Gone are the times when companies could regard their business model as fixed and stable. Instead companies must work with multiple business logics and models in parallel due to changes in customers’ needs and new market opportunities. Accordingly, business model innovation tends to be as important as product and service innovation. Essentially, a business model tells the firm’s “story” regarding how to earn money, i.e. it defines how a company creates and capture value (Magretta, 2002, Zott & Amit, 2010). Successful business models are a often balance act trying to satisfy both the customers’ value-creating, and the company’s value-capturing, processes, i.e. balancing sufficient profit while maintaining satisfied customers.
Based on, among others, Teece (2007) we regard business model innovation as a process where as firm introduces change into their business model. Technology becomes obsolete, customer demands change, and new value propositions emerge; triggers for change might emanate from different perspective and from different actors, with varying starting points. Active business model innovation can reduce the risk of being overtaken as new actors introduce, for example, innovative offerings, new operational processes or even new underlying business models (Bessant and Davies 2007).
Based on a case study at Ericsson our research explores the business problem that arises when one part, or both, are dissatisfied with the current business situation, opening up for business model innovation. It proposes a generic framework, based on the Service-Dominant logic (SDL) (Vargo et al., 2010), which aims to guide actions to dissolve situations where the current business model has become obsolete. The paper proposes and discusses four possible approaches to overcome the unsatisfying situation; two based on a Goods-Dominant logic (GDL) and two based on a Service-Dominant logic. The GDL approaches tend to change the current business model based on transaction costs, i.e. raising or lowering the price leading to either party remaining dissatisfied. Whereas the SDL approach instead leads to a changed business model based on a value co-creation process, focusing on understanding the customer’s value creation. Our research indicates that sometimes involves a learning process enabling the customer to understand the actual value obtained from the business relationship. Hereby, the supplier can maintain sufficient profitability with satisfied customers.
In conclusion, we find that innovation of a company’s business model can be understood as a marketing activity that emphasizes value-creation and value-capture as entities that needs to be balanced. Companies need to develop dynamic capabilities to address and systematically change business models that are malfunctioning. The proposed framework can support companies to become more efficient and effective in addressing needed changes and to understand when different business model innovation processes are needed.