Building upon four key wealth creating pillars

Wealth creation 1Most rooms we enter have four sides; they provide the structure to build upon. Presently in many of our economies, particularly in the West, we are struggling to find real growth; we are limited on our wealth-creating possibilities. Why is that? Our structures seem to be weak not strong.

We are certainly relying far too much on ‘selected’ pockets of economic activity to keep us going. Technology is clearly one of these. Yet our longer term forces for sustaining growth remain ‘fragile’, our structures remain wickedly  ‘out of kilter’ and we need to find stronger connecting frameworks that reinforce each other, so we can build further upon these to manage our business activities in new ways.

In most of our economic activities technology is playing a significant part in altering our habits, routines and thinking but it alone, is not enough. For technology to really give benefit it needs to be driven by our ability to generate wealth creating activity and that comes from integrating knowledge, gaining experience and being able to articulate this in better ways.

To achieve this, our business structures that we have in the past relied upon are in need of changing. They need different pillars to build upon.

Welcome to my four pillar room……..with a view

One such room I see has four pillars; firstly a value creation one, then one that prompts a change in our thinking around the value and creation of constantly evolving business models, a third one based on understanding our intellectual capital base, where our knowledge resides and can be harnessed, and then the final pillar of the innovation capital that can be generated from this to create wealth generating opportunities.

Why are these four pillars important as our structure within our ‘wealth-creating’ room?

Pillar one – For me we lack the ability to articulate the value creation narrative.

We need always the wealth generating perspective to get behind. We want to feel this is ‘dynamic’ and can offer all those involved that feeling of identification, so we can find individual ways to apply them, where there are the combining and transforming possibilities for us to, investigate, explore and exploit. We are searching to manifest fresh, new outcomes to create new wealth creating potential.

To have the ability to articulate the value, what potentials can make up the possibilities to develop and deliver the future promise? Developing a good value creation narrative is essential, it requires critical components and for us all to identify through a common language.

Value creation and its potential can be created through the Business Model. It is identifying the inputs from the different capitals and the ways we can transform these through business activities and interactions. Our ability to articulate where the value creation potential lies requires our ‘narrative’ to be broken down, often called the value proposition.

Pillar two – The Business model is becoming even more critical today

The whole movement towards creating the business model through a canvas approach allows us to articulate our ‘potential’ value generating story. As we learn to work with all the components that make up a business model we are responding, capturing, creating and delivering a constant flow of new value generating opportunities.

The more we can express ourselves through narratives and the emerging business model canvas we are offering disclosures, we are setting in train discussions so others can contribute and add to these emerging business model concepts.

To sketch out our business model canvas, we do need to constantly work the BM canvas for the integrated design. What we must try to develop within our narrative and canvas is the underlying dynamics that capture the process of change and why this combination provides the value creation.

Underlying any Business Model is knowledge, experiences and insight. These come from combing all our capitals and the ones often described under our ‘intellectual capital assets’ become essential.

Pillar three – Re-framing the debate around our intellectual capital assets

It seems today our business environment is highly diverse, far more dynamic and subject to rapid change. We need to constantly survey the landscape to adapt and adjust, acquiring what is needed. The increasing value is to know all the potentials within the ‘interactions’ of the parts and how to renew and recombine them on a constant basis.

Often intellectual capital is grouped into three or sometimes more categories. The capitals commonly used to describe ICA are human, structural and relationship capitals. In summary:

a) human capital have at its core the competences we build, our intellectual agility and attitudes to form potential synergies for new value creation. Our outcomes are governed by our motivations to want to produce fresh knowledge creation or simply absorb what is ‘out’ there.

b) The structural capital provides ‘the skeleton and glue’ of the organization in its philosophies, processes, routines, infrastructures, culture etc., for permitting and building knowledge. It builds the mechanisms and architecture.

c) Our relationship capital, is our third ICA, which represents our abilities to make connections, to network so as to absorb, exploit and explore new knowledge, it is this new understanding that feeds and influences organizations life, to renew, to rejuvenate, and to offer longevity.

We need to move beyond often just that academic debate around intellectual capital and their asset value, moving well beyond simply infer the value of our intellectual capital, we need to really understand its make-up. It is the interactions of these intellectual capitals that is becoming essential to understand, they make up our innovation capital. Knowledge alone has limited value, it is the knowing how to apply it through innovation that will offer us the potential for wealth generation.

Pillar four – Innovation capital is the essential strategic asset to strive for.

Innovation is made up of a collection of ‘stock’ and our abilities to allow this stock to ‘flow’. We mostly acknowledge and recognize innovation is essential for business growth and our future wealth generation potential. Innovation is for me a real wealth generating capital, it is future orientated; it needs consistent learning, experimentation, exploration and reconfiguring. The innovation capital is the ‘core sum’ of the abilities we can combine from our intellectual capitals.

I believe we need a new innovation capital valuation model. It needs to capture the dynamic interactions of our capitals contributing and ‘render’ these into different productive outcomes. This model needs to find and then separate the ‘dynamic’ from the ‘static’ innovation capabilities, the ones that offer new potential not ones simply repeating the process.

To achieve this we need to unbundle resources, assets, renewables, competencies and capabilities and describe these outcomes in , in my view, a fitness landscape that provides a visual of what you have, what you might need and highlight where the critical gaps lie.

We are needing to understand how our organizations can integrate, reconfigure, renew and recreate its resources and capabilities to build different value creation propositions and business models.

Recognizing the combining effect of the four pillars

For me, it is recognizing the ‘combining effects’ of these four pillars; of value creation (vc), business models (bm), intellectual capital assets (ica) and innovation capital (ic). It is the dynamics within the multiple combinations that will generate the future wealth creation we need.

