How managerial reflection initiates demand-side business model innovation

Teece (2010) offers one of the classical and most widely cited formulations of the business model (BM) concept. He posits that a firm's BM expresses a set of core managerial beliefs about how the organization creates value for customers, how it motivates customers to pay for that value, and how it converts those payments into profit. It also captures management's underlying assumptions about what customers want, how they prefer to receive it, and how the firm can best organize itself to meet those needs effectively while ensuring it is compensated and remains profitable. This view aligns with the cognitive perspective on BMs, which this paper adopts, emphasising the crucial role of individual managers within the organisation. From this perspective, a BM fundamentally refers to how individual managers interpret their company's way of doing business.

BM research, a subfield within strategic management, has expanded significantly over the past few decades. Massa et al. (2017) identify three conceptually distinct perspectives within this body of work. One growing stream, to which this study contributes, conceptualises BMs as cognitive schemas—mental representations of the organisation held by managers or other actors (e.g. Friis-Holm Egfjord and Sund, 2020; Martins et al., 2015). A second, and currently dominant, perspective views BMs as observable attributes of an organisation, encompassing the set of activities it performs and their outcomes (e.g. Chesbrough, 2010). The third perspective, rooted in early foundational work, treats the BM as a formal, normative conceptual representation, such as the blueprint of key organisational activities proposed by Osterwalder et al. (2005).

Business model innovation (BMI) research (e.g. Bigelow and Barney, 2021; Massa et al., 2017) has debated whether value creation and value capture are primarily driven by supply-side (organisation) or demand-side (customer) considerations. Much of this literature emphasises competitive advantage rooted in the organisation's resources and activities, innovating products, and the internal processes that support them, reflecting a predominantly supply-side orientation. However, as products are increasingly viewed as part of broader networks and ecosystems, the scope of BMI research has expanded. This shift acknowledges that value creation often occurs in contexts that extend beyond the firm's direct control (Baden-Fuller and Haefliger, 2013; Foss and Saebi, 2017). Even in these broader settings, BMI is frequently conceptualised as originating from the firm's goals and capabilities, contributing to its value delivery and capture, thus maintaining a primarily supply-side character.

Notably, a demand-side perspective has begun to gain traction in the BM literature, with recent contributions (e.g. Baden-Fuller, 2024; Massa et al., 2017; Priem et al., 2018; Schmidt et al., 2024) identifying it as a promising direction for advancing the field. There are foundational reasons for this. Creating value for consumers is the essential prerequisite for any organization's ability to capture value, making it central to demand-side strategy research and to nearly all business models (Priem et al., 2018). The BM concept is also viewed as strongly market-oriented, as it extends beyond the firm's boundaries and places primary emphasis on consumers in shaping and delivering a compelling value proposition (Zott and Amit, 2013).

When the demand side serves as the starting point, the perspective shifts fundamentally. Here, insights into customers and their logic shape how value is defined and how BMs are designed to align with that understanding. The focus may still be on individual products or broader product-service systems, but the point of departure lies outside the company, centred on buyers, customers, and their specific contexts. Demand-side thinking in terms of effective consumer value propositions and appropriately targeted consumer segments can therefore be considered the key to innovating successful BMs. Advancing academic understanding and developing managerial tools for operationalizing demand-side insights of BMI are essential to fully realise this potential.

While BM research predominantly focuses on the organisation as the unit of analysis, there are several reasons why considering the individual as a unit warrants attention. Organisations are abstractions of a collection of individuals, and when examining the micro-processes of BMI, it becomes essential to focus on individuals, their cognitions, and activities, aggregating them into collective levels. Instead of focusing the study on the organisation as a whole and its organizational traits, this paper adopts a more granular approach to comprehend how individual managers respond to changes affecting their organisation. This perspective is rooted in the concept of managers as theorists (Felin and Zenger, 2009, 2017) and regards managers' mental models and reflection processes as valuable resources (Felin et al., 2023). Another compelling reason to focus on individuals is to recognize the variation in views that different roles and positions within an organisation contribute to its overall functioning (Helfat and Peteraf, 2015). In line with Heubeck and Meckl (2022) and drawing on the dynamic managerial capability perspective, this paper argues that managers are central to strategic change through BMI and examines how such innovation is shaped by the way managers cognitively process information.

