You are on page 1of 26

See discussions, stats, and author profiles for this publication at: https://www.researchgate.

net/publication/259557847

Business Model Innovation in the Aviation Industry

Article  in  International Journal of Product Development · January 2013


DOI: 10.1504/IJPD.2013.055010

CITATIONS READS

16 3,842

3 authors:

Patrick Spieth Sabrina Schneider


Universität Kassel Universität Kassel
66 PUBLICATIONS   642 CITATIONS    13 PUBLICATIONS   264 CITATIONS   

SEE PROFILE SEE PROFILE

Thomas Clauß
Philipps University of Marburg
82 PUBLICATIONS   136 CITATIONS   

SEE PROFILE

Some of the authors of this publication are also working on these related projects:

Session on Business Model Innovation at this years R&D Management Conference in Leuven, Belgium View project

Special Issue: THE ENTREPRENEURIAL UNIVERSITY: NEW THEORETICAL AND EMPIRICAL INSIGHTS FROM AN INTER- AND INTRA-
ORGANISATIONAL PERSPECTIVE View project

All content following this page was uploaded by Thomas Clauß on 12 November 2014.

The user has requested enhancement of the downloaded file.


286 Int. J. Product Development, Vol. 18, Nos. 3/4, 2013

Business model innovation in the aviation industry

Sabrina Schneider
Department of Innovation Management & Entrepreneurship,
EBS Business School,
Rheingaustr 1, 65375 Oestrich-Winkel, Germany
Email: sabrina.schneider@ebs.edu

Patrick Spieth*
Department of Innovation Management & Entrepreneurship,
EBS Business School,
Rheingaustr 1, 65375 Oestrich-Winkel, Germany
and
Department of Innovation & Technology Management,
University of Kassel,
Nora-Platiel-Str. 4, 34109 Kassel, Germany
Email: patrick.spieth@ebs.edu
Email: spieth@uni-kassel.de
*Corresponding author

Thomas Clauss
Department of Corporate Management and Innovative Value Creation,
University of Marburg,
Am Plan 1-2, 35032 Marburg, Germany
Email: thomas.clauss@wiwi.uni-marburg.de

Abstract: In response to changing sources of value creation, business model


innovation has recently emerged as a concept that allows dealing with volatile
environments. Focusing on the aviation industry, we aim at enhancing the
understanding of drivers, elements and forms of business model innovation.
We use an inductive, theory-building design that allows patterns of business
model innovation to come to light across multiple case studies of Maintenance,
Repair and Overhaul (MRO) companies in the aviation industry. In line with
prior theory, we find that a range of supply and demand-driven effects trigger
the need for business model innovation in the aviation sector. We identify
aircraft manufacturer market characteristics and structural airline industry
characteristics as drivers of MRO business model innovation. New MRO value
offerings and MRO value creation were set as constituting elements of
innovating MRO business models resulting in customer benefit-oriented and
value co-creation-oriented business model innovation.

Keywords: business model innovation; business model; aviation industry;


MRO; value co-creation; customer benefit-orientation; case study research.

Reference to this paper should be made as follows: Schneider, S., Spieth, P.


and Clauss, T. (2013) ‘Business model innovation in the aviation industry’,
Int. J. Product Development, Vol. 18, Nos. 3/4, pp.286–310.

Copyright © 2013 Inderscience Enterprises Ltd.


Business model innovation in the aviation industry 287

Biographical notes: Sabrina Schneider is Research Associate at EBS Business


School. Her research areas are business model innovation, entrepreneurship,
and strategic management

Patrick Spieth is Interim Chair of Innovation & Technology Management at


University of Kassel. He is Assistant Professor of Innovation Management at
EBS Business School since 2010. He received his Phd from University of
Kassel in 2009. During 2005–2010, he was Research Associate at University of
Kassel. His research areas are business model innovation, innovation networks,
and innovation project management.

Thomas Clauss is Assistant Professor of Corporate Management and


Innovative Value Creation. He received his Phd from University of Hamburg
in 2012. During 2007–2012, he was Research Associate at University of
Hamburg. His research areas are business model innovation, supply chain
collaboration, and value creation.

This paper is a revised and expanded version of a paper entitled ‘Business


model innovation in changing industries: exploring the concept at example of
the shift from manufacturing to service in the aviation industry’ presented at
the ‘12th EURAM Conference, 5–8 June 2012, Rotterdam, the Netherlands.

1 Introduction

Experiencing difficulties in carrying on with traditional business logics has become a


widespread phenomenon faced by companies across various industries. Their previously
– and in parts still – successful business models threaten to collapse under the pressure of
rising competition and changing customer demands. Achieving and retaining sustainable
competitive advantage has become increasingly difficult for any firm exposed to high
levels of environmental dynamics (Helfat et al., 2007; Teece, 2007).
In consequence, the concept of business model innovation – considering the holistic
business model as relevant unit of analysis for innovation – has emerged and recently
attracted increasing attention in both, corporate practice and academic discussions
(Baden-Fuller and Morgan, 2010; Chesbrough, 2010; Zott and Amit, 2010; Cavalcante
et al., 2011).
Business model innovation is a term that, despite growing interest in the topic, so far
has only been vaguely defined and understood. Besides lacking a commonly accepted
definition, the process and elements constituting business model innovation are
characterised as rather discovery-driven and trial-and-error based (McGrath, 2010; Smith
et al., 2010; Sosna et al., 2010). Furthermore, most examples of business model
innovation analysed in previous research focus on Business-to-Customer (B2C) cases
where either the stimulation of additional and new customer demand or the increase of
consumer benefits are emphasised.
As most findings about the emergence of new business models lack empirical
foundation and changes in business models in most cases cannot be traced back to
specific determinants; we intend to investigate the phenomenon in an industrial context
where significant external changes along the value chain make business model
innovation inevitable.
288 S. Schneider, P. Spieth and T. Clauss

An example in which external changes require firms to change their business models
can be found in the aircraft Maintenance, Repair and Overhaul (MRO) industry. MRO
providers in the aviation industry are characterised by high levels of specialisation within
their products and processes. Furthermore, they largely depend on the developments
among their direct airline customers and the end user of the products and services offered
by the airlines. Ever since the beginning of the aviation industry’s deregulation, this
industry has been coined by high levels of market volatility (Fu et al., 2010; Button et al.,
2011).
In current times, this industry experiences significant changes of the value chain due
to strategic shifts of vertical actors. In congruence with Davies’ (2004) findings in other
industries, two major developments challenge traditional business models of MRO
actors. First, upstream actors are extending their core business functions with additional
services to be able to offer integrated solutions to their customers. Second, customers are
focusing on their core capabilities and thus outsource parts of their traditional business to
dedicated service providers.
Through these developments, traditional business models of MRO providers are
challenged as these are positioned in between these two actor groups. They are facing
pressure by the entry of Original Equipment Manufacturers (OEM) into the after-sales
market but also new opportunities by changing customer needs as airlines increasingly
focus on their core business ‘flying’. To ensure survival, firms such as the MRO
providers are not only required to consider and drive the commercialisation of isolated
product or service innovations, but also to question their underlying core business logic.
While the developments of new airline business models such as low-cost providers
and their impact on traditional network carriers have been discussed in extenso
(e.g. Morris et al., 2005; Chesbrough, 2007; Johnson et al., 2008; Fageda and Fernández-
Villadangos, 2009; Casadesus-Masanell and Ricart, 2010; Engau et al., 2011; Nair et al.,
2011), business models and their innovation among further industry players – in
particular within the Business-to-Business (B2B) context such as the MRO industry –
have not been explored yet. As MRO providers urgently face the need to anticipate and
react to market and industry developments building on the innovation of their established
business models, this constitutes a relevant research gap. Therefore, a deeper
understanding of the drivers and the consequences regarding particular elements
constituting business model innovation of MROs – as B2B-operators in the aviation
industry – need to be further understood.
Based on an in-depth analysis of 12 cases drawn from the German MRO industry,
this paper enhances our understanding of business model innovation in the specific
context of MRO providers in the aviation industry. In particular, three research questions
are addressed: (a) what are the drivers of business model innovation in the B2B context
faced by MRO providers in the aviation industry? (b) Which elements constitute business
model innovation in the particular industry context? (3) Which kinds of business models
evolve under the industry specific conditions?
This paper contributes to achieving a better understanding of business model
innovation within a B2B-context, where traditional market players are exposed to
particularly high levels of industry dynamics. We apply a qualitative research design to
investigate the effects of specific industry dynamics on business model innovation in the
MRO industry. By doing so, we develop a cause and effect framework that explains
current changes in business models of this particular industry. Implications for
practitioners operating in the aviation industry can be deducted. The enhanced
Business model innovation in the aviation industry 289

understanding of business model innovation within the MRO context can be furthermore
transferred to differing B2B situations and thus contributes to our general understanding
of business model innovations in volatile B2B industries.

