Chapter

The Transformation of Business

Models in Technology-Enabled
M&A: A Case Study of Amazon
Andrejs Čirjevskis

Abstract

Little is known about how a configuration of dynamic capabilities (DC)

contributes to the transformation of the business models (BM) of ICT acquirers.
The chapter addresses this limitation by taking a strategy-as-practice theory
perspective. The inductive (illustrative) case study Amazon.com acquisition of
Whole Foods (2017) demonstrate how acquires sense new customer group and new
key activity; seize new resources and key partnerships and transform organization
by mean of new promotional channels and new customer relationship, therefore
change cost structure, create new revenue streams, and develop new customer
value proposition. The chapter develops a practice-driven model as a practical guide
for scholars who have been studying DCs and BMs, as well as for those who are new
to the field.

Keywords: dynamic capabilities, business model, merger and acquisition

1. Introduction

A focal firm’s growth strategies and performance are greatly influenced by the
integrative type of strategies, collaborative (alliances, networks, joint ventures) or
consolidative (mergers, acquisitions), to foster the innovation and to deliver new
customer value propositions. In recent years, collaborative and consolidation strat-
egies have received great attention in strategic management literature. Researchers
in strategic management argue that the performance outcome of a specific growth
strategy is usually affected by the dynamic capabilities and business models [1–3].
What is the research gap in the existing literature on dynamic capabilities and
business models? First, dynamic capabilities in merger and acquisition are complex
events in the process of sustain completive advantage of merging business for which
we have an incomplete understanding, in part because researchers have tended to
consider an only explanation of them. What is more, there are very few research
papers that applied the dynamic capabilities’ framework as a tool of the business
analysis of a reinvention of a business model of an acquirer company in M&A
processes. Second, the reinvention of business models of acquirers is still an open
area for research due to the following reasons. Johnson et al. [4] gave brilliant ideas
on a reinvention of business models and their building blocks for focal companies,
but still, a question remains, what capabilities are needed in a reinvention of busi-
ness models in the process of M&A? Pursuing scientific rigor and helping

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Strategy and Behaviors in the Digital Economy

practitioners to reinvent of their business model, Amit and Zott [5] integrated
dynamic capabilities with business model design process, but what about reinven-
tion of operationalized components of the model or building blocks of business
models in M&A process? To reinvent building blocks of business models, Kim and
Mauborgne [6] recommended to apply “four steps framework: eliminate, reduce,
increase and create,” namely, to eliminate and to reduce elements of business model
thereby to eliminate and to reduce expenses as well as increase and/or create as new
some elements of business model thereby to increase a revenue stream and to create
a new customer value proposition [2]. However, it is silent about what dynamic
capabilities are needed for that.
Capturing valuable insights from the dynamic capabilities’ framework [4] and
business model canvas [2], this chapter aims to integrate two theoretical perspec-
tives in the cohesive conceptual model. Why is it important to combine the dynamic
capabilities and business model literature? Adoption of seminal Teece’s framework
[7] of dynamic capabilities and operationalized components (building blocks) of
business models [2], in online and offline grocery businesses, allowed the construc-
tion of the conceptual model for practitioners and scholars, which consequently can
be tested by methods of statistical analysis in future research.
The motivation for the research is as follows: the author wanted to know how
acquisition-based dynamic capabilities support a reinvention of building blocks of
business models. The chapter discusses how a focal firm makes strategic decisions
under uncertainty and deals with the commercialization of innovation by means of
dynamic capabilities to sense a new demand, capture new resources and partner-
ships, transform channels and customers’ relationship, and deliver a new customer
value proposition, particularly, by means of acquiring new technologies, advanced
engineering team, and new users’ base. That is what Amazon did with Whole
Foods in 2017. This case study of Whole Foods acquisition by Amazon was selected
due to the following reasons. Firstly, this empirical literature is still at an early stage,
and opportunities abound to dig deeper into the linkages between dynamic capa-
bilities (DC), a reinvention of business models, and long-run firm performance.
“The research paradigm of dynamic capabilities is still relatively new. Accordingly,
illuminating case studies are likely to yield powerful insights” ([8], p. 1400). Sec-
ondly, the chapter digs deeper into the acquisition-based DC in M&A to develop an
integrated practical example of how dynamic capabilities and building blocks of
business models are interrelated in successful M&A process in the ICT industry.
The main contribution of the chapter is an emerging conceptual model of research
that integrates acquisition-based dynamic capabilities’ frameworks [7] and business
model canvas [2] together and, thereby, illustrates how acquisition-based dynamic
capabilities underpinning a reinvention of business models in M&A process. This
conceptual practice-driven model can be a practical guide for scholars who have
been studying DCs and BMs, as well as for those who are new to the field. What is
more, the chapter has contributed to the interest of the strategy practice group of
the Strategic Management Society by answering questions which the group attempt
to answer: what are the capabilities required to perform strategy work, and what are
the microfoundations of the activities involved in the doing of strategy?

