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Decision Sciences © 2015 Decision Sciences Institute

Volume 46 Number 2
April 2015

A Business Model Innovation Typology∗


Yariv Taran† and Harry Boer
Center for Industrial Production, Aalborg University, Fibigerstræde 10, 9220 Aalborg,
Denmark, e-mail: yariv@business.aau.dk, hboer@business.aau.dk

Peter Lindgren
Department of Business and Social Sciences, Aarhus University, Birk Centerpark 15, 7400
Herning, Denmark, e-mail: peterli@hih.au.dk

ABSTRACT
An effective business model is the core enabler of any company’s performance. Business
model innovation is not only becoming more and more important due to increasing
and globalizing competition, but also an enormous challenge, both theoretically and
practically. Although many managers are eager to consider more disruptive changes
to their business model, they often do not know how to articulate their existing or
desired business model and, even less so, understand the possibilities for innovating it.
One of the steps toward developing more theoretical insight and practical guidelines
is the identification of types and the development of a typology of business model
innovations. Ten retrospective case studies of business model innovations undertaken
by two industrial companies provide the empirical basis for this article. We analyzed
the characteristics of these innovations as well as their success rates. The findings
suggest that there are indeed various business model innovation types, each with its own
characteristics and challenges. [Submitted: March 1, 2013. Revised: January 8, 2014.
Accepted: January 16, 2014.]

Subject Areas: Case Studies, Organizational Theory, and Strategic Decision


Making.

INTRODUCTION
Due to today’s intense competition (e.g., Skarzynski & Gibson, 2008; Tidd &
Bessant, 2009; Hult, 2012) in increasingly global markets, companies in all indus-
tries worldwide find themselves competing under ever-changing conditions. Those
changes force companies to rethink their operational business models more fre-
quently and fundamentally, as innovation based solely on new products and aimed
at local markets is no longer sufficient to sustain competitiveness and survival.
Competitors can relatively easily copy products, and local market segments today
are often quickly captured by global rivals located elsewhere.

∗ We appreciate the constructive comments from the editor, the associate editor, and two anonymous review-
ers, and thank Lee Ann Iovanni for her assistance in developing this article.
† Corresponding author.

301
302 A Business Model Innovation Typology

The IBM global chief executive officer (CEO) survey also supports the claim
that business model innovation matters. With approximately 30% of CEOs pursu-
ing such initiatives, business model innovation is much higher than expected on
industrial priority lists. Moreover, “[c]ompanies that have grown their operating
margins faster than their competitors were putting twice as much emphasis on
business model innovation as underperformers” (IBM, 2006, p. 12). Four years
later, IBM (2010, p. 10) reports: “Previously, CEOs recognized the need for busi-
ness model innovation, but today they are struggling to find the requisite creative
leadership to produce such innovation.”
The aim of this article is to develop a business model innovation typology.
Such a typology can support strategic decision makers in identifying and analyzing
various options, evaluating their consequences including performance effects, and
determining the business model innovation(s) most suitable for their company.
For researchers, typology development presents an important step in the theory-
building process (Christensen, 2006).

INNOVATION AND BUSINESS MODELS


Most companies tend to prefer “more of the same” (mostly product) innova-
tions that keep their company fixed on the same line of value propositions, using
the same, or largely similar, technologies, aimed at the same target customers
(e.g., Christensen, 1997). Consequently, and also reflecting phenomena such as
(strategic) momentum (Miller & Friesen, 1980, 1982), path dependency (Nelson
& Winter, 1982), and prior related knowledge (Cohen & Levinthal, 1990), most
companies rarely, if ever, change or even question their business models.
However, few companies have such a secure competitive position based
on, for example, unique assets, intellectual property rights (IPR), brand or an
exclusive technology, that they do not need to risk innovating their business model
radically. In most industries, intense global competition (Skarzynski & Gibson,
2008; Tidd & Bessant, 2009; Hult, 2012) has reduced not only the life cycles of
products/services, but also the life cycles of prevailing business models (e.g., IBM,
2006, 2008). This inevitably forces ever more companies to rethink their business
model in order to allow them to continue competing in existing, or to enter new,
markets successfully (e.g., Chesbrough, 2007; Skarzynski & Gibson, 2008; Tidd &
Bessant, 2009). Apple, IBM and Dell, Southwest Airlines and Ryan Air, Google,
Microsoft, Amazon, Facebook and Skype, Starbucks, Zara, and Cirque du Soleil are
well-known examples of, what D’Aveni (1994, p. 2) would call, “hypercompetitive
firms,” whose success in the market cannot be explained by the introduction of
new products or services alone. The key to these companies’ success is business
model innovation.

Business Model
The business model literature has grown exponentially since the end of the 1990s.
However, before the term business model gained popularity, many models re-
lated to the effective functioning and performance of businesses had been pro-
posed, especially in organization theory. Miller & Rice (1967, p. 6) conceived an
Taran, Boer, and Lindgren 303

organization as a task system defined as a “system of activities [required to complete


the process of transforming an intake into an output] plus the human and physical
resources required to perform the activities.” Primary (i.e., operational), mainte-
nance (or support), and regulatory (i.e., management) processes are at the core of
these authors’ organizational model. Other models depict organizations as, for ex-
ample, formal and informal flows of authority (hierarchy), work materials (i.e., pro-
duction processes), communication/information (e.g., management and control), or
decision-making (Mintzberg, 1979). Porter’s (1985) value chain model consists of
primary and support activities whose goal it is to create a profit margin by offering
the customer a level of value that is higher than the cost of the activities. Influenced
by the work of authors such as Burns & Stalker (1961), Chandler (1962), Pugh et
al. (1963), Woodward (1965), Thompson (1967), Perrow (1967), and Lawrence &
Lorsch (1967), researchers realized that there is no best way of organizing; it all de-
pends on the fit between the structure and factors such as the environment, strategy,
technology, and size of the organization (Mintzberg, 1979). This led to the develop-
ment of so-called contingency models of organization (e.g., Kast & Rosenzweig,
1973). One such example is the 7S model of McKinsey (Peters & Waterman, 1982),
which depicts organizations as systems with seven elements (strategy, structure,
systems, shared values, style, staff, and skills) that must be aligned for the orga-
nization to perform well. The process-based contingency model of organization
(Boer & Krabbendam, 1999) combines these approaches, and essentially holds that
the effective performance of an organization depends on the consistency among
process design choices, organizational arrangements, and contingency factors.
Going back to the writings of Peter Drucker (Casadesus-Masanell & Ricart,
2010), the term business model (and, for that matter, business model thinking)
rose to prominence toward the end of the 1990s (Osterwalder, Pigneur, & Tucci,
2005), driven by factors such as “the emerging knowledge economy, the growth
of the internet and e-commerce, the outsourcing and offshoring of many busi-
ness activities, and the restructuring of the financial services industry around the
world” (Teece, 2010, p. 174). Influential publications in the business model lit-
erature include Linder & Cantrell (2000), Amit & Zott (2001), Magretta (2002),
Osterwalder & Pigneur (2004), Osterwalder et al. (2005), and Chesbrough (2006).
One thing all the authors in this field seem to agree on is that a business model is
a model of the way a company does business (Taran, 2011). However, while there
is consensus on the essence of “doing business,” namely creating and delivering
value so as to generate revenue and achieve a sustainable competitive position,
there is less agreement on the “model” part. Morris, Schindehutte, & Allen (2005,
p. 727) present “a synopsis of available perspectives regarding model components”
in which the number of components (i.e., building blocks) ranges from three to
eight. The model described in Osterwalder et al. (2005) includes nine building
blocks.

