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Summary Reinventing business models - Henk Volberda €6,48
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  3. Universiteit Van Amsterdam (UvA)
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  5. Digital transformation and strategic innovation

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Summary Reinventing business models - Henk Volberda

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Although research on business model innovation is flourishing internationally, many important questions on the 'how', 'what', and 'when' of this process remain largely unanswered, particularly in regard to the role of top management. This book answers some of those pressing questions by taking a de...

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Voorbeeld van de inhoud

Inhoudsopgave
Volberda, H.W., Van Den Bosch, F.A.J., & Heij, K. (2018). Chapter 1...................................................................2
Volberda, H.W., Van Den Bosch, F.A.J., & Heij, K. (2018). Chapter 2...................................................................4
Volberda, H.W., Van Den Bosch, F.A.J., & Heij, K. (2018). Chapter 3...................................................................8
Volberda, H.W., Van Den Bosch, F.A.J., & Heij, K. (2018). Chapter 4.................................................................13
Volberda, H.W., Van Den Bosch, F.A.J., & Heij, K. (2018). Chapter 5.................................................................16
Volberda, H.W., Van Den Bosch, F.A.J., & Heij, K. (2018). Chapter 6.................................................................18
Volberda, H.W., Van Den Bosch, F.A.J., & Heij, K. (2018). Chapter 7.................................................................20
Volberda, H.W., Van Den Bosch, F.A.J., & Heij, K. (2018). Chapter 8.................................................................28

,Volberda, H.W., Van Den Bosch, F.A.J., & Heij, K. (2018). Chapter 1.
Introduction
In the current turbulent environment, it is no longer relevant to ask whether firms should innovate
their business model. These days it is about how you change your business model, when, and the
extent to which you do that.
This book seeks to give us a better understanding of how firms can innovate their business
model, what kind of levers management should work on, and when management should change the
business model.

The need for business model innovation
The speed with which technologies and strategies change forces firms to innovate their business
model continually. This is true of almost all industries.
Venkatraman and Henderson (2008) stated that ‘it is no longer adequate to innovate in narrow
domains – products, processes and services [….] we need to innovate more holistically – namely: the
entire business model.’
The first sign that a business model is under pressure is often that new generations of products
and services are not significantly better.
Instead of long, stable periods with gradual erosion of the dominant business model, competition
is now characterized by short periods of competitive advantage, alternating with frequent
disturbances and disruption of the business model (slide 25, lecture 1). Firms will have to cope with
frequent disruptions that are either demand-driven, supply-driven or a combination of the two.
The well-known management author Gary Hamel calls the current era the ‘revolution era’:
instead of there being just more of the same, these days changes are abrupt, discontinuous, and
seditious. Change itself has changed, and enterprises have to cope with more and more turning
points.
Managers and management authors are in agreement that the way to future success lies in
moving away from traditional prescriptions for strategy. Merely defending a competitive advantage
is tantamount to stagnation. Inventing something new does not guarantee success, but nor does
imitating one’s rival. This raises the question of how a firm is to stay on its feet in a swiftly changing
competitive landscape.

A competitive race with only losers?
Firms can now only achieve temporary competitive advantages, because those advantages are being
imitated or improved upon at an ever more rapid rate through business model innovation by other
players in the market. This has brought greater competitive pressure and the need to change even
faster.
The continuous interaction between changing and learning on the one hand, and greater forms
of competition and selection on the other, has been dubbed the ‘Red Queen race’. The players in a
specific market are involved in a constant race against one another to incorporate new technologies
and market approaches in their business model. Because everyone is running equally fast, nobody
develops any real lead. Firms adapt faster and faster, but relatively speaking the players seem to be
standing still because others are doing the same.
A strong tendency to keep exploiting existing opportunities results in routines. These routines are
institutionalized in rules, regulations, planning and control systems, and shared norms and values.
Learning then only occurs within the existing standards and values (single-loop learning) and only
results in small-scale improvements. Managers in these kinds of organization avoid risk, preferring
stability. The organization adapts fully to the existing environment (fit), making it highly vulnerable
should the environment change unexpectedly. The potential for change diminishes drastically, and
the organization falls into a business model trap. Because of the fixation on the existing business
model, the strength of the firm ultimately becomes the root of its failure.

