Institute of Management and Administration Silesian University of Technology
Roosevelta St. 26-28, Zabrze 41-800, Poland
Structured Abstract
Purpose – The competitive edge is to great extent connected to the development and use of knowledge based economy (KBE), and in particular to innovation being the result of the knowledge. The aim of the paper was to present relationships between the selected knowledge components (relevant to innovation implementation) as well as between innovations and changes of business models. These relationships are shown both in terms of theoretical - cognitive and empirical aspect in the enterprises applying innovations. The research problem concerned the identification of business model elements changes caused by the implemented innovations.
Design/methodology/approach – Creating and implementing innovations in the enterprise is possible by the use of knowledge. The research hypothesis concerned the impact of innovation on the change of business models. The basic survey was carried out in the form of an enhanced diagnostic survey which attracted 150 intentionally selected Polish enterprises, belonging to SME sector. The structural analysis of the business model is based on the concept of " The new age of innovation." Prahalad C. K, M. S, Krishnan, by modifying it to the research needs.
Originality/value – This research focused on two important issues of the knowledge- based and innovation -based management. The first of these is the importance of particular elements of company knowledge (both knowledge about potential business and environment) for creating and deploying innovation. Another important issue of the research was to assess the changes in business models under the influence of implemented changes The research results underline a significant importance of innovations (as an important element and stimulus of KBE) not only for a strategically management of enterprises, but also for the dynamics of their business models.
Practical implications – The outcomes of the application of the research show that companies have implemented various kinds of innovations. Presentation of the nature and relationship between knowledge components, innovation and modern business models represent an important knowledge and tips for both the entrepreneurs wanting to implement such innovations and for organizations that decide about financial support of innovation at SME. The results of the tests should contribute to understanding of the
importance of innovation related to gaining competitive edge and encourage companies to use modern business models that are able to create and implement innovations.
Keywords – Innovation, Knowledge Based Economy (KBE), business models, small and medium enterprises (SMEs)
Paper type – Practical Paper
1
Introduction
The growing competition and globalization have a substantial influence on changing strategic and operative action of the company. As a result, it is important to search new ways of reaching and keeping competition advance. The competitive advance is to a great extent connected with the development and use of Knowledge Based Economy (KBE). Modern and competitive enterprises are not only the part of KBE, but they also make use of its basic elements such as innovation system, Research and Development environment, business environment and ICT system. Nowadays the crucial factor and condition of competitiveness and efficiency of running a business is its ability to implement innovations. Such a capacity affects the changes of business models’ conceptions and structures. However, these models enable the diffusion of various kinds of innovations. The research concerns the relations between knowledge components and innovations implemented based on them and the changes of business models. The research problem concerned the identification of business model elements changes caused by the implemented innovations. The following hypothesis was formulated, that the creation and absorption of innovations is accompanied by changes of business models in companies implementing such innovations. The following research questions were asked:
1. What are the most crucial components of knowledge used during implementation of innovations?
2. What are the most important changes in the business models caused by the implemented innovations?
The object of research was to show some changes of business models innovatively - run companies, called small and medium enterprises(SMEs).They implemented at least five various innovations in three recent years. The article presents the results of the research on changes in business models as far as the implementations of innovations are
concerned. The innovations mentioned above were conducted in carefully selected 150 Polish companies.
