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Problem classification
Every field of human endeavour has problems, and the myriad problem solving approaches that have been identified through history reflect that diversity. Even within a field, such as non-profit governance, the variety of problems that come before a board of directors can be extremely diverse. Strategic, risk, financial, structural, logistical, human, technological, safety, policy, political, stakeholder, performance, timing, reputation, procedural and other problems, are littered throughout our board agendas.
Notwithstanding the qualitative differences between the various types of problems on our agendas, non-profit boards often resort to using a standard problem solving methodology, thus demonstrating the aphorism “if the only tool you have is a hammer, everything looks like a nail” (see header image).
Improving our understanding of the types of problems we face would aid us in better defining any particular problem we need to solve. That in turn should point us to more suitable approaches to problem solving. Just as health practitioners need to provide the ‘right treatment to the right patient at the right time’, directors need to provide the ‘right solution methodology to the right problem at the right time’. This was Einstein’s point when he said “If I were given one hour to save the planet, I would spend 59 minutes defining the problem and one minute resolving it”.
Problem classification systems tend to be either very high level (e.g. structured Vs unstructured problems), or narrow-band (e.g. IT troubleshooting), and I have not yet located a taxonomy of problems which could be described as comprehensive. One response to that is to aggregate a collection of typologies, as illustrated in the chart below.
In the following chart, the debt owed by various problem solving models to the scientific method is suggested. These linear processes each propose a series of steps by which to understand the problem and then explore solutions.
Exploring problem and solution ‘spaces’
Exploring both problem and solution spaces has been ‘unpacked’ for us by various mechanisms and models over the years, and the juxtaposition of two such models in the chart below shows some of the parallels between organisational problem solving and design thinking.
When focusing on the problem space, problem analysis has its own set of filters and perspectives., some of which are highlighted in the next chart. The slider metaphor is used to hint that each attribute of the problem may be present to a greater or lesser degree.
Governance problems
Another approach to problem classification is to narrow the focus to a selection of the major types of problems encountered by directors, and acknowledge that this is only a very partial survey. As referenced in the title to this article, boards deal with both problems for governance, usually called ‘decision-making’ or the object of board deliberations, and problems of governance, related to the effectiveness of the processes and systems used by the board to perform its role. Of course, each of these problem types can also be described using perspectives such as those listed in the problem analysis chart above (e.g. complexity, scale, risk profile, etc.).
Often when compliance issues are identified by regulators such as the ACNC, ASIC, or Registrars of incorporated associations, the real problem turned out to be governance processes (problems of governance) rather than the issue on which a poor decision was made (or neglected).
Approaches to problem solving
Just as there are many types of problems, each possessing different qualities and characteristics, there is a multitude of methods, algorithms and models available from which we can choose a suitable problem solving approach. Regrettably, we don’t always identify the most appropriate approach. Consequently, our efforts may fall short of a durable solution.
A separate typology is required for problem solving approaches, encompassing linear, cyclic, and multi-dimensional models and methods. The selection of approaches illustrated in the next two charts only scratches the surface of the range available.
Another aspect of approach relates to the disposition or orientation of the problem solver/s. The following chart seeks to contrast conventional ‘inside the box’ thinking (problem mindset) with the more collaborative and solution oriented thinking (solution mindset) recommended for best practice governance and management processes.
When your problem solving process invites you to define the problem, consider the type of problem you are faced with before identifying the most suitable methods, orientation and approaches to solving it. Not every problem is a nail.
The Canadian researchers deconstructed the Business Model Canvas and re-assembled it by adding dimensions of sustainability thinking. They argue that the 9 building blocks of the Business Model Canvas help a company to “do well” but in order to “do good”, 5 more questions are required.
In order for a company to do “well” and “good”, only five more questions were added to the existing 9 of the business model canvas which resulted in the 16 new building blocks of the Flourishing Business Model Canvas that takes respect of the economy, society and environment. The building blocks are valued co-creation and co-destruction, relationships, channels, stakeholders, ecosystem actors, needs, partnerships, governance, resources, activities, biophysical stocks, ecosystem services, goals, benefits and costs.
The BMF sets the focus on a company’s values, therefore it depicts the value proposition for the customer, but as well the architecture and the value chain. Unlike other BMF it as well shows the internal values of the company. In each building block except the revenue model, the BMF explores different aspects of the value creation.
The Business Model Navigator framework focuses on answering four associated questions:
One of the reasons for the success of the business model canvas is that it provides a framework and structure to guide though.t –7
Many entrepreneurs have struggled with the Business Model Canvas because assumes that an organisation exists. For this reason, Ash Maurya created the Lean Startup Canvas. The Lean Canvas promises an actionable and entrepreneur-focused business plan. It focuses on problems, solutions, key metrics and competitive advantages.
For more details take a look at how to use the Lean Startup Canvas.
This business model tool is based on Osterwalder & Pigneur’s Business Model Canvas and the Ellen MacArthur Foundation’s Circular Economy System Diagram. It shows different cycles of maintenance, reselling, remanufacturing and recycling. The framework takes after the infinity symbol, in order to emphasize the ongoing process of circular business (it never ends). The smaller cycles require less time, money and energy. The value of the Circular Economy is embedded in each of the four cycles.
Business model innovation is a concept used to find new ways to generate value and profits by transforming its capabilities. There is no generally accepted definition of business model innovation which makes it hard to analyse and measure 8
The easy way to think of Business model innovation is as a process and as an outcome.
In times of change learners inherit the earth; while the learned find themselves beautifully equipped to deal with a world that no longer exists.
Eric Hoffer
The average life of a S&P 500 company has fallen from almost 60 years old in the 1950s to less than 20 years currently.