2 Literature review

2.1 Definition of business model innovation


The roots of the business model concept lie in its development in corporate practice
(Lecocq et al., 2010; George and Bock, 2011). Despite increasing consideration of the
concept within academia, no commonly accepted definition and understanding of the
term have yet been established (Zott et al., 2011). Affected by the dominant role of the
internet and related e-commerce activities on the concept’s development, most business
model definitions focus on the concept’s ability to explain “how a firm will make
money” (Stewart and Zhao, 2000, p.290) and “how enterprises work” (Magretta, 2002,
p.87). Thereby, they are understood to represent the “design or architecture of the value
creation, delivery, and capture mechanisms” (Teece, 2010, p.172) an enterprise employs.
In consequence, business models serve to commercialise innovations by allowing firms
to deliver the value of a service or product innovation to their customers meanwhile
capturing the related revenues (Chesbrough, 2010; Teece, 2010). To do so, the business
model concept neither limits its scope on firm internal nor external environmental
factors, but rather provides a holistic perspective that allows managers to take an
integrated view on their firm’s activities.
In the context of this paper, we define a business model in line with Johnson et al.
(2008), but aggregate the proposed facets into two dimensions: customer value
proposition and internal value generation. Johnson et al. (2008) emphasise that the most
important dimension of a business model is how the company and its offerings are
perceived externally by its consumers. This external business model consists of the
customer value proposition. This dimension refers to the product and service portfolio
which is offered at the market. It determines which customer needs are addressed, which
target customers are approached, and how and which distribution channels are used.
Further, Johnson et al. (2008) discriminate an internal business model which captures the
key processes (formal and informal) and key resources (tangible and intangible), which
fulfil a potent value proposition in a profitable way. Further they emphasise that a profit
formula has to align the internal cost structure with the prices and volumes which can be
achieved at the market to ensure the profitability of a company. As processes, resources
and the profit formula are intertwined with each other, we subsume their elements under
the term internal value generation. However, internal does not mean that all processes
take place in closed companies and do incorporate resources which are owned by the
company. The internal value generation can as well make use of the resources,
competences and knowledge bases of partners along the value chain. As such, when
customers provide relevant resources to value generation, the boundaries between
customer value proposition and internal value generation overlap (Vargo and Lusch,
2008, Baron and Warnaby, 2011).
Business models have become a relevant unit of analysis and starting point for
innovation strategies. Trends such as an increasing customer-centricity replacing
traditionally supply-driven business logics (Teece, 2010) and the entry of new
competitors that has revolutionised entire industries, such as the low-cost airline or
290 S. Schneider, P. Spieth and T. Clauss

retailing markets (Johnson et al., 2008), have forced companies to realise that their
conventional business models were failing. Aiming at achieving new and preferably
sustainable competitive advantages, a firm’s capacity to reinvent its own business model
in anticipation of environmental changes is increasingly regarded as a crucial
organisational competence for firms operating in turbulent markets (Hamel and
Välikangas, 2003; Amit and Zott, 2010). Business model innovation thereby represents a
conscious renewal of a firm’s core business logic. Rather than focusing on particular
characteristics of distinct service or product innovations, business model innovation
emphasises the commercialisation of the innovation applying an integrated perspective of
the firm’s extant business model elements and the value of their offering to the customer.
Business models naturally tend to be stable, in particular in times of success, when
efficient and reliable scaling of well-proven actions appears to be the obvious path to
follow (Doz and Kosonen, 2010). Overcoming barriers such as obstruction and confusion
among employees have been identified as a major challenge of firms pursuing business
model innovation (Amit and Zott, 2001; Chesbrough and Rosenbloom, 2002; Christensen
and Raynor, 2003; Chesbrough, 2010). A second challenge represents the vague
understanding of the business model innovation process. Academic literature
characterises it as an on-going learning process that relies on discovery and trial-and-
error rather than being an analytical approach (Chanal and Caron-Fasan, 2010; McGrath,
2010; Smith et al., 2010; Sosna et al., 2010). Questions such as what drivers of the need
for business model innovation exist, which elements constitute the process and what
formats of business model innovation emerge remain without answer – in particular
within the B2B-context.

2.2 Challenges for maintenance, repair and overhaul firms


A specific industry example to investigate business model innovations is the MRO
industry, as this is subject to two major changes along the value chain. As we show in the
following, MRO firms experience a situation in which opportunities and threats arise.
First, customers (the airlines) tend to focus on their core activities and thus outsource an
increasing number of tasks to dedicated MRO firms. Second, upstream actors (the OEM)
diversify activities downstream to increase their vertical scope.
MRO activities represent a crucial element to their operations as technical reliability
and passenger trust in an airline’s fleet management are crucial for any airline’s success
(Al-kaabi et al., 2007). Furthermore, they account for a significant portion of an airline’s
cost structure (Freidl, 2009). MRO activities comprise the maintenance of all aircraft
components and can be further differentiated in accordance to the effort intensity and
frequency of the required works: (a) heavy maintenance requiring dismantling most of
the aircraft’s parts, (b) engine maintenance in response to defects and replacement of
Life-Limited Parts (LLP), (c) line maintenance involving brief in-service repairs based
on visual checks, (d) component maintenance focusing on specific maintenance intervals
of isolated parts of the aircrafts and (f) modifications to implement technological
upgrades throughout the lifetime of an aircraft (Al-kaabi et al., 2007; Freidl, 2009).
Due to the strategic importance of the technical reliability, MRO activities have
historically been conducted in-house by most airlines. Until today, most FSCs maintain
their own MRO divisions, frequently operating as independent subsidiaries offering their
services to affiliated airlines as well as openly to market. In addition, independent MRO
service providers that differentiate themselves through high levels of flexibility and
degrees of specialisation serve the market.
Business model innovation in the aviation industry 291

Changes to the industry were first triggered by governmental deregulations. Since the
Airline Deregulation Act in the USA in 1978, a constant process of market liberalisation
has characterised global airline business (Button et al., 2011) leading to increasing
competition and pricing pressure within the industry (Swan, 2007; Fu et al., 2010). This
has facilitated the emergence of new market entrants, which introduced new passenger
airline business models, the most prominent being the low-cost carrier concept.
Pioneered by Southwest Airlines in the US market and Ryanair in Western Europe, low
cost carriers focus on reducing production complexity and minimising their cost
structures. This development pushed market competitiveness beyond its already high
levels (Fageda and Fernández-Villadangos, 2009; Barry and Nienhueser, 2010; Forgas
et al., 2010). Additionally, the aviation industry is exposed to a range of particular
characteristics – such as unstable fuel prices, confrontational trade unions, overcapacities,
economic downturn, ineffectual management, insufficient profitability, as well as
unpropitious events like terrorist attacks, outbreaks of disease and natural disasters –
intensifying its turbulent and highly volatile nature (Brunger, 2010; Franke and John,
2011; Malighetti et al., 2011; Morrell, 2011).
In response to the highly competitive environment of the industry, an increasing
tendency amongst airlines to concentrate on their core business ‘flight operations’ can be
noticed. The overall price level decline of air fares (Belobaba and Odoni, 2009) forces
airlines to constantly reconsider their cost structures. While newly founded airlines tend
to make extensive use of external value creation from the beginning of their operations
(Flouris and Oswald, 2006), outsourcing of activities has also become a frequently
applied measure by established full service airlines in order to improve their efficiency
and in consequence reduce costs (Brown and Rutner, 1999; Rieple and Helm, 2008).
Examples for frequently outsourced activities include in particular non-core activities
such as on-board catering, aircraft cleaning, ground handling or MRO services (Schnell,
2003; Carney and Dostaller, 2006; Rieple and Helm, 2008; Berritella et al., 2009). In
sum, opportunities for MRO service providers arise by new service offerings and a better
integration into the value creation process of the customer (Davies, 2004).
A second development in the industry threatens the business model of dedicated
MRO service providers. OEMs have expanded their activities into the after-sales market.
Manufacturers have previously focused on the development and commercialising of
technological innovations as potential source of differentiation and competitive
advantage (Franke, 2007; Bessant, 2009; Goldman and Nagel, 2009). Pressured by
constant shortening of product life cycles and high costs for R&D activities to cope with
the rapidity of technological developments (Goffin, 1998; Homburg et al., 2002),
manufacturers have started to explore additional value sources by providing services
related to their products (Gremyr et al., 2010; Lay et al., 2010). Despite manufacturers’
obvious economic and rising customer demand due to an increasing trend of
concentration on core competencies (Oliva and Kallenberg, 2003), it was not until
recently that manufacturers’ interest in service offerings increased (Jacob and Ulaga,
2008). Within the aviation industry, OEMs, such as General Electric, Rolls Royce, and
Pratt and Whitney provide examples of such activity expansion into the after-sales
market. With the entry of OEMs into this market, MROs have recently experienced the
emergence of a new rival providing a different level of competition to the market.
Therefore, besides the opportunities arising through new customer demands, MRO firms
have to respond to competitive pressures.
292 S. Schneider, P. Spieth and T. Clauss

Taking both developments into account, MRO service providers face requirements
and opportunities to change their existing business models in order to sustain their
competitive position.

