Determinants of business model performance in software firms

The antecedents and consequences of business model design have gained increasing interest among information system (IS) scholars and business practitioners alike. Based on an extensive literature review and empirical research, this study investigates the factors that drive business model design and the performance effects generated by the different kinds of business models in software firms. The main research question is: “What are the determinants of business model performance in the software industry?” To address this question, the study conceptually and empirically investigates three topical issues in the software industry: (1) the prolific service dominance in software delivery; (2) the growing role of information technology in business; and (3) the openness of innovation activity in software development. These issues and the manifestations of software firms’ diverse business models are analyzed in five separate essays included in this dissertation. First, the study formalizes the definitions of software firms’ business models as the theoretical and conceptual layer between corporate strategies and operational processes. Second, it investigates the antecedents to business models through an empirical multimethod approach. It organizes the extant interdisciplinary research centered on the three firm-level orientations of service orientation, technology orientation, and openness of innovation activity, into a research model that explains the variation evident in software firms’ business models. Third, the study discusses the contingent role of business model type in the determination of firm performance. The performance effects of different types of business models are analyzed through a quantitative empirical study using structural equation modeling of data gathered from almost 200 software firms. This study makes several contributions to theory and practice. Overall, it adds to the understanding of the complex relationships among business model determinants, business model type, and firm performance. The results add to the resource-based theory of the firm and its extensions, as well as to the research on services and open innovation. According to the analysis, software firms with a service-oriented mindset are likely to focus on customer proximity in their business models. Such business models have a stronger relationship with financial performance than with market performance. Conversely, firms engaged in open innovation focus mostly on product uniformity, meaning that their innovation activity emphasizes the development of products and services that are new to the industry. Such companies have better market performance than financial performance. Moreover, the findings indicate that technological issues constitute an important antecedent in all types of business models.

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