The Bumpy Road to Business Model Innovation: Overcoming Cognitive and Organisational Barriers

September 21, 2016 • INNOVATION, Emerging Ideas

By Nicolai Foss & Tina Saebi

Although proven that innovating a company’s business model can significantly increase performance, a majority of companies fail to do so. The authors discuss the various cognitive and organisational barriers that impede managers from successfully initiating, implementing and managing business model innovation in established firms.


What is Business Model Innovation and Why is it Important?

Businesses increasingly seek to innovate their business models, based on the notion that business model innovation can be an important source of competitive advantage and thus have a positive influence on firm value.1 For example, surveys of the world’s leading CEOs show that innovative business models are preferred over new products and services as a source of competitive advantage.2 The reasoning behind these findings is straightforward. With increased globalisation, cross-fertilisation of industries and rapid advancements of mobile and network technologies, it is no longer feasible for many companies to merely compete on basis of prices or technology only. Instead of engaging in “price wars” or incurring high R&D costs to win the technology race, business model innovation allows companies to redesign the way the fundamental ways they do business. Such redesign is often surprising to the competition, complex, and specific to the firm. Hence, it may be difficult to imitate for the competition. Alternatively, the business model innovation may allow the company to “rewrite the rules of the game”, that is, to redefine the industry standards of how business is usually conducted. In both cases, the company stands to benefit.

Managers can innovate an existing business model by changing the (1) value proposition (e.g. the bundle of services, products or experiences offered to the customer), (2) the target customer (e.g. tapping into a new customer segment), (3) value delivery (e.g. use of external partners and resources), (4) value capture (e.g. revenue and cost structures) (see figure 1 below).




For example, while Apple did not “invent” digital music players, it wrapped the technology in a new business model that redefined industry standards. By linking music label owners to the end consumers and hereby easing the access to digital music (iTunes), the company’s business model became an innovation platform for external parties.3 Similarly, Dell did not invent personal computers, but redefined the industry by innovating how value is created and delivered to the customer. Hence, an innovative business model does not necessarily need to discover a novel service or product, but it may however redefine how a service or product is delivered to the customer and how the company profits from this customer offering.4

Managers may change, even innovate, one or more of the four components of business models. Such changes can be more or less radical. Some changes amount to relatively minor changes, for example, in the customer segments the company addresses (this may still matter very significantly to profitability, however). However, even if changes look minor, there may still be many of them, calling for coordination.

Please login or register to continue reading... Registration is simple and it is free!

About the Authors

foss-web Nicolai J Foss is Professor of Organization Theory and Human Resource Management at the Bocconi University, Milano. A prolific contributor to the management research literature, his research focuses on the performance effects of organisational design and HRM, and the drivers and consequences of firm-level entrepreneurship.

saebiTina Saebi is Associate Professor in International Strategy at the Norwegian School of Economics (NHH) and research director for the theme Business Model Innovation at the Center for Service Innovation (CSI). Her research focusses on business model design for entrepreneurs as well as the drivers, barriers and facilitators of business model innovation in established, international companies.


Zott, C., Amit, R. 2007. Business Model Design and the Performance of Entrepreneurial Firms. Organization Science, 18(2), 181-199.
2. IBM Global Business Services. 2006. Expanding the Innovation Horizon: The Global CEO Study 2006. Retrieved January 2014 from <>.
3. Amit, R. C. Zott. 2012. Creating value through business model innovation. Sloan Management Review, 53 (3), 41 – 49; Johnson, M. W., Christensen, C. M., and Kagermann, H. 2008. Reinventing Your Business Model. Harvard Business Review, 86 (12): pp. 57–68.
4. Björkdahl, J., & Holmén, M. 2013. Editorial: Business Model Innovation – the challenges ahead. Int. J. Product Development, 18(3/4), 213- 225.
5. Lindgart, Z., Reeves, M., Stalk, G., Deimler, M. S. 2009. Business Model Innovation. Boston, MA: Boston Consulting Group Report.
6. Prahalad, C. K., Bettis, R.A. 1986. The dominant logic: A new linkage between diversity and performance. Strategic Management Journal, 7(6), 485-501; Coombs, R., & Hull, R. 1998. Knowledge management practices’ and path-dependency in innovation. Research policy, 27(3), 237-253.
7. Zott, C., Amit, R., Massa, L. 2011. The Business Model: Recent Developments and Future Research. Journal of Management, 37 (4), 1019–1042.
8. Chesbrough, H., Rosenbloom, R. S. 2002. The role of the business model in capturing value from innovation: evidence from Xerox Corporation’s technology spinoff companies. Industrial and corporate change, 11(3), 529-555; Chesbrough, H. (2006). Open Business Models: How to thrive in the New Innovation Landscape. Boston: Harvard Business School Press.
9. Zott, C. and Amit, R. 2008. The fit between product market strategy and business model: Implications for firm performance. Strategic Management Journal, 29, 1-26.
10. Foss, N.J., Saebi, T.2015. Business Models and Business Model Innovation: Bringing Organization into the Field. In: Foss, N.J & T. Saebi, eds. Business Model Innovation: The Organisational Dimension. Oxford: Oxford University Press.


You might also like:

One Response to The Bumpy Road to Business Model Innovation: Overcoming Cognitive and Organisational Barriers

  1. Great article. One observation, without some consideration of the emotional barriers that stifle innovation, leaders will continue to struggle. Advances in #LeadershipScience helps leaders take advantage of brilliant insights from the field of social neuroscience on what drives human behavior in the workplace. For example, the old phrase, “if it ain’t broke, don’t fix it” is a response driven by the emotional regions of the brain, not intellectual or cognitive. Virtually all human behavior is driven by emotional drivers — and organizations are subject to those same factors. The role of behavioral and neuroscience is the last new frontier of building sustainable highly engaged workplace cultures. Red more in Thrive By Design: The Neuroscience that Drives High Performance Cultures published last month by Forbes Books.

Leave a Reply

Your email address will not be published. Required fields are marked *

« »