Paving the way for a new composite indicator on business model innovations

 Economy & Finance

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In the USA, 40% of the 27 companies founded in the last 25 years, that grew their way into the Fortune 500 in the past 10 years did so through business model innovation (Johnson, Christensen, & Kagermann, 2008). David Teece (2010) suggested that the more radical a technological innovation, the greater the need for business model innovation (BMI) in order to capture (part of) the value created by the new technology. Overall, there is a growing focus on business models and business model innovations (BMI) (Zott, Amit, & Massa, 2011). However, academic research seems to lag behind business practice (ibid.) and we currently know rather little on business model innovations. A big part of the growing literature on BMI is conceptual (see the reviews in Morris, Schindehutte, & Allen, 2005; Osterwalder, Pigneur, & Tucci, 2005; Zott, et al., 2011). Others have developed instruments for using the concept in business practice and consulting (Osterwalder & Pigneur, 2009). Empirical evidence on BMI results mainly from case studies and very few ad-hoc and mostly non-scientific surveys. Methodologically stronger innovation surveys, such as the harmonized European Community Innovation Survey (CIS) 2010, the Japanese National Innovation Survey 2012 or the US Business R&D and Innovation Survey (BRDIS) 2010 do not know the concept of BMI (see Barjak, Niedermann, & Perrett, 2013). The same applies for the Oslo Manual, the OECD guidelines for collecting innovation data, which defines and describes four types of innovation but excludes BMI in its most recent edition (OECD, 2005). CIS experts have complained about the low use and impact of the CIS dataset, the most comprehensive multi-country data set on corporate innovation (Arundel, 2007; Bloch & Lopez-Bassols, 2009). The development and analysis of complex indicators can be a remedy to this, raising the policy relevance of CIS survey questions (Arundel, 2007). A number of such indicators have been suggested to identify different innovation modes or types (Frenz & Lambert, 2012), however, the construct of BMI is also omitted in this line of work. The present paper aims to close this gap by • linking the BMI construct conceptually and empirically to established innovation surveys and their definitions, • identifying gaps in the survey coverage with regard to the BMI construct, • developing suggestions on how to close these gaps. We first introduce our understanding of business models and business model innovations in the next section. In section 3 we implement this definition, develop a composite indicator for BMI and measure it with data from CIS 2008 and CIS 2010. The last section summarizes and concludes the paper.
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  • 1. 2014 Science and Technology Indicators Conference 3-5 September 2014 Leiden, The Netherlands Paving the way for a new composite indicator on business model innovations by Franz Barjak and Marc Bill Bild und Farbe
  • 2. Why bother about an indicator for business model innovations? • It is an important road to being successful as an organisation, • There exists a lot of conceptual literature and popular instruments for using the concept in business practice and consulting, e.g. the Business Model Canvass (Osterwalder & Pigneur, 2009), • Empirical evidence on BMI is limited • mostly case studies with few cases – except for Amit & Zott (2001) who looked at 59 e-business cases, • manually collated data sets (Hartmann, Oriani, & Bateman, 2013; Zott & Amit, 2008), • ad-hoc non-scientific surveys from consultancies such as the BCG innovation survey or the IBM CEO survey • While at the same time methodologically stronger innovation surveys are underused and lack indicators to inform on many aspects of innovations (Arundel, 2007; Bloch & Lopez-Bassols, 2009) © F. Barjak & M. Bill, 2014 02/12/14 2
  • 3. Objectives and approach 1. Linking the BMI construct conceptually and empirically to established innovation surveys and their definitions, – Mapping of BMI framework on OECD and Eurostat/CIS innovation concepts 1. Identifying gaps in the survey coverage with regard to the BMI construct, – Implementing the BMI framework in a multiple case comparison of selected BMI cases (not reported in this paper due to constraints of time and space) 1. Developing suggestions on how to close these gaps © F. Barjak & M. Bill, 2014 02/12/14 3
  • 4. Conceptualisation of Business Models and BMI (see Osterwalder & Pigneur, 2009; Teece, 2010; Yunus, Moingeon, & Lehmann-Ortega, 2010; Zott, Amit & Massa, 2011) BMI: Fundamental and interconnected change of all three elements of a business model © F. Barjak & M. Bill, 2014 02/12/14 4
  • 5. Linking the BMI construct conceptually and empirically to established innovation surveys and their definitions BM com-ponent Innovation types Proposition Value creation Product innovation 1. New value propositions will in many, if not in most cases, coincide with product innovations. Business system Process innovation, organisa-tional innovation 2. Changes of business systems can be in the form of changes in the production processes as well as internal and external organisation and division of labour along the value chain. Value capture Process innovation, marketing innovation 3. A new approach for capturing value will coincide with a process and/or marketing innovation. © F. Barjak & M. Bill, 2014 02/12/14 5
  • 6. Reducing type I and II errors • Combination of innovations is not included in innovation surveys • Limitation of the analysis to SMEs (firms with <250 employees AND < 50mEUR annual turnover) • Fundamental or radical and not only incremental change • New or significantly improved at the level of the market or industry (not only company, but not necessarily world) © F. Barjak & M. Bill, 2014 02/12/14 6
  • 7. Results – BMI in SMEs by industry according to CIS 2008 and 2010 2.7% 7.5% 2.4% 3.3% 6.4% 5.3% 5.2% 4.4% 1.7% 3.6% 2.8% CIS 2008 CIS 2010 10.4% 6.2% 5.4% 6.5% 6.2% 6.3% 2.2% 12.2% 5.5% B: Mining C: Manufacturing D: Energy E: Water & waste 46: Wholesale trade H: Transportation, storage 58, 61-63: Publishing, telecommunications, computer… K: Finance & insurance 71: Architectural and engineering activities, technical testing and… Total 0.0% 5.0% 10.0% 15.0% © F. Barjak & M. Bill, 2014 02/12/14 7
  • 8. BMI in SMEs by country according to CIS 2008 and 2010 © F. Barjak & M. Bill, 2014 02/12/14 8
  • 9. BMI in all and only in exporting SMEs by country according to CIS 2008 © F. Barjak & M. Bill, 2014 02/12/14 9
  • 10. Sensitivity • IBM CEO Survey 2006 of mainly large firms: • 14.9% of all European respondents realised a BMI (IBM according to Bock et al., 2011) • Our operationalisation with CIS 2010 data for larger companies (> 250 employees) • 18.7% of large companies in Europe meet our criteria for BMI • In both surveys finance companies are most often business model innovators among large firms © F. Barjak & M. Bill, 2014 02/12/14 11
  • 11. Summary • It is possible to operationalise a composite indicator for BMI with data on innovations resulting from the work of OECD and Eurostat working groups. • Challenges which need to be addressed – Assessing the connections between different types of innovations – Measuring the degree of novelty of non-technological innovations – Conceptualising and assessing revenue model innovations • Business model innovators are a small fraction of companies – Improve the information basis through a better measurement and quantification of business model innovators in both SMEs and large companies is a first step towards improving the conditions for BMI and lowering the barriers against it. © F. Barjak & M. Bill, 2014 02/12/14 12
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