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Business Model Innovations Are Key to Success

Three factors determine how profitable innovations will be

Nadine Kammerlander - November 29, 2023

Tips for practitioners

Nothing works without new ideas. In a constantly changing world, the ability to innovate is key to success for companies–at least if they want to remain competitive. One way to achieve greater corporate success is to innovate your own business model. However, how successful this method is depends on three key factors.

The good news first: on average, business model innovations (BMI) have a positive impact on a company's financial success. It does not matter whether the entire business model is revamped or only parts of it. Business model innovations generally lead to organizational learning, i.e. a learning process during which a company improves and thus to better company performance. But in which cases are business model innovations particularly effective and in which are they only moderately effective?

The company’s size influences the success of BMI

Start-ups and newly founded companies, on the one hand, find it easier to benefit from BMIs than other companies. They are smaller, coordination in flat hierarchies is less complicated, and there is greater flexibility to actually put extensive innovations into practice. Established companies, on the other hand, often have difficulties with lengthy coordination processes and excessive bureaucracy, which hinder the desired BMIs. If innovations can nevertheless be implemented, established companies also benefit considerably.

It is crucial in which country a firm has its office–both in terms of culture ...

Whether a BMI is successful or not is also strongly linked to the culture of the country in which a firm is based. For example, masculine and individualistic cultures have a negative impact on the success of an innovation because these cultures are often geared towards competition rather than cooperation. However, successful innovation requires the cooperation of all those involved in its implementation. This is particularly relevant for entrepreneurs from multinational organizations. They can observe a country's culture to assess where innovative teams can work most effectively and where it is most worthwhile to test new business models.

... and the institutional framework

The institutional framework conditions in the respective country also play an important role in ensuring that a BMI leads to increased company performance. In particular, a high degree of customer orientation, economic freedom, and education in a country in which the company is seeking to innovate help to ensure that the innovations are successful. Institutions that create market-friendly conditions in their country facilitate innovation efforts.

BMIs increase a firm’s success

Even if BMI are considered by management consultancies to be challenging for corporate strategy due to their complexity, the resources required and the overall high level of uncertainty, in most cases they ensure increased success for the company. The degree to which a company's performance increases depends on the factors mentioned. Politicians in a country can at least influence the institutional framework conditions and ensure that these promote innovation rather than stifle it.

Tips for practitioners

  • As a company owner or CEO, focus on business model innovations – they will have a positive impact on your company's performance. It doesn't matter whether you innovate the entire business model or just parts of it.
  • Pay attention to the context in which the business model innovation is to take place. Depending on the culture and institutions, implementation may be more successful in some countries than in others. 
  • Take a critical look at your own corporate culture. If there is strong competition, this can have a negative impact on the ability to innovate.
  • As a political decision-maker, create an institutional framework that promotes business model innovations. Customer orientation, economic freedom, and a high level of education promote innovation.

Literature reference and methodology

For the meta-analytical study "When Business Model Innovation Creates Value for Companies: A Meta-Analysis on Institutional Contingencies", five complementary search strategies were used to identify quantitative primary studies that analyze the relationship between business model innovation and company performance. The results are based on a total of 300,000 observations.

- Ilyas, I. M./Kammerlander, N./Turturea, R./van Essen, M. (2023): When Business Model Innovation Creates Value for Companies: A Meta‐Analysis on Institutional Contingencies, in: Journal of Management Studies. doi:10.1111/joms.12966

Co-Author of the study

Professor Nadine Kammerlander

Nadine Kammerlander is the Chairholder of Family Business at WHU – Otto Beisheim School of Management. Her research focuses on innovation, employees, and governance in family businesses and offices. Her academic contributions are routinely published in international journals and have won several renowned awards.

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