Describe the research gap and build up towards the research question.

Assignment: Describe the research gap and build up towards the research question.

• Describe the existing research gap and build up towards the research question.
  • The gap needs to be merely explained by scholars from the Activity System School. These can be found in this document under the subtitle “Activity System School scholars” (marked in red).
  • Scholars from the Activity System School do, for example, not include:
    • Chesbrough
    • Baden-Fuller
    • Andries, Debackere, van Looy
  • The explained gaps should explain ALL the relations in the figure on the last page of this document.
  • It is not enough to just mention that no/very little research has been conducted on these relationships. Also, explain why closing these gaps is important to (1) practitioners and (2) academics/scholars.
    • For this, I included some statements made in the limitations/recommendations sections of Activity System School (under the substitle “Limitations/Recommendations” (marked in red). However, these statements WON’T be enough. Please find some other arguments to support the gaps and explain why practitioners and scholars will benefit from closing the gaps.
  • Replace every statement made by scholars that are NOT from the Activity System School (Aspara et al.; McGrath; Brunswicker, Wrigley & Bucolo; Murray and Tripsas; Sosna et al.; Andries et al.; Cavalcente et al.; Chesbrough; Doz & Kosonen; Casadesus-Masanell & Zhu) with either:
    • Statements that ARE from Activity School System scholars, or:
    • In case you cannot find a substitutable statement/finding from a Activity System School scholar: rewrite the concerning part with other statements/findings that are from Activity System School scholars, as long as the text does FIT the rest of the story (and thus supports the figure on the last page of this document).
  • Please note: every made statement needs to be supported by a source from the Activity System School.
  • Please note: this assignment is not about writing the hypotheses development.
  • Please note: there are four sections marked in red in this document.
    • Activity System School scholars
      • Scholars/academics that adhere to the Activity System School.
      • You can use them, among others, to complete this assignment.
    • Limitations/recommendations
      • Some statements from the limitations or recommendations sections from Activity System School scholars.
      • You might want to use these while making the assignment. Please search for some additional limitations and recommendations yourself.
    • Literature review
      • This is the current literature review of my paper.
      • The existing research gap and research question (research question is already provided and SHOULD STAY THE SAME) are based on this text.
    • Research gap + research question
      • This is the part you should rewrite this part while keeping in mind all of the above.

 

 

