Innovation and Business Models

Starting from the mid1990s, business models have received quite some attention, both from academics and practitioners. At a general level, a business model refers to the core logic that a firm or other type of organization (e.g., NGOs, social enterprises, foundations) employ to achieve their goals. Thus, in general terms, the business model construct attempts to capture the way organizations ‘do business’ or operate, i.e., organize their activities, so as to create, deliver, and capture value. Business model innovation (BMI) constitutes a unique dimension of innovation, different from and complementary to other dimensions of innovation, such as product/service, process, or organizational. This distinction is important in that different dimensions of innovation have different antecedents, different processes, and eventually, different outcomes.
Business models have been the subject of extensive research, giving birth to several sub-lines of inquiry. Amongst them, one focuses on business models in relationship to innovation. This is a quite vast, somewhat fragmented, and evolving line of inquiry. Despite this limitation, it is possible to recognize that, at the core, business models are relevant to innovation in at least two main ways. First, business models can act as vehicles for the diffusion of innovation by bridging inventions, innovative technologies, and ideas to (often distant) markets and application domains. As such, business models speak to the phenomenon of technology transfer both from the point of view of academic entrepreneurship and of corporate innovation. Thus, an important role of the business model

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in relation to innovation is to support the diffusion and adoption of new technologies and scientific discoveries by bridging them with the realization of economic output in markets. This is a considerable endeavour, which relies on a complex process entailing the search for and recombination of complementary knowledge and capabilities.
Second, business models are a subject of innovation that can become a source of innovation in and of itself. For example, offerings that reinvent value to the customer—as opposed to offerings that incrementally add value to existing offerings—often involve designing novel business models. Relatedly, BMI refers to both a process, i.e., the dynamics involved in innovating business models, as well as the output of that process. Outputs include innovation, disruptive innovation and innovation that reinvents value to the final customer, beneficiary, or user.
In relation to BMI as a process, the literature has suggested distinguishing between Business Model Reconfiguration (BMR), i.e., the reconfiguration of an existing business model, and Business Model Design (BMD), i.e., the design of new business models from scratch. This distinction allows us to identify three possible instances, namely general BMR in incumbent firms, BMD in incumbent firms, and BMD in newly formed organizations and startups. These are arguably different phenomena involving different processes as well as different moderators. BMR could be understood as an evolutionary process occurring because of changes in activities and adjustments within an existing configuration. BMD involves facing considerable uncertainty, thus putting a premium on discovery-driven approaches that emphasize experimentation and learning and a considerable degree of knowledge search and recombination.