2008-THE-FIT-BETWEEN-PRODUCT-MARKET-STRATEGY-AND-B

StrategicManagementJournalStrat.Mgmt.J.,29:1–26(2008)Publishedonline22August2007inWileyInterScience()DOI:10.1002/smj.642Received17November2004;Finalrevisionreceived2July2007THEFITBETWEENPRODUCTMARKETSTRATEGYANDBUSINESSMODEL:IMPLICATIONSFORFIRMPERFORMANCECHRISTOPHZOTT1*andRAPHAELAMIT21Insead,Fontainebleau,France2TheWhartonSchool,UniversityofPennsylvania,Philadelphia,Pennsylvania,U.S.A.Weexaminethefitbetweenafirm’sproductmarketstrategyanditsbusinessmodel.Wedevelopaformalmodelinordertoanalyzethecontingenteffectsofproductmarketstrategyandbusinessmodelchoicesonfirmperformance.Weinvestigateaunique,manuallycollecteddataset,andfindthatnovelty-centeredbusinessmodels—coupledwithproductmarketstrategiesthatemphasizedifferentiation,costleadership,orearlymarketentry—canenhancefirmperformance.Ourdatasuggestthatbusinessmodelandproductmarketstrategyarecomplements,notsubstitutes.Copyright2007JohnWiley&Sons,Ltd.INTRODUCTIONAcentralobjectiveofstrategicmanagementre-searchhasbeentounderstandthecontingenteffectsofstrategyonfirmperformance.Contin-gencytheorysuggeststhatthereisnooptimalstrategyforallorganizationsandpositsthatthemostdesirablechoiceofstrategyvariablesaltersaccordingtocertainfactors,termedcontingencyfactors(Donaldson,1996).Accordingly,strategicmanagementscholarshaveexaminedawiderangeofcontingencyfactors,suchasaspectsoftheenvironment,organizationstructure(Miller,1988),technology(DowlingandMcGee,1994),andmar-ketingchoices(Claycomb,Germain,andDroege,2000),andexploredhowtheseandotherfactorsinteractwithstrategyvariablestodeterminefirmperformance.Onefocusofthatliteratureconsidersstructuralformsascontingencyfactors.AnimportantearlyKeywords:productmarketstrategy;businessmodel;per-formance;contingencytheory;competitivestrategy∗Correspondenceto:ChristophZott,INSEAD,BoulevarddeConstance,77305FontainebleauCedex,France.E-mail:[e-mail]Chandler(1962),whoconsideredthecontingencyrelationshipbetweenafirm’scorporatestrategyanditsinternaladmin-istrativestructure(specifically,divisionalversusfunctionalform).Whilethisparticularpairofstrategy/structurevariableshasbeenthoroughlyaddressed(e.g.,seeAmburgeyandDacin,1994),theliteraturehasotherwisepaidsurprisingly‘lit-tleattentiontoextendingthequestionofstrat-egy/structurefitissuesforotherstructuralformsoforganization’(YinandZajac,2004:365).Inthispaper,weaddressthisgapbyintroducingthefirm’sbusinessmodelasanewcontingencyfactorthatcapturesthestructureofafirm’sboundary-spanningexchangesandasking:Howdothefirm’sbusinessmodelanditsproductmarketstrategyinteracttoimpactfirmperformance?Weaddressthisquestionbyelaboratingonthebusinessmodel,whichisarelativelynew,yetrichandpotentiallypowerfulconceptinthestrat-egyliterature.Thebusinessmodelisastruc-turaltemplatethatdescribestheorganizationofafocalfirm’stransactionswithallofitsexter-nalconstituentsinfactorandproductmarkets.IthasbeenbroughttotheforefrontofstrategicCopyright2007JohnWiley&Sons,Ltd.2C.ZottandR.Amitmanagementthinking,andhasbecomeapartic-ularlyimportantnewcontingencyfactorthroughrecentrapidadvancesininformationandcommu-nicationtechnologies—inparticular,Internetandbroadbandtechnologies—thathavefacilitatednewtypesoftechnology-mediatedinteractionsbetweeneconomicagents(GeoffrionandKrishnan,2003).Thesedevelopmentshaveenabledfirmstochangefundamentallythewaystheyorganizeandtransactbothwithinandacrossfirmandindustrybound-aries(Mendelson,2000).Theyhavealsoenabledanemergingapproachtoenterprise-leveldesign,asNadlerandTushman(1997)haveasserted.Thatapproachspawns‘newdesignsthatextendbeyondthecorporation’straditionalouterwalls,’andithelpsmanagers‘recognizetheuntappedopportuni-tiesforcompetitiveadvantagethatliewithintheirownorganizations’(NadlerandTushman,1997:120).Thus,thefocusoforganizationdesignseemstohaveshiftedfromtheadministrativestructureofthefirmtothestructuralorganizationofitsexchangeswithexternalstakeholders.Echoingthisshift,researchershaveobservedthatthelocusofvaluecreationincreasinglyextendstraditionalfirmboundaries(DyerandSingh,1998;Gulati,Nohria,andZaheer,2000;Normann,2001),andtheyhavethereforecalledforabroaderconceptualizationoforganizationalboundariesbeyondthelegallyrele-vantdemarcationofthefirmfromitsenvironment(SantosandEisenhardt,2005).Thebusinessmodelrepresentsthiskindofbroaderconcept.Thestudyofbusinessmodelsisanimportanttopicforstrategicmanagementresearchbecausebusinessmodelsaffectfirms’possibilitiesforvaluecreationandvaluecapture(AmitandZott,2001).Sinceproductmarketstrategiesarealsochosen,oremerge,inordertoincreasevaluecreationandcapturebyfirms,researchersandmanagersneedtoknowhowbusinessmodelsandproductmarketstrategy,independentlyaswellasjointly,impacttheperformanceprospectsoffirms.Inordertoimproveourunderstandingofthecontingenteffectsofbusinessmodelandproductmarketstrat-egy,wefirstexamineconceptuallyhowafirm’sbusinessmodelisdistinctfromitsproductmarketstrategy.Wetheninvestigateanalyticallyhowvar-iousproductmarketstrategiesandbusinessmodelchoicesinteracttoaffectfirmperformance.Byexaminingauniquemanuallyc