2. Literature review

The recent scientific discussion in the field of strategic management broadly

favors the idea of dynamic capabilities in order to overcome potential rigidities of
organizational capability building [9]. “The theoretical and practical importance of
developing and applying dynamic capabilities to sustain a firm’s competitive

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advantage in complex and volatile external environments has catapulted this issue
to the forefront of the research agendas of many scholars” ([10], p. 917). This is
especially true for strategic behavior in the digital economy, as shown in this
chapter. This chapter examined DC in the online grocery business industry in which
the external environment shifted to some extent from a click (online grocery) to a
brick (offline grocery). DC can usefully be thought of as belonging to three clusters
of activities and adjustments: (1) identification and assessment of an opportunity
(sensing); (2) mobilization of resources to address an opportunity and to capture
value from doing so (seizing); and (3) continued renewal of core competencies
(transforming) [7]. Sensing implies that the organization must constantly scan,
recognize, and appraise opportunities and threats across various markets and tech-
nologies. Investigating customer needs is a typical sensing activity. Once an oppor-
tunity has been sensed in order to bring the new services, processes, and activities,
the organization should seize the opportunity. To seize an opportunity may require
renewal and reconfiguration of organizational capabilities and investment in tech-
nologies, equipment, and markets. Thus, transforming is how to organize new and
old resources for organization’s value maximization. One key implication of the
DC concept is that firms are not only competing on their ability to exploit their
existing resources and organizational capabilities but also on their ability to explore,
renew, and develop their organizational capabilities [11]. During the past two
decades, research in DC has promised to unlock the understanding of how compet-
itive advantage arises in dynamic markets. However, to date, empirical work has,
by and large, focused on what DC is. There has been little work demonstrating how
they actually operate and contribute to competitive advantage other than at the
conceptual level [12]. Stefano et al. argue that despite the exceptional rise in interest
and influence of dynamic capabilities, criticisms of the dynamic capabilities’ per-
spective continue to mount [13]. Common concerns are related to a lack of consen-
sus on basic theoretical elements and limited empirical progress [13]. Specific
capabilities that have been identified and studied involve research and development
[14], product innovation [15], ambidextrous organizational structures [16], net-
work responsiveness [17], and human capital management [18]. However, there are
only a few pieces of research on specific dynamic capabilities that have been iden-
tified and studied involving merger and acquisition. Teece argues that it might be
“because assets are bundled together often tightly linked inside incumbent firms, it
may be difficult to obtain assets in the desired configurations through asset pur-
chase or sale in mergers and acquisitions” [7]. However, by Eisenhardt and Martin
[11], practice with homogeneous acquisitions (i.e., those in the related markets) was
positively associated with the accumulation of tacit and explicit knowledge about
how to execute acquisitions and achieve superior acquisition performance. Making
strategically important investment choice on M&A, dynamically capable manage-
ment team needs such managerial capabilities as sensing and shaping, seizing and
reconfigurations (transforming), as well as reinvention and implementation of new
business model [7].
Value creation through M&A requires the simultaneous identification of target
with similar dynamic capabilities on certain dimensions and different dynamic
capabilities on other dimensions. “While similarity is seen as an indicator for
efficiency-based synergies (scale and scope), complementarity provides firms
with both efficiency synergies and value created from those differences that are
mutually supportive. Studies give clear empirical evidence that complementarities
are a significant factor for M&A success” ([19], p. 272). Through the interaction of
complementary characteristics, value creation does not only derive from cost sav-
ings, but the value is also created by a growing turnover and market share [20].
Complementarity has been studied in terms of top management team

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Strategy and Behaviors in the Digital Economy