Activity System School scholars

• Abdelkafi, N., Makhotin, S. & Posselt, T. 2013. Business model innovations for electric mobility – what can be learned from existing business model patterns? International Journal of Innovation Management. 17(1).
• Afuah, A. & Tucci, C.L. 2003. A model of the Internet as creative destroyer. IEEE Transactions on Engineering Management. 50(4), 395-402.
• Berglund, H. & Sandström, C. 2013. Business model innovation from an open systems perspective: structural challenges and managerial solutions. International Journal of Product Development. 18(3-4).
• Bidmon, C.M. & Knab, S.F. 2018. The three roles of business models in societal transitions: New linkages between business model and transition research. Journal of Cleaner Production. 178, 903-916.
• Breuer, H. & Lüdeke-Freund, F. 2017. Values-based network and business model innovation. International Journal of Innovation Management. 21(3).
• Halme, M. & Korpela, M. 2014. Responsible innovation toward sustainable development in small and medium-sized enterprises: a resource perspective. Business Strategy and the Environment. 23(8), 547-566.
• Hannon, M.J., Foxon, T.J. & Gale, W.F. 2013. The co-evolutionary relationship between Energy Service Companies and the UK energy system: Implications for a low-carbon transition. Energy Policy. 61, 1031-1045.
• Lüdeke-Freund, F. & Boons, F. 2013. Business models for sustainable innovation: state-of-the-art and steps towards a research agenda. Journal of Cleaner production. 45, 9-19.
• Lüdeke-Freund, F., Massa, L., Bocken, N., Brent, A. & Musango, J. 2016. Business model for shared value. University of Cape Town.
• Matos, S. & Silvestre, B.S. 2013. Managing stakeholder relations when developing sustainable business models: the case of the Brazilian energy sector. Journal of Cleaner Production. 45, 61-73.
• Matthyssens, P., Vandenbempt, K. & Berghman, L. 2006. Value innovation in business markets: Breaking the industry recipe. Industrial Marketing Management. 35(6), 751-761.
• Osterwalder, A. & Pigneur, Y. 2004. An ontology for e-business models. Value creation from e-business models. University of Lausanne.
• Rohrbeck, R., Konnertz, L. & Knab, S. 2013. Collaborative Business Modelling for Systematic and Sustainability Innovations. International Journal of Technology Management. 63(1/2), 4-23.
• Schaltegger, S., Lüdeke-Freund, F. & Hansen, E.G. 2011. Business Cases for Sustainability and the Role of Business Model Innovation: Developing a Conceptual Framework. Centre for Sustainability Management (CSM).
• Yunus, M., Moingeon, B. & Lehmann-Ortega, L. 2010. Building social business models: Lessons from the Grameen experience. Long range planning. 43(2-3), 308-325.
• Zott, C., & Amit, R. 2007. Business model design and the performance of entrepreneurial firms. Organization Science, 18, 181-199.
• Zott, C., & Amit, R. 2008. The fit between product market strategy and business model: Implications for firm performance. Strategic Management Journal, 26, 1-26.
• Zott, C., & Amit, R. 2010. Business model design: An activity system perspective. Long Range Planning, 43, 216-226.
• Zott, C., & Amit, R., & Massa, L. 2011. The business model: Recent developments and future research. Journal of Management, 37, 1019-1042.
• Gianluigi Viscusi.
• René Bohnsack
• Christian Nielsen
• Morten Lund
• Marco Montemari
• Francesco Paolone
• Maurizo Massaro
• John Dumay
• Brent
• Josephine Kaviti Musango
• Sarah Carroux
• Alexandre Joyce

Limitations / Recommendations

• Lüdeke-Freund, Gold & Bocken
  • Clear arguments for why companies and their customers and end users should engage in CEBMs (circular economy business models) are largely absent, which hampers the adoptions of these models (Bocken et al. 2016).
  • Future work may explicate distinctly how value may be captured by various actors involved in CEBMs by increased revenues (e.g. through price premiums or payments per unit of service) and reduced costs (e.g. through reduced resource input or reduced costs of waste handling and processing).
  • Customer preferences for different ways of using and owning products and goods are mostly not considered as significant parameters of CEBM design, although a differentiated reflection on this issue would allow conclusions as to how effectively these business models actually reach their performance targets.
  • Currently, the characteristics of customers and users targeted by specific CEBMs are only weakly defined.
  • Details about the roles and importance of partners in a CEBM are often absent, including the roles of manufacturers and complementary service providers in maintaining, refurbishing, recycling, and upgrading products and materials, or the roles of noneconomic actors, such as nongovernmental organizations or governmental authorities, in raising awareness among consumers and society at large (cf., Lakatos et al. 2016).
  • The omission of relational aspects from CEBM research is unexpected because many of these models centrally rely on network (e.g., IS; Chertow, 2000; Ehrenfeld and Gertler, 1997). Future research may address this point from adjacent disciplines, such as social network theory (Granovetter, 1973), which has already been applied to study symbiotic relationships in industrial ecosystems (e.g., Ashton, 2008), or the relational view of strategic management (Dyer and Singh, 1998).
  • Most publications on CEBMs lack context sensitivity (they mostly presume a uniform developed-economy context), which biases the proposed business models.
• Sandström, Berglund & Magnusson (2014)
  • By drawing upon the concept of symmetry, we have taken another step towards understanding how incumbents can actually succeed and manage the innovator’s dilemma. We therefore suggest that future research extend this meta-theoretical development by empirically examining how incumbent firms go about designing new business models as they seek to overcome the innovator’s dilemma.
  • Further research into how TDI (Theory of Disruptive Innovation) can make use of the literature concerning the management of complexity is also warranted.
• Zott, Amit & Massa (2011)
  • Future research on business models should seek to overcome these limitations: the reviewed literature is mostly quite recent (decade back), only a few contributions have appeared in top journals, the literature is widely divergent (making sense of it is therefore challenging), the business model remains a theoretically underdeveloped (and sometimes overloaded) concept, which may raise doubts concerning its usefulness for empirical research and theory building.
  • Scholars need to develop the theoretical foundations of the business model, and shed light on its conceptual distinction from other related concepts such as new organizational forms, ecosystems, activity systems, and value chains or value networks.
  • In particular, scholars need to articulate and define precisely which business model concept they propose to use as a basis of study (e.g. archetype, activity system, or cost/revenue architecture). We need more clarity about the theoretical building blocks of the business model, its antecedents and consequences, as well as the mechanisms through which it works.
• Foss & Saebi (2017)
  • The literature involves suggestive but often ill-defined concepts that are fuzzy at the edges, as is characteristic of emerging fields. Simplification, conceptual clarification, theoretical models, and cumulative empirical work are called for. This should start from an identification of key conceptual, theoretical, and empirics-related gaps, the filling of which can be argued to advance the literature.
• Osterwalder, Pigneur & Tucci (2005)
  • One of the shortcomings in business model literature is that the different authors rarely build on each other. Consequently, business model research as a whole advances more slowly than it could and often stays at a superficial level.
• Schaltegger, Lüdeke-Freund & Hansen (2012)
  • Missing clarity about the ‘right’ business model to exploit innovations may be another crucial obstacle for sustainability-oriented business model innovation.

