Business model innovation processes: Looking forward and looking backward

Paper in proceeding, 2016

Business model innovation processes in established firms that are running profitable businesses are currently poorly investigated. By drawing on the problem-solving perspective, this papers shows that the identification and formulation of problems guide business model innovation processes. Findings from case studies of three world leading manufacturing firms show that the main encountered business model problems included product-market fit, value capture failure, and customers’ lack of trust and risk aversion towards novel solutions. Based on the empirical evidence, this paper proposes determinants necessary for progression of the business model innovation process: (1) By theoretically equating business model innovation processes with search, to profit firms shift from experiential or backward-looking search to forward-looking or cognitive search to create or discover new business model options. This shift is not sufficient for business model innovation; (2) To progress there may be a need for changes in the complexity of the problems, altering the firm’s fitness landscape allowing for backward- looking problem-solving by drawing on existing knowledge and capabilities, and (3) Firms need to ‘risk their business’ by moving from offline evaluation to online evaluation for the business model innovation to come to fruition. In the general case, each of the main problems may need to progress across (1)-(3) for a business model innovation to emerge. The contribution of the paper is a change in the unit of analysis by focusing on problem formulation and problem solving, and introduces a mechanism for explaining how business model innovation processes unfolds. This mechanism is also able to handle prior explainations on business model innovation processes; the sequential and experimental approaches.