Business model dynamics: when and how to change your business model?

10 March 2014 16:26

(updated: 18 December 2016 16:28)

Business model dynamics: when and how to change your business model?

With technological advancements and increasing global competition, companies nowadays need to change their business more rapidly and more frequently than ever before.

A firm’s business model can be understood as a reflection of its philosophy of how to conduct business best; that is, what actions and decisions it believes will lead to superior performance. What is more, business models have an important dynamic aspect to them: As market conditions change, the assumptions on which the business model rests need to be challenged as well. With technological advancements and increasing global competition, companies nowadays need to change their business more rapidly and more frequently than ever before.

However, not all attempts at business model change are successful. Perhaps due to short time pressures on profitability, organizational inertia or lack of strong leadership, too many companies fall victim to the rigidity of their own business model. In “Business Model Evolution, Adaptation or Innovation?” I talk about how companies can increase the likelihood of successful business model transformation by understanding the external conditions under which business model change is most effective and what skills and capabilities are required to manage the change process effectively.

The “When” of Business Model Change

Business model innovation is often touted as the new source of sustained competitive advantage. It has the potential to shape markets by means of creating disruptive innovation. However, I argue that business model innovation is not always the best response. How companies change their business model needs to be in accordance with their business environment. Take the example of hypercompetitive markets, such as in automobiles, computers, software or airlines, where any outcome of innovation rapidly diffuses over the population of competitors. In these cases, business model innovation would not only be ineffective, it would be harmful. Thus, in my paper, I discuss the conditions under which different types of business models change are most effective.

 The “How” of Business Model Change

Changing an existing business model is not easy. Many companies lack the necessary analytical tools, know-how and skills in changing their business model effectively. A lack of leadership and clear distribution of roles and responsibilities further hinders the change process. I argue that companies can cultivate a preparedness for business model change by developing organizational capabilities that enable them to change their business model in a systematic way. However, different types of business model require different sets of skills and capabilities. For example, while business model innovation mainly involves a process of exploratory learning and experimentation, the focus in business model adaptation largely lies on maintaining organizational agility.

In sum, I show how companies can match business model change to their business environment and develop the ‘right’ skills and capabilities to manage the process successfully. The result is a contingency framework on business model dynamics, environmental change and dynamic capabilities.

If you are interested, please find the full text available here