It’s the business model, stupid! A wake-up call for incumbents like Daimler

News is full of cool technologies like drones, blockchains or autonomous cars and their disruptive character. Traditional firms have switched to innovation mode and have now cool digital transformation units to use these new technologies. Everybody is happy. Great, isn’t it?
Or wait? Can this really work that easy?

I just had a project with a company that has set up an innovation unit to push innovation. They have great people who are very salient with all the tools we use today in holistic innovation management like Design Thinking, Scrum or Lean Startups.

However, when management wanted to use the 3 horizon framework, originally from McKinsey but later further developed by Paul Hobcraft, to map their innovation projects on the 3 horizon matrix, we had problems to rank the projects to the 3 horizons.

The entrepreneurial side: The missing side of innovation

The reason was simple. The focus of the projects was on technology and not on customer’s side of innovation or on the business model. Somehow, it seems that the project managers were happy to have installed the new fancy technology but have forgotten the entrepreneurial side of innovation.

It is important to remember what Michael Schrage has said to innovation:

Innovation is not what you innovators do… It is what customers and clients adopt.

Not only the customer side was missing but also the side how they wanted to use the technology in their business. The following illustration shows the relationship between technology and value creation.

The business model creates the value, not directly the technology*

How could that have happened in a company that has the tools and innovation managers that know how to apply the tools?

Not tools, the right mindset to think in business model is missing

Well, tools are one side Continue reading It’s the business model, stupid! A wake-up call for incumbents like Daimler

Steve Jobs on values in your business model

Team and corporate valuesBusiness Modeling is often seen as process to rearrange the building blocks to an innovative business model. What people forget is that a business model is not just the building plan of your business but also should give answer to the question “Why should your business exist from a customer perspective?” So a business model is not just a building plan but also how you give meaning to your customers and your employees.

Values comes in different forms in the business model: First, it is the value proposition. You propose to your customers what value you will create for them when they engage with you. The second is your values and believes you share among the team that makes a great company. These two values are soft factors and sometimes fluffy. However, they are the foundation so that you can capture the economic value with your revenue model. These values make the difference.

Just watch Steve Jobs on values. And then apply that to your business model and your value proposition. You see, the value proposition has absolutely nothing to do with your product. So what is your core belief? What are your values? What do you stand for?

Simple questions, very difficult answers. Answer them. Try. Try again until you know what you stand for.

Your core values as starting point for business model innovation

Very few firms have very strong values and keep them over many years. But these values make the difference between ordinary good companies and great companies. Do you want to be great? Then work on your value proposition and your values. That gives meaning to you and your customers!

We “totally screwed up”: Values and Behaviors in Volkswagen business model

Value unequal behaviorVolkswagen, the world’s second-biggest carmaker admitted that it has been dishonest with customers and regulators. It has installed a software in its cars that falsifies emissions data of its diesel cars. Unfortunately, it is a perfect example where the values promised to customers and the real behavior outright contradict. And because of the mismatch, Volkswagen is in a perfect storm.

Volkswagen faces a fines up to $18bn, criminal charges against its executives and legal actions from customers. At the same time a third of its market value was wiped out or the a staggering amount of around €30bn.

The head of the US operations of Volkswagen admitted that they “totally screwed up“. And I hope he meant the deed and not the disaster afterwards.

What happened? Volkswagen had to admit that 11 million of its diesel cars could be equipped with software to cheat on emission tests. The American Environmental Protection Agency (EPA) had accused the firm of faking pollution tests and thereby cheating on regulators, the public and customers.

The case is already bad enough, but what is even worse is that the deed and the behavior that lead to the deed totally contradicts what Volkswagen promises in its value proposition.

Volkswagen states in its brand three core messages of which one is: Responsible

According to the Webster, responsible means to be “able to choose for oneself between right and wrong

Volkswagen always played the role of the company with high morals. Responsibility was their core value they wanted to pursue and used heftly in their marketing.

