Emese Jankuj Dynamic capabilities as enablers of business model innovation Cases from Finnish start-up companies Vaasa 2021 Master’s Thesis in Strategic Business Development 2 UNIVERSITY OF VAASA Johtamisen yksikkö Author: Emese Jankuj Title of the thesis: Dynamic capabilities as enablers of business model innovation : Cases from Finnish start-up companies Degree: Master of Science in Economics and Business Administration Programme: Strategic Business Development Supervisor: Marko Kohtamäki Year: 2021 Pages: 95 ABSTRACT: Purpose - The increasingly dynamic business environment in current economies presents more challenges to companies than ever. Frequent environmental shifts in competition, technology, social structures, and regulations can determine the level of competitive advantage of many, especially small companies. As competition increases, companies are forced to re-evaluate their business models. The aim of this thesis is to gain an understanding of by what means start-up companies react to change and how it reflects on business model innovation. Framework – The theoretical background of this thesis is examined through two different re- search concepts. First, dynamic capability literature is examined, and the theoretical framework of microfoundations is applied. Furthermore, business model innovation literature is explored to be able to address the research topic comprehensively. Elements from both areas of literature are combined, which provides the foundation for the empirical study of this thesis. Methodology - The empirical study is carried out as a multiple case study. Four start-up compa- nies are selected from the Finnish technology industry, and the data is collected through semi- structured interviews with founders and team members. The data is analyzed using within-case and cross-case analysis methods to find similarities in the cases. Findings - The dynamic capability practices enabling business model innovation in start-up com- panies are found to be relatively similar. The findings indicate that continuous internal commu- nication is central, as well as involving key partners and customers throughout the processes of sensing, seizing, and reconfiguring. Start-up companies’ view on business model innovation is found to be heavily focused on product or service innovation, and other elements of the busi- ness model receive significantly less attention. Contribution – This study increases understanding of the relationship between dynamic capa- bilities and business model innovation literature and expands it by exploring concrete practices companies apply to cope with constant change. Furthermore, this thesis provides an empirical model that can be applied when observing dynamic capability practices related to business model innovation. In addition, this study emphasizes the significance of networking and viewing business through long-term goals. KEY WORDS: dynamic capabilities; microfoundations; business models; business model inno- vation; start-up companies 3 VAASAN YLIOPISTO Johtamisen yksikkö Tekijä: Emese Jankuj Tutkielman nimi: Dynamic capabilities as enablers of business model innovation : Cases from Finnish start-up companies Tutkinto: Master of Science in Economics and Business Administration Oppiaine: Strategic Business Development Työn ohjaaja: Marko Kohtamäki Valmistumisvuosi: 2021 Sivumäärä: 95 TIIVISTELMÄ: Nykyisten liiketoimintaympäristöjen lisääntynyt dynaamisuus luo enenevissä määrin haasteita yrityksille. Toistuvat muutokset kilpailussa, teknologiassa, sosiaalisissa rakenteissa ja säännöissä voivat määrittää monien, erityisesti pienten yritysten kilpailuedun. Kilpailun lisääntyessä yrityk- set joutuvat arvioimaan liiketoimintamallejaan uudelleen. Tämän tutkielman tarkoitus on ym- märtää, millä tavoin start-up -yritykset reagoivat muutoksiin ja miten tämä heijastuu liiketoimin- tamalli-innovaatioon. Tutkimuksen teoreettista taustaa tarkastellaan kahdesta eri tutkimusnäkökulmasta. Ensin tar- kastellaan dynaamisia kyvykkyyksiä käsittelevää kirjallisuutta, jonka jälkeen mikropohjia koskeva teoreettinen viitekehyskehys esitellään tarkemmin. Tämän jälkeen tarkastelu siirtyy liiketoimin- tamallien innovaatiokirjallisuuteen, jotta tutkimusaiheesta saadaan kattava kuva. Kyseisiä teori- oita yhdistelemällä luodaan perusta tämän tutkielman empiiriselle tutkimukselle. Empiirinen tutkimus on toteutettu monitapaustutkimuksena neljän suomalaisen teknologia- alan start-up -yrityksen kanssa. Tiedonkeruuseen käytetään osittain strukturoituja haastatte- luita perustajien sekä tiimin jäsenten kanssa. Tiedot analysoidaan tapaus- ja ristikkäisanalyysi- menetelmillä samankaltaisuuksien löytämiseksi. Tutkimuksessa todetaan, että dynaamiset toimintakäytännöt, jotka mahdollistavat liiketoimin- tamalli-innovaation start-up yrityksissä, ovat melko samanlaisia. Tulokset osoittavat, että jat- kuva sisäinen viestintä sekä keskeisten sidosryhmien saattaminen osalliseksi aistimisen, tarttu- misen ja uudelleenmäärittelyn prosesseihin on tärkeää. Start-up yritysten havaitaan keskittyvän voimakkaasti tuote- tai palveluinnovaatioihin, ja muihin liiketoimintamallin osiin kiinnitetään huomattavasti vähemmän huomiota. Tämä tutkimus lisää ymmärrystä dynaamisten kyvykkyyksien ja liiketoimintamallien innovaatio- kirjallisuuden välisestä suhteesta. Tutkielma laajentaa kirjallisuutta tutkimalla myös konkreetti- sia käytäntöjä, joita yritykset soveltavat selviytyäkseen jatkuvasta muutoksesta. Lisäksi tämä tut- kielma tarjoaa empiirisen mallin, jota voidaan käyttää dynaamisten käytäntöjen havainnoimi- seen. Tämä tutkimus korostaa verkostoitumisen sekä liiketoiminnan pitkän aikavälin tarkastelun merkitystä. AVAINSANAT: dynamic capabilities; microfoundations; business models; business model in- novation; start-up companies 4 Table of contents 1 Introduction 7 1.1 Background and motivation for the study 7 1.2 Research gap 8 1.3 Research question and objectives 11 1.4 Structure of the thesis 12 2 Literature review 14 2.1 Dynamic capabilities 14 2.1.1 Antecedents of dynamic capabilities 19 2.1.2 Outcomes of dynamic capabilities 21 2.1.3 Microfoundations of dynamic capabilities 22 2.2 Business model innovation 33 2.2.1 Business model innovation in start-up companies 38 2.2.2 Tools for business model innovation 39 2.3 Synthesis – the role of dynamic capabilities in business model innovation 42 3 Methodology 46 3.1 Research approach and strategy 46 3.2 Research method 47 3.3 Case selection process 48 3.4 Data collection 48 3.5 Data analysis 50 3.6 Validity and reliability 51 4 Findings 53 4.1 Within-Case Description and Analysis 53 4.1.1 Company A 53 4.1.2 Company B 57 4.1.3 Company C 61 4.1.4 Company D 65 4.2 Cross-Case Analysis 70 5 4.2.1 Sensing capabilities 70 4.2.2 Seizing capabilities 71 4.2.3 Reconfiguring capabilities 72 5 Discussion 75 5.1 Theoretical implications 75 5.2 Managerial implications 79 5.3 Suggestions for future research 80 5.4 Limitations 80 References 82 Appendices 93 Appendix 1. Interview questionnaire 93 6 Figures Figure 1. The main research areas of the study and the research gap. 11 Figure 2. The structure of the thesis. 13 Figure 3. Antecedents of dynamic capabilities. 21 Figure 4. Sensing capabilities (Altered from Teece, 2007). 27 Figure 5. Seizing capabilities (Altered from Teece, 2007). 29 Figure 6. Reconfiguring capabilities (Altered from Teece, 2007). 32 Figure 7. A summary of dynamic capabilities research (altered from Eriksson, 2014). 33 Figure 8. Categories of business model innovation (Geissdoerfer et al. 2018). 37 Figure 9. The nine constructing elements of the Business Model Canvas (Osterwalder & Pigneur, 2010). 41 Figure 10. A model for studying and analyzing dynamic capability practices that enable business model innovation. 45 Figure 11. An example of the data analysis process. 51 Figure 12. Key practices in case Company A. 57 Figure 13. Key practices in case Company B. 61 Figure 14. Key practices in case Company C. 65 Figure 15. Key practices in case Company D. 69 Figure 16. Dynamic capability practices that enable business model development in Finnish start-up companies. 74 Tables Table 1. Definitions and Conceptualizations of Dynamic Capabilities. 18 Table 2. Microfoundations of dynamic capabilities and categories related to them. (Teece, 2007; Jantunen et al., 2012.) 24 Table 3. List of interviews. 49 file://///Users/emese.jankuj/Desktop/Gradu2.docx%23_Toc82002976 file://///Users/emese.jankuj/Desktop/Gradu2.docx%23_Toc82002977 file://///Users/emese.jankuj/Desktop/Gradu2.docx%23_Toc82002978 file://///Users/emese.jankuj/Desktop/Gradu2.docx%23_Toc82002979 file://///Users/emese.jankuj/Desktop/Gradu2.docx%23_Toc82002980 file://///Users/emese.jankuj/Desktop/Gradu2.docx%23_Toc82002981 file://///Users/emese.jankuj/Desktop/Gradu2.docx%23_Toc82002982 file://///Users/emese.jankuj/Desktop/Gradu2.docx%23_Toc82002983 file://///Users/emese.jankuj/Desktop/Gradu2.docx%23_Toc82002983 file://///Users/emese.jankuj/Desktop/Gradu2.docx%23_Toc82002984 file://///Users/emese.jankuj/Desktop/Gradu2.docx%23_Toc82002984 file://///Users/emese.jankuj/Desktop/Gradu2.docx%23_Toc82002986 file://///Users/emese.jankuj/Desktop/Gradu2.docx%23_Toc82002987 file://///Users/emese.jankuj/Desktop/Gradu2.docx%23_Toc82002988 file://///Users/emese.jankuj/Desktop/Gradu2.docx%23_Toc82002989 file://///Users/emese.jankuj/Desktop/Gradu2.docx%23_Toc82002990 file://///Users/emese.jankuj/Desktop/Gradu2.docx%23_Toc82002990 7 1 Introduction Small businesses and entrepreneurship have received an increasing amount of attention amongst scholars in the past decade. This is expected as entrepreneurship has had a major influence on worldwide economic development (Gedeon, 2017). Recently, start- up entrepreneurship has also gained some foothold in the literature as there are many great start-up success stories. However, in most cases start-ups tend to more likely fail than succeed (Patel, 2015). The increasingly dynamic and high-velocity business environ- ment in current economies present more challenges to companies than ever (Bourgeois & Eisenhardt, 1988; Barreto, 2010). Frequent environmental shifts in competition, tech- nology, social structures, and regulations can determine the level of competitive ad- vantage (Barreto, 2010) and, thus, the fate of many, especially small companies. 1.1 Background and motivation for the study The definition of a start-up company varies in literature (Paternoster, Giardino, Unter- kalmsteiner, Gorschek & Abrahamsson, 2014). Generally start-ups can be described as newly established ventures (Blank, 2013) that are “designed to create new products and services under conditions of extreme uncertainty” (Ries, 2011: 8). However, in contrast to conventional small companies, start-ups are profoundly future-oriented and aim to seek high scalability and growth instead of profits (Blank, 2007; 2013; El Hanchi & Kerzazi, 2020). This focus on growth and capability to detect and exploit opportunities are the differentiating factors between start-ups and small companies (El Hanchi & Kerzazi, 2020). Similarly to small companies, start-ups operate under a high level of uncertainty and with limited resources, suffering from liabilities of smallness and newness (Freeman & Engel, 2007; El Hanchi & Kerzazi, 2020). Start-up success is highly determined by innovation capabilities, learning, and networking (Pellegrino, Piva & Vivarelli, 2012; El Hanchi & Ker- zazi, 2020). Seeking for funding is also a central aspect in a start-up’s life-cycle and the start-up funding scene has evolved to consist of several stages depending of the phase 8 and size of the company (Nofsinger & Wang, 2011). Funding is an enabler of seeking new ways for growth and exploiting and maximizing the resources the start-up has. Regard- less that seeking funding is undoubtedly a critical strategic action, this thesis focuses on other means of achieving growth. To achieve rapid growth, start-ups require a great set of different capabilities (Zahra, Sa- pienza, & Davidsson, 2006). Amongst others, they must be able to constantly learn and recognize new opportunities and turn them into functioning and profitable business models and implement them (Shane & Venkataraman, 2000; Zahra et al., 2006; Alvarez & Barney, 2013; Foss & Klein, 2017.) Research indicates that the average extent of time for which companies can retain competitive advantage has declined over the years (Wig- gins & Ruefli, 2005) and in many industries success is determined by companies’ abilities to continuously bring new innovations to the market (Jantunen, Ellonen & Johansson, 2012). Changes in the business environment can make existing capabilities and customer offerings obsolete meanwhile presenting new opportunities. To manage seizing these opportunities and adapt to changes companies must develop their resources and capa- bilities. (Jantunen et al., 2012.) Similarly to external changes, learning can present new opportunities (Pellegrino et al., 2012; Eriksson, 2014). Thus, start-ups should be aware of these aspects as they usually operate in highly dynamic and uncertain environments (Ries, 2011: 8). Teece (2010) reminds that it is rarely the case that the initial idea and business model of a start-up lead straight to success without modifications along the way. Thus, learning and making appropriate changes while facilitating innovation be- come crucial factors in regards of start-up growth. 