Similarity of business models and their impact on the integration of new business models

written by Dr. Karl Michael Popp 26. June 2019
Implementation & Integration

Large corporates want to revamp their existing business models and add new business models created by intrapreneurs or startups. All companies face one big issue: how to integrate the business model that is new to your company. So, “new” means that the acquirer is not capable of running the processes that support such business model (yet).

Business models and operations models

We have to separate two dimensions here: business models and operations models. A business model tells which goods or services are provided by a company and how the company is compensated for the goods and services. It is a model on a type level, like a company running field service management solutions in the cloud for a monthly license fee. It already describes on a general level what a company is doing. On this level of granularity, companies can easily be similar.
A business model can be implemented in an operations model. The operations model shows how the business is run and how the resources of the business run the corresponding business processes in the company. This model is very concrete, detailed and more complex and involves resources running and used in the business processes like employees or application systems. On this level of granularity, it is harder to tell if two operations models are similar.
What else does this separation tell us? In creating new businesses, designing the business model as well as designing the operations model are sources for competitive advantage. In addition, it is important to remark that two companies that have the same business model might have significantly different operations models.
In the following, I would like to share insights from integration acquired software companies about the impact of the similarity on merger integrations.

Similarity of business models

The more similar business models are, the better the operations of these business models can be integrated. The operations might be similar; sales and accounting processes might only need small changes to be adapted. But there might be issues with overlaps in departments and issues with duplicate, even identical processes in both organizations.
For software companies, this means easier integration in development and support but also in administrative functions. So, you should look for similarities and differences by listing/modeling the business models of target and acquirer already in due diligence.
In contrast, if business models are very different, this might pose a challenge for integration. You would have to decide if you want to continue the different business models. Corresponding changes needed to continue both business models have to be executed in merger integration. For merger integrations targeting absorption, this might mean that the acquiring organization would have to adapt to a significantly different business model of the target.
Similarity of business models enables higher speed of integration: From my experience of several dozen acquisitions, the more similar business models are, the better the operations of these business models can be integrated. This enables higher speed. The reverse is also true. If business models are significantly different, this might impose slower speed of integration.

Similarity of operations models

Operations models are implementing business models. How a business operates is a key prerequisite for understanding how to integrate the business. The closer two operational models are, the easier it is to integrate both businesses with each other. You may use operations maturity models to determine the current and desired state of target and acquirer operations.
An example for similar operations models is having the same objectives for procurement at the acquirer and the target. If both companies look for maximum quality of supplies in procurement it might be a lot easier to integrate procurement processes, to align demands, to analyze and plan cost synergies. If one of the companies has different objectives, like minimum prize for supplied goods, the processes implemented to fulfill this objective might be hugely different from the ones that target high quality. In addition, to adap this different objective needs a change in mindset of the impacted employees in procurement.

Warning: Use of undefined constant php - assumed 'php' (this will throw an Error in a future version of PHP) in /homepages/42/d814073271/htdocs/mna-global/wp-content/themes/soledad-child/content-single.php on line 241

related posts

Home Topics Similarity of business models and their impact on the integration of new business models