Inducements, Impediments, and Immediacy: Exploring the Cognitive Drivers of Small Business Managers' Intentions to Adopt Business Model Change

Abstract

Small business managers rely on judgment and heuristics when making critical strategic decisions. We explore this phenomenon, expanding the theory on cognition and strategy to explain the cognitive determinants of strategic decisions leading to small firm business model change. We integrate existing theories (entrepreneurial opportunity exploitation, cognitive resilience, prospect theory, behavioral theory of the firm, threat‐rigidity) into a framework explaining strategic intentions, based on managers' perception of business opportunity interacting with assessment of the external environment, current performance, and prior experience. The framework is empirically tested in the context of Canadian real estate brokerage industry, facing potentially major disruptive change.

Explorative Versus Exploitative Business Model Change: The Cognitive Antecedents of Firm‐Level Responses to Disruptive Innovation

“…From a transaction point of view, the business model describes the company's economic exchange with all its stakeholders, including the value proposition for each (Zott and Amit, ; Zott et al ., ); these transactions are based on a firm's unique combination of resources and are aimed at generating value for both stakeholders and the organization (DaSilva and Trkman, ). Structurally, a business model can be represented as a three‐dimensional construct comprising interrelated value, transactive structures, and resource structures (George and Bock, ; Osiyevskyy and Dewald, forthcoming; Osiyevskyy and Zargarzadeh, forthcoming).…”

“…Exploitative strengthening of existing business model captured the intentions to add supplementary value‐added services, complementary to traditional brokerage offerings, aimed at obtaining the differentiating advantage over the discounting disruptors to attract the best customers. Even though ‘business model is not the same as product market strategy (i.e., it does not refer to firm positioning in product market based on differentiation or cost leadership in certain activities)’ (Zott et al ., :1032), as it was argued before, in the case of real estate brokerage, market positioning can be used as a proxy for business model change, in that embracing the discounted approach requires altering all other aspects of business (namely, resource, transactive, and value structures of the business model—George and Bock, ; Osiyevskyy and Dewald, forthcoming).…”

“…Recently, researchers of the disruption phenomenon devoted particular attention to the situational determinants of established firms' responses to ongoing disruptive innovation—namely, the opportunity‐ or threat‐related framing of the disruptive business model innovation in the minds of managers of incumbent companies (Osiyevskyy and Dewald, forthcoming ; Dewald and Bowen, ; Gilbert, ). Gilbert () demonstrated that the perception of threat induced by disruption attenuates the rigidity in the patterns of resource allocation, but simultaneously amplifies the routine rigidity.…”

“…Dewald and Bowen () expanded this reasoning, showing that situational threat perception leads to proactive resistance to change (such as erecting the legislative barriers against the disruption), while opportunity framing drives adoption of the disruptive business model innovation. Along these lines, Osiyevskyy and Dewald (forthcoming) scrutinize the role of opportunity perception as a driver for changing the firm business model (resource, transactive, and value structure dimensions); the authors show that perceived opportunity induces alterations in all three aspects of the firm's business model.…”

“…However, with time, the prior ‘inferior’ disruptive innovation might gain momentum, develop, and ultimately surpass the requirements of mainstream customers who eventually switch to the new alternative. Examples of industries turned upside down by disruptive business model innovations are numerous, ranging from film photography (disrupted by digital photography; Tripsas and Gavetti, ) and newspaper publishing (disrupted by e‐media; Gilbert, ) to industries dominated by small entrepreneurial firms, such as real estate (disrupted by discounted models; Dewald and Bowen, ; Osiyevskyy and Dewald, forthcoming) and travel brokerages (disrupted by e‐brokering).…”