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Business Model Innovation for Growth and Renewal

Posted by Jeffrey on Apr 22, 2010

Mark Johnson, Principle of Innosight Consulting gave a talk at the Rotman School of Management where he led off the talk with a discussion of the Music industry- a common story which leads to a well known conclusion: others started the industry but couldn’t capitalize because they were trapped in their old modes of thinking. Apple really won the war because they understood that customers didn’t just want a cool device (although that helped) but a whole package (including software) that helped make the process of downloading and listening to music easy and painless. Except that Apple didn’t originate this solution: Tony Faddell brought it to them after he had been kicked out of many other companies up and down the 101.

But I digress…. The traps that most established businesses find themselves in is that they can’t grasp the fact that in contrast to their existing business (where their knowledge to assumption ratio is high) in a new business venture it is low and the metrics, processes and norms that surround their existing business don’t apply in the new.

With some examples he illustrated that there are 3 traps that established businesses find themselves when trying to create new businesses. (Note that this doesn’t [shouldn't] apply to start-up businesses (unless you have real problems.)]

Trap 1- failure to allocate resources. Basically this is the “Holy crap! Is this thing as big a disruption to our model as we think? Better not pay too much attention as we don’t want to rock the boat.” Think DEC and the personal computer.

The second trap is in trying to graft new technology onto an old business model. How to develop a digital camera? Make it work the same as a film camera. At least this is what Kodak thought in the early 90s when they released the $30,000 DCS-100 that had the same quality as film. (Except users didn’t want the hefty the price tag!)

The third trap is companies don’t let these new innovative businesses mature and are impatient for growth. In this case because HP was a multi-billion dollar company, they wanted their newly developed HP Kittyhawk 1.3 inch hard drive to be a $100M business within 12 months, because that’s the growth rate established by the rest of the company. They didn’t allow the product a “Test and Learn” that would have made it apparent that the main market that they were targeting with this device was wrong and they needed a different business model to succeed where the device would have the most traction.

At this point, one asks, “What is the problem with these companies? Cant they see that you have to be aware of all these “traps” to succeed?” Where it really becomes a challenge is around culture and operational norms. In the rigidity of rules, norms and metrics established business find they are “trapped” in how they evaluate new opportunities and how they fit into existing business models. They really need to step back and think about how they currently make money and what needs to change if they are to really take advantage of a new opportunity. In a lot of cases, the whole business model has to change.

Think about the Tata Nano. It was created not to compete against other cars but as an alternative to a scooter. They had to change everything about the model (supply chain, distribution, manufacturing) in order to compete on that level.

Or what about MinuteClinic? Its not a competitor to existing medical services but meant to take care of many routine health care issues that can be treated by rules-based procedures.

The biggest problem comes from the inevitable commodification of business models as new entrants come in once and attractive market is carved out. You can ignore it to your peril or do what innovative companies like Hilti have done. They’ve created a new business that realizes that one source of frustration to contracting companies is tools and tool failure. Rather than simply selling tools they now sell a “tool fleet management service” with a monthly fee covering leasing of the entire tool category. They had to completely rethink their model. Rather than selling through distributors, now they sell direct. Before they had to think of low cost manufacturing, now they need IT systems to track inventory and repairs. They had to really think about the stakeholder and the job that needed to be done and how they could serve that stakeholder.

Finally the example of Better Place was raised. With the advent of the true electric car close to fruition, a key problem still exists- the long charging cycle of current batteries. Shai Agassi, the entrepreneur behind the company thought, What if we could reinvent the whole model so that we didn’t actually sell cars, but we sold “miles?” Their target is not other new cars, but used cars- they need to be competitive to someone who might not consider a car at all! Their model is similar to the cell phone where the initial cost of the vehicle is subsidised by an ongoing distance contract.

For me the real takeaway once again was getting to the heart of the job to be done that the customer needs. This leads to a clean sheet thinking about what the appropriate model is to serve that customer and how to integrate that model into a system. The ever-present question is whether this can truly ever happen in an established company with and established model and established ways of thinking. Time will tell if there are ways of breaking out of established patterns, but given the above examples of very competent companies, the jury is out on if this journey is one that has a happy ending.

Bill Buxton – Design Culture and Apple’s success

Posted by Jeffrey on Apr 15, 2008

I’ve always thought that Bill Buxton had a good view on what was essential in design and technology. Even way back when I saw him in 1996 or 1997 when he was at Alias Wavefront he caused me to think about how Design impacts how we interact with products on a daily basis.

