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Continuous business model adaptation: The case of a high-growth Swedish textile company
Jönköping University, Jönköping International Business School, JIBS, ESOL (Entrepreneurship, Strategy, Organization, Leadership). Swedish School of Textiules, Borås.
Swedish School of Textiles, Borås.
2012 (English)Conference paper, Published paper (Refereed)
Place, publisher, year, edition, pages
2012.
Keyword [en]
entrepreneurship, growth, business model, path dependence, real options
National Category
Business Administration
Identifiers
URN: urn:nbn:se:hj:diva-22649OAI: oai:DiVA.org:hj-22649DiVA: diva2:676936
Conference
G-Forum. 16th Annual Interdisciplinary Entrepreneurship Conference, 8-9 November, Potsdam, Germany
Note

Continuous business model adaptation  The case of a high-growth textile company  (extended abstract) It is only recently that research on business models has become a topic in major journals (Chesbrough 2010; George & Bock 2011; Pauwels & Weiss 2008; Teece, 2009; Zott & Amit 2007, 2008). For several reasons, the business model topic is particularly interesting to entrepreneurship research. Newly started companies need a business model in order to achieve success in the market. When it comes to entrepreneurial processes, shaping a business model is closely linked to opportunity creation (George & Bock 2011).  As the academic discourse on business models is still quite young, it is little suprising that the field is still characterized by fragmentation and conceptual unclarities (Morris et al. 2005; George & Bock 2011). With our paper we want to address to aspects of business models that are still insufficiently understood, namely (1) the dynamic adaptation of business models to a changing context and (2) the role of individual entrepreneurs in the creation and adaptation of business models. While some scholars acknowledge the need of adapting business models in principle (Doz & Kosonen 2009; Johnson, Christensen & Kagermann 2008), it is still rather common to treat business models as a static phenomenon. Despite of its significance for entrepreneurship, much of the literature on business models is surprisingly depersonalized. Organizations as abstract entities are supposed to develop business models, while we know little about how these relate to the resources and characteristics of entrepreneurs and what role entrepreneurs play in developing and adapting business models. The objective of our paper is thus to explore how a business model develops and changes over time in an entrepreneurial firm and what role individual entrepreneurs play in this process. Empirically, we are going to study Oxeon, a young Swedish firm producing hi-tech textiles that has received a lot of attention as a successful entrepreneurial company. Frame of reference Being a buzzword during the time of the dot com bubble (Magretta 2002), the ‘business model’ concept has become widely used among practitioners and in practitioner-oriented outlets. The normatively oriented literature on the topic essentially suggests that the choice (and potentially the redesign) of the business model is a key to business success (Casadesus-Masanell & Ricart 2011; Johnson et al. 2008; Magretta 2002). So far, research on business models suffers from a lack of consensus as to what business models actually refer to (Morris et al. 2005), leading to a fragmented body of knowledge (George & Bock 2011). Stemming from practice, the concept is used independently from theory, leading to continued conceptual obscurity (Hedman & Kalling 2003). There have been attempts to bring more clarity and coherence to the use of the business model concept, most notably George & Bock’s (2011) recent article where they both review the existing business model literature and make an attempt to investigate how practitioners actually use the concept. Their literature review identifies six major themes, focusing on product and service design, the deployment of resources, narrative accounts of business models, innovation frameworks, transaction structures, and the enactment of opportunities. The findings relating to practitioners’ business model conceptions are no less diverse, yet they identify an emphasis on the pursuit of opportunities. A general problem of this diversity is that ‘business model’ can refer to more or less anything relating to the firm and its business. For instance Hedman & Kalling’s (2003) proposed framework includes aspects such as customers, competitors, organization, offerings, resources, inputs, and processes. As a result, George & Bock (2011), warn that it may be difficult to distinguish business models from other management concepts such as strategy. Their solution is to propose a business model definition related to the enactment of opportunities.  One aspect that seems to be more specific to the business model concept is that of value creation and revenue generation (Brunninge & Achtenhagen 2011) or the logic of profit generation (Morris et al. 2005). It emphasizes the commercial side of opportunity enactment and underlines the need of finding an approach of turning ideas into revenue generating businesses. Drawing upon George & Bock (2011) as well as Morris et al. (2005) we define business models as a logic of profit generation relating to the enactment of a business opportunity.  Method As indicated initially, our emphasis in this paper lies on the development and change of business models as well on the role of entrepreneurs in such processes. In order to cope with these shortcomings we have conducted a longitudinal single case study of an entrepreneurial firm. Case studies are particularly suited for research on change processes, as they capture longitudinal developments in context (Pettigrew 1990, 1997). As they allow for empirically-based exploration, they are particularly suited for relatively novel research topics (Eisenhardt 1989) such as business models.  