Competing with dual business models: A contingency approach

Abstract

Executive Overview How can a company adopt two different business models in the same market? This question has become particularly pressing for an increasing number of established companies that have recently come under attack from “strategic innovators”—companies that attack the established players by using radically different business models. The success of these attackers in gaining market share has created a big dilemma for established companies. On the one hand, by embracing the new business models that the innovators have introduced in their markets, established companies can potentially take advantage of a great growth opportunity. On the other hand, because the new business models often conflict with the established ones, companies that try to compete by adopting both of them risk mismanaging both and destroying value. How, then, can established companies embrace the new business models without diluting and destroying their existing models? Our research explores this question and offers a contingency solution to this problem. We show that the challenge for companies is to balance the benefits of keeping the two business models separate while at the same time integrating them enough so as to allow them to exploit synergies with one another. We describe four possible strategies that companies can use to achieve such a balance and identify what separates success from failure for each strategy.