Innovation
Although there are many definitions of innovation, they all point toward (doing)
something new. Schumpeter (1934, p. 66), possibly the first writer on innovation,
mentions “(1) The introduction of a new good . . . (2) The introduction of a new
304 A Business Model Innovation Typology

method of production . . . (3) The opening of a new market . . . (4) The conquest
of a new source of supply . . . (5) The carrying out of a new organization . . . .”
Most innovation researchers have essentially adopted Schumpeter’s categorization.
Recognizing that “pure” innovations are actually very rare, Boer & During (2001,
p. 84) define innovation as “the creation of a new product-market-technology-
organization-combination.” Tidd & Bessant (2009) discuss product, process, posi-
tion, and paradigm innovation. While the first three go back to Schumpeter’s “new
good,” “new method,” and “new market,” one of the forms of paradigm innovation
(Francis & Bessant, 2005) is business model innovation.

Business Model Innovation


Change is very common in organizations. In addition to “unprecedented changes
. . . [which] . . . include . . . organizational creation, innovation, turnaround,
reengineering, cultural transformation, merger [and] divestiture” there is “a wide
variety of recurring changes, such as adapting to economic cycles, periodic revi-
sions in products and services, and ongoing instances of personnel turnover and
executive succession” (Garud & Van de Ven, 2002, pp. 222–233). The question
is: when can we call a change in an organization a business model innovation?
Unfortunately, this question has rarely been addressed in either business model or
innovation management research.
Teece (2010) observes that the business model concept lacks theoretical
grounding in economics and business studies, including organizational, strategic,
and marketing studies. Innovation research has produced a wealth of theory, espe-
cially on radical product and incremental process innovation, but has not addressed
business model innovation. In the business model literature, the question on how
to achieve business model innovation has been largely neglected, too (e.g., Amit
& Zott, 2001; Morris et al., 2005; Lindgren, Taran, & Boer, 2010; Osterwalder &
Pigneur, 2010). Yet, many scholarly (e.g., Amit & Zott, 2001; Chesbrough, 2010;
Teece, 2010) and practitioner publications (e.g., Magretta, 2002; IBM, 2006) have
made it plausible that business model innovation matters. IBM (2006), for exam-
ple, reports that business model innovators enjoyed an operating margin growth in
excess of their competitors of over 5% over five years; product/service/market and
process innovators achieved growth rates of around 0%.

RESEARCH OBJECTIVE
Business model innovation matters, but the question as to how to achieve it has
been largely neglected. This article aims to address this deficit.
The term business model innovation can be interpreted in two important
ways: (i) as a process and (ii) as an outcome. This article focuses on the second
interpretation, considering that process follows intended outcome. That is, the
better a decision maker is informed about the envisaged outcome of a process, the
better the decisions s/he can make about the design, organization, and management
of that process. There is no reason to assume that this “law” in, for example,
operations management would not hold in innovation management.
Taran, Boer, and Lindgren 305

According to Christensen’s (2006) three-step procedure for building de-


scriptive theory, one of the steps toward developing more theoretical insight is
the development of a typology. As they are also useful in guiding managerial
decision making, various different typologies have been used or developed in deci-
sion science research (e.g., Jarvenpaa & Ives, 1993; Hahn, 2003; Abdinour-Helm,
Chaparro, & Farmer, 2005; Tangpong, Michalisin, & Melcher, 2008; Paswan,
D’Souza, & Zolfhagharian, 2009; Ravichandran & Liu, 2011). The objective of
this article is to propose a qualitative (Bailey, 1994) business model innovation
typology.
A business model innovation typology reduces the variability and diversity
of the real world to a small number of richly defined types (cf. McKelvey, 1982;
Jarvenpaa & Ives, 1993; Tangpong et al., 2008; Paswan et al., 2009). Consisting of
a limited number of constructs and relationships between these constructs (Doty &
Glick, 1994), a typology can support strategic decision makers in identifying and
analyzing various options, evaluating their consequences including performance
effects, and determining the business model innovation(s) most suitable for their
company.
Ten retrospective case studies of business model innovations undertaken by
two industrial companies provide the empirical basis for this article. We selected
these companies based on their (relatively) successful yet somewhat different
innovation experiences.
Despite the observation that organization, strategy, innovation, and business
model theory have not dealt with business model innovation, notions from these
theories are useful in the development of an analytical framework to guide the
case studies. After a presentation of that framework, we describe and account for
the research design. Subsequently, we present, analyze, and discuss the case study
findings. Next, we present and explain the typology of business model innovation
that emerged from the research. We conclude the article with a summary of its
theoretical contribution and limitations, propositions and suggestions for further
research, and recommendations for decision makers.

ANALYTICAL FRAMEWORK
Similar to Paswan et al. (2009) who developed a service innovation typology, we
take our starting point in the fundamental questions that management needs to
answer when considering innovating their business model. The first question is:
“what should we innovate?” The answer to this question is related to innovation
content, that is, the business model building blocks. The second question is: “how
far do we go?” This question essentially inquires about the innovativeness of the
new business model. The third and fourth questions are “how will the innovation
support our business strategy?” And, “do we adopt a closed or open approach
to the innovation?” These two questions consider the strategic context and the
organizational setting in which the business model innovation takes place. The
fifth question is: “when do we consider the business model innovation a success?”
The answer to this question is crucial input to the development of normative theory
and robust recommendations for strategic decision makers.
306 A Business Model Innovation Typology

Innovation Content – What Should We Innovate?


There is consensus in the literature that a business model is a model of the way in
which a company creates and delivers value so as to generate revenue and achieve a
sustainable competitive position. The number of components (Morris et al., 2005)
or building blocks (e.g., Osterwalder et al., 2005) constituting business models
ranges from three to nine (Morris et al., 2005; Osterwalder et al., 2005). Based
mostly on Hamel (2000), Amit and Zott (2001), Chesbrough (2006), Johnson,
Christensen, & Kagermann (2008), and Osterwalder et al. (2005), we distinguish
seven building blocks. Table 1 defines these building blocks and gives examples
of incremental and radical building block innovations.

Business Model Innovativeness – How Far Do We Go?