complementarity [20], technological complementarity [21], strategic and market

complementarity [22], or product complementarity [23]. However, the study in
terms of complementarity of dynamic capabilities in M&A is still waiting for
researchers.
Proposition 1. The success of consolidative strategies (merger or acquisition) is
provided by the degree of similarities and complementarity between the dynamic
capabilities of two merging businesses.
In recent year, the business models have received increasing attention of strat-
egy researchers. Business models characterize the focal firm’s plan for its value
creation and capture [24]. From the point of view of Johnson et al. [4], a business
model consists of four main elements, the synthesis of which delivers value, cus-
tomer value proposition, profit formula, key resources, and key processes.
Osterwalder and Pigneur [2] with real 470 business practitioners from 45 countries
extended a number of elements and developed Business Model Canvas with nine
building blocks: customer segment, value proposition, channels, customer relation-
ship, revenue stream, key resources, key activities, key partners, and cost structure.
Slightly adapted Johnson et al. [4] and Osterwalder and Pigneur [2], Teece proposed
three main components of the business model: “Cost Model: Core Assets and Capa-
bilities; Core Activities; Partner Network. Revenue Model: Pricing Logic; Channels;
Customer Interaction. Value proposition: Product and Service; Customer Needs;
Geography” ([25], p. 41). With respect to brilliant contributors to dynamic capa-
bilities and business models’ frameworks, there is still a gap in understanding what
and how dynamic capabilities lead to new cost structure and revenue streams and
how dynamic capabilities foster new value proposition of acquirer’s company in
M&A process. We must understand how acquisition-based dynamic capabilities
transform and reinvent components of a business model acquirer’s company.
What exactly is meant by the reinvention of building blocks of business models?
The reinvention of building blocks of business meant the process of the transfor-
mation of the most important activities, capabilities, and resources of the company
to reduce cost, to increase revenue stream, to deliver new customer value proposi-
tion, and thereby to sustain competitive advantages. How acquisition-based
dynamic capabilities support a reinvention of building blocks of business models?
There are three sets of acquisition-based dynamic capabilities which should be
developed to transform and reinvent a business model of an acquirer to achieve
competitive advantage. The first set of acquisition-based dynamic capabilities
(sensing and shaping) is contributing to select new key activities and new customer
segments, thereby contributing to an acquirer to shape emerging market demand
and new technologies needed. The second set of acquisition-based dynamic capa-
bilities (identifying and seizing) is supporting an acquirer’s company to obtain new
key idiosyncratic (VRIN) resources and to extend a partnership’s networks. The
third set of acquisition-based dynamic capabilities (transforming and
reconfiguring) is contributing an acquirer’s company to transform new customer
relationships and promotion channels and, thus, to deliver the new customer value
proposition. Thereby, an acquiring company would result in a new cost structure by
eliminating and reducing capital expenditure and operating expenses, due to an
economy of scope, and would generate new revenue streams by increasing and
creating new key activities. A result of those transformation processes, acquirer’s
company can newly sustain competitive advantage. The theoretical framework of
the research is presented in Table 1.
Proposition 2. Business model’s elements of both acquirer’s and the
target’s companies can successfully fold into the new business model by means
of acquisition-based dynamic capabilities and contribute to reduce

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Table 1.
The theoretical model of research: bridging together acquisition-based dynamic capabilities and reinvention of a
business model.

cost, to create a new revenue stream, to deliver a new value proposition, and
therefore to sustain competitive advantage.

3. Research design and methodology

“Building theory from case studies is a research strategy that involves using
one or more cases to create theoretical constructs, propositions and/or midrange
theory from case-based, empirical evidence” ([26], p. 25). Yin defines the case
study research method as “an empirical inquiry that investigates a contemporary
phenomenon within its real-life context; when the boundaries between phenome-
non and context are not clearly evident; and in which multiple sources of evidence
are used” ([27], p. 23). Some critics suggest case study research is useful only as an
exploratory tool or for establishing a hypothesis, and some would claim it is unsci-
entific [28]. When it comes to the validity of qualitative case study research, the
validity refers to the extent to which the qualitative research results accurately
represent the collected data (internal validity) can be generalized or transferred to
other contexts or settings (external validity) [28]. Ultimately, each case can be
viewed as a discrete experiment that could be repeated [29].
This chapter seeks to explore how acquisition-based dynamic capabilities
underpinning a reinvention of business models in the M&A process. As objects of
research, the author selected the company that is especially active and successful in
online shopping and particularly in the online and offline grocery business. The unit
of analysis is dynamic capabilities. In this research, two stages of research work will
be involved. Firstly, to justify propositions, the author did the contextual content
analysis which relied on an archival search that included financial statements,
annual reports, internal documents, industry publications, and CEO statements to
get at a microlevel understanding that really boosts data and the better understand-
ing of the microfoundations of DC and building blocks of business models of
acquirers and targets.