Now having done innovation from the inside of a large corporation, I can’t agree with his view more. It sounds like he could be talking about my (or I bet 90%) of the organizations out there when he recalls stories from his experience. His view is that many companies still need to be convinced of the value of design and how design affects (and requires) co-ordination with all parts of the organization.

But this is not design (or “Design”) that is the equivalent to window dressing or chrome or garish menus, but really a holistic approach to approaching problems. One of the questions he answered at the conclusion of his talk revolved around how he would characterize design. In addition the aforementioned “way of thinking” he very emphatically stated that it was not traditional problem solving, but a way to facilitate a conversation. In fact he mentioned that design is probably the “most negative” profession out there as it required a continual progression from a blank sheet of paper (millions of possibilities) to exactly one, with all the rest being thrown out!

But seems to be redeeming about this process is the conversation and improvement it causes as the ideas are thrown out; each idea informs the next to make it even better than it could have been on its own. This however, requires that design is supported at the proper level in the corporation, which he noted was part of the success of Apple and part of the continuing lack of progress in the 90% of other organizations currently producing products.

During the early days of Industrial Design, designers such as Walter Teague, Harley Earl and Henry Dreyfuss brought something unique to large organizations; how to differentiate their products based on context. They also had a distinct advantage in the early days as they reported in to very high levels in the company, usually the President or CEO (partially because they were “expensive”) but also because they could bring something distinctive to products which were becoming quite similar in customer’s eyes.

Today most design firms report into levels below senior management (in large organizations) and at this point are “positioned to fail.” He went on to ask the audience several hard questions:

• Is Design an Executive level position at your company?
• If not how can you claim it’s important?
• If it isn’t what message are you delivering to your employees?

The key message was that firms have to stop paying lip service to the value of design and actually incorporate it into the strategic decisions of the company.

This lead to a quote from one of Buxton’s mentors, Alan Kay:

“It takes almost as much creativity to understand a good ida as it is to have it in the first place.”

Upon which Buxton added his corollary:

“It takes even more creativity to make an idea real as it is to have on in the first place,”

which I can wholly agree with given my experience in product development!

So where it really gets interesting is his assertion that you need a design culture, not just products to be successful in a chosen industry and he (of course) gives Apple as an example.

In 1993 when Apple’s stock price was declining, future head designer Jonathan Ives started at the company. Through the next two CEOs the stock price declined further (likely through no fault of Ives) until the Apple board brought Steve Jobs back to the company and the rest, as they say is history, with the introduction of the iMac and later the iconic iPod.

So what did Jobs change? Buxton just mentions that Jobs became the Chief Design Officer and promoted the value of design throughout the company. And the remarkable thing to keep in mind is that he did it with largely the same staff that was around during the previous leaders’ tenure. He really just gave the existing staff the tools they needed and the right support to be able to execute on those good ideas.

You may ask what about the Apple G4 cube and hockey puck mouse? Well design is not always about a straight path to success and those “failures” positioned the company to really hit the ball out of the park on their next endeavors. Which meant that the conversation (and risk tolerance for failure) had to exist in the company or they wouldn’t be able to come back and build successful, game-changing products after previous ones failed to catch on in the market.  And it also suggests that corporate culture can change to support design if it is supported from the top and becomes a part of the organizations conversations to deliver contextual products customers crave.

Design Thinking – Process or Product?

Posted by Jeffrey on Feb 29, 2008

Last night I had the pleasure to attend a talk by David Smith, President of NSCAD (Nova Scotia College of Art and Design) at the Rotman School of Business at the University of Toronto. The topic was “Why business people needed to think more like designers” and drew a packed house which was quite an achievement on such a cold wintry night.

After a brief introduction by Heather Fraser, David quickly went into his prepared notes. He started off by saying that this session was going to be more about him asking questions to the audience rather than telling the audience what he thought was the right answer, which aligned with his premise that “critical inquiry” was part of the hallmark of successful designers. I’ll get into this a bit further later.

One of his first questions to the audience was “What are the benefits of an Arts Education?” He proposed that a key attribute was being curious about how things worked and to then remain curious throughout life and not be satisfied with the status quo. He delved into this a bit deeper when he later asked the central question, ” Why do business people needed to think more like designers?” His answer came back to the ability to ask the right questions, not necessarily come up with the “Be-all and end-all” product. His rationale was that designers (and business people) who ask the right questions can come up with the right solution for this moment, but guaranteed at some time in the future that solution will not be the right one for all time.

