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BUSINESS MODEL INNOVATION: DRIVERS, PROCESSES AND CAPABILITIES

Elena Casprini

Corso di

perfezionamento/dottorato

MANAGEMENT

Anno Accademico 2013-2014

Author Elena Casprini

Supervisor & Tutor Professor Andrea Piccaluga

Business model innovation:

drivers, processes and capabilities

To Laura,

Anna Maria & Domenico

TABLE OF CONTENTS

INTRODUCTION i

CHAPTER 1

FROM BUSINESS MODEL TO BUSINESS MODEL INNOVATION: A

LITERATURE REVIEW

1. Introduction 1

2. Method 2

3. From business model to business model innovation 5

3.1 Real-world vs. Cognitive-world 7

3.2 Business model innovation 9

3.3 Business model innovation and organization theory 12

4. Discussion and conclusion 17

References 19

APPENDIX I 24

APPENDIX II 30

CHAPTER 2

BUSINESS MODEL INNOVATION AFTER AN ACQUISITION

1. Introduction 36

2. Business model change 37


2.2 Acquisition 39

3. Method 41

3.1 Data collection & data analysis 43

4. Business model innovation at Nuovo Pignone 43

4.1 Recognition 44

4.2 Addition 46

4.3 Transition 47

4.4 Conversion 49

5. The key factors during business model innovation after the acquisition 50

5.1 The technological base characteristics 50

5. 2 Formalization and codification processes 53

5.3 The cultural bridgers 56


References 58

APPENDIX 1 62

CHAPTER 3

BUSINESS MODEL INNOVATION AND OPEN INNOVATION IN SMES: THE

CASE OF OPEN TERRITORIAL LAB

1. Introduction 63

2. Literature review 65

2.1 Open innovation: from big companies to SMEs 66


3. Research Method 69

3.1 Case study analysis 69

3.2 Research setting 69

3.3 Data collection 71

4. Case analysis 72

4.1 Formalize the open innovation paradigm in a born open company 74

4.2 Rethinking the innovation process 74

4.3 The Leaf Community: 2 km of Future ® 80

4.3.1 The Leaf Community as an example of open territorial lab 82


References 87

CHAPTER 4

SOCIAL MEDIA-BASED BUSINESS MODELS: AN EMPIRICAL INVESTIGATION

ON THE BLABLACAR.IT CASE

1. Introduction 92

2. Literature review 94

2.1 Business model and technology 94

2.2 The web 2.0 and the social media (r)evolution 96

3. Method 98

4. Analysis 98

4.1 Blablacar 99

4.2 Hitchhikers 2.0 103

4.2.1 The impact of social media related factors on the frequency of use of

BlaBlaCar.it 107

5. Conclusion 114

References 116

APPENDIX I 120

APPENDIX II 124

ACKNOWLEDGEMENTS

When one of my best professors asked me to explain why I had chosen to do a Ph.D. my

answer was Socrates’ quote “ἓν οἶδα ὅτι οὐδὲν οἶδα”. The “thirsty of knowledge” as well as

“love”, in fact, is what I think enriches our human nature.

This thesis would probably add few knowledge to the existing one, but it is sure that it

is the result of a journey that has enriched me a lot. During my Ph.D. I visited many countries,

met many people, saw different worldviews, discussed and confronted ideas. After three

years, I may say that it has been by far the best journey of my life, despite the many sleepless

nights.

I am grateful to many people that have contributed to make this period of my life

unforgettable.

First of all, I would like to thank my professors, Andrea Piccaluga and Lorenzo Zanni,

and my colleagues Alberto Di Minin and Tommaso Pucci. They have contributed in different

ways to my growth, showing me different styles of teaching, conducting research, and

writing. Above all, they have helped me with their suggestions, critiques and enthusiasm.

I am grateful to my collegues (and friends) who have accompanied me in several

ways: Andrea Paraboschi, Francesca Lazzeri, Barbara Bini, Ivan Miroshnychenko, Kamran

Bagheri, Nicola Iacovino, Filippo Corsini, Simone Corsi, Cristina Marullo, Chiara De Marco,

Maral Mahdad, Eleonora Annunziata and Kinsuk Mani Sinha. A special thank to Claudia

Daniele and Arianna Biancani.

It was a pleasure for me to be a visiting Ph.D. student at Cass Business School

(London, UK). I am indebted to professor Gianvito Lanzolla who, despite his sabbatic year,

has guided me in doing research, providing guidance and insights that have been

extraordinary. I would like to thank to professors Charles Baden Fuller, Santi Furnari and

Davide Ravasi and my inestimable colleagues and friends Zahra Sharifonnasabi, James

Knuckles, Ghassan Yacoub, Thao Phuong Nguyen, Marco Formentini, Juan Rendòn, Giulia

Solinas, Stefano Li Pira, Maria Francesca Savarese and Cristiano Bellavitis. They gave me

guidance, provided insights, and contributed to deepen my way of reasoning.

Beyond ‘academic travel-mates’, I need to thank my ‘life travel-mates’ who have

shaped and are shaping the person (and consequently the researcher) I am. First, my beloved

family. Thanks to my father, Domenico, my mother, Anna Maria, and my sister (and the most

precious treasure I have in my life), Laura. They have supported me, listened to me and and

sustained me during my all life and especially in the last three years. A thank also to my

grandmother, my aunt Teresa, my uncles, Piero and Bruno, and Giuliana. One though to my

grandparents and my cousin.

Finally, I would like to thank my friends Agnese Lambardi, Tommaso Virgili,

Caterina Cino, Daniele Frison, Silvia e Beatrice Ancilotti, Jessica Bagnoli, Alice Viola and

Enrica Guarducci, Marco Campinoti, Anny Marcus, Arthika Sripathy, Karin Joëveer, Sergio

Iommi and, a special thank, to Leung Wing Yue.

Thanks,

Elena

i

INTRODUCTION

The business model concept has been widely and by far used by practitioners and has more

recently attracted interest from management scholars (Baden-Fuller & Haefliger, 2013;

Chesbrough, 2010; McGrath, 2010; Teece, 2010; Zott & Amit, 2007). Among the various

definitions provided (see Appendix I of Chapter 1), convergence is arisen around specifying

the business model as the way a firm creates and captures value (Aspara, Lamberg, Laukia, &

Tikkanen, 2013; Zott et al., 2011). In particular, David Teece argues that “a business model

articulates the logic and provides data and other evidence that demonstrates how a business

creates and deliver values to customers. It also outlines the architecture of revenues, costs,

and profits associated with the business enterprise delivering that value” (2010:173).

Extant research on business model has focused its attention on business model

constituting elements, often without anchoring them on theory. Although agreement on which

are the dimensions of business model concept has not been reached yet, literature is narrowing

its focus on business model innovation. Innovating the business model is important, especially

in uncertain and high velocity environment where traditional planning is not enough (Andries,

Debackere, & van Looy, 2013; McGrath, 2010).

Business model innovation is among the priorities of CEOs (Velu & Stiles, 2013) who

are facing increasing competitive pressures, as well as discontinuities and disruptions (Doz &

Kosonen, 2010). Innovating the business model has been seen as among the most sustainable

forms of innovation (Sosna, Trevinyo-Rodríguez, & Velamuri, 2010) and it may help to

establish a differentiable competitive advantage (Teece, 2010). As Aspara et al. (2013) note,

“the competitive success of an individual firm depends ultimately on its ability to transform

the elements of its business model in rhythm with, and towards a ‘fit’ with (i.e. a success in)

its external business environment” (2013:459). However, innovating business model is not a

simple task, both for established companies that face economic as well as cognitive barriers

(Chesbrough, 2010; Velu & Stiles, 2013) and for new companies that are usually more

constrained by lack of resources that limit their set of available business model configurations

(Brunswicker & van de Vrande, 2014; Lee, Park, Yoon, & Park, 2010; Vareska Van De

Vrande, Jong, & Vanhaverbeke, 2009).

Drivers of business model innovation are exogenous as well as endogenous factors to

the firm. Most of researchers interest has arisen from exogenous factors. In particular, extant

ii

literature has looked at the role of new technologies, in particular web technologies, as

enabler of new business models (Amit & Zott, 2001a). Contributions to this field of research

have been mostly conceptual, providing narrow descriptions of how new technology has been

able to innovate the business model. Moreover, examples are often the same ranging from

Amazon.com, Threadless.com, LEGO Mindstrom. On the contrary, others have noted that

technological innovation often need to be accompanied by business model innovation to be

successful (Baden-Fuller & Haefliger, 2013; Teece, 2010). Again, others have analysed how a

change in the legislative environment has unleashed new business models (McGrath, 2010;

Sosna et al., 2010). Scanter research has been conducted on endogenous drivers of business

model innovation, with the exception of those studies that have looked at the role of the

owner and/or management team as the shaper(s) of business model innovation.

Notwithstanding the driver of business model innovation, only initial attempts have

been made in order to understand how a company innovates its existing business model. In

particular, not all the companies that decide to innovate their business model always succeed

or recognize the opportunities might arise from a certain business model innovation. This has

been explained by ‘inertia’ (Chesbrough, 2010) or the lack of capabilities, often difficult to

build, or factors such as organizational structure, organizational culture and/or cognitive

boundaries (Achtenhagen et al., 2013; Aspara et al., 2013; Bock, Opsahl, George, & Gann,

2012; Doz & Kosonen, 2010). Mostly of the contributions have noted the necessity of

exploring and exploiting business models (Achtenhagen, Melin, & Naldi, 2013; Andries et al.,

2013; Sosna et al., 2010), and propose ambidexterity literature as a venue for further research

(Markides, 2013) and on the ability to reconfigure capabilities and redeploy resource quickly

(Doz & Kosonen, 2010),. However, research on the factors that underlie business model

innovation is still in its infancy.

This thesis aims at investigating how a company may innovate its business model,

analysing the drivers, the processes and the capabilities involved in business model

innovation. In order to do that, I look at three different cases that differ in terms of the drivers

of their business model innovation, in the ‘how’ they have changed the way they create and

capture value, and also in terms of their size, age, ownership and sector of activity. The work

is articulated in four parts.

The first chapter presents a literature review on business model. I complement Zott et

al., (2011)’s literature review via providing a distinction between the real world and the

cognitive world perspectives, and analysing the extant research on business model innovation.

iii

From the literature review it emerges that business model innovation is a term widely used,

but poorly understood. In particular, previous literature has underexplored how business

model innovation occurs, pointing out to the need of how a company innovate a business

model.

A preliminary version of this chapter was presented at the EUROMED Conference

2014, Kristiansand (Norway) and was published in its book of proceedings with ISBN: 978-

9963-711-27-7.

The second chapter analyses a company that, after having been acquired, has innovated

its business model from a manufacturing-oriented to a service-oriented one. Drawing on an in

depth retrospective and exploratory case study, we investigated the processes associated with

business model innovation following an acquisition. This chapter analyses the case of Nuovo

Pignone, an Italian, mechanical equipment manufacturer company acquired by General

Electric in 1994 that has grown organically by seven times in the last twenty years. After the

acquisition, the company has innovated its business model from being a pure manufacturer to

being a solution provider. Four phases were depicted in the business model innovation,

namely recognition, addition, transition and conversion. From the analysis, three key elements

that made this shift possible have emerged: the technological base characteristics, the

formalization of processes and codification of knowledge, and the role of ‘cultural bridgers’.

This chapter has been co-authored with proff. Andrea Piccaluga and Alberto Di Minin

and a divulgative book about the key factors of the acquisition has been written for GE Oil &

Gas. We thank Daniela Corsini, Federica Fiaschi, Paolo Fresco and Massimo Messeri, and the

other interviewees for their availability and courtesy, as well as their enthusiasm in the

initiative.

The third chapter introduces the concept of ‘open territorial lab’ business model as a

new business model enabled by the adoption of the open innovation paradigm. We link the

open innovation and the business model literatures, having both overlooked at the role of

open innovation in SMEs and not provided in depth description of SMEs business models.

Hence, this chapter looks at an in depth case study on a high tech SME company, the Loccioni

Group, that has been able to introduce a new business model, the ‘open territorial lab’

business model, building on its technological expertise, its relational capital and the

codification of its innovation process. We first describe how the company has been able to

formalize its innovation process, and then we analyse the open territorial lab business model

iv

defined as a business model characterized by the co-existence of multiple revenues models,

the engagement of customers and stakeholders in the value creation mechanisms, and a

networked value chain. We describe its implementation in the case of the Leaf Community, a

territory-linked project that may be considered as a replicable model for the smart cities

challenge.

This chapter results from the collaboration with proff. Andrea Piccaluga and Alberto Di

Minin. Part of this chapter was presented at the R&D Management Conference 2013,

Manchester (UK). I would like to thank Loccioni ‘family’, in particular Enrico Loccioni,

Cristina Cristalli, Simonetta Piangerelli, Gino Romiti, Renzo Libenzi, Marinella Massaccesi

and Alessando Ragnoni for the precious help and availability.

The fourth chapter analyses a new business model introduced by a start up company

that has been able to implement a new way of value creation and value capture via leveraging

on social media, as enabled by web 2.0 technology. The company has been able to reinvent

the rules of the carpooling market, entering into a new market segment, that of hitch-hikers

2.0. Web 2.0 technologies have allowed companies not only to interact with communities,

enhancing loyalty-based transactions, but also to reach new market segments, which were not

previously reachable. Whether many companies such as Facebook, have used social media as

an end by itself, others have used them to make business differently. This paper introduces the

concept of social media-based business model defined as a new business model whose

dimensions have integrated social media factors. Extant research has often cited companies

that have used web technologies for involving users (Hienerth, Keinz, & Lettl, 2011) in

innovating their business models, but scant research has looked at how social media elements

may be used in innovating the business models (Wirtz, Schilke, & Ullrich, 2010). This

chapter provides an in depth case study on how a startup company, BlaBlaCar.it, has

introduced a social media-based business model, reaching a new market segment, that of

“hitch-hikers 2.0”, and provides first empirical results about how social media-oriented

elements affect the way hitchers 2.0 use BlaBlaCar.it services.

The framework underlying this chapter results from the collaboration with two

collegues, Alberto Di Minin and Andrea Paraboschi. Data have been collected thanks to the

direct involvement of Olivier Bremer, General Manager of Datch and Italy BlaBlaCar

company.

v

References

Achtenhagen, L., Melin, L., & Naldi, L. (2013). Dynamics of Business Models – Strategizing,

Critical Capabilities and Activities for Sustained Value Creation. Long Range

Planning, 46(6), 427–442.

Amit, R., & Zott, C. (2001). Value creation in E-business. Strategic Management Journal,

22(6-7), 493–520.

Andries, P., Debackere, K., & van Looy, B. (2013). Simultaneous experimentation as a

learning strategy: business model development under uncertainty. Strategic

Entrepreneurship Journal, 7, 288–310.

Aspara, J., Lamberg, J.-A., Laukia, A., & Tikkanen, H. (2013). Corporate Business Model

Transformation and Inter-Organizational Cognition: The Case of Nokia. Long Range

Planning, 46(6), 459–474.

Baden-Fuller, C., & Haefliger, S. (2013). Business Models and Technological Innovation.

Long Range Planning, 46(6), 419–426.

Bock, A. J., Opsahl, T., George, G., & Gann, D. M. (2012). The Effects of Culture and

Structure on Strategic Flexibility during Business Model Innovation. Journal of

Management Studies, 49(2), 279–305.

Brunswicker, S., & van de Vrande, V. (2014). Exploring Open Innovation in Small and

Medium-sized Enterprises. In H. W. Chesbrough, W. Vanhaverbeke, & J. West (Eds.),

New frontiers in Open Innovation (pp. 1–29). Oxford: Oxford University Press.

Chesbrough, H. (2010). Business Model Innovation: Opportunities and Barriers. Long Range

Planning, 43(2-3), 354–363.

Doz, Y. L., & Kosonen, M. (2010). Embedding Strategic Agility A Leadership Agenda for

Accelerating Business Model Renewal. Long Range Planning, 43(2-3), 370–382.

Hienerth, C., Keinz, P., & Lettl, C. (2011). Exploring the Nature and Implementation Process

of User-Centric Business Models. Long Range Planning, 44(5-6), 344–374.

Lee, S., Park, G., Yoon, B., & Park, J. (2010). Open innovation in SMEs — An intermediated

network model. Research Policy, 39(2), 290–300.

Markides, C. (2013). Business model innovation: what can the ambidexterity literature teach

us? Academy of Management Perspectives, 27(4), 313–323.

McGrath, R. G. (2010). Business models: a discovery driven approach. Long Range Planning,

43(1-2), 247–261.

Sosna, M., Trevinyo-Rodríguez, R. N., & Velamuri, S. R. (2010). Business Model Innovation

through Trial-and-Error Learning. Long Range Planning, 43(2-3), 383–407.

vi

Teece, D. J. (2010). Business Models, Business Strategy and Innovation. Long Range

Planning, 43(2-3), 172–194.

Velu, C., & Stiles, P. (2013). Managing Decision-Making and Cannibalization for Parallel

Business Models. Long Range Planning, 46(6), 443–458.

Vrande, V. Van De, Jong, J. P. J. De, & Vanhaverbeke, W. (2009). Open innovation in

SMEs : Trends, motives and management challenges, Technovation 29, 423–437.

Wirtz, B. W., Schilke, O., & Ullrich, S. (2010). Strategic Development of Business Models.

Implications of the Web 2.0 for creating value on the Internet. Long Range Planning,

43(2-3), 272–290.

Zott, C., & Amit, R. (2007). Business Model Design and the Performance of Entrepreneurial

Firms. Organization Science, 18(2), 181–199.

Zott, C., Amit, R., & Massa, L. (2011). The Business Model: Recent Developments and

Future Research. Journal of Management, 37(4), 1019–1042.

1

Chapter 1

FROM BUSINESS MODEL TO BUSINESS MODEL INNOVATION:

A LITERATURE REVIEW1

ELENA CASPRINI

Istituto di Management, Scuola Superiore Sant’Anna, Pisa, Italy

This paper presents a literature review on business model. I complement Zott et al., (2011)’s

literature review via providing a distinction between the real world and the cognitive world

perspectives and analysing the extant research on business model innovation, describing in

depth the most relevant articles. From the literature review it emerges that business model

innovation is a term widely used, but poorly understood. In particular, three areas of future

research emerge, namely how managers may use business model as a cognitive device, how

business model may be innovated and how to design a business model.

KEYWORDS: business model; literature review; business model innovation

1. Introduction

In a recent interview on Harvard Business Review (2011), professor McGrath argues that

there are three main reasons that explain the interest on business model innovation (BMI): the

increasing speed of everything, the inter-industry competition and the disruptions from

business models (BMs) that offer better customer experiences instead of simply products.

According to recent reports, 98% of companies are modifying existing business models and

most of firms are trying to create innovative ones (Casadesus-Masanell & Ricart, 2011).

Widely used both by practitioners and management scholars (Baden-Fuller &

Haefliger, 2013; Chesbrough, 2010; Hedman & Kalling, 2003; McGrath, 2010; Teece, 2010;

Zott & Amit, 2007), a business model can be broadly defined as the way a firm creates and

captures value (Aspara, Lamberg, Laukia, & Tikkanen, 2013; Gambardella & McGahan,

2010; Zott et al., 2011). Whether extant research on business model has focused on business

model constituting elements, often without anchoring them on theory, today literature is

1 This chapter has benefited from the lectures and talks that I had with professor Charles Baden Fuller,

discussions with James Knuckles, and insights deriving from anonymous reviewers who evaluated former

versions of the paper.

2

shifting its attention on business model innovation considered as important, especially in

uncertain and high velocity environments (Andries, Debackere, & van Looy, 2013; Johnson,

Christensen, & Kagermann, 2008; McGrath, 2010; Velu & Stiles, 2013). Hence, the ability of

changing business model elements in rhythm with the external business environment has an

impact on the competitive success of a company (Aspara et al., 2013).

Previous literature has looked at how business models have gained by technological

innovation that have allowed companies to conduct transactions differently (Mahadevan,

2000), to interact with customers in new ways (Hienerth et al., 2011), and also empowered

existing business models via new tools (Baden-Fuller & Haefliger, 2013). Nonetheless,

business model innovation is not easy and itis hampered both in established and new

companies by economic and cognitive barriers (Chesbrough, 2010; Velu & Stiles, 2013).

Literature notes that business model innovation is “not a matter of superior foresight ex ante

– rather it requires significant trial and error, and quite a bit of adaptation ex post”

(Chesbrough, 2010: 356), calling for a deeper investigation about the factors that facilitate

business model innovation.

The aim of this paper is to provide a literature review on business model in general,

and business model innovation in particular, stressing the state of the art on business model

topic and providing guidance about future paths of research. Complementing Zott et al.

(2011)’s seminal paper, this paper contributes to the existing literature in two ways: (i)

distinguishing between real-world vs. cognitive-world perspectives (Baden Fuller and

Haefliger, 2013), and (ii) analyzing the main contributions on business model innovation.

2. Method

I reviewed the literature on business model considering publications between January 2000

and September 2014. My initial lists of academic journals included Association of Business

Schools (ABS)’s grade four “General Management” and “Strategic Management” journals,

namely Academy of Management Journal, Academy of Management Review, Administrative

Science Quarterly, Journal of Management, Journal of Management Studies, British

Journal of Management, Harvard Business Review and Strategic Management Journal. I used

the ISI Web of Science database using the term “business model*” in the topic filter. The

asterisk after the term ‘business model’ enlarge the Boolean search to consider all those

papers that contains adjacent terms, such as ‘business models’ and ‘business modelling’.

Using the ‘topic’ filter implies to select all those papers that contain the term ‘business

3

model*’ in either the title, the abstract and the keywords. A total of 107 were reveled, of

which 86 had appeared in Harvard Business Review.

This small set of articles led me to consider other three grade four journals in adjacent

areas, namely Management Science (“Operation Research and Management Science”),

Organization Science (“Organization Studies”) and Research Policy (“Social Science”). A

total of 29 articles were found and added to the previously selected sample. After an initial

analysis of the papers and looking at the references cited, I noted that another journal needed

to be included: I added to the former list an ABS grade three journal, namely Long range

Planning (“Strategic Management”), since two Special Issues on business model were

published in 2010 and 2013, for a total of 40 papers.

A total of 176 papers was collected. Their distribution is shown in Table 1. I saved

these papers, read their abstracts and selected those papers that used the term “business

model” in a non-marginal way (Amit & Zott, 2001). A total of 73 articles was found and used

as the basis of the review. However, reading these 73 articles, I became aware of further

relevant works on business models.

As I highlight below in the discussion section, my analysis of these publications

confirmed some of the previous findings of Zott et al. (2011), in particular the importance of

value creation, and suggested some common themes, namely how managers may use business

model as a cognitive device, how business model may be innovated and how to design a

business model.

4

Table 1. Literature review (source: author)

0

5

10

15

20

25

30

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Academy of Management Journal Academy of Management Review British Journal of Management Harvard Business ReviewJournal of Management Studies Journal of Management Studies Strategic Management Journal Long Range PlanningManagement Science Organization Science Research Policy

5

3. From business model to business model innovation

Business model is a concept widely used and in fashion in the management literature. Its roots date

back to Peter Drucker who defined it as the answer to the questions: who is your customer,

what does the customer value, and how do you deliver value at an appropriate cost?

(Casadesus-Masanell & Ricart, 2011; Magretta, 2002). Business model has received

increasing attention by both practitioners and scholars, especially since the advent of Internet.

Many definitions of what a business model is have been provided (Appendix I), and a

compelling, general accepted one has been identified in looking at the business model as the

way a company creates and captures value (Baden-Fuller & Haefliger, 2013; Zott et al.,

2011). In particular, David Teece argues that “a business model articulates the logic and

provides data and other evidence that demonstrates how a business creates and deliver values

to customers. It also outlines the architecture of revenues, costs, and profits associated with

the business enterprise delivering that value” (2010:173) and Baden-Fuller & Mangematin

(2013) identify four business model dimensions, namely customer identification (the number

of separate customer groups), customer engagement (or the customer proposition), value

chain and linkages (the governance typically concerning the firm internally) and monetization

(the key part of value capture), that allow scholars to create subcategories and, consequently,

alternative business model configurations.

The business model concept has been distinguished from other related concepts, such

as strategy and tactics. Strategy is not the same of business model (Baden-Fuller &

Mangematin, 2013; Casadesus-Masanell & Ricart, 2010; Magretta, 2002; Teece, 2010; Zott et

al., 2011). The two concepts are related, but focus on different factors. Chesbrough &

Rosenbloom (2002) note that business model and strategy differ on three key aspects: the

predominance of value creation rather than value capture in business models, the creation of

value for the shareholders rather than for only the business, and the assumptions on

knowledge (limited and biased for the business model, reliable and analytical for strategy).

Similarly, Zott et al. (2011) stress that competition, value capture and competitive advantage

belong to strategy sphere, while cooperation, partnership and joint value creation are

emphasized by business models. Casadesus-Masanell and Ricart see the “business model as a

reflection of the firm’s realized strategy” (2010:204). According to them, the business model

refers to the logic of the firm, while the strategy is the plan to “create a unique and valuable

position involving a distinctive set of activities” (Casadesus-Masanell & Ricart, 2011:9).

Teece (2010) asserts that a business model is more generic of a business strategy and it might

6

be considered as a complement. In essence, strategy refers to the choice of the business model

through which a firm choses to compete (Casadesus-Masanell & Ricart, 2010). Once a

company has chosen a business model, the company can make residual choices, that are in the

tactics domain (Casadesus-Masanell and Ricart, 2010), that are bounded by the business

model it has chosen before.

Most of the papers that address strategic issues looks at how companies adjust

business model in facing competitors. Using game theory, Casadesus-Masanell & Zhu (2010)

analyze the optimal strategy of a high-quality incumbent that faces a low quality ad-sponsored

competitor. The authors argue that the incumbent can compete either by adjusting the tactical

variables, namely price or number of ads, or by changing the business model. Casadesus-

Masanell & Llanes (2011) look at when a profit-maximizing company adopts a mixed-source

business model. In this case, the strategic variable is about the openness of technologies, but

also on the compatibility regime with competitors’ products. In another paper, Casadesus-

Masanell & Zhu (2013) analyze how entrants choose the BM (if traditional or new), based on

their expectation about incumbents’ reaction. What emerges is that entrants can choose to

strategic conceal or strategic reveal their intentions, and the decision depends on the

comparative quality between entrants or incumbent products. Others have looked at the

importance of replicating a business model, considering replication as a strategy. Others

looked at the adoption of a diversification strategy on firm’s performance. Suarez, Cusumano,

& Kahl (2013), for example, look at how manufacturing firms, in this case the software

producers, are introducing services in their value proposition, and how this choice affects the

firm’s performance.

Complementary to Zott et al. (2011)’s literature review, I find that an increasing

interest is given to (i) the views adopted by the authors when they use the term business

model and (ii) the topics of business model innovation/dynamics. We explore these two fields

in the next section. Moreover, similar to what identified by Zott et al. (2011), a qualitative

approach for analyzing the business model concept is still the preferred one (Appendix II

provides a description on research design and in particular on case analysis, since it emerges

as the preferred methodology). See Table 2 for some examples.

7

THEORETICAL EMPIRICAL CASE STUDY - SINGLE CASE STUDY - MULTIPLE OTHER (SURVEY)

Casadesus-

Masanell, R. and

Zhu, F. (2010)

Doganova, L. and Eyquem-

Renault, M. (2009)

Amit, R. and Zott, C.

(2001)

Bock, A.J., Opsahl, T.,

George, G. and Gann,

D.M. (2012)

Casadesus-

Masanell, R. and

Llanes, G. (2011)

Garnsey, E., Lorenzoni, G.

and Ferriani, S. (2008)

Andries, P., Debackere, K.

and van Looy, B. (2013)

Bonaccorsi, A.,

Giannangeli, S., Rossi,

C. (2006)

Casadesus-

Masanell, R. and

Llanes, G. (2011)

Mason, K.J. and Leek, S.

(2008)

Halme, M., Lindeman, S.

and Linna, P. (2012)

Suarez, F.F., Cusumano,

M.A. and Kahl, S.J.

(2013)

Teece, D. J. (2010) Winter, S.G. and Szulanski, G.

(2001)

Sabatier, V., Mangematin,

V. and Rousselle, T. (2010)

Zott, C. and Amit, R.

(2008)

Baden-Fuller, C.

and Haeflinger, S.

(2013)

Sosna, M., Trevinyo-

Rodrìguez, R.N. and

Velamuri, S.R. (2010)

Achtenhagen, L., Melin, L.

and Naldi, L. (2013)

Zott, C. and Amit, R.

(2007)

Baden-Fuller, C.

and Morgan, M.

(2010)

Aspara, J., Lamberg, J.-A.,

Laukia, A., Tikkanen, H.

(2013)

Casadesus-Masanell, R. and

Tarzijàan, J. (2012)

Velu, C. and Stiles, P. (2013)

Table 2. Examples of the main contributions (source: author)

3.1 Real-world vs. Cognitive-world

Business model concept may be seen from two main perspectives: the “real world”

perspective and the “cognitive world” perspective (Baden-Fuller & Haefliger, 2013; Baden-

Fuller & Mangematin, 2013; Bohnsack, Pinkse, & Kolk, 2014; Doz & Kosonen, 2010;

Johnson et al., 2008; McNamara, Peck, & Sasson, 2013).