Crucially, turning demand-side insights into viable BMIs depends on managers' interpretive and strategic actions, particularly in dynamic environments that demand a rethinking of existing BMs (Baden-Fuller and Haefliger, 2013; Sund and Lindskov, 2022; Teece, 2010; Weick, 1995). Most companies rarely change or question their BMs (Taran et al., 2015), which constitutes a challenge in dynamic contexts. Managers play a key role in driving strategic change, yet the specific contribution of individual managers to BMI has received surprisingly little attention (Andreini et al., 2022; Bitetti and Gibbert, 2022; Schneckenberg et al., 2019; Taran et al., 2015). Managers often struggle to clearly describe either their current BM or the one they aim to develop, and they typically have even less clarity about how it could be innovated (Taran et al., 2015). This is particularly striking given that organisational sensemaking—a vital part of innovation—relies heavily on how individual managers interpret and reflect on their environment (e.g. Felin et al., 2023).

Overlooking a personal, micro-level perspective risks missing a key mechanism through which innovation unfolds. In response, this paper shifts the focus from the organisation as a whole to the individual manager and their reflection skills. It argues that these cognitive abilities are essential for understanding organisational dynamic capabilities such as those related to BMI. Spieth et al. (2025) call for greater attention to the cognitive micro-foundations of BMI, emphasising how managerial reflection and sensemaking shape innovation outcomes in dynamic contexts. Similarly, Kanbach et al. (2024) demonstrate how emerging technologies such as generative AI demand adaptive managerial judgment, reframing BMs relying on ongoing interpretation rather than through static templates.

Given the cognitive perspective and focus on individual managers, this study centres on the manager's role in BMI—specifically, how individual managers contribute effectively to innovation. In the BMI literature, the emphasis has traditionally been placed on outcomes rather than the innovation process itself (see, e.g. Massa et al., 2017). Moreover, existing research often highlights organisational-level processes, with limited attention to the contributions of individual actors (Kapoor and Teece, 2021). Yet, no BMI process begins without the initiating input of an individual. The process unfolds through this initial action, eventually involving others and potentially leading to changes in the BM.

This paper adopts a broad view of BMI, encompassing not only radical transformations but also incremental changes to the BM. The focus, therefore, is on the manager's capability to envision and initiate revisions—however small—that may evolve into meaningful innovation over time.

Building on the above discussion, this study rests on three core foundations: (1) a focus on demand-side phenomena in BMs, (2) the adoption of a cognitive perspective on BMI, and (3) attention to the role of individual managers during the early stages of BMI. Specifically, the study, firstly, aims to develop a conceptual framework that explains how individual managers can initiate and support demand-side BMI. Secondly, on the basis of this framework, it introduces a practical diagnostic tool to help managers initiate and navigate BMI processes within their organizational contexts.

The contributions of this paper are both theoretical and managerial, highlighting the significance of managerial cognition and action in the early stages of BMI. Its primary contribution is that it clarifies the role of managerial reflection within the BMI context. More specifically, this study advances BMI research by providing a conceptual framework and a diagnostic tool designed to support managers.

A cognitive perspective assumes that managers' mental models represent the logic underlying a BM. Mental models reflect an individual's understanding of a specific domain (Kapoor and Teece, 2021; Martins et al., 2015)—for example, a BM—and capture the concepts and links between them as perceived by the individual. To change the mental model—a prerequisite for transforming a BM—managers must engage in reflection (Felin et al., 2023). Reflection is a cognitive-emotional process involving thoughtful and deliberate contemplation about a subject, focusing on assessing its meaning, significance, and implications (Argyris, 1976; Felin and Zenger, 2009). The absence of reflection indicates a rigid belief structure and sensemaking resistant to change, referred to in the marketing literature as categorical or unreflective thinking, as opposed to the reflective thinking necessary for a mental model to evolve (Rydén et al., 2015). It should be noted that reflection is not purely cognitive but also involves emotional struggle (Hodgkinson and Healey, 2011). Various factors, such as a rigid mindset, lack of time due to busy schedules, heavy workloads, insufficient knowledge of how to engage in reflection, or organisational cultures discouraging reflection, can impede or diminish the willingness and ability to reflect.

