Understanding the Impact of Technology on Firms’ Business Models

Understanding the impact
of technology on firms’
business models
Se ́rgio Andre ́ Cavalcante
Aarhus School of Business – ASB,
Centre for Organizational Renewal and Evolution – CORE,
Aarhus University, Aarhus, Denmark
Abstract
Purpose – The purpose of this paper is to identify the impact of a new global positioning technology
on firms’ business models.
Design/methodology/approach – The empirical setting was a consortium of Danish organizations,
established to develop a positioning-based technology platform as a basis for innovative commercial
products and/or services. Three of the consortium companies were selected for case-study research.
Findings – The main findings were that companies will use the new technology to extend their
existing business models, and that the technology platform potentially represents the creation of a
new business model for the partner companies in the consortium.
Practical implications – This paper is important in that it will help companies understand
technological impact from a business model perspective, thereby enabling them to manage innovation
better by distinguishing between the creation, extension, revision or termination of business models.
Originality/value – The main contribution of this study is its use of the business model perspective
to analyse the impact of an emergent technology on companies’ innovation activities. This perspective
makes it easier to develop strategic initiatives while managing innovation, and underlines the
importance of purposive human action in adopting a proactive behaviour, reducing deterministic
views on technological impact.
Keywords Business model, Technological impact, Innovation management, Change, Processes,
Companies, Denmark
Paper type Case study
1. Introduction
Companies often analyse the commercial potential of new technologies by means of such
techniques as Scenario and PESTEL analyses (Ho and Chen, 2009; Lynch, 2009), and the
Delphi technique (Rowe and Wright, 1999). The aim of most of these techniques is to
acquire an overview of market in terms of overall size and potential competitors, but they
do not specifically analyse how the new technology will affect the organisation internally.
Although many companies have successful business models, they often stumble when
faced with the emergence of new technologies (Christensen, 1997). Scholars have defined
the term business model in different ways (Shafer et al., 2005), and acknowledge that they
change over the years (Voelpel et al., 2004; MacInnes, 2005; Chesbrough, 2007; Cavalcante
et al., 2011). The aim of this research, which examines how a number of Danish companies
deal with an emergent new technology, is to analyse technological impact at the internal
organisational level, focusing specifically on the companies’ business models.
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1460-1060.htm
European Journal of Innovation
Management
Vol. 16 No. 3, 2013
pp. 285-300
r Emerald Group Publishing Limited
1460-1060
DOI 10.1108/EJIM-10-2011-0085
The author would like to gratefully and sincerely thank Peter Kesting for reading previous versions
of this paper and sharing ideas and suggestions for improvements, and Ana Luiza de Arau ́jo
Burchart, who also gave important comments and insights for making the paper better. The author
would also like to express gratitude to John Parm Ulhøi for his ongoing support to the research.
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A Danish consortium was recently established to identify ways of exploiting a new
satellite-based positioning technology, which will be available in 2013/2014. The future
impact of this new technology on the business models of these firms is the focus of this
research. This new positioning technology, known simply as “Galileo technology”, is
being developed in the context of the Galileo Programme – a joint initiative by the
European Commission and the European Space Agency (ESA) (2005). From a layman’s
point of view, Galileo will basically be no different than existing GPS technology.
However, it has the potential to improve on GPS in terms of availability, accuracy and
reliability of signals. Thus, the expectations are that this new technology will
considerably broaden innovative commercial applications in such diverse industries as
energy, finance, agriculture, banking and environmental management (ESA, 2005).
The research question guiding this study is: how will the new Galileo technology affect
the companies’ business models? The view here is that much of the impact depends on the
extent to which companies use the technology in new applications (Adner and Levinthal,
2002). In other words, that technological impact is closely related to companies’ innovation
activities. This study adopts a dynamic view of business models, i.e. a business model
might be changed more incrementally on some occasions and more radically on others.
