Seizing the White Space

 

The book, Seizing the White Space: Business Model Innovation for Growth and Renewalby Mark W. Johnson, is a rather quick read and primarily for people who have not read Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengersby Alex Osterwalder, Blue Ocean Strategy: How to Create Uncontested Market Space and Make Competition Irrelevantby W. Chan Kim and Renée Mauborgne, and Clayton M. Christensen's The Innovator's Dilemma.

For people who have followed the development of the business model concept, and read case studies such as Southwest Airlines, Hilti, Xerox, Kodak, DEC, FedEx, and Tata, this book is a bit of a disappointment. I looked forward to reading this book and wanted it to be a 5 star experience, but after reading it I have more questions about the author and the writing of the book, than about any new content or ideas.

The book in three bullet points:

• It presents the concept "White Space" defined as an area where new or existing customers are served in fundamentally different ways and there is a poor fit with the current (incumbent) organization; "The range of potential activities not defined or addressed by the company's current business model".
• It provides a business model framework, "The four box business model", comprising a customer value proposition, a profit formula and key resources and processes, very similar to the model presented in the 2008 HBR article Reinventing Your Business Modelby Mark W. Johnson, Clayton M. Christensen, and Henning Kagermann, with the focus point on the customers' job-to-be-done .
• It briefly explores the circumstances when a new business model might be needed, being when you must change your current profit formula (overhead cost structure, resource velocity or both), develop many new kinds of key resources and processes, and/or create fundamentally different core metrics, rules and norms to run your business.

A brief summary of the different chapters:

1. The White Space and Business Model Innovation

Introductory discussion on core vs. non-core business, defining the white space that lies far outside an organization's usual way of working, where assumptions are high and knowledge is low. In contrast to the Blue Ocean concept, described in the book Blue Ocean Strategy by W. Chan Kim and Renée Mauborgne, (not mentioned in Seizing the White Space), the white space focus on what a specific organization can do, whereas blue ocean is about doing things differently than competition to be in uncontested markets. In the first chapter Mark includes a nice table on companies founded in the last quarter century that have entered the Fortune 500 in the last decade.

The book contains some questionable statements without references or discussion and chapter one is no exception: "Most successful innovative business models are forged by start-ups" (p. 18) - I would like to see the reference and discussion (and definition of "successful", "innovative" and "start-up") as most examples and discussions covered in this book are not on start-ups.

2. The Four-Box Business Model Framework

The chapter starts off with the discussion about the lack of a shared vocabulary, "No one to my knowledge squarely focuses on the elements in the business system that are central to value's creation and delivery and the way those elements work together to ensure or impede the overall success of the enterprise" (p. 23) I laughed out loud when I read the references related to the statement above, all from the same page: Peter Drucker (Harvard Business Review), Joan Magretta (Harvard Business School, former strategy editor Harvard Business Review), Henry William Chesbrough x2 (Harvard Business School Press). I would argue that the MAIN reason why there is a lack of shared vocabulary regarding business models is due to academics/consultants that ignore the work of other academics/consultants working in other schools/companies than their own.

The first element of Mark's Four-Box Framework is the Customer Value Proposition (CVP), an offering that helps customers more effectively, reliably, conveniently, or affordably solve an important problem (or satisfy a job-to-be-done) at a given price. In some versions of the model, such as Figure 9, 19, 20 and 24, there is no explicit customer mentioned in the CVP. In other versions, such as Figure 21 and in the model presented in the 2008 HBR article "Reinventing you business model", a target customer is included. The second element is the Profit Formula that defines how the company will create value for itself and its shareholders. It specifies the revenue model, the cost structure, target unit margin and how quickly resources need to be used to support target volume. The third element is Key Resources, the people, technology, products, equipment, information, channels, partnerships, funding, and brand required to deliver the value proposition to the customer. The fourth and final element is Key Processes such as design, development, sourcing, manufacturing, marketing, hiring and training by which a company delivers on the customer value proposition. Readers familiar with popular concepts such as Osterwalder's business model canvas recognize most terms and ideas.

