Innovation risk in digital business models: the German energy sector

Purpose Past research demonstrated that novel IT-based business models generate tremendous returns for innovators. However, the risks associated with these innovations remain under-explored. This paper aims to address this critical gap analyzing risks and offering important insights particularly for practitioners. Design/methodology/approach The authors adopted an exploratory multiple-case study research design. It draws on 22 semi-structured interviews with managers from leading energy utilities, as well as leading providers of virtual power plants technology within the German energy industry. Findings The research reveals that main risks in new digital business models in the energy sector are associated with three forms of interdependence between innovation actors: the regulatory, the technological and the collaborative. To deal with these interdependencies, the authors propose an original multi-step risk management framework. This framework considers the outreach as a critical dimension for risk assessment and offers a new risk response matrix to draw individual and collective mitigation activities for specific types of risks. Practical implications This paper offers a framework for the management of interdependence risks that are fundamental for business model innovations based on IT. Thus, it is applicable in companies both inside the energy sector and beyond. Originality/value This paper analyzes an important digital business model innovation that has not yet been explored in management literature – the virtual power plant (VPP). It is based on original and current empirical work and proposes a novel risk management framework for business organizations.