Business Model Innovation is the practice of adapting how you create, deliver, and capture value. We believe that, for most organizations, it is the key enabler to staying customer relevant amidst the constant flux of changes in markets, technologies, and preferences. As we’ve worked with organizations, we’ve come to believe that there are really four key enablers that must be true in order for Business Model Innovation to happen. Here they are, along with a few practical ideas for how to ensure they are getting the focused attention they need.
1. Enable it from the top.
First, organizations where Business Model Innovation is happening on a regular, sustained basis, are led by leaders who embrace it, reward it and demand it.
They tend to see constant flux and external change as an opportunity, rather than as a threat. Of course, they have a tolerance for risk, but this is often driven by a clear definition of the core business/mission beyond current products and services; and a commitment to consistently put the customer at the center of strategic and design decisions. They are well informed by customer insights (stay close to customers). And, they value learning just as much as business results. The leaders at Nordstrom thought this way when they empowered the creation of the Nordstrom Innovation Lab.
If you are fortunate enough to be in an organization where the leader of the company or team thinks this way, share the vision for Business Model Innovation and get to work! If, however, you work for an organization or team where the leader isn’t wired this way, you may consider a few tactics…
These tactics may not lead to dramatic change, but you may begin to influence leadership in the right direction to begin to embrace this new thinking around Business Model Innovation.
2. Expand your strategy.
The second key enabler is having an aligned Innovation Strategy. This may be obvious, but often, we see individual innovators, or even teams, work on Business Model Innovation in the absence of a clearly aligned strategy — one that includes a strategy or initiative specifically around Business Model Innovation. We also see lots of organizations that have a well documented Innovation Strategy that includes other types of innovation — incremental and adjacent ideas, but doesn’t explicitly include innovation around the business model. Essentially, if leaders of the organization haven’t stated that they want to pursue Business Model Innovation, it’s less likely to happen in an efficient and effective way.
This is because Business Model Innovation is difficult. It requires perseverance and resources — both people and financial. And, when barriers come up, as they will, an aligned strategy ensures that resources don’t get pulled and that the organization is committed.
If your organization hasn’t yet included Business Model Innovation as a key part of the innovation strategy, we’ve found that often times, they’ve simply not considered it. So, you may want to share some learning about it with leaders in your organization and encourage them to identify areas where Business Model Innovation could fit into your strategy.
3. Build a garage.
Business Model Innovation is sometimes messy and complicated. Rarely does a team get it right the first time or without the need to pivot and adapt along the way. This type of innovation is best done within an organizational structure we like to think of as a garage. This is the third enabler: A Garage Structure.
The garage is a powerful metaphor for entrepreneurship as it reminds us of Steve Jobs, Walt Disney and other resource constrained entrepreneurs who started their companies in garages. The garage is also a place where entrepreneurs get away from the pressure of rules, processes and traditional metrics as they tinker and experiment, build and iterate.
And just as it’s often out of necessity for startups, established organizations are leveraging garages to build new models and to protect their ideas from the inertia of their core businesses.
The garage not only provides the separate physical space, but also the ability to leverage resources and assets from the “main house” or the core business, with the freedom to push into new models and revenue streams. And while there’s necessary breathing room to create the future, there’s enough connection to the core business to drive relevancy for the products and services being created.
Creating a garage structure is both about the physical space and the assignment of resources. The physical space can be as simple as designating a few cubicles or a conference room as your dedicated space.
Ideally, a multi-functional team, and a few key customers or consumers are “in the garage” with you — even if not full time, working with a team from diverse backgrounds and functional expertise areas and having a user or two to iteratively develop with is ideal.
4. Live in permanent beta.
The last enabler is that successful Business Model Innovation is enabled by a mentality that we call “permanent beta.”
Permanent beta is essentially about iterative customer-focused development that allows pivots and tweaks to an idea as it develops. Most of you have probably heard of concepts like Design Thinking or Lean Startup or Agile Development. These are all concepts that leverage this permanent beta mentality.
Successful Business Model Innovators recognize that their resources are finite. Therefore, when they see that something isn’t working, they pivot and try something new. They collect customer feedback along the way, and keep pivoting and tweaking until they get it right. Embedded within this behavior is a recognition that failure is really just an opportunity to learn.
To embrace this mentality, try to capture ways that you’ve learned from failures or mistakes in the past. Organizationally, share stories of learning rather than failure. Every organization has these stories. Consider input from customers or peers as fuel to improve or pivot your ideas, and begin to role model this mentality on your own teams.
While these four enablers aren’t sufficient alone to drive Business Model Innovation, we’d consider them requisites.