2
The increasing role of knowledge and innovation in business models
Gaining competitive advantage is to a large extent made possible by capacity and effectiveness of companies to use knowledge and implement innovations. These are both closed (internal) as well as open (external) innovations applied because of the transfer or diffusion of knowledge from the environment. The ability to create and absorb innovation is the biggest challenge for the company because of their complexity and risk, which often condition its existence and development. Innovations represent also one of the four, next to knowledge, trust and the business connected with the organizational culture, paradigms of "sustainable enterprises"[Grudzewski, Heduk, Sankowska, Wańtuchowicz,2010], Regardless what innovations will be applied by company they are always the result and element of the management of knowledge.[ Stankiewicz, 2006; Dohn, and Gumiński and Matusek and Zoleński, 2013] Within the environment of enterprise operating on a competitive market, knowledge management is the most important method for its growth in the knowledge-based economy (KBE). It includes both the base elements, such as data and information, but also knowledge and wisdom creating innovations deciding about skills and competences to absorb innovations and their effective use. Although knowledge is a concept that is difficult to define (as evidenced by variety of its understanding in the content-related literature), as well as the lack of one, generally accepted definition, it is treated as a resource that has a particularly high importance for the company. This is due to the fact that the resources of tangible nature are relatively more available than ever and easier to imitate than knowledge resources. Creation and absorption of innovation is influenced by possession and use of appropriate knowledge base by an organization. It is considered as a unique and non- depleting resource. This last great feature means that the knowledge, not only is not consumed, but rather increases as it is used. Knowledge, after data and information, is another (third) level of hierarchy leading to the most precious result of knowledge management for organizations which is innovation
For the purposes of the research, results of which are presented herein, it is assumed based on the Oslo Manual, that „An innovation is the implementation of a new or significantly improved product (good or service), or process, a new marketing method, or a new organisation” [Oslo Manual , 2005].Innovations play a significant role in the
operation and development of companies, representing a factor conditioning their competitiveness. However, as A. Szmal[Szmal, 2013] noticed, creating competitive edge depends on the selection of the type of innovation and ability to transfer and diffuse it.
Innovations may take different forms in four dimensions of innovation space ("4P"): product, process (technological), standing (position) and paradigm innovations [Tidd ,and Bessant , 2011].Differentiation of incremental innovations, improving, linearly affecting competitiveness and radical one of step-wise nature, creating new products and services, processes, business models and sources of competitive edge is important from the business model changes point of view. Innovations implemented by evolution are necessary in a company, but the value is created and competitive edge is won by radical innovations [ Hamel ,2002]. Market transformation necessitates new look on current innovativeness paradigms, affecting the business model changes. The rooted propensity of a company to respond to existing needs of the best clients may hinder to see and use development opportunities on the markets of less demand or on peripheral markets of potential clients [Anthony and Johnson and Sinfield and Altman ,2008]
Noticing the real opportunities of break-through innovations may also be impeded by improper market segmentation. The concept of "tasks to do" assuming that clients do not buy products or service but rather "employ" them has better chances comparing to traditional segmentation. [Christensen, and Anthony, and ., Berstell, and , Nitterhouse,2007] An element that might affect company's innovations is taking decisions based on the most important competences. Lack of knowledge concerning the most important competences may lead to missing development opportunities appearing within the environment [Christensen, and Overdorf,2000 ]
New look at innovativeness processes require critical assessment of the applied operation schemes and changes towards the creation of an organization apt to create break-through innovations. Break-through innovations is the key to fill a gap to increase and constantly surprise the market. Restructuring towards innovative company covers creation of environment for innovations: change of business model and organizational structure in aid of innovation propitious for creation, implementation of new financing methods, partnership cooperation strategies or development of technological factors. It is also important to build innovative organizational culture and the change of current principles of human resources management. Important element favourable for open innovations is creative cooperation, common solution of problems by people of different
qualifications and experiences, which is a valuable component of assets of each team and the source of company competitiveness. Contacts and cooperation between economic companies is of increasing importance, including developing and using wider network of relationships that allow achieving creative synergy. Open innovations require creating of innovation networks based on variety of participants, including suppliers, partners, competitors, market regulators and other players [Chesbrough, 2003].
.In the economic practice, creating and implementing innovations in the enterprise is linked to the relevant strategy and business model [Brzóska,2013]. Hence the business models problems, during the last decade, faced the increasing interest of both theoreticians and practitioners. In the literature both scientific and practical one can found the opinion, that there should be a common scientific base for a better and more efficient research of business models.[ Zott, and , Amit, and Massa, 2010]At the moment, researchers of business models still have different approach to their definition and creation. Despite differences in concepts and approaches of different researchers to business model, you will find a number of common elements.
