Can you take us through the
research that underpinned your
brilliant article, “Reinventing Your
Business Model” (HBR, December
2008)? What specific observations
have motivated you and your coauthors
(Clayton M Christensen and
Henning Kagermann) to undertake
this research?
We had been puzzling over a specific
piece of disruptive innovation theory
for years. Originally, Clay spoke about
disruptive technologies because his
early researchwas based in tech-heavy
industries like disk drives where new
certain new technologies seemed to
create the dilemma that felled market
leaders. However, when he expanded
his research beyond tech companies,
and when we started to work with the
concepts in a wide variety of
industries, it became apparent that
technology was not the root of the
problem – it was really the business
model. For example, the rise of the
discount retailers is a classic
disruptive development that follows
precisely the same patterns observed
in the disk drive industry – and it has
nothing to do with technology.
Technology could enable certain
business models, but the true
disruption always occurred at the level of the businessmodel.We started
talking about disruptive innovation
rather than disruptive technology, and
we collectively turned our attention to
explicating justwhat a businessmodel
is and what imbues it with its unique
power.
Can you give us a few illustrative
examples of business model
innovations and what lessons do
they hold for other companies?
One of the classic examples is Dow
Corning’s creation of Xiameter, a lowcost
online business unit. The
company came to realize that they
were under severe threat fromlowend
competitors that were commoditizing
their business. Dow Corning’s
traditional R&D focus and hands-on
sales process carried considerable
overhead costs that enabled them to
deliver premium results, but such
emphasis was becoming more and
more of a liability as the industry
globalized and competition heated up.
In other words, their business model
was becoming obsolete.
In response, Dow Corning took a very
unusual and very innovative
approach. Instead of focusing on
stripping out costs, outsourcing, and
maximizing the productivity of their
production lines, the company
realized that their traditional model
was right for certain customers in
certain circumstances – some
customers would always need the
hands-on assistance and high-end
technologies that Dow delivered, and
would remain happy to pay premium
prices for that level of service. But,
there were other customers who just
wanted bulk products at the lowest
price possible – that’s where Dow was
starting to lose out. So the company set
out to create two business models for
these two very different customers.
They left the core business alone, but
empowered an entirely new
organization with autonomy and a clean sheet for new resources, rules
and processes. The new business,
called Xiameter, set about identifying
the specific products that were
becoming commodities, and designed
a new, onlinemodel that could deliver
those products at market beating
prices. It has been an enormous
success, as it has grown rapidly on its
own and also strengthened the core
business by freeing it to focus on what
it does best.
There are many lessons from the
Xiameter story, which we’ve outlined
in a case study we produced. A few
of the key ones are to really
understand your customers, to grant
complete autonomy to managers
tasked with creating new business
models, and to leave it up to those
managers what systems, rules, and
processes they want to leverage from
the core business, not vice versa.
