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

• Published date: 01 June 2019
• Author: Dirk Schneckenberg,Vivek Velamuri,Christian Comberg
• DOI: http://doi.org/10.1111/emre.12293
• Date: 01 June 2019

The Design Logic of New Business Models:

Unveiling Cognitive Foundations of

Managerial Reasoning

DIRK SCHNECKENBERG,

1

VIVEK VELAMURI

2

and CHRISTIAN COMBERG

2

1

Strategy Department, ESC Rennes School of Business, Rennes, France

2

HHL Leipzig Graduate School of Management, Leipzig, Germany

Despite theimportance of managerial reasoningin designing business modelsto handle exogenous change, littleis

known about its cognitive foundations. We address this gap with a comparative analysis of how managers rethink

business model configurations to provide value in the emerging collaborative consumption economy. As customer

behaviors shift from owning to sharing possessions, they challenge firms’established bus iness model logi cs. Using

data from in-depth interviews with managers from 22 sharing ventures, we find six cognitive processes to influence

reasoning in new business model design. Furthermore, we find that these processes fall into distinctive dimensions

of dominant and emerging logics. Ultimately, they combine into a design logic that explains how managerial

reasoning results in conceptually different value creation and value capture configurations. Overall, our findings

provide insights for theorizing business model design, and they enhance understanding of the foundations of

managerial cognition in innovation contexts.

Keywords: design logic; business model design; managerial cognition; collaborative consumption; sharing

economy; innovationtheory

Introduction

Innovation in its many forms has become an obsession in

public discourse. Today nearly everything is deemed

innovative, threatening to turn the term ‘innovation’into

a mere fashion label (Le Masson et al., 2010). The

academic field provides an equally diverse and multi-

faceted picture for innovation as a research subject: in

their systematicreview, Crossan and Apaydin (2010)find

numerous approaches and definitions of innovation,

which mightpartially result from its understanding as both

a process and an outcome.

One way to address the ambiguity of ‘innovation’is to

specify its meaning in distinctive research settings. For

example, from an organizational research perspective,

innovation represents an essential path for the firm to

maintain a competitive advantage in dynamic industries

(Tushman and O’Reilly, 1996). With a closer focus on

managerial cognition, Crossan and Apaydin (2010)

suggest the abilit y of individual o r groups to recogni ze

novelty and to rethink established strategy plans as one

determinant factor for organizational innovation. By

taking this investigative perspective on cognitive abilities

into account,our study explores the cognitivefoundations

of managerial reasoning in novel and uncertain contexts.

Our specific research setting comprises managers

designing new business models in the emerging sharing

economy. Although tech nology-enhanced coll aborative

consumption practices create profit opportunities for

private asset owners and cost reductions for temporary

asset users, they disrupt the logic of established business

models (Belk, 2014; Hamari and Sjöklint, 2015).

Cognitive and psychological theory broadly defines

logic as a systematic form of reasoning conducted

according to commonly accepted principles of validity

(Henle, 1962; Evans, 2002; Mercier and Sperber, 2011).

Organizational research suggests that logic is a central

concept for understanding strategy formation (Sandberg

and Tsoukas, 2011; Gruber et al., 2015) and collective

identity (Mantere and Ketokivi, 2013). In consequence,

logic is an important cognitive component for business

model design, as it frames managerial reasoning about

adapting to changing industry contexts (Kor and Mesko,

2013). Some scholars have studied prevailing business

Correspondence: DirkSchneckenberg, Strategy& Innovation Department,

Rennes School of Business, 2 rue Robert d’arbrissel, 35065 Rennes,

France. E-maildirk.schneckenberg@rennes-sb.com

European Management Review, Vol. 16, 427–447, (2019)

DOI: 10.1111/emre.12293

©2018 European Academy of Management

model logic for products and services as a source of

cognitive bias in recognizing and seizing new market

opportunities (Chesbrough, 2010; Sabatier et al., 2010).

Other studies have examined logic as an abstract

representation undergirding the business model

configuration of the firm (Teece, 2010; Casadesus-

Masanell and Zhu, 2013). For example, Amit and Zott

(2015) describe creative tasks and analytic processes

enabling managers to logically relate antecedents for

business model design to resultant design themes of

novelty, efficiency, lock-in, and complementarities. From

a strategy persp ective, business model develo pment relies

on combining design themes and elements into a coherent

system of value creation and value capture (Casadesus-

Masanell and Ricart, 2010).

Like the frequent reference to the term ‘logic,’which

emphasizes the systemic nature of the business model,

the term ‘design’is widely used in research to describe

managerial thinking and decisions about the content and

structure of a boundary-spanning system of activities

(Massa and Tucci, 2013). At the cognitive level, design

broadly involves reasoning processes aiming to solve

given problems and to search for better solutions (Simon,

1996). Related studies of the business model have

considered the rol e of design as an analyti c instrument

to conceptualize value creation and value capture

configurations and to allocate organizational resources

for their enactment (Chesbrough and Rosenbloom, 2002;

Doz and Kosonen, 2010; Teece, 2010; Baden-Fuller

and Mangematin, 2013; Massa et al., 2016). However,

while the content dimension of the business model has

gained scholarly attention, more research is needed to

understand the origins and shape of its causal structure

(e.g., Furnari, 2015). Relatedly, the role of different

kinds of reasoning in design (Gero, 1990; Hatchuel and

Weil, 2009), such as emotional influences (Hodgkinson

and Healey, 2014; Huy, 2011, 2012), and intuitive

hunches (Salas et al., 2010; Healey and Hodgkinson,

2014), and their adherent cognitive processes involved

in the design of business models have not been

empirically addressed. I n sum, despite the growing

interest in the role of logic and reasoning in business

model design, the understanding of its cognitive

foundations remains limited.

We address this gap in our study. Specifically, we ask,

‘Which cognitive processes involve in reasoning during

the design of business models?’Pursuing this question is

important, as answers to it deliver insights into how

cognition influences the development of systematic

mental representations about value-creating and value-

capturingfirm activities in situations of exogenouschange

(Furnari, 2015; Martins et al., 2015; Foss and Saebi,

2017). Our comparative analysis of in-depth interviews

examines how managers reasoned about, and construed

meaningful design logics, for new business models in

their ventures, enabling them to provide customer value

in collaborative consumption markets.

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 collectivelystrengthen a dominant logic

in 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 logicsdiffer 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.

Theoretical background

To inquire aboutbusiness model design, itis useful to first

delineate the theoretical foundations of the two terms

‘business model’and ‘design.’While the business model

is commonly represented as a boundary-spanning activity

system (Afuah and Tucci, 2001; Zott and Amit, 2007,

2010; Amit and Zott, 2015), prominent work provides a

428 D. Schneckenberg et al.

©2018 European Academy of Management