Building a Winning Business Model Portfolio

Many companies today are operating several business models at once. But despite the potential that business model diversification has for generating growth and profit, executives need to carefully assess the strategic contributions of each element of their business model portfolio.

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Across many industries, companies are using innovative business models as a basis for competitive advantage.1 In recent years, for example, we have seen upstarts such as Uber Technologies Inc. and Airbnb Inc. use multisided business models to leverage ordinary resources against established competitors that rely on unique resources.2 Increasingly, organizations are adopting two or more business models at once.3 Multiple business models provide companies with a diversification vehicle that enables them to tap into resources and capabilities that aren’t available through other means. By definition, a company diversifies into a business model portfolio when it engages in at least two ways of creating and/or monetizing value.4

To illustrate how business model diversification can work,5 consider Netflix Inc. Netflix deployed two distinct business models (DVDs by mail and online streaming) to challenge Blockbuster and other movie rental incumbents.6 Although its rapid market penetration and growth are indisputable, Netflix did not initially depend on traditional approaches to diversification. In fact, the company offered U.S. customers essentially the same movies through both its DVD by mail and online streaming services, but it offered different subscription prices, a choice of physical versus digital rentals, and value-added services online, including tailored recommendations. Netflix’s business model diversification helped it to expand its U.S. market share, which provided a springboard for extensive international expansion as well as an expanded product portfolio that now includes original content.

Although Netflix’s success shows how multiple business models can work to make organizations more competitive, such success stories are, more often than not, specific to a particular company’s circumstances. However, there can also be industry-wide patterns. When we studied various business model configurations in the Formula One automobile racing industry, we found that certain configurations of business models were associated with higher performance than others. We concluded that the higher-performing business model configurations generally led to better results because there were complementarities between the two business models chosen that helped companies both learn faster and further develop key business capabilities.7

As companies attempt to diversify into portfolios of business models that achieve higher performance than other configurations, they need to match their own resources8 and capabilities9 to the external opportunities they face. The goal is to establish a unique bundle of resources and capabilities that can deliver sustainable competitive advantage.

Despite the potential that business model diversification has for generating growth and profit, most companies lack the tools to assess the value of business models in their portfolio or their strategic contributions. In practice, different business models can be in direct conflict with one another, resulting in cannibalization and resource dilution. For example, they may provide offers that are mutually exclusive, or defocus resources from core activities that sustain competitive advantage.

For instance, beginning in the late 1980s, the direct-sales business model of Dell Computer Corp. (now Dell Technologies) fundamentally altered the structure of the personal computer industry. Once Dell’s approach was seen as a success, competitors such as IBM, Hewlett-Packard, and Compaq tried to copy it. Unfortunately, the other companies found that pursuing two business models at once undermined their existing competitive advantages. Rather than offering synergies, the direct-sales business model required different assets and new capabilities (such as flexible fabrication lines and the ability to reorganize supply chains) and risked alienating distributors, who represented a core customer base.10

The Case for Business Model Diversification

Harvard Business School professor Michael E. Porter has noted that 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.11 In the process, the strategic fit may increase the value of the individual assets in addition to contributing to competitive advantage and superior profitability.12 A business model is a system of interdependent organizational activities to create and capture value.13 Executives need to assess whether there is fit not only between the activities underpinning each business model but also across multiple business models. In fact, although the fit within a business model’s activities can reduce costs or enhance differentiation, the complementarities within a portfolio can further enhance individual activities and create unique and hard-to-imitate resources and capabilities. Indeed, diversified configurations of business models may offer unique opportunities for increased performance.

How can companies assess whether there are advantages to using multiple business models? And when might it make sense to focus on fewer business models rather than more? To develop our understanding of business models, we studied the Formula One auto racing industry, the various businesses operated by Inc., and nearly 50 other companies. (See “About the Research.”) In this article, we offer a framework built on three core questions:

  • What should you consider when thinking about business model diversification?
  • In deciding to add a new business model to your portfolio, how can you assess and optimize its value?
  • How should you modify your business model portfolio over time?