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Strategy and Behaviors in the Digital Economy

Even though a strategy-as-practice or process-based approaches in empirical

qualitative research usually have an element of ethnographic or discursive analysis
using primary data (sometimes in addition to secondary data, sometimes alone), the
current chapter relied on an extensive search of secondary data. The key to second-
ary data analysis is to apply theoretical knowledge and conceptual skills to utilize
existing data to address the research propositions. The major advantages associated
with secondary analysis are the cost-effectiveness and convenience it provides [30].
A major disadvantage of using secondary data is that the secondary researcher did
not participate in the data collection process and does not know exactly how it was
conducted. However, the obvious benefits of using secondary data can be
overshadowed by its limitations [31]. Original survey research rarely uses all of the
data collected, and this unused data can provide answers or different perspectives
to other questions or issues [30]. In a time where vast amounts of data are being
collected and archived by researchers all over the world, the practicality of utilizing
existing data for research is becoming more prevalent [30, 32].
The aim of the content analysis of illustrative case study of Amazon’s acquisition
of Whole Foods at 2017 is to explicate the relationship between acquisitions-based
dynamic capability and reinvention of acquirer business model and, thus, sustained
competitive advantage. Content analysis is a qualitative research method that uses
a set of procedures to classify or otherwise categorize communications [33]. Typi-
cally relying on archival data to extract criteria of interest to strategic management
scholars, content analysis has aided in analyzing corporate strategies [34], organi-
zational boundaries [35], new product development [36], organizational resources
[37], strategic groups [38], and joint ventures [39]. Any source of communication
such as shareholder letters, interview narratives, video records, speeches, or tran-
scripts from recorded meetings of executives could be used by a strategy researcher
as an effective data source for content analysis. It provides a good match theoreti-
cally between the information being assessed (how information is being content
analyzed) and the context from which it is drawn (does the type of text being used
as a source of content analysis data fit the propositions?).
Generally, three broad types of content methodologies exist [40, 41]: human-
scored schema, individual word count systems, and computerized systems using
artificial intelligence. Human-scored systems involve training of coders to classify
text according to specific classification categories. In this system, the first step is a
determination of what aspect of text will serve as the unit of analysis (word, phrase,
sentence, paragraph, full text). Then, categories are developed for classification,
and coding rules are developed for each category. In contrast to human-scored
schemas, individual work count systems classify text into several semantically
equivalent categories and then use frequency of an occurrence to determine the
relative importance of each category in a text [33]. Finally, artificial intelligence
systems incorporate features that consider the syntax and lexicon of words [41].
Thus, there is a mechanism to resolve words with more than a single meaning. For
this study, the author has chosen human-scored systems and individual work count
systems. Dynamic capabilities served as a unit of analysis.
To justify the first proposition, the author has chosen human-scored systems and
classified text into three specific classification categories, namely, sensing, seizing,
and transforming dynamic capabilities. When it comes to the format of the presen-
tation, the author has adopted a conceptual frame developed by Teece [42]. The
conceptual frame helped to unravel data in the text that the author has collected in
search of similarities and complementarity of the micro-foundations of the dynamic
capabilities of both companies. To justify the second proposition, the author applied
an individual work count system, the text has been allocated within nine building
blocks of the business model of both companies (as semantically equivalent

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categories), and identified compatibilities and complementarity of companies’

business models. Then, the author has allocated operationalized components of the
business model into each cluster of dynamic capabilities (sensing, seizing, and
transforming) to demonstrate how acquisition-based dynamic capabilities under-
pinning the transformation of the business model. The second stage of research
involves a demonstration of the development process of the new conceptual model
of research by using illustrative content analysis finding and literature research
outcomes. This empirical research helps to fill a gap in the literature which is
primarily 75% theoretical and only 25% empirical—focusing on proving the exis-
tence of dynamic capability [43]. The chapter discusses and interprets the results of
the qualitative and explorative research in the next subchapters.