3. The White Space Within: Transforming Existing Markets

Chapter three discuss business model innovation opportunities within existing markets by delivering new customers value propositions, something Mark argues often relate to predictable shifts in what customers are willing to pay a premium price for (at least the primary basis of competition). He presents an argument based on one example on how companies compete and differentiate with different forms of innovation according to the figure below. The references used for the "predictable shifts" are to colleague Christensen's The Innovator's Dilemma, and Geoffrey A. More's Crossing the Chasm, a book about selling disruptive products to mainstream customers. I would love to read more about these shifts, the research behind it, and how for example design and the use of brands affects the shifts in the basis of competition?

The chapter contains a nice case study on Dow Corning and Xiameter (mostly covered in HBR article from 2009), and the more classical case studies on Hilti, FedEx and IKEA.

4. The White Space Beyond: Creating New Markets

Seizing the white space beyond means developing new business models to serve entirely new customers and create new markets, often where large groups of potential customers are shut out of a market because existing offerings are too expensive, complicated or that the potential customers lack access. In the chapter Mark provides a table of archetypal business models and a nice case study on Hindustran Unilever and the Shakti Initiative together with some shorter versions covering MinuteClinic and SAP.

Obvious concepts to discuss in relation creating new markets are the tools, frameworks and methodologies presented in Blue Ocean Strategyby W. Chan Kim and Renée Mauborgne. Even though the Blue Ocean Strategy concepts are trademark protected, registered by ITM Research (INSEAD), other authors have been able to refer to the concepts and tools presented in the book.

5. The White Space Between: Dealing with Industry Discontinuity

Chapter five focus on the uncharted territory between what was and what is to be, after game changing events such as the commercialization of Internet technology or the push to address greenhouse gas emissions. Mark presents ideas in relation to unpredictable or radical shifts in market demand, in technology and in government policy targeted at the business environment. Examples are in the defense industry (transformative market shifts), Encyclopaedia Britannica (technology driven shifts), and Better Place (shifts in government policy and regulation). The chapter also contains a nice table including the industries and infrastructure of each technological revolution, from Carlota Perez' Technological Revolutions and Financial Capital.

6. Designing a New Business Model

In the chapter Mark discusses the business model innovation process from identifying a job-to-be-done to creating the customer value proposition, and compares the new business model that would be required with the existing model. When searching for unfilled jobs-to-be-done Mark puts emphasis on not only functional aspects of a job but also its social and emotional aspects, together with a short reflection on that Web 2.0 tools give businesses the ability to deeply understand their customers through increased interaction, with Threadless as an example. He introduces a way to use levers to contrast offerings, and mentions the reverse income statement to working up the projections for a business with a new profit formula. This chapter also contains an original and interesting case study from a project undertaken by Innosight with the customer name changed for purposes of confidentiality and a table with business model analogies.

7. Implementing the Model

For the implementation of a new business model, Mark describes three stages: incubation (1-3 years), acceleration (2-5 years), and transition (1-3 years). Incubation is the process of testing (early, cheaply and often) to identify and verify the assumptions most critical to success. Once the new model is proven viable, the Acceleration stage focus on setting up processes, together with rules, norms and metrics, to make the business model profitable. The final stage addresses the question if the new business can be integrated into the core or if it must remain a separate unit in order to thrive. Mark also discusses acquisitions and some successful and less successful examples.

8. Overcoming Incumbent Challenges

In the final chapter Mark describes three dangers incumbent face when implementing new business models: 1) Failure the allocate resources, 2) The Urge to cram new opportunities into the existing business model, and 3) Impatience for growth. He also briefly addresses the problem of the existing rules, norms, and metrics used by the company something that would be very interesting to dig deeper into.

My main questions after reading this book:

Why do Mark ignore existing body of knowledge and obvious references when defining the White space and his business model framework, and instead almost exclusively refer to his own or colleagues' work? Why does he focus so much on old examples, already covered in other books and articles, without using his frameworks to provide more depth into the cases? Why not look at modern examples of companies pushing its core business into new areas? Why are several included figures not referenced in the text, nor referenced for source?

