MIT Sloan Management Review

Executive Briefings SUMMER 2010 • Volume 51 • Number 4

What to Do Against Disruptive Business Models
(When and How to Play Two Games at Once)

Constantinos C. Markides (London Business School) and Daniel Oyon (HEC, Université de Lausanne) pp. 25-32

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 corporations but also by attracting new customers into the market. As a result, established companies need to decide how to keep their existing customers while attracting new ones.

One option is to use existing business models to cater to both markets. Another is to develop a new business model specifically for the new market. That is not an easy decision because entering a new market can be risky. But if a company decides to do so, it must decide what business model to adopt and then make sure that the new business model coexists peacefully next to its existing business model.

Based on research into 65 companies that chose to enter markets created by disruptive business models (including Nestlé, Edward Jones, Waitrose, Reuters and Tesco), the authors say that established companies should develop new business models that are different from their existing business models and different from the business model of the disrupter. 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 company needs to achieve a delicate balance: establishing enough separation between the two business models to avoid conflicts, but not so much separation as to lose the synergies between the two.

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Why Too Much Trust Is Death to Innovation

Francis Bidault (European School of Management and Technology) and Alessio Castello (University of Nice) pp. 33-38

A general assumption about innovation-oriented partnerships between companies is that success grows out of good relationships based on mutual trust, while poor cooperation and a lack of trust lead to disaster. Yet examples abound of high-trust partnerships that fail to innovate and of turbulent ones that succeed.

Is trust in fact overrated? Is it sometimes an actual hindrance to innovation? Can we think in terms of an optimal level of trust — not too little and not too much?

Because case studies are not adequate for evaluating correlations between the level of trust and innovativeness — it is impossible to disentangle trust from the many other contributing factors — the authors set up a series of experiments, using pairs of individuals who already knew each other and who had sufficient prior experience together so as to have formed distinct trust perceptions.

Results point to a major finding: As mutual trust increases, the partnership’s creativity goes up, reaches a maximum point and then starts to decline. Similarly for innovativeness. As mutual trust increases, innovativeness also goes up — but only to a certain point, after which innovativeness declines, even though it stays at higher levels because of greater commitment. The bottom line: When inventing together, trust is good; but avoiding too much trust is better.