Interdependency, business model design, and new stakeholder introduction in nascent markets

Abstract

Business model design involves configuring what activities organizational actors perform, how activities are distributed among actors, and how activities are interconnected in a value-creating activity system. One way to design innovative business models is to introduce new actors to take over activities that were previously conducted by other existing actors. Such innovation can create difficulties for executives of a focal firm to understand system dynamics and to design an effective business model accordingly. The current study investigates how executives of an entrepreneurial firm design its business model to introduce a new business model stakeholder into a nascent market. Through the lens of interdependency, I ask 1) whether introducing new business model stakeholders generates challenges concerning interdependencies in an activity system, and 2) if so, what actions executives of a focal firm takes in business model designing in response these interdependency challenges. Based on an in-depth longitudinal case study of a start-up company that provided crowdsourcing-based online laundry service, I develop a theoretical model to answer the above questions. The data reveal that three specific forms of interdependency (i.e., role, epistemic, and goal interdependence) drive business model design when executives introduce a new business model stakeholder in an entrepreneurial firm in a nascent market. In response to challenges concerning these forms of interdependency, executives of the focal firm design their business model with four actions: Demarcating roles, instilling knowledge, constructing goals, and tuning interfaces. This business model design process resembles the process of plant grafting to create graft-chimaeras—i.e., symbiotic combinations of new and existing parts, ensuring the interconnectedness between the new actor (the “scion”) and the existing actor (the “stock”) and thus strengthening the vigorous cohabitation of both. The study contributes primarily to the literature on business model, by incorporating theories of organization design and documenting a transitional process from novelty-based to lock-in-based business model design.