for them, surely it will work for us. Our research
suggests that this is a trap. By adopting the same
business model as the invader, established companies end up competing with their disrupters
head-on. They try to beat them at their own game
by being better than them. Unfortunately, this strategy almost always falls short.
Established companies that succeed in entering
the new markets do so by developing radically different business models — different from the one
that the disrupters are using and different from the
one it employs in its established market. They follow the same logic that disrupters used to attack
them. The disrupters succeeded in attacking the
main market because they used a disruptive business model. If the established corporations want to
have the same success, they also need to utilize a
disruptive business model to enter the market that
the disruptive business model has created. In a
sense, they need to “disrupt the disrupter,” as Nintendo did in response to Sony and Microsoft in the
video games console market. Instead of targeting
teenagers and young men as Sony and Microsoft
did, Nintendo developed the Wii specifically to target families. Instead of emphasizing functionality,
speed and superior graphics (as the PlayStation and
Xbox did), the Wii stressed ease of use and simplicity. It was a strategy that caught the disrupters (Sony
and Microsoft) by surprise and catapulted Nintendo to industry leadership.
To appreciate why established companies need to
adopt a business model that is different from the one
that the disrupters use, we need to remember, as
Christensen pointed out, that the new markets created by the invading disruptive business model are
different from the established market. 15 That has a serious implication for established companies: Moving
into these markets represents a fundamental new
market entry and to succeed, businesses need to abide
by the cardinal rules of successful market entry.
The most important rule is to adopt a strategy
that breaks the rules of the game in that market. 16
There are many high-profile examples that support
this generalization, including Canon’s success in
entering the copier market, IKEA’s entry in the furniture retail business, Southwest’s entry in the
airline market and Enterprise’s entry in the car
rental market.
WHAT TO DO WHEN YOUR
BUSINESS MODEL IS DISRUPTED
Although many companies respond to disrupters by launching a
new business model, that is not the only option.
ESTABLISHED
COMPANY
Continental
Airlines
DISRUPTER
Southwest Airlines
Nestlé
Starbucks
Edward
Jones
Edipresse
Internet brokerage
Free newspapers
SMH
Seiko and Timex
British
Airways
easyJet
AXA
Investment
Managers
Index trading
Guardian
Media
Group
Waitrose
Online news
RESPONSE
Set up a separate subsidiary
called Continental Lite to com-
pete in the low-cost market
Created a new division called
Nespresso to create and com-
pete in the “home” market
Decided not to enter this market
with a dedicated business model
Launched its own free
daily paper
Formed a separate unit to
launch Swatch
Created a separate unit called
Go Fly to compete in the low-
cost market
Acquired Rosenberg Group and
moved into quantitative funda-
mental equity management with
a hybrid business model
Set up an Internet business to
provide its content online for free
Online distribution
Nintendo
Sony, Microsoft
Estée Lauder Body Shop
Set up an online distribution arm
(Waitrose Direct) and created a
new company called Ocado to
compete in this market
Developed the Wii and targeted
a different customer segment
Developed the brand Origins
to move into the natural
cosmetics area; acquired
Aveda to move into
herbal-based cosmetics
Enterprise, which began more than 50 years
ago as Executive Leasing, entered a young market
that was dominated by Hertz and Avis. Rather
than compete with Hertz and Avis for business
travelers, Enterprise targeted the replacement
market (for example, customers whose cars were
being repaired). Rather than operating out of airports, it located its offices in downtowns. Instead
of using travel agents, it used insurance companies and body shop mechanics. And instead of
requiring the customer to pick up the car, Enterprise brought the car to the customer. In short,
Enterprise built a business model that was fundamentally different from the ones utilized by its
established competitors.