We are in need of having a better understanding of the integrated value focal points of these four pillars combining, they need connecting so we can build the supporting structures and place the roof of need, our wealth creating one, to give us a new potential of harnessing our innate abilities to be creative. These four pillars offer perhaps a new core, a new transforming power, they make our activities connected and dynamic.

Unlocking all our potential is the job needing to be delivered upon

Our job today is to unlock the potentials from knowledge, harnessing our capitals to focus more on releasing our resources to work on their dynamic capabilities that combine vc + bm + ica + ic to make this a ‘room’ that gives us the potential to reside and generate new wealth potential.

A transforming one, where the make-up of value creation, articulated through business model designs by knowing the capitals that ‘feed into’ and build our stocks and flows for new innovation that does have the greater potential for wealth creation to occur.

Getting the Business Model Story Right.

Whats your story 1Framing the business model needs a compelling story so that it can be quickly and well understood by others. This is absolutely core. So, how do we go about it?

Recently I provided this contribution to Patrick Stähler’s blog that forms part of fluid minds, a think tank and consultancy for strategic and disruptive innovations. They  focus discussions through their very distinctive version of the Business Model and its design.

This was on some thoughts on how to explain your business model through a story or your business narrative. The original post is here

The hard part comes after designing your new Business Model, you have to explain it.

You have come to the end of a fairly long week. You have finally finished your Business Model Canvas. Finally you have a working hypothesis of something that is going to challenge some of the existing business models around. You should feel pleased; it took a lot of hard work to get to that point.

Laid out on one piece of paper is something that could have real business value yet although you can see where the dots connect, you begin to wonder if others will see the same compelling value, to invest in it, to back it, to simply support it and encourage you to continue.

Completing a business model and identifying its critical parts is only that first step, the hard part is getting it off the ‘drafting board’ and making it something tangible and potentially commercially viable for those around you to engage with.

What is the next step in executing this potential game changing business model?

Each new business model needs a compelling story – a narrative.

Share your storyWe really need to learn how to craft a story, to tell the narrative around why your business model idea stands out and is worth other people’s time and consideration.

This business model narrative along with your business model you are potentially better placed to test it, to talk about it, to validate it, to make it ‘sing for others’.

You are out to get engagement and contributions everywhere, from everyone, as you tell the story, describe your potential new business model you gain from their reaction and improve your understanding of the real need for your idea.

So we need to think about the art of narratives and storytelling

So first things first, with setting about building your business narrative, we need to get comfortable, as each of us, in our own way are unique in how we would set about the initial thinking through of the business story.

We can certainly brainstorm, or free write, and it is certainly worth to complete some essential brain warming up exercises. All of these get that brain whirling again around your new business model but in a distinctly different way, as you are focusing this on the best way to communicate your story to others. You do need to really think about this, as it needs to appeal to them, even if you feel it is the best thing ever!

We need to find our own ways of doing this warming up. We are not warming up to figure out the business model, we have completed that; we are priming our brain to start structuring our thoughts to turn them into our narrative (about our business model story).

This can take as long as you feel it is useful. For me I take my time, I like to gather around me lots of my reference papers, all sorts of scribble notes and triggers to make a fairly exhaustive first ‘cut’. Then I set about circling or highlighting them with a yellow highlighter all the main themes, the important parts of what, why and how my business model came about.

Working through some useful but measured steps is the key

Seven steps

The question you need to ask is: “I certainly have to find within these notes a range of critical aspects that will make my business model story stand out”

Let’s go through these seven steps.

Firstly 1) you have to describe what your business model will do – even if this is still at this stage where it needs to be truly tested, what is it all about. You need to allow for action words that can be understood, keep it simple but on ‘message’ for others to quickly grasp the big idea.

2) What makes this business model special – I mean so special that it can resonate with others; they can see what it is going to do to change or challenge something they know. It needs to address identified needs but all the parts are seen as connected.

Then we move to the customer side

3) who is it for?- who are those customers that will show initial interest, the potential market place you see this addresses and listen to the reaction back- does it resonate with those listening?

4) what does your business model resolve – those famous pain points or jobs-to-be-done you feel that need resolving or will be valued to overcome existing constraints you feel there is within existing offerings. Are you getting that nod of agreement, that confirming back or increasing questioning?

So far so good we are building our story, we are telling our story, we are getting valuable feedback and identification. Now we need to reflect on the part that gives the real growing confidence

5) Why you are thinking beyond the immediate- some of your longer term goals and ambitions and the way you are setting about this and what the listener can do to help.

6) what do you envisage are the resources and actions needed that will get this going and led you beyond just the idea and turning this into something real and valued by others.

If this remains unclear to the listener then you are beginning to flounder, you might be losing their attention. Maybe your business model or narrative is missing some important learning points.

You are testing your initial hypothesis in the real market place and getting the feedback you need to stop and rethink or it validates your original thinking.

Then there is one final part, our No.7

As you search through your notes, full of highlighted points being ticked off as you go.

That is the most important one, our number 7) you are looking to summarize why you will succeed

The final partThis summary ‘wraps-up’ your solution; it provides the story behind your thinking, the final piece, it brings it all together. It is conveying why the business model you see, is valuable. It transmits the value of your idea, sitting on your one sheet of paper.

Now this is not the easy part, it is the ‘call to action’, the real identification you are asking of others to value and invest into your business model, to identify with it.

The tighter the story, the faster you get feedback and identification

This narrative needs to be a really compact synopsis, the real kernel of your business model, it forms the basis for the narrative and why your story is valuable to the one listening.

Irrespective your business narrative need to spark action

It is the story that makes the sense of your business model. It conveys its value, its sense of mission, your personal visions, it offers the place where you communicate and connect the business model with the listener.

