Business Models and Business Model Innovation

Business model innovation
Michal Hron, PhD

Buying glassware was a pain
High Cost:Traditional eyewear retailers often
marked up prices significantly, making prescription
glasses unaffordable for many consumers.
Limited Selection: Consumers often faced
limited options when shopping for glasses, with few
affordable and stylish choices available.
Inconvenient Purchasing Process: Buying
glasses traditionally required multiple visits to a brick-
and-mortar store, involving high-pressure sales tactics
and limited opportunities for trying on frames.

frustrated by the high cost of eyewear, students at
Wharton decided to innovate with a new business model
Warby Parker disrupted the eyewear industry by offering
high-quality, affordable glasses directly to consumers
through an online platform.
Embracing a "try-before-you-buy" model,Warby Parker
simplified the purchasing process and eliminated
the need for costly brick-and-mortar stores.
Lesson: By reimagining distribution channels
and customer interactions, businesses can challenge
industry norms and improve accessibility.
https://businessmodelanalyst.com/warby-parker-business-model/

Business model innovation
Michal Hron

Agenda
5
1. What are business models:Typologies, languages, processes
2. Changing business models
3. Managing multiple business business models

Business models
The ”What “

4P Innovation space
7
Tidd, Joe a John R. Bessant. Řízení inovací: integrace
technologických, tržních a organizačních změn. JohnWiley &
Sons, 2020.
Paradigm
Product
Process
Position

You know the business model canvas (MBC)…
8
Osterwalder, Alexander, and Yves Pigneur. Business model generation: a handbook for visionaries, game changers, and challengers. Vol. 1.
John Wiley & Sons, 2010.

Definitions pf business models
▪ The logic of the firm, the way it operates
and how it creates value for its stakeholder
The way activities and resources are used to
ensure sustainability and growth. Cross roads of competence
and consumer needs (Teece, 2010)
▪ How a firm delivers value to customers and converts
payment into profits (Yunus, Moingeon & Lehmann-Ortega
2010)
9
D. J. Teece, Business Models, Business Strategy, and Innova- tion, Long Range Planning
43(2e3), 172e194 (2010)
M. Yunus, B. Moingeon and L. Lehmann-Ortega, Building social business models: lessons
from the Grameen experience, Long Range Planning 43(2e3), 308e325 (2010) and also J. D.
Thompson and I. C. MacMillan (2010) and N. M. Dahan, et al. (2010), op. cit. at Ref. 24

10
The idea of a business model
can be understood across many
levels of abstraction
Which lends the concept its
versatility but also leads to
confusion

You know the business model canvas (MBC)…
11
Osterwalder, Alexander, and Yves Pigneur. Business model generation: a handbook for visionaries, game changers, and challengers. Vol. 1.
John Wiley & Sons, 2010.

Archetypes
13
Stabell, Charles B., and Øystein D. Fjeldstad. "Configuring value for competitive advantage: on chains, shops, and networks." Strategic management journal 19.5
(1998): 413-437.

Chain
▪ take in incomplete or broken things and then transform
them into more complete outputs of higher value
▪ Retailing, restaurants, automobile manufacturing, petroleum
refining, and the work of many educational institutions
14

Shop
▪ structured to diagnose and solve unstructured problems
▪ Consulting firms, advertising agencies, research and
development organizations, and certain law firms fall into this
category
15

Value network
▪ enterprises in which people exchange things with one
another
▪ Insurance, telecom, eBay etc.
16

Archetypes
17
(1998): 413-437.
PLATFORMS?

PHD CANDIDATE
MICHAL HRON
Platforms are multi-sided
networks that can be seen
as marketplace facilitators
Any platform is made up of
at least two sides of a market
which the platform connects
Platforms
as marketplaces

THE PURPOSE OF A DIGITAL PLATFORM IS
TO FACILITATE MATCHES

YouTubers
Viewers
A viewer
fi
nding a video they like is a MATCH

A passenger
fi
nding a ride is a MATCH.
(Or kitten deliveries)
Drivers
Riders

Landlords
Rental seeker
A rented property is a match!

