competing in. Whether or not the new market is attractive will depend not only on its size and growth
rate but also on the business’s competences and the
likelihood it would succeed in the new market.
Appearances can be deceiving. Established corporations should approach the decision the same way
they approach the decision to diversify into another
market. They must assess not only if the new market is attractive in general but whether, given their
own bundle of core competences, it is attractive to
them. That involves asking whether their competences can be applied in the new market in a unique
way. 10 The corporate graveyard is littered with companies that moved into what appeared to be
attractive markets, only to discover that the markets
were filled with mines.
Many established companies assume that the
new markets are just extensions of the old market.
For example, how different can the low end of the
airline market and the established airline market
be? Aren’t they simply two segments of the same
market? The answer is emphatically no! The fact is
that the new markets are substantially different
from the established markets — they are made up
of different customers looking for different value
attributes. As a result, they require different key
success factors and draw on different skills. For an
established company, moving into a newly created
market represents a risky diversification move and
should be evaluated as such.
That doesn’t mean that established corporations
can ignore an invading business model — they can’t.
But they don’t necessarily have to adopt it. One potential response is to invest in the existing company to
make the traditional business strategy more competitive relative to the new business model. Alternatively,
the established company can counterattack the business model innovators by introducing a new business
model of its own — a “disrupt the disrupter” strategy.
There are several options available to a company to
respond to an invading business model; adopting the
new model is just one of them. 11 (See “What to Do
When Your Business Model Is Disrupted.” p. 29.)
Question #2: If I do enter the new market space,
can I do it with my existing business model or
will I need a new one?
If an established corporation decides to exploit the
newly created market that a new business model
has created, the second question is: “Can I serve the
new customers with my existing business model or
do I need a new one?” The answer is subjective, and
companies from the same industry facing the same
disruption have answered in totally different ways.
However, the importance of asking (and answering) this question cannot be overemphasized. It can
save an established business an enormous amount
of money and time.
ABOUT THE RESEARCH
We spent two years (2007-2009) exploring the question: “How could a company compete successfully with two business models in the same industry?”
We started by identifying 80 companies whose industries had been invaded by
a disruptive business model in the last 15 years. Fifteen of these companies
chose to ignore the market space created by the new business model, while
65 chose to enter it. These 65 companies formed the basis for our analysis.
For each, we prepared a detailed case study based primarily on archival data,
industry publications and other public sources. The cases emphasized the main
differences between the established company’s primary business model and
the disruptive business model that invaded its market. They also described in
detail how the established company attempted to adopt the disruptive business model and how successful it was in doing so. Some corporations had
entered the new market space using their existing business model, while
others chose to develop a new one.
Based on this initial analysis, we identified 23 companies that had entered
the new market space successfully and 42 that entered and failed. We then
attempted to identify consistent themes that differentiated the successes
from the failures. Once the initial “results” were compiled, we arranged for
field trips and detailed interviews with nine companies (Nestlé, Edward Jones,
Edipresse, Circle Health, Waitrose, Guardian Media, Shire Pharma, Reuters and
Tesco). The purpose was to communicate our initial findings and receive feedback from senior executives.
During 2009, the research was further refined in an iterative process of application, testing and adaptation. Feedback from our academic colleagues, classroom
discussions and further interviews with executives at our sample companies
allowed us to identify the five key questions that this article discusses.
Consider Internet banking and the new markets
it has created in retail banking. Should an established bank try to serve the new market by adding
online distribution to its existing business model?
Or does Internet banking require an alternative
business model? Most established banks have
treated Internet banking as just another distribution method. But the Dutch bank ING Groep N.V.
has taken a distinctly different approach. In creating
a separate unit called ING Direct and allowing it to
develop its own business model and culture, ING
has concluded that Internet banking is more than
just another distribution channel, something that