1.2 Research gap Business model innovation has been noted to create similar or greater returns than solely product or process innovation (Chesbrough, 2007) which is why it can be consid- ered as a key strategic factor to focus on in companies. To successfully manage the busi- ness model innovation process, the approach of dynamic capabilities should be har- 9 nessed (Teece 2010; Mousavi, Bossink & van Vliet, 2018). Dynamic capabilities aid in an- ticipating and adapting to environmental changes through pinpointing crucial factors and practices in the innovation process. Due to dynamic capabilities, companies can ad- just to shifts in the business environment and enhance competitive advantage. (Teece, 2007.) Therefore, these competencies should be actively developed in order to design a superior business model. There is a considerable amount of articles published on the concepts of business model innovation and dynamic capabilities, however scholars note that the literature is scat- tered and there are no unanimous definitions on either of the concepts (see e.g. Zott, Amit & Massa, 2011; Barreto, 2010). Even though in varying extent, the effects of busi- ness model innovation and dynamic capabilities are recognized and it is well understood that both concepts determine competitive advantage (Johnson, Christensen & Kager- mann, 2008; Teece, Pisano & Shuen, 1997). It has also been noted that there are signifi- cant differences whether these concepts are acknowledged and applied in companies (Bucherer, Eisert, Grassmann, 2012; Chesbrough, 2010). This validates the need for ad- ditional empirical research to be able to present practical more managerial implications. Business models and dynamic capabilities are interdependent and companies with solid dynamic capabilities are more likely to obtain successful business model designs. As busi- ness models influence organizational design and determine feasibility of strategies, they also influence dynamic capabilities. (Teece, 2018.) Regardless of the high interdepend- ency of business model innovation and dynamic capabilities, only a few articles combine the two topics together (see e.g. Teece, 2018). The need for further empirical research on this relationship is noted by Teece (2018) as he arguments that improved compre- hension of business model innovation, its application, and transformation would clarify critical features of dynamic capabilities. This is also echoed by Eriksson (2014) who sug- gests that the processes of dynamic capabilities should be compared and contrasted to gain understanding how dynamic capabilities operate. She continues by underlining that research regarding these processes would be especially beneficial conducted from an 10 entrepreneurial and small business point of view. This thesis continues this idea and aims to examine business model innovation and dynamic capabilities as enablers of start-up growth. When observing the contexts from a start-up lens, the literature becomes even more scant as most studies heavily focus on large, more established companies with an exist- ing resource base, organizational capabilities, and processes related to innovation (Zahra et al., 2006). Start-up success is highly determined by the capability to find and take ad- vantage of opportunities, and construct new business models. (El Hanchi & Kerzazi, 2020.) The contexts of small businesses and entrepreneurship are more common in lit- erature but start-ups are not necessarily specified as a focus. Thus, there is a clear call for empirical research that combines business model innovation and dynamic capabili- ties specifically within a start-up context. It is unclear whether these theories can be applied to start-ups per se or if there are differing underlying processes when compared to other types of companies. Eriksson (2014) notes that the activities related to dynamic capability processes are of- ten studied on an organizational level and argues that more research is required on how employees influence the development of dynamic capabilities through their activities. Eriksson (2014: 10) further proposes that “there is a need to examine the antecedents more holistically” referring to the underlying processes or ‘microfoundations’ of dynamic capabilities. Companies operate in complex environments where the combined effects of these antecedents can have enabling or constraining effects which is why they must be further studied (Eriksson, 2014). Thus, it is vital to focus on the underlying activities that enable the development and application of dynamic capabilities and to observe how these affect the innovation of business models. Teece (2007) notes that dynamic capa- bilities and transformation in general are entrepreneurial in nature which is why a start- up setting is valid to study these activities as these start-up companies are highly entre- preneurial and roles are often more agile. Figure 1 illustrates the research gap. 11 Figure 1. The main research areas of the study and the research gap. 1.3 Research question and objectives This thesis intends to provide a wider comprehension of the connection between dy- namic capabilities and business model innovation. The study aims to demonstrate that these concepts are not as separate as current literature presents them but they indeed are merged together and their processes are highly complementary. Consequently, as this issue is addressed, the main purpose of the thesis is to discover distinct dynamic capability processes that enable and contribute to the innovation of business models. These concepts are further studied through a start-up lens to find out whether the pro- cesses are similar as presented in existing studies. Therefore the following research ques- tion is formed: What kinds of dynamic capability practices enable business model innovation in Finnish start-up companies? In the pursuit of providing an answer to the research question and increase understand- ing of the research concepts, the following research objectives are set: 1. Define and describe dynamic capabilities and their processes. Start-up companies Dynamic capabilities Business model innovation Research gap 12 2. Describe business model innovation literature and establish a link between it and dy- namic capability literature. 3. Find out the most critical dynamic capability practices regarding business model inno- vation using four different Finnish start-up companies. 4. Find similarities in the cases. By addressing these research objectives and presenting an answer to the research ques- tion, this thesis provides theoretical contributions to existing literature by combining the literatures on business model innovation and dynamic capabilities within a start-up framework. This thesis provides an empirical model through which the critical dynamic capability processes of a start-up company can be observed. Meanwhile, it also pinpoints each of these activities’ relevance to business model innovation. Further, this model can be applied as a managerial tool to assess dynamic capability processes to enable adapt- ability to changes and innovation. 1.4 Structure of the thesis This thesis is constructed of five sections. Following this introduction, the thesis contin- ues with a comprehensive literature review. The literature review begins by defining and characterizing dynamic capabilities after which their antecedents, processes and out- comes are examined. The processes related to dynamic capabilities are observed through Teece’s (2007) microfoundations framework. After gaining a holistic outlook of dynamic capabilities, the topic of business model innovation is introduced. The defini- tions of the topic are discussed and different tools are presented. The literature review closes with a synthesis of both topics and presents a model to examine critical dynamic capability processes related to business model innovation. This model provides the fun- damentals for the empirical study. Following the literature review, the third section provides insight into the methodology of the study. In this chapter, the research strategy and method will be discussed. Addi- 13 tionally, the case selection process and the analysis methods are explained. Critical dis- cussion on the validity and reliability can also be found in this section. Consequently, the fourth section illustrates the findings of the empirical study. Within-case and cross-case analysis are used to explain the findings. The fifth chapter provides the discussions in- cluding theoretical and managerial contributions of this thesis and also suggestions for future research. The construct of this thesis is illustrated in Figure 2. Conclusions o Synthesizing the dynamic capability approach in busi- ness model innovation o Discussing theoretical and managerial contributions, limitations and suggestions for future research Literature review o Dynamic capabilities Micro-foundations of dynamic capabilities o Business model innovation Business model canvas Empirical study o Research strategy and method, case selection and data collection process, validity and reliability assessments o Within-case and cross case analysis Synthesis o Developing an empirical model to study the relationship of dynamic capabilities and busi- ness model innovation Figure 2. The structure of the thesis. 14 2 Literature review To achieve a comprehensive understanding of the context of start-ups and their activities in the pursuit of growth, previous literature must be examined. First, the research on dynamic capabilities is explored and reviewed. The literature review briefly introduces the different conceptualizations of dynamic capabilities to provide understanding on how fragmented the literature is. The review continues to explain the antecedents, pro- cesses and outcomes of dynamic capabilities to gain understanding of the whole under- lying mechanisms of the topic. Following, the literature review introduces the concept of business model innovation and how this theory applies to start-up companies. Con- sequently, the literature review closes with a synthesis on both literatures and intro- duces a model for empirical research to identify critical processes that enable renewal in start-ups. This comprehensive synthesis explains how dynamic capabilities influence business model innovation. 