University of Amsterdam MSc Business Administration
Digital Business
Balancing Dual Business Models: How to Integrate, Separate, and Continuously Innovate, Focusing On
Synergies and Conflicts
Joppe Maarleveld 11817577
Supervisor: Fatemeh Masihkhah - PhD candidate EBEC Approval: EC 20210429110408
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Statement of Originality
This document is written by Student Joppe Maarleveld, who declares to take full responsibility for the contents of this document.
I declare that the text and the work presented in this document are original and that no sources other than those mentioned in the text and its references have been used in creating it.
The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.
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Table of Contents
Abstract……….. 4
Introduction……… 5
Literature Review……….. 9
Data and Method……… 18
Results……… 22
Discussion……….. 35
Conclusion………. 42
References……….. 44
Appendices………. 50
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Abstract
Business model innovation literature has indicated the difficulty of operating dual BMs, mostly because business models devoted to renewal and business models devoted to replication tend to conflict with each other. This paper draws from the business model innovation and ambidexterity literature, in order to research the question of how an incumbent firm operates 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. To answer this question, the current study conducts a qualitative case-study at a large multinational, running multiple business models, both explorative and exploitative, in a dynamic environment. It is found that integration of certain business model elements and conflict management can be both established in the firm, without those heavily intertwining, by means of shared platform architecture where all business models are connected. This eventually leads to the ability to properly balance business model renewal and business model replication and the significant exploitation of synergies. The current paper elaborates on how this is achieved among other new or complementary insights, and, with that, contributes to literature on dual business models and ambidexterity, while also providing ground for future research on both topics.
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Introduction
In the year 2010, Blockbuster, the home-entertainment giant that was once valued at $8.4 billion, has filed for bankruptcy after an entrant disrupted the entire market. This entrant was Netflix, the now well- known and popular entertainment streaming service. As Netflix CEO Reed Hastings mentioned:
“Blockbuster had been unable to adapt from DVD rental to streaming.” In other words, Blockbuster had been unable adapt its business model (BM) to the disruption that Netflix brought to market. Still nowadays, there is limited evidence of how organizations can innovate its BM when faced with such disruption (Foss & Saebi, 2017).
Incumbent firms have increasing difficulty in responding to disruptive BMs and operating multiple BMs at the same time is indicated to be a proper response (Markides & Oyon, 2010). Disruptive innovations in general always have posed to be a threat to incumbents (Christensen, 1997) and to cope with it, business model innovation (BMI) is typically needed for the established firms (Chesbrough &
Rosenbloom, 2002). Charitou and Markides (2003) proposed, for example, that the incumbent adopts the disruptive innovation next to its existing business to ‘play to games at once’. Scholars have pointed out that operating several BMs which focus on both BM replication, i.e. improving existing BMs, and BM renewal, i.e. developing new innovative BMs, is more effective to ensure success than a single BM (Velu & Stiles, 2013; Markides & Oyon, 2010). Such usage of multiple BMs is called dual BMs and is related to higher performance and long-term success (Volberda, van den Bosch, Heij, 2017).
Existing literature on BMs and business model innovation (BMI) is growing, where literature on BMI, is an outgrowth of the BM literature (Foss & Saebi, 2017). While much research has scrutinized and improved analysis on BMs in specific industries and situations, little research is done on how firms manage dual BMs (Winterhalter, Zeschky & Gassmann, 2016). More specifically, there is a lack of theoretical foundation in the growing literature of BMI on how to compete with multiple business models at the same time (Markides, 2013). Research proposes that different BMs have similarities in their activities, which makes it important to adopt a micro-level perspective on how organizations integrate or separate value chain activities between the BMs (Winterhalter, et al., 2016). Most research
6 suggests to put the new BM in a separate organizational unit, to prevent the BMs from conflicting. This is called spatial separation, which means keeping the BMs completely separate. However, this might not always be the best solution (Markides, 2013). Namely, spatial separation neglects the potential to realize synergies between the BMs. It is argued to look more into depth on which specific activities to integrate and separate, to allow synergies to be exploited and, at the same time, avoid conflicts (Markides
& Oyon, 2010). This idea is expressed in the literature on ambidexterity, where an organization is ambidextrous if it is able to operate multiple BMs to exploit synergies while managing tensions. Existing literature lacks understanding on how to realize this idea.
In addition, most studies that are executed, especially those with a focus on spatial separation, investigate integration and separation between BMs differing in strategy. Namely, between a low-cost BM and a differentiation BM. Much less research is done with a focus on the integration and separation between a BM devoted to exploration and renewal, and a BM devoted to exploitation and replication. Operating both an explorative BM and an exploitative BM is challenging and literature lacks understanding on how to achieve the right balance between the two to continuously evolve as an organization, while still being able to manage conflict and exploit synergies.
For the current study to address these research gaps, it grounds its work on BMI and ambidexterity literature in order to dive into the topic of dual BMs. In more detail, it tries to find out how to achieve two types of balances while operating dual BMs, being the balance of integration and separation, and the balance of BM renewal and BM replication. Both with a focus on the two important aspects of exploiting synergies and managing tensions between the BMs. This purpose leads to the following 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?
This paper intends to contribute academically as well as managerially. Looking at academic contributions, the research aims to expand the BMI knowledge in the following ways. First, it contemplates to increase theoretical understanding of dual BMs by diving into the topic and explore certain important elements that surface when operating dual BMs. Secondly, it tries to expand
7 knowledge on BMI by investigating how synergies are exploited when looking at certain integration mechanisms and ideas that realize this, in combination with how conflicts are managed, which is another aspect that is inherent to the use of dual BMs. Here, increased knowledge of where separation is necessary and integration cannot go too far between the BMs is intended to follow from this study.
Lastly, the study aims to contribute to theory on the balancing act of BM renewal on the one hand, and BM replication on the other hand. Mainly by trying to show how the optimal balance is achieved and how this is done, while still focusing on exploiting synergies and managing tensions between the BMs.
