Tag: Christensen

Can you design business models? A review of "Seizing the White Space."

[cross posted at FASTforward blog]

Seizing the White Space: Business Model Innovation for Growth and Renewal, Johnson, Mark W.

What is a "business model" and can you create a new one in a systematic and disciplined way? That’s the question that Mark Johnson, chairman of the consulting firm Innosight, sets for himself in Seizing the White Space.

The term entered the popular business lexicon during the dotcom boom in the late 1990s. There wasn’t any particular definition behind the term at the outset. Effectively, it was shorthand for the answer to question zero about any business – "How are we planning to make money?" Before the dotcom boom, nine times out of ten, the answer was "we’ll copy what Company X is doing and execute better than they do." During the boom, the answer seemed to be "we have absolutely no idea, but it’s going to be great." Now we recognize that both of those answers are weak and that we need some theory to design answers that are likely to be successful.

Over the last decade and a half, there’s been a steady stream of excellent thought and research focuses on building that theory. One of the major tributaries in that stream has been the work of Clay Christensen on disruptive innovation. Christensen and his colleagues, including Johnson, have been engaged in a multi-year action research program working out the details and practical implications of the theory of disruptive innovation. Seizing the White Space is the latest installment in this effort and is best understood if you’ve already invested in understanding what has come before.

Johnson starts with a definition of white space as

the range of potential activities not defined or addressed by the company’s current business model, that is, the opportunities outside its core and beyond its adjacencies that require a different business model to exploit

p.7

Why do organizations need to worry about white space? Even with success at exploiting their current business model and serving existing customers, organizations reach a point where they can’t meet their growth goals. Many an ill-considered acquisition has been pursued to plug this growth gap. Haphazard efforts at innovations to create new products or services or enter new markets get their share of the action.

Johnson combines an examination of white space and business models in an effort to bring some more order and discipline to the challenge of filling those growth gaps. One implication of this approach is that the primary audience for his advice is existing organizations with existing successful business models. He is less interested in how disruptive innovation processes apply in start up situations.

Johnson’s model of business models is deceptively simple. He illustrates it with the following diagram:

Johnson-WhiteSpace-Four-BoxBusinessModel

Johnson expands the next level of detail for each of these elements. Most of that is straightforward. More importantly, this model places its emphasis on the importance of balancing each of these elements against the others.

In the middle third of the book, Johnson takes a deeper look at white space, dividing it into white space within, beyond, and between which correspond to transforming existing markets, creating new markets, and dealing with industry discontinuity. It’s a bit clever for my tastes, but it does provide Johnson with the opportunity to examine a series of illuminating cases including Dow Corning’s Xiameter, Hilti’s tool management and leasing program, Hindustan Unilever’s Shakti Initiative, and Better Place’s attempt to reconceptualize electric vehicles. While the organization of the stories is a bit too clever, it does serve a useful purpose. It takes a potentially skeptical reader from the familiar to the unfamiliar as they wrap their heads around Johnson’s ideas.

With a basic model and a collection of concrete examples in hand, the last third of the book lays out an approach to making business model innovation a repeatable process. This process starts from what has evolved into a core element of Christensen’s theories – the notion of "jobs to be done." This is an update on Ted Levitt’s old marketing saw that a customer isn’t in the store to buy a drill but to make a hole. The problem is that most established marketers forget Levitt’s point shortly after they leave business school and get wrapped up instead in pushing the products and services that already exist. "Jobs to be done" is an effort to persuade organizations to go back to the necessary open-ended research about customer behavior and needs that leads to deep insight about potential new products and services.

With insight into potential jobs to be done, Johnson’s four-box model provides the structure to design a business model to accomplish the job to be done. In his exposition, he works his way through each of the four boxes, offering up suggestions and examples at each point. With a potentially viable design in hand, he shifts to considerations of implementation and, here, emphasizes that the early stages of implementation need to focus on testing, tuning, and revising the assumptions built into the prospective business model.

Johnson clearly understands that creating a new business model is a design effort not an execution effort. Seizing the White Space puts shape and structure underneath this design process. All books represent compromises. The compromise that Johnson has made is to make this design process appear more linear and structured than it can ever be in practice. He knows that it isn’t in his emphasis on the need to balance the elements of a business model and  to learn during the early stages of implementation. There’s a reason that the arrows in his four-box model flow both ways. I’m not sure every reader will pick up on that nuance.

