DesignaBusinessModelthatDisruptsyourCompetition…NotYourCompany

Howthe“BusinessModel”CametoBeWhiletodaytheterm“businessmodel”slipsreadilyoffthelipsofentrepreneursandisaseasilyunderstoodbyinvestorsandbankers,theconceptisactuallylessthan20yearsold.In1954PeterDruckerstartedpointingouttheneedtounderstandbusinessmodelswhenhesuggestedleadersstartedaskingquestionslike,“Whoisthecustomer?Andwhatdoesthecustomervalue?”Thesuggestedstrategyshouldanswerquestionslike,“Whatbusinessarewein?Andwhatbusinessshouldwebein?”IttookawhileforbusinessestocatchontoDrucker’sadvice.Forthenextfortyyears,businesseshappenedupontheirbusinessmodelsbyluck.AsGaryHamelwrote,“Factis,inventinganinnovativebusinessmodelisoftenmostlyamatterofserendipity.”Therewassimplyagivenapproachtohowanybusinessinyourindustrymademoney.Youchoseacustomer,metaneed,andchargedthemforit.Ifyouwereintheapparelbusiness,youpredictedfashiontrends,madeclothesthatmatchedthosetrends,andsoldthemtoretailers.Ifyouwerearetailbank,youattracteddepositors,offeredtheminterestontheirdeposits,thenloanedtheircashtoborrowersatahigherrate.Mostcompaniesjusthappenedinto,oraccepted,whattodaywecalla“businessmodel.”Therewereafewexceptionsofcourse.Somecompaniesexperimentedwithnewbusinessmodelsand,whentheygotthenewmodelright,wereextraordinarilysuccessful.Forexample,whenin1892thepresidentofAmericanExpresshadtroublegettinghislettersofcreditconvertedintocashduringavacationinEurope,hefiguredthishadtobeaneedthatothers,whocouldnotclaimleadershipofoneofthemostrespectedcompaniesatthattime,mustshare.SoheurgedhiscompanytoofferlettersofcreditundertheAmericanExpressname.Theproductonitssurfacewasnodifferentthantheletterofcreditofferedbyanybankatthetimeexceptforoneseeminglyminorthing:customerspurchasedthelettersofcreditinadvance,forasmallfee.Thissubtlechangetothebusinessmodelsetoffachainreactionofadvantages.Mostimportantly,becausecustomerspaidforthelettersofcreditaheadoftime,AmericanExpressbuiltacompletelyrisk-freemodel.Theycollectedpaymentfortheinventory(lettersofcredit)beforetheinventorywasused.Then,becausetheypromotedtheir“traveler’schecks”well,AmericanExpresswasabletoinducemerchantstoacceptAmericanExpresstraveler’schecksbecausedoingsowouldattractmorecustomers.Themerchantswhoaccepted

AmericanExpresstraveler’schecksinducedothermerchantstodothesameorrisklosingmorecustomers.The“Traveler’sCheck”businessmodeldidn’texistbeforeAmericanExpresscreatedit.Theirexperienceexemplifiestheimmenseopportunityavailabletothosewhoarewillingtoconsciouslythinkthroughquestionslikewhoyouserve,whatneedyoumeet,howyoudeliveryourvalue,whopays,andhowyoucharge.Butitwasn’tuntilthe1990sthatcompaniesreallystartedtothinkthisway.It’snocoincidencethattheold“thewayyoumakemoneyisjustthewayitis”perspectivesuddenlychangedduringthedot-comboom.Traditionallyonlyabout100companieswentpublicintheUSeveryyear,butthatnumbersuddenlyshotupin1991when250companiesissuedIPOs.Thealreadyhistoriclevelofnewbusinessactivityswelledtomorethan572companiesin19961.TheIPOsthemselveswereattractingafuryofinvestorinterest.CompanieslikeMarketWatch.comwentpublicat$22persharebuttradedatnearly$100persharebythecloseoftheirfirstday.AkamaiTechnologiessurgedfrom$26pershareto$145initsfirstdayoftradingThefrenzyofinvestorinterestcombinedwithaneedforthesenewinternetbusinessestoinessencestartfromscratchindefining“whatbusinesswearein”settheperfectcontextforcompaniestostartexploringtheconceptwhichtodaywecall“businessmodel.”Theinternetsuddenlymadenewapproachespossible–newwaystoreachcustomers,sourcesupplies,communicate,anddistribute,andevenentirelynewbusinesscategories.Thenewtypesofbusinessestriedtomodelthemselvesoffofexistingbusinessmodelsbutthehistoricalmetaphorsfor“whatbusinesswearein”couldnotofferacompleteblueprint.

• eBaywasmodeledafteranauction,buttraditionalauctionbusinessesofferedlimitedinsightforateambuildinganalways-on,global,virtualversion

• PayPalwasseekingtocreateanew,virtualcurrency,aneffortforwhichpapercurrencymodels,introducedfirstinChinain600BC,offeredlittleguidance

• Amazon.com’sbusinessdesigncoulddrawbutlimitedinspirationfromabookstore

Sobusinessbuildersandinvestorshadtostartdesigningfromscratchhowtheircompanieswouldmakemoneyandthe“businessmodel”conceptwasborn.Suddenlya“businessmodel”strategicconceptwasmorethananinterestingideathatexplainedthepast.Itbecameacriticaltoolfordesigningthefutureofbusiness.1Source:JayRitter(UniversityofFlorida),"SomeFactoidsAboutthe2001IPOMarket"

“The same products, services or technologies can fail or succeed depending on the business model you choose. Exploring the possibilities is critical to finding a successful business model. Settling on first ideas risks the possibility of missing potential that can only be discovered by prototyping and testing different alternatives.”

- Alexander Osterwalder, Author, Business Model Generation

FrequencyoftheUseof“BusinessModel”inPublishedWorks

Source:GoogleNgramViewerBusinessModelsMatterEachchoiceyoumakeindesigningyourbusinessmodeliscritical.Ifyoumakethechoicesright,youwin.Ifyoumakeevenonewrongchoice,youcanfail.PayPal,forexample,wasnottheonlydot-comcompanythataspiredtobuildadigitalcurrency.Itwascompetingwithwell-fundedandadmiredplayerslikeFlooz,Beenz,andSpeedyBucks.Allofthesecompaniestargetedasimilarcustomerandneed:theshopperwhowantstopurchaseonline.ButwhilePayPal’scompetitorsadoptedabusinessmodelthatwassortofagiftcardwithoutaretailchaintostandbehindyourdeposit,PayPalfocusedontransferringvaluebetweenabuyerandseller.PayPalwassoldtoeBayfor$1.4billionin2002.Itscompetitorsaredefunct.Thebusinessmodelyouchoosetoputaroundyourproductisarguablymoreimportantthantheproductitself.MichaelFeiner,formerchiefpeopleofficerofPepsiandauthorofTheFeinerPointsofLeadership,tellsthestoryofthePepsisnackbusinessunitFrito-Lay,whichhaddevelopedwhattheythoughtwastheultimatecookie.Theirnewproductdesignershadcombinedjusttherightmixofcrispyexteriorandchewyinterior.Tastetests,focusgroups,andsurveysconductedbyPepsi’smarketingteamprovedit.Pepsihadahitontheirhands.Buttheirproduct–called“Grandma’sCookies,”anamethatscoredremarkablywellinmarkettests–todayisrelativelyunknown.Why?BecausethisbreakthroughproductdidnotlineupwellwithFrito-Lay’sbusinessmodel.TodeliverGrandma’sCookiestostores,Frito-Laytruckdriverswouldhavetoserviceanewaisleinthegrocerystore.Theywouldhavetomarchoverfromthesnackaisle(whereFrito-Lay’schipswerestocked)tothecookieaisle.Andtheyresisteddoingthis.

Tosellthecookies,Frito-Lay’ssalesforcewouldhavetoselltoadifferentcustomer.Grocerystoremanagerswhobuychipsaredifferentthanthosewhobuycookies.Thesalesforcewouldhavetosubstantiallystarttheirsalesprocessfromscratch.Thechallengeofgettingthesalesforcetoembracethenewproductorserviceisoneofthemost-citedfrustrationsofthecorporateintrapreneursIinterviewed.Grandma’sCookieswasafailure.Notbecauseofalackofcustomerdesireorbecauseofaninferiorproduct.ButsimplybecausetheGrandma’sCookiesbusinessmodelconflictedwithFrito-Lay’sexistingone.TheNextEvolutionof“BusinessModel”Entrepreneurshavebeenplayingwithuniquebusinessmodeldesignsfornearlythreedecadesnow.Theyhavecreativelyappliedtheconcepttodesigndisruptiveframeworksthatchallengeincumbents,forcinglargecompaniesintowhatClaytonChristensentermed“TheInnovator’sDilemma,”inwhichtomatchanattackingmodelmeanshavingtodamagethecurrentbusinessmodelonwhichyourcorebusinessdepends.Butthewindsareslowlyshifting.Aslargeorganizationsmoveintomoreagileforms–adoptingopenarchitectures–andstarttoshifttheirdefinitionofstrategyasnolongerbeingaboutchoicesandcommitmentsbutasbuildingthecapacitytochange,they’rebeginningtounlockwaystodesigndisruptivebusinessmodelsfromwithinexistingorganizations.Theyaredoingthisinpartbecausetheyarestartingtolearnhowtodoit,andinpartbecausethemostimportantproblemstosolveinthefuturewillrequirethescaleandpowerofcompaniesalreadyinoperation.SteveCase,founderofAOL,arguesthatthebiggestopportunitiesforbusinessestoimpactsocietynowlieincomplicated,highlyregulatedmarketslikehealthcare,education,financialservices,andenergy.Totakeontheseopportunitieswillrequirescale.HowtoUnlockDisruptiveBusinessModelswithoutDisruptingYourCurrentBusinessThechallengeofdesigningdisruptivemodelsinsideorganizationsismorecomplicatedthanthatoftheentrepreneur.Whilestart-upsmustthinkthroughonlyafewstakeholders–customers,investors,partners–thoseseekingtoinnovatefromwithinmustdesignformorecomplicatedentanglements.Theymustnotonlyintroducesomethingnewthatthemarketwantsbutmustadditionallythinkthroughandmanagethealreadyexistingnormsoftheircompanies:whatcustomerstheirsalesforcevisits,whichculturalnormstheirorganizationaccepts,thepoliciesandproceduresaroundmarketing,compliance,legal,andoperations.Oneinnovatorweinterviewedwhorunstheincubationgroupofaglobalconsumerproductsandtechnologyfirmlikenedthechallengetoimplantinganorgan.Theneworgancanbe

quicklyrejectedifthesurgeondoesnotthinktheprocessthrough.Youmustthinkcarefullyaboutwhattoattachandwhattokeepseparate.Successfulintrapreneursthinkcarefullyaboutthebusinessmodelissues.Theydon’tseethechallengeasevidencethatexistingcompaniescannotinnovate.Theyseeitassimplypartoftheinnovationchallenge.Theyassessallthekeydimensionsofthebusinessidea’smodel–fromcorecustomertopricingstructure–andassessifandhowtoaligneachonetowhattheircompanyisalreadydoing.Oneintrapreneurweintervieweddescribedtheprocessthisway:youhavetounderstandyourcompanyandbuildalliesinallthemajorfunctions–marketing,finance,operations–thenforeachelementaskyourself:

• WhichrulesandnormsshouldIaccept?• WhichcanIbend?• WhichshouldIchangeorignore?

