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.
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
We always hear that the customer is not buying because the price is too high. Is the price important?
Of course, most clients will say yes in any survey or in sales negotiation. Actually, there are departments at your clients that know only two words: Too expensive!! Give me rebates! That is the purchasing department and it is their job to negotiate the price of a purchase. However, is this true, that even for B2B customers only the price is important?
Observe the jobs-to-be-done of your customers. Don’t ask the customers
Let’s take an example from RWE, a huge German utility firm. Let’s take the case they need to purchase electronic testing equipment. Nothing fancy, just a plain vanilla device for 30 to 50 Euro. Traditionally, this purchase would be a C category purchase. C means not critically important to the firm and therefore the firm usually shops around among different suppliers for a good price.
So you would assume that price is the decisive criteria for a firm to purchase from you. And yes, if you survey customers what is important in their decision to purchase C goods, the price will be on top.
So, all B2B marketplaces of the late 1990s and early 2000s like Onvia had the value proposition that price of the goods are the most important criteria for the B2B market. So they offered everything economics told them what to do in a price sensitive market: Make auctions, offer pool buying for larger quantities or make requests for proposals.
Not the price of the good is important but the whole cost of purchasing
However, they had to learn the hard way (most disappeared from the market) that this is not the case. Let’s go back to the testing device of 30 to 50 Euro at RWE. Saving an extra 20% on a purchase of 50 Euro is great. But is it just 10 Euro. But the costs for the internal purchasing process can easily be 150 to 200 Euro for the traditional process according to Karl Czech from RWE purchasing. Continue reading It’s not the price, stupid. It is the value (proposition)
Good news for all the evangelist of business model innovation. McKinsey has developed an innovation performance score (IPS) that shows that “a significant degree of business model innovation seems to be necessary for superior innovation impact.”
The idea of business model innovation was not developed at the large consultancy companies like McKinsey, BCG or booz. Probably they were too busy optimizing the current business of their current clients. And usually their clients are the incumbent in their respective business. Probably, the large consultancies are trapped what Clayton Christiensen calls resource dependency. Christiensen and others argue that you are dependent in your strategic decision from your main sources where you get your resources from and most of the time it is from your existing clients. In the case of the large consultancies the customers are the incumbents that lose the most from business model innovation.
Business model innovation as new strategy type
The idea stems from researchers like Alex Osterwalder, Gary Hamel (business concept innovation), W. Chan Kim and Renée Mauborgne with their blue ocean strategy or me. In stead of looking at the incumbents we were looking at entrepreneurs/ outsiders that created industries or changed their industries forever. While Alex and I came from New Economy side where we saw that new media allows new business models, Hamel, Kim and Mauborgne came from the traditional strategy schools at universities.
Werner Näf had a very simple idea. If your water pipes at home need to be replaced why not renovate them from within? So he invented the LSE-System. It can clean the pipes from the inside using special equipment, dry and then recoat them and by the way save up to 75% in costs and hassle.
I got lately fascinated by firms that invented new solutions to solve a problem that we all know and where the traditional way was quite cumbersome. I introduced Mr. Krinner in a last post to you. He invented the first stable Christmas tree stand and the ground screw. He just solved an obvious problem.
So did Mr. Werner Näf. If you ever lived in an old house you know the problem of rust in your water pipes and of loss of pressure and water quantity due to congestion by deposits of rust and limescale. If you are the owner of an
old house you know the problem of leakage and high costs associated with replacing the pipes.
The traditional way is to replace the pipes. That means heavy construction work with tearing out the pipes from the wall, lot’s of chiselling, no water for weeks and if the heating system is affected no heating. The traditional way is to solve a big problem with a slightly smaller problem. Usually, you postpone the replacement up to the last minute due to the big hassle involved. Continue reading Great Innovation: Renovate, don’t replace
Often one hears that everything is already invented and that only incremental improvements are possible. Well, tell this to Mr. Krinner. He has invented two products that just changed the way how jobs are getting done. He invented the Krinner Christmas tree stand and the ground screw.
Probably, you never heard of Mr. Krinner and his company. But if you have no problem to put up your Christmas tree straight and safely, than you probably use his tree stand. His tree stand is not high tech, it just solves the problem to erect a Christmas tree easily and with high stability.
The second innovation by Mr. Krinner is as simple as the tree stand: The ground screw. What the heck is this? You probably have never heard of this product category before and right, Mr. Krinner invented this product category. But you know the problem Mr. Krinner solved: Fixing something in the ground. Continue reading Great Innovation: Getting a job done