Research Policy 43 (2014) 1025–1038

Contents lists available at ScienceDirect

Research Policy
journal homepage: www.elsevier.com/locate/respol

How do business model and health technology design influence each

other? Insights from a longitudinal case study of three academic
spin-offs
P. Lehoux a,∗ , G. Daudelin b , B. Williams-Jones c , J.-L. Denis d , C. Longo e,f
a
Department of Health Administration, University of Montreal, Institute of Public Health Research of University of Montreal (IRSPUM), Canada Research
Chair on Health Innovations, P.O. Box 6128, Branch Centre-ville, Montreal, Quebec H3C 3J7, Canada
b
IRSPUM, University of Montreal, Canada
c
Bioethics Program, Department of Social and Preventive Medicine, IRSPUM, University of Montreal, Canada
d
École Nationale d’administration publique (ENAP), Canada Research Chair on Health Care Governance and Transformation, Euromed Management,
Marseille, France
e
Strategic Market Leadership and Health Services Management, DeGroote School of Business, Canada
f
Centre for Health Economics and Policy Analysis, McMaster University, Canada

a r t i c l e i n f o a b s t r a c t

Article history: Academic spin-offs often lack business expertise, face uncertainties regarding their innovation and their
Received 13 February 2012 markets, and do not have a clear idea of how their product will create value. In spite of this vagueness,
Received in revised form 31 January 2014 academic entrepreneurs must articulate a business model and rapidly establish trustworthy relation-
Accepted 1 February 2014
ships with potential users, purchasers and capital investors. One may thus wonder how their technology
Available online 25 February 2014
development process is influenced by the long-term expectations of their putative customers as well as
the short-term requirements of capital investors? This longitudinal case study examines how the busi-
Keywords:
ness models of three Canadian health technology spin-offs sought to address the value expectations of
Business model
Innovation management
clinical users and capital investors, how tensions were resolved, and the impact this had on technology
Academic spin-offs design. We describe the synergistic readjustments, drastic reconfiguration and mismatch between busi-
Medical devices ness model and technology design we observed. Our discussion highlights the mediating mechanisms
R&D by which business models and technology design influence each other, clarifying why the initial value
proposition of the spin-offs was either refined or reframed. Beyond confirming the importance of differ-
entiating business models in the health technology industry, our study suggests that it is not only who
makes decision that matters, but also how stakeholders’ value expectations get embedded in a spin-off’s
value proposition.
© 2014 Elsevier B.V. All rights reserved.

1. Introduction life sciences (Niosi, 2006). Nevertheless, the ability of academic

Most industrialized countries actively support the development
of health innovations, ranging from medical devices to biotech-
nologies (Niosi, 2006). Many of the policy instruments deployed
are targeted at building research capacity in niches seen as likely to
yield radical innovation (e.g., pharmacogenomics, cancer vaccines,
tissue engineering), at facilitating industry–university collabora-
tion and at encouraging academic entrepreneurship (Grimaldi et al.,
2011). As a result, nearly half of all spin-offs, patents and licenses
of American and Canadian universities by early 2000 were in the
∗ Corresponding author. Tel.: +1 514 343 7978; fax: +1 514 343 2448.
E-mail addresses: pascale.lehoux@umontreal.ca (P. Lehoux),
genevieve.daudelin@umontreal.ca (G. Daudelin), bryn.williams-jones@umontreal.ca
(B. Williams-Jones), Jean-Louis.Denis@enap.ca (J.-L. Denis), clongo@mcmaster.ca
(C. Longo).
spin-offs to successfully pass the “threshold of sustainability” is
uneven (Vohora et al., 2004), as they remain highly dependent
upon venture capitalists who tend to foster short-term financial
growth (Ackerly et al., 2008; Lazonick and Tulum, 2011; Petkova
et al., 2012).
While a business model represents an important strategic
choice that can enable an emerging spin-off to position itself
within an industry (Willemstein et al., 2007), “there is little
empirical evidence” that might help academic entrepreneurs
know which business model to adopt (Pries and Guild, 2011, p.
151). Furthermore, while innovation scholars have examined the
types of business model that are found within the health sector
(Mangematin et al., 2003; Pries and Guild, 2011; Willemstein et al.,
2007), very few studies have clarified the relationships between
business models and technological innovation (Chesbrough
and Rosenbloom, 2002; Teece, 2009). These relationships are

0048-7333/$ – see front matter © 2014 Elsevier B.V. All rights reserved.
http://dx.doi.org/10.1016/j.respol.2014.02.001
1026 P. Lehoux et al. / Research Policy 43 (2014) 1025–1038
particularly important considering that academic entrepreneurs
must define how the value proposition of a new health technology
should respond to the expectations of: (1) customers to whom
value is offered (e.g., physicians, nurses, patients, third-party
payers); and (2) capital investors and shareholders for whom value
is captured (Baden-Fuller and Morgan, 2010).
In this paper, we explore the way business models influence and
are influenced by health technology development by presenting
the findings of a longitudinal multiple case study. Our fieldwork
involved the gathering of multiple data sources that enabled exam-
ining three Canadian spin-offs that developed, respectively: (1)
a heart ablation catheter; (2) a labor decision support software;
and (3) a chronic disease home monitoring system. We ana-
lyze how the managers of these three spin-offs articulated their
evolving business models, sought to respond to certain stakehol-
ders’ value expectations, and how these concerns were translated
into product design priorities. Our goal is to provide theoreti-
cally informed empirical insights (Gibbert and Ruigrok, 2010) that
may help consolidate current knowledge on the interplay between
technology and business model innovation, a stream of literature
that has increasingly attracted scholarly interest in the past years
(Schneider and Spieth, 2013).1
Our study also brings an original empirical contribution to
research on “hard” health technologies, or so-called medical
devices (i.e., surgical equipment, imaging devices). The currently
available body of evidence is in fact mostly focused on biotech-
nologies, e.g., the use of biological systems and living organisms
in agriculture and food or drug production. While such research
is informative, its observations are not straightforwardly applica-
ble to the health technology sector for at least two reasons. First,
the knowledge and know-how required to develop health tech-
nology (Metcalfe et al., 2005) differs greatly from the laboratory
sciences underlying biotechnologies. Second, the health technology
industry differs from the pharmaceutical industry where busi-
ness models are rather well established and enable productive
alliances with biotech spin-offs (Baum et al., 2000; Rothaermel
and Deeds, 2004; Willemstein et al., 2007). A closer examination
of health technology ventures is of practical relevance considering
the dramatic increases in venture capital investments in this sec-
tor, reaching US$4.1 billion in 2007 (Ackerly et al., 2008). Innovation
policy research can thus benefit from a better understanding of the
interplay between business models and technology development
(Petkova et al., 2012).
2. Business and technology design challenges facing
academic spin-offs
2.1. Background
Academics in the health sector are increasingly expected to
embark on research programs that have commercial value and
can lead to the creation of spin-offs (Grimaldi et al., 2011). Yet,
academic spin-offs often lack business expertise, face significant
uncertainties regarding their innovation and their markets, and
do not have a clear idea of how their product will create value
(Doganova and Eyquem-Renault, 2009). In spite of this initial
vagueness, these organizations must rapidly establish trustworthy
relationships with prospective users and purchasers, as well as
with capital investors who may not always be fully cognizant of the
1
In their systematic review summarizing 35 peer-reviewed publications on busi-
ness model innovation published between 1981 and 2012, Schneider and Spieth
(2013, p. 25) observe: “despite its evidently early stage of research and vague under-
standing of the phenomenon, a strong interest in the topic is indicated by the fast
rising number of publications within the last two years.”
commercialization challenges of non-drug health technologies
(Ackerly et al., 2008). As a result, very early on in their existence,
academic spin-offs stand at the confluence of significant but often
ill-defined challenges that affect both their business and the devel-
opment of their innovation (Farley and Rouse, 2000; Niosi, 2006).
When Research & Development (R&D) efforts are channeled
through a small academic spin-off whose survival revolves around
the development of one core innovative technology, active efforts
must be made to manage the design process and to reduce the
uncertainty associated with the more experimental discovery end
of the R&D spectrum (Aspara, 2009; Bruce et al., 1999). By design
process we mean all the creative and analytical steps by which a
given idea is gradually fleshed out into a new product that can be
mass-produced and commercialized (Lehoux, 2006). These activ-
ities are goal-oriented and informed by various considerations –
such as user demand, production costs or competing technologies
– that affect which design priorities are to be pursued (Bruce et al.,
1999). As part of this process, a series of contingent, and consequen-
tial decisions are made, defining the purpose, shape and functions
of a technology.
Considering the significance of the R&D investments devoted
to technological innovation in health, understanding how design
priorities are set at an early stage is important, because if tech-
nology developers rely on incorrect or incomplete assumptions,
they may “unknowingly spend the rest of the project attempting
to identify and recover from these wrong assumptions” (Martin
et al., 2012, p. 185). It does in fact take many years to come up
with a fully designed health technology (Metcalfe et al., 2005) and
around 50% of medical device patents never end up in a commer-
cialized product (Mattes et al., 2006). The literature on business
models and technology design remains however scarce, a situation
that precludes scholars from formulating well-grounded hypothe-
ses regarding the nature of the relationships at play (Schneider and
Spieth, 2013). This is the research gap our study seeks to bridge.
So far, business models of biotech firms have been examined
as static constructs (Willemstein et al., 2007), using either pre-
defined categories or empirically derived types of business models
(Mangematin et al., 2003). Pries and Guild (2011) posited the
business model as a dependent variable, examining the impact
of technology characteristics (i.e., legal protection, commercial
uncertainty, technological dynamism) on whether commercial-
ization was enabled by: (a) creating a new firm; (b) transferring
the property rights; or (c) retaining ownership and transferring
limited rights. Willemstein and colleagues (2007) posited the busi-
ness model as a dynamic construct, looking at the shifts that
occur after foundation in the business model, here categorized as
service, platform, product, or “hybrids.” More recently, Sabatier
and colleagues (2012) examined how emerging business models
in bioinformatics (e.g., a sub-group of firms active in the biotech
industry) both evolved over time and posed particular challenges
to the established business models in the drug industry. They classi-
fied the emerging business models under the following categories:
platform technology, bundling, software as service, hybrid and col-
laborative discovery. Overall, these categories, be they empirically
or conceptually derived, pinpoint to the fact that new business
models can result from “hybridizations” between models (Baden-
Fuller and Morgan, 2010).
The above-mentioned studies not only emphasize the diversity
of business models in the health sector (Mangematin et al., 2003),
but they also beg the question of the relationship that business
models are supposed to entertain with technological innovation.
While Zott and colleagues (2011) suggest that business models
entail consequences for technological innovations and, in return,
may be shaped by them, Teece (2009) argues that technological
innovation could be “matched with” innovative business models.
Observing that only few empirical studies have been conducted,
 P. Lehoux et al. / Research Policy 43 (2014) 1025–1038 1027

