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The Business Model Innovation Process Henrik Jensen The Business Model Innovation Process Three studies on advertisers, media agencies, and TV broadcasters Industrial PhD dissertation submitted by Henrik Jensen Department of Social Sciences and Business Academic supervisor: associate professor Kristian Sund Business supervisor: commercial director Kasper Kryger ISSN no. 0909-9174 Foreword This dissertation is about business model innovation and the business model innovation process. After an English and Danish abstract of the findings, the dissertation is divided into two separate parts: synopsis and papers. The latter consist of three academic studies or scientific articles, of which two have been published as of November 2018. The synopsis is a summary of the relationship between the three studies and their contribution to the entire PhD dissertation. Furthermore, it provides additional information about and discussions of the background, methods, and results that are not presented in the scientific articles. The journey for this dissertation started in April 2013, when I, a former executive from the media industry, read an article in a Danish business newspaper in which a professor in media management claimed that media organizations were facing significant business challenges and would benefit from applying industrial PhD candidates. Several actors deserve thanks for making this journey happen: Discovery Networks, undertaking a PhD project for the first time ever globally, and, from Roskilde University, my supervisor, Kristian Sund, and, for his initial support, Søren Jagd. However, my biggest thanks are due to my fantastic wife, Lone, who supported the journey all the way! After more than three years of studies, I am confident that the phenomenon of business model innovation provides some key answers to the question of how firms can survive in both the short and the long term. Business model innovation really matters! 1 Abstract Academic interest in business model innovation has accelerated in the past decade. The legitimacy of studying the phenomenon is driven by the fact that business model innovation improves firm performance. When a firm changes from its current business model to a novel business model, the journey is considered to be a business model innovation process. Multiple academic reviews have pinpointed an improved understanding of the process that firms undertake on the journey from one business model to another as a gap in the existing literature. The objective of this dissertation is to contribute to an improved understanding of the business model innovation process for incumbent firms. The empirical field of investigation in this dissertation involves three groups of actors in the advertising industry: the media, in terms of TV broadcasters; agencies, in terms of media agencies; and advertisers, in terms of firms that advertise. The actors studied can be classified as incumbents and belonging to the traditional media industry, in which advertising is a fundamental source of revenue and internet-based innovations since the mid-1990s have created major transformations of actors’ business models. The dissertation is article-based, containing three specific studies of advertisers, media agencies, and TV broadcasters. The three studies are complementary in their methodology, since they provide a historical, current, and future perspective on the business model innovation process phenomenon. The applied research method is a combination of a multiple-case study, a modified Delphi method, and a survey. The respondents in the studies are characterized as being based mainly in Denmark but with regional responsibilities or perspectives. In the study of media agencies, a process model describing how agencies have altered their business model over a decade is developed. Three separate stages in the process are identified: business model innovation awareness, business model exploration, and business model exploitation. The study finds that the different building blocks of the business model are a focal point of innovation in 2 each stage of the business model innovation process. In the study of TV broadcasters, programmatic advertising is found to be an emergent technology that has the potential to disrupt and transform the business model of TV broadcasters. Thirteen implications for the business model of TV broadcasters are identified. The short-term implications focus on altering the components’ value proposition and key partnerships. Instead of looking backwards, the study documents how the Delphi method, combined with a content analysis with meta-analysis characteristics, can provide an assessment and predictions of the future implications of a given technological disruption. In the study of advertisers, 13 marketing challenges