In the “real world perspective”, researchers use business models in order to explain

“what companies do”. This perspective answers to “what”-like questions and it is empirically-

driven and mostly interested in the consequences of the adoption of one specific kind of

business models over alternative ones. The “real world” perspective sees the business model

as an activity system and looks at business model design. Zott & Amit (2010) identify three

design elements of the activity systems that are the content (the selection of activities),

structure (how the activities are linked), and governance (who performs the activities). Amit

& Zott (2012) define BM as “a bundle of specific activities – an activity system- conducted to

satisfy the perceived needs of the market, along with the specification of which parties (a

company or its partners) conduct which activities, and how these activities are linked to each

8

other” (p.42). Amit & Zott (2001) and Zott & Amit (2007) present a taxonomy where

distinguish between four business models designs, namely efficiency centered, novelty

centered, complementary centered and lock-in centered business models, and link them to

companies’ performance under different levels of industry munificence. In their model, the

business model is considered an independent variable, moderated by environmental

conditions. These authors use business models to explore connections between them and

competitive advantage. Bonaccorsi, Giannelli, & Rossi (2006) define business models as “the

way products\services are sold to customers, cash is generated, and income is produced” (p.

1086) and distinguish business models on the basis of their revenue model and value

proposition (pure open-source companies and hybrid companies). Sinfield, Calder,

McConnell, & Colson (2012) depict a template that allow managers to consider alternative

approaches to value creation. Osterwalder et al. (2010) depict a business model canvas that

managers should use to understand how their business work. Others finally, uses business

model as a meta-concept to exemplify firm strategy (Casadesus-Masanell & Zhu, 2010). As

Baden-Fuller & Mangematin, (2013) note, economic historians have used business model

related concepts such as recipes or modes to classify real economic activities. Real world

perspective scholars are interested in business models as a means to explain performance of

the firm. In their view, some business models are better than others.

On the other hand, in the “cognitive perspective”, researchers relate the business

model to “how companies see the world”. Researchers who look at “how”-like questions,

focusing on the use of business models as cognitive devices (Aspara et al., 2013; Baden-

Fuller & Haefliger, 2013; Baden-Fuller & Mangematin, 2013; Bock, Opsahl, George, &

Gann, 2012; Sosna, Trevinyo-Rodríguez, & Velamuri, 2010). The proponents of this

perspective argue that business model is a configuration, separable from its context and that it

is not a complete description of everything the firm does. Teece (2010) argues that a business

model “reflects management’s hypothesis about what customers want, how they want it and

what they will pay, and how an enterprise can organize to best meet customer needs, and get

paid well for doing so” (2010:191). Baden-Fuller and Haefliger (2013) define the business

model as “a system that solves the problem of identifying who is (or are) the customer(s),

engaging with their needs, delivering satisfaction, and monetizing value”. The authors

reformulate the business model relationship with technology considering business model as a

moderator between technology and performance, but also considering the choice of business

model about openness and user engagement as affecting the technology development. In this

way, Baden-Fuller and Haefliger (2013) link the open innovation literature (Chesbrough,

9

2006) and the user-innovation literature (von Hippel, 2009) in a more clear manner to the

business model literature.

The two views differ in the use of the business model. Based on Baden-Fuller &

Haefliger (2013), Baden-Fuller & Mangematin (2013), Bohnsack et al. (2014) and Doz &

Kosonen (2010), table 3 presents a summary.

Real-World Cognitive-World

Logic What company does How company sees the world

Classification Taxonomy Typology

Definition Bottom up Top down

Focus Consequences Dimensions

Drivers Empirically-driven Theoretically-driven

Technology Inside the BM Separate from the BM

Key Papers Zott and Amit (2007) Teece (2010)

Baden-Fuller and Haefligher (2013)

Table 3. Real-world and cognitive-world views (source: author)

Finally, another interesting perspective is the one proposed by Doganova & Eyquem-

Renault (2009) who, adopting a pragmatic view (rather than an essentialist or functionalist view),

analyze “what business models do”. Business models are seen as boundary objects with calculative

and narrative aspects, i.e. business models are sensegiving objects that entrepreneurs use in

competitions and networking events, each time stressing certain business model elements as more

importance than other elements.

3.2 Business model innovation

Business model innovation has attracted increasing attention, although most of researchers do

not define it in a clear manner. Bock, Opsahl, George, & Gann (2012) note that business

model innovation “is perceived as a fundamental rethink of the firm’s value proposition in the

context of new opportunities” (2012:290). Researchers describe new business models

analyzing the evolution of the company existing business model, such as the well-known

cases of Nokia (Aspara, Lamberg, Laukia, & Tikkanen, 2013), Arsenal FC (Demil & Lecocq,

2010), and Naturhouse (Sosna, Trevinyo-Rodríguez, & Velamuri, 2010). Others suggest that

companies may innovate their business model at different degrees. Andries, Debackere, & van

Looy (2013), using Morris, Schindehutte, & Allen (2005)’s business model components, look

for example at companies that introduce new business models, counting how many business

model components they change.

Casadesus-Masanell & Tarzijàn (2012) have analysed how a company, LAN Airlines, may

run multiple business models simultaneously, noting that running multiple complementary

10

business models leads to many advantages: from maximize the use of physical assets to

diversify revenues and profits to reduce threats of entry. Operating multiple business models

requires also coordination among company activities, broader organizational skills, greater

employees flexibility (culture plays a central role) and also additional investments. More in

general, literature on business model innovation focuses on two main areas: the relationship

between business model innovation and technology and what do companies need for pursuing

business model innovation.

Business model innovation has been linked with the advent of new technologies that

have enabled new ways of doing business. In particular, the advent of web technologies have

had an impact on the way transactions may occur (Dubosson-Torbay, Osterwalder, & Pigneur,

2002; Mahadevan, 2000), on how users may be linked with companies – well-known

examples are from IBM, Coloplast and LEGO (Hienerth, Keinz, & Lettl, 2011), or on how

new companies such as Facebook, LinkedIn, eBay and Google have born thanks to the Web

(Wirtz, Schilke, & Ullrich, 2010). Often literature considers technology as a part of the

business model, using it to distinguish among business models (Amit & Zott, 2001;

Mahadevan, 2000; Wirtz et al., 2010). In reality, technology may enable new business models

since it opens not previously conceivable ways of doing business (think at the impact of the

Internet that have revolutionized, among others, the way transactions may occur), but also

technology innovation often requires new business models (or, in any case, different from

existing ones) in order to succeed. That is, a technology innovation success also depends on

the business model. Chesbrough (2010), for example, argues that technology “remains latent

until it is commercialized in some way via a business model” (2010:354). Teece (2010) points

out that “technological innovation often needs to be matched with business model innovation

if the innovator is to capture value” (p. 186). This is well-described in Björkdahl (2009) who

looks at how the integration of ICTs in mechanical engineering products need to be

accompanied by business model changes. Baden-Fuller & Haefliger (2013) and Baden-Fuller

& Mangematin (2013)suggest to look at the BM as a moderator between technology and

performance.

Although the terms “business model innovation”, “new business model”, “change in

the business model” or “business model evolution” are widely used, unexpectedly an explicit

definition of what business model innovation is, does not emerge. This is probably due to the

fact that general accepted dimensions of business model have still to emerge. In broad terms,

the papers considered refer to business model innovation as the search for new logic of the

firm and new ways that redefine the value proposition, how it is delivered and how value is

11

captured (Casadesus-Masanell & Zhu, 2013; Teece, 2010; Velu & Stiles, 2013). However,

authors suggest that companies should reinvent their business model and propose general

guidance about how a successful business model may look like. Magretta (2002) argues that a

successful business model may “represent a better way than the existing alternatives. It may

offer more value to a discrete group of customer. Or it may completely replace the old way of

doing things and become the standard for the next generation of entrepreneurs to beat”

(2002: 88). He makes the example of Fargo’s traveler’s check that changes the economics of

travel, creating new, incremental demand. It would be surpassed by a new technology, the

automated teller machine that would provide even greater convenience for the customer.

Johnson et al. (2008) posit that a company may understand how the existing model works,

and then “come up with a great way to help people get and important job done” (2008:52).

It is interesting to note that we should distinguish between business models new to the

firm and new to the industry. In the first case, we should look at the dimensions of business

models that change (i.e. from a firm dynamic perspective), while in the second case we may

be able to identify business model types. This point need more clarification. Sometimes

practitioners confuse the use of a new technology for an old business model with a new

business model. An example is Amazon.com. Amazon.com has been considered as a new

business model but in reality is the old Sears, Roebuck and Company2’s business model

empowered by an online catalogue (Baden-Fuller & Haefliger, 2013). Consider now the

following cases. A tomatoes producer at a certain point changes the old tractor with a more

efficient one (value chain and linkages). Nonetheless, he continues to sell the same tomatoes,

to the same customers, in the same market. Is it a business model innovation? Yes, but at a

company level. Again, in Dell’s build-to-order model, Dell kept selling computers (i.e. it did

not changed the customer engagement/value proposition or unit of business), but it changes

the monetization: customer would order and pay for a computer before Dell even built it

(McGrath, 2010). Moreover, it also change the way the computers were sold, selling them

directly to end customers. A consequence of it was to be able to manage the inventory in a

more efficient manner, reducing the costs of obsolescence, and that turned out in an advantage

in the computer makers industry (Magretta, 2002). Is it business model innovation? Yes, and

it was at the industry level. Again, in the search engine market, Infoseek initially made

customers pay per month for accessing to its search engines, then it was the first to gave

searchers away for free and made advertisers pay, i.e. it made a change in the customer

2 For a description of Sears, Roebuck and Company see:

http://www.britannica.com/EBchecked/topic/531000/Sears-Roebuck-and-Company [last accessed on September

30th, 2014].

http://www.britannica.com/EBchecked/topic/531000/Sears-Roebuck-and-Company

12

identification dimension. Did it was a business model innovation? Yes, at both company and

industry level.

Based on the previous examples and considering the dimensions of Baden-Fuller &

Haefliger (2013) and Baden-Fuller & Mangematin (2013), I argue that we are in front of a

business model innovation every time a company changes one of its business model

dimensions and this implies a new configuration of the extant business model. Nonetheless, it

is important to distinguish between business model innovation at the company level and

business model innovation at the industry level. I suggest that business model innovation at

industry level is easier to copy since the level of opacity (Teece, 2010) of a business model is

lower than that of business model innovation at company level. Companies, in fact, can

design business models that have an hard-to-imitate configuration. Since IP protection on

business model is unlikely, what companies may do is to protect the business model

dimensions somehow, via creating complementarities or acquiring specific assets or building

specific capabilities that are difficult to implement by competitors. As Teece (2010) notes,

companies need systems, processes and assets for implementing business models and they

should be difficult to replicate. Then, the business model may possess a level of opacity for

externals that try to understand how it works. Finally, there might be a cannibalization threat

that prevents other companies to replicate the pioneer’s business model.

3.3 Business model innovation and organization theory

An emerging area of interest refers to how companies manage business model innovation.

From the literature review, only a small bunch of papers emerge on that topic. These papers

are linked with organizational learning perspective, with particular reference to exploration

and exploitation (Andries et al., 2013; Aspara et al., 2013; Dunford et al., 2010; Mason &

Leek, 2008; Sabatier, Mangematin, & Rousselle, 2010; Sosna et al., 2010; Velu & Stiles,

2013), and dynamic capability view (Achtenhagen et al., 2013; Bock et al., 2012; Doz &

Kosonen, 2010; Mason & Leek, 2008). Due to the paucity of studies, I describe most of them

in details (Table 4 shows a summary of their main contributions).

Author(s) (year) Focus on Key concepts

Achtenhagen, Melin, &

Naldi (2013)

Dynamics of

business model

3 strategizing actions

- focus on organic growth

- simultaneous expansion along different dimensions;

- combination of cost-efficiency with a high quality focus.;

3 critical capabilities:

- orientation towards

- balanced way of using resources;

13

- achieving coherence between an active and clear leadership, a

strong organizational culture and employee commitment.

Andries, Debackere, &

van Looy (2013)

Business model

development

2 approaches to business model development:

- Focused commitment

-Simultaneous experimentation

Aspara, Lamberg,

Laukia, & Tikkanen

(2013)

Corporate

business model

Business model evolution depends on:

- corporate recipes,

- reputational rankings,

- boundary beliefs

Bock, Opsahl, George,

& Gann (2012)

Strategic

flexibility

creative culture and organizational structure

Doz and Kosonen

(2010)

Acceleration of

business model

renewal

Three core meta-capabilities to make an organization more agile:

- strategic sensitivity,

- leadership unity,

- resource fluidity

Dunford et al. (2010) Internationalizati

on

4 processes in business model evolution and internationalization:

- clarification

- localization

- experimentation

- co-option

Mason & Leek (2008) inter-firm

knowledge

transfer

Hard and soft structures

Sabatier, Mangematin,

& Rousselle (2010)

Portfolio of

business models

Specialization and division of work within the value chain.

Importance of corporate strategy.

Sosna, Trevinyo-

Rodríguez, &

Velamuri (2010)

Business model

innovation

4 phases in business model innovation:

- Exploration (initial business model design and testing)

- Exploration (business model development)

- Exploitation (scaling up the refined business model)

Exploitation and further exploration (sustaining growth through

organization-wide learning)

Velu & Stiles (2013) Cannibalization

Procedural rationality and politics

Table 4. Relevant contributions on business model innovation and organization theory

Andries, Debackere, & van Looy (2013) contribute to organizational learning theory,

investigating how ventures develop their business models through experimentation. In

particular they look at whether different experimentation and learning approaches exist and, if

it is the case, what are the rational and implications of these approaches. They identify two

approaches to business model development: focused commitment and simultaneous

experimentation. Under uncertainty, organizational learning theory proposes two main

experimentation approaches: local or related search vs. distant search or search through long

jumps. Analysing six longitudinal case studies, the authors come up with four propositions. It

seems that focused commitment has a positive effect on the initial growth of ventures, but

jeopardizes the long term survival of ventures, while experimentation works in the opposite

direction. The authors ask for further analysis on the experimentation approaches and the

combination of different approaches.

Sosna, Trevinyo-Rodríguez, & Velamuri (2010) look at how an established

organization innovate its ‘positively contributing’ business model, but that might be

14

undermined by changes in its external environment. Through an organizational learning

perspective, they analyse the case of NatureHouse, identifying 4 phases in NatureHouse’s

metamorphosis. A first phase is characterized by exploration. The owner-manager begin to

design and test the initial business model, led by his character and resilience (i.e. owner-

manager’s previous cognitive schemata are important). This process is usually initiated by

established firms when they have to react to difficulties. Resources required for experiments

should be small relative to the ongoing business for internal and external stakeholders to

approve the initiative. A second phase refers to exploration. In this phase managers develop

alternative business models up to they arrive at a fine-tuned business model. The third phase

is again an exploitation phase where the refined business model is scaled up. In this stage the

knowledge acquired at the individual (entrepreneur) and group (top management team) level

are translated into organizational knowledge (i.e. there is an institutional process that begins).

Finally, the fourth phase consists in exploitation and further exploration, sustaining growth

through organization-wide learning. Here there is focus on the internationalization that ranges

from minor adaptation (single loop learning) to a full scale re-engineering of major business

model dimensions (double loop learning).

Building on Winter & Szulanski (2001)’s paper, Dunford, Palmer, & Benveniste

(2010) look at how BM is used when a company decides to internationalize and identify four

processes, namely clarification, localization, experimentation and co-option, that underline

both business model change and internationalization. According to the authors, “early and

rapid internationalization may be sought through combining one or more of these modes with

the use of a replication strategy, that is one where expansion into new countries is based on

the repeated application of a specific business model” (Dunford et al., 2010: 657). Replicators

create values refining an existing business model “by choosing the necessary components to

replicate that model in suitable geographical locations, by developing capabilities to

routinize knowledge transfer, and by maintaining the model in operation once it has been

replicated” (Winter & Szulanski, 2001).

Sabatier, Mangematin, & Rousselle (2010) look at portfolio of business models,

defined as “the range of different ways a firm delivers value to its customer” (p. 432).

Drawing of four case studies in the biotech industry, they examine how companies articulate

medium run activities while pursuing long term idiosyncrasy for ensuring future health. Via a

business model portfolio, a company, on the one hand, extends its core competence in order to

enlarge markets and satisfy additional customers, on the other hand redeploys its core

15

competence to serve new markets with the same core competence. Hence, within one strategy,

a company may pursue multiple business models.

Velu & Stiles (2013) analyse the cannibalization processes that occur when a company

decides to run parallel business models. Cannibalization occurs when a new business model

reduces the value of the firm’s existing assets and organizational routines. They note that

often companies are not able to reconfigure their assets to support the new business model. In

managing cannibalization, the authors suggest that it is important to balance two dimensions,

namely procedural rationality, i.e. “the extent to which the decision making process reflects

the intention to make the best decision possible for the organization under the given

conditions”, and politics, i.e. “the impact of individuals or groups who try to influence

decision making to enhance or protect their interests above those of the organization” (p.

446), that have been considered as opposite ends of the same continuum and for that reason

inversely related. Despite that, they integrate the stage model of decision-making

(intelligence, design and choice) with procedural rationality and politics (that are two modes

of decision making) and propose three mechanisms that helps in managing conflicts between

parallel business models. These mechanisms are transcendence, separation and integration

and occur across the three phases of the strategic decision making process. Decide to run a

parallel business model requires a first phase of inter-organizational coordination and, hence,

calls for a collective decision making process. Companies need to reframe the business model

using multiple viewpoints and considering alternative. They call “the ability not only to have

foresight and vision for the business but also the awareness of how to link past, present and

future” as ‘trascendece’ (p. 455). Then, during the design phase of decision making, the

innovation required is fragmented and presented in small changes. Finally, in the choice

phase, managers integrate alternative in order to reduce interpersonal conflicts and ‘digest’ the

choice easier.

According to Mason & Leek (2008), dynamic business models are continuous change

and make firms learn constantly new and better ways of doing things. Changes are

manifestations of inter-firm knowledge transfer. Dynamic business models help organizations

identify and link key actors with each other and identify the appropriate knowledge types and

knowledge transfer mechanisms for different actors. Mason & Leek (2008) look at three

components of dynamic business model, namely network structure, inter-firm routines and

knowledge forms, as an example of inter-firm knowledge transfer. The authors find that both

‘hard’ (i.e. structures and routines) and ‘soft’ (i.e. changes to structures and routines emerged

during inter-firm communities of practice) inter-firm knowledge transfer mechanisms are

16

needed to drive improvements to dynamic business models. In particular, four types of

knowledge are involved in inter-firm knowledge transfer: know-how, know-why, know-what

and know-who. The authors stress that little is known about the impact of culture and

language on inter-firm knowledge transfer.

Focusing on the cognitive processes that influence corporate business model

transformation, Aspara, Lamberg, Laukia, & Tikkanen (2013) look at how the corporate

business model elements evolve and transform in multi-business unit organizations. They

analyse the case of Nokia and note that there are drivers of changes in terms of (a) corporate

recipes, (b) reputational rankings, and (c) boundary beliefs (i.e. beliefs about shared current

boundary elements between businesses. According the their findings, in reducing its

businesses, Nokia CEOs concentrate on current or existing reputational rankings, ignoring the

prospective rankings.

For what concerns the dynamic capability view, authors looked at the capabilities

needed to successfully drive business model dynamics. Achtenhagen, Melin, & Naldi (2013)

investigate which are the capabilities or activities driving the dynamics to success over time

and how they are performed in practice. They identify three strategizing actions and three

critical capabilities (a subset of dynamic capabilities) that companies may follow. The three

strategizing actions relevant for value creation are (a) focus on organic growth complemented

with strategic acquisitions; (b) simultaneous expansion along different dimensions; and (c)

combination of cost-efficiency with a high quality focus. In order to pursue them, companies

need three critical capabilities, namely (1) orientation towards experimenting with and

exploiting new business opportunities; (2) balanced way of using resources; (3) achieving

coherence between an active and clear leadership, a strong organizational culture and

employee commitment. Strategizing actions together with the critical capabilities worked as

complementarities. The authors, however, looked at SMEs, and asked for further research on

bigger size companies.

Bock, Opsahl, George, & Gann (2012) analyse how creative culture and

organizational structure affect strategic flexibility during business model innovation. Strategic

flexibility is defined as “the ability to identify innovation opportunities, commit resources to

new courses of action, or reverse unproductive resource deployment” (2012:279). Strategic

flexibility is influenced by organizational structure and dynamic capabilities. The dynamic

capability framework stresses the importance of flexibility in managerial attention, assets and

networks, while the organizational structure stresses how flexibility derives from minimizing

coordination costs of adaptation. The authors find that creative culture and simplification of

17

the firm structure are associated with strategic flexibility, while the reconfiguration of the

activities is negatively associated.

From these studies, it emerges that owner and/or managers have an important role in

developing business model innovation, and that a culture open to experimentation, but at the

same time that balances in a proper way the resources is necessary (Achtenhagen et al., 2013;

Bock et al., 2012; Mason & Leek, 2008). Then, literature has mainly focused on the

importance of experimenting business models (Andries et al., 2013; Sabatier et al., 2010;

Sosna et al., 2010) and on the factors that help a business model to be chosen over another,

that are rooted in cognitive perspectives (Aspara et al., 2013; Velu & Stiles, 2013). However,

the success factors that help a company in innovating its business model are still narrowly

understood. In particular, further evidence is needed in understanding how codified and tacit

processes may help companies in innovating business models, whether there are other actors

rather than the owner-manager that are crucial for business model innovation, whether there

are specific resources that help in business model innovation and how new technologies may

be used in business model innovation.

4. Discussion and conclusion

The literature reviewed shows that since 2009, the last year considered by Zott et al. (2011),

business model concept has attracted increasing attention by top management journals. My

analysis confirmed some of the previous findings of Zott et al. (2011), in particular the

importance of value creation. This field of research may benefit from the literature on open

innovation (Chesbrough & Rosenbloom, 2002; Gassmann, Enkel, & Chesbrough, 2010;

Vanhaverbeke & Chesbrough, 2014). The analysis suggests three emerging themes that need

further exploration.

First, how managers may use business model as a cognitive device. According to

scholars of the cognitive school, the business model concept can be used as a cognitive

instrument able to shed light on organizational issues (Baden-Fuller & Haefliger, 2013;

Baden-Fuller & Mangematin, 2013). The business model links the “working inside the firm to

outside elements including the customer side” (Baden-Fuller & Mangematin, 2013:419).

Taking this perspective, business model can help in explaining organizational survival via

recurring to categorization.

Then, another theme that needs further exploration is how business model may be

innovated. Research is still in its infancy in understanding the factors that enable business

18

model innovation. Barriers to business model innovation in existing firms have been

identified in existing configurations of assets and processes (Chesbrough, 2010). We have

seen that literature on exploration and exploitation and ambidexterity (March, 1991;

Markides, 2013) as well as on dynamic capabilities (Teece, Pisano, & Shuen, 1997) may be of

help in understanding how companies may face business model innovation barriers.

Last, but not least, a third field for future research refers to how to design a business

model (Casadesus-Masanell & Ricart, 2011; Dubosson-Torbay et al., 2002; Mahadevan,

2000; Zott & Amit, 2007). A business model is made up by elements that interact each other

(Sinfield et al., 2012; Zott & Amit, 2010). According to extant research that see business

model as an activity system, interdependencies among activities are important. Moreover,

business models are boundary-spanning: this allows the company to rely on resources and

capabilities that are outside its boundaries (i.e. recurring at open innovation processes).

Further research on business model design should shed light on whether some business

models designs are better than others and under what conditions, taking a contingency theory

view.

This review comes up with two main contributions. First, it provides a definition of

business model innovation linking it to theoretically developed business model dimensions.

Then, it summarizes the most relevant contributions on business model innovation. Finally, it

identifies three areas of potential research. In particular, two main bodies of research emerged

as important in deepening our understanding on business model innovation, namely the

ambidexterity literature and the dynamic capability view.

Nonetheless, the paper presents the following limitations. First, we have considered

only the last fourteen years of papers published, while the business model concept dates back

to 1950s. However, as Zott et al. (2011) note, most of research on the theme appears only

recently. Second, we have considered only top management journals. Third, the analysis of

the paper could have been done via a software for qualitative analysis. In order to overcome

these limitations, future research should analyse business model concept via a bibliometric

review, combining for example bibliographic coupling and co-citation analysis (Boyack &

Klavans, 2010; Small, Boyack, & Klavans, 2014; Vogel & Güttel, 2012) in order to depict

thematically related publications and shed light on theoretical foundations.

Whether a deeper and review of the literature may contributes to the advancement on

the theoretical contributions of the business model (innovation) concept, practitioners should

benefit more on empirical examples that shed light on how a company may innovate its

business models. In particular, which are the success factors in business model innovation?

19

How does a company may reconfigure its processes in order to exploit its existing

technologies and exploring new one? How does technology enable business model

innovation? I hope these contributions help in inspiring future and deeper research on this

topic.

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24

APPENDIX I

Author(s) Year Main topics BM definition BM components

Afuah 2004 It is a book on business models in which the author

uses a strategic management approach.

A BM is the set of which activities a

firm performs, how it performs them,

and when it performs them as it uses its

resources to perform activities, given

its industry, to create superior customer

value (low-cost or differentiated

products) and put itself in a position to

appropriate the value.

1) positions

2) activities

3) resources

4) industry factors

5) costs

Amit and Zott 2001 Exploring the theoretical foundations (based on

entrepreneurship and strategic management

literatures) of value creation in e-business, the

authors depict four interdependent dimensions

(efficiency, complementarities, lock-in and novelty)

that affect value creation. Business model is a

unifying unit of analysis since it captures all the

dimensions of value creation.

A BM depicts the content, structure

and governance of transactions

designed as to create value through the

exploitation of business opportunities

The authors distinguish between design

elements and design themes. There are three

design elements:

1) activity system content

2) activity system structure

3) activity system governance

There are four design themes:

1) novelty

2) lock-in

3) complementarities

4) efficiency

Amit and Zott 2012 The authors focus their attention in defining three

ways for innovating business models: (1) the addition

of novel activities (forward or backward integration);

(2) the link of activities in novel ways; (3) the change

of one or more parties that perform any of the

activities.

A business model is a system of

interconnected and interdependent

activities that determines the way the

company “does business” with its

customers, partners and vendors. […] It

is a bundle of specific activities –an

activity system- conducted to satisfy

the perceived needs of the market,

along with the specification of which

parties (a company or its partners)

conduct which activities and how these

activities are linked to each other.

Cfr. Amit and Zott (2001)

Baden-Fuller

and Morgan

2010 The authors highlight that business models embody

multiple roles: they “provide means to describe and

classify businesses”; they “operate as sites for

BM defines the business’s

characteristics and its activities in a

remarkably concise way, in other

N.D.

25

scientific investigation”; and “they act as recipes for

creative managers”.

words, in a way that matches the

generic level that defines a kind or type

of behavior but that also suggests why

it works, because it embodies the

essential elements and how they are to

be combined to make them work.

Björkdahl 2009 Using three case studies, the author shows how is it

necessary to accompany technology cross-

fertilization with business model changes (especially

with respect to economic and commercial domains).

The logic and the activities that create

and appropriate economic value, and

the link between them. […] the BM

describes how a firm takes resources,

often in the form of technology, as

inputs and converts them through

customers and markets into economic

outputs, thereby connecting resource

potential with the realization of

economic value.

1) customer value;

2) customer segment;

3) offering;

4) revenue model;

5) sourcing;

6) distribution/selling

Casadesus-

Masanell and

Ricart

2010 The authors present a framework that distinguishes

between business model and strategy. Moreover, the

framework proposed distinguishes also between

tactics and strategy.

They define business model

As the logic of the firm, the way it

operates and how it creates value for its

stakeholders.

Business models are composed of choices

(policies, assets, and governance) and the

consequences derived from the choices.

Casadesus-

Masanell and

Zhu

2012 The authors provide the first formal model of

business model innovation. They analyze the choice

of an incumbent to imitate the business model of an

innovative entrant.

By business model they refer to the

logic of the firm, the way it operates

and how it creates and captures value

for its stakeholders

They present the business model in the form of

simple profit functions:

Casadesus-

Masanell and

Ricart.

2011 The authors provide a new definition of business

model and emphasize on the characteristics that a

good business model need to have.

A business model consists of a set of

managerial choices and the

consequences of those choices.

Three types of choices:

1) policy choices: they determine the actions an

organization takes across all its operations;

2) asset choices: pertain to the tangible

resources a company deploys;

3) governance choices: refer to how a company

arranges decision-making rights over the other

two.

Chesbrough 2010 The author analyzes the barriers to business model

innovation (e.g. Conflicts with existing assets and

business models) and the ways to overcome these

barriers (as processes of experimentation and

effectuation and leadership).

Cfr. Chesborugh and Rosenbloom

(2002)

Cfr. Chesborugh and Rosenbloom (2002)

26

Chesbrough and

Rosenbloom

2002 The authors show the importance of business model

in capturing value from technology and explore the

Xerox Corporation case.

A BM is the method of doing business

by which a company can sustain itself,

that is generate revenues.

1) value proposition;

2) market segment;

3) structure of the value chain;

4) cost structure and profit potential;

5) position of the firm within the value

network;

6) competitive strategy

Demil and

Lecocq

2010 The authors propose a framework (the RCOV

framework ) and used it to investigate the Arsenal

FC’s business model evolution.

BM as the way an organization

articulates dynamically three main

components to generate revenues then

profit: resources and competences (RC)

to value; organization (O) of the

business within a value network or

within the boundary of the firm (value

chain and value network); and the

value proposition (V) for the products

and services supplied. These 3 basic

components determine the structure

and the volume of costs and revenues

of a business.