By talking about it you are generating and testing a market-making narrative, to hone your thinking, to win over others to your solutions and ideas. You are testing your business model in the real world.

Your story narrative will be significantly tested and will change I am sure.

Target Market Your Big IdeaEach step or new iteration is a ‘smart’ step forward, if it builds and learns from the last one. It becomes more and more compelling until it resonates and translates into a new, valuable business.

Your business model is closer to filling a real market need from this consistent telling of your evolving story. The business narrative is essential to your thinking.

How are you evolving the function and design for innovation?

Organizations are struggling to forge a new path that captures opportunities fast and also exploiting that increasing need of being adaptive and flexible.

They are looking at structures for their innovation activity that are taking a more agile and focused approach, wanting to push for constantly accelerating the process. New practices are emerging.

This is demanding more radical redesigns of the function, processes and structures around innovation. Innovators are being more challenged.

Against this need for new, more radical designs there still lies that underlying concern, often at the top of our organizations, on how to manage innovation risk without significant organization disruption. There is this lingering fear that pushing for more radical innovation can create significant upheaval within the organization. Innovation is being challenged by the view of “we want predictable innovation but radical enough to make sure we grow.

Innovation has to manage within this conflicting message. It is through the well-designed system, processes and function that this can happen but this needs redesigning fairly radically to adjust to today’s world of wanting innovation faster than ever.

This is the sixth post centred on the executive innovation work mat

Within this post I focus upon the function, design, structure and processes needed for successful and sustaining innovation within organizations. In this series of articles I have looked at the seven components to raise questions, to probe and prompt the necessary thinking that needs to be made in organizations around building innovation that sustains and delivers to the strategic need.

The lexicon of today’s existing management of innovation needs rebuilding.

common language is neededYou can read an incredible variety of advice on designing the innovation process. These can include managing through idea management system software to reverting to simple ‘pen and paper’ brainstorming environments and spreadsheets. Simply having in place some structured processes is essential to managing innovation. These can become very complex that go from idea all the way to final execution.

Then we get into the approaches to designing a portfolio to balance your innovation activity, the use of stage-gates to manage this, the whole product life-cycle process, the need for robust pipelines and well-designed platforms all enter the lexicon of managing innovation. It has become part of the lexicon of the innovator but not yet the common language we speak of, that a whole organization can talk and gather around.

Many of these systems we have become comfortable with, by working with them everyday but I believe there is the need of some radical challenging and redesign needing to take place around these. Much within the innovation system needs designing out.

We need to rebuild a new common language surrounding innovation that is broader and more inclusive to all within our organizations. We need to recognize the changes taking place in competition, the need for a sense of urgency for growth and a ‘breaking out’ of the incremental mindset, that is still prevailing in many organizations.

There is a new chase for growth and even more through purposeful design.

Puzzling out innovationThis end choice is not which system or process has the best functions, the sexiest piece of software or the coolest design for its platform, it is about going back and asking the basic of basic questions to the organizations top leadership: “what do you want innovation to achieve?”

You will get the simple answer: “growth” and also “innovation delivery needs to speed up in new products and services”. You will also get “we need to outperform or at least keep us competitive in the market place” and then perhaps “innovation is expected to deliver what the market wants”.

These statements are all helpful but quite simply not enough. To deliver on innovations ‘promise’ you need to go deeper. Besides having a clearer strategic vision, for innovation there needs this greater alignment to the strategic aspirations. For that, innovation needs explicit links and all of these point back to the strategic needs, goals and visions. The innovation work mat aids this exploration.

Achieving a well-designed design, function, structure and process is utterly dependent on the organization to translate the innovation needs and aims, define the work-flow that ‘this’ will follow and how and where this will take place. Then it needs fully supporting and resourcing.

Today we need to think innovation outcomes differently.

Image credit: mi2.org thinking-differently

Image credit: mi2.org. thinking-differently

The higher demand from innovation requires the system to respond far quicker to breaking opportunities.

Innovation needs to have a system that is constantly adaptive and flexible. Most of the rigidity needs to be designed out.

Organizations are requiring structures and processes that are far more agile, nimble, constantly recognizing speed as the essence of today’s competitive worlds.

The challenges that need to be addressed are replacing a linear system with a spiral one, where you constantly loop back to refit your innovation understanding back into the idea-to-launch system from the new knowledge you are gaining. The system needs resetting around shorter bursts of high intense activity that factor in risk-based contingency, are encouraged to keep exploring and adapting.

The criteria to measure innovation passing through development, needs to become more open-ended. This can allow greater discovery periods to go where it is needed and not what the system is forcing it squeeze through a gate. The ‘go/kill’ criteria needs to change.

The system becomes a learning process to reduce uncertainty but keeps advancing on improving insights and physical demonstration that what is being investigated. This is through constant prototyping exploring and meeting customer or market needs with these stakeholders involved. As innovation discovery advances, the outcomes become more tangible, risks reduce.

We need to reduce where Innovation often sits waiting.

the waiting gameWe need to challenge the constant waiting within the development processes for innovation. This can be achieved through better designed systems of management perhaps a more value-stream analysis, accelerating by overlapping stages, encouraging concurrent activities, ensuring dedicated teams are assigned to properly resource projects.

We need to challenge and reduce the built-in slack within the innovation development system, wherever we can.

Today the emphasis is to maximize speed, working really hard on scoping the front end in greater detail really helps, and asking key questions on where the right track is and what this needs in resource, time and development and committing dedicated teams to the tasks.

We need to find better ways to incorporate lean principles, even six sigma into reducing the non-added value out of our innovation system. We need to provide succinct deliverable packages that tell the ‘advancement’ and learning story as the innovation concpet moves along its development path.