In addition, this paper also aims to contribute to the field of ambidexterity. As much research focused on spatial separation solely, the current contribution takes into account all forms of ambidexterity in the investigation on how organizations can operate new BMs next to the old ones. Considering the managerial contributions, the paper plans on providing managers, both corporate and middle managers, a better understanding on how to operate dual BMs, especially concerning decisions about integration and separation between BMs. Also, by elaborating knowledge on how to achieve the right balance between BM renewal and BM replication, managers can turn to this paper for insights about this balancing act which is at the root of performance and long-term success. Particularly, the managers of organizations operating in dynamic environments will benefit by incorporating the findings of this study into their decision-making process. This is due to the fact that the increased knowledge on operating multiple BMs that is intended to follow will provide more flexibility if implemented well, which is needed in dynamic environments (McGrath, 2010).
The thesis will continue by elaborating on the current knowledge and literature on BMs, BMI and ambidexterity in the literature review. A broader conceptual understanding of dual BMs and BMI will be given in the context of this study, whereafter the paper dives into synergies and conflicts and how to strategize BMs for them. After the literature review, the research methodology will be explained concerned with what research method, design and strategy is chosen and why. Subsequently, the results section can be found, containing the findings of the data. The discussion section will follow, where interpretations of the findings are stated and the research question will be answered. The conclusion will
8 then summarize the main findings, indicate limitations of the research and provide potential future research ideas evolved from this study.
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Literature Review
BUSINESS MODEL
From the mid-1990s onwards, the BM concept has gained attention in research, and since then has been subject in discussions about innovation, sustainability and many others. More recent reviews have shown the utility of the BM concept to research streams on e-commerce, strategy and technology management (Foss & Saebi, 2017; Massa, Tucci & Afuah, 2017; Zott, Amit & Massa, 2011). A BM has been described in various ways throughout the years and there does not seem to be consensus about one particular definition. Rather, the view on the concept of BMs is fragmented and scholars do not agree on the terminology and meaning of BMs (Zott et al., 2011; Hosain, 2016; Massa et al. 2017). Intuitively, a business model describes an organization and its way of achieving its goals (Massa et al., 2017). When getting more into the details of a BM, more variety in perspectives and lack of agreement is shown (Wirtz, Pistoia, Ulrich & Göttel, 2016). Recent reviews of BM literature tend to accept on the notion of a BM as the design of three key elements that make up a BM, being the value creation, delivery, and capture mechanisms of a firm, plus the fact that the key aspect of a BM is the complementarity amongst the underlying activities (Teece, 2010; Foss & Saebi, 2018). Teece (2018) then defines a BM as “an architecture for how a firm creates and delivers value to customers and the mechanisms employed to capture a share of that value”. This research will ground its work on this definition by Teece (2018) in combination with the fact that a BM is conceptualized as a system of activities that are interdependent (Zott & Amit, 2010).
BUSINESS MODEL INNOVATION
What scholars do seem to agree on, and what is more or less undeniable, is that the BM concept has become an important subject in macromanagement discussions the past few decades. As is also the case for the innovation of it (Foss & Saebi, 2017). This innovation is termed BMI. The idea that BMs can be innovated was present almost two decades ago (Mitchel & Coles, 2003), but this insight has become concrete more recently. Thereby, apart from the fact that BMI is a means to technology and product innovation, it has become a subject of innovation itself (Zott et al., 2011). BMI can occur not only by
10 changing certain components of the BM, but also when these components are being linked in different ways. In other words, the architecture of a BM can be innovated, where the emphasis is on the links between the underlying activities of a BM. This can be done by making alterations to the set of primary activities an organization offers to customers, reshaping the boundaries of the firm, changing locations where activities are performed, or by modifying linkages between the organizational units performing the activities (Santos, Spector & Van der Heyden, 2009; Amit & Zott, 2012). Each form of BMI can be different on two dimensions based on the literature. First, the degree of novelty of BMI can differ, where BMIs can be seen as either new to a firm (Bock, Opsahl, George, & Gann, 2012) or new to an industry (Santos et al., 2009). Secondly, BMI can differ in scope, which means how much of a BM is affected by the BMI. BMI may affect one component of a BM (Schneider & Spieth, 2013) or it may affect all components plus the architecture between those components (Frankenberger, Weiblen, Csik &
Gassmann, 2013). Khanagha, Volberda and Oshri (2014) state that “Business model innovation activities can range from incremental changes in individual components of business models, extension of the existing business model, introduction of parallel business models, right through to disruption of the business model, which may potentially entail replacing the existing model with a fundamentally different one”.
Apart from all different ways of innovating a BM, there are two main types of BMI, being BM renewal or BM replication (Osiyevksyy & Dewald, 2015). BM renewal is more explorative in nature and more radical than replication. BM renewal occurs when new BM components are introduced or new interdependencies between the components are created that goes together with entering new markets or aggressive moves within an existing market (Volberda et al., 2017). BM replication, on the other hand, is about improving or replicating an existing BM. Here, firms develop or scale up the components of the BM, and existing routines are refined and executed more efficiently. These components, together with the interdependencies between them, are leveraged to create and capture more value than before (Volberda et al., 2017). Both are forms of BMI innovation, but they are prolonged for different reasons and goals. BM renewal is pursued to reach a more sustainable competitive future position based on a new BM. BM replication is pursued to maintain and improve the existing competitive position of an
11 organization by increasing the value of the current BM. The focus for replication is thus on the short- term and for renewal more on the longer term.
It is stated that BMI is necessary to address strategic disruptions and discontinuities in the market (Doz
& Kosonen, 2010) as well as competitive pressures, unpredictable external changes and the increasing speed of business development in this digital era (Voelpel, Leibold, & Tekie, 2004). BMI is also seen as a way of seizing new opportunities that arise with this accelerating pace for business developments that are introduced by new digital technologies (Foss & Saebi, 2017). Many examples have passed where disruptive business models have taken over the market, or created a new dominant one, with incumbents faltering as a consequence (Christensen, Anthony & Roth, 2004). Thus, it may be implied that BMI is a key element for organizations to survive and thrive, as indicated by CEO-level surveys where it comes forward that BMI is key for sustained value creation (Pohle & Chapman, 2006).