1) resources and competences

2) organization

3) value proposition

Doganova and

Eyquem-

Renault

2009 The authors use a pragmatic approach of business

model. They consider the business model as a market

device and investigate its role in the innovation

process using a case study of a new venture.

The business model works as both a

calculative and a narrative device. It

allows entrepreneurs to explore a

market and to bring their innovation – a

new product, a new venture and the

network that supports it – into

existence. We consider the business

model as a material object, as a scale

model of the new venture, instead of

treating it as a more or less faithful

description of a reality beyond itself.

N.D.

Dubosson-

Torbay et al.

2002 The article has three objectives: to provide a

theoretical e-business model framework; to propose a

multidimensional classification-scheme for e-

business models; to define critical success factors.

A BM is nothing else than the

architecture of a firm and its network

of partners for creating, marketing and

delivering value and relationship

capital to one or several segments of

customers in order to generate

profitable and sustainable revenue

streams.

1) value proposition

2)customer relationship

3) infrastructure management

4) financial aspects

27

George and

Bock

2011 Based on entrepreneurial literature, the authors depict

three business model dimensions (namely, resource

structure, transactive structure, and value structure)

and discuss their relative implication on firm

characteristics and behavior.

A business model is “the design of

organizational structures to enact a

commercial opportunity”.

1) resource structure:” it refers to the static

architecture of the firm’s organization,

production technology and core resources

leveraged to serve customers”;

2) transactive structure:” the organizational

configuration that determines key transactions

with partners and stakeholders”;

3) value structure:” is the system of rules,

expectations and mechanisms that determine

the firm’s value creation and capture

activities”.

Hedman and

Kalling

2003 The authors review the business model concept in

explaining the relation between it and strategy.

A generic BM includes the following

causally related components, starting at

the product market level: customers,

competitors, offering, activities and

organization, resources, supply of

factor and production inputs and a

longitudinal process component.

1) customers;

2) competitors (5 forces);

3) offering (physical component; price/cost;

service component);

4) activities and organization;

5) resources (human; physical; organizational);

6) supply of factor and production inputs;

7) longitudinal process

Hienerth et al. 2011 The authors focus on the ways for integrating users in

business models. They refer to the cases of Lego,

IBM and Coloplast.

A BM describes the logic of how a

business creates and delivers value to

users and converts payments received

into profits.

cfr. Johnson, Christensen and Kagermann

(2008)

Johnson,

Christensen,

and

Kagermman

2008 The authors depicting the business model

components shows how firms can reinvent their

business model in an effective manner.

A BM consists of 4 interlocking

elements that create and deliver value

1) customer value proposition;

2) profit formula;

3) key resources;

4) key processes

Magretta 2002 The author considers the business model as an

organizational narrative and shows through practical

examples the differences between business model

and strategy.

BM are stories that explain how

enterprises work. […]

BMs describe, as a system, how the

pieces of a business fit together.

1) what does the customer value;

2) who is the customer?

3) how can we deliver value at an appropriate

cost?

4)what is the underlying economic value?

5) how do we make money in the business

Mahadevan mahadevan, b. 2000 The author investigates the business model in the

internet economy, providing a frame work.

A BM is a unique blend of three

streams that are critical to the business.

These include the value stream

(identifies the value proposition for the

buyers, sellers and the market makers

1) value stream (in internet based business);

2) revenue streams (in internet-based business);

3) logistic streams (for internet-based business)

28

and portals in an internet context) for

the business partners and the buyers,

the revenue stream (plan for assuring

revenue generation for the business)

and the logistical stream (addresses

various issues related to the design of

the supply chain for the business).

Morris,

Schindehutte, et

al.

2005 The authors investigate the theoretical underpinnings

of a firm’s business model. They propose a six-

component framework for three different levels:

foundation, proprietary and rules levels.

A BM is a concise representation of

how an interrelated set of decision

variables in the area of venture

strategy, architecture and economics

are addressed to create sustainable

competitive advantage in defined

markets.

1) factors related to the offering;

2) market factors;

3) internal capability factors;

4) competitive strategy factors;

5) economic factors;

6) personal/investor factors

Osterwalder

and Pigneur

2010 This is a book that proposes a business model

framework based on 9 components.

A BM describes the rational of how an

organization creates, delivers, and

captures value.

1) customer segments

2) value propositions

3) channels

4) customer

5) revenue streams

6) key resources

7) key activities

8) key partnerships

9) cost structure

Sinfield et al. sinfield, j. V., e. Calder, et al. 2012 The authors propose a template that can help

managers to explore alternative business models.

A BM includes all aspects of a

company’s approach to developing a

profitable offering and delivering it to

its target customers.

1. Customer type and position

2. Need

3. What is sold

4. Value chain role

5. Profit model

Teece 2010 The author shows the links between business

models, business strategy, innovation management

and economic theory.

A BM articulates the logic and

provides data and other evidence that

demonstrates how a business creates

and delivers value to customers. It also

outlines the architecture of revenues,

costs, and profits associated with the

business enterprise delivering that

value.

Elements of BM design:

1) select technologies and features to be

embedded in the product\service;

2) determine benefit to the customer from

consuming\using the product\service;

3) identify market segments to be targeted;

4) confirm available revenue streams;

4) designing mechanisms to capture value;

6) designing mechanisms

29

Zott and Amit 2007 The authors investigates the impact of business

model design on entrepreneurial firms performance.

Cfr. Amit and Zott (2001) Cfr. Amit and Zott (2001)

Zott and Amit 2008 The article shows how business model and product

market strategy are not substitutes, but complements..

A structural template of how a focal

firm transacts with customers, partners,

and vendors. It captures the pattern of

the firm’s boundary spanning

connections with factor and product

markets.


Zott and Amit 2010 The authors see the business model from an activity-

system perspective.

[a BM is made by two elements:] the

design elements (content, structure and

governance) that describe an activity

system’s architecture, and design

themes (novelty, lock-in,

complementarities and efficiency) that

describe the sources of its value

creation.


Zott, Amit and

Massa

2011 The authors revise the previous literature review on

business models.

The business model is a new unit of

analysis, it represents a system-level

concept, it should be viewed as an

activity system and it emphasizes both

value capture and value creation.


30

APPENDIX II

Research Design in Business Model literature

In the following Appendix I briefly review the literature on Research Design and look at the

research designs used with respect to the business model concept.

Research design

Research design refers to “the plan or proposal to conduct research and involves the

intersection of philosophy, strategies of inquiry and specific methods” (Creswell, 2008:5).

Confusion often arises in understanding how a research design should be built. What is worst,

scholars sometimes mistake in using terminology related to research design. In order to

overcome these limitations, I want to provide a brief overview on the main concepts used in

conducting research.

The first question a researcher must be able to answer is “what is a research”?

Research means “search again” and it is a word that derives from the Latin term “circum”

(“around”) from which “circàre” (“to go around”). Hence, research is an activity and more

specifically an activity of investigation whose final aim is to answer to questions.

One of the main misleading points in contextualizing an article in the wider field of

research is understanding how a research is classified. Dichotomous classifications can be

made on the types of research, the purpose of research, the time required for making the

research, the environment in which the research is carried on, ecc. Table 5 provides a

classification.

A second question refers to the distinction between research methods and research

methodologies. These terms, in fact, are not always used in an appropriate manner. It happens

they are used as synonyms, while they have two different meanings. The term method comes

from the Latin word “mèthodus”, that derives from the Greek μεθόδος (“go after for

investigating”). The term methodology is composed by method- and by the suffix –logy. This

suffix comes from the Greek –λογία, that means “talk” or the “logic of”. Then, methodology

is something wider than method. In particular, “research methods or techniques refer to the

methods the researchers use in performing research operations [while] when we talk about

research methodology we not only talk of the research methods but also consider the logic

behind the methods we use in the context of our research study and explain why we are using

a particular method or technique and why we are not using others so that research results are

capable of being evaluated either by the researcher himself or by others“ (Kothari 2004: 7-8).

31

Moreover, Kothari (2004) distinguishes within three groups of research methods. The

first group is composed by the methods needed for collecting data. The second group instead

consists of the statistical techniques needed for analyzing data. Finally, the last group consists

of the methods needed for evaluating the results derived from the previous two groups. To

sum up, a method refers to a way of doing something, while a methodology consists in the

logics behind the choice of a particular method. Methodology often depends on the approach

the researcher chooses to follow. The approach is linked to the ideas a person has with respect

to a certain situation. Hence, we could say that the method is a tool, the methodology a

process that involves the methods and the approach a way of thinking, a sort of philosophy,

that affects the choice of methodology.

BASE OF

DISTINCTION

RESEARCH TYPE PURPOSES

Type of research

objectives

EXPLORATIVE\

FORMULATIVE

For gaining familiarity with a phenomenon or to

achieve new insights into it

DESCRIPTIVE For portraying accurately the characteristics of a

particular individual, situation, ecc

DIAGNOSTIC For determining the frequency with which

something occurs or with which something is

associated with something else

HYPOTHESIS TESTING For testing a hypothesis of a causal relationship

between variables

Type of contribution

given by the researcher

DESCRIPTIVE

(or Ex post facto research)

For describing the state of affairs as it exists at

present.

ANALYTICAL For critically evaluating the existing, already

available, materials.

Type of final aim\scope APPLIED

(or action research)

For finding a solution for an immediate problem

facing a society or an industrial\business

organization

FUNDAMENTAL

(or basic or Pure research)

It is concerned with generalizations and with

the formulation of a theory.

Type of phenomenon

under investigation (and

type of evidence

gathered)

QUANTITATIVE For investigating phenomena that can be

expressed in terms of quantity.

QUALITATIVE For investigating phenomena relating to or

involving quality or kind.

Type of source of

information\knowledge

CONCEPTUAL For developing new concepts or reinterpreting

existing ones. It is related to some abstract

ideas or theory.

EMPIRICAL\EXPERIMENTAL For verifying conclusions derived from

experience or observation.

Table 5. A classification of types of research (our elaboration from Kothari, 2004; Yin, 2003)

The type of approach used in conducting research is affected by four philosophical

worldviews (Creswell, 2008). A research design is affected by these worldviews that,

nonetheless, are interlinked with the type of the research questions and the researcher personal

characteristic and background. We have four philosophical worldviews: postpositivism,

32

constructivism, advocacy\participatory and pragmatism. This is not the place of discussing

about worldviews. For a deeper analysis see Creswell (2008). General patterns arise being

philosophical worldviews and research approach: postpositivism worldview is seen as a

coherent philosophy to quantitative research, constructivism and advocacy\participatory

worldview as philosophies to qualitative research, and pragmatism applies to mixed research

approach (Creswell, 2008). Nonetheless, most of the literature, generally, clearly does not

state the philosophical worldview adopted. This is because scholars usually choose between

the two basic approaches of research: the quantitative approach and the qualitative approach

(Kothari, 2004). To these two, a mixed approach has been more recently introduced

(Creswell, 2008).

A further clarification shall be done between inductive and deductive approaches.

Inductive research and deductive research are not synonyms of qualitative and quantitative

research, even if they are linked each other. Inductive and deductive research, in fact, refer not

to the nature of the phenomenon under study but to the way of reasoning applied. When we

classify research as inductive or deductive, we use a “logical lens”. The two approach differs

in the structure of the process a researcher uses. In the deductive approach we begin from the

theory and we arrive to the confirmation or disconfirmation of hypotheses; in the inductive

approach we begin instead from the observations, we develop patters and we finish with a

theory. However, to a certain extent, we can say that a qualitative approach requires an

inductive reasoning, a quantitative one a deductive reasoning, while a mixed approach should

implement an abductive approach (Dubois and Gadde, 2002).

Once the type of the approach has been chosen, a strategy of inquiry follows. There

are several strategies of inquiry (Creswell, 2008), or research methodologies (Kothari, 2004) a

researcher can choose among and varies from experiments (for quantitiative research) to

grounded theory and case studies (for qualitative) to sequential analysis (for mixed methods).

A focus on case analysis

As seen on Table 2, business model literature has applied primarily qualitative research. This

choice is probably due to the fact that business model should be analyzed in its natural setting,

through multiple sources of data and from an holistic point of view. All these elements are

also characteristics of qualitative research (Creswell, 2008). More specifically, the qualitative

approach used by this stream of literature relies on constructivism and advocacy\participatory

worldviews and uses case studies as strategy of inquiry. This is the motive that leads us to

analyze in depth the case analysis methodology.

33

A case is a phenomenon specific to time and space (Johansson, 2003). A main distinction

must be made between case study and case research (Bonoma, 1985) or case analysis

(Guercini, 2004). Case research or case analysis or the study of cases represent a research

methodology, a strategy of inquiry that can apply different methods. On the contrary, case

study is not a methodological choice, but a “choice of what is to be studied” (Stake, 2005).

Usually the case study is the product of the case analysis, but it is not always the case

(Guercini, 2004).

Case research involves different levels of analysis, single and multiple cases as unit of

analysis, and different data collection methods (Eisenhardt, 1989; Eisenhardt and Gaebner,

2007; Guercini, 2004; Yin, 1981). Data can be both quantitative and qualitative in nature.

Usually, multiple sources of data are required in order to satisfy qualitative validity.

Qualitative validity refers to the accuracy of the findings and it is different from qualitative

reliability, that assure consistency between the researchers’ approaches, and from qualitative

generalization, that is different from statistical generalization (Creswell, 2008). The use of

multiple data source, moreover, enables data triangulation (Jick, 1979).

When should we prefer case research? Yin (1981) argues that a case analysis is

required when two conditions are satisfied: case study must focus on a contemporary

phenomenon where the boundaries between the phenomenon and the context are not clearly

evident. In particular, case analysis is a very good strategy when the researcher has not control

over the events and wants to investigate the “how” and “why” of a particular phenomenon

that satisfies the previous conditions of the state of being contemporary and set in a real life

context (Yin, 2003). Stake (2005) emphasizes the “what”, highlighting the importance of

designing a case research for optimizing the understanding of the case. Moreover, Siggelkow

(2007) identifies in motivation, inspiration and illustration, the three main uses for case

research.

Secondly, we might distinguish four variants (Yin, 2003) of case research with respect

to the type of case study design (single or multiple-case) and the unit of analysis (single or

multiple unit of analysis). The choice of one of these variants is affected by the characteristics

of the theory and the type of the case. One single case, for example, is appropriate if it is a

critical case (for either confirming, confuting or expanding theory) or an extreme\unique case

or, finally, a case detector. Multiple case instead, are characterized by replication logic and

are selected in such a manner that there are several similar cases (literal replication) or

34

different contrasting cases (theoretic replication). Single and multiple case designs can

comprise one unit of analysis (holistic) or multiple units of analysis (embedded).

Another classification should be made with respect to the purpose of the case analysis.

Stake (2005) identifies three groups: the intrinsic case study that is conducted because the

researcher wants to understand a particular case; the instrumental case study that sees the case

study of secondary interest since it is used as a means for understanding another thing; the

collective case study or multiple case study that is a variant of the instrumental case.

A third issue refers to the “quality” of a case research. In order to be good, a case

design should satisfy the four tests of construct validity, internal validity, external validity and

reliability (Yin, 2003). In particular, multiple case design has become preferred in the last two

decades whether the researcher purpose is that of theory building. Multiple case design,

usually considered more as a methodology per se, rather than a variant of case research (Yin,

2003), allows a replication logic, yielding more generalizable results, if compared with single

case research (Eisenhardt, 1989; Eisenhardt and Graebner, 2007).

Finally, critiques to the case research and case study have been built upon the facts

that they are often simple descriptions of events or represent partial support of theories or

pretend to provide generalizable results (Dubois and Gadde, 2002; Yin, 1981). However, it is

not always the case. In particular, the use of multiple case studies through the replication logic

has been recognized as a useful tool in developing theories (Eisenhardt, 1989; Yin, 2003). On

the contrary, there are also supporters of single case study. According to these authors, when

we use multiple cases rather a single case we have not only a trade off related to the number

of the contexts under study and their insights, but also a surface description and ephemeral

practical conclusions for the reader (Dyer and Wilkins, 1991). Moreover, a single case study

is not only justified, but also exciting, when the researcher has a taking pig (Siggelkow,

2007). Lastly, for what concerns the critiques for the generalizability, what often creates

confusion is considering case studies as a mean for testing theory (Dubois and Gadde, 2002):

this is not the case. Case studies in fact are not theory generators, but rather theory developers.

Beyond the many conceptual papers, literature on business models tends to present single case

studies. The cases presented are useful for practitioners that can see best practices on new

ways for creating and capturing value. However, how many talking pigs (Siggelkow, 2007)

authors are able to discovered is a challenge.

35

References

Berg, L. B. (2001). Qualitative research methods for the social sciences. 4th

ed. Boston: Allyn

and Bacon.

Bonoma, T. V. (1985). Case Research in marketing: opportunities, problems and a process.

Journal of Marketing Research, 22, 199-208.

Creswell, J.W. (2008). Research design. Qualitative, quantitative and mixed methods

approaches. 3rd

edition. SAGE publications.

Denzin, N. K., Lincoln, Y. S. (2005). The Sage handbook of qualitative research. 3rd

edition.

Thousand Oaks: SAGE.

Dyer, W.G., Wilkins, A.L. (1991). Better stories, not better constructs, to generate better

theory: a rejoinder to Eisenhardt. The Academy of Management Review 16(3), 613-

619.

Dubois, A., Gadde, L.-E. (2002). Systematic combining: an abductive approach to case

research. Journal of Business Research, 55, 553-560.

Eisenhardt, K. M. (1989). Building theories from case-study research. Academy of

Management Review 14 (4), 532-550.

Eisenhardt, K. M., Graebner, M. E. (2007). Theory building from cases: opportunities and

challenges. Academy of Management Journal 50(1), 25-32.

Guercini, S. (2004). Developing the researcher-manager interface in the case analysis process.

Management Decision, 42, 464-472.

Jick, T. D. (1979). Mixing Qualitative and Quantitative Methods: Triangulation in Action.

Administrative Science Quarterly 24 (4), 602-611.

Johansson, R. (2003). Case study methodology. Paper presented at the Methodologies in

Housing Research. Stockholm, 22-24 September 2003.

Kothari, C. R. (2004). Research methodology. Methods and techniques. 2nd

ed. New Delhi:

New Age International Publishers.

Siggelkow, N. (2007). Persuasion with case studies. Academy of Management Journal 50(1),

20-24.

Stake, R. E. (2005). Qualitative case studies, in The Sage handbook of qualitative research,

Denzin, N. K., Lincoln, Y. S. eds. 3rd

edition. Thousand Oaks: SAGE (pp. 443-466).

Yin, R. K. (2003). Case study research. Design and Methods. 3rd

ed. CA: SAGE Publications.

Yin, R. K. (1981). The case study crisis. Some answers. Administrative Science Quarterly 26,

58-65.

36

Chapter 2

BUSINESS MODEL INNOVATION AFTER AN ACQUISITION

ELENA CASPRINI


ALBERTO DI MININ


ADREA PICCALUGA


Drawing on an in depth exploratory case study, this paper investigates the processes

associated with business model innovation following an acquisition. It analyses the

case of Nuovo Pignone, an Italian, mechanical equipment manufacturer company

acquired by General Electric in 1994 grown organically by seven times in the last

twenty years. After the acquisition, the company innovated its business model from

being a pure manufacturer to being a solution provider. Four phases were

distinguished, namely recognition, addition, transition and conversion. From the

analysis, three key elements that made this shift possible emerged: the technological

base characteristics, the formalization of processes and codification of knowledge,

and the role of ‘cultural bridgers’.

KEYWORDS: business model innovation; acquisition; formalization; codification

1. Introduction

Business model usually is defined as the answer to how a company creates and captures value

(Zott, Amit, and Massa, 2011). Over the last fifteen years, business model has burgeoned as

both a topic of interest and a key concept in strategic management and innovation and

technology management literatures and has especially been linked to a two important

phenomena, namely the performance of a firm (Zott and Amit, 2007) and the development of

a technology (Baden-Fuller & Haefliger, 2013).

Within this domain, business model innovation has attracted lot of attention in the last

years (Chesbrough, 2010; Desyllas and Sako, 2013; Gambardella and McGahan, 2010; Sosna,

Trevinyo-Rodríguez, and Velamuri, 2010; Teece, 2010). This is explained by the fact that

business model innovation provides firms with opportunities to gain competitive advantage

(Bohnsack, Pinkse, and Kolk 2014; Morris, Schindehutte, and Allen 2005). Most of

37

researchers have focused on why business model innovation occurs, in particular focusing on

the role of new technologies (Björkdahl 2009) or a change in the legislative framework

(Sosna et al., 2010). However, scant research has analyzed business model innovation that

follows exogenous radical events, such as an acquisition.

In this paper we describe the case of Nuovo Pignone, an Italian compressors’

manufacturing company that, after being acquired by General Electric in 1994, has grown

organically by seven times. Whether the rationale behind this acquisition relied at the very

beginning on a defensive strategy, soon General Electric recognized the underexplored and

underexploited potential of Nuovo Pignone and decided to orient the business model of the

Italian manufacturer towards a service oriented one. Acquisitions represent a disruptive event

that bring more complexity in the whole process of business model innovation. Different

cultures and new rules usually triggers existing ones. How does an acquired company

innovate its business model? In order to answer to this question we link the business model

and acquisition literatures and we depict four stages of business model innovation and three

factors that have made this shift possible: the technological base characteristics, the

formalization and codification of processes, and the role of ‘cultural bridgers’.

2. Business model change

Research into business model innovation and research on acquisition have been treated as

independent topics. However, linking them could may shed light on interesting insights.


Business model concept foundations lie in the strategy (Casadesus-Masanell and Tarzijàn,

2012; Chesbrough and Appleyard, 2007; Chesbrough, 2002) and organization (Andries,

Debackere, and Looy, 2013; Hienerth, Keinz, and Lettl, 2011; Zott and Amit, 2007)

literatures. Beyond the differences that we can find theorethically (Baden-Fuller & Haefliger,

2013; Baden-Fuller & Morgan, 2010; Zott & Amit, 2008), business models have been

recognized as important in delineating new opportunities for better competing (Achtenhagen

et al., 2013; Bohnsack et al., 2014).

One of the main topics that is attracting attention from both practitioners and

academics is that of business model innovation. Business model innovation has also been

named as “new business model” (Björkdahl 2009), “business model change” (Sosna,

Trevinyo-Rodríguez, and Velamuri 2010; Achtenhagen, Melin, and Naldi 2013), “business

38

model dynamics” or “business model evolution”(Demil & Lecocq, 2010). Due to also the still

unclear conceptualization about the dimensions of a business model, what a business model

innovation is remains blurred (Bock et al., 2012). Amit and Zott (2001) consider it as a new

source of innovation, others (Bock et al., 2012) as a type of organizational innovation.

Casadesus-Masanell and Zhu (2013) define it as “the search for new logics of the firm and

new ways to create and capture value for its stakeholders”. Velu and Stiles (2013) say that

“business model innovation redefines what an existing product or service is, and how it is

provided to the customer”. More in general, however, “business model innovation is

perceived as a fundamental rethink of the firm’s value proposition in the context of new

opportunities” (Bock et al., 2012: 290).

Business model innovation has many sources and happens at different level of

analysis. In general, literature has distinguished among internal and external factors that have

led to business model change (Björkdahl, 2009; Bohnsack, Pinkse, and Kolk, 2014;

Bonaccorsi, Giannelli, and Rossi, 2006; Demil and Lecocq, 2010; Govindarajan and Trimble,

2011; McGrath, 2010). Authors have mainly analyzed the (successful) business model change

of a single company. Hienerth et al. (2011), for example, investigate the integration of users in

three multinational companies, namely LEGO, Coloplast and IBM that now are adopting

more user-centric business models. They look at the factors that engage users in the core

processes and at the strategies that are used for overcoming internal resistance. In particular,

companies face psychological barriers such as he ‘not invented here’ syndrome, the fear of

loss of control, and also organizational barriers. The authors identify five main strategies that

affect the organizational subsystems of the companies analyzed. These strategies range from

the collection and dissemination of success stories, to the reformulation of employees tasks

and new measures for understanding the impact of initiatives. Sosna et al. (2010) analyze the

case of Naturhouse, a company in the Spanish dietary products business that changed its

business model after the liberalization of the market. They evidence how the company has

innovated its business model via trial and error learning approach and look at the role played

by individual and organizational learning. Barriers to business model innovation are

overcome thanks to a severe crisis that put in discussion the dominant logic of the firm. Demil

and Lecocq (2010) describe the case of Arsenal FC, stressing the importance of intended

decision in order to promote business model change. The authors look at business model from

a dynamic point of view, analyzing the interactions between core components.

Despite the increasing attention on the domain of business model innovation, scant

research has been made on its underlying processes. Sosna et al. (2010), for example, moving

39

from an organizational learning perspective, show how “entrepreneur’s psychological and

emotional factors, and previous repositories of learning, influence business model innovation

and learning at different levels (individual, group, organizational)” (2010:402). Demil and

Lecocq (2010) note the least of research has focused on how business models change

themselves and in particular existing studies have focused on a specific business model

component rather than looking at their interaction. On the contrary they consider the

interaction between and within the business model components, namely the resources and

competences, the organizational structure (i.e. the value chain of activities and the value

network), and the value proposition, and look at the evolution of the business model. Andries,

Debackere, and van Looy (2013) look at to approaches to business model innovation, namely

focused commitment and simultaneous experimentation, and conclude that simultaneous

experimentation is needed in long-term survival. Aspara et al. (2013) analyze the cognitive

processes that can influence business model transformation and find that reputational ranking

is used as a selection criteria for business investment and divestment. Chesbrough (2010)

analyzes the barriers to business model innovation, identifying cognitive barriers to business

model experimentations. Experimentation is important and new business model

implementation often requires extended period of co-existence between old and new business

model. Moreover, strong organizational culture is needed as well as internal leaders for

business model change need to be identified and organizational processes changed.

2.2 Acquisition

Acquisition is a strategy for corporate growth that happens for many reasons. Bower (2001),

for example, identifies five reasons of acquisition occurrence, namely to deal with

overcapacity through consolidation in mature industries, to roll-up competitors in

geographically fragmented industries, to extend into new products or markets, as a substitute

for R&D and to exploit eroding industry boundaries by inventing an industry. Others point the

importance of speed up the process of innovation and gain access to the markets. Others take

a more resource-based perspective, looking at acquiring for obtaining new technological

capabilities (Birkinshaw, Bresman, and Hakanson 2000).

In innovation management literature, acquisition seems to be more important in order

to obtain tacit knowledge (Shuen, Feiler, & Teece, 2014). Companies build specific

technological capabilities on tacit knowledge (Mowery, Oxley, & Silverman, 1996), and

acquiring them is one of the ways of getting access to it. Nonetheless, it is not always the

case: acquiring a company is not sufficient for the acquirer in order to access tacit knowledge.

40

The extent to which an acquirer is able to absorb acquired company’s capabilities varies in

fact according to different factors. Previous literature has analysed pre-alliance relationship

between two firms’ patent portfolios (Mowery et al., 1996), or previous experience in the

same cultural space (Barkema, Bell, & Pennings, 1996) or organizational acquisition

experience (Haleblian & Finkelstein, 1999). For example, according to Haleblian and

Finkelstein (1999), who apply the behavioural learning theory, the effect of acquisition

experience on acquisition performance is not linear: “the best performers appear to be either

those without experience who, therefore, did not make and inappropriate generalization error

or those who had a significant amount of experience and appropriately discriminated. […]

Firms that make multiple acquisitions within the same industry benefit by generalizing past

acquisition knowledge” (1999:51).

Factors that follow acquisition have deserved particular attention. Extant research

shows that post acquisition management process is influenced by many factors such as the

level of integration, the post-acquisition changes, the timing of changes, the cultural

influences, and the employee behaviour in the acquired firm (Quah & Young, 2005). In

particular, integration is difficult, especially when technological acquisitions are motivated by

the aim of obtaining and transfer tacit and socially complex knowledge-based resources

(Graebner, 2004). Acquirer may be able to assure a high degree of integration and a high

degree of autonomy in order to do not destroy possible opportunities and synergies: it is

important to delay the integration process, providing the opportunity for mutual learning and

the establishment of trust between the two organizations before integration occurs (Graebner,

2004).

Integration happens at two dimensions (Birkinshaw, Bresman, and Hakanson, 2000):

task integration and human integration. Task integration refers to the identification and

realization of operational synergies while human integration is about the creation of positive

attitudes towards the integration among employees on both sides. However, human

integration seems to be the more tricky. Graebner (2004), for example, looks at the role of

acquired leaders in the post-merger integration activity. According to her, acquired managers

play a key role in achieving two types of value: expected and serendipitous. Acquired leaders

performed mobilizing actions, in the form of internal pacing (i.e. setting specific goals and

timelines for the acquired organization) and accelerated coordination between acquired and

acquiring firms, that focused and guided their teams and maintained organizational

momentum (Graebner, 2004). Looking at the post-acquisition/integration phase, rather than

that of organic growth, Thomson and McNamara (2002) analyze the role of corporate

41

entrepreneurship in the integration phase. According to them, teams led by corporate

champions facilitates organizational renewal and growth. Corporate entrepreneurship is made

up by four main constituents: leaning capabilities, team orientation, experimentation, and

ambition. They note that in a post-acquisition phase it is important to integrate diverse

perspectives, share a technical and managerial language, exchange information, have slack

resources in order to experiment, have a culture supportive of experimentation, and aspire to

reach more resources. Other studies have noted that culture represents one of the main barriers

in interfirm knowledge transfer (Barkema et al., 1996; Mowery et al., 1996), but there are

scholars who suggest that cultural differences may have positive benefits (Bjorkman, Stahl, &

Vaara, 2007; Thomson & Mcnamara, 2002) on acquisition performance. According to

Bjorkman, Stahl, and Vaara (2007), for example, post-acquisition capability transfer, depends

on the existence of complementary capabilities, socialisation/social integration (i.e. the

establishment of a set of values and objectives across units that end with a sense of shared

identity and mission) and potential absorptive capacity (defined as the organization’s capacity

to acquire and assimilate knowledge).

