Understanding the lifecycle of

service firm business models: a

qualitative-empirical analysis
Sven M. Laudien1 and Birgit Daxb€ock2
1
University of Erfurt, Chair in Strategic Management, P.O. Box 900 221, Erfurt 99105, Germany.
sven.laudien@uni-erfurt.de
2
University of Erfurt, Chair in Strategic Management, P.O. Box 900 221, Erfurt 99105, Germany.
birgit.daxboeck@gmx.at

A recent customer-driven change of the understanding of service forces especially service

firms to revise their strategies and following their business models as new market condi-
tions require firm action. Our paper presents an analysis of how service firms innovate
their business models in detail to cope with changing ecosystem conditions. We focus on
theory building and approach this topic against the background of a qualitative, narrative
research design. Our study contributes to business model innovation literature as it pro-
vides insights into the dynamics of business model innovation and presents an empirically
grounded cycle model that details how service firms choose, invent, utilize, develop, and
finally terminate a specific business model. In addition, we highlight cognitive and struc-
tural determinants affecting the positioning of a specific service firm business model in the
identified lifecycle.

1. Introduction Therefore, service firms face the challenge to design

value creation processes in line with this insight

D eveloping and delivering service offerings is a

highly complex task for service firms as this
calls for a detailed understanding of customer expect-
ations (Parasuraman et al., 1991). Recent literature
(e.g. Priem, 2007; Priem et al. 2012) emphasizes the
important role customer value perceptions enfold on
value creation processes following the insight that
technological advancements and better access to
information have caused customers to transform from
a passive recipient to an active co-creator of value
(Hennig-Thurau et al., 2010). With regard to service,
customers do – in contrast to products – recently not
only esteem the delivered solution, but also put
emphasis on the delivery process itself as it contrib-
utes to the perceived value of the final solution.
(Chesbrough, 2011; Ostrom et al., 2015). Executing
this change on a firm level is challenging because
metal models that affect managerial sensemaking
(Kiesler and Sproull, 1982) and, therefore, depict cog-
nitive barriers (Barr et al. 1992) very often prevent
established and successful service firms from over-
coming traditional, inert value creation processes
(Huff et al. 1991). To understand how service firms
react to a changing service orientation of customers –
an aspect that is by now widely ignored in literature –
we make use of the business model concept as it
allows for mirroring change in terms of transaction
architectures and organizational forms (Amit and
Zott, 2001) from a holistic, system level perspective
(Zott and Amit, 2013). Additionally, relying on the

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Sven M. Laudien and Birgit Daxb€
ock
business model concept makes it possible to employ a
process perspective as radical and incremental
changes appear as innovations or adjustments of the
service firms’ extant business models (Casadesus-
Masanell and Ricart, 2010; DaSilva and Trkman,
2014).
Against this background, we ask: (1) How do serv-
ice firm business models evolve over time? (2) Which
factors enable or hinder this business model innova-
tion or business model adjustment processes?
Our paper is organized as follows: In section 2, we
give a brief overview over business model literature
and business model innovation literature that serve as
theoretical background of our paper. Section 3 intro-
duces the employed research methodology. We make
use of a qualitative, narrative research approach, and
present process data of eight service firms. Our data
mirrors the service firms’ histories and allows for a
deep understanding of business model innovation
processes. In section 4, we present the main findings
of our study that we discuss against the background of
extant literature in section 5. Section 6 sums up the
results and highlights the contribution of our paper
that is twofold: (1) We enhance the understanding of
dynamics of business model design in a service firm
context by identifying stages that characterize the
change process in general; (2) we identify enablers of
and obstacles to this process that determine how indi-
vidual service firms are able to deal with the exter-
nally determined necessities for business model
change.
2. Business models and business model
innovation in service firms
Although the business model concept increasingly
attracted attention in the past 15 years, a unitary theo-
retical framework for research on business models
does not exist by now (Zott et al. 2011; Spieth et al.
