Understanding the impact of technology on firms’ business models

Understanding the impactof technology on firms’

business modelsSergio Andre Cavalcante

Aarhus School of Business – ASB,Centre for Organizational Renewal and Evolution – CORE,

Aarhus University, Aarhus, Denmark

Abstract

Purpose – The purpose of this paper is to identify the impact of a new global positioning technologyon firms’ business models.Design/methodology/approach – The empirical setting was a consortium of Danish organizations,established to develop a positioning-based technology platform as a basis for innovative commercialproducts and/or services. Three of the consortium companies were selected for case-study research.Findings – The main findings were that companies will use the new technology to extend theirexisting business models, and that the technology platform potentially represents the creation of anew business model for the partner companies in the consortium.Practical implications – This paper is important in that it will help companies understandtechnological impact from a business model perspective, thereby enabling them to manage innovationbetter by distinguishing between the creation, extension, revision or termination of business models.Originality/value – The main contribution of this study is its use of the business model perspectiveto analyse the impact of an emergent technology on companies’ innovation activities. This perspectivemakes it easier to develop strategic initiatives while managing innovation, and underlines theimportance of purposive human action in adopting a proactive behaviour, reducing deterministicviews on technological impact.

Keywords Business model, Technological impact, Innovation management, Change, Processes,Companies, Denmark

Paper type Case study

1. IntroductionCompanies often analyse the commercial potential of new technologies by means of suchtechniques as Scenario and PESTEL analyses (Ho and Chen, 2009; Lynch, 2009), and theDelphi technique (Rowe and Wright, 1999). The aim of most of these techniques is toacquire an overview of market in terms of overall size and potential competitors, but theydo not specifically analyse how the new technology will affect the organisation internally.Although many companies have successful business models, they often stumble whenfaced with the emergence of new technologies (Christensen, 1997). Scholars have definedthe term business model in different ways (Shafer et al., 2005), and acknowledge that theychange over the years (Voelpel et al., 2004; MacInnes, 2005; Chesbrough, 2007; Cavalcanteet al., 2011). The aim of this research, which examines how a number of Danish companiesdeal with an emergent new technology, is to analyse technological impact at the internalorganisational level, focusing specifically on the companies’ business models.

The current issue and full text archive of this journal is available atwww.emeraldinsight.com/1460-1060.htm

European Journal of InnovationManagement

Vol. 16 No. 3, 2013pp. 285-300

r Emerald Group Publishing Limited1460-1060

DOI 10.1108/EJIM-10-2011-0085

The author would like to gratefully and sincerely thank Peter Kesting for reading previous versionsof this paper and sharing ideas and suggestions for improvements, and Ana Luiza de AraujoBurchart, who also gave important comments and insights for making the paper better. The authorwould also like to express gratitude to John Parm Ulhøi for his ongoing support to the research.

285

Firms’ businessmodels

A Danish consortium was recently established to identify ways of exploiting a newsatellite-based positioning technology, which will be available in 2013/2014. The futureimpact of this new technology on the business models of these firms is the focus of thisresearch. This new positioning technology, known simply as “Galileo technology”, isbeing developed in the context of the Galileo Programme – a joint initiative by theEuropean Commission and the European Space Agency (ESA) (2005). From a layman’spoint of view, Galileo will basically be no different than existing GPS technology.However, it has the potential to improve on GPS in terms of availability, accuracy andreliability of signals. Thus, the expectations are that this new technology willconsiderably broaden innovative commercial applications in such diverse industries asenergy, finance, agriculture, banking and environmental management (ESA, 2005).

The research question guiding this study is: how will the new Galileo technology affectthe companies’ business models? The view here is that much of the impact depends on theextent to which companies use the technology in new applications (Adner and Levinthal,2002). In other words, that technological impact is closely related to companies’ innovationactivities. This study adopts a dynamic view of business models, i.e. a business modelmight be changed more incrementally on some occasions and more radically on others.Cavalcante et al.’s (2011) process-based business-model change framework, which linksbusiness model change to the innovation activities of companies by distinguishingbetween four different types of business model change, is used to guide a qualitativeinvestigation. The theoretical framework helps understand which kind of business modelchange will take place in the companies selected for the study.

The main contribution of this research is to use the business model perspective for aprospective analysis of the impact of a new technology on the innovation activities ofcompanies. This allows a more proactive view of how individuals initiate different coursesof actions while managing innovation, and at the same time gives a more non-deterministicview of technological impact. The remainder of the paper is organised as follows. Section 2reviews the literature on prospective analyses of the impact of new technology, thedifficulty of companies changing in more fundamental ways, and business model change,which are the central topics of this study. This section also discusses basic notionsabout the development of technological platforms and collaborative initiatives as a way ofbetter understanding the joint work of the consortium companies. Section 3 presents theframework which guides the empirical study, the research setting, data collection andanalysis and the main findings. Section 4 discusses companies’ extension of their businessmodels, the technology platform as a potential new business model and the importance ofusing the business model perspective to foresee technological impact. Section 5 presentsthe conclusion, limitations of the study, and suggestions for further research.

2. Review of the literatureCompanies use a variety of approaches to analyse the potential impact of newtechnologies. Scenario and PESTEL analyses, for example, are two analyticalapproaches that companies often use. Scenario analysis is used for a generic analysisof possible future environments and strategic thinking on possible consequences in acontext of uncertainty (Ho and Chen, 2009; Lynch, 2009). PESTEL analysis is a specificchecklist on political, economic, socio-cultural, technological, environmental and legalaspects. One approach that can be used for a variety of purposes, from the prediction oftrends in science and technology to decision-making in different situations (Rowe andWright, 1999), is the Delphi technique, which uses questionnaires to collect opinionsfrom a group of experts and derive a consensus. Another analytical approach is

286

EJIM16,3

“technology roadmapping”, a time-based layered chart (examples of layers are market,products, technology and resources) which can be used for different purposes, e.g.product planning, strategic planning and knowledge-asset planning (Abe et al., 2009;Phaal et al., 2004). Christensen (1997) suggests an analytical approach that takes intoaccount possible market demand and the technology’s trajectory. Adner and Levinthal(2002) suggest that disruption is not an intrinsic characteristic of the technology itself –rather, disruption is dependent on the application of the technology in new domains.

