Organizations are facing increasing a dilemma in how they organize and manage within their systems and structures.
They are being forced to deal in increasingly complexity and environmental turbulence and ‘adapting the appropriate response’ remains increasingly a difficult one to master, within the existing regime and structures.
On the one hand the value in stability is still essential, working within specific routines and practices gives a clear ‘path dependence.’
This allows for efficiency and effectiveness to be constantly at practice, constantly building the problem-solving processes, so as to master tasks in complex environments to resolve ‘known’ problems in ‘given’ ways.
We need to become increasingly fluid but how and why?
Today most innovation is focused on creating new products or services.
These new innovations frequently change or modify operating models and business models, often not by deliberate design.
We’d stipulate that most innovation should be focused on updating and changing business models constantly and with increasing focus. With this focus new products and services become by-products or outcomes that support or sustain new business models for driving greater lasting sustaining competitive advantage.
In short, most innovation should be focused on creating new business models, with new products or services serving as enablers to intentional business model innovation, rather than the other way round. This is what we mean by flipping perspectives.
Critically we have to become far more comfortable with constant, ongoing change and align this into new innovations and business models. This move to positive change is discussed here, recommending a movement that allows the changes we need within our organizations to become more fluid in their adaption, for leveraging and exploiting innovation in new, far more compelling ways.
As we consider the interplay between innovation, business models and change, it becomes clear that many companies have a definition of innovation that’s far too narrow.
Increasingly we need to rethink the scope, depth and breadth of innovation possibilities, as well as the secondary implications of innovation.
Ignoring this broader definition of innovation means we can never achieve all of the possible benefits innovation has in store.
We believe ignoring the breadth and depth of innovation can also allow competitors and new entrants to disrupt your position or industry.
Fortunately, some of these definitions have been created for us.
Our responsibility is to understand the definitions and their implications, not stay constrained but seek and explore the broader options this can provide.
Most rooms we enter have four sides and are traditionally built on a standard four-pillar design; 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 in our wealth-creating possibilities.
Why is that? Our structures seem to be weak, not strong.
Framing 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 on 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 when you have to explain it.
Organizations are struggling to forge a new path in innovation function and design that captures opportunities fast and also exploits the increasing need of being adaptive and flexible.
Organizations 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 organisational 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.
Everything, it seems we work towards in business, is for seeking out new value creation, for new growth and wealth creation, for providing improved returns on the investments we have been making and this is where innovation becomes so important.
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.
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.
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.
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 summarises 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 we put them together, tells the complete story, a little like a business model balance sheet. Balancing this out thoughtfully does need that bringing it all together, so as to give others the compelling story and begin to mobilise 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
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 marketplace.
Organizations are facing increasing a dilemma in how they organize and manage within their systems and structures.
