That suggests that if an established player ( 1)
has decided to enter the market space that the invading disruptive business model has created on
the periphery of the main market; and ( 2) has decided to use a business model that is different from
the one it’s using in the established market, then it
should design a business model that is fundamentally different from the one the disrupters employ.
Although that will not guarantee success, it will increase the probability that the established company
will compete with its disrupters successfully.
Question #4: If I develop a new business model,
how separate should it be organizationally
from the existing business model?
Once an established company has decided to enter
the newly created market space by using its own
disruptive business model, it must determine how
separate the new and established business models
should be. We found that asking “Should we separate the new business model or should we keep the
two together?” is the wrong way to approach it. A
more useful question is, “Which activities do I operate separately and which can I operate together?”
The logic for this approach is straightforward.
Proponents of running two separate operations
point to the benefits of keeping the two business
models apart, the most important being that it allows the new unit to develop its own strategy,
culture and processes without interference from
the parent. It permits the new unit to manage its
business without being swayed by people who
might worry about cannibalization threats and
channel conflicts. While these benefits are real, separation is by no means cost-free. Perhaps the biggest
cost is not being able to exploit synergies between
the two businesses. We think there has to be a balance: separate enough to avoid conflicts but not so
separate as to prevent exploitation of synergies.
That balance can be only achieved if the corporation thinks creatively about what activities to
separate and what not to. 17
This decision on the appropriate degree of separation must be made for at least five areas:
Location. Should the separate unit be located
close to the parent company or somewhere else?
Name. Should the separate unit adopt a name
similar to the parent name (as Nestlé did with
Nespresso) or should the name be totally different
(as BA did with Go Fly)?
Equity. Should the unit be a wholly owned subsidiary of the parent or should the parent own only
a certain percentage of the equity?
Value chain activities. Which value chain activities should the unit develop on its own and which
should it share with the parent? Frequently, companies allow the new unit to develop its own dedicated
customer-facing activities while sharing back-office
functions with the parent. That, however, may not
always be the best solution, so companies should examine this on a case-by-case basis.
Organizational environment. Should the unit
be allowed to develop its own culture, values, processes, incentives and people, or should some of
these be shared with the parent? Many organizations allow a unit to develop its own culture while
having some common shared values. But that also
needs to be considered on a case-by-case basis.
Obviously, there are no “right” answers. Contrary
to what many academics have proposed, separate units
don’t need to have their own names or their own distinct value chain activities. We know of many
companies that did not do this and yet succeeded in
operating two different and conflicting strategies at the
same time. The trick is to find the company-specific
answers that enable the corporation to separate the
unit but not isolate it. In that way, it succeeds in balancing unit independence while helping it with the skills,
knowledge and competences of the parent company.
Question #5: Once I create a separate unit, what
are the unique challenges of pursuing two business models at once?
In addition to deciding which activities to separate
and which to keep the same, the business must also
decide how to manage the separate unit to exploit
potential synergies and achieve true ambidexterity.
Several academics have explored this issue and, as a
result, we now have a long list of ideas and suggestions on what companies ought to be doing. 18
In an earlier research project, we explored this
issue ourselves. 19 Specifically, we examined 42 companies that had created a separate unit to compete in
the new market. Of these, 10 were successful, while 32
failed. We compared the two groups on three dimensions: ( 1) the amount of strategic, financial and