Although companies analyse the potential “threat” of new technologies in the market,they rarely take this opportunity to renew themselves more fundamentally. Cognitiveaspects are helpful in explaining why companies fail to change (Huff et al., 2001). Baronand Hannan (2002) and Baron et al. (1996) describe how the mental models (or“blueprints”) of the founders of new ventures influence how they design their businesses.According to these authors, initial choices become imprinted in the nascent companies,shaping their subsequent evolution. Tripsas and Gavetti (2000) describe how the strongbeliefs of top managers at Polaroid long influenced the way the company did business.Organisational inertia, i.e. the forces which hamper companies’ ability to make structuralchanges in the face of environmental threats (Hannan and Freeman, 1984; Kelly andAmburgey, 1991), and organisational routines (Pentland and Feldman, 2005), which playa significant role in path-dependence, are two other major factors that help explain whyestablished companies have difficulty in changing when faced by the emergence of newtechnologies. Christensen (1997) argues that companies tend to satisfy the demand oftheir current customers, i.e. it is difficult for them to explore new markets. For thisreason, it is often entrant companies which use new technologies to change the“dominant logic” (Prahalad, 2004), which often results in successful companies, withsuccessful business models, failing. Thus, it is necessary to carry out prospectiveresearch using an internal analytical perspective. In this research, the analyticalperspective is the impact of a new technology on the business models of firms.

Research on business models has long focused on the identification and definitions ofcentral components (see e.g. Shafer et al., 2005). Many scholars have incorporated variouscentral components into their definitions of what a business model is, leading tonumerous concepts of the term (for a sample of definitions of the term business model,see Morris et al., 2006). Given the lack of consensus, therefore, Cavalcante et al. (2011)have suggested that the identification of central components should only take place aftera conceptual understanding of what a business model is has been agreed. They define abusiness model as “an abstraction of the principles supporting the development of afirm’s core repeated processes”. This process-based view of business models facilitatesthe operationalisation of the business model construct. For example, a central componentof the firm’s business model could be described in terms of the component’s core repeatedprocesses. This is in line with the idea that a conceptual understanding is necessarybefore an identification of central components of a business model.

However, it is not enough merely to identify and describe central components of afirm’s business model. It is also essential to understand the dynamics of a businessmodel, i.e. how a business model changes over time. There is increasing research onhow to change a firm’s business model, and some frameworks to guide business modelchange can be found in the literature. Voelpel et al. (2004), for example, present aframework for the development of new business models based on four dimensions(customer sensing, technology sensing, business infrastructure sensing and economic/profitability sensing). MacInnes (2005) has developed a framework for the specific caseof emergent technologies, taking into account different stages and specific problems to

287


overcome, e.g. technical problems (in stage one) and environmental problems (in stagetwo). Chesbrough’s (2007) framework suggests different stages in the evolution of abusiness model, each with specific characteristics. Reuver et al. (2009) investigate themost important drivers of business model change, pointing out that they varyaccording to the different stages of a business model. Cavalcante et al.’s (2011) process-based framework for business model change is mainly based on the idea that there arefour types of business model change (business model creation, extension, revision ortermination), each with different challenges to overcome. It will be necessary to selectone of the existing frameworks to conduct an empirical study on the future impact ofthe emergent Galileo technology on the business models of firms.

In this research, an “emergent” technology is simply considered as nascent, i.e. stillunder development, with technical characteristics not yet precisely established (as withGalileo technology), and it will be a “new” technology when it becomes available on themarket. The recently established Danish consortium is an example of companies trying todevelop a technology platform to enable them to develop innovative commercial productsand/or services (when the new technology becomes available, in 2013/2014). There is anincreasing tendency for technologies to be developed for more general commercial use(Gambardella and McGahan, 2010), and for companies to develop new technologiesthrough platforms, especially in high-tech industries (Gawer, 2009). A technologyplatform involves a few stable components with a high degree of reusability (Baldwin andWoodard, 2009) and “rules” such as standards to ensure compatibility between thecomponents and protocols that govern information exchange (Eisenmann et al., 2009).After the creation of a new platform, it is necessary to develop it over time, to increase thedemand for its services, and to obtain adequate returns (Cusumano and Gawer, 2002;West, 2003). Thus, Teece (2010) argues that an essential element of value capture isbusiness model design, whereas Miles et al. (2010) say that the newest organisationalform is collaborative based. Marshall (2004) notes that interorganisational collaboration isnot easy to manage, and that joint initiatives present significant challenges. Gupta et al.(2006) emphasise the role of leaders in creating network environments.

3. Method3.1 Case studies using a theoretical frameworkThe research approach used in this study is the qualitative case study approach. Casestudies investigate a contemporary phenomenon in its own context (Yin, 1981), and areappropriate when such phenomena are not yet well understood. The main idea of thisresearch was to contact companies and, based on a theoretical framework, understandand identify how the Galileo technology will affect their business models. Thus, one ofthe initial steps was to select a business-model change framework available in theliterature to guide the empirical investigation.

Although Voelpel et al. (2004), MacInnes (2005), Chesbrough (2007) and Reuver et al.(2009) offer valuable frameworks and different insights into the dynamics of a firm’sbusiness model, Cavalcante et al.’s (2011) process-based framework was chosen toguide this investigation. The main reason for this was the parameter of analysis thattheir framework offers to identify the boundaries of a firm’s business model. Theoperationalisation of business model change is easier when adopting their suggestionof core repeated processes as the boundaries of the firm and their belief that companies’innovation activities can affect these boundaries. In this research, the boundarieswill facilitate a prospective analysis of the impact of technology on the firms’business models. In their process-based view of business models, Cavalcante et al.

288

EJIM16,3

argue, however, that not all change initiatives affect a business model: business modelchange takes place only when the firm’s core organisational processes are affected. Theauthors identify four different types of business model change (business modelcreation, extension, revision and termination), e.g. business model extension when coreprocesses are incrementally affected, and business model revision when they areaffected more radically (others might refer to the latter as business model innovation).

