appearance, feature, etc.” A sample item for cost-based strategy is: “Manufacturing costs are lower than that of our competitors”. Table 8 highlights the list of all the items used to assess nomological validity.

Items Used for Nomological Validity Assessment.

The relationship was tested using the second order measure of SBMI. Before testing the hypotheses, model fit indices were checked, with a standardized root mean square residual (SRMR) value of 0.075, considered a good fit ( Byrne, 2013 ). The results demonstrate that SBMI significantly positively impacted SME Performance ( β  = .416, t  = 5.28). Further, the relationship between SBMI and competitive advantage was also significant ( β  = 0.72, t  = 11.95) ( Table 9 ). Fig. 2 provides a snapshot of the structural model.

Nomological validity.

Structural model.

SBMI literature has been attracting interest over the past decade from academicians and managers alike. The importance of SBMI for a firm's profitability and sustainability cannot be refuted. However, despite such widespread interest, the overall concept and empirical validation of the components of SBMI is at a nascent stage and requires further elaboration. This paper has endeavoured to address this issue by developing a reliable and valid scale to measure SBMI. A mixed approach employing qualitative and quantitative stages of enquiry, based on the process followed by Hinkin (1995) , was used as a guideline to propose a 10-item, three-dimensional scale for measuring SBMI. The three dimensions are: sustainable value proportion innovation; sustainable value creation and delivery innovation; and sustainable value capture innovation. The items for the scale were generated from in-depth interviews from 20 respondents. The items were further validated across two different samples of 130 and 200 SMEs, using exploratory factor and confirmatory factor analysis, respectively. The scale, thus developed, addresses a major gap in existing SBMI research.

We generated three items to measure sustainable value proposition innovation. These are our focus has shifted towards customers who seek sustainability; our products and service offerings have become sustainable over the years; and we have positioned ourselves to be sustainable. The results highlighted that these items were significantly consistent across samples, suggesting that these three items can be used to measure sustainable value proportion innovation.

Within sustainable value creation and delivery innovation, four items have significant internal consistency with one another. These are we make regular efforts to make our core competencies and resources more sustainable; we make regular efforts to convert internal value creation activities to be more sustainable; we make regular efforts to partner with firms that focus on sustainability; and we make regular efforts to make our distribution channels sustainable. However, item SVC5 - we make regular efforts to evaluate new competencies that need to be developed to adapt to changing sustainable market requirements - was deleted because of poor factor loading and lack of internal consistency ( Field, 2005 ; Hair et al. 1998 ).

Furthermore, we used four items to measure sustainable value capture innovation. However, only three items showed high internal consistency with one another. These are we regularly try to replace short-term sources of revenues with sustainable (long-term) recurring revenue models (e.g., leasing); our profit margins have increased by offering sustainable products; and we make regular efforts to reduce manufacturing costs by incorporating sustainable practices. However, item SRC4 was deleted because of poor factor structure. Therefore, it was established that these three items could be used to measure sustainable value capture innovation.

The model was tested for nomological validity, and this presented interesting findings. Research suggests that BMI returns outweigh the returns from innovating in terms of products and process ( Massa & Tucci, 2013 ; Bashir & Verma, 2019 ). This is because BMI helps firms in reconfiguring one of multiple components within their BM with the changing external environment ( Chesbrough, 2010 ; Sosna et al., 2010 ). Our results for Hypothesis 1 suggest that SBMI directly and positively affected SME performance. We suggest that in SMEs, reconfiguration of BMI by incorporating sustainability in any of the components of their BMs will enhance profitability. These findings corroborate the findings of Caldera et al. (2019) , and Schneider and Spieth (2013) that the positive social and environmental effects of SBMI might result in a higher chance of profitability.

We posited that SBMI could lead to competitive advantage in SMEs. Rather than innovating at an incremental level, SMEs should reconfigure their BMs by incorporating social and environmental dimensions, which will give them a competitive advantage with respect to their rivals. SMEs with an updated and sustainable BM have greater value creation and attract more customers ( Hacklin et al., 2018 ), which facilitates a competitive advantage ( Bashir & Verma, 2017 ).

This study extends extant literature in three broad areas: i.e., SBMI, SME performance and competitive advantage. First, a comprehensive measurement scale for SBMI has been developed. Thereby, this study is one of the first attempts to contribute conceptually and methodologically to empirical SBMI research. Previous studies have conceptualized SBMI in a different manner; for instance, Upward & Jones (2016) provide an SBM ontology-based framework. However, their conceptualization fails to integrate sustainability and innovation. Meanwhile, França et al. (2017) created a strategic sustainable development framework. Bocken et al. (2014) developed archetype sets using value proportion, generation/delivery and capture, which are components of BMI. All these conceptualizations have significantly enhanced the body of SBMI research, but most are based on systematic reviews and case-based analysis. This study provided an opportunity to empirically validate SBMI. To develop a scale for SBMI, a rigorous methodological procedure was followed, which promises to aid future empirical studies in this area.

