Business model innovation
The business model of an organization depicts the ways the organization creates, delivers and captures value (Amit & Zott, 2001; Chesbrough & Rosenbloom, 2002; Doz & Kosonen, 2010). In other words, business models touch upon various, cross-sectional aspects of an organization, as well as reflect its positioning within the market and modes of interaction with external stakeholders (Amit & Zott, 2001; Chesbrough & Rosenbloom, 2002; Sanchez & Ricart, 2010). On the one hand, the business model can be described as a snapshot of the current articulation of the organization’s activities designed to produce a value proposition to its customers, at a given time (Osterwalder, 2004). On the other hand, recent studies stress the dynamic nature of the business model, driven by endogenous and exogenous changes, and investigate the processes behind the evolution and innovation of the business model (e.g., Achtenhagen, Melin, & Naldi, 2013; Demil & Lecocq, 2010; Doz & Kosonen, 2010), also specifically in the service context (Nair et al., 2013). Following the latter approach, this paper takes a dynamic stand and focuses on processes of business model innovation, whose related studies are reviewed here.
First of all, existing literature reveals how an organization may achieve sustained value creation through the successful shaping, adaptation and renewal of its underlying business model on a continuous basis (Hedman & Kalling, 2003; Osterwalder & Pigneur, 2010). In fact, business models cannot be static at all (Achtenhagen et al., 2013; Casadesus-Masanell & Ricart, 2011; Demil & Lecocq, 2010), but are rather in a state of continuous evolution, i.e., a fine-tuning process that involves both voluntary and emergent changes. Such business model evolution calls for dynamic consistency, which is defined as the capability to build and sustain performance by anticipating and reacting to change while innovating the business model (Demil & Lecocq, 2010). Organizations must therefore drive business model innovation dynamically through experimentation and trial-and-error learning (McGrath, 2010; Moingeon & Lehmann-Ortega, 2010; Sanchez & Ricart, 2010; Sosna, Trevinyo-Rodríguez, & Velamuri, 2010), and with the support of strategic sensitivity, leadership units and resource fluidity (Chesbrough, 2010; Doz & Kosonen, 2010). Combining this approach with Amit and Zott (2012) definition, business model innovation is in this paper defined as the creation of (a) a new market or (b) new opportunities in existing markets and exploitation thereof in observation of, and response to, endogenous and exogenous changes.
Secondly, previous studies propose various models of business model innovation processes: from linear business model life cycles (e.g., Amit & Zott, 2012; Morris, Schindehutte, & Allen, 2005; Morris, Schindehutte, Richardson, & Allen, 2006; Osterwalder & Pigneur, 2010;
process models (e.g., Achtenhagen et al., 2013; Cavalcante, Kesting, & Ulhøi, 2011; Demil & Lecocq, 2010; Francis & Bessant, 2005; Sosna et al., 2010; Svejenova, Planellas, & Vives, 2010; Tikkanen, Lamberg, Parvinen, & Kallunki, 2005). One common feature of these models, which relates to the very nature of the business model construct, is the need for consistency between and among activities, transactions and relationships that are linked to the different components. For instance, Morris, Schinderhutte and Allen (2005) stressed the need for maintaining a fit in the configuration of internal and external elements and actions. More recently, Achtenhagen et al. (2013) proposed three critical capabilities for managing sustained value creation: (1) orientation towards experimentation and exploitation of new and old business opportunities; (2) balanced use of resources; (3) coherence between active and clear leadership, strong organizational culture and employee commitment, which mutually reinforce each other as complementary towards value creation.
Finally, another stream of work on business model innovation relates to the external orientation of the business model construct and investigates the role of the external environment as well as of stakeholders. Such stream originated from the argument that, given that the business model integrates firm-internal and market-related aspects, the evolution and innovation of the business model over time is influenced by the observation of and reaction to both internal and external changes and stakeholders (Hedman & Kalling, 2003; Nenonen & Storbacka, 2010; Tikkanen et al., 2005). In other words, new business models are derived by the mutation of existing business model components as consequence of the co-evolutionary relationship between the business model of an organization and the social context in which it operates (Hedman & Kalling, 2003; Tikkanen et al., 2005). Chesbrough and Rosenbloom (2002), for instance, underline that business model innovation requires the coordinated effort of various actors within the organization to achieve positive results. By focusing on low-income markets, Sanchez and Ricart (2010) observe that an organization’s ecosystem might in fact have a decisive influence on business model configuration. According to their study, interactive business models, i.e. connected with other business models, as compared to isolated ones, better support reciprocal learning and experimentation, and thus allow exploiting opportunities while at the same time being part of the opportunity itself (Sanchez & Ricart, 2010). More recently, Storbacka and colleagues have argued for value co-creation as a main outcome of business model innovation, and stressed that organizations tend to orchestrate their stakeholders to provide solution elements to selected customers, thereby influencing value creating opportunities in the network (Nenonen & Storbacka, 2010; Storbacka, Windahl, Nenonen, & Salonen, 2013).