The four different types of business model change can be briefly described asfollows: business model creation represents the materialisation of a business idea into anew venture; business model extension refers to improving the existing business byadding new core processes; business model revision means replacing existing coreprocesses by new ones; and business model termination refers to abandoning/removing core processes. Each type of business model change presents differentchallenges. Business model creation presents challenges such as risk and uncertaintyin relation to the new enterprise, whereas business model revision involves challengesthat are more significant than when the company simply extends its business model.

Figure 1 illustrates the framework guiding the investigation. The left side of thefigure represents the current situation of the firm, which has not yet incorporated theemergent technology into novel applications. The company is still analysing thecommercial potential of the technology and determining how to use it for thedevelopment of marketable products and/or services. Thus, the technology has not yetaffected the firm’s business model. The right side of the figure represents the companyin the future, where it has incorporated the new technology into novel commercialapplications. In this situation, the firm’s business model has been affected, in the sensethat the new technology was used to create, extend, revise or terminate existingbusiness model(s). The arrow to the left represents the situation where the companyhas decided not to use the new technology; consequently, its business model was notaffected (initiatives taken represent only non-fundamental changes).

After selecting Cavalcante et al.’s (2011) framework to determine how the newtechnology will affect the companies’ business models (i.e. which type of businessmodel change will take place), the next step of the investigation was to selectcompanies for the empirical study. The following section presents the empirical settingand the companies selected for the investigation.

The firm’sbusiness model

Extension

Termination

Creation Revision

Source: Author’s elaboration, based on Cavalcante et al. (2011)

Companies and emergent technologies(Present situation)

Companies using new technologies(Future scenario)

Non-fundamentalchanges

The emergenttechnology

Figure 1.Framework guiding the

empirical research

289


3.2 The consortium and the case companiesAn important requirement of Galileo technology is that companies must themselves findways of incorporating it into innovative products and/or services, since it is not a packagesolution. This is one important reason for the establishment of the Danish university-industry consortium in 2008. The idea was to enhance collaboration and knowledgeexchange between the Danish partners in the consortium, the aim of which was to jointlydevelop a positioning-based technology platform to support the development of newapplications. The consortium, which is part publicly financed, is currently at the stagewhere participants meet regularly to carry out basic research in connection with somespecific research themes (e.g. algorithms, application servers and protocols). The finalresult, i.e. the platform, will consist of a “toolbox” containing software, hardware andmethods that will be available to all interested firms wishing to develop and commercialisea variety of new positioning-based products and/or services.

The Danish consortium is composed of six core partners (three firms, twouniversities and one applied research institute), while another eight firms haveexpressed interest in future collaboration. Two of the firms and the applied researchinstitute (from the core partner group) were selected for the study. The three partnersare medium-sized organisations, here called (fictive names): DanInstitute (the appliedresearch institute), SmartSoftware and ictConsult (the two firms). DanInstitutedevelops research-based technological services for commercial application, and playsa major role in collaborations between universities and companies in Denmark.SmartSoftware supplies software solutions for health care management, positioningand national intelligence/security. ictConsult provides specialized advisory services,methods and products in the agricultural sector.

The next section describes how data were collected in the selected case companies,and how it was analysed afterwards.

3.3 Data collection and analysisThe aim of the empirical investigation in this study was to understand the points ofview of people in the selected companies. The main reason for this focus was the factthat Galileo is still an emerging technology, and there are still a lot of expectations anduncertainty surrounding its development. Interviews were the primary source of data,with documents being a supplementary source of information (e.g. an institutionalreport by the ESA on the Galileo European Programme for Global Navigation Services,and a description of the technology platform by the partner companies, includinginformation about the platform’s objectives, content and form, its structure and itsorganisation and form of management).

Data were collected from the three organisations by means of 17 semi-structuredinterviews (all of them recorded and transcribed) between October 2009 and October2010. The interviews were mainly with middle managers. Other key informantsindicated by some of the managers were also included. Totally, seven interviews werecarried out at the applied research institute (with four managers, one senior developerand one doctoral student; one manager was interviewed twice), four at SmartSoftware(all with managers) and six at ictConsult (all with managers; one manager wasinterviewed twice). The number of interviews was not determined a priori. Since, aftera few interviews in each of the organisations, informants were basically providing thesame information, no more interviews were deemed necessary.

Three central themes guided the questions: main initiatives taken in connectionwith the emergent technology, main initiatives for the near future and the expected

290

EJIM16,3

change impact of the emergent technology on the firm’s activities. These three mainthemes are linked to the theoretical framework, and help understand the extent to whichthe new technology will affect the firms’ business models. Understanding the maininitiatives that companies have taken and are planning to take in the near future (two ofthe central themes), for example, was useful for an overview of how companies preparethemselves to incorporate a new technology into their activities. This, in turn, wasimportant to understanding the type of business model change that their initiatives willlead to (i.e. business model creation, extension, revision or termination). The expectedimpact of the technology on the activities of the companies (the other central theme) wasessential to comparing their points of view with the conclusions of this research.

Since the interviews did not follow a strict sequence of themes, and the questionswere not pre-elaborated, they can be considered semi-structured. While the approach ofasking questions related to the central themes varied from interviewee to interviewee,an effort was made to ask similar questions across participants to enable furthercomparisons and also to validate information from different sources. Table I presentssome of the questions put to interviewees in the three companies.

