10 steps to keep your company from being disrupted
'For most companies today, the only truly sustainable advantage comes from out-innovating the competition.' This quote by James F. Moore – which is also the gist of his great Harvard Business Review article, titled Predators and Prey: A New Ecology of Competition – was never more relevant than it is today. Think about it for a moment. If you're the CEO of Marriott circa 1993, when Moore's article was published, are you worried (or even thinking about) Airbnb? Nope. Likely the only competition you would be thinking about are other hotel chains that own vast property portfolios in the same places your company owns vast property portfolios. Likewise, if you're the CEO of Nokia, Kodak, a large record label, or just about any other brick-and-mortar using its original business model to create, deliver, and capture value, it's more than likely you haven't even stopped to consider what the world would look like if your competition suddenly came in the form of a digital lifestyle product or on demand internet service. Yet, today, companies like Airbnb, Apple, Spotify, Uber, Amazon, Google, and a myriad of other firms that either didn't exist in 1993, or had not yet undergone massive business model changes (i.e. Apple), have totally and completely upended most of the established players in their respective markets.
So, what's a company to do when product sales are strong, profits are steady, and the outlook for the future looks bright? I think Jim Rohn, an American entrepreneur, author and motivational speaker, sums it up best with this quote: 'If you don't design your own life plan (or company strategy), chances are you'll fall into someone else's plan (or strategy). And guess what they have planned for you? Not much.' In other words, in order to stay ahead of the curve you must start innovating now before another company does that for you and your company. And, it's not just Jim Rohm who says this.
For a great time-based model on technology adoption, and business model adoption, check out Geoffrey Moore's bestselling book, Crossing the Chasm (if you haven't already). While most of us focus on the early adopters chasm (as seen in the technology adoption curve), it is clear that by the time a product or service is being adopted by the laggards in the this curve, the innovators, early adopters, and maybe even early majority are likely finding (and trying) new products and services that meet their needs even better than the original products/services. So, in essence, by the time a company is selling its products/services to laggards, the growth of that product/service is very likely flat lining and/or it's about to be disrupted big time.
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What's more, according to Larry Downes and Paul Nunes, in their HBR article, Big-Bang Disruption, new (Big Bang) disruptions, like the aforementioned disrupters, actually 'collapse the product life cycle we know: Everett Rogers's classic bell curve of five distinct customer segments—innovators, early adopters, early majority, late majority, and laggards. Now there are only two segments: trial users, who often participate in product development, and everyone else. The adoption curve has become something closer to a straight line that heads up and then falls rapidly when saturation is reached or a new disruption appears.' Clearly then, in order to stay ahead of this curve, it's necessary to start innovating as soon as the chasm has been crossed. Luckily, just as there are steps in every process, here are some well-defined, well-tested steps to keep your company (or product/service) ahead of the curve before it's been disrupted:
1. Form a team and design strategic conversations
While anyone can ideate and create new things, what we're talking about here is not just the creation of new ideas, it's the formulation of new, innovative, sustainable business models that can generate growth and sustain a company's competitive advantage in now and in the future. To create truly innovative and sustainable business models, companies must design strategic conversations to tackle head-on, what Lisa Kay Solomon calls, adaptive challenges. As described in Solomon's bestselling book, Moments of Impact, adaptive challenges 'are messy, open-ended, and ill defined. In many cases, it's hard to say what the right question is – let alone the answer.' What's more she states 'it's nearly impossible for any one senior executive – or small leadership team – to solve adaptive challenges alone.' Designing an innovative sustainable business model – one that will last into the future – is definitely a great example of an adaptive challenge. With an Uber or Airbnb-like business model being applied to almost everything these days – disrupting entire industries in their wakes – it is essential that companies pull together the right teams (i.e. the dream teams) to engage in strategic conversations in order to help address and overcome this challenge.
2. Assemble a common set of tools, practices, processes and language
If your company is ready to tackle the adaptive challenge of designing innovative and sustainable business models it's time to start looking for tools, practices, processes, and a common language to ensure that the strategic conversations you will have don't turn into the typical 'blah…blah…blah' kind or the 'yabuts', as Solomon puts it. Fortunately, there are some excellent and well-tested – perhaps indispensible – resources available to help get you on your way. The first of these, and perhaps the most indispensible, is the bestselling book (aka the business model bible), Business Model Generation, written by Alex Osterwalder and Yves Pigneur and produced by Patrick van der Pijl, of Business Models Inc. Unlike many best selling business books on the market, Business Model Generation is not so much a book that you read through once and absorb 10% of what it espouses. Rather, this is a very visual and practical toolbox of sorts. You can open it up to any page and glean something totally useful and practical. What's more most of the practices and processes in Business Model Generation are centered around the Business Model Canvas, a single (large) page canvas designed to capture how any/all businesses create, deliver, and capture value (image Canvas). The Business Model Canvas also puts forward a common language and approach to discussing (and designing) business models. This same tool (and the aforementioned book) is used in just about every single MBA program in existence today, and is also the foundation for the ever so popular Lean Startup methodology.Besides Business Model Generation, Moments of Impact, Crossing the Chasm, and the other articles mentioned in this post, Alex Osterwalder's other book, Value Proposition Design, is also on the list of indispensible resources that will help any strategic conversation. As a follow-up to Business Model Generation, Value Proposition Design will help any team better understand, discuss, and innovate for its target customer segments.