3 Methodology

3.1 Qualitative research design


A qualitative research design was chosen to enhance our understanding of business
model innovation in the aviation industry as we particularly aim at achieving a better
understanding of an emerging contemporary phenomenon in its real-life setting (Flynn
et al., 1990; Meredith, 1998) as well as to allow to creat a model that applies for a
broader context (Eisenhardt, 1989; Yan and Gray, 1994; Yin, 2003). Although it is
strongly emphasised that quantitative data are highly valid, it is qualitative data that
allow gaining relevant insights into this study’s research objectives (Sechrest, 1992;
Guba and Lincoln, 1994). The flexible character of qualitative research further allows
modifying design and focus during the research as it enhances the researcher’s
understanding of new discoveries and relationships (Maxwell, 2005). This made it
particularly suitable to uncover the undermining dimensions of business model
innovation in the specific aviation industry context and to further develop research as
well as managerial implications (Miguel, 2008).
The applied research design is based on the use of a priori constructs derived from
existing theory (Bourgeois and Eisenhardt, 1988; McCutcheon and Meredith, 1993; Voss
et al., 2002). A priori theories should be considered an explanatory approach guiding, but
not determining, the analysis (Eisenhardt, 1989, McCutcheon and Meredith, 1993).
A priori specification of constructs is considered valuable in measuring constructs
more accurately meanwhile not hindering the iterative process (Eisenhardt, 1989).
Furthermore, the consistency between the derived model and existing theories is
discussed.

3.2 Data sample and data collection


In qualitative case study research, the choice of cases should be based on theoretical
reasoning rather than statistical sampling (Glaser and Strauss, 1967; Eisenhardt, 1989;
Meredith, 1998). Multiple cases are also regarded as providing more reliable and testable
results for theory building purposes than single case studies (Eisenhardt, 1989;
Yin, 2003; Eisenhardt and Graebner, 2007). Following theoretical sampling, we selected
12 companies of different size as well as range of product and service offering (Benbasat
et al., 1987; Yin, 2003).
Our study was conducted within the German aviation industry where we analysed
12 MRO service providers (see Table 1), each considered as a unit of analysis. Recent
developments within this industry, in particular its dynamic market and the entry of
OEMs into the after-sales market, have made this industry particularly appropriate for the
purpose of this research. Furthermore, the size of the industry allowed for the
identification of a range of cases of companies with similar product and service offerings,
which allowed replication, thus strengthening the potential findings.
Business model innovation in the aviation industry 293

Joint workshops were conducted with the identified companies to present our
understanding of business model innovation, the study’s objectives and to identify
interviewees. This allowed to ensure that all interviewees were engaged in business
model innovation as well as to reduce a potential informant bias. Interviewing employees
with a multi-discipline background further helped to reduce a potential informant bias
(Miles and Huberman, 1994; Maxwell, 2005).
Overall, we conducted 12 in-depth semi-structured interviews with managers that had
at least four years of experience with the respective firm. A formal interview guide
avoiding leading questions was used to minimise a potential reactivity bias (Maxwell,
2005). Additional data sources were used when new themes emerged, in order to take
advantage of unique case features, and for the purpose of triangulation (Yin, 2003;
Eisenhardt and Martin, 2000).
Table 1 Overview of companies in the sample

Company Market scope Product and service offering Size Role of interviewee
National Private/
1 MRO (small jets) small Head of Operations
business jets
National Private/
2 MRO (small jets) small CEO
business jets
National Airline
Division manager
3 fleets, Wide range of MROs medium
MRO
private/business jets
International Airline
Full range of MROs, Senior Manager
4 fleets, private/ large
additional service offerings overhaul
business jets
International Airline
5 fleets, Wide range of MROs medium Head of Operations
private/business jets
International, Internal
Full range of MROs,
6 fleet and customer large COO
additional service offerings
airline fleets
National Private/ Local branch
7 MRO (small jets) medium
business jets manager
International Internal
Full range of MROs, Division manager
8 fleet and customer large
additional service offerings MRO
airline fleets
International Airline
Division manager
9 fleets, private/ Wide range of MROs small
MRO
business jets
National Internal
Specialised MRO for one Division manager
10 fleet and customer small
engine type MRO
airline fleets
International Airline
Area manager
11 fleets, private/ Wide range of MROs medium
Germany
business jets
National Private/
12 MRO (small jets) small CEO
business jets
294 S. Schneider, P. Spieth and T. Clauss

During the interviews conducted at on-site company visits, we discussed and analysed
drivers, elements and results of business model innovation of MRO providers. Additional
clarifications were sought through further meetings and email correspondence. The
interview guide was developed with respect to four criteria – non-directionality,
specificity, completeness and comparability – framing a focused interview (Merton and
Kendall, 1946; Flick, 2009).
We asked open questions as well as theory-driven questions referring to existing
theory (Flick, 2009). Open questions accounted for the openness, flexibility and iterative
character of grounded theory methods. Thereby, we were able to emphasise emergent and
unanticipated phenomena within our interviews and so to build a comprehensive
framework of business model innovation in the aviation industry. This data collection
strategy helped to enhance the quality of the discussions and increased the efficiency of
our interviews (Merton and Kendall, 1946; Flick, 2009). Each interview lasted between
35 and 60 min. The interviews were audio taped and transcribed by a professional
transcription service. This led to a total of 184 pages of transcripts and 610 min of
recorded material.

3.3 Data analysis


Based on the descriptive write-ups of each individual case, a cross-case analysis was
conducted to identify emerging patterns by comparing and contrasting the data (Benbasat
et al., 1987; Eisenhardt, 1989; Pettigrew, 1990; Yin, 2003). Interview observations were
analysed with the help of MaxQDA software, using a grounded theory approach (Strauss
and Corbin, 1998; Creswell, 2007). Data were iteratively analysed in three steps – open
coding, axial coding and selective coding – before the derived findings were aggregated
into a set of relevant empirically substantiated statements (Strauss and Corbin, 1998;
Creswell, 2007). To prevent biasing influences, potential explanatory constructs were
defined based on prior theory before data analysis where relevant evidence was searched
for these constructs (Nisbet and Ross, 1980; Miles and Huberman, 1984; Eisenhardt,
1989; Yin, 2003). The construct categories were refined and modified iteratively
throughout the analysis process (Eisenhardt, 1989). To ensure the possibility of
replication across the cases, cross-case data analysis was not initiated until the data
collection had been completed (Eisenhardt, 1989; Yin, 2003).
After organising the data and making initial notes, we used an open coding process to
identify concepts focusing on identifying the main idea of each sentence or paragraph
(Strauss and Corbin, 1998). Consequently, codes were summarised into categories in
order to group distinct ideas or events (Strauss and Corbin, 1998). Thereby, we identified
central phenomena and engaged in the axial coding process to identify specific coding
categories that explain central phenomena and identify causal conditions (Creswell,
2007). Data were analysed and visualised using content-analytic summary tables,
partially ordered meta-matrices and cross-relation-analyses applying a variable-oriented
analysis approach (Miles and Huberman, 1994). Enfolding similar and conflicting
literature helped us to build validity, to raise the theoretical level, and to sharpen the
generalisability for MRO business model innovation in the aviation sector and to
Business model innovation in the aviation industry 295

improve construct definitions (Eisenhardt, 1989). For the purpose of triangulation, all
three authors were involved in this process (Eisenhardt, 1989; Holloway, 1997). We
discussed the results during a workshop conducted with the majority of our interviewees.
Thereby, we confirmed the correctness and practicability of our results, even though the
aggregated results do not necessarily reflect each individual opinion.

4 Findings

The analysis of the interviews and prior literature indicates the influence of two external
driving forces on the innovation of established MRO business models: (a) market
characteristics of aircraft manufacturers and (b) structural characteristics if the airline
industry. MRO service providers show to conduct changes within both dimensions of
their business models: (a) MRO customer value proposition and (b) MRO internal value
generation. In consequence, two forms of business model innovation appear to result
among the MRO service providers: (a) customer benefit-oriented business model
innovation and (b) value co-creation-oriented business model innovation. Each of these
drivers, elements, results as well as their interlinks will be further elaborated within this
chapter. Figure 1 provides an overview of our findings.

Figure 1 Framework of business model innovation in the MRO context


296 S. Schneider, P. Spieth and T. Clauss

4.1 MRO business model elements


The statement of the CEO of a small MRO provider perfectly captures the essence of the
wide range of business model elements that have become subject to innovation: “We aim
at composing an optimal portfolio of repairing methods, tailored solutions as well as
additional services through customer integration with our airline customers as well as
through value co-creation with the aircraft manufacturers” (12). This statement
emphasises the relevance of both dimensions of business models – customer value
proposition and internal value generation – in the context of innovating MRO business
models.
The MRO customer value proposition dimension captures the design of the product
and service offering, how the firm positions itself in the market, and interactions with its
airline customers. As proposed by Priem (2007) and Chatain (2010), a firm’s consumer
benefit-orientation represents a crucial source of sustainable competitive advantage.
Applying this perspective allows identifying relevant differentiation characteristics
within the firm’s value offering. Three particular services have emerged throughout our
analysis as elements of business model innovation within the value offering dimension of
MRO business models: repairing methods, tailored solutions and additional services.
The MRO internal value generation dimension captures the internal competencies,
resources, and activities based on which the MRO customer value proposition is created
and how partners are involved. Internal firm resources differentiating the firm from its
competitors – such as unique, rare, inimitable and non-substitutable resources, skills,
knowledge, routines or capabilities – are thought to provide competitive advantage
(Rumelt, 1984; Teece, 1984; Wernerfelt, 1984; Barney, 1991). This perspective
emphasises that internal strategic resources can potentially provide the basis for a firm to
innovate its business model. Dyer and Singh (1998) address the additional need to
consider inter-firm, relation-specific resources emerging from the firm’s relationships
with partners. Three particular partners have emerged throughout our analysis as source
of business model innovation within the internal value generation dimension of MRO
business modes: customers, OEMs and other MRO providers.