To add to that, organizations seem to be stuck in a competition of innovation. Each organization innovates, but since all of them are doing that, no real competitive advantages can be achieved and they seem to be standing still. This notion is called the ‘red queen race’. The race is about constantly evolving on the one hand, and increasing competition on the other hand (Volberda, 1998). Demil and Lecocq (2010) mention this continuous innovation as necessary to stay competitive and to come across new opportunities. They state that change in an organization occurs systematically, where the BM elements are permanently interacting with each other. Each changing element has its effect on the other elements, keeping the BMs evolving continuously. The concept of a dual BM is present in the literature as a way to continuously reinvent yourself as a company. With a dual BM approach, one part of the firm focuses on renewal and creating new value while, simultaneously, another part of the firm focuses on replication and optimal usage of routines and competences (Volberda et al., 2017). By both innovating though BM replication and BM renewal at the same time, organizations can capitalize more on the value that their internal knowledge and main activities bring forward while also being able to change and respond to ever-evolving customer demands. This increases performance by, on the one hand, being able to serve current markets better and replicate it to other markets, and, on the other hand, by grasping and profiting from new opportunities through BM renewal (Volberda et al,. 2017).
12 However, companies need to ensure that they do not focus too long on their existing BMs, or BM replication, as new entrants become able to meet evolving demands of customers before incumbents do (Christensen, Raynor & McDonald, 2015). They need to avoid a fixation trap, meaning that too much focus is maintained on replication of the existing BM while attention to renewal was already necessary.
This can occur for several reasons. For example, management is, due to pressures, too much focused on short-term performance and with that their current BM (Govindarajan & Trimble, 2011). Also, a successful BM may lead to reinforcement of established expectations and produce organizational inertia (Ofek & Wathieu, 2010), and, therefore, to a decreasing tendency to renew the BM. Even when firms do recognize disruptions and the corresponding need to innovate radically, they may not be inclined to act appropriately due to unwillingness, overconfidence, or weighing existing assumptions more important than future ones (Cunha & Chia, 2007; Day & Schoemaker, 2004). There is an invisible S- curve of strategic performance that starts to decline earlier than the visible S-curve of financial performance. The need to renew a BM is when the invisible one declines as the competitive position weakens. However, this is not shown in financial performance yet, which usually decreases at a later point in time, and therefore companies tend to hold on to replication of existing BMs and renew too late, which brings them in a business model fixation trap (Nunes & Breene, 2011).
In contrast to the fixation trap, where the response to disruptive innovation is too late, there is also the renewal trap. As the name implies, too much focus is on renewal. Here, the replication phase, where most of the returns is extracted from the new BMs, is overlooked and the full value of a firm’s BMs are not fully captured (Volberda et al., 2017). It may be clear that this situation is far from desirable as constantly renewing too early leads to exaggeration of the importance of small technology and industry changes, destruction of an organization’s culture and identity, and wastage of money (Volberda et al., 2017). With a renewal trap, the invisible S-curve of strategic performance receives more attention while management fails to look after the S-curve of financial performance, meaning it neglects the extraction of value from the new businesses. The findings of this study intends to present proper principles in operating dual BMs which help in avoiding these risks.
AMBIDEXTERITY
13 So what is the best way for organizations to then tackle disruptive innovations without running the risk of falling into one of these traps or failing to properly respond to these disruptions in the market?
Organizations would have to put in place both a replicating BM and a renewing BM at the same time, thus operating with a dual BM approach. However, operating two BMs at once can be very challenging as new BMs often conflict with existing ones and potential synergies are hard to exploit. These underlying challenges of running dual BMs successfully is seen as an ambidexterity challenge by Markides (2013). Ambidexterity within an organization is described as the ability to both explore and exploit at the same time (O’Reilly & Tushman, 2013). The ambidexterity literature proposes several ways to manage dual BMs. The solution that Markides and Charitou (2004) proposed, as well as most literature that has tried to tackle the problem of conflicting BMs, is relatable to structural ambidexterity (or spatial separation, as they call it). This form of ambidexterity means that both exploration and exploitation are simultaneously pursued by having each run in a separate subunit within the organization (O’Reilly & Tushman, 2013). Intuitively, it is a logical approach, as the existing BM requires focus on efficiency and, in contrast, the new innovative BM requires exploration and divergent-thinking, which are completely different purposes (Khanagha, et al., 2014). A second way of achieving an ambidextrous organization is through sequential ambidexterity (temporal separation). This form means switching temporarily between exploration and exploitation, and adapting the structure of the firm to changes in strategy and external conditions. This form is especially useful in slow-moving environments (O’Reilly
& Tushman, 2013). However, these two approaches make the potential for synergies to be exploited between the BMs difficult to surface.
In 2004, Gibson and Birkinshaw, proposed another form of ambidexterity that is, on the contrary, more suitable for exploiting synergies, called contextual ambidexterity. They stated that the tension of playing two games at once could be solved at the individual level and define contextual ambidexterity as “the behavioral capacity to simultaneously demonstrate alignment and adaptability across an entire business unit”. Here, on an individual or group level it is decided on when to explore and when to exploit and how to balance the amount of exploration and exploitation, rather than on an organizational level. They also mention that a supportive and trustful organizational context needs to be in place, where individuals
14 are encouraged to balance their exploration and exploitation efforts. As individuals and groups manage the tensions between exploration and exploitation themselves, leadership efforts should enable them to do this through, for example and among others, transformational leadership or behavioral integration (Havermans, Den Hartog, Keegan & Uhl-Bien, 2015).
For the context in the current research, it is important to note that it is not limited to just one ambidextrous approach. Rather, no distinction is made between the different approaches so as to not limit the potential answers to the research question, and take all potential contributions into account. As Markides (2013) already noticed, most of the literature on dual BMs is focused on structural ambidexterity at the exclusion of contextual ambidexterity and sequential ambidexterity. For this study the focus is on all of them. So the concept of ambidexterity, playing two games at once, as a whole is taken into account, as firms can use a combination of the ambidexterity forms. In the same year, Markides also mentioned that, until then, the literature on BMI promoted the idea that a new BM should be located in a separate unit, not allowing for much integration, while, on the basis of contextual ambidexterity, not everything has to be separated and each firm must decide on what to separate and integrate based on their internal and external situation. This study will be executed on the basis of, and builds forth on this idea.