that advertisers are currently facing are identified. The majority of these challenges are internal and linked to missing capabilities as well as issues of organizational design. The study finds that technology-based actors, such as digital agencies, along with Facebook and Google, are the novel key partners for advertisers in their value creation. Beyond the contributions from the three single studies, this dissertation contributes five areas of theoretical implications that advance the business model innovation process field: (1) the definition of a business model innovation process; (2) business model innovation as a three-stage process model; (3) the business model innovation process and the business model components; (4) the business model innovation process and the dimensions of business model innovation; and (5) new technology as the primary driver of business model innovation. A practical implication from this dissertation is a study on the future business model for agencies in Denmark. The study combines the academic literature on business models and business model innovation with the opinion of experts within the agency business. The study has been very well received by practitioners. In a narrow empirical context, the study provides evidence that it is possible for academia to create practical relevance and guidance with the investment of limited resources. 3 Dansk resumé Den akademiske interesse for innovation af forretningsmodeller er steget markant i det seneste årti. Årsagen til interessen skyldes, at innovation af forretningsmodellen forbedrer virksomhedernes resultater. Når en virksomhed går fra deres nuværende forretningsmodel til en ny, er der tale om en forretningsmodels-fornyelses-proces. På engelsk hedder det en ”business model innovation process”. Flere gennemgange af den akademiske litteratur peger på, at en bedre forståelse af den proces virksomheder går igennem på rejsen fra en forretningsmodel til en anden, er et område, som kræver mere forskning. Ambitionen med denne afhandling er at bidrage til forskningen indenfor det område, som på engelske kaldes ”business model innovation process”. Det empiriske undersøgelsesområde for afhandlingen er tre grupper af aktører indenfor salg af medie og reklame: medievirksomheder i form af Tv-stationer, bureauer i form af mediebureauer og annoncører i form af virksomheder, som annoncerer. De undersøgte aktører kan karakteriseres som etablerede og tilhørende mediebranchen. En branche hvor salg af reklamer er en grundlæggende indtægtskilde, og hvor innovationer, som følge af internettets indtog siden midten af 90’erne, har skabt markante forandringer af forretningsmodellerne. Afhandlingen er artikel-baseret med tre særskilte studier af annoncører, mediebureauer og tv-stationer. De tre studier er metodisk komplementære, idet de giver et historisk, nutidigt og fremtidigt perspektiv på processen. Endvidere anvendes en kombination af kvantitative og kvalitative metoder, idet der gennemføres et case-studie med flere aktører, en tilpasset Delphi-metode samt en spørgeskemaundersøgelse. Respondenterne i studierne er karakteriseret ved i overvejende grad at være baseret i Danmark, men med et regionalt ansvar eller perspektiv. I studiet af mediebureauerne udvikles en proces model, som beskriver, hvordan bureauerne har forandret deres forretningsmodel over et årti. Tre separate faser i processen identificeres: Forretningsmodel-fornyelses-opmærksomhed, forretningsmodel-udvikling, forretningsmodel- 4 udnyttelse. Undersøgelsen finder frem til, at de forskellige komponenter i en forretningsmodel er et fokusområde for fornyelsen i hver af de tre faser i processen. Studiet af Tv-stationerne viser, at programmatisk reklame er en ny teknologi, som har potentialet til at disrupte og transformere forretningsmodellen for Tv-stationer. 13 forskellige implikationer identificeres. På kort sigt er implikationerne forandringer af Tv-stationernes værditilbud samt de vigtigste partnere. Fremfor at kigge bagud dokumenterer studiet, hvordan Delphi-metoden, kombineret med en indholdsanalyse, kan anvendes til at vurdere og forudsige konsekvenserne ved en potentiel disruptiv teknologi. I studiet af annoncørerne identificeres 13 forskellige marketing udfordringer. Størstedelen af udfordringerne er interne og relateret til manglende kompetencer samt organisationsstruktur. Undersøgelsen finder frem til, at teknologibaserede aktører som digitale bureauer samt Google og Facebook er de vigtigste forretningspartnere for annoncørerne i deres værdiskabelse. Udover bidragene fra de tre studier bidrager afhandlingen med yderligere indsigter indenfor fem områder: (1) definition af en forretningsmodels-fornyelses-process (2) fornyelse af forretningsmodellen som en proces i tre faser, (3) sammenhængen mellem forretningsmodel-
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