Cavalcante et al.’s (2011) process-based business-model change framework, which links
business model change to the innovation activities of companies by distinguishing
between four different types of business model change, is used to guide a qualitative
investigation. The theoretical framework helps understand which kind of business model
change will take place in the companies selected for the study.
The main contribution of this research is to use the business model perspective for a
prospective analysis of the impact of a new technology on the innovation activities of
companies. This allows a more proactive view of how individuals initiate different courses
of actions while managing innovation, and at the same time gives a more non-deterministic
view of technological impact. The remainder of the paper is organised as follows. Section 2
reviews the literature on prospective analyses of the impact of new technology, the
difficulty of companies changing in more fundamental ways, and business model change,
which are the central topics of this study. This section also discusses basic notions
about the development of technological platforms and collaborative initiatives as a way of
better understanding the joint work of the consortium companies. Section 3 presents the
framework which guides the empirical study, the research setting, data collection and
analysis and the main findings. Section 4 discusses companies’ extension of their business
models, the technology platform as a potential new business model and the importance of
using the business model perspective to foresee technological impact. Section 5 presents
the conclusion, limitations of the study, and suggestions for further research.
2. Review of the literature
Companies use a variety of approaches to analyse the potential impact of new
technologies. Scenario and PESTEL analyses, for example, are two analytical
approaches that companies often use. Scenario analysis is used for a generic analysis
of possible future environments and strategic thinking on possible consequences in a
context of uncertainty (Ho and Chen, 2009; Lynch, 2009). PESTEL analysis is a specific
checklist on political, economic, socio-cultural, technological, environmental and legal
aspects. One approach that can be used for a variety of purposes, from the prediction of
trends in science and technology to decision-making in different situations (Rowe and
Wright, 1999), is the Delphi technique, which uses questionnaires to collect opinions
from a group of experts and derive a consensus. Another analytical approach is
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“technology roadmapping”, a time-based layered chart (examples of layers are market,
products, technology and resources) which can be used for different purposes, e.g.
product planning, strategic planning and knowledge-asset planning (Abe et al., 2009;
Phaal et al., 2004). Christensen (1997) suggests an analytical approach that takes into
account possible market demand and the technology’s trajectory. Adner and Levinthal
(2002) suggest that disruption is not an intrinsic characteristic of the technology itself –
rather, disruption is dependent on the application of the technology in new domains.
Although companies analyse the potential “threat” of new technologies in the market,
they rarely take this opportunity to renew themselves more fundamentally. Cognitive
aspects are helpful in explaining why companies fail to change (Huff et al., 2001). Baron
and Hannan (2002) and Baron et al. (1996) describe how the mental models (or
“blueprints”) of the founders of new ventures influence how they design their businesses.
According to these authors, initial choices become imprinted in the nascent companies,
shaping their subsequent evolution. Tripsas and Gavetti (2000) describe how the strong
beliefs of top managers at Polaroid long influenced the way the company did business.
Organisational inertia, i.e. the forces which hamper companies’ ability to make structural
changes in the face of environmental threats (Hannan and Freeman, 1984; Kelly and
Amburgey, 1991), and organisational routines (Pentland and Feldman, 2005), which play
a significant role in path-dependence, are two other major factors that help explain why
established companies have difficulty in changing when faced by the emergence of new
technologies. Christensen (1997) argues that companies tend to satisfy the demand of
their current customers, i.e. it is difficult for them to explore new markets. For this
reason, it is often entrant companies which use new technologies to change the
“dominant logic” (Prahalad, 2004), which often results in successful companies, with
successful business models, failing. Thus, it is necessary to carry out prospective
research using an internal analytical perspective. In this research, the analytical
perspective is the impact of a new technology on the business models of firms.
