Although industry transformations generally emanate
from technological changes, recent examples
suggest they may also be due to the introduction
of new business models. Whereas many of these
models contain seemingly principles and elements,
and even though new entrants engage in profitable
pursuits, incumbents often struggle in their
attempts to extract value from them. Which factors
are causing the difficulties experienced by incumbents?
And, when are problems most severe? A
review of the literature clarifies that incumbents
face difficulties associated with cannibalisation,
conventional wisdom, internal and external inflexibility,
and incompetence or overconfidence. The
negative effects of these factors are reinforced by,
among other aspects, business models consisting
of many complementary elements, insufficient
autonomy granted to new businesses, an absence
of strong leadership or entrepreneurial alertness,
and a low sense of urgency. Based on this, we
develop a framework, which is illustrated with a
case study of low-cost initiatives in the European
airline industry, in which we compare endeavours
of three incumbents (British Airways, KLM, and
Lufthansa) with those of three new entrants (Ryanair,
easyJet and Virgin Express). The paper contributes
to the literature by shifting the attention
from industry changes provoked by technological
breakthroughs to transformations originating from
the introduction of new business models, and by
indicating why incumbents fail to extract value
from these models.
Keywords: Strategic options, Business models, Incumbents,
New entrants, Disruptive innovation To read my full article see: European Management Journal Vol. 23, No. 2, pp. 154–169, April 2005
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