He also clearly points out the role of learning from failures as well as successes during implementation. But the demands of fitting the story into a finite space again undercut this central lesson. The models here will go a long way toward making business model design more manageable, but they can’t make it neat and orderly.

This review is part of a "blogger book tour" that Renee Hopkins, editor of Strategy and Innovation and Innoblog, arranged.

Previous stops on the tour:

Upcoming stops

If you’re interested in digging deeper into the work of Clay Christensen and his posse, here are some previous posts where I’ve pulled together some reviews and pointers. I hope you find them helpful.

Innovating innovation: An Interview with Scott Anthony of Innosight

[cross posted at FASTforward blog]

Scott Anthony of Innosight Back in late May I got an email from Renee Callahan who edits Strategy and Innovation asking if I wanted to be part of a "blogger’s virtual book tour" for Scott Anthony’s soon to be released book, The Silver Lining: An Innovation Playbook for Uncertain Times. Who could resist? Especially for a book I was planning on reading anyway. I’m one of five bloggers speaking with Scott about his first solo book, The Silver Lining. The first three interviews can be found at

 

and Boris Pluskowski will wrap it up tomorrow at The Complete Innovator. One excellent fringe benefit of this effort is discovering four new bloggers worth following.

Scott is the President of Innosight, a boutique consulting firm founded by Clay Christensen of the Harvard Business School. I caught up with Scott two weeks ago just after his return from trips to England, Switzerland, and Singapore. Clearly Scott was going to benefit greatly from the virtual aspects of this book tour. You can find my review of The Silver Lining at Constraints and innovation – is there a silver lining? What follows is an edited transcript of our conversation. I’ve also added links to supporting ideas and materials that we referenced during our conversation.

Chunking innovation processes

The Silver Lining advocates breaking the innovation process down into smaller chunks so that you’re not betting on a single roll of the dice. What lessons do you think you’re learning about managing the innovation process?

Scott: If you break things down into enough component pieces, you increase the odds that luck will turn in your favor. And that too goes to the whole notion of having a portfolio. If any one thing doesn’t work out that’s OK because you’ve got something else right behind it.

Now, you can take that to an extreme. You couldn’t take the notion of "let a thousand flowers bloom" inside a company because they can’t manage that kind of complexity but there is something to be said for having eggs in more than one basket.

That’s an interesting observation about the organizational capacity to manage complexity and dealing with the tension between the level of granularity you might like to have vs. the level you’re capable of managing. What about the rhetoric pushing for more market like processes within organizations?

Scott: Even the poster child of the full market approach, Google, is saying ""Hey, something isn’t quite working here. We need to instill a bit more rigor and discipline in these innovation processes. Because while we appear to be great at inventing, we aren’t great at actually innovating and creating an income statement that has more than 3% of our income in something other than search based advertising."

Innovation factories and their limits

How has Innosight’s mix of work shifted from finding and designing individual innovation ideas to putting more structure and discipline around the innovation process?

Scott: Not surprisingly, the mix has shifted toward the latter, although the two are inextricably linked. Five years ago, 80-90% of our work was "I’ve got this ideas, what do I do with it?" or "I don’t have any ideas, can you help me come up with some?" Today,50- 60% of our mix is "I need to build capabilities so this isn’t a one shot deal. How can I create an ‘Innovation Factory’ so I can churn out businesses."

I’m always a bit suspicious of factory analogies around knowledge intensive processes. How have you managed to create disciplined innovation processes without killing real innovation?

Scott: It’s a really delicate balance, There has been academic research that shows that the better organizations get at six sigma kinds of processes, the better they get at incremental innovation and the worse they get at disruptive innovation.

The notion that there is discipline in innovation is absolutely critical. The notion that disruptive innovation can be managed and can be mastered is absolutely critical. But you have to also recognize that it’s an intensely human effort so you cannot treat it the same way as an assembly line. I use those metaphors with some caution inside companies, because I know someone will ask me for the forms to be filled out.