In a managerial context, reflection entails questioning and challenging current beliefs about core business issues. The relationship between mental models and reflection can be viewed as a learning cycle, where reflection challenges, updates, and revises the mental model. Reflection goes beyond mere thinking, representing a higher-order cognitive process akin to the distinction between double-loop and single-loop learning (Argyris, 1976). Rooted in experience and perception, it involves triggering fragments, an imaginative exploration of possibilities, and processes of reasoning and justification (Felin and Zenger, 2009). The challenge, however, lies in how to initiate the reflection process.

Every company has an established way of doing business, where the BM, strategy, offerings, and operations form a relatively stable configuration. This configuration dictates what information needs to be collected and processed, the reasoning behind what to do and why, and how business processes and practices are conducted. In strategic literature, it is widely acknowledged that external factors, such as technological advancements, competitive dynamics, and regulatory shifts, play a pivotal role in triggering reactive changes in mental models (Ringberg et al., 2019). Martins et al. (2015) examine how managerial mental models can proactively adapt, forming the basis for a company's BMI.

To structure the discussion on how individual managers can initiate BMI through reflection, the key components are illustrated in a new conceptual framework and diagnostic tool for demand-side BMI (see Figure 1). The framework provides a generic approach for managerial practice, enabling individual managers to navigate and innovate within disruptive business environments. The new diagnostic tool entails questions sensitising the manager's reflection process for evaluating the current BM.

The goal is BMI at the company level. For the manager, the reflection challenge is to reveal underlying assumptions and beliefs that form the foundation for the BM. To guide the reflection process, attention should be paid to BM expressions (DOT) and BM elements (COM).

The BM is expressed, in practice, in three different ways: through the company's doing, observing, and thinking (DOT) (Strandvik et al., 2022). What the company is doing and not doing, how management is reasoning, and what information is collected and used are manifestations of management's mental model, i.e. the cognitive representation of the BM. These expressions are ideally aligned but not necessarily in practice, as business continuously evolves. Given the demand-side focus, the key interrelated BM elements are customers, offerings, and markets (COM). This focus reflects how managerial views of value creation have evolved over decades involving these elements (Strandvik et al., 2018).

The fundamental premise is that a BM is manifested through three interconnected expressions (DOT), all directed towards three fundamental business elements, namely, COM. It relies on the fundamental understanding that a company's business is built upon mental models, which, in turn, are grounded in various explicit and implicit assumptions. Over time, certain assumptions may become deeply ingrained within the company and the industry—becoming institutionalised and transforming from mere “assumptions” into widely accepted descriptions of business reality. Importantly, these assumptions may be embraced by some managers but not by others. While some could be formalised as established company practices for observation, thinking, and activities, others may remain more informal and implicit. Although BMI ideally should be an iterative process, it has also been claimed that its initiation may be challenging. This paper argues that an individual manager can, at any point, engage in a personal reflection process—even if no formal BMI process has been initiated—and thereby trigger an organisational process.

While environmental changes can naturally impact various facets, such as costs, production processes, and organisational structures, the primary emphasis here is on understanding how such changes influence the company's stance on customers, company offerings, and market dynamics. In general, two major challenges will arise: firstly, recognising the need to engage in reflection, and secondly, asking relevant questions.

A diagnostic tool based on DOT/COM with questions to support the manager's reflection process about the BM is proposed (Table 1).

Next, an individual manager's reflection process using the tool is exemplified. Consider the scenario where a manager in a company that does not appear to have immediate problems begins to reflect on the company's BM in use that depicts the company's current DOT/COM practices. This BM in use is not widely discussed; instead, conversations are focused on resolving issues within the company's self-evident way of doing business. Other companies in the industry may seem to have similar understandings and practices regarding COM and may add to the mental inertia.