Table 1
Definitions underlying our analytical framework and its operationalization.

Properties of the construct Operationalization

Business model
A business model is a “focusing device
that mediates between technology
development and economic value
creation” (Chesbrough and
Rosenbloom, 2002, p. 532) by
articulating:
• A latent value proposition and its
market segment
• A value chain for creating and
distributing the offering
• A revenue model
• A value network
A business model is prospective and
provisional
It is articulated by entrepreneurs to explain to
stakeholders the spin-off’s value creation logic
Factual information from the annual reports, press releases
and websites describing, over time:
• The value the innovation is supposed to bring to users and/or
purchasers
• The resources obtained (i.e., investments, staff recruitment,
acquisitions, infrastructure) by the spin-off to reach specific
R&D and business goals (i.e., IP protection, clinical trials,
regulatory approvals)
• Revenues if any and financial statements
• Partnerships established (e.g., with research sites, suppliers,
distributors, marketing channels)
Interviewees’ description of business challenges and
achievements

Technology design
The design process includes creative
and analytical steps by which a given
idea is gradually fleshed out into a
new product that can be mass
produced and commercialized
(Lehoux, 2006)
Design activities are goal-oriented and
readjusted over time
Design priorities are affected by the
expectations of capital investors and those of
putative users and purchasers, who may desire
different latent attributes
Factual information from the annual reports, press releases
and websites describing design activities and milestones (i.e.,
user feedback, prototyping, 1st use in humans, results of
clinical studies)
Interviewees’ description of design strategies, challenges and
achievements, including the features and functionalities that
have been prioritized

Stakeholder’s saliency
Salience is the degree to which
managers “who want to achieve
certain ends” give priority to
competing stakeholder claims
(Mitchell et al., 1997, p. 872)
Salience is affected by perceived: power,
legitimacy and urgency
The “signals” the spin-offs send to investors about value
creation through its press releases (i.e., endorsement by
clinical users and hospitals) and annual reports (i.e., “message
to shareholders”, financial priorities)
Interviewees’ description of how trade-offs between
technology design considerations (value offer) and capital
investors’ expectations (value capture) were negotiated

