Abstract
Despite the recognition that many firms operate a portfolio of business models, little is known about how business model diversification is associated with firm performance. In this study, we first examine why the coexistence of multiple business models within the same corporation creates organizational challenges, and when these challenges are most salient. We then examine how firms can overcome some of these organizational challenges. Using a unique panel dataset of firms in the retail- and wholesale-trade sectors (1997-2010), our results show that the proportion of unrelated (as opposed to related) business model diversification is negatively associated with firm profitability. We also find that firms can attenuate this negative relationship by separating conflicting business models across geographical markets, brand names, and industries. Overall, these findings contribute to the growing literature on the simultaneous operation of multiple business models.
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