A quick comparison with some other popular books on business models:

• Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers by Osterwalder and Pigneur is the obvious book to compare with. It also aims to introduce a standard language, a business model framework, and ideas on how to develop, test and implement new business models. In contrast to Seizing the White Space, Business Model Generation uses many sources and refers to popular management concepts, including Blue Ocean Strategy when looking at new market opportunities. Osterwalder focus much more on the customer and customer segments, and have that as a very explicit element of the business model framework. For me, Business Model Generation is a more original and content rich book. See my review here
• Getting to Plan B: Breaking Through to a Better Business Modelby John Mullins and Randy Komisar focus more on the financials and the start-up situation. It defines the business model slightly different from the two books above but shares the idea to experiment and adjust the business model as you learn new things. See my review here
• The Profit Zone: How Strategic Business Design Will Lead You to Tomorrow's Profitsby Slywotzky, Morrison and Andelman, has a heavier focus on profitability and the changing areas in which high profit is possible to keep, it is a quick read. See my review here
• Open Business Models: How to Thrive in the New Innovation Landscapeby Henry Chesbrough has a heavier focus on technological innovation in the context of business models and also covers the important area of Intellectual Property in relation to open business models.

All in all, Seizing the White Space is a good book, containing many valuable lessons. It will not WOW you, and it presents surprisingly few new case studies. One of the most important (implicit) lessons from the book is that business models need to be consciously designed and that companies must always stay on their toes looking for new opportunities around their core business, but also in the white space.

Discussions:

Anders,

I appreciate your thoughtful review. But as the author, I would like to learn from your constructive criticism, where can I find other detailed case studies about Hilti and business model innovation, as well as the Tata Nano and business model innovation similar to what is provided? Also, you mention Xerox, FedEx, Kodak, and DEC but as you know these are only very brief case studies compared to the deep/multi-page case studies provided on The Hybrid Airship, Hilti, Dow Corning, Better Place, Hindustan Unilever, Tata Nano, and Whole Foods. In the book, Xerox is only a mention, Kodak and DEC are each a paragraph, and FedEx is explained specific to BMI in a page and a half. And, as you know Southwest is only used in comparison to explaining the problem with Delta's Song Airlines business model and why the airlines ultimately failed.

You also mention the book "briefly explores" the circumstances when a new business might be needed but yet that is the essence of each of the chapters 3, 4, and 5, white space within, white space between, and white space beyond.

You also mention this is for an audience that has not read Osterwalder's book but yet my book really focus on the large organizational challenges and HOW they can develop and implement a busines model within a large organization. As you know, Osterwalder's book is primarily about designing a new business model in a very visually appealing format and i've enjoyed reviewing and learning from its content I might add. But the books are really apples and oranges. I'd also like to understand how Blue Ocean Strategy and my book are overlapping or how my book is redundant since as you say my book is specific to really addressing the organizational challenges to succeed in pursuing a blue ocean vis a vis a business model change that might be necessary. Finally, as a close colleague with Clay Christensen, I can tell you Professor Christensen and I would both agree the Innovator's Dilemma addresses the phenomena of disruption but did not get into the particulars of how to address the underlying cause of disruption, a disruption to the business model, hence the reason for this book as a natural extension to the Innovator's Dilemma.

I hope you appreciate a candid dialogue to get to real learning and understanding for both of us as well as for your audience.

All the best,
Mark W. Johnson

Thanks for your comment Mark!

I understand that we have a difference of opinions about your book, as well as quite different incentives. I respect you and your colleagues highly, and have as you know promoted videos with you, Clayton Christensen, and Scott Anthony at The Business Model Database. I have no competing book or competing company or other incentives to give your book 3 stars instead of 5. In fact, writing 5 star reviews are more fun and, would probably result in my review spreading much more quickly and widely. I read papers and literature that touches upon the subject of business models on a daily basis, and my reviews need to be understood in the light of that fact.

The book contains some good case studies, and you are right that I do not mention all of these in my review. For people who have followed the development of the business model concept, however, my opinion is that the book presents few truly new insights (I will grant, however, that the Lockheed Martin example was really novel). Better Place is covered on several pages – yes, it is a really interesting business model, but in my opinion the book leaves out fundamental aspects of Better Place's business model, perhaps due to the focus of the job-to-be-done from a consumer perspective. I see at least three vital dimensions to their business model which I felt were partly or entirely missing from the book:

1. The business model is hugely capital intensive and even though the company has been brilliant in raising capital and using local companies such as Better Place Australia to raise funding for individual markets, it is highly dependent on getting other companies (not only government incentives) to invest in building the system. To get those companies on board, Better Place has to give them solid value propositions.

