Friday, January 29, 2016

Business Model Innovation: reaching and grasping

I'm a fan of Robert Browning, and really any one who can create a really pithy but meaningful quote.  Today's quote is from Browning, who said: "a man's reach should exceed his grasp, Or what's a Heaven for?".  Of course any quote taken out of context can be used in any way I choose, but I like to think that Browning was writing about innovation.  In my way of thinking, Browning was exhorting all of us to innovate in ways that stretched us beyond our capabilities and comfort zones.  That part about reaching exceeding his grasp has that in spades.  If all of our reaching is within our grasp, if everything remains close and easy, within our knowledge and comfort zones, we will never make change.  And, to use another of my favorite quotes, from Shaw, all change is due to the "unreasonable" man, because reasonable men adapt themselves to their conditions, while "the unreasonable man adapts surrounding conditions to himself." 

From these two quotes we can learn that innovation demands that we reach beyond our capability, knowledge and comfort zone (exceeding our grasp) and by doing so we may be seen as "unreasonable" and fomenting change.  But that's what innovators do.

Now to pull the rug out

After all this lofty praise for reaching beyond the grasp and fomenting change, I'd like to issue a warning.  Currently, there is a lot of talk being thrown around on the web and in business periodicals about all kinds of innovation - business model innovation, service innovation and so forth.  This is both exciting and terrifying at the same time, because innovation needs to move beyond product innovation, but there comes a time when the reach far exceeds the grasp, and innovation goals or targets become unreasonable. 

I'm actually glad to see the increasing focus on innovation other than product innovation.  We've often said that product innovation is both the easiest to do, and the easiest to copy, while other innovation types, like customer experience innovation or business model innovation are far more difficult to replicate.  That's why there are many retail stores but only one Nordstroms, for example.  But it's a far cry from doing simple, incremental innovation around existing products to attempting to innovate a business model.  That's why Airbnb can disrupt the hotel industry from the outside while larger firms can only watch and wonder.  The larger firms had simply too much invested in the status quo.  They may or may not have been willing to do the innovation, but it simply seemed too unreasonable to do it.

Gaining skills and increasing vision

Innovation of any form, resulting in any outcome, can be challenging, but the more the result becomes intangible (services, experiences) or upsets a dominant paradigm (business models) the more difficult it becomes, for several reasons.  First, it's difficult because it is unusual.  Most companies can do some product innovation when forced to, but haven't conducted any more robust or intangible innovation.  Second, by their very nature, these outcomes are intangible:  hard to see, hard to test, hard to prove.  You almost have to create the solution before you'll know if it will work.  That's the reverse of most corporate thinking, which seems to suggest you should prove it will work before you experiment.  Third, these kinds of innovation are difficult because they challenge a very valuable existing paradigm:  an industry convention, a viable business model, that few want to destroy.

While many corporations have some innovation skill, the idea of business model and customer experience innovation may still be instances where the reach far exceeds the grasp, to paraphrase Browning.  Talking about business model innovation and building expectation is dangerous when few established companies know how to do it, and further, have the unreasonableness to try.  Because it will take more than skill to innovate a business model in an existing industry.  It will require either an outsider who has no stake in the market, or an incumbent who is willing to tear up an existing convention (that they also benefit from) and start again.

Since many corporations are also public corporations dependent on shareholders, only visionary or desperate CEOs will suggest that the company slit its own business model throat and innovate a completely new way of doing business.  Talk about unreasonable!

What's likely to happen

None of this means that I don't think business model innovation is going to occur.  It's already underway, and every large corporation is watching and trying to understand what's going to happen.  A lot of investments are being made "just in case" to buy time.  GM invested in Lyft "just in case" the Millennials never make the shift to acquire cars, and the baby boomers all give theirs up.  GM hasn't yet innovated its business model, which is really a financing model, but it probably needs to.  And GM isn't alone.  Every business model is under siege.  Intel built its model based on the dominance of the PC, but tablets and smartphones are far outpacing the growth of desktops and laptops.  We can go on and on about the business models that are at risk, and how hard it can be to innovate out of an existing model.

Startups, entrepreneurs and new entrants will conversely have a field day, because many new platforms and technologies will allow them to enter and change the dynamics of an industry or business model with relative ease.  Airbnb and Uber are two examples, as is NetFlix, and all are dependent on the power of the internet, which has become a platform for business model change.

Right now, there's an overabundance of talk about business model innovation, by people who know how difficult it can be. Those who need business model innovation most don't have the depth of skill or experience necessary, and are often too locked-in to their existing models to innovate effectively. They aren't yet willing to be unreasonable.  But the new entrants are fully willing to disrupt and subvert the business models, and new technologies and capabilities are making it easy for them to do so.  You can believe everything you read about business model innovation and its importance, but pay attention to the companies that actually do it.  They will be the ones with the skills and unreasonableness (if they are larger) or the utter lack of investment in the convention (if they are entrepreneurial or crossing industry boundaries).  Business model innovation is just emerging and will happen quite regularly, but it will be driven primarily by the new entrants and the boundary hoppers. 
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posted by Jeffrey Phillips at 7:10 AM


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