At each of my workshops we usually discuss what the obstacles to business model innovation are in companies. I thought it could be interesting to open up this discussion to the Web through my blog. Please share your experience rather than just an opinion.
Some of the most frequent points mentioned were:
- current success – it prevents companies from asking themselves how their business model could be replaced
- risk avoidance – people are often unwilling to take risks on a personal level, but also as an organization. It is easier to stick with the status quo.
- organizational structures – because they are not designed for new business models to emerge. They sustain the status quo.
- lack of customer understanding – of course organizations understand their customers, but not good enough to design new business models that address their emerging needs.
- required size of innovations – in big companies a potential new business model must immediately demonstrate an opporunity of millions of additional revenue.
These were just some few points to kick-off the discussion. Please share your EXPERIENCE!
You may also want to share your experience from a start-up perspective. What is preventing start-ups from more business model innovation (though many innovative BMs come from that universe…).
My experience for the hardest “obstacle to business model innovation” is company culture. Especially when I used to work for a company where the youngest employee is already working for that company over 11 years. All advantages of ‘the new’ are recognized but no matter the arguments for implementation the questions remains: “why? we already work like this for over 20 years and it still works.”
@Lerou absolutely… I usually tell people about the music and airline industry. That shows them what can happen when you are not prepared for change, once the competitive landscape suddenly changes…
Experience from a start-up perspective: Customers and investors.
When you’ve spent years working on an innovative project, you’re generally far ahead of the curve compared to most potential customers. They do know what they want, but they haven’t had the luxury of spending a lot of time getting to the bottom of what they’d really need. This even goes for me-too-startups that innovate only locally by introducing a business model here that has already taken hold elsewhere – they too have to overcome customer inertia. Example: New kinds of marketplaces charging per sales lead rather than confirmed sale (in order to align incentives in their model) in the travel industry. As William Gibson famously remarked, “The future is already here – it is just unevenly distributed.”
Perhaps worse, or at least sadder, is the fact that the vast majority of investors – yes, even the early stage VCs clamouring for earth-shattering disruption – are wolves only when it comes to the numbers, but behave much more like sheep with regard to new business models. Basically, they translate new = unproven = risky, and stick with the herd. Of course there are positive exceptions. But the overall climate tends to push entrepreneurs to innovate preferably in other areas that are easier to sell – be it to customers or to investors.
My experience in working with companies is that org structure (silos) and a strong reliance *existing* performance metrics are what impede business model innovation the most.
Few ideas – most of them are interdependent:
1) Top management not convinced of the necessity/added-value which could be derivated from BMI
2) Corporate culture not suited for innovation (including business model innovation)
3) Lack of know-how/methodology on the "how-to" make it happen
4) Lack of customer insights to really understand HOW to change the rules while creating value
5) Strong liability to specific assets that the company wants to amortize and that would become useless depending the business model (ex: massive IT infrastructure)
6) Investor understanding (ex: SAAS business model decrease short-term financials but create value on long-term VS classic licensing model ==> difficult to understand for uneducated investors)
7) Innovation = change = risk for lot of stakeholders (including shareholders)
9) Not enough competitive pressure (ex: on pricing ==> current way to proceed with supply is enough)
I agree with all the possibilities explored by the other comments. Here’s a few more from a time when I was working within 3 different start-ups:
Getting close to the customer is a great source of innovative ideas for transforming the value proposition, business model and relationships with customers. Yet getting close to the customer can also be: the “kiss of death”, a good way to get shot down by internal management via “shoot the messenger” syndrome, and an avenue to get branded as a traitor. Those committed to selling what is already offered with great enthusiasm and determination, see new suggestions, complaints and unmet needs from customers as disparaging remarks, threats to the brand and enemies of sales growth. Siding the the customer’s seeds for business model innovation takes some foolhardy heroes with one foot already out the door.
Getting the existing customer base convinced of the current value, price, terms, schedules, etc — is an uphill battle. Advancements are hard won and losing ground becomes a crisis for the start-up. Convincing the customer is so difficult because the there is too much telling by the sellers, not enough listening, learning, dialoguing and discovering. But it appears that changing the business model would only lose ground, make the sale that much harder and introduce skepticism in the customer’s thinking. the only proposals under consideration are how: to be more convincing, to close more deals and to beef up the profit margins.
The entrepreneur who started a company brings a lot of talent on board following a honeymoon with the market. Some of the new staff manage up effectively and get “inside seats”. Those that manage down well get great commitment, initiative and cooperation from colleagues and below. The house becomes divided and gets embroiled in office politics. The two sides see each other as incompetent, uncommitted to the company, steering the ship in the wrong direction, driving blind, etc. They cannot find common ground, shared objectives or the patience to listen to each other. The space for business model innovation is unavailable until further notice.