 

LITERATURE REVIEW

2.2 Business Models and The Rise of Business Model Innovation

The term ‘business model (BM)’ was first coined in the 1950s. However, the application of the concept in research studies was effected after forty years. Henceforth, scholars focused their studies on defining the concept of BM. Zott et al. (2011) derive two primary ideas from reviewing past literature on BMI. First, they establish that firms use business models to monetize their innovative ideas and technologies. Second, they deduce that a business model can be used as a new form of innovation capable of complementing elements of the existing business and adding new components. The study further identifies business’ revenues, costs, value proposition, and value capturing mechanisms as the critical elements of a business model. Therefore, a business model can, besides being an innovation subject, serve as a vehicle for innovation.

Notably, numerous literature sources identify innovation as the main pillar of a business model. Lambert and Davidson (2013) and Zott et al. (2011) divide the literature on business models into three silos: business models as a basis for enterprise classification (Amit & Zott, 2001; Magretta, 2002), as an antecedent of heterogeneity in firm performance (Weill, Malone, D’Urso, Herman & Woerner, 2005; Zott & Amit, 2007; Zott & Amit, 2010) and as a potential unit of innovation (Zott et al., 2011).

Spieth et al. (2014) establish the significance of BM and BMI studies. BM and BMI research provide in-depth information regarding the formation of a business. They also elaborate on the various ways business processes, management practices, and leadership styles contribute to the effective running of a business. Importantly, BM and BMI research creates the rationale of how firms create, deliver, and capture value for clients.

Research on BMI increased after the concept was first introduced in 2003.  However, compared to the study of business model, BMI-related research is limited and scarce since scholars are yet to explore the subject. Despite being a subject of academic papers for over fifteen years, the amount of research that builds off of previous papers regarding business model innovation is insignificant and noncumulative. Besides knowledge scarcity, the subject lacks clarity on what the construct entails. Effective implementation of BMI is a challenge since research is limited to the conceptual framework and offers little guidance on its development, implementation, and management. Moreover, research papers on this subject tend to have a conceptual character, rather than a theoretical one. Lastly, a clear framework of how different variables are related to business model innovation in a causal, moderating, or mediating manner does not yet exist. (Foss & Saebi, 2017)

Although little research has been conducted on BMI, the available knowledge has been crucial in informing organizational change. According to the IBM Global CEO Study (2008), conflicts between a firm and the market contribute to the modification of a business model. Besides the external forces, internal changes can be the reason for a change in a firm’s business model.  However, various factors can hinder the successful implementation of BMI.  For instance, an organization can incur inertia as many people tend to prefer the status quo in the first instance, which causes the BMI process to delay (Bouchikhi & Kimberly, 2003; Chesbrough, 2010). Managers also fail to see and acknowledge the potential value of BMI, which limits organizational performance (Bouchikhi & Kimberly, 2003; Chesbrough, 2010).

