Abstract
Looking at business models as systems of interdependent elements, we study how the breadth of an incumbent firm’s business model reconfiguration influences its performance. Drawing on the metaphor of firms searching on a performance landscape, we argue that the relationship between business model reconfiguration breadth and performance should form an inverted U-shape. While firms can gain from increasing business model reconfiguration breadth, these benefits need to be traded-off against the increasing complexity of its associated changes. We further predict that this inverted U-shape will flip for highly performing firms while being amplified for firms heavily active in innovation. Using data from an original survey of knowledge-intensive business services firms, we find that, on average, business model reconfiguration has little effect on performance. However, U-shaped effects clearly emerge when accounting for the effects of past performance and innovative activity. Our findings contribute to a better understanding of the conditional nature of the advantages stemming from business model reconfiguration.
Highlights
Business models—systems of interconnected elements that firms deploy to create, deliver, and capture value (Foss and Saebi, 2018; Ritter and Lettl, 2018; Teece, 2010: 172)—are becoming an increasingly important concept in the domain of strategy (Massa et al, 2017)
We conceived of business models as configured systems of interdependent elements and explored the opportunities and challenges of business model reconfiguration (BMR)
On average, BMR is not associated with significantly better or worse firm performance, irrespective of its breadth
Summary
2007; Demil et al, 2015; Sosna et al, 2010). The idea is that by reconfiguring their business model—that is, adding, removing, or changing at least one element (Siggelkow, 2002)—established companies may substantially improve their performance (Andries et al, 2013; George and Bock, 2011; Teece, 2018; Wirtz et al, 2016). We lack insight into how much BMR is appropriate—that is, how many dimensions of its business model a firm should change to improve its performance This is an important issue because business models, as purposively configured systems of interdependent elements (Baden-Fuller and Mangematin, 2013; Osterwalder and Pigneur, 2010), need to show internal and external fit (Demil and Lecocq, 2010; Saebi et al, 2017)—that is, the elements need to work well with each other (Milgrom and Roberts, 1990, 1995) as well as toward a firm’s product-market strategy (Porter and Siggelkow, 2008). In line with prior innovation research (Laursen and Salter, 2006), our focus is on identifying the correct breadth of BMR, that is, the number of elements of an existing business model that should be changed. The work of Gerasymenko et al (2015) suggested that startups whose managers changed their business models performed better when they drew on outside
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