We link the business model innovation and acquisition literatures and look at how a

business model changes after an acquisition, searching for the key factors that are needed in

order to implement a business model innovation.

3. Method

Since a qualitative method is well suited to the study of dynamic processes, we conducted a

retrospective, exploratory case study (Eisenhardt, 1989) at Nuovo Pignone, a big Italian

company in the oil and gas industry that, after having been acquired, has innovated its

business model.

Nuovo Pignone has been known in Italy for its particular, in certain traits also mystic,

history. Nuovo Pignone is born in 1841 in Florence (Italy) as a foundry. Its technology

vocation dates back to the First World Word when, driven by the kingdom requests, it fast

develops compressors technologies, mechanical equipments and motors. In 1946 it is then

acquired by Snia Viscosa, an Italian textile group that makes it work as a producer of

mechanical loom. This re-conversion does not work and in 1953 Snia Viscosa decides to

close Pignone. The myth wants that during that days Florence’s mayor Giorgio La Pira

dreamt Virgo Maria who suggests him to save Pignone. Virgo Maria asks him to call Enrico

42

Mattei, CEO of the newborn ENI, a public company in the energy sector. Mattei, maybe more

for foresight than for religious reasons, decides then to acquire Pignone and renames it Nuovo

Pignone: it is 1954. During the following forty years, Nuovo Pignone works under the holding

ENI. Mattei’s aim is to make ENI not depending from international gas and oil equipment

suppliers and decides that Nuovo Pignone needs a “genetical mutation” (Roverati, 1991). In

place of developing product internally, Mattei makes Nuovo Pignone buying licensing and

patents to speed up the reconversion.

In early 1960s, Nuovo Pignone acquires from General Electric the patents for

manufacturing gas turbines. However, Mattei dies soon and ENI begins to make Nuovo

Pignone works in new unrelated sectors. At the beginning of 1990s, Nuovo Pignone presents

a product portfolio characterized by machineries and equipments for the oil industry,

chemical-oil and nuclear industry; pressure equipment and heat exchange; control valves, fuel

dispensers and measurement of gas; industrial control systems and information systems for

network services and also prefabricated.

In 1992, following Maastrich treat, the Italian government decides to privatization. For

many and still unclear reasons, Nuovo Pignone is put on sale. Soon the potential buyers

appear: General Electric (with Dresser and Ingerssoll-Rand), GEC-Alsthom, and ABB. After

a series of twists that span from antitrust commission, threats, letters by the sindacates, a

procession led by employees from the company to Piazza della Signoria in the historic centre

of Florence, in June 1994 General Electric acquires Nuovo Pignone. This acquisition was the

biggest acquisition made by GE outside US up to that moment.

After the acquisition, Nuovo Pignone grows organically by seven times. In 2012, due

to the strategic envisioning of the holding, General Electric (GE) decided to create General

Electric Oil and Gas division and integrate Nuovo Pignone in it. “GE Oil and Gas is an

advanced technology equipment and services company that serves all segments of the oil and

gas industry from extraction to transportation to end use. The business employs 43,000

people around the world”3.

Nuovo Pignone was selected as a case for studying business model shifts after an

acquisition for a number of reasons. First,Nuovo Pignone changed its business model

following a disruptive organizational change: it was acquired by General Electric. The

acquisition allowed us to add deeper insights in the processes underlying a business model

change since it represented a sort of forced change.. Second, the case presents a clear shift in

the business model from being manufacturing to being a solution provider, and includes a

3 Source: http://www.ge.com/about-us/leadership/profiles/lorenzo-simonelli [accessed on July 30th, 2014]

http://www.ge.com/about-us/leadership/profiles/lorenzo-simonelli

43

number of phases in the business model innovation Third, we were able to build the necessary

trust to enable the collection of longitudinal data via interviewing people that were present at

the moment of the acquisition and have seen the business model evolution.

3.1 Data collection & data analysis

We collected data through multiple sources during a period of seven months (February 2014-

September 2014). 25 in depth interviews were conducted. Through the interviewee we were

able to collect memories about the two organizations from the pre-acquisition phase, during

the acquisition phase and after the acquisition phase.

As Table 1 shows, we used two methods to collect our data: interviews and document

analysis. We organized and recorded these data in a single research database using NVivo

software, version 10. The program facilitated multiple waves of coding, as described later.

First we conducted 25 interviews. The mean interview length was one hour. All interviews

were taped and transcribed. Among the 25 respondents, 11 were former Nuovo Pignone

employees, 5 entered in Nuovo Pignone after the acquisition, 3 informants worked previously

in General Electric, but at the time of the interview were Nuovo Pignone (now, GE Oil and

Gas) employees and 1 still worked for General Electric. It is interesting to note that we

interviewed the top management of the company (Appendix I shows their roles).

Our study included a significant volume of archival data, including reports, past

presentations, and more than one hundred newspapers’ articles. We can distinguish between

Nuovo Pignone’s archival data, General Electric’s archival data and stakeholders’ data. Some

of the documents were confidential, but they has served us to confirm o disconfirm

interpretations.

We concurrently collected and analyzed data (Glaser and Strauss (1967). We analyzed

the data by synthesizing the interview transcripts and archival data. In particular, we use

archival data for triangulation (Jick, 1979). During the analysis we focused on developing

constructs and relationships to describe the process of business model shift.

4. Business model innovation at Nuovo Pignone

Before looking at the factors that make the business model innovation successful, we

distinguished how Nuovo Pignone business model evolved after the acquisition. Specifically,

Nuovo Pignone changed its business model from being manufacturing oriented to being

service oriented. Prior literature that have analyzed the shift towards service oriented business

model is scant (Visnjic Kastalli, van Looy, & Neely, 2013) and has not identified the phases

44

of business model innovation. From the case analysis four phases have arisen, namely

recognition, addition, transition and conversion, and are described in the following section.

4.1 Recognition

The first phase refers to understanding underexplored opportunities sources. As Graebner

(2004) notes, during an acquisition we should distinguish between ‘expected’ and

‘serendipitous’ value. Expected value refers to “those benefits that motivated the buyer to

undertake the acquisition, while serendipitous value refers to windfalls that were not

anticipated by the buyer prior to the deal” (p. 752). Then there is a value, the serendipitous

value, that is not known at the time of acquisition.

Nuovo Pignone was acquired by General Electric in 1994. His expected value, at the

very beginning, was about a huge contract and not collected credits that the company had. At

the time of acquisition Nuovo Pignone, in fact, was involved in a contract, named GazProm,

with the Russia. The existence of this contract and the fear of impeding somehow its

successful implementation, let General Electric to not intervene, in a first phase, in integrating

Nuovo Pignone:

“at the beginning, we feared to touch something that would then mislead the

contract with GazProm. It has been wise to be not intrusive in the first moment”,

adfirms Claudi Santiago.

Nuovo Pignone’s business model was focused on direct selling highly customized, turbo-

compressors machines. Clients were primarily national (ENI would represent 80% of the sales

up to 2000), with the exception of Russia (for the GazProm contract) and Algeria. Before the

acquisition, Nuovo Pignone produced the components by itself and its only aim was to be able

to pay the salary of its employees. The production and the sales were led by the needs of the

holding ENI that also had forced Nuovo Pignone to diversify its core activities via

acquisitions in unrelated sectors, such as prefabricated buildings.

When GazProm contract was going to be empted, GE’s CEO Jack Welch decided it

was time to intervene and called Claudi Santiago, future Nuovo Pignone’s CEO, for finding a

solution. It was 1997. The recognition of the need for a new business model followed the fact

that something was going to end. As soon as GE realized that “the chicken with gold eggs”

(i.e. Gazprom) was depleating, a new strategy needed to be implemented, but it was not clear

which one would be the best. The first thing that Claudi did at his arrival was to understand

the resources the company possessed:

45

“The first thing I became aware of was the installed base: there were 20000

installed machines.. I said 20000 in the sense that there were a huge amount of

machines installed, but the exact number was unclear, also to them. I told it to

jack and he said me to think about a service strategy. At that point I began to talk

with the local team and to think about what the machines were about and what we

would do with them”, remembers Claudi Santiago.

It was in that way that in 1997 Claudi decided to reshape Nuovo Pignone’s business model,

enhancing the service function. At that time, Nuovo Pignone’s employees did not like service

function: the service function was named ‘Ricambi’ (i.e. replacements) and it was reduced to

selling substituting components when needed by former clients. The value offering ‘service’

was considered as a “necessary evil”, considering that the aptitude towards service provision

could be summarized by the following quotes:

“It was a very small organization in which there were the 'heart patients', people

who were not ... how to say? They were farm waste: they were not engineers.”

“When customers needed spare parts, they were willing to pay them. Nonetheless,

the issue here was that Nuovo Pignone’s employees consider more than enough to

send the replacement part in one month… Service was something completely

ignored, devalued, undeveloped ...”, remember Claudi Santiago.

“Our mindset was: ‘Our client needs a replacement. Maybe I'll give it when I have

time: I have to make our machines in the company! When I've got the spare slot,

I’ll do it'. Replacement: this was our service. Part of the new service strategy then

became 'Create a business line of service, not only replacement’”, says Paolo

Ruggeri.

Moreover, also when required by clients, Nuovo Pignone preferred to loose opportunities

rather than exploring service opportunities. Once Algeria asked them to open there a service

shop. They could easily make a joint venture with a local player by sharing Nuovo Pignone’s

knowhow. But the company was too Florence-centric, it did not like the risk and Nuovo

Pignone’s management preferred to leaving the market to General Electric (in that context a

46

competitor in the gas turbine) that created GE Algeria: Nuovo Pignone lost the service

provision for almost 400 machines, just for cultural inertia.

4.2 Addition

To the recognition phase, what followed was an addition of the service component to the

Nuovo Pignone’s existing offering. This ‘addition’ was done in two ways. First, Santiago

opened a new, ad hoc, division dedicated to the service function. He changed the name from

“Ricambi” to “Service” and he enhanced the sales force. If in 1992, when the division

“Ricambi” was born, the sale force was composed by few people, in 1997 Santiago hired 120

salesmen:

“If you have not a sales force, what actually is service? Service may be simply

reactive. Clients acquired the machines and asked you to substitute components.

Once Claudi arrived, we passed from a reactive service to a proactive service”,

says Guido Ciatti.

Second, Santiago involved trusted people in helping shaping the attitudes of Nuovo Pignone’s

employees towards services. Santiago considered important to widespread the idea that the

company would take advantage from reshaping the service function, but he recognized that

this message could not be perceived by Nuovo Pignone employees unless it was vehicolated

by trusted peers. The identity of Nuovo Pignone was engineering-oriented and service was

seen as market-oriented. Henceforth, at the beginning, Santiago found an internal resistance:

“When Claudi arrived there was a dialectics with the Italian management team:

someone saw the value [in implementing a service strategy], others no”, Alberto

Matucci.

“At the beginning, making them aware of the complementarity between service

and compressors manufacturing, was unconceivable. […] They [i.e. Nuovo

Pignone employees] saw me as a half-spy who transferred information to General

Electric. I came up with conclusions via numbers and information (although not

properly correct) that the team had never valorized”, Claudi Santiago

Henceforth, Santiago decided to rely on an ‘internal direct partner’, Pierluigi Ferrara, THE

Engineer who had developed centrifugal compressors and who enjoyed the highest reputation

and respect inside Nuovo Pignone:

47

“For us the admiration by Ferrara counted more than the salary: if someone was

a person who Ferrara considered, this person valued”, remember Michele

Stangarone.

Santiago was aware of it and make leverage on Ferrara’s help in transmitting the message of

the importance of the service:

“Slowly, thanks to Pierluigi Ferrara, my ‘elder’ brother, I tried to build this idea:

if we provide, to our clients, services that allow to improve machines, lengthen

lifecycle, make them more eco-friendly, etc. we can make profit for reinvesting

this profit later in new technologies and hence build new compressors.”

In less than three years, Claudi was able to build the new, separate 1-billion dollar Service

division. What was happening during that time was to change organizational culture and

approach towards service.

“We began to think about service from the client point of view, in a response time

perspective. Moreover, we asked ourselves: 'what other services can we provide

to customers? What do they need?’, remembers Paolo Ruggeri.

“Then, at a certain point, we began to understand that, from a revenue point of

view, the service business was a business with a 50% of profit, against the 20% of

machines”, says Massimo Messeri.

The manufacturer business model began to change gradually. The proactive approach adopted

from the service division made Nuovo Pignone adapt to the trends were going on in the

market. In those years, the oil and gas industry was characterized by a focalization on costs:

majors tent to scrap all not core activities, and maintenance activities were seen as not core.

An oil and gas company must produce oil and gas and everything not highly related to it

could be outsourced. Of course, the level of risk associated with machinery equipment needed

to be very low: machines must work properly otherwise oil cannot be extracted. Claudi

Santiago and top management of Nuovo Pignone understood this new opportunity and re-

oriented its service function from selling substituting components, to making directly the

maintenance.

4.3 Transition

In 2001, Claudi Santiago and Jack Welch decided to refocusing the whole activities of Nuovo

Pignone. As said, along the former decades, Nuovo Pignone acquired numerous companies

48

but with unrelated activities. The top management team decided then to sell everything

unrelated to the core knowledge domain of Nuovo Pignone, i.e. the compressors. In few years,

this manoeuvre of ‘igienization’ was completed and a new phase of acquisition began. The

strategy pursued was that of acquiring companies along Nuovo Pignone’s value chain,

culminated with the acquisition of VetcoGrait4 in 2006.

Simultaneously, Nuovo Pignone began to provide new service packages. In this phase,

inspiration taken from other General Electric’s divisions was important. Taking as examples

how the other GE’s business units (e.g. Healthcare and Aviation) were developing their

services, Nuovo Pignone’s service world was shaped under three main offerings: Basic

Service, Upgrades and Rejuvenation and Gold Service. The Basic Service consists in selling

only the substituting parts every time a client needs them (i.e. it was the traditional service

model, as existing at the time of acquisition). The Upgrades and Rejuvenations refers to the

replacement of product or substituting components in order to improve their performance. In

the Contractual Service, the client pays an annual fee while Nuovo Pignone guarantees

specific performance. In this contexts, technology is important in order to pursue ‘cost out’

actions. Under the Contractual Service, Long Term Service Agreement Contracts were

developed. The idea of providing Long Term Service Agreements is linked to the

development of the firsts LNG plants. Facing a new (and highly uncertain) technology,

the first clients were sceptical about the adoption of LNG plants and Nuovo Pignone came up

with a revenue model that postponed the payment to the satisfaction of the clients: “try it and

if it works you will pay it’. This approach turned to be successful. Big clients (usually bigger

than General Electric itself) such as Exxon and Chevron that were unconscious about the

capabilities of Nuovo Pignone, were reassured by this approach: the fact that General Electric

was investing into the oil and gas industry and was providing ‘no risk’ contracts, reassured

them.

The transition phase was also characterized by acquiring the trust of clients. “We

needed to demonstrate to our stakeholders that there was a strategy behind, an alignment”,

says Claudi Santiago. In order to make clear the commitment towards services, in those years

Nuovo Pignone scrap non-core activities, selling all the plants that were not functional to the

turbo-machineries. Moreover, huge investments were made in learning (e.g. the Service Field

Academy) and other physical not reversible assets. Santiago strengthened the presence of

4 Business Wire 2007. GE to acquire Vetco Gray, accelerating growth across Oil & Gas sector. Available at:

http://www.businesswire.com/news/home/20070107005080/en/GE-Acquire-Vetco-Gray-Accelarating-Growth-

Oil#.U1z-__l50Ag

http://www.businesswire.com/news/home/20070107005080/en/GE-Acquire-Vetco-Gray-Accelarating-Growth-Oil#.U1z-__l50Ag

http://www.businesswire.com/news/home/20070107005080/en/GE-Acquire-Vetco-Gray-Accelarating-Growth-Oil#.U1z-__l50Ag

49

Nuovo Pignone at global level: “in 2000, 90% of employees was in Italy. We needed to be

present and visible also in markets such as US, Latin American and Middle East”. In doing

that, he leveraged on General Electric’s brand name and global presence. This transition phase

culminated in 2006, when Nuovo Pignone acquired the giant VetcoGray.

4.4 Conversion

Due to the many acquisitions made in previous years, in 2012 General Electric decided to

reorganize all the businesses were graving around Nuovo Pignone. In reality, the several

investments made over the last decade in the oil and gas sector required a reconsideration of

the whole company and acquired companies. Nuovo Pignone was anymore the sole reality,

especially after the acquisition of the big VetcoGray in 2006, and too many gravity centres

were arising worldwise, in partcular Aberdeen and Huston. Henceforth, GE decided to

dedicate an ad hoc division to the whole oil and gas sector. In 2012 GE Oil and Gas was born,

made up by seven business units that today coexist under the GE Oil and Gas umbrella brand.

In particular, Nuovo Pignone with other small companies, has been aggregated into the so

called TurboMachinery Solutions (TMS). This reorganization ends with the shift of the

headquarter that has been recently moved (January 2014) from Florence to London, a shift

that has been perceived as the ‘natural’ end of a process and seen as beneficial for the identity

of Nuovo Pignone that can now reinforce its role as a turbo-machinery solution provider,

adding to its historical core competence ( the compressors) an articulated service offering.

GE Oil&Gas Division HQ Activity description

Subsea systems Aberdeen Comprehensive systems & expertise

for reliable subsea production, control and

optimized life-of-field

Drilling & Surface Houston Drilling, completion & production solutions for

unconventional resources, deepwater drilling &

EOR applications

Turbomachinery Solutions Firenze Advanced turbomachinery equipment and services

for the upstream, midstream and LNG segments

Downstream Technology Solutions Houston Equipment & services for refinery, petrochemical,

distributed gas & industri

Measurement & Control Boston Asset condition monitoring, control sensing &

inspection solutions delivering healthcare for the

industry

Table 62. GE Oil & Gas' s division (source: GE Oil & Gas)

50

During these last years, Nuovo Pignone (or TMS) has changed its identity. If at the time of

acquisition in 1994 it defined itself as the manufacturer of centrifugal compressors, in 2014 it

is clearly a solution provider, as confirmed by the the following quote:

“Our long term goal? To be the best provider of products and services, total life

cycle solutions”, Massimo Messeri

This is also fortified by the identification of its competitors. If traditionally Nuovo Pignone

recognized Dresser and Siemens as competitors, today service providers are its competitors:

“Who are our competitors? People that comes from service world, used to work

with speed and focus… at a certain point they may acquire a technology, creating

a reality that links technology, speed and quick execution: this would be the

biggest competitor we could fear”, admits Paolo Ruggieri.

“Our competitors are not manufacturers, but service providers that [luckily] has

not our backbone”, says Maria Sferruzza.

To date, the next step is to implement service 2.0: collecting data, providing more than

customized solutions, forecasting potential problems. As Simone Zeloni tells us, the evolution

of the business model can be summed up in the following quote:

“At the beginning we had machines and service separated. It was so for showing

what was the value of service maintaining it separate from machines. Then,

service and machine were put together in order to make economies of scale and

helping each other growing up. Now, we have enough data for saying that the

base we will install, will generate next service volumes and profits”.

5. The key factors during business model innovation after the acquisition

Three key factors emerged from our analysis in having been successful for the transition of

Nuovo Pignone’s business model after the acquisition by General Electric: the technological

base characteristics, the formalization of processes and codification of knowledge, and the

presence of ‘cultural bridgers’.

5.1 The technological base characteristics

At the moment of acquisition, Nuovo Pignone and General Electric were already licensee and

licensor. Their relationship began in 1960s, the first manufacturing agreement about gas

51

turbine with licence GE dating back to 1961. These technologies were integrated and

combined in an innovative manner by the Italian company where Pierluigi Ferrara had created

the first turbo-compressors in1960s. On its side, General Electric was aware of the progresses

made by the Italian company and in 1980s it decided to sign a license agreement with Nuovo

Pignone in order to exploit centrifugal compressors. This was the first attempt by General

Electric on entering in the oil and gas industry, but it was unsuccessful. The reasons of this

failure may be probably found in that General Electric tried to apply the same market strategy

used in the Power Generation division.

Whether, as said, the initial reasons of the acquisition were of defensive nature, soon

General Electric realized that it was crucial to leave not access to Nuovo Pignone’s know-how

to competitors. In particular, Nuovo Pignone possessed an extraordinary manufacturing

capacity (“an hidden pearl”, as it is defined by many of the interviewees) whose potential was

however obscured by several factors. First, it was hidden by unrelated activities. As seen,

General Electric decided to focus on the core competence of Nuovo Pignone, alienating

everything unrelated that was acquired during ENI’s dominance. The decision of focusing on

the oil and gas industry was due to the fact that oil and gas is mission critical (since machines

are localized in remote places and require complex technologies and skills) and characterized

by very rich and big clients, such as Exxon and Chevron, who are wealthy and willing to pay.

Second, it did not take into consideration the role of becoming a product leader. Hence,

General Electric infused into Nuovo Pignone a new worldview: it was important to face new

technological challenges as a product leader, and hence develop long term technological maps

(named, “multigeneration product development”) completed by planning and risk

management tools. Third, it did not consider clients as a source of innovation. On the other

hand, with the advent of General Electric and the introduction of formalized practices (see

next section), Nuovo Pignone began to highly involve clients in the definition of new

products/services.

Nuovo Pignone’s core competence resided in an early intuition of engineer Ferrara

who already in 1960s integrated the technology driver (the gas turbine) with the technology

driven (the compressor) creating the turbo-compressors. In clients perception, Nuovo Pignone

was seen not as a supplier of components, but as something more. It was in 1960s that a group

of Nuovo Pignone’s engineers intuited that the oil and gas industry was divided in two: on the

one hand the giants of compressors (‘cold’ machines) and on the other hand those of turbines

(‘warm’ machines). Nuovo Pignone decided to master both the technologies via producing in-

house technology compressors, and licensing gas turbines by General Electric and vapour

52

turbines by Siemens. At that time Nuovo Pignone implemented both, alternative compressors

(presented in the company since early 1900s) and centrifugal compressors, that were

developing by Dresses, Elliot, Wortington and Cooper. There was not yet a dominant design

and Nuovo Pignone first introduced the turbo-compressor, linking the driver to the driven. Up

to 2000, when Siemens would acquire Demag, Nuovo Pignone would remain the only

company capable of providing turbo-compressors.

With the acquisition by General Electrc, Nuovo Pignone began to develop the same

model also in the big size turbine market. Big size turbines were produced by General Electric

and, after the acquisition, complementarities arose. Responsibilities of the development were,

nonetheless, clearly defined. Nuovo Pignone would be responsible for the alternative

centrifugal compressors (there were no clashes with respect to the other GE divisions) and for

the development of small turbines, while GE Power & Water would specialize on big size

turbines.

After the acquisition Nuovo Pignone has incremented its R&D expenditure. Between

1991 and 2000 the average R&D expenditure was € 30-35Millions. This expenditure has seen

a huge increment after the acquisition and in 2013 it reached € 74 Millions. Several

investments have been made also at territorial levels and many partnerships have arisen with

the territorial actors, such as municipalities and the Region. In particular, ad hoc projects have

been carried on together and Nuovo Pignone relies heavily on its surrounding territory that

provides it with qualified human resources. Moreover, thanks also to the collaboration of the

Province of Florence and the Tuscany Region, Nuovo Pignone has had the opportunity to

improve the branch of Avenza where it tests its modularized solutions. Modules are created

and tested in loco (specifically in Avenza and Massa Carrara branches) and then assembled

directly at the client place, minimizing in that way setting costs at client place. According to

many of the interviewees, modularized solutions are among the most promising offering of

Nuovo Pignone (today, TurboMachinery Solutions).

Nuovo Pignone had, at the time of acquisition, a very deep installed base, but its

activity was so fragmented that it was difficult to see its real potential. Thanks to the

acquisition, Nuovo Pignone refocused itself, building its advantage on the core technology.

The core technologywas then potentiated via other acquisitions and benefited by the

organizational and commercial solutions given by General Electric. The intuition of

reorienting Nuovo Pignone’s business model towards service provision, as said, derived from

Jack Welch who was able to give a sense to what Claudi Santiago was seeing: a huge installed

base. At the end, however, was Claudi Santiago the real business model shaper that managed

53

the disinvestment of not core activities and the acquisition of new companies to strengthen the

core technology. Moreover, the advent of ICTs made Claudi Santiago reflect on the new

opportunities were arising from linking ICTs with machines: Nuovo Pignone would link

informatics tools (already present in GE) to Nuovo Pignone’s machines in order to acquire

data in real time and develop new services.

5. 2 Formalization and codification processes

After the acquisition, General Electric and Nuovo Pignone began a mutual study. As said,

both companies presented different cultures, the former being led by commercial logics, the

latter by its engineering vocation. These two cultures were complementary but contrasting. In

many discussions, Nuovo Pignone’s employees main concern was about the threat that their

creativity might be destroyed by the imposition of rules and routines. “We feared they may

destroy us. There was fear about foreigners, about Americans.” remembers Massimo Messeri,

president of Nuovo Pignone. On the contrary, General Electric operated first gradually and

then through rhythm.

As seen, in post-acquisition processes, literature identifies a task integration dimension

and a human integration dimension. Birkinshaw, Bresman, and Hakanson (2000) note that in

a first phase of integration, task integration does not tend to rapidly achieve synergies, but

reach a satisficing solution that limits the scope of interaction between acquired and

acquiring. Rather it is in a second phase, once that organizational culture is converged thanks

to the human integration carried on in phase one, that task integration creates greater

interdependencies. In Nuovo Pignone we assisted first at a gradual integration at both task and

human level, then at a speeding up, more rhythmic, task and human integration.

The gradual integration phase (1994-2000) was justified by the need to understand

how Nuovo Pignone worked in order to not destroy creativity, but at the same time fill those

gaps that did not allow the two companies to communicate. This phase may be divided in two

sub-phases: a first one (1994-1997) characterized by mutual knowledge, and a second one

(1997-2000) that began with the arrival of Claudi Santiago and a rethinking of the business

model characterized by a reorganization and a deeper involvement and adoption of American

practices. First, gradual integration happened at human level. Among the fears arisen after the

acquisition, Nuovo Pignone’s employees expected a change in the top management team, but

it was not the case: “There was not what everyone feared: the elimination of roles”, says

Paolo Ruggieri. In effect, at the beginning, General Electric introduced only few foreign

people in the Italian company, and it was at managerial, not technical level. An important

54

factor was that General Electric recognized its incompetence in managing Nuovo Pignone’s

technology and hence preferred to maintain ‘Nuovo Pignone-born’ people. On the contrary,

General Electric introduces foreign managers in those functions that were new to Nuovo

Pignone. At the time of acquisition, the Italian company lacked financial capabilities, and

hence GE introduced rigor in both financial and technical procedures, accompanied by foreign

managers. In these first years, Nuovo Pignone assisted also to the introduction of PCs and

phones: this allowed employees to shorten communication and be faster both inside than

outside the company. During 1997-2000, with the arrival of Claudi Santiago, the integration

became heavier. General Electric introduced its business practices, above all the SigSigma, its

processes and values. Financial planning, revision and planning processes, at both human and

technical levels, were introduced. In particular, it was introduced the planning of ‘growth

business plan’ aimed at understanding the areas where to invest. At the end of 2000 we found

faster communication, regular meetings, the widespread of English language (up to then

unknown). Finally, in late 1990s, engineering was reorganized passing from being product-

based to being function-based.

“In Nuovo Pignone, engineering was not functionalized. GE had another model

consisting in one function able to follow multiple product lines in an integrated

manner. Shifting towards a functionalized organization has been an huge change

since it allowed us to to become more integrated, speaking the same language: we

had the same processes, the same programs, and our level of learning speeded

up”, adfirms Nicola Marcucci.

The rhythm integration phase distinguishes two moments: a first characterized by

corporate growth (2000-2012) and a second one that see the reconfiguration at organizational

level and a sustained growth moment (2012-today). For what concerns the corporate growth,

Nuovo Pignone saw a phase where processes became more formalized. In particular it

assisted at a deeper exchange of knowledge with General Electric divisions. For example,

technology councils, a session in which Oil & Gas, Power & Water and Aviation chiefs

engineers discuss and confront themselves in terms of knoweldge, and existing and future

technologies, were introduced. This approach has guaranteed that along time Nuovo Pignone’

engineers acquire familiarity with competences and knowledge developed by the seven GE

Global Research Center (GRCs), that today have more than 30000 researchers and represent

an endless source of ideas and resources. It merits to note how IP is managed. General

Electric stresses the need to codify as much as possible technologies and processes. Although

55

the ownership of the IP belongs to the legal division that innovate, its use is open to all the

other businesses of GE. Formalization of knowledge transfer mechanisms occurs through the

description of the results with engineering and validation reports and the description of best

practices (obviously accessible with encryption limited to professional internal, based on

clearance levels). Only if necessary, technology transfer is associated with a transfer of

people. As Nicola Marcucci notes: "We have to teach the process to others, do not transfer a

person familiar with the process." It's easy to understand how for a company of the size of

General Electric is important to address in a very rational and systematic way the internal

transfer of staff, with clear benchmarks, objectives, and in accordance with the professional

development of individuals. When and why it is necessary to transfer must be determined on

the basis of a number of issues, primarily to ensure technology transfer that preserves the

continuity of operations. Then, General Electric has intervened for facilitating human resource

development. In 2001 it created the Florence Learning Center, then in 2005 the Oil & Gas

University, and more recently the Field Service Academy and the Sales 3.0.

