Toward a Theory of Business Model Innovation within Incumbent Firms

INSEAD Working Paper No. 2009/16/EFE/ST/TOM

Posted: 19 Mar 2009 Last revised: 5 Dec 2012

See all articles by José Santos

José Santos

INSEAD - Strategy

Bert Spector

Northeastern University - International Business & Strategy

Ludo Van der Heyden

INSEAD - Technology and Operations Management

Date Written: March 18, 2009

Abstract

This paper presents a theory of business model innovation (BMI) within incumbent firms. The process of business model change is examined, with particular attention to business units in a multibusiness enterprise. The paper expands upon past definitions of business models. It identifies four separate but interrelated components in a business model:

* A set of elemental activities.

* A set of organizational units that perform the activities (some of these units are internal to the firm, others external).

* A set of linkages between the activities, made explicit by an isomorphic set of physical transactions (between the organizational units that perform the activities) and human relationships among the individuals who supervise and/or manage the linked organizational units.

* A set of governance mechanisms for controlling the organizational units and the linkages between units.

A business model thus juxtaposes two systems: a system of activities and a system of relationships. It is only by considering the social contexts in which the internal and external transactions occur that executives can fully appreciate the critical dynamics of organizational change that must accompany BMI.

In focusing on business units within large multibusiness corporations, the paper suggests that those business units can be more likely to produce BMI than freestanding business units if the corporation is able to create a favorable context. The dimensions of that context - what is called the BMI-Conducive Corporation - are explored, as are the transformational organizational changes required to produce such conduciveness. Finally, the paper presents implications for both managers and researchers of the proposed theory of BMI within incumbent firms.

Keywords: Business Model, Innovation, Competitive Strategy, Corporate Strategy, Value Creation, Strategic Renewal

Suggested Citation

Santos, José and Spector, Bert and van der Heyden, Ludo, Toward a Theory of Business Model Innovation within Incumbent Firms (March 18, 2009). INSEAD Working Paper No. 2009/16/EFE/ST/TOM. Available at SSRN: https://ssrn.com/abstract=1362515 or http://dx.doi.org/10.2139/ssrn.1362515

José Santos

INSEAD - Strategy ( email )

Boulevard de Constance
77305 Fontainebleau
France

Bert Spector

Northeastern University - International Business & Strategy ( email )

Boston, MA 02115
United States

Ludo Van der Heyden (Contact Author)

INSEAD - Technology and Operations Management ( email )

Boulevard de Constance
77 305 Fontainebleau Cedex
France
+33 0 1 60 72 42 89 (Phone)
+33 0 1 60 74 61 60 (Fax)

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