Todothiswell,youneedtounderstandtherulesandnormsofyourorganizationwell.Nevertheless,researchersfindthatbecauseintrapreneursmustofteninnovateinunsupportiveenvironments,theireffortsraiseethicalissues.2Intrapreneursoftenbendtherulesoftheirorganization…butdosointhepursuitofwhattheythinkistheorganization’sbestinterest.Weseethispatternrepeatedinnearlyeverycaseofsuccessfulcorporateentrepreneurshipwehavefound.Theinnovatorseesanopportunitythattheirorganizationshouldpursue,rulesorproceduresornormspreventtheinnovatorfrompursuingthem,sotheinnovatordecidestoignoreorbendtherules.Theideathatincumbentcompaniesareboundbyan“innovator’sdilemma”thathasthemprotectingtheircorebusinessesatthecostofdisruptivenewones,wehavefound,isaninterestingsimplificationofafarmorecomplexandintriguingtruth.Werethe“innovator’sdilemma”universal,wewouldrarelyseelargeincumbentsinnovate.Yetweknowthehistorytiltsintheotherdirection.Thegreatmajorityofthemosttransformativeinnovationsofthelastthreedecadeshavebeenbornoutoflargeincumbents.Athoughtful,strategicintrapreneurcandesigninnovativebusinessmodelsthatwilldisrupttheirmarkets,withoutdisruptingtheirbusiness.Thekeyistodismantleeightelements,whichwewilldelveintoindetaillater,ofthebusinessmodelandredesigntheminawaythatcustomerswilllove,competitorswillresistcopying,andtheorganizationyouarebuildingthisforwillaccept.TheTrick:DisruptwithoutDisrupting2DonaldF.KuratkoandMichaelG.Goldsby,“CorporateEntrepreneursorRogueMiddleManagers?AFrameworkforEthicalCorporateEntrepreneurship,”JournalofBusinessEthics,Vol.55,No.1(Nov.,2004),pp.13-30

"Youhavetolearntherulesofthegame.Andthenyouhavetoplaybetterthananyoneelse."-AlbertEinstein

In2004,GeorgeDay,aprofessorattheWhartonSchoolofBusiness,noticedsomethingstrangehappening.Corporationswerepursuingfewmajorbreakthroughinnovationprojectswhileatthesametimewerelaunchingmoresmall,tangentialones.Inotherwords,theywereincreasingtheiractivityofwhatGeorgecalls“littlei”innovations–smallchangestoexistingproducts,continuousimprovementefforts,addingfeaturestoyourexistingcar,forexample.Buttheywerereducingtherateatwhichtheypursued“bigI”innovations–initiativesthatledthecompanyintonewmarketsortechnologies.Whathefoundwasthatcompanieswerescaredofpursuing“bigI”innovationsbecausetheybelievedthemtobetoorisky.SoGeorgewentabouttoactuallymeasurehowmuchriskieritistopursueverydifferent,“bigI”innovationsascomparedtosmaller,“littlei”innovations.Hefoundthatifyouaretryingtolaunchaninnovationthattargetsamarket(e.g.,targetsacorecustomer)thatisentirelynewtoyourcompanyusingaproductortechnologythatisalsonewtothecompany,youcanexpecttofail75-95%ofthetime.If,however,youareseekingtointroduceaninnovationtoanexistingcustomersegmentusingaproductortechnologythatisthesameasyourcompany’scurrentofferings,youcanreduceyourfailureratetoonly25-40%.Hisconclusionwasthatinorderforcompaniestodrivesustainedgrowth,theyneededtopursueaportfolioofideasacrossthespectrum.

I’dliketotakethisinsightandofferaslightlydifferentconclusion:thatyoucanradicallyimproveyouridea’schanceofsuccessbypursuinganinnovationthatchallengesthecompetitionbutisnotdisruptivetoyourcorecurrentbusiness.Weapplytheterm“disruptive”lazily.Firstofall,asChristensenwroteintheHarvardBusinessReviewinDecember2015,“toomanypeoplewhospeakof‘disruption’havenotreadaseriousbookorarticleonthesubject.Toofrequently,theyusethetermlooselytoinvoketheconceptofinnovationinsupportofwhateveritistheywishtodo.Manyresearchers,writers,andconsultantsuse‘disruptiveinnovation’todescribeanysituationinwhichanindustryisshakenupandpreviouslysuccessfulincumbentsstumble.Butthat’smuchtoobroadausage.”OurlazyapplicationofthetermdisruptionleadsusunnecessarilyintoaCatch-22.Ifanideaisdisruptivetothemarket,thenitmustalsobedisruptivetoourownbusiness.Thislogicleadsdirectlytothefalse,butbroadlyaccepted,conclusionthatlargeincumbentcompaniescannotinnovate.Thekeytohelpingyourorganizationdisruptthecompetitionistofreeyourselffromthelazy,self-defeatingtalkofwhatdisruptionmeans,andembracetheideathatthebestway,perhapstheonlyway,totrulybedisruptiveistocreatebusinessmodelsthatwillchallengethecompetitionbutthatarequitenaturalforyourownorganization.Youcandisruptyourcompetitionwithoutdisruptingyourbusiness.HowtheXboxDisruptedtheMarketWhileMinimizingDisruptiontoMicrosoftIn1999,onaflighthome,SeamusBlackleywasthinkingabouttheannouncementthatSonywasgoingtolaunchanewPlayStationgameconsolethatwaspredictedtobesopowerful,itwoulddestroyPCgaming.Aphysicistwhofellinlovewithgamingatayoungageand,whileworkingforDreamWorksInteractive,producedabreakthroughvideogamebasedonJurassicPark,Seamusfeltdistraughtbytheidea.Atthetime,videogamesgenerallyexistedintwoforms.Youhadgame-consolegames,whichyouplayedonhardwarebuiltbyNintendoorSony.Gamingcompanieswouldhavetodevelopspecializedgamesthatfitthetightcontrolsofgameconsolemakers.Gamingcompanieshadlessfreedombutcoulddesignconsolesforbigaudiences.Alternatively,gamingcompaniescoulddevelopforthePC.Thisdeveloper-friendlyenvironmentofferedgreaterfreedom,bettertools,andcommunitiesofotherdevelopersthatsupportedeachother’swork,but,sincefewergamersplayedonPCs,gavethemaccesstoasmallermarket.IfSonyreallydidkilloffthePCgamebusiness,itwouldbealossfortherich,freecommunityofPCgamedevelopers.

Hehadtheideathathisnewemployer,Microsoft,wasperfectlytailoredtostepinandtakeonSony.Ashesaid,“VeryfewcompaniescoulddosomethingasboldastakeonSonythanMicrosoft.”Microsofthadthecapitalandtechnologytalenttolaunchagameconsolethatsoughttocompetehead-to-headwiththePlayStation.Butthatwouldbetopushthecompanyintothetopright,high-riskquadrantofGeorge’sfailuregraph.Newcustomers(games),newdevelopers(consolegamingcompanies),andnewtechnology(closed,consol-centric),wouldmeana75-95%failurerate.Instead,Seamusintuitivelysawadifferentapproach,onethatwouldsimultaneouslydifferentiateMicrosoft’sconsolefromthatofthecompetition(makingitmoredisruptiveinthemarket)whiledoingitinawaythatplayedtoMicrosoft’sstrengthstherebymakingitlessdisruptiveforthecompany.Hesaid,“Wehadtheopportunitytomakesomethingwhichhadthebusinesspotentialofagameconsole,buthadthetoolssupportandpowerforartistsofthePCandthesortoftraditionaloff-linerenderingcommunity.Andthatwasreallyaspark.”Inotherwords,Microsoftwouldtargetanewend-usermarket–gamers–butstayclosetoitscorecommunityofPCgamedeveloperswhowerealreadyusedtodesigninggameswithintheMicrosoftecosystemandoftenusingMicrosoftsoftwaretools.Sinceagameconsolegenerallylivesordiesbasedonthequalityofitsgames–consolesthathavethebestgameswin–stickingtoservingthePCgamedevelopercommunitywouldnotonlymaketheXboxalessdisruptiveeffortforMicrosoft,itwouldalsoturnMicrosoft’sstrengthwithPCgamedevelopersintoanimpressiveadvantagetowieldagainstSony.TherestofSeamus’journeywaslong.Itfollowedapathnearlyidenticaltotheoneoutlinedinthisbook,theintrapreneurialjourney.Hegatheredasmallteam,workedinternalpoliticsto

buildsupport,balanceddayjobswithscalinganewbusiness,strategicallyseparatedkeyelementsofthebusinessmodelfromMicrosoft’scorebusiness,etc.Theresultshavebeenremarkable.BecauseofSeamus’intrapreneurialapproach,whatmanybelievedtobeabig,geeky,businesssoftwarecompanynowcommandsthelargestonlinegamingcommunityandsellsthesecondmostpopulargameconsoleintheworld,faraheadofnumberthreeandbeyond.ThefoundationfortheirsuccesswasbornbySeamusrecognizingthatbyplayingtoMicrosoft’sstrengths–theirabilitytobuildhigh-qualitytoolsthathelp

Disruptivetocompetition

Copy-catNot

Disruptivetoyourbusiness

Not

Business-as-usual

Radical Strategicallydisruptive

Fourbusinessmodelchoices

developersbuildapplications,designingforhigh-powersystemslikethePC,understandingandsupportingdevelopercommunities–theycouldintroduceanofferingthatwaslessdisruptivetotheircorebusinessthanitwouldbetocompetitors’businesses,weretheytotrytocopy.Youcanthinkofitthisway.Yourbusinessmodelcaneitherbedisruptivetoyourcompetitionornot.Itcaneitherbedisruptivetoyourbusinessornot.Breakingdownyourchoicesinthiswaygivesyoufouroptions:

• Copycat:Anewinnovatorappearsonthescenewithanewbusinessmodel.Themodelisworking,soyouwanttocopyit.YouareataxicompanyandyoudecidetosimplycopytheUbermodel.YouareatraditionalcarcompanyandyoudecideyouaregoingtolaunchanewbusinesstocompetedirectlywithTesla.Youareessentiallycopyingthesuccessformulaofsomeoneelse.Thatmodelislikelytobedisruptivetoyourcorebusinesswithoutofferingmuchachallengetothecompetitionbecausethecompetitionhasalreadyadoptedthenewmodel.Muchofthefrustrationwehearfromwould-beintrapreneursstemsfromideasinthis“notdisruptivetothecompetitionbutdisruptivetous”category.Youseesomethingchangingandthink“Weshouldbedoingitto!”

