Who is in charge of business model innovation?

February 15th, 2016 by Patrick Stähler

Business Model Innovation State of MindIn recent posts, I looked at the right boxes to think in and the process to develop an innovative business model, it is now time to look at the people who are suppose to innovate the business model in large corporations. This seems to be a simple question and in large corporation there should be a person in charge and capable of execution.

But wait.

Let’s take a look at a traditional organization, the people there and their ability to execute business model innovations.

The Strategists?

Officially, the strategy guys take the big picture view on a firm. But most of strategists are very detached from the real business and particularly customers. They talk about markets, read Gartner technology forecasts and predict the future by analyzing the past, but most of them have never met a customer in person and have never programmed or have developed a product that is later sold. Most have a background in analytics and large consulting companies.

They are very detached from business but think they know where business should be moving to.

The Marketeers?

The marketing guys unfortunately forgot that originally marketing was about the whole business with their 4 Ps. Today, they are mostly in marketing communication and see the customer through abstract market studies, but never see a real customer since this the job of sales.

Sales?

The sales guys have the most contact with customers. Unfortunately, they think in quarters to fulfill their sales targets. They are trained to get sales volumes and not discuss what customers love in two to three years.

Research & Development?

The R&D people are in a firm in charge of technology and product innovation. They love technology, the products, intellectual property and toll-gate processes. But they dislike customers since they usually think they know what is best for the customer. Usually, they meet customers only in focus groups, but rarely shadow them in real life.

And a lot of service firms do not even have R&D departments or service management.

Finance? Really?

The finance people know the figures. They understand the economics of a business. But they also have little sense for the customers and what the customers really value. Pricing is seen as yield management to maximize the price customers are willing to pay instead of asking how can the company really get the maximum of value to the customer and then find the right price. A fantastic example – in a very bad way – is the airline industry where the economist took over and when economists take over, you get a dismal industry.

Actually, finance could be a great starting point for innovation as revenue model innovations like prepaid in mobile communication or concentrating on the core activities as South Western has shown in the airline business.

Heads of Business Units?

In large corporations, you have heads of business units. A business unit is usually defined as a matrix of product and market. They are the closest to customers and the products. They should be the driver of business model innovation but mostly; they are only in charge of a small slice of the whole business.

And the CEO?

The CEO is the guy who »runs« the whole business. Mostly due to experience of the past, he (and very few she) became CEO. He knows everything of the current business and but rarely meet the »bread and butter« customers and understands their jobs-to-be-done. CEOs are too busy for this. They meet the best customers but not the one that make 80% of the business. The best customers love the current value proposition as Clayton Christensen has shown in his work. Disruptive innovation is coming from the low end of the market or from non-customers. The CEO does not know these customer segments.

The core job of the CEO is to keep the current operation running and the organization synchronized. And actually, he is the one who has to unlearn the most since his track record and all his know-how of the past made him CEO. So he has to lose the most.

Very few CEOs have a track record to reinvent an industry. A shame.

Is it the innovation manager? Or do we outsource innovation to skunk work operations?

So companies understood this, that actually nobody is really in charge of customer-centric and disruptive innovation aka business model innovation. Therefore, they created the position of innovation managers and opened cool, hip skunk works where young and innovative people think and build innovative businesses. Academia and consultants came up with the term ambidextrous organizations, an organizational form that is suppose to master the current and the future business.

Most innovation managers I meet are great to talk to. They see the upcoming changes, they have good ideas, however, they are powerless. The brutal fact is that power in firms comes from the Profit & Loss statement. Only the ones that have financial resources can drive the strategy of a firm. That is a well know fact, but still we put belief in innovation managers and skunk work operations to save our company. Most innovation managers are fig leafs.

Ambidextrous organisations?

So what about ambidextrous organizations? It’s a fantastic buzzword. However, I am still waiting for the results but I am open to anybody who shows me successful examples. Please mention them in the comments. Personally, I am not convinced since this is just another buzzword and we have seen so many failures like Pandesic or any other incubator form the late New Economy. But it is fantastic sales proposition for any consultancy.

Innovators’ dilemma still applies

Resources aka your income come today from the current customers. The definition of a disruptive innovation is that at the beginning your current customers do not like disruptive innovation. They prefer sustaining innovation and if you are a good company, you will serve your current customers very well, and thereby your chances for disruptive innovations diminish. That’s the reason why Clayton Christensen calls this »The innovator’s dilemma«.

And this is still true. Unfortunately.

Who should be in charge of business model innovation?

Business model innovation is a state of mind and not a question of “in charge“. All of the above mentioned units have great input for the innovation process, but they need an united view of the business. And here the business model canvas helps to unveil the tacit assumption of the current business. Everyone sees what impact they have in the whole business model and how they interact with the other parts of the business.

And once, you have a common view, you can identify technologies or unsolved jobs-to-be done to see what impact these have on the whole business model and where you can change your business model.

You need diversity in your team to challenge really the current way of thinking. Business models are never reality but the social construct of the dominant group of managers. Only with diversity you can overcome your bias of the dominant logic of your firm. Besides diversity, your process has to be agile, adaptive, full of unlearning and learning and rapid prototyping to test your assumptions.

Besides diversity and an agile process you need a culture that can cope with dissent, inconsistency and ambiguity. Pretty difficult in an environment where your current success is based on a shared set of believes aka corporate culture that are good for running the current business smoothly.

Start today, since this is not something you can accelerate with money. Unlearning takes more time than learning. And the newcomers do not have to unlearn. They just have to learn.