3. Understand the context without being dismissive
Just like a good game of chess, designing an innovative business model for the future is all about understanding the current business model and the context surrounding that business model. There are lots of ways to capture context. In the end, a typical context map captures current internal/external trends and technology factors, social constructs, political factors, economic climate, uncertainties, and customer needs. Understanding the context will help teams have strategic conversations. Likewise, the context will help the team create design criteria to help guide business model innovation. And, as mentioned above, it takes a diverse team of people to have the context conversation and capture the broadest context available. It's easy to be dismissive about the broad context that any old and seemingly successful business model lives in. However, just remember, for every Kodak, there is a digital camera company (or better yet, a smart device company) poised to change the entire industry. Better to understand the world around your company's business model than to have it be disrupted by something that should have been yours in the first place.
4. Formulate a vision for your company or product/service
With the business model innovation team, tools, and context firmly in place, it's time to create a vision that will drive the innovation discussions and become a rally cry for doing something different. As with context capture/mapping, there are plenty of tools and techniques for creating a vision. The key here is that a good vision must encapsulate what James C. Collins and Jerry I. Porras, in their HBR article, Building Your Company's Vision, succinctly call a 'core ideology and envisioned future'. The core ideology in this case is what binds the company (and its business model together), from its technology, to its culture, core values, purpose and story. The other side of the coin then is the company's envisioned future (and rally cry), which is made up of what Collins and Porras call 'BHAGs' (big, hairy audacious goals) and the 'vivid descriptions of what it will be like to achieve the goal'. As with other conversations, the company's vision should not be created in isolation. It takes a core team of people who care deeply about where the company (and its business model) is headed, to create its vision.
5. Innovate, innovate, innovate. Finally, the fun part!
Actually, all of the other parts are just as satisfying when approached with a conviction to make sustainable changes for the future. However, it's innovation that typically gets people's blood pumping. So, what does innovation look like from a business model context?As mentioned previously in this post, designing innovative sustainable business models is not just the mass creation of new ideas. Business model innovation is best done using a core set of guidelines, principles, and a well-tested framework (to keep everyone on the same page). Luckily, we already have those things at our disposal. Firstly, via the context (step 3), you can define the design criteria, parameters, or constraints by which any business model innovation should follow. Secondly, via the vision (step 4), you have the core principles (and rally cry) by which to guide your innovations. Finally, the Business Model Canvas (step 2), Value Proposition Design Canvas (from Value Proposition Design), and a core set of other very practical and pragmatic tools described in Business Model Generation exist to help frame, contain, and discuss business model innovations.Moreover, outlined in Business Model Generation, are a great set of business model innovation techniques to employ based on your company's vision (i.e. core ideology and envisioned future). Some of those techniques involve understanding and applying well-known business model patterns, such as multi-sided platforms or even free, to your business model. Another really useful technique is understanding and innovating around business model epicenters, such as a company's resources, offer, customer segments, or revenue streams.
6. Validate, test and measure the assumptions of your innovations
Creating visions, design criteria, and innovative business models is a rewarding undertaking to say the least. With the right team the strategic conversations and design workshops may bring about surprising and often unbelievably exciting results in the form of fresh, new business models and strategies. However, the often-fatal misstep that most companies take – especially established companies that have lived in execution mode for a long time – is that the newly designed business models go straight from the strategic conversation (or workshop) to the teams in charge of implementing new products and/or strategies. The problem with this is that the newly designed business models are (99%) likely to have a ton of assumptions built into them. If history has taught us anything, it's that untested assumptions often don't play to our favor when something goes live. There are plenty of examples of untested assumptions that went horribly wrong. Remember New Coke? Even recent examples, like Apple's new streaming music service, Apple Music, was initially reported to be launched with a business model that did not pay artist royalties during a three month free trial period. Luckily for Apple, and Taylor Swift fans, this fatal flaw in the Apple Music business model was avoided when Apple was corrected on its assumption that artists and music companies would sign up for this. Fortunately, there are plenty of ways to avoid this kind of embarrassment (and worse). One such (simple) way to test a new business model is via the Lean Startup methodology, which says before you execute something in earnest, you should start with some kind of minimum viable product (MVP) that you can put in from of your customer segments (and perhaps internal and external key partners) to gauge their wiliness to change, buy, or engage. Of course, this test must also be paired with some agreed upon criteria to help qualify and quantify positive results. For instance, let's say your team has thought up a new web-based business model based on the assumption that one of your key customer segments wants to purchase your product/service in this new way. Everyone is excited about the prospects of disrupting an entire market. However, before this new business model is implemented you all decide it's best to test this assumption. To do that it is decided that you will publish a single landing page describing your new service with a button to that landing page from your home page that clearly calls out the new, untested value proposition. The success criterion for this test is determined to be 1,000 new button clicks (which will redirect to the new landing page) in a 1-week period. The 1,000-click criterion is not random. It is what the team believes would be the minimum amount of page visits needed to produce some profitable result. After 1-week the amount of button clicks is recorded at 450. In other words, the original assumption – or some assumption made in the new business model – was most likely faulty. Had your company enlisted teams of developers, marketers, and sales people to produce the same results, you would have wasted millions of dollars. And, this is just one example of many ways to validate, test, and measure the assumptions made in your business models.