The latter phase (2012-now) has been characterized by a reconfiguration of

organization in order to better delineate the role and responsibilities of the various merged

companies and to pursue flexibility and speed. As said, after 2000 Nuovo Pignone began a

growth that was focused on strengthening the core technology and reinforce the position in oil

and gas sector. During 2000s, we assisted to a series of acquisition that culminated with the

acquisition of VetcoGray in 2006. The inorganic growth required to General Electric to

reconfigure all the companies that rotated around the oil and gas sector. Table 2 describes the

present structure. In this case we have not assisted to a formalization of processes, rather to a

redefinition of roles and areas of activities that were previously too fragmented. The new

organization might allow to a better division of roles, the reduced replication of activities and

the rise of new synergies. Moreover, General Electric is now trying to simplify its processes

for spurring innovation. The concept of fast works, i.e. quickly verifying whether an idea is

promising or not in order to fasten its development, has been introduced.

More in general, the introduction of processes along these twenty years has allowed

the introduction of a new common language, a sort of common grammar that enable the

dialog not only within Nuovo Pignone, but also between Nuovo Pignone and all the others

business units. The watchwords now are expansion, extension, growth and market

penetration, even if they are still accompanied by creativity and innovation, keywords that

have characterized Nuovo Pignone since its birth.

56

5.3 The cultural bridgers

The third important element in the shift of the business model is linked with the role of some

people that have facilitate the introduction and then the growing centrality of service.

Previous literature has looked at the role of culture in post acquisition (Angwin & Meadows,

2009; Barkema et al., 1996; Birkinshaw et al., 2000; Bjorkman et al., 2007; Thomson &

Mcnamara, 2002). In analysing the Nuovo Pignone case we see thatcultural barriers were at

two levels: first at human/individual level and then at business level.

Italian and American cultures were different in that the former is more creative

oriented, more ‘relaxed’, less careful at practices, codification and dissemination of individual

knowledge, while the latter is more efficiency-oriented, used to work per tasks and processes.

Then, linguistic problems were present at the very beginning and this prevented the transfer of

knowledge and communication in general. At the beginning, only 5% of Nuovo Pignone’s

employees spoke English. One manoeuvre that General Electric made, was to select Italian,

competent Nuovo Pignone’s people who spoke English and put them in relevant positions.

This would facilitate the communication between the very top American management and the

lower lines in the company. Claudi Santiago himself speaks Italian, and this was appreciated

by employees.

The issue of the possibility of losing creativity was one of the main concerns of Paolo

Fresco who, leveraging on his influence on Jack Welch, convinced him to treat the Italian

company as something special:

“Paolo Fresco said to Welch: ‘Those of Nuovo Pignone are a tribe, not an

organized group, but this tribe succeeds in doing amazing things. Communication

is fast, based on shared values. It has rules that works. Do not disturb them!’”,

remembers Giovanni Bucaneve.

In practice, as already anticipated, what Fresco was able to do was to leave the Italian

management at operational and technical levels, while substituting the Italian CEO with an

American one, John Blaystone. This choice give sense to Nuovo Pignone’s employees who

perceived a ‘collaborative’ will, rather than a colonization aim, by the American company.

The second dimension, i.e. culture at organizational level, is linked with the cognitive

problems that might prevented the shift from Nuovo Pignone business model, led by a

manufacturing culture that focuses on crafting products, creating the highest performant and

the customized compressor, to a new business model more service oriented. This shift was not

easy since it required a rethinking of the organizational beliefs. Claudi Santiago understood

57

that for changing Nuovo Pignone’s manufacturing mindset a forced top down strategic re-

orientation towards service would not have been effective, but damaging. In fact, as Giovanni

Bucaneve says, “If someone had said us ‘You must do that because Welch has said that’, it

would never worked”. Henceforth, Santiago realized the need of a ‘translator’ who was not

only reliable at the eyes of Nuovo Pignone’s engineers, but also capable of understanding the

potential value hidden in service provision. He found this translator in the person of the

engineer Pierluigi Ferrara, who espoused the cause of service reorientation looking at it as a

source of profits to be reinvested in the implementation of products.

Acting in this way, the integration among the two companies, as well as the transition

from one business model to another, were perceived as not imposed but shared. “You need a

continuous effort to understand that there are different mentalities, different cultures. You

need to understand the culture of others and to build bridges between cultures”, says Paolo

Fresco. And that was he did.


The importance of managing and innovating business model over time in order to fuel success

has been recognized by literature. Although some studies exist on barriers to business model

innovation (Chesbrough 2010; Chesbrough and Appleyard 2007), as well as some cases have

been described in order to clarify how firms may face them (Achtenhagen, Melin, and Naldi

2013; Sosna, Trevinyo-Rodríguez, and Velamuri 2010; Markides 2013), to the best of our

knowledge, no research exist on the processes and capabilities underlying business model

innovation that occurred after an acquisition.

This paper introduces two main contributions. The first one refers to the phases that

occurred in the transition from a manufacturing-based to a service-oriented business model.

Previous literature has distinguishes processes in business model evolution and

internationalization (Dunford et al., 2010) and business model innovation in general (Sosna et

al., 2010). Nonetheless, the former contributions has not distinguished processes occurred in

the shift from a manufacturing to a service-oriented business model. Our analysis depicts the

four phases of recognition, addition, transition and conversion. Since we relied on a single

case study, we suggest that further research would add evidence on them. The second

contribution lies on the identification of successful factors that have accompanied this shift

and that are linked to the acquisition phenomenon. Extant research identifies creative culture

and leadership unity as important (Doz and Kosonen, 2010) as well as it depicts the organic

58

growth as a mean in helping business model dynamics (Achtenhagen et al., 2013). Our

analysis contributes to previous findings via stressing that the successful business model

innovation shift has been possible due to three factors. First, the existing technology base that

was previously underexplored due to the cognitive barrier typical of manufacturing companies

towards services. We advance that not only a balanced way of using resources (Achtenhagen

et al., 2013) nor possessing resource fluidity (Doz and Kosonen, 2010), but also the capability

of disclose and focus on the core technology of the company is important. This is in line with

the resource-based view of the firm (Barney, 1991). Second, the introduction of processes and

the codification of existing knowledge may happen at both human and not human levels at

two different speeds. In particular, the acquiring company has been able to introduce first

gradually, and then more quickly, its processes in order to create a common grammar base on

which build a dialogue within the company (that presented two different cultures) and

between the other divisions. Building a common grammar via which communicate is a long

process that requires not only human factors, but also the gradual codification of routines and

practices via which an acquired company is able to align to the acquiring one. Finally, the

identification of key persons that have enabled the change of the manufacturing mindset.

Beyond the owner-manager role that previous literature identified (Sosna, Trevinyo-

Rodríguez, and Velamuri 2010), our analysis shows that acquired managers have an important

role in business model transition, beyond the role identified in previous literature (Graebner,

2004).

This study presents two main limitations. First, data have been collected in a short

period of time. Ideally we might have been able to conduct a longitudinal case study over the

last 20 years. However, as the reader may expected, this is very difficult in practice. This

limitation is circumscribed by the fact that we were able to interview many persons that have

followed the acquisition and post-acquisition phases. Second, case study design requires a

certain level of subjectivity in the data analysis process and this subjectivity may lead to bias.

We suggest that further research is needed in order to provide more evidence supporting our

findings.

59

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62

APPENDIX I

INTERVIEWEED RUOLO

Baccani, Roberto General Manager Engineering, Downstream Technology Solutions

Beccalli, Ferdinando President & CEO, GE Europe & Germany

Bucaneve, Giovanni Global Service Regionalization Leader (fino al 2014)

Ciatti, Guido Executive Services, Turbomachinery Solutions

Colangelo, Mario Executive Global Accounts/ Eni Group

Fresco, Paolo Vice President General Electric International (1987 – 1998)

Giardi, Claudio RSU e Membro dell’esecutivo per FIOM-CGIL

Lazzarini, Luciano Responsabile UIL

Lussu, Lucio Presidente Nuovo Pignone (1993- 1999)

Marcucci, Nicola General Manager Advanced Technology

Marrani, Davide General Manager Manufacturing, Turbomachinery Solutions

Materazzi, Claudio Presidente Nuovo Pignone (2007- 2012)

Matucci, Alberto Executive General Manager, Global Projects and Quality

Messeri, Massimo Presidente Nuovo Pignone (in carica dal 2011)

Moffat, Jane Victoria Executive Legal Counsel, Turbomachinery Solutions

Noccioni, Paolo General Manager Engineering, Turbomachinery Solutions

Pulidori, Paola Executive Financial Controller, Turbomachinery Solutions

Ruggeri, Paolo General Manager Upgrades and Industrial Applications, Turbomachinery Solutions

Salvadori, Piero Presidente Nuovo Pignone (2004- 2007)

Santiago, Claudi CEO (1999-2011)

Sferruzza, Maria General Manager Contractual and Maintenance Services, Turbomachinery Solutions

Stangarone, Michele General Manager Commercial, Turbomachinery Solutions

Tarallo, Rosario Membro Segreteria Prov.le FIM-CISL, ex RSU esecutivo FIM CISL

Tesei, Alberto General Manager Technology Commercialization (1967- 2010)

Zeloni, Simone Director of development and industrial relations

Table 2. List of interviewed persons

63

Chapter 3

BUSINESS MODEL INNOVATION AND OPEN INNOVATION IN

SMEs: THE CASE OF OPEN TERRITORIAL LAB5

ELENA CASPRINI


ALBERTO DI MININ


ADREA PICCALUGA


How an SME may innovate its business model and compete at a global level? This paper

provides an in depth case study on the Loccioni Group, a high tech Italian SME company

that has been able to introduce a new business model, the ‘open territorial lab’ business

model, building on its technological expertise, its relational capital and the codification of its

innovation process. After the description of how the company has been able to formalize its

innovation process, we analyse the open territorial lab business model defined as a business

model characterized by the co-existence of multiple revenues models, the engagement of

customers and stakeholders in the value creation mechanisms, and a networked value chain.

We describe its implementation in the case of the Leaf Community, a territorial linked

project but replicable at global level in facing the smart city challenge.

KEYWORDS: business model innovation; codification; open innovation; SMEs

1. Introduction

As Chesbrough (2003) notes, a mediocre technology pursued within a great business model

may be more valuable than a great technology in a mediocre business model (p. 64). The

Open Innovation paradigm is forcing new as well as established companies to innovate

existing business models since technological innovation, by itself, is not enough for assuring a

company’s success. In this scenario, companies are pursuing open strategies, developing new

business models based on invention and coordination undertaken within a community of

innovators (Chesbrough & Appleyard 2007:58). Innovation in fact may occur within, between

and outside companies’ boundaries and this is important for both big companies and SMEs.

Among the various topics innovation and technology management literature is looking

at, that of business model innovation has attracted increasing attention. Business model

5 We would like to thank prof. Federico Frattini, Politecnico di Milano (Milano, Italy).

64

innovation refers to the search for new logics of the firm and new ways to create and capture

value for its stakeholders; it focuses primarily on finding new ways to generate revenues and

define value propositions for customers, suppliers, and partners (Casadesus-Masanell & Zhu,

2013: 464). Innovation in the business model may require a redefinition of the value

proposition, a reconfiguration of existing activities and organizational structure, a change in

the cost structure and revenue model (Demil & Lecocq, 2010; Teece, 2010) and they may be

difficult to implement, especially in established companies. Contrary to new ventures, in fact,

established firms have to face cognitive traps linked, for example, with an already profitable

business model (Chesbrough 2006). Extant research on business model innovation in

established companies has looked at interaction among components (Demil & Lecocq, 2010),

integration of ICTs in existent business models (Björkdahl, 2009), the trial and error learning

process that is behind the business model innovation (Sosna et al., 2010) and specific

capabilities required (Achtenhagen et al., 2013; Andries et al., 2013). However, how an SME

is able to introduce a new business model while not cannibalizing existing ones has not well

developed (Velu & Stiles, 2013).

This paper focuses on how the Loccioni Group, a high tech medium-sized established

company, has been able to introduce a new business model, the open territorial lab business

model. Exploring and exploiting its deep technological expertise and broad relational capital

and using a roadmap for innovation where the company has codified its innovation process,

Loccioni Group has recently launched the Leaf Community project, which model is

replicable. For this project, Loccioni has developed a new business model characterized by

the co-existence of multiple revenues models, the engagement of customers and stakeholders

in the value creation mechanisms, and a networked value chain.

The structure of the paper is as follows. The next section briefly review the relevant

literature on open innovation in SMEs and business model innovation in established firms.

Then the research method and the firm under study are presented. The fourth section analyzes

the case study, describing the roadmap for innovation. Then, we present the case of Leaf

Community and explain how the open territorial lab business model works. Finally, section

Five summarizes our main contributions and findings and discusses implications for

researchers and managers.

65

2. Literature review

This section provides an overview of the two relevant literature streams used in the paper,

namely open innovation in SMEs and business model innovation in established companies.

Box 1. THE NEW CHALLENGE OF SMART CITIES

By 2050, the urban population will almost double, increasing from approximately 3.4 billion in 2009 to 6.4

billion (WHO, 2014)1. Clever solutions are needed in order to allow citites to thrive. These solutions may refer

to the six main dimensions of economy, mobility, environmet, people, living and governance that, according to

the Centre of Regional Science at Vienna University of Technology, represent the axes along which the

smartness of a city should be measured. In effect, these dimensions reflect theories of “regional

competitiveness, transport and ICT economics, natural resources, human and social capital, quality of life, and

the participation of society members in cities” (Caragliu, Del Bo, & Nijkamp, 2011) and shed light on the

interconnections between growth, management of natural resources, infrastructure, quality of life and

involvement of people in governance mechanisms.

Due to its multisides, the smart city concept is attracting attention from many fields of research. For

examples, political economists are focusing more on the growth effects of human capital that is attracted and

retained by cities (Shapiro, 2006; Winters, 2011). Urban studies theorists look for the rising of a creative class

(Florida 2002). Engineering contributions are primarily about the use of technology in enabling new urban

sensing and management opportunities (Cardone et al., 2013). From its side, innovation and technology

management literature has only recently begun to use the term ‘smart city’, since most of the papers have

looked at specific topics related to how the adoption of an environmental sustainable perspective (one of the

main pillar of smart city concept) may affect a company’s competitiveness (Preston, 2001). More recently, the

advancement of ICTs and the so called Internt of Things are opening new frontiers for all, cities, companies and

individuals. Cities and companies may get access to a large amount of data, previously not possible. Data

management has been applied also in non-industrial environments, aiming at monitoring and measuring many

aspect of daily life, from healthcare to traffic jam.

Network infrastructures and Internet-based applications are now enabling new innovative strategies,

connecting people, institutions and companies in unprecedent impossible ways (Bakıcı, Almirall, & Wareham,

2012; Komninos, Pallot, & Schaffers, 2013; Schaffers, Komninos, Pallot, Trousse, & Oliveira, 2011).

Collaborative solutions are used in companies that, for example, adopt more user centric business models

(Hienerth et al., 2011) or recur at crowdsourcing via outsourcing a task (Bogers & West, 2012), but

collaborative solutions are also implemented by scientific research via crow science (Franzoni & Sauermann,

2014b). More recently, some scholars have also noted that collaborative research may be pursued by cities that

may adopt open innovation (Almirall, Lee, & Majchrzak, 2014) and they suggest that companies may learn

from civic open innovation. Hence, communities that arise around specific projects for environmentally

sustainable solutions and social solutions are configuring as important source of innovation.

Collaborations and interactions are necessary for speeding up the process of “smart citization”. Extant research

has focused, for example, on sustainable entrepreneurial ecosystems where start up contribute to the

development of a more sustainable society, such as the Sustainable Valley Group in Springfiled, VT, or the

sustainable entrepreneurial valley of Victoria, BC (Cohen 2006). These ecosystems are characterized by formal

and informal networks made up by governement, universitites, large firms, technological parks that are able to

feed the birth of environmentally-oriented start ups. Other examples come from big companies that have

launched projects and made partnerships with institutions for proposing smart solutions. For example, General

Electric has teamed up with San Diego city and University of California - San Diego for electrical vehicles.

IBM that has launched the Smarter Planet project. Intel will use London as a testbed exploiting users and the

city infrastructure for improving city efficiency (Cardone et al., 2013). These companies are using cities as

labs, co-creating value with municipality, citizens and other actors. Moreover, they focus on specific aspects of

the smart city environment such as mobility (e.g General Electric), big data analysis (e.g Intel), communication

solutions (e.g. Siemens). However, interesting insights may derive also from smaller players that, taking

advantage from open innovation strategies, are implementing collaborative business models using not the city

but their local territory for creating and testing their technological solutions.

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2.1 Open innovation: from big companies to SMEs

In the last few years, it has become clear that R&D investments, intellectual property rights,

investments in marketing campaigns and critical resources ownership, are no more enough

neither in assuring product/service innovation nor in speeding up the innovation process. The

rationale behind this is that knowledge, as well as talented employees, are widespread

worldwide, patents are more difficult to implement, imitation is generally easier than before,

technological innovation is faster and companies often lack the resources necessary for

exploring and exploiting opportunities (Chesbrough, 2003, 2006). The open innovation

paradigm, defined as the use of purposive inflows and outflows of knoweldge to accelerate

internal innovation, and expand markets for external use of innovation, respectively

(Chesbrough, Vanhaverbeke and West, 2006:1), has been introduced as a way to overcome

these constraints.

First studies on open innovation concerned well known examples. Big, multinational

companies such as General Electric (Chesbrough, 2012), LEGO (Hienerth et al., 2011), FIAT

(Di Minin, Frattini, & Piccaluga, 2010), Procter & Gamble (Huston & Sakkab, 2006),

Genetech, Amgen and Gilead Sciences (Bianchi, Cavaliere, Chiaroni, Frattini, & Chiesa,

2011) have been described by literature as cases that are adopting the open innovation

paradigm (Mortara & Minshall, 2011). Up to a few years ago, in fact, open innovation

literature obtained scant attention to SMEs for three main reasons (Lee et al. 2010). First,

SMEs are less able to access external resources and possess fewer technological assets than

larger firms. Second, SMEs use non-internal means of innovation such as alliances and

networks more than bigger firms. Finally, SMEs tend to use external sources in the later

stages of innovation. However, a call for research on open innovation on SMEs has been

launched (Brunswiker and van de Vrande, 2014; van de Vrande, de Jong, Vanhaverbeke, &

de Rochemont, 2009). Existing contributions on SMEs focus on the one hand on the type of

open innovation practices implemented and on the other hand on the role of SMEs as

intermediaries.

In the first strand of literature, it is pointed out that SMEs recur to external sources in

the later stages of innovation process rather than in the early ones since they use external

sources for reaching marketing and sales channels (van de Vrande et al. 2009; Lee et al.

2010). Bianchi, Cavaliere, Chiaroni, Frattini, & Chiesa (2011), for example, analyse the

organizational models of bio-pharmaceutical firms that open up their innovation process along

the phases of drug discovery and development process. They find that inbound OI takes place

mainly in the first three phases, namely target identification and validation, lead identification

67

and optimisation, and pre-clinical tests. On the other hand, outbound OI is more frequent

during clinical tests and post-approval activities. However, other empirical studies show that

outward and inward licensing of IP are still scant in SMEs (van de Vrande et al., 2009).

The second path of research analyzed the role of SMEs as intermediaries.

Collaborative innovation processes may be implemented by companies such Innocentive,

NineSigma and Yet2.com that link technology demands to technology offerts (Katzy, Turgut,

Holzmann, & Sailer, 2013; Rass, Dumbach, Danzinger, Bullinger, & Moeslein, 2013). For

example, since 2001 Innocentive crowdsources innovation solutions from the world’s

smartest people, who compete to provide ideas and solutions to important business, social,

policy, scientific and technical challenge (www.innocentive.com).

Innovation intermediaries, however, put in contact demand and offer rather than being

directly involved in the innovation process. In coordinating innovation processes between

multiple actors, in fact, SMEs has to face with transaction costs arising from coordination and

control costs (Berchicci, 2013; Dahlander & Gann, 2010; Nieto & Santamaría, 2010).

However, as Lee et al. (2010) note in their study, in multi-firm networks the role of an

intermediary is important since it carries out three direct activities. First, it collects

information on technologies, markets and competitors. Second, it helps network construction

by supporting technology transfer to improve strategic technology management. Then, it

manages the network. Finally, the intermediary conducts also two indirect activities, namely it

develops the culture of collaboration and facilitates the collaboration.

The role of an SME as a iungens and the focal actors during innovation processes that

involve multiple companies is henceforth scant.


A business model is a strategic choice via which a company chooses the logic of the firm, the

way it operates and how it creates value for its stakeholders (Baden-Fuller & Haefliger, 2013;

Casadesus-Masanell & Ricart, 2010; Chesbrough, 2002). Several business model components

have been identified in the literature. According to Chesbrough (2006), a business model is

characterized by the articulation of the value proposition, the identification of a market

segment, the definition of the structure of the firm’s value chain, the specification of the

revenue generation mechanisms, the description of the position of the firm within the value

network and the formulation of the competitive strategy. These elements have been adopted

also by Teece (2010) who stresses the fact that the notion of a business model refers in the

first instance to a conceptual, rather than a financial, model of business (2010:173). More

http://www.innocentive.com/

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recently, Baden-Fuller & Haefliger (2013) identify four dimensions of the business model,

namely the customer identification, the customer engagement, the value delivery and the

monetization. Similar to Teece (2010), also according to these authors, a business model is

not only the statement of economic linkages, but also a cognitive device that shapes a

technology evolution.

Business models are dynamic (Demil & Lecocq, 2010) and morph as changing

markets, technologies and legal structures (Björkdahl, 2009; Sosna et al., 2010; Teece, 2010).

Beyond these exogenous factors, there are also endogenous factors that make business models

change. Among them, attention has been given to the adoption of the Open innovation

paradigm by companies.

The Open Innovation paradigm (Chesbrough 2003) has forced companies to think

about at the reformulation of their business models, or the creation of completely new ones.

The permeability of the company’s boundaries (Chesbrough 2003), in fact, is a business

model choice (Baden-Fuller & Haefliger, 2013). New actors may be involved in the value

chain linkages as well as in the monetization or revenue model dimension, and in particular,

in the customer engagement. User-centric business models have been implemented by

companies such as Lego and Coloplast (Hienerth et al., 2011), or open business models are

run by companies such as Procter & Gamble and IBM (Chesbrough, 2006) via a new

management of their IP. Adopting the open innovation paradigm is becoming now an

imperative for most of the companies, but this requires an innovation of the existing business

models in established companies.

In innovating its business model, an established company passes through more or less

long phases of experimentation. Changing a business model is in fact a strategic choice that

requires to analyze components, interactions among components and possible consequences

of alternative business model designs (Casadesus-Masanell & Ricart, 2010). The process

underlying business model innovation is characterized by trial and error learning (Sosna et al.,

2010). During this phases of experimentation, companies may change the existing business

model in a more or less radical way. There are also cases where a company can

simultaneously run multiple business models. Velu & Stiles (2013), for example, analyze the

case of a bank that integrate two differently configured models that serve the same customers

simultaneously. Casadesus-Masanell & Tarzijàn, (2012) describe the case of LAN airline that

is running three business models at the same time targeting different markets.

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Despite the fact that the identification of open innovation as a driver of business model

innovation has been highly cited, research is scant in describing new business models based

on it. Linking open innovation in SMEs and business model innovation in established

companies, our aim is to analyze how an SME has been able to develop a new business model

leveraging on its technological expertise, its relational capital and its open innovation

processes.

3. Research Method

3.1 Case study analysis

We adopt a case analysis as the research methodology (Yin, 2003). Yin (1981, 2003) argues

that a case analysis is the right approach when the objective is to understand a contemporary

phenomenon whose boundaries from the real life context are not evident. In particular, case

analysis is a very good strategy when the researcher has not control over the events and wants

to investigate the how and why about a certain phenomenon. Overall, the purpose of case

study research is not that of theory generation, but rather that of theory development, in order

to theorize and improve existing theory. In fact, despite the many critiques moved to the

adoption of a single case study, such design allows greater depth and a richer understanding

of the phenomenon under investigation. Unlike multiple case analysis (Eisenhardt, 1989;

Eisenhardt and Graebler, 2007), whose aim is to build theory from cases, the three main uses

of a single case research have been identified in motivation, inspiration and illustration

(Siggelkow, 2007).

In this paper, we adopted a single case study design (Yin, 2003; Stake 2005) for

presenting a complete description of a phenomenon within its context and shedding light on a

new, under-researched topic, i.e. how an SME has been able to build a new business model

leveraging on its technological expertise, its relational capital and its open innovation

processes.

3.2 Research setting

The case company, Loccioni, is a family firm established in 1968 in the Marche region in

Central Italy, known both nationally and internationally for its high-tech activities in the field

of measurement. This company has excelled soon. The founder and current owner, Enrico

Loccioni, began to collaborate with local actors since the beginning. Among the first clients,

the relationship with Merloni company, a big national (and neightborough) company. Enrico

70

Loccioni built the company taking inspiration from the ‘social company’ spurred by Adriano

Olivetti, at that time producer of writing mechanical machines and precursors of computers.

The idea taken from Olivetti was to build a company where people can learn from each other,

knowledge can flow freely, and spaces may be designed to spur innovation. Cross-fertilization

has been the rule.

Since its beginning, Loccioni’s entrepreneurial model has been based on knowledge

development and people professional growth, recognizing the territory and its actors as the

main engine for the firm’s development, creativity and competitiveness.

With more than 300 employees, the firm is today a global high-tech solution provider for

some of the world’s largest high-tech companies, such as Continental, Magneti Marelli,

Whirlpool, Bosch, etc. In the last five years, the company’s turnover has increased by 30%

and its employees, whom Enrico Loccioni prefers to call collaborators, with an average age of

32, increased by 20%. The company has reached a turnover of 65 million of euro, of which

almost 40 derive from exports.

Despite its relevance at international level and its physical presence in countries such as U.S.

and Germany, the company is successful in maintaining its original values and culture that the

company summarizes in the keywords of Energy, Responsibility, Imagination and

Tradinnovation. These are described in Table 1.

Value Description

Energy is putting a great deal of enthusiasm, passion, initiative, courage, motivation in the things

we do; energy is the highest expression of doing; it is the fundamental value at the base of

every knowledge company where there are no products to realize but projects to imagine

and dreams to fulfil

Responsibility is living the present with the awareness that every action we do has consequences on the

future. It means respecting the environment and the people living on it, personally taking

the trust offered upon ourselves (by clients, suppliers, collaborators). It is the ability to

respond and therefore welcome, with generosity, honesty, integrity

Imagination is having the ability to dream, watching with big eyes, asking ourselves useful questions to

get to the realization of the dream imagined. Knowing how to dream is to be co-creators,

participating to the construction of the future rather than being subjected to it. Capable of

imaging is whoever has the right curiosity, openness, creativity to make his work and his

life a coming of unique events, continuous occasions to grow even if still young

Tradinnovation Combines the value of tradition, of the rural culture we come from, of the experience and

innovation use and listening, of the incentive to be launched in the future, of continuously

innovating. It is the arrow which once strongly shot, it can reach the furthest places. It is

recovering the base cultural values, the ancient wisdom which leads to live innovation as

behaviour, towards the territory, the people, the organization, the technology

Table 1. Values in Loccioni Group (source: Loccioni Group)

Hence, individual motivation, passion and enthusiasm for the job, team building practices,

attention for the environment, socio-cultural values and traditions are the principles which still

guide the firm.

71

Step by step, Loccioni Group grew up, implementing collaborations with universities and

local schools, as well as involving global leading firms in its innovation processes. Global

leading clients have always been important for the Group, that has established relationships

with companies like Magneti Marelli, Whirlpool and Samsung. To date, the company presents

multiple business modelsbuilt over its traditional pillars of technological excellence and

relational capital, that have been enhanced by the formalization of its open innovation

processes.

Our research team has consolidated relationships with the company since 2007.

During these 7 years, it had the opportunity to look at the how the company has balanced its

technological exploration and exploitation needs and how it has introduced different business

models.

3.3 Data collection

Although data has been collected between May 2012 and July 2014 by our research group

made up by three academics expert in open innovation, we have been more or less involved in

the company’s evolution since the last 7 years, during which we had the chance to assist at

allthe re-organization of the R&D structure, the definition of the scope of RforI (the long term

R&D function) and the development of specific projects, such as The Leaf Community: 2Km

of Future®. All of us participated to working groups, had the possibility to interview several

people, collect data and have informal meetings and talks (details are provided in Table 2).

SOURCE TYPE TYPE OF DATA USE IN THE ANALYSIS

Archives Company-related documents.

Internal presentations, social

balance, projects sheets, websites,

newspaper articles, flyers, etc.

Familiarize with the organizational

context and triangulate evidence

from other sources.

Interviews 24 Interview, one of which with the

responsible of RforI and 23 with

R&D, BUs and cross-functional

collaborators

Familiarize, investigate and

improve the understanding of the

business model, with particular

focus on how the open innovation

paradigm may be better integrated

in the business model.

