Business Model Innovation – A Gamble or a Manageable Process?

Purpose: Any business model innovation process involves a certain level of uncertainty, complexity and, in effect, risk. A sloppy approach towards the management of risk may result in catastrophic, sometimes even fatal, consequences to a company’s core business. Although risk, risk appetite and risk management are relatively well established concepts, their role in business model innovation is not well understood. The objective of this paper is to investigate how the risk associated with the innovativeness of a business model innovation, an organization’s risk appetite, and its risk management approach interact to affect the success or failure of a business model innovation process.

Design: Retrospective case studies of business model innovations undertaken by three industrial companies provide the empirical basis for this paper. These companies were selected based on their relatively successful, yet somewhat different, business model innovation experiences over the years, and focused on the, in total four, cases in which they failed to implement their new business model attempts successfully. The reasons that led to these failures are discussed.

Findings: Important factors explaining the business model innovation failure of these cases, appear to be the company’s risk appetite, the risk associated with the radicality, reach and complexity of the business model innovation, the company’s awareness of these risks and their management, and especially the association between these factors.

Originality: There are many lessons to be learned from the aftermath of a failed attempt in terms of what not to do and what to improve a next time. The cross-case analysis produced six testable propositions that enhance our understanding of business model innovation success/failure, with particular focus on the characteristics of the business model innovation, overall innovation management, risk, risk awareness, risk appetite and risk management, and the interaction and fit between these six constructs.