2. The obvious new player in this new market, that I don't think is mentioned in the book, would be the utility companies who of course look forward to the conversion of transport energy from oil to electricity. Better Place will be able to provide demand management capability being an intermittent consumer to match intermittent suppliers such as wind power and solar, using the vehicles as a huge distributed repository. Better Place also enables the utility companies to expand renewable energy investments, since each time they put a car on the road they buy a long-term power purchase agreement from a renewable source. And of course, the utility companies don’t have to deal with all the micro payments from every individual charging their car, but only with one company, “the car operator” Better Place.

3. The backbone, probably considered by many the enabler of the business model, is the distributed software system only mentioned very briefly in the book "charging locations would be linked by GPS to powerful back-end computer networks, so drivers would know where to park, and when they returned their cars would be fully charged". In fact, in each of the cars there are high performance (Intel's Atom) computers with full Wi-Fi, and GPRS capabilities, which I’ll agree enable basic services such as data communication between vehicle, battery switching stations, and electric utilities, and which I would also agree help you navigate to the charging station when the range reaches a critical level, but perhaps most importantly act as a guarantee that there won’t be hundreds of thousands of cars that all start fully charging their batteries at 6 p.m. In addition to that, Better Place will be able to provide third party developers a highly valuable platform for future in-car applications, which has the potential to be comparable to, for example, the Apple App Store.

Yes I used the words "briefly explores" even though chapter 3, 4 and 5 have as their aim to cover the subject of when new business models might be needed. I believe this is appropriate as, and I’m sure you would agree, this is a complex issue.

Also, I think there may have been some potential misunderstandings of the points my review was making, since some of it was misquoted in your reply. I said that the book is "primarily for people who have not read Business Model Generation, Blue Ocean Strategy, and The Innovator's Dilemma". The three books together provide very interesting reading and cover many important concepts that are also included or highly relevant for the ideas that are presented in Seizing the White Space. Also, I never said anything about Blue Ocean Strategy being overlapping or making your book redundant, but "the white space focus on what a specific organization can do, whereas Blue Ocean is about doing things differently than competition to be in uncontested markets". However, when you introduce a concept and call it "the white space" when there is an existing concept called "the blue ocean", without referencing or relating to the other concept it is, in my view, confusing for the reader. I have heard several people saying that "the white space" and "the blue ocean" is the same thing, something I clearly state in the sentence above, it's not.

My opinion about Pigneur and Osterwalder's book is probably very different than yours for obvious reasons. In my opinion Business Model Generation also targets large organizational challenges and HOW they can develop and implement business models, while still using a visually appealing format. Both books are also trying to introduce a standard language, a business model framework, and ideas on how to develop, test and implement new business models. Given that the business model canvas has been around since early publications in 2002 I was surprised that you did not mention it – particularly given the traction it has begun to have lately – when you write "No one to my knowledge squarely focuses on the elements in the business system that are central to value's creation and delivery and the way those elements work together to ensure or impede the overall success of the enterprise." Again, I understand that all authors want to be unique but I can only see that this was either a conscious choice to exclude the model, for reasons that are your own, or a lack of awareness of the model in the first place. As you are a highly successful consultant and author, the former reason appears far more realistic to me.

I make no claim to being better or providing better solutions, and I even enjoy that the business model concept is vague, as many smart individuals including you are all trying to illustrate and visualize how organizations create and capture value in different ways. Every new way that adds to our understanding on how to create value is valuable.

Take care,
Anders

https://tinyurl.com/479aae5y

Innosight co-founder mark johnson says companies need to reinvent their business model around the job to be done

The surest way to develop successful new businesses – especially in transforming industries – is to focus carefully on an unmet market need and tailor a business model to meet it.  This means developing business models for "getting the job done." This sounds straightforward but in practice it is devilishly hard because established, successful companies so often let structure (read: organizational baggage) drive strategy, rather than making strategy – choices about where to play and how to win – dictate the right structure.

Here’s something most companies are bad at:

Moving beyond their core — beyond what they’re good at, beyond what they’re comfortable with, beyond what they know.

“White space” is what Mark W. Johnson, co-founder and Senior Partner of Innosight calls this unchartered territory. White space is the potential that demands different business models to exploit.

