Organizational Herding and Business Model Innovation Adoption

49 Pages Posted: 26 Jun 2023

See all articles by Guneet Kaur Nagpal

Guneet Kaur Nagpal

Western University - Ivey Business School

Ruby Lee

University of Florida - Fisher School of Accounting

Rajdeep Grewal

University of North Carolina (UNC) at Chapel Hill - Kenan-Flagler Business School

Date Written: June 21, 2023

Abstract

When a business model innovation (BMI) appears, incumbent firms experience great uncertainty about its potential ramifications and their capacity to assimilate the new business model. To resolve such uncertainty, incumbents seek to learn from industry peers, which can spark organizational herding. Organizational herding in BMI contexts is distinct, relative to product/technology adoption contexts, because in addition to peer behaviors, incumbents actively attempt to evaluate peer outcomes, and the importance of peer behaviors and outcomes likely vary, both over time and across types of peers. A unique data set, revealing the e-tailing BMI adoption decisions of 387 traditional brick-and-mortar, publicly listed, incumbent retail firms between 1995–2018, supports predictions of the influences of peer adoption behaviors and peer adoption outcomes, different time regimes (1995–2001 and 2002–2018), and the identities (types) of adopting peers (i.e., similar- or top-performing) on incumbents’ BMI adoption decisions. An instrumental variables identification strategy, where partially overlapping peer groups are used to mitigate the potential effects of simultaneity and correlated unobservable variables, offers robust evidence of herding effects among incumbents in the same peer group. The incumbents consider peers’ BMI adoption behaviors during the first regime, but they gauge BMI peer adoption outcomes during both time regimes. Furthermore, to resolve adoption uncertainty, even though incumbents are influenced by the adoption behaviors of similar and top-performing peers, only the adoption outcomes of the top-performing peers affect the incumbents.

Keywords: business model innovation, organizational herding, causal inference

JEL Classification: M210

Suggested Citation

Kaur Nagpal, Guneet and Lee, Ruby and Grewal, Rajdeep, Organizational Herding and Business Model Innovation Adoption (June 21, 2023). Kenan Institute of Private Enterprise Research Paper No. 4487514, Available at SSRN: https://ssrn.com/abstract=4487514 or http://dx.doi.org/10.2139/ssrn.4487514

Guneet Kaur Nagpal (Contact Author)

Western University - Ivey Business School ( email )

London, Ontario
Canada

Ruby Lee

University of Florida - Fisher School of Accounting ( email )

Warrington College of Business
PO Box 117166
Gainesville, FL 32611-7166
United States

Rajdeep Grewal

University of North Carolina (UNC) at Chapel Hill - Kenan-Flagler Business School ( email )

McColl Building
Chapel Hill, NC 27599-3490
United States

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