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?

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5 thoughts on “Are you a business model innovator?

  1. Pingback: Are you a business model innovator? | Business ...

  2. Hi Paul, cool stuff. The archetype idea seems to be valuable – if one manages to reduce complexity to a few archetypes. ADL’s list is not complete – e.g. changing a “manufacturing / selling” business model to an “orchestration” business model. Gassmann’s “55 patterns of BMI” are too broad and unstructured. Having some archteypes and variants would be great.

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  3. We use matrices very often in our work.

    To create the NxM matrix (I don’t believe it will be 4×5), you have to distinguish between means and ends.

    The matrix works when the goals are in one dimension – for example the rows, and the means are orthogonal to them – I.e. the columns of the matrix. That allows you to easily formulate questions such as “How can we reduce costs by supplanting someone?” using the examples given in the article.

    Surprisingly, lots of people find this very hard to do. There is an example of this in the article: in the IBM survey quoted, three of the four issues are ends, but “focus and specialization” is a means to an end, not an end in itself. Getting a CXO to understand that is often challenging.

    The matrix works best of all when you can supply appropriate means rather than just random ones (“How can we rapidly exploit a new market by shifting the cost curve?” doesn’t make a great deal of sense, for example.) This is of course the beauty of TRIZ: it “knows” which methods are good for solving each type of problem.

    The question is, therefore:
    – do we have an exhaustive (but hopefully finite) list of business goals?
    – do have we have an exhaustive (but hopefully finite) list of business model innovations?
    – do we know which innovations are appropriate for achieving each of the goals?

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