Alex Osterwalder masterclass summary: How to Build Invincible Companies
“Making the shift from competitive advantage to transient strategy” – Rita McGrath, Columbia
Entrepreneurs and leaders better be spending 40% of their time on innovation, says Dr Alex Osterwalder, author of The Invincible Company, or they face a risky future. He quotes Logitech CEO Bracken Darrell who uses the analogy of a tree and seeds. The tree will fall over one day. You need to be always planting seeds.
Masterclass with Business Model Canvas co-inventor
Alex Osterwalder ran a masterclass for Growth Faculty, to answer the question: How do we build the future while managing the present? A first step, he told delegates, is to stop thinking you’re invincible.
“The moment you feel like you’re invincible you are at risk of disruption," he says.
Tesla doing things that build an invincible company
Look at the industries disrupted by Tesla. It started in the car industry but, it’s also an infrastructure company (building battery charging stations), it’s increasingly a software company with the best data on the planet to create autonomous vehicles, and it’s moving from a transaction model to a subscription model (selling feature updates). They are now also a solar company, becoming an integrated energy solution, and a space company, normally the preserve of governments and huge private corporations (not start-ups!).
3 factors to stay ahead
Alex explains 3 factors that help a company stay ahead:
1. Constantly Reinvents Itself – They don’t believe they’re invincible, quite the contrary, they constantly reinvent themselves…..and that makes them invincible.
2. Competes on Superior Business Models – They don’t compete just on product innovation, service innovation, or technology innovation, or price. They compete on superior business models.
3. Transcends Industry Boundaries – They are very hard to classify in an industry…they increasingly transcend industry boundaries. You might have been taught Michael Porter’s 5 Forces, that you’re a victim of industry forces. That is 1985 thinking. Today, you can shape industry forces, no matter what your company.
So, how do we explore the future while taking care to exploit the present?
1. Explore and Exploit
Innovation is a topic found in both exploration and exploitation (existing business). There is efficiency innovation (improve and refine what you do) and transformative innovation (inventing the future). The latter requires a different mindset. Here’s what to do:
Don’t focus 99% on managing the existing business. The existing business develops antibodies that kills any exploration of the future that looks different from the present.
Business plans are the enemy of innovation. They describe a fantasy of an idea, and you are in danger of executing on that fantasy. They are good for executing, not for innovating. This maximises the risk of failure.
Embracing failure is crucial in exploration projects (innovation). When you explore it’s inevitable you will make a tonne of mistakes, but you adapt and improve.
Different approaches are needed for each side. For example, for Explore you need venture-capital style risk taking, expecting a few outsized winners. For the Exploit current business you need it to be a safe haven with steady returns and dividends. The two worlds are different but need to live in harmony.
3 types of innovation:
· Transformative (inventing the future).
· Sustaining (replace and extend value propositions, new channels, new geographies).
· Efficiency (improve processes and existing business model, refine value propositions).
Transformative innovation means testing an idea until you have enough evidence that shows it warrants execution and scaling or needs to be “successfully terminated.” Germany company Bosch rejected over 90% of 214 innovation projects in its accelerator programme.
You need to accept the success rate is low. The larger your company, the larger your funnel of innovation projects needs to be.
In innovation, you don’t pick a winner. You “successfully retire” those that don’t produce evidence of success. You create the echo system for the successful teams to emerge. Increase investment as the teams show results.
2. Compete on Business Models
Innovation too often gets stuck in the “new products” and “new customer segments” baskets. Sometimes it’s the business model that has the most exciting potential to be the disruptor in your industry. So first we must unlearn the business models we use in our company or our industry. Sometimes you need a new business model to bring an invention to the market. Here’s what to do:
Use a business model canvas. (www.Strategyzer.com)
Add different business model patterns to your business design as shown in The Invincible Company.
· “Invent patterns” include those made by Nespresso, Microsoft Windows, iPod who all added the gravity creators pattern into their business design. They created switching costs – they made it difficult for customers to leave or switch to competitors. Fortnite, salesforce, XEROX and Spotify added the revenue differentiator pattern into their business design.
· “Shift patterns” (pivots) improve business models, and include those made by Hilti machine tools, they moved from selling product to selling a recurring service. Nintendo Wii went from hi-tech to low-tech to reach a new group of users. Apple went from a no or low-touch service to a high-touch service with the Genius Bar.
3. Establish an Innovation Culture
“There is a fine line between vision and hallucination,” Steve Blank, entrepreneur and author.
“For every one of our failures, we had spreadsheets that looked awesome,” Scott Cook, co-founder and chairman Intuit.
An idea or a business plan can look good, but it can all go horribly wrong unless you test the idea. The key is admitting you don’t know if something is a good idea. Here’s what to do:
Design as if you are right, and immediately test as if you were wrong. Ask: What are the underlying assumptions of the hypothesis? Ask: What will it take for my idea to work? You will take the most important hypotheses and ideas, and test, experiment, adapt, and experiment again. Gradually you will get closer to the point at which you will execute.
Reduce the risk of implementing and scaling a bad idea. Test, test with cheap experiments. Build only comes later. The myth is that you need to build something to test. You could make a brochure of a fictional product or service, and use this brochure to test with real customers.
Actions speak louder than words. Put a call-to-action (CTA) in your brochure or on your website. Ask people to make the effort to call you or send an email (or ideally, reach into their pocket and pay for something).
Give your team time to run experiments. 100% of their time is time well spent.
You can’t outsource testing. No agency can do the testing for you, they can help you, but you need to do this internally. You need to understand your customers first.
In innovation it’s not possible to pick winning ideas. Ideas most likely to succeed will emerge after testing and experimenting (and failing). You could be most confident in an idea if there is evidence from your call-to-action experiments.
3 things to improve the innovation culture:
· Leadership support (the leadership team needs to spend time on innovation),
· Organisational design (put entrepreneurship, innovation, or learning in the C-suite)
· Innovation practises (not how much a team works on a project but the amount of evidence a team can show to support an idea or hypothesis).
To wrap up, ask these 3 questions
1. How much time does your leadership spend on innovation? If it’s not 40% your company won’t innovate.
2. Where does innovation live in the org chart? If it’s not at the top, you’re company won’t innovate.
3. What is your ability to kill projects? The ability to kill “successfully terminate” projects is key to innovation.
Good luck with planting those seeds!
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