The homeostasis paradox of new business models

Purpose – The speed and variety of new business models emerging in the current economy created a disruptive environment that lacks theoretical frameworks and perspectives to help academics, practitioners and policy makers to critically understand and appraise the phenomenon of new business models emergence. This paper addresses this neglect by discussing the phenomenon of service innovation from a systems thinking perspective, shedding light on issues concerning change and adaptiveness of business models. Design/Methodology/approach – We revisit fundamental questions raised by Normann (2001) to discuss change and creation phenomena. We also build upon his concepts of ‘bifurcation points’ of instability as well as Beer’s concepts of attenuation and amplification of variety (Beer, 1981) to differentiate ‘homeostatic change’ from ‘disruptive change’. We use the theoretical perspective developed in the paper to explain the emergence of new business models enabled by digital technologies in a service sector context. Findings – We point out that adaptive variability does not necessarily entails reestablishment of an original state of equilibrium. This is particularly the case of companies developing new business models. The newness of a ‘new’ business model infers nonexistence of an antecedent original state that provides basis for adaptation towards equilibrium. The novel state of a new business model can be considered as a new referential state for future homeostatic changes to maintain equilibrium until other disruptive changes take place. Practical implications – From the theoretical perspectives here addressed, one can see disruptive technologies as drivers of bifurcation points of instability for organisations. To deal with these instabilities, companies can opt for implementing either an attenuation or amplification strategy. The attenuation strategy is developed through homeostatic changes that attenuate disruptions in order to maintain a state of equilibrium. On the other hand, the amplification strategy can be implemented through disruptive changes that amplify disruptions by contextualizing the disruptive technologies into a new business model proposition for the market. Originality/value – We provide a systems thinking perspective for service innovation through new business models. We infer that the development of a new business model entails change to a different organisational state that, due to lack of a referential status for equilibrium, represents a state of dynamic disequilibrium, which paradoxically may provide basis for a state of equilibrium if the new model is successful. In this sense, we postulate that in organisations developing new business models homeostatic adaptations to restore equilibrium are typically preceded by adaptation to a different state of temporary dynamic disequilibrium.