How Much Does Business Model Matter For Firm Performance? A Variance Decomposition Analysis

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Although an emerging literature has described the phenomenon of business model, little is known about how much business model matters in explaining heterogeneity in business performance. Our study explores this question with a variance decomposition analysis using panel data on 917 businesses in the European retail sector over a twelve-year period (2005-2016). We first replicate previous studies in our empiricalcontext. We then propose an operationalization of the 'Business Model Canvas' and introduce the business model as a new determinant of performance in our analysis. Our results show that business model explains a significant amount of variance in ROA (5.1%) and market share (7.9%), indicating that business model matters--it is comparable in importance to industry effects. Finally, our results indicate that the business model effect varies with operating experience, suggesting that, over time, businesses are able to develop capabilities for idiosyncratic business model design. Overall, our study provides empirical evidence that informs the debate about whether the business model is a useful construct in management research and explores several avenues for future theory-building research.
Bibliographic citation: Sohl, Timo; Vroom, Govert; Fitza, Markus, "How Much Does Business Model Matter For Firm Performance? A Variance Decomposition Analysis", Academy of Management Discoveries, 2018, (Online)

Reference: 10.5465/amd.2017.0136 (DOI)
Date: 30/10/2018
Author(s): Sohl, Timo; Vroom, Govert; Fitza, Markus
Document type: Article in Journal (refereed)
Languages: English