Microfoundations for business model innovation: Exploring the interplay between individuals, practices, and organizational design

Abstract

This article explores the microfoundational aspects of business model innovation (BMI) under conditions of rapid change caused by technological and regulatory disruptions. Based on empirical analysis of relevant industry incumbents, we address the following research question: How do key microfoundational elements, notably individual behaviors and organizational processes and design, interact to drive business model innovation? Despite its importance, little is known about this question. We explore the microfoundations of BMI via a multiple-case study method. We specifically investigate the interplay between microfoundational components at varying levels (individual, process, interaction, and organizational design) in three incumbent companies in Finland's power electricity sector. Theoretically, this article's contributions lie in examining the interaction mechanisms that drive the interplay between microfoundational elements at macro and micro levels during the different BMI stages. These mechanisms are critical for shaping interaction processes in BMI and supporting value creation and appropriation. For managers, our research provides a microfoundational framework for guiding BMI, including guidelines for critical tasks such as promoting a creative culture, enhancing cross-functional collaboration, balancing innovation with operational stability, aligning with industry trends, and preparing the organization for continuous innovation.