The data analysis was mostly guided by a search for specific answers in relation tothe three central themes (which characterises a more deductive approach). Given therelatively small number of interviews and the fact that mapping details from theinterviewees’ answers would not be necessary, there was no need to use a specificsoftware tool for the data analysis. Unexpected comments were also taken into accountand grouped as “other topics” (characteristic of inductive data analysis), e.g. theinterviewees’ constant emphasis on the importance of satisfying the needs of thecompany’s customers. Thus, the interviews were carefully read to search for bothspecific answers that could be grouped into one of the three central themes mentionedpreviously (deductive analysis) and other answers (inductive analysis). Triangulation ofdata mainly consisted in comparing information collected from interviewees (primary

Main initiativestaken

How have you selected the collaborating companies for the Galileo project? (DI2)Can you describe DanInstitute’s collaboration with these companies? (DI5)What did you do to prepare for Galileo? What activities have you already carriedout to respond to this new opportunity? (Sma1)How did the idea for the research “case” come about? (ict1)How did the focus group interviews begin? (ict5)

Initiatives forthe future

Will your business area commercialize some kind of software-based solution forpositioning? (DI2)What are the plans for the future of the technology platform? (DI2-b)Do you think that Galileo could help you to explore new markets? (Sma1)Are you planning to commercialize the product inside the country, or abroad? (ict1)Will it be possible to change the way you commercialize products? (ict1-b)

Impact of thetechnology

Do you think that Galileo technology has in some way changed the wayDanInstitute works? (DI3)Internally, does it mean that you have to do things you have not done before?(Sma1)Do you think that Galileo will have an impact in your business area or in otherareas of the company? (Sma4)Is this kind of activity you are doing new? (ict1)Will Galileo change the way you do business? (ict1-b)

Note: Questions were adapted and shortened for purposes of clarity and concision; abbreviations atthe end of questions indicate the company and the interviewee

Table I.Examples of questions

asked duringthe interviews

291


data) with information from the institutional report on the Galileo Programme, and fromthe document prepared by the partner companies about the Galileo platform (secondarydata). Table II presents some answers from interviewees in the three companies.

3.4 Main findingsBased on the interviews’ answers and the information collected from the documents,the following important findings can be described in relation to the three centralthemes. The case companies have taken several innovation initiatives, the mostimportant of which was the setting up of a consortium for the joint development of apositioning technology platform, where each of the case companies were given specifictasks. DanInstitute, for example, is responsible for the coordination of activities andthe overall project management (and is also conducting research with the otherpartners in the consortium). SmartSoftware is responsible for basic research on thespecific “case” of indoor positioning of people in emergency situations (such as peoplein need of rescue from a building on fire), which will result in a commercial application,

Main initiativestaken

“It is usually DanInstitute which initiates a network contact with partners” (DI5)“There have been prototypes, demos, small brainstorms in-house to see what thetechnology could be used for – but not any structured approach yet” (Sma1)“The main initiative is in regard to the research area of the consortium”; “It is stilltoo early to take further initiatives”(Sma4)“The plant case, which is low-risk, represents 20% of the investment of thecompany”; “The cattle case, which is more high-risk, represents 80% of theinvestment” (ict1)

Initiatives for thefuture

“It has not yet been decided what to do with Galileo – but it will be with externalpartners” (DI2)“We want to ensure that the results are going to the tool-box, but we also want toensure that things that are going to the tool-box will be used by other peopleafterwards” (DI2-b)“We are developing a website and will include a description of the tool-box on it;we’ll see what sort of interest this creates – we might be attractive to companies;the website is only one part – we have to be more progressive saleswise” (DI2-b)“The organisation will focus on export markets” (Sma1)“The company is not quite sure what will happen in the future – it is necessary toevaluate the market and see” (Sma3)“We are not planning to commercialize this software abroad” (ict1)“We are thinking of commercializing this directly to customers” (ict3)

Impact of thetechnology

“It is not going to change the businesses of other companies dramatically, at leastnot at first” (DI3)“The core competence of the company is not going to be changed by Galileo”(Sma2)“The impact of Galileo on the company will not be that significant” (Sma4)“I think that we will do what we are used to doing, but in a better way” (ict3)“There will be a huge impact, taking into account having to build up a hugeknowledge area like Silicon Valley” (ict4)

Other “I think we should take a look at the market and ask the customers” (DI4)“We need to get into a close dialogue with customers to figure out what theirneeds are” (Sma1)“We focus on customer needs and we have a close dialogue” (Sma2)“It is mainly user-driven, yes” (ict1)

Note: Answers were adapted and shortened for purposes of clarity and concision; abbreviations at theend of answers indicate the company and the interviewee

Table II.Representative data fromthe interviewees’ answers

292

EJIM16,3

and has also carried out “brainstorming” sessions on other commercial possibilities forGalileo. ictConsult is responsible for research on the “case” of indoor positioning ofanimals (an identified need of many of its current customers), and will result in acommercial application for preventing production losses and the death of animals bylocating animals with abnormal behaviour.

In terms of initiatives for the future, DanInstitute’s managers said Galileo will beused in different activities within the institute, in combination with other technologies– they regard Galileo as just one more positioning technology (there are others on themarket, albeit not satellite based). However, they have not yet decided more preciselywhat to do with Galileo. When the consortium ends, DanInstitute will try to ensure thatthe toolbox will be available commercially to other companies. Managers atSmartSoftware said that Galileo technology can be used in many of the company’sproducts in the future. SmartSoftware wants to focus on export markets, and thecompany will analyse how they can best fit Galileo technology into this internationalstrategy. Managers at ictConsult said that the company will establish a new“knowledge area” in collaboration with other companies, where positioning will be ofcentral importance, and, consequently, Galileo technology. However, they also pointedout that long-term research on Galileo technology will be necessary.

In terms of the expected impact, managers at DanInstitute said that, based on theiroverall view of the Galileo project, companies will be interested in using the technologyfor incremental improvements of their products/services mainly because they are smallor medium-sized enterprises with a short-term commercial perspective. This is in linewith what managers at SmartSoftware said: according to them, the emergent technologywill not change the competencies of the firm, and their research “case” merely representsan improvement on previous versions of similar projects. Managers at ictConsultexpressed two different views. One is that the company has long developed software, andGalileo will be just one more commercial software application, similar to the GPS-basedapplication for outdoor positioning in arable farming that they have recently developed.The other view is that Galileo technology will have a significant impact on the new“knowledge area”, where positioning/tracking will be of fundamental importance.

Table III presents a summary of the main findings, organised by central themes andcompany, thus enabling cross-firm comparison.