Although no formal BMI process is initiated in the company, an ambitious and reflective manager contemplates potential market disruptions that could affect the company. The manager might have observed various global technological developments, sustainability challenges, and green transition, which are associated with market disruption. However, the manager has not yet noticed any concrete effects on the company's current situation. The manager has, however, realised that a BM is not only what the company formally decides to do or actually does, but also how individuals within the company conceptualise products, customers, and markets. It is not only the collective shared mental model that matters, but also individual understandings of core issues. This cognitive perspective inspires the manager, as it suggests that innovating the BMs begins by challenging current assumptions and reshaping mental models.

For example, in an industrial company, a key account manager has noticed a shift in customer buying behaviour, initiating a need to reflect on implications. The tool enables and inspires managers to iteratively examine changes in the business environment, probe into the underlying assumptions of current reasoning, and reconsider established actions to generate ideas for BMI. By focusing on specific BM elements, the framework lowers the threshold for reflection and helps initiate the process.

The manager may challenge existing “truths” within the company and engage in dialogue between opposing views while maintaining empathic understanding of differing perspectives. For instance, the belief that “customers always select the cheapest product” may represent a rigid “truth” that the manager challenges through DOT/COM-based critical thinking about customer value creation.

There might be a need to reflect on customer logic. The company's view of its customers is shaped by accumulated experiences of customer interactions and reactions over time, forming a mental map that may be reinforced by observing other companies in the same industry. Based on the basis of this understanding, the company designs its offerings and defines its markets. Moreover, this customer understanding is reflected in the type of information collected, assumptions about customer reasoning, and expectations regarding their responses to company activities. The challenge, however, lies in contrasting the company's perspective of its customers with the customers' perspective of the company. The customers' logic may not align with the company's, and this misalignment can become more pronounced during periods of environmental change, when established perceptions and logics may shift. Concerning customers, three key reflection topics emerge: Do we have relevant information about our customers? Do we understand their logic? Do we understand why they are our customers—and the risk of losing them? These questions challenge us to consider what might happen if we do not understand why our customers buy from us or why they might leave. Customer dynamism demands continuous reflection. For example, customers may shift from owning to renting, or from purchasing products to buying services.

The company's offering has many facets. Value proposition is commonly used in business model contexts to describe the offering. A more generic concept—offering—is preferable to allow for a demand-side interpretation of what the company offers, which goes beyond what is intended, designed, and managed, and includes what is perceived by the customer. The potential gap between the company's intended offering and the customer's perception of it is a key issue. Detecting such a gap requires relevant information. In practice, this entails a commitment to using methods that reveal the customer's view of the offering. The offering is not only designed; it is also continuously enacted through company activities that shape what customers perceive as its characteristics. In a changing context, where new offerings are innovated and introduced, the key question becomes: How would customers perceive specific innovations?

Regarding the offering, three reflection topics emerge: What information do we have about how customers perceive our offering? Do they perceive our offering as we have intended? How would they react to changes? The observing–thinking–doing cycle, as an ongoing mental model adaptation—even in incremental changes—supports individual managers in understanding the customer's experience of the offering not merely as a product or service, but as part of a broader value creation process. Reflecting on mental models may help identify silent signals, which can lead to radical innovations. For example, the Finnish company Wolt began with a pre-order service for coffee shops. Based on the basis of silent signals from customers, not only for pre-ordering but also for home delivery, Wolt evolved into one of the largest commerce platforms, connecting people who want to order food, groceries, and other goods with those who sell and deliver them (Link to the website).

Markets are not self-evident. They are traditionally defined on the basis of industry classifications or formal similarities to offerings. A contrasting view is to define a market as comprising current and potential customers who hold a positive attitude towards the company. This perspective emphasises a customer-centric view of markets, focusing on the viable alternatives available to customers. In this view, relationships between the company and its customers become an essential part of the offering. In a changing environmental context, such relationships may retain some value, but markets can also shift due to innovative offerings that customers prefer. Three reflection points emerge: What information do we have about our current market and how customers evaluate alternatives? What logic do we apply when considering markets? How do we assess our position and strengths in our current market and our potential to envision new markets? The banking industry provides a compelling example of business transformation, from being a product-oriented and regulation-defined market dominated by traditional providers (banks) to contextual and value-creating markets shaped by fintech companies. These fintech providers use technology to enhance value in the customer's primary context, namely, their everyday life. Banking markets have been redefined, opening new segments such as investment services for younger demographics. In the future, banks may shift their approach from integrating customer processes into the bank's operations to integrating the bank's processes into the customer's own activities.

