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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.

Zappos and its core values as a business model innovation

A great example to see how the culture and values can be the uniqueness and differentiation factor in its business model is Zappos . Looking from a technocratic point of view, Zappos is just an eShop for shoes with a great customer services.

But with this limited view you forget that it is not just the great customer service that makes the difference. You need people that can provide this great service. You need values in the firm that helps you to make the right decision in favor of your customers. And your values should be reflected in your controlling systems since otherwise people just do what they are measured for.

Zappos gives a great example that culture and core values is more than just having an HR department with marketing material for recruting. Check out what Zappos is saying about its culture. This culture was Amazon worth almost $1 billion when it announced it wants to by Zappos in July 2009.

Culture and values are part of the business model

I use in change project where big corporations are looking for a better business model an adapted business model canvas. The canvas uses besides the main components value proposition, value architecture and revenue model also a box for culture and values. Together with my colleague Dr. Harry Wiener who is a psychologist by training we have developed three categories that make together the culture and values of a business.

  • Leadership style answers the questions: How do we lead people? How much freedom do we give them in their daily work?
  • Relationship style answers the question: How do we work together with our customers? How do we work together with our peers in the firm?
  • Values answer the questions: What value governs our overall behavior? What values do we pursue?

I do use the adapted version of the business model canvas not in all cases since it must fit the task.

How to describe your business? Business model canvas by Patrick Staehler
How to describe your business? Business model canvas by Patrick Stähler

And the more components you have the less the people really try to grasp the complexity of the business. In cases where a cultural change is not needed I sacrifices  the culture for simplicity but add the culture and value dimension as soon as the new business model is designed and the implementation process is planned.

Unlearning and cultural change

From my work experience (having been a line manager for 7 years) and consulting experience the changes in the culture and values are by far more difficult than changing the business model since the traditional business model is so impeded in the heads of all people. Culture and values have to be unlearned and unlearning is the most difficult task as we see from all big American car firms or from the bankruptcy of retail conglomerate Karstadt/Quelle aka Arcandor.

[update:] Via netzwertig.com I found the following blog post of disgruntled journalist from the German media group WAZ. Unfortunately, the article is in German but it shows extremely well how people can react to changes. The journalist discuss if – as print journalist – they can be forced to take a camcorder with them when investigating a story. That sounds ridiculous for outsiders but the traditional culture of journalist is very class oriented and a print journalist is a print journalist and therefore he/she has nothing to do with pictures or even video.

So in the case of the WAZ their strong journalistic network in the Ruhrgebiet is not only an asset for their online venture (DerWesten.de) but also a huge libility due to its traditional core values.

Even when you have the best new business model you will fail if you cannot change the traditional values that impede change. So the culture should be included on the business model canvas if you do a business model innovation in a traditional firm. Otherwise, your business transformation will fail.

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  1. @Monika Birkner You are so right when you say how difficult it is start a conscious, intentional cultural change. In customers’ projects we start with a understanding phase meaning that we try to get a common understanding of today’s business model. That is already very difficult.

    The second step is to identify what assumptions are behind today’s business. The problem is that most assumptions are tacit and hidden so uncovering takes time and an outside look. And then starts phase two, we call the unlearning and mobilize phase. Here it is important that the top management is involved since here the mental models and the dominate logic has to be uncovered. Here we try to get top managements view of the world a little bit out of balance by conducting interviews with customers and non-customers to gain customer insights. These feedbacks usually starts a process where most things are questioned by the management. Particularly, they see that their value proposition is not as strong as they believe. And when we have been successful in disturbing their view of the world the idea phase of new solutions can start.

    What is your approach?

  2. Great post Patrick
    I really like the idea of working with the human aspect of business model innovation. The value of which i think i hard estimate.

    Besides few instances like Zappos where the culture is differentiation factor in the market. I believe that there is a big need for approaching business model innovation as organizational change.

    I have experience with change processes and know quite a few people working in the area. Even small organizational changes can be really hard to implement. A new business model offend carries with it big changes and thus making it something that is really hard to implement.

    Great business model innovations like Skype, Spotify and netflix did not happen i in the big companies of the respective industries.
    This is not because they did not get the idea, rather it is because it would mean a wild change to their worldview and organization.

    Personally I tried pitching a model very similar to Spotify in a music industry contest in 2005. The idea was not even considered. Similar cases take place all the time, the ideas are there but the organization are not ready for them or the change they carry.

    This is why most great business models are brought to the word by newcomers.
    Do you think it is possible to change this and how should it be done ?