Schneider and Spieth (2013) propose that further research on busi-
ness model innovation be focused on: (1) its enablers; (2) its process
and elements; and (3) its effects. Such inquiry conducted at the
firm-level could help understand how new organizational forms
may facilitate the development of technology ventures. The semi-
nal empirical work of Chesbrough and Rosenbloom (2002) showed
that the ability of a (non-academic) technology start-up to suc-
ceed in designing and commercializing an innovative technology
is largely constrained by the established ways of doing business of
the parent firm. While academic spin-offs do not have to deal with
the legacy of a parent firm, thereby potentially enjoying at the firm-
level the flexibility needed to adopt an innovative business model,
their ability to do so could be affected by industry-level dynamics.
Sabatier and colleagues (2012, p. 955) found concrete examples of
disruptive business models in the biotech sector that build on tech-
nological discontinuities and “change the ‘old’ ways in which value
has been created and captured” along the value chain in the drug
industry. Yet, such business model innovation may take time as a
number of interacting factors come into play:
the disruptive nature of new technologies does not automati-
cally change an industry’s dominant logic – the challenge comes
later, when business models evolve and when small firms can
ally with other actors, either new or already existing, that pro-
mote a different set of complementary assets (Sabatier et al.,
2012, p. 957).
In other words, while entrepreneurs must flesh out a business
model in order to develop and bring to market a new technology,
the novelty of the technology itself may not automatically call
for the development of an innovative business model, e.g., act as
an enabler. Other actors and industry-level processes are likely
to be involved in business model innovation. Hence, to help fill
the research gap on business model and technological innovation,
our paper will tap into one of the key assets of a multiple case
study (Gibbert and Ruigrok, 2010), that is, the ability to flesh
out theoretically informed empirical observations that can shed
light on the context in which technology design and business
model development processes unfold. As Ferlie and colleagues
(2005) underscore, such process-oriented research is suited to the
dynamic study of organizational actions that unfold over time.
It involves “constructing a story” through multiple data sources
so as to develop an in-depth narrative that can generate “con-
cepts, understanding, and theory closely linked to data” (p. 119).
More specifically, our research draws on constructivist studies of
technology development, which, as underscored by Leonardi and
Barley (2010, p. 39), pay attention to the way “technologies emerge
out of ongoing negotiations and conflicts between groups with
competing interests and visions of what the technology should do.”
Accordingly, three constructs informed our study – technology
design, business model and stakeholder salience (see Table 1).
2.2. Business models, trade-offs underlying health technology
design and stakeholder salience
Despite conceptual nuances, Zott and colleagues (2011, p. 2)
suggest that four themes cut across current understandings of busi-
ness models: (1) they refer to a unit of analysis whose boundaries
are wider than those of the firm; (2) they “emphasize a system-
level, holistic approach to explaining how firms ‘do business”’; (3)
they articulate the activities of the firm with those of its partners;
and (4) they seek to explain both value creation and value capture,
e.g., how assets are protected and profits generated. The business
model construct does in fact enable the simultaneous consideration
of “all relevant internal and external factors” to the firm’s activities
(Schneider and Spieth, 2013, p. 4).
When it comes to academic spin-offs, business models are
necessarily both prospective and provisional since these organiza-
tions are created on the basis of a research-based idea that could
potentially be translated into a marketable product (Chesbrough
and Rosenbloom, 2002). These organizations are first and foremost
1028 P. Lehoux et al. / Research Policy 43 (2014) 1025–1038
engaged in R&D activities and revenues from sales are either
non-existent or limited, implying that their value creation and
value capture mechanisms are hypotheses that need to be fleshed
out and validated, but which allow entrepreneurs to shape and
refine their innovation (Doganova and Eyquem-Renault, 2009).
For Chesbrough and Rosenbloom (2002, p. 532), a business model
operates as a “focusing device that mediates between technology
development and economic value creation.” More specifically,
the development of a business model results from “sequential
adaptation to new information and possibilities” and articulates an
innovation’s value proposition and its market segment, the value
chain, the revenue model, the value network and the competitive
strategy (Chesbrough and Rosenbloom, 2002, p. 550).
The process begins with identifying a value proposition “latent”
in the new technology, acknowledging that different prospective
customers may desire different latent attributes. The ways in which
certain R&D and design milestones are achieved over time enable
entrepreneurs to validate the putative value proposition of the
innovation, that is “the value created for users by the offering
based on the technology” (Chesbrough and Rosenbloom, 2002,
p. 533). Defining to which market segment a given health tech-
nology will offer value has many implications (Eyquem-Renault,
2011). Patients and their relatives, physicians, nurses, health care
managers, governments, employers and third-party payers are all,
ultimately, concerned by the value of health innovations (Hwang
and Chrsitensen, 2008). But within and across these categories,
stakeholders vary in the type or quantity of value that they attach
to the characteristics of a given technology. There are in fact mul-
tiple categories of customers who accrue different types of benefit
(e.g., recovery for patients, revenues for physicians, a healthy work-
force for employers) and who may be unevenly willing to pay
for such benefits. Thus, when entrepreneurs are fleshing out the
value offer of their innovation, they can, in principle, exploit a large
spectrum of latent attributes but such design decisions neverthe-
less require attending to the various and sometimes conflicting
expectations of users, purchasers and regulators. Managing the
value chain for creating and distributing the offering involves trade-
offs, some of which may pit the interests of different stakeholders
against each other (Dew and Sarasvathy, 2007). For instance, reg-
ulators such as the United States Food and Drug Administration
(FDA), Health Canada or the Conformité Européenne Marking value
safety more than affordability. Third-party payers, such as public
health care authorities or private health insurers value cost-savings
more than rapid access to an innovation (Lehoux, 2006). Establish-
ing technology design priorities thus implies choosing which types
of expectations will be fulfilled. Those who design health innova-
tion have to negotiate such tensions while finding ways to access
the market without undue delay in order to prove to investors that
their projected revenue model is sound (Doganova and Eyquem-
Renault, 2009). Finally, a spin-off must also position itself within a
value network by actively managing its relationships with suppliers,
distribution channels and competitors (McGrath, 2010).
One may thus wonder how health technology spin-offs man-
age to address the long-term expectations of their putative
customers while also meeting the short-term requirements of
capital investors? We posit that the relative importance of these
groups likely differs during the development process. Mitchell
and colleagues argue that “managers who want to achieve cer-
tain ends pay particular kinds of attention to various classes of
stakeholders” and their “perceptions dictate stakeholder salience”
(1997, p. 872). In other words, “who and what really counts” is
something that analysts cannot define a priori; the judgment of
spin-off managers about whether and which action is required
will be informed by the requirements of the technical and/or eco-
nomic challenges they face. Stakeholder salience is affected by the
possession, or the attributed possession, of: power, legitimacy and
urgency. More specifically, “power gains authority through legiti-
macy, and it gains exercise through urgency” (Mitchell et al., 1997,
p. 869). Hence, of particular interest to research on the relation-
ships between business model and technological innovation are
the ways in which academic entrepreneurs frame the respective
salience of capital investors for whom value capture matters, and
customers to whom value is offered. In focusing on how academic
entrepreneurs respond to the varying expectations of stakeholders,
our framework thus highlights the processes by which a business
model mediates, over time, technology development and value cre-
ation activities (see Table 1).
3. Methods
3.1. Our fieldwork and the selection of the cases
Our fieldwork began in 2008 and entailed a preliminary investi-
gation of key informants, relevant policy documents and websites
describing the Canadian health innovation industry. This led us to
purposefully select cases whose “information content” was likely
to be rich and accessible (Eisenhardt, 1989; Flyvbjerg, 2011). By
choosing Montreal-based spin-offs that had started their R&D oper-
ations at the same period (mid 1990s) and whose core products
were in the early stage of commercialization when our study began,
we included cases that evolved within a similar policy context and
economic climate.2 Canadian health technology firms are strongly
dependent on exports to North American and European markets
(Niosi, 2006) and must, therefore, be responsive to the commer-
cialization challenges of an international market.
The three spin-offs developed, respectively: (1) a line of cryoab-
lation catheters for the treatment of heart arrhythmia disorders;
(2) a decision-support software to monitor prolonged labor and
abnormal fetal heart rates and help detect birth-related injuries;
and (3) a home telehealth solution comprising remote patient
monitoring and a set of coordination tools to promote continu-
ity of care for chronically ill patients. These cases offer variations
along our analytical constructs (Flyvbjerg, 2011), a feature likely to
increase the theoretical relevance of our observations (Eisenhardt,
1989; Gibbert and Ruigrok, 2010). These spin-offs had all won
awards for entrepreneurship, but some elements of their business
models differed greatly (for instance, they established a different
scope of partnerships). From an innovation design standpoint, the
technologies these spin-offs developed perform different clinical
functions – therapeutic, decision-support and monitoring – and
are used, respectively in cardiology, obstetrics and chronic care. As
a result, design activities involved overcoming different technical
challenges and negotiating the expectations of different users.
3.2. Data collection and constructs upon which our analyses rely
We gathered multiple data sources, including exploratory inter-
views (n = 7) with CEOs and/or high level executives of five spin-offs
and with experts from technology transfer offices and regulatory
consultancies (n = 4). These interviews helped our team to get a
better sense of the financial, commercial and regulatory challenges
affecting technology development and to refine our data collec-
tion tools and strategies. We also conducted formal interviews
with capital investors (n = 6) and policymakers from both the health
and industry branches (n = 8). These interviews provided us with a
significant understanding of how external stakeholders interact
with health technology spin-offs.
2
The 2008 North American economic crisis affected these spin-offs: not long after
our study began, all three spin-offs were facing financial challenges and/or were in
the process of being sold to larger firms.
 P. Lehoux et al. / Research Policy 43 (2014) 1025–1038
Table 1 clarifies the information that was extracted for the pur-
poses of this paper from: (1) semi-structured interviews with key
informants of each spin-off (n = 9); (2) corporate websites (n = 3);
(3) annual reports (n = 12); (4) promotional documents (n = 23); and
(5) press releases (n = 328). Since all of the spin-offs were comprised
of less than 5 individuals when the company took off, we inter-
viewed the academic entrepreneurs who had been pivotal in its
creation and were part of the design team. Face-to-face interviews
of 90–120 min were conducted in the fall of 2009 and winter of
2010 (interview guide available upon request); all were recorded
and transcribed (transcriptions were sent to respondents for vali-
dation). The content of the spin-off websites was retrieved between
October and December 2008. All downloadable documents were
indexed and analyzed. Press releases and annual reports provided
not only a clear chronological portrait of the milestones achieved by
each spin-off, but also significant insights into the ways that each
spin-off “signaled” its stakeholders, particularly investors, share-
holders and clinicians.
Our analyses were supported by the QDA Miner data analysis
software (Rubin and Rubin, 1995). When coding the interviews,
we categorized the business and design challenges that the spin-
offs had faced, the ways in which putative user and/or purchaser
feedback was gathered (e.g., to validate the innovation’s value
proposition), how tensions with capital investors were resolved
(e.g., what trade-offs were at play), and the impact this had
on the innovation design (i.e., what features and functionalities
were prioritized). To reconstruct with as much accuracy as pos-
sible the processes that interviewees described, the interview
content was triangulated with the other data sources. From doc-
uments that covered on average a 15-year period, we extracted
factual information that described: the value proposition of the
innovation; the business goals and strategies of the spin-off; its
technology design activities and priorities; its financial, human and
material resources; and its partnerships (see Table 1). This infor-
mation was used to create detailed time-ordered matrixes, which
enable condensing a large amount of data3 (Miles and Huberman,
1994).
3
What made documents such as press releases and annual reports informative to
our study was the factual information they contained about our three constructs of
interest (business model, technology design and stakeholder’s saliency). As an exam-
ple, a press release announcing an appointment to the board of directors provided
many insights about the kind of expertise, experience and commercial contacts the
spin-off sought:
“Montreal, Quebec (April 29, 2004) – [name of company] (TSX: XXX), a health-
care information technology company, today announced the appointment of
Mr. YYY to its board of directors.
Mr. YYY, who resides in Los Angeles California, recently retired as President
of Medtronic MiniMed, a world leader in diabetes management systems. Mr.
YYY was instrumental in Medtronic’s US$3.4 billion acquisition of MiniMed Inc.
in 2001. Mr. YYY became President and Chief Operating Officer of MiniMed
Inc. in 1996. He also served in executive positions with Smith & Nephew plc., a
diversified healthcare product company, and Allergan Inc., a leading ophthalmic
device and pharmaceutical company. Mr. YYY currently serves as Chairman of
the Research Foundation of the American Diabetes Association. Mr. YYY also
serves on the boards of Amylin Pharmaceuticals Inc., Ocular Sciences Inc. and
Vasogen Inc.
“We are very pleased to have Mr. YYY as a member of the board of directors”,
said Mr. XXX, Chairman of the Board of [name of company]. “Mr. YYY’s hands-
on experience in the healthcare arena and public markets will be extremely
valuable to [name of company].”
In order to create a vacancy on the board of directors, the Company has accepted
the resignation of Mr. ZZZ. The Company takes this opportunity to express its
deep appreciation to Mr. ZZZ for his service as a director of [name of company].”
Our analyses thus implied extracting from each of the 328 press releases, 12 annual
reports and 23 promotional documents, the information relevant to our operational
definitions (Table 1) and condensing it in three case-specific time-ordered matrixes
(Miles and Huberman, 1994). Together, the three matrixes made up 34 pages and
supported the writing of our paper.
1029
Our preliminary analysis identified three key transition periods
that each spin-off went through, from inception: Transition 1 initial
innovative idea to spin-off creation; Transition 2 a first functional
technology to business development; and Transition 3 early com-
mercialization of the technology to acquisition by another firm.
These transitions unfolded along an iterative path, but, as observed
by Vohora and colleagues (2004), such transitions are “critical junc-
tures” in the early stages of a spin-off because prior to moving to the
next phase, one must first successfully fulfill certain requirements.
Then, by iteratively condensing the content of the time-ordered
matrixes (totaling 34 pages), we synthesized what was happening
during the three transitioning phases and why certain decisions
were made by each spin-off (intra-case analysis), and then identi-
fied similarities and differences across the three cases (inter-case
analysis). Applying a “constant comparative” method of analy-
sis (Gibbert and Ruigrok, 2010), our team actively searched for
evidence that would contradict our emerging analytical insights
(Ferlie et al., 2005). For instance, three members of our team
(PL, GD, MH) tested independently “what if” scenarios to increase
as much as possible the fit between our emerging observations
and the empirical material (i.e., what influence over technology
design could have been observed if spin-off A had applied the
business model of spin-off B?). In the next section, the transition
periods are used as empirical windows for zooming in on the subtle
linkages between business model, technology design and stakehol-
ders’ value expectations.
4. Results
4.1. Heart ablation catheter: when clinical and commercial
markets dovetail
The first case exemplifies dynamics wherein the business model
and the technology are co-developed synergistically because,
among other things, the technology opens up markets for both
clinicians paid on a fee-for-service basis and the spin-off. Fig. 1 sum-
marizes the key value creation and technology design activities for
each transitioning phase. The story begins when an American busi-
nessman approaches biomedical engineers, electrophysiologists
and cardiologists from a university cardiology institute in Montreal,
where exchange rate and fiscal incentives make R&D less costly.
The latent value proposition is to provide a surgical catheter that
can identify cardiac cells causing arrhythmia (e.g., cryomapping)
and destroy them by delivering extremely cold temperatures (e.g.,
cryotherapy). While a radiofrequency-based procedure that burns
cardiac tissue is on the market, the value that cryotherapy offers to
clinicians is that it could prove safer and reversible (e.g., heart tis-
sue can be “warmed up” again, recovering electrical conduction).
Since R&D starts from a not yet functional but already patented
prototype, the possibility to capture value is already established.
4.1.1. Transition 1
The first period is geared at addressing basic scientific questions:
is it possible to map accurately the cells that are causing arrhyth-
mia? Can extremely cold temperatures be delivered through the
end of a flexible catheter tip? On the premises of the cardiology
institute, a “techno-clinical” team performs animal studies and the
explicit goal is to build a solid, scientifically legitimate knowledge
basis regarding the feasibility and effects of cryotherapy, which
will then enable a move to human studies. Activities are funded
through a mix of private investments and peer-reviewed public
research grants. A preliminary business plan is drafted and revolves
around an intellectual property (IP) protection portfolio strategy.
Design priorities are mostly technical and two cycles from pro-
totype to near-to-final-product are performed. The biggest design
1030 P. Lehoux et al. / Research Policy 43 (2014) 1025–1038

