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Kaplan’s Business Model Innovation Factory

Point: Experiment with new business models in a “connected adjacency” before committing to them.

Story:  Saul Kaplan, founder of the Business Innovation Factory (BIF), just wrote a new book, The Business Model Innovation Factory.  Kaplan shares 15 business model innovation principles, weaving in his personal experience (from Eli Lilly to Accenture to BIF) as well as experiences from numerous presenters at BIF’s Collaborative Innovation Summits. My favorite chapter in the book was “R&D for New Business Models.”

In the chapter, Kaplan describes how to deal the challenges of testing a new business model.  Organizations can’t easily jump from an entrenched business model to a new one.  There’s too much support for the old model and too many unknowns about the new one.  The solution is to test the new business model in what Kaplan calls “connected adjacencies.” A connected adjacency is like a real-world sandbox or living lab. For example, Kaplan details how Accenture changed its business model from being a systems integrator to being a business integrator.  Accenture (Andersen Consulting at the time) started to rapidly build a strategic capability alongside its existing systems integration business. As Kaplan writes,

“It was a connected adjacency that was given the autonomy and resources necessary to scale a rapidly-growing strategy practice from scratch – right next to the huge systems integration practice.  We were an entrepreneurial business unit within the context of the behemoth. The emergent strategy practice would never have worked if it had to live by the rules of the core business model at the time.  If not protected, it would have been swallowed alive by line partners from within the core business model. The new business model needed to be shielded, at least temporarily, within the relative safety of a connected adjacency.”

Part of the success of experimenting in a connected adjacency is letting employees self-select to participate.  In Accenture’s case, the company went so far as to hire partners directly from outside the company – something the company had never done before in its “promote from within” philosophy of the past.  The connection between the existing business and the innovation sandbox is vital, however, because it lets ideas and experiences be transferred between the two spheres.

In another example, Kaplan describes Babson College’s creation of Babson Global, an entity separate from Babson’s core business model that serves as an R&D platform for creating, prototyping and testing new approaches for teaching entrepreneurship and creating entrepreneurial ecosystems in communities worldwide.  The entity is separate from the college but adjacent to it – faculty and staff from the college self-select to participate.

Action:

  • Nurture the new business model in a “connected adjacency” — a sandbox, living lab, or side unit of the main business.
  • Protect the developing new business model effort from the old model’s metrics and pressures.
  • Allow staff to self-select or volunteer for the new model, or hire outsiders so that you have open-minded enthusiasts for the new model rather than adherents to the old.

1 Comment »How-to, Innovation, Strategy, Uncategorized

Innovation in 3D: Ice Dream #DSCC11

Point: Test large-scale innovations for 1/20th the cost by using 3D simulations to prove viability and performance.

Story: Forty years ago, Georges Mougin got an idea: solve water shortages in drought-ridden countries by towing an iceberg over the sea to them. Floating icebergs are pure drinking water, but they slowly melt into seawater.  Why not harvest them before all that drinking water is lost?

The idea of towing an iceberg, however, seemed crazy.  When Mougin talked with scientists about the idea, objections abounded.  “Once you get north of the equator, you’ll have nothing but a rope at the end of your tow,” said Wilford Weeks of the U.S. Army Cold Regions Research and Engineering Laboratory at a conference in 1977 when hearing of the idea.  Other questions were: how much power would it take to tow 100-million ton iceberg? What would be the environmental impact of it melting in equatorial waters once it was anchored at a coastal city?

Although Mougin was confident of the idea’s viability, he had no way to prove it. Despite securing the backing of a Saudi prince, Prince Mohammed al Faisal, the projected costs and unanswered questions proved insurmountable.  But Mougin continued working on the idea, doggedly amassing data on issues like ocean currents and learning how technologies from other industries, like those developed for off-shore oil drilling, could be tapped.

Mougin’s lucky break came in 2009, when he heard of Dassault Systemes‘ “Passion for Innovation” program.  Dassault Systemes sponsors the Passion for Innovation program as a philanthropic venture to give individuals or nonprofits free access to Dassault Systemes’ suite of products (CATIA, DELMIA, SIMULIA, ENOVIA, 3DVIA. SoildWorks, Exalead) as well as a team of Dassault Systemes engineers.

“We’ll help you and provide you with the modeling and simulation technologies that should demonstrate that your project is feasible,” said Cedric Simard, IceDream Project Director, Dassault Systemes.

Dassault Systemes worked with Mougin: “We used virtual and digital simulation technology to recreate a virtual world around the iceberg, taking into account real oceanographic and weather data to simulate the sea currents at several depth levels, as well as the wind, waves, and even the impact of the sun’s rays,” Simard said.

After using CATIA software to create an exact model of the iceberg, the team used Dymola for the complex simulation, factoring in issues like ocean temperatures that would affect melting en route as well as meteorological phenomena like wind. The team also used SIMULIA software to consider risks such as fracturing of the iceberg. Running these simulations enabled the team to test the concept for a fraction of the cost of building a prototype: $500,000 instead of $10 million.

The simulations proved that it’d be possible to tow a 7-million-ton berg with one tugboat, primarily relying on ocean currents and consuming only 4000 tons of fuel over the 140-day journey, Simard said. The berg would experience some melting (38%) but still provide enough drinking water for 20,000 people for one year.

“Mougin is a very passionate guy,” Simard said. “He’s 87 years old, and he’s been working on his project for forty years. Now thanks to the power of simulation and the digital world, he can see how his idea would work in reality.”

