The rapidly changing economic landscape, coupled with transformational advances in information and communication technologies, presents many challenges to managers of large and small enterprises alike. They need to adopt a holistic approach to continuously renew and innovate their organizations’ capabilities, their product and service mix, their product-market strategies, their activity systems, and more. In response to such challenges, two perspectives have emerged in the strategic management literature in the last two decades: the dynamic capabilities paradigm and the business model perspective. With few exceptions, these viewpoints have been kept separate. In this chapter, we explore the rich links between these two perspectives and suggest that business model design, when viewed through a process lens, is in fact a dynamic capability. Our contribution is to elaborate on the mechanisms of this capability.
We highlight business model innovation as a way for general managers and entrepreneurs to create and appropriate value, especially in times of economic change. Business model innovation, which involves designing a modified or new activity system, relies on recombining the existing resources of a firm and its partners, and it does not require significant investments in R&D. We offer managers and researchers a conceptual primer on business model innovation emphasizing the importance of system-level thinking.