Business Model Innovation in a Family Business.
Business Model Innovation in A Family Business
Jahja Hamdani Widjajaa*
a
Management Dept., Maranatha Christian University, Prof drg Soeria Sumantri 65, Bandung 40164, Indonesia
ABSTRACT
Business model innovation is obviously needed especially in a
turbulent business environment. Firms usually succeed in their first
business model but fail to sustain it. Then firms should innovate their
business model. Firms usually have some obstacles to innovate their
business model. Family business as a kind of business organization
may offer some illumination on it. A qualitative case study research
was conducted to reveal how organizational learning and
organizational culture could serve as antecedents to business model
innovation process in a knowledge intensive industry. This research
described how a family business innovate their business model and
gave some implications that are relevant to general business practices.
Keywords: business model innovation, family business, organizational learning,
organizational culture,
Introduction
It has been more than two decade that strategic management researchers reveal the
emergence of big issues that would interfere even change business way of looking at their
industry or environment (Lowendahl and Revang, 1998; David, 2006; Prahalad, 1998).
The issues such as globalization, e-commerce, convergence of diverse technology, and
deterioration of the natural environment would increase the complexity of business
environment with greater speed of change (Wheelen and Hunger, 2004). Then, it would
rise business environment uncertainty and generate new opportunities and threats as well
as new competition. For example, the emergent of ASEAN Economic Community in
2015 would give a chance for Indonesian’ firms to exploit new foreign market
opportunity by innovation to get competitive advantage. But, ASEAN Economic
Community also promotes new entrances in Indonesian’s market that would generate a
new competition era.
In the new competition era, firms need strategy innovation in a changing environment,
especially by business model innovation to create new value propositions that old style
competition become irrelevant (Hamel, 2001). Business model serves as a reference for
firms to build some advantages of business model components such as target market,
products or services offering, and industrial value chain that have to be done to get rents.
Business model innovation could be shaped like rethinking what do customers really
wants and how firms should fulfill it and get rents (Teece, 2010). Business model
innovation are needed because of dynamic market condition (McGrath, 2010; Sosna,
Trevinyo-Rodriguez, dan Velamuri, 2010), even business model innovation much more
needed than a mere technology innovation or human resources investment (Chesbrough,
2007). Business model innovation are needed to ensure appropriation of value creation
that are made by firms (Chesbrough, 2010). Business model innovation could also
generate firm’s competitive advantage (McGrath, 2010; Sosna et al., 2010; Teece, 2010).
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Although business model innovation is important, many firms failed to accomplish it
(Chesbrough, 2010; Sosna et al., 2010). There were some obstacles such as difficulties to
predict fast growing market that cause uncertainty (Sosna et al., 2010); general manager
who usually was in charge of business model innovation suffered a shortage of time due
to job rotations (Chesbrough, 2010); functional managers had lacked of knowledge to
view their business as a whole or to drive the entire business (Chesbrough, 2010). Then,
it is important to conduct a research to reveal how a firm conduct business model
innovation as a practice example.
Despite of the above conditions, family business may shed a light to uncover the
problems. Family business with a strong humanity traditions could develop
entrepreneurship values (Leenders and Waarts, 2003; Lumpkin, Martin, and Vaughn,
2008). There were family businesses which develop innovative behaviors and boost their
performance (Daily and Dollinger, 1992; Miller, Bretton-Miller, and Scholnick, 2008;
Upton, Teal, and Felan, 2001). Then, business model innovation might be done in a
family business and also overcome business model innovation obstacles.
The aim of this study is to describe and explain how a family business conducts business
model innovation. To fulfill this aim, this paper would explain theoretical framework
regarding to the phenomenon above and research method that is used in this study. Then,
I would explain my research findings. I also made some conclusions and further research
suggestions in the end of this paper.
Theoretical Framework
Business, Business Model, and Business Model Innovation
Business is an effort to create value and capture the rents according to those creating
value activities (Chesbrough, 2007; Ferrel, Hirt, and Ferrell, 2011). Firms need to
consider whether they do their business appropriately through a business model
framework. Business model is needed by firm to get a good understanding about their
business and to monitor their creating and capturing activities. Business model innovation
is needed to sustain these activities (Chesbrough, 2007).
Business model innovation is reflected by modifying or complementing existing business
model with a new, more unique, and more creating value business model (Chesbrough,
2007). The business model framework (Chesbrough, 2007) (figure 1) depicts sequencing
phases in business model innovation. I use this framework because 1) it depicts the
movement of a firm’s business model as a value creating process; 2) it involves closed
innovation and open innovation as a trending topic in innovation management (Huizingh,
2011); 3) it is in line with a dynamic perspective of business model (Demil and Lecocq,
2010; Sosna et al., 2010).
The business model framework (Chesbrough, 2007), consist of six types which starts
from an ordinary business model until the most valueable business model.
First type - firms with an undifferentiated business model. These firms have no
uniqueness in their business model. They are positioning themselves as commodity
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sellers that serve their customers through competitive price and product availability just
like other competitors. These firms are facing fierce competition.
Second type - firms with some differentiations in their business model. These firms start
to develop some uniqueness in their business model such as product or service
differentiation so that they are not merely offering their product through competitive
price. But, because they have not segmented their market, they have to compete in a
broad market and in many cases they do not have enough resources to sustain their
successful product differentiation strategy.
Third type - firms with a segmented business model. According to the failure above,
firms start to segment their market and develop a suitable and profitable business model
for each target market. In a market that has a price and product availability orientation,
they serve it with cheap and high volume products. While in a market with a product
performance orientation, they serve it with unique and higher quality products which give
higher margin to the firm.
Till this phase, firms are focus on internal idea generation. They try to fulfill market
needs by their own ability to create products. They are more count on a closed innovation
approach. But, these firms are vulnerable to a disruptive change in technology and market
that are beyond their current activities and innovation. Then, they should adopt an open
innovation approach.
Forth type - firms with an externally aware business model. These firms are more opened
to external ideas and technologies that are around them. They develop a good relation
with their external stakeholders and considering their ideas to be transformed into new
products. But, their innovation activities are separated from their business model.
Fifth type - firms that integrating innovation process with business model. Firms, their
suppliers, and their customers are closely related formally. Firms could make
experiments in their supply chain management to make them alert toward technology
shifting and new market opportunities. Firms start to shift from only offering products
into also offering services.
