Large companies struggle to succeed with new business models outside their core business for several reasons: 1) They are rigidly focused on existing routines and assumptions that are embedded in their current business model. 2) Leaders make significant but wrong investments to protect threatened businesses rather than exploring new opportunities. 3) Unrealistic financial expectations, like demanding immediate high profits, cannot be met with unprecedented new business models.

1. Business Model
Innovation Outside
the Core

9. Why is it so
difficult?

10. Large companies
are not innovative

11. 90
80
Sales (Billions)
70
60
50
40
30
20
10
0
2005 2006 2007 2008 2009 2010 2011
Compounded Annual Sales Growth = 3.8%
Compounded Annual Income Growth = 3.6%

13. Be sure to ask about the side effects

14. The problem
Large companies have
difficulty succeeding
with new business
models outside the
core?

15. 2

16. What do we mean by a
business model?

17. What do we mean by a
business model
outside the core?

18. Business Model
“Defines the way the
company delivers
value to a set of
customers at a profit”
Johnson, Mark, “Seizing the White Space, Business Model Innovation
Growth and Renewal,” Harvard Business Press, 2010, pg 7

19. What’s a Business Model
Johnson, Mark, “Seizing the White Space, Business Model Innovation
Growth and Renewal,” Harvard Business Press, 2010.
Osterwalder, Alexander and Pigneur, Yves, “Business Model Generation,”
Osterwalder and Pigneur (self published), 2010,
BusinessModelGeneration.com.

20. Business Model Innovation
Outside the Core
consumers
New Non-
(Ecology Level)
Value Network
Outside the core
Consumers
Existing
New
Sustaining Innovation
Existing
Incremental Architectural Radical
Technology
Product/Service/Process Level

21. Value network examples
2.5”
consumers
Value Network
3.5”
Non-
5.25” Angio-
8” plasty
14”
New
Office
Consumers
Existing
Copiers Digital
Adshell Camera
iTunes
Existing
Intel Intel
Pentium Prius
Dual
Core
Incremental Architectural Radical
Technology

23. Financial Hurdle Financial hurdle examples
Intel
Celeron
expected
GE
Lower
Portable
than
Mini-
Southwest ECG Mills
Airlines
Existing
Intel
Intel Dual
Prius
Pentium Core
Incremental Architectural Radical
Technology

24. Why is it so hard?

28. Corning Microarray
Technologies

29. 4

30. Routine Rigidity
Leaders will make
significant but WRONG
investments when their
business is threatened

33. Routine Rigidity
Kodak invests $5 billion in
digital over the next 10 years
(40-50% of R&D budget)

35. 2

36. Embedded assumptions
based in the current
value network

37. Belief Systems in Film
Peripheral Digital Cameras and printers are not a
Beliefs good business for us
We have excellent relationships with our
downstream suppliers in supplying prints
Prints must be very high quality resolution
Customers want physical prints
Central
Beliefs Prints from digital camera can never match 35mm

39. “Heavier than air
flying machines are
impossible.”
When the situation
or phenomenon is
unprecedented - there
is too little
experience to provide
reliable patterns.

40. 3

41. Unrealistic financial
expectations

42. 7000
22,497,000
units sold
6000
Units sold in thousands
5000
4000
4,416,000
3000
units sold
937,000
2000
units sold
376,000
1000 units sold
0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Year 1 Year 2 Year 3 Year 4

44. 44

45. 45

49. Nespresso
 One of the fastest growing
businesses in the Nestle group
 Average growth of 30%/year
since 2000
 In 2011 sales where $3.9 billion

50. However

51. Nespresso
 Nestle acquired rights from Battelle
in 1974
 1st sold in 1982 in offices
 Failed selling the capusules in the
US Supermarkets
 Did not achive breakeven until 1995

52. 4

53. Lack of CEO Commitment

56. Jobs to be done

58. The current music players “truly
sucked …they hold 16 songs, and
you couldn’t figure out how to
use them”
Isaacson, Walter, “Steve Jobs,” Simon & Schuster, 2011. pg 384

59. Olympic Gold Medal Winners in
High Jump
95
Straddle
90
Scissor Fosbury Flop
Height (inches)
85
80
75
Western Roll
70
1890 1910 1930 1950 1970 1990
Courtesy of Vjay Govindarajan

61. "The problem with something revolutionary
like that was that most of the elite
athletes had invested so much time in
their technique and movements that they
didn't want to give it up, so they stuck
with what they knew…." Dick Fosby
61