because the business idea does not fit into the existing business model. The potential for these spin off companies is enormous;
unused IP when other firms with different business models find profitable, external paths to the market for an idea (Chesbrough, 2006).
they need to access external IP to fuel their own business model and to speed up and nurture their own research engine.
This can be done by licensing-in other firms'IP to serve as a valuable add-on to the current business model of firms.
Open business models: How to thrive in a new innovation landscape. Harvard Business school Press: Boston, MA.
12 2 Business model innovation in low-tech SMES...14 2. 1. Business model innovation in SMES to sidestep the commodity trap...
14 2. 2. The role of the initial business concept or vision...15 2. 3. Innovate beyond products and services:
31 3 A dynamic view on business model innovation...37 3. 1. Stepwise discovery of new business models...
37 3. 2. The process of discovering new applications...40 3. 3. Diversify or not?..
51 4 How SMES build new business models through open innovation?..54 4. 1. Benefiting from open innovation:
Business model innovation at Curana...38 Figure 6: Case Innovacelli...42 Figure 7: Case Jaga...47 Figure 8:
and changing their business model. A major liability is that small firms lack the required internal financial resources and technical capabilities.
Instead, small-and medium-sized companies engage in open innovation as a consequence of their search for major changes in their business model to seize new business opportunities and boost profitability.
Chesbrough showed that business models are crucial for unlocking the latent value of new or existing technologies6.
and commercialize it through a particular business model. In all our interviews, managers emphasized that business models play a primary role in SMES in low-and medium-tech industries, not the technology.
Most SMES we examine in this report did not have internal technological competencies, but they set up new business models to leverage commercial value from technologies that existed in other organizations
or that had been developed co with partners. They developed an open innovation network with several partners
because they can develop business model innovations without having the required technologies in-house. Instead, SMES can leverage external technologies by setting up a network with partners who have required the competencies
A business model has two important functions: it must describe the way in which the company creates value
Value creation and value appropriation can be analyzed using a business model framework. Despite the fact that the term business model is used widely in the business world,
academic research is relatively sparse, and there is no consensus because researchers define business models in different ways8.
Applying existing business model (innovation) frameworks to low-tech SMES is not trivial because the open innovation network is at the core of the business model.
The existing business model (innovation) frameworks do not pay attention to strategic partners or they incorporate them as a module in the model without analyzing interactions with other modules in the framework.
We will examine in detail, therefore, how a business model framework must be adapted to fit business model innovations based on open innovation in low-tech SMES.
Examining which implications our findings have for the theoretical modeling of business model innovation, which has received significant attention among strategy scholars,
is beyond the scope of this report. Business model innovations based on an open innovation imply that there are cost-increasing effects of technology sourcing and technology co-development9.
The new revenue streams resulting from business model innovation must be balanced against the costs of setting up
and managing the external network of partners. Moreover SMES have limited financial means to seize new business opportunities.
Accordingly, they may have to work in several consecutive steps, which in some cases look like a bootstrapping strategy.
Business models take thus a central place in analyzing open innovation in small firms. This has implications for the structure of this report.
In Chapter 2, we analyze the business model innovations of the SMES we interviewed. First, we pay attention to how small firms develop strategies to create value for customers.
Besides value creation we also examine how small firms can appropriate part of the value they create with the new business model.
but most of the firms we examined were successful in crafting new ways to gain significantly more profits with the new business models.
In Chapter 3, we enter the dynamics of business model innovation. The firms that have reached the most spectacular results with their business model innovation realized this in several consecutive steps.
In SMES, new businesses are developed stepwise using new product projects as tools to move forward.
and May 2011.14 2 Business model innovation in low-tech SMES Analyzing the open innovation activities of SMES in traditional industries starts with a broader analysis of the business model innovation of those companies.
The analysis of the business model innovation, therefore, logically comes first, and the usefulness of open innovation hinges on the role it plays in achieving broader strategic goals.
In the next section, we illustrate how the different companies we interviewed sidestep the commoditization pressure by changing their business model.