4. The technological impact of Galileo on firms’ business modelsThe next step in this research was to use the selected theoretical framework to analysethe future impact of Galileo technology on firms’ business models. As previouslymentioned, Cavalcante et al. (2011) consider core repeated processes as the essence offirms’ business models, and argue that there are four different types of business modelchange, depending on how the core repeated processes are affected. Each type ofbusiness model change presents specific challenges; if the core repeated processes of afirm are not affected, they call this “non-fundamental” change. The data wereinterpreted based on these ideas, which constitute the theoretical framework guidingthe research. This section discusses how Galileo technology will affect firms’ businessmodels, and concludes with an analysis of the importance of the business modelperspective in foreseeing technological impact.

4.1 Extension of firms’ business modelsIn this initial stage of development of the technology, managers are mainly concerned withimprovements to products and/or services to existing customers. The commercialisation

293


Com

pan

yIn

itia

tiv

esta

ken

Init

iati

ves

for

the

futu

reE

xp

ecte

dim

pac

t

Dan

Inst

itu

teS

ome

init

iati

ves

incl

ud

eco

nta

ctin

gco

mp

anie

sab

out

join

ing

the

con

sort

ium

tod

evel

opth

ep

osit

ion

ing

tech

nol

ogy

pla

tfor

man

dap

ply

ing

for

fun

din

gat

nat

ion

alle

vel

for

the

imp

lem

enta

tion

ofth

ep

latf

orm

.D

anIn

stit

ute

isre

spon

sib

lefo

rth

eov

eral

lp

roje

ctm

anag

emen

t,an

dis

also

carr

yin

gou

tb

asic

rese

arch

wit

hit

sp

artn

ers

inth

eco

nso

rtiu

m

Gal

ileo

ison

eam

ong

oth

erp

osit

ion

ing

tech

nol

ogie

s,an

dit

isal

soab

out

bei

ng

asu

pp

orti

ng

syst

em.

Ev

enif

the

ind

oor

fun

ctio

nd

oes

not

wor

kp

reci

sely

asex

pec

ted

,D

anIn

stit

ute

wil

lu

seit

inco

mb

inat

ion

wit

hot

her

tech

nol

ogie

sfo

rm

ore

pre

cise

ind

oor

pos

itio

nin

g,

ind

iffe

ren

tac

tiv

itie

sw

ith

inth

ere

sear

chin

stit

ute

.D

anIn

stit

ute

wan

tsto

ensu

reth

atth

e“t

oolb

ox”

wil

lb

eof

com

mer

cial

inte

rest

toot

her

com

pan

ies

Dan

Inst

itu

teco

llab

orat

escl

osel

yw

ith

un

iver

siti

esan

dco

mp

anie

s,an

dit

sro

lein

pro

ject

man

agem

ent

giv

esit

sm

anag

ers

ag

ood

over

vie

wof

the

inn

ovat

ion

acti

vit

ies

ofco

mp

anie

sin

vol

ved

inth

eco

nso

rtiu

m.

Man

ager

ssa

idth

atco

mp

anie

sar

ein

tere

sted

inu

sin

gG

alil

eofo

rin

crem

enta

lim

pro

vem

ents

ofth

eir

pro

du

cts/

serv

ices

–th

isis

mai

nly

bec

ause

they

are

smal

lan

dm

ediu

m-s

ized

ente

rpri

ses,

wit

ha

shor

t-te

rmco

mm

erci

alp

ersp

ecti

ve

Sm

artS

oftw

are

Th

eco

mp

any

sele

cted

the

“cas

e”of

ind

oor

pos

itio

nin

gof

peo

ple

inem

erg

ency

situ

atio

ns.

Th

ere

hav

eb

een

“bra

inst

orm

ing

”se

ssio

ns

abou

tp

ossi

ble

com

mer

cial

situ

atio

ns

(cu

stom

ers

and

mar

ket

sin

con

nec

tion

wit

hG

alil

eo),

bu

tth

isd

idn

otfo

llow

ast

ruct

ure

dap

pro

ach

and

no

fin

ald

ecis

ion

has

bee

nm

ade

yet

Th

ere

are

man

yp

ersp

ecti

ves

inu

sin

gG

alil

eoin

the

com

pan

y’s

pro

du

cts.

Itw

ould

be

ver

yim

por

tan

tif

Gal

ileo

cou

ldb

eu

sed

for

ind

oor

pos

itio

nin

g.S

mar

tSof

twar

ew

ill

focu

son

exp

ort

mar

ket

s,an

dth

eco

mp

any

wil

lan

aly

seh

owto

fit

the

emer

gen

tG

alil

eote

chn

olog

yin

toth

isin

tern

atio

nal

stra

teg

y

Man

ager

sat

Sm

artS

oftw

are

said

that

the

imp

act

ofth

ete

chn

olog

yw

ill

not

be

that

sig

nif

ican

tfo

rth

eco

mp

any.

Th

ere

sear

ch“c

ase”

wil

lm

erel

yb

yan

imp

rov

emen

ton

pre

vio

us

ver

sion

sof

sim

ilar

pro

ject

s.T

he

emer

gen

tte

chn

olog

yw

ill

not

chan

ge

the

core

com

pet

ence

ofth

efi

rm,

and

wil

ln

otch

ang

eit

scu

rren

tw

ayof

doi

ng

bu

sin

ess

ictC

onsu

ltA

fter

con

du

ctin

ga

focu

sg

rou

pst

ud

yan

din

terv

iew

sw

ith

cust

omer

sto

un

der

stan

dth

eir

nee

ds,

the

com

pan

yse

lect

edth

e“c

ase”

ofin

doo

rp

osit

ion

ing

ofan

imal

sfo

rre

sear

ch.

Th

eco

mp

any

rece

ntl

yd

evel

oped

aco

mm

erci

alap

pli

cati

onfo

rou

tdoo

rp

osit

ion

ing

inar

able

farm

ing

bas

edon

GP

S–

this

init

iati

ve

was

insp

ired

by

the

Gal

ileo

pro

ject

Th

eco

mp

any

reg

ard

sG

alil

eoas

alo

ng

-ter

mre

sear

chp

roje

ct,

and

thin

ks

that

ind

oor

pos

itio

nin

gw

ill

mea

nn

eww

ays

ofob

serv

ing

and

trac

kin

g.

