Fighting against a disruptive business model by rolling out a second business model is one option for companies to consider. But to make that work, you need to avoid the trap of getting stuck in the middle.
Established companies in industries as diverse as airlines, media, and banking have seen their markets invaded by new disruptive business models. The newcomers succeed not only by stealing customers from the established firms but also by attracting new customers into the market. As a result, established companies need to decide how to keep their existing customers while taking advantage of the new ones.
One options is to use existing business models to cater for both markets. Another is to develop a new business model specifically for the new market. This is not an easy decision because entering a new market can be risky. But if a firm decides to do so, it must decide on what business model to adopt and then make sure that the new business model co-exists peacefully next to its existing business model.
Based on research into 65 companies that chose to enter markets created by disruptive business models (including Nestl_, Edward Jones, Waitrose, Reuters, and Tesco), the authors say that established firms should develop new business models that are different from their existing business models and different from the business model of the disruptor. However, designing these business models is not only difficult in its own right but also raises the challenge of how to operate two different and conflicting business models in the same company.
The authors argue that the usual prescription of creating a separate unit to house the new business model is not enough. The company needs to achieve a delicate balance: establishing enough separation between the two business models to avoid conflicts, but not so much to take advantage of synergies between the two. To achieve this balance, the company needs to create an ambidextrous organizational environment.
6 Comments On: What to Do Against Disruptive Business Models (When and How to Play Two Games at Once)
This is an intriguing article but could it have been applied in Kodak’s film vs. digital camera 30-year struggle? Even George Fisher could not convince middle management that ” digital will not cannibalize film”, which of course it has! Likewise, the book and newspaper publishing industry is terrified that Steve Jobs will do to them what he did to the music industry with iPod and iTunes. Do our authors have to specify when their prescription will not work, period?
Agree with Walter. Very stimulating and comprehensive analysis. Apart from size and growth, analysing emerging markets on dimensions such as consumer need, (total) cost, convenience might be more meaningful as it would overcome the temptation to look at these merely as ‘low cost’ options – wherein lies the problem.
Great input for discussion! We face these questions frequently when identifying opportunities for innovation in new market spaces or “blue oceans”. Quite often such opportunities cannot easily be integrated into established businesses.
Cheers
Martin
Thank you for your inputs. I believe that established companies have a number of response options available to them and adopting a second business model is only one of them. One option might be to focus on the established business model and try to improve it so as to make it a better alternative to the disruptive one (something that British Airways is currently doing against easyJet). Another option is to “disrupt the disruptor” by counter-attacking the disruptive business model with their own (disruptive) business model (something that both Swatch and Nintendo did quite successfully). Adopting a second business model is just one of the options available and every company must decide which option is best given its own specific realities. If a firm chooses this option, then the issue that Martin raises becomes relevant–how to integrate the new way of doing things into the established business. Simply creating a separating unit is not enough. The trick is to create enough separation so that the established business does not suffocate the new unit; but keep the two close enough together so that they can exploit synergies.
The article primarily considers situations in which an established company has already been challenged by a competitor’s disruptive model and now needs to find ways to counter the disrupter’s new model.
My question is: How should an established company that has itself identified potential disruptive models to its main business (before any competitor has) proceed with defending its main business model?
- Should it actively try to attack its own model by allowing the creation of the disruptive model it has envisaged? (either from within the same company or from a different entity controlled by the company)? – And in this way always keep itself on its toes..
- Or should it start building counter measures to its main model that would be able to thwart the potential disruptive model? – Would that always be possible?
The solution is, as Mahesh alluded, to focus the organization on serving the CONSUMER’s stated desires. If the company was run by consumers, they would have avoided these disruptions.
Too many company’s track dollars, instead of usage. When I worked at Google, one thing that shocked me was how all their metrics were focused on usage. Also more companies need to encourage internal debates. Someone in the company is seeing the demise, but rather than argue, they leave for the competitor.