Exploring and testing new business models is strategy development before it becomes change management. There’s plenty of time for change management, once we’ve demonstrated new business models worth changing into. Business model innovation is a persistent and generative exploration of entire new ways to create, deliver, and capture value. When we treat business model exploration as change management, we are too likely to squash any concept that feels transformational or disruptive. We have to make business model reinvention safer and easier to manage.
It’s urgent because business models don’t last as long as they used to in the Industrial Era. The Netflix, Airbnb, and Uber stories are everywhere. Too many industries and companies play defense, trying to lean against disruptive business models. No effort to strengthen and protect the core will prevent your business from being Netflixed or Uberized! The only way to play offense is by doing R&D for new business models, even those that might disrupt the core. New business models are coming, whether we like it or not. Why not be proactive? Business model innovation is a strategy question before it's a change management question.
We have to make it easier to move business model concepts off the whiteboard and to prototype and test them in the real world. If you screen early-stage business model exploration with the same questions, metrics, and investment stage gates used to select projects to improve the core, you will never do anything transformational. Incremental improvements will always win out.
Business model innovation requires a different approach. Business model innovation is an iterative design process foreign to most Industrial Era leaders. Let's face it, trying more stuff isn’t exactly what they taught us in MBA school. However, business model R&D is the new strategic imperative.
Business model R&D starts with the creation of a business model sandbox. Executives who are not also working on the core are tasked with managing an ongoing portfolio of real-world business model experiments and a platform to capture, share, and act, based on what is learned. A high-performing business model sandbox operates as a connected adjacency to the core. The biggest advantage existing companies have over startups is access to the core — the resources, networks, and capabilities — to enable business model R&D. Most are not leveraging their advantage with capabilities stuck in the straitjacket of the current model protected by line management.
A business model sandbox is a safe place to combine and recombine capabilities to explore new ways of delivering value. We can use low-fidelity prototypes to explore new business model concepts faster and cheaper in the market. The new must-have organization superpower is demonstrating minimum viable business models in the real world. And forget testing these business model prototypes for scalability. Business model prototypes are not expected to scale, they’re expected to help us answer one question: does the model demonstrate a better way to deliver value to a small number of real customers? We can then start addressing scalability questions for only those models that work at the prototype phase.
A business model sandbox must be designed with the right balance of autonomy and the free flow of people and capabilities in both directions. Leaders who are vested and working in the core must be kept out of the sandbox, so they won't prevent or block ongoing R&D for new business models. In fact, CEOs should play a direct leadership role to mange the inevitable tension between the core and sandbox. Companies would be smart to groom a new generation of leaders capable of managing both the core business model and ongoing R&D for its successor.
If you start by burdening business model ideas with today’s business logic and jumping too quickly to change management, you will end up with only incremental improvements. It’s human nature to resist new models. It’s also human nature to know in our guts that we can do better. The models, systems, and infrastructure we inherited from the Industrial Era have served society well, but we need to reimagine them for the 21st century.
Everyone knows it, but we seem to be frozen in the headlights on how to make it so. We see examples every day of how entrenched leaders, constrained by today’s business models, do everything they can, both explicitly and implicitly, to lean against change and protect the status quo.
We have created our own dilemma — we know we need transformational change, but we don’t like it when it affects us! Tweaks aren’t enough. Incremental change to today’s models isn’t working, and won’t keep disruption at bay. We need to make reinventing business models and social systems easier and safer to manage. Twenty-first century leaders must be able to BOTH strengthen the core AND explore new models simultaneously. R&D for new business models doesn’t begin as change management, it starts as a strategic imperative.