• Business-as-usual:Ifyourideaforanewbusinessmodelisneitherdisruptivetoyouoryourcompetition,itmayproduceshort-termgainsforyourcompany,itmayevenbeadmiredasinnovativeforsometime,butthecompetitionwillbequicktocopyit.OnSeptember2,1969,forexample,ChemicalBankwasthefirstbanktoinstallanAutomaticTellerMachine(ATM)intheUnitedStates.Itwashailedasabreakthrough…forabriefwhile.WithintenyearsmostmajorUSbankshaddonethesameandtheATM,whileradicallyimprovingthelivesofconsumers,didlittletoalterthecompetitivepositionofbanks.

• Radical:Ifyourbusinessmodelisbothtrulydisruptivetothecompetitionandisalsodisruptivetoyourself,thenyouarepursuingsomethingradical.Youprobablyshouldconsiderwhetheryourcompanyreallyistherightonetopursuetheinnovation.McDonald’s,forexample,launchedRedbox–abusinessthatoperatesDVD-rentalkiosksprimarilyoutsideofgrocerystores.Itprovedtobeasuccessfulinnovation,butnotonethatMcDonald’shadanyparticularadvantageinpursuing,whichiswhyitwaseventuallyspunoutasanindependentcompany.

• Strategicallydisruptive:Thisiswhereyouideallywanttoplay.Youwanttodesignthebusinessmodelbehindyourideasothatitcomplicatesyourcompetitors’abilitytocopyyouwhileatthesametimeitplaystoyourcompany’sstrengths,approaches,businessmodel.ThisiswhattheXboxteamwasabletodo.

Sohowdoyougearyourbusinessmodelsothatitcandisruptthemarketwithoutdisruptingyourbusiness?Thekeyistodissectyourbusinessmodelacrossatleasteightdimensions,anticipatingwhereproblemsmightariseandseekingcleveropportunitiestodisruptyourcompetitionwithoutdisruptingyourbusiness.

EightDimensionstoUntangleYourBusinessModelTherearenumerousviewpointsonwhatcomposesabusinessmodel.Oneschoolofthoughtproposesyourbusinessmodelshouldconsiderfourareas:yourvalueproposition(whatneedyoumeet),valuearchitecture(yourorganizationalandtechnologicaldesign),valuenetwork(theinter-organizationalrelationshipsneededtodeliveryourvalue),andvaluefinance(howyoufundandsharetheriskofyourventure).Otherssayyoushouldthinkaboutdistributionchannels,customers,capabilities,andrevenuemodel.Somesaythemodelshouldanswerwho(weserve),what(wesell),andhow(wedeliver).Oneofmostpopularmodelstoday,TheBusinessModelCanvas,breaksamodelintoninecomponents:partner,activities,resources,valuepropositions,customerrelationships,channels,customersegments,coststructure,andrevenuestreams.3Weseelittlevalueindebatesaboutwhichofthesearerightorwrong.Ratherwebelieveconcepts,like“businessmodel,”aresimplylanguagetoolsthathelpbettersolveaproblemandwhatmattersiswhichconceptsworkbetter.Wehavefoundconsiderablesuccessusingaframeworkwecallthe8Ps.We’veusedthiswithcompaniesinsoftware,heavytechnology,financialservices,consumerproducts,retail,andmanyinbetween.Thismodelsuggestsyouconsidereightdistinct,butinterrelated,areasofyourbusiness:

• Position:Whoyourcorecustomerisandwhatpositionyourbrandholdsintheirmind• Product:Whatyousell,includingyourcoreproduct/serviceandallancillary

products/services• Promotion:Howyoucommunicatetoyourcorecustomerincludingmarketing,sales,

publicrelations,andcorporatecommunications• Placement:Howyoudeliveryourproduct/service(e.g.,channels,storelocations,

distributionmethods)• Pricing:Howyoupriceyourproduct/service• Process:Theinternalprocessesthatallowyoutodeliveronyourvalueproposition• Physicalexperience:Thephysicalexperienceyourcreateforyourcustomer,including

whattheysee,smell,hear,taste,andfeelwheninteractingwithyourcompanyandbrand

• People:Whoyouhire,howyouorganizethem,andyourcultureThischecklistworks.Itisparticularlyhelpfulinthinkingthroughhowtodesignamodelthatcandisruptyourindustrywithoutdisruptingyourbusiness.Herewebreakdowneachdimensionandsuggestthekeyconsiderationsforacompanywishingtobuildabusinesswithinabusiness.Wewillspendmoretimeonthefirsttwo,astheyreallysetthedirectionforyourbusinessmodel.Positioning

3See“BusinessModelCanvas”byAlexanderOsterwalder

“Authenticbrandsdon'temergefrommarketingcubiclesoradvertisingagencies.Theyemanatefromeverythingthecompanydoes...”―HowardSchultz,PourYourHeartIntoIt:HowStarbucksBuiltaCompanyOneCupataTimeGreatbusinessmodelsbeginwithsharpclarityonthepositioningoftheiroffering.Theyspecificallymakethreeclearchoices:

1. Whoyourcorecustomeris…andisnot2. Whatvalueyouprovidetothem(orwhatpossibilityyouhelpthemachieve)3. Whichassociationstheyhavewithyourbrand

Ifyoucanmakeastrong,uniquestandacrossthesethree,everyotherelementofyourbusinessmodel–howyouprice,distribute,market,etc.–canbeequallyunique.Thisistruewhetheryourenduserisacustomeroraninternalstakeholder.Evenifyouareinasupportfunction–IT,legal,compliance–yourinnovationwillhaveabusinessmodelandthatbusinessmodelwillhaveacorecustomer(e.g.,thebusinesspartnerusingyourinternalservice),avalueproposition(e.g.,theproblemyouhelpthemsolve),andabrandassociation(e.g.,whattheythinkofwhentheythinkofyourdepartmentorservice).Start-upentrepreneurshaveanadvantageoverintrapreneursinthattheycandesigntheirbrandpositioningsfromscratch.Butintrapreneursmustworkwithinyears,and,inthecaseofcompanieslikeKellogg’sorGE,centuries,ofbrandinghistory.AsJeffBezos,CEOofAmazon,said,“Abrandforacompanyislikeareputationforaperson.”Ifyourcompanyhasspentdecadesbuildingitscorporatebrand(=reputation)youcannotexpectthattheywillreadilyallowyoutoinnovateinawaythatcoulderodetheirreputation-buildingwork.Butworkingfrominsidealargeorganizationalsooffersseveraladvantagesthatstart-upswouldsalivateover.Youalreadyhavebrandawarenessandknowledgetoleverage,youalreadyhaveaportfolioofuniquebrands.Successcomesfromworkingwithwhatyouhave,ratherthanagainstit.AsTheodoreRooseveltsaid,“Dowhatyoucan,withwhatyouhave,whereyouare.”ConsiderBrendanRipp.Hegrewupintheadvertisingbusiness.Whenhewasabout8yearsold,hisfatherjoinedTimeInc.asassistantcontroller,wherehethenenjoyedadiverse,fast-risingcareer,becomingCFOofTimeInc.thesameyearBrendangraduatedfromcollege.WhenBrendangraduated,henaturallyfeltapulltoadvertising.HejoinedtheadvertisingagencyJ.WalterThompsonbecause“theyhadarenownedtrainingprogramforaccount

executives.”4AfterayearatJ.WalterThompson,Brendanjoinedhisfather’sfirm,TimeInc.,asajuniorsalesrepresentativeand“neverlookedback.”Likeothersuccessfulintrapreneurs,Brendanloveshiswork.Heseemsmotivatednot(only)bycareeradvancementbutbyanintrinsicpassionforbuildingthings.AsBrendanputit,“Thismaysoundcliché,butwhenIwakeupinthemorning,evenat4am,Ican’twaittogotowork.Ilovebuildingteams.Ilovegettingachancetorepresentthesereallyamazingbrands,tousecreativitytoactuallygrowthemandmakethembetter.”Whenitcomestoleveragingyouremployer’sexistingbrandpositioningtoinnovatenewones,fewcanclaimatrackrecordasimpressiveasBrendan’s.HemostrecentlyservedasgrouppublisheroftheSportsIllustratedGroup,whereheledthedevelopmentofnearlytwodozenbrandextensions,includinganewfilmproductionunit,acollegesportsvertical,consumereventsforSportsIllustratedSwimsuitandmostrecentlythelaunchofSIOvertime,abrandedcontentstudio.Healsoformedcontent,mediaandmarketingpartnershipswithWebMDandWired,priortowhichheservedaspublisherofTime,FortuneandMoney.DuringhistimewithMoney(alsoaTimeInc.property),ashiftinmarketforcedhimtoquicklyrethinktheirstrategy.Oneofhiskeyadvertiserssharedthattheywerecuttingbudgetsoverallandplanningtomovewhatwasleftentirelytodigitalproperties.Theywerenotalone.Severalothercriticalfinancialclientshadsimilarplans.Yet,Moneyhadfewdigitalproductstooffer.Tomakemattersworse,advertisersnolongersawpersonalfinance,Money’shistoricalcategory,asinteresting.Brendanrealized,“Weneededtobuildsomethingunique,[something]neverdonebefore,thatwouldappealtobothourreadersaswellasanewadvertisingbase.”Iftheydidn’t,Moneywouldbeintrouble.HebeganlookingforpartnershipswithotherTimeInc.mediabrandstocreateentirelynewplatformsthatcould“breakthroughtheclutter”andallowadvertiserstoreachlargeraudiences.MoneyconvincedtheleadershipofRealSimple,amagazineandmediapropertyforwomen,tocreateanewprint,digitalandvideoseriesblendingMoney’saudiencewithRealSimple’s,called"MoneyManagementfortheTime-Pressed."Theseriesprovedabreakthrough.ItbecameafeatureontheTodayShow,themostpopularmorningshow,andChevroletjumpedatthechancetopay$1milliontobecomeamultiplatformsponsor.ApartnershipwithThisOldHouse,anotherTimeInc.business,enabledMoneytoopenupanentirelynewmarket:homeownersdealingthefinancialissuesaroundimprovingandpayingforahome.4New@Gettysberg,http://www.gettysburg.edu/news_events/press_release_detail.dot?id=d01e7171-649c-4f35-bbf5-277a768a584f

Eachcombinationofbrandsunlockednewcustomers,markets,andrevenue.WhenhetookoveraspublisherofSportsIllustrated,forexample,hepersuadedthepopulartechnologymagazineWiredtopartnerinthecreationofanewinitiativeattheintersectionofscienceandsports.Theyquicklydrewinterestfromtwobigadvertisers–GatoradeandMicrosoft.HiseditorialteamcouldinterviewGatoradescientiststohighlighttheworktheyaredoingtoenhanceathleticperformance.Microsoft,aheavyadvertiseroftheNationalFootballLeague(ifyouwatchAmericanfootball,youhaveprobablynoticedcoachesandreportersreadingfromMicrosoftSurfacetablets),sawanopportunitytofurtherdeepenitsexposuretotheaudience.Itquicklysignedon.It’shardtoestimatethevalueBrendan’sideashaveproducedforTimeInc.WhatisperhapsyetmorevaluableistolookathowweapplyBrendan’sapproachtobuildnewbusinessmodelsinourownbusinesses.Brendan’sapproach–andthatofmostintrapreneurs–isinawayfundamentallyoppositeofthewaythatstart-upentrepreneursdefinethepositioningsoftheirbusinesses.