And cheating deliberately on emission test is just the opposite of being able to differentiate what is right or wrong. Cheating is wrong! And it is not cheating software but the whole behavior that let a whole company come up with a software to cheat. Dozens and more people at Volkswagen must have known this and did nothing against.

What does this tell us about the culture they have at the firm?

Unfortunately a lot.

And unfortunately, the car industry has a bad track record between their promises and reality when it comes to emission and fuel consumption. The car manufacturers promise low fuel consumption however, they can only be achieved in unrealistic test scenarios and not on the road. Actually, it’s legal but totally against what Volkswagen promises to be responsible.

And as a responsible company you should live up to your standards and do not try to seek loopholes in regulation to mislead customers and the public. Still car companies do.

Not your stated values are reality but your behavior in your business (model)

The deed is actually not the worst. The worst is Continue reading We “totally screwed up”: Values and Behaviors in Volkswagen business model

Do we need visionary leaders for innovative business models?

When I joined Microsoft in 1993 my decision to do so was stimulated by the picture I had from Bill Gates as a visionary leader. The company’s mission Bill Gates created at that time was “A computer on every desk and in every home”. It was an aspirational vision and motivating target for the scorecards. Would Microsoft be the same company today if the mission would never have existed and Bill Gates visions would have not influenced the product and research agenda in the way he did?

Most famous companies today are connected to visionaries: Apple with Steve Jobs, Amazon with Jeff Bezos, Facebook with Mark Zuckerberg and Tesla with Elon Musk. Does this prove that only visionary leaders create truly successful and innovative companies? How many visionary leaders have failed to create successful and innovative companies? This is much harder to answer than the first question. We only know about success stories, failures do not get the same publicity.

The passion for a visionary value proposition

visionary leadersAll of the above named leaders are not only visionaries from a product or services point of view. They are passionate about a value proposition for their customers. Bill Gates core value proposition was productivity gains, Steve Jobs was design and function, Jeff Bezos is price and customer service, Mark Zuckerberg is social sharing and Elon Musk is sustainable clean energy. The products are a means to an end and deliver the value proposition.

Employees in organizations need to understand the value proposition a leader wants to create. Innovation, to realize a value proposition, can occur everywhere in an organisations business model. Truly innovative organisations constantly challenge the status quo and look for different and better ways of achieving the vision.

A true visionary leader is able to view the organisation as an outsider. A fresh perspective allows the leader to forget about the existing customers and look at the entire world as the future market. A good example is Elon Musk with his broader perspective and the creation of multiple companies all supporting his true vision in a very different way.

Visionary companies: Do they need charismatic leaders?

Is your organisation blessed with such a leader? Continue reading Do we need visionary leaders for innovative business models?

Value creation through values in Business Models

Team and corporate valuesBusiness Model Innovation opens up the opportunity to not only transform the value proposition, value architecture or revenue model of an organisation, it is a chance to rethink your human value systems and build businesses that customers love, employees’ value and investors are excited about. Often, particularly in turbulent times, cultural innovation is an imperative for management.

Many books have been written about why organisations should have value systems defined and how you implement values in your core business. Still not all organisation have made this effort and those who did not always manage to live up to those set standards. Surprisingly, Alex’s business model canvas does not have values as a key building block of a business model either.

Effective organizations identify and develop a clear, concise and shared meaning of values or beliefs, priorities, and direction so that every employee understands and can contribute. Those values, once defined, impact every aspect of your organization and of the whole business model. The values must be an integral part of a description of any business model.

In my leadership career I have experienced what difference it can make if you have a leader that takes on the challenge to transform an organisation through values. When I started my work at Microsoft Australia the organisation was at first view a fairly successful subsidiary, achieving its revenue targets and outperforming other subsidiaries in some areas of the business. At a closer look the organisation had issues in areas like customer and partner satisfaction as well as employee retention. The most worrying factor was that departments were fighting each other over resources and a culture of back stabbing was quite common.