2.1 Dynamic capabilities Capabilities can be characterized as a company’s capacity to deploy resources using or- ganizational processes to achieve a craved outcome (Amit & Schoemaker, 1993:35). Ca- pabilities have been further divided into sub-categories, such as operational capabilities and dynamic capabilities (Helfat & Winter, 2011; Teece, 2018). Operational capabilities reflect the processes and practices conducted at a practice level to achieve efficiency and dynamic capabilities are most commonly described as companies’ abilities to inte- grate, build, and reconfigure internal and external competences to cope with fast chang- ing environments (Teece et al., 1997). Thus, a distinctive element of dynamic capabilities is that they go beyond organizational competences and involve managerial processes (Teece, 1986; 2006). The aim of the dynamic capability approach is to interpret the development of compa- nies competitive advantage over time (Teece & Pisano, 1994). The increasing body of literature on dynamic capabilities provides consecutive and distinct definitions on the 15 theme (Barreto, 2010). The research on dynamic capabilities has been heavily focused on searching for definitions rather that engaging in deeper research. The fragmented conceptualization of dynamic capabilities has characterized the definition of the term to this day and, thus, it has remained rather divided. (Barreto, 2010; Zahra et al., 2006.) According Barreto (2010) the main challenge is to form a concept on an ambiguous con- text that simultaneously avoids being too vague while also avoiding excessive specifica- tion. The main definitions of dynamic capabilities are selectively presented in Table 1. Overall, the literature on dynamic capabilities has experienced rapid growth and has be- come a highly diverse field of research. (Barreto, 2010; Eriksson, 2014.) The research on dynamic capabilities is influenced by various literature streams. Influ- ence has been drawn, for example, from long-established research such as Schumpeter’s theory of creative destruction, Cyert and March’s (1963) behavioral aspects of the firm, and Nelson and Winter’s (1982) evolutionary theory of economic change. (Eriksson, 2014). Respectively, as Barreto (2010) notes, dynamic capabilities literature has influ- enced not only the research on strategic management but also, e.g. entrepreneur- ship (e.g., Arthurs & Busenitz, 2006), marketing (e.g., Menguc & Auh, 2006) and human resources management (e.g., Thompson, 2007). Due to the influence of numerous literature streams and the novelty of the field, the conceptualization of dynamic capabilities is rather wide. However, Barreto (2010) notes that the different concepts of dynamic capabilities can be categorized. He proposes that the conceptualizations can vary in terms of whether the capability’s specific role, pur- pose, or nature is defined, whether a relevant context is determined, or if there are as- sumptions heterogeneity of the dynamic capability. The nature of dynamic capabilities has been defined in literature as “abilities (or capacities) but also as processes or rou- tines” (Barreto, 2010: 260). Barreto (2010) finds that due to different approaches, there are opposing views in research as, for example, some articles focus simply on the exist- ence of the dynamic capabilities, meanwhile other research seeks to uncover the devel- opment and maintenance of these capabilities. 16 Teece et al. (1997) conducted a study that can be regarded as perhaps the most influen- tial and initial research on the topic of dynamic capabilities. They propose that dynamic capabilities can be considered as an expansion of the resource based view (RBV). The RBV aims to explain the different circumstances companies operate within using their resource and capability mix. According to the RBV, companies are diverse because they possess different sets of resources which they then apply varyingly to their processes leading to different strategies and, thus, outcomes. (Barney, 1986; 1991.) These sets of resources can provide sustainable competitive edge considering they are valuable, rare, costly to imitate and non-substitutable (Barney, 1991). The RBV framework is widely used to identify key resources to be exploited for further sustainable competitive ad- vantage. In this context, resources can be considered as “stocks of available factors that are owned or controlled by the firm”, meanwhile capabilities can be seen as a company’s “capacity to deploy resources, usually in combination, using organizational processes, to effect a desired end” (Amit & Schoemaker, 1993: 35). The RBV can considered to have a somewhat static nature and, thus, it cannot explain competitive advantage in a changing environment. Hence, Teece et al. (1997) suggest the dynamic capabilities framework to fill this gap. They propose that dynamic capabilities portray a company’s capacity to ob- tain new ways of gaining competitive advantage (Teece et al., 1997). According to Eriksson’s (2014) comprehensive literature review on the topic, many re- searchers see dynamic capabilities as higher-order capabilities that affect operational capabilities (see e.g. Winter, 2003; Zahra, 2006; Teece, 2007; 2018). Operational capabil- ities, or ‘ordinary’ capabilities are often a blend of more straightforward capabilities and routines related to them. Therefore, according to this conceptualization, dynamic capa- bilities can be seen as purposeful modifiers and extenders of not only resources but also other capabilities to cope with environmental changes (Winter, 2003; Teece, 2007). Es- pecially earlier research tends to focus on changes in resources, capabilities, operating routines as a specific role of dynamic capabilities. More recent research regards decision- making capabilities or the ability to discover opportunities and threats as also vital roles (Eriksson, 2014). 17 There is debate around the question of the environmental factors of dynamic capabilities. Some research links dynamic capabilities precisely to swiftly changing environments however, there are also advocates of less dynamic environments to be relevant in this concept as well. Thus, the extent of what is “dynamic” still remains unclear as well as what contexts are relevant in terms of dynamic capabilities. (Barreto, 2010). According to Helfat, Finkelstein, Mitchell, Peteraf, Singh, Teece, and Winter (2007) there are two main indicators by which dynamic capabilities can be assessed, these are ‘tech- nical’ fitness and ‘evolutionary’ fitness. Evolutionary fitness refers to the external envi- ronment and it determines how well the capability enables a company to create profits, or in other regards, to succeed. Technical fitness refers to capabilities, such as how ef- fectively a capability can perform its function, regardless of evolutionary fitness. Teece (2007) regards technical fitness more as ordinary capabilities but acknowledges that dy- namic capabilities can enhance evolutionary fitness through helping to shape the envi- ronment. In addition, he notes that dynamic capabilities that involve shaping of the en- vironment are also partially entrepreneurial capabilities. Therefore, entrepreneurial fit- ness can be added as a third main indicator for dynamic capability assessment. Teece (2007) continues by concluding that the concept of dynamic capabilities ties together the academic work on strategy and innovation and provides a framework that empha- sizes the most decisive capabilities that are essential to retain evolutionary and entre- preneurial fitness. In some research, the nature of dynamic capabilities are conceptualized as processes or a composition of a variety of processes instead of solely being abilities. In this conceptu- alization the dynamic capability processes are seen to be both organizational and man- agerial. Through these processes the company can identify the need for change and, further, manage and accomplish it. (Helfat et al., 2007.) According to this approach, dy- namic capabilities are functions within learning processes and can include aspects, such as accumulation, articulation, and codification of knowledge and experiences. However, there is debate on heterogeneity, i.e. whether dynamic capabilities are identifiable dis- tinct processes that coordinate resources into favorable outcomes or whether they are 18 solely processes to acquire and deploy resources, such as product development (Eisen- hardt & Martin, 2000; Barreto, 2010). According to the former approach, dynamic capa- bilities are difficult to imitate processes that can be particular to one company. In the latter approach, dynamic capabilities are seen as a sum of how a company mixes its re- sources and capabilities. This ability to create unique combinations is distinctive as the latter approach considers resources and capabilities to be otherwise commonalities amongst companies. (Barreto, 2010.) Some of the various definitions of dynamic capa- bilities are presented in Table 1. Table 1. Definitions and Conceptualizations of Dynamic Capabilities. Study Definition Teece et al. (1997: 516) “The firm’s ability to integrate, build, and reconfigure internal and ex- ternal competences to address rapidly changing environments.” Eisenhardt & Martin (2000: 3) “The firm’s processes that use resources—specifically the processes to integrate, reconfigure, gain, and release resources—to match and even create market change. Dynamic capabilities thus are the organi- zational and strategic routines by which firms achieve new resource configurations as markets emerge, collide, split, evolve, and die.” Winter (2003: 991) “Those (capabilities) that operate to extend, modify, or create ordi- nary capabilities.” Helfat et al., (2007: 4) “The capacity of an organization to purposefully create, extend, or modify its resource base.” Teece (2007: 1319) “… The capacity (1) to sense and shape opportunities and threats, (2) to seize opportunities, and (3) to maintain competitiveness through enhancing, combining, protecting, and, when necessary, reconfigur- ing the business enterprise’s intangible and tangible assets.” Barreto (2010: 271) “A dynamic capability is the firm’s potential to systematically solve problems, formed by its propensity to sense opportunities and threats, to make timely and market-oriented decisions, and to change its resource base.” 19 As a conclusion, it can be noted that dynamic capabilities are multi-faceted. Rosenbloom (2000) demonstrates this by proposing that companies with great tendency to change their resource configuration might have inabilities to form timely decisions. In this case the full potential benefits of change remain unrealized as the company lacks critical dy- namic capabilities. According to Barreto (2010), dynamic capabilities are constructed by four main dimensions which include the ability to alter the resource base, discover op- portunities and threats, and to make market-oriented decisions on time. Similar findings have been made by Teece (2007) suggesting that dynamic capabilities are constructed of microfoundations. As dynamic capabilities are a rather abstract and complex concept, they are often observed through some of their elements, such as outcomes, for example (Zahra et al., 2006; Eriksson, 2014). Therefore, moving on from the conceptualizations, the literature review takes a closer look on the antecedents, processes and outcomes of dynamic capabilities in the following sections. 