Emerging technologies empower entrepreneurs to create new business models that disrupt markets. For established firms, the implications are dramatic. Either adapt or die. Large organisations are being attacked on all sides as startups create new business models that unbundle their value chain.
Business model innovation is focused on enhancing advantage and value creation by making simultaneous and mutually supportive changes both to an organization’s value proposition to customers and to its underlying operating model. At the operating model level, the focus is on how to drive profitability, competitive advantage, and value creation through decisions on how to deliver the value proposition:
The process of business model innovation is focused on how firms can transform from their existing business model into a new business model. This is not the same as merely creating a new product or service, although that may be a part of the process.
The business innovation process involves making strategic choices based on the analysis of markets and internal capabilities.
Opportunities that can be explored are:
Unlike other types of innovation, changes to the business model require changes to the fundamental principles that underpin how the business operates. However, most innovation is incremental, such as product innovation, where technology enhancements are routinely included in product updates as a way of increasing performance or reducing costs.
Business model innovation transforms how value is created, delivered and captured by reinventing the dominant logic of the business.
Essentially it can be broken down into four easy to understand stages which have been adapted from the Lean Startup and his follow up book The Startup Way.
#1. Customer Discovery – Identify a customer segment with a problem and work set out assumptions that underpin their problem.
See the persona canvas for more details on how to do this.
#2. Problem and Solution Fit – Develop a solution to their problem that they would pay, is profitable and sustainable.
#3. Product Market Fit – Verify channels through which the customer can be reached for sales and delivery of the solution.
#4. Structure and Scale – resource and structure to support the scaling of operations.
Business model innovation processes can be approached in any number of different ways as long as sound business principles remain intact. These sound business principles are framed by four core business principles:
Think of these four areas as a picture frame for the business model innovation process, where it’s up to the company to paint the picture within the frame.
Business model innovation describes a fundamental change in how a company delivers value to its customers, whether that’s through the development of new revenue streams or distribution channels.
There are lots of case studies and examples of how new entrants have challenged and often superseded existing companies as a result of an innovative business model.
Most of the research points to business model innovation as providing:
Organizations that are locked into a dominant business model are in danger of having a similar fate as Kodak. The company once successful company was a giant in its time accounting for 90 percent of film and 85 percent of camera sales. However, Kodak viewed itself as untouchable. Moreover, it viewed its core business as being in the film and chemical business.
It’s hard to believe now that their own engineer, Steven Sasson, created the first digital camera! Executives were nervous that digital cameras would cannibalize their existing product and main revenue stream. So they ignored the business opportunity. As a result, competitors quickly seized market share and Kodak was later forced to file for bankruptcy.
Many failed business model innovations involve the pursuit of opportunities that appear to be consistent with the firms current business model.
In contrast, companies like Uber, Airbnb and Xiaomi have been able to dominate their respective industries because of their unique business models.
The Economist Intelligence Unit (2012) surveyed more than 4,000 senior executives worldwide on the subject of innovation. The findings highlighted that executives expect new business models to provide a long-term advantage, not new products and services.
Technologies used to be local e.g. a server used to be based in a company and enable file sharing around the building. Even then there were problems with sharing data across departments as they used different proprietary software.
Fast forward to today and cloud computing, global infrastructures (AWS, Google…), modular digital building blocks and easy inter-connectivity via API’s have unleashed an unbelievable number of new business models.
This is the area of my doctoral research and something I’m obviously passionate about.
First of all, let’s explore some of the digital business models that exist today and how digital technologies enable them. I’ll also illustrate this with some examples.
Consider how digital technologies change systems, structures, activities, as well as processes. As an example, digital channels change the way to the market, which subsequently affects how you create value for your customers.
Example 1: Retail channel. Online retailers, such as Alibaba and Amazon, have changed how people source or buy products. Many retailers have not been able to adapt and have gone bankrupt as a result, including big names such as former retail giants such as Toys‘R’Us, Claire’s, and RadioShack and many more.
Example 2: Mass Customization: Digital technologies allow consumers to design and customizing products, perform last-mile distribution activities through technologies such as 3D printing.
Example 3: Digital Assistants: AI-based technologies, like Amazon’s Echo and Google Home, are fundamentally shifting how consumers search, interact and use product and services.
Example 4: Industry 4. Sensors, AI, robotics and other automation technologies converge to transform businesses across the value chain.
New digital business models will challenge incumbent firms as they are burdened by their legacy business model and the related difficulties in transforming to a new business logic.
Typically incumbents are forced to deal with conflicts and trade-offs between existing and new ways of doing business10
There are four phases for innovating new digital business models: discovery, development, diffusion and evaluation of impact.
First, products and services from within the target market must be identified and defined from the customer’s perspective. Offerings that match a customer need to be understood. Then products and services recorded that have similar business models; it is more important to capture the variety of options for designing business models than to achieve an exhaustive market overview. As digital innovations are often enhancements of non-digital products and services, non-digital counterparts must be included.
Second, the business model components of the products and services identified must be decomposed by applying the taxonomy-building methodology 12
Common characteristics of the selected products and services are identified and grouped into dimensions. Finally, the resulting taxonomy is visualized as a matrix listing several dimensions of a problem and the variety of possible values for solution.
The resulting matrix then can be used to spot commonalities and differences between business models. The most important commonality relates to the value proposition because it reveals which offerings compete for the same customers.
See my next article for the ultimate list of business model types and examples for a full list of examples and how to harness the power of these types to create innovative new business models. For now, I’ve listed them as most others do, but there is a far better way to think about business models – I’ll show you soon.
The number of business models available to any business is shifting because of digital technologies. Of course, there are examples and some cases of types of business models and I list this in the example.
There are some broadly-based business models that have labels. The problem though is that often these labels, e.g. subscription model, don’t really define the success and performance of a business.
Many businesses incorporate multiple business model labels. As an example, Spotify:
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