Business model innovation is an approach to the development of a business. Johnson (2010: 7) stated that a business model ‘defines the way the company delivers value to a set of customers at a profit’. He explained that business model innovation involves ‘the creation or reinvention of a business’ and that ‘it results in an entirely different type of company that competes not only on the value proposition of its offerings, but aligns its profit formula, resources, and processes to enhance that value proposition, capture new market segments, and alienate competitors’ (Johnson, 2010: 20). A survey by IBM (Pohle and Chapman, 2006: 34) found that ‘competitive pressures have pushed business model innovation much higher than expected on CEOs’ priority lists. Business leaders are seeking and finding new ways to
adapt their business models to remain competitive in their current industry – or to seek growth by entering new industries’.
Business models provide a picture of an organization that explains how it works. Business model innovation is concerned with how the organization should change its business model to improve its performance. Such changes impact on people. They involve employees in planning and implementing them. They are therefore the concern of the HR function as well as operational management. HR has a major role in ensuring that innovation or change is carried out effectively through people. HR needs to be involved in planning the change and implementing it by developing and facilitating the introduction of appropriate HR strategies. As Sparrow et al (2010: 9) indicated: ‘Describing business models helps to articulate the key components of effective strategic performance, thereby providing an opportunity
to link HR more closely to the challenges faced during strategy execution’. They also remarked that: ‘A central task for HR directors is to identify how they, as a leader, and how their function’s own delivery model structure, and the people processes it manages, add value during periods of business model change’ (ibid: 14–15).
Strategic HRM is about the integration of HR and business plans. This means being involved in business model innovation when it takes place as part of those plans. The aim of this chapter is to explain how this can happen by defining the concept of a business model and the part it plays in strategic management, examining the process of business model innovation, describing how business models can be analysed as part of strategic HRM, and examining the role of HR in business model innovation.