4.2 Aircraft manufacturer market characteristics, new MRO customer value


propositions, and MRO internal value generation
Increasing levels of rivalry due to manufacturers’ emergence in the after-sales market
were emphasised throughout most of the interviews (1, 2, 5, 8, 9, 10). For example, a
senior manager overhaul of a full-range MRO provider stated that “OEMs have reshaped
our industry – they represent a real threat for us” (4). Two underlying reasons coin
OEMs’ motivation: First, increased product life expectancies due to technological
developments have forced manufacturers to search for new sources of demand (1, 2, 7,
12). In particular, with manufacturers struggling to recoup their investments in
technology developments within the competitive civil aviation industry, an increasing
number of them attempts to control the after-sales market and ‘aggressiveness is
definitely rising’ (12). Second, as airlines increasingly concentrate on their core
Business model innovation in the aviation industry 297

competences, an increasing customer demand for MRO services has emphasised the
attractiveness of the after-sales market (2, 4, 9, 11). Consequently, MRO providers face
increasing competition resulting in intense price wars (5, 6, 7, 8, 11) and attempts of
OEMs to establish a protected market position (1, 3, 4, 5, 6, 7, 8, 10, 11, 12). MRO
providers therefore perceive “merciless price wars in particular with manufacturers
bidding for tenders they previously didn’t care about” (8). Additional protective
measures focus on three elements: primarily, OEMs emphasise direct collaboration with
airlines (1, 2, 4, 8, 11, 12). Furthermore, they apply legal restrictions, such as patents and
licences, to hinder their competitors (1, 3, 7, 10, 12). As a third measure, manufacturers
attack MROs’ profitability by increasing the prices of original replacement parts (4, 8).
Taking a market-based view, we focused our analysis on the structural industry
characteristics and the firm’s positioning within the industry as potential sources of
competitive advantage (Caves and Porter, 1977; Porter, 1980; Porter, 1985). According
to this perspective, supply-driven threats and emerging opportunities function as change
drivers. This was confirmed by all interviewees as they emphasised the new level of
competition that has evolved due OEMs’ entry into the after-sales MRO market.
Furthermore, we found evidence for the construction and enforcement of entry barriers
(Porter, 1985) that build a protected positioning of the OEMs. The conducted analysis
thereby reveals insights into the development of competition in the aviation MRO
industry. The particular industry’s focus allows focusing on how these developments
interact and impact on the different market players. It is illustrated how OEMs are forced
to expand their activity fields due to market characteristics and how this threatens the
positioning of the value offering of traditional MRO providers.
The expansion of OEMs into the after-sales market has led to an increase of
competition within the MRO market. Traditional MRO providers need to innovate their
customer value proposition to be able to provide unique selling points to their airline
customers. Therefore, we state:
Finding 1a: An expansion of MRO offerings through OEMs leads to a stronger need for
innovations within the MRO customer value proposition of traditional MRO providers.
The threat of shortening of product life cycles and the need for R&D due to technological
developments have been identified as drivers for manufacturers to increase their service
offerings (Lay et al. 2010; Gemyr et al. 2010). To build barriers and strengthen their
market position, OEMs tend to restrict access to resources that previously were
accessible. Our findings reveal how this forces MROs to find alternative solutions to gain
access to technical manuals which has been raised as an issue by seven out of
12 interviewees. Furthermore, the increasing need for R&D was raised as a critical
challenge for smaller MRO providers by four interviewees. The derived findings indicate
that this leads to the need for changes within the internal value generation of traditional
MRO providers.
The expansion of OEMs into the after-sales market has led to an increase of
competition within the MRO market. Traditional MRO providers need to innovate their
internal value generation to be able to acquire and remain the same technological
knowledge as the OEMs. We state:
298 S. Schneider, P. Spieth and T. Clauss

Finding 1b: An expansion of MRO offerings through OEMs leads to a stronger need for
innovations within the MRO internal value generation of traditional MRO providers.

4.3 Structural airline industry characteristics, new MRO customer value


propositions and MRO internal value generation
Companies providing MRO services largely depend on the developments among their
direct airline customers as well as the end users of the products and services offered by
the airlines. In response to their highly volatile environment, MRO providers recognise
three major developments caused by market competitiveness across their customer base.
(a) airlines increasingly focus on their core business ‘flying’ while outsourcing non-core
elements of their value chain, such as MRO services (2, 4, 9, 10, 11). A division manager
stated that “airlines just want to fly, they don’t want to worry about the technical details
and they don’t have the competence to do so anymore”. (8). In addition, newly founded
airlines do not wish to offer these services by themselves (9, 11) as “it would involve
high costs to build the required knowledge” (11). MRO providers therefore acknowledge
an increased external demand for their services (2, 4, 9, 11). (b) Airlines demonstrate a
high level of price sensitivity towards MRO services (1, 2, 3, 6, 7, 8, 10, 11). (c) MRO
providers experience their customers to increasingly demand value packages and
solution-oriented services that guarantee certain benefits, such as the correct operation of
a specific element within a certain period of time and at a fixed price (1, 2, 4, 5, 7, 8, 10).
This change in demand is due to an airline’s increased dependence on MRO providers’
expertise and reliability (1, 5, 7) and the increased search for simplicity accompanying an
airline’s concentration on its core competences as “the customer just wants to fly … he
wants to have support to the greatest possible extent” (10).
Since changing customer requirements reveal further insights into relevant demand-
driven effects on the market, a consumer benefit experienced view is applied as a second
perspective (Priem, 2007). This view allows the demand-driven effects on business
model innovation to be emphasised as potential sources of threats and opportunities,
which function as drivers and have design implications for business model innovation.
Rising levels of price-sensitivity (8), decreasing in-house knowledge of airlines (7), and
an airline’s increasing concentration on its core business ‘flying’ (6) have been
emphasised as the most relevant developments characterising airline’s MRO demand.
Airlines have been identified to increasingly concentrate on their core business while
MRO services are among the more frequently outsourced activities on airlines (Fouris
and Oswald, 2006; Rieple and Helm, 2008; Berritella et al., 2009). The need for
increasing customer-centricity and benefit-orientation has previously been identified as
potential response to changes in customer demand (Priem, 2007; Chatain, 2010; Teece,
2010). The analysis shows how MRO providers perceive changes in the demand
behaviour of their airline customers. Furthermore, the findings support previous findings
by illustrating how MRO firms have identified a stronger customer orientation as their
chance of differentiation.
Business model innovation in the aviation industry 299

The interview results show that MRO providers intensively analyse the developments
of their customers’ needs and requirements. The changing demand of airlines concerning
MRO services needs to be anticipated by MRO providers within their customer value
proposition. Consequently, we assert:
Finding 2a: Changes in MRO demand of airlines lead to a stronger need for innovations
within the MRO customer value proposition of traditional MRO providers.
Taking advantage of the extant customer knowledge acquired through previous
collaborations with airlines was emphasised by ten out of 12 interviewees. The
integration of customers into the internal value generation has been suggested to enhance
a firm’s capability of capturing customer’s needs and building valuable customised
solutions (Baron and Warnaby, 2011). The analysis indicates how traditional MRO
providers take advantage of their previous collaborations with airlines and how they are
aware that the intense knowledge of airline operations acquired represents a crucial
resource to further develop their product and service offering. The changing demand of
airlines concerning MRO services needs to be anticipated by MRO providers within their
internal value generation. Consequently, we summarise:
Finding 2b: Changes in MRO demand of airlines lead to a stronger need for innovations
within the MRO internal value generation of traditional MRO providers.

