BUSINESS MODEL INNOVATION PERFORMANCE: WHEN DOES ADDING A NEW BUSINESS MODEL BENEFIT AN INCUMBENT? STEPHEN K. KIM 1 and SUNGWOOK MIN 2 * 1 College of Business, Iowa State University, Ames, Iowa, U.S.A. 2 College of Business Administration, California State University, Long Beach, California, U.S.A. Many incumbent firms respond to the emergence of a disruptive business model by adding the business model into their existing ones. But, not all incumbents perform better after adding new business models to their existing ones; that raises the question about the conditions under which adding a new business model improves incumbent performance. We develop a theoreti- cal framework to address that question. After identifying two types of incumbent assets, complementary and conflicting, we highlight the influence of two managerial choices—timing and organizational mode of the new business model addition—that create opportunities to translate the potential provided by incumbent assets into higher performance. The proposed discriminating alignment thesis states that incumbent performance after new business model addition improves when the incumbent firm aligns complementary assets with earlier addition of the new business model and conflicting assets with an autonomous business unit for the new business model. To test these hypotheses, we analyzed the performance change of those physical store-based retailers that added online retailing as a new business model. The test results supported all hypotheses, and key theoretical and managerial implications are pre- sented. Copyright © 2015 Strategic Management Society. INTRODUCTION An industry often undergoes abrupt and rapid changes with a new business model—a newly inte- grated business framework to generate revenue and profit by creating, communicating, and delivering value to customers (Chesbrough and Rosenbloom, 2002; Zott, Massa, and Amit, 2011). The music indus- try has been fundamentally changed by the online music distribution model such as iTunes. Michael Dell’s direct-to-customer model changed the way personal computers are sold and distributed. While fledgling literature on business models focuses on entrepreneurial firms and their creation of new busi- ness models (Amit and Zott, 2001; Zott and Amit, 2007), far less research attention has been paid to the other group: incumbent firms that already have estab- lished business models and their decision to add new business models that disrupt the incumbent industry (Christensen, 1997). Many incumbent firms in various industries have added new business models (Charitou and Markides, 2003), but did adding those new business models benefit incumbents? Consider physical store-based retailers that have added online retailing as a new business model (Zott et al., 2011). A review of such retailers’ post- addition performances reveals wide variations: Barnes and Noble, Inc., saw a 68 percent sales increase over the four-year period following its Keywords: business model Innovation; complementary assets; conflicting assets; discriminating alignment *Correspondence to: Sungwook Min, College of Business Administration, California State University Long Beach, 1250 Bellflower Blvd., Long Beach, CA 90840, U.S.A. E-mail: Sam.Min@csulb.edu Both authors contributed equally to the article. Strategic Entrepreneurship Journal Strat. Entrepreneurship J., ••: ••–•• (2015) Published online in Wiley Online Library (wileyonlinelibrary.com). DOI: 10.1002/sej.1193 Copyright © 2015 Strategic Management Society