4. Data analysis and interpretation

Teece argues that individual corporate histories and illuminative case studies
yield powerful insights to dynamic capabilities research. [5]. In a move that sur-
prised the 2017 year, Amazon, the largest online retailer, announced its intention to
purchase Whole Foods for $13.7B in cash. Amazon had been dabbling with tradi-
tional brick-and-mortar activities for a few years already—from owning a few
physical stores to running experiments like “Amazon Fresh” and later “Amazon
Go.” However, its competitors including Walmart were far ahead than Amazon
with revenues of $ 486 billion as compared to Amazon’s $136 billion [44]. Some
have interpreted Amazon’s move as a signal that the online giant is finally giving in
and investing big in brick-and-mortar retail. How is this particular acquisition
different from any other acquisition where the target firm is attractive because of its
business channels and market reach? Most acquisitions are carried out to acquire
these target firm’s capabilities; how is the Amazon acquisition of Whole Foods
different? The answer is this acquisition is carried out to acquire big data of more
affluent customers with an interest in eating healthy and sustainable foods spending
extra money to purchase. Digging deeper, though, it is clear that Amazon’s real
interest is in two things: first, the treasure trove of consumer data that comes with
this acquisition; and second, Whole Foods private brand product [44]. The big data
from Whole Foods customers are literally “rich.” What exactly is in the Whole
Foods data that Amazon would want? The answer is grocery buying habits and
patterns. Preferences and correlations between purchases of different products and
even different categories [44]. Jeremy Stanley, vice president of data science for
Instacart, one of Amazon’s competitors in the grocery space, recently told CNBC:
“One of the wonderful things about groceries is that compared to other e-commerce
purchases, groceries are habitual and frequent. People need groceries every week”
[44]. Amazon can also use its process and technology expertise to take enormous
costs out of the supply chain and store operations of Whole Foods while improving
the in-store experience. Amazon has mastered the “test and learn” approach to
large-scale innovation that most companies aspire to. Whole Foods provides Ama-
zon with an incredible platform for the transformation of industry [45].
Justification of proposition 1. The success of consolidative strategies (merger
or acquisition) is provided by the degree of similarities and complementarity
between the dynamic capabilities of two merging businesses.
The persistence of existing dynamic capabilities depends on the impetus for
change (sensing), the strength of the perceived need to change (seizing), and the
managerial capacity to integrate and recombine resources (transforming) as desired
[46, 10, 7]. Zahra et al. [10] argue that the lack of success to solve a problem with
current capabilities triggers the development and use of new dynamic capabilities.

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Strategy and Behaviors in the Digital Economy

The research has explored the selected dynamic capabilities of the target’s company
and acquirer’s company. The justification of the first proposition is given in
Tables 2 and 3. The research has identified several similarities in the dynamic
capabilities of two companies. Both companies were successful to sense emerging
market demands, to seize opportunities by developing products and platforms,
keeping leading positions. Thereby, the dynamic capabilities of sensing and seizing
of two companies are quite similar.
However, companies were not always successful in transformation or reshaping
resources: Amazon’s low grocery’s margins, difficulties to deliver food considering
their perishability nature, as well as Amazon Go store’s technology faced problems.
Regarding Whole Foods, there is a massive cost disadvantage compared to their
traditional grocery competitors. There are also several complementarities of the
dynamic capabilities of an acquirer and a target. One of Amazon’s weaknesses is the
huge cost of losses due to food items becoming bad, a problem which the company
had never faced with toys and books. Even though the grocery business was
approximately $ 800 billion per the year 2016 in the USA alone [47], Amazon has
limited knowledge and experience in the offline retail environment. That is why, for
Amazon Fresh to be successful, the company needed to acquire more expertise in
perishable grocery procurement. In contrast, Whole Foods becomes an organic

Products Sensing Seizing Transforming Result in

Online Amazon sensed the Amazon set up a In March 2017, Grocery’s margins
and need for having its subsidiary Amazon Amazon announced were low, and its
offline footprint in the Fresh, a grocery Amazon Fresh goods were difficult to
food physical stores delivery service. Pickup, a drive-in- deliver considering
stores combined with Later Amazon type grocery store their perishability
online stores. decided to enter into for Amazon Prime nature. Amazon Go
Amazon saw a food and consumable subscribers. In store’s technology
grocery business as goods manufacturing January 2018, faced problem in
an emerging through Amazon Amazon started up tracking over 20
business opportunity Elements, by offline retailing people
establishing a Amazon Go, first
partnership with brick-and-mortar
TreeHouse Food Inc. convenience food
store on Amazon
Source: Developed by author.

Table 2.
Dynamic capabilities of Amazon before the acquisition of Whole Foods.

Product Sensing Seizing Transforming Result in

Whole Whole Foods Whole Foods becomes Whole Foods Whole Foods has a
Foods found that “where an organic supermarket attempted to expand to massive cost
food comes from which distinguishes 1000 stores, it could disadvantage
and how it is itself by offering either build stores compared to its
grown matter” “highest quality natural more closely together traditional grocery
(case) and organic products” or build lower-cost competitors [32]
stores in areas that had
more price-conscious
consumers [32]
Source: Developed by author.

Table 3.
Dynamic capabilities of Whole Foods before the acquisition.

