Thriving in the New Normal: The HR Microfoundations of Capabilities for Business Model Innovation. An Integrated Literature Review

• Author: Lilian Otaye‐Ebede,Jim Stewart,Mark Loon
• DOI: http://doi.org/10.1111/joms.12564
• Published date: 01 May 2020
• Date: 01 May 2020

© 2020 Society for the Advancement of Management Studies and John Wiley & Sons, Ltd.

Thriving in the New Normal: The HR

Microfoundations of Capabilities for Business Model

Innovation. An Integrated Literature Review

Mark Loona, Lilian Otaye-Ebedeb and Jim Stewartc

aBath Spa University; bUniversity of Liverpool; cLiverpool John Moores University

ABSTRACT Firms need to respond to the increasing competition and change of the current

New Normal environment by being more innovative, and especially in developing new business

models. This paper seeks to explore how microfoundations, particularly with respect to human

resource management, play a key role in facilitating innovation in business models through the

development of key needed capabilities. Four themes are identified with respect to business

model innovation (BMI) in the New Normal: BMI as an enabler to create and operate across

industries and product-markets; BMI as a mechanism for firms to better navigate changing

institutional landscapes; BMI as giving rise to business model portfolios; and concurrent and

cumulative innovations that can lead to BMI. This paper also develops a conceptual framework

that presents a synoptic view of the five essential capabilities for BMI, which include analogical

reasoning, sensemaking, dynamic capabilities, organisational ambidexterity, and organisational

learning. Finally, it is shown how the microfoundations of a bespoke, development-oriented BMI

HR architecture can support the advancement of these capabilities and thus contribute to the

strategic HR literature.

Keywords: business model innovation, capabilities, human resources, microfoundations, new

normal, new ventures

INTRODUCTION

How do firms create innovative and successful business models, particularly given the

turbulence characterising the current business environment? The extant literature pro-

vides some direction, though it largely focuses on very specific perspectives such as gen-

erative cognition (e.g., Andries et al., 2013), modalities and patterns of learning (e.g.,

Berends et al., 2016), structural agility through modularisation (e.g., Bock et al., 2012),

Journal of Man agement Studi es 57:3 May 2020

doi:10. 1111/jo ms .125 64

Address for reprints: Mark Loon, Research and Graduate Affairs, and Bath Business School, Bath Spa University,

Corsham Court, Church St, Wiltshire, Corsham SN13 0BZ, UK (m.loon@bathspa.ac.uk).

Thriving in the New Normal 699

© 2020 Society for the Advancement of Management Studies and John Wiley & Sons, Ltd.

and organisational ambidexterity (e.g., Markides, 2013). While these perspectives are

important, they provide a limited understanding of the topic of business model innova-

tion (BMI). Much of the cognition and learning research tends to be centred on indi-

viduals, and at the early phases of BMI, while agility and organisational ambidexterity

focus more on managing two business models at the same time, leaving major gaps in

understanding the approaches to BMI (DaSilva and Trkman, 2014; Sohl et al., 2020).

More specifically, the micro level that contributes to effective BMI is still less understood,

particularly from a human resources (HR) and microfoundations perspective, which is

paramount, given this perspective’s importance to the formulation, implementation, and

trial-and-error correction required for successful innovation in business models (Teece,

2010). Accordingly, we seek to address two research questions in this study: What do

firms need to create new and innovative business models in the current and radically

changing business environment that characterises the New Normal of recent years? And

also, how do HR microfoundations support the development of needed organisational

capabilities and ultimately BMI?

The concept of BMI – defined as the ‘[process of] designing a new, or modifying

the firm’s extant activity system’ (Zott and Amit, 2010, p. 2), has received increased

attention in the management field (Foss and Saebi, 2017; Teece, 2010, 2017). This can

be attributed to major and unpredictable changes (Voelpel et al., 2004) synonymous

with the New Normal environment of the past decade or so (El-Erian, 2010; Etzioni,

2015), which is characterised by radical, nonergodic erratic change with steep and dif-

ficult-to-predict inflection points (Verbeke, 2018). For instance, the increasing success

of firms seeking growth by operating globally across sectors and markets (Ahlstrom,

2010; Van Reenen, 2018) corresponds with the rise of BMIs that allow fir ms to be more

sophisticated in the way they address the ‘compete vs collaborate’ conundrum and other

innovation puzzles (Christensen et al., 2016; Sohl et al., 2020; Velu, 2016). Similarly, the

fall in poverty in many parts of the world in recent years (Pinkovskiy and Sala-i-Martin,

2014; Si et al., 2020) corresponds to the rise of locally based, innovative business models

such as Grameen Bank’s microfinancing and other initiatives encouraging new ventures

and freer markets (McCloskey, 2016, 2019; Yunus et al., 2010). These observations sug-

gest that BMI is a crucial factor for firms to enhance performance by thriving in the

New Normal, as BMI enables firms to enhance partnerships with competitors, diversify

when local markets are saturated, and to meet new consumer demands and opportu-

nities as they are quickly enabled. However, understanding the creation of new and

innovative business models in the New Normal remains a challenge for researchers and

managers alike.

A new generation of research suggests that HR microfoundations offer insight to the

development of capabilities and accompanying resources needed for BMI (Felin et al.,

2015). Microfoundations represent the skills and knowledge of the individual, and the

routines and operative structures present within firms (Felin et al., 2012). They have been

used to explain a number of organisational capabilities, that is, routines that are emer-

gent (Barney and Felin, 2013), determined largely by an organisation’s HR practices,

and facilitated by human capital and other resources (Christensen et al., 2016). However,

research into capabilities and resources have generally been located at the organisational

level (e.g., Henderson and Cockburn, 1994; Zollo and Winter, 2002) while much less has