Do You See What I See? How Differing Perceptions of the Environment Can Hinder Radical Business Model Innovation

Incumbent firms face the challenge of how to adapt to disruptive changes in the external environment. One way to solve this challenge is to allocate resources to identifying and exploring new trends and opportunities emerging from the environment that may affect existing business models, and guide the development of new ones. As has been widely acknowledged, many incumbents fail at more radical business model innovation. Few studies have examined the role of cognition in this context. We suggest that differences in strategic issue identification and interpretation can help to explain the cognitive barriers that emerge when incumbent firms try to engage with radical business model innovation. We propose and test a Delphi-based method to elicit and examine differences in the perception of industry trends, comparing innovators, core business employees, and external experts, in the context of a leading Nordic insurance firm. We find considerable disagreement between members of the innovation department and the core business, in this firm. We suggest this helps explain why internal innovators find it challenging to “sell” radically new business models to the core business. More generally, we contribute to the growing literature on business model innovation in incumbent firms.