The Design Logic of New Business Models: Unveiling Cognitive Foundations of Managerial Reasoning

What is it about?

------------------------ Research Focus ------------------------ Our study explores the cognitive foundations of managerial reasoning in novel and uncertain contexts. Our specific research setting comprises managers designing new business models in the emerging sharing economy. Although technology-enhanced collaborative consumption practices create profit opportunities for private asset owners and cost reductions for temporary asset users, they disrupt the logic of established business models.

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Photo by Alvaro Reyes on Unsplash

Photo by Alvaro Reyes on Unsplash

Why is it important?

------------------------------------------------------- Contribution to Academic Scholarship ------------------------------------------------------- The sharing economy relies essentially on collaborative consumption. This new mode of sharing properties and resources leads managers to rethink established business models. Our inductive study examines the way in which managerial reasoning has tackled the traditional business model logic. Specifically, we ask the question of how managers rethink business model configurations to provide value in the emerging collaborative consumption economy. Our study provides evidence-based insights into the deeper cognitive processes of managerial cognition in innovation contexts. The main contribution of our study is an emerging theoretical framework for design logic in business model innovation. We find six cognitive processes supporting reasoning in the design of business models. First, we find that the cognitive processes of analogical transfer and learned heuristics collectively strengthen a dominant logic in the business model design. While reasoning refers in analogical transfer to well-known reference frames, such as industry recipes, learned heuristics originate in the past work experience and educational backgrounds of managers. Second, an emerging logic in business model design comprises cognitive processes of problem sensing, intuitional insights, considering adaptations, and integrating customer perceptions. Problem sensing supports managerial reasoning by exploring with a combination of rational and emotional capacities how value creation and value capture should be designed to address unmet customer needs. Intuitional insights result from inference-based hunches and emotionally charged managerial beliefs about surfacing market trends. Recurrent phases of considering adaptations support the finding of alternatives to established ways of doing and making sense of previously unknown organization modes and boundary conditions. Finally, integrating customer perceptions underlines the importance of accounting for perspectives that reflect hidden market needs, and of using empathy as an attitudinal approach to closely communicate with customers during design phases. Moreover, our evidence suggests that, although the cognitive processes in dominant and emerging design logics differ in nature and source, they complement each other in managerial reasoning during business model design. Overall, this study contributes to research on managerial cognition by delineating how distinct cognitive processes interact and converge into a comprehensive design logic that enables firms to cope with exogenous change. Furthermore, by uncovering the cognitive foundations of managerial reasoning about how to design conceptually different value creation and value capture configurations, which respond to fundamentally changing customer behaviors, our study adds understanding to the concept of the business model. ------------------------------------------------------- Contribution to Management Practice ------------------------------------------------------- Our study results provide two recommendations for practice. First, our framework suggests an alternative, more holistic approach for reasoning about business model design. Relevant business model literature often underlines the importance of focusing primarily on the dominant logic of rational cognition, whereby managers deliberately define the shape and boundaries of the problem and subsequently apply a set of analytic tools to identify a viable solution. Our study encourages instead that managers should be attentive to and embrace the less conscious, but equally important, cognitive approaches relating to the emerging design logics. The more complex the problem, the more likely this inductive reasoning approach opens new perspectives and offers more in-depth insights into viable business model designs. Relatedly, the predominant research focus on the content dimension has led to a multitude of practice-oriented recommendations that rely on pre-formatted business model templates and typologies. While template-based approaches, such as the business model canvas, have become highly popular in business practice, our results suggest that the sole reliance on content-based reasoning tools could be misleading. Templates necessarily bind managerial cognition within the predefined problem space. However, our results provide evidence that creative ideas for radically new solutions might originate in everyday situations that do not relate in any way to the context of the business model design. Therefore, the results of this study underscore the importance of awareness of moments of intuitive sparks, emotionally charged beliefs, and imagination, which potentially hold the key for unlocking the future business model design of the firm

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