• Entrepreneursthink:Whatuniquepositioning(customer,valueproposition,andbrand)doesthemarketwant?

• Intrapreneursthink:Whatexistingpositionings(customers,valuepropositions,and

brands)canwecombineorbuildontocreatesomethingthemarketwants?Entrepreneursstartwiththemarket.Successfulintrapreneursfindthemarketbybuildingwithwhattheyalreadyhave.Wecanthinkofitthisway.Asuccessfulbusinessmodelbeginswithauniquepositioning:(a)youtargetadifferentcorecustomerthanyourcompetitorswillwanttoserviceand/or(b)youpromiseavaluepropositionyourcompetitorscannotorwillnotwanttopromiseand/or(c)youlinkyourbrandtoassociationsorattributescompetitorswillnotbeabletoorwanttoemulate.Onewaytofindauniquepositioningistostartwiththemarket,asmostentrepreneursdo,andask“whatdoesthemarketneed?”Thereisgreatsupportforthis“customer-centric”or“outside-in”approach.Buttheuniverseofpotentialpositioningsthemarketwouldsupportisfarvasterthantheuniverseofpotentialpositioningsthatyourorganizationisuniquelyabletoprovide.Thecircleontheleftofthediagrambelowislargerthanthatontheright.ThisisperhapswhytheintrapreneursIinterviewedwhotookthe“customer-centric”or“outside-in”approachoftenfeltfrustrated.Theycomplain,“Iknowthisistherightpositioningformyidea,butmycompany,themarketingteam,won’tletustakeit.”Theintrapreneursthatseemenergizedbythepositioningchallengeseemedtotaketheoppositeapproach.Theybeginwiththeuniquepositioningassetstheircompanyalreadyhad

(thecorecustomersalreadyloyal,valuepropositionsalreadybeingdelivered,andbrandsalreadyknown)andexplorehowtheycouldcombineorbuildonthesetofindthemagicalintersectionbetweenwhattheirorganizationcoulduniquelycommandandwhatthemarketwants.Inthiswaytheyarenotcompetingorthinkingastraditionalentrepreneurs(theleftsideofthegraphic)ormanagers(therightside),butrather,asonebrandingexpertdescribedtheprocesstome,theykeepexploringdifferententrypointsuntiltheyreachthemagicalmiddle,wherethepositionisbothcompellingtothemarketandonetheorganizationisuniquelyabletodeliveron.Forexample,BrendancouldhaveapproachedhischallengeofgeneratingnewrevenuesourcesforMoneymagazineinthreeways:

• Asastart-upentrepreneur:Hecouldhaveasked,“Whatdoesthemarketneed?”Thatmighthaveledtoanynumberofideasandcategories.HecouldhaveputMoneymagazine’sresources–writingtalent,salesforce–againstoneofthosenewcategories.Hecouldhavesaidthatthemagazineshouldlaunchanentirelynewtitletargetingtechnologyorrealestateortravel.Buttheywouldbecompetingasawell-fundedstart-upwithanynumberofotherstart-ups.Manywould-beintrapreneursseemtofallintothistrap.Theyvaluewhatthemarketwantsoverwhattheircompanyhasandsotrytodrivethecompanytodowhatanyotherstart-upwouldwanttodo.

• Asatraditionalmanager:HecouldhavelookedatwaystoexpandMoney’scorebusiness,stickingtoitscorecustomer,valueproposition,andbrandpositioning.Thismighthaveledtonewfeatures,hiringmoresalesmen,orreducingadvertisingrates.

• Asanintrapreneur:TheideaofamalgamatingMoneymagazinewithRealSimplestemmedfromlookingattheunique“positioning”assetsTimeInc.alreadyhadandlookingforwaystocombinethemtofindinnovativenewcorecustomers(womenwhoareconcernedaboutmoney),valuepropositions(tailoredmoneymanagementpracticesforwomen),andbrandassociations(moneyandwomen).

Howdoyouknowwhenyouhavefoundthemagicalmiddle?Brendansaysitwillbeobvious.Theideawillmakesense…immediately.Thepositioning–customer,valueproposition,brand–shouldcreatea“nobrainer”responsefromthoseinyourorganization,inwhichyourinnerdialoguesayssomethinglike,“Ofcourse!Whydidn’twethinkofthisbefore?!?!”MoneyforRealSimplewomenandWiredforSuperBowlenthusiasts,forexample,areobvious…butonlyafteryouhaveconceivedofthem.Havingchosenadistinctivepositioning,yousetthestagetomakeanumberofdisruptivechoicesasyoudesigntherestofyourbusinessmodel.Indoingsoyouwillrepeatedlyencounterthetugbetweenwhatthemarketideallywantsandwhatyourorganization–itsrules,norms,assets,commitments,etc.–willsupport.HereIoffersometipsgleanedfromsuccessfulcorporateinnovatorsonhowtonavigatethrough.

WhatthemarketwantsPositionings the

companyalreadyhas

EntrepreneursTraditionalmanagers

Successfulintrapreneurs

Keyquestions:

• Howcanyoupickacorecustomerorcustomersthatyourcompanyalreadyserves?• Whatassociationsdocustomersalreadyhaveaboutyourcompany,products,brand(s),

andhowcouldyouusethesetosecureapowerfulpositioningforyouridea?Product/ServiceHavingchosenauniquepositioning,itbecomeseasiertodesignanequallyuniqueproduct.Themoredifferentyourproductis,theharderitwillbeforyouruserstocompareyouroffertothealternatives,andtheeasieritbecomestochargemore,sellmore,orotherwisecreatevalue.Thisistruewhetheryourcustomerisexternal(e.g.,aconsumer)orinternal(e.g.,aninternaluserofaproduct/service).Forexample,theheadofaninternalITgroupwasconcernedbecause,despitehardworkandgoodintentions,theirteamwasviewedinternallyasslowandexpensive.InternalclientswerestronglyincentivizedtousetheinternalITgroupwhenevertheyneededworkdoneontheirtechnologysystems,buttheyincreasinglywereturningtooutsidetechnologyvendorslikeAccentureandCognizant.Thegroupdecidedtheyneededtorepositionthemselvesnotas“expensive”and“slow,”butas“innovative”and“strategic.”Theythenturnedtoredesigningtheirproduct/servicetomatchtheirnewdesiredposition.Theythoughtthroughalloftheelementsoftheirserviceoffering.Atthecore,theyprovidedtechnologytalent–programmerswhoknewthebusinessandcouldstepintobuildcustomizedappsanddesigninterfacesfortheirinternalclients.Butthereareotherthingsaroundthatcoreservicetheyalsodid,likeconsultingtohelptheirclientsunderstandwhattheyneeded,adviceonthelatesttechnologies,trackingofprojectssoclientsknewwhentheycouldexpectdelivery,hotlineandothersupportaftertheirprogrammershadcompletedtheinitialservice,etc.Whileoutsidevendorscouldclaimtomatchtheircoreservice,theITdepartmenthadaclearcompetitiveadvantageformanyoftheseancillaryservices.Theyknewthebusinessbetterthanoutsidevendors,forexample,becauseitwastheonlybusinesstheyworkedin.Theycouldhaveresourcesonaclient’ssiteinminutes.Youdidn’thavetosignanewconsultingagreementtopickupthephoneandcallthem.Byemphasizingtheservicesinwhichtheyhadacompetitiveadvantageandbybundlingsomeoftheservices,thegroupwasabletoinnovatetheirinternalserviceoffering.Customersatisfactionofinternalclientsbegantogrow,clientsincreasinglyviewedthemastrustedtechnologyadvisorsratherthanslowandexpensivevendors,andtheirclientsturnedlessoftentooutsidevendors.Youwanttodifferentiateyourproduct.Everyentrepreneurandbusinessownerknowsthat.ButtheintrapreneursIinterviewedindicatedthattheythinkabouttheproductdifferentiationchallengeslightlydifferently.Whilestart-upentrepreneursthinkprimarilyaboutwhatthe

customervalues,intrapreneursputadditionalweightonwhatproductattributestheircompanyisuniquelyabletodeliver.Sinceasanintrapreneuryoustartingwithmorematerial–yourcompanyalreadysomeuniquecapabilities,norms,strengthstoleverage–youwilllikelywanttomoreassertivelypursueattributesthatyourstart-upcompetitorwillnot.ThinkBeyondtheCoreProductTofullycapturetheopportunitiestodisruptwithoutdisrupting,ithelpstothinkexpansivelyaboutwhatyourproduct/serviceis.Youwanttoconsidertheoftenoverlookedrelatedservicesthatyouofferaspartofyourcoreproduct.Forexample,ahoteldoesnotjustofferabedforanight,itoffersaportfolioofotherelementsthatcreateabundledexperience–onlineregistration,valet,porterservice,check-inservice,in-roomWi-Fi,cable,roomservice,etc.Theseancillaryproducts/servicesgenerallyfallintotwocategories:

• Facilitating:Products/servicesthatfacilitateyourcustomeraccessingyourcoreproduct/service,suchasregistration,scheduling,pricelistings,payment,anddevelopertools(inthecaseofXbox).

• Augmenting:Products/servicesthatenhancethevalueofyourcoreproduct/service,suchascustomization,premiumadd-ons,andcustomersupport.