Changing the milestone dependencies by using canvas techniques has exciting potential

blank canvasWe need to reduce the dependencies on financial milestones and make these more physical, with constantly evolving and functioning prototypes that demonstrate new value, so stakeholders can understand and provide even greater inputs on ‘seeing’ new value creation.

The principles that are being built up around the Business Model canvas within our business organizations offers much to be re-evaluated within our development life-cycle.

The introduction of new thinking such as the value of starting with a complete blank canvases or allowing the radical reworking of existing canvases of innovation concepts can offer new concepts to begin to be tested and evolve for products, services as well as new business propositions.

The physical activities of testing, validating, clarifying a more integrated design across all the parts does allow for exploring the uncertainties and risks in potentially imaginative ways. Taking a different design-thinking to the development process can challenge old assumptions and processes.

We can constantly determine the critical but evolving assumptions, and then work at delivering updates that can advance the development process through a dashboard approach of informing when critical assumptions or learning change.

We can take a more imaginative approach to the business model canvas to adopt many of its emerging tools and methods but this calls for a completely different mind-set in larger organizations in my opinion to their whole development process.

We are in real need to reinvigorate our innovation systems.

As I have stated in past posts, our legacy systems  are holding us back today. We need to challenge our innovation functions, our existing design of the structure and processes to bring innovation into the core design of the organization, to align its value to present business conditions, where growth is required.

These do need to be more agile, adaptive and accelerated to meet the challenges and uncertainties organizations are facing. Innovation needs to step up to the plate and respond differently than in the past. It must rethink and challenge. Our processes and structures to manage innovation have become too linear, too rigid and far too planned, grinding through the innovation system.

Rethinking our innovation in function and designs calls for a more integrated approach offered in the Executive Innovation Work Mat. Each of the seven components need carefully designing to bring innovation far more into the core design of the organization and fully understood by all.

Value realization comes through innovation and our business models.

Everything, it seems we work towards in business, is for seeking out new value creation, for new growth, for wealth creation, for providing improved returns on the investments we have been making.

To achieve this we consciously have to set about the value capture and what contributes to its realization. This is where innovation plays such a vital part. If we don’t build our innovation capital we will certainly have a much harder, perhaps even impossible time of realizing new value. We are more than likely to just maintain our existing value or see it steadily decline. So a constant focus upon renewal is always needed. Do we consciously do that on a daily basis or just once a year at annual review time?

Value-adding activities need to be central in nearly all of our decisions. The how we can turn our resources into being more productive, more creative is increasingly becoming one our biggest strategic areas of  future investment decision. Our resources are those all-inclusive assets, capabilities and processes that make up the Enterprise.

Yet it is clear management is spending far more of their discussion time and focus on the ‘harder assets’ that are made up of land, buildings, equipment and machinery – the ‘heavy’ financial capital investment decisions. Any new investment in IT, processes, software are usually well identified in the accounting or discussed within the narratives that support the reported numbers. We constantly report on these in our annual reports to validate and justify management’s decision.

Where we still seem to remain far too silent upon is our ‘softer capabilities’ Of course we extol the virtues of our employees for their hard work, for their vital role within any result, yet we still struggle to go beyond ‘simple’ articulation and quantify this value. Why is that?

Managing the innovation ‘stock’ and ‘capital’ potential

We do need to know our ‘innovation stock’, a large part of our wealth generating capital and where it can be best put to use. We are valuing the knowledge perspective far more and with this we are increasingly recognizing the importance of the intellectual capital that makes up the organization.

We are still caught in old world value reporting systems. We are not assessing our organizations for their true ‘invested’ worth. As the more intangible side is completely under-reported we make educated guesses. We are valuing firms on what we ‘feel’ they will generate in future innovation value but those internally as well as us externally lack the real ability to measure this. Yet we can if we took the same amount of time to understand the ‘make up’ of these.

We are needing to value the knowledge perspective far more. Far more intangible assets and the knowledge available is being recognized as the valuable aspects of the potential future of a business. These are the more ‘dynamic’ parts that come under human capital (competency, sharing, collaborative, learning quickly, collective competence and enduring value for the future), creative capital (creativity, fast prototyping, design and development, replacement & renewal), the relationship capital (responsiveness, retention, absorption, empowerment, networking), customer capital (the customer base, engagement, the potential and the ability to connect), entrepreneurial capital ( risk- taking, venturing and exploring)  and finally, the process capital (productivity, cycle time, process yield, on time delivery) are becoming far highly valued today. It is these contributing capitals that make up the unique mix we find within our innovation capital. These significantly deliver the value creating abilities.

We need to know the multiple capitals that make the true value of a business.

It is these different capitals that together are making up the intellectual, wealth generating parts. It is those that are more dynamic, the contributing parts of our capitals that should be highly prized today for the investment premium.  Yet often this ‘premium’ is often no more than an educated guess on what we suspect on past track records, assumed as the basis for the possible ‘promise’ in the future. We need to change this guessing into much more harder validation. Lets move away today from those traditional assets ‘seen’ and well measured on a balance sheet (buildings, machinery, the physical more static assets) and capture and report on the real value generating ones that create the innovation growth.

We need to make much more of a concerted effort to identify these intellectual and knowledge providing capitals and perhaps ‘house them’ under this broader innovation capital. As it is innovation that renders that different, unique set of value outcomes far more. Surely it is this innovation capital that is at the core for future wealth, that value creation potential. Innovation capital must be treated as the essential strategic asset and is it is central it needs to be far more reported upon by the management of organizations. Of course it constantly gets mentioned within the narratives by management today but often lacks quantifiable and substantive validation.

For years there has been this call for a far more integrated reporting mechanism, one that ‘accounts’ for identifying the intellectual capital to provide this better understanding. The struggle with this argument is it still seems to be a ‘pipe dream’ as management seemingly fails to understand the mechanisms within these. Can this change, if so how?