Business models are a new way to analysis of the product, company, sector or enterprise networks. Their center is enterprise, but research limits go much further.
Business models provide a holistic approach explaining the company functioning and its business concept;
Processes (operations) play an important role in virtually all concepts of business models.
Business models attempt to explain the creation of value, and its measurement. .[ Zott, and , Amit, and Massa, 2010]
Due to the subject matter of the presented business model concept, it is worth to mention the ones that are oriented at application of innovations. It is to emphasize that in many enterprises, creating and implementing innovations affect the business model dynamics [Brzóska, 2012;Kramarz, and Kramarz ,2012].
Referring to the impact of innovation to increase of the competitiveness and development organization, G. Hammel [Hammel ,2002]formulated business concept innovation, the result and application base of which is proper business model. His opinions are expressed in the business concept innovation, the result of which and basis
for application is proper business model In order to use business model for carrying out radical (revolutionary) changes (innovations), one must understand business model as the whole consisting of many elements cooperating with each other. G. Hamel creates architecture of such model consisting of four main components: basic strategy, strategic resources, communication and customers relation, value of the network. The two last elements of the model require innovative utilization and generation of information to create knowledge for innovation. Business models oriented at innovations, to significantly higher extent, than e.g. new technologies, change the existing system of competition, frequently destroying the existing state of the art. Companies and sectors perceived as modern (IT telecommunication, pharmaceutical industry), are the space for such radical changes
K. Obłój[Obłój, 2002] its paper, when defining business model “as combination of company strategic concept and technology of its practical execution understood as a construction of value chain that allows for efficient operation and restoration of resources and skills”- sees threats emerging from competitive surrounding. The most severe are related to imitations. Elimination of such threats requires the need for continuous improvement of business models that can be specified as some form of “running forward”. The most important instrument of their improvement is partial and breakthrough innovations. The first of them are such changes within the scope of the existing model, which express themselves with constructing competitive edge. Introduction of breakthrough innovations is the second way of “running forward”. It consists in innovative shaping of the value chain in order to create innovation that initiates a wave of creative destruction on the market leading to creating completely new business model, which fact is represented by market successes of many companies[Obłój, 2002]
Business model concept based on nine components was developed by A.Ostrewalder A., Y.Pingeur.[ Ostrewalder and Pingeur ,2010].It is interesting that authors of the model (Figure1). presented it in terms of Blue Ocean Strategy developed by W. Chan Kim and R. Mauborgne [Chan Kim and Mauborgne ,2005],, that is based on construction of a new market space. Attaining this space is possible by two types of operations. The first operations are to lead to a reduction of the costs which can be attributed to the elements on the left side of the business diagram, which are not shaded. The second group are operations leading to step-wise increment of value for both the customer and for the
company. Business model elements presented on the right side of the diagram are held responsible for that (shaded part).
Source : [ Ostrewalder, Pingeur ,2010]
Figure1.The business model canvas template
Blue Ocean Strategy developed by W. Chan Kim and R. Mauborgne [Chan Kim and Mauborgne ,2005],, that is based on construction of a new market space. Attaining this space is possible by two types of operations. The first operations are to lead to a reduction of the costs which can be attributed to the elements on the left side of the business diagram, which are not shaded. The second group are operations leading to step-wise increment of value for both the customer and for the company. Business model elements presented on the right side of the diagram are held responsible for that (shaded part).
The performed own research (partial results of which are included herein) is based on business model presented by the authors of the principles of so called new age innovations, i.e. .C.K., Prahalad and M.S, Krishnan[Prahalad and Krishnan,2008] . They treat business model as one of the most important elements of the business transformation structure.