SYNERGIES
Tensions will constantly be present between renewal BMs and replication BMs. BM renewal will always conflict with the existing BM considering it will always be disruptive to the old one (Velu & Stiles, 2013). Markides and Charitou (2004) thus responded to this saying that the two BMs should be ran separately to avoid conflicts, while, according to them, also an adequate amount of integration between two BMs should be provided in order to exploit synergies. These synergies are not strange as the two BMs will also be interdependent and will have the potential for compatibility and complementarity (Benson-Rea et al. 2013; Velu & Stiles, 2013). However, as Markides and Oyon (2010) state, the spatial separation setting that Markides and Charitou (2004) proposed, brings with it certain problems. One of those is that the synergies are difficult to be exploited, if any potential synergies are even present. This led to scholars and academics to research and create linkages between the separated BMs in the form of
15 integration mechanisms. These allow an organization to exploit synergies between BMs that are separated. Some examples of integrating mechanisms that are generally good options to exploit synergies among the BMs are sharing some value chain or logistical activities between the BMs or operating both BMs with the same brand name, assets and expertise (Markides & Oyon, 2010; Helfat &
Winter, 2011).
Another notion through which the exploitation of synergies can be achieved is when organizations work together on innovation by sharing knowledge bases of these organizations (Volberda et al., 2017). This goes hand in hand with BM renewal as using different knowledge sources enables an organization to change from its status quo and create new radical solutions (Chesbrough, 2007). Thereby, Volberda et al. (2017) also mention that organizations that have a large absorptive capacity for knowledge are able to realize synergies better. This means that these organizations are better able to identify and use knowledge from the environment which has a stimulating effect on both BM renewal as well as BM replication. For renewal, a higher absorptive capacity is better for identifying new opportunities and, with that, their tendency to seize these opportunities (Ben-Menahem, Van den Bosch, Volberda & Kwee, 2013). For replication, knowledge on customers and markets already exists, and in combination with a high absorptive capacity, knowledge can be identified, processed and exploited much faster (Volberda, Foss & Lyles, 2010).
Other ways of exploiting synergies between BMs include a high degree of internal cooperation. As knowledge within an organization is generally asymmetrically distributed (Tsai, 2002), a high degree of internal cooperation is important to be able to share knowledge across the organization. Internal cooperation refers to the amount of cooperation between business functions and between employees from different business segments (Hillebrand & Biemans, 2003; Jaworski & Kohli, 1993). Internal cooperation is helpful for an organization’s main activities and therefore for BM replication. However, it has a less positive effect on BM renewal as it becomes harder to protect development of new BMs and can decrease an organization’s ability to acquire external knowledge (Volberda et al., 2017). On top of this, having a common general manager with both supervision and responsibility of the new BM as well as the old one is also seen as helpful in realizing synergies between them. Also shared values across all
16 business units, a reliable integration manager, and enough organizational resources and expertise available for both old and new BMs are known to increase synergy exploitation between BMs (Markides
& Oyon, 2010).
CONFLICTS
In contrast to the positive effect that synergies can potentially bring while operating dual BMs, negative effects are also potentially there and need caution. The risk is that new BMs often conflict with existing BMs, and operating those simultaneously is hard which may imply loss of value if not managed well (Volberda et al., 2017). One large risk is that of cannibalization of the old BM. Cannibalization occurs when a new BM has a detrimental effect on an organization’s current assets and routines which can take the form of reduction of sales or market share of the old BM (Velu & Stiles, 2013). Cannibalization of the old BM is potentially a cause for conflicts to arise, which in turn impedes the development of new BMs (Markides & Oyon, 2010). Also, resistance from members of the existing BM can arise as setting up a new BM leads to the dominant logic, that was present before the introduction of the new BM, to be (partially) abandoned, potentially leading to conflicts within the organization. Thereby, other conflicts can also arise concerning, for example, resource allocation. (Chesbrough, 2010). These conflicts should be treated with care as they can prompt loss of distinctiveness of the new BM compared to the other BMs, which should be avoided in order to maintain the new BM’s value (Volberda et al., 2017).
Velu and Stiles (2013) propose some important mechanisms for managing these tensions, and especially cannibalization. First of all, they mention that organizations need to have ‘the ability to have foresight and vision for the business, but also the awareness of how to link past, present and future, which can facilitate the integration of viewpoints’, to be able to reframe the BM with multiple viewpoints and considering alternatives as well. They call this reframing ‘transcendence’. After transcendence, it is, according to them, necessary to temporarily separate the tensions between the BMs in the design phase.
On top of that the innovation should be framed in a positive light by dividing the new innovation in small changes so that stakeholders are encouraged to embrace change and, with that, middle management agrees to adopt the potentially cannibalizing innovation. After this separation, integration is needed to resolve the tensions by reaching a compromise between all parties involved. This is often
17 done by presenting alternatives for the business innovation decisions so that each party’s preferences are taken into consideration and the eventual choice for a disruptive innovation is less forced.
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Data and Method
The findings of this study will be based on a qualitative case-study. The type of case that would be appropriate for the purpose of the current research includes a case that operates multiple BMs, where different BMs are devoted to both renewal and exploration on the one hand, and replication and exploitation on the other hand. In this situation, automatically tensions and synergies will be present between the BMs, and the case will thus be able to provide sufficient knowledge about that as well.
Also, preferably, the case operates in a dynamic environment as this requires much flexibility and ambidexterity, and implies better expertise and knowledge about managing both forms of BMs simultaneously. The case that was found to tick all boxes, in combination with the researchers’ ability to gather data from this case, was found with Royal Philips N.V.. This organization has a long history of BMI. The company was born in 1891 when it started producing light bulbs and other electrotechnical products. Throughout its history, innovations were in abundance as the company has known times where it produced and sold large household appliances, computers, lithographic machines, microchips, televisions, consumer electronics, lighting systems and domestic appliances, in chronological order.
Since 2014, a large shift has commenced towards healthcare. Both renewal and replication can be found at the high amount of BMs Philips operates. Replication is found at, for example, product selling, brick- and-mortar type of BMs like Philips Razor Blades, and renewal is present considering, for instance, platform-based healthcare BMs.
The research is conducted with a single case-study where data is gathered through semi-structured interviews and other data sources. The interviewees will be top and middle managers so that both an overarching view of multiple BMs is researched as well as managers closer to the action of operations and cooperation between BMs. The interviews consist of five face-to-face interviews and one written interview due to the respondent’s time constraint. In addition, other data sources include one case on Philips issued by Harvard Business School (Kramer, Geradts & Nadella, 2019) and the seven most recent annual reports of Philips, from 2014 up to and including 2020. These reports are chosen from 2014 onwards because, since that year the company started to focus solely on healthcare. Altogether,
19 the data will provide enough knowledge, ideas and insights to explore the proper ways of integrating, separating and continuously innovating dual BMs while exploiting synergies and managing conflicts.