Our case company Oxeon, was founded in 2003 by a team of three entrepreneurs and is based in Borås/Sweden. It has so far been focusing on developing, producing and marketing a specific type of carbon-fiber based composite textiles. Two members of the entrepreneurial team were students to one of the authors of this paper, who has been able to follow the development of Oxeon since the time before the company’s formal start-up. Over time, the entrepreneurs have documented the development of their firm and in particular its business model. We have had access to this written documentation. In addition we conducted semi-structured interviews with all three entrepreneurs. Based on the data, we constructed a case study covering the development of the firm over a period of 10 years.  The empirical case  In 2002 a researcher at Chalmers University of Technology in Gothenburg presented an innovative idea of waving composite materials to students at Chalmers School of Entrepreneurship. The researcher had tried to commercialize the idea by licensing the technology earlier, but he lacked the business and marketing knowledge to do this successfully. Four students were assigned to develop the ide into a company. Initially the idea was geared towards composite materials, but there were also options of using it for geotextiles and for ballistic purposes. Together with the researcher they founded a company named Oxeon in 2003.  When exposed to potential customers at an annual composite fair in Paris 2003, the startup team decided to focus composites. The reason for this was that composites left a wide range of options for future development. Composites could be based on either carbon fiber, glass or special fiber materials. After having conducted some market research the startup team decided to go for carbon fiber. These seemed to offer the best business opportunities, including specialized materials and applications that promised to generate business and profits quickly. In order to have something concrete to offer potential customers, a first prototype was created. There was immediate interest from several companies, including  BMW. However, practical problems started to arise since it was impossible to buy raw materials from external suppliers as the company had originally planned. As there was a lack of high quality carbon tape that could be used as raw material, Oxeon needed to start producing the tape by themselves. It was also difficult to find a suitable weaving machine in the market, Oxeon also had to construct and build the machine.  After some years at the University Business Incubator, the company moved the company to Borås, a city not far from Gothenburg, located in the middle of the Swedish textile cluster. After increasing the production capacity and adding new patent rights into the company the company now had patents within technology, production equipment and material. Additional business opportunities have been pursued and today the company is both producing and licensing production to multinational companies. In 2010 the company was elected Gazelle – i.e. the fastest organically growing company in Sweden over a three year period, and was the runner-up in 2011. Customers today include Formula 1 teams, the ice hockey equipment manufacturer Bauer hockey and various other multinationals. Analysis Over the years, Oxeon has constantly been developing and adapting its business model. Some of the changes have related to the basic choice of markets to serve and products to offer. From the beginning there was a wide range of applications for Oxeon’s core technology. While this range was subsequently narrowed down to composites, the company was also eager to make sure that as many business opportunities as possible remained open. A second category of changes refer to the part of the value chain that is covered by Oxeon. While the founders saw the company as a producer and potentially marketer of woven composite materials, they soon realized that they needed to produce both raw materials and machines in order to deliver high quality. This has resulted in a number of patents that constitute opportunities for further business. Thirdly, Oxeon also has changed its marketing approach. While the initial focus was on in house manufacturing the company now licenses its products.  Oxeon’s flexibility to adapt the business model and to pursue new business opportunities is not mere chance, but rather the result of the desire to make strategic choices that leave open the widest possible range of future opportunities and create as few restrictions as possible. While the company does not follow an explicit real options approach to strategy, the mentality towards adapting the business model nevertheless resembles a real options logic. When, in its early years, the firm had to choose to focus on a certain category of materials, composites were chosen as they promised a wide range of future business opportunities. The choices to produce tape and to construct manufacturing equipment were made by necessity in the beginning, yet they opened new business opportunities related to the patents Oxeon was able to get. While by definition not all open opportunities can be pursued from the beginning, they constitute a pool of opportunities that creates a wide range of options for future business model adaptations.  Conclusions & implications Our paper provides in-depth insight into the development process of an entrepreneurial firm’s business model. The Oxeon case reveals that any change in a business model enables and constrains the pursuit of future business opportunities. Entrepreneurs who are aware of this, can adapt their business model in a way that always keeps a wide range of business opportunities open. The eventual choice of which business opportunity to pursue. The case also shows that the characteristics and capabilities of the individual entrepreneurs open up as well as delimit the options for business model choices. In the initial setting the inventor of the technology tried to commercialize his idea through licensing. It was not until the entrepreneurial team was broadened that Oxeon could be started up as a company actually producing and selling products.  So far the business model literature included few in-depth longitudinal studies exploring the dynamic adaptation of business model and the role of individual entrepreneurs in such processes. With our paper we show how the development of a business model evolves over time and how entrepreneurs can maintain a high flexibility in their business model by keeping options for a wide spectrum of future choices open. 

