The Impact of Business Model Innovation on Productivity in Iranian Water and Wastewater Companies

ABSTRACT Innovation in water management is believed to hold the key to sustainable use and effective administration of water resources. Most of the existing literature generally discusses technological advancements and managerial reforms that improve productivity; the role of business model innovation (BMI) is less explored in the literature. Addressing this gap, our study investigates the impact of BMI, as measured by the net asset turnover ratio, on productivity in Iran's water and wastewater sector. Iran presents a unique case due to its water scarcity, public management structure, and persistent operational challenges, making it an instructive context for examining how internal innovations can drive performance. We analyze panel data from 33 provincial water and wastewater companies collected between 2016 and 2022, using a Cobb–Douglas production function to estimate the effects of BMI, labor, and capital on output. In addition, based on the estimated production function, the Divisia index is used to measure total factor productivity. Our results show that net asset turnover, alongside labor and capital, has a significant positive effect on output. These findings highlight the importance of BMI for enhancing efficiency in asset‐intensive and resource‐constrained public utilities, offering valuable insights for researchers and managers in similar contexts.