RESEARCH STRATEGY
The nature of the research is exploratory as the literature is not always in consensus, and this research touches upon relatively new ground on dual BMs through the combination of integration, separation, balancing renewal and replication, and synergies and conflicts. No clear or single set of findings are likely to follow from the case evaluation, which is a characteristic of an exploratory study such as this one (Yin, 2003). As mentioned, a single case-study will be done with an holistic approach, where the case will be the unit of analysis. Compared to a multiple case-study, a single one has the disadvantage of having less generalizability as we are not able to compare different cases. However, a single case- study is deemed appropriate for this type of research, as the exploratory nature of this study and the relatively novel field of topic requires research on a case with intensive expertise on dual BMs, in order to uncover novel insights. Thus, it is important to limit the research to a single case, as it is necessary to gain a broad view on the topic researched considering the lack of research on the specific research question of this paper. With that, exploratory research is needed to deep dive into the topic and set the stage for further research that is, where needed, more specific.
The exploratory nature of this study implies that this study will gather extensive research on experts in the field. The researcher’s ability to gather data only at approximately one point in time is countered by also gathering data about changes in time. Through some interview questions and the annual reports, the evolution of BMI at the case is also analyzed so that a wider perspective is taken into account. The research approach is inductive as the purpose is to fill the research gaps that are still present without the testing of specific theory. This approach is chosen since the goal is to reveal new insights and knowledge that can be used to generalize into new theory on which can be built in the future (Dyer & Wilkins, 1991).
DATA COLLECTION METHODS
20 The research design is a mono-method design where, as already mentioned above, interviews will be conducted with experts on the topics. Semi-structured interviews will be held as it allows for certain necessary questions to be asked, while also leaving much flexibility and space for the interviews to go into depth on related knowledge, and the ability to gather insights that are useful and contribute to the explorative findings (Yin, 2014). The interviews start off with a quick background and purpose of the research, without mentioning existing theories on the topic to keep the interview inductive, and with providing a statement of confidentiality and privacy. Then, some introductory questions are asked, whereafter topic related and semi-guided questions are posed with some flexibility between the interviews depending on the interviewee’s role and expertise. The interviews end with questions that enable the respondent to contribute whatever they seem fit for the purpose of the research. The interviews have either been conducted face-to-face or via Zoom, except for one interview which was conducted by sending the script the respondent, who then answered the questions on paper. The reason for the interviews to be held in this manner, concerns the availability of respondents and the researcher’s time constraint. The annual reports can be publicly found on the web and the case was confidentially sent to the researcher. During the research, the theoretical sampling method is applied, as the goal is to build theory and not test it (Eisenhardt & Graebner, 2007). The interviews that are conducted will be transcribed with the help of the software offered by Otter.ai, and sent back to the respondents for validation. Transcribing is done on a verbatim basis as some elements of colloquial language might be useful for interpretation and contribute to credibility of the data. The transcripts can be found in the Appendix.
DATA ANALYSIS STRATEGY
All gathered and transcribed data is coded with the use of the program NVivo, after it was read thoroughly twice in order to understand the data well. The Gioia (2012) data analysis method was used as the idea is to identify themes and patterns in the data that contribute to answer formulation. The reason for this is to account for rigor in the research. Open coding is done as opposed to template coding as the codes emerge from the data through the coding process and analysis without the usage of predetermined labels, and the inductive and exploratory characteristics of this research is better suited for this process
21 being inductive as well (Blair, 2016). The coding process is done on the basis of the coding phases explained by Strauss and Corbin (1998) in combination with the theory development method from Gioia (2012). All pieces of data are assigned 1st order codes during the ‘open coding phase’. Next in the ‘axial coding’ phase, the codes are grouped together based on relationships, patterns, categories and similarities into 2nd order themes. For example, concepts that surface multiple times like the “70-30%
rule” or “continuous innovation dilemma” both contribute to the 2nd order theme of “Balancing renewal and replication”. These 2nd order categories are then developed into concepts which are created after all data is coded and all categories are generated to prevent conceptualizing too soon. In the third “selective coding” phase, a few core categories called 2nd order aggregates are selected. These developed concepts are compared and related to existing theory and to eventually formulate an answer to the research question and to extend knowledge on the topic. An overview of the data analysis can be found in the coding scheme in the Appendix (Table 1) which helps to grasp this study’s findings and conclusion.
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Results
This section will outline all findings and insights that resulted from the interviews and other data sources.
It is split up in three categories where each specific theme that emerges from the data is elaborated on.
The findings are supported by the most important citations from the interviews or other data sources.
INNOVATION AT PHILIPS
Philips, nowadays, is an electronics company operating in the healthcare sector. It is innovating from an electronics organization that produces consumer products, ranging from lighting to tv’s, towards a service and solution provider for healthcare organizations. This transition towards healthcare was initiated by current CEO Frans van Houten in 2011 due to the old operations not leaving much space for further innovation, while Philips recognizes itself as an innovation company. This is the main reason for the big transition. Considering the impact of this change on Philips’ BMs, many changes were made and are still to be made. There are three main business clusters present at Philips being the Personal Health, Diagnosis & Treatment and Connected Care. Personal Health is focused on solutions for healthier lives, hygiene and living with diseases. Diagnosis & Treatment is about electronic healthcare equipment mainly within hospitals. Within the Connected Care cluster, caregivers and patients are seamlessly connected between hospital and home to manage the care. Philips is changing towards total solution BMs, instead of producing and selling just products and services. On top of that, an important aspect of these new BMs is a long-term relationship with consumers.
“We are moving into the total solution management base where we actually are not just selling the products and services anymore but actually make multi-year contracts with hospitals … So we are moving into total solution provider space which is a completely different business model.”
“We see a transition from a transactional sale of equipment (mainly hardware) to subscription model, more software and services, managed services and eventually more towards outcome commitments.”
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“New business models, exhibit a longer term relationship with the consumer.”
