236 the nespresso success model Another ambidextrous organization is Nespresso, part of Nestlé, the world’s largest food company with 2008 sales of approximately U.S. $101 billion. Nespresso, which each year sells over U.S.$1.9 billion worth of single-serve premium coffee for home consumption, offers a potent example of an ambidextrous business model. In 1976, Eric Favre, a young researcher at a Nestlé research lab, fi led his fi rst patent for the Nespresso system. At the time Nestlé dominated the huge instant coffee market with its Nescafé brand, but was weak in the roast and ground coffee segments. The Nespresso system was designed to bridge that gap with a dedi- cated espresso machine and pod system that could conveniently produce restaurant- quality espresso. An internal unit headed by Favre was set up to eliminate technical problems and bring the system to market. After a short, unsuccessful attempt to enter the restaurant market, in 1986 Nestlé created Nespresso SA, a wholly-owned subsidiary that would start marketing the system to offi ces in support of another Nestlé joint venture with a coffee machine manufacturer already active in the offi ce segment. Nespresso SA was completely independent of Nescafé, Nestlé’s established coffee business. But by 1987 Nespresso’s sales had sagged far below expectations and it was kept alive only because of its large remaining inventory of high-value coffee machines. In 1988 Nestlé installed Jean-Paul Gaillard as the new CEO of Nespresso. Gaillard completely overhauled the company’s business model with two drastic changes. First, Nespresso shifted its focus from offi ces to high-income households and started sell- ing coffee capsules directly by mail. Such a strategy was unheard of at Nestlé, which traditionally focused on targeting mass markets through retail Channels (later on Nes- presso would start selling online and build high-end retail stores at premium locations such as the Champs-Élysées, as well as launch its own in-store boutiques in high-end department stores). The model proved successful, and over the past decade Nespresso has posted average annual growth rates exceeding of 35 percent. Of particular interest is how Nespresso compares to Nescafé, Nestlé’s traditional coffee business. Nescafé focuses on instant coffee sold to consumers indirectly through mass-market retailers, while Nespresso concentrates on direct sales to affl uent con- sumers. Each approach requires completely different logistics, resources, and activi- ties. Thanks to the different focus there was no risk of direct cannibalization. Yet, this also meant little potential for synergy between the two businesses. The main confl ict between Nescafé and Nespresso arose from the considerable time and resource drain imposed on Nestlé’s coffee business until Nespresso fi nally became successful. The organizational separation likely kept the Nespresso project from being cancelled during hard times. The story does not end there. In 2004 Nestlé aimed to introduce a new system, complementary to the espresso-only Nespresso devices, that could also serve cap- puccino and lattes. The question, of course, was with which business model and under which brand should the system be launched? Or should a new company be created, as with Nespresso? The technology was originally developed at Nespresso, but cappuc- cinos and lattes seemed more appropriate for the mid-tier mass market. Nestlé fi nally decided to launch under a new brand, Nescafé Dolce Gusto, but with the product completely integrated into Nescafé’s mass-market business model and organizational structure. Dolce Gusto pods sell on retail shelves alongside Nescafé’s soluble coffee, but also via the Internet—a tribute to Nespresso’s online success. 1976 first patent filed for nespresso system 1982 focus on the office market 1986 separate company created 1988 new ceo overhauls strategy 1991 nespresso is launched interna- tionally 1997 first ad campaigns launched 2006 george clooney retained as spokes- man for nespresso 1998 focus on internet with web site redesign 2000–2008 average annual growth of over 35% bmgen_final.indd 236 6/15/10 5:45 PM