One obstacle to innovation is when companies choose to focus on their best customers. Firms will adapt their products/services to meet their current customer’s needs, thereby alienating the untapped market whose needs are not addressed, which leaves the market open to a competitor. Fascinating concept by Clayton Christensen. Keep up the good work Alex.
I think that all the factors you have cited are important, although I think that they also all involve abstractions from context and experience.
We need to remember that it is people who avoid obstacles. Innovations are not agents and the obstacles “they” encounter are really the human pitfalls of their agents, makers, advocates, etc.
A hugely important dimension to these factors, therefore, concerns the phenomena of what psychologist Martin Seligman referred to (in a very different context) as “learned helplessness”:
1st we might call a problem of “vision”: people who become habituated to success, a particular way of doing things or a stable culture develop a myopia which causes them to reduce their field of “vision” and eliminate their perception of other possibilities.
2nd is a problem of trust: business model innovation is not the work of isolated individuals and therefore depends on strong relations of trust. In many contexts the rewards for trust are low, and the presence of incentives to take personal risks are correspondingly low. Successful innovation of all kinds requires building and rewarding trust to support shared risk.
3rd is a problem of openness: a lack of openness is the product of either a :cover your ass” culture or of a system that emphasizes an economics of necessity: or both. When nothing “extraneous” is permitted, organizations and groups squelch out the possibility that the new will present itself or be considered.
4th is the problem of freedom: this last point concerns the authority or sense of “permission” that people feel or don’t to depart from established norms, especially into areas where ambiguity and uncertainty are high. But this is the inevitable territory of innovation, what Nassim Taleb calls the “fourth quadrant”. People need to practice freedom, to develop a sense for doing what the situation requires or call for rather than simply “doing what they are told.”
Adding to what Michael has contributed, I suspect these cognitive resources (vision, trust, openness, freedom) are available in a pre-launch phase where survival of the enterprise is not yet at stake. Start-ups can conceptualize business model innovations before they have customers to serve and capture revenue from. These cognitive resources become inaccessible during in the post launch phase that has been called the "downside of a hype cycle" (Gartner), "the dip" (Godin), "the red ocean" (Kim & Mauborgne), "mediocristan" (Taleb) or "the chasm (Moore). The introduction of rivals, costs, deadlines, etc — changes the psychology of the innovators. I wonder if these resources get revived by the humbling experience of not yet "hitting a home run". There may be a second window of opportunity for business model innovation when the start-up regroups and goes about "finding a bowling alley" (Moore), "remixing the strategy canvas to tap a blue ocean market space" (Kim & Mauborgne), formulating a purple cow' (Godin), or "seeking extremistan" (Taleb).
Regarding risk avoidance, I find that most “leaders” put more energy into minimizing the downside of business model innovation than maximizing the upside. And in doing so they opt for “mild” when they should explore “wild.”
As a young entrepreneur, and a designer, I don’t find innovating business models all that hard. But of course, innovating WORKING models? Ok that’s hard. Having been involved in this process f
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Feedback cycle:
Even once you think you “get it right” in a prototype, the feedback cycle takes a long time. Building a plan to execute the new model, implementing it, and getting a market response take time.
Solutions:
Run it by an unbiased board of advisors.
Do quick financial “sketches”
Compare your “new” business model to others out there, is it a big change for you but less original within the sector? The market?
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Lack of Contextual Knowledge:
A lot of great ideas are out there already, especially outside your sector and area of expertise. Some problems you’re innovating on from scratch, that sector has been hitting for decades.
Solutions:
Think about what sector might have innovated in this area, and what can you borrow from them?
Bounce your ideas of people who work in different sectors with different models.
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Getting stuck on one block:
Within the 9 building blocks, I’ve noticed people tend to get stuck on one block. A lot of people think of business models as “Revenue” opportunities only, or internal structural changes only. Working on one without switching to the other after a while results in incoherent models with weak relations between the blocks.
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Losing the big picture:
In conversation its easy to forget WHY you’re doing this in the first place and try to tie together bits and pieces from all over and calling that a business model. Its easy to screw that one up.
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Arguments:
People like to be right, and I’ve seen that inexperienced business modelers tend to conversationally discuss/argue implementation methods, customers needs, market needs, etc. A decent discussion takes 10 minutes. Using the canvas to explore first only takes a few minutes tops, and leaves you with an artifact to work from.
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Iteration Length:
Professionals know how long to iterate within their field. Those not used to business model innovation tend not to spend enough time exploring an iteration, or far too much time exploring one. You end up with too many weak alternatives, or too few.
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When is it done?:
A classic design issue. You can tweak something forever, but having a team recognize a breakthrough, and then not tweak it to death is difficult. I’ve personally come up with great business ideas, and then accidentally tweaked them away from their core value by continuing to play with them too long. I think this just takes experience.
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Discussion without documentation:
Since documenting business models is hard, its easy to slip into a dicussion without externalizing the ideas to the walls of the room.