So better hurry.

7 Responses to “Who is in charge of business model innovation?”

  1. Maria Tagwerker-Sturm Says:

    Great article! Never thought that the main reason is responsibility why business model innovation does not work.

  2. Patrick Stähler Says:

    Maria,

    I wrote the article with a bit of frustration. First, 15 years ago, when I came up with the term business model innovation, I thought it was the missing boxes we were not trained to think in.

    Well, not too much happend even after the business model framework became popular with the success of Alex’s book. So I thought about the processes in the companies. And yes, we need a processes. With design thinking, agile development or discovery-driven planning we have better processes. Still, the output is meager.

    In the end everything comes to people. I have met great people, enthusiastic about what they do, but they are all trapped in the current business and its optimization. The core issue is that most firms are too successful with their current business. And any business model Innovation starts from scratch with little know-how and perfection, totally unlike the current business where the company has deep know-how and high perfection in what they do. The combustion engine is at its peak of perfection. So building an eCar is a step backward since the current eCars are less than perfect. That is a difficult mindshift, but needed.

    So, I would not say that it is only the people but the right people with the right mindset and the willingness to change plus the right process can work wonder. However, it is an “and-function” where all the conditions have to be fulfilled to work.

    Cheers Patrick

  3. Tim Neugebauer Says:

    Great article, Patrick! I really enjoyed the reading. I think you are right with the “AND”-function. But I am also a big fan of the principle of ambidextrous organizations. In my opinion it is this kind of organization that is able to deal with constant change, transient advantages (McGrath) and which is able to dind a partnership between the performance engine and the innovation network (Govindarjan/Trimble). For me, the question is: what aspects do we count in this term? A skunk work project? A one time innovation and idea lab? Some investments in startups? Is the dual approach used one time over a period of time or is it implemented as a fixed second operating system? See: http://www.hbs.edu/faculty/Publication%20Files/O'Reilly%20and%20Tushman%20AMP%20Ms%20051413_c66b0c53-5fcd-46d5-aa16-943eab6aa4a1.pdf

    All of this is really interesting and I do thing that this is the way to move forward in terms of disruption, business models and of cause digitization.

  4. Patrick Stähler Says:

    Dear Tim,

    all these ideas about ambidextrous organization sound as academic or consultant advice great.

    However, I have not seen them working in reality. The only example that comes close to is BMWs work on the i3.

    Unfortunately, I have seen too many failures. Think about Bertelsmann and their acquisition of AOL Europe and of Pixelpark. Think about any newspaper house. Think about utility companies.

    Think about the car companies that prefer to lobby for worse emission standards instead of accepting that the Diesel is not the solution for the traffic problems and pollution problems in cities.

    Look at mail order companies like Otto who have started many initiatives but went nowhere. Look at the bank that go for bitcoin and social lending in a desperate move but have still eBanking 0.9. Think about SAP which is a nobody in the cloud business and competitors like Xero from New Zealand that brought beauty and simplicity to accounting.

    I could continue. Unfortunately.

    Cheers Patrick

  5. Ralph Says:

    Thought-provoking post and great message, Patrick!

    Some additional remarks from my POV:
    – Organizations innovating their business model are to be characterized as “ambidextrous orgs” (i.e. simultaneously exploit AND explore) as they explore a new business (model) while executing their existing buisiness (model). That’s why I’m relentlessly pushing this concept: in order to build a business model innovation capability, an organization needs to learn to operate ambidextrously.
    – Organizational ambidexterity doesn’t necessarily mean total separation/skunk works. There are various internal and external setups how ambidexterity can be addressed. On the contrary, org ambidexterity in particular involves managing the connection of an org’s exploitation and exploration parts. There are international, but also local examples of companies, capable of accomplishing this
    balance, such as e.g. Hilti. But far too few, unfortunately…
    – In my view, business model innovation requires two essential preconditions – above all if new business models turns out to be disruptive or cannibalizing, as it is increasingly the case for many industries: 1. C-suite mandate and buy-in: as you rightly say, mindset and awareness at C-level is mandatory, otherwise any initiative with such scope is doomed. 2. appropriate organizational anchoring: protected (but not isolated), cross-diciplinary “sandbox”, resourced with diverse, right-minded people. Some kind of dedicated space is vital to own the business model innovation process as well as to develop and test – it’s hardly possible to incubate, let alone scale novel, even disruptive business models in an environment dominated by the existing business model.

  6. Patrick Stähler Says:

    Ralph,

    thanks for your mindful comment. Hilti is an interesting case since their major shift in their business model is much further in the past then the idea with fleet management which is their acclaimed business model innovation.

    Digging a bit back in history helps. Fleet management can be seen as a sustaining innovation since Hilti’s DNA is since the 1970 in fastening technology and not with the products that are needed to the customers’ jobs-to-be-done fastening.

    This huge innovation in their business model from selling power tools to the value proposition of fastening was triggered by a cultural revolution in the 1970s, when the founder Martin Hilti hired managers from sales and marketing driven firms. Already in these times, the foundation in their culture was laid to be a customer and sales driven company. Fleet management in this respect is “just” sustaining for Hilti.

  7. Tim Neugebauer Says:

    Interesting discussion. Thanks for your contribution Ralph, I fully support your opinion. I think Axel Springer is a good example in Germany. From my point of view, they have done well in terms of digitization. Do they operate ambidextrous? I don’t know, but they have implemented ambidextrous elements and are quit successful with it. SAP is a good example as well, from a positive side. Change is a marathon sport, we will see.

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