{"id":11406,"date":"2022-07-18T06:04:22","date_gmt":"2022-07-18T11:04:22","guid":{"rendered":"https:\/\/flevy.com\/blog\/?p=11406"},"modified":"2022-07-18T06:06:16","modified_gmt":"2022-07-18T11:06:16","slug":"business-model-diversification","status":"publish","type":"post","link":"https:\/\/flevy.com\/blog\/business-model-diversification\/","title":{"rendered":"Business Model Diversification"},"content":{"rendered":"

\"\"Strategic objectives of all businesses are to propel growth<\/a> and performance, while simultaneously creating value for customers.<\/p>\n

While it is customary for managers to emphasize financial performance, effective managers pursue new opportunities in order to create added value. <\/a><\/p>\n

Business Model Diversification allows creation of value, if managed astutely, and can aid managers enhance performance and expand the goal of the enterprise.<\/p>\n

At the foundation of any sustainable organization is its Business Model<\/a>\u2014the system of symbiotic organizational pursuits to generate and capture value.<\/p>\n

For organizations desirous of sustaining a Competitive Advantage<\/a> in today\u2019s highly competitive business environment, Business Model Diversification\u2014employment of multiple Business Models for value creation and revenue generation\u2014has become a necessary pursuit.<\/p>\n

Organizations achieving breakout growth in their industries diversify their Business Models using approaches like Business Model Innovation (BMI)<\/a>\u2014a tool that concurrently brings about reciprocally supportive changes in value proposition to customers as well as to the core Business Model.<\/p>\n

BMI is a powerful, yet underleveraged, tool that can drive breakout growth within an organization’s core business.<\/p>\n

According to Michael Porter, strategic diversification is about combining activities that efficiently relate to and mutually reinforce one another, forming a system of activities, as opposed to a collection of isolated activities.<\/p>\n

Judging which activities can fit together within a Business Model and at the same time be synergistic across Business Models, is a complicated and delicate endeavor requiring a structured approach.<\/p>\n

Research by MIT Sloan Management Review brought forth a framework for analyzing efficacy of diversifying Business Models.\u00a0 The framework assisted in studying Formula 1 auto racing industry, the multiple businesses run by Amazon Inc., and almost 50 other companies.<\/p>\n

This research study was based on the following 3 questions:<\/p>\n

    \n
  1. What considerations should be taken into account when contemplating Business Model Diversification?<\/li>\n
  2. How can value assessment and optimization of a new Business Model be conducted that is intended for inclusion in the portfolio?<\/li>\n
  3. How can the Business Model portfolio be improved with the passage of time?<\/li>\n<\/ol>\n

    In order to answer these questions an 8-step framework was developed that envisages the complementarities in a Business Model portfolio.\u00a0 The 8 steps allow separation and analysis of the numerous activities that comprise the Business Model Portfolio. \u00a0Following steps go into creation of the visual map for a Business Model Portfolio Analysis:<\/p>\n

      \n
    1. Identify Business Models<\/strong><\/li>\n
    2. Identify Key Resources<\/strong><\/li>\n
    3. Identify Key Capabilities<\/strong><\/li>\n
    4. Identify Key Performance Indicators (KPIs)<\/strong><\/li>\n
    5. Connect Model to Resources & Capabilities<\/strong><\/li>\n
    6. Identify Interconnected Resources & Capabilities<\/strong><\/li>\n
    7. Analyze<\/strong><\/li>\n
    8. Monitor & Maintain<\/strong><\/li>\n<\/ol>\n

      \"\"<\/a><\/p>\n

      These steps enable visualization of relationships among the various means and competences, and their influence on Performance, thus amplifying the correspondence across a Business Model portfolio.<\/p>\n

      Discussed below are some details of a few steps integral to developing a robust Business Model Portfolio:<\/p>\n