How to design the future of your organization
- Business Model Innovation
- Design Thinking
- Design your Strategy
Most renowned companies have made development, growth, and maintenance of their product and services portfolio into an art. A portfolio with the sole purpose of sustaining and growing that what you currently have – what you currently are. A lesser-known capability is to develop, grow and maintain a portfolio on innovation. This portfolio will bring you where you want to be in the future, with which you’ll make a difference in the long term. Why? It requires completely different mindsets and capabilities.
Search versus Execute
Anyone familiar in the field of innovation – Steve Blank wrote about it in 2012 – knows that future proof companies need to master two key competencies: search and execute.
Execution is about growing and maintaining your already proven business model(s). You know who your customers are, you know what value they are willing to pay and you can determine with a fair accuracy which buttons you need to turn to increase your impact.
Search is about exploring, validating and growing new business models with corresponding value propositions. These are adjacent to – or totally different from your current business. These new models often enter unknown territory for your organization in one or more areas. As such, you have to deal with a high degree of uncertainty. This makes it difficult, or even impossible to predict in advance if – and how much impact you can make.
As you can already sense, the organizational structure, people and mindset that you need for execute and search are completely different. One side of the organization relies on predictability and avoids risk as much as possible. The other side of the organization has to embrace uncertainty, and with it a risk, to be able to explore new value.
After the first most entrepreneurial years of the organization, established companies now realize that their Search competence has fallen behind. Consequently, they take action to regain this. To do so, they often engage in Design Thinking courses to learn to cope with uncertainty and they organize hackathons and accelerators to pull their people out of the daily execution mindset.
What the organization doesn’t realize is that these initiatives are launched by the people (and mindset) who have become successful through excellent execution. It is therefore not surprising that “innovations” with potential often fail due to a lack of results in the short term, lack of commitment, or a lack of decisiveness. As a result, innovation is managed as a single project, risk-averse, with an ad hoc process and carried out by people (or managers) without any Search experience.
To give innovation a sustainable place within your organization, you shouldn’t start a project, but a movement. Innovation isn’t an action, but an essential part of your company. You’ll need to develop a Search competence.
A guiding vision
Every movement starts with a direction – an idea of where you want to go. A vision of the future. Without movement, you’re stuck in your current situation. Without direction, you can’t move towards the same goal. A guiding vision is a prime requirement to both mobilize your game changers within your organization, and those who find it too overwhelming to embrace the uncertainty.
Over time, a direction founded on customer behavior or customer needs has proven to be much more valuable than one based on the changing landscape of technology and competition. A future-proof vision is, therefore, a customer-driven vision. So, rather than “becoming number one in the industry,” you’ll want to aim for creating more value for your current or future customer.
If you fail to do so, before you even realize it, your industry will be transformed while you’ve been staring at the competitors, customers, and needs of yesterday. Think Adyen in payments with a unified worldwide payment platform. Easy and accessible for all merchants to do business around the world. Or Opendoor in home sales, using machine learning to sell your house with great ease and within only 10 days. You’ll see that customer value, rather than profit, will not only increase your people’s motivation, they will also become many times more effective at innovation.
As stated earlier, organizations are good at growing what they already have. They are scaling, continuously improving, and protecting the current business model portfolio against competition and disruption. Moreover, when previously successful business models become irrelevant over time, the most self-aware companies will act timely to let go of them.
Whereas steering on a single portfolio on the execution side is already well developed, managing different product or service portfolios holistically is difficult. These are written down in complex, detailed reports or PowerPoints, making it difficult to form an integral view. The result is a lack of shared insight to make the right choices and focus.
It becomes even more difficult when you need to manage an innovation portfolio. Looking for (to the company) new value creation and functioning in full learning mode, both as a company and for people individually, is a challenge. Now, not with just one project, but with a pipeline of innovative projects that have a different maturity level, serve a specific client (segment) and have their own vision towards the future. How do you manage this?
Innovation as a system
Next to a solid vision, it’s important to realize that, within Search, you can follow a fixed process with four clear development stages. These stages help you to determine the maturity level of your business model innovations. Each stage has its own learning and development goal. Based on this, you can do metered investments and systematically reduce risk. No more “fuzzy front-end”, but a system that gives you a grip on innovation.
A lot has already been written about the process known as design thinking. Embracing uncertainty and, with a solid dose of empathy, learning your way towards a valuable solution with the customer in mind. It is an iterative process filled with experiments and validation. Contrarily, there is still much unclear about the different stages in which you may find yourself while developing new business models and propositions. How do you recognize whether your product or service solves a true customer problem and, at the same time, has enough potential to be interesting for your company? Should you start adding more functionality, simplify your proposition, or grow as fast as possible? What is the moment when you can scale? When can you stop searching (Search) and move to execution (Execute)?
The 4 stages of business model innovation
Every project within Search goes through 4 stages of “maturity”. Each stage is characterized by specific activities, correlated competencies and a set of metrics to measure progress. The stages can be used both for individual initiatives and for plotting a multitude of initiatives as a portfolio.
In stage 1 you Explore – is there a problem worth solving? If the answer is “yes”, you go to Build.
In stage 2, Build, you will go out and test various options with a small group of customers in the market, looking for the value that you can offer. You will also find your “launching customer” in this stage; the customer group that can catalyze your growth.
Only when you have the above razor-sharp can you start to Grow, stage 3: while you experiment with different channels and customer relationships you will want to grow from a small group of launching customers to gaining as many customers you need to make it viable for your organization.
Once you have demonstrated that you can reach a large enough audience of paying customers, you can start to Optimize, stage 4. In this final stage, you ensure that all of your activities, resources, partners and measuring and management systems are optimized to get your new, validated business model from Search into Execution.
Because you as an innovation team want to put your effort into the right activities, it’s crucial to be aware of the stage your project is in. Too often, stages are skipped. For example, a team starts to Build without having a clear picture of its customer. Or a team wants to Grow without having a validated solution. This is not only a waste of time, money and energy, but it also slows down your movement towards becoming a future-proof organization. What you, by all means, want to prevent is to build an aversion towards (committing to) innovation. Such aversion leads you into a downward spiral which is difficult to break.
Organizations are very good at maintaining and expanding their current business model portfolios, to Execute. It is time to develop a new competence: the ability to Search for new business models. Innovation should be seen as a movement rather than a separate project. A movement supported by an innovation system and a clear and value-driven vision. Within Search, the four development stages Explore, Build, Grow and Optimize give a simple and clear picture of how to advance individual innovation initiatives. At the same time, they give you a means to manage innovation as a portfolio. This is how you design the future of your organization.
In my next article, I will elaborate on the four development stages within Search and I will give you a powerful visual tool to get you started. This tool will help you to get the “fuzz” out of innovation and manage innovation as a portfolio. What do you run into within your organization that should be covered in this sequel? Let me know in the comments below!
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