Cultural Innovation as a starting point for Business Model Transformation

Microsoft had already values defined that every employee should live up to and display. In reality many of those values were not more than letters on a web site. The company appointed a new Managing Director and with his appointment a cultural transformation journey began. He hired a Consulting firm that was specialized in building “Conscious Businesses” and our organisation transformed within 2 years in an amazingly positive way. Our leadership team, which I was part of, experienced a dramatic change in how we interacted with each other and how we connected our businesses in a much more meaningful and holistic way. Our customer satisfaction increased substantially and our employee health index (a measure of subjective employee satisfaction) became world leading within the company. Continue reading Value creation through values in Business Models

Four core questions you need to answer for any great business

Thanks to the business model canvas people are enthusiastic to build new business models and find business model innovations, but often they get lost in technocratic details. They just see building blocks but they forget the overal logic every great business needs.

Actually, you as an entrepreneur have to answer just one core question: Why should your firm exist on this planet? You need a Daseinseinsberechtigung (right to exist) for your firm. This is a very philosophical question. To be more operational, you can break down the Daseins question into four core questions. But still the answers will not come with a pure analytical process but with creativity and lot’s of empathy for your customers and their jobs they want to have solved. 

The technocratic approach is useless for finding love (source: http://xkcd.com/55/)

The four core questions on your business model canvas

  1. Why should customers be excited to do business with you? That is the value proposition. You could almost go as far as asking: Why should customers love to do business with you?
  2. How do you create the excitement of your customers in a productive way? That is the value architecture or operating model. Here you describe how you fulfill your value proposition.
  3. How do you earn money? That is your revenue model or the profit formula and here you should be able to explain why you as the owner should be excited about the business.
  4. What are your values you live up to in your team and with your customers and partners? That is the human side of the business and of utmost important, since it is the most difficult part to copy. I call it the culture and values of a business.

For these questions, you need compelling answers and the nine or elven building blocks are very helpful in answering the questions but do not get lost in details but look at the broader picture and see the interdependencies.  If you can answer the questions you have a great strategy that is customer-oriented, profitable and sustainable.

The bad part for any mediocre business is that you cannot answer the questions. Please all mediocre business, why don’t you try harder and work on “why should your customers be exicted about you?” instead of optimizing a dull business.

Open Innovation: Does it work?

Open innovation is a big trend today in innovation management. Where are its strengths and limitations? A discussion with Atizo.

Today, I had a long chat with Isabel Steiner and Sabine Hofer from Atizo, an entrepreneurial platform for open innovation. Atizo is a platform where companies can post a question to a crowd to get more and better solutions. This is called open innovation since you are not looking inside your own firm for ideas but to a broader spectrum of people. Some call it crowd sourcing for ideas.

The idea behind open innovation is fascinating. With Atizo, you can address more than 8.000 people with ¾ with academic background to look for fresh ideas. The biggest advantage besides the size of crowd of the “innovators” is the fresh viewpoint on the problem. You take advantage that the innovators do not know the way you always have solved the problem in the past; they are not stuck with your dominant logic.

Atizo’s platform allows companies to generate ideas, evaluate ideas and develop the ideas into marketable concepts.

The idea funnel from Atizo

Depending from your scope you want to use, you can use either the whole crowd, a subsection of your customer and clients if you are a business or you can just invite your closest community for the innovation project.

The different crowds to source from at Atizo

Due to these strengths, open innovation became a huge success in the last years. Well-regarded firms like Swisscom, Mammut, Google or BMW have used Atizo’s platform for open innovation to find new solutions.

So, is Atizo a success?

Success Story Atizo

Yes, since most customers were positively surprised about the quality of the solution. The open innovation idea works. The open innovation platform is fast and cheap to generate idea.

However, as every innovator knows, having even great ideas is not enough. Ideas have to be implemented in the firm AND adopted by the customers. First, implementation in the firm is already difficult since so many impediments like lacking resources; different priorities of top management, wrong corporate culture, Not-invented-here syndrome etc. can and will mostly likely kill the idea.