Question 1: What should you consider when thinking about business model diversification? When contemplating model diversification, managers should begin by assessing the extent to which the business models in the company’s portfolio can share resources. By sharing physical assets across business models, companies can enjoy economies of scope and eliminate redundancies. This approach is particularly valuable in capital-intensive and technology-focused industries.14

Successful business model diversification can help companies reduce risk. Biopharmaceutical companies provide a good example. Because they operate in highly uncertain environments where the time lag between an investment and the returns can be extremely long, many companies try to limit the risk by tapping into different revenue streams (such as R&D services, royalties, patents, and health care products). What’s more, they try to share valuable assets such as financial and knowledge resources across business models in order to create cross-business synergies.15

Another question to consider is whether the additional business model will provide access to valuable assets that can help an existing business. For example, Formula One teams that, in addition to racing, sell advanced components such as engines and gearboxes to competitors gain access to valuable data about how those components perform — an intangible resource that can provide insights that allow the teams that sell components to further develop their own technology, win more car races, and sell future engines at higher prices. In such cases, the two business models have positive complementarities.16

Question 2: In deciding to add a new business model to your portfolio, how can you assess and optimize its value? As attractive as “synergetic” business model diversification may seem, optimizing this approach entails challenges. How can a manager ensure that the company’s portfolio of business models will have synergies? Historically, management scholars thought that competitive advantage was mostly based on a company’s ability to control valuable, unique, and scarce resources.17 As a result, many organizations focused their efforts and capital on acquiring and safeguarding what they considered to be “extraordinary assets.”

When considering new business models, managers should start by looking for promising opportunities that would tap into existing company resources to achieve economies of scope and greater capacity utilization. The new business models should utilize resources and capabilities that are closely related to some employed by the existing business model or models.18 However, managers should be careful not to let the costs of acquiring new resources restrict their freedom to develop new products and services.19

Indeed, there is a risk that a company’s prior investments in valuable resources and capabilities can inhibit its ability to adopt new business models. Consider the case of Nokia Corp., the Finnish technology company. In the early 2000s, Nokia was a global leader in mobile handset manufacturing. Yet its mobile strategy was heavily geared toward controlling strategic and costly resources, as exemplified by its $8.1 billion purchase of Navteq Co., which supplied advanced navigation data. In contrast to Apple Inc., whose versatile iPhone platform took the mobile phone market by storm, Nokia failed to respond well to emerging consumer trends or leverage high-priced acquisitions such as Navteq. Within a relatively short period, it lost its competitive edge in the mobile phone business. In 2012, Microsoft Corp. acquired Nokia’s phone and tablet business for less than the amount Nokia had paid to acquire Navteq five years earlier.

Business model diversification enables companies to maximize existing resources while developing capabilities that enhance their value across multiple activities. Therefore, managers should begin by asking: Does my proposed new business model help maximize the use of my current resource base while meeting an important need in the marketplace? If the answer to that question is yes, managers can expect their portfolio to generate cost efficiencies while also providing opportunities for risk reduction through cross-subsidization of the portfolio’s interrelated activities.

In 1994, Amazon, for example, started with a single business model: selling books online. By 2016, the company had grown so that it was achieving close to $136 billion in revenue and operated a number of business models. Along the way, Amazon invested heavily in powerful servers and the development of an automated web infrastructure whose sole objective initially was to power its own website’s massive traffic. Over the years, Amazon has acquired technological prowess and invaluable expertise in the development of web and data infrastructures; based on this expertise, it offers web services and infrastructure to thousands of companies (including Netflix, Siemens, and Vodafone) and has become one of the leading cloud-computing service providers.20

Not only is the ownership of such resources of immense value for Amazon’s core e-business activities, it also has value as a stand-alone business model. Indeed, in 2016, Amazon Web Services brought in more than $12 billion in revenues and more than $3 billion in operating income.21 Although e-commerce still accounts for the majority of Amazon’s revenues, Amazon Web Services is a high-performing business unit.

By supporting a variety of business models and ensuring their survival, Amazon enjoys access to other critical resources. For example, with the Amazon Prime membership business model, the company gains access to important user data, promotes its brand, and fuels sales through the e-commerce platform. Resources and capabilities underpinning business models are often inextricably tied to one another, and thus not easily separable. For instance, Amazon Web Services used resource codeployment to create a new revenue stream. The technological infrastructures and expertise involved are woven into Amazon’s technology development capabilities.

When crafting new business models, managers also need to ensure that the models they create will be linked to the company’s existing distinctive capabilities and what it does best. For example, Apple leveraged its superior design and product development capabilities to serve product markets — going over and above PCs — but also capitalized on its exceptional management and marketing capabilities to develop a unique value proposition and customer engagement mechanism: in other words, a business model innovation. This enabled Apple to first disrupt the digital music industry (with iTunes and the iPod) and then reap the benefits of that disruption via the iPhone.

To translate capabilities beyond their current functional boundaries, managers should first delineate the structure of their individual business models’ activities. This isn’t always easy: Existing business models are often tightly intertwined and difficult to describe in isolation. Careful investigation can reveal potent and dynamic cross-business-model linkages, which might suggest new growth opportunities that transcend industry and product market boundaries.