2.1.1 Antecedents of dynamic capabilities Multiple elements influence the emergence of dynamic capabilities. These elements are circumstances or qualities a company possesses or a combination of them and their ef- fects can be positive or negative in regards of dynamic capability development. (Teece, 2007; Ambrosini & Bowman, 2009.) Eriksson (2014) finds that anteceding elements can emerge both within and outside a company. Internal antecedents appear in various forms and according to Eriksson (2014) they can be divided into two categories: social and structural. Social antecedents can manifest as organizational or individual orientations. In practice, these orientations represent, e.g. how an organization regards its market or the level of entrepreneurialism (see, e.g. Jan- tunen, Puumalainen & Saarenketo, 2005; Magnusson & Boccardelli, 2006). Organiza- tional capabilities can be also categorized as social antecedents as they play a vital role in determining organizational change. Regardless of company size, organizational capa- bilities, such as flexibility and collaboration have been especially noted to have a great impact on the implementation of change. (Oxtoby, McGuiness & Morgan, 2002; 20 Blomqvist, Hara, Koivuniemi, & Äijö, 2004.) Project capabilities are another central social antecedent as an increasing amount of companies operate project based. Project capa- bilities represent the ability to distribute information gathered on the project level to the whole organization, generating organizational learning and, thus, potential emergence of dynamic capabilities. (Söderlund & Tell, 2009.) As mentioned earlier, scholars such as Eisenhardt & Martin (2000) consider dynamic ca- pabilities as routines. Organizational routines or practices can also be considered as so- cial and structural antecedents of dynamic capabilities. For example, Wooten and Crane (2004) note that organizational practices increase employee devotion. However, there is controversy in the literature regarding routines as positive antecedents of dynamic ca- pabilities since some scholars have found routines to make organizations more rigid and, thus, less prone to change and innovation (Vassolo & Anand, 2007; Benner, 2009). Organizational structure is the most evident structural antecedent of dynamic capabili- ties as it dictates not only organizational routines but also the level of flexibility (Jones & Kraft, 2004; Eriksson, 2014). A company’s resource mix is also a vital structural anteced- ent since resources are required to support the organization’s orientations and to accu- rately react to opportunities and threats (Verona & Ravasi, 2003). According to some studies (see e.g. Andren, Magnusson & Sjolander, 2003; Miyake & Nakano, 2007) the amount of resources have an impact on business model development. They found that the less resources the company has, the more likely they are to develop a profitable business model as abundant resources generate more opportunities and increase the risk of making disadvantageous strategic choices. Related to the resource mix, employee capabilities, especially managerial capabilities also play a key role in the emerging of dy- namic capabilities (Zhang, 2007). External antecedents represent environmental and inter-organizational relationship fac- tors that influence the emergence of dynamic capabilities. As the world has turned more globalized, the importance of relationships and networks has increased. (Eriksson, 2014.) 21 In addition to inter-organizational learning, networks can provide complementary re- sources and access to assets or help with opportunity recognition (Macpherson, Jones & Zhang, 2004). Døving and Gooderham (2008) note that this is particularly vital for small companies as their internal assets are limited. Environmental antecedents in turn, represent the level of instability in the markets and institutional or technological envi- ronment. When changes occur in these dimensions, there is an increased need for dy- namic capabilities. Similarly, if the environment is profoundly uncertain or rigid, the rapid development of dynamic capabilities is likely to take place. (Eriksson, 2014.) The illus- trated elements in Figure 3 influence the development of dynamic capabilities. It is vital to acknowledge that while these elements are categorized as external and internal, the effects stem also from individual to environmental levels. 2.1.2 Outcomes of dynamic capabilities The outcomes of dynamic capabilities have mainly been researched from the perspec- tive of economic performance (Eriksson, 2014; Barreto, 2010). Regardless that it still re- mains unclear how dynamic capabilities influence performance, various studies have Internal Structural • Organizational structure • Resource mix • Employee capabilities Social • Orientations • Organizational capabilities • Organizational practices External Relationships and networks • Network position • Resource & asset complementarity • Learning Environment • Market • Institutional • Technological Antecedents of dynamic capabilities Figure 3. Antecedents of dynamic capabilities. 22 found a direct link between them (e.g. Kor & Mahoney, 2005; Wu, 2007; Zhang, 2007; Zhu & Kraemer, 2002). Studies have found moderating and mediating factors between the relationship of dynamic capabilities and performance, such as technological turbu- lence (Song, Droge, Hanvanich & Calantone, 2005), strategic orientation (Slater, Olson, & Hult, 2006), and network resources (Yiu & Lau, 2008). In addition to the economic view, performance can be also considered as, e.g. innovative, technological, and international performance. (Eriksson, 2014.) Other studies describe the changes in operational capabilities as the main outcomes of dynamic capabilities. This indicates a more indirect relationship between dynamic capa- bilities and performance. These studies essentially focus on the impact of developing operational capabilities in terms of competitive advantage or organizational perfor- mance. (Eriksson, 2014.) For example, Macpherson et al. (2004) have found a connection between the outcomes of dynamic capabilities and company growth by observing me- diating factors such as opportunity recognition and exploitation. Thus, it can be stated that dynamic capabilities can also have an indirect link to company performance. How- ever, it must be noted that both approaches on dynamic capabilities (direct and indirect links to performance), have their deficiencies and, thus, the topic is in need of more re- search. (Eriksson, 2014.) The previous sections clarified the role of antecedents and outcomes of dynamic capa- bilities. However, the processes through which dynamic capabilities present themselves remain unclear. Thus, the following discussion will take a closer look at the processes and microfoundations through which dynamic capabilities operate in practice to in- crease further understanding on key activities. 2.1.3 Microfoundations of dynamic capabilities In previous literature, the complexity of dynamic capability processes can be noted through, e.g. the lack of quantitative research as the processes are challenging to de- 23 scribe through quantitative means. The literature conceptualizes dynamic capability pro- cesses as either distinct processes or more generic knowledge related processes. (Eriks- son, 2014.) The former mentioned conceptualization represents a smaller portion of the literature and grasps processes such as product or technology development, organiza- tional restructuring and business model adaptation (see, e.g. Eisenhardt & Martin, 2000). According to Eriksson (2014) a more prominent amount of literature describes dynamic capabilities as generic knowledge related processes and describe processes that include accumulation of knowledge, integration and utilization of accumulated knowledge, and knowledge reconfiguration. Thus, it can be concluded that overall, the importance of knowledge management should be emphasized when it comes to dynamic capabilities. Teece (2007) proposes that the processes of dynamic capabilities can be characterized as microfoundations and describes them as specific skills or processes, organizational systems, decision-making protocols, and disciplines which form the base for enterprise level sensing, seizing, and reconfiguring capacities. Similar findings have been made by various scholars, such as Barreto (2010), Verona and Ravasi (2003), and Wang and Ahmed (2007). The different conceptualizations of the processes and practices of dy- namic capabilities are illustrated in Table 2. 24 Table 2. Microfoundations of dynamic capabilities and categories related to them. (Teece, 2007; Jantunen et al., 2012.) CATEGORY FUNCTION PRACTICES SIMILAR CATEGORIES SENSING Scan and monitor en- vironmental changes Identify op- portunities and threats Learning from internal and ex- ternal sources, R&D Address customer needs, fol- low trends Systematic use of technologi- cal developments and innova- tions Gather information related to innovation through external parties Ability to sense op- portunities and threats (Barreto, 2010) Knowledge crea- tion and absorp- tion (Verona & Ravasi, 2003) Adaptive capability (Wang & Ahmed, 2007) SEIZING Integrate sensed opportuni- ties/ threats to activities Mobilize re- sources and competen- cies accord- ingly Define business model and customer offering Set enterprise boundaries Practices to support decisions related to new ventures, part- ners and distribution channels (avoid biases) Build loyalty and commitment Ability to make market-oriented decisions on time (Barreto, 2010) Knowledge inte- gration (Verona & Ravasi, 2003) Absorptive capabil- ity (Wang & Ah- med, 2007) RE- CONFIGURING Align re- sources and capabilities Realign existing resources by reconfiguring complementary assets and processes Co-specialize assets internally and with external partners Promote commitment and al- ternative resource allocation through leadership practices Knowledge management and learning Propensity to change the re- source base (Bar- reto, 2010) Knowledge recon- figuring (Verona & Ravasi, 2003) Innovative capabil- ity (Wang & Ah- med, 2007) 25 2.1.3.1 Sensing capabilities In today’s changing business environment, different opportunities constantly present themselves across markets. However, the emergence of new market trends and changes is often difficult to recognize. Teece (2007) proposes that opportunities can be discov- ered through sensing which is a set of organizational activities that enhance knowledge accumulation. As such activities Teece (2007) proposes scanning, creating, learning, and interpreting. Similarly, other scholars have noted that accumulating knowledge is a fun- damental element of dynamic capabilities, and that these two cannot be separated. (Pandza, Horsburgh, Gorton & Polajnar, 2003; Eriksson, 2014). Thus, the more knowledge a company acquires, the more opportunities they have to be pursued. Knowledge accumulation is a crucial process of dynamic capabilities since acquiring new and enhancing existing knowledge is the essence of renewal (Eriksson, 2014). Knowledge can be acquired from both internal and external sources, e.g. through experimental in- ternal learning and different forms of cooperation (Gerard, 2005; Kale & Singh, 2007; Bierly & Daly, 2007). Successful knowledge accumulation and opportunity recog- nition requires the exploration of both ‘local’ and ‘distant’ business environments, in- cluding different markets and technologies (Nelson & Winter, 1982 cited Teece, 2007). Therefore, according to Teece (2007) this process requires investments in research and market testing to ease the understanding of the structural evolution of industries and anticipation of supplier and customer reactions. Consequently, he further emphasizes the importance of research and development (R&D) and presents the microfoundations of sensing as various processes. These include processes that control internal R&D and selection of viable technologies, monitoring and exploiting external party innovations and developments in science and technology, and finally, identifying changes in target market segments and customer needs. In other words, sensing capabilities can be con- sidered to be comprised of capabilities to learn and monitor the environment. 