Week 1
Detailed Summary of Business Model Innovation: Strategic and Organizational Issues for
Established Firms by Constantinos Markides (2023)
The article explores business model innovation (BMI) as a key strategic challenge and opportunity,
particularly for established firms facing disruption. It highlights the unique difficulties large firms
encounter when adopting new business models, how they can respond, and the competitive
implications of BMI.
1. Understanding Business Model Innovation (BMI)
Definition and Distinction from Strategy:
Markides defines BMI as the discovery of a new way to conduct business, either new to the world
or the industry, that reshapes competition. It is distinct from technological, product, or process
innovation, which typically focus on incremental improvements.
A business model consists of three interdependent elements:
1. Who the company serves (customer segments)
2. What it offers (value proposition)
3. How it delivers value (distribution, operations, cost structure)
BMI occurs when these three elements are reconfigured to create a fundamentally new
way of operating.
The concept is often confused with corporate strategy, but Markides argues they are distinct:
Strategy is about positioning and making high-level choices (e.g., low-cost vs. differentiation).
Business models translate strategy into concrete operational activities (e.g., how a company
structures its costs, pricing, and distribution channels).
Types of Business Model Innovation
Markides differentiates three levels of BMI:
1. New to the firm (e.g., Microsoft’s shift to a subscription model for Office software)
2. New to the industry (e.g., Rent the Runway adapting Netflix's subscription model to fashion)
3. New to the world (e.g., Uber, Airbnb introducing fundamentally novel business models)
For a change to be considered true business model innovation, it must expand the economic pie—
either by:
Attracting new customers who were previously underserved.
Encouraging existing customers to consume more.
,2. The Challenges of Business Model Innovation for Established Firms
Markides emphasizes that while startups often pioneer new business models, established firms
struggle to discover and implement BMI for three main reasons:
A. Conflicts with Existing Operations
New business models often clash with established ways of doing business.
For example, a traditional airline that introduces an online-only booking system risks
alienating travel agents who are key partners.
Such conflicts arise because BMI introduces trade-offs:
o It may cannibalize existing sales.
o It often requires different capabilities, resources, and incentives than the core
business.
Case Example: Auto Trader (UK)
Originally a print magazine for classified car ads, Auto Trader moved online in 1996.
This threatened car dealers, who were key customers of the print business.
Dealers resisted the change—some even boycotted the website and launched their own
competing platform.
It took 17 years (until 2013) for Auto Trader to resolve the conflict and successfully transition
to a fully digital model.
B. New Business Models Create Markets That Undermine the Core Business
BMI often leads to the creation of new markets that challenge the firm's existing revenue
streams.
This causes internal resistance from managers of the core business, who see BMI as a threat
rather than an opportunity.
The streaming business at SKY (UK), for instance, initially grew at the expense of its highly
profitable pay TV business.
C. Many Business Model Innovations Follow the “Disruption” Process
Some BMIs, like low-cost airlines (Southwest, Ryanair) or online brokerage services
(Schwab, E*Trade), start by serving a new customer base that existing firms ignore.
These disruptors gradually improve their offerings until they become good enough for
mainstream customers—at which point they start taking market share from incumbents.
Traditional firms hesitate to invest in disruptive models because their core customers don’t
want them initially.
Example:
Traditional airlines focused on quality and full-service offerings.
Low-cost airlines initially appealed only to budget travelers.
, Over time, low-cost carriers improved their service and reliability, attracting mainstream
travelers and forcing traditional airlines to react.
D. Organizational and Cultural Resistance
Established firms have deeply ingrained cultures, incentive structures, and bureaucracies
that make it hard to experiment with new models.
Managers are often rewarded for short-term profitability, discouraging long-term
investments in unproven models.
Public companies face investor pressure, making it difficult to sustain early losses from BMI.
3. How Can Established Firms Respond to Business Model Innovation?
Markides outlines several strategies that incumbents can use to respond to BMI:
A. Ignoring the New Model (Risky)
Some firms initially dismiss new models because they serve small, low-margin markets.
However, many disruptive models grow rapidly and become competitive threats.
Example: Kodak ignored digital cameras, allowing competitors like Canon and Sony to
dominate.
B. Adopting the New Business Model Themselves
Firms can experiment with the new model while maintaining their core business.
Example: Microsoft successfully shifted from software licenses to a subscription-based
model (Office 365).
C. Competing with Two Business Models Simultaneously
Some firms try to operate both traditional and innovative models, but this requires careful
management to avoid internal conflicts.
Singapore Airlines and Qantas successfully launched budget airline subsidiaries without
harming their premium brands.
British Airways and KLM failed to do the same due to cultural resistance and poor
integration.
