Guest Author Blog: Making the Worst of Times into the Best of Opportunities by Mark W. Johnson, Chairman and Co-Founder of Innosight, and author of Seizing the White Space: Business Model Innovation for Growth and Renewal
The history of business is full of stories of entire industries cut off at the knees when some natural, political, or market catastrophe felled them.
Consider the way we have lit our homes over the years. In the 19th century, whale oil lamps were common, until the whale oil industry was wiped out as kerosene lighting ignited the rise of the petroleum industry.
Then Edison threw a light switch, and the world changed again. No one wanted the foul smell and dangerous flame of kerosene lanterns in their homes when they could have clean and easy electric light. Demand for fossil fuels plummeted, and only rose again with the advent of the automobile. Now, the ramifications of climate change threaten the automobile, utilities, and oil industries.
For those who develop innovative new products in response to market-driven circumstances, these are unsettling stories. The idea that unpredictable, revolutionary forces can sweep away entire industries is daunting. No less daunting are the unforeseen, industry-specific shifts: the rise of an agile disruptor that changes the playing field for an incumbent who, typically, didn’t see the threat coming. Never mind the difficulty of responding to a larger discontinuity, such as the 9/11 attacks, or the global financial contraction of 2008 and the subsequent evaporation of consumer demand in Western markets.
How can a business meet unexpected threats such as these?
The key to responding to such cataclysmic shifts is to focus the kind of ingenuity and creativity that companies now devote to product innovation to devising innovative new business models to take those new ideas to market.
That may sound just as daunting as the challenges themselves. But that’s because so few companies have devised a systematic and predictable way to go about it.
In my new book, Seizing the White Space: Business Model Innovation for Growth and Renewal(Harvard Business Press, February 2010), I lay out such a process, one that builds on and extends the methods successful innovators use to develop new products.
In fact the starting point for innovating a business model is the same place savvy innovators, and successful start-ups, have always begun – by identifying an important job a real customer needs to get done and then proposing an offering that fulfills that job better than any alternative the customer can turn to. The key to innovating your business model in the face of discontinuity is to try to understand how the new circumstances will change the jobs customers need to do or give rise to entirely new jobs. Understanding powerful external forces in this way can make the suddenly overwhelming far more manageable.
Once you’ve looked at the new, changed circumstances wrought by discontinuity through the eyes of a customer trying to get a job done, you can begin to see the actual opportunities in the threats themselves. Then by working up an initial estimate of the business model that could capture the new opportunity and comparing that with your current model will tell you whether you can respond to the new world order with your current business model or need a new one.
That sounds straightforward, but in reality it’s very challenging for two reasons. In the regular course of events, many companies operate very effectively without a thorough understanding of their current business model, relying on rules of thumb and shorthand indicators like gross margins or sales quotas. Second, many companies judge the difficulty of capturing new opportunities according to the strength of their competitors rather than their own capacity to meet those opportunities – that is, according to how those opportunities fit with their own business model. Going after a seemingly lucrative opportunity with the wrong business model is the reason so many companies fail in their efforts at transformational growth.
That said, if a new business model features smaller margins, a much smaller overhead structure, or a dramatically different resource velocity (that is, a significant change in the speed with which assets need to move through the business system), it’s a good bet that it can only be addressed by setting up a separate unit with a separate business model. The same goes for models that need to run under different metrics, cultural norms, or business rules (different gross margins, unit prices, unit margins, quality measures, time to break-even, individual rewards, incentives, etc.).
Setting up a new unit to run a new business model may seem like a big bet, but it’s actually a form of risk containment and a far more promising alternative than hunkering down and waiting out the storm, or freezing your current business model like a deer in the headlights. Rather than trying to defend the indefensible, you can transform and renew your company by building a better business model that can expressly take advantage of the shifting environment.
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Mark W. Johnson is Chairman and Co-Founder of Innosight, an innovation consulting and research firm.
He is the author of Seizing the White Space: Business Model Innovation for Growth and Renewal, to be published in February 2010 by Harvard Business Press.
He is also a co-author of The Innovator's Guide to Growth.
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