In this section, the findings from this study will be connected to existing knowledge and literature on dual BMs. The findings, in combination with and building forth on existing theory, provide new knowledge and insights on how dual BMs are properly balanced on BM renewal and BM replication to be able to continuously innovate as a company. Also, it brings forward new knowledge on how synergies are exploited and conflicts are managed based on certain integration and separation practices while operating dual BMs. In more detail, the findings serve as the basis for our developed propositions that answer the research question: How does an incumbent firm operate a dual business model, concerning integration and separation between the business models and a balance between renewal and replication, to exploit synergies and manage conflict? At the end of the section, an overarching model is presented, showing the main results of this study and serving as complete dual BM guide, concerning the balance of BM renewal and BM replication as well as a balance between integration and separation, to exploit synergies and manage conflicts.
At first, the company that is researched has an overarching structure that facilitates and maintains the balance between BM renewal and BM replication. It has many BMs of which some dedicated to exploitation and some to exploration. All of the BMs are to some extent integrated, related and/or cooperate together in the company’s transition towards service and total solution BMs. Here, the balance between BM renewal and BM replication at an organizational level is maintained by running al BMs, whether operating in different departments, markets or geographical regions, from one big overhauling platform or eco-system (in this case HSDP). This causes all BMs to be somewhat complementary to other BMs, directly or indirectly. The concept of strategic fit in the company plays a crucial role here.
BMs are linked together, but for this to work, all those BMs must be able to operate alongside each other. The rule of strategic fit takes care of this by ensuring that all BMs, new and old, share the same strategy, culture and values, as also indicated by literature to be necessary with dual BMs (O’Reilly &
Tushman, 2008; Smith, Binns & Tushman, 2010). This is also the reason for some divestitures, as these were not in line with the company’s overall strategy and purpose within the healthcare sector, such as its home appliances business or its lighting business. The organization’s overarching platform balances
36 BM renewal and BM replication by having all BMs contribute to the same purpose and automatically discover what is needed for this company’s purpose and either engage in renewal or replication for certain BMs accordingly. Together with the fact that the company shares the strategy and values with all BMs, it allows for synergies to be easily realized and exploited, and thus leads to the first proposition:
P1: An overarching platform or eco-system that incorporates all BMs, in combination with all BMs strategically fitting the company, ensures a proper balance between BM renewal and BM replication and improves the potential to realize and exploit synergies.
In accordance with the literature, the strong shared values and identity mentioned above, aids the company in dealing with inherent tensions between BM renewal and BM replication (Volberda, 2017).
Despite having all BMs fit the company in a way, not all conflicts are avoided. New BMs dedicated to renewal and old BMs dedicated to replication will always, to some extent, have conflicts with each other due to them differing in nature, as literature indicates (Velu & Stiles, 2013), but is also present at the company. Therefore it is vital to combine the overarching platform integration with proper conflict management. Initially, the company ensures that multiple BMs can co-exist, as explained by the rule of strategic fit, and even work together to some extent, leading to the omitting of radical cannibalization of existing BMs. It does this by carefully creating and integrating new BMs on its digital platform fitting the overall strategy and culture of the company. Cannibalization can still occur, but due to its way of operating dual BMs, potential cannibalization itself is not harmful for the organization, considering existing BMs can be complemented by new BMs through its shared platform and the benefits of renewal might weigh up against the potentially unavoidable cannibalization. This is in line with the notion on the relationship between such opposing BMs being complementary rather than a duality (Velu & Stiles, 2013). The outcome builds on this notion, leading to the following proposition:
P2: Strategic fit between existing and new BMs, together with careful integration and positioning of the new BM, allows for minimizing cannibalization.
Rather than cannibalization itself, the fear of cannibalization among people within the company can be affecting the company and therefore needs to be managed well. A crucial task for top management is to
37 reconcile views. Natural tensions arise between businesses due to their different perspectives and needs.