26 Organizational processes such as (R&D) activities are crucial, however, opportunities can be also sensed through so called ’right brain’ or ‘entrepreneurial’ capacities that com- prise cognitive and creative abilities of an individual. Therefore, knowledge alone is not enough to detect opportunities because it also requires capacity to identify, sense, and shape developments. (Teece, 2007.) On an individual level, opportunity sensing depends on the individuals’ specific knowledge and their capabilities such as creativity, under- standing of user needs, and practical wisdom (Nonaka & Toyama, 2007). In turn, on a company level, sensing opportunities can be enhanced through increasing learning ca- pacities of the organization and making sure that sensing activities are conducted on all levels of the company, not solely by a few individuals. Facilitating sensing on all organi- zational levels and expanding the R&D horizon can be difficult, especially for well-estab- lished companies as they can be often set in their ways. (Teece, 2007.) Thus, the role of managers and entrepreneurs becomes vital as it is they who assess the new knowledge and its use. Processes can be learned and adjusted along the way to comply with sensed opportunities but without cognitive and creative capabilities, companies would be thwarted. (Teece, 1986; 2006) Therefore, it could be concluded that dynamic capabilities facilitate companies to innovate and invent profitably. The capability to sense or create opportunities is not similarly distributed between com- panies (Teece, 2007). According to Kirzner (1973), companies recognize different oppor- tunities because they have divergent access to information. For example, managers and company size play a vital role in knowledge accumulation as it has been noted that small companies can face challenges when acquiring external knowledge. This is due to that in small companies managers (and entrepreneurs) participate in everyday activities and, thus, lack the time for active knowledge accumulation, contrary to larger companies. Companies, regardless of form or size can facilitate their opportunity sensing process by explicitly or implicitly employing an analytical framework to aid in emphasizing what is important. (Teece, 2007.) 27 Sensing opportunities can have various effect on economies. Kirzner (1973) proposes that entrepreneurs recognize opportunities through observing shifts in market balance and take advantage of it. This proposition suggests that entrepreneurship restores bal- ance in the economy. However, new knowledge can also be the source of opportunities. Schumpeter (1934) suggests that these recognized opportunities should be exploited to destruct the balance in the economy and to create completely new market structures. A summary of sensing capabilities and their underlying microfoundations are presented in Figure 4. 2.1.3.2 Seizing capabilities Knowledge accumulation is the antecedent of change, however, knowledge integration is the facilitator of that change. Integrating knowledge is, in its essence, merging existing knowledge and experiences with the acquired new. (Eriksson, 2014.) This can be done through various ways but some of the most widely used knowledge integration strate- gies rely on interaction and collaborative organizational routines, such as total quality management (Macpherson et al., 2004). The successful integration of acquired internal and external knowledge can become a valuable and unique resource that can enhance competitive advantage (Shang, Lin, & Wu, 2009). Knowledge as a resource does not lose its value during use but it rather evolves (Pandza et al., 2003). Therefore, knowledge utilization is a key process of dynamic capabilities as it extracts the benefits of knowledge Organizational and individual level systems and ca- pacities to learn and discover op- portunities. Processes to manage R&D and se- lection of viable technologies. Sensing Processes to exploit scientific and technological development. Processes to detect trends in the target market and customer needs. Processes to exploit external par- ties’ innovations. Figure 4. Sensing capabilities (Altered from Teece, 2007). 28 accumulation and integration. The utilization process is usually tacit and unconscious and, thus, it is important to share and communicate tacit knowledge, especially on be- tween individuals (Kale & Singh, 2007). Seizing opportunities relies on knowledge integration and utilization. This process of dy- namic capabilities indicates a company’s level of responsiveness to opportunities and threats. Based on accumulated information, resources and competencies are organized and used to realize sensed opportunities and capture value through investment and business model development. The underlying microfoundations that characterize seizing capabilities are defining customer solutions and business models, processes of setting company boundaries and controlling the ecosystem of platforms and complements, and lastly, establishing unbiased decision making systems. (Teece, 2007.) Complements and platform management are crucial in today’s markets as there is a clear shift from scope and scale economies towards co-specialization. Most products today are systems or plat- forms and individual companies create more value to the end customer together that separately. (Teece, 2007.) Teece (2007) proposes that companies can react to emerged opportunities by develop- ing new products and services or establishing new processes. These actions often require the company to invest in development and commercialization. However, companies seiz- ing opportunities might often come across the problem of what, when, where, and how much to invest in. Initially, there are various investment choices for companies to choose from, including specific technologies and designs. However, as a particular choice begins to dominate, the strategic choices in regards of investment become more narrow. As an example, Teece (2007) mentions the automobile industry where at first various engine technologies competed but later on gasoline technology begun to dominate. Conse- quently, he implies that significant investment activities should be conducted after a cer- tain technology or design gains more prominent market acceptance. Large and more well-established companies are able to wait longer but smaller companies, such as start- ups should opt to the market quickly and tussle. Teece (2007) suggests that fast entrance 29 and resource engagement are especially vital if customers are particularly reactive or network externalities are present. Consequently, a business model must be developed to be compliant with the investment priorities and commercialization strategy (Teece, 2007). Nelson (2005) proposes that business model design is just as vital to a company’s success as its customer offering is. A compliant business model design consists of, e.g. integrating internal incentives, activ- ities to support co-specialization to manage networks and platforms, and distribution channels. Also, choices regarding technology, target markets, financial terms, and sales strategies must be considered when designing an appropriate business model. (Teece, 2007.) The role of business models is presented more in detail later in the thesis. According to Teece (2007), companies often fail to address sensed opportunities due to path-dependencies. He elaborates by noting that especially well-established incumbent companies frequently rely on standard procedures, routines, assets and strategies to manage existing technologies and knowledge. This makes them cautious to adopt radical, competency-destroying, noncumulative innovations. This phenomenon alongside with biases such as, certainty effect and excessive optimism can significantly hamper decision making. Therefore, the importance of an appropriate decision making protocol is vital. (Teece, 2007.) To conclude, successful seizing of opportunities requires attention to all underlying microfoundations. The microfoundations related to seizing capabilities are presented in Figure 5. Seizing Processes to define customer offering and business model. Processes to increase loyalty and commitment Processes to set enterprise bounda- ries and control platforms Processes to establish decision mak- ing mechanisms Organizational structures, pro- cesses, and incen- tives for imple- menting opportuni- ties Figure 5. Seizing capabilities (Altered from Teece, 2007). 30 2.1.3.3 Reconfiguring capabilities A company can achieve profitability and growth through identifying opportunities, in- vesting accordingly, and selecting the correct customer offering and business model. However, solely following the actions and routines previously taken can lead to path de- pendencies which can prevent the company from achieving sustainable profitability and growth. Routines assist in retaining continuity until a shift occurs in the business envi- ronment. After this, routines become rather a hindrance as they can lead to choosing the “safe options” and, therefore, reluctance to change. (Teece, 2007.) Thus, the afore- mentioned unbiased decision making procedures gain even more importance as innova- tions can make old processes and routines obsolete (Eriksson, 2014). Teece (2007) also notes that innovation rarely comes through incremental actions which is why he under- lines the importance of reconfiguring capabilities. An essential element to achieving continuous profitable growth is the capacity to recom- bine assets and organizational systems and processes as the organization and environ- ment evolves (Teece, 2007; Helfat & Winter, 2011). The ability to respond to changes has been widely noted to determine success and technological breakthroughs represent only a fraction of successful innovation (Adner & Helfat, 2003). Reconfiguring (i.e. trans- forming) capabilities are those that revamp existing tangible and intangible assets, such as knowledge to be aligned with organizational structures to support strategy (Teece, 2007). For example, knowledge reconfiguration is a process of creating new combina- tions from existing knowledge (Grant, 1996) or using that knowledge in different ways or for new purposes to create more value (Jantunen et al., 2005). To conclude, as success often results in routinization, capability reconfiguration is crucial in retaining evolution- ary fitness and avoiding path dependencies. According to Teece (2007), the microfoundations that can be considered as underlying reconfiguring capabilities are multidimensional. According to his research, these include processes to achieve decentralization and near decomposability, co-specialization, prac- 31 tices related to learning and knowledge management, and processes to establish appro- priate governance to avoid path dependencies. If the decision making in an organization is highly centralized, it is less likely to be successively fast to react to customers and new technologies. When decision making is decentralized, a wider set of people are in charge of observing and controlling decisions and, thus, the extra step of communicating to a single decision maker is avoided. Therefore, decentralization enables the identifying of opportunities and threats more comprehensively and swiftly. (Teece, 2007.) Human resource management (HRM) plays a vital role in achieving decentralization as internal organizational structures must enable managers to observe the environment also through a long-run strategic perspective instead of the daily functional process lens (Järvenpää & Leidner, 1998; Teece, 2007). Organizational proactivity and managerial cog- nition have been also shown to have an impact on dynamic capabilities. This consists of understanding the needs of a potential market and searching for alternative ways to serve that market while using the right resources. Tools such as scenario analysis and benchmarking can enhance the knowledge reconfiguration process. (Eriksson, 2014.) HRM is proven to help decompose organizational units into loosely tied sub-units to en- hance agility and flexibility and, thus, achieve decentralization (Jantunen et al., 2005). However, it is implied that units should not have full autonomy, i.e. should not be fully decomposed in order for the company to remain coordinated and catch possible econo- mies