Across many industries, companies are using innovative business models as a basis for competitive advantage. In recent years, for example, upstarts such as Uber Technologies Inc. and Airbnb Inc. have used multisided business models to leverage ordinary resources against established competitors that
rely on unique resources. Increasingly, organizations are adopting two or more business models at once to tap into resources and capabilities that aren’t available through other means.
As companies attempt to diversify into portfolios of business models that achieve higher performance than other configurations, they need to match their own resources and capabilities to the external opportunities they face. In this article, the authors argue that executives need to assess whether there
is fit not only between the activities underpinning the business models they use but also across multiple business models.
How can companies assess whether there are advantages to using multiple business models? And when might it make sense to focus on fewer business models rather than more? To develop their understanding of business models, the authors studied the Formula One auto racing industry, the various businesses operated by Amazon.com Inc., and nearly 50 other companies. This article addresses three core questions:
• What should you consider when thinking about business model diversification?
• In deciding to add a new business model to your portfolio, how can you assess and optimize its value?
• How should you modify your business model portfolio over time?
Like other forms of corporate diversification, the authors say, business model diversification does not always generate superior performance. In settings where a business model isn’t generating the synergies that were envisioned, managers shouldn’t be afraid to streamline, improve, or divest from some business models in the portfolio to focus on and bolster the activities that are strategically optimal.
Although it’s common for executives to focus on financial performance, the authors write, “good managers seek to exploit new opportunities to create additional value, such as cross-selling, differentiation, reputation, user data, and capability development. Managed wisely, business model diversification can help executives improve performance and advance the purpose of the enterprise.”