 Maybe we should reframe the measuring of intangibles differently?

Today we are operating in business environments that are highly diverse, specific and subject to rapid change. This reacting to this volatility and our ability to spot new opportunities is what is often keeping management up at night and certainly giving the investors equally sleepless nights, trying to second guess organization performance so as to make the decision to continue to invest or begin to divest.

The value creation being created simply needs articulating better. Markets and investors need the value generating perspective far better framed and explained. Today this is often random, ad hoc, left to individual interpretation in their presentation; it needs some form of uniformed framework to bring this together to allow for clearer, more transparent comparison and judgement of real value. It does need a more integrated framework of value creation.

The focus should be on value creation through the business model

Last week I read an excellent paper written by Vivien Beattie and Sarah Jane Smith called “Value Creation and Business Models: Refocusing the Intellectual Capital Debate”. I was kindly sent this by Vivien Beattie after the abstract caught my eye. It has triggered much of my thinking in the last week.

Of course! The Business Model, this is the place for us to gauge measure and gather a real sense of the dynamics that are making up the organization. Today there is certainly far more of an emphasis upon understanding the business model, so why not make this even more central to reporting?

The quality of the business models is paramount to the value proposition to the customer and this triggers even more of value identification within the value proposition, so central to the Business model canvas.

Within the business model we need to gain a real sense of the dynamics that make this up. Where is the intellectual capital being applied to create new innovation, where are the new business opportunities? It is the abilities to ‘connect’ these, in how we acquire, combine and utilize those unique and valuable resources with the business idea. It is this dynamic ‘combination effect’ that delivers the value (proposition) to the customer.

The Business model is the new unit of analysis for evaluating future value

Arguably the business model is holistic and is becoming increasingly the new unit of analysis, that spans the organization and ‘articulates’ its capital and strategic value capturing parts.

Can we achieve a more integrated set of disclosures that combine the Business model, its strategic approach, what makes this up and clarifying its value creating process?

This potential approach does need to place a much heavier emphasis on the innovation capital and all the knowledge creating aspects that make up intellectual capital. It would need a significant shift in management’s understandings as they would need to articulate the critical components far more, they would have to find a common communicating language. Where better than the ‘heavier’ use of the business model canvas or the layering structures that makes this understood?

Externally we can also judge far more the potentials within the stated ‘interactions’ between the critical components of the business model. Management does not have to ‘give the store away’ in their competitive position to its competitors but they certainly can do a better job to convey much of the dynamics that make this up, in better, thoughtful ways. Make this more financial contingent for future investments.

Beyond narrative reporting, we need to push further.

Narrative reporting has been suggested as the step for this to happen. To make the business model an essential mandatory part of the management reporting. I think this can even be pushed further. Whenever management has been ‘pushed’ by regulatory forces it has taken the time to learn and understand the parts that make this up. Our intellectual capitals are part of this learning as equally knowing the ‘dynamics’ that make up the innovation capital becomes essential.

The business model, the intellectual capital and the innovation capital simply make up such a significant part of the Value Creation process. Realization of this ‘make up’ and understanding its critical connections is needed far more today to understand. Knowing these can move us towards value our organizations far better than we can do at present.

Communicating the value creation and business model is critical today

Today and in the future, it is the ones that can articulate and ‘point towards’ what makes up the value creation will attract and command investors premium. Those that can describe how they are setting about sensing and seizing opportunities by knowing the more dynamic ‘interactions’ will be in a far better shape to exploit and capitalize on them.

The organizations that understand their unique mix of capitals and how it is made up in this broader sense, will be able to deploy their innovation capital towards the ‘value proposition points’ far better. These will will be through constantly evolving business models, to convert opportunity to their gain, repeatedly by directing their innovation capital far more effectively.

The key today is they need to know what to invest into as the critical resources and this is far less the ‘hard’ assets but more the softer competencies, capabilities and capacity parts that are made up through knowing what contributes into the innovation capital.

Are you a business model innovator?

I think nearly every significant business consulting firm has written about their thoughts on business model innovation. I was reviewing the number of articles I have collected about this and it is becoming mind-boggling how so much advice can be offered and can still make sure it leaves you in deeper conflict and confusion than before.

I’m talking here more about the larger, more established organizations confusions on approaching business model innovation, not the start-ups or the younger businesses. We struggle to get an established well defined approach to approaching business models in these more established organizations. I think there are multiple reasons and I’ve touched on some in past posts.

Is help on the way or are we about to layer on more confusion?

I know there are plans on there way where the combined minds and efforts of Henry Chesbrough, Steve Blank and Alexander Osterwalder are entering the fray even more, in a new educational offering at UC Berkley in late October. I think there is ‘stand-alone’ modules as well in their respective works, especially over at Strategyzer, Alex’s mix of tools, software, academy and on- line resource around the BMI.

Their focus at this Berkley short course will be on developing new sources of growth, by helping companies figure out ways to drive the development of new business models within their company.

They are acknowledging that this isn’t the same thing as a crafting a business model for a brand new start-up, working with a clean sheet of paper.  http://executive.berkeley.edu/programs/corporate-business-model-innovation. Instead, they will examine how to get the most out of the parent company, while avoiding the traps that “help” from the parent company can entail.

The plan is to be introduced to new concepts in business model innovation, open innovation strategies, and applying start-up models in a corporate context. The program will guide participants to reshape their thinking, assumptions and business strategies, to create and restructure teams to inspire innovation.

I have to be honest here; I’m a little nervous that this might just be adding more confusion but let’s wait and see if this does the job. I hope it does not rehash what is already available. A two-day course can be incredibly constraining or equally done well, I mean really well, then it is just the opposite, liberating and defining.