Next, we focus on the initial entrepreneurial act to initiate such a business model change. In section 2. 3, we look at how several companies transitioned from products or services to experiences in their search to offer more value to the customer.
we examine the different drivers that enable SMES to accomplish these major business model changes. 2. 1. Business model innovation in SMES to sidestep the commodity trap Many SMES face severe commoditization pressure in their markets.
As the burgeoning management literature on business model innovation has shown during the last decade, SMES can take different approaches to reshaping offerings and seizing new growth opportunities.
A business model defines the way companies deliver value to a set of customers at a profit.
and financial viability of a business model erodes over time as price competition starts to dominate. Sooner or later, firms'existing businesses are prone to commoditization.
or business model innovation to find new ways to create value for customers. Business success comes from satisfying real,
Companies that are successful in business model innovation gain a unique position in the competitive space that is difficult for others to imitate.
White space represents the business opportunities outside a company's current businesses that require a different business model to exploit.
and models to implement business models and business model innovations. SMES that successfully sidestepped the commodity trap have changed their existing business model successfully to deliver more value for the customer at a profit.
In contrast with large firms, SMES 15 sometimes develop their business model in a rather intuitive way, based on strong but informed vision, conviction or basic insight.
We observed in all the SMES we interviewed that open innovation is embedded always in the company's broader strategic goals.
when these innovation activities are placed within the SMES'overall strategy or business model. We thus explore the strategy of innovating SMES in this
when it is commercialized in some way. 14 It is the business model that determines the economic value of a new technology by indicating how customer value will be created
but when isolated from SMES'strategies and business model development, they are useless in explaining why
or vision Developing a start-up's business model or reinventing the existing strategy of an SME usually starts with developing basic insight into how a company can deliver value for a specific target customer.
the business model's customer value proposition for the customer of Isobionics (see p 81), the Dutch start-up Janssen established in 2008,
In other cases, it takes more time to articulate the customer value proposition of a new business model in small firms.
The QOD case illustrates that developing a successful business model that ultimately changes the industry starts with nothing more than the conviction of a well-informed entrepreneur.
It took a stepwise approach of more than three years before the business model for a functional quilt was developed in great detail.
Curana (see p 24) is another example that illustrates how developing a new business model is a gradual process that can take years.
and developing a new business model. Sometimes, the business model is straightforward, as we have seen in the case of Isobionics.
This represents an instance when the company is replacing existing product offerings with a new one at considerably lower production costs.
and articulating a business model is a more complex process requiring months and years to get the details just right.
We have examined thus far several ways to develop a business model. Some companies such as Devan Chemicals, start with key concepts that act as fundamental guidelines for many years.
Business model innovations start with articulating a customer value proposition. 17 During our interviews all managers underlined that creating value for customers is the first and most important element in generating new business.
but not for game-changing and highly profitable business model innovations. 18 Next, business models cannot be anticipated fully in advance
Innovative business models are sometimes hard to articulate because too many questions remain unanswered. The needs of the target customer might not be explicit.
Game-changing business model innovations cannot be planned analytically because many of the variables relevant to their success are unknown at the outset.
In contrast, SMES have to experiment to discover new business models. Moreover, experimentation is path-dependent;
that is, early experiments and choices shape the trajectory for to evolve the business mode further. 19 New opportunities will be discovered each time the company achieves a new step in realizing its business model. 19 Figure 1:
DNA Interactif Fashion proposed a new business model for fashion shopping. It changes shopping for fashion goods into a completely new experience for the customer.
far we have focused on how small companies develop new business models and how this move allows them to sidestep the commodity trap.
and the potential of turning business models that are product and service oriented into more profitable business models based that generate experiences for customers The role of open innovation is not in business model innovation is discussed not here.
This is the subject of chapter four in which the role of open innovation in new business development is analysed in detail. 29 Figure 3:
Curana innovated its business model primarily in response to these shifts in the marketplace. In fact, Curana changed its business model
and embraced an ODM model and later a proactive design strategy as a competitive driver.
and the role the complementary assets play in a particular industry. 21 Shifts in government policies targeted at the business environment are another important driver of business model innovations in SMES.
thus an important reason small companies experiment with new business models to revamp or grow their business.
However, we must also look at value drivers to explain successful business model innovations in SMES. Small firms can benefit from having several advantages compared to large companies depending on the activities that drive profits in different industries.
and developing a new business model. A business model defines the way a company delivers value for a specific customer group at a profit.