Sixth type - firms with business model as an adaptive platform. In this phase, key
suppliers are involved in firm’s planning process and related to their customers’ business
model. Firms could attract other firm to invest their resources and expanding their value
proposition without additional investment.
But, the framework does not explain, what firm should do to shift or combine their
business model. Then, I use the business model component (Lindgardt, Reeves, Stalk,
and Deimler, 2009) (Figure 2). This framework is used because 1) it reveals that there are
two basic elements of a business model, that are value proposition and its implementation
through operating model (Chesbrough, 2007; Ferrel et al., 2011); 2) it is developed in a
context how to cope high competition and market turbulent with business model
innovation by adjusting business model components. According to this study, I exclude
revenue model and cost model from the business model component because these two
items would be reflected in business’ profit. While organization aspect is merged into
value chain and would be explained as an industrial value chain.
According to Lindgardt et al., (2009), a business model should focus on value proposition
and then implements it in operating model. Value proposition describes what kind of
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value is offered by firm to their customers. Value proposition is supported by target
segments and product offering. Target segment means a group of customers that are
chosen to be served included their needs and wants that would be fulfilled. Product
offering means what kind of product that firm would offer to fulfill their customer’s
needs and wants. Industrial value chain means how firm manages product or service
delivery according to customer’s needs and wants. It includes either they would make the
product by themselves (in-house) or are there any parts of the product that would be
made outside the firm (outsource). Industrial value chain would be described by supply
chain (how it get raw materials), internal process (how it makes product), and distribution
channel (how it distributes product).
Family business
Family business is a firm that is dominated by a family which owns and controls the
business and also establishes a vision to keep the business in the family across
generations (Chua, Chrisman and Sharma, 2009). Family business unites business and
family in diverse complex implications (Astrachan, 2010). The influence of family to
business incurs some characteristic of family business such as driven by founders or
family’s values (Denison, Lief, and Ward, 2004; Olson, Suiker, Danes, Stafford, Heck
and Duncan, 2003), not merely to seek financial objective (Astrachan and Jaskiewicz,
2008; Gomez-Mejia, Haynes, Nunez-Nickel, Jacobson, and Moyano-Fuentes, 2007), give
priority to long-term relationships to nurture trust and mutual benefits (Anderson, Jack
and Dodd, 2005; Carney, 2005; Karra, Tracey and Phillips, 2006), and has a long term
perspective (Le Breton-Miller and Miller, 2006).
Moreover, family business that has strong humanity traditions, could establish
entrepreneurial values (Leenders and Waarts, 2003; Lumpkin, Martin and Vaughn, 2008).
Even they had tradition in doing their business they could develop new values and
behavior such as autonomy, risk-taking, innovation and proactive (Martin, Vaughn and
Lumpkin, 2006). Then, there was family business which develops and equips themselves
with innovative behaviors and gets a better performance than family business which
performs on the contrary (Daily and Dollinger, 1992; Miller, Breton-Miller and
Scholnick, 2008).
According to above information, we could expect that family business that has
entrepreneurial orientation would enforce business model innovation. Innovation could
be seen as a learning process (Beckman and Barry, 2007). Then, in order to have a clear
explanation about business model innovation process we need to describe the process of
organizational learning and the type of organizational learning that happened in a family
business. Meanwhile, organizational culture influence organization members’ behavior in
term of creating, distributing, and using knowledge (De Long and Fahey, 2000). Then,
we also need to reveal what kind of organizational culture that are implemented and
encourage the business model innovation process.
Organizational Learning
Argyris and Schon (1978) were the first who acknowledge the concept of organizational
learning to reveal that organization are able to learn. Organization learns through
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collective learning that is done by organization members. Collective learning is more
powerful than merely accumulation of individual learning (Fiol and Lyles, 1985). Even,
organizational learning enables an organization to develop, acquire, transform and exploit
new knowledge in order to encourage innovation (Jimenez-Jimenez and Sanz-Valle,
2011).
The aim of organizational learning is to establish suitability between organization and
their environment (Fiol and Lyles, 1985). The suitability between organization and their
environment is a key to organizational sustainability and growth in the long term
(Chandler, 1962; Katz and Kahn, 1966; Thompson, 1967) and even generate competitive
advantage and foster organizational innovation (Barnard, 1938; Lawrence and Dyer,
1983; Lawrence and Lorsch, 1967).
Organizational learning process could be describe into four constructs, knowledge
acquisition, knowledge distribution, knowledge interpretation, and organizational
memory (Jimenez-Jimenez and Sanz-Valle, 2011). Knowledge acquisition is the process
by which knowledge is obtained. Knowledge distribution is the process by which
knowledge from different sources is shared. Knowledge interpretation is the process by
which distributed knowledge is given one or more commonly understood interpretations.
Organizational memory is the means by which knowledge is stored for future use (Huber,
1991).
Moreover, Visser (2007) reveals three basic types of organizational learning, (1) meta
learning, (2) deutero-learning, and (3) planned learning. Meta learning is the ability either
to detect and make correction of errors based on existing rules/values/norms (single-loop
learning) or to detect and make correction by changing the existing rules/values/norms
(double–loop learning) (Argyris, 2004). Deutero-learning is the ability of adapting
behavior toward situation development patterns in multi relation in organizational
context. It is the ability to see situational context and make proper decision either by
single-loop learning or by double-loop learning (Qureshi, 2000; Visser, 2007). Planned
learning is the ability to create and maintain organizational systems, routines, procedures
and structures to store organizational knowledge/information.
Organizational Culture
Organizational culture is a pattern of basic assumptions that are shared and learnt by a
group as they address either external adaptation problems or internal integration problems
(Schein, 2004). These patterns have been tested and were trusted then it been delivered to
new members as a right way in seeing, thinking and feeling as they address external or
internal problems. Organizational culture at least have three characteristics such as 1) are
transferred to new members by socialization process, 2) affecting individual, groups and
organization behavior, 3) operate in all levels in organization. Then, organization culture
reflected core values and beliefs in an organization but it also could be seen in their
behavior either as a group or as individual.
Family business usually has strong moral ties (Landa, 1983), more personal working
relationship and encourage flexibility (Wijaya, 2008). These characteristics were close to
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clan culture that more focus to relationship than transaction in interpersonal relation
among organizational members (Richard, McMillan-Capehart, Bhuian and Taylor, 2009).
