Business model innovation in the private equity industry

This paper expands our knowledge about the under-explored phenomenon of business model innovation by explaining which firm characteristics and modes enable entry into new models and which firms come to play in more than one business model. The study is empirically anchored in the private equity (PE) market that, marked by intense competition and reduced access to debt, saw the diffusion of a new business model of “platform deals” in contrast to the traditional PE model of standalone buyout and re-structuring (2004-2016). By combining inductive theorizing and theory testing, this paper argues that firms highly embedded in routines that correspond to the traditional business model (high frequency acquirers) are less likely to adopt a new business model and inorganic modes (deal-syndication) are particularly useful for adoption especially for firms that lack focus (highly diversified PE firms). Importantly, the paper highlights the critical role of corporate strategy in organizational adaptation. It shows that while breadth in market scope enables exploration of a new business model, it may impede its institutionalization within the firm due to associated constraints imposed by the firm’s organizational structure.