Value creation Technology design Value creation Technology design Value creation Technology design

• Tap on a patented • R&D activities • Expansion in several • R&D activities focused • After market approval in • Incremental
prototype focused on animal clinical areas with on human studies Canada and the USA, improvements to
• Partnership with high- studies international clinical required for market downsizing of the “tool three key
level clinical • Two cycles of investigators (incl. approval in Europe box” approach products
investigators who prototype-product scientific marketing) • Incremental • User training and
build a legitimate development • Building in-house improvements to the first support, and scientific
knowledge basis leading to a manufacturing capacity products and marketing
• Capital investors perfectible • IPO and intense stock development of new • Intense stock exchange
push for product cryoablation exchange activity cardiac tools activity
release, then back-off catheter and • Acquisition of patents • Streamlining the spin-off
and support console
for complementary infrastructure and selling
additional R-D surgical devices a part of its assets
• Increased ability to • Capital investors and
capture value: IP shareholders “exit”
portfolio approach and
regulatory approvals for
several products
Transitioning phase 1 Transitioning phase 2 Transitioning phase 3
st
Idea being fleshed out 1 functional technology Early product commercialization

Fig. 1. Key activities related to value creation and technology design of the heart ablation catheter spin-off. Note: transitioning phases: 1995–1998; 1999–2002; 2003–2008