Business Models should be about explicit choices.

Before we get into thinking about new business models, there is a lot of essential links or decoupling to be thought through within large organizations. Do you ever have blank canvases in large organizations? Maybe but the majority of decisions based on new business models might come with some form of organizational baggage.

My blank canvas moments in large organizations always held some constraints. These come in many different guises: there are both clear strategies (or should be) and much conflicting interpretations at each level within organizations, there are significant heritage and legacy issues to evaluate, there is a current set of operating models that might conflict or compliment any new business model design and then we can never ignore the detailed organizational design itself.

Here I’m talking about the make-up of IT, structure options available or achievable, the processes, governance, metrics, cultural, talent available and the organization-wide clarity on its priorities. Many of these actually ‘hold the business to ransom’ and if the CEO or board are not totally comfortable and have not thoroughly discussed it, new business models have a very hard time to work within the constraints known as well as hidden.

Then you have the outside forces at work, the ones that are most probably forcing the re-think or need for a new business model. These are the forces at work, have the context of markets changes or likely too, what are our present or emerging competitors doing differently than we are, what new capabilities and competencies are coming to bear and the whole context thing (macro, trends and technologies).

So the CEO or board are central to BMI’s to get off the ground and this must be the primary focal spot for discussing and educating around the Business Model. The vital message here is designing the pre-work to BM’s is the ‘sweet spot’ to get well designed and recognized, then more into the actual BM constructs and what is needed.

So what motivates change by considering new business models?

IBM conducted a survey some time back of the CEO’s ranking for exploring new business models. These were four ‘stand out’ ones of 1) Cost Reduction, 2) Strategic Flexibility, 3) Focus and Specialization, and 4) Rapidly Exploiting New Market or Product Opportunities. There were two more but these were the big four. These four certainly have huge scope behind when you think about them and can start any business model development discussions.

One way to explore these four ‘stand outs’ regarded by the CEO as the most important

If one takes a concept from a A D Little report on their view on business models I like their idea of their archetypes approach.  A launching point within any business model discussions within large organizations is to apply these ‘archetypes’ to the above four CEO needs.

The five outlined in A D Little’s report were asking open questions to see potential or not:

  • Share the cake differently (novel ways, challenging traditional approaches, partnering)
  • Supplant someone (they suggested the middleman in the report)
  • Shift the cost curve structurally (deploying different asset bases)
  • Redefine the customer experience (exploiting uniqueness and new values)
  • Convert product into service or combine them.

Now I think  possibly working through the four needs of CEO’s and the five archetypes you really can get into exploring new business models in meaningful productive ways. A 4 x 5 matrix perhaps. The emphasis points within these discussions changes and the depth of conversation determines next steps.

Getting the framing right is the best argument for change

CEO’s and boards I believe always listen to well-argued cases where you can pin point failure or lost opportunity or new sources of potential revenue and growth. Getting this framing right in the first place, knowing what and why you believe you need a new business model becomes more valuable, a real catalyst to change and this is the powerful enabler to unite behind.

Surely this going back to getting the ‘need for’ is far more valuable initially to lay in the foundation than working through the principles and typical pros and cons of one design or approach over another. I think we can get caught up with this rush to justify and validate one specific business model or another? Is this the ‘cart before the horse?’ Or just enterprise kicking in?

Sell the compelling reason for making change by identifying a real need, work through if this can or cannot be completed through an existing design, and then throw yourself into all the ‘delights’ of  what makes up the components of business model design.

Are we starting in the right place or diving in by layering on more BM design?

Just a bit of a Monday morning reaction perhaps, but reading the different activity going on within cracking the business model code for adoption within large organizations that seems to be buzzing within the Business Model Community at present. I would suggest there needs to be some great care, otherwise we kills the goose, not fatten it up by building the right thinking and value proposition for what it could really offer large organizations!

Are we stepping back far enough and giving this the ‘helicopter’ treatment before we launch into further solutions, courses and seminars, maybe just fitting the existing frameworks into something  without the real stepping back this might need?

The Age of Large Business Model Reinvention

Most of our existing organizations are searching for the mechanisms to reinvent their business models, through identifying, designing and executing differently from the existing ones, where they tend to simply be ‘locking themselves into’ repeating patterns, possibly opening themselves up to new forces of disruption.

There is a sense of urgency that is growing at the corporate level, to master this ability to design different business models and then set about executing them, to combat the multiple ‘disruptive forces’ swirling around in the present and near term business environment.

Reinventing the Business model is such a big ask in the complexities to overcome, the legacies, the vested interests, the distribution of created wealth (dividends, bonuses, performance) are all ‘locked into’ the existing business. Many of those necessary bolder decisions get caught up in horrible compromise.  Parallel managing is both an art and a science but it always needs clarity.

Addressing the current dilemma within business models

So we have a classic dilemma, we need to manage and extract as much as we can from the existing business but simultaneously begin to reinvent, to design something different.

Caught up in this dilemma, increasingly the large organization is questioning how it can use the Business model canvas in more effective ways. I believe there are many exciting options available.

Business models need a common language, they need to be easily described and here is the fundamental value of the BMC – it can set about supporting a common understanding, it can be used to describe in multiple ways.

Here is my view  

Move the thinking. Move the emphasis. Today the BMC is discussed more as the blank canvas to start new ideas and concepts and its present focus has been in its use for start-ups and entrepreneurs. From these opening sketches the canvas does a great initial job to describe these ‘emerging’ concepts. We need to change this emphasis point.

The possible new dimensional values of the Business model canvas.

Make the Business model canvas as a multiple describing and communicating tool. We should shift our thinking and open our minds up to its (BMC) greater value within the larger organizations

These are clearly:

  • To simply explore new business models as the book, the Business model generation, originally sets out, in the how, what and where of doing this through the business model canvas approach. To experiment with all the advice, tools and experiences that have been built up since this book first appeared.

