Internationalization and the Need of Business Model Innovation

4. Business Model Innovation

Competitive environment requires from companies not just addressing customer needs more precisely, but also capturing value by continuously providing new products and services. As highlighted by Chesbrough, a company should have "at least as much value to gain from developing an innovative new business model as from developing an innovative new technology"; managers need to develop the capability to innovate their BM. The need for change can be either in response to or in proactive anticipation of exogenous change.

Usually companies innovate their BM when they first create it. However, the need for innovation must be a constant during a company's life to keep the BM viable. To innovate their BM, managers must rethink an old model to make it fit for the future. The need for innovation becomes greater when 'old' models no longer work, and a BM experimentation turns out to be very important, since only experimentation can help identify and create the data needed to justify a new BM.

To innovate in BM, companies need to develop processes that provide high fidelity as quickly and cheaply as possible, aiming to gain cumulative learning from (perhaps) a series of 'failures' before discovering a viable alternative BM. It is a continuous and evolutionary process, which focuses on the learning aspects of the process to improve it.

BM is a way to deliver a frame to organize value-creation and value-capturing transactions in a company. To innovate, managers need to rethink the customer value proposition to reconfigure the creation value and the value-capturing activities. New BM will provide new opportunities for the company to gain competitive advantages. The continuous BM innovation may include attention to the identification of virtuous cycles in the company actual model. It should also include the identification and correction of any vicious cycles like those generated by BM inconsistencies and those that could become virtuous if supported by appropriated complementary choices. A recommendation proposed by Casadesus-Masanell and Ricart is to pay attention to act in interaction with other industry players' BM as the business interaction may open opportunities to reconfigure the BM adding value to 'open spaces' where there is little negative interaction with other industry players, as well as to build positive and complementary interactions when possible, and to reduce negative interactions or neutralize them through tactical choices.

Chesbrough argues that the success of the current BM may influence the managers to keep it, instead of trying a new one. Innovation in business may involve a conflict with more traditional configurations of firm assets. Christensen and Raynor highlight a potential tension because of a conflict between an already established BM and a new one that is required to explore an emerging or disruptive technology. Euchner calls it the 'paradox of BMI - "(…) it should probably be undertaken only when necessary - that is, when the existing business model is hitting its limits - but it must be initiated while that model is still profitable, before there is sufficient discomfort to motivate such wrenching change. That makes implementation tricky".

Emergent opportunities usually lack deep wealth of data to justify company's actions. Chesbrough emphasizes that "it is only through taking experimental actions that new data will be generated". It does not mean that companies should always take risks to innovate their BM, instead, it means that a portion of experimentation is needed to catch the best opportunities to innovate. The simultaneous existence of a traditional BM and a new one may imply in conflicts with functional areas and available resources. The co-existence of theses BM reveals another barrier related to this process: leadership. The lack of leadership may make it impossible to deliver a new better BM for the firm. A final barrier is culture. Company's culture must embrace the new model, while keeping the effectiveness of the current one.

Considering BMI as the process to optimize and reengineer complex resources, Zhang, Zhao and Xu identified three types of BMI:

Original innovation is related to existing or new companies that offer product or services using a new BM. It can be motivated by the discovery of potential market opportunities and represent an effort to meet these new demands. It can also represent a consequence of new operation processes, including the process of producing and selling products and services, to reduce transaction costs and improve profit, outsourcing, and/or integration.
Induction innovation is related to external factors that affect one or several elements of the BM, as the changes in the business value system, the changes promoted by a complex economic environment, a dynamic market demand, technology innovation, information flow, and industry evolution.
Imitation innovation is based on the development of similar successful BM.