Th

eco

mp

any

wil

les

tab

lish

an

ew“k

now

led

ge

area

”in

coll

abor

atio

nw

ith

oth

erco

mp

anie

s,w

her

ep

osit

ion

ing

wil

lb

eof

cen

tral

imp

orta

nce

Man

ager

sex

pre

ssed

two

dif

fere

nt

vie

ws.

On

eis

that

Gal

ileo

wil

lju

stb

eon

em

ore

com

mer

cial

soft

war

eap

pli

cati

on,

sim

ilar

toth

eco

mm

erci

alap

pli

cati

onfo

rou

tdoo

rp

osit

ion

inar

able

farm

ing.

Th

eot

her

vie

wis

that

Gal

ileo

tech

nol

ogy

wil

lh

ave

asi

gn

ific

ant

imp

act

onth

en

ew“k

now

led

ge

area

”,w

her

ep

osit

ion

ing

/tra

ckin

gw

ill

be

offu

nd

amen

tal

imp

orta

nce

Table III.Main findings from theempirical research

294

EJIM16,3

of the two companies’ positioning-based applications (indoor positioning of people inemergency situations and indoor positioning of animals) will take place in the contextof their current business models. Consequently, their business models will not changesignificantly, and there will be few challenges to overcome. Basically, the newapplications will represent just one more commercial software in their line of products(as one manager at ictConsult put it). This means an extension of their businessmodels, in accordance with Cavalcante et al.’s (2011) framework (see Extension, inFigure 1). Business model extension is related to improving the existing business, andis similar to “incremental” innovation. The companies will fit the commercialisation ofthe applications into their current way of doing business. They will not revise theirbusiness models (i.e. replace existing core processes with new ones), nor discontinuecurrent core processes (business model termination) (see Figure 1).

There is evidence from the interviews that business model extension will take place.For example, the three organisations in the empirical study work closely with existingcustomers in order to satisfy their needs. During the interviews, managers never onceindicated that their companies would explore new markets; rather, they constantly saidthat they will try to satisfy their customers’ needs. DanInstitute will also use Galileo forthe development of projects as a supportive technology in combination with othertechnologies. Galileo is not regarded as a “disruptive” technology that will dominate allothers and enable radical new approaches. At SmartSoftware, even though thecompany will try to adopt a more international approach, which could lead to arevision in the way it does business, their main intention is to fit the new positioningtechnology into the company’s new strategy. The company will make choices in thecontext of this internationalisation process (in connection with new customers andsuppliers, for example), but they will not change the overall logic of its business model.At ictConsult, the company recently developed a commercial application for outdoorpositioning in arable farming, based on GPS. In essence, this application is just onemore software application that the company regularly develops for its customers, andit was incorporated into the company’s existing business model. When Galileobecomes available, it will be incorporated into this new product, i.e. it will just be anincremental improvement of the product. All this reinforces the assertion that thecompanies will extend their business models.

Innovation research projects often use “cases” as pilot projects, in the sense thattheir success subsequently leads to the development of a variety of applications.However, this does not necessarily imply that companies will create new businessmodels based on the success of pilot projects. It can be argued that, if the newpositioning technology allows the case companies to basically sell the same product,but with a different revenue sharing scheme, a different cost structure, in a radicallydifferent value network or according to a substantially different value proposition, thenthere will be business model revision. However, none of the managers in the casecompanies said they were planning to do this – on the contrary, one of the managersclearly stated that the technology will be incorporated into the company’s existingbusiness model. There is wide evidence in the literature that companies tend not tochange fundamentally, for different reasons, including: cognitive aspects or mentalmodels (Tripsas and Gavetti, 2000; Baron and Hannan, 2002; Baron et al., 1996; Huff etal., 2001); inertia forces (Hannan and Freeman, 1984; Kelly and Amburgey, 1991);routines (Pentland and Feldman, 2005); the tendency to satisfy the requirements ofcurrent customers (Christensen, 1997). Established companies tend to keep their wayof doing business and to continuously try to adjust/refine their business models

295


over time. It is both time-consuming, costly, and risky to explore new markets, andcompanies also have commitments to existing customers. The tendency to keep ondoing business the same way was clear from the empirical findings. Based on this, theimpact of the emergent global satellite navigation system on the companies’ businessmodels will not be that significant.

4.2 The creation of a new business modelIt became clear during the data analysis that the technology platform has the potential tobe a new business model (i.e. business model creation according to the framework – seeCreation in Figure 1) for the partner companies. According to Cavalcante et al. (2011), newbusinesses face different challenges, such as the need for customers to accept thecompany’s products and/or services, the importance of developing the necessarycommercial competencies and uncertainty about the success of initiatives. One of themanagers at DanInstitute said that the platform will also face similar challenges in thenear future. It will be necessary to determine precisely how to provide services, how tomanage relations with customers, and which new resources and skills will be needed.This new business model will require a systematic and structured way of working.Design is essential for capturing value from innovation (Teece, 2010), and careful businessmodel design is necessary for generating and evaluating commercial alternatives.

The partners in the consortium have not yet fully realised the potential of this platformas a new business model for the partner companies, however. During the interviews, allmanagers described how their own companies will explore the commercial opportunitiesof the platform when the technology becomes available, which means that they are notthinking of further collaboration in terms of development and commercialisation ofpositioning applications. One manager at DanInstitute said that the worst scenario afterthe end of the project is that the partners discontinue their collaborative work. Accordingto DanInstitute’s managers, even if the new positioning technology does not realise all ofits expected potential, it is not likely to “completely fall to the ground”, so furthercollaboration would be important. One of the objectives of the Danish consortium was toenhance collaboration and the exchange of knowledge between the partners, which is inline with the tendency for companies to enter into joint initiatives when searching forbusiness opportunities.