4.4 MRO customer value proposition and customer benefit-oriented business


model innovation
Our interviews show that differentiation within their value proposition is regarded to be
an important source of competitive advantage for MRO providers. Most companies claim
to offer additional services, including technical customer support and advisory services
(1, 3, 5, 6, 8, 9, 10, 11, 12). Despite individual perceptions of their importance ranging
from “decorative accessory” (10), “needed offerings if they fit the needs of our
customers’ (9) to ‘the dominant paradigm of the future” (11), most interviewees believe
that additional services provide differentiation potentials (1, 2, 3, 7, 8, 12). While high
quality levels and delivery speed are considered crucial preconditions of a competitive
value offering (12), experience and expertise (2, 3, 8, 9) are regarded relevant
competencies to achieve a differentiated customer value proposition. In particular, three
fields of differentiation have been identified: (a) repairing methods, (b) tailored solutions,
and (c) additional services.
First, MRO providers understand themselves as paying valuable “tribute to the
airline” (8) and stress that their “airline orientation” (9) as unique selling point. A
division manager stated that “OEMs always want to sell new parts – many times, this is
not in the interest of the airline, we can repair these parts much cheaper” (3). Particularly,
manufacturers’ and airlines’ potentially contradicting interests are pointed out, as ‘where
the customer has [the] best economic potentials, manufacturers might try to push him
into a different direction as they would otherwise lose money’ (8). Second, MROs
demonstrate awareness of manufacturers’ distinct advantages, particularly concerning
customer access and pricing power (1, 3, 4, 7, 8, 12). In response, problem solving
300 S. Schneider, P. Spieth and T. Clauss

competence in terms of understanding customer needs and providing tailored solutions


based on manufacturers’ unique experience and expertise is emphasised (2, 3, 6, 8, 11,
12). Third, MRO providers highlight their direct support of customers’ objectives by
constantly striving to improve benefits for their customers through additional service that
help their customers (1, 3, 4, 6, 8, 9, 10, 11, 12). This is aligned with a division
manager’s statement that “problem-solving competencies make the difference – for
example, if we help airlines to save fuel or early detect errors, they can benefit” (10).
The findings underline the importance of identifying and anticipating consumer
benefits when innovating MRO business models. Interaction with customers and the
capability to understand their needs, as well as certain benefits’ attractiveness for them,
have been identified as crucial concomitants of additional service offerings, allowing a
firm to achieve differentiation and thus create competitive advantages. Ten out of
12 interviewees emphasised the potential of MRO providers to customise the customer
value proposition in ways that allow their customers to receive additional benefits. In
alignment with existing theory (Chatain, 2010; Priem, 2007), a positive effect of
customer-benefit-orientation on a firm’s competitive advantage is identified and precise
measures applied in the aviation MRO industry are outlined and further potentials are
identified.
MRO providers show that increasing the customer benefit-orientation of their
business models allows them to establish a unique selling point potentially allowing them
to achieve a sustainable competitive advantage. We state:
Finding 3: Innovations within the MRO customer value proposition lead to an increased
customer benefits-orientation within the MRO provider’s business model.

4.5 MRO internal value generation and value co-creation-oriented business


model innovation
Our analysis reveals the potential impact of innovations within the internal value
generation of MRO due to collaborations with three partners: (a) customers, (b) OEMs,
and (c) MRO providers. (1) 64% of the interviewees suggest closer cooperation between
the MROs and their airline customers. The consideration of customers within the internal
value generation is perceived as a crucial prerequisite to identify and understand the
particular customer needs and to allow a firm to be oriented towards consumer benefits
(2, 5, 8, 9, 11). MROs emphasise their customer orientation as a natural source of
information by asking “where else do we receive stimuli for the future development of
our services?” (9). Various methods are applied to gain such stimuli, including formal
and informal customer feedbacks (1, 4, 6, 7, 9, 11), active complaint management (1, 7),
customer events fostering relationship building and exchange (6, 10, 11), and joint
development projects (4, 9, 10). Simultaneously, MROs emphasise the perspective of
their customers, despite them being only marginally integrated into the value creation
processes (2, 4, 9) since “attempts are difficult, as service offering does not traditionally
produce high levels of customer retention and potentials for integration” (9).
(2) Since access to technology manuals owned and protected by manufacturers is
crucial for MRO providers to conduct certain types of repairs and maintenance works,
joint ventures with manufacturers are generally considered as strategic options (1, 3, 4, 8,
Business model innovation in the aviation industry 301

9, 11, 12). Furthermore, a joint business approach with manufacturers is considered as a


possibility to not “simply accept their monopoly” (8). Criticism is raised regarding value
co-creation with OEMs, as these relations are not thought to produce additional consumer
benefits (1, 9) and only have temporary potential until manufacturers acquire the relevant
skills and competences (3, 11). This is best summarised by the statement of a CEO who
pointed out that “joint ventures with OEM’s are only a timely limited approach, but we
need to collaborate to gain access to the technical manuals” (12). Overall, joint ventures
and other forms of collaboration with OEMs were rated as necessary but not sustainable
measure by 82% of the sample.
(3) “Co-operations with other MRO providers are [regarded to be] promising” (3) as
one alternative to joint venture with manufacturers. In addition to the purchase of license
agreements for repair works (12) or focused in-house development (6, 10), such
collaborations between MROs are considered to enable achieving competitive advantages
based on shared knowledge and experience (4, 5, 7, 11). While internal development
costs are considered a barrier to in-house approaches, MROs emphasise that “providing
solutions as the first-mover in the market will be valued by customers as their airplanes’
downtimes exceed repairing costs by far” (10). In addition, MRO’ providers emphasise
the joint development of repairing methods that allow avoiding the use of original
replacement parts that would have to be purchased from OEMs (9, 11, 12) as a measure
to reduce their dependence on manufacturers. Despite its recognised potentials,
increasing co-operations among MRO providers were pro-actively emphasised by only
two out of 12 interviewees.
Resource-based and relational theories suggest that specific strategic intra- and inter-
firm resources provide the basis and motivation for business model innovation (Dyer and
Singh, 1998). Our findings reveal that while internal resources are widely considered as a
source of differentiation to develop new service offerings, relation-specific resources
receive only limited attention. Co-creation agreements’ primary purpose is seen in
gaining access to the partner’s resources and capabilities. Reluctance to further apply
value co-creation is motivated by acknowledgement of the importance and difficulty of
providing benefits for all stakeholders, the firm and its partners and customers, of
achieving sustainable value co-creation with OEMs. Our findings indicate that rather
through entering collaborations with their customers, MRO providers assume to create a
potential competitive advantage. These findings underline previous theory arguing in
support of customer value co-creation (Baron and Warnaby, 2011). Despite these
concerns, we found that MROs see a need to collaborate with all potential partners. We
state:
Finding 4: Innovations within the MRO internal value generation lead to an increased
value co-creation orientation within the MRO provider’s business model.
We summarise our findings in Tables 2–4 by providing details on five relevant aspects
regarding the considered constructs and identified cause-and-effects of business model
innovation elements and its antecedents in the aviation context: (a) our understanding
based on interview results and literature analysis, (b) proof quotations (random
selection), (c) results from our cross-relation-analysis and variable-oriented content
analysis, (d) a final link to extant literature, and (e) the relevance and differences of our
results from existing literature.
302

Table 2
Finding 1a Finding 1b
Expansion of MRO offering through OEMs  MRO Value Offering Expansion of MRO offering though OEMs  MRO Value Creation
Our understanding The expansion of OEMs into the after sales market has led to an The expansion of OEMs into the after sales market has led to an
based on interview results increase of competition within the MRO market. Traditional MRO increase of competition within the MRO market. Traditional MRO
and literature analysis providers need to innovate their value offering to be able to provide providers need to innovate their value creation to be able to provide
unique selling points to their airline customers. unique selling points.
Proof Quotations ‘OEMs have reshaped our industry. They represent a real threat for ‘We cannot build on 100% in-house developments – costs for
for our propositions and us’. (Senior manager overhaul, company 4) internal R&D are too high’. (Division manager MRO, company 3)
the framework presented in ‘They use their existing airline contacts – these ties are getting much, ‘Access to technical manuals is restricted. We rely on license
Figure 1 (random much stronger’. (Division manager MRO, company 8) agreements or joint ventures with OEMs’. (Head of operations,
selection) ‘OEMs started a new battle – they have aggressively entered the company 1)
after-sales market’. (Local branch manager, company 7) ‘Manufacturers increasingly deny access to their manuals’. (CEO,
company 12)
Cross-relation-analysis and All interviewees confirmed the new level of competition that has Restricted access to technical manuals was raised by seven out of
and differences to existing literature

variable-oriented content evolved within the MRO market due to the increasing service 12 interviewees. Furthermore, the increasing need for R&D was
S. Schneider, P. Spieth and T. Clauss

analysis orientation of OEMs and their entry into the after sales MRO market. raised as a critical challenge for smaller MRO providers by four
In particular, OEMs’ strong customer relationships with airlines (5), interviewees.
and their aggressive pricing (8) were emphasised.
Link to extant literature Structural industry characteristics and the firm’s positioning within The threat of shortened product life cycles and the need for R&D
the industry have been identified as potential source of competitive due to technological developments have been identified as drivers
advantage (Caves and Porter, 1977; Porter, 1980; Porter, 1985). In for manufacturers to increase their service orientation (Gemyr et
addition, supply-driven threats and opportunities have been al., 2010; Lay et al., 2010).
previously identified as potential drivers of the need to innovate
established business models (e.g. Teece, 2010).
Relevance and The conducted analysis reveals insights into the specific The findings indicate that in consequence to the identification of a
differentiation of our developments of competition within one particular industry. This change in market competition through the entry of OEMs into the
results from existing industry focus reveals further insides into the process of how these after sales market, the value creation of traditional MRO providers
literature developments interact with each other. It is illustrated how OEMs are is affected. To build barriers and strengthen their market position,
forced to expand their activity fields due to market characteristics OEMs tend to restrict access to resources that previously were
and how this threatens the value offering of traditional MRO accessible forcing MROs to find alternative solutions within their
providers. value creation.
Our understanding, proof quotations, cross-relation-analysis, link to extant literature
Table 3
Finding 2a Finding 2b
Changes in MRO demand of airlines  MRO Value Offering Changes in MRO demand of airlines  MRO Value Creation
Our understanding The changing demands of airlines concerning MRO services The changing demands of airlines concerning MRO services
based on interview results (outsourcing, demand for all-inclusive packages) needs to be (outsourcing, demand for all-inclusive packages) needs to be
and literature analysis anticipated by MRO providers within their value offering. anticipated by MRO providers within their value creation.

