The business model innovation construct is gaining substantive attention in management literature. However, little advancement has been made toward a holistic, theory-based understanding of the nature of business model innovation, along with its context-specific antecedents and outcomes. Combining the theoretical insights of the literature on organizational routines and ‘activity system’ perspectives on business models, we refine the conceptualization of a business model as a cluster of interrelated routines, with its internal change dynamics determining the process and scope of business model innovation. Within the developed process model of business model innovation, we distinguish between potential and realized business model innovation processes, and derive theoretical propositions regarding external and internal environment, business model innovation, and value creation and value capture.