D. Acquiring or Partnering with Innovators
Instead of developing new models internally, firms can acquire startups that have already
tested them.
Example: Walmart acquired Jet.com to improve its e-commerce business.
E. Leveraging Scale to “Exploit” Innovations
Large firms excel at scaling up innovations, even if they don’t create them.
They can wait for startups to prove a model’s viability, then use their resources and
distribution networks to expand it quickly.
, Example:
o Amazon wasn’t the first to sell books online, but it scaled up faster than
competitors.
4. Key Takeaways and Strategic Implications
1. BMI is a powerful tool for competitive advantage, but it’s difficult for incumbents to
implement.
o New models often conflict with existing operations and face internal resistance.
2. The best response to BMI depends on the firm’s industry and capabilities.
o Firms can ignore, adopt, compete, acquire, or scale up innovative models.
3. Successful firms balance their core business with BMI initiatives.
o Nestlé’s Nespresso and Singapore Airlines’ budget subsidiary show that BMI can
thrive within an incumbent organization if properly managed.
4. Incumbents don’t always have to innovate first—they can scale up models pioneered by
startups.
o Instead of focusing on discovery, firms should become excellent at scaling proven
innovations.
Key Message:
Business Model Innovation is not just about creating new ideas but rethinking how a company
delivers value. While startups are better at discovery, established firms can excel at scaling if they
overcome internal resistance and strategically manage the transition. Firms that ignore BMI risk
obsolescence, while those that embrace it smartly can turn disruption into opportunity.
Below is an in-depth and structured summary of the article When Business Model Innovation
Creates Value for Companies: A Meta-Analysis on Institutional Contingencies by Ilyas et al. (2023).
Certainly! Below is an in-depth and structured summary of the article When Business Model
Innovation Creates Value for Companies: A Meta-Analysis on Institutional Contingencies by Ilyas et al.
(2023).
1. Introduction: Understanding Business Model Innovation (BMI) and Firm Performance
1.1 Background and Research Gap
Business Model Innovation (BMI) refers to novel and non-trivial changes in a firm's business
model that redefine how it creates, delivers, and captures value.
Previous research consistently shows that BMI is positively linked to firm performance, but
not all firms benefit equally from engaging in BMI.
Many studies have examined firm-level (e.g., company capabilities) and industry-level (e.g.,
competition intensity) factors, but a major gap remains:
Detailed Summary of Business Model Innovation: Strategic and Organizational Issues for
Established Firms by Constantinos Markides (2023)
The article explores business model innovation (BMI) as a key strategic challenge and opportunity,
particularly for established firms facing disruption. It highlights the unique difficulties large firms
encounter when adopting new business models, how they can respond, and the competitive
implications of BMI.
1. Understanding Business Model Innovation (BMI)
Definition and Distinction from Strategy:
Markides defines BMI as the discovery of a new way to conduct business, either new to the world
or the industry, that reshapes competition. It is distinct from technological, product, or process
innovation, which typically focus on incremental improvements.
A business model consists of three interdependent elements:
1. Who the company serves (customer segments)
2. What it offers (value proposition)
3. How it delivers value (distribution, operations, cost structure)
BMI occurs when these three elements are reconfigured to create a fundamentally new
way of operating.
The concept is often confused with corporate strategy, but Markides argues they are distinct:
Strategy is about positioning and making high-level choices (e.g., low-cost vs. differentiation).
Business models translate strategy into concrete operational activities (e.g., how a company
structures its costs, pricing, and distribution channels).
Types of Business Model Innovation
Markides differentiates three levels of BMI:
1. New to the firm (e.g., Microsoft’s shift to a subscription model for Office software)
2. New to the industry (e.g., Rent the Runway adapting Netflix's subscription model to fashion)
3. New to the world (e.g., Uber, Airbnb introducing fundamentally novel business models)
For a change to be considered true business model innovation, it must expand the economic pie—
either by:
Attracting new customers who were previously underserved.
Encouraging existing customers to consume more.
,2. The Challenges of Business Model Innovation for Established Firms
Markides emphasizes that while startups often pioneer new business models, established firms
struggle to discover and implement BMI for three main reasons:
A. Conflicts with Existing Operations
New business models often clash with established ways of doing business.
For example, a traditional airline that introduces an online-only booking system risks
alienating travel agents who are key partners.
Such conflicts arise because BMI introduces trade-offs:
o It may cannibalize existing sales.
o It often requires different capabilities, resources, and incentives than the core
business.
Case Example: Auto Trader (UK)
Originally a print magazine for classified car ads, Auto Trader moved online in 1996.
This threatened car dealers, who were key customers of the print business.
Dealers resisted the change—some even boycotted the website and launched their own
competing platform.