After concluding the formal part of the talk, he took some questions from the audience. One of the first questions was around asking the right questions and this lead to a discussion of whether process was indeed more important than product as he submitted. (One group which really values process is the Government and we know how fast they move on things….)

While he admitted that the government does surround itself with process, process in this context is not the end goal. The key thing to remember is that while products may be right for today’s constraints and opportunities, as these constraints change, designers and business people have to be willing to go back and question the initial assumptions (in the process) to come up with a new “right answer” for the new constraints.  He insisted that the Apple iPod of today may be the Microsoft Zune of tomorrow and given the fast rate of change (especially in technology) this may be something to consider.

But if indeed creativity and artistic intent are valuable skills in society why are they arguably not as highly valued as business and technical skills? It all comes down to (in his estimation) the education system and how imagination in children is eventually supplanted by the ability to determine “right and wrong” answers and to be authorative on subjects.

So how do we then encourage creativity in business people? It really can be learned (I am an example of this!) by never feeling so comforable that “you think you know what you know.” (Or the often heard refrain, “Been there, done that.”) One has to be willing to think be curious about how things work and question assumptions to come up with a “right” solution for the problem at that time.

Search- is interface the new battleground?

Posted by Jeffrey on Feb 19, 2008

I was thinking recently about all the work being done around “natural language” search with several startups (notably powerset.com and textdigger.com) looking to make everyone’s search experience less frustrating. Let’s face it; despite all the work going into algorythms behind the scene, I don’t think that search today is significantly different than 5 years ago.

You type in your word combos into the box and hope and pray that something relevant comes back in the first 10 entries on the page. Or you can repeat with a slightly different boolean combo. And still hope and pray…

But maybe its not simply in the initial search terms that determine how successful the search for information will be. Maybe if we acknowledge that its really really hard to get back the results we want on the first try, that the way to develop a better search experience is how you engage with the results to refine that search.

 That’s why I was interested in Quintura and more recently in silobreaker.com.  In each case they look at related items in a search visually in order to expose connections to the key search term. Don’t think an item is related? Just get rid of it either by clicking the ‘x’ or in the case of silobreaker, dragging it to the trash.

 

It makes refining the search more intuitive but also exposes linkages between items by proximity and size. Which helps you understand what the internet google Quintura/Silobreaker thinks of you.

Note: Another visual search engine was launched in Beta called SearchMe. Techcrunch covers it here

Nintendo Wii – Looking for Innovation

Posted by Jeffrey on Dec 30, 2007

Nintendo has quite a reputation in the gaming industry as video games have been this company’s forte for a long time. Although in the period leading up to the launch of the Wii you wouldn’t know that this company was once a giant in the gaming business. They were suffering from a distinct lack of buzz as other competitors spent more to drive the core gaming experience.

Nintendo is currently in the lead in the $30B game business (and correspondingly still generating a huge amount of buzz). This rather recent development was not anticipated by the other players in the industry: Microsoft and Sony bet on a continuation of better graphics and more processing power to sway core gamers over to their platform.

What made the Wii innovative is their intention to move beyond core gamers to casual gamers, which makes up a far greater sized pie. But first a few stats:

• Nintendo has already sold 13MM of their devices so far (at the end of 2007) and expects to sell 35MM or more by 2012
• In its first month on the market in the US (it launched on November 19th, 2006) retail market watcher NPD said the Wii sold 476,000 units, compared to 197,000 PS3s (launched on November 17th, 2006). It even came close to the X-box 360 which sold 511,000 in the whole month!
• Amazon.com sold Nintendo Wii systems at approximately 17 per second when they were in stock

Here is a sales comparison:

As you can see it appears that the X-box sales have leveled off (have they gone to the Wii?) 

So what happened to the gaming market? As the leading edge moved to move the bar higher and higher on high-res graphics and detailed gameplay, the number of gamers that wanted a less intense (but still engaging) experience was growing. Whether for time reasons (no time to learn detailed combinations/ controllers) or intimidation (I don’t want to feel lame in front of highly accomplished players) the market was less visible (and vocal) than the core gamer community. And here is where it is really difficult to guess what was going to happen.