Secondly, an innovation is not what you think it is, but what the customer adopts. Therefore, from the many great ideas only few have seen the market. The classic dilemma of all innovators.

It is the question, stupid!

Moreover, what Atizo also figures out is how important it is which question you ask. Quite often, the question is very closed and so narrowly defined that the ideas are typical MOTS ideas (more-of-the-same). Nevertheless, do not criticize the ideas and solutions. The problem is with the questions. These questions are so framed by the dominant logic of the current business that really break-through ideas cannot be found. This is the same criticism I have already raised in the case of “Design Thinking”. If you ask the wrong questions, you get irrelevant answers.

Solution anybody?

So we discussed how better questions can be asked. One option is to amend the open innovation process with a phase where the crowd can deliver insights into unsolved problems they see with a current solution. They could deliver insights in the jobs that are still unsolved. Moreover, with these fresh insights even better solutions and ideas could be found. Any other idea?

Thomas Middelhoff or how to earn money with a bad business model

Thomas Middelhoff was the CEO of the now insolvent German retail conglomerate Arcandor formerly known as KarstadtQuelle. Thomas Middelhoff has a good sense for timing. He left Arcandor in March 2009 just 3 months before the company had to file for bankrupcy in June. What made his stint at Arcandor so remarkable was not that he turned around the business of Arcandor but his ability to benefit personally from his position at Arcandor.

I am following the Arcandor business case for a while and I have written about the failure to innovate its business model in the past. So a recent  article of Süddeutsche on Arcandor grabed my attention.

The German daily Süddeutsche Zeitung reports (in German) that Middelhoff is by far better of than his former employer Arcandor and its employees that have lost their jobs. Süddeutsche Zeitung cites a confidential report of the auditors from Deloitte that acted on behalf of the German Federal Financial Supervisory Authority (BaFin). Continue reading Thomas Middelhoff or how to earn money with a bad business model

Trust, Bankers and Soldiers of Fortunes – You get what you pay

The Swiss private banks are under pressure to change their business model. It is not just pressure from other states that want to fight tax evasion via exchange of information on bank customers but also from employers that try to sell stolen customers’ data  to foreign governments.

The big news in Switzerland is that an informant, crook or thief – whatever you like to call him depends from your standpoint – has offered the German authorities data from 1,500 German customers of Swiss Banks that have allegedly dodged taxes. Last year, another informant stole data on 3,000 French bank clients from the HSBC branch in Switzerland and sold it to the French authorities. And in 2008, Germany already purchased data on German customers of the Liechtenstein Bank LGT. The LGT case cost the German government several million Euro but they received a far higher pay-back on its investment form all the taxes and fines that the busted tax evaders had to pay.

There will be more

And these three data thefts will not be the last. It is not only the authorities of high-tax countries like France or Germany that see their high return of investment if they buy data from informants but also there will be more willing bankers that will sell data of its customers. Why? Continue reading Trust, Bankers and Soldiers of Fortunes – You get what you pay

Culture and the Business Model: We are humans

In the discussion on business model innovation an important point is missing: the culture in which the business is conducted. A business is all about people “creating” customers.

Businesses are not a technical machine with input and output factors. Businesses are places where human beings work together for a common goal and therefore the culture in a business is a defining part of a business and therefore also for the business model.

Most definitions of what a business model is are rather technical. We talk about components, patterns, building blocks. We make a lot of fuss about how we rearrange the components as if they were just Lego bricks. We believe that having in mind a great new business model is already a business model innovation.

Where are the people?

Ups, no! That does not work. Somehow the most important “building block” of a business is missing: The human being that designs, shapes and makes the business work and the customer who has to buy into the new value proposition and pay. And here again we have the human factor. “[I]nnovation is not what innovators do but what customers adopt.” We always have to remember what Michael Schrage is saying. It is the customer acceptance that makes an innovation. Continue reading Culture and the Business Model: We are humans