Innosight co-founder Mark Johnson and author of Seizing the White Space: Business Model Innovation for Growth and Renewal

In his 2010 book Seizing the White Space: Business Model Innovation for Growth and Renewal (Harvard Business Press), Johnson argues that businesses’ habit of failing to capitalize on growth opportunities that didn’t seem to fit and businesses’ tendency to erect borders around what he terms their “core operating spaces” mean that what companies have to do is commit to reconfiguring. Commit to figuring out wholly new ways to act on opportunities that

1. Serve new customers or existing customers in fundamentally different ways. 
2. Be ready to address the fact they may be a poor fit for the company’s core business.

Business model innovation isn’t a new idea, but it’s a hard one to implement. Johnson, a cofounder and senior partner at the innovation and strategy consulting firm Innosight, notes in his book that a 2008 IBM survey found that nearly all of the 1,100 corporate CEOs polled reported the need to adapt their business models. At the same time, no more than 10 percent of innovation investments at global companies are currently focused on business model innovation. Why the disconnect?

Innosight's chairman Mark Johnson discusses seizing the white space through business model innovation in this Business Innovation Factory interview.

Johnson writes.

“Companies can’t pull it off because, as familiar as the term is, very few people really understand what a business model is (and what it isn’t) or what model their organization is actually operating under, much less how they would go about creating a new one and why or when they should.” 

In an interview with The Build Network’s managing director for new venture development George Gendron, Johnson talks about how companies need to look for the unmet jobs not getting fulfilled, see the business from the outside in, and think about developing a portfolio of business models.

GENDRON:  Let’s start with an example. Towards the end of your book is the summary about Amazon. If you said to me, “Name a company I don’t ever want to read another word about,” it would be Amazon. And yet its history in terms of business model innovation made me think, what an astonishing story.

JOHNSON:  It is. The amazing thing about Amazon is this idea of the user experience. What Jeff Bezos, Amazon’s founder and CEO, said was, “I’ve got to get good at what my customers want, regardless of whether I’m able to do it or not.” He didn’t let things get in the way of being able to make that happen. The company was able to focus on figuring out what is it exactly that its customer is trying to get done and how to put together the pieces of the puzzle that would allow the company to serve that customer.

GENDRON:  Amazon starts in the retail arena, selling books online, selling consumer goods online, setting up a commission-based brokerage system for used books, opening its storefront to third-party retailers. And then, suddenly, they’re in IT services, creating online services for other sites and client-side applications for web developers. And then they’re building an e-reader, the Kindle. Those last ones are jarring, right?

JOHNSON: They are. And remember, Bezos and Amazon were pummeled. I have the picture of Jeff on the cover of Business Week when they came up with Amazon web services in 2006, and the cover line is “Amazon’s Risky Bet. ”

What Bezos and Amazon figured out was how to design around the job to be done, not their capabilities. Everybody focuses on their capabilities, how they can use their capabilities, and of course that’s important. But it has to be broader. What’s the job? What’s that user experience? Wrap the business model around that job, especially if you want to seize opportunities beyond your core business

Bezos put it this way: he said,

“If you want to continuously revitalize the service that you offer your customers, you cannot stop at what you’re good at. You have to ask what your customers need and want. And then no matter how hard it is, you’d better get good at those things.”

The Amazon story is that it’s built to transform. It had one profit formula at the beginning when it was just an online bookstore, then it went into this whole eBay-like brokerage thing of selling used books, then its web services, which was a huge, huge departure.

This serial process of business model innovation that Amazon has done, by the way, hasn’t really been repeated.

GENDRON:  You also have looked at the way that Apple has been creative in business model innovation.

JOHNSON:  Of course, in Apple’s case, the MP3 player was so powerful because you could customize your music. That was in place, and there were a whole bunch of MP3 player companies, and people said,

“Hey, this is really cool.”

Apple just blew it out of the water when it combined the hardware with the software with the service with iTunes to not only customize but make it extremely user friendly. It was easy to buy and download music onto your iPod. They made the experience seamless, they made it idiot-simple.

Apple is clearly not beholden to their existing structures. They’re figuring a way to not let the existing structure get in the way. They focus on the consumer and his or her experience and making it amazing, convenient, and simple. All the heavy lifting is behind the scenes, combining product with service with technology with software. The customer didn’t care about how hard it was behind the scenes.

GENDRON:  Let’s step back. Why do you think this concept of business model innovation got so hot in the first place?