Senders
Recipients
A conversation is a match!
A game played is a match!
A viewed story is a match!

https://hbr.org/2016/03/
everything-we-know-about-
platforms-we-learned-from-
medieval-france

CHICKEN AND EGG PROBLEM
When building a new platform,
which side do we attract first?
Side B only comes if side A
is already there…

Ott, T., R. Bremner, and K. Eisenhardt. "Beyond the chicken and egg: strategy formation in two-sided
marketplace ventures." Kenan Institute Journal (2018).
Matching supply and demand is important but product features and geography
can matter too

Drivers
Riders
Landlords
Rental seeker
WHERE IS
THE MONEY?

Drivers
Riders
Landlords
Rental seeker
USE THE PLATFORM
FOR FREE
TO GET ACCESS
TO USERS
THE PLATFORM MAKES
MONEY HERE

OVERVIEW Typical
Disciplines
Economics
Implicit Focus Facilitating Transactions
Highlighted
Elements
Actors on two sides of the
market, platform as a
“matchmarker”
Suppressed
Elements
Technical architecture,
complements extending the
technical core of the
platform
Questions
Pricing? Geography?
Which side is subsidised?
Chicken and egg problem?

PHD CANDIDATE
MICHAL HRON
Platforms as
extensible resources
Platforms as
layered artefacts
Platforms
as marketplaces

32
Christensen, Clayton, et al. The hard truth about business model innovation. MIT Sloan Management Review, 2016.
Clayton Christensen (father of
disruptive innovation) was
using this depiction of a
business model with four inter-
locking elements

33
Al-Debei, Mutaz M., and David Avison. "Developing a unified framework of the business model concept." European journal of information systems 19.3 (2010):
359-376.
There are other frameworks of
the business model in the
literature
The V4 model pictured here is
an example.

Archetypes
34
(1998): 413-437.
PLATFORMS?

Limits of BMC
Strong business models cannot be generated by brainstorming the
elements of a business model using a tool like the Business Model
Canvas (Osterwalder and Pigneur 2010).
The canvas may be useful in representing a business model, but it
misses the key dynamic elements of working business models:
• it does not represent coherence (or the relationship
among elements)
• it does not represent the competitive position
(which is off the canvas);
• it does not quantify the economic leverage points.
35
Euchner, Jim, and Abhijit Ganguly. "Business model innovation in practice." Research-Technology
Management 57.6 (2014): 33-39.

Innovating business models
The “how”

BMI as paradigm shift on high level and process change on lower level
37
Tidd, Joe a John R. Bessant. Řízení inovací: integrace
technologických, tržních a organizačních změn. JohnWiley &
Sons, 2020.
Paradigm
Product
Process
Position
We can also relate business
models to process innovation,
especially on lower level of
abstraction.

Process
▪ changes in the ways in which they are created and delivered
▪ Incremental: Improved factory operations effciency
through upgraded equipment
▪ Radical:Toyota Production System and other ‘lean’
approaches
38
W. Abernathy and J. Utterback, ‘Patterns of industrial innovation’, Technology Review, vol. 80, pp. 40–47, 1978.
Recall this slide from first
lecture?

39
Massa, Lorenzo, and Christopher L. Tucci. "Business model innovation." The Oxford handbook of innovation management 20.18 (2013): 420-441.
After a business is
established, to stay
competitive, exploration of
new or amended business
models may be needed.

40
Shops, values networks + platforms
Canvas and Gassman why, what how…
V4 model
Possible tool is
business process
management,
subject of next
class

41
The model highlights the
interdependencies among
elements and illuminates what a
business is incapable of doing
They explain why, for example,
Rolls-Royce Motor Cars Ltd. is
unable to sell cheap bespoke cars
and why Wal-Mart Stores Inc. is
unable to combine low prices
with fancy stores

42

Business models develop through
predictable stages over time. Business
leaders then need to evaluate whether or
not a business model innovation they are
considering is consistent with the current
priorities of their existing business model

Creation stage
▪ In this initial stage, the focus is on creating a customer by
developing a compelling value proposition that fulfills unmet
needs.
▪ The founding team, armed with an idea and resources, is
immersed in designing initial product and service offerings to
meet customers' jobs.
▪ The emphasis is on understanding customers' unfulfilled jobs
through patient inquiry and bottom-up exploration
44

In the creation stage,
Four questions for BMI according to Gassman
▪ According to Gasmann (2014) there are only 55 truly original business model types .
▪ 90% of BMs are combinations of those types
45
What
Value How
Who
What do you offer to customers?
Who are customers?
How do we generate revenue?
How do we create value?

