Perceived Performance as a Driver of Business Model Change: Explorative and Exploitative intentions

Abstract

Drawing on existing theories of managerial behavioral decision making within firms (behavioral theory of the firm and threat-rigidity), we investigate how managerial perception of relative firm performance influences the formation of intention to enact business model change. The developed theoretical framework distinguishes between intentions to incrementally improve the current business model along the established trajectory that provided past success (exploitative business model change) and bringing wholesale changes to the way value is created and monetized (explorative model change). The theoretical predictions of the study are empirically tested in the real estate brokerage industry during a time period of a major technological and regulatory change. We demonstrate that the strength of intention to enact explorative and exploitative business model change could be explained by different performance-related antecedents. Specifically, the relationship between a managerial perception of a firm’s relative performance and intention to enact explorative business model change is inversely U-shaped. In the case of weak perceived firm performance on one hand (“we are too frightened to change our business model”) and strong performance on the other (“we have no need to change our business model”) we observe unwillingness to undertake explorative business model change. We also find that more incremental, exploitative business model changes are positively linearly related to relative business performance (“doing more of what we’ve been doing before”). Moreover, two salient factors from behavioral decision making theory (prior successful risk experience and financial slack) significantly moderate these relationships.