The new framework—particularly its COM elements—offers valuable insights into what a demand-side perspective in BMI entails. By combining the COM elements, the framework provides a more comprehensive and nuanced understanding of the demand side than current frameworks do. Each element captures a distinct and fundamental aspect of what constitutes demand and, consequently, value creation for customers. These elements also serve as sources of dynamism, reflecting how shifts in customer needs, value propositions, and market conditions continuously shape and reshape BMs.

In disruptive business environments, demand-side factors may outweigh supply-side considerations. Sensemaking and cognition often precede resource deployment and activity design, and individuals frequently initiate organisational change. Adopting this perspective helps uncover the dynamic and complex nature of BMI, which has been shown to involve multiple interrelated processes (see, for example, the review of BMI processes in Andreini et al., 2022). The ability to pick up signals, i.e. sense the environment (Teece, 2007, 2018), is particularly significant in the initial stage and influences BMI opportunities. Limited empirical evidence on such capabilities is available, and how they may help managers initiate BMI remains unclear (Bitetti and Gibbert, 2022). Identifying relevant changes in the environment presents a distinctive challenge for managers, requiring them to think beyond conventional boundaries. This challenge stems from the common tendency of organisations and managers to adhere to fixed perspectives on their business. These entrenched mental models constrain how they perceive their business and are often treated as unquestionable truths. Recognising changes that may affect one's own company, therefore, requires the ability to break free from such assumptions embedded in the company's business model (Kapoor and Teece, 2021).

Contrary to common assumptions, business models are often far less defined or explicit than they appear. They may be inherited, rooted in tradition, or treated as “common sense”—like how markets are frequently taken for granted. Even when a business model is formally articulated, it is often mistakenly assumed that all relevant actors are fully aware of it and share a unified understanding. From a cognitive perspective, there might be considerable variation within organisations in how managers perceive and interpret the business model and its key components. Moreover, overly optimistic assumptions about the alignment between the normative business model and everyday organisational activities can obscure inconsistencies. The notion of a BM in use refers to the company's actual everyday performance. It is particularly interesting because it may diverge unnoticed from the stated BM, may represent an unarticulated model, and may be interpreted in diverse ways. All these aspects are valuable to consider when reflecting on how external disruptions may affect the company.

While numerous companies have succeeded because individuals identified emerging trends and translated them into innovative BMs, others, such as Nokia (Lamberg et al., 2019) and Kodak (Lucas and Goh, 2009), have faltered due to key executives misinterpreting shifts in the business environment. These cases suggest that the success or failure of BMI can hinge on the actions and interpretations of individual decision-makers. Building on the dynamic managerial capabilities perspective, this paper argues that managers play a central role in driving strategic change through BMI. It proposes that BMI is shaped by managers' cognitive processes.

In the literature on BMI, significant attention has been devoted to the development of new business models. However, the initial stage—when BMI is first initiated—has received comparatively limited focus. Typically, the trigger for BMI is viewed as a company decision prompted by declining demand or emerging market opportunities (Foss and Saebi, 2017). This paper takes a step back in time, before this decision occurs, and asks, what is the nature of the initial course of a potential new business model that starts with an impulse noticed by someone, who may then proceed to suggest and argue about the need to innovate BMs?

This paper contributes to BMI research by detailing the micro-level cognitive processes involved and illustrating what dynamic cognitive capabilities are needed for individual managers in practice. It emphasises the importance of reflective thinking—interpreting what is happening and what it might mean—as a core capability. This perspective contrasts with static views of business models as fixed plans or structures. By distinguishing between expressions of business models through DOT and linking these to the key elements such as COM, the paper offers a more nuanced understanding of managerial cognition. The process begins with awareness of one's own mental models, progresses through recognising the diversity of such internal company models, and extends to understanding the mental models of external actors.

