A firm’s business model determines how the elements of the business fit together in a unique combination that results in superior value creation and thus can partly ex- plain how competitive advantage is created (Morris et al., 2005). Thus, the general assumption is that business models can create competitive advantage by two mecha- nisms: first, unique, valuable elements can be leveraged into a positional advantage, or
second, the unique combination of business model elements that is difficult to imitate can create a positional advantage (Teece, 2010). Business model literature draws on var- ious strategic management constructs to explain competitive advantage based on single elements of the business model (Morris et al., 2005). Amongst the most popular theory are the resource-based view (RBV) (Barney, 1991) and its extension the resource advan- tage (RA) theory (Hunt & Morgan, 1995). Both concepts view the firm as a bundle of resources and capabilities that have the potential to create competitive advantage over competitors. While the RBV posits that the sheer possession of valuable, rare, inim- itable, and not substitutable resources and capabilities explain performance differences (Barney, 1991), RA theory accounts for the market position of the firm (Hunt & Mor- gan, 1995).1 According to RA theory, resources do not lead to a competitive advantage per se; rather they have the potential for rent generation (Morgan, 2012). I.e., Superior performance is achieved, as superior resource endowments allow firms to achieve a better relative cost position or superior value creation for certain customer segments (see Figure 2.1). As resources and capabilities form part of the internal value creation logic of business models (Wirtz, 2011), these theoretical concepts are commonly used to explain competitive advantage based on elements inherent in the business model.
Relative Resource-produced Value Lower Parity Superior
Lower ? CompetitiveAdvantage CompetitiveAdvantage
Relative
Resource Costs Parity DisadvantageCompetitive Parity CompetitiveAdvantage
Higher DisadvantageCompetitive DisadvantageCompetitive ?
Figure 2.1: Competitive Position Matrix (adapted from Hunt & Morgan, 1995, p. 7) Strategic networks are ”stable interorganizational ties which are strategically important to participating firms. They may take the form of strategic alliances, joint ventures, long-term buyer-supplier partnerships, and other ties” (Zaheer et al., 2000, p. 203). As business model frameworks explicitly take value creation with partners into account, strategic network theory can be used to answer some of the main questions associated with joint value creation, such as ”how is value created in strategic networks?” and ”how do firms positions
1For simplification purposes, resources, and capabilities that fulfill the criteria of being rare, inimitable,
and relationships in networks affect their performance?” (Zott et al., 2011). In the context of alliances, also the relational view is a relevant theory, as it seeks to explain compet- itive advantage through inter-organizational arrangements such as (a) relation-specific assets, (b) knowledge-sharing routines, (c) complementary resources and capabilities, and (d) effective governance mechanisms (Dyer & Singh, 1998).
The second mechanism by which business models can create a positional advantage is by creating a unique combination of a business model’s elements that is difficult to imi- tate.2As such, competitive advantage can emerge from the superior coordination of the firm’s activities, its internal value chain or the excellent management of the interfaces with others in the value network (Morris et al., 2005).
However, firms do not only compete in the present but also need to be concerned about a favorable competitive position in the future, a concept known as ambidexterity of the firm (O’Reilly 3rd & Tushman, 2004). In other words, firms need to formulate ways in which they can achieve sustainable competitive advantage through current and future business logics, which has traditionally been at the field of strategy research (Porter, 1996). Business model innovation is a way for firms to sustainably create and appropri- ate value, especially in times of economic change (Zott & Amit, 2010). This is achieved by creating new business logics which are well adapted to a changing environment. Hence, strategy and business model innovation are two concepts that are inevitably tied to one another. For example, Teece (2007, p. 1325) notes: “the essence of strategy involves selecting and developing technologies and business models that build competitive advantage through assembling and orchestrating difficult-to-replicate assets, thereby shaping competition itself.”. However, the relationship between strategy and BMI remain ambiguous, and business model innovation has not been anchored in any particular strategic manage- ment field (Foss & Saebi, 2017). To avoid ambiguity and inconsistencies, I rely on the business model innovation terminology throughout this study.
Casadesus-Masanell & Zhu (2013, p. 464) provide a definition of business model in- novation that is particularly well suited in the context of this study: “At root, business model innovation refers to the search for new logics of the firm and new ways to create and cap- ture value for its stakeholders; it focuses primarily on finding new ways to generate revenues and define value propositions for customers, suppliers, and partners.”. Maintenance, Repair, and Overhaul firms face changing market logics, existing stakeholder with evolving roles, and customers that require more encompassing types of Value Propositions. Hence, BMI is a suitable concept to examine the different strategic options in which MROs can aim for sustainable performance.
In conclusion, the business model concept provides a large variety of possibilities to explain competitive advantage especially in a dynamic environment based on well-established strate- gic management concepts. It has even been argued that in certain markets no single strate-
gic management construct can fully explain competitive advantage by itself, while the business model concept provides the required integration of the distinct perspectives (Amit & Zott, 2001). Hence, scholars should draw on a variety of concepts that are most relevant for the idiosyncratic case to explain competitive advantage better. The dynamic environment in the aerospace indus- try forces MRO firms to find new core logics of how to compete, which makes business model innovation a well-suited concept for examination.