The value of open innovation activities in SMES can only be estimated correctly within the context of their broader strategic objectives.
New strategic objectives of a company should be analyzed via a business model innovation framework. All firms have in common that their efforts are focused on creating value for a particular target customer.
Business model innovations start with articulating a customer value proposition. Creating customer value through game-changing
and highly profitable business models will usually not be developed by questioning existing customers. Sometimes the business model is straightforward.
In the other cases, conceptualizing and articulating a business model is a more complex process. It may take months
and even years to clearly articulate the customer value of an idea. Innovative business models are sometimes hard to articulate
because the needs of the target customer might not be explicit, uncertainty might exist about which technologies to use and
Game-changing business model innovations cannot be planned analytically because many of the variables relevant to their success are unknown at the outset.
SMES have to experiment to discover new business models. It is driven a discovery process. Most of the SMES use business model innovation to fight commoditization of their products.
They can increase functionality or reliability of the products, they can create more convenient products for the customers.
Case Segers & Balcaen 36 37 3 A dynamic view on business model innovation Business model innovation should
In this chapter, we analyze some aspects of business model innovation in SMES. First, we look at the possibility of changing business models.
Change may not occur just once, but several times, moving stepwise toward a business model that creates more interesting value propositions and results in higher profitability.
Second, we examine the process of discovering new applications after a small firm has introduced a new technology to solve a problem in its existing product markets.
Developing a dynamic view on business model innovation is also important to understand the dynamics in the open innovation networks of the companies we examined.
These open innovation aspects will be described in detail in the next chapter 3. 1. Stepwise discovery of new business models In the previous chapter,
Why did he change the business model several times? Some managers continuously probe new business models, with each new model building on the strength of its predecessor.
Switching to a new business model creates opportunities to change it again for a second or a third time.
It is a path-dependent process in that opportunities to change the business model into a more profitable model can only be detected after the previous business model has materialized fully.
SMES thus change their business model in a stepwise way. To illustrate this concept, we take the example of Curana
and use a scheme suggested by Dirk Vens (see figure 5, p 38. The scheme shows his company's business model innovations between 1999 and 2010.
Curana, a small, family-owned bicycle accessories manufacturer started as a typical OEM: it produced steel mudguards and other accessories according to specs from bike manufacturers in Belgium and surrounding countries.
which is why Dirk Vens chose to change his company's business model. 38 Figure 5:
Business model innovation at Curana The transformation from an OEM to an ODM model was made possible through a new product development project,
The B Lite enabled Curana to change its business model from an OEM model to an ODM model.
Most SME-managers would be inclined to stick to this new business model because avoiding the commodity trap
and changed its business model again. It established an internal design office because design had become the heart of the company.
Dirk Vens was searching for a new business model that would bring growth and profitability. He started with one product development project that resulted in the successful launch of the B Lite and the start of the ODM business model.
The B lite, however, was invented not in a straightforward or linear way. The company and its innovation partners continuously probed new solutions;
Let's look again at the four business models in figure 5 (p. 38. Once Curana had adopted the ODM model,
if the company had remained with the ODM business model, several competitors might already be imitating Curana's strategy.
Curana's successive business model changes also offered it a unique position in the market. Curana develops new concepts and designs,
The PROF business model brings together several companies with complementary competencies to develop a new idea or concept for a particular end consumer (patient or the elderly.
It is thus too early to evaluate its effects on the company's bottom line. 53 Key learning points Successful SMES do not remain with one business model forever.
They are continuously probing new business models. Each new business model builds on the strength of the previous business model
and improves its value proposition and profitability. This constitutes a path-dependent process because new opportunities to transform the business model into being more profitable can only be detected after the previous business model has materialized fully.
In business model innovation too much uncertainty exists to plan analytically a way to move forward. Indeed, SMES change their business model in a stepwise way.
Business model innovations are designed to create more value and generate more profits, and increasing profitability can be the result of several changes.
We have emphasized innovating SMES can increase profitability by increasing the number of control points and creating a unique offering.