The richer and perhaps broader dimensions that large organizations should explore:

  • To ‘map’ changes to existing business models as they evolve or need to pivot differently. Steve Blank has explained this in significant detail and terms as the BM dashboard that ‘indicates’ the important changes and these become the focal point of necessary discussion, knowing what is changing, to focus the thinking and see what changes need supporting differently.
  • Then why not to sketch out competitors positions to explore possible opportunity gaps. This should become one of those consistent ‘habits’ that so many large organizations often have a real blind spot to undertake, they just keep assuming nothing has ‘visibly’ changed. Then they get caught out and surprised when they see their share slipping away as the competitor has made a directional change and this was not spotted and communicated to all parties who ‘need’ to know. The BM Canvas can spot and track competitors.
  • Use it as a designing dashboard for innovations that have or could have an impact on existing business models. Whenever you have any major BM change you capture it on your BM Canvas so all above and below in the organization can picture this to see the possible risks this change might bring.
  • Use it to compare business model components across each of the countries within the organization, where more often than not different models are being applied to build businesses in multiple ways. This enables all involved to quickly focus on the differences on these operating models and how the market formation is occurring to get quickly into the strategic discussions, implications and requirements this ‘specific’ approach takes.
  • When you are pitching for internal funds having a clear BMC as the visual focal point provides the top picture that others can quickly see and appreciate the why and how – they ‘see’ the value and the $$ potential, . This can offer ‘intelligent enquiry’ not getting bogged down in detail and getting involved in the running of the business but supporting owners or business managers with different experiences and knowledge to compliment theirs, so as to conduct the type of ‘intelligent’ and strategic conversation needed, instead of many that needlessly occur today.
  • To have ready alternative scenario’s for volatile business conditions as ‘early warning scenarios’ that have mapped out potential changing conditions showing where, why and how the business model might be adjusted or radically changed. The earlier ‘warning system’ pays in volatile times that we are all facing at present to be more aware and ready of rapidly changing conditions, possibly already ‘worked up’.
  • Managing multiple portfolios of business is a complex challenge to spot ‘commonality,’ to detect change, different opportunities or simply recognizing there is a growing ‘drift’ of direction that needs addressing. You can use the BMC as the detection kit, the reoccurring adopted format practice to capture these different portfolios.
  • Rapid concept brainstorming to move into prototyping evaluation and market testing. Testing many different variations in small bite sized bets is rapid prototyping, do this through the effective use of the business model canvas. Testing fast in the actual market place new business models and then learning from them to improve the approach is absolutely critical. Get the customer involved and engaged, get your potential partners grouped around the BMC to build and extend out, the internal thinking.

The business model needs to be constantly tested for its potential in its recurring value, and it needs a canvas to constantly challenge its present position and worth.

There are multiple ways the business model canvas can be explored in exciting new visual ways so as to describe effectively in a common format and capture the wealth of different opportunities.  To invent, to communicate and explore the ‘richness’ within the potential value that is simply laying underneath the different components that make up a business model.

Let’s keep moving the conversation forward on where the business model can work in creative ways within large organizations. Do you have any further ideas?

The Understated Back-End of the Business Model Canvas.

So we all know a standard company balance sheet has three parts: assets, liabilities and ownership equity. The accounting equation states assets and liabilities are known as equity or net worth and this net worth must equal assets minus liabilities. The balance sheet summarizes the present position or last audited position.

Well in the Business model canvas we have the cost side, the back-end, made up of the activities, resources and partnership aspects and a revenue side, the front end, made up of customer segments, channels and customer relationships. It is the ‘net worth’ of all these blocks that makes up their contribution to the Value Proposition.

It is the nine building blocks when put them together tells the complete story, a little like a business model balance sheet. Balancing this out thoughtfully does needs bringing it all together, so as to give others the compelling story and begin to mobilize around and attract the necessary resources.

My question though is this: “is the BMC understated at the back-end today and should we strike a different balance for more established organizations?”

Balancing the BMC BMC model is by Osterwalder & Pigneur. Visual source: Steve Blank

Balancing the BMC
BMC model is by Osterwalder & Pigneur. Visual source: Steve Blank

What happens when one side perhaps gets over emphasised?

Very much the orientation of the business model canvas is presently skewed towards the front end – the market facing part and rightly so. You are in search of a new business model, you will never find it in the building. As Steve Blank rightly stated “you have to get out of the building” to validate your assumptions or hypothesis, to search for the value in the real market place.

The present BMC creative energy focuses are mostly placed on the front end as  many of the emerging tools, methodologies and creative work seek to explain and explore this in novel ways, helping to work out if you do a have a meaningful business emerging or not. You want to test your ideas or concept as soon as possible. As you learn, you pivot, learning what makes sense to customers, what might not, making continuous adjustments to confirm the business idea.

Now we need the same creative energy application channelled to the back-end to draw out the supporting aspects that underpin the new business model.

Today, the BMC is well accepted for start-up’s, for entrepreneurs but still does struggle to gain the real momentum it deserves and can contribute within larger organizations. Why is this?

The back-end and its lack of real attention just might be holding the BMC back for large organizations. Now we need the back-end to have the same ‘explosive’ forces and focus as the front end. Let me explain why:

So for me the understated side of the BMC is the back-end.

Here we are looking to ‘plug in’ the key partners, the key activities and the key resources. If you look at any introduction to the BMC you get these as short explanatory introductions to these three parts

Key Partners – what can partners do better than you at lower cost (and thus leverage your business model)

Key Activities – What activities do you need to perform in your business model and how easily?

Key Resources – What resources does your business model require? These are seen as the assets required offering and delivering the other described elements within the BMC.