Second, the study has contributed to the extant SBMI and SME performance literature. Several studies have investigated the link between BMI and organizational performance ( Bashir & Verma, 2019 ;  Foss & Saebi, 2017 ; Dunford et al., 2010 ; Zott & Amit, 2007 ). To our knowledge, however, this study is one of the first that analyses the relationship between SBMI and performance in SMEs.

Third, the study contributes to the literature on SBMI and competitive advantage. In the current hypercompetitive environment, business outcomes are quite uncertain. Given the ever-evolving business environment, and changes in customer demands and preferences, firms need to be highly proactive in innovation. BMI has been established to assist organizations in achieving a competitive advantage ( Peteraf & Barney, 2003 ; Amit & Zott, 2012 ; Bashir, Naqshbandi & Farooq, 2020 ; Naqshbandi & Kamel, 2017 ; Teece, 2010 ).

Fourth, the study is an attempt to explain SBMI using a dynamic capability perspective. The higher the dynamic capabilities in an organization, the greater their propensity to move towards an effective and sustainable form of business. Literature has established that SBMI results in a sustained competitive advantage ( Amit & Zott, 2012 ; Bashir, Naqshbandi & Farooq, 2020 ). Thus, the study contributes to the existing theoretical base by explaining sustained competitive advantage and SBMI in SMEs through the dynamic capability approach.

The study offers various practice-based implications, in addition to the scale's relevance for academic research. First, managers can use this scale to identify relevant sustainability issues and stimulate ideas for SBMI. Once ideas for SBMI are identified, this scale can also be used to allocate resources across the three components of SBMI, viz. innovations in sustainable value proportion, sustainable value creation/delivery and sustainable value capture.

Second, managers can use this scale for the general evaluation of their firm's BM during strategic planning. The scale can also be used to extend control mechanisms while implementing SME business strategy. SMEs represent over 70% of worldwide waste pollution ( Revell et al., 2010 ). Therefore, governments globally are placing pressure on SMEs to move towards sustainable BMs. Managers can use this scale as a benchmarking tool, to identify significant sources of competitive advantage of competitor SMEs who follow a sustainable BM. Furthermore, managers can utilize the measurement scale for self-evaluation of their SME's sustainable innovation strategy.

Third, the findings of this study conclude that SBMI results in enhanced SME performance. Therefore, managers should actively look to reconfigure any one component (or all three) of their BMs (innovating in sustainable value proportion, in generating and delivering sustainable value and in capturing sustainable value), by focusing more on sustainable solutions that reduce environmental impact. From the perspective of dynamic capabilities, being flexible with existing resources to meet ever-changing market conditions and customer demands would help in driving sustained profits. The related positive social and environmental effects increase the chances of profitability ( Caldera et al., 2019 ). In addition, it is asserted that adverse impacts on environment and society can be reduced through SBMI ( Faber et al., 2005 ). Furthermore, including the very essence of sustainable practices would help improve corporate reputation, and consequently profitability ( Pradhan, 2016 ; Pradhan, 2018 ).

Fourth, it is suggested that Chief Strategy Officers should actively consider SBMI within potential competitive advantage sources. Taking cues from the resource-based firm perspective, path dependency and social complexity, which are associated with SBMI, might give SMEs a sustainable competitive advantage ( Keiningham et al., 2020 ; Phangestu et al., 2020 ; Bashir & Verma, 2019 ; Barney, 1991 ). When SMEs pursue internationalization, they make changes to their existing BMs. Therefore, amidst the context of sustainability concerns, selecting an SBMI could prove to be a strategic move by SMEs that intend to internationalize.

The research findings presented should be viewed taking into consideration certain limitations. First, the results of this study are based on samples taken from SMEs in Saudi Arabia, which is culturally different from most of the world. Research suggests that there might be differences in BMI across cultures like China, which has higher organizational complexity ( Clauss, 2017 ), or across other developed or developing nations. Therefore, future studies should try to validate the framework with a diverse sample from across the globe, to allow generalization of the results. Second, this scale is designed to measure general SBMI. Unique SBMI cannot be captured using this scale. Third, emphasis has been placed on the role of SBMI on SME performance and competitive advantage. However, there can be other factors which influence SBMI: events like the outbreak of COVID-19, industry lifecycle ( Sabatier et al., 2012 ), further regulatory insights with respect to sustainability ( Baden-Fuller & Haefliger, 2013 ; Drucker, 1984 ) and even competition within industries ( Johnson et al., 2008 ). Future studies should seek to cover these factors.

The Author(s) gratefully acknowledge Qassim University, represented by the Deanship of “Scientific Research, on financial support for this research under the number (10292-cbe-2020-1-3-1) during the academic year 1442AH / 2020 AD”.

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