Renewal of business models: the devil is in the organisational details

(Photo © Leo Pharma A/S)

By Claus Rosenkrantz Hansen

Most company directors would agree that business model innovation is a complicated affair that leaves its mark on every aspect of the organisation of a company.   

However strategic research has refused to seriously concern itself with the organisational consequences of business model renewal.

This is now being remedied by the book Business Model Innovation: The Organizational Dimension, edited by Professor Nicolai J. Foss and post-doctoral researcher Tina Saebi, published by Oxford University Press.

"Directors of companies in the process of business model innovation are confronted on a daily basis with the question of how innovation can have an impact on the set-up of an entire organisation, i.e. its structure, reward mechanisms, division of labour, job descriptions and, of course, "soft " aspects such as culture and values. As such, this is nothing new, but there hasn’t been enough focus on the issue on the academic front. Hence our book, in which we investigate what happens to the different parts of a company's organisation when its business model is renewed," says Foss.

App to help psoriasis patients with their medication
As well as co-editing the book, Foss, together with PhD student Klement A. Rasmussen, looks at examples of business model innovation in pharmaceutical companies in one of the chapters of the book.

One of the companies considered is LEO Pharma A/S, which, like many other companies, has taken a strategic decision to add service elements to the company's product portfolio.

LEO Pharma A/S’ service dimension concerns helping patients to monitor and manage their use of medication. It is a well known fact that patients generally have difficulty coping with their medication – when to take it and how much. With its online platform QualityCare™, LEO Pharma A/S helps patients using its drugs to manage their medication.

This is a somewhat delicate manoeuvre for a pharmaceutical company, however, since these types of businesses are subject to legislation and regulations preventing companies from having direct contact with patients. 

"The legal department of a company such as LEO Pharma A/S has traditionally concentrated its resources on patent rights. But the introduction of QualityCare™ means that the legal department now has to deal with legislation and regulations that stipulate how the company may come into contact with patients. Thus LEO Pharma A/S is an illustration of how a strategic decision to change its business model has major implications for the entire organisation of the company," explains Foss.  

He puts this phenomenon down to the fact that the individual parts of the organisation are mutually dependent. Certain strategic decisions have such a fundamental impact that they send ripples throughout the entire organisation.

Matter for top management
This mutual dependence is also a crucial factor when it comes to the things senior management must keep an eye on and the questions it must ask when a company is renewing its business model.

In other words, the devil is in the organisational details. The marketing department needs to ask what implications decisions on outsourcing have for marketing. The manufacturing department needs to ask what implications decisions on changes to marketing have for manufacturing.

Or, in the case of LEO Pharma A/S, the legal department needs ask how it is affected by the addition of a service dimension such as QualityCare™.

Innovation does not necessarily have implications for the individual parts of the organisation, but any potential effects should definitely be addressed by top management. 

"As researchers we tend to sit at our desks and think that things are straightforward. We may formally state that activities are intermeshed, but how well do we understand the importance of fine-tuning the organisation so that it can support and be part of a new business model? And have we gone deep enough for it to be relevant for managers who are confronted with it on a daily basis?" asks Foss.