P&G is one of the companies I’ve drawn examples from in the book. I know them and they’ve been very generous in sharing their experiences.That’s one of the sources of tension inside the company. They are a very process focused organization and have great stage-gate capabilities. What we’re telling them is that for some of these things you’ve got to trust the gut and intuition of a human being. If you don’t do that, you’re going to make the wrong decision. Some people are comfortable with that and some people are getting there.

Lessons learned about innovation processes

Have you found methods or practices in the way you deliver your intellectual capital or ways to structure the process and its metrics that have proven particularly effective?

Scott:If you go back to The Innovator’s Guide to Growth, which we published last year, versions of the qualitative measures we talked about in Chapter 6 are proving helpful. These qualitative and light quantitative measures help

The other thing we’ve come to believe is that it’s hard to do disruptive innovation in particular democratically; to be something that works at a grassroots level. Senior leaders either need to create a situation where there’s a great deal of organizational autonomy and people don’t have to go through standard operating procedures, or they’ve got to get personally involved. Otherwise, the efforts just stall out at some point.That was always in the literature, but from the field experience we believe it even more strongly.

Interesting…in other areas, such as the Enterprise 2.0 space that Andrew McAfee describes and the organizational changes triggered by new forms of collaboration technology, you see an argument that the grassroots is the place to start. Is it the particular characteristics of disruptive innovation  that means you’re going to need a level of organizational air cover to succeed?

Scott: I’m absolutely sure that is the case. There’s a classification scheme out there which would make it clear how to handle a particular innovation. It could be fit with the business model, or degree of certainty you have, it could be degree of fit with your current capabilities. It’s certainly clear that there are things that not only can be done at the grassroots, but have to be done at the grassroots to work. But there are other things where if you don’t have the ”grasstops" leading in the right way, it just will not work. You need to have that supportive environment or the grassroots just wither and die.

Isn’t there a third level where you have to have a level of senior leadership engagement beyond the level of simply providing a supportive environment?

Scott:I’ve seen two benefits from this. One, a senior leader can do things that other can’t. A senior leader can route around existing processes in ways that a line manager can’t.

There’s a second thing a senior leader is able to do. Typically senior leaders haven’t got where they are by accident. They got a lot of informed judgment and intuition about industry space. Now, for some people that can lead to them having blinders on, but for others it gives them a tremendously good feel for a market space. That makes them hugely value-added team members, if you can get them to act in that kind of role. They know a lot from their accumulated experience and that allows them to say "that might work, but you need to do it this way" or "we tried this in 1973 and it didn’t work. If we made this change it might work today."

Value of shared frameworks about disruptive innovation 

Isn’t the challenge there to equip senior leaders with a better feel for the underlying intellectual capital? To make sure they’re equipped with the right vocabularies and distinctions so that they don’t short circuit the process with "we tried that in 1973 and it’s not going to work."

Scott: There’s a huge role in all of this in having a common language in order to support the necessary culture change. It’s important to have those common frameworks, those common guides to discussion. The other thing that I really strongly urge senior leaders to do is to make sure they are bringing in different voices to these types of discussions.

It’s very easy to fall into the 73 trap of "we tried that and it’s not going to work." An outside person can say "yes, but it’s now 2009 and these are the three things that are different." You just don’t understand the unstated assumptions you are making until someone states them.

Jobs to be done

I’m struck by how the notion of "jobs to be done" appears to be a centerpiece of your work. It feels a lot like Ted Levitt’s old observation that people don’t buy drills because they like drills but because they need to make a hole somewhere. I’m curious as to what you see as the strengths of that element of your intellectual capital and where you see the limits and edges of that particular idea.

Scott:  "Jobs to be done" isn’t a new notion at all. You can reference Levitt and you can go back to Drucker’s observation that your customer is rarely buying what you think you’re selling. In the world of innovation Dick Foster had pointed out many of the same phenomena in his work in the early 1980s. The hard part in these things and what Christensen did was to get the causal mechanisms and language right. He gave people a language to talk about it and tools to do something with it in a useful way.