7. Repeat if needed (i.e. go back to step 5)
So, what happens when the assumptions you've made in your new business models are disproven through tests? You can certainly build new tests to reaffirm the results. Even better, hopefully you have created not just one business model but several. If at least one other new business model has been tested and confirmed as having proved the assumptions made in it, then perhaps you can move forward with that one. Or, you can (and probably should) reassemble your dream team in order to make some tweaks to your business model. This may sound like an arduous task. However, for one during your business model innovation sessions the team probably came up with many, many ideas. Coming back together to make some tweaks may mean you simply need to swap out a few features (and assumptions) for some others. Furthermore, once your team has gone through the business model innovation process, it will be a lot easier to pick back up where you left off and design some new business models or at least pieces to your new business models. And, just as before, it's important that any new business model should be validated before moving into the implementation stage.
8. Implement your innovation
As mentioned in above (step 6), most companies are used to executing on their business model. Bestselling books and scholarly articles abound on the various approaches to successfully implement new business models and strategies. Depending on where your company is in its life, how large or decentralized it is, and/or growth strategy, it may make sense to setup anything from a change management team, replete with Six Sigma practitioners and Balanced Scorecard tools, to something simpler, like tasking a small team to roll out the new business model/strategy as a separate offering or phased integration. Interestingly, where phased implementations are concerned, often what you will find coming out of business model innovation and validation are not only multiple valid business models, but business models that are a good fit for phasing in over time. I call this business model z-axis. With a z-axis approach to business model innovation you don't rely on single, monolithic business models to sustain your company. Rather, you emphasize different business models characteristics over time. For example, wherein you might start your business model and strategy transformation with a central focus on consumers (B2C), in time you may also want to phase in a focus on a 3rd party customer segments (B2B2C: a la a multi-sided platform approach). The z-axis approach will give your company the ability to focus on priorities while providing the flexibility to pivot when needed. For some great information on the subject of strategy implementation, check out 'Managing Multiple Business Models' in Business Model Generation (page 232) as well as Robert S. Kaplan's HBR article, How to Implement a New Strategy Without Disrupting Your Organization. Both give some great examples about how various companies approached strategy implementation.
9. Measure your progress
Just as with validation and testing (step 7), changes in a company's business model and strategy must be properly measured to determine A) the success of the new business model; and B) when a new business model and strategy is needed. And, like other steps in this post, there are many ways to measure strategy effectiveness and publications that go deep into this subject. Some of what I think is the best, most complete coverage of this subject is published by the Balanced Scorecard Institute. In particular, Balanced Scorecard Institute has this to say about measuring performance using Key Performance Indicators (KPIs): 'KPI's, or performance measures, are the indicators of progress toward a desirable outcome. Strategic KPIs monitor the implementation and effectiveness of an organization's strategies, determine the gap between actual and targeted performance and determine organization effectiveness and operational efficiency.
10. Rinse and repeat
It may seem like a simple statement to say that all company business models and strategies should be innovated in order to survive (and hopefully thrive) in the long term. However, history proves that it is much easier to say this than to actually implement an ongoing business model innovation practice. No matter who you are or what company you work for or manage, when you have found a sustainable business model, especially one that is poised for massive short term growth, it becomes quite difficult to make time and set aside resources to innovate the very foundation of your current revenue streams. Yet, there should be no doubt in anyone's mind that business models left untouched and unchanged for long periods of time will eventually be disrupted and likely made completely obsolete. If your company's business model relies heavily on the Internet, the time between disruptions is likely measured in months rather than years. Therefore, it is essential that you put in place an ongoing business model and strategy innovation process, like the one outlined in this post, that will help to ensure you not only understand where your company's business model is in its life, but also when its time to build, validate, and implement a new one.
The message of the post above is simple: disrupt before you're disrupted. To most this message boils down to simply creating a new app or selling an existing product in a new way (i.e. via an app or the Internet). But, a new app or Internet storefront does not a business model make. True innovation, like the kind implemented by the Ubers, Airbnbs, and Alibabas of the world, pairs a good idea with a great business model. And, to create a great business model companies must take the appropriate steps, like the ten steps above, that will help ensure business model innovation is achieved in a sustained and perhaps even scientific way.
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