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With all that said, as a younge entrepreneur, most of the problems are with the process of working with a group, rather than hierarchical and organizational difficulties. Creating an effient and effective environment to generate and recognize opportunities quickly is what I hope this blog/book is able to help people do.
Thank you to all for sharing your experience and ideas.
@Alan: thank you for this in depth sharing of your experience. Good material. Great analysis. Very helpful to work with!
My experience is 3-fold – as an innovator, as a partner in a venture capital firm focused on early stage companies, and as a consultant working with mid-large cap companies:
1. Innovator – the main obstacle was a combination of risk-aversion and plain old lack of understanding – as if we were talking another language – the company, with a strong R&D subsidiary I was in, was used to innovation around products and services (basically technology-based innovation) – the concept of biz model innovation was just foreign – it was as if I was speaking japanese – it was the unknown – so my job was to explain over and over again, use metaphors, examples, etc. to help then 1st understand what biz model innovation was (not just a different way to generate revenue) and then to buy into applying it to this new innovation (which was a technology-based service);
2. Venture Capitalist: we see few biz model innovations again because most of the entrepreneurs we see are defining innovation around a product/service…some of this is because of history of the region and indigenous industries such as manufacturing (heavy) and biomed/biopharm…they are used to making things and think of those as the 'innovation.' — So our role as venture capitalists is to help them think of new biz models alongside the new 'thing' – how can they bring this new 'thing' to market in a new way (e.g., biz model);
3. Consultant to mid-large cap companies: The main issue I see here is fear which is sometimes the same as risk aversion…there is the perception in executive mgmt that while you don't want a product or service to bomb, the 'risk' to one's reputation isn't as bad as messing up the biz model – the comments I get are along the lines of, if we mess up a product or service, depending on scale and scope, we don't totally risk the brand – we can recover with another product/service, an enhancement, etc., but if we mess up the biz model, we can't recover – there is no going back, it's permanent, expectations have been set or ruined, etc. etc. Trying to convince them to 'pilot' a new biz model with a certain segment, market etc., is difficult because they perceive biz model innovation as all or nothing vs. offering a product/service to a particular market -they don't see it in the same light – yet.
By the way, IBM has a very very interesting study they published recently called "The Enterprise of the Future" – it's part of their Global CEO Study series and it discussed biz model innovation – defines it a bit more specifically – around pg 47 of the document – which is found at: http://www-935.ibm.com/services/us/gbs/bus/html/ceostudy2008.html?&ca=smbGlobalCEOStudy&re=SMBMMFuture
Senior management may be risk averse. This reects the existing org culture and the values of the very top leadership.
This (and observation) lead me to the conclusion that a lack of talent in some senior managementteams is a serious blocker of innovation.
All very interesting! I’m in the middle of writing a marketing plan for a pharmaceutical company. Who ever said not knowing your customer I think was spot on and I would add to it the inability to or simply ignoring customer education.
P.S. I started a blog recently and would love some feedback!
http://cultureshockbec.blogspot.com/
Alex,
I believe that a big obstacle for change and transformation within organizations is … gender!!!
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Serious!
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There are to many men managing companies! Men are very good with concentration, with concentrated or focused attention. Because of that, most of managers can only deal with one topic at any moment.
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But organizations need “jongleurs”, people able to deal with the current company (the urgencies), and, at the same time, deal with the desired future for the organization, deal with the managing of the transition from today to the desired future, and still deal with the feedback during the voyage to the future.
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Normally, the presents occupies the whole prime time of attention, and is very hard to put men dealing with 4 comapnies at the same time (today, desired future, transition and feedback)
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Women are more able to deal with dispersed attention.
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CCz I agree with you about the lack of women in companies, but I am not sure if I would buy your argument.
One thing I do think women could bring in is a different type of leadership style. One that is more participatory and less dominant…
Just to keep the discussion moving:
http://blogs.harvardbusiness.org/haque/2009/03/ideals.html
When I read the comments I have the feeling that we might be missing an important point. I wonder if we should "blame" core business for the problems with innovation. A company's business model is its most holy asset. It is an engine finely tuned to deliver value. What I mean is that once a company has found its right business model, it performs a concious choice of locking the space of innovation by focusing on giving areas, under a given dynamics. A core business model is optimized for operational efficiency, and this shapes the innovation practices, the profile of the people required, etc. The people that run the core business innovate "within" the business model.
On the other hand, it is evident that companies must develop the ability to explore beyond their business model, having people able to continuously check the blind spots generated by the focus of the core business.
At the end, what I am trying to say is that instead of having a dialectic discussion on how different the cultures are, we should be focusing efforts on understanding how we can merge them without clashing. The real challenge is to "emulsify" (sorry for the chemical analogy!) these very different cultures.
Francisco, I couldn't agree more. The goal is not to "blame" the core business model. The challenge for companies is to maintain a business model portfolio carrying the seeds for tomorrow's successful business model…