Why Incumbents Struggle to Extract Value from New Strategic Options:

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 cannibalization, 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 endeavors 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.