But, experts reveal that organizational culture has a plural perspective (Harris, 1998;
Pettigrew, 1979). It means that there might be a dominant culture and some other type of
culture which serve as subcultures (Siehl and Martin, 1984). Then, Cameron and Quinn
(2006) revealed that there were competing values in organization.
According to the competing values framework (Cameron and Quinn, 2006), there are two
kind of orientation that each has competing values. The first was orientation either to
focus on internal environment and integration or to focus on external environment and
differentiation. And the second was orientation either to focus on flexibility and
discretion or to focus on stability and control. Then, we could identify four types of
organizational culture that are clan culture, adhocracy culture, market culture, and
hierarchy culture.
Clan culture focuses on internal environment and integration as well as flexibility and
discretion (Cameron and Quinn, 2006). It is similar to family business which
effectiveness was established by promoting collaboration among organization members.
Employees are taken into account in the firm as a family member and cohesiveness is
achieved through consensus. Employee involvement is used to get job satisfaction and
commitment (Kreitner and Kinicki, 2008). There are strong solidarity and kinship with
higher flexibility to accomplish a job (Ouchi, 1980).
Adhocracy culture focuses on external environment and differentiation as well as
flexibility and discretion (Cameron and Quinn, 2006). Then, organization would be
encouraged to establish innovative products and services through adaptability, creativity,
and quick response to market change. Power and authority were decentralized to promote
organization members dare to take risks, creative thinking and trying new ways to
accomplish their objective (Kreitner and Kinicki, 2008).
Market culture focuses on external environment and differentiation as well as stability
and control (Cameron and Quinn, 2006). Then, organization would be encouraged to
compete and strong motivation to achieve their goals. Customers and rents get more
attention than employee’s satisfaction and development. The aims of this culture were to
enhance productivity, profitability and customer satisfaction. It emphasizes fast reaction,
hard working, centralization authority, tight control and high reward for employees who
excel (Kreitner and Kinicki, 2008).
Hierarchy culture focuses on internal environment and integration as well as stability and
control (Cameron and Quinn, 2006). Then, organization would be encouraged to develop
a reliable internal process, tight measurements, and implementation of various control
mechanisms. The aims of this culture were efficiency, timeliness, consistency and
uniformity. Maintaining a smooth-running organization is important (Kreitner and
Kinicki, 2008).
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Research Method
Because my research question is about why and how, then I should focus on the business
model innovation making process. This research was combining between explanation and
description study. Explanation study aims to answer research question of why (Babbie,
2008). This type of study would depict about what kind of business model innovation
were being done by a firm and why it did so. Description study aims to answer research
question of how (Babbie, 2008). Then, I use description study to reveal the process of
business model innovation.
I choose a jamu company, PT. Nyonya Meneer, because jamu is a kind of knowledgeintensive industry that needs a specific business model (Sheehan and Stabell, 2007) and
there is less attention in cultural heritage business research. Jamu is a kind of Indonesian
heritage herbal medicine (Stevensen, 1999) which usually is drunk as a part of Indonesian
cultural heritage. PT. Nyonya Meneer is the oldest jamu company that is still going
concern in the business of jamu in Indonesia till now (Sumardono and Hanusz, 2007). As
a family business, PT. Nyonya Meneer has been entering business jamu since 1919. My
unit analysis is PT. Nyonya Meneer as an organization, while my prime source of data
are the CEO as the owner of PT. Nyonya Meneer and persons who are involved in a
cross-functional team. Both of them are in-charge of business model innovation in PT.
Nyonya Meneer. The main data are collected by conducting in-depth interview with the
owner (family member) and focus group discussion with persons (non family member)
who are involved in a cross-functional team.
Results
After six times of in-depth interviews and six times of focus group discussions, the
process of business model innovation in PT. Nyonya Meneer could be described.
Phase 1
In this stage, PT. Nyonya Meneer entered jamu business in Indonesia by offering
differentiated products. Mrs. Meneer, the leader owner, offered jamu that is made for
family using and purpose (family recipes) which had more focus on efficacy and taste.
She did it because she had a strong empirical knowledge to make jamu. By doing this PT.
Nyonya Meneer was able to get a good position in jamu industry. This model served the
business as a single business model quit a long time at least till second generation of the
family (1970s).
At the first time entering the business, as a leader owner, Mrs. Meneer had a central role
in business model innovation. She led product development, strengthening and
developing her knowledge about jamu and also directed sales as well. Other family
members just followed her direction (Sumardono and Hanusz, 2007). Then, there has not
been organizational learning yet.
In term of organizational culture, the dominant culture was clan culture. It was described
by all of the products were be generated by internal ideas, such as Jamu Habis Bersalin
(after giving birth herbs). Mrs. Meneer also often asked for suggestions from her
customers to build strong relationship and trust. These were central characteristics of clan
culture (Scherer, 1988).
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”..almost all products come from our family..it was developed as a part of her (Ibu
Meneer) cultural heritage, then spreading to her neighbor and finally becomes a national
asset..at that moment, we never think about consumer oriented..all are family
oriented..family oriented had more focus on efficacy and taste..the efficacy and taste were
parts of her privileged to be used by family member..why our jamu are more smooth,
tasty, and efficacious..it was the idea of our family, it did not come from market...but
accidentally it was suitable with market’s want...there was no market survey at that
time..” (CEO, 4th September 2012).
Phase 2
In this phase, PT. Nyonya Meneer combined their existing business model with a
segmented business model. After decades of successful single business model, it was
hard for PT. Nyonya Meneer to innovate their business model. Started the business with
only less than 20 employees it grew into near 1.000 of workforces (Liong, 2010). Then,
the third generation started to establish a cross-functional team to assist leader owner in
driving business model innovation and promote organizational learning. Even, the
organizational learning process was mainly driven by the leader owner, especially in
knowledge acquiring, it was quit important thing to start the process. He also started to
emphasize on marketing.
After having more than two generations business experiences, PT. Nyonya Meneer got
much knowledge about their market. The firm started to segment their market into
specific targets. For example: the market for Jamu Habis Bersalin was not only targeting
all women who have just given birth but also be segmented into specific targets such as
they who used to drink jamu or not, they who had high income level, middle income
level, and low income level, for domestic market or foreign market.
