Summary

The paradox of when business model innovation creates value for the firms is tackled in our recently published study in Journal of Management Studies. Using meta-analytical techniques, we found that firms engaging in business model innovation experience improvement in their performance. However, the increase in firm performance is dependent on firm size and cultural and institutional conditions of the country where the firm is operating.

Does business model innovation contribute to success?  

In a fast changing world, firms need to innovate to remain competitive. Business model innovation is one of the options available for entrepreneurs and managers of the firm. Our meta-analytic study based on more than 300000 observations found that if firms decide to do business model innovation, it helps them to improve their performance. Furthermore, this success is independent of whether they change a few aspects of the business model or change it entirely. In both cases, when firms innovate their business model, it triggers organizational learning that leads to improved performance of the firm.

Do all types of firms enjoy success from business model innovation?

One might be wondering whether all types of firms observe improvement in their performance, or whether it is limited to specific firm types. Our results show that when a firm pursues business model innovation, it leads to an improvement in its performance no matter if the firm is small or big. However, entrepreneurial firms experience more improvement in their performance as compared to incumbent firms because large firms are often plunged with inertia and bureaucracies that may hinder the successful implementation of a new business model and its subsequent benefits.

Does culture and institutional conditions affect success from business model innovation?

Lastly, the culture and institutional environment in the country of operation also affects the increase in firm performance from innovating their business model. Firms that are operating in cultures with high levels of masculinity and individualism observe less benefits from innovating their business model. The underlying reason is that these cultures promote competition instead of cooperation whereas business model innovation requires cooperation among several stakeholders involved in the value architecture. Furthermore, institutions of the country also play a role while translating the benefits of business model innovation into firm performance. In particular, high levels of customer orientation, economic freedom, and education in the country where the firm is operating support the business model innovation-related efforts and firms are able to experience more success from business model innovation in these countries as these institutions create enabling pro market conditions to facilitate the innovation efforts.

What’s next?

Business model innovation could be helpful in solving further challenges for organizations and societies, such as transitioning to a more sustainable economy. As business model innovation creates and captures value in novel ways by including and connecting previously unrelated actors, it provides opportunities for individuals and organizations to add economic, social, and environmental value. For example, sharing economy, collaborative consumption, and inclusive communities are realized with the mechanisms of innovative and sustainable business models. However, business model innovation can sometimes have unintended adverse consequences for societies. For example, freemium business models are employed by several social media platforms where firms generate their revenues from advertising instead of charging a fee from users. Recent reports show that political advertising with limited transparency and low information accuracy feeds these advertising revenues. So, societies need to deal with negative consequences of business model innovation with effective policy making.