Within the company, top management has the ability to reconcile these perspectives. After this, a BM development framework similar to the stage-gate model (O’Conner, 1994) makes sure that new innovative businesses are carefully set-up and integrated, positioning it in the organization where it contributes to the overall strategy and is not constraining existing BMs too much. In addition, the use of the stage-gate model-like framework enables innovations to be implemented in small steps. This ensures managers and employees to be better prepared for change and embrace it faster, as is indicated in existing literature (Velu & Stiles, 2013). Acceptance and sense of urgency across the organization is then gained by consistently and actively showing the need for new BMs. Again, top management plays an important role in this change management. It complements and expands on the findings from Volberda et al.
(2017), who indicate the important role for top management on the execution of BM renewal and BM replication, concerning encouraging employees and conveying a clear message for the people to embrace change. Together, these conflict management practices lead to the following proposition:
P3: Reconciling business perspectives, intensive change management from top management, and the use of a stage-gate model for developing new BMs, mitigates tensions between renewal BMs and replication BMs.
Next, literature usually indicated spatial separation, i.e. fully separating the new BM in a separate organizational unit, to be the most useful approach to dual BMs as it separates the two BMs to prevent conflicts while having certain integration mechanisms in place to exploit some synergies. However, recent literature proposed this idea to be outdated and pleads for other forms of ambidexterity to be better suited for dual BMs and exploiting synergies. The company under investigation has the same perspective on ambidexterity. Its middle managers agree on the unwritten 70-30% rule, where 70% of someone’s time is devoted to usual activities, or exploitation, and 30% to innovation or personal development, or exploration. Not only is this active on an individual level, also looking at the value chain, 20% of a business’ time and resources are dedicated towards innovation. The rule shows that in a large innovative company as Philips, contextual ambidexterity works successfully.
38 While handling contextual ambidexterity, an important factor on the balance of BM renewal and BM replication is the company’s self-awareness. The company has awareness about what is going well and what is not. This concerns profits but also its future sustainable profitability and competitive position.
In other words, decision-making takes into account where replication is needed and were renewal is more preferred, as the company is aware in what parts of the organization which of the two is needed.
The ability of being self-aware is shown on an individual level, stimulating the success of contextual ambidexterity at the workplace, as well as on organizational level. In relation to this self-awareness is the avoidance of renewal and fixation traps. Here, literature also indicates that it is vital to carefully look at what your organization is doing and whether renewal or replication is needed (Volberda et al., 2017).
In this research, the theme of self-awareness manifests itself as the basis for the company’s choices regarding where to invest in BM renewal or BM replication, and, therefore, for the balance of the two.
While it does not necessarily supports theory on how to avoid either of the two traps, it does complement the notion that it is vital in decision-making on whether to renew or replicate and achieve a balance between them. A proposition is then constructed as:
P4: Self-awareness positively stimulates a proper balance between BM renewal and BM replication.
Critical here, is the way the company manages both its new and old BMs in terms of strategic fit and integrated platform. BMs do not have to be separated, as suggested in former times, to manage conflicts.
Rather, the way that this company operates dual BMs is more favorable considering the increased potential to synergies it brings forward, on top of the successful conflict management. As the company recognizes a business to be constraining other businesses due to not having the desired strategic fit or creating too much conflicts, it divests these businesses instead of operating them fully separately under another organizational unit. In other words, even in such a case, spatial separation is avoided. Resources are better to be invested into a BM that contributes to the company’s overall strategy and purpose.
Especially considering that the effort and resources needed on both the activities needed to avoid conflict as well as the extra risks and costs associated with not using potential synergies (Volberda et al., 2017), this strategy is better. Thus, making use of a more contextual ambidexterity-like process, and with that,
39 allowing for more synergies to be exploited while still being able to avoid and manage tensions leads to the following proposition:
P5: Contextual ambidexterity is more valuable for an organization that has the ability to reach integration with strategic fit between existing and new BMs and to manage tensions properly, as synergies are increased while conflicts are minimized.
The company executes several methods of integration that allow synergies to be exploited. In consensus with existing literature, the company engages in assets sharing to exploit synergies (Markides & Oyon, 2010). When ideas turn into new BMs, one of the first activities that the company performs is identifying on which existing assets, and perhaps also on which existing BM the new innovative BM can be anchored to and might be leveraged on. It results in the exploitation of synergies between new BMs for renewal and existing BMs for replication, leading to the following proposition:
P6: Innovative BMs devoted to renewal can be anchored to assets already in use to integrate them with existing BMs devoted to replication and to realize synergies between the two.