Field notes from meetings (4

meetings). Written notes and

recordings.

Collect feedbacks about the

existing problems, sharing possible

solutions, etc.

Others Informal conversations. Informal

talks with the owner, managers and

engineers during lunch and coffee

breaks.

Gain trust of informants, clarify

uncertainties.

Table 2. Data sources (source: authors)

72

Interviews represent the primary data source. We conducted a total of 24 interviews to

managers, researchers and marketing people in order to understand how the company creates

value, which are the main resources, competences, technologies, how open innovation

processes are pursued, how knowledge flows, which have been the main changes occurred,

their main drivers and their implications. We were present for five full interviews, while only

one of us was present at the remaining interviews. Initial interviews were very long and more

unstructured, but subsequent interviews became shorter and more structured since a general

understanding emerged.

All the interviews were recorded and transcribed during the same day or the day after

the interview in order to improve the understanding of what was going on. Interviews lasted

between 30 and 150 minutes. Moreover, we collected observations and documentation data,

such as organizational charts and sketches provided by the interviewees during the interviews

or later, and these materials served as supplementary sources for understanding the

organization and how it is changed over the time.

Moreover, we participated as observers to a series of internal meetings conducted

between October and December 2012 among top managers and RforI’s responsible and also

some broader meetings open to all the collaborators. These last meetings were conducted to

share and collect ideas and feedbacks about problems and potential solutions.

Furthermore, we had informal conversations with many managers and had access to

internal documents, in order to achieve a higher level of accuracy and gather additional

information. Finally, we looked at 32 press released appeared in national newspaper and we

watched and transcribed 5 video-interviews and documentaries appeared on national TV

channels about the Leaf Community project.

4. Case analysis

The story of the company dates back to almost fifty years ago. At its early beginning, Enrico

Loccioni, who previously worked as an electrician, centered the company around industrial

electric plant engineering. The first big client arrived in 1970s for Merloni. Merloni was one

of the biggest realities in the Marche region and in Italy and it produced home appliances.

Loccioni worked not only for, but also with him. At that time, Merloni was among the first to

identify and pursue the passage from the quantity to the quality of the product and started with

Loccioni to analyze the new possibilities offered by the market in terms of quality control

73

challenge. In few years, Loccioni was able to team up a group of young people who began to

work on home appliance and car components testing. Soon, the company began to work for

leading companies also at international level and to develop tailored technologies for them.

Initially, the business model chosen by Loccioni was characterized by tailored high

tech productive processes automation technologies that were mainly developed in-house,

following specific clients’ requests, and commercialized directly to them. The markets were

represented by home appliances players (from laundry and dishwashing to refrigeration and

air conditioning) and car manufacturers.

In 2014, the scenario is different. We are in fact in front of a company with five

business units, multiple field domains that span from vibration to chemistry, an average

growth rate of xxxx in the last # years. How did it happen? The answer resides in how the

company has been able to manage the technological expertise, the relational capital and the

open innovation paradigm, that has been formalized through a roadmap for innovation.

Since its birth, the company was clearly built upon two main resources: its technological

expertise and its relational capital. Loccioni began with electrical and mechanical domains

knowledge, but it soon start to develop new ones such as the fluidodynamics and vibration.

The core capability of Loccioni Group was in measurement and testing, still present in

all Loccioni’s business units. Nonetheless,new capabilities such as data management have

been developed. Most of the innovations introduced have been competence enhancing rather

than competence destroying innovations are turn around the measurement capability.

In order to access lacking capabilities, Loccioni has often leveraged on its relational

capital. Relational capital is one of the dimensions of a wider concept in the management

literature, that of social capital (Nahapiet & Ghoshal, 1998). Relational capital has been

defined as the set of all relationships – market relationships, power relationships and

cooperation – established between firms, institutions and people that stem from a strong sense

of belonging and a highly developed capacity of cooperation typical of culturally similar

people and institutions (Capello and Faggian 2005:77). Loccioni has a very high relational

capital built over its story. The Loccioni case shows that relational capital has been used by

the company for three main purposes: as a source of financial resources (very important at the

beginning), as a source of human resources, and as a mean for innovation diffusion (as in the

Fileni case). Especially at the beginning of Loccioni company, Enrico Loccioni was able to

use his name and personal relationships to raise money for his business. Trust, built first over

personal relationships and later on professional relationships, played a fundamental role in

that. Second, an high relational capital has been built thanks to the attention that Loccioni has

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had for the surrounding territory. The company has in fact cultivated relationships with local

schools and regional universities, and to date it collaborates with many national and

international universities and research centers. A virtuous cycle has been created around

attention to territory, involvement of local people and generation of potential future

collaborators for the company. Finally, relational capital has helped in the diffusion of

innovation (an example is descripted in Box 2).

Nonetheless, technology expertise and relational capital by themselves were not

enough in assuring a proper exploration and exploitation of all Loccioni potential. Actually,

when Enrico Loccioni and others top managers came up with Chesbrough (2003)’s book in

the mid 2000s, they realized that although they had already adopted the Open Innovation

paradigm since the beginning, the company needed something more structured. The company

needed to rethink its innovation process, to look at how to exploit current technologies and

explore new ones, and to understand better which business models may be implemented, and

when.

4.1 Formalize the open innovation paradigm in a born open company

In the late 2000s, Enrico Loccioni with his core collaborators, began to recognize that in

Loccioni something was missing. The revenues were still rising, the number of employees

was still increasing, the brand name was diffusing worldwide. However, part of the top

management team, namely Enrico Loccioni (founder and owner), Renzo Libenzi (General

Manager), Gino Romiti (R&D Director) and Cristina Cristalli (Innovation Manager of RforI),

had concerns about the the threat of missing future opportunities.

Loccioni was more inventive than innovative. New ideas were in fact generated quite easily

due to the increasing fields of applications, number of clients, number of universities and

research centers the company was entering in contact with. Many of them, however, were

remaining ‘on the shelves’ or in the minds of those collegues who exchanged ideas during

informal talks in front of the coffee machine. Moreover, the knowledge of the whole portfolio

of available technologies and individual knowledge was not widespread. There was a loss of

value due to the lack of exploitation of existing technologies and the exploration of new ones.

4.2 Rethinking the innovation process

Analyzing the process retrospectively, we are able to distinguish 4 main phases that have

accompanied the reformulation of the innovation process and led Loccioni Group to the

implementation of an open territorial lab business model. These phases concern (1) the

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understanding of the ongoing innovation process; (2) the assessment and sharing of the

problems among the company; (3) the formulation of the tools needed for overcoming the

problems identified; and ends with (4) the remapping of the whole innovation process in

terms of its R&D and commercialization phases.

How do we innovate?

At the beginning of 2012 the Group was organized in five business units, namely Home,

Energy, Environment, Mobility, Humancare, each one with its own R&D. Moreover, a cross-

functional unit, SUMMA, born in 1992, collected different transversal competencies, from

marketing people, to human resources, to a growing group of researchers dedicated to create

new competence and business opportunities for the Group and European projects. This latter

group, composed by 15 persons and named Research for Innovation (RforI), was

characterized by many different competencies and owned very updated insights on new

researches since most of them had just finished their Ph.D.

RforI represented a sort of a tools box for the rest of R&D people in the business units,

in the sense that R&D people often asked the fuzzy front end of research (RforI) about the

feasibility of particular projects born with existing or new clients. Moreover, in the last three

years, many people from RforI were absorbed with their specific projects by different

business unit’s R&D, while in one case an ad hoc business unit (Humancare) was created.

Meanwhile, the top management begun to recognize the threat of under-exploiting the

potentialities of RforI, often complementary to those in the business units’ R&D and

sometimes capable of creating completely new markets. Table 3 summarizes the capabilities

present in Loccioni.

CAPABILITY DESCRIPTION

Measure and testing: monitoring,

testing and quality control

systems

Designing and manufacturing of systems for the monitoring, inspection and

quality control of products and processes, with scientific competencies on

every type of quantities (electrical, mechanical, fluido-dynamic, acoustic,

vibration, chemical, optic)

Automating: integrated solutions

for industrial automation

Productive and logistic systems monitoring and automation, data tracking

solutions, industrial information technology, automatic warehouse

management

Connecting: integrated solutions

for ICT

Networking and information technology systems, network design and

implementation

Energy: solutions for energy

rationalization, management and

saving

Integrated solutions for energy management, renewable energy production,

building automation

Service: solutions management

and updating

Maintenance, management and updating of all Loccioni and others’

technological solutions, offering measuring instruments and their calibration

Table 3. Capabilities in Loccioni Group (source: Loccioni Group)

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Which are the problems in our innovation process?

At the beginning of 2012, the management began to organize informal as well as more formal

meetings with the key actors involved in the innovation process in order to understand the

main problems of the Group. The questions where about how the interviewees saw RforI, how

RforI saw itself and the other functions and business units of Loccioni Group, what was

missing, what was functioning well. After almost one year of interviews, meetings,

discussions, the top management summarized the main points of concern: communication,

human resource management, project transfer practices, accountability of innovation activity,

a more structured way of ideas collection, the implementation of business development

processes, and a management of the so called ‘innovation memory’. These points were shared

with the company in one general meeting where the top management collected the insights

from the collaborators.

Which are the tools to be implemented?

The seven points aforementioned were ranked by managers and a wider group of people

(R&D people and the key responsibles in each business unit). Among them, two priorities

were highlighted: to improve the communication among RforI and the other BUs and to

improve the business development process. A group of people made up by the key persons of

R&D, Summa and other top managers worked on them and realized that the help of external

partners could contribute to the development of specific tools.

Communication was improved via an IT software (KiWI) aimed at collecting and

organizing information about competences, projects, interests, etc.; a new internal magazine

has been edited; several innovation workshops, i.e. specific days where all the collaborators

meet each other in order to share and integrate information have been organized; and an ad

hoc organizational space, the so called innovation room has been set up, where innovative

projects and individual ideas are shown. The company also developed a new tool, called

‘innovatelling’, i.e. a story telling practice about the life of (un)successful innovation.

In order to improve the development of long-term projects, a new ad hoc function,

Business Innovation, was created and located in Summa. Its main task is to select those

projects developed in RforI suitable for being exploited by either the existing business units or

by ad hoc new business unit or by licensing. Business Innovation function was configured as

a ‘business model innovation’ detector: everytime it is recognized that there is an

underexplored or underexploited technological opportunity, it is responsible for alerting the

top management about this deficit. However, several difficulties arose with respect to its

77

implementation. Who has to work in Businesss Innovation? How can select and manage

future technologies?

Following workshops, interviews and focus groups, it was decided to select

experienced marketing people for Business Innovation and to allow Business Innovation and

RforI to work together. Moreover, due to the strategic relevance, it was decided to support the

new function through a specific and highly qualified group composed by the company

founder and the top managers. This group, named Innovation Super Heroes (I.S.H.), has the

aim to evaluate the ideas and be the stage-gate actor of the technology and the respective

business model.

In order to do this, the I.S.H. meet on a monthly basis. Moreover, due to time

constraints and the difficulty of tracing each single innovative project, the I.S.H. are supported

by a professional called the process owner. The process owner is a Loccioni’s manager who

goes around all the business units and in RforI, in order to map each innovation along its life

cycle and make the I.S.H. updated about the whole projects.

How should the innovation process work?

In order to clarify how the new innovation process might work, the top management defined a

precise innovation map able to guide the development of new ideas. This innovation map is

depicted in Figure 1 and shows three possible scenarios. Once the idea is collected by the

process owner, it is evaluated on the basis of the competences present into the company.

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Figure 1. The new innovation process in Loccioni Group (source: authors)

In the first case, i.e. “I know I can do it today”, competences and knowledge necessary to

develop and exploit the new ideas are already possessed by the company. One of the Business

Units is able to develop the technology by itself (via its own R&D function) and to find it a

market (via its own business development function).

In the second case, i.e. “I know I will be able to do it in the future, not today”, the

BU’s R&D may evaluate to implement inbound processes or ask the other R&Ds for

complementing its lack of knowledge. Once verified the feasibility of the idea, the business

development may understand whether there are market, clients, etc..

Finally, in the third case we are in a scenario where “I cannot do it today, I don’t know

if I will be able to do it in the future”. The high uncertainty of this scenario, where completely

new opportunities and also threats reside, asks for the involvement of the I.S.H. that has to

1) “I know I can

do it today”. B.U.

2) “I know I will

be able to do it in

the future, not

today”

B.U.,

B.U.’s

R&D, B.D.

B.U.

RforI &

B.I.

3) “I cannot do it

today, and I don’t

know if I will be

able to do it in the

future”

I.S.H.

Process

Owner

B.U.’s

R&D

B.U.

New B.U.

Licensing

Spin off

Project

failure

B.U.

Inte

rnal

and

ex

tern

al s

ou

rces

of

idea

s

Lo

ccio

ni’

s P

roce

ss O

wn

er

79

decide about the future of the idea. In this situation, if they decide to develop the idea, they

pass it to RforI and B.I.. RforI carries on the idea at a technical level (looking, if necessary, at

external technologies suppliers), while B.I. looks at the best way of developing it. B.I. can

chose among delivery the idea to a specific B.U., to transfer it to an existent R&D, to create a

new specific B.U., to create a spin off, to license it (implementing the inside-out open

innovation process) or to interrupt the idea development.

In all of the three scenarios, to the development of the idea and the verification of

potential markets existence, what follows is the development of a proper business model. As

said, the traditional corporate business model was that of tailored solutions, with high

engagement from the customers, mainly in house development accompanied by inbound

processes, and one-shot sale.

Nonetheless, with the diffusion of ICTs, a new business model arose and paralleled

the existing one. This new business model is a ‘servitized’ business model that adds a service

component to the traditional business model. This requires no more a one-shot sale of the

technological solution, but the provision of data about, for example, energy consumption.

This also required a change in the revenue model: clients now pay for the data management,

alerts, rejuvenation of the tailored solution implemented. The idea is to change the hardware

part (that is still tailored) and to standardize the software side (i.e. have the same system that

collects and manages data). This business model has been enabled by the ICTs that have

allowed the company to monitor, collect data, and provide data management linked with

specific technologies. This business model was first developed and implemented by Energy

business unit (see Box 2: Leaf Community: 2km of Future® as an example of its

implementation).

A new business model has also been introduced by Healthcare business unit: it is that

of the high tech standard products. Renzo Libenzi describes this model with the following

words: “compared with the tailored solutions that focus on specific clients’ requests, Loccioni

would like to implement a high tech standardized product. An example is Apotheca [one of the

solutions implemented by HumanCare] that is patented and certified. The idea is to have not

only international clients (for whom you need ad hoc customized solutions), but also

international solutions ready to be implemented around multiple clients. These solutions may

be patented and you can outsource the production and this would mean to increase the

market exponentially without increasing the number of employees”.

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These three models coexist in Loccioni Group, but all of them rotate around three main

pillars: the core competence of Loccioni Group in measurement, i.e. its technological

expertise, the exploration and exploitation of territorial resources in order to innovate, and the

leverage on the company’s relational capital. More recently, Loccioni Group has launched a

project, the Leaf Community, for which it has adopting a new business model characterized

by the co-existence of multiple revenues models, the engagement of customers and

stakeholders in the value creation mechanisms, and a networked value chain. This new

business model, that we call the open territorial lab business model, is similar to the other

ones since it is for exploring and exploiting the technological competences of the company, it

leverage on the relational capital of the Group, but differ in that it uses territory as a test-bed

where collaborators may integrate and explore their own technologies. Co-developed

solutions, hence, are tested first within the local territorial borders, and then replicated at a

global level via multiple revenues models.

In order to explain how an open territorial lab business model works, in the following

paragraph we describe it as it has been applied in one of the projects of Loccioni Group: the

Leaf Community: 2km of Future®. We chose this project for many reasons. First, it

represents a practical implementation of the open territorial lab business model since it

embeds the importance of technological expertise, relational capital, territory and the chance

of running simultaneously multiple business models. Second, it is a project that started before

the implementation of the roadmap for innovation, but that is implementing it nowadays.

Third, it is a project which results have been applied at local level, but that can be replicable

at a global level. In particular, the Leaf Community may be replicable in cities and other

contexts and represents a way of how an SME may be able to compete with giants in the

smart city challenge, configuring itself as a local champion for smart cities.

4.3 The Leaf Community: 2 km of Future ®

We do not think to build a building, but to design a territory,

enhancing the natural and scenic elements that determine

the identity and uniqueness.

Past, present and future meet together

on a journey towards sustainability:

environmental, economic, social and human

Loccioni Energy

The Leaf Community: 2 km of future® is one of the projects of Energy business unit. It has

been defined as an open lab with the objective of exploring the technical feasibility of

81

environmental technological solutions: In the Leaf Community, in addition to the production

from renewable sources and energy efficiency, we are developing one of the first examples in

Italy of virtual power plant, through the smart grid and the development of storage systems,

communication and monitoring of energy data, we will soon make the community independent

for energy6, says Gino Romiti, R&D CEO.

Inaugurated in 2008, the idea was proposed by Loccioni Group which, in collaboration

with a network of excellent companies such as ENEL and Siemens, Cisco as well as local

companies, has defined and created the first eco-sustainable completely integrated community

in Italy. The Leaf Community has been described as “an open laboratory for the testing and

development of technologies, solutions and services for energy7 “with the aim “to research

and promote new energy projects, new solutions for the production of renewable energy to

reduce consumption and energy monitoring. The Leaf Community is an opportunity for

everybody (institutions, universities, municipalities, companies and school), a place where to

meet up and exchange ideas, an open laboratory, a model to integrate in a design territory”.

In order to pursue this objective, the Leaf Community is made up by five main pillars, namely

Leaf house, Leaf Working and Leaf Lab, Leaf Mobility, Leaf Education, Leaf Energy (Figure

2).

The community represents a smart city ‘in miniature’. There is the Leaf House, a

carbon neutral house where energy is entirely produced by renewable resources (a description

of how it works and about the whole project can be found in Baraldi, Gregori, and Perna

2011). The Leaf Working characterized by eco-friendly industrial sites. The Leaf Lab, defined

as a real hub for the research and development internal community focused on measure &

testing, automating, IC and energy technologies. The Leaf Mobility made up by renewable

energy reloading electric vehicles. The Leaf Education that consists in a school with solar roof

and that educates children to the environmental respect. And finally the Leaf Energy, a site

where energy is captured from sun, water, air and earth.

6 In “La piccola smart city: Enel e il gruppo Loccioni”, available at: http://enelsharing.enel.com/fonte/la-piccola-

smart-city -enel-e-il-gruppo-loccion

7 In “Loccioni e Samsung SDI con Enel per lo svi luppo di si stemi di accumulo innovati vi” available

at: http://energy.loccioni.com/2013/04/loccioni-e-samsung-sdi-con-enel-per-lo-sv iluppo-di-sistemi-di-

accumulo-innov ativ i/

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Figure 2. The Leaf Community (Source: Loccioni Group)

All this community embeds also Loccioni’s philosophy. “In Loccioni research and

experimentation are integral part of an ecosystem in continuous evolution”, says Antonio

Giovannelli. This ecosystem goes beyond the company’s walls and embrace territory,

communities, institutions, and other stakeholders, comprises the almost 8000 people that each

year visit the site.

4.3.1 The Leaf Community as an example of open territorial lab

In the Leaf Community Loccioni Group has implemented the open territorial lab business

model characterized by the co-existence of multiple revenues models, the engagement of


The success of the Leaf Community builds over three elements:

1) the implementation of an innovation process that links territorial resources, RforI, R&Ds

and external partners, and ends with the commercialization of (replicable) Leaf Community

technologies via different revenue models;

2) the ability of the company of having become not an intermediary, but the iungens of the

several companies involved in the project;

83

3) the capacity of having involved a broader community that is bigger than the Leaf

Community itself.

The Leaf Community project has been inspired by the peasant traditions and values of the

region and, more in general, the peasant culture. Nature has inspired both how to use

technology and where, guiding the development of the innovation: “The leaf community is not

that the application of thrift and self-sufficiency farming to solving energy problems”, says

Enrico Loccioni in an interview. The general peasant rule that underlines the entire Leaf

community is about waste reduction, using technology: “Our job is to make any process

sustainable, but without ever losing sight of what is the respect towards the environment. That

is what we have inherited from the peasant culture. We have enriched it with technologies

within our Group since forty years ago, but we always must return to the nature”, says Enrico

Loccioni. Hence, technological innovation follows the imprinting of tradition. As we can see

in the case of Leaf House, the agricultural tradition plays an important inspiring role: “In this

house we wanted to bring all that was in the countryside house. For example, large windows

facing South and very small windows facing the North. Here, is no more than technological

innovation: we did not invent anything8”, says Enrico Loccioni in a TV interview. Tradition

melts with innovation.

Loccioni Group has recognized that it cannot pursue innovation by itself. In referring to

innovation processes for example, Gino Romiti, R&D CEO, affirms: “Problems are complex,

hard to solve, new and often different each one from the other one. We cannot solve them only

by ourselves. We cannot have all the competences at home. What is fundamental is the quality

of the network that we are able to create and maintain. We need then tools for managing the

quality of our contacts and the capacity of activate the network quickly”. This is why

Loccioni is open towards third parties and has searched partnerships with other players: “what

matters is the experience, the capacity of searching information, the number of contacts you

have and the ease to access to these contacts”, says Gino Romiti. Table 4 presents some of

the Leaf Players.

The Leaf Community is an example of open innovation of an SME that has been able to

become not only an intermediary (Katzy et al., 2013; S. Lee et al., 2010), but also the focal

iungens among bigger multinational players and smaller local actors. The case of Leaf

Community represents how an SME, building on its technological expertise and its relational

8 http://www.rai.tv/dl/RaiTV/programmi/media/ContentItem-1cb94fae-e15c-4a88-953d-30d520f08405.html

http://www.rai.tv/dl/RaiTV/programmi/media/ContentItem-1cb94fae-e15c-4a88-953d-30d520f08405.html

84

capital, and managing open innovation processes, has been able to be a model of smart cities

also for bigger companies. Beyond the great local environmental performance reached, the

Leaf Community represents in fact a prototype for all those partners, customers and authorities

that are interested in replicating similar solutions in their local contexts, i.e. it is a scalable

model. Box 2 represents one example.

A final aspect that derives from the analysis relates to the role of community. West &

Lakhani (2008) define community as “a voluntary association of actors, typically lacking in a

priori common organizational affiliation (i.e. not working for the same firm) but united by a

shared instrumental goal – creating, adapting, adopting or disseminating innovations”. In

the case of the Leaf Community, not only Loccioni and its partners, but also the broader

group of clients, local inhabitants and surrounding municipalities have been involved in the

adoption and dissemination of the Leaf Community model. For example the municipality of

Pesaro that has launched public initiatives for a more sustainable city, has acquired the Leaf

Box 2. The Fileni Case

An example of the scalability of the Leaf Community project has been developed recently for Fileni Group.

As said, relational capital is one of the main resources of Loccioni Group. Giovanni Fileni, the owner of

Fileni company, a family company producing white meat and set near Macerata (another city of Marche

region), was Enrico Loccioni’s neighbour and friend. During a walk, Enrico was telling to Giovanni the Leaf

Community project. Few weeks later “Fileni has asked us a very curious research: whether and how it was

possible to improve the comfort of the chickens in their farms. We did not stop to the livestock. With an

horizontal logic, we have redesigned the entire supply chain, from animal feed until the arrival of the

packages on the shelves of large retailers, through transport and slaughter methods. All. In the name of

reducing waste, saving, environmental protection. In this case also the genuineness1”, says Enrico Loccioni.

In terms of the innovation road map, the Fileni case fitted well with the third scenario (that at that moment

was not yet implemented). In this case, the top management team looked at the feasibility of the replication of

the Leaf Community project for the chicken environment and ask RforI to help the R&D function of Energy

in the innovation process. The decision to allocate the Fileni commission to the Energy business unit was a

‘natural one’ since the comfort of the Leaf House might be replicated to the ‘comfort’ of the chickens.

Loccioni Fileni R4I Energy

B.U.

B.I.

85

Meter (the sustainability measurement tool by Loccioni), it has realized a database for

understanding the energetic characteristics of the municipal buildings, it has acquired

photovoltaic panels for two schools. It has been affirmed that “the green cities are

demonstrating several applications at the national and global level, but they have a strong

common denominator: the great commitment on the part of public authorities and private

enterprises9”. The Leaf Community is one of the empirical examples.

In the perspective of an open strategy, community not only is the recipient of a smart

solution, but it also intervene in innovating it. For example, in creating a smart city, all

citizens, businesses and organizations become consumers and producers of energy, i.e.

prosumers. In fact “an individual may himself become a service provider for utilities and both

can unite their skills in order to solve the problems of the network to achieve cost benefits and

service10

”. In the Leaf Community, the Leaf workers everyday contribute to solve problems:

the inhabitants of the Leaf House, for example, test everyday what works and what does not

work in the house in order to improve comfort and efficiency. Not by chance, the core

capacity of Loccioni group is measurement and its motto cites what “you can measure, you

can improve”.

Moreover, as well the definition of West and Lakhani (2008) encompasses the local,

territory embedded community since what makes a group of actors a community is the

‘shared instrumental goal’, as the open innovation process adopted by the Leaf Community

goes beyond the Leaf community players, allowing people to provide ideas. This is, for

example, clear in the project of hydroelectric plant.

In implementing an open territorial lab business model, the Loccioni Group has first

built on its technological expertise over measurement. Each of the building elements of the

Leaf Community are built in ‘measurement’ that is applied in different fields, from solar

panel, to gas emissions, to energy storage. Then, it uses relational capital in terms of source of

ideas, partner relationship development, innovation diffusion. Finally, the technologies

developed in the Leaf Community project use the territory as a test-bed. These solutions may

then be replicated at global level. In pursuing the open territorial lab business model, Loccioni

Group has acted not only as an integrator of the multiplicity of players, but it has configured

itself as a local champion capable of developing an in miniature smart city project. The role of

9 In “22 Aprile 2014: il giorno della Terra!”, available at http://www.leafcommunity.com/22-aprile-2014-il-

giorno-della-terra/#more-2299

10 “Il nuovo ‘senso’ della rete”, available at: http://energy.loccioni.com/2013/08/un-leaf-meeting-per-parlare-di-

innov azione-tecnologica-e-sociale/#more-7061

86

champions in technological innovation is well addressed by literature (Chakrabarti, 1974;

Howell & Higgins, 1990)11

. In our case, we use the term local champion as the actor that

emerges in a local context and contributes to a technological innovation by actively promoting

a project through creating a network of local and global actors. This concept is similar to the

tertius iungens12

role identified by previous literature (Crespin-Mazet, Goglio-Primard, &

Scheid, 2013). A local champion manage socio-economic proximity, but it is above all the

promoter of a project at a global level.


The paper has introduced the concept of open territorial lab, defined as a business model

characterized by the co-existence of multiple revenues models, the high engagement of


This business model may be implemented thanks to the company’s technological expertise, its

relational capital and the formalization of its open innovation process. The in-depth case study

has first described how an SME has been able to reconfigure its innovation processes by

formalizing a roadmap for innovation, then it has analyzed how the same company has been

able to introduce a new business model that integrates multiple revenue models and enhances

collaboration via linking territorial and not territorial players, whose innovations may be

replicate beyond the boundaries of the territory.

From a theoretical perspective, this paper has linked the open innovation in SMEs and

the business model innovation in established companies literatures. As known, SMEs face no

minor problems than big companies in innovation processes and in overcoming them they

recur at open innovation practices (Lee et al., 2010; van de Vrande et al., 2009). However,

scant research has been conducted on how, in practice, an SME may introduce a new business

model building on the open innovation paradigm. The case shows how an SME may leverage

on its technological expertise, relational capital and formalized innovation process,

introducing new business models that integrates multiple revenue models, multiple sources of

innovation, and a new reconfiguration of the value chain, .

11 A champion has been defined as “an individual who is intensely interested and involved with the overall

objectives and goals of the project and who plays a dominant role in many of the research-engineering

interaction events through some of the stages, overcoming technical and organizational obstacles and pulling the

effort through its final achievement by the sheer force of his will and energy” (Chakrabarti, 1974)

12 In analysing open innovation processes, Crespin-Mazet, Goglio-Primard, and Scheid (2013) introduced the

tertius iungens orientation, defined as “a strategic behavioural orientation toward connecting people in their

social network by either introducing disconnected individuals or facilitating new coordination between

connected individuals” (Obstfeld, 2005:102)

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From a managerial perspective, this paper presents two contributions. On the one

hand, the roadmap for innovation described, can be applied by SMEs and also extended to

bigger companies. On the other hand, the case of Leaf Community: 2km of Future® shows

how an SME may be able to compete against global players in the smart city challenge. In

fact, most of the attention in smart cities has been given to big, global players. On the

contrary, the Leaf Community case shows us that there are smaller local players that are able

to introduce solutions via new business models characterized by a high link with the territory

and a high level of relational capital, the implementation of open innovation practices, and the

creation of broader communities that grew up outside the companies’ boundaries. Henceforth,

cities can look at the solutions proposed by parallel models that arise in SMEs companies.

Future research should provide more evidence on the open territorial lab business

model. We think that high tech SMEs may compete via specialization over a technology,

leveraging on their relational capital, and formalizing their innovation process. In particular,

the roadmap for innovation may represent a tool for reaching contextual ambidexterity,

combining high performance management and high social support (Birkinshaw & Gibson,

2004; Gibson & Birkinshaw, 2004; Markides, 2013). High performance management, in fact,

has been reached via stimulating stretch and discipline at organizational level, while social

support has derived from spurring trust, endorsement and building around people an open

company. Via this roadmap, the company is able to trace alternative paths of innovation and

look at synergies in terms of complementary technologies, partners, and revenue model.