HowtodoitWehavefoundthatbyfollowingfoursteps,youcansystematicallydefineaproduct/servicethatwill(a)bedisruptivetocompetitorswhile(b)limitingthedisruptiontoyourorganization.Step1:Brainstormyourfullsetofproduct/servicesStartoutbybrainstormingafullsetofproducts/servicesthatyourcustomer(internalorexternal)wantsorneeds.Thinkaboutfacilitatingandaugmentingproducts/services.Step2:CreateaprioritizedlistofattributesLookingatthelistofproducts/services,puttogetheraprioritizedlistoftheattributesthatyourcorecustomer(asdefinedbyyourpositioning,above)mostcaresabout.Walmart,forexample,isquiteclearaboutwhatattributesoftheshoppingexperienceitscorecustomermostvalues–lowpricesandselectionacrosscategoriesareatthetop–andleastvalues–ambienceandsaleshelpareatthebottom.Lookatyourlistofproduct/services(fromStep1)tomakesureyouhavecoveredalltheimportantattributes.Step3:IdentifybusinessmodelissuesForeachattributeonyourlist(fromStep2),askyourself:

• Wheremightwerunintoissues(e.g.,whereourcurrentapproachwillconflictwithoursuccess)?

• Whatwouldhappenifwestucktoourcurrentbusinessmodel?Wouldithurtusorcouldithelpus?

Step4:Decidewhatyoumightwanttoaccept,bend,orchangeCreatethreelistsofattributesorelementsofyourproduct:

• WhichshouldIaccept(e.g.,becausetheyaretoohardtochangeorbecausedoingitourwaywouldcreateanadvantage)?

• WhichshouldIbend?• WhichshouldIchange?

Thisprocessshouldgiveyouagoodideaofwhatflavorofproduct,whatmixofproductattributes,hasthepotentialtobedisruptiveinthemarketplace(i.e.,besomethingyourcorecustomerswillloveandthatyourcompetitorswillchoosenottocopy)andyetlessdisruptivetoyourorganization.PricingInChapter7wemetChesterCarlson,thelawschoolstudentwho,withhishandcrampedfromtranscribingbyhandtextbookshecouldn’tafford,dedicatedhimselftofindinganinexpensivewaytoduplicatedocuments.Thoughhedidnothaveanengineeringdegree,heeventuallyfoundasolution.Histechnology–“xerography”–eventuallyevolvedintoXerox.Thismayonthesurfaceappeartobeatraditionalentrepreneurialstorybutfortwodifferences.First,thereasonChester’stechnologysucceededwasbecausehewasabletotapthescaleandpoweroftwolargeorganizations:theHaloidCompanyandtheUnitedStatesArmy.Secondly,Xeroxwasnottheonlydocumentduplicationtechnologyavailable.Numerousothercompanieswereattemptingtoconvinceofficestoadopttheirduplicationmachines.Butwhileotherssoughttosellmachines,Xeroxadoptedaradicallydifferentpricingscheme.Theyofferedtoinstalltheirmachinesforfreeandonlychangeofficesaper-copyfeeforuse.Thispricingschemecreatedtwosignificantadvantages.First,itradicallyreducedthecostofofficestoinstallaXeroxmachine.Second,itcould,fortherightcustomerwhomadealotofcopies,enableXeroxtoeventuallycollectconsiderablymoreinrevenuepercustomer.Manyofthemostsuccessfulbusinessinnovationsofthepastandpresentsucceedednotbecausetheirproduct/servicewassuperior(althoughafterthesectionabove,youmaynowhaveatrulyuniqueproduct/serviceoffering),butratherbecausetheyofferedadifferentpricingstructure.Consider,forexample:

• Affinity:MBNAdecidedtopayroyaltiestosomelargeorganizationsforexclusiverightstooffercreditcardstotheirmembers,andtherebyshookupthecreditcardissuingbusinessbyintroducingaffinityclubs.

• Servicelevel:Sprint(aUSmobilephonecarrier)surprisedtheircompetitionbybeingoneofthefirsttochargedifferentratesfordifferentlevelsofservice.

• Partialownership:NetJets(aprivatebusinessjetcompany)switchedfromchargingper-flightandinsteaddecidedtochargefora“partialownership”right.

• Subscription:TodaycompanieslikeOneGo(www.onego.com),SurfAir(www.surfair.com/us/)andJumpjet(www.jumpjet.com/)areofferingunlimitedflightsbetweenspecificdestinationsinexchangeforasubscriptionfee.Thesubscriptionmodelisbeingadoptedacrossabroadspectrumofindustriesfromsoftware(e.g.,bothMicrosoftandAdobehaveshiftedtosubscriptionmodelsfromlicensemodels)tofood(e.g.,HelloFreshandBlueApron).

• Fremium:The“fremium”model,throughwhichyouofferabasicserviceforfreethenchargeforapremium,hascontributedtothesuccessofnumeroussuccessfulbusinessmodelsincludingthoseofLinkedIn,Skype,andDropbox.

• Leasing:Inthe1980s,FordMotorCo.adoptedthe“leasing”model,bywhichdriverscould,ratherthanbuyingandowningacar,getaccesstoanautomobileforadiscretetimeperiod(e.g.,threeyears)foramonthlyfee.Thispricinginnovationwasquicklyadoptedbytheindustryandtodaynearly25%ofnewvehiclesareleasedratherthansold.5

• Membership:Byaskingcustomerstopayup-fronttogetaccesstodiscountedservices,youcantransformtheirbuyingpsychology.Amazon,forexample,introducedPrime,bywhichcustomerscanpayanannualmembershipfeeinexchangeforfreetwo-dayshippingandotherbenefits.Assoonassomeonepaysthemembershipfee,theirpsychologychanges,andthattheyseektoextractasmuchvalueaspossiblefromthefee,resultinginthembuyingmuchmorethroughAmazon.DiscountretailerCostcocreatesasimilardynamicbysellingannualmembershipstotheirshoppingclub.

• “Milk”pricing:Grocerystoresknowthatcustomerstendtojudgetherelativepricestheypayinonechainversusanotherbasedonthepriceofmilk.Iftheycanofferlowmilkprices,theygetcustomersinthedoorandcreatetheperceptionthateverythingelsetheysellmustbesimilarlycompetitivelypriced.Thisisalsowhythemilkinyourgrocerystoresislocatedasfaraspossiblefromthefrontdoortoforceyoutowalkpastasmanyshelvesaspossiblebeforeyoureachit(theyknowyouwillstopandbuysomething).

• Producttoservice:Similartotheleasingorpartial-ownershipmodels,thisapproachshiftscustomersfrombuyingproductstobuyingservices.Zipcar,forexample,shookupthecarrentalbusinessbyofferingacar-sharingservicethatgavemembersaccesstocarswhentheyneededthem.

• Communityaccess:CompanieslikeAngie’sList(www.angieslist.com)chargemembersforaccesstoacommunityratherthansellingtheservicesthecommunityhasassembledtosharereviewson.

Whileentrepreneurscanstartfromablankslateandcreateanypricingstructuretheythinkthemarketwouldmostlikelyadopt,intrapreneursmustsetapricingstructurefromwithinan

5Source:Experianstudy,2015,accessedvia:http://www.cnbc.com/2015/06/01/record-highs-of-americans-leasing-vehicles.htmlonJuly27,2016

establishedorganization.Itistemptingtothinkofthisasalimitation(itmaybehardertoconvinceleadershiptoacceptmembershipfeesratherthantheper-unitfeesthebusinesshasgrownupcharging),butyoursizecanequallybecomeanadvantage.Thescaleandassetsyourorganizationwieldsallowsyoutoshiftmoreeasilyintodiversepricingstructures.Whilestart-upsaremotivatedtocollectrevenuenow,anestablished,resource-richorganizationcanmorereadilyacceptrevenuelater.Forexample,oneteamweworkedwithinaleadingconsumer-productscompanyhadtheideaofofferingabundleofproductsandservices(aproductinnovation,arrivedatfromtheprocesssuggestedinthepriorsection)asasubscriptionservice.Theirvisionwasthatofafoodsubscriptionserviceforpetownersthatincorporateselementsofwearableandimplantabletechnology(thinkNike’sFuelband)andacommunitywithapointsystem(thinkFacebook“likes”).Theteambuiltoutabusinesscase,arguingthatmanyindustrieswereshiftingtosubscriptionservicesfromper-unitmodels.Moreimportantly,theyshowedthiswasnota“copy-cat”pricingmodellikeothersubscriptionserviceofferingsemergingbecausetherewasnoothercompanythatcouldpulltogetherthebreadthofproductsandserviceofferingsorassembletheindustrypartnershipsneededtopullthisoff.Furthermore,settingthepriceofanewsubscriptionserviceistrickybecauseyoudon’tknowhowmuchconsumerswilluse.Youcaneasilygetintotroubleifyousetthesubscriptionratetoolowandsuddenlyfindconsumersaredemandingmoreofyouthanyouexpect.Butbecausethiscompanywouldmakeprofitfromtheventureinotherareas(e.g.,inthebusinessunitsthatsoldtheproducts),theycouldpracticallyguaranteeprofitability.Thecompany’sEuropean-basedCEOcametovisittheUS.Theteambehindtheideagotachancetopitchtheirideadirectlytohim.Withinamatterofmonths,theygotapprovaltoassembleateamandstartbuildingthebusiness.Youwanttoexploreinterestingpricingmodelsinordertomoveyourbusinessmodelintothe“strategicallydisruptive”quadrant.Don’tsimplyjumpinandcopywhatthenewest,hottestinnovatorisdoing.Thinkaboutcablecompanieswhowerederidedasout-of-dateasTiVointroducedtheUSmarkettotheDVR.Manywrotecablecompaniesoffasbehindthetimes.SuddenlycablecompanieswokeupandstartedofferingDVRsthemselves.Butinsteadofchargingforthedevices,asTiVOwasdoing,cablecompaniesfiguredouttheycouldgivethemawayforfree,simplyinstallingthemintothecableboxestheywerealreadyplacingincustomers’homes,becauseonceacustomergotaDVRtheytendedtoupgradetoahigher-pricedcablepackage.Applicationquestions:

• Whatistheacceptedwayofpricingyourproduct/service?

• Whatwouldbethenaturalwaythatyourorganizationwouldthinkofpricingthisproduct/service?

• Whatinterestingoptionsdoyouseeforchangingthebasisonwhichyoupriceyourproduct/service?

