Corps de l’article

After many debates with mainstream research programs in strategy (Massa et al., 2017), the business model (BM) is now considered a research program in and of itself. Indeed, through a bibliometric analysis, Maucuer & Renaud (2019) highlight disciplinary specificities of the BM in terms of theoretical foundations. Although the BM began as a research program in strategic management (Lecocq et al., 2010), it is now an important research stream in disciplines such as Entrepreneurship or Information System Management (Maucuer & Renaud, 2019). Among this literature[1], BM innovation (BMI) has gained increasing interest (Foss & Saebi, 2017). Different definitions of BMI has been provided, we choose to retain the one of Khanaga et al. (2014: 324) which captures the variety of BMI processes: “Business Model innovation activities can range from incremental changes in individual components of business models, extension of the existing business model, introduction of parallel business models, right through to disruption of the business model, which may potentially entail replacing the existing model with a fundamentally different one”.

Whether due to endogenous or exogenous shocks (Morgan et al., 2020; Warner & Wäger, 2019), changing a BM is often necessary to remain competitive (Casadesus-Masanell and Ricart, 2011). But not every firm is successful in adapting its BM. The question “how can firms radically accelerate the evolution of their BM?” is a critical issue (Doz & Kosonen, 2010), as most BMI attempts fail (Christensen et al., 2016). This happens because companies do things wrongly or in a mediocre way, but also because they keep doing the right things for too long. This is true when the cognition of the founders and/or top management is embodied in activities and structures resulting in a lack of flexibility (Morgan et al., 2020).

There is too little knowledge on how firms adapt their BMs in response to external threats and opportunities (Saebi et al., 2017). The literature focuses on the organizational level, which is predominantly used when it comes to investigating BMI. It is important to further investigate BMI process, not only for large established companies, or for start-up firms during the early stages of innovation when it is easier to pivot a BM (Morgan et al., 2020), but also for established SMEs (Miller et al., 2021). Their situation seems to be paradoxical: while their size should foster a greater ability to change their BM (Berends et al., 2014), they may lack resources to implement any radical changes. Furthermore, Miller et al. (2021) encourage to focus on individual-level decision to gain insight into established SME BMI processes. In light of this, we ask the following research question: How do SME owner-managers innovate their BM to cope with environmental changes?

Theoretical background

Business model and business model innovation

The BM approach can be distinguished from research programs on strategy. It provides a broader view of value creation (Massa et al., 2017) and highlights a more entrepreneurial view in which the organization can partially choose its environment (Demil et al., 2018). This enables companies to be creative in order to propose a solution to their customers’ perceived needs (Teece, 2010). Although there is no consensus on a definition of the BM (Teece, 2018), academics agree that a BM articulates value proposition, streams of revenue, corporate resources and governance mechanisms which link the company and its stakeholders (Zott & Amit, 2010). While the nature and number of elements of the BM may differ in the literature (Massa et al., 2017), interdependency and congruence among components really matter (Christensen et al., 2016). The BM approach is increasingly adopted in a dynamic perspective (Demil & Lecocq, 2010), known as BMI (Foss & Saebi, 2017, 2018). Its aim is to investigate new innovative BMs entering existing markets (Markides & Sosa, 2013) or how companies change their current BMs (Sosna et al. 2010; Berends et al., 2016).

BMI can be considered a way to renew products and/or services delivered, and/or organizational processes (Baden-Fuller & Haefliger, 2013; Chesbrough, 2007). The magnitude of the change in BMI varies (Foss & Saebi, 2017). Therefore, in line with the work of Foss & Saebi, 2017, we consider that there is BMI when a company presents a voluntary change process in the components of the BM and/or in the architecture connecting these components. In keeping with the definition proposed by Khanaga et al., (2014), we argue that BMI concerns both incremental and radical changes within an existing BM as well as the introduction of a new BM.

Business model innovation in established firms

Existing literature has identified many success factors of BMI: strategical agility (Doz & Kosonen, 2010), maintaining dynamic consistency (Demil & Lecocq, 2010), developing dynamic capabilities (Teece, 2018), ability to learn from different experiments and cognitive research dedicated to BM reconfigurations (Berends et al., 2016; Sosna et al., 2010) as well as identifying practical levers with which to implement BM transformation (Garreau et al., 2015). However, while the link between BMI and performance has been demonstrated as being positive (Foss & Saebi, 2017), most established firms are unable to successfully experiment new BMI (Ritter & Lettl, 2018; Warner & Wäger, 2019) and tend to adapt their BM, rather than engage in radical BMI (Berends et al., 2016). In particular, “much of the research on business models has been conducted in the context of start-ups, so we know less about business models of established firms - for example, how they change over time” (Demil et al., 2015: 2).

A vast body of literature recently investigated the BMI processes of established firms, but this stream of research is more focused on large established firms than on established SMEs (Miller et al., 2021). For example, Do Vale et al., (2021) used the context of omni-channel retailing to highlight the intertwinement between top-down and bottom-up processes through the use of bricolage practices during a BMI process. Joachim & Laszczuk (2020) investigates how some established firms of the French gambling industry redesign their BM around their online communities to improve their performance. It is important to investigate established firms as, when seeking to transform their BM, they encounter “innovation barriers” (Chesbrough, 2010). This concept highlights structural and cognitive barriers that could prevent the company from changing its BM, such as conflicts between the resources and skills necessary for the development of a new BM and those required for the existing BM. Cognitive barriers can be linked to the dominant logic of the firm (Bettis & Prahalad, 1995) which may lead to a short-sightedness preventing them from identifying new uses for existing resources. Changes are complex, particularly for established firms as their capacities may prevent BMI, either by reducing their field of vision of new opportunities or by preventing them from seizing such opportunities (Massa & Tucci, 2013). Managers of established companies often prefer to retain their existing BM, seeking to protect the “status quo” (Warner & Wäger, 2019). Due to its uncertain nature, BMI is hard for established firms to implement (Christensen et al., 2016).