Proof Quotations ‘Airlines just want to fly. They don’t want to worry about the ‘Speed and high-quality are a given. We need to manage to tribute
for our propositions and technical details and they don’t have the competence to do so to the airline. We need to work closer with the airlines to
the framework presented anymore’. (Division manager MRO, company 8) understand their needs’ (Head of operations, company 5)
in Figure 1 (random ‘We can learn a lot from the airlines. Over the years, we have built
selection) ‘Airlines need to fly. Every minute counts. All they are looking for
are reliable solutions’. (CEO, company 2) a deep understanding of their needs’. (Head of operations,
company 1)
‘Our customers are highly concerned about the price.’ (Area
manager Germany, company 11) ‘We need to take advantage of our experience. Thus, we can
identify additional services that match the needs of our customers’.
‘And of course, price always matters. We can feel the pressure (Division manager MRO, company 9)
lasting on the airlines’. (CEO, company 2)
and differences to existing literature

Cross-relation-analysis Rising levels of price-sensitivity (8), decreasing in-house knowledge Taking advantage of the extant customer knowledge acquired
and variable-oriented of airlines (7) and an airline’s increasing concentration on its core through the previous collaboration with the airlines was pointed out
content analysis business ‘flying’ (6) have been emphasised as the most relevant by ten out of 12 interviewees as relevant.
developments characterising airline’s MRO demand.
Link to extant literature Airlines have been identified to increasingly concentrate on their MRO services are among the more frequently outsourced activities
core business (Fouris and Oswald, 2006; Rieple and Helm, 2008). on airlines (Rieple and Helm, 2008; Berritella et al., 2009). In order
Business model innovation in the aviation industry

The need for increasing customer-centricity and benefit-orientation to capture customers’ needs and to be capable of building
has previously been identified as potential response to changes in customised solutions, the integration of customers into the value
customer demand (Priem, 2007; Chatain, 2010; Teece, 2010). creation process has been suggested (Baron and Warnaby, 2011).
Relevance and The analysis shows how MRO providers perceive changes in the The analysis supports the previously suggested concentration of
differentiation of our demand behaviour of their airline customers. Furthermore, the airlines on their core business flying. Furthermore, it indicates how
results from existing findings support previous findings by illustrating how MRO firms traditional MRO providers take advantage of their previous
literature have identified a stronger customer orientation as their chance of collaborations with airlines and are aware that the intense
differentiation. The interview results show that MRO providers knowledge of airline operations acquired represents a resource they
intensively analyse the developments in their customer needs and need to use to further develop their value creation process. In
requirements. particular, they argue that they need to continue and intensify the
collaboration with their customers.
303

Our understanding, proof quotations, cross-relation-analysis, link to extant literature


304

Table 4
Finding 3 Finding 4
MRO Value Offering  Customer benefit-oriented business model MRO Value Creation  Value co-creation-oriented business
innovation model innovation
Our understanding Innovations within the value offering of MRO providers in response Innovations within the value creation of MRO providers in
based on interview results to market and industry drivers result in customer benefit-oriented response to market and industry drivers result in value co-creation-
and literature analysis business model innovation. oriented business model innovation, in particular emphasising the
integration of customers.
Proof Quotations ‘Speed and high-quality are a given. We need to find something else ‘What we already do is not enough. Only if we manage to integrate
for our propositions and that distinguishes us from the OEMs’. (COO, company 6) the airlines into the value creation process, we can manage to offer
the framework presented ‘OEMs always want to sell new parts. Many times, that is not in the them the service they really need’. (Senior manager overhaul,
in Figure 1 (random interest of the airline. We can repair these parts much cheaper’. company 4)
selection) (Division manager MRO, company 3) ‘Co-operations with other MRO providers are promising’.
‘Problem-solving competencies make the difference. For example, if (Division manager MRO, company 3)
we help airlines to save fuel or early detect errors, they can benefit’. ‘Joint ventures with OEM’s are only a timely limited approach. But
(Division manager MRO, company 10) we need to collaborate to gain access to the technical manuals’.
and differences to existing literature

(CEO, company 12)


S. Schneider, P. Spieth and T. Clauss

Cross-relation-analysis Ten out of 12 interviewees emphasised the potential of MRO Joint ventures and other forms of collaboration were rated as
and variable-oriented providers to customise the value offering in ways that allow their necessary but not sustainable measure by 82% of the sample. A
content analysis customers to receive additional benefits. Repairing techniques (6), majority of 64% of the interviewees suggested closer cooperation
tailored solutions (4), and additional services such as fuel saving between the MROs and their airline customers. Co-operations
methods (2) were among the mentioned value offerings. among MRO providers were suggested by only two out of 12
interviewees.
Link to extant literature A benefit-oriented service offering (Priem, 2007; Chatain, 2010) has Inter-firm relations with both corporate partners as well as a
been suggested as a potential source of competitive advantage. stronger integration of its customers have been argued to
potentially provide joint resources that allow a firm to generate a
competitive advantage (e.g. Dyer and Singh, 1998; Baron and
Warnaby, 2011).
Relevance and In alignment with previous suggestions, a positive effect of Our findings indicate that by entering collaborations with their
differentiation of our customer-benefit-orientation on a firm’s competitive advantage can customers, MRO providers assume to create a potential competitive
results from existing be identified. Precise measures applied in the aviation MRO industry advantage. These findings underline previous theory arguing in
literature are outlined. In addition, further potentials are identified. support of customer value co-creation. In the meantime,
collaborations with OEMs are not regarded as sustainable.
Our understanding, proof quotations, cross-relation-analysis, link to extant literature,
Business model innovation in the aviation industry 305

5 Discussion and conclusion

5.1 Contribution
Objective of this paper was to enhance our understanding of drivers, elements and forms
of business model innovation in a B2B-context. To do so, we qualitatively analysed these
relationships in the specific context of MRO providers in the aviation industry deriving a
context-specific framework of business model innovation. We were able to identify
aircraft manufacturer market characteristics and structural airline industry characteristics
as key drivers for the innovation of MRO’s business models. Technological
developments, increasing product life cycles and changing aircraft demand were
recognised as aircraft manufacturer market characteristics driving OEM’s expansion into
the after-sales market. As structural airline industry characteristics impacting on airline
demand, deregulation, overcapacities, rising fuel prices, economic downturn as well as
unpropitious events were identified. Both dimensions of business models, MRO
customer value proposition and MRO internal value generation, confirmed to be affected
by these drivers. Firms showed to emphasise repairing methods, tailored solutions and
additional services to increase customer benefits. Value co-creation involving partners,
competitors and in particular customers was applied to innovate the MRO internal value
generation. In consequence, two distinct forms of business model innovation – customer
benefit-oriented and value co-creation-oriented business model innovation – resulted.
This paper particularly contributes to achieving a better understanding of business
model innovation within a B2B-context, a setting that previously has been neglected
within research on the phenomenon. Our findings indicate that in addition to considering
their direct suppliers and customers as relevant stakeholders driving the need and joint
potential for business model innovation, B2B-operators further need to emphasise
developments among the end consumers of their direct customers as drivers and stimuli
for innovating their established business models.
A further contribution of this paper is to provide an example of how a firm’s business
model and its distinct dimensions serve as a highly useful unit of analysis in the context
of a firm’s response to environmental volatility. Our findings indicate that the identified
volatility drivers simultaneously impact on a firm’s customer value proposition and
internal value generation. Firms showed to separately respond to these drivers within
each of their business model dimensions resulting in different forms of business model
innovation. Both forms – customer benefit-oriented and value co-creation oriented
business model innovation – appeared as complementary approaches, which allowed to
be conducted individually as well as in a combined manner.

5.2 Managerial implications


For practitioners, the derived findings have three major implications. First, practitioners
should focus on supply as well as demand-driven effects as potential drivers of business
model innovation of MRO providers. To skilfully identify the relevant threats and
opportunities, firms need to consider manifold developments such as new technologies
that directly impact on their product and service offering. Furthermore, B2B operators
such as the MROs need to be alert to changes in the in demand of their own customers as
well as consumers of the products and services offered by their customers. In addition,
they need to carefully monitor the market situation and movements of further
306 S. Schneider, P. Spieth and T. Clauss

stakeholders involved in the industry’s value generation process and potentially beyond
these boundaries. Second, practitioners need to emphasise how their resources and
capabilities can enable them to innovate their customer value proposition meanwhile
increasing benefits of their customers. Our analysis shows that, in the MRO aviation
context, factors such as a high degree of new repairing methods, tailored solutions and
new additional services account for such customer benefit-orientation meanwhile
building on distinct resources and capabilities uniquely owned by the MRO providers.
Third, practitioners should not limit their search for opportunities on their own resource
and capability base. Collaborations with partners and the integration of customers within
the internal value generation potentially provide insights and joint competencies that can
lead to previously unachievable competitive advantages.

