Avoiding to get stuck in a successful business model. Business model adaptation at a high technology textile company

• AIM The development of successful business models has become recognized as an important element of entrepreneurial processes (George & Bock, 2011). Business models are depicted as loci of innovation shaping the mechanisms that derive value from business opportunities (Amit & Zott, 2001; Chesbrough & Rosenbloom, 2002). Yet, a major challenge even for entrepreneurial firms with successful business models is to avoid getting stuck in their business model in situations where environmental changes call for business model alignment or where an established business model might be an obstacle to pursuing new opportunities. While firms need to adapt and change their business models, we know that organizations tend to get stuck in their early strategies and structures (Hannan & Freeman, 1977) and that firms may get locked into previously successful paths (Sydow; Schreyögg & Koch, 2009). Hence, Johnson et al. (1996) propose that new business models are most likely to emerge with new organizations. The present paper aims at exploring how innovative firms can avoid getting stuck in their business models. As a theoretical lens we are going to use the literature on path dependence that allows analyzing why firms get locked-in on specific patterns, but also how such lock-ins can be avoided. CONTRIBUTION Being a buzzword during the time of the dot.com bubble (Magretta 2002), the ‘business model’ concept has become widely used among practitioners and in normatively oriented publications (Casadesus-Masanell & Ricart 2011; Johnson et al. 2008; Magretta 2002). So far, research on business models suffers from a lack of consensus as to what business models actually refer to (Morris et al. 2005), leading to a fragmented body of knowledge (George & Bock 2011) that is sometimes characterized by conceptual obscurity (Hedman & Kalling 2003). There have been attempts to bring more clarity and coherence to the use of the business model concept, most notably George & Bock’s (2011) recent article where they both review the existing business model literature and make an attempt to investigate how practitioners actually use the concept. Their literature review identifies six major themes, focusing on product and service design, the deployment of resources, narrative accounts of business models, innovation frameworks, transaction structures, and the enactment of opportunities. The findings relating to practitioners’ business model conceptions are no less diverse, yet they identify an emphasis on the pursuit of opportunities. George & Bock (2011), warn that if the business model concept comprises too many aspects, it may be difficult to distinguish business models from other management concepts such as strategy. Their solution is to propose a business model definition related to the enactment of opportunities. On the other hand, a primarily opportunity-based definition leads to the question, if such phenomena are not yet sufficiently addressed in classical conceptions of entrepreneurship (e.g. Stevenson 1995). Morris, Schindehutte & Allen (2005), thus choose to emphasize the logic of profit generation in their conception of business models. While the enactment of a business opportunity is important for any business model, it is only the inclusion of the profit generation logic that clearly distinguishes the business model from other concepts. It is undisputed that in a changing environment. Business models have to be changed or even replaced in order to sustain the success of the firm in the long run (Brunninge & Achtenhagen 2011, Doz & Kosonen 2009; Johnson, Christensen & Kagerman 1996). Still, we have rather little knowledge relating to the question how such dynamic adaptation of business models is created in practice. Johnson et al. (1996) distinguish between reactive and opportunity driven business model changes. In general, they see severe obstacles to change in established organizations. Hence, they have relatively little to say about how business model change can be accomplished in established firms. Their description of inertia comes close to the phenomenon of organizational path dependence (Sydow, et al. 2009). The literature on path dependence goes back to the work of (Arthur 1989; David 1985) departing from the assumption that increasing returns, i.e. a positive feedback process that eventually results in a lock-in where changes of the selected solution become hard, if not impossible, to bring about (Sydow, Schreyögg & Koch 2009). It is thus essentially initial success that leads to inertia, making an effective business model a potential trap preventing future change. A key element of path dependent processes is a narrowing down of options that result from the increasing returns generated by a specific solution. Method As indicated initially, our emphasis in this paper lies on the change of business models. Despite some contributions on this issue (Brunninge & Achtenhagen 2011, Doz & Kosonen 2009; Johnson, Christensen & Kagerman 1996), surprisingly little has yet been done to understand what makes business models changeable and how business model change can be accomplished. In order help filling this gap we have conducted a longitudinal single case study of an entrepreneurial firm. Case studies are particularly suited for research on change processes, as they capture longitudinal developments in context (Pettigrew 1990, 1997). As they allow for empirically-based exploration, they are particularly suited for relatively novel research topics (Eisenhardt 1989) such as business models. Our case company Oxeon, was founded in 2003 by a team of three entrepreneurs and is based in Borås/Sweden. It has so far been focusing on developing, producing and marketing a specific type of carbon-fiber based composite textiles. Two members of the entrepreneurial team were students to one of the authors of this paper, who has been able to follow the development of Oxeon since the time before the company’s formal start-up. Over time, the entrepreneurs have documented the development of their firm and in particular its business model. We have had access to this written documentation. In addition we conducted semi-structured interviews with all three entrepreneurs. Based on the data, we constructed a case study covering the development of the firm over a period of 10 years. Results & Implications Our paper provides in-depth insight into the development process of an entrepreneurial firm’s business model. The Oxeon case reveals that any change in a business model enables and constrains the pursuit of future business opportunities. Choices entrepreneurs are making along the way result in the business model taking shape. While choices, such as Oxeon’s opting for carbon fibre created opportunities, but at the same time it also implied that potential opportunities associated with other materials were foregone. What is interesting about Oxeon’s choice however, is that the choice of carbon fibre left relatively many application opportunities open as opposed to the alternative options the company had. Likewise, choices to engage in raw material manufacturing, machine production as well as the combination of producing carbon fibre as well as licensing the process to customers avoided the typical narrowing down of options that tends to be typical of path dependent processes. In relatively short time, Oxeon pursued various business opportunities in manufacturing, machine development and raw material manufacturing. Likewise different revenue generating mechanisms, i.e. sales and licensing were applied simultaneously. The entrepreneurs themselves emphasize that that they consciously strive for leaving many options for the future development of their business model open. They just consciously seek to avoid the risk of lock-in to a path dependent development. While the path-dependence literature has recently been pointing at the fact that paths can actually be unlocked Ericson & Lundin (2013), the option of avoiding lock ins in the first place seems far more attractive to entrepreneurs that want to retain the strategic flexibility of being able to adapt and change their business model. Even though the Oxeon case does not mean that firms can retain an unlimited range of options for business model change, the conscious choice to pursue paths that allow for many future options creates a lot of possibilities for pursuing new business opportunities and for aligning the business model with environmental changes. Entrepreneurs who are aware of this, can adapt their business model in a way that always keeps a wide range of business opportunities open. So far the business model literature included few in-depth longitudinal studies exploring the dynamic adaptation of business model and the role of individual entrepreneurs in such processes. With our paper we show how the development of a business model evolves over time and how entrepreneurs can maintain a high flexibility in their business model by keeping options for a wide spectrum of future choices open.

Ämnesord

SAMHÄLLSVETENSKAP  -- Ekonomi och näringsliv -- Företagsekonomi (hsv//swe)

SOCIAL SCIENCES  -- Economics and Business -- Business Administration (hsv//eng)

SAMHÄLLSVETENSKAP  -- Ekonomi och näringsliv (hsv//swe)

SOCIAL SCIENCES  -- Economics and Business (hsv//eng)

Nyckelord

business model

entrepreneurship

path dependence

textile industry

Oxeon

change management

Business Administration

Entrepreneurship

Textiles and Fashion (General)

Textil och mode (generell)

Publikations- och innehållstyp

ref (ämneskategori)

kon (ämneskategori)