Research on business models has long focused on the identification and definitions of
central components (see e.g. Shafer et al., 2005). Many scholars have incorporated various
central components into their definitions of what a business model is, leading to
numerous concepts of the term (for a sample of definitions of the term business model,
see Morris et al., 2006). Given the lack of consensus, therefore, Cavalcante et al. (2011)
have suggested that the identification of central components should only take place after
a conceptual understanding of what a business model is has been agreed. They define a
business model as “an abstraction of the principles supporting the development of a
firm’s core repeated processes”. This process-based view of business models facilitates
the operationalisation of the business model construct. For example, a central component
of the firm’s business model could be described in terms of the component’s core repeated
processes. This is in line with the idea that a conceptual understanding is necessary
before an identification of central components of a business model.
However, it is not enough merely to identify and describe central components of a
firm’s business model. It is also essential to understand the dynamics of a business
model, i.e. how a business model changes over time. There is increasing research on
how to change a firm’s business model, and some frameworks to guide business model
change can be found in the literature. Voelpel et al. (2004), for example, present a
framework for the development of new business models based on four dimensions
(customer sensing, technology sensing, business infrastructure sensing and economic/
profitability sensing). MacInnes (2005) has developed a framework for the specific case
of emergent technologies, taking into account different stages and specific problems to
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overcome, e.g. technical problems (in stage one) and environmental problems (in stage
two). Chesbrough’s (2007) framework suggests different stages in the evolution of a
business model, each with specific characteristics. Reuver et al. (2009) investigate the
most important drivers of business model change, pointing out that they vary
according to the different stages of a business model. Cavalcante et al.’s (2011) process-
based framework for business model change is mainly based on the idea that there are
four types of business model change (business model creation, extension, revision or
termination), each with different challenges to overcome. It will be necessary to select
one of the existing frameworks to conduct an empirical study on the future impact of
the emergent Galileo technology on the business models of firms.
In this research, an “emergent” technology is simply considered as nascent, i.e. still
under development, with technical characteristics not yet precisely established (as with
Galileo technology), and it will be a “new” technology when it becomes available on the
market. The recently established Danish consortium is an example of companies trying to
develop a technology platform to enable them to develop innovative commercial products
and/or services (when the new technology becomes available, in 2013/2014). There is an
increasing tendency for technologies to be developed for more general commercial use
(Gambardella and McGahan, 2010), and for companies to develop new technologies
through platforms, especially in high-tech industries (Gawer, 2009). A technology
platform involves a few stable components with a high degree of reusability (Baldwin and
Woodard, 2009) and “rules” such as standards to ensure compatibility between the
components and protocols that govern information exchange (Eisenmann et al., 2009).
After the creation of a new platform, it is necessary to develop it over time, to increase the
demand for its services, and to obtain adequate returns (Cusumano and Gawer, 2002;
West, 2003). Thus, Teece (2010) argues that an essential element of value capture is
business model design, whereas Miles et al. (2010) say that the newest organisational
form is collaborative based. Marshall (2004) notes that interorganisational collaboration is
not easy to manage, and that joint initiatives present significant challenges. Gupta et al.
(2006) emphasise the role of leaders in creating network environments.
3. Method
3.1 Case studies using a theoretical framework
The research approach used in this study is the qualitative case study approach. Case
studies investigate a contemporary phenomenon in its own context (Yin, 1981), and are
appropriate when such phenomena are not yet well understood. The main idea of this
research was to contact companies and, based on a theoretical framework, understand
and identify how the Galileo technology will affect their business models. Thus, one of
the initial steps was to select a business-model change framework available in the
literature to guide the empirical investigation.
Although Voelpel et al. (2004), MacInnes (2005), Chesbrough (2007) and Reuver et al.
(2009) offer valuable frameworks and different insights into the dynamics of a firm’s
business model, Cavalcante et al.’s (2011) process-based framework was chosen to
guide this investigation. The main reason for this was the parameter of analysis that
their framework offers to identify the boundaries of a firm’s business model. The
operationalisation of business model change is easier when adopting their suggestion
of core repeated processes as the boundaries of the firm and their belief that companies’
innovation activities can affect these boundaries. In this research, the boundaries
will facilitate a prospective analysis of the impact of technology on the firms’
business models. In their process-based view of business models, Cavalcante et al.
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