Purpose: This paper explores the relationships between firm absorptive capacity, novel business model design (NBMD), product differentiation strategy and performance in a transition economy.Design/methodology/approach: The study uses structural equation modeling (SEM) to analyze firm-level data from a unique sample of Albanian manufacturing and service firms.Findings: The study shows that absorptive capacity enables and shapes the NBMD that, in turn, leads to performance gains. The authors also find that the NBMD capacity mediates the impact of realized absorptive capacity on performance, whereas product differentiation strategy moderates the relationship between new business model and performance.Research limitations/implications: All variables were measured based on a self-assessed scale leading to potential method bias. Also, based on relevant literature, the study focuses on only one type of business model (BM) design.Practical implications: Since dynamic capabilities are the foundation of NBMD, firms should invest carefully in developing such capabilities. Thus, the study results provide an integrative framework for understanding the role of absorptive capacity in NBMD adoption and for explaining the relationship between NBMD adoption and performance, an aspect that helps organizations in a dynamic environment.Originality/value: This study strives to investigate the relationships between absorptive capacity, business model design, product strategies and performance by answering the call of Teece (2018) to “flesh out the details” of such relationships.