Module 5: Business Modeling
Managing 2+ BMs
Why should you consider strategies to manage multiple business models?
Managing two or more business models simultaneously can be important when you’re reconfiguring your business model and, instead of replacing the old business model, you decide to add another one and have two business models working in parallel.
What are strategies for managing multiple business models?
The strategies presented here are based on Markides and Charitou: Competing with dual business models (2004).
Separation strategy can be used when there are major conflicts between business models. You spin your new business model off and incubate it outside your own company.
Phased separation strategy takes place when there are only minor conflicts, so the new business model can start in-house and spins off at some point to address a different market.
Integration strategy comes into play when you have low conflict and have high strategic relatedness. You may be serving a similar market, but maybe you have different delivery channels or other minor conflicts.
Phased integration strategy happens when there are major conflicts but you have higher strategic relatedness, so you can start with a spin-off that you then bring back in later once it is established.
How can you successfully adopt these strategies?
Step 1: Determine the ideal strategy
Compare the ideal business models for each venture.
1. How serious are the conflicts between the two businesses?
- Questions to answer: How different are the value propositions? Are they targeting the same customer segments? Do they need the same resources? Will the incentive structures for stakeholders in each business model conflict?
- If there are major conflict between the two business models, like narrow value propositions or incentives that conflict, meaning that the success of stakeholders in one business would hurt the success of the other, you should pursue a separation strategy or phased integration strategy.
2. How strategically similar is the new market to the existing business?
- Questions to answer: Can the resources and competencies of the existing business be translated to the new market? If I am to enter the new market space, can I do it with my existing business model or do I need a new business model? Do I look at the new customers as simply another segment that can be served with my existing business model or as a completely different market that requires its dedicated value-chain activities?
- If there are many similarities between the markets or the competencies needed to enter a new market, consider an integration strategy to take advantage of the company’s existing resources. If there are also major conflicts between the business models, considered a phased integration strategy.
Step 2: Set the conditions to successfully implement the strategy
For the separation strategy:
- Give operational and financial autonomy to their units but still maintain close watch over the strategy, and encourage cooperation between the unit and the patent through common incentives and reward systems.
- Allow the unit to develop their own cultures and budgetary systems.
- Allow the unit to have its own CEO who is transferred from inside the organization, rather than hiring an outsider.
For the integration strategy:
- Treat the new business model as a wonderful new opportunity to grow the business, rather than see it as a threat.
- Exploit the strength of the traditional business model to find ways to differentiate yourselves rather than imitating the strategies of your attackers.
- Approach the task proactively instead of reacting to a problem.
- Take extreme care not to suffocate the new business with the existing policies of the firm.
What’s up next?
Understand what unique challenges your organization may face by performing a Business Health Check.