The ability to reflect and adapt is increasingly important for sustaining competitive advantage in rapidly evolving business environments. The literature suggests that, ideally, organisations should engage in a constant recursive process of BMI (Andreini et al., 2022). Rather than interpreting this ideal solely as a formal organisational process, the role of individual managers in initiating and shaping BMI should be examined—both within and beyond formal structures. This implies that more attention should be paid, in both research and practice, to how individuals activate BMI processes through reflection and communication.

The central argument of this paper is that BMI depends on managerial reflection skills, which may be highly significant for several reasons. This paper argues that reflection skills are a key factor in understanding why some companies outperform others. Managers with strong reflection capabilities excel at interpreting and adapting to dynamic business environments. This advantage is especially pronounced in disruptive environments, where such skills are particularly valuable. Conversely, managers who lack strong reflection skills may pose a risk to the company's future. Therefore, a manager's ability to keenly observe the environment, reflect on its implications for the company, and consider potential consequences is a critical capability for an organisation. These skills also help explain why some managers are more successful than others and underpin their career progression and mobility ambitions. From the company's perspective, valuing and cultivating such skills is vital for competitiveness. From the individual's perspective, they are essential for professional development. Reflection skills can be enhanced using the tool proposed in this paper. It enables managers to question current practices and influence others by introducing discussion topics.

Micro-level reflection may not result in organisational-level BMI outcomes when, for example, rigid mental models dominate the company, open communication is lacking, there are no arenas or situations for discussion, the individual lacks formal authority, or there is no general urgency to change the BM. Managerial reflection, therefore, does not benefit the company unless such obstacles—rooted in organisational culture—are identified and addressed. It is also important for top management to recognise differences in how managers understand the BM in use. These differences may relate to how each of the BM expressions (DOT) or their combinations is understood. They may also arise from variations in interpretation among managers in different functional areas, as each function brings distinct priorities, experiences, and cognitive frames to the understanding of the BM in use. Additionally, there may be unrecognised differences in how managers interpret the company's COM. Both recognised and unrecognised differences represent potential obstacles to translating individual reflection into successful organisational-level BMI outcomes.

Successful BMI is most likely to occur when BM expressions are recognised and aligned, reinforcing one another. The diagnostic tool developed in this study helps reveal misalignment when these elements are out of sync.

It seems plausible that the role of demand-side reflection is more significant than has been reported in the existing BMI literature. One reason for this underrepresentation may be the dominant adoption of resource-based, outcome-focused, and supply-oriented perspectives in BMI research. Applying the proposed perspective would shift attention to entirely different aspects of BMI. Consequently, this perspective could reveal new insights in both BMI research and practice—insights that may enrich and even reform current conceptualisations and approaches. There is anecdotal evidence of the influence of individual top managers on a company's BM, particularly in crises where strong authority is needed to drive change. However, what has been overlooked is the role and influence of individual managers in more routine or gradual BMI processes—such as in smaller firms, startups, and even in minor crisis contexts. This appears to be a promising area for qualitative research and case studies.

This paper advances the demand-side perspective on BMI by positioning managerial cognition and sensemaking as the mechanisms that translate perceived demand-side and environmental changes into BM transformation. In disruptive contexts, innovation often begins not with resources or activities but with individual managers noticing and interpreting shifts in how value is created for customers.

By distinguishing how managers engage with BMs through DOT and linking these modes to COM, this paper sheds light on the micro-level cognitive processes that shape the initial stage of BMI—a phase often overlooked in prior research.

The paper contributes theoretically by strengthening the cognitive, demand-side account of BMI and practically by offering a conceptual framework and diagnostic tool that support managers in cultivating reflective thinking, identifying relevant changes, and initiating incremental or radical revisions. Taken together, these insights underscore how critical managerial cognition is for demand-side BMI and open avenues for future research on sensing and reflection capabilities.

The central theoretical implication of this paper is that demand-side BMI depends on managers' ability to challenge entrenched mental models, recognise discrepancies between the espoused BM and the BM in use, and realign the organisation with evolving customer logics. Because BMs function as cognitive schemas, successful innovation requires managers who can break away from fixed perspectives, perceive change early, and understand internal and external mental models.