Factors determining the success of adding a second business model in the same market

Introduction Consumption behaviour of customers is changing in a such a pace that companies need to adjust their business models faster than before to stay ahead of competition. Research has shown that business model innovation can be a successful way of doing this (Volberda, 2015). That is often the reason why companies shift their focus to business model innovation (Volberda, et al., 2018). Business model innovation can be done by opting for a dual business model, whereby the added business model is developed at the edge or periphery of the company’s market (Volberda, 2018) and the existing business model stays unadapted. Case studies show that starting a second business model can be very lucrative due to gaining market share or increased performance (Markides & Charitou, 2004; Markides & Oyen, 2010; Volberda, 2018) or due to achieving increased performance (Volberda, 2018). To improve the chance of success this second business model should be on the edge of the main market, still related but not to similar (Markides & Oyen, 2010). Unfortunately quite a lot of companies fail setting up a second business model (Volberda, et al., 2018). Literature about dual business model explains the preferred strategy, state of mind and management influences of a company. Research on potentially disruptive dual business models and how they can lead to success is however scarce, that is why we aim to fill this gap by finding the factors that play a role in the success of adding a potentially disruptive second business model in the same market. Insight into these factors is very relevant to companies, because it can lead to gaining market share and increase performance. The research question for this study is therefore: Which factors play a role in successfully adding a potentially disruptive business model in the same market? Research method This research is conducted at Jumbo, a chain of supermarkets in the Netherlands. Jumbo had the idea of building the supermarkets of the customers dreams, by merging the supermarket with foodservice. Implemented six years ago, the second business model, called the Foodmarket, is now up and running in six location and Jumbo has plans for expanding. We conducted one in-depth, retrospective case study. Different means of data collections are used to increase validity. Qualitative data was collected by conducting interviews within the company and quantitative data was provided on the basis of surveys conducted among stakeholders, customers and retailers, outside the company. In this we followed Corbin and Strauss (2015) by processing data in an ongoing cycle of collecting and analysing. The data has been compared constantly, in order to discover similarities and differences. Statements from the interviewees that are mentioned as the reasons for the Foodmarket’s success or related to that reason were coded. Subsequently these coded statements were categorized and grouped. In total 4 groups were formed that explain the factors involved in the success of the Foodmarket. These categories and groups form the coding tree. Results The four factors identified in playing a role in successfully adding a potentially disruptive business model in the same market are: customer oriented value creation, multi-level synergy, open innovation process and agility. Customer oriented value creation makes the new business model distinctive from competitors and the company’s existing first business model in the same market. The new business model needs to be more appealing to customers in order for them to switch. There are two ways of getting customers to switch: by creating and delivering more value or by creating new different value. Multi-level synergy is created on three levels. Portfolio management on company level, in the same business model or between business models. Synergies on every level add to the success of the new business model. 4 Providing an open innovation process for developing the second business model adds to the success of adding a second business model in the same market. Open innovation starts with an open plan. When a development team has no restrictions or a predetermined business case it is possible to have an open view for possibilities not yet seen by others. Perseverance is a quality needed in providing an open innovation plan. It is not likely that a new business model is successful or profitable from the very beginning. A business model needs time to mature and although it is tempting to adjust the business model if it is not immediately profitable or shows the desired results, it is necessary to give it time and to not make any hasty decisions. Being agile, which means having innovation speed and adaptive capacity, is the last factor in making a second business model in the same market successful. Having a flexible organisation that is open to change and a business model that is flexible to customer needs and thereby changing markets, makes the business model more sustainable. Consequently having an adaptive capacity both to internal and external changes is inevitable. Innovation speed comes from quick decision-making processes and fast development. Being the first to bring a new business model to the market creates a competitive advantage. Implications Exposing these four factors, this study contributes to existing literature about both business models and business model innovation as well as how to make a dual business model in the same market successful. This research also has implications for existing methodology, theories and managerial practices. Methodology Literature about dual business models makes us believe that adding a business model is almost all about creating synergies between the business models. We dispute the believe. Synergies are best realised when they are managed at three different levels. Possibly forming a major implication for methodology, our research provides the first indications that the differences that appear to exist between the ways of describing business model innovations are not as different as literature suggests. We have reason to believe that there are only two approaches to business model innovation. These two approaches are not even contradictory, but more about different points of perspective. This discovery might have a major impact on the concept and understanding of business model innovation. Theory Our research builds on the existing theory that states that a second business model should be on the edge of the market. Our research shows that customers are willing to switch to an added business model because more and added different value is created and delivered to those customers when the business model is created on the edge where two markets meet. Making the business model both new and more appealing. We partially refute the theory that listening to existing customers does not lead to disruption. In our opinion listening to existing customers is very relevant, but not enough. For a new business model in the same market to just listen to current customers is a too narrow perspective, new customers are part of the market that must be reached. So listening to both groups will have more impact when it comes to adding a new business model in the same market. Literally and only listening is obviously not enough either. To create a good business model a vision and interpretation of customers input is essential. Practice Because literature about dual business models is also about managing tension, we have found that managing tension should not be between business models, but between the business unit and executives. This creates the possibility for management in the two business units to keep communication open and focused on seeking synergies instead of dealing with tension. To optimize the creation of synergy, our research shows that faster learning and implementation of what is learned, is possible by splitting up the development team and incorporating this team into the business unit. It appears that giving the second business model a real chance and giving it time to mature is an important step to make it successful, thereby making perseverance a quality that is necessary for a second business model to become successful. Essential for management is knowing that just giving up or adjusting the new business model to quickly is not in the best interest of that business model. 5 Management that has decided to add a second business model in the same market needs to realize that for this business model to become a success, agility is the key. Decision-making processes and quick development, also known as innovation speed are essential. Adaptive capacity in both the business model and the company add to flexibility which is also indispensable.