This question inquires about the innovativeness of the business model. In innova-
tion theory, three approaches have been proposed to define and measure innovation.
The first approach, associated with radicality, defines business model inno-
vation as a radical change in the way a company does business (Linder & Cantrell,
2000; IBM, 2006, 2008; Chesbrough, 2006). Radicality, a “critical variable in the
field of innovation” (Chandy & Tellis, 2000, p. 6), is usually defined in terms of
the extent to which an innovation departs from prior products/services, processes
or, in the context of this article, business models. Radical innovation involves
the development or application of something significantly new (McDermott &
O’Connor, 2002). Incremental innovations, in contrast, are minor changes such
as extensions (McDermott & O’Connor, 2002) or improvements (e.g., Tidd &
Bessant, 2009), which, cumulatively, may have a large impact; singularly they are
almost imperceptible (Siguaw, Simpson, & Enz, 2006).
The second approach defines innovativeness in terms of what might be called
the reach of the innovation (e.g., Rogers, 1983; Green, Gavin, & Aiman-Smith,
1995; Olsen, Walker, & Ruekert, 1995; Garcia & Calantone, 2002). A suitable
scale for this approach measures the newness of an innovation in terms of “new to
whom,” which could range from new to the company, via new to the market or the
industry, to new to the world (Rogers, 1983).
Related to the notion of architectural innovation (e.g., Henderson & Clark,
1990), in this case at the corporate level (e.g., Galunic & Eisenhardt, 2001),
the third approach measures innovativeness in terms of complexity. In line with
Abell (1980), Magretta (2002), Osterwalder et al. (2005), and Skarzynski &
Gibson (2008), any change in any of the building blocks could be consid-
ered as a form of business model innovation. A change in one of the build-
ing blocks would constitute a simple innovation, while simultaneous changes in
all of the building blocks would be the most complex form of business model
innovation.
If we combine these three approaches, a three-dimensional space emerges
(Figure 1), which helps in qualifying the innovativeness of a new business model.
Radicality refers to the newness (incremental vs. radical) of each building block
(see Table 1 for examples). Reach concerns the question of whether the innovation
is new to the company or, at the other end of the scale, the world. Complexity is
counted as the number of building blocks (see Table 1) changed.
Taran, Boer, and Lindgren 307

Table 1: Definition and examples of incremental and radical innovation of the


business model building blocks.
Building Incremental Radical
block Description Innovation Innovation

What do we provide?

Value proposition A company’s offering Offering “more of Offering something


of products and the same.” different (at least
services. to the company).
Who do we serve?

Target customers Customer segments a Existing market. New market.


company aims to
serve.
How do we provide it?

Customer relations Actual interactions Continuous New relationship


established with improvements of channels (e.g.,
these customer existing channels. physical/virtual,
segments. per-
sonal/peers/mass
awareness).
Value chain Involving both the Exploitation (e.g., Exploration (e.g.,
architecture primary and internal, lean, open, flexible,
support activities continuous diversified).
needed for a improvement).
company to
develop, produce
and deliver its
offerings (e.g.,
Porter, 1985).
Core competences Those capabilities Familiar Disruptive new,
that are difficult to competences unfamiliar,
imitate by (e.g., competences
competitors, and improvement of (e.g., new
are critical to a existing emerging
company for technology). technology).
achieving
competitive
advantage, e.g.,
unique technology,
IPR, know-how,
culture, market
exclusivity.
Continued
308 A Business Model Innovation Typology

Table 1: Continued
Building Incremental Radical
block Description Innovation Innovation

Partner network Partners who engage Familiar (fixed) New (dynamic)


in different kinds of network. networks (e.g.,
cooperation with a alliance,
company, with the joint-venture).
goal of achieving
economies of scale,
reduction of risks
(e.g., joint venture)
or tapping into new
knowledge or
resources
(Osterwalder &
Pigneur, 2010).
How do we make money?

Profit formula Including revenue Incremental cost New processes to


model, cost cutting in existing generate
structure, margin processes. revenues, or
model, and disruptive cost
resource velocity cutting in existing
(e.g., Johnson processes.
et al., 2008).

Accordingly, any change can rightfully be called a business model innova-


tion, but some changes are more radical and/or complex than others, and some
(e.g., radical product innovation, incremental process improvement) are better un-
derstood than others (e.g., a holistic, new to the world departure from all business
models known so far). Consequently, we sidestep the eternal discussion of when
an innovation is radical or incremental, complex or simple, far-reaching or not,
and, instead, portray the space in which any business model innovation can be
positioned in terms of its degree of radicality, reach, and complexity. As will be
discussed below, these three characteristics are not only important to describe but
also to preassess before making important decisions about the organization and
management of business model innovation processes.

Strategic Context – How Will the Innovation Support Our Business


Strategy?
We expect Miles & Snow’s (1978) strategy typology, and especially the related
notions of proactiveness and reactiveness, to provide a suitable approach to de-
scribe (innovation) strategy. Miles & Snow (1978) distinguish four strategic types:
the prospector, analyzer, defender, and reactor strategies. Prospector companies
are the most innovative, and emphasize the development of new products, tech-
nologies, and markets. They try to be first in the market with new products, and
continuously experiment with responses to emerging market trends and changes.
Taran, Boer, and Lindgren 309

Figure 1: A three-dimensional (business model) innovativeness scale.

Radicality
High

Medium

Low
1
2
3
4
5
6 Company
7
Market
Reach
Industry
Complexity
World
(number of building
blocks changed)

Defender companies primarily stay in their existing domains and stable market
niches, and limit their product development efforts to improving existing products.
Analyzers combine the prospectors’ innovativeness with the defenders’ ability to
serve existing markets effectively with existing products. These companies pursue
efficiency in the stable markets they serve, and try to be adaptive to and prepared for
change in the dynamic markets in which they are also active. However, rather than
being first movers (e.g., Lieberman & Montgomery, 1988, 1998), analyzers focus
on the quick adoption of new concepts launched by prospector companies. Finally,
reactors are companies without a consistent strategy. They perceive changes in
the markets in which they operate, but are not able to respond effectively to these
changes.

Organizational Setting – Do We Adopt a Closed or Open Approach to the


Innovation?
Since Von Hippel’s (1978) seminal work, innovation researchers and practitioners
have become actively aware of the possibility and benefits of innovating with
external partners. This has gradually led to the open innovation concept (e.g.,
Chesbrough, 2006). In the business model literature, there is sufficient evidence that
adopting a closed approach or, alternatively, creating an open setting is an important
310 A Business Model Innovation Typology

choice for companies to make. For example, Chesbrough’s (2006) business model
framework is partly based on this dimension.
A company has essentially three options. First, it may support a business
model innovation using and staying within its existing organization. Alternatively,
it may change its existing organization, start internally and spin off later, or even
establish a separate business unit specifically for the purpose of the innovation. In
none of these cases are external partners involved. Third, in an open setting, the
business model innovation is conducted with one or more external partners, in-
volved through an acquisition (possibly followed by a merger), a strategic alliance,
or a joint venture (e.g., Chesbrough, 2006). An important notion in this context is
the distinction Boer & During (2001) make between organizational innovation and
organizing for innovation. In business model innovation, these two analytically
different concepts are difficult to distinguish empirically – often “organizing for
innovation” is part of the business model innovation itself. That is, the organiza-
tional setting established to develop the business model innovation will also be
responsible for serving an existing or new market with existing, improved, or new
products and/or services.

Success Rate – When Do We Consider the Business Model Innovation a


Success?
The success of any innovation can be measured in many different ways. One
approach, logically following from the definition of “doing business,” holds that
the success of a business model innovation should be measured in terms of the
extent to which the new model enables the company to generate revenue and
help the company to achieve a sustainable competitive position by creating and
delivering value to its customers.

