• Design your moves from the market back. A practical plan for exploiting the new format does not start from your company’s current position. Rather, it starts by asking, How could we imitate our most successful new-format competitor, with parity offerings, parity costs, and parity prices leading to growth and profits equalling theirs? (You won’t necessarily implement this parity plan, but it forces your company’s thinking away from its traditional format and toward the new one.)
• Be cautious in adding features and amenities. They may well be justified to build market share by appealing to mainstream customers, but that will happen only if they reinforce the new format’s core advantages. (That’s one reason why understanding the new format thoroughly is important.) A test: Does your new plan include a bare-bones offering that profitably matches your new-format competitors head-to-head on price and features? (If it doesn’t, then your design has probably slipped away toward a less profitable “blended” format.)
• Make the new format your mainstream business. It’s natural to field-test a new business format before committing to it wholeheartedly. But experimentation and niche marketing can become ends in themselves. Any plan for a test should define a successful outcome and the rollout plan that will follow, carrying the new format into the heart of your business.
• Don’t get distracted by merger possibilities. Against the backdrop of a format invasion, combinations among traditional competitors present the illusion of progress. Unfortunately, because the combined incumbent remains fundamentally disadvantaged, the merged company’s greater scale seldom provides enough benefits to offset the burdens of an old format. (However, a company that has adopted the new format successfully may find it worthwhile to acquire other old-format companies and bring them through the same transition.)
As for the two biggest format invasions going on right now, we don’t know whether the incumbent automakers or airlines will survive or succumb. Some may well retain industry leadership, growing their businesses and delivering attractive shareholder returns over the long term. If so, they will do it by finally adopting and adapting the superior new formats that have overtaken them — the formats that enabled the Southwest Airlines and Toyotas of the world to succeed and prosper in the same economic and market conditions in which the old formats proved to be uncompetitive.
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Bertrand Shelton (firstname.lastname@example.org) is a vice president in Booz Allen Hamilton’s San Francisco office. He has advised leading petroleum, financial-services, aerospace, and consumer goods companies in North America, Europe, and Japan. He focuses on helping companies facing market discontinuities, such as format invasions, technology shifts, and deregulation.
Thomas Hansson (email@example.com) is a vice president in Booz Allen Hamilton’s Los Angeles office. He focuses on new business development, growth, mergers and acquisitions, and pricing issues for a variety of corporate sectors, and has written extensively on new operating models and business formats in the global airline industry.
Nicholas Hodson (firstname.lastname@example.org) is a vice president with Booz Allen Hamilton in San Francisco. He has advised companies in Europe and the United States in the retailing, fashion apparel, petroleum, wireless, and aerospace industries on issues including organization design, strategy-based transformation, and new format development.
The authors wish to thank Booz Allen Hamilton Vice President Mark Moran and strategy+business contributing editor Rob Norton for their assistance in developing this article.