A 5-step Business Model Innovation Framework
- The most successful business model transformation isn't born from company reorganizations or aimless expeditions. It's cultivated from a creative process that deconstructs and reconstructs the company building blocks into a target operating model.
- A business model innovation framework may not be prescriptive but follows known patterns, methods, processes and techniques that that can be used to increase success and decrease risk.
- It is a journey best pursued with a roadmap. The Johnny Grow Business Model Innovation Framework is a 5-step methodology that harmonizes people, processes and outcomes. It applies patterns and lessons proven effective in corporate renewals and reinventions. It brings clear execution, objective measurability and the realization of forecasted results to a mission critical undertaking.
This is the third post in a three-part series about how to innovate your business model. In the first post I shared the four company building blocks that most impact business model innovation. Those constructs include customer markets, products and services, value proposition and profit model.
The strategy starts by adapting, refining, combining or otherwise changing one of more of these building blocks to achieve differentiation, competitive advantage or increased value.
In the second post I shared the four types of business model innovation. Each type comes with different levels of investment, timeline, risk and reward.
With these precursors in place, you can now turn your strategy into reality.
The Johnny Grow Business Model Innovation Framework
Innovating the company's business model is too important to be left to chance and guesswork. While the process is not prescriptive, research and experience clearly show methods and patterns that deliver repeated successes.
If your company is new to innovation a charter is helpful. It answers fundamental questions, such as the following.
- Why is innovation needed? Unless this question has a solid answer backed with financial impact and shows the consequences of no action, it's unlikely any program will be sustained. Don't make the mistake of jumping to the question of 'How' to innovate before you have thoroughly answered the question of 'Why.'
- When is it needed? For example, what measurable factors determine the need for company reinvention or the creation of novel products? I've included several examples later in this post.
- What types of innovation are needed? Will the company most benefit from a new and novel product, process or corporate model? This post is discussing the later.
Solid answers to these questions will determine the real, tangible or measurable need and be used to acquire executive sponsorship, funds and resources.
Assembling the right team is a critical success factor. We recommend a Center of Excellence (CoE) model composed of multi-disciplinary team members. That usually includes some combination of subject matter experts (SMEs), customer facing staff, line of business managers, business analysts (BAs), IT professionals, stakeholders and an experienced leader.
Customers are the best source of information for new or improved products, services and company organization. Therefore, the company should organize its customer intelligence so that customer data reveals customer preferences, behaviors, pain and priorities.
Customer intelligence is created by transforming raw customer data into metrics and insights. Many companies struggle with converting data into customer intelligence. My experience has been they usually have the customer data, although many times don't know it because it resides in so many places.
For most companies, it's best to consolidate customer data into the Customer Relationship Management (CRM) system, which is the customer system of record. The data can then be parsed and organized into customer segments, customer insights, an Ideal Customer Profile and a 360-degree customer view. This upfront investment will accelerate creative processes and deliver many other downstream business benefits.
Another prerequisite is a defined process and measurement system. No program, including company reinvention, is sustainable unless it can show clear revenue contribution and a positive ROI. We use several dashboards to track the most important measures and roll them up to revenue and ROI figures.
Finally, knowing when to improve, reorganize or reinvent is as important as knowing how. Below are some of the conditions and catalysts that drive the need for transformation.
- A market that is saturated
- A market with low customer satisfaction
- A market incurring significant change in customer behavior, technological modernization or globalization
- A market disrupted by a technology or other alterations that makes the old model inferior
- A contraction or expansion in the market
- Company incurs customer and revenue stagnation
- Company incurs margin erosion
- The bulk of company revenues come from products released more than three years ago
The business model innovation strategy will have analyzed the four underlying tenants of customer markets, products and services, value proposition and profit model and identified the opportune and high impact areas. Now its time to drill down into specific solutions.
Ideation and design follow either a push or pull process. A push process ideates solutions for problems companies or customers may not know they have. It creates a new way of doing business, or a solution, and then finds a market for it. For example, when Steve Jobs invented the iPad, there were no customers asking for tablet devices. Because the push process requires near visionary skills, most innovators revert to the pull process, which identifies unmet customer needs or pain and finds solutions for those problems.