The dominant culture was still clan culture, but it was supported by market culture as an
enhancing subculture (Siehl and Martin, 1984). The company was pushed to recognize
their market well in order to create specific segments. But, since all of the products were
generated by internal ideas, then the dominant culture was clan culture.
”..we might differ from other companies..they might be made few products to overcome
many kind of diseases (Liong, 2010)..we were different...we made one thousand products
to overcome one thousand kind of diseases..” (CEO, 14th March 2012).
Phase 3
In this phase, PT. Nyonya Meneer continued to combine existing business models with
an externally aware business model. The company started to face an unfavorable business
environment such as diminishing of people who used to drink jamu, jamu was perceived
as an old life style and even unsaved because there was jamu that contained drug
chemicals. Then, they had to more focus in knowing market needs. As the organizational
learning was taking place, they started to realize that product ideas could be originated
from outside of the company. They started to launch jamu products that originated from
external parties such as government, market, and competitors.
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In this phase, three types of organizational learning have already been implemented.
Planned learning could be seen as the company could recognize their market better. They
could recognize either there were opportunities to maintain existing products or markets,
or there were opportunities to modifying it or even there were opportunities to explore
new market. Single-loop learning could be traced by their decisions to serve existing
target segment with current products, such as, Jamu Habis Bersalin, Jamu Amurat (served
in powder). Double-loop learning could be traced by their decision to exploit existing
market and serve it with modifying products, such as Pil Habis Bersalin, Pil Amurat
(serve in pill). Deutero learning could be traced by their decision to anticipate new
market needs and served it with new products, such as Rheumaneer (usually people drink
jamu as a part of their habit/life style. Rheumaneer was a product that proposed to
remedy rheumatic. People drink Rheumaneer not as their habit but as their need to
remedy their illness with a natural medicine).
In term of organizational culture, the dominant culture was still clan culture, but market
culture was playing more important role as enhancing subculture. The dominance of clan
culture could be traced by the dominant portion of sales which came from products that
originated from the family. The important role of market culture could be traced by those
products which originated from external parties. The existence of enhancing subculture
was widening company’s sales portfolio.
”..at the early time may be the idea of products were generated by Ibu Meneer as the
owner..but now, the owner is market...we also benchmark competitor’s product and sell it
in different market...” (CEO, 14th March 2012)..so all products are made based on
market’s demand..” (CEO, 8th October 2012).
Phase 4
In this phase, PT. Nyonya Meneer continued to combine their existing business models
with integrating industrial value chain into business model. The co-existence of
organizational learning and market culture as enhancing subculture encouraged them to
explore their market, especially foreign market. They found that there were markets for
antioxidant products which served in capsule. But at the moment, they have not already
served their jamu products in capsule. They were also aware of the licensing barriers to
sell products directly using their own brand in foreign market. Then, PT.Nyonya Meneer
started to outsource some of their jamu products and sold it to foreign market using their
buyer’s brand.
Moreover, market culture as an enhancing subculture played a new role. It encouraged
the company not only to recognize their market well but also other important
stakeholders such as raw materials suppliers, semi–finished goods suppliers, outsourcing
companies, and also alternatives distribution channels.
”...so, further we could commercialize Nyonya Meneer brand..we does not need to sell
products by ourselves..we just make jamu and other parties will sell it for us....we make
collaboration...Our concern now is how to speed sinergy...” (CEO, 14th March 2012).
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As the result of business model innovation that has been done in PT. Nyonya Meneer,
they could sustain in jamu industry till now. Their sales were increasing at an average
level of 15%/year for the last 3 years. (2010-2012).
Despite of the success in doing business model innovation, this study also revealed some
obstacles that hampered the business model innovation process. Clan culture which
served as a dominant culture seemed to prioritize internal consideration than external
conditions. This would at least generated two problems that could be mentioned. First,
PT. Nyonya Meneer have around 200 kind of jamu products and they urged to sell them
all. Meanwhile, from distributors view, they only wanted to sell selected items of jamu
because of some unfavorable situation were emerge such as the negative trend of people
who used to drink jamu, cheap pharmaceutical drugs, negative perception of jamu. Then,
there were distribution problems. Second, because of clan culture used to maintain
ceremonies, rituals and relationships (Hirschman, 1970) it was not easy for them to
change product attributes such as packaging. They tended to retain the old style
packaging that led to complaints by their distributor. The company argued that whenever
consumers did not ask why they should change their packaging. But the distributors
wanted to give the best for their customers. They did not want to wait for consumers’
complaints that they made improvements.
Conclusions And Research Implications
Based on the result of this case study research some conclusions could be made. Firms
are able to innovate their business model by shifting their business model into a more
valueable business model or by combining existing business model with other type of
business model. According to Chesbrough (2007; 2010), CEO, who was in charge of
business model innovation, had a lack of time in experimenting their business model. In
this case study, family business could encourage business model innovation because their
CEO has enough time to do business-model experiments. But, there were some
conditions that were needed to encourage them to do it. CEO would innovate their
business model if their existing business model did not work well. Whenever their
existing business model was worked well, they had to change their existing paradigm.
This later condition was happened in PT. Nyonya Meneer so that they maintained their
first business model till their third generation entering the business.
To change their existing paradigm, CEO needed new knowledge as well as new values.
In order to gather new knowledge firms could deploy a cross-functional team that
excluded from current structure. They should be excluded from current structure so that
they would not interfere current business model and they were freely reading their
business environment in a new way. This cross-functional team would assist CEO
towards business model innovation process. The existence of cross-functional team helps
the functional manager to see the business as a whole (Zellweger, Kellermanns,
Eddleston, dan Memili, 2012). It also helps the company to implement organizational
learning. Organizational learning is needed to encourage company to make a suitable
adaptation toward their environment and to strengthen their decisions.
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Meanwhile, in order to change their values, family business should take a stakeholder
perspective. By taking this perspective, family business was encouraged to have a market
orientation (Cabrera-Suarez, Deniz-Deniz, and Martin-Santana, 2011). This perspective is
also needed to guide current clan culture to get a wider perspective (external orientation)
without deterring their advantages in building trust and relationship.
Further Research
Because this is a case study, it satisfies as an example to describe a process of business
model innovation in a family business. But we need to explore how it be done in other
type of business and make comparison between them. Then we could describe how
business model innovation is really done.
