Pursue the right business models faster - but how?
It was a great honor for me to receive the Berkeley-Haas Open Innovation Award 2016 for Business Model Transformation from Henry Chesbrough and Solomon Darwin at the World Open Innovation Conference 2016 last week. I am excited to see the acknowledgement of my team's work over the past four years. What really counts, however, is the impact being created in the organization. As head of SAP’s Business Model Innovation team under the Office of the CFO, my role is to use business model innovation as a competitive advantage for SAP. This does not mean that new business models per se are better than the ones we are already successful with. It means that we need to pursue the right business models faster. How do we do that? How do we find the right ones? And how do we shorten their time to value?
First, we need to understand that a business model innovation – very much like a “normal” product innovation – usually starts small. In the beginning, only a few customers perceive the value and it generates only insignificant revenue streams. In addition, it comes with high uncertainty and a number of assumptions since the business model logic has not been tested yet in the marketplace. This creates a mix that allows many people and teams to ignore the innovation or at least to deprioritize it over cases with more predictable revenue streams. Unfortunately, without conducting proper market validations and incubating a business model innovation at a small scale, we don’t know whether the assumptions about customer segment, value proposition, pricing, and market size will ever come true. And in order to do so, we depend on the support from various corporate teams.
This creates a typical catch 22 situation: Small cases require support from corporate teams that in turn often need to focus on our core business and larger deals. As Clayton Christensen stated in 2011 “The reason why it is so difficult for existing firms to capitalize on disruptive innovations is that their processes and their business model that make them good at the existing business actually make them bad at competing for the disruption.” So what’s wrong here? And how do we solve this?
What we need is a dual operating model, very much like John Kotter already proposed in 2011. One operating model focuses on the execution and optimization of our current business models where revenue streams are significant and more predictable. And another operating model focuses on the experimentation with new business models where revenue streams are insignificant and hard to predict.
The majority of SAP’s organization focuses on the execution operating model. Which is very much needed. But what about the experimentation operating model? Fortunately, with the Business Model Innovation (BMI) Service Center, we have established a virtual team of dedicated subject matter experts that can truly focus on experimentation. The intrapreneur from a given business unit can rely on services from the BMI Service Center when running business model experiments in the marketplace to test business hypotheses. We have created the BMI Service Center as a virtual organization in order to provide services for designing, incubating and scaling new business models. And we continuously drive for a culture that allows innovation to happen in a more open manner across company boundaries. With the Business Model Transformation Award, we now have an acknowledgement that SAP actually has an outstanding business model transformation capability. I dedicate this award to my team and the overall BMI Service Center!
In many ways, we are at the beginning of a journey and are still learning how to establish an effective experimentation operating model. I am curious about your experience with this type of challenge. Do you recognize the need for such a dual operating model? Where do you believe the biggest need for transformation lies? In the organization, its processes or its culture?
Vice President Information & Business Technology (20K+ Followers) at Medison Pharma Ltd. מדיסון פארמה
8ycongrat
Former EY Senior Partner | Purpose-Driven Advisor | Open to Boards & Innovation | “Make other people become successful.”
8yCongrats - fantastic achievement
I enable firms to develop and execute winning strategies | Keynotes, Workshops & Trainings | Strategy, Innovation, AI & Sustainability
8yCongrats! Business model innovation will continue to be key for many firms in 2017 in light of accelerating digital transformation.
Chairman & CEO, BILT Incorporated
8yA great article Claus and congratulations. As one who has benefitted from your teams efforts I echo the points about needing a separate sand-box in which to experiment and validate assumptions.
Senior Advisor with expertise in Mergers and Corporate Strategy
8yWell deserved