Analytical Framework
Taken together, these questions imply that we should be interested in data that
describe a business model initiative in terms of its content, innovativeness, strategic
context, organizational setting, and success rate.
Furthermore, fit is likely to play a major role. This notion is central to the
study of (manufacturing) strategy, organization, and innovation. Skinner (1985), for
example, mentions that manufacturing strategy decisions made must align properly
and be examined in the light of their contribution toward the manufacturing tasks,
which ought to be derived from the corporate strategy. Hayes & Wheelwright
(1984) propose two similar criteria, namely the degree to which the manufacturing
strategy: (i) displays internal and/or external consistency and (ii) augments the
external competitiveness of the company, that is, contributes to the competitive
advantage pursued. Based on an extensive review of organization theory, Mintzberg
(1979) hypothesizes that effective organizational structuring requires a consistency
among the (organizational) design parameters and contingency variables. Boer &
During (2001) suggest that the success of an innovation process depends on the
fit between: (i) the required characteristics of the people involved in, and the
organization of, the process, which derive from the characteristics of the process
and the type of innovation involved, and (ii) the actual characteristics of the people
Taran, Boer, and Lindgren 311

involved, their perception of the innovation and the innovation process, and the
way these perceptions are effectuated in the organization of the process.
We expect that fit between the innovativeness (radicality, reach, complex-
ity), strategic context and organizational setting of the business model innovation
affects the success of the innovation positively, and hope to find a number of
ideal types, that is, effective (successful) configurations of these constructs, cf.
Mintzberg (1979), who hypothesized five structural configurations and Miles and
Snow (1978), who posited four strategic types. Although Doty, Glick, & Huber’s
(1993) studies support Miles and Snow’s (1978) but not Mintzberg’s (1979) the-
ory; the issue is that these and other authors equate ideal types with successful
configurations.

RESEARCH DESIGN
Methodology
Consistent with the explorative nature of the study, we conducted case studies.
The case study method is “particularly suitable for developing new theory,” in
that it “lends itself to early, exploratory investigations where the variables are still
unknown and the phenomenon is not at all understood” and “allows the questions
of why, what and how to be answered with a relatively full understanding of
the nature and complexity of the complete phenomenon” (Voss, Tsikriktsis, &
Frohlich, 2002, p. 197). We studied multiple cases, as this “can . . . augment
external validity, and help guard against observer bias” (Voss et al., 2002, p. 202).
Finally, the case studies were retrospective, rather than real-time longitudinal. This
allowed us to actually assess the success rate of the business model innovations.
Eisenhardt (1989) gives an overview of important steps to be taken in the
process of building theory from case study research. “Getting started” involves
defining a research problem and, possibly, constructs. This step was reported in the
previous sections. The next steps, “selecting cases” (i.e., sampling) and “crafting
instruments and protocols” (in particular choice of [multiple] methods) are reported
below. The step following “entering the field” and collect data, is “analyzing data.”
Following Eisenhardt’s (1989) recommendation, we perform both within-case as
well as cross-case analyses. The final steps are “shaping hypotheses,” “enfolding
literature,” and “reaching closure.” We infer a business model innovation typology
from our findings, which, in a way, is a complex hypothesis on the relationships
between the key constructs embedded in the typology. We then discuss our findings
in view of existing literature, as recommended by Eisenhardt (1989) and reach
closure not so much through theoretical saturation, as this is not possible given the
current state of the theory, but rather by inferring propositions from the research,
discussing the limitations of the study, and developing suggestions for further
research aimed at enriching and generalizing the typology.
The five research design components identified by Yin (2003) largely overlap
with Eisenhardt’s (1989) steps, with one exception: choice of unit of analysis, in
our case a business model innovation with its immediate context. Furthermore, Yin
(2003) identifies and discusses four criteria to assess the quality of research designs,
namely construct validity, internal validity, external validity, and reliability. Internal
312 A Business Model Innovation Typology

validity is of no concern for exploratory studies (Yin, 2003), while external validity,
through analytical replication (Yin, 2003), is difficult to assess at this stage of the
theory development. The procedures we adopted to ensure construct validity and
reliability are described in a subsequent subsection.

Sample
Ten retrospective case studies of business model innovations undertaken by two
industrial companies provide the empirical basis for this article. We selected these
companies based on their experience with a range of different business model
innovations, some of which were more successful than others.
Company Alpha is a large, global company headquartered in Northwest
Europe. The company has 2,100 employees and specializes in developing, manu-
facturing, and marketing (mostly) professional audio products, which are sold to
consumers (B2C) and businesses (B2B) in more than 70 countries worldwide. In
response to the financial crisis of 2008–2012, the company developed a new five-
year strategy, focusing on reestablishing its previous leading position within its
core business areas by developing a more efficient, effective, and global customer-
oriented organization.
Company Beta is a large global company, specialized in developing, manu-
facturing, and marketing flexible electrical/electronic control and instrumentation
solutions for the power production, marine and offshore industries. The company
has 300 employees and is also headquartered in Northwest Europe. The company
has eight subsidiaries and 23 distributors worldwide. The development and man-
ufacturing processes take place at the parent company; sales and customization of
the products are performed by both the parent company and its subsidiaries. The
strategic objective of the company for the next couple of years is to continue to de-
velop and provide technology that helps to improve the environment and supports
global green growth.

Data Collection, Validity, and Reliability


To ensure the validity and reliability of the research, multiple qualitative methods
were used. The data collection was done through desk and field research.
The desk research involved collecting background information through
books, articles, Web sites, as well as public and internal documents received
from the two companies, such as annual reports, product–market trajectories, fi-
nancial reports, internal PowerPoint presentations discussing current status and
future challenges, and strategic plans.
The field research consisted of face-to-face, mediated, group, and third-party
interviews, along with e-mail correspondence, company visits, and questionnaires.
The interviews were conducted with managers who had actively participated in,
or had been in charge of, a new business development initiative (e.g., innovation
manager, technology manager). Consistent with the mostly explorative nature
of the research, we used a semistructured questionnaire (see Appendix), which
allowed the individual respondents maximum freedom to explain their views on
the new business model. The questions address each of the constructs in the
analytical framework. In company Alpha, we conducted 28 hours and in company
Taran, Boer, and Lindgren 313

Beta 18 hours of interviews. All interviews were recorded and most of them were
transcribed. The transcribed interviews were sent to the interviewees for comments,
corrections, and final acceptance, which, together with the use of multiple methods,
enhanced the validity of the data.
Finally, we designed a formal case study protocol (Yin, 2003) to enhance
the reliability of the research. Following Eisenhardt’s (1989) assertion that it is
legitimate to change and add data collection methods (including adding questions
to an interview protocol), we did not regard this as a static document. Overlap
of data analysis with data collection generated new insights and ideas, and led to
extensions of the analytical framework and the questionnaire.

Data Analysis
Hand-coding the data was the main step in the within-case analysis, and helped
us to describe the 10 business model innovations in terms of the five analytical
constructs. The initial coding was conducted by the lead author and checked later
by one of the other authors. In the cross-case analysis, we tried to find patterns in the
relationships among the content, innovativeness, strategic context, organizational
setting, and success rate of the 10 cases. Content was categorized according to the
seven business model building blocks (Table 1). Innovations in each of these blocks
were described using “free text.” Following Figure 1, the following terminology
and scales for innovativeness were adopted:
r Radicality: ranging from low (i.e., incrementally new) to high (i.e., radically
new).
r Reach: ranging from low (new to the company or marketplace), to high (new to
the industry or to the world).
r Complexity: ranging from low (any change in 1–4 building blocks), to high (any
change in 5–7 building blocks; see Table 1).