Figure 1 The Business Model Framework (Chesbrough, 2007)
Figure 2
Business Model Component
(Lindgardt et al., 2009)
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15
Jahja Hamdani Widjajaa*
a
Management Dept., Maranatha Christian University, Prof drg Soeria Sumantri 65, Bandung 40164, Indonesia
ABSTRACT
Business model innovation is obviously needed especially in a
turbulent business environment. Firms usually succeed in their first
business model but fail to sustain it. Then firms should innovate their
business model. Firms usually have some obstacles to innovate their
business model. Family business as a kind of business organization
may offer some illumination on it. A qualitative case study research
was conducted to reveal how organizational learning and
organizational culture could serve as antecedents to business model
innovation process in a knowledge intensive industry. This research
described how a family business innovate their business model and
gave some implications that are relevant to general business practices.
Keywords: business model innovation, family business, organizational learning,
organizational culture,
Introduction
It has been more than two decade that strategic management researchers reveal the
emergence of big issues that would interfere even change business way of looking at their
industry or environment (Lowendahl and Revang, 1998; David, 2006; Prahalad, 1998).
The issues such as globalization, e-commerce, convergence of diverse technology, and
deterioration of the natural environment would increase the complexity of business
environment with greater speed of change (Wheelen and Hunger, 2004). Then, it would
rise business environment uncertainty and generate new opportunities and threats as well
as new competition. For example, the emergent of ASEAN Economic Community in
2015 would give a chance for Indonesian’ firms to exploit new foreign market
opportunity by innovation to get competitive advantage. But, ASEAN Economic
Community also promotes new entrances in Indonesian’s market that would generate a
new competition era.
In the new competition era, firms need strategy innovation in a changing environment,
especially by business model innovation to create new value propositions that old style
competition become irrelevant (Hamel, 2001). Business model serves as a reference for
firms to build some advantages of business model components such as target market,
products or services offering, and industrial value chain that have to be done to get rents.
Business model innovation could be shaped like rethinking what do customers really
wants and how firms should fulfill it and get rents (Teece, 2010). Business model
innovation are needed because of dynamic market condition (McGrath, 2010; Sosna,
Trevinyo-Rodriguez, dan Velamuri, 2010), even business model innovation much more
needed than a mere technology innovation or human resources investment (Chesbrough,
2007). Business model innovation are needed to ensure appropriation of value creation
that are made by firms (Chesbrough, 2010). Business model innovation could also
generate firm’s competitive advantage (McGrath, 2010; Sosna et al., 2010; Teece, 2010).
1
Although business model innovation is important, many firms failed to accomplish it
(Chesbrough, 2010; Sosna et al., 2010). There were some obstacles such as difficulties to
predict fast growing market that cause uncertainty (Sosna et al., 2010); general manager
who usually was in charge of business model innovation suffered a shortage of time due
to job rotations (Chesbrough, 2010); functional managers had lacked of knowledge to
view their business as a whole or to drive the entire business (Chesbrough, 2010). Then,
it is important to conduct a research to reveal how a firm conduct business model
innovation as a practice example.
Despite of the above conditions, family business may shed a light to uncover the
problems. Family business with a strong humanity traditions could develop
entrepreneurship values (Leenders and Waarts, 2003; Lumpkin, Martin, and Vaughn,
2008). There were family businesses which develop innovative behaviors and boost their
performance (Daily and Dollinger, 1992; Miller, Bretton-Miller, and Scholnick, 2008;
Upton, Teal, and Felan, 2001). Then, business model innovation might be done in a
family business and also overcome business model innovation obstacles.
The aim of this study is to describe and explain how a family business conducts business
model innovation. To fulfill this aim, this paper would explain theoretical framework
regarding to the phenomenon above and research method that is used in this study. Then,
I would explain my research findings. I also made some conclusions and further research
suggestions in the end of this paper.
Theoretical Framework
Business, Business Model, and Business Model Innovation
Business is an effort to create value and capture the rents according to those creating
value activities (Chesbrough, 2007; Ferrel, Hirt, and Ferrell, 2011). Firms need to
consider whether they do their business appropriately through a business model
framework. Business model is needed by firm to get a good understanding about their
business and to monitor their creating and capturing activities. Business model innovation
is needed to sustain these activities (Chesbrough, 2007).
Business model innovation is reflected by modifying or complementing existing business
model with a new, more unique, and more creating value business model (Chesbrough,
2007). The business model framework (Chesbrough, 2007) (figure 1) depicts sequencing
phases in business model innovation. I use this framework because 1) it depicts the
movement of a firm’s business model as a value creating process; 2) it involves closed
innovation and open innovation as a trending topic in innovation management (Huizingh,
2011); 3) it is in line with a dynamic perspective of business model (Demil and Lecocq,
2010; Sosna et al., 2010).
The business model framework (Chesbrough, 2007), consist of six types which starts
from an ordinary business model until the most valueable business model.
First type - firms with an undifferentiated business model. These firms have no
uniqueness in their business model. They are positioning themselves as commodity
2
sellers that serve their customers through competitive price and product availability just
like other competitors. These firms are facing fierce competition.
Second type - firms with some differentiations in their business model. These firms start
to develop some uniqueness in their business model such as product or service
differentiation so that they are not merely offering their product through competitive
price. But, because they have not segmented their market, they have to compete in a
broad market and in many cases they do not have enough resources to sustain their
successful product differentiation strategy.
Third type - firms with a segmented business model. According to the failure above,
firms start to segment their market and develop a suitable and profitable business model
for each target market. In a market that has a price and product availability orientation,
they serve it with cheap and high volume products. While in a market with a product
performance orientation, they serve it with unique and higher quality products which give
higher margin to the firm.
Till this phase, firms are focus on internal idea generation. They try to fulfill market
needs by their own ability to create products. They are more count on a closed innovation
approach. But, these firms are vulnerable to a disruptive change in technology and market
that are beyond their current activities and innovation. Then, they should adopt an open
innovation approach.
Forth type - firms with an externally aware business model. These firms are more opened
to external ideas and technologies that are around them. They develop a good relation
with their external stakeholders and considering their ideas to be transformed into new
products. But, their innovation activities are separated from their business model.
Fifth type - firms that integrating innovation process with business model. Firms, their
suppliers, and their customers are closely related formally. Firms could make
experiments in their supply chain management to make them alert toward technology
shifting and new market opportunities. Firms start to shift from only offering products
into also offering services.
