Changes within the business model

The literature on business models has been reviewed in order to understand how a company can introduce important changes in its business and what it requires in order to achieve these transformations. However, there is a lack of research about how a business can deal with previous core choices undertaken during a past model.

For instance, the design of a business model and the strategic choices made under it bring specific consequences on how a business operates and deliver value to its customers and stakeholders (Casadesus-Masanell & Ricart, 2010).

Moreover, when developing a particular business model there are a set of core capabilities that the company needs to acquire and develop in order to sustain the business. Leonard-Barton (1992) uses the term core capabilities in order to define the set of differentiated skills, assets and routines which strategically distinguish one company from another, and which are required in order for a business to succeed in its industry. Core capabilities can be classified within four main types of knowledge: employee knowledge, technical systems, managerial systems and value and norms. The connection between these different types of knowledge make a specific company’s core capabilities difficult to imitate for competitors (Leonard-Barton, 1992).

In order for a business to develop and carry out its projects, it is necessary that these projects are aligned with its core capabilities (Leonard-Barton, 1992). Furthermore, an optimal configuration of a company’s strategic choices can induce a virtuous circle which reinforces those choices and the core capabilities behind (Casadesus-Masanell et al., 2010). On the other hand, an inappropriate set of knowledge can inhibit the development of a business and it takes the name of core rigidities, which represent the flip-side of core capabilities (Leonard-Barton, 1992).

The existing literature emphasizes the need for always evolving the core capabilities in order to survive and to face the changes in the marketplace (Leonard-Barton, 1992).

Once the business model has been designed, strategic choices made, and core capabilities developed, making some modifications and changes could be costly and difficult for the business (Casadesus-Masanell & Ricart, 2010).

Companies often fail to experiment and develop new business models, which can instead be essential in order to obtain more efficiency within the business (Hayashi, 2009). Indeed, experimentation can help managers to identify the weaknesses of their business choices and practices, fine-tune their strategies and, if necessary, move to a new business model (Hayashi, 2009).

To help managers in this challenge, the research has developed a five-step process. Firstly, a company should analyse its surrounding environment and look for other firms which have been through a business model change, in order to understand what and how they did it. Then, the company should state its beliefs and develop hypotheses in order to test and verify those beliefs. Consequently, the firm has to design and develop the experiments for its business model change and, finally, it has to generate and analyse the results in order to decide whether or not to implement the proposed changes (Meyers, 2010).

Nowadays, changes in the business model have gained more popularity than ever, the literature has pointed out their potential to both generate innovation end be means of innovation themselves. It can be said that they represent a new dimension of innovation other than product and process innovation (Massa & Tucci, 2014).

With the diffusion of the internet and of the Information and Communication Technologies (ICT), experimentation and innovation within the business model have risen, creating new opportunities for business activities.

There are three main reasons behind the shift in how businesses are conducting their activities. Firstly, the post-industrial technologies, namely the development of new technologies and industries, has signed the creation of new types of products and services. Software as a service (SaaS), market for ideas and open source services represent clear examples of these new products which require the development of new organizational structures (Massa & Tucci, 2014). The second reason refers to the necessity of companies to reach new markets or customers at the bottom of the pyramid (BoP), which requires the development of new organizational structures able to better respond to a different economic, cultural, and social environment. Lastly, companies increasingly focus on sustainability and contribute to solve social issues through their activities.

Particularly, Massa and Tucci (2014) propose three definitions to describe business models and their configurations: business model design, business model reconfiguration and business model innovation.

Briefly, business model design refers to the activity of creating a business model for a newly formed organization and it is often linked with the entrepreneurial activities.

Business model reconfiguration, instead, concerns the change of the activities of an already born and running company and these changes can occur with different degrees of radicalism. There are two different types of barriers which a company faces when going through a business model reconfiguration, identified by Chesbrough (2010) as structural barriers and cognitive barriers. Structural barriers refer to a conflict between the current assets of an established business model and the complexity to move to new ones. Cognitive barriers refer instead to the inability of managers to identify and understand the need for a change or the rise of new opportunities for the business. In this scenario, managers are trapped in a dominant logic of how the value is currently retained.

Massa and Tucci (2014) suggest three tools which can be implemented in order to overcome these barriers.

The first one is the construction of a map of the business model useful to clarify the processes underlying it and understand the alternative combinations of these processes. The second tool is identified in the action of giving authority in the company for experimentation. The last tool is represented by the experimentation itself, by putting emphasis on cumulative learning from failures.

Finally, business model innovation refers to the creation of a brand new business model which is different from all the others used within the industry. A business model innovation can be implemented both by a new and an already existing organization.

Business model innovations fall into three different categories: industry model innovation, revenue model innovation and enterprise model innovation. An industry model innovation refers to an innovation introduced within an industry value chain by moving into new industries, readjusting existing ones or creating brand new ones. A revenue model innovation refers to a change in how the revenues of a business are generated, while an enterprise model innovation indicates the change in the role the company plays in the industry.

Concluding, business models can never be fully planned ex-ante as they will always need changes and experimentations and they are shaped through a discovery-driven process (Massa & Tucci, 2014). However, every change which a business model can adopt has to be carefully evaluated; a lot of companies in the past have made changes which destroyed their base value, customers loyalty and trust (Chatterjee, 2013).