Strategic context was described in terms of Miles & Snow’s (1978) typology
(prospector-analyzer-defender-reactor), and measured in terms of proactiveness
(proactive vs. reactive), a key dimension underlying that typology. Organizational
setting was measured in terms of openness (open vs. closed), and described using
terms such as internal/external, spin-off, acquisition, outsourcing, licensing, and
joint venture. Finally, in order to measure the success of the new business models
as objectively as possible, we inquired about their profitability and rated highly
profitable cases as successful, cases with small profit margins as partly successful,
and cases that failed to produce any profits as failures.

ANALYSIS
We will first present the results of the within-case analyses and describe each of
the 10 business model innovations in terms of the five constructs, that is, their
content, innovativeness, strategic context, organizational setting, and success rate.
In addition, we found risk to play a role in all cases, which we had not foreseen.
Subsequently, we will focus on the cross-case analysis, identify patterns in our
findings, and infer ideal, effective types of business model innovation.
314 A Business Model Innovation Typology

Within-Case Analysis
Innovation content
Throughout the years, company Alpha engaged in the seven business model in-
novations shown in Table 2. Case A involved the development of a new business
unit offering products based on existing and new technology to a market new for
company Alpha. Case B also involved the establishment of a new business unit
offering products to a market new for the company, but in this case the products
were entirely based on existing technology. Case C had the same characteristics
as case B, but in addition, marketing and sales were outsourced to a partner. Cases
D, E, and F concerned the establishment of a joint venture. In cases D and E,
the joint ventures served one market; in case F it served multiple markets, all of
which were new to company Alpha. In case E, the products were based on existing
technology; in cases D and F, they were based on new technology. Case G involved
the outsourcing of the manufacturing of one product to a supplier.
Company Beta engaged in three business model innovations. Case 1 was a
business process re-engineering project combined with and supporting the penetra-
tion of a new market for company Beta, with products that were based on existing
as well as new technological competences. In case 2, company Beta acquired an-
other company operating in a market new for the company. Case 3 concerned the
development and launch of a new product, based on new technology and targeted
at existing markets as well as markets new to the company.
In terms of the building blocks illustrated in Table 1, the more complex
business model innovations (cases A, B, C, G, 1, 2, and 3) involved changes
in the companies’ value proposition, target customers, value chain, and profit
formula, combined with changes in customer relations (all cases except G), core
competences (cases G, 1, 2, and 3) and/or the partner network (all cases except
2). “Simpler” business innovations (cases D, E, and F) combined changes in
the company’s target customers, core competences, partner network, and profit
formula.
Thus, all the innovations included changes in target customers (market in-
novation) and profit formula, that is, the company’s economic model, which is
concerned with its logic of profit generation and, thus, business model innovation
at its “most rudimentary level” (Morris et al., 2005, p. 726). However, and in line
with our definition, business model innovation does not always require changes
in all the building blocks. Cases D, E, F, and G did not change the company’s
customer relations; cases D, E, and F kept the value chain intact; cases A, B,
and C were based on the company’s existing core competences; and in case 2 the
company used its existing partner network.

Innovativeness
As discussed previously, the innovativeness of a new business model can be estab-
lished looking at its radicality, reach, and complexity.
We rate cases A, D, F, 1, and 2 as radical innovations. Cases B, C, E, G, and 3
were much more incremental. Two examples serve to explain these interpretations.
Case 1 involved a very successful attempt to penetrate the marine industry based
partly on existing, partly on new technological competences, requiring internal
Taran, Boer, and Lindgren 315

Table 2: Summary of the case study data.


Content – Radicality,
Organizational Context Reach, and
Case – Success Rate Complexity – Risk

Company Alpha – Analyzer Strategy

Case A New business unit offering existing High radicality, high reach (new to
and new technology-based the industry), high complexity
products to a new market (VP; TC; VC; PN; CR; PF). High
(automotive) – very successful risk of failure.
Case B New business unit offering existing Low radicality, low reach (new to the
technology-based products to a company), high complexity (VP;
new market (mobile phones) – TC; VC; PN; CR; PF). Low to
partly successful medium risk of failure.
Case C New business unit offering existing Low radicality, low reach (new to the
technology-based products to a company), high complexity (VP;
new market (studios), plus TC; VC; PN; CR; PF). Low to
outsourcing of marketing and sales medium risk of failure.
to a partner – failure
Case D Joint venture, a new High radicality, high reach (new to
technology-based product that can the world), low complexity (TC;
be used in many industries – very CC; PN; PF). Medium risk of
successful failure.
Case E Joint venture with a venture fund. The Low radicality, high reach (new to the
core business is IP and R&D of industry), low complexity (TC;
products based on (mostly) existing CC; PN; PF). Low risk of failure.
technologies for the biomedical
industry – very successful
Case F Joint venture offering new High radicality, high reach (new to
technology-based products to a the industry), low complexity (TC;
new market (telephone CC; PN; PF). Medium risk of
infrastructure), planned to be sold failure.
(divested) to a European company
– very successful
Case G Outsourcing the manufacturing of Low radicality, low reach (new to the
one of the products – failure company), high complexity (VP;
TC; VC; CC; PN; PF). Low to
medium risk of failure.
Company Beta – Analyzer Strategy

Case 1 Penetration of the marine industry High radicality, high reach (new to
based on existing and new the industry), high complexity
technological competences. (VP; TC; VC; CC; CR; PN; PF).
Required internal re-engineering to High risk of failure.
ensure higher-quality control and
work efficiency (e.g., lean, new
business intelligence department) –
very successful
Continued
316 A Business Model Innovation Typology

Table 2: Continued
Content – Radicality,
Organizational Context Reach, and
Case – Success Rate Complexity – Risk

Company Beta – Analyzer Strategy

Case 2 Acquisition of a small company High radicality, low reach (new to the
operating in a different industry market), high complexity (VP; TC;
(wind power). That company VC; CC; CR; PF). Medium risk of
currently continues to develop the failure.
business internally. Soon to be spun
off again as a new independent
company – very successful
Case 3 New technology-based product, Low radicality, low reach (new to the
aimed at serving existing and company), high complexity (VP;
potential new customer segments – TC; VC; CC; PN; CR; PF). High
failure: after one year of heavy risk of failure.
investment in the product, the
project was terminated due to
incongruity with customer
demands (product shape and size;
price – too expensive)
VP = value proposition; TC = target customers; VC = value chain; CC = core competences;
CR = customer relations; PN = partner network; PF = profit formula.

re-engineering to ensure higher quality, leaner and more efficient processes as


well as the establishment of a new business intelligence department. Case C,
in contrast, concerned the establishment of a new business unit, entirely based
on well-established organizational or managerial principles, offering incremental
improvements to existing products, combined with outsourcing of marketing and
sales to a partner company.
Reach concerns the “new to whom” question. As Table 2 shows, some
innovations were new to the company only (cases B, C, G, and 3). Others were
new to the market (case 2), new to the industry (cases A, E, F, and 1), or even the
world (case D).
Finally, the variety of types combined (Boer & During, 2001) or the number
of building blocks changed (Table 1) indicate the complexity of a business model
innovation. As can be inferred from the previous subsection, cases 1 and 3 were
the most complex innovations included in our sample, closely followed by cases
A, B, C, G, and 2. Cases D, E, and F were the simplest ones.
We found five of the eight possible combinations of high-low radicality,
reach, and complexity in our case studies – see subsequent subsections for further
discussion of their role in the business model innovation typology proposed.