The current Covid-19 pandemic has an accelerating effect on the digital transformation that accompanies Philips’ own transition, and is quite disruptive to the healthcare industry. Every business and every person becomes more digital and organizations, including Philips, need to respond to that fast.
“The digital transformation accelerated super-fast. You will most likely see a lot of statements about who is leading the digital transformation, CEO, CIO or COVID. And it is COVID.”
It also implies refocusing the ways of doing business. Some new concepts emerge like telehealth and the consumerization of health. In essence, health is moving more into the homes of people. Hospitals, the main customers of Philips’ solutions and services, want to be streamlined, they want to be more efficient and the pandemic pushed that idea forward in a much faster pace.
“COVID is also dramatically changing that approach because hospitals do not want to have people that do not need to be in the hospital anymore. That push is what we call consumerization of health. The action of pushing health into home.”
The sector is thus constantly evolving and customer demand is rapidly changing. It does bring opportunities with it, but is seen as a challenge for Philips too. On top of that, Philips operates in a dynamic sector which implies much complexity in the markets it serves but also many innovative opportunities. Philips is therefore quickly innovating their businesses to these factors.
“That is a dynamic ecosystem, and what is possible in one market might not be possible in the other because either they are not digitalized or things like that. So it is a really complex ecosystem.”
“It [the most pressing challenges] is all about the customer experience and delivering on that very rapidly changing customer demand and expectation that relate to that.”
PHILIPS’ BALANCE OF RENEWAL AND REPLICATION
The innovative nature and capabilities of Philips enables the company to cope well with the fast- changing environment and seize opportunities. From the interviews, it quickly surfaced that Philips is
24 aware of the need to continuously reinvent itself and that disruptions they face nowadays are mainly BM disruptions rather than disruptions from product innovations that were dominant in the past. The company recognizes the dilemma that constantly transforming is necessary while it is also needed to perform. In other words, it knows that balancing of BM renewal and BM replication is necessary, but complicated.
“Nowadays many of the disruptions in the market are coming from new business models … The main challenge is that as a company, you need to continuously reinvent yourself and transform, while at the same moment you constantly need to perform. Key dilemma is how to balance this transform vs. perform.”
Thereby, it became clear that the company has attention executed towards both the exploitation of BMs that are in a profitable phase with incremental improvements, such as their male grooming business, and the exploration of innovative BMs that the company helps developing to ensure future viability and a good competitive position.
“The balance of having legacy business models versus the new ones that we need to make and keep that innovation ready, I think that is the big intention of the company [Philips].”
With this dilemma of transforming versus performing, tensions usually arise. These can take up many forms. Within Philips, it mainly consisted of differences in the required processes and tooling to run businesses, and performance management concerning the sales targets and metrics. For example, when a new business is created, also new ways of measuring the business have to be figured out. This can be a tension with old BMs. In addition, people within existing BMs with their established routines and practices are not used to novel BMs that are being deployed or created within the organization. That is a natural conflict that tends to arise within Philips among many employees. To counter it, the company makes use of much change management. This conflict can simply not be avoided, but it can be softened and turned around.
“You have people that are used to legacy type of businesses, and then you bring in new business models, … that is a natural tension that people have, it is a lot of change management I think.”
25 Resistance in Philips’ employees was also present during the years when a lot of BMs where shifting towards service and solution based BMs, and still occurs when new businesses emerge. This mainly due to a lack of understanding of new technologies, and the fact that middle managers felt menace from these new innovative BMs as cannibalization of the existing BMs would occur. Philips handled this by consistently and actively showing the need for the new ways BMs were about to be set up, and, with that, gaining acceptance across the company. Support from top management played an important role in this process.
“Deviating from business as usual also required a change in the mindset of Philips’ employees, which some resisted. … some managers felt threatened by service-based business models which would cannibalize Philips’ core business. Support form top management, a growing sense of urgency … and the successful pilot project helped spread acceptance of Philips’ new strategic course.”
Despite resistance, playing two games at once, i.e. both replicating BMs on the one hand and renewing BMs on the other hand, is a common practice at Philips. However, the term Ambidexterity is never mentioned during any interview. Despite that fact, it is most certainly true that the ability of Ambidexterity is present within the company. This shows in the fact that managers at Philips believe in the 70-30% rule. The rule implies that 70% of an employees’ time is devoted to their daily tasks and activities, while the other 20% and 10% are devoted to innovation and personal development respectively. This provides a proper balance between exploitation and exploration, especially at the individual level.
“Companies should always make sure [to follow] the 70-30% rule that you do 70% of your daily job. But the 20% or 10% is dedication to transformation and learning to be honest. I would suggest that is a very good and solid balance.”
Also on a more organizational/group level, this ‘Ambidexterity rule’ is, in a similar form, present. Here, on the basis of the value chain, Ambidexterity is prolonged.
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“In each part of the value chain, you need to look at the devotion of 10 to 20% of your business towards innovation.”
Another important ability present at Philips concerns their self-awareness. From the data it becomes clear that managers within the company stress the importance of knowing what you are doing instead of taking the first available and intuitively correct decision. It can relatively often be the case, as has been within Philips in the past and is still occurring in current times, that the intuitive and common practices are due for innovative replacements. Taking a step back from certain operations and responsibilities to rethink, improve and grow is needed sometimes. Managers being aware of what they and their teams are doing is important in order to make the right decisions, especially concerning whether to continue existing common business practices or letting go of that and explore and renew those.
“We believe in the system of letting go to grow. So you need to sometimes step back from your role and responsibility and say, am I actually doing the right type of stuff?”
On an individual level, this self-awareness concerning a balance between renewal and replication is also present. Going back to the 70-30% rule, it is vital before applying the rule to start with self-awareness and often take a step backwards to get an overview of your and your team’s activities to reflect and analyze whether exploration or exploitation is the right decision.
“You need to sometimes let go. You need to take a distance and say, what am I actually doing?
Can I do it better? Do I need to make a larger leap? Do I need to pause now and make a larger leap instead of trying to solve it all during the day?”
The consumerization of health and the company’s services getting more personalized, in combination with the extensive usage of data, accounts for many opportunities that arise to develop synergies and exploit those.
“With healthcare moving more into the home and with hospital care becoming more personalized, there are lots of opportunities to learn and realize synergies.”