BMI in established firms: the unique case of SMEs

Knowledge concerning BMI in SMEs remains limited (Heikkilä et al., 2018; Miller al., 2021). BMI among SMEs is harder to investigate than among large established companies as traditional structured BM tools may not be suited due to their limited resources and the uncertainty of environments in which SMEs operate (Cosenz & Bivona, 2021). SMEs are less keen than larger firms to remain up-to-date about changes within the competitive landscape, as they lack the time required to reflect on how to change, as well as lacking experience with BMI process (Codini et al., 2023). Large established firms are keen to engage with BMI process with confidence, but SMEs are in a more precarious situation when it comes to BMI process as they do not always have the necessary resources to develop appropriate capabilities (Miller et al., 2021). Therefore, SMEs are in a paradoxical situation: while their size allows them greater flexibility, their resources and skills are more limited, and they lack the organizational and marketing capabilities of large firms (Berends et al., 2014).

There exists “limited research exploring the key defining features of SME business models and approaches to business model innovation within SMEs” (Miller et al., 2021: 619). In the few studies conducted on the BMI process in SMEs (Cucculelli & Bettinelli, 2015; Miroshnychenko et al., 2021), results are complex. Thus, the flexible structure, strategic flexibility, creativity and improvisation of SMEs can foster changes whereas lack of resources or a limited capacity to generate economic scales can moderate their potential for BMI (Miller et al., 2021).

The literature on SMEs also stresses the role of individual factors, in particular prior experience of entrepreneurs, which can introduce alternative BMs to the field (Drakopoulou Dodd et al., 2018). Gray (2002) points out the importance of the psychology of owner-managers due to “endowment effect”, wherein the owner’s fear of loss is stronger than the attraction of gain. Several barriers make it difficult for SME owner-managers to engage with BMI, such as the difficulty to ‘think outside the box’ (Codini et al., 2023). Lorenzo et al. (2022) argue that owner-managers are more likely to promote past solutions, since they are perceived less risky. Beyond the start-up phase, most small firm owner-managers are more concerned about survival than growth per se and are not especially entrepreneurial once they feel that they are established (Gray, 2002). However, when institutional and competitive environments question the relevance of an SME’s BM, some owner-managers adapt their BM to the new feature of the environment raising the importance of investigating cognitive representation (Miller et al., 2021).

Owner-managers’ strategic cognition: the perception of the environment for BMI

Strategic cognition focuses on the “linkages between cognitive structures and decision processes in strategic management with respect to strategy formulation and implementation” (Porac & Thomas, 2002: 165). Components of the cognitive structures have been studied in the literature, in particular organizational identity and strategic frameworks (Narayanan et al., 2011). Such studies have explored how cognitive structures influence strategic processes, including strategy formulation, strategy implementation and strategic change. Instead of focusing on inertia and cognitive constraints, recent research has focused on dynamism in cognition (Martins et al., 2015).

The BM literature has followed this cognitive perspective, aiming to gain an understanding into how cognitive structures can influence BM design and change, and conversely, how the BM as a manager’s mental representation (Baden-Fuller & Morgan, 2010) can influence strategic practices (Martins et al., 2015). Some scholars have even considered that “the owner-manager’s cognition and sensemaking provides the most important input into the business model design” (Sosna et al., 2010: 386). This is why cognition is one of the three BM interpretations (Massa et al., 2017). BMs represent management’s assumptions about what customers want, how that value should be created, and how value should be captured (Teece, 2010; Saebi et al., 2017). It is related to how BMs are interpreted by organizational members, due to their specific position within the organization and/or ideological diversity (Narayan et al., 2021), but also to how managers scan their environment to detect opportunities (Massa et al., 2017). Managers are often the first to interpret the environment changes that may call for BMI and their analysis is decisive (Foss & Saebi, 2017; Saebi et al., 2017; Yadav et al., 2007). For instance, Laszczuk and Mayer (2020) used an attention-based view (Ocasio, 1997) to demonstrate how the BMI of established firms is an ongoing process in which managers develop new BMs by navigating between differentiation and consistency with the prevailing BM. In an attention-based view, “what decision-makers decide to do depends on what issues and answers they focus their attention on” (Ocasio, 1997: 188). Small differences in how decision-makers allocate attention to issues and answers could have a dramatic effect on firm behavior and performance (Brielmaier & Friesl, 2023). The scanning and selection of objects in the environment shape BMI processes by focusing on details that could change perceptions of the environment. The BMI processes of established firms is preceded by shifts in attention (Frankenberger & Sauer, 2019). Randhawa et al. (2021: 631) recently demonstrated that to “undertake BMI, a SME needs to change its mental model through a conscious cognitive shift”.

Ritter & Lettl (2018) argue that BM research can serve as a “connecting point” for several theories in management. Therefore, this research draws on two theoretical perspectives to analyze the cognition underpinning entrepreneurial processes: the causal and effectual approaches (Sarasvathy, 2001; Sarasvathy & Dew, 2005). This theoretical choice is consistent with recent calls which have highlighted the importance of reconnecting strategy with entrepreneurship (Demil et al., 2015). As Yang et al. (2019: 668) argue “effectuation and causation are two main cognitive streams of rationales followed by entrepreneurs in their decision making processes”.

