The breadth of business model reconfiguration and firm performance

Looking at business models as systems of interdependent elements, we study how the breadth of an incumbent firm’s business model reconfiguration (BMR) influences its performance. Drawing on the metaphor of firms searching on a performance landscape, we argue that the relationship between BMR breadth and performance should form an inverted U-shape. While firms can gain from increasing BMR breadth, these benefits need to be traded-off against the increasing complexity of its associated changes. We further predict that this inverted U-shape will flip for highly performing firms, while being amplified for firms heavily active in innovation. Using data from an original survey of knowledge-intensive business services firms, we find that, on average, BMR has little effect on performance. However, U-shaped effects clearly emerge when accounting for the effects of past performance and innovative activity. Our findings contribute to a better understanding of the conditional nature of the advantages stemming from BMR.