Business Model Mechanism

Abstract

The business model mechanism constitutes the value creation and appropriation drivers that underlie the firm’s competitive advantage. Entrepreneurial incentives enhance the firm’s value creation and appropriation drivers. The entrepreneurial incentives further enhance the management logics that enable the firm to sense, seize, and act on value opportunities that provide the firm’s value creation engine the fuel to sustain competitive advantage. The business model advantage construct constitutes scalability, adaptability, and sustainability. The business model complexity, tacitness, complementaries, customer and supplier lock-in, and business model novelty and specificity enhance the business model sustainability. The business model adaptability is enhanced with activity system multiplexity, redundancy, and loose–tight coupling. The business model construct can be alternatively viewed by the four perspectives of the balanced scorecard. The strategy map links the firm’s financial performance, buyer value drivers, value activities, and core resources. Robust business models enable firms to stay ahead of the Red Queen race. The entrepreneurial incentives sustain the value creation and appropriation that enhances the business model advantage and the firm’s competitive position. A business model that has optimal complexity such that it operates at the edge of chaos provides increasing returns to scale. The management logics are the “glue” that hold a firm’s loosely coupled value activities together.