The CEOs projected that in the next decade 40% of the value their companies created would come from entering new markets and launching new business models. When we surveyed them, 65% of the CEOs predicted that in five to seven years their firms’ main competitors would be different from their main competitors today, and 63% said that new competitors with new business models would pose a major threat to their firms’ core business. In a series of forums we held recently with chief executives of large companies around the world, we uncovered a preoccupation with obsolescence and renewal. In combination these four elements magnify one another’s effects, often creating businesses that have much greater potential than firms’ original cores.
They adopt entrepreneurial approaches, like Bradesco’s digital unit, Next, and leverage the scale and assets of the original core, as the industrial cleaning company Ecolab’s new water-purification business did. They have a differentiated competitive advantage, which is often built up through acquisitions, as happened at Disney+. What does it entail? Successful engine twos have four factors in common: They target markets where the profit pool is sizable and growing or shifting, as Amazon’s cloud computing business did.
Given that in the past five years, 60% of big public companies have seen their growth stall out or stagnate-often because of technological disruption-finding an engine two has become increasingly imperative. More firms are learning the art of building large second cores-what Bain’s Zook and Allen call engine twos. But recently a new pattern has begun to emerge. Traditionally, the most reliable way for a firm to find its next wave of growth was to apply the capabilities of its core business in an adjacent market.
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