The role of absorptive capacity and innovation strategy in the design of industry 4.0 business Models - A comparison between SMEs and large enterprises

TLDR

Technological innovations drive business‑model redesigns, requiring firms to integrate external knowledge, and Industry 4.0—an emerging Industrial Internet of Things context—has become highly relevant for practice yet remains underexplored in management literature. The study develops a novel research model integrating business‑model design, absorptive capacity, and innovation strategy to analyze how established firms redesign their business models in response to Industry 4.0. Using structural equation modeling on data from 221 German industrial firms—separately for SMEs and large enterprises—the study evaluates how exploratory and exploitative innovation strategies shape efficiency‑centered and novelty‑centered business‑model designs. The analysis shows that environmental knowledge acquisition, assimilation, transformation, and exploitation enable firms to pursue both exploratory and exploitative innovation strategies, with distinct patterns observed between SMEs and large enterprises, thereby highlighting how absorptive capacity shapes business‑model redesign.

Abstract

Technological innovations often lead to redesigns in the business models of established companies, requiring them to incorporate new external knowledge into internal activities. Against this background, this study integrates the concepts of business model design, absorptive capacity, and innovation strategy into a novel research model, which analyzes the redesign of established business models in response to the emergence of Industry 4.0. Industry 4.0, also known as the Industrial Internet of Things, constitutes a contemporary research context that is highly relevant for corporate practice but scarcely regarded in management literature until now. The article contains an analysis of data from 221 German industrial enterprises, conducted through structural equation modeling, with separate data for small and medium-sized enterprises (SMEs) and large enterprises. First, the results indicate that the acquisition, assimilation, transformation, and exploitation of knowledge from the environment enable companies to engage in both exploratory and exploitative innovation strategies. Furthermore, the paper includes an evaluation of the role of exploratory and exploitative innovation strategies that reflects in efficiency-centered and novelty-centered business model designs. The distinct characteristics differentiating SMEs from large enterprises are also explained. The implications of absorptive capacity on innovation strategies, which influence the redesign of extant business models, are discussed from a research and managerial perspective.