    1. @Peter
      You raised several interesting questions:
      First, can large corporation go into business model innovation. It depends. Some optimization of today’s business model is possible for incumbents if the innovation sustains the need of their traditional customers. Disruptive business model innovation come seldomly to never from the incumbents since today’s customers do not value the new way of doing things. And your current customers are the ones who support your current business model with their cash. In my opinion, only disruptive business model innovation are really business model innovation, everything else is business model optimization. Today, we use too often the term business model innovation for just optimization projects.

      Second, why can the incumbents not move. I think one of the issues they face is that their core competencies are quite often core liability in the face of an innovation. And that favors outsiders again.

      Third, I don’t believe that the newcomers are total outsiders. Quite often, the entrepreneur understands very well the traditional business model and the industry. And due to his deep knowledge, he/she can start the new venture. Checking the statistics, would be a good job for the academics in the field of business model innovation.

      Fourth, I believe that business model innovation is possible in incumbents but it happens seldom, slowly and most ventures will fail. The key lies in the unlearning phase of the incumbents. Most of the time, his unlearning happens only when the traditional business is already in steep decline.

  3. _BM innovation vs. BM optimization_
    I totally agree that the term business model innovation also seems to be used for what is really optimization. I think is because there is actually a latent desire in large organizations to create disruptive model.

    _BMI in incumbents_
    While the incumbents might have a desire for creating the disruptive BM, they don’t. An exception can sometimes be found in businesses that are doing very badly, like IBM.
    Yet even in most of the large organizations that are facing steep decline in their traditional business are very reluctant to change.

    You mention the cash of the current costumers as a big factor. I think this is an exaggeration. Many companies spend huge amounts on R&D for products that the costumers don’t know that they want, they ought to be able to do the same with new business models.

    I agree that the entrepreneur offend knows the market and the business, and it could be interesting to have some statistics.
    Yet if we assume that the executives in the incumbents are also highly skilled people, then the only difference between them is the size and rigor of their organization.

    Based on this the argument can be that disruptive business model innovation is close to impossible for incumbents that are not facing hard times.

    -Is it possible to change this using known methods for large scale organizational change ?

    -Are there other ways of moving incumbents towards business model innovation ?

    -If not, should we then focus only on BM optimization for the incumbents ?

    1. I will take up the topic of business model innovation vs. business model optimization in one of my upcoming post. I see from my consulting projects that already business model optimization does help my clients a lot since it helps them to focus their activities and to get a clear profile with their customers. Not everything in the past was bad.

      With the other points I agree. Disruption is not what the incumbents wants since they will lose the most. On the other hand, sometime if the future is dire and you have new management that can only gain from the changes a disruptive innovation is possible from inside. Happens seldom, but it happens. I have researched the Bosch Ixo Case and it is a great example. https://blog.business-model-innovation.com/tag/bosch-ixo/ The Ixo was not developed in a systematic way. It was the combination of luck, skills and the right people at the right place.

      Your last questions are the tough ones for us consultants. Luckily, I have customers who understand that cultural changes are slow and that you have to start with the first step of understanding and later with the unlearning and mobilize step. I probably not American enough like the guys from Ideo that say “if you hire me, you will be successful”. I am more humble and I think that is important since otherwise we just create a hype and later we have a big hang-over from our overselling and overpromissing. The interesting thing is that with this “slow” approach you give the managers time to rethink their business and quite amazing, some start rebuilding their business after the unlearning phase since they were mobilized through this process.

  4. I really like your emphasis on people, and the norms and values that drive how they work with one another, customers (and suppliers). The culture should contribute to or shape the company’s value promise/proposition, making the company truly differentiated. For example, if Zappos designed a business model to win on lowest price, it’s super friendly, take a-lot- of-time, offer free shipping customer service people might not be an advantage. Zappo’s culture as you point out is, instead, a driver of their success as they are winning on service.

    In an existing organization, culture is created by current leaders’ values, but also by the legacy of what worked well in the past. So there is usually a cultural norm in an organization that contributed to success in the past for the company, but now mitigates success as the marketplace or talent pool or basis of trying to win has changed. Getting leaders to identify the one (or two) necessary shift opens the door to culture change.

    Do you work side by side with your org. psych. partner on projects or do you each take different parts of the project on?

    1. Hi Kay, we work only on parts of the project together. E.g. he was this week involved in setting the objectives in the MbO process while I did a status-quo analysis with the unit heads. Next week, we will have a joint workshop where we address the senior manager together. What is your experience?

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