Strategic context
Both company Alpha and Beta are analyzers. According to Miles & Snow (1978),
companies pursuing an analyzer strategy aim for efficiency in the stable mar-
kets they serve (defender behavior), and try to be adaptive to and prepared
Taran, Boer, and Lindgren 317

for change in the dynamic markets in which they are also active (prospector
behavior).
For part of their business, both companies proactively “pushed” innovations
into their industry (cases A, F, 1, and 3) or even the world (case D). The other busi-
ness model innovations were rather reactive, triggered by (predominantly market)
“pull” (cases B, C, E, G, and 2) and handled mostly internally, by incrementally
changing the existing core business, which is typical for defenders.
Pursuing an analyzer strategy is consistent with the way both companies de-
scribe their business strategy. Company Alpha’s goal was to reestablish its previous
leading position within its core business areas by developing a more efficient, ef-
fective, and global customer-oriented organization. Pursuing efficiency is defender
behavior; customer orientation an important aspect of prospector behavior (Miles
& Snow, 1978). The strategic objective of company Beta was to continue to develop
and provide technology that helps to improve the environment and supports global
green growth. This looks like a prospector strategy. However, company documents
show that all KPIs were expressed in financial terms, which is more reflective of
the defender side of analyzers.

Organizational setting
Some of the innovations presented above were internally generated new business
models developed either in addition to or to replace the existing model, while
others involved the acquisition of, outsourcing to, or a joint venture with, another
company.
Case 1 was a closed business model innovation aimed at penetrating a new
industry, which required a radical re-engineering of company Beta’s “as is” orga-
nization. Alternatively, yet equally closed, a company may keep its core business
fully operational (“as is” followed by continuous improvements) and develop an
additional business model aimed at serving a new market and/or operating in
an industry new to the company. Company Alpha was particularly successful in
launching such business model innovations (cases A, B, and C). Case 2, an acqui-
sition that gave company Beta access to a new market, was a more open form of
innovation. Cases D, E, and F were the most open forms – in all these cases, a joint
venture was established to conduct the innovation process.

Success rate
Company Alpha’s experiences with business model innovation are mixed. Cases
A, D, E, and F were very successful, case B a partial success, while cases C and
G were failures. The experiences of company Beta are mixed, too. Cases 1 and 2
were very successful; case 3 was terminated and should therefore be regarded as a
failure.

Risk
Perhaps not surprising, but unforeseen in our analytical framework, we found
that risk played a role in all business model innovations. However, rather than
describing this factor in detail here, we prefer addressing it in the cross-case
analysis.
318 A Business Model Innovation Typology

Cross-Case Analysis – Toward a Business Model Innovation Typology


Table 3 combines the characteristics identified and discussed above and suggests
four types of business model innovation, three of which are successful and can
be regarded as ideal. For reasons of convenience, we labeled the four types using
the descriptors of strategic context (i.e., proactive vs. reactive) and organizational
setting (i.e., open vs. closed). We identified examples of each of the four types.
We will first present these types, and then discuss the effects of fit between the
innovativeness, strategic context, and organizational setting of a business model
innovation on the success of the innovation.

Four main types of business model innovations


Open/proactive: Cases D and F were highly successful open/proactive business
model innovations. This type has many potential advantages but also disadvan-
tages, particularly the risks involved (e.g., Lieberman & Montgomery, 1988, 1998)
in aiming for a radically new to the industry (case F) or even the world (case D)
innovation. Company Alpha reduced those risks by limiting the complexity of the
innovations to four building blocks (target customers, core competences, partner
network, and profit formula). Rather than developing entirely new core compe-
tences, the company acquired and enhanced existing competences. Furthermore,
company Alpha conducted and deployed these innovations through a joint venture,
which allowed it to share the risks involved, while keeping its existing business
and the necessary competences intact.
Closed/proactive: Cases A, 1, and, depending on perspective (see below),
also case 3 were closed/proactive business model innovations. Case A was aimed
at developing an entirely new business in addition to company Alpha’s existing
activities. Case 1 involved a major overhaul of company Beta’s existing business.
Both innovations involved a significant departure from the companies’ current
activities (high radicality), offering new-to-the-industry products (high reach),
requiring changes in all (case 1), or most (all except new competence development
or acquisition, case A) building blocks (high complexity). The risks involved in this
type of innovation are high, in particular if it is aimed at replacing the company’s
entire business model, as in case 1. Obviously, developing an additional business
as in case A is also risky, but in that case the company still has its existing
business to fall back to. Cases A and 1 were highly successful and worth the risks
involved.
Open/reactive: Cases E and 2 were open/reactive business model innovations,
but had radically opposite characteristics in terms of their innovativeness. Aimed
at offering new-to-the-industry products (high reach), case E marked a next step
in company Alpha’s strategy in that it involved an improvement (low radicality) of
relatively few of the building blocks (low complexity) of the company’s already
highly unique business model. Due to these characteristics, this was a relatively
low-risk innovation, whose (financial) risks were further reduced through the es-
tablishment of a joint venture with a venture fund. Case 2 was an acquisition, which
did not change the industry, let alone the world (low reach), but gave company Beta
access to a very different industry (high radicality). After a major redesign (high
Table 3: A business model innovation typology.
Business Model Innovation

Innovativeness

Case Context (Type) Radicality Reach Complexity Key Characteristics

D, F Open proactive High High Low • Internal/external – change: Resulting in a spinoff, a joint venture, or
licensing to a partner with limited effects on the existing core
business.
Taran, Boer, and Lindgren

• Risk level/failure effects: Medium risk of failure. If the innovation


fails, the company can continue to operate in existing markets if
the business model innovation initiative fails, provided that the
financial losses (due to the failure) are not too large.
A, 1 (3) Closed proactive High High High • Internal/external – change: Internally conducted business model
innovation process, involving a radical change in the existing
business model (case 1) or a new business unit.
• Risk level/failure effects: High risk of failure. If the
competence-destroying innovation (case 1) fails, the company will
no longer have an operational business, and will therefore cease to
exist.
E Open reactive Low High Low Variant A:
• Internal/external – change: Improvement of the company’s already
highly unique “as is” business model. Aimed at leveraging the
company’s homegrown assets (patents, know-how, brand), and
conducted together with a venture fund, in the form of a joint
venture.
• Risk level/failure effects: Low risk of failure. The business model
innovation process involves relatively limited changes to the core
business and will, possibly, result in some sort of “open” formation
outside the company’s borders so that the core business will be
able to continue operating freely.
319