• Wherewillinternalresistancetothisnewpricingmodelcomefrom?Placement“Placement”issimplyawaytoputa“P”infrontoftheword“distribution”sothatthe“8P”modeldoesn’thavetobe“7PsandD.”Thinkofitashowyoudeliveryourproductorservicetoyourcorecustomer.Ifyouareconsideringanexternalinnovation(e.g.,somethingyouwilldistributetoexternalcustomers),yourplacementdecisionmeansthingslikewhereyouplacestores,whetheryouusekiosks,howyourouttrucks,thedesignofyourlogisticssystem,etc.Ifyouareconsideringaninternalinnovation,your“placement”decisionsincludethingslikewhetheryouinteractwithinternalusersface-to-faceordigitally,whethertheyself-serveoryoudotheworkforthem,whereyourteammembersarelocatedinthebuilding,etc.Makingaunique“placement”choicehasbeenthecentralstrategybehindnumerousbreakthroughcompaniesincludingDell(godirectratherthanthroughretailers),Walmart(placestoresinruralareasratherthanmetropolitan),SouthwestAirlines(flypoint-to-pointratherthanthroughahub),andSalesforce.com.MarcBenioff,forexample,lefthisexecutivepositionatOracletostartSalesforce.comdrivenbytheideathattherewasabetterwaytodistributesoftware.Ratherthanpayarmiesofintegrationconsultantstoinstallsoftwareoncustomers’servers,herealizedyoucouldinstallthesoftwareonyourownserversandgivecustomersaccesstothesoftwarethroughawebinterface.IndeedhisstatedmissionofSalesforce.comwasTheEndofSoftware®.Whatbecamelaterknownas“cloudcomputing”wasborn.Start-upshaveconsiderablymorefreedomindesigningtheir“placement”strategythanintrapreneurs.ThefactthatMarctookleaveofOracletostartSalseforce.com,andthatOracle’sCEO,LarryEllison,investedinthestart-up,illustratesthedouble-edgedswordofplacement.Ononehand,makingauniqueplacementchoicecancreateanincrediblypowerfulcompetitiveadvantagebecauseincumbentcompanies,havinginvestedsomuchintheirdistributionchannel,willusuallyresistchanging.Ontheotherhand,andforthepreciselysamereason,introducingaplacementinnovationinsideyourorganizationislikelytobemetwithresistance.TheintrapreneursIinterviewedoftenciteddistributionasaparticularlyvexinginnovationproblem.Thedistributionnormsofyourorganizationhavelikelybecomeingrainedovermanyyears,astheGrandma’sCookiesteamdiscovered.Thedistributionassetsthatcomposeyourlogisticschain–yourdistributioncenters,trucks,inventorysystems–requiredheavyinvestmentthatyourorganizationwillwanttoprotect.

Fromthecaseswehavestudied,your“placement”choiceofferslessflexibilitythantheotherbusinessmodelchoices.Youeither:

• Acceptyourcompany’scurrentdistributionmodel,• createanentirelydifferentone,or• separateyourproductintoparts.

Acceptingthecurrentdistributionmodelwouldbetoputyourproductthroughthedistributionchain,makingitanotheritemontheshelfofyourwarehouse,anotherboxonyourtrucks.Ifyoucandesignyourmodelsothisworkswellforthemarketandyourcustomers,thenyouwillhaveremovedconsiderableriskofyourideabeingrejected.CreatinganentirelydifferentchannelwouldbetoestablishanentirelydifferentbusinessasSalesforce.comdid,oradifferentbusinessunitasMicrosoft’sXboxteameventuallydid.Toseparateyourproductintopartsmeanstobreakdowntheservicesofyourproductanddistributesomeofthemusingtheusualmodelandsomeofthemusinganewmodel.Forexample,acompanyweworkedwiththatsellspictureframeshasawell-establisheddistributionchanneldevelopedoverseveraldecades.Theymanufactureintheirplant,distributetoregionalcenters,puttheframesontrucks,thendeliverthemtoretailersandframeshops.Theydecidedtheywantedtoofferanewproductofcustomizedframesthatwouldbeintegratedintophoto-sharingwebsites.Atfirsttheythoughttheywouldhavepeopleordertheframesonlineandshiptheframesdirectlytotheirhouse.Buttheysoonrealizedthiswouldeventuallycreateadual-distributionsystem–traditionalandonline–betweenwhichtensionscouldbuild.Retailerswouldgrowangrythinkingthecompanywascompetingwiththem,forexample.Soinstead,theyseparatedtheirproduct/serviceintotwoparts:acustomizationserviceandframes.Theydecidedtodistributethecustomizationserviceviakioskinsteadofonlinebecausethatwouldallowthemtodistributetheframeusingtheirexistingchannel.Theycreatedakioskandplacedthesekiosksinretailerlocations.Customerscouldlogon,customizetheirphotoandframeatthekiosk,thenordertheframefromtheretailer.Afewdayslaterthecustomizedframewouldbedeliveredtotheretailer,whowouldmountthephoto.Thisapproachquicklygainedtraction.Verysoononeoftheirlargestretailcustomerssignedontotheprogram.Implementationquestions:

• Thinkingthroughyourcurrentdistributionmodel,wheremightissuesemerge?• Shouldyouacceptthecurrentdistributionmodel,createanentirelynewone,or

separateyourproductintoparts?Promotion

Promotioninvolveseverythingyoudotocommunicateyourproduct/servicetoprospects,customers,partners,andbeyond.Itspecificallyinvolvesmarketing,sales,corporatecommunications,andpublicrelations.Inmyinterviews,promotionwasoftencitedastheprimarybarrierthatintrapreneursface.Thechallengesmostoftenfellintotwocategories:

• Marketing:Yourmarketingdepartmentwillimposeonyoustrictbrandguidelinesthatwilllimityourflexibility;theywilltaketoolongtoapproveadvertisingimagery,copyandbranddesigns

• SalesForce:Yoursalesforcewillhaveapredispositiontosellingwhattheyalreadyknow;itwillbehardtomakethemawareofthenewinnovationyouwanttooffer,makethemcareenoughtobringitupwithcustomers,andincentivizethemtosellitwhentheyfeelthattheycouldmoreeasilysellwhattheyalreadyknow

MarketingHeatherCoxisthekindofmarketingleaderyouwishyouhad…but,unfortunately,don’t.Shedidn’tcomeupthroughmarketingoradvertising.Shegrewupsellingcattle,onafamilyfarminIllinois.Fromthereshewentintoastringofoperationalrolesinfinancialservices.SheservedasheadofNorthAmericaoperationsatE*TRADEthenheadofcardoperationsatCapitalOneFinancialCorporation.ItmayseemanunlikelymoveforhertogointoaleadmarketingroleforCitibank’sconsumerbankingbusiness.But,untilshewasrecentlypromoted,Heatherservedastheirchiefclientexperience,digital,andmarketingofficer.Thetitleisalongone,butthereisareasonforthat.Itillustrateshowtheroleofmarketingisshiftingandwhyoneofthemostimportantbarrierstoyourintrapreneurialsuccesswillbepresentedbyyourmarketingdepartment.Ittoday’sfast-paced,agile,digitaleconomy,weareseeingashiftinhowcompanies’orientationismovingfromafunctionalmindset–onedivisionproduces,anothersells,and-anothermarkets–towardauser-orcustomer-experiencemindset.Therearereamsofresearch,calendarsfilledwithconferences,androstersofuniversitycoursesnowexploringthisshift.Youmaycallit“user-centereddesign”or“human-centereddesign”or“experiencemarketing.”Butthecentralideaisthatcompaniesarerealizingthatbybreakingdownandunderstandingtheemotionaljourneytheircustomersgothroughastheystepfrombecomingawareofyouroffertoconsideringittotryingittotellingtheirfriends,andthinkingaboutorchestratingallofthetouchpointsneededtoensureeachmomentispowerful,youcandramaticallyimprovethevalueyoucreateandtherebythehealthofthebusiness.Heather’slongtitleillustratestheimportanceofintegratingmarketingandtechnology(digital)behindamindsetofdeliveringapowerfulclientexperience.Shehasnowbeenpromotedto

headanewdivisionfocusedonfinancialtechnology(FinTech),butduringhertwoyearsinmarketingshedroveCititolaunchanewappwithopenarchitecturesothatothertechcompaniescouldintegrateintoit,launchedaversionoftheappthatallowspeopletoseetheirbalancesandrecentactivitywithoutenteringapassword,ensuredCitihadanappavailablefortheAppleWatchbeforethesmartwatchwasevenreleased,andacceleratedastreamofdigitalmarketinginitiatives.ShewasnamedDigitalBankeroftheYearin2015.Thisisthekindofmarketingdepartmentyouwanttoworkwith.Onethatisdriventobeopen,istech-friendly,movesquickly,andiswillingtoexploretheboundaries.Thiskindofmindsetisparticularlyuncommoninhighlyregulatedenvironmentslikefinancialservices.AsHeathersaid,"Iunderstandthatitmightbetemptingforsometopointtoregulationasabarriertoinnovation,butfranklythat'salosingmindsetforbanks.Wehaveanobligationtoadheretoregulationsandinnovateatthesametime,andwecandoit."Regardlessoftheindustry,theintrapreneursIintervieweddescribedaverydifferentkindofmarketingdepartment.Theyexpressedfrustrationthatoftenmarketingmovedtooslowly,wastoorigid,andwastoolimitedinthescopeofwhattheycouldorwerewillingtodo.Thisistrueevenifyourinnovationisaninternalone.Evenifyouarelaunchinganewinternalprogramandwanttodesignaninterestinginternalcommunicationsplanthatmightincorporatespecializedlanguage,framework,orimagery,youarelikelytofindaninternalcorporatecommunicationsgroupthatwilleitherenergizeandactivateyoureffortorslowandwateritdown.Ihavenotfoundasilverbulletfordealingwithmarketing,butherearefivetipssharedbyintrapreneurssearchingforone:

• Developfriendships:Takeyourmarketingpartnersoutforlunch,gettoknowthempersonally,sothatwhenyouneedthemtheywillmovemorequicklyonyourrequestandgiveitspecialattention.

• Engageearly:Knowingleadtimescanbelong,thatyourmarketingdepartmentmayhaveabacklogofwork,engagethemlongbeforeyouneedthemtoact.Yourstart-upcompetitorsmaystartthinkingaboutmarketingafewweeksbeforelaunch.Youneedtostartlongbeforethat.

• Co-create:Justascompanieshavepowerinco-creatinginnovationswithcustomers(applyingwhatisnowcalled“OpenInnovation”),letyourmarketingdepartmentco-createwithyou.Bringtheideatothemwhenit’sstillinitsinfancy.Invitethemtohelpdesignthebusinessmodelwithyou.Theywilloftenhelpyouaddressmarketingbarriersandopportunitiesaheadoftime.InChapter9wewilltalkinmoredetailaboutthis.

• Knowtherules:Everyestablishedbrandhascarefullydefinedbrandguidelines.Educateyourselfonthem.Trytoworkwiththem,ratherthanagainstthem.

