Shared business understanding and innovation: The role of firm dominant logic in business model innovation

Abstract

Business model innovation (BMI) is a key source of innovation that may create a competitive advantage for firms. Drawing insights from the activity system perspective of BMI and dynamic managerial capabilities literature, we argue that a firm's dominant logic promotes BMI, which in turn influences firm performance. We further investigate the boundary condition of managerial connections as providers of privileged resources and information. We examine the proposed hypotheses on a sample of 189 Chinese firms. Our findings suggest that firm dominant logic facilitates both novelty- and efficiency-centered BMI. Further, the two types of BMI affect firm performance differently. Specifically, efficiency-centered BMI improves performance, but novelty-centered BMI does not. In addition, managerial connections strengthen the effect of firm dominant logic on novelty-centered BMI but do not significantly influence the effect of efficiency-centered BMI, reflecting differences between novelty-centered and efficiency-centered BMI. This study is thus noteworthy in its contribution to both the BMI and dynamic capabilities literature.