2014). However, there is consensus among research-
ers that the business model is a new unit of analysis
(Zott and Amit, 2013) that is clearly distinct from but
related to the concept of strategy (Casadesus-Masa-
nell and Ricart, 2010; DaSilva and Trkman, 2014). A
firm’s strategy can usually be identified by examining
the corresponding business model. In this realm, an
outside observer needs to consider the distinction
between deliberate and emergent strategy as a busi-
ness model may no longer coincide with a firm’s ini-
tial strategy if modifications to the business model
had to be made due to contingent events (Casadesus-
Masanell and Ricart, 2010). Hence, a business model
can be regarded as a conceptual tool that helps firms
to realize and implement strategies. A business
2 R&D Management 00, 00, 2017
model’s operational role (Spieth et al., 2014) provides
guidance and support to better understand and to
establish the activity system (Zott and Amit, 2010)
that is necessary to pursue a specific strategy. In line
with Zott and Amit (2010, p. 216), we conceptualize a
business model ‘. . .as a system of interdependent
activities that transcends the focal firm and spans its
boundaries.’ According to Zott and Amit (2010),
business models can be described along three parame-
ters: What activities are carried out (content)? How
are these activities carried out (structure)? Who car-
ries out the activities (governance)?
Business models are not stable, but need to be
reconfigured over time (Morris et al., 2005; Demil
and Lecocq, 2010; Doz and Kosonen, 2010). Espe-
cially changing ecosystem conditions force managers
to continuously monitor the viability of the firm’s
extant business model (Teece, 2010; Bucherer et al.
2012). Service firms are more than manufacturing
firms affected by these changes as they offer intangi-
ble units of output that lack the palpable quality of
goods (Vargo and Lusch, 2004) and need to be tai-
lored to customer needs. This aspect is crucial taking
into account the simultaneous nature of service pro-
duction and consumption which prevents service
firms from implementing business models developed
in a manufacturing firm context as these business
models are normally based on a sequential under-
standing of production and consumption (Boyt and
Harvey, 1997).
In general, the change of a firm’s business model is
related to reframing the firm’s business logic, rethink-
ing customer value propositions, as well as structural
reconfigurations (Spieth et al., 2014; Martins et al.,
2015). In this context, it is necessary to distinguish
between business model innovation and business
model adjustment. Business model innovation relates
to radical changes of a firm’s extant business model
(e.g. Casadesus-Masanell and Zhu, 2013) or to the
introduction of new-to-the-market business models
(e.g. Markides, 2006). In contrast, business model
adjustment involves rather incremental changes and
improvements of a firm’s extant business model (e.g.
Cavalcante et al. 2011; Schneider and Spieth, 2013).
Research shows that a firm’s ability to change its
business model is influenced by cognitive manifesta-
tions of managers (e.g. Chesbrough, 2010; Cavalcante
et al., 2011) and following managerial dynamic capa-
bilities (Mezger, 2014; Helfat and Peteraf, 2015). The
success of an extant business model may for instance
cause cognitive biases which then act as a blinder that
prevents the recognition of new opportunities or
threats. Furthermore, a firm’s dominant logic plays a
role in this context (Chesbrough, 2010). Especially at
the exploration stage of business model innovation in
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which firms experiment with potential new business
model configurations, mental models and bounded
rationality of managers hamper business model
change (Sosna et al., 2010). Sosna et al. (2010) show
that even if managers overcome such cognitive bar-
riers, the implementation of a new business model is
still a challenge as it affects all firm activities, and
thus all hierarchical levels within the firm.
3. Methodology
3.1. Research setting
Guided by our aim to better understand service firm
business model change processes, we employ a quali-
tative research design that is useful to gain a time-
related understanding about complex phenomena or
processes (Gartner and Birley, 2002; Graebner et al.
2012). We purposefully selected a sample of eight
established service firms for this study. Purposeful
sampling as method (Patton, 2002) allows to build a
sample capable of providing an in-depth understand-
ing of a specific phenomenon by ensuring richness of
information.
We selected our case firms based on the following
criteria: First, we chose established service firms with
Table 1. Characteristics of case firms
Case Industry Firm size
firm (SIC code) (no. of
employees)
1 8711 engineering services 11–50
2 8721 accounting, 11–50
auditing, and book-
keeping services
3 8748 business consulting 11–50
services, not elsewhere
classified
4 7389 business services 51–250
not elsewhere classified
5 7371 computer program- 11–50
ming services
6 7389 business services 11–50
not elsewhere classified
7 8734 testing laboratories 51–250
8 8099 health and allied 51–250
services, not elsewhere
classified
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Service firm business model lifecycle
at least 5 year experience in business. This was neces-
sary as new ventures or entrepreneurial firms are com-
pared to established firms affected by different
challenges related to configurating business models
(Cortimiglia et al., 2016). Second, we focus on small
and medium-sized firms because we needed to ensure
that the firms under research are equipped with a com-
parable resource base. Additionally, we looked for
firms where we were able to get access to a senior
manager who has been part of the firm from inception.