Sustaining Innovation Stage
▪ This phase occurs when customer demand grows, shifting
the focus to scaling operations to meet demand and building
a loyal customer base.
▪ The business unit transitions from creating customers to
building a well-functioning organization that consistently
delivers products or services.
▪ Innovations in this stage aim at improving products for higher
prices within the current target market
46

Process ton sustain
▪ changes in the ways in which they are created and delivered
▪ Incremental: Improved factory operations effciency
through upgraded equipment
▪ Radical:Toyota Production System and other ‘lean’
approaches
47
W. Abernathy and J. Utterback, ‘Patterns of industrial innovation’, Technology Review, vol. 80, pp. 40–47, 1978.
Recall this slide from first
lecture?

Efficiency Stage
▪ At this point, the business unit prioritizes efficiency
innovations to reduce costs by streamlining processes or
redesigning products.
▪ Activities include outsourcing, optimizing processes, and
consolidating industries for economies of scale.
▪ Managers shift focus from customer needs to shareholder
priorities, aiming to enhance efficiency and cost-effectiveness
48

Based on Christensen’s argument, it is
preferable to create new business models
than to change existing ones.
True?

Despite these challenges, BM innovation is
bene
fi
cial and sometimes even needed.

Process of designing a business model according Gasmann
51
Initiation Ideation Integration Implementation
Analysis of
Model
via 4 questions
Confrontation
with
the 55 BMs
Checking of
consistency of
new answers
to 4 Qs
Testing and
refining,
model enters
practice

A lot of ways to envisage BMI process…
52
Wirtz, Bernd, and
Peter Daiser.
"Business model
innovation processes:
A systematic literature
review." Journal of
Business Models 6.1
(2018): 40-58.

Organizational attitudes to BMI
53
REINVENTORS MAVERICKS
ADVENTURERS
ADAPTERS
Impulse
Focus
Transforming
the core
Expanding beyond
the core
Defending from
disruptors
Want to be disruptors
https://bit.ly/BCG-bus-mod

Reinventor
▪ The reinventor approach comes into play when a company
faces major industry challenges such as commoditization of
supply or new regulatory requirements.
▪ Under these conditions, the business model gradually
becomes inefficient and the prospects for future growth are
uncertain.
▪ In this case, the company must reinvent its value proposition
and reorient its activities to profitably deliver its
fundamentally improved value proposition.
▪ Apple Inc.
54

Adapters
▪ The adapter approach is used in situations where an existing
core business, even if fundamentally transformed, is unable to
compete with major disruptive innovations.
▪ Adapters then explore opportunities in related business
types or markets. Sometimes they have to completely
abandon their core business.
▪ Adapters must then create an innovation engine that will
encourage experimentation in order to successfully find new
space for their "core business" , which will be built on the
right business model.
▪ Motorola went from cell phones to base technologies for
networking etc.
55

Mavericks
▪ The maverick approach uses business model innovation to
expand a potentially more successful core business .
▪ Non-conformists, which can be start-ups or innovative
established companies, use their core competencies to
fundamentally transform their industries and set new
standards.
▪ This requires the ability to continuously build competitive
advantage or specific business strengths to drive growth.
▪ Student agency went from study stays to buses, flights, etc.
56

Adventurers
▪ P
ř
ístup dobrodruha (The adventurer approach) agresívn
ě
rozši
ř
uje svoje podnikání prost
ř
ednictvím zkoumání a
investování do nových
č
i souvisejících oblastí.
▪ Tento p
ř
ístup vyžaduje porozum
ě
ní konkuren
č
ním
výhodám firmy a obez
ř
etnou sázku na nové využití
konkuren
č
ní výhody s cílem usp
ě
t na nových trzích.
▪ Elon Musk (Tesla, SolarCity etc)
57

Managing multiple business models

Ridesharing
▪ GoMore is a private company founded in 2005.
▪ Provides on-demand car-sharing services through
▪ Customers can rent cars from private owners, reducing the
number of cars on the road and promoting sustainable
transportation.
▪ Numbers at a Glance:
▪ Employees:We have a dedicated team of 81 professionals.
▪ Investors:We’ve secured funding from 12 investors.
▪ Latest Deal: In April 2021, we raised $8.75 million in a later-
stage venture capital deal1.
59

Ridesharing
▪ GoMore operates across several countries, including:
▪ Spain, France, Denmark, Sweden, Norway
▪ Service Range:
▪ GoMore offers a variety of services:
▪ Ridesharing: Connecting passengers with drivers for
shared rides.
▪ Peer-to-Peer Car Rental: Enabling individuals to rent out
their own cars.
▪ Private Car Leasing: Providing a lease-and-rent-out
model for private cars12.
60
Guyader, Hugo, and Laura Piscicelli. "Business model diversification in the sharing economy: The case of
GoMore." Journal of cleaner production 215 (2019): 1059-1069.