According to Sarasvathy’s (2001: 245) definition, “causation processes take a particular effect as given and focus on selecting between means to create that effect”. Causation implies a process that rests on the logic of prediction. In causal reasoning, the first step relies on environmental analysis to collect information enabling opportunities to be identified (Sarasvathy, 2001). Managers’ causation behaviors therefore rely on information relating to competition: size, range, market growth or consumer needs (Fisher, 2012). The environment is considered as objectively given. Managers need to assess their environment in order to discover opportunities which already exist (Shane & Venkataraman, 2000). This approach is consistent with mainstream strategic management literature in which components of the environment are conceived as constraints imposed on a focal organization (Demil et al., 2018).

On the contrary, effectuation is described as a decision-making process that relies on the set of means which are given (Sarasvathy, 2001). With effectual reasoning, the starting point is not to seek information pertaining to the environment, but rather to be involved in practices which enable the development of a network of relationships with stakeholders (Dew et al., 2009; Sarasvathy, 2001) to develop a specific ecosystem. Demil et al. (2018) linked the concept of the “ecosystem” with BM thinking. According to them, “ecosystem may be defined as the part of the environment with which an organization interacts” (Demil et al., 2018: 1220). This perspective is consistent with an effectual logic in which managers and entrepreneurs self-select their stakeholders according to a collaborative rather than competitive attitude (Dew et al., 2009). Effectual reasoning may help to understand how actors make decisions when changing their BM (Chesbrough, 2010). It can positively affect BMI in the context of internal corporate venturing (Futterer et al., 2018) or for new firms (Velu & Jacob, 2016). However, thinking in term of effectuation when rolling out a BMI process in an incumbent firm is not an easy task. While being innovative and trying to build their own ecosystem, firms need to maintain the internal coherence of their BM (Christensen et al., 2016; Demil & Lecocq, 2010) and can be trapped into their dominant logic (Bettis & Prahalad, 1995; Massa et al., 2017). In particular, BMI literature highlights how firms are more likely to engage in BMI processes when they identify threats rather than opportunities to be seized (Laszczuk & Mayer, 2020; Saebi et al., 2017). However, one can wonder if this is true for owner-managers in an increasingly constrained environment which may reduce the scope of BMI possibilities. It is important to explore why managers navigating the same environment may design different BMs (Frankenberger & Sauer, 2019). The question of SME BMI to environmental uncertainty and changes requires further investigation (Miller et al., 2021). In particular, “consideration needs to be paid to the individual level factors that influence decision-making with regards to the configuration of resources, building entrepreneurial teams, business model design, appetite for risks and the utilization of networks” (Ibid: 623). Following the same approach to narrow the initial research question, we ask: How do SME owner-managers reason when innovating their BM to cope with environmental changes?

Methodology

Research setting

This study focused on owner-managers of independent pharmacies. Their activity is extremely constrained as the role of pharmacists is “dictated by the economic, regulatory, and organizational frameworks in which they operate” (Şengün & Nazli Wasti, 2009: 41). As public health actors, they are subjected to strict rules, while as traders, they increasingly develop managerial practices: strategic analysis, recruitment, team management, choice of product ranges and services, etc. Reyes (2018) highlighted this twofold characteristic, which forms the basis of the identity of the profession. Pharmacies can be considered as a revelatory example of SMEs in highly constrained and regulated sectors in at least four ways. Firstly, the sector is highly regulated by public policies which limit and regulate their activities. Secondly, independent pharmacies are small enterprises with constrained resources (Baker & Nelson, 2005). Thirdly, the sector is increasingly confronted with unfavorable developments in its marketplace. In almost every European country, pharmacists face relatively similar challenges regarding decreasing prices of reimbursable medicines, increasing market share of generic medicines and growing competition from drugstores and retail firms. Fourth, the entrepreneurial dimension of their activity is becoming a major strategic issue. See Table 1 for the full lists of environmental changes which jeopardize the traditional pharmacy BM.

Conducting interviews in two countries enables greater potential for generalization of findings. In both countries, public authorities set: the prices of prescription drugs, conditions for their reimbursement, standards of hygiene, geographical distribution of pharmacies throughout the national territory, advertising rules which are strictly regulated, and limitations for the online sale of certain drugs or parapharmaceutical products, etc. Furthermore, the sector has evolved over the last two decades, particularly due to an increasing openness to competition - which means that pharmacists lost their monopoly regarding the sale of drugs - and decreases in prices of drugs. Table 1 hereafter provides basic information regarding macro-environmental contexts in Belgium and Italy.

In this paper, the term “macro-environment” is used to refer to the general shared environment and is mostly perceived as being the constraints imposed by actors of a same sector – here the pharmaceutical sector - while the term micro-environment is used to analyze a part of the environment chosen by owner-managers which refers to the concept of the ecosystem (Demil et al., 2018).

Regarding these institutional and competitive environment structures which have become more restrictive, the traditional BM of a pharmacy based on selling medicines is increasingly being scrutinized in Belgium and Italy. Finally, in the countries studied, the regulation used to limit pharmacists regarding their entrepreneurial development but, at the same time, served to protect them from competition, providing good profitability. For instance, in Belgium, “medicine supermarket” such as Medi-Market are legal while in Italy, it is now possible for a non-pharmacist to own several pharmacies. By focusing on a sector which is tightly controlled by public authorities - where owner-managers have limited resources and operate in a market in which difficulties are multiplying – we explore their ability to overcome the threats they encounter. In addition, while the macro-environment would drive homogeneity among pharmacies, the micro-environment promotes diversity across the different settings.

