A social-cognitive perspective on business model diversification

Abstract

Existing research on business model (BM) diversification primarily explains diversification through demand–side and supply–side relatedness. While these perspectives clarify the economic and operational conditions under which diversification may be advantageous, they tend to treat BM diversification as a direct outcome of observable structural characteristics, overlooking the social–cognitive processes through which top management teams (TMTs) recognise, evaluate, and legitimise diversification opportunities. To address this gap, we propose a theoretical framework that conceptualises BM diversification as an inherently social–cognitive process. By integrating concepts from alliance research, network embeddedness theory, and social–cognitive theories of strategy, the framework explains how TMT social–cognitive capacities shape the dominant logic through which managers interpret BM portfolio configurations and their innovation potential. Specifically, we argue that cognitive consensus and cognitive complexity shape the dominant logic through which TMTs attend to, interpret, and legitimise diversification opportunities. We conceptualise cognitive distance, BM centrality, and BM portfolio density as cognitively enacted BM portfolio characteristics that shape how TMTs identify, evaluate, and integrate diversification opportunities across new and existing BMs. By conceptualising cognition as collective, socially embedded, and recursive, we explain how the TMT's dominant logic both shapes and is shaped by the BM portfolio characteristics and innovation outcomes over time. The framework is particularly relevant for firms operating in digitally dynamic environments, where technological disruption, platform competition, and ecosystem interdependencies continuously reshape the conditions under which BM diversification occurs. The proposed framework moves beyond static and individual–level cognitive explanations of BM diversification and provides a dynamic explanation of why firms facing similar environmental and structural conditions may pursue distinct diversification trajectories and achieve divergent outcomes.