Through formalization, replication of successful experiences may be easier to implement

(Winter & Szulanski, 2001), innovation processes may be quicker, and potential losses

deriving from unstructured processes may diminishing. At the same time, creativity is not

damaged since the company possesses unique resources (Barney, 1991; Nahapiet & Ghoshal,

1998; Yli-renko, Autio, & Sapienza, 2001) that derives from its relational capital, its territory

and its long lasting competences that are enhanced and not threated by new business models.

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Chapter 4

SOCIAL MEDIA-BASED BUSINESS MODELS:

AN EMPIRICAL INVESTIGATION ON THE BLABLACAR.IT CASE

ELENA CASPRINI


ANDREA PARABOSCHI


ALBERTO DI MININ


Web 2.0 technologies have allowed companies not only to interact with communities,

enhancing loyalty-based transactions, but also to reach new market segments, which were

not previously reachable. Facebook, eBay, LinkedIn have been considered social media

companies able to connect multiple members and make money over ads or offering

freemium services. However, there are other companies that use social media not as an end

by itself, but as a mean through which it is possible to make business differently. This paper

introduces the concept of social media-based business model defined as a new business model

whose dimensions have integrated social media factors. Extant research has often cited

outstanding companies that have used web 1.0 technologies for innovating existing business

models, but scant research has looked at how social media elements may be used in new

business models. This paper provides a descriptive case study on how a start-up company,

BlaBlaCar.it, has introduced a social media-based business model, reaching a new market

segment, that of hitch-hikers 2.0, and provides first empirical results about how social

media-oriented elements affect the way hitchers 2.0 use BlaBlaCar.it services.

KEYWORDS: business model innovation; social media; web 2.0

1. Introduction

“Technology is transforming

our relationship to assets and ownership”

Rachel Botsman.

The relationship between business models and technologies is two-way (Baden-Fuller &

Haefliger, 2013; Baden-Fuller & Mangematin, 2013; Zott et al., 2011). On the one hand, the

business model concept can be used to explain the technological success (or failure) of a new

technology, i.e. it may be seen as a vehicle for innovation. On the other hand, technology may

enable business model innovation, and hence we can look at the business model as a subject

93

of innovation. This latter case has attracted a lot of attention, especially following the advent

of the Internet. Web technologies, have been quickly recognized as a powerful driver for

business model change, having enabled new ways of creating and capturing value (Dubosson-

Torbay et al., 2002; Mahadevan, 2000; Venkatram, 2000; Wirtz et al., 2010). Practitioners

and researchers note that is important to distinguish between web 1.0 and web 2.0

technologies. Web 1.0 technologies, that characterized the first digital revolution, have

allowed companies and individuals to create an on-line shop where display their products.

Websites are plenty of hypertexts and alone internet users and the direction of communication

is one to many. On the other hand, web 2.0 technologies have enabled the rise of a

community, allowing a many to many communication. At the very beginning, Amazon.com

was 1.0, but rapidly it has evolved in 2.0.

The diffusion of web 2.0 technologies have made aware companies of the

opportunities and threats deriving from communities (Boudreau & Lakhani, 2013; Casprini &

Di Minin, forthcoming; Lakhani & Hippel, 2003; von Krogh, Spaeth, & Lakhani, 2003) Many

companies have been cited by scholars, practitioners and mass media, as examples of how

web technology has allowed the innovation of existing business models or has created brand

new business models (Venkatram, 2000). Most of these new e-companies are market makers

(Mahadevan, 2000) capable of facilitating business transactions between buyers and sellers

(e.g. eBay) or product/service providers and customers; others companies, such as

Threadless.com and Netflix, have rejuvenated entire industries such as fashion and movie

rental.

Web 2.0 technology, a term coined in 2005 (Wirtz et al., 2010), has enabled the advent

of social media (Kaplan & Haenlein, 2010), a term that comprises both the conduits and the

content disseminated through interactions between individuals and organization (Berthon,

Pitt, Plangger, & Shapiro, 2012: 263). Most of extant research on social media focuses on

their impact on communication and long-term relationship management. However, scant

attention has been given to how web 2.0 technologies impact business model dimensions,

how the contributes to new business model development and may reach new market

segments. Social media, in fact, present opportunities (as well as threats) not only in engaging

customers at a deeper level in the value co-creation process, but also in developing a way for

reaching new, previously unreachable markets.

This paper fills this gap by examining how a startup company has been able to build a

social media-based business model in the carpooling market. The case of BlaBlaCar.com, a

car pooling company founded in France less than 10 years ago represents an example of a

94

new business model in the transport industry: leveraging on web 2.0 technology, it links

drivers with empty seats with passengers who are looking for a lift. BlaBlaCar.com is

replicating its business model in many European countries, entering into a market first with

no commission fees, and then charging a commission on the journey.

The paper is structured as follow. First we analyze the extant literature on the

relationship between business model and technology. We then zoom in the web 2.0

technologies analyzing how social media has an impact on the company’s business model.

Finally, we describe the case of BlaBlaCar.it, the Italian branch of BlaBlaCar.com, and we

provide the first results of a survey conducted on BlaBlaCar.it users, looking at which are the

features enabled by social media considered important by the user and how integrating social

media. elements in the business model have allowed this company to enlarge the carpooling

sharing market.

2. Literature review

How do social media innovate business models? In the following sections we briefly describe

the literature on business model innovation and technology on the one side, and web 2.0 and

social media on the other side.

2.1 Business model and technology

Technological innovations can trigger changes in a company’s business model. The advent of

the Internet, one of the most disruptive technologies in the last twenty-five years, has forced

firms to reconsider their business models (Teece, 2010; Wirtz et al., 2010). Not by chance, the

interest on business model, a concept that dates back to the 1950s, is grown up in conjunction

with Internet. This is because Internet has innovated the revenues models of companies,

considered by long time as the main element of the business model despite it is only one part

– albeit important - of it (Baden-Fuller & Haefliger, 2013; Chesbrough, 2002; Demil &

Lecocq, 2010; Osterwalder, Pigneur, & Tucci, 2005; Teece, 2010). Beyond the many

definitionsand dimensions identified, in its more general terms a business model has been

defined as the logic of doing business and explains how a company creates and captures value

(Zott et al., 2011). In this paper we consider Baden-Fuller & Haefliger (2013) definition of

business model components. According to them, a business model is made up by four

dimensions. First, the customer identification dimension that refers to whether users pay for

what they use or not. Second, the customer engagement, that requires sensing what

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customer(s) wants, and provide a value proposition that can be project-based or scale-based.

Then, the linkages between customer identification and monetization (the fourth component).,

i.e. the mechanisms the firm uses to deliver its product or service to the customer (Baden-

Fuller & Mangematin, 2013:422). Finally, the monetization (or value capture), i.e. the various

possibilities of pricing, the role of complementary assets, and the timing of money collection.

The business model concept has been used in order to explain three, not mutually

exclusive, issues (Zott et al., 2011): e-business, strategic issues, and innovation and

technology management. In particular, e-business issues have attracted the initial attention.

Many contributions have looked at e-companies that operate in ICTs and at how they were

born thanks to the Internet (Applegate, 2001; Dubosson-Torbay et al., 2002; Mahadevan,

2000). Others have looked at how existing companies have adopted ICTs and how this has

requested a change in their business model (Björkdahl, 2009). Others again have provided

taxonomies of e-business models (Dubosson-Torbay et al., 20002; Mahadevan, 2000; Wirtz et

al., 2010).

More recently, attention has shifted from e-business issues towards strategic and

innovation management-related topics. In the first area, business models help in explaining a

company’s performance and competitive advantage. For example, considering e-commerce

companies, Zott & Amit (2007) have looked at the impact on performance of alternative

business model designs. Using game theory, Casadesus-Masanell & Zhu (2010) analyze the

optimal strategy of a high-quality incumbent that faces a low quality ad-sponsored competitor.

The authors argue that the incumbent can compete either by adjusting the tactical variables,

namely price or number of ads, or by changing the business model. Casadesus-Masanell &

Llanes (2011) look at when a profit-maximizing company adopts a mixed-source business

model. In this case, the strategic variable is about the openness of technologies, but also on

the compatibility regime with competitors’ products. In another paper, Casadesus-Masanell &

Zhu (2013) analyze how entrants choose their business model (traditional or new), based on

their expectation about incumbents’ reaction.

Finally, researchers in the innovation and technology management literature have

looked at business models as either a moderator of technological success (Baden-Fuller &

Haefliger, 2013; Chesbrough, 2002; Teece, 2010), i.e. a business model as a vehicle for

innovation, or as a new subject of innovation (Chesbrough, 2007). These academics have

stressed the importance of looking at new networked modes of innovation. In this context web

technologies may be seen as tools that companies may use to interact differently within and

between the networks.

96

In this paper we analyze how an influential environmental change, namely the advent

of social media, enabled by web 2.0 technologies, has triggered business model innovation

(Wirtz et al., 2010). Web technologies have created web-based platforms, such as the already

cited Amazon.com and eBay, or others like PayPal and Google. Baden-Fuller & Haefliger

(2013), for example, cite the case of Google, a multi-sided platform, that using Adwords

provides an interface with advertisers: in this way, Google assures greater customer

satisfaction and greater revenues on each side of the platform. However, previous research on

business model innovation has not analyzed how social media impact the business model of a

company.

2.2 The web 2.0 and the social media (r)evolution

The introduction of Internet and Web 1.0 technology has modified how business is run in

several ways (Wirtz et al., 2010), from allowing disintermediation (i.e. companies may

interact directly with the customers bypassing the dealers) to fastening communication and

enabling the creation of new distribution channels. Lunpkin and Dess (2004), for example,

argue that Internet has revolutionized four value-adding activities, namely search, evaluation,

problem-solving and transaction. Information gathering is quicker than before, alternatives are

easier to compare, problems and needs are identified prompter, and transaction costs are lower

than before.

Since the mid-2000s, the diffusion of Web 2.0 technologies has enforced the role that

ICTs play for businesses, representing a double sword that may favor as well as damage the

company itself. Web 2.0 has in fact allowed the birth of social media, defined as a group of

Internet-based applications that build on the ideological and technological foundations of

Web 2.0, and that allow the creation and exchange of User Generated Content13

(Kaplan &

Haenlein, 2010: 61). According to Kane, Fichman, Gallaugher, & Glaser (2009), social media

are platforms that empower online communities in four ways, namely promoting deep

relationships, allowing fast organization, improving the creation and synthesis of knowledge

and permitting better filtering of information. Social media empower customers’ voice and

they allow companies to involve the customers, communities or in any case social media

participants in the innovation process. Customers’ reviews, experiences about the

product\service and opinions may be posted on line resulting in a more powerful word-of-

mouth (WOM) communication (Berthon et al., 2012; Chen, Fay, & Wang, 2011; Kietzmann,

13

User Generated Content (UGC) refers to the various forms of media content that are publicly available and

created by users

97

Hermkens, McCarthy, & Silvestre, 2011) that can happen with or without permission of the

firms in question (Kietzmann et al., 2011). Moreover, social media allow the rise of

communities which members feel connected each other. In particular, marketing literature has

analyzed the rise of brand communities whose members share interest in and enthusiasm for a

brand (McAlexander, Schouten, & Koenig, 2002; Zaglia, 2013). Second, through social

media not only customer and users (Franke & Piller, 2004; Franke & Shah, 2003; von Hippel,

2007), but also the crowd (Boudreau & Lakhani, 2013; Franzoni & Sauermann, 2014) as a

whole may be involved in the co-creation process. It results that community is then an asset

from which companies may profit.

Extant research on the impact of social media on the company’s business model is scant.

Wirtz et al. (2010) identify four Internet business models types, namely content, commerce,

context and connection business model, and look at the relative importance of specific social

media factors, namely social networking, interaction orientation, user-added value and

customization/personalization, on them. Content business models are typical of those firms

collecting, selecting, compiling, distributing, and/or presenting online content and whose

revenues are from online advertising, subscriptions and pay-per-use. A connection business

model is typical of those firms providing physical and/or virtual network infrastructure and

whose revenues are main represented by online advertising, subscription time-based billing,

volume-based billing. Context business model refers to firms that aggregate or sort online

information. Commerce business model belongs to companies that negotiate online

transactions. According to them, each of the social media factors affect differently the Internet

business models. For example, social networking affects more the content and the connection

business model types, interaction orientation the commerce business model, user-added value

the content business model, while customization affects equally all of them. Other authors

have called for more attention to how companies use social media (Hanna, Rohm, &

Crittenden, 2011; Casprini & Di Minin, forthcoming). Hanna et al. (2011) focus on how social

media platforms have revolutioned the way companies make marketing. On the other hand,

Casprini & Di Minin (forthcoming) look at the strategies companies may use to cope with

social media platforms and describe three alternatives approaches, namely to deny the social

media importance, to react to the social media wave or to reinvent the rules of the game

leveraging on the social media. In any case, social media enable the quick creation and

diffusion of content, in particular customer feedback, that a company may use to improve its

value proposition (Lumpkin & Dess, 2004).

98

The aim of this paper is to provide empirical evidence on how a company may create a

social-media based business model looking at how integrating social media factors into the

business model. From the previous literature we have seen that social media affects the

business model in three main ways. First, it has an impact on the customer engagement

dimension. Building a social media based business model implies to look at how company

may engage customers via providing customized solutions, building long term relationships

and allowing customers to improving the creation of knowledge. Via social media, customers

can interact with the company, with other customers, and with third parties feeling more

involved in all the reinforcement of a specific brand or product, their intimate

relationship/experience with the company (Morris, Schindehutte, & Allen,2005) Second, the

social media tool may have an impact on the value chain of the company, reducing the

number of suppliers involved in the process of value creation, increasing virtual word of

mouth, letting users to add content (Lumpkin & Dess, 2004). Finally, social media may have

an effect on the monetization dimension. On the one hand, if a customer is more involved, he

is expected to be more loyal and have a higher consumption of the product/service

offered/provided. On the other hand, social media allow people to collect more quickly real-

time and in depth information about the willingness to pay of the parties (e.g. think at the

auction on eBay), and also they may shape opinions on prices since they allow quicker

comparisons between existing alternative solutions at different prices (Venkatram, 2000).

The following section describes the case of a company that has been able to introduce

a social-media based business model. Inspired by an existing market, that of hitchhicking, this

company has been able to use some of the social media features, creating a new market, that

of hitchhickers 2.0.

3. Method

The research follows two steps. First, we conducted a descriptive case study (Creswell, 2008;

Pratt, 2009; Yin, 2003) on BlaBlaCar.com, a company that has successfully implemented a

social media-based business model. In order to do that, we use multiple data sources. The

main source for our data were two interviews with the Italy Country Manager, Olivier

Bremer, that were conducted in September 2013. These interviews aimed at understanding the

story of the company, how the company works, and the role that social media has in

BlaBlaCar.com. Then, we collected data using online questionnaires, websites such as the

99

company’s website, CrunchBase profiles, and articles from TechCrunch

(http://techcrunch.com/).

BlaBlaCar is a startup company that represents a suitable case for understanding how a

social media based business model works. First of all, it is a company that is born after the

social media advent and that have built its business model on it. Second, its business model

may explain all the three issues advanced by Zott et al. (2011): in fact, it is an e-business

company, that is competing via social media, and whose business model uses the social media

technology as a source of business model innovation. Third it is an interesting case since it

has created a new market, that of hitchhikers 2.0, allowing people who never have done

hitching before to become hitchhikers on an occasional or more frequent basis.

The second step consisted in an analysis on BlaBlaCar.it community. We run a web-

survey on 30,000 BlaBlaCar Italian members in order to understand who are the new

hitchhikers 2.0. In particular, we looked at whether the frequency of using the BlaBlaCar.it

service depends on specific social media-related features. We conducted the survey in Italy in

March 2014. Italy has the third seat (after Germany and France) in the European ranking for

carpooling; the country shows the highest growth in terms of number of users among the

European countries (+400% in the last six months, as reported by BlaBlaCar Italy Country

Manager, Olivier Bremer) and other start-ups like Carpooling.com are approaching the

domestic market.

4. Analysis

By 20th century, car, trains, airplanes and buses are of course considered the most used means

of transportation. You can buy a car and then drive it, bring or not your family and friends

with you, or simply buy a ticket of a train, bus or airplane and make someone else ride it.

Then, other types of travelling, i.e. hitch-hiking, began to diffuse in 1970s. More recently,

new ways of transportation have arisen. The advent of the web 1.0 and Internet has changed a

bit how you can buy tickets allowing the online option rather than the physical effort of going

to the train/bus station or travel agencies, and has simplified how you can search for the

various alternatives, looking to online timetables, alternative flights, etc. But the Internet has

also facilitated other practices such as car sharing, i.e. a service that allows you to use a

reserved car, bring it and turn it back in a parking and paying on the basis of how much you

have used it. A well-known example is ZipCar, a car rental company founded in 2000 in

Massachussets, that makes members pay a monthly or annual membership fee in addition to

http://techcrunch.com/

100

car rental chargers. Members are able to view a vehicle availability and reserve a self-service

car via the Internet, mobile apps, and telephone (Paraboschi et al., 2013).

Finally, in the last few years, something different has happened. The practice of

hitchhiking has evolved, using web 2.0 technologies, towards a sort of hitchhiking 2.0: the car

pooling1. Web-based companies started to connect drivers and passengers in a new way,

allowing members of the platform to share information, allow feedbacks, and connecting

travel demand and travel offer in unprecedented ways. We are in front of a new mobility

paradigm (Paraboschi et al., 2013), a win-win practice both for drivers and passengers,

capable of reducing each traveller’s costs, offering a new way to socialize and decreasing also

environmental impact.

4.1 Blablacar

In order to look at how the effect of social media on a company’s business model we describe

the case of BlaBlaCar.com that, with Carpooling.com (born in Munich in 2001), is leading the

European marketplace for carpooling.

BlaBlaCar is a French company born in 2004 from the idea of Frédérick Mazzella,

Francis Nappez and Nicolas Brusson. In 2012 it raised $10 million from Accel Partners (that

has invested also in Facebook, Groupon, Dropbox among others), ISAI and Cabiedes &

Partners. In the same year, BlaBlaCar with other similar European companies (e.g.

postoauto.it, a startup founded by Olivier Bremer in Italy in 2009). In its Crunchbase profile

we read that “BlaBlaCar is a car sharing website that connects drivers with empty seats and

paying passengers to offset distance travel costs. It has created a new, affordable and

sustainable way to travel, currently used by more than 1m members to travel every month”.

Today, BlaBlaCar.com has 6 branches (Paris, London, Milan, Madrid, Hamburg, Warsaw and

Moscow) and has a community of 9m people that may travel across Europe. Today the

company has 60 managers in Europe and it has recently raised $100m14

. Italy has been the

country where carpooling is growing the most due to the financial crises and the increase of

gasoline price, although the bigger market still remains France.

How does BlaBlaCar.com work? Drivers can register, publish their trips and contact

other members who are making the same trip. Similarly, passengers can contact the driver

who has published the trip of interest, or just publish his trip and wait that other members

contact him. They are hitchers 2.0: leveraging on web 2.0 technology, BlaBlaCar.com links

14

http://techcrunch.com/2014/07/01/blablacar-raises-a-massive-100-million-round-to-create-a-global-ride-

sharing-network/?utm_campaign=fb&ncid=fb

http://techcrunch.com/2014/07/01/blablacar-raises-a-massive-100-million-round-to-create-a-global-ride-sharing-network/?utm_campaign=fb&ncid=fb

http://techcrunch.com/2014/07/01/blablacar-raises-a-massive-100-million-round-to-create-a-global-ride-sharing-network/?utm_campaign=fb&ncid=fb

101

drivers with empty seats with passengers who are looking for a lift, and it charges (in some

countries) a commission of the journey. In reality it applies to cars the same logic that AirBnB

applies to accommodation: “we need to be smarter about the way we consume and leverage

the assets that we have already and make better use [of them]” Brusson says “I think we are

entering an era of more efficiency. I think we are going to consumers in a new way. The

reality is now you can leverage your apartment and your car15

”. This is an example of how a

business model that born for one industry, lodging (i.e. holiday accommodation), has been

applied for another industry, the carpooling.

BlaBlaCar.com is “a sort of social network”, says Olivier Bremer, Italy Country

Manager in our interview, “that has enabled a way to travel low-cost. But it is also a social

experience, a way for travelling in a more social way”. You can choose the persons you want

to travel with and you can do it via the information provided in the website.

What have been the success factors in BlaBlaCar? According to Bremer, four main

factors help BlaBlaCar.com to grow.

1) the attention in building the right team. In BlaBlaCar.com, we have no hierarchy,

but an horizontal organizational structure. A central feature for working in BlaBlaCar.com is

the motivation and engagement of team members.

2) BlaBlaCar.com has had a lot of venture capitalists. This has given access not only

to high financial resources derived from investors as Accel, but above all to the information

and contacts that investors have.

3) important factor is the replicability of the business model (Winter & Szulanski,

2001) in other countries. If something works well in one country, it will work well also in

another country. The knoweldge is easily codifiable, especially in doing online marketing.

4) the network effects that characterized platforms in general: “the more the people

use it, the more rides you will find close to your home, even if you’re going from a tiny city to

another small city”, says Frédérick Mazzella.

5) pricing is adjusted once the community is created. Once the reputation of the

service has been created, it is applied a fee/commission and online payments are activated in

order to favour transactions. “Drivers can make a bit of money while riders can travel for

cheap. It has the same business model as Airbnb — you pay or get money every time you ride

or drive, and the company takes a 10 percent cut on average”,says Frédérick Mazzella.

15

http://techcrunch.com/2014/07/01/blablacar-raises-a-massive-100-million-round-to-create-a-global-ride-

sharing-network

102

Figure 1. Characteristics of social media that affects BlaBlaCar's business model components (source: author)

Considering the business model dimensions proposed by Baden-Fuller & Haefliger (2013),

we note that some of the social media components identified by Wirtz et al. (2010) affect

them (Figure 1). For what concerns the customer identification dimension, BlaBlaCar.com

identifies the users as the payers. Users in fact pay directly to the driver on the basis of the

journey in accordance to a price that is shown on the website. In this case, the social media

elements do not impact the customer identification. However, it is not excludable that sooner

or later BlaBlaCar.com will use banners and ads as another source of revenue. On the other

hand social media have an impact on the other dimensions.

Customer engagement. Using BlaBlaCar.com, people may choose their solution,

looking at a bunch of alternatives (and then choosing among drivers or hours, or itineraries).

The amount of alternatives depends on the width of the community: the bigger the

community, the higher the alternatives (i.e. there are network effects). There is a cooperative

value generation (Wirtz et al., 2010). Then, beyond these network effects, BlablaCar.com may

leverage on the social identity and social trust factors of social media. First, becoming a

member of BlaBlaCar.com makes the member increases his sense of ‘belongingness’ to the

User-added value Sources of revenues

Customer identification Customer engagement

Value chain and linkages Monetization

Social networking Social identity Social trust

Social networking Virtual WoM

Social networking Increased customer power

Interaction orientation Cooperative value generation

User-added value User generated content

103

community (social identity). For example, almost 73% of respondents affirm that they

strongly feel part of the community of BlaBlaCar.it. Second, social trust, defined as “the

confidence that people will reciprocate beneficial behaviour in their interaction with others”

(Wirtz et al., 2010: 277), is assured by the option of leaving feedbacks. BlaBlaCar.com

members leave feedbacks after their journey, producing content that is extremely helpful for

the community and potential new members. In particular, 93.04% of the respondents on the

BlaBlaCar.it declare to leave feedbacks often or always.

Members may transfer information about BlaBlaCar.com using virtual word of mouth.

Althorugh BlaBlaCar.it publicizes itself via ads on Facebook, on websites, newspapers, TV

and radio, at the question How did you discovered BlaBlaCar.it?, half of respondents

answered through Word of mouth and only 22% through Internet ads.

Value linkages. In the case of BlaBlaCar.com we are in front of the so called ‘virtual’

value chain that includes a sequence of gathering, organizing, selecting, synthesizing, and

distributing information (Rayport & Sviokla, 1995). In effect, BlaBlaCar.com manages

information through the platform and innovate the platform via introducing new parameters

(e.g. allowing people to insert their preferences and their comments). Members create the

market since it is their offering or their demand that implement the system. Updates about

travels, personal information, etc. allow people to link each other. For example, members may

describe their experience, and how BlaBlaCar works, on YouTube. Moreover, members may

give feedbacks to the company, telling their experience (for example, BlaBlaCar’s stories of

travel is a competition where members can narrate their BlaBlaCar.com (or .it) story and

share it with the community). And hitchhikers 2.0 may contact BlaBlaCar.com for giving

suggestions on how to improve the service.

Monetization. Business transactions may occur in both virtual markets (Amit & Zott,

2001) or in person. The price for the same journey may vary per driver, but in any case

BlaBlaCar.com highlights with different colours the lowest (green) and the highest (red)

prices on the basis of a suggested price. Payment may be done directly to the driver or via e-

payment (not available at the moment in all countries).

4.2 Hitchhikers 2.0

BlaBlaCar.com has opened a new market segment, that of people who are looking for an

alternative way of low cost travelling that is at the intersection between hitch-hiking and car

ownership. But who are the BlaBlaCar.com members? The survey we conducted highlights

the socio-demographic profile of hitch-hikers 2.0. The survey was run in Italy during March

104

and April 2014 and it was run online, over the overall Italian BlaBlaCar.it community that

counted almost 30.000 members. In total, 5.493 questionnaires were returned for a response

rate of 19,93%. The sample was then divided among users that are only passengers

(n1=2.270), users that are only drivers (n2=1.384) and both (n3=1.839).

To the extent of this paper, we considered only passengers since they are the ‘pure’

hitchhikers 2.0. Table 1 provides the descriptive statistics, distinguishing also between people

who have done hitchhiking before or not. From the analysis, in general, it results that they are

young, with an average age of 31 years, mainly males, most of them have an income below

28.001 euros per year, stay connected with the web, most of them use BlaBlaCar for cost-

saving motives (e.g. for reaching faster a place), and consider feedback, information about

price and time of departure as very important factors in order to choose the driver whom

travel with. Finally, they feel part of a community. These hitchhikers 2.0 may or may not have

been hitchhikers before the advent of BlaBlaCar.it. In order to understand whether there are

significant differences between those who did hitchhiking before and those who did not

hitching before using BlaBlaCar.it, and then becoming hitchhikers 2.0, we looked at χ2 and

ttest statistics.

As shown in the tables, there is a significant difference between hitchhikers 2.0 who

have not done hitchhiking before or who have done hitchhiking before. BlaBlaCar.it users

who did not hitchhiking before, compared with who did hitchhiking before, travel more

frequently, are younger, are mainly male, use more Internet, are registered by less time, use

more sites similar to BlaBlaCar.it, assign higher importance on the choice of the driver

according to the car comfort, the time departure, the fact that driver has positive feedbacks,

has the picture online and is of the same gender, are less interested in knowing people, but

more interested in arriving closer and earlier to their destination, and are less interested in

using BlaBlaCar.it for reducing pollution.