The BMs in the company are integrated to a larger extent than assets only. The company operates its businesses according to value chains and it organizes them around value chains as this is important to potentially realize synergies on many elements of the value chain (Markides & Oyon, 2010). It became clear that presumably in the back end of the organization and of these value chains, BMs are integrated.
This mainly concerns the overall architecture of the firm, but also its supply chain. The company runs a so-called ‘Integrated Supply Chain’, where its businesses are all integrated in order to leverage processes, standards and capabilities among BMs. This expands literature that lacks specifically supply chain integration as a common synergy exploitation mechanism. The strong and overhauling BM architecture is looking how to innovate BMs within the company, and in what kind of architecture to do that. The architecture within the company is the platform architecture (HSDP) that connects all BMs and enables them to cooperate on the company’s total solution BMs. This study shows that the platform architecture enables the BMs to leverage the company’s IT landscape, knowledge and expertise, which
40 is found to be useful for synergy exploitation (Volberda et al., 2017). It results in the following proposition:
P7: Integration of BMs at the back end of the organization, through its platform architecture and supply chain, enables leveraging activities and exploiting synergies.
Resulting from this platform architecture mentioned above, BMs, both renewal BMs and replication BMs, have a high degree of internal cooperation. This is shown as the company develops total solution BMs, where existing and new BMs are working together to satisfy demand from its customers. Literature has indicated that a high degree of internal cooperation enables quick and extensive knowledge sharing across the organization. It has a positive effect on both BM replication and BM renewal (Volberda et al., 2017). For the company under investigation, this is also the case as it finds its renewing total solution and service BMs to benefit from knowledge on healthcare, resulting from cooperation with existing and experienced BMs. Also, it provides these existing BMs with the ability to benefit from more data leverage potential and cooperation, increasing efficiency as a result. It is thus beneficial for synergy exploitation in both ways, giving rise to the following and final proposition:
P8: A high degree of internal cooperation between BMs, both within and between BMs devoted to renewal and replication, is beneficial for synergy exploitation.
Academic literature on dual BMs is complemented as this study provides insights on how a balance between BM renewal and BM replication can be achieved, on conflict management, and on certain integration strategies that enable a firm to exploit synergies. In essence, the results took a slight turn from what is usually found at organizations operating dual BMs in that this company is far in the process of being able to continuously evolve with multiple BMs devoted to both renewal and replication, up to the point that it is able to operate dual BMs in such a way that is not achievable for each company. This has to be taken into account when generalizing the results. Despite that, the results still contribute to the BMI and ambidexterity literature. Certain integration strategies that surfaced corroborated existing theory, such as the sharing and harmonization of assets, supply chain activities and values. This is also the case for the positive effect of a high degree of internal cooperation on synergy exploitation, and the
41 role that top management plays in conflict management. The literature was complemented by proving the idea that contextual ambidexterity is favorable over the often-pleaded spatial separation in previous literature. It manifests the fact that different BMs are interrelated, complementary, able to reinforce each other and allow high degree of synergy exploitation, which is in line with recent literature (Markides, 2013). This idea basically shows that operating dual BMs is not necessarily a trade-off between integration and separation for synergy exploitation and conflict mitigation, respectively. If managed well, both favorable outcomes can be achieved. Thereby, literature on BMI and ambidexterity is expanded. First, it is shown that self-awareness is a crucial factor when properly balancing dual BMs as it forms the foundation for top management’s and middle managers’ decision-making processes. In addition, and perhaps the most insightful outcome of this research, the study expanded literature by showing the notion of operating all BMs on the same platform architecture and sharing the same strategic fit, as this is beneficial for running dual BMs as a whole. Practitioners of dual BMs can use these results in their own decision-making process as it might be useful as a guide to balance BM renewal and BM replication, exploit synergies and manage conflicts, and to operate dual BMs on a shared digital platform-based architecture.
The results of this study are included in the model below. This model forms the basis for how dual BMs are balanced, concerning integration, separation and continuous innovation.
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