Business model innovation: an integrated approach based on elements and functionsInformation Technology and Management


Yue Zhang, Shukuan Zhao, Xiaobo Xu
Information Systems / Communication / Business, Management and Accounting (miscellaneous)


Business model innovation: an integrated approach based on elements and functions

Yue Zhang1,2 • Shukuan Zhao1 • Xiaobo Xu3  Springer Science+Business Media New York 2015

Abstract Business model innovation can be used to acquire competitive advantages. In this paper, we applied an integrative approach to study business model in terms of elements and functions. In the paper, three types of business model innovations were discussed: original innovation, induced innovation, and imitative innovation. The major contributions of this paper are: (1) improving the understanding of the business models; (2) providing a new perspective on business model innovation; and (3) proposing the paths for business model innovation. The paper also discussed how new information technology may promote business model innovation.

Keywords Business model innovation  Technology management  Information technology management 1 Introduction

Business model has become an important economic and management research field in the current information economy. In 1960, the concept of ‘‘business model’’ was proposed. Based on the value chain theory, Timmers conceptualized business model and extended the core content of the study [29]. Nowadays, many firms, such as Apple,

Wal-Mart, and Amazon have successfully transformed technology innovation to business model innovation which instantly brought the competitive advantage to them.

Business model innovation is the key to apply the technology innovation effectively and efficiently. Researchers have shed some lights on the business model innovation, including innovation theory and innovation path, and system perspectives were applied in majority of these researches. In this article, we apply a new perspective to study the business model. The remainder of the paper is organized as follows. The literatures review about business model innovation is in Sect. 2. To reveal the relationship between business model innovation and corporation value, a function model is presented in Sect. 3. The paths and impact factors of business model innovation are discussed in Sect. 4. Section 5 concludes the paper. 2 Business model innovation 2.1 Business model and elements

Business model is defined as the logic of value created by enterprises [13]. It includes the main principles used to identify opportunity, acquire competitive advantage, and create greater value in the complex and volatile market environment. To face the challenges from the external environment, an enterprise implements a business model which includes organizational structure, strategies, corporate culture, and etc. Various methods have been used to analyze the elements of business model. As a prominent study, Afuah and Tucci (2001) divided business model into seven elements [4]: customer value, range, pricing, revenue, associated activities, implementation capability, and persistence. However, Hamel [19] argued that business & Shukuan Zhao 1 School of Management, Jilin University,

Changchun 130022, Jilin, China 2 Krannert Management School, Purdue University,

West Lafayette, IN 47907, USA 3 School of Business Administration, American University of

Sharjah, Sharjah, UAE 123

Inf Technol Manag

DOI 10.1007/s10799-015-0225-5 model involves customer interface, core strategic, strategy resource, and network value. Qiao [34] stated that the business model includes product, target customer, customer relationship, channels, profit, enterprise internal value chain, and cost and cooperation network. A V4 business model was proposed by Al-Debei and Fitzgerald [14] to include value proposition, value framework, network value, and finance value in the mobile service sector.

Although there are different analyses of business model elements, we adopted the concept of the business model as the logic of value creation of enterprises. As such, business models can be used to answer questions about how an enterprise makes profit. Business model elements are classified into target market, operation process, core product, allocation principles of the enterprise value, and enterprise value chain structure.

An enterprise delivers its core product to the target market through the operation process (Fig. 1) which contributes to the core capability. There are ‘‘three flows’’ as cash flow, logistics flow, and information flow in the process of operation. As controller and distributer, both the value allocation principle and enterprise’s chain structure affect these three flows. An enterprise’s core products, including products and services, reflect its core competence. Specific services can be integrated with products to drive business model innovations [31]. The enterprise provides value to its target market which can be an organization or individual consumers after subdividing the market and identifying the target customers. The enterprise operation process includes various management aspects such as organization management, business process, and operation activities, etc. Enterprise value allocation principles affect its finance system which includes the acquisition strategy, distribution strategy, and revenue and profits. The value chain structure of an enterprise includes upstream and downstream collaborations, customer relationship, and enterprise internal value chain structure [23, 24].

In summarizing, we proposed five elements for a holistic and dynamic system to represent an enterprise’s value. We further interpret what the business model contains in terms of these five interrelated elements. 2.2 The concept of business model innovation

Business model innovation is the process to optimize and reengineer complex resources. That is to say, an enterprise utilizes business model innovation to generate more profit.

The effectiveness of business model innovation differentiates itself from the business model changing. Establishing a model for business model innovation can clearly explain the relationship between enterprise’s value and enterprise’s business model. As shown in Formula 1, the dependent variable Y represents an enterprise’s value. The independent variable X represents an enterprise’s production materials, including resources, manpower, and capital. The function F represents the logic of the process that an enterprise transforms the production resources into its value.