27 With healthcare operations of Philips thus increasingly involving the customers, this also accelerates Philips’ co-creation with those customers. The company works together with customers and partners to co-create solutions and create new BMs and innovations. Here, closely listening to its customers’
demands and needs forms the basis of creating new solutions together and cooperate in new innovative BMs. The methodologies used for this co-creation are leveraged more, as more experience and knowledge is gained and exchanged both ways.
“Philips works with customers and partners to co-create solutions, drive commercial innovation and adapt new models such as monitoring-as-a-service.”
“Increasingly, we are partnering with our customers in new business models where we take co- responsibility for our customers’ key performance indicators.”
Also when engaging in renewal, thus starting and scaling innovative and disruptive BMs that have a long-term focus, Philips has a general rule of fit between the new BMs and the company’s overall strategy. This strategic fit implies that BMs, especially novel ones, have to be in line with the strategy, and suit and complement the general operations within the healthcare technology business sector. It has to be said that the strategic fit of the company is expressed by each cluster in its own way. There are differences in the BMs between the clusters. And within each cluster, each BM has to fit the strategy of the cluster, which in turn fits the strategy of the company as a whole.
“Each cluster will have a different model that fits their business models.”
There is one big example where this fit is not necessarily present to the extent that is commonly the case within the organization. That is the case with Philips’ Male Grooming business, where the fit is somewhat imperfect, despite it being a form of personal self-care. However, this business is very profitable, thus an exception is made. Other than that, this concept of fit ensures that all the company’s businesses within each of the three clusters are in line and enables a balance between old and new BMs to be achieved in the correct way through linking and fitting them. Eventually, the strategic fit plays an important role in realizing synergies between both old and new BMs. The company shares its culture, strategy and values very clearly and sanguine which enables the realization of synergies.
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“So it [new BMs] needs to fit the strategy. There need to be clear links to existing business models… So that fit needs to be super clear and synergistic for us.”
“The organization itself, as well as proper communication of strategy and values across the organization, are already synergies in place.”
INTEGRATION AND SEPARATION AT PHILIPS
Apart from the often well thought out decisions concerning when and how to explore or exploit, Philips also knows how to use which integration mechanisms to exploit synergies, or how to separate certain BM elements to avoid conflicts. First, the architecture of the firm, in terms of the platforms and IT, looks after how BMs are created and scaled. This integrated architecture is the way Philips ensures synergies in the beginning of an innovative BM’s life. It enables a structured experimentation phase and scale-up for new BMs that determines what is needed for such a new project. On top of that, it is beneficial for businesses’ productivity.
“There is a very strong architecture, enterprise architecture over the company, that is looking at how to set up certain models and in what kind of architecture to do that.”
“We will realize productivity gains from the overhaul of our business model architecture, with all businesses adopting one of four standardized business models.”
Partly, this structured creation of businesses within Philips is executed through their so-called NBX (New Business Framework). This is a framework that the company has put in place to scale and market (start-up) ventures. On the basis of certain stages, each with their own validation criteria, and similar to the stage-gate model, ventures are guided from idea to business by NBX. It is a really strict process that ensures ventures are scaled properly if criteria in each stage are met, but most importantly it helps these ventures grow by offering experience and key experts to make the venture’s innovation a success.
“In the beginning, you first validate your assumptions ... And then you go on to make a business case … That is being guided by NBX. So, they really are strict on the process.”
29 Together with the digital transformation, and especially the push that the pandemic gave that transformation, the integrated IT and platform architecture among Philips’ BMs and platforms is a key pillar within the company. Being such an innovative company as Philips is, they make use of the tools that technology innovations have brought into the world in a very efficient and scalable way. More specifically, IT is integrated and leveraged, BMs across the entire company make use of intelligent systems, devices and information, and leverage big amounts of data. Also, leveraging the IT landscape includes combining the solutions that different businesses provide to not only exploit synergies at the back end and beginning of the businesses, but on the front-end as well. It all contributes to the success of Philips’ strategy and goals. The digitally overarching platform called HealthSuite Digital Platform (HSDP) plays a big role here in the facilitation of these integrations and combinations.
“We are driving the digital transformation in every area of our business, leveraging our integrated IT landscape – from the way we connect and engage with our customers and consumers to seamlessly connecting our solutions … It is our strategy to lead with innovative solutions that combine systems, smart devices, informatics and services, and leverage big data.”
This IT leveraging is mainly executed through the HealthSuite platform, which plays a critical role in realizing synergies and sharing information. The main goal of the platform is to increase efficiency in the healthcare industry, being the secure Philips cloud and Internet of Things (IoT) solution solidifying itself as the basis for Philips’ digital software. As Dale Wiggens, general manager of the platform, stated:
“At HealthSuite Platform, our job is to enable the innovations and get them to market in an effective way…”. Not only new BMs, also existing ones are included as legacy BMs and platforms are reestablished into the new HSDP. This common shared innovation platform helps old and new BMs find efficiency through means of data and cooperation, and is beneficial for patient experience, costs, health outcomes and staff experience. This is mainly executed by connecting, storing, sharing and analysis of data, but also through integrated data and workflow management. The purpose of the platform is to have all BMs created and operated on the platform, which is already realized to a large extent, so that it can serve as a mechanism for innovation in old and new BMs and platforms. In addition, as it continues to
30 grow within Philips by connecting businesses with each other and consumers with hospitals, it gives rise to potential innovative BMs.
“That [the fact that all businesses will be built and ran on HSDP] is something that the innovation and strategy team is pushing quite hard. That is the vision.”
“HSDP … key functionalities include hosting, authorization, connecting, storing, sharing, and analysis of data and applications.”
“We continue to invest in our secure HealthSuite digital eco-system platform, … enabling new business models and unlocking new revenue streams.”
“[HSDP] leverages our hybrid cloud infrastructure that ensures scalability and cost effectiveness.”
Not only the architecture, also the value propositions are points of integration at Philips to a certain extent. Namely, what becomes evident from the data is that managers in the company want value propositions to be integrated, to not leave too much freedom for each business initiator to constantly
‘reinvent the wheel’ and with that lose valuable time and resources that would be saved if new BMs are tailored to and integrated to existing value propositions. Although it becomes clear that this value proposition integration is not executed to the standard that is idealized in the company, focus is on improving on this, as managers see the benefit of it.