of scale or scope (Teece, 2007). Due to the nature of start-ups, the organizational structure has often good prerequisites for decentralized decision making. However, Teece (2007) reminds that as companies grow, decentralization must be actively pursued to remain flexible and responsive. Especially in rapidly changing environments, the need for continuous realignment is high. Literature on strategy, organizational behavior, and organizational adaptation are agree- ing with dynamic capabilities literature on the importance of ‘fit’ between strategy, or- ganizational structure, and practices (Teece, 2007). For example, Porter (1996) notes that 32 while strategic fit between processes is crucial in terms of competitive advantage, it is also vital in order to sustain that advantage. Managers can generate unique value through mixing cospecialized assets within their company (Teece, 2007). Cospecialized assets are assets that are complementary to one another in terms that they create more value when used together. Cospecialized assets are unique and cannot be bought or sold and, therefore, often require integrated operations and management (Teece, 1980). If managed correctly, these assets can result in, e.g. differentiated customer offerings and inimitable cost savings. Due to complementarities and as companies rely on different sets of resources, it is not uncommon that some companies find particular technologies or assets more valuable than others. (Teece, 2007.) As underlined in the chapters above, intangible assets, such as knowledge are vital in regards of sensing and seizing opportunities and the ability to combine and integrate internal and external knowledge is crucial in terms if company success. Therefore, creat- ing governance and incentive structures that support learning are critical dynamic capa- bilities (Kogut and Zander, 1992; Nonaka and Takeuchi, 1995; Grant, 1996; Chesbrough, 2003; Teece, 2007). Similarly, monitoring harmful exploitation of knowledge or other in- tellectual property is equally as important. According to Teece (2007), especially innova- tive companies that lack experience are prone to neglecting managing the leakage of know-how and intellectual property. The underlying microfoundations of reconfiguring capabilities are illustrated in Figure 6. Figure 6. Reconfiguring capabilities (Altered from Teece, 2007). Re- configuring Processes to regularly align and realign tangible and intangible resources Processes to achieve decentraliza- tion and (near) decomposability Processes to manage knowledge Processes to establish appropriate gov- ernance to avoid path dependencies Processes to establish co-specialization 33 To conclude, there are various conceptualizations of dynamic capabilities. Some scholars conceptualize the topic through their nature, or antecedents, and some through their outcomes (Eriksson, 2014). The antecedents of dynamic capabilities have found to be internal and external and they stem from both individual and organizational levels. The outcomes of dynamic capabilities are either direct or indirect and there remains a debate in literature on this topic. The processes through which dynamic capabilities operate can be conceptualized in multiple ways as well. (Eriksson, 2014) This thesis introduced the framework of Teece’s (2007) microfoundations of dynamic capabilities which divides these processes into three categories: sensing, seizing and, reconfiguring. Sensing capa- bilities refer to the abilities to identify opportunities and knowledge accumulation, seiz- ing capabilities aid in integrating the sensed opportunity and reconfiguring capabilities contribute to the alignment of resources and capabilities to achieve enhanced perfor- mance, growth, and competitive advantage. The research on dynamic capabilities is summarized in Figure 7 illustrated as a process. 2.2 Business model innovation As competition constantly increases across markets, and profit and growth are more on- erous to achieve, strategic decision making receives an even more crucial role (Teece, 2018). The traditional means of differentiation through service or product portfolios are becoming more difficult and, therefore, business model innovation has received in- creased interest both in research and practice (Chesbrough, 2007). Business models are Operational capabilities Antecedents Internal External Micro- foundations Sensing Seizing Reconfiguring Outcomes Indirect impact Performance Direct impact Growth Competitive advantage Figure 7. A summary of dynamic capabilities research (altered from Eriksson, 2014). 34 highly interdependent with strategy as strategy dictates the requirements for the busi- ness model. However, it is the business model through which a company can fully realize its strategy (Casadesus-Masanell & Ricart, 2010). The definition of a business model is relatively vague in existing literature. This is partially due to that the research on business models dates only back to the 1990s and also that researchers tend to define business models as they see it fit to their particular research. This has led to the term to develop in silos. Therefore, there are as many definitions as there are business models. (Zott et al., 2011.) Generally, a business model describes how a firm generates and delivers value to its customers and further, the systems how the company captures a part of that value (Teece, 2010; 2018). In short, business models are descriptions of how customers are served and how profit is made and, thus, can be de- scribed as the DNA of a company (Chesbrough and Rosenbloom, 2002). Several research have compared the definitions of business models and although they are not unanimous, a certain pattern can be recognized. For example, as Zott et al. (2011) demonstrate in their findings, the definitions of business models can vary in terms of conceptualization (e.g. business models as archetypes, activity systems, or cost or revenue architecture) but ultimately they all aim to explain how business is conducted. Especially in literature regarding business models as cost or revenue architectures, the modularity of business models has been noted. This modularity can be explained as if the entity of the business model is comprised of different categories or components. (Dubosson-Torbay, Osterwalder, & Pigneur, 2002.) These components can be further combined into modules. For example, Schön (2012) notes that in a business model the identification of cost and revenue models, and value proposition is key. In a similar man- ner, Osterwalder and Pigneur (2010) recognize nine business model components. Similarly, as a business model must be aligned with strategy, it must also be aligned with internal operations, resources, capabilities and structures. If the business model and in- ternal elements are not coordinated the company cannot deliver the planned customer 35 value. (Ritter, 2014; Birkinshaw & Ansari, 2015 cited Teece, 2018). Incremental transi- tions in business models are easier to implement than radical ones since only a small portion of the organization or process requires revamping. Small changes to the business model rarely yield in superior competitive advantage or disruptive changes in the envi- ronment, however, they do have a positive effect on enhancing value capture. More sig- nificant changes to the business model require considerable tangible and intangible re- sources and their alignment. Thus, for example, traditional taxi companies are not fol- lowing the business models of ride-sharing companies, such as Uber because they pos- sess an entirely different resource base. (Teece, 2018). Therefore, it can be concluded that internal alignment is vital in achieving a profitable business model. Similarly, resources alone are not enough to achieve profitability and growth as they must be aligned and converted into a sufficient strategy and business models. The fun- damentals of this lie in the RBV and dynamic capability approaches. Therefore, a crucial factor when implementing business models is to align it with customer needs to gain a continuous stream of profits. A successful business model is also scalable. Thus, it is crit- ical to decide which customer segments to pursue first as the initial segments partly de- termine further scalability. In business model design, companies should also take into consideration how the business model differentiates them from competitors on the mar- ket. Whether differentiation is necessary or not depends on the company’s strategy. When a company harnesses its resources to comply with its strategy and develops a business model that aligns with customer needs, determines customer segments, and pays attention to scalability and differentiation it can create competitive advantage. (Teece, 2018.) It is important to note that competitors might eventually try to copy the business model. However, Teece (2010) implies that depending on the business model, competitors might lack the capabilities to fully implement it or they might be too late to the market to do it. For example, platform business models can be characterized as winner-takes-it- all because often the first mover creates an established customer base that is difficult to 36 later interfere with. Platform industries have gained an increased share in current econ- omies as the business model often does not require traditional tangible assets. Platform- based business models are more prone to enable rapid entry into new markets rather than focus on expansion existing ones. (Teece, 2010.) These aspects might partially ex- plain why these types of business models are increasingly common amongst start-up companies. Developing a functioning and profitable business model is crucial, however, as the envi- ronment changes, the need for business model innovation arises (Teece, 2010; 2018). Business model innovation is processes or actions that revamp extant business model components and generate a new or an evolved business model (Geissdoerfer, Vladimirova & Evans, 2018). Business model innovation has been researched from many different angles, such as innovation sources and barriers (Chesbrough 2003; 2010), value innovation (Kim & Mauborgne, 1997), and organizational transformation (Johnson et al., 2008). The understanding of the fundamental concepts can aid in the process of business model conversion. Geissdoerfer et al. (2018) demonstrate in their collective study that a significant number of scholars describe business model innovation as an organization’s reaction to oppor- tunities or threats, and more specifically how they create diversification and innovation by reconfiguring business model components. Some studies, such as Teece (2018) em- phasize the importance of dynamic aspects and argue that even incremental changes to the business components characterize as business model innovation. However, Geissdo- erfer et al. (2018) conclude that there is no consensus on what specific phenomenon should be categorized as specifically business model innovation. According to extant literature, business model innovation can emerge in various forms depending on the circumstances and, therefore, it acts as an umbrella term for various types of development scenarios. For example, according to Geissdoerfer et al. (2018), the initial form of business model innovation is categorized as the ‘start-up’ phase where 37 an entirely new business model is designed. When it comes to business model transfor- mation, the existing business model is altered into a different business model. Lastly, business model innovation can appear as diversification and in this scenario a parallel business model is developed to operate alongside an existing one. Similarly, a company can also acquire a new business model instead of developing it itself. (Geissdoerfer et al., 2018.) The different kinds of business model innovation are presented in Figure 8. Regardless of the form of innovation, the changes to a business model must be justified. When innovating new business models, companies must take into consideration the risk of cannibalizing their business, turning core capabilities obsolete, as well as opportunity and transaction costs (Leonard-Barton, 1992; Christensen, 1997; Chesbrough, 2010). Re- sistance of the employees towards change is a constrain for business model innovation and, therefore, must be realized early on in the process in order to be avoided. In addi- tion, the company’s own reluctance towards change should be also addressed since it can act as a major hindrance in the process. (Teece, 2010; Zott et al., 2011.) Business models are a set of processes and incentives which must be aligned with different tech- nologies. Thus, thorough understanding of both processes and technology is required, otherwise the designing of the proper organizational structures and business models can be impeded. (Teece, 2007.) It can be started as a conclusion that business model inno- vation is a set of integrative processes. Business model innovation Business model acquisition Business model diversification Business model transformationStrat-up Figure 8. Categories of business model innovation (Geissdoerfer et al. 2018). 