5.3 Limitations and future research


This study provides propositions aiming at enriching our current understanding of
business model innovation with special regard to MRO providers in the aviation industry.
The qualitative research design was particularly appropriate for gaining an in-depth
understanding of the phenomenon. Although the richness arising from qualitative
research design and the appropriateness of an inductive approach for our purposes
represent key strengths of this study, the results remain limited in terms of their
representativeness, unavoidably retrospective nature and potential informant biases. To
minimise potential informant biases, we analysed additional data sources of the
companies. While our findings may be partial and biased, they still constitute the
interviewees’ reality in the firms and constitute the basis for their future action.
Additionally, we sought to make our analysis and judgements as transparent as
possible in order to validate the findings. The strong industry focus meets the
requirements of this very volatile industry meanwhile remaining a limiting factor
regarding the generalisbility of our results. Therefore, the study at hand as such cannot
build a general theory about business model innovation under conditions of a combined
deverticalistion and verticalistion of other industry players. However, the very specific
results reveal potential relationships between identified independent and dependent
constructs aiming to sophistically extend the current knowledge of business model
innovation. Thus, our paper provides a framework for replication in different B2B
industries as well as for the validation of our findings in different empirical settings.

References
Al-kaabi, H., Potter, A. and Naim, M. (2007) ‘Insight into the maintenance, repair and overhaul
configurations of European airlines’, Journal of Air Transportation, Vol. 12, No. 2, pp.27–42.
Amit, R. and Zott, C. (2001) ‘Value creation in e-business’, Strategic Management Journal,
Vol. 22, Nos. 6/7, pp.493–520.
Amit, R. and Zott, C. (2010) Business Model Innovation: Creating Value in Times of Change,
IESE Business School Working Paper No. 870. Available online at http://ssrn.
com/abstract=1701660
Baden-Fuller, C. and Morgan, M.S. (2010) ‘Business models as models’, Long Range Planning,
Vol. 43, Nos. 2/3, pp.156–171.
Barney, J.B. (1991) ‘Firm resources and sustained competitive advantage’, Journal of
Management, Vol. 17, No. 1, pp.99–120.
Business model innovation in the aviation industry 307

Baron, S. and Warnaby, G. (2011) ‘Individual customers’ use and integration of resources:
empirical findings and organizational implications in the context of value co-creation’,
Industrial Marketing Management, Vol. 40, No. 2, pp.221–218.
Barry, M. and Nienhueser, W. (2010) ‘Coordinated market economy/liberal employment relations:
low cost competition in the German aviation industry’, The International Journal of Human
Resource Management, Vol. 21, No. 2, pp.214–229.
Belobaba, P. and Odoni, A. (2009) ‘Introduction and overview’, in Barnhart, C., Belobaba, P. and
Odoni, A. (Eds): The Global Airline Industry, Wiley, Chichester, pp.1–17.
Benbasat, I., Goldstein, D.K. and Mead, M. (1987) ‘The case research strategy in studies of
information systems’, MIS Quarterly, Vol. 11, No. 3, pp.368–386.
Berritella, M., La Franca, L. and Zito, P. (2009) ‘An analytic hierarchy process for ranking
operating cost of low cost and full service airlines’, Journal of Air Transport Management,
Vol. 15, No. 5, pp.249–255.
Bessant, J. (2009) ‘The lessons of failure: learning to manage new manufacturing technology’,
International Journal of Technology Management, Vol. 8, Nos. 3–5, pp.197–215.
Bourgeois, L. and Eisenhardt, K. (1988) ‘Strategic decision processes in high velocity
environments: four cases in the microcomputer industry’, Management Science, Vol. 34,
No. 7, pp.816–835.
Brown, J.H. and Rutner, S.M. (1999) ‘Outsourcing as an airline strategy’, Journal of Air
Transportation World Wide, Vol. 4, No. 2, pp.22–31.
Brunger, W.G. (2010) ‘The impact of the Internet on airline fares: the “internet price effect”’,
Journal of Revenue and Pricing Management, Vol. 9, Nos. 1/2, pp.66–93.
Button, K., Costa, A., Costa, F. and Cruz, C. (2011) ‘Problems of cost recovery by European
airlines since market liberalization’, Transportation Planning and Technology, Vol. 34, No. 2,
pp.125–138.
Carney, M. and Dostaller, I. (2006) ‘Airline ownership and control: a corporate governance
perspective’, Journal of Air Transport Management, Vol. 12, No. 2, pp.63–75.
Casadesus-Masanell, R. and Ricart, J.E. (2010) ‘From strategy to business models and to tactics’,
Long Range Planning, Vol. 43, Nos. 2/3, pp.195–215.
Cavalcante, S., Kesting, P. and Ulhøi, J.P. (2011) ‘Business model dynamics and innovation:
(re)establishing the missing linkages’, Management Decision, Vol. 49, No. 8, pp.1327–1342.
Caves, R.E. and Porter, M.E. (1977) ‘From entry barriers to mobility barriers: Conjectural
decisions and contrived deterrence to new competition’, Quarterly Journal of Economics,
Vol. 91, No. 2, pp.241–261.
Chanal, V. and Caron-Fasan, M-L. (2010) ‘The difficulties involved in developing business models
open to innovation communities: the case of a crowdsourcing platform’, Management,
Vol. 13, No. 4, pp.318–341.
Chatain, O. (2010) ‘Value Creation, competition, and performance in buyer-supplier relationships’,
Strategic Management Journal, Vol. 32, No. 1, pp.76–102.
Chesbrough, H. (2007) ‘Business model innovation: It’s not just about technology anymore’
Strategy & Leadership, Vol. 35, No. 6, pp.12–17.
Chesbrough, H. (2010) ‘Business model innovation: opportunities and barriers’, Long Range
Planning, Vol. 43, Nos. 2/3, pp.354–363.
Chesbrough, H. and Rosenbloom, S. (2002) ‘The role of the business model in capturing value
from innovation: evidence from Xerox corporation’s technology spinoff companies’,
Industrial and Corporate Change, Vol. 11, No. 3, pp.529–555.
Christensen, C. and Raynor, M.E. (2003) The Innovator’s Solution, Harvard Business School Press,
Boston, MA.
Creswell, J.W. (2007) Qualitative Inquiry & Research Design: Choosing among Five Approaches,
2nd ed., Sage, Thousand Oaks, CA.
308 S. Schneider, P. Spieth and T. Clauss

Davies, A. (2004) ‘Moving base into high-value integrated solutions: a value stream approach’,
Industrial and Corporate Change, Vol. 13, No. 5, pp.727–756.
Doz, Y.L. and Kosonen, M. (2010) ‘Embedding strategic agility: a leadership agenda for
accelerating business model renewal’, Long Range Planning, Vol. 43, Nos. 2/3, pp.370–382.
Dyer, J.H. and Singh, H. (1998) ‘The relational view: Cooperative strategy and sources of
interorganizational competitive advantage’, Academy of Management Review, Vol. 23, No. 4,
pp.660–679.
Eisenhardt, K.M. (1989) ‘Building theories from case study research’, Academy of Management
Review, Vol. 14, No. 4, pp.532–550.
Eisenhardt, K.M. and Graebner, M.E. (2007) ‘Theory building from case: opportunities and
challenges’, Academy of Management Journal, Vol. 50, No. 1, pp.25–32.
Eisenhardt, K.M. and Martin, J.A. (2000) ‘Dynamic Capabilities: What are they?’, Strategic
Management Journal, Vol. 21, Nos. 10/11, pp.1105–1121.
Engau, C., Hoffman, V.H. and Busch, T. (2011) ‘Airlines’ flexibility in facing regulatory
uncertainty: To anticipate or adapt?’, California Management Review, Vol. 54, No. 1,
pp.107–125.
Fageda, X. and Fernández-Villadangos, L. (2009) ‘Triggering competition in the Spanish airline
market: The role of airport capacity and low-cost carriers’, Journal of Air Transport
Management, Vol. 15, No. 1, pp.36–40.
Flick, U. (2009) An Introduction to Qualitative Research, 4th ed., Sage, Los Angeles, CA.
Flouris, T.G. and Oswald, S.L. (2006) Designing and Executing Strategy in Aviation Management,
Ashgate, Farnham.
Flynn, B.B., Sakakibar, S., Schroeder, R.G., Bates, K.A. and Flynn, E.J. (1990) ‘Empirical research
methods in operations management’, Journal of Operations Management, Vol. 9, No. 2,
pp.250–284.
Forgas, S., Moliner, M.A., Sánchez, J. and Palau, R. (2010) ‘Antecedents of airline passenger
loyalty: low-cost versus traditional airlines’, Journal of Air Transport Management, Vol. 16,
No. 4, pp.229–233.
Franke, M. (2007) ‘Innovation: the winning formula to regain profitability in aviation?’, Journal of
Air Transport Management, Vol. 13, No. 1, pp.23–30.
Franke, M. and John, F. (2011) ‘What comes next after recession? Airline industry scenarios and
potential end games’, Journal of Air Transport Management, Vol. 17, No. 1, pp.19–26.
Freidl, M. (2009) MRO-Modelle in der Luftfahrtindustrie, Verlag Dr. Müller, Saarbrücken,
Germany.
Fu, X., Oum, T.H. and Zhang, A. (2010) ‘Air transport liberalization and its impacts on airline
competition and air passenger traffic’, Transportation Journal, Vol. 49, No. 4, pp.24–41.
George, G. and Bock, A. (2011) ‘The business model in practice and its implications for
entrepreneurship research’, Entrepreneurship Theory & Practice, Vol. 35, No. 1, pp.83–11.
Glaser, B. and Strauss, A. (1967) The Discovery of Grounded-Theory: Strategies for Qualitative
Research, Aldine Publishing Company, Chicago.
Goffin, K. (1998) ‘Customer support and new product development – an exploratory study’,
Journal of Product Innovation Management, Vol. 15, No. 1, pp.42–56.
Goldman, S.L. and Nagel, R.N. (2009) ‘Management, technology and agility: the emergence of
a new era in manufacturing’, International Journal of Technology Management, Vol. 8,
Nos. 1/2, pp.18–38.
Gremyr, I., Löfberg, N. and Witell, L. (2010) ‘Service innovations in manufacturing firms’,
Managing Service Quality, Vol. 20, No. 2, pp.161–175.
Guba, E.G. and Lincoln, Y.S. (1994) ‘Competing paradigms in qualitative research’, in Denzin,
N.K. and Lincoln, Y.S. (Eds): Handbook of Qualitative Research, Sage, Thousand Oaks, CA,
pp.105–117.
Business model innovation in the aviation industry 309