challenge is to find the right cooling gas (i.e., an alternative to Freon,
as required by the Montreal Protocol on substances that deplete
the ozone layer). This implies not only determining the physiolog-
ical effects of a new gas, but also its assets from a manufacturing
standpoint. A first product using a costly gas is finalized and capital
investors insist, against the advice of the core team of engineers,
that this product be released on the market for the spin-off to gen-
erate revenues. Arguing that value capture would be increased if a
less costly yet effective gas could be found, the team convinces the
investors to fund an extra year of R&D; sales are suspended until the
second near-to-final-product is delivered. At the end of this period,
“risking one’s neck” (Interview, C1) proved to be the right bet: a
catheter and a console exist and the cryoablation procedure using
alternative gas is validated through scientific papers published by
the institute scientists.
4.1.2. Transition 2
The next period is geared at obtaining Pre-Market Approvals
(PMAs) for conducting clinical studies with patients in Canada, the
US and Europe. As evoked by the title of the 2002 annual report,
“Expanding the Frontiers”, the spin-off investigates multiple car-
diac areas. While doing so, both clinical and business aspirations
dovetail in that the cardiac problems that can be treated through
cryotherapy are a sizeable market for both cardiac specialists and
the spin-off. For its CEO, building clinically legitimate knowledge
is part of its value creation logic: “a major element of [the firm]
growth strategy is to enhance the value of [its] intellectual capital”
(Press release, June 6, 2001). Acquiring this knowledge is in fact
a regulatory requirement; the spin-off’s strategy is to first obtain
market approval in Europe, since this regulatory process is con-
sidered less stringent than that of the US FDA. For financing such
activities, the spin-off secures public research funding and several
rounds of private investments. An Initial Public Offering (IPO) is
made; the spin-off enters the Toronto Stock Exchange (TSX) and TSE
300 Composite Index. Now that its business model involves share-
holders, the spin-off seeks to build their confidence: two bought
deals take place and press releases indicate that revenues are gen-
erated from sales in Europe.
Moving into proper office space, including an R&D lab and pilot
production facilities, the spin-off’s business model is handled by a
new cadre of executives, bringing expertise in cardiac cryother-
apy surgery, medical device manufacturing, and in European
marketing. Engineers specialized in manufacturing processes are
hired and their role is to integrate within the design process strate-
gies to increase gross margins and value capture (e.g., through
improved supplier contracts). While the core innovation is sta-
bilized, design efforts take on new directions. First, applying the
electrophysiological modality of action to the treatment of atrial
fibrillation – a sizable market within arrhythmia – requires design-
ing catheters of various sizes and shapes. Second, investigations in
new areas of interventional cardiology begin, which require devices
capable of reaching venous tissues. The value offer is expanded
through a “tool box” approach, aimed at penetrating clinical mar-
kets with a complementary set of devices. Engaging in all of these
avenues at once is extremely costly, since each and every new
usage necessitates new clinical studies and regulatory approvals.
Nonetheless, the spin-off is steadily increasing its ability to capture
value. The technology development strategy includes acquiring
existing patents or small firms. Keeping up with a competitive
market where the “long-term doesn’t exist”, some less satisfying
manufacturing solutions are chosen because of the immediate “risk
of losing sales” (Interview, C3).
The spin-off starts diversifying the partnerships underlying its
business model. Those with clinical researchers are instrumental in
obtaining, not only user feedback, but also more importantly safety
and efficacy data for submission to regulatory agencies. Finding
suppliers who can conform to stringent manufacturing processes
is also pivotal to the design of safe devices (which come into con-
tact with body fluids), something over which “compromises cannot
be struck” (Interview, C2). Seeking to add another niche product,
the spin-off also co-develops cardiac probes with another manu-
facturer. International agreements with distributors are struck (in
Europe and Japan) and marketing strategies are deployed. Elite car-
diac surgeons showcase the product in medical device trade shows
and the spin-off sponsors scientific conferences in which those who
have led clinical trials on cryoablation present their findings. Such
events are relayed in the firm’s press releases, emphasizing how
value offer and value capture go hand in hand:
Pr. [name] successful treatment is a practical demonstration of
[spin-off name]’s strategy to enter the European market through
associations with leading cardiovascular disease experts and
clinical centres. [. . .] By leveraging its resources via high-profile
events at conferences, as well as targeting influential doc-
tors, the Company aims to establish the [name] product with
endorsement from Europe’s leading edge clinical centres (Press
release, June 21, 2001).
At the end of this period, CE Marking is obtained for four prod-
ucts, while one is authorized by Health Canada. The spin-off’s
 P. Lehoux et al. / Research Policy 43 (2014) 1025–1038
technology is being promoted in several clinical areas thanks to
clinical researchers located in many countries. Calling itself “the
world leader in cryotherapy” products, the spin-off can now “more
effectively attack the higher growth markets for Atrial Fibrillation
(AF), Atrial Flutter (AFL), and Ventricular Tachycardia (VT)” (Press
release, February, 26, 2002). Each of these particular cardiac areas
represents a large number of patients for clinicians to cater.
4.1.3. Transition 3
In the last period, after obtaining FDA approvals, the spin-off
is geared at commercialization, seeking to turn cryoablation into
a “clinical standard” (2003 annual report). The poor performance
on the stock market leads the CEO to resign. A renewed executive
team redresses the value chain. The spin-off narrows down its R&D
activities.
It’s saddening to hear that cryoablation can’t be developed for
children, because there are enormous needs in paediatrics. With
cryo, you can confirm the site and kill the right cells, whereas RF
kills almost half of their heart. Because the market is too small,
the company decided not to embark in adapting the product
for small children. That’s an example where companies know
they could help, but won’t do it because of the market. This
part is really saddening for an engineer . . . but from a business
standpoint, it’s a niche and investors don’t want to go down that
route (Interview, C1).
Research on restenosis and revascularization is also abandoned.
While atrial fibrillation, atrial flutter and ventricular tachycardia
are said to represent “up to 80% of the cardiology market” (CEO’s
Letter 2003), eventually the spin-off chooses to focus only on
atrial fibrillation. Acknowledging the costs associated with regu-
latory approval processes (i.e., 6 CE Marking and 5 FDA approvals),
only incremental improvements are brought to existing products.
Manufacturing facilities and processes are reviewed entirely (intro-
duction of information technology and automation). Additional
distribution agreements are made (Australia, Hong Kong, China),
but the spin-off repatriates distribution to the USA. Scientific mar-
keting activities are intensified and involve an international roster
of cardiac specialists. In 2008, the CEO explains how such strategy
will increase economic value: “Ensuring physicians have access to
tangible scientific evidence on the benefits of [name of product 3]
is part of our strategy to drive product adoption” (Press release,
July 22, 2008). Revenues from product sales are generated, and
three bought deals and an over-allotment exercise take place (here
again, seeking to build shareholders’ confidence). Not long before
accepting an acquisition offer in 2008 by a large US medical device
manufacturer, the spin-off sells its patents and production facilities
that are not strictly focused on the treatment of atrial fibrillation.
During this period, it is thus the firm itself that was redesigned, e.g.,
streamlined into a buyable company.
In this first case, synergistic adjustments between the business
model and the design priorities unfolded over the three transi-
tioning periods, mostly fuelled by growth prospects. Focusing its
early design efforts on the validation of the initial latent value
proposition, the spin-off then actively explored several potentially
promising clinical areas before bringing its R&D activities to a close
and enabling its investors to recoup their investments. In contrast
with the other two cases, this spin-off’s technology had the partic-
ularity of offering both clinical and economic value to its users.
4.2. Labor decision support software: when the evolving business
model redirects the value offer from physicians to purchasers
The second case illustrates dynamics wherein the initial value
proposition is significantly reframed, pushing the spin-off to mod-
ify its technology to meet the needs of a market segment that was
1031
not a priori seen as the primary target but which enables the spin-
off to capture value. The story begins when a university teaching
hospital-based obstetrician creates the spin-off. She is convinced
that a predictive mathematical model can be developed and made
into software that would improve how her peers make decisions
during labor and delivery. The initial value proposition, anchored in
her clinical research, is that labor and shoulder dystocia (abnormal
childbirth or labor) can be predicted, thereby reducing unnecessary
cesarean sections and avoiding birth-related injuries that have life-
long consequences. In her mind, translating this value proposition
into a value creation venture is more or less straightforward: “solv-
ing medical problems have medical value and so it had commercial
potential” (Interview, L1).
4.2.1. Transition 1
The primary goal in the first period is to develop a mathemati-
cal model of the various clinical parameters affecting labor progress
and outcomes (see Fig. 2). A small multidisciplinary team is assem-
bled (computer engineering, fundamental mathematics, artificial
intelligence) and its efforts are devoted to the translation of cur-
rent expert medical reasoning criteria and processes into a set of
rule-based decision algorithms. The spin-off activities are funded
through peer-reviewed public research grants and grants the uni-
versity provides to foster commercialization of in-house research.
A first round of capital investment is gathered and these investors
choose a new CEO with business expertise, replacing the obstetri-
cian and spin-off founder who remains a board member. Over time,
research moves from basic to more applied studies (exploiting clin-
ical data bases), and several unsuccessful avenues are tested and
abandoned until one approach (complex pattern analysis) emerges
as feasible. IP protection is sought and, in 1998, the FDA approves
the first version of the decision-support software. At the end of this
period, the innovation “exists” as a body of applied research val-
idating the initial value proposition, which, in being endorsed by
the FDA, seems to confirm that value may be offered to clinicians.
4.2.2. Transition 2
The next goal is to build new decision-aids around the core
software, including the ability to monitor and analyze fetal dis-
tress/tolerance during delivery and predict birth-related brain
injuries. With a mix of public and private funding (venture capital
from the US and Canada), the development of the spin-off’s business
model is not straightforward as several changes occur in the execu-
tive team. Securing appropriate managerial expertise is a challenge,
and a trial-and-error process similar to that applied to innovation
development seems to be operating. The value chain taps on build-
ing internal expertise: the number of technical staff (computer
engineers, program analysts, technicians) doubles as a result of
the decision not to contract out software development in order to
increase quality control. The ability to “wear multiple hats” (Inter-
view, L2) and to establish a common language that crosses over
clinical expectations and computer sciences are seen as technology
design assets. The value offer is being “vetted” through the gath-
ering of informal feedback from “trusted users” because “the end
users are really the best people to speak to” (Interview, L2). Subse-
quent design efforts include making the system remotely accessible
for physicians (using a mobile phone application) and facilitating
data sharing across hospital departments. Although such design
efforts are likely to increase value for users and hospital managers,
they do not open up new markets as the system remains a niche
product, thereby relegating value capture to the background. The
official launch of the product in North America takes place, but per-
suading purchasers and users to acquire the system becomes an
issue: you have to “look at these complex organizations and find
something which has value for everybody. It’s easy when it’s one
person [. . .] but when you have nursing, physicians, patients, IT, and
1032 P. Lehoux et al. / Research Policy 43 (2014) 1025–1038

Value creation Technology design Value creation Technology design Value creation Technology design

• A mix of public • Development of a • Increasing product • Building on the • IPO and • The software suite
and private software that development quality “core” software, unsuccessful stock is completed,
investments that exploits a validated control new predictive exchange activity available as a
support academic algorithm (a • “Trusted” user models using other • Addressing financial series of
spin-off mathematical feedback clinical parameters challenges & standalone
development model of risk are developed (a applications
• Seeking value for managerial turn-over
• Many factors associated
“everyone” (users software suite logic • “Risk and safety accessible on a
unsuccessful to labor progress) that increases value web platform, and
and purchasers) management” interoperable
avenues tried out based on clinical for users)
research • Scientific marketing strategy and
• Securing IP and • Interface enabling partnerships with US
US regulatory remote consultation medical insurers
by physicians
approval • Capital investors
“exit

Transitioning phase 1 Transitioning phase 2 Transitioning phase 3

st
Idea being fleshed out 1 functional technology Early product commercialization

Fig. 2. Key activities related to value creation and technology design of the labor decision support software spin-off. Note: transitioning phases: 1991–1998; 1999–2003;
2004–2008