JOHNSON:  I think it started with the whole dot.com wave, when the Internet began to allow for a different way to make money and a different way to operate as part of serving a customer. I talk about a four box business model framework, meaning the blueprint for how a company delivers value, at a profit, to a set of customers. It’s got four parts: the customer value proposition; the profit formula; the key resources needed to deliver that value proposition at a profit; and the key processes needed.

The Internet really turned things upside down. It created such a wave and a multitude of different businesses, and things were getting financed without any real way of making money

I think that caused a reflection, where people started to say,

“We need to think about ‘What is the business model?’”

Also, with the speed of information technology, the life cycles of businesses are, I think, shrinking more dramatically than ever. That leads again, intuitively, for people to say, 

“We’ve got to get to the actual fundamentals,”

which is why is the business a business in the first place. What are the underpinnings of that? Let’s get beyond just the measurement and the norms and the culture of how things run to more fundamental questions, which goes back to the business model.

A true business model is an interdependent cross discipline set of pieces that are intertwined in a very unique way, developed over years. It’s not just about the financials. It’s tied to the operating model and how people organize people and processes.

GENDRON:  We launched Inc. in 1979, and when we did our first Inc. 500 we were often dealing with CEOs who had started their businesses in the mid ‘70s. And we were seeing what I would describe as the last generations of cowboy capitalists. Real old style entrepreneurs. Many of them would say “business models are forever,” meaning that they had looked for a niche in the marketplace, found one, and they went off to operate that business with the expectation that they’d die behind the desk with the same model that they had started 20, 30, 40 years earlier.

JOHNSON:  Established companies run a huge risk in becoming rigid. They think, well, our established profit formula and our established operating model — which we have honed and used all these years with the overriding rules and norms and metrics — will obviously work for serving a new customer in a new way. They think this because those things are so embedded in how the organization turns a profit and how it operates.

Financial people have a formula, and if new products don’t meet these growth margins, they’re not interested. It’s counter to the nature of business to say we’re going to entertain changes to the profit formula.

Instead, people have to be prepared to be open and diagnostic about how the ways that they turn a profit might change. I’m thinking about incumbents, mid-tier and large companies. They have to be willing to say, “Hey, we’re going to serve a new customer a new way. Is it possible that the way we turn a profit has to be different.” Or, “We may need to change our overhead structure to go after this new value proposition.” Or, “We may have to change the velocity with which we drive through products. We may need to become a high volume type of company as opposed to a high margin, low volume type.”

Companies can no longer continue to say, “We’re going to be a branded product company.” As soon as they say to themselves, “We can’t just think about breakthrough products,” then they open up the scope of innovation to say, “We have to think about the whole business model.”

GENDRON:  How do companies do this? What’s your prescription?

JOHNSON:  We talk all the time about how, if you’re trying to grow, it’s one thing if you’re sustaining your core business and you’ve been with the customer a long time and you’re doing incremental innovations to improve the product. You can get away with being “inside out,” as they like to say — with your focus from the inside, looking out. But if you’re really trying to create new growth, whether you’re a new entrepreneur or you’re an established company moving into new places, you’ve got to be so “outside in.” You really have to understand what the critically important unmet job is that’s not getting fulfilled. Because at the end of the day, what the customer does is hire the product to get a job done.

GENDRON:  When you think about all of the material that you covered in the book, material that you put into practice every day, what’s the one aspect that you wish you knew more about?

JOHNSON:  I have two. The first is that I’m still trying to figure out the right way to think about how much separation there needs to be between operating the core and coming up with a new growth opportunity and a business model. What’s the right interface between that new incubation growth group that is going to white space and the people executing the core competency?

GENDRON:  That is a great question.

JOHNSON:  There’s so much literature on it now, but I don’t think we’ve cracked it. New incubation groups are totally separate, they’re isolationist, but they can get crushed. It’s like this dance, and I haven’t seen it really nailed to a level that people can understand it and say, “This is how we’re going to do it.”

The second thing is a kind of the corollary to that, and it’s this question: Can a business unit operate two business models at the same time? I’ve always said no. I don’t think it can. But I don’t have all the data to know that that’s a hundred percent right.

GENDRON:  I think you know intuitively that most people would agree with you, right?

JOHNSON:  Yeah. I think most would. But I was just at a client who said, “Oh yeah, we’ve got a bunch of different business models.” I’m not sure if it’s truly a different business model or a nuance off of the existing model.