Schneider and Spieth (2013) address the latter by outlining the different themes within the business model innovation literature, which are specified as: ‘prerequisites,’ ‘process’ and ‘effects’ of BMI. Moreover, they recommend scholars to conduct research that will help to build a causal relationship scheme.

This review focuses on the constructs that emerge from the work of Foss and Saebi (2017) regarding the different views of BMI. They established that some of the studies contemplate BMI as an organizational change process that calls for specific skills and mechanisms within that organization while others consider the model as a more static entity that can affect a firm’s performance. From these findings, Foss and Saebi (2017) deduced four research streams that can be used to divide the literature on BMI, but they are not cumulative and should be considered as four independent angles of BMI research as discussed below.

2.2.1 The Four Angles of Business Model Innovation Research

Conceptualizing business model innovation

A review of the literature has revealed a lack of clarity on the conceptualization of the business model innovation. Although this thesis has clarified the definition of BMI and how it will be used in this context, scholars are yet to identify and agree on a common definition or concepts that can be used to create a standard meaning. Moreover, this research stream focuses on how a firm can innovate its business model.

In 2006, IBM Global Business Services described BMI as a “key source of sustained value creation.” Spieth et al. (2014) claim that there are three general categories of BMI, and they can be hardly conceptualized as one construct. Zott et al. (2011) identify BMI as a subject of innovation and a vehicle of innovation. Foss and Saebi (2017) complement the work of Speith et a. (2014) and Zott et al. (2011) by evaluating the literature on the conceptualization of BMI.  Foss and Saebi (2017) divided the claims made in this research stream into BMI as a dynamic concept and BMI as a static entity category. The research also defines BMI as “designed, novel, nontrivial changes to the key elements of a firm’s business model and or the architecture linking these elements.”  Foss and Saebi (2017) note that the conceptualization of business model innovation is not linked to theory.

Business model innovation as an organizational change process.

A section of the BMI literature addresses the dynamic character of this construct in a way that it can be considered as the process of organizational change. It also stresses the skills, processes, and mechanisms that are required to implement BMI successfully. (Foss & Saebi, 2017).

Lately, research on BMI has mainly focused on BMI as an organizational change process. The key elements of study have included leadership roles, decision-making, and user-centricity on BMI. Moreover, some researchers interested in this subject view BMI as an unending process of reacting to changes in a firm’s environment. Lastly, most of the studies in this research stream are explorative. (Schneider & Spieth, 2013).

Notably, several researchers have successfully tested a particular hypothesis regarding BML. Sosna, Trevinyou-Rodriguez, and Velamuri (2010) found support for the statement that successful business model innovation is an uninterrupted process that starts with an experiment which is then continuously assessed and adjusted accordingly. Furthermore, a young firm’s ability, in the bioscience industry, to change its business model successfully depends on the effectiveness of the business rather than a firm’s technological capabilities (Brink & Holmen, 2009).

Doz and Kosonen (2010) propose that organizations should demonstrate flexibility as they change a business model by growing strategic sensitivity, leadership unity, and resource flexibility. Firms can also promote mutual engagement and organizational justice to increase the success rate of a BMI process (Santos, Spector & van der Heyden, 2009).

 

Business Model Innovation as an Outcome

The creating a useful business model is essential in a firm that results to either increase or decrease in profits and level of quality products in the company.  Abdelkafi, Makhotin, and Posselt (2013) point out that business models are one of the phenomena that companies use to commercialize their new technologies and concepts about their businesses. The emergence of global internet markets has led to the new business trends like online marketing and advertising (Zott et al. 2011). BMI also depends on the business environment in the company that involves trust and accountability, which promotes the grasping of common knowledge necessary for running the business effectively (Berglund & Sandström, 2013). Abdelkafi, Makhotin, and Posselt (2013) further explain that factors which make BMI productive include creativity, customer acceptance, as well as the use of technology. Therefore, organizations must strive to understand the business models as they embrace concepts such as pricing techniques, partnerships, profit sharing, as well as customer care (Afuah & Tucci, 2003). Matos and Silvestre (2013) cite that the innovation of a useful business model requires social aspects in addition to the managers. Andria’s, Debackere, and Van Looy (2013) add that for successful business model development; commitment, technological advancements, market-related forces, and experimentation are essential as they cause substantial realization of profits for the firm. Commitment to the innovation of the model will increase the chances of sustainable long-term existence.