finance in the hospital, it’s much more difficult” (Interview, L1). At
the end of this period, the innovation is not yet a full suite of soft-
ware tools, but it has two key decision tools along with interface
capacities.
4.2.3. Transition 3
Even though market approvals for two tools are obtained during
this period (in Canada, the European Community and the US), a
significant shift happens in the business model because marketing
challenges prove significant:
We’re a small company that they’ve not heard of, so there’s a lot
of branding and association with high, high calibre groups that
are necessary for people to have confidence in a small company.
That’s been a huge challenge, which I didn’t appreciate [. . .]. I see
very mediocre software applications that hospitals will acquire
because it’s from IBM, let’s say. Because they have confidence
in IBM. So. . . branding . . . the magnitude of the company, you
know, the durability, the size. It’s very, very important in the US
market. And it’s even more important in the Canadian market
(Interview, L1).
An advisory board comprised of experts in the market segment
of “risk and patient safety management” is constituted. Its mission
is to provide “guidance on how to achieve widespread adoption”
(Press release, May 4, 2005). New executives are recruited with
expertise in banking, insurance, medical device manufacturing,
hospital management, marketing and sales. Another round of pri-
vate investment takes place and the spin-off enters the TSX and
the American Stock Exchange (AMEX). Revenues from sales are
generated, but major financial problems are encountered.
Design efforts are streamlined (one tool is abandoned), focusing
on the improvement of the system flexibility. The design pro-
cess, wherein the latest version of the software “follows a cascade
of independent releases”, seeks to swiftly increase user value:
“This path is reflective of [company’s] approach regarding iterative
development and tight customer feedback loops. This allows [com-
pany] to deliver customers the desired functionality addressing
their priorities within a faster release cycle” (Press release, August
29, 2006). Concurrently, the spin-off develops a standalone ver-
sion that operates from a web platform and medico-legal and
administrative functionalities. Here again, these design decisions
are not geared at opening new markets, but rather at improving
“outcomes and patient safety without the need for infrastructural
investment on the part of the user” (Press release, September
28, 2006). Drastic adjustments to the business model are brought
through several partnerships; some involve joint development of
system components with existing IT firms, and others reposition
the innovation into the risk management and medical insurance
industry (including an agreement for distribution in the US). To
build investor confidence, the spin-off regularly announces hos-
pitals that have installed the system or key players from the
insurance industry that are said to endorse the product. The spin-
off also starts offering clinical risk management consulting services.
While adding such a service component to the business model
may seem surprising, it is consistent with a significant reframing
of the innovation’s value proposition: the initial goal of reducing
unnecessary C-sections is replaced by the prospect of reducing
liability costs through computerized clinical risk management
tools.
Scientific marketing takes place along those lines and the
obstetrician-innovator, at national and international conferences,
seeks to entice a change of “mentality” on the part of practitioners.
The decision-support software in fact responds more to a deficit in
existing clinical practice, as observed by the obstetrician-innovator,
than to a perceived need by its target users. This gap between the
spin-off’s value offer and the “outside world” is one of its biggest
challenges: “[Shoulder dystocia has] been believed unpredictable
for years [. . .]. Trying to convince people that this curve that
they’ve been using for 50 years is actually something that moves
depending on these other parameters, that takes time” (Inter-
view, L2). The commercialization channels are realigned according
to the new value proposition, and the key customers become
medical insurers; they are those accruing part of the liability
costs when physicians are sued for birth-related injuries and they
need accurate documentation in case things go wrong. By offering
reduced insurance premiums to obstetricians who accept to use
the software, medical insurers can help turn the innovation into
a clinical norm. At the end of this period, financial problems lead
the spin-off to layoff half of its employees and several executives
are either dismissed or resign. The spin-off is delisted from both
stock exchanges and bought by an American clinical IT solutions
provider.
In this second case, the business model imposed itself over
technology design in that it pushed the spin-off’s managers to
significantly reframe to whom value was to be offered so as to
meet capital investors’ value expectations. This case also suggests
that unless physicians themselves swiftly acknowledge the clinical
value offer embedded in a technology, a spin-off may redirect its
design priorities so as to generate economic value for purchasers,
thereby exploiting other latent attributes of the innovation.
 P. Lehoux et al. / Research Policy 43 (2014) 1025–1038
Value creation Technology design Value creation
• Partnership with • A prototype is • IP protection to
clinicians who developed and used reassure capital
act as co- in a pilot project investors
developers and (high-risk • Pilot projects
users of the pregnancies); it is generate limited
technology tailored to the revenues
• Evaluative needs/practices of a • Dissemination of
research regional hospital
evaluation findings
• Initial multi-agent
• Limited capacity to
approach is gradually
capture value over
abandoned
clinical content
Transitioning phase 1 Transitioning phase 2
st
Idea being fleshed out 1 functional technology
Fig. 3. Key activities related to value creation and technology design of the home monitoring system spin-off. Note: transitioning phases: 1999–2000; 2001–2004; 2005–2008
4.3. Home monitoring: when a mismatch between technology
design and the business model remains unaddressed
The third case brings forward dynamics where design activities
lead to the refining of the value proposition, but where a business
model that can adequately reconcile value offer and value capture
remains to be fleshed out. The story begins within an information
technology research center where a computer scientist and two
colleagues with expertise in artificial intelligence have developed
a functional intelligent multi-agent system. A prototype that can
be applied in the finance sector exists. Yet, with the help of an
organization that supports start-ups, the small team meets with
a medical director of a regional hospital where the need to reduce
unnecessary emergency visits by chronic care patients is acute. The
initial value proposition of their innovation, a computerized “per-
sonal assistant” relying on a multi-agent IT system, is to support
patients from a distance and provide clinicians with monitoring
tools.
4.3.1. Transition 1
The objectives pursued in the first period are largely shaped by
the initial, embryonic value chain, which relies on a close collab-
oration with the hospital (see Fig. 3). The spin-off’s offices are in
fact located within the hospital, enabling daily interactions with
future users and providing the programmers with a better sense
of the clinical culture in which the system will be deployed. To
develop a functional prototype, the spin-off adopts a pilot project
approach and chooses to test the system first with women with
high-risk pregnancies. Not only are these women young adults
who are thought to be computer savvy, but also they represent
an area where the technology’s value offer would translate into
cost-savings for the hospital (e.g., reducing hospitalization). A spe-
cialized nurse remunerated by the hospital develops the clinical
care protocols to be integrated within the IT application. It did
not take long before the team realized that the “idea that was
interesting” (Interview, N1) – that really had value – was not so
much exploiting the multi-agent logic, but creating a simple sys-
tem that would first and foremost support patients and health care
providers. The small team (three computer scientists) is supported
by research grants, funds devoted to support the development
of SMEs and in-kind resources from the hospital. Even though a
Director is recruited for overseeing “market needs analysis” and
“strategic positioning,” the business model remains closer to a
“public–private partnership” (Interview, N4). Besides an agreement
with a large telecom firm, which provides an existing tactile screen
phone, the spin-off’s key partner is the hospital. At the end of this
period, a functional computerized personal assistant system exists
that replicates as closely as possible appropriate clinical manage-
ment practices (e.g., based on scientific evidence) in the area of
1033
Technology design Value creation Technology design
• While incremental • Unsuccessful • Incremental
changes are attempts to changes are
brought to the penetrate the US brought, responding
software, the market and high to users’ requests
monitoring system dependence and aiming at
architecture is upon the local interoperability
redesigned health care • Additional pilot
• Additional pilot system testing conducted in
project (chronic • Capital investors new clinical areas in
prepare “exit” Quebec and France
obstructive
pulmonary disease)
• RTSS certification
Transitioning phase 3
Early product commercialization
high-risk pregnancies. It is implemented within an evaluative pilot
project that aims at documenting the value offer in terms of efficacy
and benefits of the system.
4.3.2. Transition 2
The goal pursued during the second period is to adapt the
existing system to support the provision of chronic care services,
the area where lies the real value proposition of the technol-
ogy. Efforts are made to get the business model to take off. The
spin-off recruits additional personnel (programmers, clinicians,
executives), some of whom are devoted to marketing and sales.
Some revenues are generated through sales and financial agree-
ments struck around additional pilot projects. Capital investment
is secured and investors push the spin-off to engage in marketing
activities; it showcases its product in health care IT tradeshows
and findings from the studies conducted alongside the first pilot
project are presented at regional and provincial scientific confer-
ences. New clinical areas within the same hospital are explored
and pilot projects with other hospitals in the province are initiated.
This is achieved by holding on to the collaborative design approach
with clinicians, which imposes its constraints over value creation;
for each new application (i.e., chronic obstructive pulmonary dis-
ease, asthma), significant design efforts are focused on improving
user interface, adding functionalities requested by the clinicians,
and finding solutions for more effectively supporting clinical com-
munications.
Although the pilot project approach favors the development
of applications that are adapted to users’ value expectations, it
does not open up large markets and value capture remains limited.
Even though the innovator “does not believe” in the relevance of
IP protection, a patent request is submitted “to impress investors”
(Interview, N1) alongside seeking certification from the Ministry
of Health Telecommunication Network (RTSS). The latter is piv-
otal to value capture since it will enable the commercialization of
the system. Several partnerships are established with clinical sites
and form a key design asset because “they weren’t coming with
a turn-key technology, saying, there it is, you have to adapt to it.
To the contrary, there were very, very responsive to the clinicians”
(Interview, N3).
At the end of this period, the principles of the multi-agent
approach are almost all abandoned in favor of simpler, “main-
stream” IT components (Interview, N1). Evaluative research, in a
number of clinical areas, confirms the feasibility and relevance of
the initial value proposition. The flexible monitoring system archi-
tecture that users “fill up” using an embedded clinical content
editor is seen as a pivotal design asset. This functionality offers
value tailored to users’ needs, but the spin-off does not capture
value by supporting the creation of such end-user protocols.
1034 P. Lehoux et al. / Research Policy 43 (2014) 1025–1038

Table 2
A comparative summary of the business model elements that mediated the relationship between value creation and technology design in the three cases.