GoMore… business models over time
62

Business Model 1: Ridesharing
▪ February 2014
▪ People get the experience of renting a friend’s car instead of
hiring a car. It’s a business transaction, but they talk about it as if
they do each other a favor” (Senior Manager)
▪ with the rapidity, without paperwork, with the flexibility of the
pick-up location, and a lower price; we’re doing the same thing
as Hertz, just cheaper” (Senior Manager )
63

Business Model 2:Peer-to-peer car rental
▪ February 2014
▪ People get the experience of renting a friend’s car instead of
hiring a car. It’s a business transaction, but they talk about it as if
they do each other a favor” (Senior Manager)
▪ with the rapidity, without paperwork, with the flexibility of the
pick-up location, and a lower price; we’re doing the same thing
as Hertz, just cheaper” (Senior Manager )
64

Business Model 3:Business-to-consumer leasing
▪ September 2014
▪ partnership with a fleet management firm to offer leasing
services of modern cars with low emissions and electric
engines
▪
65

66

Business model portfolio of GoMore
▪ one-stop-shop carsharing solution” by means of a portfolio of three distinct business models with
strategic connections between them
▪ The business model diversification not only allowed GoMore to address different customer
segments, but it aimed at increasing the supply of peer providers in the P2P market(s): for
example, consumers who get access to a car through B2C leasing or P2P car rental become
potential peer providers for ridesharing
▪ Even though competitors offer similar value, GoMore’s competitive advantage lies in its
diversification into three business models that complement each other to maximize car usage
efficiency and increase the offer of available mobility services.
67

68
There are complex interdependencies between business models in GoMore

3 Rationales for BM diversification
▪ 1. diversify into different markets
▪ airline companies diversifying with a discount low-service model
next to their full-service model
▪ manufacturing and energy companies diversifying their pure
product proposition with a service proposition
▪ 2. Sense: introducing new business models as facilitators of
experimentation through innovation
▪ temporary, experimental business model was created and the
incumbent business model was, over time, transformed into the
newly established business model
▪ 3. Complementing:
▪ complement online and offline business models in omnichannel
publishing and retailing businesses
▪ leasing business model complementing a car sharingbusiness model
69
Westerveld, Peter, et al. "The business model portfolio as a strategic tool for value creation and business
performance." The Journal of Strategic Information Systems 32.1 (2023): 101758.

BMI to Diversify
▪ 1. diversify into different markets
▪ airline companies diversifying with a discount low-service
model next to their full-service model
▪ manufacturing and energy companies diversifying their
pure product proposition with a service proposition
70

BMI to sense
▪ 2. Sense: introducing new business models as facilitators of
experimentation through innovation
▪ temporary, experimental business model was created
and the incumbent business model was, over time,
transformed into the newly established business model
71

BMI to complement
▪ 3. Complement:
▪ complement online and offline business models in
omnichannel publishing and retailing businesses
▪ leasing business model complementing a car
sharingbusiness model
72

What are business models god for?
73
Taxonomies or typologies to
classify kinds of businesses
To drive systematic experimentation Examples to study and follow
To classify businesses instruments of scientific enquiry specific business models
function like recipes
Baden-Fuller, Charles, and Mary S. Morgan. "Business models as models." Long range planning 43.2-3 (2010): 156-171.

Agenda
74
1. What are business models:Typologies, languages, processes
2. Changing business models: Challenges, process models
3. Managing multiple business business models: Gomore case and three rationals for
diversification

Faculty of Business Administration
Prague University of Economics
and Business
W. Churchill Sq. 4
130 67 Prague 3, Czech Republic
Thanks!
Michal Hron
Assistant professor
michal.hron@vse.cz

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