Continued
320

Table 3: Continued
Business Model Innovation

Innovativeness

Case Context (Type) Radicality Reach Complexity Key Characteristics

2 High Low High Variant B:


• Internal/external – change: Acquisition, followed by radical
changes to the core business of the acquired company, which will,
however, result in a “me-too” business model.
• Risk level/failure effects: Medium risk of failure. If the acquisition
would fail, the company still has its existing business as a basis for
continuity.
B (C, G, 3) (Partly) closed reactive Low Low High • Internal/external – change: Many incremental changes to the core
business of the company, conducted mostly internally (except for
outsourcing – e.g., cases C and G).
• Risk level/failure effects: Low to medium risk of failure (except for
3: high risk of failure). The focus is on continuous improvement
(e.g., Kaizen) initiatives, and will result in a “me-too” business
model, with very limited effects in case of failure
A Business Model Innovation Typology
Taran, Boer, and Lindgren 321

complexity), the acquired company was expected to continue as an independent


business. Cases E and 2 were very successful.
(Partly) closed/reactive: This last group is problematic. Case B is a
closed/reactive innovation. Cases C and G are partly closed/reactive innovations.
Both cases involved an attempt to outsource some of company Alpha’s activities
to a partner, marketing and sales (case C) and manufacturing (case G), respec-
tively. Through case 3, company Beta attempted to push a radically new product
into the marketplace. Although it had all the innovativeness characteristics of a
closed/reactive business model innovation (low radicality, low reach, high com-
plexity), content-wise case 3 involved a closed/proactive innovation. Innovations
in this group are largely governed and handled internally, although there may be
some partner interaction (e.g., the outsourcing attempts in cases C and G). The out-
come of this type of innovation is a range of incremental (low radicality) changes
in all or most of the company’s business model building blocks (high complexity),
which are, however, at best new to the company. In effect, the risks involved were
low and the consequences of failure limited.
The effect of fit on success
Except for open/reactive innovations, there appears to be fit between the inno-
vativeness, strategic context, and organizational setting of the business model
innovation.
Open/proactive business model innovations are associated with high levels of
radicality and reach, and a low level of complexity (cases D, F). Closed/proactive
innovations score high on all three innovativeness characteristics (cases A, 1, and,
depending on perspective, 3). Business model innovations taking place in a (partly)
closed/reactive context are low in radicality and reach, but high in complexity (cases
B, C, G, and, again, depending on perspective, 3).
As to the open/reactive innovations, the picture is less straightforward: cases
E and 2 have radically opposite characteristics – low-high-low and high-low-high,
respectively. Through case E, company Alpha tried to use its existing competences
to go beyond its current market and reach out to the rest of the industry, with
a partner, in the form of a joint venture. Case 2 involved the acquisition of an
existing company, which left company Beta’s internal organization largely intact,
but enabled it to access new markets with new products. The implication of this
finding is that we should distinguish between two open/reactive subtypes (see
Table 3).
Three of the ten business model innovation attempts failed (shown in brack-
ets in Table 3); one was a partial success. All these cases fall into the (partly)
closed/reactive group.

IDEAL TYPES: IDENTIFICATION AND TENTATIVE


EXPLANATION
Ideal Types
The differences between the success and (partial) failure cases suggest that fit
among innovativeness, strategic context, and organizational setting affects the
322 A Business Model Innovation Typology

likelihood of success. The finding that fit plays an important role is concurrent
with various bodies of theory, including manufacturing strategy (e.g., Hayes &
Wheelwright, 1984; Skinner, 1985), organization theory (e.g., Mintzberg, 1979),
and innovation theory (e.g., Boer & During, 2001).
On the aggregate innovativeness scale combining radicality, reach, and com-
plexity, all successful cases, A, D, E, F, 1, and 2, were more innovative than the
partially successful case B and the failures C, G, and 3. All successful cases were
high in reach, except case 2, and highly radical, except case E. In contrast, cases
B, C, G, and 3 were low in radicality, low in reach, and high in complexity.
A deeper look into the failure cases suggests a pattern. First, complexity
hardly seems to explain the difference between success and failure, but radicality
and reach do. Case C involved the establishment of a new business unit offering
incremental improvements to existing products, combined with outsourcing of
marketing and sales to a partner. Case G concerned outsourcing of manufacturing
to a partner, which, however, failed to result in a competitive product. Company
Alpha is, indeed, a highly competent design company, accustomed to pushing
new products into the marketplace and with a successful history of technology
development collaborations. However, the company may have underestimated
the complexities involved in establishing a successful operational collaboration
through outsourcing. Case 3 failed because company Beta tried to push a new
product into the market – they improved (low radicality) many of the building
blocks (high complexity) to develop a new product for (mostly) existing market
segments (low reach), without, however, having any idea of how customers would
respond. In other words, the innovativeness characteristics are associated with a
(partly) closed/reactive innovation, rather than the closed/proactive innovation it
actually is.
Accepting the organization theory notion (e.g., Doty et al., 1993) that ef-
fective configuration implies ideal type, the open/proactive configuration, the two
forms of closed/proactive configuration, and the open/reactive configurations rep-
resent ideal types. The closed/reactive configuration may also be an ideal type, but
we do not have sufficient evidence for that, as the three failures are examples of
business model innovations that fall between the (other) ideal types; they are either
not entirely closed, or represent some mix of proactive and reactive behavior.

Tentative Explanation and Propositions


Risk appetite (e.g., HM Treasury, 2006; KPMG, 2008) and mitigation, that is,
dealing with the potential effects of failure, seem to explain most of the associa-
tions between the innovativeness, proactiveness, and openness of business model
innovations.
Successful high radicality, high reach, and low complexity business model
innovations are associated with an open, proactive approach. High radicality and
reach are clearly associated with proactiveness. Companies mitigate the risk in-
volved by keeping the innovation outside their existing core business. They reduce
the risk and effects of failure further by focusing on a limited number of building
blocks. Based on this, we propose:
Taran, Boer, and Lindgren 323

Proposition 1: Companies pursuing a proactive, that is, high radicality and high
reach, business model innovation, best adopt an open approach aimed at establish-
ing a new business outside their existing core business or some form of external
collaboration, with a limited number of new building blocks.
A proactive company pursuing a highly complex business model innovation
takes serious risks and the consequences of failure may be disastrous, especially if
it adopts a closed approach. The company should be prepared to take and actively
manage the risks involved in innovating its entire core business. We propose:
Proposition 2: Successful companies pursuing a proactive, that is, high radicality
and high reach, as well as high complexity business model innovation, and adopting
a closed approach, take and actively manage the risks involved in innovating their
entire core business.
A company pursuing an open, reactive business model innovation is cautious.
In variant A (Table 3), the company reaches out to the world but stays close to
home at the same time, by only pursuing incremental innovation of a limited
number of building blocks. Alternatively, in variant B (Table 3), the company may,
for example, acquire an existing company in a different industry, which provides
it with several radically different buildings blocks that the company may further
develop based on its own experiences. The result, however, is a mostly “new
to the company” business model. The risk level is low (variant A) to medium
(variant B) and the effects of failure are limited as the company’s existing business
is not affected.
Proposition 3: Companies pursuing an open, reactive business model innovation
are cautious, keep the risk involved relatively low, and go for low radicality, high
reach, and low complexity or, alternatively, high radicality, low reach, and high
complexity, which, in both cases leads to limited effects, should the innovation
fail.
Closed, reactive business model innovations are associated with low radical-
ity, low reach, and high complexity, low to medium risk and limited failure effects.
As our research did not provide evidence of successful cases of this type, further
research is needed to investigate if closed, reactive business model innovations can
be successful.

