Innovative Revenue Models and their influence on the components of the Business Model: A multiple case study on global manufacturing firms

Abstract

Background: Manufacturing firms have developed innovative revenue models (IRMs) that are connected to their product-service offering, as a new way to differentiate. These new revenue models are dependent on usage, performance, or value delivered to the customer. The value proposition becomes connected to the actual input or output of the customers’ own business operations. Thereby, the customers’ experience value from being exposed to less risk since the service they are acquiring is adapted to their own business model (BM). However, these IRMs create several complications for manufacturing firms, which is why several have struggled with the implementation, and some even failed. The current academic papers provide a vague explanation of how manufacturing firms are affected when implementing an IRM. Purpose: This study aims to provide guidance for manufacturing firms in how their BM will become affected when implementing an IRM. Research Question: How are the Business Model components of large global manufacturing firms influenced when implementing an Innovative Revenue Model? Methodology: A qualitative strategy with an abductive approach has been chosen since the study investigates how the different BM components are influenced when implementing an IRM. To acquire a deeper understanding a multiple case study based on semi-structured interviews has been conducted. Findings: The study has found influences on the BM components that the current literature has been unable to explain, which further highlights the difficulties in understanding the influences an implementation of IRMs creates. For example, the case companies mention the need for developing capabilities of appropriate monitoring of the contracts through business case owners and diverse ways of how to manage the distribution of spare parts and replacement products. Furthermore, IRMs will lead to more complex accounting due to the uncertainty in the revenue streams, and highly automated administration is required to not letting an administrative burden erode the business case. Conclusion: A comprehensive framework has been created of how the diverse BM components are influenced, and the influences for some of the components are highly dependent on the company characteristics prior to the implementation of an IRM. However, the value proposition, revenue streams, and cost structure has been found as the most influenced independently on company characteristics, which can be explained by the fact that these components are related to the revenue capturing process. Furthermore, funding the revenue model, product knowledge, cost awareness, contract management, and efficient administration are considered as prerequisites for implementing an IRM. Additionally, the study has found that IRMs enable the customer to avoid the IFRS16 regulation which creates a potential for highly profitable business cases.