Data collection

The aim of this paper is not to undertake a comparison across cases and/or countries, but rather to adopt a grounded theory approach to understand the extent to which owner-managers of SMEs with limited resources are able to adapt their BM to a changing environment. As a result, while different qualitative approaches exist (Gehman 2018), this research adopted an inductive perspective, in accordance with Gioia’s guidelines for collecting and analyzing data (Gioia et al., 2013). The Gioia method considers informants as “knowledgeable agents”, meaning that “people at work know what they are trying to do” (Gehman et al., 2018: 291). This choice is relevant to prior literature which calls for in-depth investigations into BMI processes of SMEs with the individual being the level of analysis (Miller et al., 2021) and our research question. Within a Gioia method, semi-directive interviews are seen as a primary source of data (Gehman et al., 2018). Therefore, 43 semi-structured interviews were conducted with owner-managers of pharmacies in Belgium (19) and Italy (24), between January and June 2017. Lasting on average one hour, the interviews were recorded and fully transcribed. The pharmacists were first chosen randomly, by asking them directly in their pharmacy if they agreed to be interviewed, then the “snowball” technique was used to recruit further interviewees. The objective was to have a diverse mix of profiles in terms of pharmacy size and location (e.g. city center, suburbs, wealthy neighborhoods, underprivileged districts, etc.). Table 2 gives details about owner-managers interviewed.

Table 1

Macro-environmental contexts of the empirical study

Macro-environmental contexts of the empirical study

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The interview guide was first built around the components of the RCOV model (Demil & Lecocq, 2010) which is often used in the literature for investigating BMI (Garreau et al., 2015). Therefore, we began by asking owner-managers questions about the resources of their BM, the competences, organizational structures and value proposition. Questions asked during interviews related both to the personal paths of pharmacists and the ways in which they had developed their activity, particularly the means they used to maintain customer satisfaction and profits. Further data was collected to gain deeper knowledge of the pharmaceutical sector to ensure the validity of the findings through triangulation, which provides stronger insights (Gehman et al., 2018). Thus, 7 additional interviews were conducted with a researcher specializing in the pharmaceutical sector, a doctor in charge of coordinating health policy in Belgium, representatives of pharmacist’s unions in both countries, representatives of two Belgian pharmacy networks (Lloydspharma and EPC Familia) and an Italian pharmacy student. The verbatims of these interviews were not included in the results section. Moreover, two authors of this paper conducted non-participant observation before and after conducting the interviews to better understand how the pharmacies operate. Lastly, secondary data dedicated to competitive mapping and changing legislation in the pharmaceutical sector in the two countries were collected. All this information was used to develop Table 1 relating to specific environmental contexts in each country.

Data analysis

As in most qualitative research, the coding process was iterative and the data analysis was conducted in three steps by following Gioia et al., (2013) guidelines to build a data structure. The first step was to develop a thematic coding based on the RCOV model (Demil & Lecocq, 2010). In this step, the authors organized data around code which share the same idea (Saldaña, 2015). This step involved the creation of “in vivo” codes, what Gioia et al., (2013) called “1st order codes”. Being codes which are closer to informant discourses, these are closer to the reality which is empirically observed (Saldaña, 2015). During this stage, the authors were able to share their interpretations of the data to improve the coding accuracy. Statements relating to a perceived lack of resources or skills, to inconsistency between a pharmacy’s identity and changes, or to where owner-managers look at to interpret their environment were coded.

Table 2

List of interviewees

List of interviewees

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The second step of the data analysis was dedicated to the theoretical underpinnings of the thematic coding. In this step, 1st order codes were organized around theory-centric 2nd order-codes. Particularly, two reasoning used by owner-managers interviewed emerged from the data: causation and effectuation reasoning. This dichotomy has been used to shape the finding section. Finally, the third step consisted on integrating 2nd order-codes around aggregate dimensions. During this step, the authors drew on BMI and cognition literature to stress the importance given to the environment by owner-managers. As in the two first steps, the authors regularly discussed their theoretical interpretations. This process enabled us to develop a data structure which provides transparency on how the analysis progressed from raw data to theoretical interpretations (Gioia et al., 2013).

The three authors regularly discussed the coding and findings to ensure the validity of the process.

Findings

The findings sought to understand how owner-managers innovate their BM to address environmental changes. The pharmacy sector is increasingly constrained for SMEs, as shown in the empirical setting. However, the inhibiting aspect of changes within the environment depends on individual cognitive aspects. Interestingly, within a same macro-environment, some owner-managers perceive opportunities while others perceive threats. This heterogeneity regarding the way in which pharmacy owner-managers interpret their environment is surprising when we consider that they share the same professional identity. In line with the Gioia method, a theoretical model has been developed (Figure 2).

Figure 2 shows that the cognitive resources of owner-managers lead them to perceive the same macro-environment as being a threat or an opportunity. While some owner-managers are tied to the dominant logic of their sector and may feel trapped within their BM, making them pessimistic about their future, others manage to interpret their environment differently by focusing on the macro, micro-environment and outside of the traditional pharmacy sector to develop a specific ecosystem with local stakeholders. The cognitive dimension is link to the way in which owner-managers look at their environment, but also to the way in which their BM, as a cognitive representation (Baden Fuller & Haefliger, 2013; Baden-Fuller & Morgan, 2010), serve to go beyond the dominant logic and engage significant changes.

This is why the empirical findings section herein is divided into two sub-sections. The first one highlights how owner-managers who only focus on the macro-environment (i.e. the sector and the national level) tend to adopt a causation reasoning in which they are able to make a strategic analysis, identify “the model” of pharmacy they need to implement, influenced both by new competitors with BMs based on a significant amount of resources and by public policy, which brings to the fore the “pharmacy of tomorrow model” which is resource intensive. Their causation approach makes them perceive a lack of resources for changes, leading either to inertia or to only minor BM adaptions. In contrast, a second sub-section interestingly shows that, within the same macro-environment, some owner-managers perceive opportunities rather than threats. The latter are consequently more innovative and creative. Rather than solely focusing on the macro-environment of the pharmacy, they are simultaneously able to look outside of the traditional pharmacy sector and to focus on the micro-environment, with the result being that they can construct an alternative ecosystem to the traditional one. Their cognitive approach to their environment is closer to an effectuation approach, leading to greater BMI.