CONTRIBUTION AND FURTHER RESEARCH


Theoretical Contribution
Business model innovation matters, but business model innovation theory is scarce
and lacks an intellectual home (Teece, 2010). We used notions from innovation,
organization, strategy, and business model theory to inform a multiple case study
aimed at developing a typology of business model innovations, a first yet necessary
step in the building of theory, and a powerful tool for strategic decision makers.
This article contributes to innovation theory, which has largely neglected the phe-
nomenon of business model innovation, and to the business model community,
which has put little effort into theory development.
324 A Business Model Innovation Typology

The study suggests that the success of the innovation depends on, among
others, the company’s appreciation of the new business model’s innovativeness and
the extent to which the company achieves fit between the innovativeness (radicality,
reach, complexity), strategic context (proactiveness), and organizational setting
(openness) of the innovation.
These factors define four types of business model innovation. The case
studies showed that three of these types present ideal types, that is, effective forms
of business model innovation, but did not provide enough evidence to conclude the
same about a fourth type. The four types are essentially different in the way they
were triggered (strategic context), the locus of the process (organization setting),
the innovativeness of the business models pursued and the risk involved, as well as
the consequences of failure. A company’s risk appetite and mitigation seem to be
major factors explaining the existence of the four types. The association between fit
among the innovativeness, strategic context, and organization setting of a business
model innovation on the one hand, and success, on the other, together with our
arguments for the central role of risk (appetite and mitigation), led us to develop
three propositions for further research.

Limitations and Further Research


Given the highly explorative nature of this study, as well as its small sample, the
typology, its explanation and the propositions should be considered as tentative
theory. Several approaches are possible to extend and test the typology proposed,
including more case studies to shed additional qualitative light on the findings
presented here. Two issues deserve specific attention.
First, both companies are analyzers, large (in EU terms), active in the elec-
tronics industry, and located in Northwest Europe. Further, preferably survey-
based, research is needed to test whether the typology and the propositions hold
beyond these limitations.
Important inputs to the development of that survey are related to the second
limitation. It is not unlikely that we overlooked important descriptors of each of
the four types. For example, we identified the role of risk and the potential effects
of failure, but there may well be other aspects in which business model innovations
differ. Research into technological, product and, to some extent, organizational and
administrative innovation has identified a range of issues including, but not limited
to, success factors (Project SAPPHO – Rothwell and his colleagues, starting with
Rothwell et al. (1974) and Rothwell, 1977; Project NewProd – Cooper and his
colleagues (e.g., Cooper, 1980; Cooper & Kleinschmidt, 1995), the roles of key
individuals in innovation processes (e.g., Schön, 1963; Frohman, 1978; Maidique,
1980; Roberts & Fusfeld, 1981; Boer & During, 2001) and also insight into the
organizational context (Burns & Stalker, 1961; Hage & Aiken, 1970; Zaltman,
Duncan, & Holbek, 1973; Pierce & Delbecq, 1977; Daft, 1978) and, more recently,
the process of innovation (Cooper, 1983; Van de Ven & Poole, 1990; Roussel, Saad,
& Erickson, 1991; Van de Ven, 1992; Boer & During, 2001).
With reference to Cooper and Kleinschmidt (1995), whose five categories of
success factors encompasses all of these issues, we have limited insight into the
influence of process (except for the impact of market understanding or, rather, lack
Taran, Boer, and Lindgren 325

thereof) and lack data about culture and (senior management and organizational)
commitment. Furthermore, our insight into the role of strategy and organization
is limited to two aspects, proactiveness and openness, respectively. For example,
we lack data on the role of key individuals. There is a wealth of theory on (mostly
product) innovation, organization, and strategy, in addition to the authors referred
to above, which may help in developing propositions on the influence of each of
these five categories on the success of business model innovation, which can be
operationalized and tested through the survey suggested above.

(Potential) Managerial Contribution


Should it appear that further research enriches, but does not essentially alter, the
business model innovation typology and, particularly, the influence of consistency
on success, the typology presents a powerful decision-making tool. First, it helps
managers to identify, estimate, and seek consistency between the key drivers of
business model innovation success, including innovativeness, strategic context,
and organizational setting, and possibly also the factors categorized by Cooper
and Kleinschmidt (1995). Second, the typology as is includes key pointers to be
considered, particularly the importance of risk appetite and mitigation. Hopefully,
further research as indicated above will produce more pointers.

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APPENDIX: INTERVIEW GUIDE


Only the questions relevant to this article are listed here. Company information
(e.g., location, size, structure, products, and markets) were inferred from company
documents and checked with the interviewees).

Innovation Content
(1) How many business model innovations did the company experiment with
over the past couple of years?
(2) From a business model perspective, what did these innovations involve,
that is, which building blocks were changed?

Business Model Innovativeness


(3) Please map each of the business model innovation initiatives according
to the three-dimensional innovativeness space (Figure 1 in the article).
Taran, Boer, and Lindgren 331

Strategic Context
(4) Why did you choose to engage in each of these business model innova-
tions? Was it a response to some kind of threat (reactive) or did you take
an advantage from an emerging opportunity (proactive)? Which of the
innovations would you rate as “idea push,” which as “market pull”?

Organizational Setting
(5) Which of the business model innovations were mostly conducted inter-
nally, which involved with external partners? How? Why?

Innovation Success
(6) In terms of profitability, which of the business model innovations do you
consider to be successful, partly successful, or a failure?

Dr. Yariv Taran is an assistant professor in innovation and organization at the


Center for Industrial Production at Aalborg University. He received a BSc in man-
agement and sociology at the Open University of Israel, and an MSc in economics
and business administration at Aalborg University, from where he also received his
PhD in business model innovation. His research focuses on business model inno-
vation. Other areas of research interests include intellectual capital management,
knowledge management, entrepreneurship, and regional systems of innovation.

Dr. Harry Boer is professor of strategy and organization at the Center for Indus-
trial Production at Aalborg University. He holds a BSc in applied mathematics and
an MSc and PhD both in management engineering. He has (co)authored numerous
articles and several books on subjects such as organization theory, flexible automa-
tion, manufacturing strategy, and continuous improvement. His current research
interest concerns the organizational aspects of continuous innovation – studied as
the effective integration of day-to-day operations, incremental improvement, and
radical innovation.

Dr. Peter Lindgren is professor of multi business model innovation and technol-
ogy at Aarhus University. He holds a PhD in network-based high-speed innovation
from Aalborg University. He has (co)authored articles and books on (multi)business
model innovation and technology. He was a visiting researcher at Politechnico di
Milano and Stanford University. He founded the International Center for Inno-
vation and the research group Multi Business Model Innovation and Technology
(MBIT) at Aalborg University. Currently, he is a thematic leader at The Center for
TeleInFrastruktur (CTIF) at Aarhus University and editor of the Journal of Multi
Business Model Innovation and Technology.