By listening to their core community, both Microsoft and Sony built some of the most advanced technology to deliver a superb gaming experience to their customers. Problem was that there was this growing (but less vocal) customer group playing Bejewelled and Tetris that felt disengaged from the core. This is where the Wii, with its intuitive gyroscopically controlled gameplay could succeed.

It really lowered the bar on console gaming, bringing casual games that did not require significant effort to understand (uhhh, bowling?) to a larger audience. (They also did a fantastic job at viral marketing. Because the Wii was new and different, it automatically attracted people that wanted to find out what made it tick). All of which drove Nintendo to increase production three times in 2007 . Still the devices are hard to get a hold of…

…Leading to the fact that we are in 2008 (almost 18 months after launch) and I still can’t get a copy of Guitar Hero for Wii!

Interview with Amazon’s Jeff Bezon

Posted by Jeffrey on Apr 17, 2007

Jeff Bezos was one of the keynote speakers at the Web2.0 conference and in his eagerly anticipated talk he took the opportunity to highlight some of their initiatives to grow to the next level by providing outside businesses access to their world-class systems and technology. This approach would have seemed completely backwards about 5 years ago. Why provide potential competitors access to key technological assets and speed their time to market? Jeff tried to outline some of their thinking by kicking off his talk using their Amazon S3 internet-enabled file storage system; the same system they use internally for their e-commerce site Amazon.com.

Amazon S3 has grown from about 800m objects stored in the system in July 2006 to over 5 Billion objects today. To illustrate some of the benefits of using the service, Bezos put the site Blueorigin (his effort to build a space vehicle) and all the video for the site on S3 so that they didn’t have to worry about scaling. This ended up being a prescient move as the traffic spiked when someone posted the site on Digg.

In fact on that day in January after getting Dugg, the website and media objects on S3 responded to 3 million requests. There were countless downloads of the video leading to transfer of 758Gb of data in one day. They did this without a contract or any sales contact; it was all done self serve by filling out some forms on the site. And the best part of it was that for all of January it cost $304 dollars, with most of the charges coming for that one day!

On S3s busiest day they were serving 1 billion requests per day and almost 16k requests/ second. Interestingly enough users include a company we may be familiar with; Microsoft. Secondlife and Powerset are also among the users.

Another example of what Amazon is working on with their services involves a service called EC2 (EC2 stands for Elastic Cloud.) If for instance your business needed to process many media files from avi to mp4, you could use their EC2 service to process all these files, which traditionally has been a very processor intensive task.

What would happen is that the raw media files stored in S3 pass messages to a queue service in EC2. EC2 finds a pointer in S3 to that avi file and starts the processing into an mp4.

To maintain quality control when the queue grows long, the EC2 can spawn new EC2s to clone itself to increase throughput of the service. So in effect you have an on-demand virtual server environment, which you only have to pay for when used. After processing the objects the virtual servers are redeployed to other tasks so your business does not have to pay for all those processors 24/7. You can use what they call “pay-per-drink” pricing in order to only use what you need at that time.

But a key question is how did Amazon get from a bookstore to an infrastructure provider? They took learnings from how to scale and deliver Amazon.com to other applications. Once they had this knowledge, they realized that they could then leverage this and open up this on a pay-per use basis so that companies didn’t have to reinvent the wheel every time they wanted to create an application or business.

The question then comes to mind whether Amazon is ‘traditional’ Web2.0 business? They have grown up alongside other trailblazing Web 1.0 companies but in contrast to the newer Web2.0 companies, they also have many hard offline assets including huge warehouses. But even thought they have 10 million ft2 of fulfillment space they are trying to again leverage their processes and infrastructure to outside players to create an ecosystem.

They reason that physical movement of goods won’t go away in next few years. So they will take the high cost services that businesses up to now have been forced to build or partner to get and allow businesses to exploit Amazon’s fulfillment network. You could think of this as the ‘programmable warehouse.’

You would simply hook into Amazon’s system and send a message that they should expect to receive items you will send over for storage in their warehouse. And the cost? Only 45 cents per cubic foot of storage per month. Then you can send a message to pick those things and Amazon would send them to an address you specify.

So they look at the future of Web2.0 a bit differently; they don’t just look at what will be the big disruptors, but they also put dollars into what they think won’t change. Interestingly, they feel they can build a strategy around what won’t change rather than what might.