Figure 1

Data structure

Data structure

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Figure 2

A theoretical model of SME BM innovation in response to environmental changes

A theoretical model of SME BM innovation in response to environmental changes

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Attention focused on general elements of the macro-environment is more likely to lead owner-managers to perceive threats and inhibits BMI

Owner-managers of the pharmacy sector are highly influenced by a general interpretation of their macro-environment. In both countries, a unique professional union collects numerous data for all pharmacists, which is particularly useful for those who do not have sufficient resources to develop benchmark practices. The fact that pharmacists are represented by a single organization - respectively the Belgian pharmaceutical association (APB) and Federpharma in Italy - plays a role in the difficulty to change. Owner-managers have access to the same kinds of information (professional organizations, newsletters, cooperative networks) and all work with a few stakeholders (wholesalers, laboratories, pharmaceutical industry), which produce a relatively convergent discourse and knowledge about the sector as a whole. The sector is also influenced by the “Order of Pharmacists” which diffuses a highly monolithic vision based on emphasizing the rules and core principles of the sector.

Inconsistency between pharmacists’ identity and the changes to address a new environment

The more the sector opens up to competition, the more pharmacists and those who represent them tend to emphasize the founding values of the profession, and in particular their role as health professionals. Most of the time, their behavior is defensive rather than proactive. Pharmacists are both retailers and health professionals, but they have always tried to marginalize their commercial image. For instance, Mr. O (Italy) asks “since when did a pharmacist need to be good at marketing?”

The importance of the “pharmacist’s identity” is strengthened by the fact that pharmacists use it to discuss their practices with colleagues who share the same mindsets. This is even more true for owner-managers from a pharmacist family background. The individuals’ parents serve as a model and often still give advice, invariably pessimistic about the future of the sector. In Italy, this observation is often coupled with a genealogical analysis, given that most of them are children of pharmacists: “I was born too late” says Mr. Q (Italy), who comes from a line of pharmacists that goes back several generations, with a wry smile. Many laments that they spend much more time in the pharmacy than their parents did, while their income is decreasing. Mr. L (Italy) feels that between his father, himself and his daughter, the situation is deteriorating. “Unfortunately, I think she will have problems. My father had a happy period and I, for part of my professional life, have had problems. For her, it will be very different and probably worse”. All the pharmacists interviewed said they are living through a pivotal period, corresponding to the transition from a revenue model based on the sale of medicines to another model, which has yet to be invented, which will see new competitors arrive and will require large investments to satisfy an increasingly demanding system of patient care. They feel relatively powerless in dealing with this evolution. This is particularly true in Italy, where small pharmacy owners do not see how they can cope with the upcoming competition. Mr. P (Italy) wonders: “Of course, I’m convinced that it will get worse and worse. We have to react, but how?”. Mr. U (Italy), says much the same. “The arrival of big capital will upset the situation. For example, if these people decide to buy all the pharmacies in the area and I don’t want to sell them mine, sooner or later, I’ll have to give in to their offer because I won’t have any other solution except to close down”. Moreover, most of the pharmacists complain that their background did not equip them with strong entrepreneurial skills. They all agree that “the training is completely scientific and does not address the needs we have”. Overall, the culture of innovation is weak in the profession. For example, speaking about his colleagues, one pharmacist laments: “Until they have a knife to their throat, they cannot adapt, they cannot anticipate” (Mr. Z - Italy). Another idem: “They are not necessarily adventurous. They are often small traders who find it difficult to project themselves” (Mr. I - Italy). In both countries, almost all pharmacists believe that “the golden age” of pharmacy is over. “We can say that today, pharmacy is no longer the gold mine it was a few years ago” (Mrs. L - Belgium).

Causal reasoning leading to the feeling of not having enough resources to cope with changes

By focusing only on their macro-environment which calls for a resource intensive model, owner-managers are overwhelmed by the lack of space in their pharmacies. To curb the decline in sales, Mr. H (Italy) had to make a colossal effort. “In 2007, I thought it was no longer possible to maintain such a small part of the pharmacy available to the public. I had to demolish load-bearing walls and increase the surface area, encroaching on the part I used to store products”. He still regrets that his pharmacy is limited by the layout of the premises. “If the pharmacy was bigger, it could offer more services and sell more health products besides medicines”. When the surface area of the pharmacy is small and the storage volume is limited, the pharmacist cannot buy large quantities of products - particularly parapharmaceutical ones, which are the most profitable - and does not have the human and logistical resources to develop the services that patients increasingly expect. As a result, some are seeing their sales decline without any solution in sight. Resigned to the situation, some of the oldest among them are merely waiting for retirement, while others are convinced that they will “end up as a shopkeeper in a department store” (Mrs. F - Belgium). This feeling may explain why many of the owner managers interviewed have not made any significant changes to their BMs, despite having known how their competitive and institutional environment was going to change. As Mr. W (Italy) points out: “It is amazing how we can be like prehistoric men! We knew exactly what would happen, but we just waited”. Defeatism is generally less pronounced among pharmacists in Belgium, probably because they are accustomed to opening up to capital, so they have long been involved in a competitive dynamic. However, in Italy, the prospect of opening up the capital of pharmacies - which the law of August 2, 2017 formally set out - is experienced traumatically as the end of the small family pharmacy model. Building on the analysis of their sector of activity in general, owner-managers feel a gap between the magnitude of changes which they hear about all the time, and which strongly suggests that the traditional pharmacist’s BM of selling drugs is obsolete, and the available resources and skills at their disposal.