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supermarket which distinguishes itself by offering “highest quality natural and

organic products.” However, Whole Foods recent poor performance stems from a
major strategic mistake they made about 4 years ago. Whole Foods in its current
incarnation is a niche business that can only profitably sell “food for the 1%” but is
trying to sell to everyone [45]. Therefore, Amazon can provide resources for future
Whole Foods development, and at the same time, Amazon can develop their own
offline grocery business.
Justification of proposition 2. Business model’s elements of both acquirer’s and
the target’s companies can successfully fold into the new business model by means
of acquisition-based dynamic capabilities and contribute to reduce cost, to create a
new revenue stream, to deliver a new value proposition, and therefore to sustain
competitive advantage.
Having analyzed both Amazon and Whole Foods building blocks of business
models, the research justified the second proposition, as shown in Tables 4 and 5.
The acquisition-based dynamic capabilities helped Amazon to reinvent of building
blocks of the business model as follows. Amazon sensed new key activities and new
customers’ segments for their business: Whole Foods customer has over $1000 per
month disposable income. Amazon has a better understanding of the customer than
any other retailer. The Motley Fool estimates that over 80 million people are Ama-
zon Prime members. With this big data, it is capable of building analytic models
which can predict what these consumers will want, how much they will want, and
when they will want it.
Amazon seized new key (idiosyncratic) resources by acquiring Whole Foods
logistic system, customer’s base, and a key partners’ network.
To be successful in the offline retail food segment and in own-brand grocery
stores, Amazon needs to have knowledge of traditional retailing and effective sup-
ply chain management in both factories and retail stores. Amazon has limited
knowledge and experience in the offline retail environment. The company learned
about food market through Amazon Fresh but now can learn about food stores or
grocery manufacturing. Amazon has good supply chain management in a ware-
house for online retail order, but now Amazon is certain whether this experience is
transferable to an offline retail store. Hence, Amazon reconfigured new customers’
relationship and channels.
While Amazon’s purchase of Whole Foods enables them to add a tremendous
amount of data to their coffers, the true differentiator lies in the company’s mastery
of using data to better understand their customer’s needs, predict shopping behav-
iour and generate longevity with its loyal customer base [47]. Therefore, Amazon
transformed its customer value proposition, delivering new value to the clients of
both companies and capturing new value for shareholders. “This partnership pre-
sents an opportunity to maximize value for Whole Foods Market’s shareholders,
while at the same time extending our mission and bringing the highest quality,
experience, convenience, and innovation to our customers,” John Mackey, Whole
Foods CEO, said in a statement [49]. Given the jump in Amazon’s stock price after
the announcement, shareholder approval of the deal has virtually paid its total cost.
When people suggest that Amazon has overpaid for Whole Foods, they completely
miss this point [45]. Amazon also can help Whole Foods buy high-quality products
more cost-effectively and thus improve gross margins while keeping customers
satisfied. As results, Amazon can change cost structure as well as potentially increase
revenue streams for mobile professional users and can result in a new competitive
advantage. Adding Whole Foods selection of items to its Amazon Fresh grocery
delivery service could give the company a competitive advantage against Peapod,
FreshDirect, and Google, whose express delivery service now reaches almost 90%
of the USA [50].

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Strategy and Behaviors in the Digital Economy

Building Amazon business model Dynamic capability Whole Food business model
blocks of Amazon
of the
business
model

Customer • Millennials • The more affluent

segments • Global consumer customer with an
(Scope) market (North interest in eating
America, Europe, Asia) healthy and sustainable
foods spending extra
money to purchase
Key activities • Customer focused • Natural and organic
(Scope) product development foods supermarket
• Well-developed supply chain operations
chain • Production of packaged
goods, prepared
foods, body care, pet
foods, and household
goods
Key partners • The business alliances • Supplier and
(Resources) and collaborations with procurement partners
logistic partners • Agriculture and
• Partnership with sustainability partners
third-party sellers • Whole trade certifier
partners
Key resources • Amazon Web Services • Distribution &
(Resources) • Big data analytics procurement centres
• Productive employees • The network of 412
• Physical warehouses stores across 42 US
states, as well as ten
stores in Canada, and
nine stores in the UK
Channels • Amazon.com • The network of
(Organization) • Country-specific online physical retail outlets
portals • Retail infrastructure,
• API (for AWS) procurement,
production, and
distribution network
Customer • Fuse data, technology, • A full range of products
relationship and content to engage a to its customers on a
(Organization) loyalty program (their self-service basis
best customers) with through its online sales
geo-location reminders channel, which enables
to incentivize store customers to browse
visits products, place orders,
and arranges deliveries
Customer • Eliminating the • The diverse catalog of
value checkout line premium products
propositions • Real-time offers via • The commitment to
mobile push organic and sustainable
notifications when sourcing
customers are in store • Offering online
shopping services on
desktop and mobile
platforms
Cost structure • Investing profit back • The procurement of
into the technology and products and supplies
the infrastructure

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Building Amazon business model Dynamic capability Whole Food business model
blocks of Amazon
of the
business
model

• Research & • The operation and

Development development of the
• Low-cost structure online sales channel
• The maintenance of IT
and communications
infrastructure
Revenue • Revenues from product • The sale of various
streams and service sales organic and fair-trade
• Utility computing fees products
(for AWS)
• Economy of scale
Source: Developed by author

Table 4.
Acquisition based dynamic capabilities of Amazon.com in the reinvention of their business model by acquiring
Whole Food.