“Being able to anchor these new business models to existing value propositions, or businesses, that is a big criteria that will apply across all that [all different clusters].”
“The value propositions, there, still, reinventing of the wheel sometimes happens to be honest.”
Not only is it resource efficient, it leaves potential to exploit synergies. The respondents are in consensus that the value propositions need to be integrated more and that it can stimulate synergy exploitation. If value propositions would be more combined across businesses, increased sharing of certain BM elements is possible, customer segments and sales channels can be combined more, and the activities concerning communication and supply chain management become more efficient.
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“The company needs to properly align the value propositions of the different business models so as to communicate the same message to consumers and also align businesses in terms of organization to share assets and costs to carry out different business models.”
The previous quotation mentioned assets sharing, which is at Philips one of the first potential synergy exploitation manners that is considered when rolling out new BMs. Often, the first thing that focus is dedicated towards when innovative BMs are about to be created and scaled, is identifying assets that are currently in use, and consequently identifying which of these assets the new BMs can be anchored to.
More specifically, this shows in the sharing of costs, assets and facilities. In general, there are limited resources in the company. If those are spread over too many conflicting businesses, it is likely that none of these, or very few, will actually succeed. This is also the reason for some divestitures, for example the lighting business or the domestic appliances businesses, as these were conflicting too much with healthcare businesses and would require too much resources compared to leverage potentials.
“The first thing is what are the assets that we currently have, that we can anchor these new business models to … We have very strong assets [in the healthcare sector] that we can anchor all that right.”
In addition to the businesses themselves sharing assets, these businesses also need to cooperate with the market groups that Philips operates. These are split into three geographical groups, being North America, Greater China and International Markets. Together the businesses and the markets share responsibility and workload for sharing and leveraging knowledge, information and expertise on the one hand, and the shared infrastructure on the other hand, among others.
“Businesses and Markets bear joint accountability for … leveraging the functional excellence and shared infrastructure of the company.”
However, the organization into businesses on the one hand and markets on the other hand create natural tensions. People from the businesses need to manage the overlaps between businesses and markets.
Management of Philips, especially those at senior levels, is well able to manage the tensions by reconciling the perspectives and needs from the businesses and markets.
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“Management has the ability to reconcile views.”
Considering Philips is split into four different clusters (the fourth one being ‘Other’) based on its customer segments and main operations, synergies are not excluded to one cluster only. Also, between the clusters, synergies and economies are leveraged, which makes up an important advantage for Philips.
The aspects that are leveraged here, are mainly about the general operational backbone, assets and the infrastructure of the company. It also relates to the strategic fit mentioned above, where for these interrelated synergies to be able to be exploited, this fit needs to be present for the BMs involved.
“Philips is set-up in four clusters, linked to our main customer segmentation. Each having their own dedicated go-to market approach. At the same moment they leverage the same operational backbone and internal infrastructure as much as possible.”
Related to asset anchoring is the integration of parts of the supply chain. Plain and simple, it means that the company combines certain elements of the supply chain for all its businesses as much as possible.
These elements are the selection of suppliers, procurement management, manufacturing, activities concerning logistics and inventory management, as well as the orchestration of supply and demand. This stimulates the leverage of business processes, standards and capabilities, even on a global scale within Philips.
“Philips runs an Integrated Supply Chain, which encompasses supplier selection and management through procurement, manufacturing across all the industrial sites, logistics and warehousing operations, as well as demand/supply orchestration … ensuring adequate capacity and speed while leveraging our global processes, standards and capabilities.”
This particularly shows in the product BMs that Philips still operates. Different BMs commence with different customer segments but afterwards, harmonization of the supply chain can occur between them.
The interviews made clear that these product BMs can be differentiated with sharing sales channels or customer segments, and the fact that the product BMs Philips has can be combined with other BMs such as, for example, adding services and solutions with the existing BMs.
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“They [product business models] can be harmonized on the supply chain. You can really differentiate the product business models with multiple channels and multiple customer segments.”
The supply chain is at the heart of Philips’ value chain. The company operates and organizes according to the value chain. It uses a somewhat differentiated organization in that the first step that is identified from the interviews is called idea-to-market, after that, the market-to-order phase receives focus and then the supply chain is operated. Innovation is facilitated in the idea-to-market phase by the strategy and innovation department. In this phase, some important outcomes are realized. These include new value being created in either existing or new areas, and the potential for synergies that results from activities and initiatives between segments, and integrated solutions.
“The innovation and strategy department has the task of facilitating innovation from idea to market, which eventually creates new value spaces and possible synergies for cross-segment initiatives and integrated solutions.”
The interviews also show that Philips is well aware of the fact that their businesses each have their differences. Each business also needs flexibility and ability to quickly respond to changing market needs.
The fact that the businesses are placing the customers first, so being effective in offering what is demanded, enlarges these requirements. This flexibility needed for each business, due to differences in customer segments and demands between the businesses, lays contrary to the ideal situation of the whole company leveraging the same infrastructure, supply chain, IT, etc. The fact that the customer is central, and dictates what businesses are doing, is a constraint to leveraging more than possible. It is important in this situation to define for each business what activities and processes can be standardized to increase efficiency and economies, as opposed to what parts of the business need more flexibility to respond to the demand. Customer demand thus is leading.
“It is all about the customer experience and delivering on that very rapidly changing customer demand and expectation that relate to that.”
“It is less of a business model focus, you follow the demand.”
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“The critical factor here is to figure out what internal processes can be standardized (focus on efficiency vs. where you need the flexibility to meet customer needs.”
Lastly, separation of the innovation and strategy department of the company from the innovation and strategy within each business is also an important within Philips. Each business is responsible for profitability and short-term performance, and the innovation and strategy of each department is tailored to these goals. Having the overall company’s innovation and strategy separate from that, enables the firm to focus more on the future and sustainable competitive positions as a company. The overall innovation and strategy drives continuous improvement, puts in place important technologies such as AI and IoT and creates or adopts platforms. It also engages in open innovation with partners and start- ups in order to leverage third-party capabilities.
“Also having innovation and strategy separate is a big one. You have innovation and strategy within the business, but you also have a big team outside that. That is very important, because these people are not thinking on a profit & loss. These people are thinking beyond the profit &
loss.”
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Discussion
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