That to me is the hard part about the ‘jobs to be done’ notion. The concept is easy. The hard part is what do I actually do with these intuitively appealing stories as a line manager?  Providing that next level down to break this apart into a fundamental problem of a job to be done, some performance metrics to measure how well its being done, the barriers customers face, and some potential new solutions for them is the challenge. I think we’re maybe in the second or third inning of at least nine to go in terms of developing the tools and approaches that can really help people crack the nut on this one.

To be honest, I’ve been surprised about this. I remember back in 2002 when I was working with Clay and he was working on The Innovator’s Solution. In a very early draft of the book, Clay thought that the biggest idea in the book was the notion of jobs to be done. He wanted to call the book "Getting the Innovation Job Done." I told him he was crazy. The idea was too simple and I had to believe that people had already solved this problem.

As I’ve since learned, Clay’s intuitions were right. It’s an elegantly simple idea and not a new one at all. What Clay did was provide a language system and tools to work with the idea in a useful way.
I have to keep reminding myself of what Bob Sutton and Jeff Pfeffer pointed out in The Knowing-Doing Gap. Having the right tool or framework only solves about 5% of the problem. It’s why we exist as an organization. If people could just read books and have the answers to everything, there would be no need for them to hire Innosite, McKinsey, Bain, or any other consulting firm. The knowledge is all out there, but actually doing it inside a large, complicated organization is very challenging.

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A reader’s guide to Clay Christensen and disruptive innovation

[cross posted at FASTforward blog]

A dozen years ago, at the height of the dotcom boom, Harvard Business School professor Clay Christensen published The Innovator’s Dilemma. It started from a simple observation that transformative innovations that reshaped competitive landscapes and created new industries almost invariable came from new organizations. Conventional wisdom held that this was a reflection of poor management and decision making on the part of incumbents. Christensen started with a more interesting, and ultimately more productive, question. What if it was sound management practice on the part of incumbents that prevented them from investing in those innovations that went on to create new industries? This question and Christensen’s research led to his distinguishing disruptive vs. sustaining forms of innovation. I originally reviewed the book in the Spring 1998 issue of Context Magazine. It became the bible of consulting firms working in the dotcom space. Every proposed idea was labeled as disruptive. Who knows, some of those consultant’s might even have read the book.

Meanwhile, Christensen and his colleagues and collaborators continued to work out the ideas and implications of his emerging theoretical framework. The Innovator’s Dilemma was followed by

  • The Innovator’s Solution: Creating and Sustaining Successful Growth.

    In this book, Christensen begins to lay out how you can take the notions of disruptive innovation and use them to design a reasonable course of action in the absence of the kind of analytical data strategy consultants desire. Disruptive innovations attack either the lower ends of existing markets where there are customers willing to settle for less performance at less cost, or new markets where a new packaging and design of available technologies creates an alternative to non-consumption. The example I found easiest to understand here was Sony’s invention of the portable transistor radio. Compared to vacuum tube radios the first transistor radios were crappy, but good enough for teenagers and others on the go whose alternative was no music at all.

  •  Seeing What’s Next: Using Theories of Innovation to Predict Industry Change.

    In this third effort to work out the implications of distinguishing between sustaining and disruptive innovation, Christensen and his collaborators shift their attention from individual competitors to industry level analysis. They take their theoretical structures and apply them across several industry settings and ask how those particular industries (education, aviation, health care, semiconductors, and telecommunications) are more or less vulnerable to disruptive innovation strategies. What Christensen and colleagues are doing here is to begin integrating their innovation theories and Porter’s theories of competitive strategy. This is not so much a case of seeing whether their new theoretical hammer can pound strategy nails as it is of whether they are making progress in creating a new and robust toolkit for strategy problems.

  • The Innovator’s Guide to Growth: Putting Disruptive Innovation to Work, Anthony, Scott D.

    This volume is written by Scott Anthony and several other collaborators of Christensen who are putting his ideas to work at the consulting firm Innosight. They develop the next level of operational detail to transform strategic insights into execution details. If you re an organization seeking to develop its own disruptive strategy, the authors here have worked out the next level questions and identified the supporting analyses and design steps you would need to answer and complete. This volume is not a teaser; it s complete and coherent. You could pretty much take the book as a recipe and use it to develop your project plans. On the other hand, the plans by themselves won t guarantee that you can assemble a team with the necessary qualifications to execute the plan successfully. The other thing that this book does quite nicely is identify the kinds of organizational support structures and processes that you would want to put in place to institutionalize systematic disruptive innovation.