• Createaninformalmarketingcommittee:Sincemarketingdecisionsareincreasinglymergingwiththoseoftechnologyandoperations,oneintrapreneurIinterviewedsuggestscreatinganinformalcommitteecomposedofalliesinmarketing,technology,

andoperations.Shareyourvisionwiththemandsetaregularmeetingrhythmsotheycanefficientlyprovideyouwithcross-disciplinaryguidance(seeChapter10).

SalesforceConvincingyoursalesforcetosupportyourinnovationwasoneofthebarriersmostcitedbyintrapreneurs.Oneintrapreneurhadgottenapprovalfromhiscompanytopursuethelaunchofanewbusinessline.Thecompanywasinpharmaceuticalsandthisnewservicelinewouldinvolvesellingageneticsolution.Whilethetechnologywascompletelynew,thetargetcustomer–theprospectthatthesalesforcewouldvisit–wasthesame.So,itseemednaturaltothinkthatifthesalesforceisvisitingthecustomeranyway,itshouldbefairlyeasyforthemtotalkaboutandstartsellingthisnewproductline.Inoneregiontheproductlinewasstronglysupportedbyregionalleadership.Inanotherregion,itwasnot.Inthesupportiveregion,salespeopleweregivenanextraincentiveforsellingtheproduct(e.g.,theywouldgethighercommission),theygotspecialtraining,and,mostimportantlyfromtheviewoftheintrapreneur,thesalesforceheardrepeatedlyfromtheregionalleadershipthatitwasimportanttheytrytosellthisnewproduct.Inthelesssupportiveregion,thesalesforcegotnoneofthis.Theresultswereasyouwouldanticipate.Eventhoughbothregionshadsimilarsituations–thesamecompany,coreproduct,corecustomer,newproduct–inthesupportiveregionthenewofferingwasdeemedagreatsuccess.Inthelesssupportiveregion,itfailed.Hadtheyonlytriedtheproductinthelesssupportiveregionthecompanymayhaveconcludedtheinnovationwouldnotworkbecause,perhaps,themarketwouldnotsupported.Butactually,theonlyreasontheproductdidnotworkinthatregionwasbecausethesalesforcewasnoteffectivelyengaged.Itiscriticalthatyou,asaninternalinnovator,thinkcarefullyabouthowyouaregoingtoeffectivelyengageyoursalesforce.Successorfailuremayhingeonthat.Wecanbreakdownthischallengebypredictingwhereyoumayfindissuesinordertoaddressthemaheadoftime.OneintrapreneurIinterviewedsharedawell-structured,effectivemodelcomposedoffivesalesforceareastoassess:

1. Targetcustomers:Whospecificallyisyoursalesforcevisiting?Justbecausetheyarevisitingthesamecompanythatyouwanttotargetwithyourinnovationdoesnotmeanthattheywillbeabletoeffectivelyselltoyourtargetcustomerinthatcompany.IftheyarevisitingthepurchasingmanagerandyouwanttoselltotheCFO,asoneofourclientsrecentlyattemptedtodowithaninnovation,yoursalesforcemaynotprovideanyadvantageatall.Itisnoteasyforasalespersontoleveragearelationshipinoneareaofacompanyintoestablishingarelationshipwithsomeoneinanotherarea.

2. Coverageandcapacity:Doesyoursalesforcehavesufficientcoverage(doyouhavesalespeopletouchingenoughtargetcustomers)andcapacity(dotheyhaveenoughtimeandresources)toeffectivelypromoteyourinnovation?Ifyouknowyouneedtotalkto1000customersinordertogettheinitialsalesthatwouldindicateyourinnovationisasuccessbutyourcurrentsalesforceonlyhasregularcontactwith500customers,youwillhaveaproblem.Similarly,ifyoufindyoursalesforcesalreadyoverwhelmed,strugglingtomaintaintheircallandvisitschedules,youarelikelytofaceabandwidthproblem.

3. Incentivesandperformancemanagement:Bywhatmetricsisyoursalesforcemeasuredandhowistheircompensationcalculated?Forexample,ifyoursalesforceissellingestablishedproducts,theirincentivestructuremayencouragethemtoincrease“shareofwallet”byfocusingonsellingmorefollow-onproductstoexistingcustomers.You,bycontrast,wantthemtosellnewthingsandcapturenewcustomers.Iftheydon’tgetasmuchcreditforsellingyournewthingastheydoforsellingmoreoftheoldthing,youwillfaceaproblem.

4. Salestools:Everywell-runsalesforcehasatoolkitthattheyarmsalespeoplewith.Itincludesthingslikesalesprocesses/checklists,salesscripts,productdescriptions,andaccesstosupport(e.g.,expertsthatprovideproductdetailstohelpthesalespersoncloseasale).Becauseyourinnovationisnew,yourtoolsarelikelytobelessdevelopedthanthosethesalesforceisusedto.Youthereforewanttoinveststrategicallyinrapidlydevelopingafewhigh-qualitytoolsthatyouthinkwillmakethemostdifferenceinempoweringthesalesforcetosupportyou.

5. Culture:Finally,considertherulesandnormsofyoursalesforcetoassesswhethertheywilldrivethebehaviorsthatwillhelpyourinnovationsucceed.Doestheculturevaluelearning?Ifnot,youmayhavetroublegettingsalespeopletospendthetimetolearnaboutthenewoffering.Doesthecultureencourageproactivity?Thisisbeenshowntobeacriticaldriverofinnovativeorganizations.Ifyoursalesforceprimarilyrespondstorequestsratherthanproactivelyseekstocreateopportunities,itwilllimityourinnovation’schances.

Thesameholdstrueifyouaredrivingininternalinnovation.Youmaynothaveaformalsalesforcedesignated,butthereissomepopulationofpeoplewhowillberesponsibleformally,orinformally,withbuildingbuy-inforyourinnovation.Perhapsyouwanttointroduceanewhumanresourcepolicyoranewtechnologyinterface–whowillbepromotingthisideatotheinternalusers?Dotheyalreadyvisitthetargetuser?Dotheyhavethecoverageandcapacity?Willtheyhavetherightincentives?Willyouprovidethemwiththetoolsneeded?Doestheculturemotivatetobecomeadvocatesoftheinnovation?Implementationquestions:

• Haveyoudonethethingsneededtobuildthelevelofcollaborationandsupportyouneedfromyourmarketingdepartment?

o Haveyoudevelopedfriendships?

o Areyouengagingearly?o Haveyouinvitedthemtoco-createwithyou?o Doyouclearlyunderstandtherules?o Haveyoucreatedininformalmarketingcommittee?

• Haveyouanticipatedandareyouaddressingthesalesforcebarriersyouarelikelytoface?

o Targetcustomers?o Coverageandcapacity?o Incentives?o Tools?o Culture?

ProcessesInaworkshopwithaleadingconsumerproductscompanyinwhichweareexploringnewwaysforthemtocompeteagainstamassingsmallstart-ups,Iwasshockedbyacomplaintoneparticipant,aseniormemberoftheglobalmarketingteam,sharedwithmeinthehallway.“Ithinkwehavecomeupwithaprettybreakthroughideahere,butthereisamuchmorebasicproblemweface.Ittakesusweeksjusttoproduceaninvoiceforoneofour[retail]customers.Oursmallcompetitorstakehours.”Becauseyourbusinessprocessesweredevelopedoveryears,designedtocreatepredictabilityandconsistency,engineeredtooptimizeforefficiencyoverspeed,youarelikelytofindyourinnovationgetcaughtonthethornsoftherules,checklists,andpolicies,formalandinformal,scatteredthroughoutyourorganization.Aswiththeotherbusiness-modelelements,successfulintrapreneursseemtocircumventthefrustrationbornfroman“itshouldnotbethisway”mindsetbyinsteadembracing,understanding,predicting,andpreemptingtheobstacles.Theyknowoperationissuesaresimplyanaturaloutcomeoftheirpushingtheirorganizations’limits.AsNobelPrize-winningpoliticalscientistHerbertSimonwrote,“Onefindslimitsbypushingthem.”Operationalbarriersareconsistentlyidentifiedinresearchasoneofthemostcriticalbarrierstointernalinnovation.6MostoftheresearchontheprocessofremovingoperationalbarrierstoinnovationistargetedatseniorleadershipandsuggestswaysthattheCEOandtop-teamcanchangetheinternalstructuresoforganizationsinordertounlockgreatentrepreneurialandinnovativebehavior.Asanintrapreneur,youlikelyhavelimitedinfluenceovertheprocesses.Indeed,manyoftheintrapreneursIinterviewedexpressedlittleinterestintakingonacampaigntochangeprocessesandprocedures.Theirattitudescouldbesummedupbyoneperson’scomment:“Idon’twanttotransformthecompany;Ijustwanttomakethisprojecthappen!”6See,forexample,Srivastava,NidhiandAgrawal,Anand,“FactorsSupportingCorporateEntrepreneurship:anExplorativeStudy,”VISION-TheJournalofBusinessPerspective,Vol.14,No.3,July-September2010

Ifyousimilarlywanttobetternavigate,ratherthanchange,theoperationalprocessesthatmaystandinthewayofyourinnovation,thenyouhaveagreaterchanceofprevailing.AsWinstonChurchillwrote,“Letouradvanceworryingbecomeadvancethinkingandplanning.”So,whichprocessesshouldyouplanfor?In1985,HarvardBusinessSchoolProfessorMichaelPorterintroducedabreakthroughframework,nowbroadlyknown,calledthe“ValueChain.”Hisconcepthasprovenenormouslyinfluentialandcanbeusedtohelpsolveanumberofbusinessproblems,includingdesigninganoperationalplanthatwilldisruptyourcompetitionwithoutdisruptingyourorganization.Ifyouhavestudiedmanagementorstrategyyoumayalreadybefamiliarwiththeframework.Sinceit’smorethanthreedecadesoldnow,youmaybetemptedtothinkofitaslesseffective.Butitisapowerfulchecklistthat,ifyoufollowitsystematically,cansaveyourinnovationfrombeingblindsideddowntheline.Portersuggeststhatanyorganizationmustperformcertainactivitiesinordertodeliveravaluableproductorservice.Porterbreaksthesesetsofactivitiesintotwocategories:“primary”and“supporting.”Asyouworkthroughtheseninesetsofactivities,askyourselftwoquestions:

• What,ifany,processissueswillIfacehere?• Isthereanopportunitytocreatea“strategicallydisruptive”situation?