 

Key references Achtenhagen, L. & Brunninge, O. (2011). Dynamische Geschäftsmodellanpassung zur Sicherung der unternehmerischen Nachhaltigkeit. Pp. 131-141 in Meyer, J.A. (ed.) Nachhaltigkeit in kleinen und mittleren Unternehmen. Lohmar: Josef Eul Verlag.  Casadesus-Masanell, R. & Ricart, J.E. (2011). How to design a winning business model, Harvard Business Review, 89(2), 100-107). Chesbrough, H. (2010). Business model innovation. Opportunities and barriers, Long Range Planning, 43, 354-363. Doz, Y.L. & Kosonen, M. (2009). Embedding strategic agility. A leadership agenda for accelerating business model renewal. Long Range Planning, 43(2-3), 370-382. Eisenhardt, K.M. (1989). Building theory from case study research. Academy of Management Review, 14, 532-550. George, G. & Bock, A.J. (2011). The business model in practice and its implications for entrepreneurship research, Entrepreneurship Theory & Practice, 35(1), 83-111. Hedman, J. & Kalling, T. (2003). The business model concept. Theoretical underpinnings and empirical illustrations, European Journal of Information Systems, 12, 49-59. Johnson, M.W., Christensen, C.M. & Kagermann, H. (2008). Reinventing your business model, Harvard Business Review, 86(12), 50-59. Magretta, J. (2002). Why business models matter. Harvard Business Review, 80(5), 86-92. Morris, M, Schinderhutte, M. & Allen, J. (2005). The entrepreneur’s business model. Toward a unified perspective, Journal of Business Research, 58, 726-735. Pauwels, K. & Weiss, A. (2008). Moving from free to fee: How online firms market to change their business model successfully, Journal of Marketing, 72(3), 14-31.  Pettigrew, A.M. (1990). Longitudinal field research on change. Theory and practice. Organization Science, 1, 267-292. Pettigrew, A.M. (1997). What is processual analysis? Scandinavian Journal of Management, 13, 337-348. Teece, D.J. (2010). Business models, business strategy and innovation, Long Range Planning, 43, 172-194.  Zott, C. & Amit, R. (2007). Business model design and the performance of entrepreneurial firms, Organization Science, 18(2), 181-199. Zott, C. & Amit, R. (2008). The fit between product market strategy and business model. Implications for firm performance, Strategic Management Journal, 29, 1-26.

Available from: 2013-12-08 Created: 2013-12-08 Last updated: 2015-10-14

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