One possibility is that the partners’ companies will not only continue the collaborativework for maintaining and improving the technology platform, but also take a step furtherin terms of involving other companies in a network around the platform. This wouldrepresent a new collaborative-based business model around the positioning technologyplatform. One of the companies from the empirical research (ictConsult) expressed the aimof establishing a network of companies where positioning technology will be of centralimportance. And since DanInstitute already collaborates with other partners, the basis fora collaborative-based community (Miles et al., 2010) around the positioning technologyplatform is already in place. This platform might represent a unique opportunity for thepartner companies to not only collectively become more innovative, but also to changethe “dominant logic” (Prahalad, 2004) in the positioning commercial field. In this context,the role of leaders in guiding this new business will be of central importance.

4.3 The importance of the business model perspective in foreseeing technological impactWhen a new technology emerges, companies often manage innovation by, first,analysing its potential impact – the goal is to better understand the “threat” of thetechnology to the company, and the commercial opportunities that it might offer. Most

296

EJIM16,3

of the available techniques aim at providing an overall perspective of technologicaltendencies outside the organisation (this is the case with the Scenario and PESTELanalyses and the Delphi technique, for example). After a preliminary analysis of thestrategic importance of the technology, companies concentrate on the development andcommercialisation of novel applications that incorporate it. Currently, companies use amore internal organisational perspective, such as “technology roadmapping”, the aimof which is to facilitate product planning and knowledge-asset planning (Abe et al.,2009; Phaal et al., 2004). To conclude, managing innovation in the context of emergenttechnologies has overlooked how the new technology will affect a firm’s business model.

The case companies’ analysis of the Galileo technology has concluded that it is ofstrategic importance for their commercial activities because it will offer valuable newcommercial opportunities. Although none of the interviewees in the case companiesmentioned using specific techniques (such as Scenario and PESTEL analyses) in theiranalysis, their decision to join the university-industry consortium demonstrates theimportance of the Galileo technology to them. During the interviews, managers oftenmentioned that they consider Galileo of fundamental importance for the activities oftheir companies in the near future. Since this technology is not yet available, companiesare concentrating their efforts on basic research and on developing novel applicationsthat can incorporate it in the future. Two of the case companies are carrying out basicresearch on “cases” that will subsequently lead to commercial products. However,managers at the companies have not analysed the impact of the Galileo technology ontheir firms’ business models.

The adoption of a business model perspective when managing innovation is offundamental importance. Innovation is not only about the development of novel productsand/or services – it is also about rethinking the company’s working mechanism. In manycases, a new technology enables companies to change the current commercial logic of themarket, and it is usually new entrant companies which grasp more radical commercialopportunities. It is well known that many leading companies, with successful businessmodels, have failed in the face of new technologies (Christensen, 1997). Establishedcompanies are often unable to successfully explore a new way of doing business as aresult of new technologies. However, this is not to say that most companies areunresponsive to the emergence of new technologies. They do develop novel productsand/or services using new technologies, but are just unable to use them to develop newbusiness models. The empirical study revealed that, while managers in the casecompanies develop innovative products/services using Galileo technology, they do notuse the business model perspective to analyse the type of business model change that thedevelopment and future commercialisation of these products and/or services will entail.Using the business model perspective to foresee technological impact allows a more non-deterministic view of new technologies, and, at the same time, more conscious choices, interms of strategic directions, to follow.

5. Conclusion, limitations and further researchThis research uses a theoretical framework to analyse the future impact of a newtechnology on the business models of firms. Existing techniques for foreseeingtechnological impact most often focus on the external environment of companies,whereas the focus here is internal – more specifically, on firms’ business models.Moreover, this study underlines the link between the innovation activities of companiesand the impact of such initiatives on their business models. The theoretical frameworkguiding this research – a process-based view of business models – was useful to

297


understanding the dynamic nature of the firms’ business models and the importance ofindividuals in taking actions which move their companies in new directions whendeveloping new commercial products/services. Although established companies hardlychange at all in more fundamental ways, this is important when creating new businessmodels (as with the technology platform described in this study).

One limitation of this research is the context of the case companies, i.e. a Danishuniversity-industry consortium. There are certainly far more companies adopting and/or thinking of initiatives using this or other emergent technologies. Research based ona larger number of companies would probably give a better understanding of theimpact of emergent technologies on the business models of firms. Based on such asmall number of firms, it is not possible to determine whether established companies,faced with the emergence of new technologies, will predominantly extend theirbusiness model. Another limitation is that the selected framework for business modelchange used in this research merely provides general guidance.

The impact of innovation activities on the business models of firms is still aresearch field in progress. The process-based concept of the business model and thetypology of business model change were useful constructs in analysing the impact ofinitiatives on firms’ business models. However, it is necessary to analyse how a changeinitiative affects a firm’s business model more precisely, i.e. in accordance with each ofits central components. Therefore, a more detailed guide is needed, based on a process-based view of business models, to identify the effect of a change initiative on each ofthe core repeated processes of a firm’s business model. This should be a general guide,i.e. it should not be limited to a context where companies take initiatives in reaction toemergent new technologies.

References

Abe, H., Ashiki, T., Suzuki, A., Jinno, F. and Sakuma, H. (2009), “Integrating business modelingand roadmapping methods – the innovation support technology (IST) approach”,Technological Forecasting and Social Change, Vol. 76 No. 1, pp. 80-90.

Adner, R. and Levinthal, D.A. (2002), “The emergence of emerging technologies”, CaliforniaManagement Review, Vol. 45 No. 1, pp. 50-66.

Baldwin, C.Y. and Woodard, C.J. (2009), “The architecture of platforms: a unified view”, in Gawer, A.(Ed.), Platforms, Markets and Innovation, Edward Elgar, Cheltenham, pp. 19-43.

Baron, J.N. and Hannan, M.T. (2002), “Organizational blueprints for success in high-tech start-ups: lessons from the Stanford project on emerging companies”, California ManagementReview, Vol. 44 No. 3, pp. 8-36.

Baron, J.N., Burton, M.D. and Hannan, M.T. (1996), “The road taken: origins and evolution ofemployment systems in emerging companies”, Industrial & Corporate Change, Vol. 5No. 2, pp. 239-275.