In the case of Curana, the company gained control points to differentiate itself from the competition.
and other inexpensive means. 54 4 How SMES build new business models through open innovation? In the previous chapters, we explored how small firms can boost their competiveness in the long run by changing their business model.
So far, we have not been emphasizing the role of the innovation partners in enabling or supporting these changes.
In this chapter, we examine how SMES integrate open innovation as they develop new business models. We have explained already why the business model approach is useful in the context of SMES that want to improve their competitive position28.
Business models also play a central role in open innovation as the continuous sourcing from and collaboration with partners can add value for the focal organization29.
The business model literature however, has been marginalizing partnerships to outsourcing or acquiring particular activities or assets.
A major shortcoming in the existing literature, therefore, is to analyze how open innovation and collaboration with external partners can add value to the business model of SMES.
A business model describes how an SME creates value for a particular customer group and how it captures a portion of that value.
Open innovation uses the division of innovation labor to both create and capture value. We will look first at how the companies we interviewed jointly create value with their innovation partners.
Business model innovation starts with discovering or recognizing new forms of value creation for a particular customer group.
and referring to any factor that enhances the total value created by a change in the business model.
Open innovation allows companies to implement business models that generate more profits. We provide illustrations from the SMES we have analyzed.
Curana, for instance, experienced serious pressure to adapt its business model in 2011 when it was exploring the potential of a new,
therefore how to change its business model to benefit from this promising technology in a different way. 5. Open innovation also means openness in communication and in reporting among the innovation partners.
and stay focused on the joint value they create. 74 Key Learning Points Open innovation as an integral part of business model innovations In the past,
Rather, they focus on major changes in their business model to seize new business opportunities and to boost profitability.
Additionally, the benefits of open innovation-based business model changes differ from the classic open innovation benefits identified for large firms.
therefore, must rely on innovation partners to realize major business model changes. Open innovation is a direct consequence of a small firm's ambition to change its business model.
A business model describes how a firm creates value for a particular customer group and how it captures a portion of that value.
We examined a range of possibilities how small firms jointly create value with their innovation partners.
With which small firms a company innovates is determined largely by the new business model the central firm wants to implement.
and the sequence of collaborating with partners are defined by the business model. Most of the small firms that collaborate intensively do so with value chain partners and less with technology partners.
Developing technology can be very important in realizing the business model, but it is always a supporting activity.
More radical business model changes combine knowledge from unrelated fields. Companies pull in expertise from industries and fields that have never been related previously to the current industry to
and they can change over time. 75 Capturing value Good business models also guarantee profitability. The SMES we interviewed work together with different innovation partners to create
There are many ways open innovation helps in executing business models with higher profitability. We enumerate a few possibilities:
Profitability through open innovation can be built in consecutive steps as we have seen in Chapter 3. Curana has changed its business model three times
Let your partner pursue business opportunities in areas that do not fit your business model. In the Airfryer case, this translated into opportunities for both partners,
Frequently, a (radically) new vision of entrepreneurs or managers is the starting point for the business model of SMES.
In open business models, therefore, one has to analyze the joint value creation together with the value distribution among the different partners.
Business model innovations are high-risk ventures because a firm must search for new technologies and develop new products.
SMES change their business model in a stepwise way. In most cases, companies begin with a (radically) new product or service,
Therefore, some SMES unfold their business model innovation in several consecutive steps, building new competencies and a stronger financial position at the same time.
Finally, a business model change creates opportunities to change a second and a third time. Curana switched from an OEM to an ODM business model.
Once the company was recognized as an ODM, it changed its business model again by proactively designing bicycle parts.
Because of this change, the company was recognized in the industry as a trendsetter. This in turn, triggered Curana to build a brand-based strategy.
If the company stayed tuned to the ODM business model, it would already be confronted with several competitors imitating the ODM move.
Relational capital plays a central role in developing an open innovation based business model. The competitive strength of the SMES is no longer (only) related to its internal competencies,
MA and Chesbrough, H. W. 2006), Open business models: How to thrive in the new innovation landscape, Harvard Business school Press, Harvard:
MA and Chesbrough, H. W. 2006), Open business models: How to thrive in the new innovation landscape, Harvard Business school Press, Harvard:
MA. 7 Chesbrough, H. W. 2007), Why companies should have open business models, MIT Sloan Management Review, 48 (2),
22-28.8 There are different approaches to business models. Different authors have analyzed the business models along different frameworks.
