Learning from failures in business model innovation: solving decision-making logic conflicts through intrapreneurial effectuation

Abstract

Established organizations need to adapt their current business models (BMs) to match dynamic changes in their environment. Alternatives to the established BM usually incorporate a different logic of how value is created, offered, and captured. When selecting and implementing the best BM alternative, organizations have to make decisions on several highly uncertain questions: What will the future look like, on what basis should we take action, how do we act under risks and limited resources, and how should we behave in light of unexpected events and towards outsiders. Firms can apply the logic of causation or that of effectuation when making these decisions. In this context, we apply a longitudinal single case study of a manufacturing company encountering a digital transformation journey. In this case study, we investigate the shift from a product-based to a smart service model and the underlying process of decision-making in the context of business model innovation (BMI). From our case study, we identify latent conflicts resulting from two different BM logics: the logic of value offering, creation, and capture of the dominant (established) BM versus that of the new one. We show that logic conflicts become especially visible when actors cannot reduce uncertainty about the new BM effectively. These conflicts finally inhibit the change of the dominant BM to the new one. Sensemaking in the company about the latent logic conflicts within the BMI process reveals the need to change its decision-making logic from managerial causation to intrapreneurial effectuation. The findings from our study contribute to entrepreneurship and institutional theory while highlighting the concept of institutional intrapreneurship for BMI. Our results suggest separating the alternative BM from the existing one. This separation can reduce cognitive uncertainty associated with BMI processes through logic pluralism, i.e., building a new decision-making logic in parallel to the old one. We contribute to the BMI literature by adding logic conflicts of BMI and the decision-making logic of an organization to the list of important contingency factors that influence the execution and outcome of a BMI process.