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How to implement business model innovation – the IDEO way

Colin Raney recently expressed his views on how to implement Business Model innovations. Colin is a Business Designer at IDEO, where he helps organizations launch new ventures and find new avenues for growth. IDEO itself is a design and innovation consultancy based in Palo Alto, California, United States. The company helps design products, services, environments, and digital experiences. Additionally, the company has become increasingly involved in management consulting.

In Colin’s view, implementation of new business models needs to be built on four paradigms.

These are:

  1. Go early, go often – Building experimentation into your business is harder than you think. Start small and stay focused. Try everything, but don’t try it all in one prototyp
  2. Learning by doing – Build value for the business as you prototype. If you fail, what will you have learned? What will you salvage?
  3. Inspiration through constraint – Don’t exhaust yourself searching for money and resources. The tighter your constraints, the more creative your prototypes will be.
  4. Open to opportunity – Look for unanticipated ways customers are using your offering. Their improvisations may be the future of your business.

There are quite a number of stories that show the value in Colin’s assessment.

Platform for Change

Companies like Apple and Facebook have learned to harness the energy of outside developers to create new applications. By allowing thousands of new applications to run on their platforms, they create a Darwinian environment where only the fittest survive.

Grassroots Growth

Ayr Muir is 32, a former scientist with an MBA from Harvard and a McKinsey alumnus. When he decided to follow his dream to create a chain of fast and friendly vegetarian restaurants he could have hired a chef and tested his menu with focus groups. Instead he decided that it would be better to run a lot of experiments at low cost. So he launched his restaurant from a food truck parked outside the MIT campus, updating his customers about daily specials through text messages and blog posts.

Real-time Results

Internet companies routinely use their constant connections with customers to prototype new offerings. Companies like Google and Amazon routinely select pools of users and change the functionality in their products (e.g., you may be looking at a different Gmail interface than your friends). Depending on specific behavioral metrics, Google may change a product without ever directly asking the customer. Smart and nimble businesses know that always-on and always-accessible allows them to learn and evolve.

Ongoing Experimentation

McDonald’s has built prototyping into its organization. Since the company does not want every employee in every store deviating from service patterns, it has set up test restaurants to try new menu items, new pricing strategies, and new food preparation methods. This flexibility has paid off. McDonald’s has been able to roll out worldwide menu expansions in just a few months–quite a feat for a company that serves 47 million customers a day.

Name my Book

Tim Ferriss loved the playful working title of his first book, Drug Dealing for Fun and Profit, but it was too racy for Walmart and other retailers. With the success of the book hinging on this decision, Tim decided to prototype. He drafted a shortlist of titles and bought Google AdWords. Each online click equaled one vote. Within a week, he had his title, and The 4-Hour Work Week was finally finished.

Unexpected but pleasant side effects

Sildenafil (compound UK-92,480) was synthesized by a group of pharmaceutical chemists working at Pfizer. It was initially studied for use in hypertension (high blood pressure) and angina pectoris (a symptom of ischaemic heart disease). After the first clinical trials Pfizer wanted to collect the remaining sapmples but the patients refused to do so. When one Pfizer excutive got curious and he asked the patients Pfizer found that Sildenafil could induce marked penile erections. Pfizer then decided to market it for erectile dysfunction, rather than for angina. The drug was patented in 1996, approved for use in erectile dysfunction by the US Food and Drug Administration on March 27, 1998, becoming the first oral treatment approved to treat erectile dysfunction in the United States, and offered for sale in the United States later that year. It soon became a great success: annual sales of Viagra in the period 1999–2001 exceeded $1 billion.