,The motivation of the players in the Red Queen race is ‘how to do what you are currently doing
better’. That does not result in actual progress. What helps organizations leave the red Queen race is
not an established business model, but business model innovation. Organizations need to go in
search of more dynamic sources of competitive advantage, setting their sights on ‘how to be
different’. The following can be a dynamic source of competitive advantage:
 A challenge vision (Tesla)
 A forward-looking perspective on how an industry branch could develop
o We see several game-changers that have disrupted the established logic of value
creation and capture in their industry sectors (e.g. Ikea & Amazon)
 A capacity to reflect on the learning system
o Honda, for example, employed ingenious means to trigger self-questioning and
learning within the company. In Honda’s confrontational style, for example,
hierarchy is discouraged, and young employees are given more responsibility.
 An innovative culture (Google)
Competing successfully in turbulent markets requires business model renewal, an approach which is
essentially different to business model replication, which is needed in more stable markets. Firms
must continually build and exploit new business models.
Sooner or later, the development of new capabilities and business models will come up for
discussion in every firm. The big question is how established organizations can work on this while
their existing models are still making substantial contribution to sales and profit. What firms do is still
dictated to some extent by the restrictions of past business models. In some cases, firms will have to
cannibalize their existing business models in order to introduce new, competitive models. It is not
always possible for new model to come into being alongside the old one, and that does not make the
task for the mastodons any easier.

, Volberda, H.W., Van Den Bosch, F.A.J., & Heij, K. (2018). Chapter 2
Firms constantly change their business models in order to compete effectively. They can use various
levers: develop new or improved technology, create new management practices, adopt new
organizational forms and engage in co-creation. This leads to the improvement or replication of the
existing business model or to the invention of an entirely new business model that is, business model
renewal.
To what extent do firms innovate their business model? How do they do that successfully? In the
following chapter we deal with these other questions and present new insights with the help of
finding from our research.

Introduction
Changing competitive environments force firms to innovate their business models. This can go in two
directions: replication or renewal. Firms can apply different business model innovation strategies in
different phases of development.

Elements of a business model
Despite many academic and management books on the subject, there has never been a truly clear,
unambiguous definition of the concept. But there are three common elements:
1. A business model describes the architecture of a number of components
 Architecture = the internal and external actors, information flows, products and services
which the enterprise uses to create value for one or more target groups.
 Success of a business model is dependent partly on how it relates to the business models of
external players, whether they be partners or rivals.
 One element central to business model is the operational model = how key resources,
capabilities, activities and processes and their interdependencies ranging from firms input and
output are deployed in order to realize operational and process advantages.
2. A business model represents how value is created and how the firm appropriates that value
 The value proposition describes how value is realized for specific target groups and markets.
 One fundamental element: economic model = the cost structure and the mechanisms by
which the firm generates revenue and makes a profit.
 A business model should create some level of value for customers and stakeholders, but also
‘entices customers to pay for value, and converts those payments to profit through the
proper design and operation of the various elements of the value chain.
3. A business model sets out the competitive strategy by which larger or new competitive advantages
are achieved.
 Business model answers questions like: how can the firm position itself on the market?
Which core competencies underlie this positioning? What limits the scope of the enterprise,
and within this scope, how can advantages be gained over rivals?
 Clearly identifying stakeholders, differentiating one’s offerings, and having a clear vision are
all important elements.
 If a business model does not result in a competitive advantages which is sustainable, it has
no value.
 The success or failure of a business model depends to a large extent on how it compares to
business models of other players in the industry.

Business model innovation
Business model renewal = overhauling the business model fundamentally.
The introduction of new business model components or new interdependencies between those
various components which go beyond the framework of an existing model in order to create and
capture new value.
 Increases a firm’s chances of survival in the long run, but it is a risky process.

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