It took 17 years (until 2013) for Auto Trader to resolve the conflict and successfully transition
to a fully digital model.
B. New Business Models Create Markets That Undermine the Core Business
BMI often leads to the creation of new markets that challenge the firm's existing revenue
streams.
This causes internal resistance from managers of the core business, who see BMI as a threat
rather than an opportunity.
The streaming business at SKY (UK), for instance, initially grew at the expense of its highly
profitable pay TV business.
C. Many Business Model Innovations Follow the “Disruption” Process
Some BMIs, like low-cost airlines (Southwest, Ryanair) or online brokerage services
(Schwab, E*Trade), start by serving a new customer base that existing firms ignore.
These disruptors gradually improve their offerings until they become good enough for
mainstream customers—at which point they start taking market share from incumbents.
Traditional firms hesitate to invest in disruptive models because their core customers don’t
want them initially.
Example:
Traditional airlines focused on quality and full-service offerings.
Low-cost airlines initially appealed only to budget travelers.
, Over time, low-cost carriers improved their service and reliability, attracting mainstream
travelers and forcing traditional airlines to react.
D. Organizational and Cultural Resistance
Established firms have deeply ingrained cultures, incentive structures, and bureaucracies
that make it hard to experiment with new models.
Managers are often rewarded for short-term profitability, discouraging long-term
investments in unproven models.
Public companies face investor pressure, making it difficult to sustain early losses from BMI.
3. How Can Established Firms Respond to Business Model Innovation?
Markides outlines several strategies that incumbents can use to respond to BMI:
A. Ignoring the New Model (Risky)
Some firms initially dismiss new models because they serve small, low-margin markets.
However, many disruptive models grow rapidly and become competitive threats.
Example: Kodak ignored digital cameras, allowing competitors like Canon and Sony to
dominate.
B. Adopting the New Business Model Themselves
Firms can experiment with the new model while maintaining their core business.
Example: Microsoft successfully shifted from software licenses to a subscription-based
model (Office 365).
C. Competing with Two Business Models Simultaneously
Some firms try to operate both traditional and innovative models, but this requires careful
management to avoid internal conflicts.
Singapore Airlines and Qantas successfully launched budget airline subsidiaries without
harming their premium brands.
British Airways and KLM failed to do the same due to cultural resistance and poor
integration.
D. Acquiring or Partnering with Innovators
Instead of developing new models internally, firms can acquire startups that have already
tested them.
Example: Walmart acquired Jet.com to improve its e-commerce business.
E. Leveraging Scale to “Exploit” Innovations
Large firms excel at scaling up innovations, even if they don’t create them.
They can wait for startups to prove a model’s viability, then use their resources and
distribution networks to expand it quickly.
, Example:
o Amazon wasn’t the first to sell books online, but it scaled up faster than
competitors.
4. Key Takeaways and Strategic Implications
1. BMI is a powerful tool for competitive advantage, but it’s difficult for incumbents to
implement.
o New models often conflict with existing operations and face internal resistance.
2. The best response to BMI depends on the firm’s industry and capabilities.
o Firms can ignore, adopt, compete, acquire, or scale up innovative models.
3. Successful firms balance their core business with BMI initiatives.
o Nestlé’s Nespresso and Singapore Airlines’ budget subsidiary show that BMI can
thrive within an incumbent organization if properly managed.
4. Incumbents don’t always have to innovate first—they can scale up models pioneered by
startups.
o Instead of focusing on discovery, firms should become excellent at scaling proven
innovations.
Key Message:
Business Model Innovation is not just about creating new ideas but rethinking how a company
delivers value. While startups are better at discovery, established firms can excel at scaling if they
overcome internal resistance and strategically manage the transition. Firms that ignore BMI risk
obsolescence, while those that embrace it smartly can turn disruption into opportunity.
Below is an in-depth and structured summary of the article When Business Model Innovation
Creates Value for Companies: A Meta-Analysis on Institutional Contingencies by Ilyas et al. (2023).
Certainly! Below is an in-depth and structured summary of the article When Business Model
Innovation Creates Value for Companies: A Meta-Analysis on Institutional Contingencies by Ilyas et al.
(2023).
1. Introduction: Understanding Business Model Innovation (BMI) and Firm Performance
1.1 Background and Research Gap
Business Model Innovation (BMI) refers to novel and non-trivial changes in a firm's business
model that redefine how it creates, delivers, and captures value.
Previous research consistently shows that BMI is positively linked to firm performance, but
not all firms benefit equally from engaging in BMI.
Many studies have examined firm-level (e.g., company capabilities) and industry-level (e.g.,
competition intensity) factors, but a major gap remains:
