Innovation Blog

Understand Uberization and Make it Work for You
October 2, 2015

Almost everyone agrees that Uber is a game changer. Some see Uber as a leading example of the “sharing” economy. I’ve also heard the phrase “gig economy” bandied about. But those labels don’t really capture the powerful economic essence of companies like Uber. Any good economist recognizes what Uber is really all about—and so should you. Understanding is the first step in your ability to leverage the concept yourself.

Exploiting Assets

Uber is about optimal asset utilization. Of course, Uber is not the first to optimize the utilization of assets. The airlines have been at it for decades—they try to figure out how to keep their planes in the air as much as possible. Canada’s famed heli-skiing businesses do it too. They use their helicopters to ferry skiers in the winter and then rent those same helicopters to the forest service in the summer for firefighting.

Think of it this way. Let’s say your helicopter cost $15 million and you finance that at 5%. That financing costs you roughly $2,000 per day. Every day the helicopter is not flying, you’re still paying $2,000 in a day in finance costs. That’s nearly $100 per hour—just for the financing. The more you can keep that helicopter in the air producing revenue, the better. It’s that simple, and it represent the difference between a failing and thriving business.

I live in Colorado. If you’ve never been to Colorado, you think of it as ski country. So it might surprise you to know that the traffic coming down from the mountains is often worse in the summer than the winter. Why? Because the resorts have figured out how to make themselves attractive destinations during the summer, too. They still have some work to do—the fall is still a quiet time. Kids are back in school and there’s not enough snow to ski yet. But the fact that it’s become such a vibrant summer vacation spot is another good example of asset utilization.

Ratings Remove Risk

Car sharing has been around in one way or another for some time. City dwellers have gone without cars for decades, instead opting to rent on the weekends. The car rental companies would rent to business people during the week and to locals on the weekend. Sometimes they’d have to move cars from an airport (say LaGuardia or Newark) into Manhattan, but the principle is the same.

Short-term room renting is also a time honored tradition. Those lucky enough to live in an area where a major destination event is taking place have been reaping space renting benefits for decades (think Olympics, Super Bowls, political conventions). Yet, Airbnb is the other transformative “Uber” of our time.

The difference between then and now with respect to car sharing and short-term space rentals is all about information technology. For many—some years ago, the idea of renting someone’s apartment for the night—instead of a hotel room—was too risky. But with the robust, on-demand rating systems used by Uber and Airbnb, consumers can easily find cars—and apartments—that are clean and well equipped. In fact they can be better than taxis and hotels.

So, Uber does not represent a new concept—not by a long shot. But it does introduce a valuable, long-understood concept to many that haven’t thought about it before.  So instead of thinking how to leverage the new sharing economy, think about asset utilization.

Now that you understand what it’s all about, perhaps you can come up with some ideas yourself. The premise is that anything that simply sits idle is unproductive. That’s where to start.

Here’ my list:

  1. My washer and dryer. Sure, I know Kathy (my wife) would say they run all the time, given our four active kids. But they don’t. Is there a business to be had? Well, there are laundromats—so that’s not a new idea. What else can you come up with?
  2. I have thousands of dollars’ worth of tools in my garage. I long ago decided that buying $200 worth of tools was still cheaper than hiring a contractor if I could figure things out myself. And since I like learning new things, well….
  3. Then there’s my house itself…and most of what’s in it. My televisions, PCs, etc., and my kid’s rooms. When I served on a submarine, the most junior guys often, “hot bunked.” That means you had the use of a bed during your off time, but someone else would use it while you were on duty. “Gross,” you say? Perhaps, though the disciplined ones actually kept their own set of linens. How about your home PC. Loaning out unused CPU time has been around for some time. The most notable example today may be bitcoin, which resides virtually on thousands of PCs and servers around the world.
  4. I’ve even thought of “renting” my car to Uber drivers while I’m at work. If I get to my office at 7:30 AM and don’t leave until 6 PM, someone else could use my car in between. It just sits there in the parking garage, producing nothing. Who’s creating the Uber for Uber drivers so they don’t have to invest in new cars, which many Uber drivers are currently doing? This burst of car buying by Uber drivers, by the way, is positively impacting the auto industry—a short term blip and another story altogether.
  5. Whose office is empty at night?

As with most things, the realities are usually over-simplified. But if you want to be the creator of novel business models and innovative ideas, it’s worth understanding the real principles behind Uber, Airbnb, and other such businesses. Now let your imagination run wild and put your idle assets to work.

David Silverstein is the founder and CEO of BMGI. This article was originally published on LinkedIn. You can follow David on LinkedIn here.

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Tags: uberasset utilizationairbnbbusiness model innovationSection: Business Model Innovation
Executive Suite: What Happens When You Stop Growing?
September 24, 2015

We asked BMGI’s innovation team to share their favorite innovation quotes and books. From BMGI Senior Client Partner Paul Massey comes this clip from Executive Suite, a 1954 movie starring William Holden.  

“I think it states very well the entire argument on why it is essential to cultivate an innovative culture in any organization,” he said. “It really emphasizes the ambidextrous organization.”

Just under 10 minutes, the clip shows a heated moment in the board room where the leadership team realizes what the company—and the people who run it—really stand for.

“Stop growing and you die. Turn your back on experimentation and planning for tomorrow…and you won’t have a tomorrow, because there won’t be any company.”

Watch the video

We hope you enjoy the clip, and stay tuned for more favorites from the innovation team. Have a favorite you want to share? Post in the comments!

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Tags: executive suite clipgrowthexperimentationplanningSection: Structure & Methods
Five Things the CEO Can Do to Encourage Creativity
September 10, 2015

IBM led a 2010 survey of 1,500 chief executive officers about businessy things and found that 60 percent of those surveyed cited creativity as the most crucial factor for future success. A similar survey in 2012 stated that "CEOs consistently highlight four personal characteristics most critical for employees’ future success: being collaborative, communicative, creative and flexible." As a result, one would expect to see businesses scrambling to hire more creative people and adopt more creative practices. However, I am not seeing much evidence of this happening. If anything, businesses seem to be demonstrating a reduced interest in creativity. There are two potential reasons for this.

Firstly, what people say they want in surveys often differs dramatically from what they demonstrate they want through their behavior; consider dieters who say they want to eat less fat and sugar. Secondly, those surveys were completed [five] and [three] years ago respectively. In this fast changing business environment, CEOs might have changed their minds and perhaps now feel that cleanliness and personal hygiene are the most important factors in employees. After all, who wants to work with someone who is smelly?

However, let us, you and I, be a little optimistic and assume that creative leaders and employees are crucial to at least a few corporate leaders—yourself for instance. What can CEOs do to foster creativity among their employees? Here are some suggestions.

One: Implement Ideas

If the CEO wants people to be creative, she needs to implement their viable ideas. Otherwise, employees will quickly work out that the creativity thing is a bit of a sham and will stop bothering to be creative. What's the point in taking precious time to develop and promote ideas if they will only be ignored? On the other hand, if novel ideas are tried out and implemented regularly, employees will be keen to build and propose ideas to your company.

What Can You Do? Lay down processes for developing, testing and implementing creative ideas.

Two: Avoid Stupid Metrics

Big businesses are tremendously complex entities that need to be profitable (or at least break even) to survive. Not surprisingly, then, business leaders rely on all kinds of metrics to work out how well their businesses are doing. This includes attempting to measure creativity, which is notoriously difficult to measure. The result is often measuring the wrong stuff in order to have numbers to put into reports and feed bar graphs in PowerPoint presentations.

The two numbers most commonly measured for corporate creativity are numbers of ideas and participation rates in innovation initiatives. These may be very nice numbers, but they are completely meaningless in terms of creativity. I know of businesses that use software to capture gazillions of ideas from large numbers of employees. Yet these companies are about as innovative as a frog. Others do not use such software, do not have innovation managers and only implement a few ideas. However, they really do implement ideas rather than capture them in a database and, as a result, these companies really are creative.

What Can You Do?: Do not count ideas. Really, don't do it. Measure the results of creativity, such as new products, improved existing products, better packaging, improved processes and how often your company gets positive write-ups in the press.

Three: Hire Creative People

Most companies claim they want to hire creative thinkers and those with entrepreneurial backgrounds (who are assumed to be rather creative). However, research shows that creative thinkers are generally disliked and entrepreneurs not only find it hard to get jobs, but when they do, they get lower pay than non-entrepreneurs.

If you go to any careers website and do a search on middle management level positions, you will see that organizations inevitably want to hire people with a degree and work experience in the relevant field of expertise. A marketing manager should have a business degree, an MBA and several years of experience in marketing in a similar company. This makes it likely the person hired will fit in and be very much like existing staff. But she is also unlikely to bring diversity of thinking to the job and, being very much like everyone else in the marketing department, she is unlikely to bring new thinking to the team.

Diversity feeds creativity while uniformity leads to conformity. If the CEO wants creative employees, she must ensure the company hires people with diverse backgrounds and creative minds, not people who fit a corporate mould.

Moreover, diversity should not be limited to experience and education. In the West, too many businesses are largely run by boards of middle-aged white men. Women, people from different cultures and people of different sexual orientations can bring new thinking and creativity to top management.

What Can You Do? Invest in a little training. Train your human resources team to understand, hire and encourage creative employees. Train managers to support rather than hinder creative employees. Encourage the posting of job adverts that encourage diversity of professional experience, personal experience, background and culture. Establish a policy of encouraging diversity in hiring.

Four: Participate in Creativity and Innovation Activities

In my anticonventional thinking (ACT) workshops and facilitated events in which the CEO (or president or managing director) participates, the results have been great! Organizers and participants of the event feel proud that the CEO is participating and this sends a powerful message that the CEO really cares about innovation. People who work with the CEO (my workshops inevitably involve putting people into small teams to apply ACT in practice) are inspired and have stories to tell.

Facilitators who run brainstorms often feel the opposite. They claim that when the CEO or other senior manager participates, it inhibits people who are shy about suggesting unusual ideas in front of corporate higher-ups. This is because brainstorming prohibits criticism of ideas and, as a result, the employee cannot know how the CEO will truly feel about her idea. So she takes the safe route and keeps her more outrageous ideas to her self. ACT embraces criticism. This means that an employee can feel safe questioning the CEO's ideas and, if the CEO criticizes her ideas, the employee can defend her thinking. The result is not a stiff situation in which ideas are suggested in front of an unspeaking boss, but an opportunity to really debate and discuss ideas. Moreover, the value of an employee debating ideas with the CEO cannot be overestimated.

What Can You Do? Where possible, actively participate in creativity and innovation activities. But check with the facilitator first. Some are not confident or comfortable working with groups that include a senior manager.

Five: Set Up Skunkworks

Skunkworks are independent, autonomous divisions in companies that are given the freedom to experiment with ideas. Typically, they have a budget and the ability to fast-track the implementation of ideas. They are expected to fail often in the hopes that they occasionally succeed brilliantly. In organizations that do not have a good culture of innovation, a skunkworks is probably the best way to kick-start innovation. Not long ago, I had dinner with a couple of guys in charge of the skunkworks of an African bank. The stuff they were doing was incredible—and would put banks in developed countries to shame. Moreover, they were getting far better results than they expected.

What Can You Do? Provide a budget and resources for a skunkworks, establish ground rules, put a team in charge and then just leave them be!

Do It

All five of these actions are relatively simple to put in place, especially for a CEO. However, it will require some time before results come rolling in. A policy of hiring diverse employees requires that said potential employees are found, hired, trained and given an opportunity to start working. Eventually, they will start having provocative conversations which will lead to ideas. Those ideas will be developed, tested and implemented (provided the CEO applies the first recommendation above). But it will not happen overnight. It will take time. Nevertheless, if a CEO applies these five recommendations, she can be sure of a more creative workforce and more innovative company within a year.

Thanks to Jeffrey Baumgartner for this guest blog post! Jeffrey is the author of the books, Anticonventional Thinking: The Creative Alternative to Brainstorming and The Way of the Innovation Master as well as Report 103, the Internet's longest running newsletter-blog on business innovation. This article originally appeared in Report 103 and is reprinted with permission.

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Tags: creativityidea generationdiversityskunkworksSection: Culture & Teams
Netflix vs. Blockbuster
September 3, 2015

In recent posts, author Derek Bennington looked at the explosion and demise of Blockbuster—from strategic decisions to underestimating Netflix to not changing the business model fast enough. Blockbuster Busted Part 1 looked at an S-curve analysis, while Part 2 covered a business model analysis.

This eye-catching infographic found on the World Wide Web summarizes some key happenings in the story. In the end, it reiterates what Derek's analysis showed: "Netflix didn't shut down Blockbuster, but they did steal the market that Blockbuster needed to move into."


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Tags: BlockbusterNetflixbusiness model architectureSection: Business Model Innovation
Break Free of Innovation Mediocrity with Structured Innovation and Methodology Experts
August 27, 2015

The phrase “companies don’t innovate, people do” holds as true today as it always has. But how do we get our people to innovate more effectively and efficiently? Is it through systematic pursuit of opportunities or flash of genius? Flash of genius can happen, but this is mostly considered optimistic bias. We need a reliable system that builds mind-blowing concepts on a consistent basis and does not leave innovation to chance.

Every System Requires Structure

The esteemed Professor Peter Drucker said innovation occurs in business through “systematic pursuit of opportunities.” For me, that pursuit takes the form of a structured innovation process. Every system requires some modularity or structure to function effectively, according to Clay Christensen in his 2012 TED Talk. Innovation is no different. The famous saying “if you can’t measure it, you can’t fix it,” also comes to mind. Aggregation is one form of measure. We aggregate all the time, when we reflect, when we manage our businesses and when we navigate our lives. We have a finite mind and without aggregation of the data in our life, we will battle to measure success.

Complexity and Overcoming Psychological Inertia

The other reason structured innovation is so appealing is because of the level of complexity and overcoming psychological inertia. Psychological inertia implies an indisposition to change. It represents the inevitability of behaving in a certain way because that way has been indelibly inscribed somewhere in the brain (James Kowalick, Human Functions: The Source of Psychological Inertia). This human programming affects our ability to come up with radically different solutions.

Overcoming psychological inertia is a key battle in innovation and affects time to market. A structured method will go a long way to overcome psychological inertia. But besides overcoming psychological inertia, a structured method is repeatable and reproducible and hence allows certain steps to be repeated and iterated, thereby strengthening the ideas and concepts generated. Most importantly, a structured method allows for a common language in your team which is critical in fostering innovation in a corporate setting.

Cement a Methodology That Works for Your Company

So if your company is battling with stale ideas, week concepts and a poor team synergy, a structured methodology is exactly what you need in order to be released from these shackles of innovation mediocrity. To be successful, you need to walk the path that many are not prepared to take. This may involve working with an innovation coach who will enable you to cement a methodology that works for your company. In short, if you don’t have the skills, seek the best methodology expert to take your company to next level.

Look for a methodology expert who has invested many years of research in testing and proving tools and methods for building the innovation capability of an organization. If there is something the sports stars have taught us it is to always seek the best mentor we can find. Tiger Woods and Roger Federer, for example, are top of their class in their respective sports, yet they make use of a coach to learn the finer points and get the right balance. They use a mentor strategically to refine their approach and challenge their methods.

It is a huge task for any organization to roll out innovation and build internal capability whilst still meeting its operational targets. Select a methodology expert and make them a strategic partner in the roll out of structured innovation in your company. It will be the best move you can make in maximizing your organizations innovative potential.

Dimitri Markoulides is the innovation practice lead in South Africa and senior client partner at BMGI. He brings more than 15 years of experience to his role as an innovation facilitator and leader at organizations across the country and abroad. You can follow him here on LinkedIn.

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Tags: structured innovationmethodology expertsinnovation coachSection: Structure & Methods
Blockbuster Busted Part 2: A Business Model Analysis
August 18, 2015

Most people attribute success or failure to a product, service, or even technology. However, one of the most common thieves of a successful business is the business model. A business model is not just how you make money, or reach a customer, but everything in between—it is the entire value chain of how you develop the good or service and deliver it to the targeted customer segment.

In Blockbuster Busted Part 1: An S-Curve Analysis, it was evident that Blockbuster failed for multiple reasons—everything from strategic decisions to underestimating Netflix. Business models are often another reason a business suffers, and unfortunately it’s sometimes the last place leaders look to innovate. In Blockbuster’s case, the business model didn’t change fast enough and by the time it did, it was too late.

In a recent post, we looked at the Business Model Architecture, its 11 components and how they can be mined for innovation opportunities; the architecture and its components are key to staying relevant to your customers and to financial well-being. In this post, we’ll revisit our story of Blockbuster Busted, specifically in the context of how its business model didn’t keep up with customers’ needs or the competition.

Over a 30-year period Blockbuster went from a dominate force in the movie industry to nothing more than a brand name. Netflix was a reason for that, but not the only one. Blockbuster’s business model not only attributed tremendously to its initial success, but also to its demise in 2013. The Blockbuster and Netflix business models are dissected here over four stages, each at a chunk of time where each company developed, modified, or innovated their model to become that much more competitive.

Stage 1: Blockbuster Rules the Roost

Back in its heyday, Blockbuster was a formidable force, owning much of the movie and entertainment market. Once a movie left the theater or new video game was released, Blockbuster was the first to have it, in stock and ready to provide hours of entertainment in the comfort of your home. At its peak, Blockbuster had over 9,000 stores and millions of customers.

Not only did Blockbuster provide the entertainment, but also the rest that completed the experience, including beverages, candy, popcorn, movie posters, video players and game consoles. Blockbuster was a one-stop shop that had it all, at thousands of locations just minutes away from home. Things were looking green, and Blockbuster felt no reason to think otherwise.

At the core, Blockbuster’s success was focused by three business model patterns: brick-and-mortar stores with thousands of titles, cross-selling other merchandise, such as beverages and candy, and rent over buy. Many other patterns emerged that enhanced the experience, but without stores, merchandise, and rental programs, the Blockbuster experience wouldn’t have been the same.

At the time, Blockbuster’s business model was pretty standard, yet incredibly robust. It delivered a strong core offering—renting movies—with an even stronger complementary offering—all the stuff: candy, pop and popcorn. You could even say this was part of the customer experience; for many it became tradition to rent a movie and popcorn on Friday night.

We have all been into a Blockbuster at some point and most likely rented there. I know I did, everything from movies to games to game consoles (my parents wouldn’t let me have one growing up so I rented one). The Blockbuster experience wasn’t complete, however, without one thing—late fees. Truth be told, late fees was a huge revenue stream (at one point Blockbuster eliminated late fees, and later reinstated them because it lost too much money!). Between rentals, the concessions and late fees, Blockbuster made good money, and the back of the business, processes and resources, allowed it to keep operations fairly low-cost.

However, as the saying goes, don’t bite the hand that feeds you. In this case, late fees bit hard. It was a ridiculously expensive late fee on Apollo 13 that made Reed Hastings, just a customer at the time, ask one simple question: Why is renting a move, late fees…the whole model just a hassle? There has to be a better way to give people access to movies without this. Thus, Netflix was born.

Stage 2: Blockbuster On Top, But Not for Long

Netflix was simple: a flat fee, subscription-based service that allowed customers to select movies online and have them delivered to their door. Each movie came with a pre-paid envelope. Just order online, watch at home, return from home, and receive the next one in just a couple days.

Netflix, no matter how creative the idea was, struggled mightily to stay afloat in the beginning. It was just a blip on Blockbuster’s radar, seen as a small movie rental company with a new, crazy idea to ship movies to customers at home. Netflix developed a unique business model, but it didn’t catch on right away, as most things take time, which the diffusion of innovation will tell you.

While Netflix provided movies directly to your home, there was something that Netflix did not provide, the one thing that had made every Blockbuster customer, at one time or another, angry: dreaded late fees. There was a logical reason Blockbuster didn’t want to lose the late fees. In 2000 alone, Blockbuster’s revenue was just shy of $5 billion, with $800 million, or roughly 16 percent of revenue, due to late fees. In 2004, Blockbuster finally established a “no late fees” program in many markets, but rescinded the program six years later citing significant revenue losses, some estimating $300 million a year. Late fees were just a part of Blockbuster’s DNA.

Leading up to 2007 proved to be the defining years for Blockbuster; its grave was being dug by both Netflix and a small rental kiosk outfit called Redbox. Redbox, started by just a handful of locations in 2002, didn’t have all the accessories and candy, but it did do a much better job satisfying the true customer’s Job-To-Be-Done—renting a movie. By 2007, Redbox had more locations around town than Blockbuster, but the real estate was quite different. Redbox was a 20-square foot kiosk while Blockbuster still ran massive video supermarkets.

For Netflix, 2007 was a turning point; it had tried to sell out to Blockbuster in the early 2000s. Luckily for Netflix, Blockbuster had wanted nothing to do with it. Soon after, however, Netflix started to cash in, and big. Customers were leaving Blockbuster in droves to the new movie rental delivery companies that promised so much more for less.

Netflix’s core business model hinged on delivering rental movies to homes with a tasteful promise: no late fees, ever, and very quick delivery turnaround. Customers could keep the movie as long as they wanted and just send it back. Customers could simply keep a profile online, update their “que” and keep getting movies delivered as long as they kept paying the flat rate subscription service. For $6 to $15 a month at the time, you could have as many discs as you wanted with no late fees. I remember watching 10 plus movies a month. At Blockbuster, that would cost over $40, not even including late fees, which were just inevitable. With Netflix and Redbox, the world just didn’t need Blockbuster’s old school brick-and-mortar solution.

There were many reasons for Blockbuster’s demise, including CEO leadership and strategic decisions but a huge factor was the mind-set of retail brick-and-mortar video warehouses scattered across the world. This was a huge sunk cost that Redbox and Netflix just didn’t need to worry about. Everything for them was either digital or central fulfilment centers that serviced millions of customers. The multi-millions of real estate that Blockbuster had in the balance sheet didn’t exist for the new solutions, and it never would.

Stage 3: Netflix on Top

Netflix was on a tear. From 2004 to 2013, Netflix grew, on average, 31 percent a year, revenues were up 16 fold while subscribers, Netflix’s core revenue generator, grew from 1 million to 36 million. Blockbuster was feeling the opposite. Blockbuster peaked in 2004 with 9,000 stores, and then declined from 2004 to 2013 at a rate of -59 percent. By the end of 2013, Blockbuster had revenues around $120 million and declared bankruptcy. The difference in business models was primarily responsible.

In 2007, Blockbuster ousted the current CEO and brought on Jim Keyes. He believed Blockbuster’s focus should not be in the digital space, but focusing on the brick-and-mortar model of physical stores with a core offering of renting movies and games.

Prior to this strategic shift, Blockbuster was positioned, at least on paper, to compete with Netflix. It had established a kiosk presence, Blockbuster Express, to compete with Redbox and an online rental portal similar to Netflix. Blockbuster at the time even had a unique value proposition that Netflix or Redbox couldn’t have competed with—the ability to rent online, at a kiosk or at a store, and then be able to bring the movie or game back to a store. For many customers, this was valuable; instead of having to wait two days to receive the next movie in the mail, a customer could simply take an online rental to the store and get another right then and there—instant gratification. However, customers didn’t really care, and it was a little too late. People had attached to the new shiny world of Netflix, being able to rent for a flat fee, watch whatever whenever, and return at will with no worry of late fees. Blockbuster’s fate was sealed, and Netflix was the new king.

Netflix’s core focus was on improving technology—more movies, better service and faster delivery. The only change between Netflix then to Netflix now: streaming content. People obviously loved Netflix for the ease and cost of rentals, but when streaming made its debut, droves of new and existing customers signed up. Content and options were limited, but it was another layer Netflix could use to penetrate new customers and markets, and to find new ways to stretch the value proposition even farther.

All of this was still driven around one revenue stream at the time: rentals. The difference between Netflix and other providers was that Netflix innovated a new way to put the pieces together that in the end created more value for customers. It had reached the level of critical mass and adoption; now it was up to Netflix to build on the model customers fell in love with.

One critical piece that made this possible was the dramatic improvements in broadband infrastructure. Without it, streaming wouldn’t exist. Could you even imagine trying to stream Avatar or House of Cards over dial-up? Painful.

Stage 4: Netflix Stands King of the Mountain

With Blockbuster out of the picture, the competitive landscape had changed. The war wasn’t fought on physical ground anymore, but in a digital space that was even less forgiving and harder to compete in. Netflix, and any other new entrant, would have to be smart, fast and innovate repeatedly to stay alive. And Netflix continued to do just that.

Streaming continued to grow and Netflix became not only a distributor of content, but also a creator. Original programming has become a strong keystone of success. Netflix and Amazon have both started to deliver original content, but even to date, Netflix is ahead of the game. Series such as House of Cards, Marco Polo, and Orange Is the New Black all became hits. Streaming, both licensed and original programming, became the core offering, and rentals became a complement.

To support this change, Netflix’s business model had to change dramatically. The existing rental piece stayed the same, but distributing and creating digital content came with different needs. Starting with the customer, Netflix innovated distribution channels by partnering with equipment manufacturers to integrate Netflix as part of the Smart TV experience and ISP providers to increase broadband speed and reliability. With streaming increasing, infrastructure has been key in enabling customers to watch shows and movies on demand. Digital content has also meant new resources, new talent and logistics knowledge, all of which were critical pieces to delivering value to millions at the end of the line.

The Takeaway: Don’t Overlook Your Business Model for Innovation

So what does all this mean for your business? Just count your blessings now because soon another younger, stronger, riskier you will make you suffer and eventually put you under? No! What it means is this: Nothing is sustainable; you can only improve your business so much; how you do things now most likely will not be relevant in the future; the world changes, and so should you.

It comes down to reinventing yourself. If you don’t, someone else will do it for you, and that probably won’t end well. Business model innovation is not the silver bullet, but it is one of those things that most overlook and can have the biggest impact.

Think about the following: Would these businesses still be around today if…?

  • If Amazon still only sold books
  • If Netflix only rented movies
  • If IBM only sold hardware
  • If (insert your favorite company here) only (did this one thing)

A few questions to consider here:

  • How does my business model create, deliver and capture value now?
  • How will my model need to change in the future?
  • How can I do more with less?
  • When do I need to start thinking about innovating my model instead of simply improving it?
  • How do my competitors do it?
  • Where in the model do most of the innovations within my industry occur?
  • Where can I innovate and receive the greatest impact?

The point is, every great company innovates in multiple areas, but one thing in common within all of them is the business model, and for one simple reason—business models are the foundation of how a business creates, delivers and captures value. If your business model cannot do that, what do you think your odds are of survival?

Derek Bennington is an associate at BMGI, supporting research and development of strategy and operational initiatives. He is an Advanced Kirton-Adaption-Innovation (KAI) certified practitioner and holds a TRIZ Associate certification from the Altshuller Institute. He is also the managing director of The TRIZ Journal.

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Tags: BlockbusterNetflixRedboxbusiness model architectureSection: Business Model InnovationStructure & Methods
Got an Innovation Strategy Yet?
August 11, 2015

So, why do you want to innovate?

If you cannot give a good answer to this question (and, "because innovation is crucial to our organization" is not a good answer), your innovation initiative is unlikely to go anywhere useful. Instead, it is likely to flounder on ideation tools that capture ideas and stifle real innovation.

Good answers to this question include:

  • "Because we want to release a steady stream of new products that define the cutting edge of our industry."
  • "Because our company wants to provide 100% renewable energy to the entire country."
  • "Because I want to provide the very best innovation methodologies to global organizations like yours."

Ultimately, your reason for wanting to innovate should become your innovation strategy.

If you are not clear on why your company wants to innovate, do not panic! I am here to help!

Align with Strategic Vision

If you do not have a ready answer to the question of why you want to innovate, you should start with your company's strategic vision. Your reason to innovate should always be in line with strategic vision. Unfortunately, a lot of organisations have ridiculously fluffy strategic visions, like "providing the best products at the lowest prices"—as if their competitors strive to provide mediocre products at ridiculous prices.

If your company does not have a concise vision statement, you may want to put the innovation strategy aside and work on that vision statement. If you do not know what the vision statement is, you should probably have a word with senior management who are presumably doing a terrible job of communicating the vision statement.

However, assuming you do have a vision statement, you may find it is virtually an innovation strategy statement as well. Although, if the vision statement is fluffy, you will probably need to de-fluff it and make it more precise. For example, if your vision statement is to "Build the best cars in America" you will need to define "best" rather better. Does it refer to quality, engineering excellence, comfy seats or something else?


Your corporate values must also play a part in your innovation strategy. Does your company employ only local craftspeople? If so, outsourcing production to a developing country in order to reduce costs should never be a part of your innovation. Does your organization strive for environmental sustainability? If so, your innovation strategy needs to reflect that.

Corporate values define the nature of your organization and upholding them should be a matter of pride. Moreover, keeping values a key part of the innovation strategy discourages overly ambitious managers from crossing the line of ethical behaviour in order to pursue innovation-fueled growth.

Reflect Reality

Last, but not least, your innovation strategy needs to reflect the reality of your operations. You cannot expect to build cutting edge products that define the state of art in your industry if you are stingy with your research and development budget—or if senior management will not approve risky new product ideas. You cannot expect to deliver the ultimate in social media marketing if your Twitter feed is boring and your Facebook page is full of empty slogans.

Unfortunately, the reality of your operations is often a major stumbling block to defining and succeeding with a cool innovation strategy. If this is the case in your organization, you have three choices in declining order of desirability.

  1. Change the reality. Invest in research and development or buy a competitor with a strong research and development vision. Defang approval committees—or better still defenestrate them. Do what needs to be done to get reality behind your innovation dream.
  2. Tone down your innovation strategy so it fits with reality. If you cannot deliver cutting edge products in your sector, let another company do that and focus on something more realistic, like more affordable products using tried and tested technologies.
  3. Ignore reality, define an innovation strategy that is super sexy and blame others when it does not work. (I do not recommend this option.)
Do It

With this information, it should be an easy matter to draft an innovation strategy statement for your organization. Do it. Get it approved and communicate it across the organization and to all stakeholders.

An innovation strategy statement will make it easy to define actions you need to take in order to pursue innovation successfully in your organization. It also provides a ready means for evaluating ideas that colleagues propose.

Best of all, once you have an innovation strategy statement, you can stop thinking about the word "innovation," which gets bandied about way too much these days, and start focusing on the words in that statement.

Thanks to Jeffrey Baumgartner for this guest blog post! Jeffrey is the author of the books, Anticonventional Thinking: The Creative Alternative to Brainstorming and The Way of the Innovation Master as well as Report 103, the Internet's longest running newsletter-blog on business innovation. This article originally appeared in Report 103 and is reprinted with permission.

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Tags: innovation strategystrategic visionvaluesSection: Structure & Methods