Opening the Dynamic Capability Black Box: An Approach to Business Model Innovation Management in the Digital Era

Abstract

The digital era is reshaping the competitive landscape, creating a more turbulent environment where digital technologies play a significant role in enabling innovative business models. Companies need to promote business model innovations, readapting their business models, and create new digital business models to thrive in this scenario. The literature emphasizes that dynamic capabilities are the main antecedent to business model innovation. However, the dynamic capabilities construct is poorly operationalized, lacking proper measurements that effectively translate them to practice, remaining a black box. This paper aims to further understand, operationalize and measure the distinctive dimensions of dynamic capabilities for business model innovation. To this end, we follow the design science research methodology, building a tool for dynamic capabilities evaluation through a systematic literature review. We then evaluate the tool based on a three-year, in-depth case study of a software company. Our findings show that the current business model has a central role in shaping dynamic capabilities for business model innovation. The proposed measures encompass activities and practices and business model structure, highlighting the relevance of the co-evolution between business model and dynamic capabilities. Thus, we propose creating what we call a 'business model innovation engine' as a function that reshapes the business model to incorporate dynamic capabilities as part of the value creation architecture. We contribute to theory by better translating dynamic capabilities for business model innovation to observable (and measurable) organizational phenomena, linking it to the extant strategic management literature, and elucidating how to measure and guide the build-up of such capabilities. We also add to practice by developing a practical tool for management to use as a means to evaluate their current dynamic capabilities state, therefore guiding for informed strategic action.