38 2.2.1 Business model innovation in start-up companies Due to increased rivalry, similarly to more established companies, start-ups are also forced to focus increasingly on business model innovation. Especially in highly dynamic environments, opportunities tend to pass by faster and start-ups must be constantly in the lookout for new innovations to discover and capture these opportunities. (Teece, 2018.) Shane and Venkataram (2000) argue that this ability to timely identify and exploit opportunities is crucial to the survival of small companies and is a key element in entre- preneurship. Thus, it is vital that a start-up’s business model is designed to exploit the company’s capabilities to leverage the full potential of adaptability. Despite that start-ups tend to have limited resources and experience, they do have fa- vorable qualities that can facilitate innovation, such as flexibility and low hierarchy. How- ever, partially due to these qualities, start-ups heavily rely on trial and error in their strat- egy instead of traditional strategizing. (Schramm, 2018.) Therefore, start-up companies can be characterized to operate in continuous change and the planning of a business model can turn out to be a difficult task. Amit and Zott (2001; 2010) note that start-ups in their early stages can benefit from designing their initial business model as it can help to pin point the company’s boundaries and characteristics and, thus, facilitate the clari- fication of the start-up’s value creating potential and monetizing logic. A successful busi- ness model is also scalable which is why it plays an important role for start-ups through- out their whole life cycle (Schramm, 2018). However, as start-ups are prone to frequent change and learning through trial and error, the initial business model is rarely the most suitable or profitable one which, in turn, leads to the need to continuously reinvent it (Teece, 2010). Research indicates that continuous improvements to the business model enhance adap- tation to the changing environment and demand which is crucial in terms of maintaining competitive advantage (Teece, 2010). Therefore, business model innovation can be stated to be vital in regards of renewing and transforming business (Zott et al. 2011) also in start-up companies. In addition to competitive advantage, well-timed and progressive 39 adjustments to the business model enable start-ups to maintain their continuous oper- ations which, in turn, enhances the flexibility of the business which yields in further ad- vantages. As companies gradually increase their capacity to generate, capture and trans- fer value through their reinvented, efficient processes, they simultaneously increase rev- enues. (Teece, 2010.) Similarly as Schramm (2018) proposes in the context of strategy, experimentation is ar- gued to be beneficial in the adaptation of start-up business model innovation as well (Brown & Gioia, 2002; Shirky 2008). Experimentation is noted to facilitate the innovation process of the business model as companies can test different options. Similarly, McGrath (2010) suggests a discovery approach where start-ups try multiple business models simultaneously and, thus, innovate their existing business model. According to this approach, start-up companies can effectively scan and discover new opportunities and processes to adapt to their business model (McGrath, 2010; Clausen & Rasmussen 2012). Bocken (2015) also shows support for this approach and suggests that start-ups should regard business model innovation as a facilitator of successful business. Thus, it can be concluded that business model innovation is critical for start-up companies in a sense that by continuously adapting to environmental changes and exploiting opportu- nities start-ups can enhance competitive advantage and flexibility and, thus, perfor- mance. 2.2.2 Tools for business model innovation The most successful business models rarely appear by themselves but rather are a result of continuous adjustments or occasionally even complete reconstructions. These trans- formative actions are often easier to carry out for start-ups than more mature companies because start-ups have less established assets and processes to revamp. (Teece, 2018.) There are various tools and concepts how a successful business model can be composed and further developed. These tools are there to support decision making and facilitate the comparison of different business models. 40 A useful concept for business model innovation could be to explore business model pat- terns which in its essence is learning from reoccurring phenomena that has been de- monstrably favorable in the past (Amshoff, Dülme, Echterfeld & Gausemeier, 2015). Busi- ness model patterns can be generally depicted as successful business models or their components that can be applied to other companies (Osterwalder and Pigneur 2010; Gassmann, Frankenberger & Csik 2014; Amshoff et al. 2015). In other words, different business models can be examined and based on their characteristics categorized as a specific pattern. Further, the pros and cons of different business model patterns can be compared and determined whether the pattern is sufficient. A few well-known business model patterns are, e.g. the add-on model used by Ryanair, the subscription model used by Spotify and the freemium model adapted by LinkedIn. It is proposed that business model patterns could decrease the complexity when it comes to characterizing business models. (Weking, Hein, Böhm & Krcmar, 2018.) However, some complexity arises from the fact that there are a myriad of business model patterns and characterizations related to them as, e.g. Osterwalder and Pigneur (2010) recognize five business model patterns and Gassmann et al. (2014) identify 55 in their research. Nevertheless, start-ups can ben- efit from exploring their possibilities (McGrath, 2010; Clausen & Rasmussen 2012). Osterwalder and Pigneur (2010) define nine universal building blocks as the foundation for business models. In their study, they apply these elements into a framework, most well known as the “Business Model Canvas”. The value proposition is in the center of the framework representing products or services that the company offers to its customers as value. The surrounding building blocks are related to the infrastructure which consists of key partners, activities, and resources. The other side of the surroundings are related to customers (i.e., key customer segments, relationships, and channels), and finally the financial factors, such as cost structure and revenue systems. These are aspects that sup- port the creation, delivery, and capture of value, i.e., support the realization of the value proposition. This can be accomplished by meeting the needs of customer segments and delivering value through correct customer relationships and (distribution) channels. 41 Such value can be created with key partners, resources, and activities. To be able to cap- ture the created value, companies must pay attention to the revenue streams to monitor how the targeted customer segments produce revenues, meanwhile acknowledging the relation of fixed and variable costs. (Osterwalder & Pigneur, 2010). The business model canvas is illustrated in Figure 9. There are various extensions of the original canvas, such as the triple layered business model canvas (Joyce & Paquin, 2016) and the lean canvas (Maurya, 2012). Literature on start-up business model innovation pronouncedly points in the direction of the “lean start-up” concept by Ries (2011). This concept is especially applicable to start- ups that have agile business models where it is easy to quickly test, replace or discard ideas that do not work. Therefore, this approach has spread widely amongst especially Silicon Valley start-ups as software-intensive business models are quite “light” in a sense that much software can be repurposed and feedback can be gathered fast. In the lean business model canvas the outline of the framework remains similar to the original by Osterwalder and Pigneur (2010) but some of the blocks are replaced with more agile versions to facilitate the testing of the framework (Maurya, 2012). Key partners is re- Key Partners Key Activities Key Resources Value Proposition Customer Relationships Channels Customer Segments Revenue Streams Cost Structure Figure 9. The nine constructing elements of the Business Model Canvas (Osterwalder & Pigneur, 2010). 42 placed with ‘problem’ and key activities with ‘solution’. Key resources become ‘key met- rics’ and customer relationships turn into ‘unfair advantage’. However, the logic is the same as with Osterwalder and Pigneur’s (2010) model as the value proposition remains in the middle, representing the heart of the business model. Although the lean canvas can be a useful tool for specifically start-up business model innovation, it has its limitations. The lean start-up approach is more useful the less phys- ical the product is. (Armstrong, 2017.) For example, the development of a physical pro- totype can take several years depending on technology and purpose. In addition, even though a start-up company structure might flexible and agile, not all start-ups operate in an agile environment where feedback can be received quickly to facilitate the trial and error process of business model innovation. Thus, the Business Model Canvas (Osterwal- der & Pigneur, 2010) is a more universal model that can be applied by start-ups as well. Companies are required to make uncertain decisions regarding the nature of costs, and the behavior of customers and competitors. Thus, the validation of a business model is a set of effort, informed guesses and judgement. It is not only comprehending the un- derlying choices to be made but also gathering evidence to support assumptions and speculations about the business environment. (Teece, 2007.) These same fundamentals apply to all types of companies as it is the nature of business to make strategic decisions and align resources. To conclude, no correct universal business model design exists. The choosing and developing of business models requires dynamic capabilities to be har- nessed. 