Testing of the corporate model which involves trying to see if it works and the possible outcome is vital for companies as they will help the managers to devise effective ways of implementation of the ideas and technology that will add value to the firm (Matthyssens, Vandenbempty & Berghman, 2006, p. 751). Experimentation involves trial and error method, which leads to the discovery of useful and creative ways of business model innovation (Rohrbeck, Konnertz & Knab, 2013). Business experimentation is also helpful as it gives room for trials which in turn explores different opportunities that will increase the value of the company in terms of productivity, performance, and sustainability of the company (Bocken, Weissbrod, & Tennant, 2016, p. 297). For any company that seeks successful innovation and implementation of a business model to succeed, they require an adequate understanding of the possible outcomes in the procedures of the trials and the actual application for the performance of the corporation (Ludeke-Freund & Boons. 2013). Business model experimentation brings about effective change in an organization. To accelerate change in an organization, carrying out business experiments will benefit the company by finding out the limitations and benefits of opportunities thus selecting the less risky investments through the creation of a portfolio (Bocken, Weissbrod, & Tennant, 2016, p. 297). Experimentation, which also involves feasibility study in business, helps the firms to exploit and discover new concepts which can increase productivity in the market or give them a competitive edge against their competitors. Furthermore, experimentation slows down the level of growth for a firm as it requires funding, time for testing, and analyzing the findings to check if they are beneficial or disastrous (Chesbrough, 2010, P.354). The experiment on the business model also increases the long-term survival of the company as the firm will only undertake projects and ideas that have low threats resulting from the test.

 Consequences of Business Model Innovation

Managers as well as the employees of an organization must take part in the innovation, and trials of models which are vital for the creation of the most efficient and effective business models. Understanding the fundamentals of the business models is essential as it is value-based for the organization (Osterwalder & Pigneur, 2004). The business models aim to create value for the company in terms of the goals, mission, communication, delivery to customers, among others (Abdelkafi, Makhotin, & Posselt 2013).  Corporate models provide a link between the consumers, firms, and production (Boons et al. 2013, pg.1). An organization’s performance relies on the systems, technology, people, and management because they work towards its sustainability (Schaltegger, Ludeke- Freund & Hansen, 2011). Researching the effectiveness of business models proves to be essential for companies as it aids in the final decision-making process (Zott & Amit, 2008, p.1). According to Zott & Amit (2007), after doing an experiment on the business models and creating the best out of the results, it proves to be beneficial to the company’s success in terms of productivity, customer satisfaction, as well as employee satisfaction. Positive impact on performance is essential for both the small and big companies that find it necessary to change their ways of running the business for profitability (Baden-Fuller & Haefliger, 2013, p. 419). The company’s long-term survival depends on how creative and efficient the business model implementation will work in the production and employee sections.  After successful application of the created model, the firms’ performances will increase in terms of the level of quality production, financial performance, employees’ motivation, as well as employee satisfaction.  Business models can either be in replication or in the renewal forms. The level of firm performance will depend on the size of the company, the level of testing, the decisions made, and the speed of the implementation of the business models innovated.

In short, companies should adopt strategies that favour sustainable changes to promote long-term benefits (Halme & Korpela, 2014). Since the process of BMI is long, the management should adopt the use of the models with experiments on less urgent projects (Breuer &Ludeke-Freund, 2017).

 

RESEARCH GAP + RESEARCH QUESTION

 

2.2.2 The Existing Gap and Research Question

As mentioned before, Aspara et al. (2010) conducted research on the effect of BMI on a firm’s financial performance. In doing so, they distinguishes BMI from replication.