The reinvention of the business model of Microfoundations of acquisition-based dynamic

Amazon.com capabilities of Amazon.com

Selection, sensing, and shaping new activities and new Amazon is discovering the power of virtual and
customer’s segments physical channels that interact seamlessly in support of
the customer. Amazon has begun to test that logic with
its venture into physical bookstores. Amazon is
sensing more affluent customer with an interest in
eating healthy and sustainable foods spending extra
money to purchase. The proposed acquisition of
Whole Foods catapults those efforts and provides
extraordinary opportunities for experimentation in
and execution of integrated retailing [45]

Identification and seizing new resources and a new Amazon did not just buy Whole Foods grocery stores.
partnership It bought 431 upper-income, prime-location
distribution nodes for everything it does [44]. Amazon
has mastered the “test and learn” approach to large-
scale innovation that most companies aspire to.
Therefore, Whole Foods provides Amazon with an
incredible platform for the transformation of an
industry

Reconfiguration and transforming new customer This acquisition gives Amazon to reinvent and
relationship, new channels, and new customer value reengineer the process of buying, moving, and selling
proposition. Result in new cost structure and new revenue goods of Whole Foods. With 460 locations and a
stream history of highly localized habits and preferences,
Amazon will benefit from a trove of data that it can
mine to write the future [52]. The brand Whole Foods
is a good compliment to Amazon Fresh and Go and
allow them to more aggressively target fresh food
delivery to the at-home market. Amazon will
ultimately be able to tailor the grocery shopping
experience to the individual to better understand their
needs, predict shopping behavior, and generate
longevity with loyal customers
Source: Developed by author.

Table 5.
Bridging perspectives together: the reinvention of the business model and micro-foundations of acquisition-based
dynamic capabilities.

11
Strategy and Behaviors in the Digital Economy

5. Findings and discussion

“The literature on dynamic capabilities has addressed the fundamental question

of how companies develop the skills and competencies that allow them to compete
and gain an enduring competitive advantage… However, the literature does not tell
much about the antecedents of new firms’ dynamic capabilities” ([33], pp. 919–
920). This chapter addresses the latter issue in great depth. The author used con-
textual content analysis [32] to justify two propositions. The contextual analysis
provided a comprehensive solution to the challenge of identifying and categorizing
key textual data [51]. Content analysis transformed unstructured data into orga-
nized information to give you a competitive edge [51].
When the chapter explored acquisition-based dynamic capabilities and business
models of Amazon and Whole Foods, the research found the acquisition enabled a
series of strategic innovations to integrate Whole Foods products with Amazon
functionality and vice versa. Bridging two perspectives together, Table 5 demon-
strates what and why Amazon did with Whole Foods at the end of 2016 and how
acquisition-based dynamic capabilities support a reinvention of building blocks of
business models.
Amazon has high dynamic capabilities in online technology but not in food distri-
bution. When some dynamic capabilities are missing, a company has the option to
develop them internally or purchase them from outside. Amazon needed to acquire
more knowledge of the retail market, improve management of its supply chain for
the offline retail store, and continue investing in R&D for the grocery retail busi-
ness. Dynamic capabilities of Amazon and Whole Foods are aligning and allowing
them to improve existing products by sharing’ experience, advanced technologies, and
broad users’ base. With Whole Foods acquisition, Amazon would benefit as it would
get access to tons of consumers and lifestyle data packed into consumer’s buying habits
[44]. Whole Foods is an attractive platform for Amazon for the transformation of
an industry. Therefore, two propositions have been justified empirically. Does click
successfully meet brick? The integration of Amazon and Whole Foods is not fully
finished. Amazon is trying to become Walmart—not just an online megalith but also
a physical powerhouse with dynamic pricing and stocking strategy—faster than
Walmart can become Amazon [44].
With Whole Foods acquisition, Amazon would benefit as it would get access to
tons of consumers and lifestyle data packed into consumer’s buying habits [44].
Morgan Stanley analysts think that the new Whole Foods has the ability to close the
pricing gap between it and its competitors [53]. Zahra et al. [10] argue that entre-
preneurs and other key organizational decision-makers failing with current appli-
cations spur attempts to change. However, key dynamic capabilities, such as
transforming resource and developing new competencies, might be challenging for
Amazon. Should Amazon manufacture its own products to make a higher
margin? Could Amazon’s offline retail marketing concept be developed globally
[54]? To become one of the biggest offline retail players, Amazon needs to
educate customers and make a lot of investment. According to Tom Caporaso,
the chief executive officer of Clarus Commerce, the Amazon Go business model
relied on several recent technological innovations that required more time
for testing [55].
Don Stuart, a managing partner at Cadent Consulting Group, concurred that
even for the biggest online retailer like Amazon, to make the platform was a huge
challenge [55]. What novel have I learned that goes beyond these existing frame-
works of dynamic capabilities and business models? How do we need to change
these frameworks based on insights from the case? The current research gave