As noted above, Amazon’s complementary business models work together in generating mutually reinforcing advantages. Amazon Web Services, for example, helps subsidize the Amazon Prime business model. Prime memberships, in turn, provide Amazon with more customer purchase data, which enhances customer service and the online retail experience. This, in turn, feeds buyer demand, which attracts more sellers, which ensures low-cost products, and so on.

Question 3: How should you modify your business model portfolio over time? As appealing as the idea of cross-business-model synergies may seem, implementation is rarely straightforward. The same is true for intra-business-model portfolio complementarities. Therefore, we think it’s critical for managers to regularly examine portfolio synergies critically and granularly. (See “Analyzing a Business Model Portfolio.”)

Consider the logic behind Amazon’s technology products business (which has included devices such as the Kindle reader, Kindle Fire, Fire TV, Fire Phone, Dash Button, and Echo). These products are often bundled and sold with access to other Amazon products and services (such as its e-books and Prime subscriptions). However, among the company’s business models, some of Amazon’s technology products seem to have, in our analysis, the weakest synergies within the portfolio.

As its technological resources grew, Amazon thought it was gaining new capabilities it could apply to the development of technologies that complemented its online retail activities. In reality, though, Amazon’s business model diversification into electronics manufacturing only partially leverages the company’s distinctive capabilities in the areas of online platform and big-data management. Those capabilities are, in fact, quite different from hardware technological development in consumer electronics, and hardware design needs to respond to changing consumer tastes and overcome established customer loyalties. Amazon products often compete directly with products offered by other suppliers, and some of Amazon’s products have fallen short of expectations. For example, Amazon launched its Fire Phone in 2014. But due to poor response from consumers, the company reduced the price to just 99 cents with a two-year contract, and it discontinued the product in 2015.

However, Amazon has recently taken steps to increase the synergies between its consumer products and the rest of its business. In launching Amazon AI, a set of cloud-based artificial intelligence services, in fall 2016, the company has sought to leverage the artificial intelligence technology behind its Echo devices and Alexa personal assistant software.22

In general, executives need to examine the interrelationships across their business model portfolio rigorously and on a regular basis. Like other forms of corporate diversification, business model diversification does not always generate superior performance. In settings where a business model isn’t generating the synergies that were envisioned, managers shouldn’t be afraid to improve, streamline, or divest from business models in the portfolio, to focus on and bolster the activities that are strategically optimal.

The primary purpose of a business is to drive growth and performance while generating value for customers. Although it’s common for managers to focus on financial performance, good managers seek to exploit new opportunities to create additional value, such as cross-selling, differentiation, reputation, user data, and capability development. Managed wisely, business model diversification can help executives improve performance and advance the purpose of the enterprise.



1. D.J. Teece, “Business Models, Business Strategy, and Innovation,” Long Range Planning 43, no. 2-3 (April-June 2010): 172-194; R. Amit and C. Zott, “Value Creation in e-Business,” Strategic Management Journal 22, no. 6-7 (June-July 2001): 493-520; and C.C. Markides and D. Oyon, “What to Do Against Disruptive Business Models (When and How to Play Two Games at Once),” MIT Sloan Management Review 51, no. 4 (summer 2010): 25-32.

2. F. Fréry, X. Lecoq, and V. Warnier, “Competing With Ordinary Resources,” MIT Sloan Management Review 56, no. 3 (spring 2015): 69-77.

3. C. Markides and C.D. Charitou, “Competing With Dual Business Models: A Contingency Approach,” Academy of Management Executive 18, no. 3 (2004): 22-36; and Markides and Oyon, “What to Do Against Disruptive Business Models.”

4. P. Aversa and S. Haefliger, “Business Model Portfolio Diversification,” working paper, Cass Business School, London, 2017; and S. Timo and G. Vroom, “Mergers and Acquisition Revisited: The Role of Business Model Relatedness,” Advances in Mergers and Acquisitions, forthcoming.

5. Among others, see P. Aversa, S. Furnari, and S. Haefliger, “Business Model Configurations and Performance: A Qualitative Comparative Analysis in Formula One Racing, 2005-2013,” Industrial and Corporate Change 24, no. 3 (June 2015): 655-676; G. Ahuja and E. Novelli, “Incumbent Responses to an Entrant With a New Business Model: Resource Co-Deployment and Resource Re-Deployment Strategies,” in “Resource Redeployment and Corporate Strategy (Advances in Strategic Management, Vol. 35),” ed. T.B. Folta, C.E. Helfat, and S. Karim (Bingley, United Kingdom: Emerald Group Publishing, 2016), 125-153; and Markides and Charitou, “Competing With Dual Business Models.”