Cavalcante, S.A., Kesting, P. and Ulhøi, J.P. (2011), “Business model dynamics and innovation:(re)establishing the missing linkages”, Management Decision, Vol. 49 No. 8, pp. 1327-1342.

Chesbrough, H. (2007), “Business model innovation: it’s not just about technology anymore”,Strategy & Leadership, Vol. 35 No. 6, pp. 12-17.

Christensen, C. (1997), The Innovator’s Dilemma, Harvard Business School, Boston, MA.

Cusumano, M.A. and Gawer, A. (2002), “The elements of platform leadership”, MIT SloanManagement Review, Vol. 43 No. 3, pp. 51-58.

Eisenmann, T.R., Parker, G. and van Alstyne, M. (2009), “Opening platforms: how, when andwhy?”, in Gawer, A. (Ed.), Platforms, Markets and Innovation, Edward Elgar, Cheltenham,pp. 131-159.

298

EJIM16,3

European Space Agency (ESA) (2005), “Galileo – the European programme for global navigationservices”, ESA, available at: http://esamultimedia.esa.int/docs/Galileo/GalileoE3web_copy.pdf (accessed 27 September 2010).

Gambardella, A. and McGahan, A.M. (2010), “Business-model innovation: general purposetechnologies and their implications for industry structure”, Long Range Planning, Vol. 43Nos 2-3, pp. 262-271.

Gawer, A. (2009), “Platforms, markets and innovation”, in Gawer, A. (Ed.), Platforms, Marketsand Innovation, Edward Elgar, Cheltenham, pp. 1-16.

Gupta, S., Cadeaux, J. and Dubelaar, C. (2006), “Uncovering multiple champion roles inimplementing new-technology ventures”, Journal of Business Research, Vol. 59 No. 5,pp. 549-563.

Hannan, M.T. and Freeman, J. (1984), “Structural inertia and organizational change”, AmericanSociological Review, Vol. 49 No. 2, pp. 149-164.

Ho, J.C. and Chen, J. (2009), “Forecasting VoWLAN technology for the Taiwan mobiletelecommunication industry”, Technology Analysis & Strategic Management, Vol. 21 No. 2,pp. 213-232.

Huff, A.S., Huff, J.O. and Barr, P.S. (2001), When Firms Change Direction, Oxford UniversityPress, New York, NY.

Kelly, D. and Amburgey, T.L. (1991), “Organizational inertia and momentum: a dynamic model ofstrategic change”, Academy of Management Journal, Vol. 34 No. 3, pp. 591-612.

Lynch, R.L. (2009), Strategic Management, 5th ed., Prentice Hall/Financial Times, Harlow.

MacInnes, I. (2005), “Dynamic business model framework for emerging technologies”, Int. J.Services Technology and Management, Vol. 6 No. 1, pp. 3-19.

Marshall, C. (2004), “The dynamic nature of innovation partnering: a longitudinal study ofcollaborative interorganizational relationships”, European Journal of InnovationManagement, Vol. 7 No. 2, pp. 128-140.

Miles, R.E., Snow, C.C., Fjeldstad, O.D., Miles, G. and Lettl, C. (2010), “Designing organizations tomeet 21st-century opportunities and challenges”, Organizational Dynamics, Vol. 39 No. 2,pp. 93-103.

Morris, M., Schindehutte, M., Richardson, J. and Allen, J. (2006), “Is the business model a usefulstrategic concept? Conceptual, theoretical, and empirical insights”, Journal of SmallBusiness Strategy, Vol. 17 No. 1, pp. 27-50.

Pentland, B.T. and Feldman, M.S. (2005), “Organizational routines as a unit of analysis”,Industrial and Corporate Change, Vol. 14 No. 5, pp. 793-815.

Phaal, R., Farrukh, C.J.P. and Probert, D.R. (2004), “Technology roadmapping – a planningframework for evolution and revolution”, Technological Forecasting and Social Change,Vol. 71 Nos 1-2, pp. 5-26.

Prahalad, C.K. (2004), “The blinders of dominant logic”, Long Range Planning, Vol. 37 No. 2,pp. 171-179.

Reuver, M.D., Bouwman, H. and MacInnes, I. (2009), “Business model dynamics: a casesurvey”, Journal of Theoretical and Applied Electronic Commerce Research, Vol. 4 No. 1,pp. 1-11.

Rowe, G. and Wright, G. (1999), “The Delphi technique as a forecasting tool: issues and analysis”,International Journal of Forecasting, Vol. 15 No. 4, pp. 353-375.

Shafer, S.M., Smith, H.J. and Linder, J.C. (2005), “The power of business models”, BusinessHorizons, Vol. 48 No. 3, pp. 199-207.

Teece, D.J. (2010), “Business models, business strategy and innovation”, Long Range Planning,Vol. 43 Nos 2-3, pp. 172-194.

299


Tripsas, M. and Gavetti, G. (2000), “Capabilities, cognition, and inertia: evidence from digitalimaging”, Strategic Management Journal, Vol. 21 Nos 10-11, pp. 1147-1161.

Voelpel, S.C., Leibold, M. and Tekie, E.B. (2004), “The wheel of business model reinvention: howto reshape your business model to leapfrog competitors”, Journal of Change Management,Vol. 4 No. 3, pp. 259-276.

West, J. (2003), “How open is open enough? Melding proprietary and open source platformstrategies”, Research Policy, Vol. 32 No. 7, pp. 1259-1285.

Yin, R.K. (1981), “The case study crisis: some answers”, Administrative Science Quarterly, Vol. 26No. 1, pp. 58-65.

Corresponding authorSergio Andre Cavalcante can be contacted at: [email protected]

About the author

Sergio Andre Cavalcante is a PhD student at Aarhus Business School, Aarhus University, Denmarkand a member of the Centre for Organizational Renewal and Evolution (CORE). His research areas ofinterest include business model dynamics, organizational change, and innovation management.

To purchase reprints of this article please e-mail: [email protected] visit our web site for further details: www.emeraldinsight.com/reprints

300

EJIM16,3

Documents

Understanding the impact of technology on firms’ business models