Sixth type - firms with business model as an adaptive platform. In this phase, key
suppliers are involved in firm’s planning process and related to their customers’ business
model. Firms could attract other firm to invest their resources and expanding their value
proposition without additional investment.
But, the framework does not explain, what firm should do to shift or combine their
business model. Then, I use the business model component (Lindgardt, Reeves, Stalk,
and Deimler, 2009) (Figure 2). This framework is used because 1) it reveals that there are
two basic elements of a business model, that are value proposition and its implementation
through operating model (Chesbrough, 2007; Ferrel et al., 2011); 2) it is developed in a
context how to cope high competition and market turbulent with business model
innovation by adjusting business model components. According to this study, I exclude
revenue model and cost model from the business model component because these two
items would be reflected in business’ profit. While organization aspect is merged into
value chain and would be explained as an industrial value chain.
According to Lindgardt et al., (2009), a business model should focus on value proposition
and then implements it in operating model. Value proposition describes what kind of
3
value is offered by firm to their customers. Value proposition is supported by target
segments and product offering. Target segment means a group of customers that are
chosen to be served included their needs and wants that would be fulfilled. Product
offering means what kind of product that firm would offer to fulfill their customer’s
needs and wants. Industrial value chain means how firm manages product or service
delivery according to customer’s needs and wants. It includes either they would make the
product by themselves (in-house) or are there any parts of the product that would be
made outside the firm (outsource). Industrial value chain would be described by supply
chain (how it get raw materials), internal process (how it makes product), and distribution
channel (how it distributes product).
Family business
Family business is a firm that is dominated by a family which owns and controls the
business and also establishes a vision to keep the business in the family across
generations (Chua, Chrisman and Sharma, 2009). Family business unites business and
family in diverse complex implications (Astrachan, 2010). The influence of family to
business incurs some characteristic of family business such as driven by founders or
family’s values (Denison, Lief, and Ward, 2004; Olson, Suiker, Danes, Stafford, Heck
and Duncan, 2003), not merely to seek financial objective (Astrachan and Jaskiewicz,
2008; Gomez-Mejia, Haynes, Nunez-Nickel, Jacobson, and Moyano-Fuentes, 2007), give
priority to long-term relationships to nurture trust and mutual benefits (Anderson, Jack
and Dodd, 2005; Carney, 2005; Karra, Tracey and Phillips, 2006), and has a long term
perspective (Le Breton-Miller and Miller, 2006).
Moreover, family business that has strong humanity traditions, could establish
entrepreneurial values (Leenders and Waarts, 2003; Lumpkin, Martin and Vaughn, 2008).
Even they had tradition in doing their business they could develop new values and
behavior such as autonomy, risk-taking, innovation and proactive (Martin, Vaughn and
Lumpkin, 2006). Then, there was family business which develops and equips themselves
with innovative behaviors and gets a better performance than family business which
performs on the contrary (Daily and Dollinger, 1992; Miller, Breton-Miller and
Scholnick, 2008).
According to above information, we could expect that family business that has
entrepreneurial orientation would enforce business model innovation. Innovation could
be seen as a learning process (Beckman and Barry, 2007). Then, in order to have a clear
explanation about business model innovation process we need to describe the process of
organizational learning and the type of organizational learning that happened in a family
business. Meanwhile, organizational culture influence organization members’ behavior in
term of creating, distributing, and using knowledge (De Long and Fahey, 2000). Then,
we also need to reveal what kind of organizational culture that are implemented and
encourage the business model innovation process.
Organizational Learning
Argyris and Schon (1978) were the first who acknowledge the concept of organizational
learning to reveal that organization are able to learn. Organization learns through
4
collective learning that is done by organization members. Collective learning is more
powerful than merely accumulation of individual learning (Fiol and Lyles, 1985). Even,
organizational learning enables an organization to develop, acquire, transform and exploit
new knowledge in order to encourage innovation (Jimenez-Jimenez and Sanz-Valle,
2011).
The aim of organizational learning is to establish suitability between organization and
their environment (Fiol and Lyles, 1985). The suitability between organization and their
environment is a key to organizational sustainability and growth in the long term
(Chandler, 1962; Katz and Kahn, 1966; Thompson, 1967) and even generate competitive
advantage and foster organizational innovation (Barnard, 1938; Lawrence and Dyer,
1983; Lawrence and Lorsch, 1967).
Organizational learning process could be describe into four constructs, knowledge
acquisition, knowledge distribution, knowledge interpretation, and organizational
memory (Jimenez-Jimenez and Sanz-Valle, 2011). Knowledge acquisition is the process
by which knowledge is obtained. Knowledge distribution is the process by which
knowledge from different sources is shared. Knowledge interpretation is the process by
which distributed knowledge is given one or more commonly understood interpretations.
Organizational memory is the means by which knowledge is stored for future use (Huber,
1991).
Moreover, Visser (2007) reveals three basic types of organizational learning, (1) meta
learning, (2) deutero-learning, and (3) planned learning. Meta learning is the ability either
to detect and make correction of errors based on existing rules/values/norms (single-loop
learning) or to detect and make correction by changing the existing rules/values/norms
(double–loop learning) (Argyris, 2004). Deutero-learning is the ability of adapting
behavior toward situation development patterns in multi relation in organizational
context. It is the ability to see situational context and make proper decision either by
single-loop learning or by double-loop learning (Qureshi, 2000; Visser, 2007). Planned
learning is the ability to create and maintain organizational systems, routines, procedures
and structures to store organizational knowledge/information.
Organizational Culture
Organizational culture is a pattern of basic assumptions that are shared and learnt by a
group as they address either external adaptation problems or internal integration problems
(Schein, 2004). These patterns have been tested and were trusted then it been delivered to
new members as a right way in seeing, thinking and feeling as they address external or
internal problems. Organizational culture at least have three characteristics such as 1) are
transferred to new members by socialization process, 2) affecting individual, groups and
organization behavior, 3) operate in all levels in organization. Then, organization culture
reflected core values and beliefs in an organization but it also could be seen in their
behavior either as a group or as individual.
Family business usually has strong moral ties (Landa, 1983), more personal working
relationship and encourage flexibility (Wijaya, 2008). These characteristics were close to
5
clan culture that more focus to relationship than transaction in interpersonal relation
among organizational members (Richard, McMillan-Capehart, Bhuian and Taylor, 2009).