2.3 Synthesis – the role of dynamic capabilities in business model inno- vation The literature review discussed research regarding dynamic capabilities and business model innovation. The main discoveries in both literatures were that the concepts are rather new and, thus, although the research is rich it is inconsistent as there are a myriad of different definitions and conceptualizations. This section combines these two areas of 43 research and introduces a framework through which critical dynamic capability practices that enable business model innovation can be studied. Dynamic capabilities are facilitators of adaptation and change in order to cope with en- vironmental shifts. This concept was presented first in the literature review to gain un- derstanding of the underlying microfoundations and processes of how companies react to change. Teece’s (2007) tri-fold conceptualization of sensing seizing and reconfiguring was adopted for the purposes of the thesis. In this framework, sensing is related to iden- tifying opportunities and gathering knowledge to be further implemented (seized). Busi- ness models are an important aspect in the seizing process as learned new things or sensed opportunities are implemented to the company’s operations. Reconfiguring ca- pabilities come into play when the company’s resources and capabilities must be rea- ligned to serve the organization in a different way. (Teece, 2007; Eriksson, 2014.) Research indicates that business success is determined just as much by organizational innovation, e.g., business model designs, as it does by product or service innovation (Chesbrough, 2007). Business model innovation is processes or actions that revamp ex- isting business model components and generate a new or an evolved business model (Geissdoerfer et al., 2018). In practice this means transforming the capabilities and re- sources of the company to achieve decrease in costs, increase in revenues, or delivering new customer value proposition. These actions enhance the sustaining of competitive advantage. (Teece, 2010; Čirjevskis, 2019.) Determined by the circumstances, business model innovation can have many forms, such as the invention of a completely new busi- ness model or variations of transformation of an existing model (Geissdoerfer et al., 2018). In addition to making strategic decisions regarding investments, companies must also choose and create the right business model that defines their commercialization strategy (Teece, 2010). Therefore, business model innovation can be stated to be a cru- cial factor in terms of company performance. 44 Combining dynamic capabilities with the concept of business model innovation is chal- lenging as both topics are quite wide. However, they seem to be rather complementary. Business model innovation is closely related to dynamic capabilities as these capabilities to change and adapt enable innovation (Teece, 2018). Dynamic capabilities are also the essence of implementing new ideas to the business model as they enable changes to, for example key activities and resources to reduce costs, increase revenue streams and deliver a superior customer value proposition. According to Čirjevskis (2019) the building blocks of business models are relevant in all three sets of dynamic capabilities. Sensing capabilities could be argued to contribute to the selection of key activities and customer segments and seizing capabilities aid in implementing distinct sets of resources and ca- pabilities to achieve the desired change in building block within the business model. Lastly, reconfiguring capabilities support the transformation process by aligning relevant resources, processes, and capabilities. Through these transformation processes, the company can achieve a new cost or revenue structure, or perhaps a new customer value proposition through which it can preserve competitive advantage. (Čirjevskis, 2019.) It can be concluded that it is inevitable to combine the two research areas to gain a com- prehensive outlook of coping with environmental change and how it affects companies and, respectively, how companies generate this change to the market to tackle compe- tition. The two concepts are complementary in the sense that business model innovation could be regarded as a result of dynamic capability practices. The activities that enable business model innovation and implementation can be studied through the model pre- sented in Figure 10. This model was developed based on aspects of the research and framework considering microfoundations introduced by Teece (2007) and the frame- work of the Business Model Canvas (Osterwalder & Pigneur, 2010). The contexts of sens- ing, seizing, and reconfiguring capabilities are combined with key aspects from the Busi- ness Model Canvas. Modifications to both frameworks are made in order to ensure ap- plicability to the start-up context. Thus, the empirical model takes a three by three matrix form. 45 Dynamic capabilities Value proposition Customers & Key partners SENSING SEIZING Internal routines RECONFIGURING Business model innovation Figure 10. A model for studying and analyzing dynamic capability practices that enable business model innovation. 46 3 Methodology This chapter introduces the methodological choices used to provide answers to the re- search question and objectives. The strategy and method of the research are described alongside with the case selection and data collection processes. The means by which the data is analyzed is explained and, finally the validity and reliability aspects of the thesis are discussed. 3.1 Research approach and strategy The research was conducted as an exploratory multiple case study. A case study is a com- monly used strategy in business research as it is a sufficient means to assess complicated social phenomena (Yin, 2018.). Case studies shed light on real-world events and try to understand different aspects of situations by exploring the former or current matters and their effects (Eisenhardt, 1989; Yin, 2018: 4–5). Further, Yin (2018: 13) argues that case studies are especially suitable in circumstances where the research focuses on “a contemporary set of events, over which the investigator has little or no control”. Thus, it can be concluded that case studies help in understanding contemporary situations and issues and why they exist. Research can be exploratory, explanatory, or descriptive and the case study research ap- proach is applicable to any of them (Yin, 2018: 8). This thesis’ research is explorative as it examines start-up companies and their different dynamic capabilities that influence business model innovation. It also aims to identify distinct dynamic capability practices and processes that enable this innovation. Exploratory case studies are a great means to interpret phenomena and issues as it is its purpose to find out what is happening and to assess issues from different angles (Saunders, Lewis & Thornhill, 2007: 133). As the liter- ature start-up dynamic capabilities and business model innovation is scarce there is no clear-cut insight on the phenomena. Therefore, an exploratory research approach was applied. 47 Case studies are empirical inquiries that investigate contemporary and complex phe- nomena in-depth, meanwhile considering real-world and specific contexts. Thus, the re- sults of case studies cannot be generalized. This has been noted as one of the main weak- nesses of this research strategy. (Yin, 2018: 15, 18-19.) However, case studies are great for examining complex phenomena and in-depth studies as the research can be modified according to the circumstances (Farquhar, 2012: 38). Case studies can be conducted in various ways, such as single case studies, multiple case studies, or embedded case stud- ies (Yin, 2018: 24). This research was conducted as a multiple case study which implies that the study consists of more than one case. This allows the examination of each case individually and simultaneously, the comparison of the cases. As there are multiple cases, the results of the study can be better generalized. Through disclosing the most crucial dynamic capability practices in the most successful cases, start-ups can identify what practices enable their business model innovation process. 3.2 Research method A research method is selected based on what kind of data is required in order to be able to answer the research question. There are three different commonly used research methods for data collection and analysis which are quantitative, qualitative, or a mix of both methods (Williams, 2007; Yin, 2018). Quantitative research generates or uses nu- merical data while qualitative research operates through non-numerical data, such as text, videos, and pictures (Williams, 2007; Saunders et al., 2007: 145). This research was conducted using qualitative research methods. Williams (2007) notes that a key charac- teristics of qualitative research is that it takes into consideration social phenomena. Qualitative research data is often categorized as primary and secondary data. Primary data is information gathered by the researcher, e.g. from interviews or observations whereas secondary data is already existing data such as, annual reports, for instance. (Saunders et al., 2007: 354.) For this research, one-to-one semi-structured interviews were chosen as the source for primary data collection. A semi-structured interview has pre-planned questions and themes that the interview shall cover. Thus, it is ensured that 48 all relevant information is gathered for the research during the interview. Compared to structured interviews, semi-structured interviews allow extra questions and more in depth discussions hence, the interviewer can adjust the questions to the situation. (Saunders et al., 2007: 312; Eriksson & Kovalainen 2016: 94– 95.) 3.3 Case selection process The cases for this research were selected based on various criteria. As this study aims to examine dynamic capabilities that enable business model innovation in the whole start- up organization, the first case company criteria was that there are multiple people in- volved in the start-up. Correspondingly, the cases were selected to be Finnish start-up companies with similar ages and funding stages. The seed funding stage was selected as it indicates a younger start-up age and, thus, perhaps less established processes. In ad- dition, all of the case companies operate in the technology industry which is typical for start-up companies. These were the criteria selected in order for the cases to be compa- rable. However, to maximize generalizability, the case companies have different product or ser- vice offerings and, thus, cater to different industries. This aids in examining whether a dynamic or non-dynamic operating industry effects dynamic capabilities and if customer offerings interfere with the innovation process. Overall, the aim was to select successful start-up companies from the technology industry and to study them both individually and through cross-case analysis. The case companies wish to remain anonymous. Thus, four cases were selected for this study: Company A, B, C, and D. The case companies ages vary between 3 and 4 years. 3.4 Data collection As above mentioned, the primary data was collected by using semi-structured interviews. There were 8 interviews in total conducted by interviewing two representatives form four companies. All of the interviewees were either founding members of the start-up 49 or represented titles, such as CEO, COO, and CTO. By interviewing such representatives, it ensured that the interviewees had a great overall picture of the company and, thus, were able to answer comprehensively. Some of the interviews were carried out face-to- face but the majority of them were held as remote interviews. The topic of the thesis was explained to the interviewees beforehand alongside with some of the terminology and structure of the interview. The length of the interviews varied between 30-75 minutes and an average interview lasted around 48 minutes. The interviews were held in Finnish as it was the native language of the interviewees. The interviews were rec- orded and transcribed to ensure that all gathered information would be analyzed. The materials were later translated to English by the author. More specific information of the interviews is presented in Table 3. Table 3. List of interviews. Interviewee Title Case Interview length Date 1 Founder/ COO Company A 35 min 18.5.2021 2 Founder/ CEO Company A 68 min 21.5.2021 3 Development di- rector Company