Disentangling the Complex Relationships Between Business Model Innovation and Firm Performance

Abstract

Despite the increasing interest in business model innovation, literature still lacks solid empirical evidence about the consequences of business model innovation over time. Recent research called for more profound empirical investigations that assess the performance outcomes of business model innovation through longitudinal research designs. The purpose of our paper is to address this gap. Building on the business model classifications from previous scholars, differentiating three core dimensions (value creation, value proposition, value capturing), we collect cross- industry data based on more than 35,000 press releases capturing over 2,500 events of business model innovation from 60 German stock- market-listed corporations over an eleven-year period (2007-2017). We regress those against firm performance measures. Our findings show that business model innovation has a positive yet lagged effect on performance. We further find complementary, yet also substitutive effects of the different dimensions. Whereas value creation and value proposition innovation are substitutive in their relationship on firm performance, value capture innovation complements both other dimensions. The combination of all three dimensions is also substitutive. Our nuanced longitudinal findings on the performance consequences contribute to the business model innovation literature by clearly showing the need to carefully plan business model innovation activities at the level of strategic management.