Innovative business models along the industry life cycle. Does demand turbulence matter?

The industry-life cycle (ILC) literature has long emphasised that the ILC stage provides an important context for innovation and a crucial factor for firms’ innovative dynamics. Nonetheless, this framework does not fully explain the emergence of business model innovation (BMI), which is a key competitive tool in the current business scenario. In this study, we investigate the role of demand turbulence in companies’ likelihood of operating with an innovative business model by disentangling the influence of demand from the contribution of the industry life cycle. To identify innovative models, we retrieve individual business models using information from the company websites and compare them with the “prevalent” business model emerging in the company’s sector. To capture demand turbulence, we create a sectoral demand indicator for the years 2014–2019 using product-level data on consumers’ expenditures aggregated according to the ECOICOP classification. Using a sample of 1232 Italian firms observed in 2021, we show that demand turbulence is negatively associated with business model innovation even after controlling for the life-cycle stage of the industry. This suggests that BMI mainly emerges as a response to demand stability, and that companies can successfully resort to this strategy in the presence of unfavourable demand conditions, regardless of the stage of market development.