A detailed description of firm characteristics is pro-
vided in Table 1.
3.2. Data collection
Our study is based on interviews with senior managers
of eight service firms that took place between Septem-
ber 2014 and September 2015. By asking questions
that helped us to assess informant competency
(Kumar et al., 1993), we ensured that the interviewed
firm representatives were knowledgeable about the
firm strategies and had decision-making authority in
this context. We started with eight initial interviews
that lasted a minimum of 1.5 hr. We conducted the
interviews at the firm premise with two researchers
present. The open-ended interviews (Yin, 2009) were
recorded and carefully transcribed. We asked the
Founding Current core business
year
2009 Operating in the field of automation engi-
neering; special focus on the development
of software solutions and accompanying
consulting services; high degree of collab-
oration with network partners
2005 Operating in the field of tax accounting; tra-
ditional business with no special
peculiarities
2007 Operating in the field of IT and management
consulting; high dependency on key
customers
2009 Operating in the field of facility manage-
ment; traditional business with no special
peculiarities
2000 Operating in the field of industrial software
solutions; strong focus on innovative,
highly customized solutions
1992 Operating in the field of consulting and pro-
ject management related to cargo handling
1992 Operating in the field of food chemistry;
strong focus on research on development
1976 Operating in the field of specialized medical
services with a distinct focus on occupa-
tional medicine
3
Sven M. Laudien and Birgit Daxb€
ock
senior managers to tell us about important strategic
actions during the firm’s history and their detailed
consequences for the firm’s business model. In addi-
tion, we asked the firm representatives to estimate the
importance of the event and to position it on a timeline
that was predefined by the existence of the firm
(Clausen, 1998). By setting milestones and addressing
them in a very personalized way (Denzin, 1989) the
interviewed firm representatives were guided to focus
on a specific event of relevance which helped us to
explore the issues our research is concerned with
(Bansal and Corley, 2012). After analyzing the first
round of interviews, we contacted our informants
again and conducted a second round of firm-tailored
interviews in order to gain deeper insights into the
identified business model innovation processes. To
enhance the validity of our data and especially to
avoid a retrospective bias (Huber and Power, 1985;
Golden, 1992), we also collected additional data from
sources such as firm websites, annual reports, or press
coverage (Yin, 2009). Follow-up phone calls helped
us to complete our data in case of missing or unclear
information.
3.3. Data analysis
In the data analysis, we followed an iterative approach
(Ram and Trehan, 2009). The data was in a first step
independently analyzed by two researchers. In this
step, the transcribed interviews were subject to an
open coding procedure (Miles and Huberman, 1994;
Gioia et al., 2013). The results of the individual cod-
ing processes were collated in charts, discussed and
combined, and further analyzed using the constant
comparison method (Bansal and Corley, 2012). This
method involves an iterative reviewing of data with
emerging categories. As result of this data iteration,
patterns were identified that link the categories and
allow for an explanation of the lifecycle of service
firm business models (see also Table 2).
4. Findings
The open coding procedure allowed for an identifica-
tion of aggregate categories (see left column of Table
2) that depict phases of and barriers that influence the
lifecycle of a service firm business model. The
description of these categories that is presented in the
middle column (see Table 2) can – according to Gioia
et al. (2013) – be understood as lower order themes
explaining the higher level categories. In the right col-
umn of Table 2, we present selected quotes to show
how the aggregate categories as well as the explaining
themes are linked to the data.