Table 3

Lacking resources and competences as barriers to BMI

Lacking resources and competences as barriers to BMI

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Gaining space is an obsession for small pharmacies but, depending on the layout of the premises, this is not always possible. Because of this, many small Italian pharmacies are structurally disadvantaged compared to Belgian ones. In Italy, the total surface area of pharmacies is on average 68 square meters and those located in urban areas are barely larger than those in rural areas[2]. This heritage is now a major obstacle to the necessary evolution of many pharmacies, which do not have enough space to deploy the service offer patients now expect from a pharmacy. Often because of their small size, many pharmacists feel they have no solutions available to them. This is what Mr. S (Italy) explains, adopting a systemic reasoning: “The pharmacy needs a certain profitability to work well, so it needs to invest and work with appropriate staff. Since a huge amount of competition is established, the quality of services will certainly deteriorate because we will earn less and invest less in staff”. Generally speaking, causal reasoning tends to lead either to imitating new players or to passivity. In the latter case, in substance, the reasoning tends to be as follows: “we do nothing because we don’t have enough resources”.

These causal reasoning linked to the way owner managers perceived their identity make them unable to implement radical BMI. It involves small optimizations to improve the efficiency of their current BM: extending opening hours, reducing the workforce to reduce costs, range rationalization. Table 4 illustrates some of the choices made, demonstrating the causation approach.

Table 4

BM optimization choices to improve efficiency and address environmental threats

BM optimization choices to improve efficiency and address environmental threats

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These changes focus on a few BM components (Organization or Value proposition in particular) but do not really question the link between these components. Here, owner-managers seek to improve the efficiency of their existing BM rather than deeply transform it. These approaches are mainly motivated by benchmarks identifying existing “good practices”. However, there is a particularity regarding the Belgian context: new entrants like Medi-Market – the so-called “drug supermarket” - have introduced new BMs. This new environment is analyzed in depth by owner-managers who generally think they cannot make changes to their BM for it to evolve towards this new BM or refuse to do so as they wish to preserve their identity and values of health actors. Still, certain owner-managers adopt mimetic practices to simulate the Medi-Market BM and directly compete with new entrants. Mr. X (Belgium): “I go to Medi-Market to see how they arrange their products; their display is impressive because they have a huge amount of stock. Me however, I have a moisturizing milk, one pack of each. They have 50 packs of each, so when you see the shelf you think “isn’t that beautiful!”. We have no choice: they are there so we have to adapt. Unlike other pharmacists who give up, I try to be open-minded and copy some ideas. That’s why the state of mind in which I go to Medi-Market is really that, I’m trying to copy them”. Owner-managers influenced by a shared analysis of the macro-environment are likely to follow the same strategic steps: starting with an analysis of their environment, which is often influenced by the same variables and homogeneous information provided by colleagues or unions, they implement minor adaptations. Adopting the causal approach can then enable owner-managers to seize opportunities but can also incite actors to feel helpless because a potential target BM (the one of new market entrants) can be perceived as unreachable given the disparity in their respective existing set of resources. Indeed, even if they put in place some changes to innovate their BM, owner-managers adopting causal approach feel they are trapped. “I enlarged my commercial offering, I’m also thinking about expending my opening hours, but I know that I’m sentenced” (Mr S, Belgium).

However, despite their prevailing reluctance and lack of resources which could limit the degree to which they can adapt, some pharmacists have succeeded in designing and implementing more radical BMI to circumvent the constraints of their environment.

Attention focused specific elements of the micro-environment is more likely to lead owner-managers to perceive opportunities and initiate significant BM changes

Some owner-managers succeed in extracting themselves from the dominant shared beliefs of the sector by focusing on the micro-environment to build their specific ecosystem. If every owner-manager conducted a global analysis of their sector, those who switch to their micro-environment and who grap ideas and information outside of their sector are more open to collaborating with new stakeholders, leading them to discover opportunities and to transform the components and architecture of their BMs. By doing so, owner-managers reinforce their feeling of being able to get out of the dominant logic and build a successful BM. As M. R (Belgium) state “This is the whole set of knowledge gathered from long years which nurture my reasoning and the way I see my pharmacy”.

Focusing attention on the micro-environment to hone a distinctive value proposition

Some owner-managers succeed in simultaneously combining general analysis of their environment diffused by professional unions with their interaction with stakeholders of their micro-environment. Their focus on the macro-environment leads them to think about general aspects of their BM such as general customers’ expectations, while their connection to the stakeholders of their micro-environment enables them to identify specific opportunities. These managers use their capacity to learn and their curiosity to develop specific knowledge linked to their local customers, to ultimately build a distinctive value proposition. For instance, Mr. O (Belgium) has owned a pharmacy for more than 30 years which is located in the most populated and poorest district of Brussels. He is highly motivated to ensure that his pharmacy “is in-keeping with the neighborhood”. To do this, he hires employees from each ethnic community living in the surrounding area, who speak their native languages and are aware of their specific traditions. Forging new relationships with a specific sub-group among inhabitants in this way enables this pharmacist to produce new value creation opportunities. Mr. O identifies opportunities in working with a socially disadvantaged clientele which has brought him unique business opportunities and sometimes specific requests, for example therapeutic support for drug addicts: “I have something that is increasing in demand, and which could be financially interesting: it is methadone, the heroin substitution treatment. Many pharmacists are afraid of it because it can scare away customers. All of these treatments are very well reimbursed. A daily subsidy is granted to pharmacists who provide this. It represents more than half the salary of a pharmacy dispenser. This is good”. Thanks to close interactions with a highly diversified customer base, Mr. O has developed an empathetic knowledge of his area, and has been able to create economic and social value. He went so far as to learn the basics of speaking the Turkish language – a skill which is far removed from the pharmacy sector – to be closer to his customers and serve them better.