Prominent approaches are: Afuah, A (2004), Business models: A strategic management approach, Mcgraw-hill; Morris, M. and Schindehutte, M. 2005), The entrepreneur's business model:
Toward a unified perspective, Journal of Business Research, 4, 123-128; Osterwalder, A. 2004), The business model ontology a proposition in a design science approach, Ph d. Thesis University Lausanne, Ecole des Hautes Etudes Commerciales HEC. 173 p;
Osterwalder, A.,Pigneur, Y. and Tucci, C. L. 2005), Clarifying business models: Origins, present, and future of the concept, Communications of the Association for Information systems, Vol. 16,1-25-25;
Shafer, M. S.,Smith, H. J. and Linder, J. C. 2005), The power of business models, Business Horizons, 48 (3), 199-207.
Chesbrough, H. W. and Rosenbloom, R. S. 2002), The role of the business model in capturing value from innovation:
evidence from Xerox Corporation's technology spin-off companies, Industrial and Corporate Change, 11 (3), 529-555;
Johnson, M. W.,Christensen, C. M, . and Kagermann, H. 2008), Reinventing your business model. Harvard Business Review, December, 51-59.;
and Johnson, M. W. 2010; Seizing the white space: Business model innovation for growth and renewal, Harvard Business Press, Boston:
MA. 9 Faems, D.,de Visser, M.,Andries, P. and Van Looy, B. 2010; Technology Alliance Portfolios and Financial Performance:
Chapter 2 11 A business model can be defined in different ways. A. Osterwalder and Y. Pigneur (2009), Business model Generation is one of the most influential books on business model innovation besides M. W.
Johnson (2011) Seizing the white space: Business model innovation for growth 96 and renewal, Harvard Business Press, Harvard:
MA. The core ideas of this book are summarised in the following HBR article: Other definitions of open innovation have been provided by Johnson.
M. W.,Christensen, C. M. and Kagermann, H. 2008), Reinventing your business model. Harvard Business Review, December, 51-59.
Other definitions have been provided by A. Afuah (2003), Business models: A strategic management approach, Mcgraw-hill Irwin. Boston:
and Rosenbloom and H. W. Chesbrough (2002), The role of the business model in capturing value from innovation:
Business model innovation for growth and renewal, Harvard Business Press, Harvard: MA. 14 The role of the business model creating economic value from technological inventions is one of the central themes in Chesbrough, H. W. 2003), Open innovation;
The new imperative for creating and profiting from technology, Harvard Business school Press, Harvard: Boston; and Chesbrough, H. W. and Rosenbloom, R. S. 2002), The role of the business model in capturing value from innovation:
Evidence from Xerox Corporation's technology spin-off companies, Industrial and Corporate Change, 11 (3), 529-555.15 In reality, the customer value proposition is a bit more complex.
M. W.,Christensen, C. M. and Kagermann, H. 2008), Reinventing your business model. Harvard Business Review, December, 51-59.18 See, for instance, Govindarajan, V. and Trimble
R. Mcgrath (2010), Business models: A discovery driven approach, Long Range Planning, 43,247-261.20 Pine, B. G. and Gilmore, J. H. 2011), The experience economy, Harvard Business Review
The role of the business model in capturing value from innovation: evidence from Xerox Corporation's technology spin-off companies, Industrial and Corporate Change, 11 (3), 529-555;
. and Allen, J. 2005), The entrepreneur's business model: toward a unified perspective, Journal of Business Research, 58,726-735;
Shafer, S m.,Smith, H. J.,Linder, J. C. 2005), The power of business models, Business Horizons, 48,199-207;
Osterwalder, A.,Pigneur, Y.,Tucci, C. L. 2005), Clarifying business models: origins, present and future of the concept, Communications of the Association for Information systems.
Chapter 4 98 29 Chesbrough, H. 2007), Why companies should have open business models, MIT Sloan Management Review, Winter 2007,48, 2, 22-28;
Overtext Web Module V3.0 Alpha
Copyright Semantic-Knowledge, 1994-2011