Why the person-organization fit matters for business model innovation

Product life cycles shorten, novel technologies surface, profit margins melt, and existing businesses are jeopardized by digitalization. These changing business environments pressure organizations to take action. Business model innovation (BMI) is considered a method for incumbents to respond to these changing conditions, seize opportunities for new businesses, and remain competitive in the core business. We found that financial performance indicators are mostly used to analyze BMI outcomes with research explaining the potential pitfalls of BMI in light of the organizational context is rare. From a strategic management perspective, individual behavior and employee commitment are essential for change processes and also potentially influence an organization’s performance post-change. This motivated us to use the person-organization fit (POF) concept to enrich our understanding of BMI’s internal transformation outcomes. POF refers to the congruence between the values and norms of an individual and the prevalent organizational culture, as well as the reciprocal matching of the demand and supply between an organization and an individual. This congruence affects individual attitudes and behaviors, drives positive outcomesand firm success, but is mostly considered as static and lacks investigation in the context of change. The question of whether BMI-induced change affects POF has been neglected.

In our paper, published in the Journal of Management Studies, we address this gap, focusing on the internal organizational dynamics and diving deeper into the internal transformation outcomes of BMI. We emphasize contextual factors such as culture, values, and people and consider these as relevant aspects for the internal adoption and implementation of BMI. For our study, we chose a cross-industry, longitudinal setting of 11 years with a sample of 69 German publicly listed firms. Besides the utilization of commercial databases, we also used secondary data from the German career intelligence website Kununu. We follow configuration theory and distinguish the extent of the organizational change by differentiating between momentum periods (which induce incremental changes to business models) and transition periods (which induce extensive and diverse changes to business models).

How business model innovation affects the person-organization fit

BMI-induced momentum periods have a positive, yet lagged effect on person-organization fit.

Looking at BMI-induced momentum periods, our results show that any additional BMI activity enhances subsequent POF, whereas POF remains constant in the year following the BMI activity. Our results show that BMI internally produces both winners and losers as different extents of BMI yield varying outcomes for the relationship between individuals and their employing organizations. Periods of incremental changes improve the fit between organizations and their members, and the harmony of the overall configuration remains unimpaired.

BMI-induced transition periods have a negative, yet lagged effect on the person-organization fit.

In BMI-induced transition periods, however, any additional BMI activity deteriorates POF in the subsequent periods. Regarding periods of radical BMI negatively affecting POF, our results indicate that the breaking up of existing configurations during significant change destroys the equilibrium of an organization’s configuration and impairs internal fit. Radical BMI might affect each individual’s workplace more directly, concern a larger share of an organization’s workforce, and provoke change-induced stressors. The lagged effect can be explained by identity dissonance and the time it takes before new values become mutually shared. As radical changes to the business model require more time to materialize and to see employees experiencing any work-related change, the negative impact on POF is also delayed.

What this means for organizations and managers

According to our analysis, POF has the potential to serve as a leading indicator for evaluating the success of organizational change and a potential metric with which to design specific change interventions, such as BMI.

Our results provide three central implications for management:

• Factor in the different velocities.

Managers should factor in different velocities to reach and maintain harmonization of the internal and external fit. Radical BMI appears to deteriorate the fit between individuals and their employing organization. The organization is moving faster than its members which provoke internal misfit. In contrast, incremental BMI maintains the fit as individuals and organizations evolve at the same pace, simultaneously.

• Manage the transformation process appropriately.

Heavy workload, role ambiguity, and role conflict should be prevented by paying attention to individuals, balance tasks, and provide clarity when the scope of work changes through BMI to avoid radical BMI at the expense of POF. We recommend that managers also consider changes in recipients’ individual dispositional characteristics and personal traits to provide targeted change-management initiatives.

• Time radical BMI right.

To a certain extent, incremental BMI might be a method for maintaining both internal and external fit, highlighting the importance of such dynamic capabilities as constant sensing and seizing of environmental conditions. Managers may hold back radical BMI until pressure prevails and the benefits are likely to exceed the costs. Or results likewise indicate that successful firms should then move through transitions as quickly as possible.