Conversely, in the case of a wealthy and touristic district, Mr. Y (Italy) has enriched his value proposition by adding new services. “The latest service we have begun to offer is a veterinary corner, a kind of pet store, for small animals like dogs and cats. The pharmacy is located in a residential area where many people have pets”. Mrs. E (Italy) noticed that some customers have needs which go far beyond medication and want to confide about their poor psychological and/or physical well-being. This led her “to open a psychological consultancy service in a corner of the pharmacy”. Noting that no care facilities were open in the area, Mr. T (Italy) chose to hire a beautician “who comes once a week to his pharmacy and attracts new customers”. In a small Sicilian village whose population is particularly old, Mr. K (Italy) is investing heavily in andrology - the medical specialty that deals with problems associated with the male reproductive system and urological dysfunctions - which offers him new opportunities. Recently, he has been developing his offering in the treatment of hearing disorders, which affect many of his patients. Some pharmacists make it a rule to “specialize in what others don’t do”. Mrs. I (Belgium) is focus on “standing out”. For instance, she has chosen not to offer lenses in her pharmacy because there is an eye specialist right next door. In general, she considers that it is almost impossible for an independent pharmacist to distinguish themselves on price alone, and that this is not in their interest anyway since the pharmaceutical chains will always be more competitive on price. She explains how she tries to promote her pharmacy: “I try to provide a service that makes people want to come to us, and for that I rely heavily on pharmaceutical preparations, which are an offer specifically adapted to the needs of a particular patient”. Knowing that her competitors had almost given up on this practice, she decided to develop this activity and to advertise these offers in the window of her pharmacy, so that passers-by will know about them. “The profitability of the preparations is close to zero, it just enables us to cover the costs” but by no longer providing them, the pharmacy would lose customers: “it encourages a lot of people to become loyal, the mothers who want a syrup for their children, the elderly who are used to their specific product… and it also shows a certain know-how. Many people, from the village and elsewhere, know us for that”. In another context, Mrs. D (Italy) uses her personal affinity to improve her value proposition. “As I have a personal interest in homeopathy, I used to attend lots of workshops and training sessions on homeopathy. In my city, my pharmacy is known for this specialty”. She adds: “In Parma, I am known to be one of the only ones, I think, to recommend the homeopathic vaccine”.

Table 5 hereafter explain the way in which the attention focuses on the micro-environment allows owner-managers to hone a distinctive value proposition

Table 5

Attention focused on the micro-environment to hone a distinctive value proposition

Attention focused on the micro-environment to hone a distinctive value proposition

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Rather than copying new models, these owner-managers considered the local environment as an opportunity that lead them to develop new resources and skills to improve their value proposition.

Adopting an effectual reasoning to interact with stakeholders to build a distinctive ecosystem

As owner-managers of SMEs, pharmacists are extremely busy. Therefore, time is a limited resource. However, some manage to find enough time to develop close relationships with existing or newly introduced stakeholders: Mr. X (Belgium) believes “that the main problem of pharmacists is being stuck behind their desks. They spend their day fulminating and depressed. I didn’t want to become like that, so I decided to be involved in plenty of projects, in particular participating in professional unions that seek to defend pharmacists. I am also treasurer for an association in Chimay, member of another association here in Mons and I teach classes at the University of Brussels”. Thanks to colleagues he met at the University, he discovered a performing software, rarely used in Belgium, and took the opportunity to be trained to use this tool: “I was a tester for this software because I wanted to be aware of novelty before others”. This new resource, discovered through his professional network, enabled him to take advantage of a Belgium-specific regulatory constraint, which is denounced by most of his colleagues: unit pricing. This measure requires the pharmacist to bill reimbursable drugs per unit taken, every week and for each permanent resident in a rest home. In the event of the patient’s death or a change in treatment, the remaining tablets are charged to the pharmacy, even if they have already been delivered. Since they are obliged to take back the drugs that have not been administered, they usually consider that the financial risk involved is too high. However, Mr. X turned these constraints into an opportunity using this new inventory management software. Thank to this tool, he is able to supply the three retirement homes which are located nearby and makes a substantial profit from it. “Most pharmacists cannot determine their margin until they have received their balance sheet. Whereas I know that today I have earned X amount. Despite the discounts given to the retirement homes, I continue to earn money for myself. Many pharmacists say “I don’t take retirement homes, the system is a mess and we don’t earn anything because we have to offer big discounts”. I can demonstrate that it is not true”.

Mr. R (Belgium) is the manager of a pharmacy located in a small, wealthy town in the province of Liege. With his boss, he has just created a new health center. The case is unique in Belgium and differs from “medical houses”, which do not include pharmacies. The building is designed to accommodate nine practices for health professionals on two floors. Mr. R has established close links with doctors working in the area. He communicates regularly with some of them. “We have doctors who are face-to-face with the patient in their office and call us and say, ‘I was thinking of prescribing this, what do you think?’ That’s great!”. Mr. R’s vision completely changes the “pharmacist’s profession”, which is no longer there just to “sell medicines” but to ensure a monitoring of the patient, in conjunction with all health actors. Rather than considering stakeholders as competitors such as with a causal reasoning, he adopts an effectual rationale through a partnership strategy, which encourages the creation of a new BM.

The creation of an ecosystem does not always imply physical or geographical proximity. Some pharmacists in Belgium share some of their resources to craft products under a common label to create a common image and guaranteeing a high level of quality. The idea is for Dynaphar products to be recognized by customers and for the pharmacists to follow common training courses (to gain expertise by sharing their feedback) to really provide an additional service to their customers. Combining the resources of pharmacists creates a value proposition that is distinctive from what new players offer. Table 6 illustrates the way in which stakeholder’s interaction allows the creation of a distinctive ecosystem.