Action:

  • Create mathematical models of large-scale innovations
  • Ground the model in real-world conditions and environments with empirical data
  • Estimate performance, costs, potential failure modes using advanced software
  • Present a compelling graphical story of the innovation with 3D visualization.

Sources and Additional Information:

My video interview with Cedric Simard on CollaborativeInnovation.org

Ice Dream Project

Dassault Puts Inventor’s ‘Ice Dream’ to 3D Simulation Test” by Beth Stackpole

Iceberg Transport” by Lauren K. Wolf

No Comments »Case study, Entrepreneurs, interview, R&D, Software tool, Uncategorized

AG Lafley, Jim Collins, Al Gore: First Step in Innovation (World Business Forum #wbf10)

Point: Admitting ignorance is a crucial first step to building strong knowledge that leads to innovation.

Story: Many of the 2010 World Business Forum presenters spoke authoritatively about what we know about business and economies.  But Steven Levitt (author of Freakonomics and Super-freakonomics) highlighted a systemic blindside in what businesses and leaders know.  In his discussions with companies, Levitt found that business people fear saying, “I don’t know.”  Such an admission seems to them like a reputation-damaging weakness in the eyes of their coworkers, bosses, shareholders, and customers.

Yet being unwilling to admit ignorance carries at least three types of stiff penalties.  First, the arrogance of presumed omniscience leads to hubris, which is the first stage of downfall, according to research by Jim Collins, author of bestsellers Good To Great and How the Mighty Fall.

Second, by not admitting ignorance, companies underinvest in gathering and creating knowledge. If we claim to already know something (e.g., “we know our customers”), then why invest in gathering more knowledge about them?  Third, and ultimately, willful ignorance are leads to mistaken decisions and failed innovation.  No wonder 90% of new product launches fail, according to data cited by Martin Lindstrom (author of Buyology).

Admitting ignorance need not signal weakness.  Saying “I don’t know” isn’t the same as saying “I can’t know.” A number of the presenters described four concrete ways of reducing ignorance.

First, A.G. Lafley (former CEO of P&G) stressed the value of reducing ignorance about customers simply by listening to them and watching them as they naturally interact with the company’s products.  P&G spends a lot of time and money trying to understand the two moments of truth — when the customer chooses products in the store and when the customer uses products in the home.  Even as CEO, Lafley made a point to visiting ordinary consumers and stores when he traveled.  These visits demonstrated to all P&G employees the importance of learning more about customers from the customers themselves.  The point is the listen more and go out in the real world — admitting (and resolving) ignorance about how customers really use products and services.  Charlene Li, author of Open Leadership and Groundswell, likewise stressed this point and cited the new-found power of social media to let companies hear what real people are saying about the company (see previous post: Getting CEOs on Board with Social Media).

Second, Martin Lindstrom showed exciting new tools such as fMRI (functional Magnetic Resonance Imaging) and SST (Steady State Topography) that can trace the activity of the subconscious parts of the brain.  With these tools, innovators and other business researchers can answer previously unanswerable questions about people’s innermost reactions to brands, products, and sensory cues associated with new or existing ideas.  With these tools, Buyology researchers can show how just the red color of a Marlboro cigarettes pack or the angular shape of a McDonald’s restaurant roof triggers a reaction in consumers.  These new technologies help business resolve age-old ignorances about why people really buy.

Al Gore (former Vice President of the US and Nobel Peace Prize-winning creator of An Inconvenient Truth) gave an impassioned plea for responding to global warming before more dire effects take hold of the planet.  His presentation illustrates a third tool for reducing ignorance: developing deep models to estimate the direct and indirect effects of various phenomena.  For example, climate models help predict the ongoing rise of humidity and the concomitant rise in the severity of storms such as those that caused this year’s floods in places like Nashville and Pakistan.

Modeling does come with risks.  Levitt criticized prevailing economic models for focusing too much on what was mathematically easy rather than what was relevant to real economies.  People need to validate the model by showing, for example, that the last 60 years of temperature increases track the increase predicted by climate models.  Good modeling helps people reduce ignorance about what might happen without the full costs of making it happen.

Finally, testing represents the natural culmination of the other ignorance-reducing tools:  will an innovation or new idea really work? Levitt recommended doing more experiments — testing the effects of changing the price, changing the advertising, changing the product features, and so on. Levitt also suggested leveraging accidental tests.  For example, when an intern at a consumer electronics company forgot to submit newspaper ads for three months in one local market, the company discovered that the lack of newspaper advertising had caused no corresponding drop on sales.  Lafley likewise encouraged managers to test new ideas, even if they couldn’t get permission beforehand. Resolving ignorance is too important to be stymied by bureaucracy. Moreover, testing need not be expensive these days. A.G. Lafley noted how much easier it is to test new packaging and merchandising innovations in a computer-based virtual 3-D simulation. P&G can create an accurate 3-D model of a consumer’s favorite retailer and graphically add and test new designs. Changing the color, shape, size, graphics, etc., only takes the click of button. Cost is no longer an excuse for ignorance.

Action:

  • Admit ignorance and document what you don’t know but would like to know.
  • Watch and listen by going out to customers and the world to glean potential insights and innovations.
  • Use new data collection technologies to answer previously unanswerable questions.
  • Build models to predict the impact of innovations and other changes in products, processes, and business.
  • Test innovation hypotheses via various methods such as virtually, in test labs, or in select markets.

1 Comment »Case study, CEO, How-to, Innovation, Uncategorized