4 R&D Management 00, 00, 2017
Our data shows that service firm business models
follow a distinct lifecycle. In the preformation phase
(see Table 2), different possible business model con-
figurations that can be utilized are developed and
evaluated. Based on the evaluation, the top manage-
ment decides on which configuration they plan to
implement. This business model configuration is fur-
ther developed based on test runs carried out in a con-
trolled setting and thereby transformed into the
invented business model (phase 1, see Table 2). In
phase 2 (see Table 2), the business model is imple-
mented on a firm-wide basis; this implementation is
characterized by a process of rather small alterations
that are made to the originally invented business
model. This final business model configuration – the
innovated business model – is then employed and
exploited without changes for a certain amount of
time. In phase 3 (see Table 2), changing ecosystem
conditions such as new technologies that emerge or
changing customer requirements necessitate adjust-
ments of the extant business model in order to retain
external fit. When – despite adjustments being made –
the business model’s contribution to value generation
considerably decreases, withdrawal of the business
model becomes necessary (phase 4, see Table 2). If
there is no reason anymore for keeping the business
model alive, it is finally terminated. In addition, bar-
riers exist that need to be taken into account as they
determine how fast the service firm business models
pass through the lifecycle. The service firm business
model lifecycle is depicted in Figure 1.
Although all analyzed case firms experience the
phases of the business model lifecycle in the same
order, the way how they deal with change differs in
detail. Interestingly, our data reveals that initiating a
new business model does not require the termination
of the old one at once. Instead, all of our case firms
deal with two business models at the same time. How-
ever, the employed business models are at different
points of their individual lifecycle, which means that
the newer one slowly replaces the older one. This
insight stands in sharp contrast to literature assuming
a possible parallel and sustaining utilization of two or
more business models (e.g. Markides, 2013).
One group of firms (case firms 1, 3, 5, 7, and 8)
approaches change in an active way. As they are
actively seeking for opportunities, they initiate and
invent new business models when the extant business
model still makes an important contribution to value
generation and is usually positioned in the third phase
of the business model lifecycle (see Figure 1). The
withdrawal of the extant business model takes place
when the new business model is already in phase
two (see Figure 1) and thus set into practice. As these
firms are characterized by strategic foresight and a
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Table 2. Characterization of the service firm business model lifecycle
Process step Description
Preformation  A necessity for change requires changes
phase related to the business model
 Different potential business model configu-
rations are considered as means to realize
the new planned strategy
 Business model configuration analysis
takes place at top management level
Selection barrier  Choice of business model configuration is  “When thinking about a new business model I
limited by top managers’ values and
believes, their experiences, and business
ethics
 The selection process is to a great extent
nonrational
Phase 1: business  By selecting a specific business model
model invention configuration a planned strategy is trans-
ferred to a blueprint of a business model
 A controlled testing of the planned busi-
ness model configuration takes place
 After a successful test run the top manage-  “In order to ensure that our planned business
ment instructs lower hierarchical levels to
implement the invented business model on
a firm-wide basis
Implementation  A lack of functional capabilities on an
barrier organizational level prevents an unmodi-
fied implementation of the invented busi-
ness model
 Employees tend to oppose the firm-wide
implementation of a new business model
when it severely affects their work habits
Phase 2: business  First realization of the new business model  “When the new business model was running
model innovation on a firm-wide operational level that dif-
fers compared to the invented business
model
 As the firm wants to realize the invented
business model as far as possible, an
exploratory trial-and-error learning process
takes place; this process is a bottom-up
process
 The finally implemented, innovated busi-
ness model depicts a stable activity system
that supports the new firm strategy
Phase 3: business  Once stability of the business model has
model adjustment been achieved, exploitation becomes more
important than exploration
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Service firm business model lifecycle
Selected quotes
 “It is easy to think about new strategies. How-
ever, bringing a new strategy to an operational
level in a second step is highly challenging as
there are many ways to design a matching
business model.” (Senior manager case firm 7)
 “We were aware that our new, more
customer-focused strategy could be set into
practice in many different ways. We devel-
oped several possible business model configu-
rations and evaluated their strength and
weaknesses.” (Senior manager case firm 5)
 “I am the one responsible for determining a
new strategy and developing a plan how to
implement it.” (Senior manager case firm 1)
realized how limited I was by the extant way
of doing business and my prior experience.”
(Senior manager case firm 2)
 “When I entered the firm the old top manage-
ment team very often opposed to my ideas
and suggestions as they made decisions based
on individual perceptions and believes and
were not open for a rational line of reason-
ing.” (Senior manager case firm 6)
 “My job is done with developing a new strat-
egy and the respective plan how to implement
it. The detailed implementation is carried out
by my employees.” (Senior manager case firm
1)
model is appropriate, we test it in controlled
setting. I support this process and closely
monitor this test.” (Senior manager case firm
3)
 “Properly implementing a new business model
very often calls for specific capabilities that
are not always present. Therefore, we are very
often forced to implement a second best sol-
ution.” (Senior manager case firm 7)
 “Realizing strategic change is difficult as
employees resist accepting new responsibil-
ities. Therefore, the finally implemented busi-
ness model does very often not look like the
planned one.” (Senior manager case firm 6)
on an operational level we recognized that it
had not very much in common with our initial
plan.” (Senior manager case firm 2)
 “The fine-tuning of a new business model is
mainly triggered by front-line employees as
they know best what really works in business
practice. An institutionalized information
exchange process between all hierarchical lev-
els facilitates the implementation of changes.”