Hearth ablation catheter Labor decision support software Home monitoring system

Key characteristic Synergistic readjustments Drastic reconfiguration Mismatch

• Clinical and commercial markets • A new business model is imposed • Technology is not matched with
dovetail over technology design an appropriate business model

Value proposition Refined over time Reframed Refined over time

• Entails both clinical and • Not acknowledged by physicians, • Acknowledged by nurses,
economic value for physicians pushes the spin-off to design patients and health care managers,
functionalities for purchasers but requires reconfiguring health
(medical insurers) care provision

Value chain Broad clinically driven exploration Basic science-driven exploration Clinically driven exploration
followed by strategically focused followed by strategically focused followed by user-driven
exploitation exploitation exploitation

Value capture Follows a growth curve as clinical Limited Limited

partnerships help develop the • A revenue model remains to be
market fleshed out

Value network International in scope North American focus Locally embedded with pilot
Effective scientific and clinical Challenging clinical positioning project sites overseas
positioning, worldwide marketing and realignment of the marketing “Evidence-based” marketing
channels channels

Tension between value offer and
value capture
Value offer and value capture go Significant Problematic
hand in hand • Streamlining the spin-off and • Selling the spin-off solves the
• Yet, R&D activities are downsized, selling it solve the problem problem
the spin-off streamlined and sold
for investors to exit