GENDRON:  The way you talk about “design around the job to be done, not your capabilities,” sounds so right and appropriate. On the other hand, there are generations of leaders who grew up with the notion of core competence. It’s just been drilled into them, it’s part of their DNA. You’re talking about a huge change in thinking and framing.

JOHNSON:  It is a big change, but I think it has to be framed the right way. It’s an “and” statement. Of course you want to leverage your capabilities and say,

“How do we have things that are consistent with our capabilities to continue to move the train in a forward direction, to move it along.”

Nobody disagrees with the core competence of the corporation to drive those things. Nobody, I think should disagree with that — it’s better to try to do things that are nearer in, if there are opportunities, as opposed to further out.

But on the periphery, you can have small innovations. You can have entrepreneurs that are looking at unusual opportunities that come at the intersection of different industries and disciplines that are too good to pass up. Or at least they’re too good to not at least investigate, to find out how it would fit with what your customers might want.

A company could be 90 percent, 95 percent focused on its core competence. But why not take five percent? If you’re talking about a big company, with $100 million of discretionary investment ability, that’s $5 million dollars. I think it’s more a sophisticated portfolio theory for companies.

GENDRON:  Large companies as a collection of business models.

JOHNSON:  Yes. A more sophisticated way to bet for the future.

COMMENTARY:    For those of you who truly embrace strategic thinking, creative innovation and business modelling, the second video titled, "BIF Interview of Mark Johnson" really gets to the "core" of creating business models because its much more professorial. 

Seizing The White Space is really about trying to leverage new opportunities and new places that require where the company has to change its existing business model in order to succeed.  This means developing a new value proposition, revenue model, profit model and operating model.

In order to capitalize on new opportunities means managers need to venture into adjacent spaces, but you have to be careful not to venture to far off of your core competencies and end up in unfamiliar territories.  

How does a company create, capture, and deliver value.  That's the essence of what a business model is in the first place.  If managers understand the basics, the underpinnings of business then they can venture beyond their core competencies and take advantage of new business opportunities.   

Mark Johnson divides business model innovation into a four box matrix as follows: 

Customer Value Proposition - How important an unmet job is going to be addressed by a company through a new offering, both through what they are going to sell, how they are going to sell it, the method of payment, and so forth

Profit Formula - How the company captures value and generate a profit for itself from the new business opportunity.  The profit formula defines how the company is going to make money, including the price strusture, cost structure, target profit margins, target unit volumes, inventory turnovers, and so forth.  Developing the profit formulat is giggest stumbling block for a company, because managers must understand their cost structure (fixed, variable, one-time and sunk costs costs, etc.), and competitive landscape, in order to develop a pricing model that results in a sustainable business model.

Operating or Delivery Model - This is what makes up the structure of an organization at a fundamental level.  Consists of resources, processes, coming together in the right way for a company to capture repetitive value for itself.  Transitioning from a high margin to a low margin business or going to a low volume from a high volume business can be difficult to change.  The goal is how to best reach economies of scale and maximize value.  This often requires fefining the manufacturing process, or bringing in new resources (new technologies, equipment, more knowledgable personnel).  It's difficult to chanage a lot of the pieces in the operations model because they are systemic in nature.  Manager's are stuck within their systems. They feel comfortable within the systems they have created.  Latencies take foothold and managers feel boxed into existing systems.

Overlays of Business Models - These are the rules, norms and metrics, that guides the procedures, the rules that are in place so that people will adhere to a certain way of doing business that protects the underlying new business model so that business risk is minimized to achieve ultimate success.

How does a company go beyond the rules, norms and metrics and why leaders need a common language business model?

1) Ask yourself:  Where is your business right now?  Where are you in the first place?  Managers must understand their existing business model, because without that knowledge, how can managers know where they want to go next, or how will they know that the new business opportunity they are pursuing really requires a new business model.  What you don't want to do is create a new business model, just for the sake of creating a new business model.  

2) Ask yourself: Is the new business opportunity something that leverages the core business in a real way that can be controlled and kept inhouse?  Or, is it really a fundamentally different way of turning a profit and operating by which we need to manage things totally different.  Without having a baseline understanding of what our existing business is, it is going to be really difficult to know what we are doing, and how new it really is.

Linking disruptive thinking to business model innovation. 