105

Table 1. Descriptive statistics (source: authors)

Overall No hitch-hiking before Hitch-hiking before

N mean sd min max N mean sd min max N mean sd min max p-val

Frequency: occasionally 2194 0.6 0.49 0 1 1348 0.57 0.5 0 1 846 0.65 0.48 0 1 0.000

Frequency: 1-2 times

per month

2194 0.29 0.45 0 1 1348 0.3 0.46 0 1 846 0.26 0.44 0 1 0.033

Frequency: 3-4 times

per month

2194 0.08 0.27 0 1 1348 0.09 0.29 0 1 846 0.07 0.25 0 1 0.048

Frequency: more than 4

times per month

2194 0.03 0.17 0 1 1348 0.04 0.19 0 1 846 0.02 0.14 0 1 0.01

Age 2192 30.81 10.37 18 82 1347 30.07 9.93 18 82 845 32 10.93 18 75 0.000

Gender 2190 0.33 0.47 0 1 1346 0.31 0.46 0 1 844 0.35 0.48 0 1 0.036

Income: 0-5000 euros 2194 0.71 0.45 0 1 1348 0.7 0.46 0 1 846 0.73 0.45 0 1 0.219

Income: 5001-15000

euros

2194 0.11 0.31 0 1 1348 0.11 0.32 0 1 846 0.1 0.3 0 1 0.331

Income:15001-28000

euros

2194 0.12 0.32 0 1 1348 0.12 0.33 0 1 846 0.12 0.32 0 1 0.745

Income: 28001-55000

euros

2194 0.05 0.22 0 1 1348 0.05 0.22 0 1 846 0.05 0.21 0 1 0.525

Income: more than

5000 euros

2194 0.01 0.09 0 1 1348 0.01 0.09 0 1 846 0.01 0.08 0 1 0.93

Use of internet 2194 1.84 0.36 1 2 1348 1.87 0.33 1 2 846 1.79 0.41 1 2 0.000

Registered by 2 months 2194 0.12 0.32 0 1 1348 0.13 0.33 0 1 846 0.1 0.3 0 1 0.066

Registered between 2

and 6 months

2194 0.35 0.48 0 1 1348 0.37 0.48 0 1 846 0.33 0.47 0 1 0.031


months and 1 year

2194 0.32 0.47 0 1 1348 0.34 0.47 0 1 846 0.31 0.46 0 1 0.145


year and 2 years

2194 0.18 0.38 0 1 1348 0.14 0.35 0 1 846 0.23 0.42 0 1 0.000

Registered since more

than 2 years

2194 0.03 0.16 0 1 1348 0.02 0.15 0 1 846 0.03 0.18 0 1 0.115

Use of websites similar

to BlaBlaCar

2194 0.15 0.35 0 1 1348 0.11 0.31 0 1 846 0.2 0.4 0 1 0.000

Belongingness 2188 3.09 1.23 1 5 1344 3.09 1.23 1 5 844 3.09 1.24 1 5 0.998

Known_through 2187 1.73 0.45 1 2 1343 1.73 0.44 1 2 844 1.72 0.45 1 2 0.54

Feedback 2194 0.93 0.25 0 1 1348 0.94 0.24 0 1 846 0.93 0.26 0 1 0.334

106

Leave_suggestion 2191 0.04 0.2 0 1 1345 0.04 0.19 0 1 846 0.05 0.21 0 1 0.231

Price 2194 4.41 0.81 1 5 1348 4.42 0.8 1 5 846 4.39 0.82 1 5 0.378

Car comfort 2194 2.71 1.13 1 5 1348 2.79 1.14 1 5 846 2.58 1.11 1 5 0.000

Time dep. 2194 4.22 0.9 1 5 1348 4.28 0.88 1 5 846 4.12 0.93 1 5 0.001

Driver feedback 2194 4.35 0.9 1 5 1348 4.45 0.83 1 5 846 4.19 0.98 1 5 0.000

Habits 2194 2.86 1.2 1 5 1348 2.91 1.21 1 5 846 2.78 1.19 1 5 0.016

Known driver 2194 2.73 1.41 1 5 1348 2.87 1.4 1 5 846 2.51 1.38 1 5 0.000

Picture 2194 3.23 1.26 1 5 1348 3.35 1.25 1 5 846 3.05 1.26 1 5 0.000

Driver gender 2194 1.75 0.99 1 5 1348 1.83 1.04 1 5 846 1.62 0.9 1 5 0.000

Meeting people 2194 3.31 1.11 1 5 1348 3.23 1.12 1 5 846 3.44 1.09 1 5 0.000

Conv. better hour 2194 3.61 1.18 1 5 1348 3.66 1.17 1 5 846 3.54 1.19 1 5 0.017

Saving money 2194 4.67 0.64 1 5 1348 4.69 0.63 1 5 846 4.64 0.67 1 5 0.067

Conv. closeness 2194 3.56 1.18 1 5 1348 3.59 1.18 1 5 846 3.5 1.18 1 5 0.054

Conv. time 2194 3.69 1.24 1 5 1348 3.74 1.24 1 5 846 3.61 1.23 1 5 0.023

Polluting less 2194 3.72 1.23 1 5 1348 3.61 1.25 1 5 846 3.89 1.19 1 5 0.000

107

4.2.1 The impact of social media related factors on the frequency of use of BlaBlaCar

In order to understand whether and to what extent social-media related factors have an impact

on the frequency of use of BlaBlaCar.it, we run an generalized ordinal logistic regression.

We consider again people who are only passengers. Correlation matrix are provided in Table

2 (note that only significant correlations at p-value ≤0.05 are shown).

Frequency of use. The dependent variable is represented by the frequency of use of

BlaBlaCar.it that presents four modalities: occasionally, one to two times per month, three to

four times per month, and more than four times per month.

Independent variables. We run a model with only control variables (Model 1). Then, we

distinguished three groups of independent variables. The first group of variables refers to the

importance that the user gives to the social media components of feeling part of the

BlaBlaCar.it community (belongingness), having known BlaBlaCar.it via social media

(known_through), being active on the community providing feedback (Feedback), and having

contacted BlaBlaCar.it for leaving suggestions about how to improve the service

(leave_suggestion). These variables are considered in Model 2.

The second group of variables (Model 3) refers to the importance attributed by hitch-

hikers 2.0 on some factors referring to the choice of a driver. Information is present on the

BlaBlaCar.it site and refers to the price of the lift (price), the level of the comfort of the car

(car comfort), the time of departure (time dep.), the fact that the driver has positive feedback

(driver feedback) and have habits similar to those of hitch-hikers 2.0 (habits), the fact that the

hitch-hiker 2.0 knows the driver (known driver), the presence of the picture of the driver on

the website (picture), and the gender of the driver (driver gender). All these variables have

been measured on a 5-points Liker scale.

A third group of variables adds to the previous model the importance attributed to the

motives that lead the passenger to use BlaBlaCar.it as a passenger (Model 4). The variables

are related to the importance given at meeting people (meeting people), travelling at hours

more convenient than by using other transports (conv. better hour), saving money (saving

money), arriving closer to the point of destination (conv. closeness), arriving earlier at the

point of destination (conv. time), polluting less (polluting less). All these variables have been

measured on a 5-points Liker scale.

Appendix I presents generalized ordered logistic regression for Model 1, Model 2 and

Model 3, while Model 4 (the one we chose) is presented in Table 3. Model 1 considers only

control variables. Model 2 add variables related to the business model. Model 3 adds the

108

importance attributed to specific variables related to the choice of the driver. Finally, Model 4

considers also the importance attributed to the motives of using BlaBlaCar.it as a passenger.

Table 2. Correlation matrix (only significant values are shown)

1 2 3 4 5 6 7 8

1 Frequency: occasionally 1

2 Frequency: 1-2 times per month -0.78 1

3 Frequency: 3-4 times per month -0.36 -0.19 1

4 Frequency: more than 4 times per month -0.22 -0.11 -0.05 1

5 Age 0.11 -0.11 1

6 Gender 1

7 Income: 0-5000 euros -0.04 -0.3 1

8 Income: 5001-15000 euros 0.095 -0.55 1

9 Income:15001-28000 euros 0.047 0.182 -0.58 -0.13

10 Income: 28001-55000 euros -0.06 0.045 0.176 -0.36 -0.08

11 Income: more than 5000 euros 0.1 -0.13

12 Use of internet -0.05 -0.14

13 Registered by 2 months 0.047 -0.06

14 Registered between 2 and 6 months -0.06 0.048

15 Registered between 6 months and 1 year

16 Registered between 1 year and 2 years

17 Registered since more than 2 years

18 Use of websites similar to BlaBlaCar 0.059

19 Hitch-hiking 0.085 -0.05 -0.04 -0.06 0.091 0.045

20 Belongingness -0.28 0.175 0.131 0.115

21 Known_through -0.17 0.064

22 Feedback -0.06

23 Leave_suggestion 0.076 -0.04 -0.04

24 Price -0.14 0.126

25 Car comfort 0.192 -0.12 0.048

26 Time dep. -0.12 0.073 0.059 0.067 -0.1

27 Driver feedback 0.052 -0.06 -0.05

28 Driver habits 0.086 -0.08 0.174 -0.09

29 Known driver -0.11 0.091 -0.07

30 Picture -0.04

31 Driver gender 0.049 -0.06

32 Meeting people -0.05 0.042

33 Conv. (better hour) -0.14 0.065 0.103 0.068 -0.06 0.061

34 Saving money -0.19 0.084

35 I chose to use BlaBlaCar for convenience

(closeness)

-0.09 0.067 0.049 -0.04

36 Conv. time -0.17 0.079 0.135 0.072 -0.08

37 Polluting less -0.06 0.102

109

Table 2. Cont'd

9 10 11 12 13 14 15 16 17 18 19 20 21 22 23

9 1

10 -0.09 1

11 1

12 1

13 1

14 -0.05 -0.27 1

15 0.047 -0.25 -0.51 1

16 0.049 -0.17 -0.34 -

0.32

1

17 -0.06 -0.12 -

0.12

-0.08 1

18 -0.06 -0.13 0.153 0.222 1

19 -0.11 -0.05 0.114 0.128 1

20 -0.06 -0.08 0.098 0.061 1

21 -

0.07

0.084 0.053 -0.09 -0.1 -0.08 1

22 0.049 0.067 1

23 0.063 -0.06 0.05 0.061 -0.06 1

24 -0.06 -0.11 -

0.07

0.049 0.06 0.05 0.046

25 0.083 0.051 -0.1 -0.09 -0.07

26 0.088 0.073 -0.05 -0.09 0.09

27 0.107 0.054 -0.04 -0.07 -0.14 0.129

28 0.052 0.071 0.047 -0.05 -0.05

29 0.065 0.043 0.048 -0.12

30 0.051 -0.05 0.049 -0.04 -0.12 0.065 0.051

31 -0.06 -0.11

32 -0.05 -0.05 0.064 0.094 0.314

110

33 0.052 -0.05 -0.05 0.222

34 -0.08 -

0.08

0.074 0.071 0.068 0.066

35 0.15

36 0.056 -0.05 0.156

37 -0.12 0.05 0.046 0.113 0.188 -0.04 0.063

Table 2. Cont'd

24 25 26 27 28 29 30 31 32 33 34 35 36 37

24 1

25 0.055 1

26 0.185 0.119 1

27 0.145 0.183 0.168 1

28 0.08 0.382 0.119 0.222 1

29

0.281 0.167 0.275 0.255 1

30 0.094 0.288 0.076 0.409 0.257 0.335 1

31

0.171

0.197 0.211 0.348 0.295 1

32 0.076 0.062 0.044 0.042 0.137

0.095

1

33 0.087 0.142 0.347 0.12 0.104 0.084 0.088 0.086 0.184 1

34 0.434

0.144 0.2

0.053

0.046 0.076 1

35 0.09 0.149 0.182 0.116 0.102 0.077 0.091 0.072 0.182 0.425 0.128 1

36 0.083 0.065 0.193 0.087 0.046 0.072 0.055

0.159 0.475 0.108 0.6075 1

37 0.133 0.06 0.051 0.113 0.146

0.082 0.053 0.353 0.268 0.123 0.1777 0.1697 1

111

Table 3. Generalized ordered logistic model (Model 4)

(1) (2) (3)

VARIABLES Occasional

Coeff

(S.E.)

1-2

times/month

Coeff

(S.E.)

3-4

times/month

Coeff

(S.E.)

Age -0.0221*** -0.000811 -0.00111

(0.00543) (0.00746) (0.0129)

Gender -0.0750 -0.0750 -0.0750

(0.0977) (0.0977) (0.0977)

Income: 5001-15000 euros -0.0209 -0.0209 -0.0209

(0.149) (0.149) (0.149)

Income: 15001-28000 euros 0.295** 0.295** 0.295**

(0.147) (0.147) (0.147)

Income:28001-55000 euros 0.645*** 0.645*** 0.645***

(0.204) (0.204) (0.204)

Income: more than 55001 euros -0.0943 -0.0943 -0.0943

(0.554) (0.554) (0.554)

Use of internet 0.0627 0.0627 0.0627

(0.132) (0.132) (0.132)

Registered between 2 and 6 months 0.407*** 0.407*** 0.407***

(0.157) (0.157) (0.157)

Registered between 6 months and 1 year 0.0334 -0.0135 0.609**

(0.163) (0.200) (0.287)

Registered between 1 year and 2 years -0.0522 -0.0522 -0.0522

(0.181) (0.181) (0.181)

Registered since more than 2 years 0.0305 0.0305 0.0305

(0.315) (0.315) (0.315)

Use of websites similar to BlaBlaCar 0.0729 0.176 1.492***

(0.141) (0.204) (0.307)

Hitch-hiking -0.322*** -0.356** -1.174***

(0.103) (0.158) (0.306)

Belongingness 0.503*** 0.503*** 0.503***

(0.0421) (0.0421) (0.0421)

Known_through 0.0963 0.0963 0.0963

(0.105) (0.105) (0.105)

Feedback -0.287 -0.287 -0.287

(0.179) (0.179) (0.179)

Leave_suggestion 0.0356 0.0356 0.0356

(0.225) (0.225) (0.225)

Price -0.0729 -0.0729 -0.0729

(0.0634) (0.0634) (0.0634)

Car comfort -0.0724 -0.0724 -0.0724

(0.0461) (0.0461) (0.0461)

Time dep. 0.164*** 0.164*** 0.164***

(0.0578) (0.0578) (0.0578)

Driver feedback -0.0657 0.119 -0.279**

(0.0608) (0.0891) (0.135)

Habits -0.122*** -0.122*** -0.122***

(0.0432) (0.0432) (0.0432)

Known driver 0.208*** 0.208*** 0.208***

(0.0365) (0.0365) (0.0365)

Picture -0.0970** -0.0970** -0.0970**

(0.0424) (0.0424) (0.0424)

Driver gender -0.146*** -0.227*** 0.129

(0.0528) (0.0834) (0.140)

Meeting people -0.00500 -0.00500 -0.00500

(0.0462) (0.0462) (0.0462)

Conv. better hour 0.0962** 0.0962** 0.0962**

112

(0.0485) (0.0485) (0.0485)

Saving money -0.0777 -0.0777 -0.0777

(0.0815) (0.0815) (0.0815)

Conv. closeness -0.0756 -0.0756 -0.0756

(0.0508) (0.0508) (0.0508)

Conv. time 0.266*** 0.266*** 0.266***

(0.0501) (0.0501) (0.0501)

Polluting less -0.0800* -0.0800* -0.0800*

(0.0418) (0.0418) (0.0418)

Constant -1.370** -4.584*** -5.157***

(0.614) (0.715) (0.891)

Observations 2,181 2,181 2,181

LR chi2 451.82 451.82 451.82

df 43 43 43

Log Likelihood -1904.5105 -1904.5105 -1904.5105

McFadden R2 0.106 0.106 0.106

BIC -12219.497 -12219.497 -12219.497

BIC' -121.259 -121.259 -121.259

Standard errors in parentheses

*** p<0.01, ** p<0.05, * p<0.1

From comparing the models it emerges that Model 4 was the best one since it presents the

lowest BIC’ on its ordinal scale.

Effects on constrained variables are the following. “Positive coefficients indicate that

higher values on the explanatory variable make it more likely that the respondent will be in a

higher category of Y than the current one, whereas negative coefficients indicate that higher

values on the explanatory variable increase the likelihood of being in the current or a lower

category” (Williams, 2006:63). Hitchhikers 2.0 tend to use more frequently BlaBlaCar.it (i.e.

in a less occasional basis) when they have an income between 15001 and 55000, are

registered between 2 and 6 months, the more consider important being part of the community,

the more consider important the time of departure, the more consider important the fact that

they know the driver, the more they consider important travel at hours more convenient than

by using other transports and arrive earlier at the point of destination. Hitchhikers 2.0 tend to

use BlaBlaCar.it more on an occasional basis the more they consider important the fact that

the driver has similar habits to his/her own, the presence of the picture on the website, the fact

that using BlaBlaCar they pollute less.

The unconstrained variables are the following: age, register between 6 months and 1

year, use of similar sites, hitchhiking, driver feedback and driver gender. However, significant

results over the three groups are found only on hitchhiking: who have done hitchhiking before

tend to use BlaBlaCar.it on a more occasional basis than were those who did not hitching

before, but those who have done hitchhiking before were especially unlikely to use

BlaBlaCar.it on a more regular basis.

113

We then estimated the impact on the probability of using more frequently BlaBlaCar.it by

changing values of the significant independent variables, that is, we looked at the impact of

one unit increase of significant predictors on the likelihood of increasing the frequency of use

BlaBlaCar.it distinguishing between people who already have done hitchhiking before (HH)

from those who did not (noHH).

Graph 1 analyses the changes in the probability of using BlaBlaCar.it more frequently,

caused by one unit change in the importance the respondent attributes to feeling part of the

community.

Graph 1. . Predicted probabilities for frequency of hich-hiking 2.0 based on belongingness between former hitch-hikers and

not hich-hikers.

As the importance of feeling part of the BlaBlaCar.it community increases, we note that

the likelihood of becoming a more frequent user of BlaBlaCar.it increases. This effect is

higher for those who have not done hitchhiking before. Similar results are obtained for (see

the Appendix II for the graphs 2-8):

- Graph 2: as the importance of the time of departure (time dep.) increases, we note that

the likelihood of becoming a more frequent user of BlaBlaCar.it increases;

0.2

.4.6

.8

1 2 3 4 5belongingness (HH)

0.2

.4.6

.8

1 2 3 4 5belongingness (noHH)

114

- Graph 4: as the importance of the fact that the hitch-hiker 2.0 knows the driver (known

driver) increases, we note that the likelihood of becoming a more frequent user of

BlaBlaCar.it increases;

- Graph 6: as the importance of travelling at hours more convenient than by using other

transports (conv. better hour) increases, we note that the likelihood of becoming a

more frequent user of BlaBlaCar.it increases;

- Graph 7: as the importance of arriving earlier at the point of destination (conv. time)

increases, we note that the likelihood of becoming a more frequent user of

BlaBlaCar.it increases.

While different results may be noted in:

- Graph 3: as the importance attributed to the fact that driver has habits similar to those

of hitch-hikers 2.0 (habits) increases, we note that the likelihood of becoming a more

frequent user of BlaBlaCar.it decreases;

- Graph 5: as the importance of the presence of the picture of the driver on the website

(picture) increases, we note that the likelihood of becoming a more frequent user of

BlaBlaCar.it decreases;

- Graph 8: as the importance of polluting less (polluting less) increases, we note that

the likelihood of becoming a more frequent user of BlaBlaCar.it decreases.

5. Conclusion

The introduction of Internet has been one of the most influential environmental changes for

business models. The high velocity environment that Internet has created has asked

companies to rethink at their business models considering the new chances deriving not only

from the integration of ICTs in their products and services (Björkdahl, 2009) and in their

marketing (Hanna et al., 2011; Kaplan & Haenlein, 2011), but also in the way they create and

capture value (Mahadevan, 2000; Teece, 2010; Wirtz et al., 2010). Extant research has

focused on the impact of the Internet in creating new Internet-based business models that

resolve mainly around e-commerce, disintermediation and using webpages as a

communication channel. Beyond the first wave of the digital revolution we have assisted at

the beginning of this century, a second wave has more recently arisen, that of web 2.0

technologies that have enabled social media platforms. Extant research has shown that in

dealing with social media one promising venue of research is to understand how companies

115

may change the rules of the game using social media for creating a new business model

(Casprini & Di Minin, forthcoming).

This paper provides an example of a company that has been able to introduce a social

media-based business model. We have seen that BlaBlaCar.com business model (Baden-

Fuller & Haefliger, 2013) has leveraged on seven of the elements identified by Wirtz et al.

(2010), namely the social identity, social trust, virtual word of mouth, increased customer

power, cooperative value generation, user generated content and source of revenues. The

company represents a virtuous example of a start-up that has been able to understand first, and

manage then, the potential of social media, using them for creating a new market, that of

hitch-hikers 2.0.

Social media allow companies to engage more the customer, enabling the creation of

new communities that interact and create market demand and offer, in a former unpredictable

way. From the analysis carried on BlaBlaCar.it, it is shown that BlaBlaCar.it has been able to

reach a previously unreached market, that of people who did not hitchhiking before. Those

people are also those people who will use BlaBlaCar.it more frequently if compared with the

BlaBlaCar.it members who have experienced hitchhiking before. Moreover, in

BlaBlaCar.com business model users play an important role in directing the success of the

offering since both drivers and passengers are engaged with updating information and

providing feedback.

The case analysed shows that social media dimensions, such as the chance to leave

feedbacks, has enabled an existing market, i.e. that of ‘traditional hitchhikers’, to continue to

make hitchhiking but in a 2.0 way, while it has also allowed at the market that did not exist

before (i.e. those who did not made hichhiking before) to become existent (the fact that

BlaBlaCar.it members, also those who have not done hitchhiking before, have answered to the

questionnaire signifies that they are hitchhikers 2.0, i.e. they are hitchhiking now thanks to

BlaBlaCar.it). In particular, we note that among the factors of the new business model that are

considered as more important, that of feeling part of a community, of the importance of the

time of departure, the importance of the fact that the hitch-hiker 2.0 knows the driver, the

importance of travelling at hours more convenient than by using other transports, the

importance of arriving earlier at the point of destination are the most linked to an increase on

the frequency of use of BlaBlaCar.it.

From a managerial point of view, implications are about the importance of engaging

communities in the business model. The key of success seems to rely on providing

customized solutions. In the case of BlaBlaCar.com, for example, people impute high

116

importance on the possibility of choosing the best time schedule for their travel. However,

managers may pay attention since often providing customized solutions and products implies

higher costs. Moreover, BlaBlaCar.com is not a pure social media company in the strictest

sense of the term, such as Facebook, LinkedIn or Youtube (that are platforms built for letting

customers share information and content, while they derive their revenues from ads and

banner). On the contrary, the case analysed shows a company that has integrated social media

in order to reach a new market, via a social-media based business model.

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WEBSITES

http://techcrunch.com/2012/01/16/accel-leads-10m-round-in-european-airbnb-for-car-ride-

sharing-blablacar/

http://techcrunch.com/2012/01/16/accel-leads-10m-round-in-european-airbnb-for-car-ride-sharing-blablacar/

http://techcrunch.com/2012/01/16/accel-leads-10m-round-in-european-airbnb-for-car-ride-sharing-blablacar/

120

APPENDIX I

MODEL 1

(1) (2) (3)

VARIABLES Model 1 Coeff Model 1 Coeff Model 1 Coeff

Age -0.0277*** -0.00993 -0.0110

(0.00497) (0.00702) (0.0127)

Gender -0.110 -0.110 -0.110

(0.0926) (0.0926) (0.0926)

Income: 5001-15000 euros 0.0884 0.0884 0.0884

(0.141) (0.141) (0.141)

Income: 15001-28000 euros 0.395*** 0.395*** 0.395***

(0.139) (0.139) (0.139)

Income:28001-55000 euros 0.698*** 0.698*** 0.698***

(0.192) (0.192) (0.192)

Income: more than 55001 euros 0.158 0.158 0.158

(0.512) (0.512) (0.512)

Use of internet 0.123 0.123 0.123

(0.124) (0.124) (0.124)

Registered between 2 and 6 months 0.378** 0.378** 0.378**

(0.150) (0.150) (0.150)

Registered between 6 months and 1 year 0.172 0.167 0.877***

(0.154) (0.192) (0.281)

Registered between 1 year and 2 years 0.207 0.207 0.207

(0.170) (0.170) (0.170)

Registered since more than 2 years 0.364 0.364 0.364

(0.292) (0.292) (0.292)


(0.131) (0.196) (0.302)

Hitch-hiking -0.303*** -0.424*** -1.071***

(0.0938) (0.151) (0.296)

Constant 0.0263 -2.184*** -3.846***

(0.313) (0.355) (0.499)


LR chi2 101.18 101.18 101.18

df 21 21 21

Log Likelihood -2084.8726 -2084.8726 -2084.8726

McFadden R2 0.024 0.024 0.024

BIC -12334.59 -12334.59 -12334.59

BIC' 60.323 60.323 60.323


*** p<0.01, ** p<0.05, * p<0.1

121

MODEL 2

(1) (2) (3)


Age -0.0277*** -0.00838 -0.00928

(0.00516) (0.00713) (0.0127)

Gender -0.0615 -0.0615 -0.0615

(0.0954) (0.0954) (0.0954)

Income: 5001-15000 euros 0.0580 0.0580 0.0580

(0.145) (0.145) (0.145)

Income: 15001-28000 euros 0.431*** 0.431*** 0.431***

(0.142) (0.142) (0.142)

Income:28001-55000 euros 0.712*** 0.712*** 0.712***

(0.198) (0.198) (0.198)


(0.532) (0.532) (0.532)

Use of internet 0.120 0.120 0.120

(0.128) (0.128) (0.128)


(0.155) (0.155) (0.155)

Registered between 6 months and 1

year

0.0308 -0.000210 0.719**

(0.160) (0.197) (0.284)


(0.177) (0.177) (0.177)

Registered since more than 2 years -0.0278 -0.0278 -0.0278

(0.306) (0.306) (0.306)


(0.136) (0.200) (0.306)

Hitch-hiking -0.343*** -0.441*** -1.061***

(0.0979) (0.153) (0.298)

Belongingness 0.519*** 0.519*** 0.519***

(0.0388) (0.0388) (0.0388)

Known_through 0.107 0.107 0.107

(0.103) (0.103) (0.103)

Feedback -0.313* -0.313* -0.313*

(0.174) (0.174) (0.174)


(0.220) (0.220) (0.220)

Constant -1.409*** -3.779*** -5.488***

(0.435) (0.469) (0.588)


LR chi2 296.89 296.89 296.89

df 25 25 25

Log Likelihood -1981.9766 -1981.9766 -1981.9766

McFadden R2 0.070 0.070 0.070

BIC -12387.442 -12387.442 -12387.442

BIC' -104.702 -104.702 -104.702


*** p<0.01, ** p<0.05, * p<0.1

122

MODEL 3

(1) (2) (3)


Age -0.0200*** -0.0200*** -0.0200***

(0.00524) (0.00524) (0.00524)

Gender -0.0807 -0.0807 -0.0807

(0.0970) (0.0970) (0.0970)

Income: 5001-15000 euros -0.000670 -0.000670 -0.000670

(0.148) (0.148) (0.148)

Income: 15001-28000 euros 0.280* 0.280* 0.280*

(0.147) (0.147) (0.147)

Income:28001-55000 euros 0.658*** 0.658*** 0.658***

(0.203) (0.203) (0.203)


(0.547) (0.547) (0.547)

Use of internet 0.0896 0.0896 0.0896

(0.131) (0.131) (0.131)


(0.157) (0.157) (0.157)

Registered between 6 months and 1 year -0.0174 -0.00936 0.679**

(0.162) (0.199) (0.292)


(0.179) (0.179) (0.179)

Registered since more than 2 years -0.0370 -0.0370 -0.0370

(0.312) (0.312) (0.312)


(0.139) (0.202) (0.311)

Hitch-hiking -0.348*** -0.407*** -1.190***

(0.101) (0.156) (0.294)

Belongingness 0.524*** 0.524*** 0.524***

(0.0397) (0.0397) (0.0397)

Known_through 0.101 0.101 0.101

(0.104) (0.104) (0.104)

Feedback -0.321* -0.321* -0.321*

(0.178) (0.178) (0.178)


(0.223) (0.223) (0.223)

Price -0.0953 -0.0953 -0.0953

(0.0587) (0.0587) (0.0587)

Car comfort -0.0604 -0.0604 -0.0604

(0.0454) (0.0454) (0.0454)

Time dep. 0.240*** 0.240*** 0.240***

(0.0547) (0.0547) (0.0547)

Driver feedback -0.0641 0.110 -0.300**

(0.0596) (0.0897) (0.140)

Habits -0.157*** -0.0244 -0.141

(0.0442) (0.0619) (0.104)

Known driver 0.243*** 0.114** 0.129

(0.0383) (0.0534) (0.0985)

Picture -0.103** -0.103** -0.103**

(0.0420) (0.0420) (0.0420)

Driver gender -0.152*** -0.208** 0.165

(0.0525) (0.0826) (0.139)

Constant -1.306** -3.851*** -4.160***

(0.553) (0.643) (0.786)


LR chi2 402.57 402.57 402.57

df 39 39 39

123

Log Likelihood -1929.1369 -1929.1369 -1929.1369

McFadden R2 0.094 0.094 0.094

BIC -12308.620 -12308.620 -12308.620

BIC' -102.756 -102.756 -102.756


*** p<0.01, ** p<0.05, * p<0.1

124

APPENDIX II

Graph 2. Predicted probabilities for frequency of hich-hiking 2.0 based on importance attributed to time of departure

between former hitch-hikers and not hich-hikers.

Graph 3. Predicted probabilities for frequency of hich-hiking 2.0 based on importance attributed to driver’s habits between

former hitch-hikers and not hich-hikers.

0.2

.4.6

.8

1 2 3 4 5time dep. (HH)

0.2

.4.6

.8

1 2 3 4 5time dep. (noHH)

0.2

.4.6

.8

1 2 3 4 5habits (HH)

0.2

.4.6

1 2 3 4 5habits (noHH)

125

Graph 4. Predicted probabilities for frequency of hich-hiking 2.0 based on importance attributed to known the driver before

between former hitch-hikers and not hich-hikers.

Graph 5 Predicted probabilities for frequency of hich-hiking 2.0 based on importance attributed to have the picture of the

driver shown on website between hitch-hikers and not hich-hikers.

0.2

.4.6

.8

1 2 3 4 5known driver (HH)

0.2

.4.6

.8

1 2 3 4 5known driver (noHH)

0.2

.4.6

.8

1 2 3 4 5picture (HH)

0.2

.4.6

1 2 3 4 5picture (noHH)

126

Graph 6. Predicted probabilities for frequency of hich-hiking 2.0 based on importance of travelling at hours more convenient

than by using other transports between former hitch-hikers and not hich-hikers.

Graph 7. Predicted probabilities for frequency of hich-hiking 2.0 based on importance of arriving earlier at the

point of destination between former hitch-hikers and not hich-hikers

0.2

.4.6

.8

1 2 3 4 5conv. better hour (HH)

0.2

.4.6

1 2 3 4 5conv. better hour (noHH)

0.2

.4.6

.8

1 2 3 4 5conv. time (HH)

0.2

.4.6

.8

1 2 3 4 5conv. time (noHH)

127

Graph 8. Predicted probabilities for frequency of hich-hiking 2.0 based on importance of polluting less between

former hitch-hikers and not hich-hikers

Legend:

0.2

.4.6

.8

1 2 3 4 5Polluting less (HH)

0.2

.4.6

1 2 3 4 5Polluting less (noHH)

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