4.3.3. Transition 3
While the system is implemented in additional pilot projects
in France, the objectives of the last transition are to capture value
by penetrating the domestic market and introducing the system in
the US: a VP is recruited to this end. New clinical areas (chronic car-
diac disease, pediatric cystic fibrosis) are explored. Design efforts
focus on improving the system performance by redesigning its
architecture, and on incremental software improvements that seek
to respond to users’ requests, including interface capacities for
electronic medical devices and administrative databases. The busi-
ness model accommodates new partnerships with IT suppliers
seeking to add complementary components to the monitoring sys-
tem (servers, electronic tablets). The system is adapted to comply
with the norms of an international communication protocol for
interoperability, which is seen as an obligatory passage point for
international sales. Scientific marketing becomes more intense and
user training is provided to the clinical sites acquiring the system.
Such activities lead to the acknowledgement that, for the moni-
toring system to deliver its value, many managerial and clinical
components need to be rethought and configured:
You offer to health care providers a system that can enable them
to follow up patients at home, but they actually don’t provide
home care services, thus it doesn’t mean anything for them. [. . .]
At the organizational level, managers see right away how they
may avoid emergency room visits, but they also need to dedicate
staff for doing so [. . .]. To send patients home earlier, one also
needs a physician to prescribe home monitoring (Interview, N1).
At the end of the period, the spin-off’s managers are fully aware
that the key clinically valuable asset of the system – its adaptabil-
ity to practice – makes its commercialization challenging since it
requires a strong managerial commitment on the part of the pur-
chasing hospitals, a tension the spin-off’s design efforts cannot
modulate. Furthermore, the revenue model based on fixed instal-
lation fees makes the spin-off’s value capture unpredictable, yet
resource-intensive (e.g., user training and adaptation). Even though
the order backlog is still limited, the IT application seems valuable
enough for a large Canadian telecommunication firm to buy the
spin-off.
In this third case, even if another technological solution was cho-
sen, the final value proposition still largely embodies the interest of
the initial partnering hospital, which was to avoid or reduce hospi-
talization and emergency room visits by enabling a smaller number
of nurses to remotely monitor patients. The innovation can in prin-
ciple bring value to health care managers, providers and patients,
but the ability of the spin-off to capture value is constrained by
the design decisions it took (e.g., delivering a flexible system archi-
tecture that can accommodate end-user created protocols) and for
which a revenue model remains to be found.
5. Discussion
5.1. Across case comparisons: the tension between value capture
and value offer
Our analyses so far highlighted how each spin-off selected
and designed specific technological features so as to meet cer-
tain users’ and/or purchasers’ expectations. Table 2 now provides
a comparative summary of the synergistic readjustments, drastic
reconfiguration and mismatch we observed between business model
and technology development.
5.1.1. Synergistic readjustments
By being geared at rapid financial growth, the heart ablation
catheter spin-off sought to capture value through an integrated
IP portfolio strategy and carefully managed margins, it leveraged
financial resources through several rounds of capital investments
and a series of demanding yet successful stock exchange trans-
actions and it deployed an international mix of scientific and
commercial marketing strategies. By doing so, this spin-off sought
to replicate the dominant business model in the health sector
(Mangematin et al., 2003), which implied offering investors credi-
ble prospect of continued expansion (Chesbrough and Rosenbloom,
2002). Following Mitchell and colleagues’ three-attribute frame-
work for defining stakeholders’ salience (1997), one should
however acknowledge that beyond the urgency to recoup invest-
ments and the power capital investors may exert over the spin-off’s
entrepreneurs, the legitimacy of the claims at stake also matters. The
 P. Lehoux et al. / Research Policy 43 (2014) 1025–1038
heart ablation catheter spin-off is the only one that successfully
leveraged an international community of physicians-researchers
who increased the legitimacy of the innovation by building knowl-
edge, which contributed to both product improvements (e.g., value
offer) and market expansion (e.g., value capture). Its business model
significantly relied on, and gave weight to the claims of the med-
ical specialists involved in its technology development process.
Chatterji and colleagues (2008), who examined the distribution
of patents granted to physician-inventors in the US, observed that
those specialized in cardiovascular diseases ranked third, account-
ing for 9.5% of the 5051 patents recorded between 1990 and 1996.
This group is thus not a small player in the biotechnology innova-
tion landscape and capital investors may have acknowledged their
salience in return (Aspara, 2009). Hence, to understand how the
tension between value creation and value capture may affect busi-
ness model innovation, one should look at “who and what really
counts” (Mitchell et al., 1997).
5.1.2. Drastic reconfiguration
The labor decision support software spin-off also concentrated
its early efforts on basic and applied knowledge production, secur-
ing IP protection and obtaining regulatory approvals. Yet, its initial
value proposition challenged the legitimacy of potential users since
it implied changing how obstetricians think about and manage
birth-related injuries. Facing a state of “non-spread” which is not
infrequent in health care settings (Ferlie et al., 2005), the spin-off’s
growth could not proceed at a rapid pace, which was reflected in its
unsuccessful stock exchange transactions. Unlike the heart ablation
catheter, its innovation was not a revenue-generating technology
for its users; the tension between the need for investors to capture
value and the need to provide clinical users with tangible value
was much greater. This tension was resolved by imposing a busi-
ness model that repackaged the software value proposition within
the “risk and safety management” domain, thus realigning its value
offer to medical insurers for whom the prospect of reducing liability
costs was more tangible.
5.1.3. Mismatch
Among the three cases, it is the home monitoring system spin-
off where the tension was the greatest between innovation value
offer and capacity to capture value. Even though effective part-
nerships with hospitals enabled the spin-off to deliver value to its
customers, investors chose to exit before the spin-off’s executives
had successfully resolved how their business model could secure
stable revenues. Identifying an innovative business model is “an
entrepreneurial act, requiring insight into both the technology and
the market (Chesbrough and Rosenbloom, 2002, p. 550).” While
“half” of the value of the monitoring system came from the clini-
cal protocols that had to be developed by its users, the technology
was designed to reduce unnecessary hospitalizations. Such a tech-
nology creates value for hospitals that do not generate revenues
out of hospitalizations and have incentives to prevent deterioration
of chronically ill patients, such as Health Maintenance Organiza-
tions (HMOs) in the US. An explicit consideration of economic
levers within such hospitals could have led to an alternative rev-
enue model (i.e., a monthly rate proportionate to the purchaser’s
cost-savings).
By contrast, the first spin-off did not call for an innovative busi-
ness model; after it researched a large range of clinical indications,
all key design decisions were geared at refining product and manu-
facturing processes, rendering the spin-off attractive for acquisition
by a large medical technology manufacturer. Henceforth, providing
the third spin-off with the time and resources needed to exper-
iment through a discovery driven approach (McGrath, 2010) an
alternative business model capable of new mappings between
1035
technological potential and economic value might have been warr-
anted.
5.2. Insights into the mechanisms by which business models and
health technology design influence each other
Research on business model innovation “spreads out across
various fields including innovation management, strategic man-
agement, and entrepreneurship literature” (Schneider and Spieth,
2013, p. 2). Not surprisingly this literature often posits technology
as an enabler of business model innovation, that is as a strategic
asset that entrepreneurs should learn to exploit swiftly so as gain
competitive advantage (McGrath, 2010; Baden-Fuller and Morgan,
2010). Our research adopted a different vantage point on technol-
ogy, enabling us to contribute to fill an important research gap.
First and foremost interested in the interplay between technol-
ogy design and business model development, we emphasized the
negotiations between stakeholders holding competing visions of
the value of the emerging technology (Leonardi and Barley, 2010;
Eyquem-Renault, 2011). To this end, our analytical framework con-
currently considered internal and external factors relevant to the
firm’s activities (Schneider and Spieth, 2013) as well as the volun-
tary and emerging dynamics of business model change (Demil and
Lecocq, 2010).
Accordingly, we described how the business models of the three
spin-offs shared initially many similarities (e.g., mix of public and
private funding, research-based value proposition, partnerships
with clinicians, design geared at increasing value for clinical users)
and how, over time, their managers articulated and readjusted
differently key elements of their evolving business model. Our anal-
ysis supports the notion that entrepreneurs conceive of a business
model “as an interrelated set of strategic choices” (Morris et al.,
2005, p.733). Yet, one may wonder why their business models
were not terribly innovative. This state of affairs, we argue, may
be partly explained by industry-level pressures to which spin-offs
are particularly vulnerable.
Fig. 4 provides a schematic representation of the key mediating
mechanisms over which our process-oriented research sheds light.
In theory, the design process may help refine, reframe or even reject
an initial value proposition (for instance, showing a mismatch with
users’ expectations) (Kruger and Cross, 2006). In practice though,
the business model, by being sensitive to certain stakeholders and
not others, push entrepreneurs to make design decisions that rede-
fine who the key users are and what latent attributes matter4 (Dew
and Sarasvathy, 2007). Then, once design decisions are embedded
in technical features that define the scope and range of a technol-
ogy’s users and uses, such decisions reinforce how value is offered
to certain stakeholders and not others. While some design decisions
are discretionary and others contingent (e.g., shaped by the state of
knowledge and technical know-how), all of them are consequential.
The early stages during which the business model is “coalescing”
(Hwang and Chrsitensen, 2008, p. 1332) have long-term implica-
tions, since it crystallizes the technology’s value proposition, which,
in return, implies that only a certain business model can be used
(Johnson et al., 2008). Hence, as the fate of a spin-off often lies
4
For instance, by being an IT application, the home monitoring system shared
with the labor decision support software similar design challenges. However, it
applied a very different design strategy from the outset, which entailed defining
the value proposition with a regional hospital and co-designing the innovation with
end-users. In contrast, the labor decision support software spin-off gathered clinical
user feedback long after its key R&D activities took place. Only when it realized that
its value proposition was not, after all, straightforwardly appealing to physicians,
did the spin-off decide to target medical insurers. From that point, all of its design
efforts were geared at providing more value to risk liability managers by furthering
the medico-legal and administrative features of the system.
1036 P. Lehoux et al. / Research Policy 43 (2014) 1025–1038
The business model operates as a focusing device that mediates
between value creation and technology development
Business model
Value capture
Capital investors
and shareholders
Who and what
really counts?
Clinical users
Value offer
Technology development
Value proposition
A value proposition gets crystallized through the design
process, so the dynamic readjustments between the
business model and the technology come to a halt
Fig. 4. The processes by which the business model influences, and is influenced by technology development.
in a liquidity event, Fig. 4 indicates that dynamic readjustments
between a business model and technology design inevitably come
to a halt.
Sabatier and colleagues (2012, p. 957) argue that profound
changes at the industry-level hardly result from the emergence of
a single, disruptive technology because as long as it “can be inte-
grated within the existing industry value chain, it will not alter the
balance of power between its actors or its established appropriation
modes.” The dominant industry logic does not favor new entrants’
value capture opportunities since the incumbents often control the
market end of the value chain. Although emerging firms can create
value with the technologies they bring to the chain, conserva-
tive institutional practices and strategies remain well entrenched.
One of the reasons is that rather than challenging the power and
position of the established companies, the technological disconti-
nuities brought to the industry by the emerging firms reinforce the
hegemony of the large incumbents “who have learned to integrate
sufficient of the new technologies to remain at the center of their
networks, and who still control market access” (Sabatier et al., 2012,
p. 953).
Our study does provide both empirical and analytical support to
the notion that academic spin-offs may not be conducive to discov-
ery driven business model innovation processes (McGrath, 2010),
including when entrepreneurs and investors are confronted to the
inadequacy of the dominant model. Fig. 4 indicates that one way
of handling the tension between value offer and value capture –
a salient dynamic in a spin-off’s lifecycle (Vohora et al., 2004) –
is by selling it to an established player. Strategic alliances and dis-
tinct exploitation and exploration dynamics affect in complex ways
the evolution of technology ventures (Baum et al., 2000; De Rond
and Bouchikhi, 2004; Rothaermel and Deeds, 2004). Yet, according
to the Conference Board of Canada (2013), up to half of Canadian
venture capital exits between 2007 and 2011 were through foreign
acquisitions by larger firms. Considering the prevailing institutional
pressures to respond to investors’ and shareholders’ value expec-
tations, academic spin-offs are, since their very inception, largely
Tension between value offer and
value capture increases over time
and is resolved by:
1) making the spin-off sellable;
2) reframing the value proposition; or
3) reframing the business model
doomed to adopt conventional business models (McGrath, 2010).
This is perplexing given the freedom that should enjoy, in princi-
ple, technology ventures that do not carry the legacy of a parent
firm. Moreover, the mismatch we observed in the third case is, we
believe, a salient example of the necessity to take seriously and
articulate what successful alternative innovative business mod-
els could be. Overall, strategic decisions that may prove entirely
rational at the level of the spin-off could explain why, at the
industry-level, the creation and spread of new business models
remain limited even in highly technology-intensive sectors like the
medical device industry (Farley and Rouse, 2000).
5.3. Limitations and further research
Our study’s key methodological strength is to have carefully tri-
angulated multiple data sources, providing a highly condensed yet
detailed longitudinal analysis of three contrasting cases. While they
were not selected to be “representative” of the whole medical tech-
nology industry, they are not “extreme” cases of success or failure
(Vohora et al., 2004). Nonetheless, by relying on interviews with
those who have played a key role in the spin-offs’ creation, our
findings may emphasize a form of post hoc rationalization.5 Our
analyses have also emphasized the tension between value offer and
value capture and thus more attention was given to two salient
stakeholder groups – customers and capital investors. The role of
competitors, suppliers and regulatory agencies (including financial
market authorities) remains to be further considered.
Further research on business model innovation enablers should
aim, we believe, at a better understanding of the competing insti-
tutional interests that shape the emergence of new technologies
5
Because our respondents played different roles (from academic entrepreneur
to high-level executive), we nevertheless gathered a multifaceted understanding
of each spin-off’s business and design challenges. Furthermore, the chronological
document analysis identified the concrete milestones that had been accomplished.
 P. Lehoux et al. / Research Policy 43 (2014) 1025–1038
(Leonardi and Barley, 2010). Far “beyond the simple storytelling
of how a firm earns its revenues,” our operationalization of the
business model construct and its key elements enables to “zoom
in and out” while maintaining an integrated view on the firm’s
activities (Schneider and Spieth, 2013, p. 3). Henceforth, further
research, including in sectors that greatly differ from the healthcare
industry, could easily apply our framework and the rich constructs
we have empirically fleshed out by adopting a longitudinal case
study design, which is particularly well suited to studying the pow-
erful role of institutional actors in social construction processes
(Leonardi and Barley, 2010).
5.4. Policy implications
The early transitions we analyzed – where both a business
model and an innovation are being developed – showed how spin-
offs may be particularly fragile to capital investors’ pressures for
swift returns on investment (Lazonick and Tulum, 2011). Because
of the high level of uncertainty and risks associated to medi-
cal R&D, capital investors as well as entrepreneurs may find it
particularly difficult to define and agree on the most appropri-
ate business model and may not be tempted to experiment with
innovative business models. Yet, none of the spin-offs was, at the
end of our study, in a financial position enabling it to build on
the knowledge and know-how it had acquired (Metcalfe et al.,
2005). Academic entrepreneurs were mostly seeking to manage
their value creation activities while responding to investors’ pri-
orities. It is thus unclear whether and how policies that promote
academic spin-off creation rely on a clear understanding of the
“critical junctures” paving the way to sustainability (Vohora et al.,
2004). Considering that innovation is key to the sustainability of
healthcare systems, which arguably falls among today’s “Grand
Challenges” (Foray et al., 2012), policymakers may revisit whether
fostering academic entrepreneurship in healthcare can, in practice,
deliver the long-term economic benefits they are expecting. Health
technology entrepreneurs should be strongly encouraged to adopt
well-thought out innovative business models. The knowledge basis
for doing so though is currently limited.
6. Conclusion
This paper contributes to the literature on business model and
technology ventures by providing a fine-grained analysis of the
relationships between the business model that academic spin-off
entrepreneurs articulate, the value proposition of their innova-
tion and the stakeholders for whom value is created and to whom
value is being offered. The business and technology development
processes we observed were characterized by synergistic readjust-
ments (heart ablation catheter), a drastic reconfiguration (labor
decision support) and a mismatch (home monitoring system). By
exploring in greater depth technology design processes, our anal-
ysis shows that business models not only contribute to shaping
innovation, but they also align the technology in a certain commer-
cialization trajectory by modifying over time its value proposition
and prioritizing design efforts accordingly. Beyond confirming the
importance of differentiating business models in the health tech-
nology industry (Mangematin et al., 2003), our study indicates
that it is not only who makes decision that matters, but also how
stakeholders’ value expectations get embedded in a spin-off’s value
proposition. Our study thus contributes to a still limited body of
research on business models and health technology design and
illustrates that there is no single inherent value in a given innova-
tion; if the technology “were to be developed in different ways, it
would likely accrue different value” (Chesbrough and Rosenbloom,
2002, p. 534). Considering that not all health technologies are
1037
equally valuable, the choice of a business model has significant
societal implications. As a result, not just any kind of “match” can
be made between a business model and a health innovation.
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