Table 6

Stakeholder interaction to create a distinctive ecosystem

Stakeholder interaction to create a distinctive ecosystem

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Discussion and conclusion

This paper examines how owner-managers of SMEs identify and interpret changes within their environment and innovate their BMs in consequence. Even if the macro-environment is the same, some owner-managers perceive threats to their existing BMs without being able to successfully adapt, while others seize opportunities to create new BMs. In line with recent research highlighting the need to investigate the link between cognition and BMI (Laszczuk & Mayer, 2020; Narayan et al., 2021), this research demonstrates the importance of cognitive aspects of how owner-managers react to their changing environment. Those who tend more to adopt an effectuation rationale and base their cognitive attention on their macro and micro-environment are more likely to consider opportunities rather than threats in the changes to their environments. As a result, the constraint aspect of environmental changes is not an objective factor, but depends on the owner-manager’s cognitive processes.

Theoretical contributions

This paper highlights the importance of owner-managers’ cognitive processes, to gain a better understanding of the variety of BM innovation in a sector responding to changes and constraints within the environment. More precisely, this research makes three contributions on this topic. Firstly, we contribute to the BMI literature regarding BM innovation to environmental changes (Saebi et al., 2017) by analyzing which interpretation of the environment is more likely to generate BMI in the context of SMEs (Miller et al., 2021). In line with Lorenzo et al. (2022), we demonstrate how coming from a family of “insiders” of the pharmacy sector is not necessarily an advantage to successfully adapt the BM. Existing literature points out that firms are more likely to adapt their BM when they perceive threats rather than opportunities (Laszczuk & Mayer, 2020; Saebi et al., 2017). Investigating the case of SMEs enables us to contribute to this stream of literature by showing how, in the context of firms with limited resources, it is not because firms perceive threats that they will implement changes. In contrast to large established firms, owner-managers of SMEs who perceive threats tend to overestimate what is needed to adapt their BM, resulting in a state of total inertia or minor BM innovations. While the literature on SMEs traditionally emphasizes the lack of resources of these firms to explain the difficulties in changing (Berends et al., 2014; Miller et al., 2021), our study at the managerial level shows that the perception of the necessary resources is subjective. Adopting an effectual reasoning allows managers to regain strategic latitude to face environmental threats and initiate BMI. The integration of the subjective view of resource with the literature on BMI in the face of environmental change (Saebi et al, 2017) could allow for a better understanding of, for example, the phenomena of over and underestimation of necessary resources needed to cope with a change. Secondly, we reinforce the link between cognition and BMI. In particular, cognitive mechanisms such as effectuation is a cognitive framework which enables firms to “enact their market” when reframing the dominant logic of BMs (Chesbrough, 2010: 361). In line with Miller et al. (2021), this research underscores the importance of individual cognitive aspects in order to gain insight into BMI processes within established SMEs. Our results show unanticipated findings by demonstrating how owner-managers in the same sector, supposedly with the same professional identity, may nevertheless perceive the same changes in their market differently, resulting in radically different kinds of BMI. Therefore, our findings point out a strategic leadership from some owner-managers to innovate BMs. While the strategic leadership of the managers is often highlighted in the literature to overcome internal barriers to innovation (Chesbrough, 2010; Doz & Kosonen, 2010), our study highlights the importance of strategic leadership to overcome cognitive barriers at the sector level.

Thirdly, we extend the growing literature on the difference between the environment and the ecosystem within BM thinking (Demil et al., 2018). Owner-managers adopting an “ecosystem mindset” - meaning being able to choose stakeholders of the micro-environment with whom they will work - are more likely to successfully adapt their BM than owner-managers who adopt a traditional “environment mindset”, in which the environment is considered to be a given. Innovating the BM to address environmental changes is usually a source of complexity and this research demonstrates the relevance of using a “both/and” thinking rather than “either/or” (Smith & Lewis, 2022). Indeed, owner-managers who simultaneously focus their attention on the threats of the macro-environment and opportunities of the micro-environment are the ones who are more confident about the future. As a result, rather than promoting “the” BM of the pharmacy of the future, it may be preferable to encourage each owner-manager to think about “their own” BM in order to build a distinctive local ecosystem and take advantage of opportunities they have identified and, even, created rather than passively suffering from negative global market evolutions. In sum, owner-managers adopting effectuation processes and experimenting with BM changes demonstrate how the value of an environment is not determined but depends on the relevance of the BM selected.

Managerial implications

This research seeks to demonstrate how the inability of certain owner-managers to adapt their BM to the constraints of the changing environment does not necessarily result from them misinterpreting their environment, nor to difficulties in identifying the new BMs emerging within their sector. Most of the time, owner-managers are capable of making an adequate strategic diagnosis. However, due to their causal reasoning, they usually feel that they lack resources to implement BMI in their own pharmacies. Thus, the more pharmacists analyze their macro-environments, the more they feel that changes are inaccessible or even undesirable if they refer to the founding values and ethics of the profession. As a result, this research aims to encourage owner-managers to focus their attention simultaneously the potential for innovation both beyond their traditional sector and within their micro-environment, to develop a distinctive BM based on an ecosystem which is likely to bypass the constraints generally perceived within their environment. This research encourages managers to adopt a BM mindset of environment perception (Demil et al., 2018) which means accepting that each company has a different environment through the ecosystem it is able to build.

Limits and avenues for further research

This research has several limitations which can be addressed in further research. Firstly, the study focuses on owner-managers of the same sector. The pharmaceutical sector is not the only highly constrained sector, therefore further research could improve the understanding of BMI processes. For example, SMEs in the legal sector, such as notarial offices, are increasingly facing changing regulations in a constrained environment. Finally, the results suggest that there is a close link between BMI and the life history of SME owner-managers: it would be useful to be able to characterize this relationship more systematically. Further research could explore questions such as “how do the educational and personal backgrounds of owner-managers influence their BMI process?” to enrich this research.