The Impact of Leader Personality on Business Model Adaptation
In the ever-changing world of business, firms ought to be capable and willing to adapt the business model to continue to prosper. Highly emotional leaders may have a negative impact on firm business model adaptation, and deliberate recruitment of leaders and managers could better facilitate business model adaptation and long-term success. Read new CSI blog by Camila Aarøen.
In the field of strategy, increasing attention is paid to the business model and changes in it.
Researchers argue that adaptions in the business model is a vital source of sustained value creation. Business model adaptation may also lead to sustained competitive advantage, as it is much harder to imitate a whole novel system than a simple product or service. However, adapting the business model is difficult, and there are barriers within firms preventing change. Without the right organisational capabilities and leaders with a willingness to experiment, business models could turn rigid and inert, and firms may have a harder time surviving long-term.
What can motivate firms to take the plunge and adapt the business model? A 2016 article by Tina Saebi, Lasse B. Lien and Nicolai J. Foss explored the relationship between risk domains and business model adaptation. They revealed that Norwegian firms tended to take more risk when faced with perceived threats in their environment than when faced with perceived opportunity, which is in line with prospect theory. However, a theory predicting the opposite risk-taking behaviour, threat-rigidity theory, is also extensively supported by previous literature.
In a study conducted as part of a Master’s thesis in collaboration with Center for Service Innovation, I undertook a survey and an experiment to find out whether leader personality would influence the relationship between risk domains and business model adaptation. Personality as a moderating variable can potentially explain why two opposing theories of risk-taking both find support in literature. 134 Norwegian leaders from various firms and industries participated in a personality test and an experiment designed to measure the inclination to adapt the business model.
The main finding of the study was the negative impact of the trait Emotionality on business model adaptation. The effect was significant in the domain of perceived opportunity. When leaders with high scores on the Emotionality trait were faced with potential gains, they tended to act risk averse and were less likely inclined to adapt the business model.
The finding has exciting indications for future research on personality, risk-taking and business model adaptation. Most notably, it has important informational value to leaders and top management teams. Due to their lack of inclination to adapt the business model, highly emotional leaders may be detrimental for firms aiming to achieve sustained value creation and competitive advantage. They may act as barriers of change.
A deliberate recruitment strategy of leaders and top management team members, where personality traits are considered, could better facilitate business model adaptation. The right leaders and managers can counteract rigid business models and act as implementers of change when there are potential opportunities in the business environment, resulting in long-term prosperity.