This core of books would equip you with a robust set of insights and practical techniques to begin thinking about when and where you might attempt to develop and deploy new products, services, and business models in disruptively innovative ways. The one area that is underdeveloped in this framework is that of design. There is an implicit bias in the material that tends to keep design in the "perform magic" category. I believe this is part and parcel of the general execution bias of business literature in general. Design is flaky, creative, stuff and real managers distinguish themselves on execution. But that is a topic for another post. These books belong on your shelf and the ideas belong in your toolkit.

A workbook on doing disruptive innovation effectively

[cross posted at FASTForward Blog]

The Innovator’s Guide to Growth: Putting Disruptive Innovation to Work, Anthony, Scott D. et.al.

The Innovator’s Guide to Growth is the newest installment in a series of books articulating and explicating Prof. Clay Christensen’s theory of disruptive innovation. This hands on guide packages some of the insights developed as an outgrowth of the consulting work of Innosight, LLC, the consulting firm founded by Christensen to pursue the practical insights from his research at the Harvard Business School. If innovation is part of your current or prospective job description, this needs to be on your shelf (after you’ve read it, of course).

Christensen’s theories of disruptive innovation appeared first with the publication of The Innovator’s Dilemma in 1997. During the worst excesses of the dotcom boom, every start up business plan including an obligatory head nod to Christensen and an assertion that their business model was truly disruptive. Who doesn’t want to be innovative; ideally disruptively so. Christensen and his colleagues have continued to develop his theories in The Innovator’s Solution: Creating and Sustaining Successful Growth, Seeing What’s Next: Using Theories of Innovation to Predict Industry Change, and now The Innovator’s Guide to Growth.

Christensen distinguishes two forms of innovation — sustaining and disruptive — not in terms of their technological features but in terms of their relationship to markets. The distinction in summarized in the following diagram reproduced from The Innovator’s Guide to Growth.

Christensen-DisruptiveInnovationModel

In essence, Christensen’s theory of disruptive innovation flows from recognizing that the pace of technology improvement is generally more rapid than the capacity of users in the market to take advantage of those improvements. This differential is what open possibilities for differing approaches to innovation.

In this market oriented theory of innovation, there are three paths available to organizations interested in articulating potentially disruptive strategies. The first is to identify and target “nonconsumers;” potential consumers for whom existing technologies fail to meet their particular needs. The second is to identify existing customers where existing technologies are more technology than they needs. The final is to investigate potential consumers in terms of what Christensen’s theory describes as “jobs to be done” as a path to defining new products and services to perform these jobs. I must confess that I still find this path the least well articulated aspect of this theory.

Throughout this book, the authors start by recapping the essentials of Christensen’s theoretical arguments and proceed to develop the next level of operational detail it takes to transform strategic insights into execution details. If you’re an organization seeking to develop its own disruptive strategy, the authors here have worked out many of the next level questions and identified the supporting analyses and design steps you would need to answer and complete. The authors are clearly competent and talented consultants who are willing to share how they manage and do their work. Their hope, of course, is that many of you will conclude that you need their help to do the work. What is nice here, is that they are confident enough in their abilities that they are quite thorough in what they share. This volume is not a teaser; it’s complete and coherent. You could pretty much take the book as a recipe and use it to develop your project plans. On the other hand, the plans by themselves won’t guarantee that you can assemble a team with the necessary qualifications to execute the plan successfully.

The other thing that this book does quite nicely is identify the kinds of organizational support structures and processes that you would want to put in place to institutionalize systematic disruptive innovation.

Christensen and his colleagues are continuing to build a rich, systematic, theory of disruptive innovation. With roots in academic research, they are freely sharing their insights and their methods. The Innovator’s Guide to Growth is a solid workbook that will let you develop your own skill at doing disruptive innovation. Of course, the plan by itself won’t eliminate the need to gain the experience for yourself. But it’s a lot better strategy than to have to work everything out from scratch on your own.