Despite having outlined the need to look at and interact with stakeholders when driving business model innovation (Doz & Kosonen, 2010; Morris et al., 2005; Nenonen & Storbacka, 2010; Sanchez & Ricart, 2010; Storbacka et al., 2013), existing literature has not yet investigated
processes of open business model innovation, in which value is co-created by interacting stakeholders. Similarly, while the idea of a leaky boundary allowing internal and external knowledge exchanges fits with the nature of services, where the interaction of internal and external factors supports the innovation process (Alam & Perry, 2002; Jiménez-Zarco, Martínez- Ruiz, & Izquierdo-Yusta, 2011; Jong & Vermeulen, 2003; Matthing, Sandén, & Edvardsson, 2004), open business model innovation is yet to be researched in the service context, as shown in the next section of the theoretical background.
Innovation in services and value co-creation
While the debate on innovation in services is still open, scholars have recently agreed on the non- applicability of new product development models to innovation in services (Bryson et al., 2012). This is due to (1) the non-separation of process, product and organizational innovation; (2) the importance of combining technological and non-technological (or soft) innovation; as well as (3) the missing distinction between the creation of service offerings and their production and/or commercialization, which characterize innovation in services as compared to tangible goods (Bryson et al., 2012; Gago & Rubalcaba, 2006). In other words, innovation in services does not only refer to new service offerings, but also to new organizational settings, processes and technologies that allow the service provision (Bryson et al., 2012; Drejer, 2004), as well as the business model behind it (Carlborg et al., 2014). Service providing organizations, therefore, need to adapt rapidly to changing global environments, thereby innovating their business model to react to new challenges and market opportunities (Nair et al., 2013).
Adaptability and agility towards business model innovation, however, are not the only capabilities required for service providing organizations to succeed. The relationship between service provider organizations and their stakeholders influences—and might effectively enhance—the performance of innovation in services, meaning that organizations need to nurture closer relationships with their stakeholders to support innovation processes (Hsueh et al., 2010; Prahalad & Ramaswamy, 2004a, 2004b; Vargo & Lusch, 2004). A well-known stream of studies focuses on the involvement of users and customers (e.g., Alam & Perry, 2002; Alam, 2002); while the recent work on open innovation more generally defines innovation in services as the outcome of complex interactions between agents, capabilities and preferences (Bryson et al., 2012; Chesbrough, 2003, 2011; West, Salter, Vanhaverbeke, & Chesbrough, 2014). Similarly, the Service-Dominant Logic (SDL), which claims a new perspective in marketing, proposes service providing as the fundamental basis for economic exchanges (Vargo & Lusch, 2004) and suggests that all social and economic actors within and across the boundaries of the organization interact with each other and integrate resources to co-create value (Nenonen & Storbacka, 2010; Vargo & Lusch, 2004). This paper follows the SDL approach that proposes value co-creation as a phenomenon in which many actors in a network co-create value, and defines value accordingly.
Value is thus defined here as uniquely and phenomenologically determined by the beneficiary, i.e., as value in use and in context, rather than as the monetary benefit derived by the providing organization, i.e., value in exchange (Vargo & Lusch, 2004, 2007). Nenonen and Storbacka (2010), for instance, show how value creation in services does not take place exclusively within the boundaries of the organization. On the contrary, value appears to be co-created among the various stakeholders in the networked market where service providers operate (Nenonen & Storbacka, 2010), meaning that value co-creation is subject to changes in the organization’s external environment (Lusch, Vargo, & Tanniru, 2009). In other words, for value co-creation to be successful, agility, adaptability and learning are crucial not only within, but also beyond the boundaries of the organization, i.e., between and among stakeholders, and in turn allow service providing organizations to survive and grow (Lusch et al., 2009).
To conclude, if it is accepted that value co-creation supplants the processes of value exchange between service providing organizations and their customers (Prahalad & Ramaswamy, 2004a, 2004b) and that business model innovation is one of the increasingly important facets of innovation in services (Carlborg et al., 2014; Chesbrough, 2011), it can be argued that an open approach towards business model innovation can lead to the co-creation of value. While existing literature unravels various aspects of innovation processes in services, the way value co-creation unfolds throughout open business model innovation within the service context has yet to be uncovered. This study aims at shedding light on this issue by emphasising the interactions between internal and external stakeholders within the context of facility services. But what are facility services, and how can selecting such context contribute to the uncovering of value co- creation throughout business model innovation processes? In the next section, these questions are answered by introducing the context of facility services and its features in relation to innovation and value co-creation.