12
The Transformation of Business Models in Technology-Enabled M&A: A Case Study of Amazon
DOI: http://dx.doi.org/10.5772/intechopen.85134

Figure 1.
The conceptual model of future research: bridging together acquisition-based dynamic capabilities and a process
of the transformation of a business model.

substantially more insights into the role that dynamic capabilities can play in acqui-
sitions and how dynamic capabilities relate to business model transformation.
Besides contributing to dynamic capabilities view on competitive advantages by
adding fresh insights about successful acquisition practice, the research core con-
tribution is in the emergent conceptual model for future research on the reinvention
of a business model in merger and acquisition process as shown in Figure 1. Collis
and Montgomery [56] argue that good corporate strategy requires a continual
reassessment of the company’s scope, requires continual investment in building and
acquiring strategically valuable resources, and develops organization ability to
marshal them. Thereby, the conceptual model also integrates a great corporate
strategy triangle: strong market positions (scope), high-quality resources, and an
efficient organization [56] as shown in Figure 1.
The conceptual model makes dynamic capabilities more visible, tangible, and to
some extent measurable with the help of business model canvas.

6. Conclusion, limitations, and future works

When some dynamic capabilities are missing, a company has the option to
develop them internally or purchase them from outside. Teece argues: “In short, the
business model outlines the (industrial) logic by which customers are served and
money is made” ([25], p. 41). The current chapter contributes to theory and prac-
tice by illustrating how this logic works in the M&A process. The model demon-
strates that the intersection of sensing and seizing capabilities can result in a new

13
Strategy and Behaviors in the Digital Economy

and more efficient cost structure; the intersection of sensing and transforming
capabilities can result in the generation of a new revenue stream. The intersection of
seizing and transforming capabilities can result in a new customer value proposi-
tion. Thereby, the acquisition-based dynamic capabilities are transforming the
acquirer’s business model and underpinning the acquirer’s competitive advantage.
The conceptual model integrates dynamic capabilities and business model perspec-
tives in the new conceptual model for future research that encourages practitioners
to grasp an exact relationship between the micro-foundations of each perspective.
The conceptual model makes dynamic capabilities more visible, tangible, and to
some extent measurable at least on the level of expected results (reduced cost and
increased revenue streams). The resulting model is given in Figure 1 also advances
the discourse on DCs and BM.
There are several strong limitations to the research. Due to a limitation of the
number of submitted pages, the research has provided only one evidence from
M&A practice. Through the small data size and missing validation through a lack of
robust analysis, the current chapter serves more as an introduction to the research,
then as the results. Thereby, the chapter, being of an exploratory and interpretive in
nature, raises several opportunities for future research, both in terms of theory
development and findings validation. The conceptual model discussed in Figure 1
could also be used to generate a number of hypotheses for further empirical testing
using a broader sample and quantitative research methods.
What is more, because changing the BM is a central top-management task, there
is potentially very fruitful link to top management team (TMT) theory [57]. For
example, what dynamic managerial capabilities are more needed in BMI in M&A
the process: managerial cognition capabilities, social capital, or human capital [58]?
What is more important and what are less important dynamic managerial capabil-
ities for decision-making processes in technology-enabled M&A deals (idea, justifi-
cation, due diligence, negotiation) and for integration processes in M&A deals
(acquisition integration, synergy management) [59]? The study can also be
extended in longitudinal and comparative ways.

Acknowledgements

The paper support from RISEBA University of Applied Sciences is gratefully

acknowledged.

Author details

Andrejs Čirjevskis
Business Department, RISEBA University of Applied Sciences, Riga, Latvia

*Address all correspondence to: [email protected]

© 2019 The Author(s). Licensee IntechOpen. This chapter is distributed under the terms
of the Creative Commons Attribution License (http://creativecommons.org/licenses/
by/3.0), which permits unrestricted use, distribution, and reproduction in any medium,
provided the original work is properly cited.

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The Transformation of Business Models in Technology-Enabled M&A: A Case Study of Amazon
DOI: http://dx.doi.org/10.5772/intechopen.85134

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