(Senior manager case firm 8)
 “After putting a lot of effort into developing a
new business model, the business model
needs to make money.” (Senior manager case
firm 3)
5
Sven M. Laudien and Birgit Daxb€
ock
Table 2. (Continued)
Process step Description
 Over time changes in the business ecosys-  “We experienced changing legal regulations
tem negatively affect the external fit of the
current business model
 By adjusting and improving the extant
business model the top management tries
to regain external fit
Necessity barrier  The extant business model is the main
source of value generation which forces
the firm to stick to this business model
 Keeping the business model alive becomes
increasingly resource consuming which in
turn prevents the pursuit of alternative
strategies and enhances the dependence on
the extant business model
Phase 4: business  When the contribution to value generation  “During the last year, we recognized that a
model withdrawal of the business model goes down and
passes a critical benchmark, the top man-
agement finally decides to withdraw this
business model
 To support the development of an alterna-
tive business model, resources, and capa-
bilities are transferred to the alternative
business model
 The business model remains alive as long
as obligations to customers and other net-
work partners exist
Commitment barrier  The final termination of a business model  “Although we ran our initial business model
is a top management decision which is
influenced by cognitive factors such as tra-
dition, personal involvement, or fear of
loss
 Commitment to e.g. employees, customers,
and other stakeholders may prevent the ter-  “As we work together for many hours a day,
mination of a business model
Final termination of  The business model does no longer exist
the business model  All resources and capabilities utilized in
the business model are recombined in
other business models or set free
6 R&D Management 00, 00, 2017
Selected quotes
that affected our business model and forced
us to adjust it to the changing conditions over
time.” (Senior manager case firm 8)
 “To remain competitive, we needed to adjust
our business model by integrating new net-
work partners in order to cover a broader
range of customer needs.” (Senior manager
case firm 4)
 “As my available resources are limited and
already allocated to specific firm activities, I
cannot start new firm activities without harm-
ing other ones by withdrawing resources.”
(Senior manager case firm 4)
 “Initiating a new strategy and developing a
new business model is risky. First of all, it is
costly. Second, the newly developed business
model may cannibalize my extant business
model which is problematic as I need the rev-
enues created by the extant business model to
further develop the new one.” (Senior man-
ager case firm 5)
new business model we initiated three years
ago has a much higher value creation poten-
tial compared to our traditional core business.
To benefit from this, we are currently inves-
ting in this new business while withdrawing
resources from the core business.” (Senior
manager case firm 6)
 “We plan to terminate our initial business
model. However, by now we are still commit-
ted to customers that helped us to build up
this business model. Nevertheless, we try to
shift resources step by step to the new busi-
ness model.” (Senior manager case firm 3)
for many years, we finally had to understand
that tradition alone is not enough to keep a
business alive. Hence, we terminated our ini-
tial business model.” (Senior manager case
firm 7)
my employees are a kind of second family for
me. As a new business model very often
requires different employee qualifications, I
hesitate to terminate a business model as this
would cause a high pressure for my employ-
ees.” (Senior manager case firm 2)
 “Our firm is characterized by continuous
change. Terminating a business model is
therefore not a catastrophe for the firm, but a
chance to develop something new out of
existing resources and capabilities.” (Senior
manager case firm 8)
 “Sometimes you need to destroy something
old to create something new. This holds true
for everything – including business models.”
(Senior manager case firm 7)
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Figure 1. Service firm business model lifecycle.
Source: Own illustration.
dedication to change, overcoming the structural bar-
riers (implementation barrier, necessity barrier; see
Table 2) is not that difficult for them.
In contrast, a second group of firms (case firms 2, 4,
and 6) approaches change in a reactive way and only
deals with this topic in case of external market pres-
sure. The lack of preparation for change is reflected in
the positioning of their business models in the life-
cycle. A new business model is only initiated when
the extant business model already shows a heavily
decreasing contribution to value generation. How-
ever, withdrawing the extant business model is not an
option for these firms as they lack a second business
model that could fill up the gap in value generation.
