The CEO’s Role in Business Model Reinvention

The CEO’s Role in Business Model Reinvention
Vijay Govindarajan and Chris Trimble
Harvard Business Review, January-February 2011

Consider a few of the great innovation stories of the past decade:  Google, Netflix, and Skype.  Now ask yourself:  Why wasn’t Google created by Microsoft, or Netflix by Blockbuster, or Skype by AT&T?

In fact, why do almost all established corporations fail to find the next big thing before new competitors do?  The simple explanation is that many companies become too focused on executing today’s business model and forget that business models are perishable.  Success today does not guarantee success tomorrow.

In “The CEO’s Role in Business Model Reinvention,” in January-February 2011 Harvard Business Review, the authors explain how companies can stay on top by balancing the past, present, and future.

Govindarajan is a Professor of International Business at the Tuck School of Business at Dartmouth.  Trimble is on the faculty at Tuck and is an expert on innovation within established organizations.

They suggest that you start with a simple exercise to assess your company’s vulnerability.  On separate index cards,
write down all the important initiatives underway in your organization.  Then create three boxes, and label them as follows:

  • Box 1:  Manage the Present
  • Box 2:  Selectively Forget the Past
  • Box 3:  Create the Future

Next, take a few minutes to imagine your industry in 5, 10, or 20 years.  Consider all the forces of change your industry faces — technology, customer demographics, regulation, globalization, and so on.

With those forces in mind, put the index cards with your organization’s initiatives in the three boxes:

Those intended to improve today’s business performance go in Box 1.

Those aimed at stopping something — underperforming products, obsolete practices, or outdated assumptions– belong in Box 2.

Those that prepare your organization for the long term should be put in Box 3.

For companies to endure, they must balance the forces of preservation (Box 1), destruction (Box 2), and creation (Box 3).  Striking that balance is the CEO’s most important task, but most companies overwhelmingly favor Box 1.  The work of preservation — the execution of the existing business model — is vitally important.

CEOs must also get Boxes 2 and 3 right.  Sadly, most chief executives bow to short-term pressures:  demands for quarterly earnings, risk aversion, resistance to change, and unwillingness to cannibalize established bu...