Hamel, G. and Välikangas, L. (2003) ‘The quest for resilience’, Harvard Business Review, Vol. 81,
No. 9, pp.52–63.
Helfat, C.E., Finkelstein, S., Mitchell, W., Peteraf, M., Singh, H., Teece, D. and Winter, S.G.
(2007) Dynamic Capabilities: Understanding Strategic Change in Organizations, Blackwell,
New York.
Holloway, I. (1997) Basic Concepts for Qualitative Research, Blackwell, Malden, MA.
Homburg, C., Hoyer, W.D. and Fassnacht, M. (2002) ‘Service orientation of a retailer's business
strategy: dimensions, antecedents, and performance outcomes’, Journal of Marketing, Vol. 66,
No. 4, pp.86–101.
Jacob, F. and Ulaga, W. (2008) ‘The transition from product to service in business markets: an
agenda for academic inquiry’, Industrial Marketing Management, Vol. 37, No. 3, pp.247–253.
Johnson, M.W., Christensen, C.M. and Kagermann, H. (2008) ‘Reinventing your business model’,
Harvard Business Review, Vol. 86, No. 12, pp.50–59.
Lay, G., Copani, G., Jäger, A. and Biege, S. (2010) ‘The relevance of service in European
manufacturing industries’, Journal of Service Management, Vol. 21, No. 5, pp.715–726.
Lecocq, X., Demil, B. and Ventura, J. (2010) ‘Business models as a research program in strategic
management: an appraisal based on Lakatos’, Management, Vol. 13, No. 4, pp.214–225.
Magretta, J. (2002) ‘Why business models matter’, Harvard Business Review, Vol. 80, No. 5,
pp.86–92.
Malighetti, P., Meoli, M., Paleari, S. and Redondi, R. (2011) ‘Value determinants in the aviation
industry’, Transportation Research Part E, Vol. 47, No. 3, pp.359–370.
Maxwell, J.A. (2005) Qualitative Research Design: An Interactive Approach, 2nd ed., Sage,
Thousand Oaks, CA.
McCutcheon, D.M. and Meredith, J.R. (1993) ‘Conducting case study research in operations
management’, Journal of Operations Management, Vol. 11, No. 3, pp.239–256.
McGrath, R.G. (2010) ‘Business models: a discovery driven approach’, Long Range Planning,
Vol. 43, Nos. 2/3, pp.247–261.
Meredith, J. (1998) ‘Building operations management theory through case and field research’,
Journal of Operations Management, Vol. 16, No. 4, pp.441–454.
Merton, R.K. and Kendall, P.L. (1946) ‘The focused interview’, American Journal of Sociology,
Vol. 51, No. 6, pp.541–557.
Miguel, P.C. (2008) ‘Portfolio management and new product development implemention: a case
study in a manufacturing firm’, International Journal of Quality & Reliability Management,
Vol. 25, No. 1, pp.10–23.
Miles, M.B. and Huberman, A.M (1994) Qualitative Data Analysis: An Expanded Sourcebook, 2nd
ed., Sage, London.
Morrell, P. (2011) ‘Current challenges in a ‘distressed’ industry’, Journal of Transport
Management, Vol. 17, No. 1, pp.14–18.
Morris, M., Schindehuette, M. and Allen, J. (2005) ‘The entrepreneur’s business model: toward a
unified perspective’, Journal of Business Research, Vol. 58, No. 6, pp.726–735.
Nair, S.K.S., Palacios, M. and Ruiz, F. (2011) ‘The analysis of airline business models in the
development of possible future business options’, World Journal of Management, Vol. 3,
No. 1, pp.48–59.
Nisbet, R.E. and Ross, L. (1980) Human Inference, Prentice-Hall, Englewood Cliffs, NJ.
Oliva, R. and Kallenberg, R. (2003) ‘Managing the transition from products to services’,
International Journal of Service Industry Management, Vol. 14, No. 2, pp.160–172.
Pettigrew, A.M. (1990) ‘Longitudinal field research on change: theory and practice’, Organization
Science, Vol. 1, No. 3, pp.267–292.
Porter, M.E. (1980) Competitive Strategy, Free Press, New York.
Porter, M.E. (1985) Competitive Advantage, Free Press, New York.
310 S. Schneider, P. Spieth and T. Clauss

Priem, R.L. (2007) ‘A consumer perspective on value creation’, Academy of Management Review,
Vol. 32, No. 1, pp.219–235.
Rieple, A. and Helm, C. (2008) ‘Outsourcing for competitive advantage: An examination of seven
legacy airlines’, Journal of Air Transport Management, Vol. 14, No. 5, pp.280–285.
Rumelt, R.P. (1984) ‘Towards a strategic theory of the firm’, in Lamb, R.B. (Ed.): Competitive
Strategic Management, Prentice-Hall, Englewood Cliffs, NJ, pp.556–570.
Schnell, M.C. (2003) ‘Does the effectiveness of airlines strategies change? A survey of
European full service airlines’, International Journal of Transport Management, Vol. 1,
No. 4, pp.217–224.
Sechrest, L. (1992) ‘Roots: back to our first generations’, Evaluation Practice, Vol. 13, No. 1,
pp.1–7.
Smith, W.K., Binns, A. and Tushman, M.L. (2010) ‘Complex business models: managing strategic
paradoxes simultaneously’, Long Range Planning, Vol. 43, Nos. 2/3, pp.448–461.
Sosna, M., Trevinyo-Rodríguez, R.N. and Velamuri, S.R. (2010) ‘Business model innovation
through trial-and-error learning: the Naturhouse case’, Long Range Planning, Vol. 43,
Nos. 2/3, pp.383–407.
Stewart, D.A. and Zhao, Q. (2000) ‘Internet marketing, business models and public policy’,
Journal of Public Policy & Marketing, Vol. 19, No. 2, pp.287–296.
Strauss, A.L. and Corbin, J.M. (1998) Basics of Qualitative Research: Techniques and Procedures
for Developing Grounded Theory, 2nd ed., Sage, Thousand Oaks, CA.
Swan, W. (2007) ‘Misunderstanding about airline growth’, Journal of Air Transport Management,
Vol. 13, No. 1, pp.3–8.
Teece, D.J. (1984) ‘Economic analysis and strategic management’, California Management
Review, Vol. 26, No. 3, pp.87–110.
Teece, D.J. (2007) ‘Explicating dynamic capabilities: the nature and microfoundations of
(sustainable) enterprise performance’, Strategic Management Journal, Vol. 28, No. 13,
pp.1319–1350.
Teece, D.J. (2010) ‘Business models, business strategy and innovation’, Long Range Planning,
Vol. 43, Nos. 2/3, pp.172–194.
Vargo, S.L. and Lusch, R.F. (2008) ‘Service-dominant logic: continuing the evolution’, Journal of
the Academy of Marketing Science, Vol. 36, pp.1–10.
Voss, C.A., Tsikriktsis, N. and Frohlich, M. (2002) ‘Case research in operations management’,
International Journal of Operations and Production Management, Vol. 22, No. 2,
pp.195–219.
Wernerfelt, B. (1984) ‘A resource-based view of the firm’, Strategic Management Journal, Vol. 5,
No. 2, pp.171–180.
Yan, A. and Gray, B. (1994) ‘Bargaining power, management control and performance in
U.S.–Chinese joint ventures: a comparative case study’, Academy of Management Journal,
Vol. 37, No. 6, pp.1478–1517.
Yin, R.K. (2003) Case Study Research: Design and Methods, 3rd ed., Sage, Thousand Oaks, CA.
Zott, C. and Amit, R. (2010) ‘Business model design: an activity system perspective’, Long Range
Planning, Vol. 43, Nos. 2/3, pp.216–226.
Zott, C., Amit, R. and Massa, L. (2011) ‘The business model: recent developments and future
research’, Journal of Management, Vol. 37, No. 4, pp.1019–1042.

View publication stats