Therefore, resources are mainly allocated to the extant
business model in order to implement adjustments
that help to keep the business model alive for a longer
time (phase 3, see Figure 1). This resource commit-
ment to the extant business model is a main factor that
hinders the development of a new one. As a conse-
quence, both structural barriers (see Table 2) are
highly challenging for firms belonging to this group.
With respect to cognitive barriers (selection barrier,
commitment barrier; see Table 2), both groups of
firms are affected in the same way. It is important to
know that these cognitive barriers are related to the
top management level. The selection barrier is of spe-
cial relevance as it hampers the realization of change
and thus the invention of a new business model (see
Figure 1). Even when striving for change, managerial
attention, and managerial cognition very often have
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V R&D Management 00, 00, 2017
Service firm business model lifecycle
an influence on how change is carried out. The senior
managers act as gatekeepers trying to ensure that only
business model configurations that are in line with
firm norms and beliefs and firm tradition make their
way into the firm. This very often prevents the firms
from choosing business model configurations that are
radically new and, therefore, delimits the possibility
to benefit from emerging market opportunities.
5. Discussion
Our case data shows that despite of resource con-
straints small and medium-sized service firms seem to
make use of two business models at the same time.
This finding needs further explanation: First, both
business models are the realization of different strat-
egies. The more mature business model is linked to an
older or even outdated firm strategy, while the more
recently developed business model reflects strategic
change and thus depicts the realization of a new strat-
egy. Second, both business models are not meant to
coevally persist as the more recent business model is
designed to replace the more mature business model
over time. Against this background, it is important to
notice that our findings do not indicate that service
firms make use of so-called dual business models (e.g.
Markides, 2013; Markides and Charitou, 2004). In
contrast to our findings that clearly show a replace-
ment logic related to business models, dual business
models are designed to exist in parallel. The overlap
7
Sven M. Laudien and Birgit Daxb€
ock
of two utilized business models results from a high
risk that goes along with replacing a business model.
High risks related to business model innovation have
already been highlighted by Khanagha et al. (2014).
In this context, especially extensive resource require-
ments are of relevance. Innovating a business model
is costly (Sosna et al., 2010). Additionally, the payoff
of business model innovation is uncertain (Khanagha
et al., 2014). We enhance literature as we show that
small and medium-sized firms need to recombine
resources and to withdraw them from an existing busi-
ness model when creating a new one. So they lack on
the one hand resources for a second try to create a
new business model. On the other hand, they cannot
easily reinstall their old business model as (1) custom-
ers very quickly adapt to business model changes,
which may negatively affect the acceptance of rein-
stalling the old business model, and (2) the business
model withdrawal goes along with a destruction of
tacit knowledge that cannot easily be regained.
Another interesting phenomenon our case findings
uncover is that our case firms tend to spend a lot of
time and resources to adjust their extant business
model while very often denying the necessity to
explore new alternatives. Osiyevskyy and Dewald
(2015) also highlight the distinction between explora-
tory and exploitative business model innovation or
adjustment. However, our findings are different from
the findings provided by Osiyevskyy and Dewald
(2015) as we do not see that the managers’ perception
of the environment affects the decision for exploration
or exploitation. In contrast, this decision is – accord-
ing to our data – influenced by the general, deeply
embedded beliefs of the managers. A higher degree of
risk aversion leads to a hesitant withdrawal and termi-
nation of well-established business models. However,
long-term firm survival requires exploration and
exploitation activities. When mainly focusing on
exploitation firms are very likely to be trapped in an
outdated business model. Fernhaber and Patel (2012)
identify ambidexterity as an essential property of
firms in the context of product portfolio management.
We argue that managing a business model portfolio is
an even more complex task as the firm’s whole activ-
ity system needs to be taken into account. Hence,
ambidexterity becomes even more important. Two
explanations for the strong focus on exploitation are
possible. First, Smith et al. (2010) point to the impor-
tant role managers play in the context of complex
business model-related decisions. Simultaneously
dealing with exploration and exploitation requires
managerial foresight (Ahuja et al., 2005) that manag-
ers very often lack. Second, inertia seems to influence
the decision to stick to the extant business model. In
this context, our case data provides evidence for both,
8 R&D Management 00, 00, 2017
structural inertia (Hannan and Freeman, 1984; Kelly
and Amburgey, 1991) as well as cognitive inertia
(Tripsas and Gavetti, 2000).
