Business model innovation (BMI) is a necessity to unlock the value and commercial potential of emerging technological solutions such as AI, autonomous solutions and electrification. However, engaging in BMI for emerging technologies embodies high levels of uncertainty and represents a fundamental challenge for firms. This is because technological shifts often demand significant changes to all elements of the business model (BM) – or, in other words, BMI. That means changing the way firms create, deliver, and capture value for their customers. For example, manufacturers need to experiment with new value propositions, revenue models, and delivery routines for autonomous solutions to unlock the value of autonomous vehicles (Thomson et al., 2021). Indeed, since the underlying technology is new and not fully proven, industrial manufacturers must learn to configure and customize novel technologies and BMs in tandem in order to deliver solutions that convincingly address unique customer needs and still offers opportunities for scaling to the broader market. Resolving these challenges presents many uncertainties for industrial manufacturers, who are not only working with an immature value proposition but are also ascertaining how to deliver it and how to price it. While these are key practical challenges in BMI for novel technologies, the theory and practice on BMI processes has yet to adequately explore this domain.

This study sought to address these challenges and further strengthen the conceptual foundations of BMI by examining such processes through the lens of piloting. Piloting presents a systematic approach to trial-and-error learning and refers to smaller-scale trials of new solutions to assess feasibility. This approach support learning by doing in a real world setting and delay full-scale investment decisions prior to obtaining better information. We argue that adopting a piloting perspective on BMI allows further detailing of the processes of change, learning, and refinement in complex and uncertain contexts. Accordingly, this article presents an understanding of how business model piloting processes for emerging technological solutions can be organized. We build on insights from two Swedish industrial manufacturers engaged in the commercialization of autonomous vehicle solutions as well as five startups and SMEs focusing on advanced digital solutions such as AI and lidar applications. Our findings are presented next.

A structured business model piloting process

This section presents a structured business model piloting process (see Figure 1). The process is built around three overall phases (each with distinct activities and approaches):

Phase 1: Business model design represents the start of the process and initiating concrete dialogues toward the targeted piloting customer. BM design refers to the conceptualization of the offering from the perspectives of value creation, capture, and delivery to create a common understanding between the manufacturer and the customer. In other words, BM design occupies the attention of the manufacturer and the customer on the most important features of technological solutions in need of testing to confirm value. BM design includes concrete steps related to value conceptualization and solution design.

A crucial part of value conceptualization is investing in learning efforts to discover the BM that fits the specific customer. This includes data-driven analysis of solution potential by analyzing data from the customer and the installed base of equipment to show the potential. A business developer explained: “Whenever you can come in and show the operational people that you have found a more cost-effective way of running things then you have a case”. As a next step solution design represent more concrete multi-disciplinary efforts required to develop an appropriate solution for testing with the customer. This requires a co-creative engagement with customers to jointly learn how the solution should be configured in line with their operations. This requires the provider to balance the costs and benefits of developing specific solutions to make sure that efforts to achieve customer focus through customization does not impinge on the scalability potential for the broader market.

Phase 2: Business model validation is a critical phase for testing the assumptions underlying the business model to ensure that it is viable and sustainable in the long term. It entails an iterative and data-driven approach to testing, in which manufacturers gather operational data and refine their business models over time based on real-world results. For business model validation, we identify two key activities: operational pilot execution and business model refinement. The benefit of operational pilot execution is testing and iterative refinement of both technological solutions and BMs on live customer sites allowing testing of the business set-up, configuration, and delivery process of solutions within the customer’s production environment. For example, the customer may set the requirements for a full-scale BM (e.g., “get to this target”, “hit this availability”) to ensure focused testing on KPIs. Business model refinement relates to converting experiential knowledge from BM piloting into adaptations of the BM. This includes activities such as refining value delivery processes (e.g. roles, routines, capabilities) as well as using operational data to reconfigure technology components and the value proposition, and changes to the revenue model experimentation based on operational feedback.

Phase 3: Business Model Institutionalization represents the conscious and coordinated review of BM performance from piloting, resulting in the capturing key learning for the organization This is achieved through two key activities: pilot evaluation and business model routinization. Pilot evaluation is concerned with assessing commercial and technological performance and deriving lessons from solution pilots through data-driven insights. The focus is to document lessons, uncover potential pitfalls, and identify best practices across all aspects of the BM in relation to how value is created, delivered, and captured. Business model routinization relates to formalization of BM activities based on lessons learned from pilot evaluation. This includes activities related to the standardization of processes and procedures and development of performance metrics. For example, firms described developing blueprints (or playbooks) for how BMs for novel technological solutions should be developed and delivered. In essence, the blueprint helps to reduce the inherent uncertainty associated with delivering novel technological solutions, acting as a template to guide successful commercialization and educating the broader organization.

Why business model piloting?

Beyond identifying phases and key activities, we uncover three key principal benefits of a structured process for BM piloting: lean learning, systematic evaluation, and scaling preparation. We contend that these principles should be considered throughout BM piloting.

Lean learning is key in piloting encouraging an efficient and pragmatic approach to commercializing novel BMs. The goal is de-risking and validating assumptions within a specific target market/customer group (rather than the whole market) thus enabling concrete learning with lower resource commitments. This includes the iterative development of compelling value propositions, along with delivery routines and revenue models. Consequently, BM piloting ensures that the emerging BM is finely attuned to meet the needs and context of the target market (e.g., a key customer). By embracing a lean BM piloting approach, businesses can rapidly and cost effectively experiment with new BMs together with customers, thereby reducing the risk of failure and enhancing their capacity to adapt (e.g., by reimagining value propositions).

Systematic evaluation represents a focus on assessing appropriateness of the different BM elements in each step of the process. By systematically evaluating data-driven insights weaknesses and inefficiencies in the BM can be identified and addressed before they become significant problems. This learning by doing provides decision makers with a clear understanding of what works and what does not, enabling them to make informed choices on which BM design choices to keep, modify, or abandon based on concrete data. Hence, systematic evaluation plays a vital role in creating a more data-driven approach to BMI decision making.

“Following a structured BM piloting process can guide senior managers through the uncertain process of developing
advanced BMs.”

Scaling preparation is a central feature of BM piloting focused on identifying the recipe for a scalable business model. For example, firms need to balance the tension between scalability to other customers versus customization to address unique customer requirements.  Scalability is also pursued through the capturing of key insights by developing BM routines and blueprints that can support future scaling (e.g. implementation in other markets/customers). For example, by developing standardized routines, such as project delivery methodologies, new sales routines, and targeted knowledge dissemination to market facing units. This is key since scaling BMs beyond individual pilots requires more than a functioning value proposition but also a functioning delivery organization and revenue model

Final advice

Finding appropriate business models for novel technological solutions is a challenging task. We offer recommendations to business development managers in large firms as well as SMEs and start-ups engaged in this endeavor.

Concretely, we recommend a piloting approach of continuous trial and error and small adaptations, rather than the pursuit of a rigid innovation program, as the most advantageous way to move BMI processes toward realizing scalable solutions. Following a structured BM piloting process can guide senior managers through the uncertain process of developing advanced BMs. Attempting to finalize the design of value propositions, delivery processes and revenue models from the scratch is neither desirable nor practicable – instead embrace BM piloting as a way of learning together with the market.

Rekommenderad läsning:
> Thomson, L., Sjödin, D., Parida, V., & Jovanovic, M. (2023). Conceptualizing business model piloting: An experiential learning process for autonomous solutions. Technovation, 126, 102815.