The contradiction in this, however, is that Aspara et al. do not consider a business model replication to be a business model innovation. Namely, Volberda, van den Bosch and Heij (2017) divide the construct of business model innovation into business model replication and business model renewal. As Volberda, van den Bosch and Heij (2017) show a decent amount of support and explanation for their distinction within the BMI construct, this thesis will assume that both sub-constructs are descendants of the BMI construct. Since this differentiation has been made for the first time in 2017, not much research can have been conducted on it. Due to which a gap can be identified between business model replication and financial firm performance on the one hand, and between business model renewal and financial firm performance on the other hand.

Although the difference between BM replication and BM renewal may come across as a subtle one. However, for organizations, switching between those options can save them a substantial amount of money. BM renewal, namely, requires either a completely new business model or a framework that can easily connect totally new customers (Volberda, van den Bosch and Heij, 2017). BM replication, on the other hand, necessitates merely a development or upscaling of successful components of the existing business model (Volberda, van den Bosch and Heij, 2017). One can figure that, in general, the former requires a considerable higher investment.

Many academics examined the role of organizational experimentation on BMI (Foss & Saebi, 2017). However, not much research has been conducted on the role of business model experimentation on business model innovation and financial firm performance. Still, some research has been conducted and some corresponding findings have been stated. McGrath (2010) states that experimentation is essential concerning new business models, due to the assumption that firms will evolve advanced skills as a consequence of experimenting. Moreover, companies with enough experimentation skills will mainly gain two advantages: a decrease in expensive mistakes and an increase in the creation of great ideas (Brunswicker, Wrigley & Bucolo, 2013). In addition, experimentation can be used to reduce uncertainty of future scenarios (Murray & Tripsas, 2004). Lastly, Sosna et al. (2010) say that business model experimentation can lead to new insights regarding the parts that firm’s business model consists of and the way their business model is structured.

In short, experimentation can be considered as a learning tool. Namely, it yields, according to the above scholars, skills and data. Both skills and insights are based on data and diminish chances of a BMI failure. Data obtained from experimentation will tell organizations which business models are likely to succeed and which are not. Also, it will tell organizations how to react in what situation. As these data increases the chance of a BMI success, the likelihood of organizations undergoing a business model innovation increases.

However, a distinction between business model replication and business model renewal within this relationship is justified as risks are arguably considered to be lower with business model replications in comparison with business model renewal (Andries et al., 2013). Namely, it takes quite some understanding of a firm’s business model, which not many firms seem to have (Johnson et al., 2008). Also, much more obstacles are engaged in the process of business model renewal compared to business model replication (Cavalcante et al., 2011; Chesbrough, 2010; Doz & Kosonen, 2010). Nevertheless, this does not mean that the results of business model replication cannot be as good as those of business model renewal (Casadesus-Masanell & Zhu, 2013). Furthermore, one could reason that the more certain one is about a future scenario, the more likely one is to choose that scenario, provided that the knowledge one has on that scenario multiplied by that scenario’s expected results is higher than that of any alternative.

Hence, there are more risks involved with business model renewal since more variables come into play and more obstacles need to be conquered while architecturally transforming the BM compared to incrementally transforming the BM. Moreover, there is no strong evidence that the two constructs cause significant differences in a firm’s performance.

So, this implies that experimenting with a firm’s business model leads to actual and more successful business model innovation. Combining this with the distinction Volberda, van den Bosch and Heij (2017) made between BM replication and BM renewal, I consider it legitimate to wonder whether the fact that a firm experimentalizes with its business model leads to either BM replication or BM renewal.

The knowledge of whether experimenting with a firm’s business model leads to a certain type of business model innovation and eventually to a better financial performance is relevant to companies. Firstly, because it will save them a lot of effort if experimenting with BMs negatively affects their financial performance, through one of the business model innovation variants. Secondly, they would be aware of the most profitable option to go with: either business model replication or business model renewal, as this thesis hopes to unveil which BMI type has the most positive effect on a firm’s Return on Assets.

All of the above can be summarized into one research question, around which this thesis will revolve:

“How does business model experimentation relate to a firm’s financial performance and how is this mediated by business model replication and business model renewal?”