6. Conclusion
Business model innovation literature (e.g. Cavalcante
et al., 2011; Bucherer et al., 2012; Schneider and
Spieth, 2013) highlights the need to distinguish
between (radical) business model innovation and
(incremental) business model adjustment. Our find-
ings support this call for such a differentiation as we
show that the decision to either innovate or adjust a
business model is affected by different antecedents.
We extend this literature stream as we provide empiri-
cal evidence that business model innovation and busi-
ness model adjustment are necessary in different
stages of the lifecycle of service firms’ business mod-
els taking into account service characteristics. While
business model innovation is related to strategic
change (Agarwal and Helfat, 2009), business model
adjustment represents a way to prolong the value con-
tribution of a firm’s extant business model. However,
the initiation of a new business model is neither
directly linked to innovation or adjustment, but
involves phases of a business model lifecycle that
happen before innovation and adjustment become an
issue. Hence, the identified service firm business
model lifecycle (see Figure 1) provides a detailed
answer to our first research question How do service
firm business models evolve over time?
With respect to our second research question Which
factors enable or hinder this business model innova-
tion or business model adjustment processes? the
results of our study point to enablers and barriers of
service firm business model development. Enablers
such as strategic foresight or ambidexterity ensure
that firms are not trapped in their extant business
model without having alternatives at hand when fac-
ing changing ecosystem conditions. Regarding bar-
riers, cognitive barriers as well as structural barriers
need to be taken into account as they block the run of
a business model through the lifecycle. By employing
a processual perspective, we are able to shed light on
service firm business model development from initia-
tion to termination. In doing so, we enhance business
model literature (e.g. Amit and Zott, 2012; Franken-
berger et al., 2013) as we include a by now still rarely
employed processual perspective and challenge the
opportunity-driven view mainly employed in this
stream of research. Moreover, our findings show that
not only business model innovation and business
model adjustment are difficult to manage for firms,
but also business model withdrawal and business
C 2017 RADMA and John Wiley & Sons Ltd
V

model termination depict complex and highly chal-
lenging processes.
Our findings are of special interest for managers as
we highlight the importance to coevally handle busi-
ness model exploitation and business model explora-
tion. Especially opportunities of business model
exploitation are limited which sheds light on the cru-
cial role of business model withdrawal – an aspect
that is by now due to its unpredictable risks only hesi-
tantly approached by business practice – but deserves
attention taking into account resource constraints
especially SMEs face. The decision to abandon an
extant business model could be crucial in terms of
gaining a future competitive advantage.
Naturally, our paper is not free from limitations.
First, we present a process perspective based on
interview data which could be affected by a retro-
spective bias. However, as we follow suggestions by
Huber and Power (1985) and e.g. enrich our inter-
view data with archival data, we are confident that
we are able to delimit possible negative effects in
this realm to a minimum. Second, our findings are
linked to the context of small and medium-sized
firms which calls for analyzing whether our findings
are also of relevance for bigger firms. Although ana-
lyzing business model development processes in this
special setting is of high relevance and allows for
new insights, transferability of our results to large
firm settings is very limited as a result of differing
resource endowments. Third, we focused on service
firms which depicts again a special setting as the
specific characteristics of service firms (see section
2 of this paper) also complicate the transfer of our
findings to other industry settings. It would be inter-
esting to look at business model innovation proc-
esses in other settings in detail.
All in all, our paper provides a new, processual
understanding of the development of service firm
business models. The developed lifecycle model
depicts a first step on the way to better understand the
development of service firms and their business mod-
els over time. We encourage future researchers to
build on our findings and to refine as well as extend
them as we are confident that this important topic
addressed in this paper deserves further attention.
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Service firm business model lifecycle
Sven M. Laudien is Interim Full Professor at the
University of Erfurt, Chair in Strategic Management.
He received his PhD from the University of Bremen.
His research interests include business models, busi-
ness model innovation, service management, and
coordination of transnational business activities.
Birgit Daxb€ock received her PhD from the Univer-
sity of Erfurt. Her research interests include servitiza-
tion, business models, and business model innovation.
11