Disruptive innovation or disruptive thinking is a strategic way of thinking. It's really about how you  view a new business opportunity of having the best potential for success in the marketplace as it relatates to creating new growth.  It's really an external management viewpoint.  

When a company is disrupted by the disruptive opportunity, the reason why they are being disrupted, is that their business model is being negatively impacted in some major way by a new market entrant or existing competitor (the attacker).  The attacker enters your market with a new business model that is disruptive to the company's existing business model.  Examples:  Steve Jobs disrupted the portable music player market and ultimately how music was delivered and priced by introducing the iPod and iTunes and incorporating digital music (mp3) as a viable competitor to existing CD music, music distributors and consumer electronics producers.

Steve Jobs and the Apple iPod and iTunes

When Steve Jobs introduced the iPod and iTunes, he was competing headon with Sony, the established leader in portable music players and a leader in music recording.  Sony made the portable music player the accepted standard for storing and playing back music, which was primarily stored on music CD's, the existing standard at the time that had replaced music tape diskettes.  

The iPod disrupted Sony's business model by not delivering music on CD's, but by allowing music lovers to download individual digital music files or MP3 files from Apple's iTunes online music store to their computer via the internet, then transferring those files to their iPod.  

The iPod and iTunes disrupted the entire music entertainment industry value chain: recording studios (music CD's), distribution chain (retail music stores) and the consumer electronics industry (CD portable music players).

Steve Jobs changed Apple's business model and culture from a pure play computer company to one of the leading consumer electronics companies in the world.   In so doing, he convinced his customers to pay for digital music, something they were not accustomed to do.  He also convinced the music recording industry leaders to sell their music through Apple's iTunes online music store for 99 cents per title.  Both of these were major hurdles for Steve Jobs, but Steve was very persuasive. Today, Apple is the dominant force in digital music streaming and consumer electronics products.

The Necessity For A Bigger Vision or Mission

I often site the need for a company to establish a grand vision or central mission for the business. This is the foundation upon which business models are built and take root. Mark Johnson did not address this in the above videos, but I believe it is very important to establish a grand vision or central mission before developing a business model.  If your grand vision or mission statement and business model are not congruent then something is wrong.  Steve Jobs established a grand vision for Apple by developing the Digital Hub Strategy, a subject I wrote about in a blog post dated October 6, 2011 and mention quite regularly in many of my blog posts about Steve Jobs and Apple.

According to Steve Jobs the personal computer would become the Digital Hub for the Digital Lifestyle, an emerging digital trend driven by the internet and an explosion in digital devices: digital camera's, videocam's, portable music players, PDA's and DVD video players.  The PC would serve as a Digital Hub that would allow consumers to store, share and playback digital images, music and video files. 

Mark Johnson Bio

Mark Johnson is a Co-founder and Senior Partner of Innosight, a strategic innovation consulting and investing company with offices in Massachusetts, Singapore, and India, which he co-founded with Harvard Business School professor Clayton M. Christensen. He has consulted to the Global 1000 and start-up companies in a wide range of industries—including health care, aerospace/defense, enterprise IT, energy, automotive, and consumer packaged goods—and has advised Singapore’s government on innovation and entrepreneurship.

Mark’s most recent work has focused on helping companies envision and create new growth, manage transformation, and achieve renewal through business model innovation. This work is the subject of the McKinsey award–winning Harvard Business Review article, “Reinventing Your Business Model,” as well as his new book entitled Seizing the White Space: Business Model Innovation for Growth and Renewal, published in 2010 by Harvard Business Press.  He is the author of the Harvard Business Review article "New Business Models in Emerging Markets" with Matt Eyring and Hari Nair.  Mark has published articles in the Sloan Management Review, Business Week, Advertising Age, and National Defense.

Prior to co-founding Innosight, Mark was a consultant at Booz Allen Hamilton, where he advised clients on managing innovation and implementing comprehensive change programs. Before that, he served as a nuclear power–trained surface warfare officer in the U. S. Navy.

Mark received an MBA from Harvard Business School, a master’s degree in civil engineering and engineering mechanics from Columbia University, and a bachelor’s degree with distinction in aerospace engineering from the United States Naval Academy. He currently serves on the board of SemiLEDS, an LED manufacturing company, and the U.S. Naval Institute.

Courtesy of Mark Johnson and Seizing The White Space

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