But how do you find those big problems? You go the source and engage your customers. Customers are the best source of identifying, measuring and prioritizing pain points. Techniques such as Voice of the Customer (VoC), customer insights and white space analysis are effective methods.
Recognize that while customers know their problems and pain, they generally don't have solutions. So simply asking them what they want from a brand or product is unlikely to reveal a novel solution. Instead, you want to observe them, collaborate with them and develop or mature your customer insights.
You want to identify the job the customer wants done, the obstacles to getting that job done, any work-arounds or alternatives used, the cost of not getting the job done, and the measurable value of getting it done better.
Other sources of big problems and reinvention opportunities include the following:
- Competitors – There's a tendency to want to watch or even copy the biggest competitors. A better alternative may be to watch the startups and emerging growth competitors as their growth is more likely to be driven by next era thinking.
- Outside industries – Novel creations are quite often the transfer of existing ideas into new models or new places. Extrapolating and repurposing ideas and creations from other industries is a common technique that reduces risk and accelerates time to value. Research from the University of St. Gallen advises that 90 percent of all business model reincarnations are reassembled combinations from other business models and industries. For example, Henry Ford got the idea of an automobile assembly line after seeing a production line in a meat packing plant.
- Employees – Your staff are close to customers and their challenges. Programs to collaborate with and challenge your staff to ideate solutions can be effective.
- Industry and market trends – picking up on trends before competitors creates an opportunity for first to market penetration. Most markets are shifting at an accelerated pace. This creates an ideal business growth opportunity for those who can identify and satisfy the shift.
There are other sources such as alliances, venture capitalists and crowdsourcing but the bottom line is that successful innovators source problems and opportunities from multiple places. They will be the first to tell you that you do not need a crystal ball, you need a wide-angle lens.
With top customer pain points captured and prioritized, the company can ideate new ways of serving customers or new solutions. This process is quite often a deconstruction of the current business model constructs and a modified reassembly of those pieces.
For example, the business may shift from a company centric or product centric organization to a customer centric company. Or it may shift its customer strategy from haphazard contact management to a more formal methodology such as Customer Relationship Management (CRM) or Customer Experience Management (CXM). Or it may adopt a digital transformation strategy, shift the revenue model, change the go-to-market model or any one of numerous other options.
When evaluating the myriad of opportunities, recognize the most successful reinvention will build on the company's core competencies, sustainable competitive advantages and culture. Maintaining this alignment will lower risk, accelerate progress and deliver longer-term financial benefits.
The sources and techniques of the business model innovation framework are not singular. You are much more likely to find the greatest value with a mix or combination of factors.
Good ideas are a dime a dozen. Unless you can commercialize them at a profit it's all for not.
Financial forecasting is needed to prioritize proposed changes, acquire funding and bring financial accountability and a measurement system to any roll-out.
It's often the lack of forecasting that fails to get otherwise good ideas into the market. Consider how Kodak invented digital photography in 1975 but did not capitalize on it. Or how Xerox invented the mouse, the laser printer, and the graphical user interface but left those creations to other companies to take to market and reap the rewards.
Start with a Pilot
The pilot phase bridges the gap between aspiration and realization by shifting a novel idea from the drawing board to market execution.
Changes to company organization begins a high risk phase but the risk can be lowered by using a pilot. This approach introduces a smaller number of variables that can be more tightly measured and controlled.
The pilot will validate the proposed changes, including their assumptions, realization of slated goals, market acceptance and financial payback. The business model innovation framework may organize a pilot to be isolated to a single business unit, line of business, geographic location or a similar company subset.
The pilot will execute, measure and iterate. Many times, multiple fast-paced iterations are required.
Roll outs using a smaller scale pilot require fewer resources and expense. They also increase the speed of adjustments, iterations or pivots.
Once the pilot has demonstrated a path to success a broader go-to-market plan can be executed.
Go to market is all about building repeatable and predictable processes to scale execution. That said, it is not without real-time adjustments that respond to variances and the pursuit of continuous process improvement.
There's often a tendency to want to scale early. However, that inevitably creates growth pains that end up delaying longer term progress. The business model innovation framework uses performance dashboards to measure deviations, and generally suggests scaling to the pace where variances exceed a threshold value.