An Analysis of Business Models: Firm Characteristics, Innovation and Performance

INTRODUCTION As industries mature, firms tend to converge on a small number of dominant logics for conducting their activities, as reflected in industry-wide dominant business models. As global competition increases and profits dissipate, however, competitive advantage is increasingly sought for through breaking established industry recipes and engaging in business model innovation (henceforth BMI). Companies such as Dell, IKEA, Starbucks, and AutoNation are famous examples of companies in traditional industries that have risen to industry leadership primarily through their introduction of BMIs. The academic interest in the business model concept has increased sharply in recent years (George & Bock, 2011), including the study of BMI (cf. Zott & Amit, 2008). Most of this work has remained conceptual, drawn from well-known examples, or based on case studies. Researching business models is empirically challenging; the business model concept is very complex making it difficult to measure and evaluate. To the extent that innovation in business models has been subjected to systematic empirical testing, we are only aware of one single study that identifies BMI (Zott & Amit, 2007). This paucity of systematic scholarly enquiry seems at odds with the extensive anecdotal evidence and popular viewpoints. Another common feature of business model research is the focus on high technology industries (Andries, Van Loog, Lecocq, & Debackere, 2007; Bonaccorsi, Giannangeli, & Rossi, 2006. Amit & Zott, 2001). For example, business model innovation has been acknowledged in eBusiness (Amit & Zott, 2001). In these industries, managers have a wide repertoire of strategic responses available to them in response to environmental changes, including innovation of products, processes and/or the business model. Thus, from a research viewpoint it is difficult parse out the extent to which they engage in BMI specifically and the performance implications of BMI. We suggest that scholars have generally overlooked the potential impact of innovative business models in more typical, less technology intensive, industries. For our research, we take a different tack and examine an industry where products and processes are homogeneous and remain quite stable over time. For this industry, innovation has mainly been related to the business model. By doing so, we are able to systematically examine the business model and work to identify models that are more innovative. We focus on the winery industry. In this industry, the core product has remained relatively unchanged for hundreds if not thousands of years. It would be difficult to identify any industry that is devoid of technological changes. However, the basic process for making wine remains largely the same. Business models, however, have changed substantially. This research provides a number of important contributions to our understanding of business models. Prior research has noted the importance of BMI, but these assertions have rarely been subjected to systematic empirical assessment. We further develop this research stream by identifying firm characteristics that were associated with innovative business models, by linking BMI with performance and by testing these relationships empirically. Additionally, rather than subjectively assessing business model novelty (cf. Zott & Amit, 2007), we identify several dominant business models in the industry and only consider those business models that significantly deviate from these as BMIs. It is important to identify the firms that break from the normal path, as these firms may be the source of the next industry marketplace revolution (Christensen & Raynor, 2003). For theory, there has been a noted literature gap to address why firms may perform the same functions but have differing results (Murmann, Aldrich, Levinthal, & Winter, 2003). Our research confirms this and an important contribution we noted is that individual activities need to be considered in terms of how they were structured together to form a business model. …