But, experts reveal that organizational culture has a plural perspective (Harris, 1998;
Pettigrew, 1979). It means that there might be a dominant culture and some other type of
culture which serve as subcultures (Siehl and Martin, 1984). Then, Cameron and Quinn
(2006) revealed that there were competing values in organization.
According to the competing values framework (Cameron and Quinn, 2006), there are two
kind of orientation that each has competing values. The first was orientation either to
focus on internal environment and integration or to focus on external environment and
differentiation. And the second was orientation either to focus on flexibility and
discretion or to focus on stability and control. Then, we could identify four types of
organizational culture that are clan culture, adhocracy culture, market culture, and
hierarchy culture.
Clan culture focuses on internal environment and integration as well as flexibility and
discretion (Cameron and Quinn, 2006). It is similar to family business which
effectiveness was established by promoting collaboration among organization members.
Employees are taken into account in the firm as a family member and cohesiveness is
achieved through consensus. Employee involvement is used to get job satisfaction and
commitment (Kreitner and Kinicki, 2008). There are strong solidarity and kinship with
higher flexibility to accomplish a job (Ouchi, 1980).
Adhocracy culture focuses on external environment and differentiation as well as
flexibility and discretion (Cameron and Quinn, 2006). Then, organization would be
encouraged to establish innovative products and services through adaptability, creativity,
and quick response to market change. Power and authority were decentralized to promote
organization members dare to take risks, creative thinking and trying new ways to
accomplish their objective (Kreitner and Kinicki, 2008).
Market culture focuses on external environment and differentiation as well as stability
and control (Cameron and Quinn, 2006). Then, organization would be encouraged to
compete and strong motivation to achieve their goals. Customers and rents get more
attention than employee’s satisfaction and development. The aims of this culture were to
enhance productivity, profitability and customer satisfaction. It emphasizes fast reaction,
hard working, centralization authority, tight control and high reward for employees who
excel (Kreitner and Kinicki, 2008).
Hierarchy culture focuses on internal environment and integration as well as stability and
control (Cameron and Quinn, 2006). Then, organization would be encouraged to develop
a reliable internal process, tight measurements, and implementation of various control
mechanisms. The aims of this culture were efficiency, timeliness, consistency and
uniformity. Maintaining a smooth-running organization is important (Kreitner and
Kinicki, 2008).
6
Research Method
Because my research question is about why and how, then I should focus on the business
model innovation making process. This research was combining between explanation and
description study. Explanation study aims to answer research question of why (Babbie,
2008). This type of study would depict about what kind of business model innovation
were being done by a firm and why it did so. Description study aims to answer research
question of how (Babbie, 2008). Then, I use description study to reveal the process of
business model innovation.
I choose a jamu company, PT. Nyonya Meneer, because jamu is a kind of knowledgeintensive industry that needs a specific business model (Sheehan and Stabell, 2007) and
there is less attention in cultural heritage business research. Jamu is a kind of Indonesian
heritage herbal medicine (Stevensen, 1999) which usually is drunk as a part of Indonesian
cultural heritage. PT. Nyonya Meneer is the oldest jamu company that is still going
concern in the business of jamu in Indonesia till now (Sumardono and Hanusz, 2007). As
a family business, PT. Nyonya Meneer has been entering business jamu since 1919. My
unit analysis is PT. Nyonya Meneer as an organization, while my prime source of data
are the CEO as the owner of PT. Nyonya Meneer and persons who are involved in a
cross-functional team. Both of them are in-charge of business model innovation in PT.
Nyonya Meneer. The main data are collected by conducting in-depth interview with the
owner (family member) and focus group discussion with persons (non family member)
who are involved in a cross-functional team.
Results
After six times of in-depth interviews and six times of focus group discussions, the
process of business model innovation in PT. Nyonya Meneer could be described.
Phase 1
In this stage, PT. Nyonya Meneer entered jamu business in Indonesia by offering
differentiated products. Mrs. Meneer, the leader owner, offered jamu that is made for
family using and purpose (family recipes) which had more focus on efficacy and taste.
She did it because she had a strong empirical knowledge to make jamu. By doing this PT.
Nyonya Meneer was able to get a good position in jamu industry. This model served the
business as a single business model quit a long time at least till second generation of the
family (1970s).
At the first time entering the business, as a leader owner, Mrs. Meneer had a central role
in business model innovation. She led product development, strengthening and
developing her knowledge about jamu and also directed sales as well. Other family
members just followed her direction (Sumardono and Hanusz, 2007). Then, there has not
been organizational learning yet.
In term of organizational culture, the dominant culture was clan culture. It was described
by all of the products were be generated by internal ideas, such as Jamu Habis Bersalin
(after giving birth herbs). Mrs. Meneer also often asked for suggestions from her
customers to build strong relationship and trust. These were central characteristics of clan
culture (Scherer, 1988).
7
”..almost all products come from our family..it was developed as a part of her (Ibu
Meneer) cultural heritage, then spreading to her neighbor and finally becomes a national
asset..at that moment, we never think about consumer oriented..all are family
oriented..family oriented had more focus on efficacy and taste..the efficacy and taste were
parts of her privileged to be used by family member..why our jamu are more smooth,
tasty, and efficacious..it was the idea of our family, it did not come from market...but
accidentally it was suitable with market’s want...there was no market survey at that
time..” (CEO, 4th September 2012).
Phase 2
In this phase, PT. Nyonya Meneer combined their existing business model with a
segmented business model. After decades of successful single business model, it was
hard for PT. Nyonya Meneer to innovate their business model. Started the business with
only less than 20 employees it grew into near 1.000 of workforces (Liong, 2010). Then,
the third generation started to establish a cross-functional team to assist leader owner in
driving business model innovation and promote organizational learning. Even, the
organizational learning process was mainly driven by the leader owner, especially in
knowledge acquiring, it was quit important thing to start the process. He also started to
emphasize on marketing.
After having more than two generations business experiences, PT. Nyonya Meneer got
much knowledge about their market. The firm started to segment their market into
specific targets. For example: the market for Jamu Habis Bersalin was not only targeting
all women who have just given birth but also be segmented into specific targets such as
they who used to drink jamu or not, they who had high income level, middle income
level, and low income level, for domestic market or foreign market.