1. Value is based on exceptional personalized experience and expectations of customers. Companies must focus on individualization of value for customer. Regardless of the customers number, attention should be centrally focused on the position of a single person. The pillar is identified as N = 1 (experience of a single customer in time).
2. All companies have the access to the global ecosystem that also covers resources. Attention of the companies is focused on the access to the resources, not only on possessing them. This pillar is identified as R = G (global resources from many suppliers, frequently from many places around the world).
Elements of this model are:
Social architecture covering: management systems, human resources, competences, skills and HR development systems.
Business processes: marketing, production, customer service, services, sales.
Technical architecture: ICT systems, technical systems, equipment, logistics
3
Research related to changes of business model in the companies.
The research covered 150 economy entities. The survey consisted of 26 specific questions concerning knowledge components and various aspects of innovation processes and their impact on business models. Selection of the samples was purposeful. The entities were categorized according to the below criteria. Examined companies:
- belong to SME sector,
represent different sectors of the industry, services and trade,
implemented at least 5 innovations (of any kind) within the last 3 years,
they are not companies under liquidation
Question 1 assessed the level of knowledge components in the enterprise closely related to the innovation field before its implementation(Figure 2). In the five-grade knowledge scale (from 1-low knowledge to 5- very high knowledge) the highest average grade was related to knowledge about research conducted in various centres in Poland (3.52). Knowledge about solutions used by other operators in the industry has received an average of 3.17. The level of knowledge about solutions to marketing activities has been estimated at 2.33. Knowledge about the possible solutions for business management gained low result (2.1). The lowest result was gained by the knowledge of the research carried out by centres worldwide (1.2).
Source: own study
Figure 2.Level of knowledge in the company before implementation of innovation
The interviewed, when assessing the knowledge level in enterprises, found the knowledge of scientific research conducted in various centers in Poland and the solutions used by other operators in the industry, to be at the highest, although average, level. Deficiency of knowledge about solutions for marketing activities, solutions for business management was diagnosed together with the lack of knowledge on the tests conducted by centers worldwide. Knowledge about the results of the studies performed by research centers in Poland, having the highest result, is rather surprising. It has proved to be higher than knowledge about the business environment operations, thus the knowledge which determines possible competitive operations. Such a result suggests better communicativeness while exchanging common information by Polish research and scientific centres, and at the same time acknowledges that business relationships in Poland have not so many elements of potential synergetic cooperation that allow building a knowledge-based market advantage reinforced with cooperation.
The next question concerned general knowledge in the aspect of its importance for creating and absorption of innovation(Figure 3). In the five-grade knowledge scale (from
2.33 2.1 3.52 1.2 3.17 1 2 3 4 5 rozwiązaniach dot. działań związanych z marketingiem rozwiązaniach dot. zarządzania firmą badaniach naukowych prowadzonych w różnych ośrodkach w Polsce badaniach naukowych prowadzonych w różnych ośrodkach na świecie rozwiązaniach stosowanych przez inne przedsiębiorstwa działające w branży
Solutions concerning operations related to marketing
Solutions applied by other companies operating in the sector
Solutions concerning company management Scientific research performed by different centres worldwide Scientific research performed by different centres in Poland
1 - low meaning of knowledge - to 5- very high meaning of knowledge) knowledge of the research and development was found to be the most important (4.11) and also the knowledge about business clients (4.02). The knowledge about competitors (3.88) and partners (3.55) is also placed high. In the situation of significant EU funds to support innovation in SME, quite high recognition of the importance of knowledge about programs and support SME (3.38) is not surprising. The meaning of knowledge about the processes and products is found to be higher than average (respectively: 3.18 and 3.03). The following types of knowledge were found to be close to average: importance of knowledge within strategic and operational management (2.62), knowledge of macro- economic and social environment (2.60), of resources (2.52) and suppliers (2.48). The feedback indicates that enterprises find the meaning of knowledge components important