Perhaps these are just not deep enough in explanations, even for a starting point for a new business model design. These prompters as they initially stand inadequately address the existing organizations deeper issues in my view.

The ‘drag’ in adoption performance might lie at the back end

The Business model canvas and by extension BM design, struggles with the back-end, this tends to always ‘lag’ as we address ‘breaking opportunity’, especially in established organizations. There is too much invested legacy. This is the ‘drag,’ the anchor weight, that holds bigger businesses back in investing fully in (radical) business model design. We need to open this up, in finding solutions that resolve this back end of the BM canvas.

Originally when Alexander Osterwalder was working through his thesis that ‘spawned’ the BMC, he was talking far more of a multi-layer set of approaches where you had a more defined planning level – the strategic layer, following by the architectural level – the business model layer and then the third level, the implementation level for the process layer. He suggested (at the time) layers were acting like glue between strategy, business and processes. I think he was right. We need to layer and glue.

We need to ‘layer and glue’ at the back-end

The BMC frame does not need to be changed as resources, partners and activities can be a sufficient ‘catch all’. What we need to actually do is raise often the ‘thorny’ issues, of existing structures, conflicts and possible solutions to overcome these.

This time we don’t get out of the building to learn, we ‘work’ the existing building (or organization) to begin to identify and test aspects of your emerging business model across all the internal ‘touch points’.

We are equally looking to discover and validate in our initial explorations , to pivot and stay agile and aware. To ‘flush out’ roadblocks, internal barriers and search for novel solutions. To keep gaining acceptance and recognition.

Here we are exploring existing infrastructure and looking at what would be needed that would be different to support a new business model. To build anew or extend.

I think it is time to let the infrastructure skeleton out of the cupboard.

We have to acknowledge and talk through the fact that big organizations have involved processes, they operate in complex ecosystems that are difficult to navigate, negotiate change with and seeing where you need to pick certain parts of the value system apart to accommodate the new. Perhaps it is easier to ‘start anew’ or spin out the new business as the antibodies can come rushing in to kill anything life threatening.

The other issue is the reputation risk.

Can you accommodate a small, lean and light weight business in its early stages as it tries to sit alongside the big brothers of existing businesses? Many of the larger organizations have thresholds for revenue size that are telephone numbers to even think of creating something even more ‘demanding,’ a new business model.

You struggle everywhere within established organizations to make the necessary changes to adopt new business models, there is so much vested interest. Yet new business models are desperately needed. So lets address  back-end constraints head on?

We need to tackle complexity far more and early on.

Often the complexity within our organizations; the politics, the whole need to convince established positions & overcome legacies will hold most simply back from exploring business models, on a broad, bolder front. They don’t want to acknowledge the necessary holistic fit of all nine building blocks. They attempt to retrofit what they see into the existing back ends, into their known and existing paradigms.

This limits the potential not just of the visionary power of the BMC but the whole design of any new business model. Often new BM’s are squeezed into the existing:  the push through existing channels, sold to existing customer segments, delivered within the existing supply chain, managed through the same resources and invoiced through the existing systems. We compromise, perhaps, the greater potential by not reflecting deep enough on what new BM’s can give us.

There is nothing wrong with leveraging what you have, exploiting existing resources and structures but as you are drawing on what you know (exists) you can stay blind-sided to what it can potentially offer. If you don’t ‘opened up’ your mind and thinking that little bit more you can constrain a new concepts real, sometimes game changing, potential.

We need to ‘ratchet up’ existing visual methods and tools.

This is the exciting place to be, designing new tools and visualization but lets focus fully across the whole Business Model Canvas.  We do need to talk more ‘content,’ more purposeful design at the back-end, if the bigger organization is going to sign up in the way it can, but equally make it creatively applied.

We need to think how architecture and agility can combine; an opening exploration of operations, systems, applications, and of thinking different ways to be agile thus providing a more transition planning approach to underpin the emerging business model’s design.

Alex talks sometimes about a CAD equivalent for business model design in the future. Perhaps he has something there. We need to design the structure, work through modification, analysis and search for optimization no different from the front end. This is why we need the Business Model Design Architect as central to this required repositioning, to manage the complete design of any business model’s new blueprint.

My call here is that we need to broaden the  back-end conversation.

Let’s get the conversation going on the back-end and then unleash the multiple designers within this part, not just the huge community of IT related architects already out there working on many of these internal problems. We need creative design, ingenuity and understanding, all combining in new ways.

We need to step up one big huge level within conversations around Business Model design in existing organizations. We need to seek creative, visually stimulating solutions to the complexity that lies within the four walls of organizations. Let’s address the internal complexity and all learn by openly exploring this. We need to get the tool smiths working on forging the internal BMC foundry, block by block.

To play back to the team designing and orchestrating the BMC, we do need to create better conversation at the back-end of the BMC. We need a new depth in the visual tools needed to capture this side of the canvas.

Otherwise we don’t stay at beginners level Alex, we stay locked into start-ups and entrepreneurial check lists as the use for the business model canvas and that would be such a pity. Addressing the architecture of the back-end is essential.

We need to address the existing organization far, far better in the back-end

Until we address this back-end far more, then I think the BMC will stay considerably  constrained, especially for established organizations. It might simply remain a check list, or as Steve Blank chose to depict it as the Business Model dashboard, or it is only a starting block A4 white board to begin to explore new ideas for start-ups and entrepreneurs.

It might not become the real ‘catalyst’ for exploring new business models as I believe it can be in established organizations. That would be a real shame, if the back-end stays a clear liability on the business model balance sheet. The back-end is hugely different within the established organization and the business model canvas needs to tackle this urgently, in a host of highly creative ways that we have seen so far applied to other parts of the BMC.