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Your Business Model Is Killing Innovation
October 29, 2013 at 8:57 AM
Last week, my partners and I were talking about a company that has asked for our guidance on how to develop a more innovative culture. This is a frequent inquiry for us, and it’s one that increasingly concerns businesses all over the world. So, we were talking through the business model of the company, and how we might help them build more innovative ways of thinking. Our off-the-cuff discussion went something like this:
These folks are high-volume, low-margin. Extremely numbers-driven, (even when they’re not). Primary challenges are people and technology. Primary competitive positioning is price and quality. Reporting is a big, big deal and they tend to be data rich and information poor. Lots of analytics, and reporting and KPIs. Automation has been driving efficiency gains.
As we talked, it became clear we were evaluating at least three different business models: 1. The stated business model, which is something like “growth through retention and service”; 2. the unstated business model, which is clearly efficiency and margin; and 3. the desired business model, which is innovation. Now, our potential partners are genuinely interested in growing an innovation culture. They genuinely want to foster all the core elements most likely to drive creative thinking in their business. Like most successful people, they are smart, committed, hard working and driven. Their business is successful but they want it to be more so. And they want to be more innovative.
The question we asked was: How do you make an innovation focus work inside of an existing business model or models?
The answer: By merging “culture rules” with “business model.”
The challenge for any business when considering the importance of building and nurturing an innovation culture is in understanding the difference between business model and culture rules. The business model is how money gets made, what drives the profitable execution of the business. The rules of culture are the values — spoken and unspoken — that drive behavior, commitment and ambition. When the two — rules and business model — are in conflict, the most likely winner will be the business model. That’s because what is recognized and rewarded tends to be based on measures arising from a business model, such as efficiency, margin, and so on. Innovative cultures, on the other hand, encourage questions, challenges and risk-taking, and this can be seen as conflicting with existing business model metrics and expectations. But, the challenge for most businesses is not choosing between their existing business model and a more innovative culture — it is in merging the two together.
In fact, bringing together a business model and innovative culture rules is not as difficult as it might seem. Consider the following table we use to distinguish the operative norms for production and for innovation:
The value system on the left tends to be operative and necessary for innovation; the values on the right tend to be operative in a production mode. At first glance, they seem to be nearly incompatible, or at the very least in conflict. But they don’t have to be. The trick is in bringing your business model requirements into an innovation framework, rather than the other way around. Innovation rules become the driver of business model (production) outcomes.
Of course, growing an innovation culture is a long-term and rather complex thing, but here are three quick ways you can begin influencing your business model through innovation.
PEOPLE: Challenge your management team to bring innovative culture rules into their conversation. Listen, rather than tell. Encourage dreaming, to supplement reporting. Develop ways to encourage trial and error and iteration, and then lead supportive conversations about failure. Create the time necessary to view production challenges through the lens and perspective of innovation rules.
STRATEGY: Oftentimes, business strategies continue because of inertia, not because they are powerful. Business leaders should bring innovation thinking and rules to all strategy conversations and planning. Doing this will ensure that questions and challenges will be raised that might otherwise be missed. Lead and foster a point of view that encourages risk-thinking and that supports diverse, conflicting and sometimes tense conversations. If this is done in an environment of trust, tension is transformed into creative heat.
COMPETITION: Innovative thinking is a path to a better competitive positioning. What that positioning might be will be organic and unique to each business, but poke a stick at positioning and you will usually find some variation of price or quality. Introducing innovation rules into your production business model can lead to competitive positioning that actually differentiates your business, rather than relying on just another variation on an old theme.
Developing an innovative culture does not mean compromising your business plan outcomes. It means bringing innovation thinking into your business model. An innovative business culture is one that understands the risk of not taking risk and constantly looks for something beyond the status quo. In this culture, your leadership could very well be more powerful; your conversations could be deeper; and the pace of positive change could be radically accelerated. And in this way, innovation drives better business model outcomes.
- Henry Doss is a student, musician, venture capitalist and volunteer in higher education.
This blog post was originally posted on Forbes.com on October 28, 2013. The original post can be read by clicking here.
I'm a former banker turned venture capitalist, musician and over-committed volunteer. My firm, T2 Venture Capital, is dedicated to building great start up companies, and leading the buildout of the ecosystems that cause them. My role is Chief Strategy Officer. I am deeply interested in how we learn about ourselves and the world, and how that learning translates into innovative business and educational leadership. I have an abiding curiosity about English Literature, physics, computing, and the Humanities in general. I also serve as Executive-in-Residence for the College of Liberal Arts and Sciences at UNC Charlotte, where I indulge my interest in pedagogy, graduate studies in Early Modern Literature, and opining. And I'm a singer-songwriter wannabe.