We investigate the association between business model diversification (BMD), i.e. the concurrent operation of multiple business models (BMs), and accounting-based firm performance, measured by return on sales.
We employed a survey-based research design to construct a unique data set of 328 U.K. firms, drawn from the Bureau Van Dijk FAME database. We approach BMD via the nature of relatedness and assess its performance effects by considering the interplay between a firm's re-deployment and co-deployment costs with expected BMD benefits. We analyzed the data in R, using ordinary least squares (OLS) regression.
Our findings reveal complex curvilinear implications of BMD on performance: performance declines at low and high BMD levels and increases when the extent of BMD is moderate. We, thus, find support for a nonlinear, horizontal S-shaped relationship.
Corporate entrepreneurs and top decision makers may benefit from recognizing an optimal extent of BMD; at extreme, or very low levels, BMD produces negative performance outcomes. To further extend profitability, our results suggest that executives may consider ways to handle the co-deployment costs associated with high BMD levels in their portfolios (where the positive synergy effects are relatively diminished).
We advance recent work investigating the concurrent operation of multiple BMs in organizations that has begun to conduct large-scale examinations. Our study represents one of the very few attempts to examine the nature of the relationship between the overall degree of BMD and performance variations.
