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Findings from a practitioner’s workshop on Radical / Business Model Innovation

Recently, innovation-3 conducted a one-day workshop with some 30 practitioners from leading Central European firms (see HERE). The workshop focused on two main questions:

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  • Radical Innovation: How do firms define and organize for it?
  • Business Model Innovation: Where do firms have the largest problems and how are they tackling these problems?

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Radical / breakthrough Innovations defined

In the classical Ansoff matrix, radical (for the sake of simplicity we abandon the “breakthrough” for the rest of this article) are in the “New technology / new market or application” sector. We defined 8 characteristics of radical innovations:

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  • High revenue / high growth potential
  • Focus on emerging or fuzzy markets
  • Use of some existing assets and competencies, new ones required
  • Development of new knowledge and capabilities required
  • Great uncertainty across multiple functions
  • Unprofitable for several quarters at least
  • No clear ex ante picture of performance
  • May come in conjunction with a new business model

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How firms are dealing with radical innovations

Almost any firm today has fully operational “generation 2” innovation management systems in place that use Phase / Gate processes, New Product Development master plans, portfolio management etc. All of the workshop practitioners shared the opinion, that radical innovations can’t be handled within this systems (one of the key reasons: The inherent risk profile of radical innovations will lead to rejection at the Phase Gates).

We were looking for proven approaches to run radical innovations in parallel to the “generation 2” innovation management system that is targeted for a continuous stream of product and process innovations. We found three models:

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  • External approaches
    Case in point: A large manufacturing firm uses its base of global technology scouts to identify potential breakthrough ideas within the defined search fields. Ideas are then discussed and enriched on the corporate Enterprise 2.0 platforms. Once a decision is made to pursue a particular idea, the firm tries to get an external VC to finance the development by agreeing with him on pre-defined strike prices that are linked to development milestones. Once pre-defined milestones are achieved, the firm may purchase the development partner at the pre-defined strike prices.
  • Project-driven approaches
    Some firms are pursuing radical innovations by letting “internal start-ups” do the ground work. Case in point: One of Germany’s largest firms charges twice per year a multi-disciplinary team to spend 6-9 months on what might be a radical innovation. The members of a team are spending 50% of their work time in the internal start-up and 50% in their regular job. They receive a budget and the freedom to operate (i.e. they might use corporate resources but they are not bound in a way that normal operations are). The team reports to a high-level Steering Committee (including Board member). For the individual team member, this is a challenging time, but the extra work is rewarded with career points and Top Management exposure.
  • Structurally embedded approaches
    Some of the firms that were participating in the workshop have embedded their quest for radical innovations within their organization but have selected a special organizational set-up to make sure that radical and incremental innovations can be run at the same time. The common theme seems to be to anchor the radical innovations outside the business lines (e.g. in Strategic Research), to arrange dedicated funding for the ground work, to pursue market and technology issues simultaneously already in the fuzzy front-end and to arrange a managed process in which radical innovation concepts are either spun off to a separate unit or transferred to Business Units at an appropriate level of maturity.

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The case for intrapreneurship

The participants agreed fully that a good deal of intrapreneurship is required for moving radical innovations through the funnel. We spent some discussing the characteristics of an ideal intrapreneur and came up with a list of 10 items: The ideal intrapreneur …

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  • Comes to work each day accepting that he/she may be fired
  • Circumvents orders aimed at stopping the radical innovation
  • Does any job needed to make the innovation work, regardless of his/her job description
  • Finds and wins people to help
  • Follows his/her intuition about the people in his/her team
  • Aims at working with the best
  • Works underground for a long time (since early publicity will alert the corporate antibodies)
  • Remembers that is easier to ask for forgiveness than for permission
  • Is true to his/her ambition but realistic about the ways to achieve them
  • Honors his/her sponsors

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Problems in Business Model Innovation

In their quest for „innovating for growth“, many firms are turning to Business Model Innovation (BMI). In theory, this is a great idea, there are lighthouse examples (e.g. Apple) on hand and there is a widely accepted methodological framework (developed by Alexander Osterwalder and others).
However, the reality for many firms is hard. We found 5 main problems that firms are having with Business Model Innovation:
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  • The topic “Business Model Innovation” itself
    BMI is a specific innovation type with its own approaches, approach, processes, tools. Since the uncertainty / risk profile of BMI is comparable to radical innovations, it can hardly be moved through an innovation funnel that is governed by “generation 2” Phase / Gate processes. The risk profile of BMI manifests itself not only in financial aspects (we all have seen our share of hockey sticks, don’t we?) but also in many other aspects such as key partners, ICT systems required etc. And finally, in most cases the interplay of the new business with Core Business is usually unclear in the beginning.
  • Organizational antibodies
    Even if they ask for it, many CEOs don‘t like new business models: They are more or less satisfied with existing ones and know how to operate in order to make the firm grow and more efficient. Additionally, KPIs of key stakeholders in the organization are heavily depending on established business models. Furthermore, Service thinking and bundling of products / services is not understood in many firms and new capabilities need to be built up alongside the day-to-day business. And finally, in many firms, the innovation culture – massively influenced by “generation 2” innovation systems that aim at sorting out False Positives – is focusing on avoiding mistakes and not on making learning experiences.
  • Individual antibodies
    Not only on the organizational but also on the individual level there are antibodies against BMI. They come from the mental models that the firm’s staff has built up over many years with respect to “Who is our customer?”, “Who / how do we co-operate with?” and “What (not) to do around here”. In many instances these mental models are so deeply ingrained that there is very little intellectual freedom.
  • Effective tools
    Many firms are basing their thinking around BMI on the model Alexander Osterwalder and others have developed (“The BMI Canvas”). However, many firms have found that this tool has two major disadvantages: (1) It is highly relevant for describing a solid state but unfortunately some of the key parameters such as e.g. “Key Activities” are not clear in the first steps of modeling; (2) it doesn’t provide support for implementation.
  • The BMI Hype Cycle
    Some firms have also found that in measuring motivation and energy against time in business modeling, a curve that has many similarities to Gartner Group’s famous “Hype Cycle” can be observed. Like in Gartner Group’s models that describe market perception of new technologies, there is also a “Through of disillusionment” in business modeling.

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How firms are overcoming the barriers to Business Model Innovation

In the workshop, we also discussed Best Practices in overcoming the barriers that are stated above. We found 3 key strategies:
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  • Get the organizational set-up right
    The hurdles that a BMI needs to surmount have many similarities to the ones that apply to radical innovations. Seen from this view, BMI may also be (see above) organized externally, within project based / temporary settings or embedded into the organization.
  • Use appropriate tools
    In our work, innovation-3 uses an adapted version of Osterwalder’s Canvas that we call the “Lean Canvas” for the first steps in business modeling. It has the big advantage that in the first steps of business modeling, attention is drawn to the few pivotal points.
  • Use Design Thinking
    In order to get through the “trough of disillusionment”, Design Thinking approaches are extremely valuable since they provide contact and feed-back to the BMI team and contribute a good deal to keep up the momentum./li>

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