Purpose

“Business model” emerged fairly recently as an academic concept; competing with “sustainable strategic competitiveness”, “strategic fit” (Porter, 1996), and “dominant logic” (Prahalad & Bettis, 1986) to give key explanatory understanding of firm performance.

This paper investigates key antecedents to the use of radical innovation of the business model of a service firm to achieve competitive advantage.

Design/methodology/approach

The article is based on action research, in which the re-engineering of a service business turned into radical innovation of the business model.

Findings

Radical innovation (conceived of as a new dominant logic) of the business model of a service firm is shown to give sustainable competitive advantage.

It shows how fundamental the concept of business model is to understanding the nature of the business, and links it to fundamental academic discussion of recent decades around concepts such as “sustainable competitive advantage”, “structural capital” and “tacit knowledge”.

Research limitations/implications

This is based on a case and more research is needed to generalize the findings.

Practical implications

In contrast to the knowledge management and structural capital evangelization, much tacit knowledge cannot be converted to structural capital.

Originality/value

Business model is a central concept to understand business performance, but must not be conceived as all-encompassing. We give a model for what the concept should cover and contrast it to other important models.

We show the role of tacit knowledge in a business model.