Managing Tensions Between New and Existing Business Models

The search for new business models forces established companies to experiment with organizational designs — and leads to tensions that should be anticipated and carefully managed.

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Exploring new business models is a recognized way for mature companies to renew their competitive advantage. Companies explore new value propositions, deploy value propositions in new segments, change the value chain, or experiment with alternative revenue models — all in a search for a different logic for value creation and capture. Sometimes this exploration goes far beyond the existing business model and requires the creation of a new business unit. A sometimes unexpected consequence is the difficulty of fitting this new business unit into the existing organizational structure. While business model experimentation may be the raison d’être of many startup ventures, established companies typically face strong organizational rigidities that lead to tensions. Predicting these tensions and being open to experimentation with organizational structure can be the keys to a smoother business model exploration process. In this article, we report on a study of the European postal industry, in which we examined the organizational challenges that affect incumbent organizations in mature industries as they react to disruptive changes in their environment by seeking new business models.

Although the Romans had a type of postal service, the European postal industry as we know it today has existed for the past 500 years or so — one of the oldest, in Portugal, traces its history to 1520. For close to two centuries, established operators have been using essentially the same business model, pioneered in 1837 in the United Kingdom. In that model, senders pay a postal operator (usually through the purchase of a stamp) to bring a piece of mail or a parcel from A to B, with pricing dependent on some combination of distance, size, and weight. However, the postal industry has recently faced a rapid decline in physical mail as a result of digital substitution, while regulatory liberalization has boosted the level of competition in postal markets. Many postal operators have reacted by exploring new opportunities in the digital marketplace.

By interviewing managers and reviewing relevant information, we studied Danish, Portuguese, and Swiss postal operators to find out how they have dealt with the challenge of exploring new business models since the turn of the millennium. The organizations we studied strived to maintain their core business while at the same time incubating new ventures.


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