The dominant culture was still clan culture, but it was supported by market culture as an
enhancing subculture (Siehl and Martin, 1984). The company was pushed to recognize
their market well in order to create specific segments. But, since all of the products were
generated by internal ideas, then the dominant culture was clan culture.
”..we might differ from other companies..they might be made few products to overcome
many kind of diseases (Liong, 2010)..we were different...we made one thousand products
to overcome one thousand kind of diseases..” (CEO, 14th March 2012).
Phase 3
In this phase, PT. Nyonya Meneer continued to combine existing business models with
an externally aware business model. The company started to face an unfavorable business
environment such as diminishing of people who used to drink jamu, jamu was perceived
as an old life style and even unsaved because there was jamu that contained drug
chemicals. Then, they had to more focus in knowing market needs. As the organizational
learning was taking place, they started to realize that product ideas could be originated
from outside of the company. They started to launch jamu products that originated from
external parties such as government, market, and competitors.
8
In this phase, three types of organizational learning have already been implemented.
Planned learning could be seen as the company could recognize their market better. They
could recognize either there were opportunities to maintain existing products or markets,
or there were opportunities to modifying it or even there were opportunities to explore
new market. Single-loop learning could be traced by their decisions to serve existing
target segment with current products, such as, Jamu Habis Bersalin, Jamu Amurat (served
in powder). Double-loop learning could be traced by their decision to exploit existing
market and serve it with modifying products, such as Pil Habis Bersalin, Pil Amurat
(serve in pill). Deutero learning could be traced by their decision to anticipate new
market needs and served it with new products, such as Rheumaneer (usually people drink
jamu as a part of their habit/life style. Rheumaneer was a product that proposed to
remedy rheumatic. People drink Rheumaneer not as their habit but as their need to
remedy their illness with a natural medicine).
In term of organizational culture, the dominant culture was still clan culture, but market
culture was playing more important role as enhancing subculture. The dominance of clan
culture could be traced by the dominant portion of sales which came from products that
originated from the family. The important role of market culture could be traced by those
products which originated from external parties. The existence of enhancing subculture
was widening company’s sales portfolio.
”..at the early time may be the idea of products were generated by Ibu Meneer as the
owner..but now, the owner is market...we also benchmark competitor’s product and sell it
in different market...” (CEO, 14th March 2012)..so all products are made based on
market’s demand..” (CEO, 8th October 2012).
Phase 4
In this phase, PT. Nyonya Meneer continued to combine their existing business models
with integrating industrial value chain into business model. The co-existence of
organizational learning and market culture as enhancing subculture encouraged them to
explore their market, especially foreign market. They found that there were markets for
antioxidant products which served in capsule. But at the moment, they have not already
served their jamu products in capsule. They were also aware of the licensing barriers to
sell products directly using their own brand in foreign market. Then, PT.Nyonya Meneer
started to outsource some of their jamu products and sold it to foreign market using their
buyer’s brand.
Moreover, market culture as an enhancing subculture played a new role. It encouraged
the company not only to recognize their market well but also other important
stakeholders such as raw materials suppliers, semi–finished goods suppliers, outsourcing
companies, and also alternatives distribution channels.
”...so, further we could commercialize Nyonya Meneer brand..we does not need to sell
products by ourselves..we just make jamu and other parties will sell it for us....we make
collaboration...Our concern now is how to speed sinergy...” (CEO, 14th March 2012).
9
As the result of business model innovation that has been done in PT. Nyonya Meneer,
they could sustain in jamu industry till now. Their sales were increasing at an average
level of 15%/year for the last 3 years. (2010-2012).
Despite of the success in doing business model innovation, this study also revealed some
obstacles that hampered the business model innovation process. Clan culture which
served as a dominant culture seemed to prioritize internal consideration than external
conditions. This would at least generated two problems that could be mentioned. First,
PT. Nyonya Meneer have around 200 kind of jamu products and they urged to sell them
all. Meanwhile, from distributors view, they only wanted to sell selected items of jamu
because of some unfavorable situation were emerge such as the negative trend of people
who used to drink jamu, cheap pharmaceutical drugs, negative perception of jamu. Then,
there were distribution problems. Second, because of clan culture used to maintain
ceremonies, rituals and relationships (Hirschman, 1970) it was not easy for them to
change product attributes such as packaging. They tended to retain the old style
packaging that led to complaints by their distributor. The company argued that whenever
consumers did not ask why they should change their packaging. But the distributors
wanted to give the best for their customers. They did not want to wait for consumers’
complaints that they made improvements.
Conclusions And Research Implications
Based on the result of this case study research some conclusions could be made. Firms
are able to innovate their business model by shifting their business model into a more
valueable business model or by combining existing business model with other type of
business model. According to Chesbrough (2007; 2010), CEO, who was in charge of
business model innovation, had a lack of time in experimenting their business model. In
this case study, family business could encourage business model innovation because their
CEO has enough time to do business-model experiments. But, there were some
conditions that were needed to encourage them to do it. CEO would innovate their
business model if their existing business model did not work well. Whenever their
existing business model was worked well, they had to change their existing paradigm.
This later condition was happened in PT. Nyonya Meneer so that they maintained their
first business model till their third generation entering the business.
To change their existing paradigm, CEO needed new knowledge as well as new values.
In order to gather new knowledge firms could deploy a cross-functional team that
excluded from current structure. They should be excluded from current structure so that
they would not interfere current business model and they were freely reading their
business environment in a new way. This cross-functional team would assist CEO
towards business model innovation process. The existence of cross-functional team helps
the functional manager to see the business as a whole (Zellweger, Kellermanns,
Eddleston, dan Memili, 2012). It also helps the company to implement organizational
learning. Organizational learning is needed to encourage company to make a suitable
adaptation toward their environment and to strengthen their decisions.
10
Meanwhile, in order to change their values, family business should take a stakeholder
perspective. By taking this perspective, family business was encouraged to have a market
orientation (Cabrera-Suarez, Deniz-Deniz, and Martin-Santana, 2011). This perspective is
also needed to guide current clan culture to get a wider perspective (external orientation)
without deterring their advantages in building trust and relationship.
Further Research
Because this is a case study, it satisfies as an example to describe a process of business
model innovation in a family business. But we need to explore how it be done in other
type of business and make comparison between them. Then we could describe how
business model innovation is really done.
Figure 1 The Business Model Framework (Chesbrough, 2007)
Figure 2
Business Model Component
(Lindgardt et al., 2009)
11
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