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Market-Based Solutions to Vital Economic Issues


Kenan Institute 2024 Grand Challenge: Business Resilience
Market-Based Solutions to Vital Economic Issues
Jun 26, 2023

Organizational Herding and Business Model Innovation Adoption


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.

Note: Research papers posted on SSRN, including any findings, may differ from the final version chosen for publication in academic journals.  

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