6. For an analysis of the Netflix business model, see Ahuja and Novelli, “Incumbent Responses to an Entrant With a New Business Model”; and Teece, “Business Models, Business Strategy, and Innovation.”

7. Aversa, Furnari, and Haefliger, “Business Model Configurations and Performance.”

8. J. Barney, “Firm Resources and Sustained Competitive Advantage,” Journal of Management 17, no. 1 (March 1991): 99-120.

9. D.J. Teece, G. Pisano, and A. Shuen, “Dynamic Capabilities and Strategic Management,” Strategic Management Journal 18, no. 7 (August 1997): 509-533.

10. W.C. Lawler, “Understanding the Financial Footprints of Strategy,” in “Strategy, Innovation, and Change: Challenge for Management,” eds. R. Galavan, J. Murray, and C. Markides (Oxford, United Kingdom: Oxford University Press, 2008), 69-96.

11. M.E. Porter, “What Is Strategy?” Harvard Business Review 74, no. 6 (November-December 1996): 61-78. Porter argues that “competitive strategy entails a deliberate choice of a specific set of activities aimed at delivering a unique mix of value.” For a strategy to remain sustainable, trade-offs with other competitors’ positions must exist, thus making certain activities incompatible with others, due to “inconsistencies in image,” “inflexibilities in resources,” or “limits on internal coordination.” Yet it is the very existence of such positioning trade-offs that can instigate the erosion of a company’s competitive advantage for those that deploy multiple — and, in his view, conflicting — business models.

12. Ibid. Porter argues that “fit locks out imitators by creating a chain that is as strong as its strongest link.”

13. C. Zott and R. Amit, “Business Model Design: An Activity System Perspective,” Long Range Planning 43, no. 2-3 (April-June 2010): 216-226; A. Afuah and C.L. Tucci, “Internet Business Models and Strategies: Text and Cases” (New York: McGraw Hill Higher Education, 2001); and Amit and Zott, “Value Creation in e-Business.”

14. R. Casadesus-Masanell and J. Tarziján, “When One Business Model Isn’t Enough,” Harvard Business Review 90, no. 1-2 (January-February 2012):132-137. The authors investigated LAN Airlines and its joint adoption of three business models. The latter configuration generated greater value together than apart, thus “turning otherwise unviable possibilities into profitable opportunities.”

15. V. Sabatier, V. Mangematin, and T. Rousselle, “From Recipe to Dinner: Business Model Portfolios in the European Biopharmaceutical Industry,” Long Range Planning 43, no. 2 (April 2010): 431-447.

16. Aversa, Furnari, and Haefliger, “Business Model Configurations and Performance.”

17. B. Wernerfelt, “A Resource-Based View of the Firm,” Strategic Management Journal 5, no. 2 (April-June 1984): 171-180; and Barney, “Firm Resources and Sustained Competitive Advantage.”

18. C. Baden-Fuller and M.S. Morgan, “Business Models as Models,” Long Range Planning 43, no. 2 (April 2010): 156-171; C. Baden-Fuller and V. Mangematin, “Business Models: A Challenging Agenda,” Strategic Organization 11, no. 4 (November 2013): 418-427; and C. Baden-Fuller and S. Haefliger, “Business Models and Technological Innovation,” Long Range Planning 46, no. 6 (December 2013): 419-426.

19. Fréry, Lecoq, and Warnier, “Competing With Ordinary Resources”; see also D. Leonard-Barton, “Core Capabilities and Core Rigidities: A Paradox in Managing New Product Development,” Strategic Management Journal 13, special issue (summer 1992): 111-125.

20. “AWS Customer Success,” 2017,

21. J. Bort, “Amazon’s Massive Cloud Business Hit Over $12 Billion in Revenue and $3 Billion in Profit in 2016,” Feb. 2, 2017,; and A. Levy and A. Balakrishnan, “Amazon Sinks as Revenue Misses, Guidance Disappoints,” Feb. 2, 2017,

22. B. Darrow, “Amazon Unveils New AI Services for Cloud Devotees,” Nov. 30, 2016,; and “Amazon Lex,” 2017,

i. See classification schemas in Baden-Fuller and Mangematin, “Business Models: A Challenging Agenda”; and Baden-Fuller and Haefliger, “Business Models and Technological Innovation.”


This work was supported by the European Commission’s Marie-Curie Actions (Project nr. 301688 - Project Acronym AJ86RH5GYM - FP7-PEOPLE-2011-IEF) and the U.K. Engineering and Physical Sciences Research Council (EPSRC) (EP/K039695/1 Building Better Business Models).

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