Processarea Description Issue? Opportunity?PrimaryInboundLogistics Anythingyourorganizationdoestotake

inmaterials,inputs,parts,orinventory,inordertoproduceyourproduct/service

Operations Howyourcompanymanagestheprocessofconvertinginputs(rawmaterials,labor,energy,etc.)intooutputs(theproduct/serviceyoudeliver)

OutboundLogistics Storing,moving,anddeliveringyourproduct/servicetocustomersorend-users

MarketingandSales Wehavealreadycoveredthisinapriorsection;takeasecondlookspecificallyatprocessesrelatedtomarketingandsales

Service Howyourcompanyhelpskeepitsproduct/serviceworkingeffectivelyafterthecustomerbuysit

SupportingProcurement Howyourcompanyacquireswhatit

needsfromexternalsourcestooperate

HumanResourceManagement

Thiswillbecoveredinmoredetaillater;here,lookattheprocessesyourcompanyusestohire,develop,andincentivizepeople

TechnologyDevelopment

Broadlyspeaking,thisincludeseverythingyourorganizationdoesrelatedtoequipment,machinery,andinformationtechnologytohelptransforminputsintoyourfinalproduct/service

Infrastructure Thisincludesactivitiesofareassuchasaccounting,legal,finance,compliance,andgeneralmanagement

PhysicalexperiencePhysicalexperiencehastowithwhatyourcorecustomer(whetheranexternalcustomerorinternalstakeholder)experienceswiththeirfivesenseswhentheyinteractwithyourinnovation–whattheysee,hear,smell,taste,orfeel.Thisdimensionofyourbusinessmodelisoverlookedinmostbusinessmodelframeworks.Butthatisamistake.Itcanbeenormouslyimportant,ifonlypreciselybecauseyouandyourcompetitorsarelikelytodiscountitsimportance.Apple,forexample,hasfordecadesinvestedmorethancompetitorsonphysicalexperience.Theyover-investinpackagedesign,makingsuretheboxesinwhichtheirproductsarewrappedhavejusttherightcolor,weight,andtexture.I’veheardtheyevenanalyzethelevelofsuctiontheirboxescreatewhenoneopensthem.Allofthisbecausetheyknowthatthephysicalexperiencetheycreateforcustomerswhentheyfirstunwraptheirproductscreatesapowerfulbrandassociation.OnereasontheylaunchedtheAppleStorewastohavecompletecontroloftheenvironmentinwhichtheirproductsweredisplayed.Manyofthemostcitedexamplesofbreakthroughintrapreneurshipinthelastfewyearshavebeenfocusedonimprovingthephysicalexperiencecustomershavewhentheyinteractwiththebrandorproduct/service.AlaskaAirlines,forexample,waslaudedforbeingthefirsttointroducefingerprintidentificationintotheircheck-inexperience.Theyrecognizedthephysical

experienceoffumblingwithdocumentscausedstressandfrustration.Nowtravelersneedonlypresstheirfingertoareader.Thephysicalexperienceoftheworkenvironmentalsohaspowerfulinfluenceonthelevelofinnovativenessandcreativityyouandyourteamwillexperience.78ThisiswhycompanieslikefurnituremanufacturerSteelcaseareinvestingheavilyindesigningfurniturethatcanencouragegreaterinnovativeness.Adoberecentlyintroducedaprogramcall“Kickbox,”whichwediscussagaininChapter12.Byprovidingemployeeswithabrightredbox(Adobe’scorporatecolor)thatincludesthingslikea$1,000pre-paidcreditcard,instructioncardswithachecklistofactions,aStarbucksgiftcard(forcaffeine),andacandybar(forsugar),Adobewasabletocreatewhatitcalls“innovationinabox.”Theyhavedeployedtheprogramacrossthecompany.Theywonthe2015BestInnovationProgramfromCorporateEntrepreneurAwards.Recognizingthepotentialoftheprogram,theythenopenedituptothepublic,makingitanopen-sourceprogramanycompanycanaccess.Thepowerofthisvisual–innovationinabrightredbox–activatesasenseofadventureandfunthatnoticeablychangesbehavior.Toaddressphysicalexperience,somecompaniesadoptbroad,company-wideefforts.MasterCard’sheadquarters,forexample,onceresembledthatofabank.Todayyouwillfindfussballtablesandscooters.AtErnst&Young’sheadquartersintheheartofbustlingTimesSquareinManhattan,youwillnowfindCommonGrounds,asortofcoffeeshop,towardthetopoftheirbuilding,overlookingManhattan,withspacesforpeopletospontaneouslysitdownasifataStarbucksorevenbookaglass-encasedteamworkroom.Othercompaniescarveoutseparatespacesfordrivingintrapreneurialideas.BNYMellon,forexample,createdahigh-techinnovationspaceinJerseyCityandEYisbuildingoutanewspaceforateamofinternalventurecapitalistsinahippartofManhattan.Implementationquestions

• Thinkingaboutthephysicalexperienceyourcorecustomersundergoastheyinteractwithyourcompany,brand,orproduct/service,whatissuesdoyouseeyourinnovationmayface?Whatopportunitiesdoyouseetocreatea“strategicallydisruptive”opportunity?

• Thinkingaboutthephysicalexperienceofyourco-workers,whatissuesdoyousee?Whatopportunitiesdoyouseetocreatea“strategicallydisruptive”opportunity?

People

7Kelley,T.andLittman,J.(2001)TheArtofInnovation:LessonsinCreativityfromIDEOAmerica’sLeadingDesignFirm,CurrencyDoubleday,NewYork.8Kristensen,T.(2004)‘ThePhysicalContextofCreativity’,CreativityandInnovationManagement,13(2),89–96.

Thefinalcomponentofthe8Pbusinessmodelframeworkispeople.Welistitlastnotbecauseitisleastimportantbutpreciselyfortheoppositereason.Muchofthemostrecentresearchininnovationhasidentifiedpeoplepolicies–whoyouhire,howyouorganizethem,yourincentivesystem,andyourculture–asthemostimportantdeterminantsofwhetheranintrapreneurialeffortwillsucceedorfail.9Aetna,the160-yearoldhealthcareplanprovider,earnsabout$60billionperyearprimarilyservingemployers.Inmid2005,however,LaurieBrubakerrecognizedthecompanywasmissinganopportunity.AtthetimeshewasanSVPoverseeingafewnon-coremarketslikePharmacyandBehavioralHealth.Nearly45millionpeopleintheUSwereuninsuredandanother20millionwereunder-insured.ShefeltthatAetnahadanopportunity,andobligation,toservethem.Shecreatedabusinessplan,showingthepotentialforAetnawereittostartsellinghealthinsurancetoindividuals.BrubakerhelpedAetnapilotitsnewindividualhealthcareprogramandwithintwoyearsAetnawasofferingitin30states,to250,000members.Itbecamethesecond-fastest-growingbusinesswithinthecompany.Brubakerhadhelpedthecompanybothmakeaprofitandhaveasignificantsocialimpact,becausemanyoftheAetna-insuredindividualshadpreviouslygoneuninsured.Buttheinnovationcouldeasilyhavefailedhadshenotthoughtcarefullyaboutthe“people”dimensionoftheprogram’svalueproposition.SherecognizedthatAetnawasgoodatestimatingthefuturemedicalcostsneededtosetthepriceofitspoliciesbyapplyingstatisticalmethodstoitscorporatecustomerbase.Butinordertoaccuratelypricepoliciesforindividuals,onewouldhavetoestimatemedicalcostsbasedonanindividualmedicalevaluation.Todothiswouldrequirehavingpeoplewithaverydifferentsetofskills,includingInternetmarketingsothatthecompanycouldreachindividuals.Toovercomethispotentialbusiness-modelconflict,Brubakerassembledateamcomposedoftwotypesofpeople:thosewhocamefromthecorebusiness(whatTuckBusinessSchoolprofessorsVijayGovindarajanandChrisTrimblecallthePerformanceEngineteam10)andateamofinnovatorswhowouldrepresenttheneedsofthenewbusiness.ThisteamhelpedfillthecapabilitygapswhilealsomakingsuretheyleveragethepeopleadvantagesAetnacouldbringtobear,Brubakercreateda“strategicallydisruptive”businessmodelthatplayedtoAetna’sstrengthsandultimatelysucceeded.9See,forexample,Day,George,InnovationProwess,WhartonDigitalPress,2013andSrivastava,NidhiandAgrawal,Anand,“FactorsSupportingCorporateEntrepreneurship:anExplorativeStudy,”VISION-TheJournalofBusinessPerspective,Vol.14,No.3,July-September201010Govindarajan,VijayandTrimble,Chris,TheOtherSideofInnovation:SolvingtheExecutionChallenge(Cambridge:HarvardBusinessSchoolPress,2013)

ImplementationquestionsTohelpensureyouareabletopredictandprepareforpotential“people”issues,asBrubakerdid,andengineeryourbusinessmodelsothatyoucreateonethatisdisruptivetoyourcompetition,butnottoyourself,searchthroughfourdifferentareasofconflict/opportunity11:Tasks:Whatspecificactivitiesimplementingyourinnovationwillrequire

• Wheremightconflictarisewiththetaskspeopleinyourorganizationcurrentlyperform?

• Whatopportunityexiststocreatea“strategicallydisruptive”situation?

People:Thetypesofpeopleyourorganizationhiresanddevelops(consideringskills,personalities,etc.)

• Wheremightconflictsarise?• Whatopportunityexiststocreatea

“strategicallydisruptive”situation?Formalstructure:Theorganizationalstructureinwhichpeopleworkincludingreporting,businessunits,incentives,anddecision-makingapproaches

• Wheremightconflictsarise?• Whatopportunityexiststocreatea

“strategicallydisruptive”situation?

Informalstructure(Culture):Thevalues,norms,commonbehaviorsprevalentwithinyourorganization

• Wheremightconflictsarise?• Whatopportunityexiststocreatea

“strategicallydisruptive”situation?ConclusionAsapassionate,action-orientedintrapreneur,youlikelyareeagertogetgoing,todosomething.Whilemovingquicklytoactionmaygiveyouasenseofforwardmovement,theearlymomentumyoubuildcaneasilysmashagainstaconflictwithyourcurrentbusinessmodel.Infrustrationyoumaydecide,“Mycompanysimplycannotinnovate,”andsoresignyourselftotheconclusionyourorganizationshouldsimplycarveouttheinnovationandcopythebusinessmodelofwhoevertheleadingcompetitoristoday.Butthiscanonlyleadyoutomediocrity.Tocreatesomethingoftrulytransformativepotential,explorehowyoucanmoveyourbusinessmodelintothe“strategicallydisruptive”quadrant.Thinkthrougheachelementofthebusinessmodel–positioning,product,pricing,promotion,placement,processes,physicalexperience,andpeople–assessingforeach(a)whereconflictsmayariseand(b)whereopportunitiesexist,

11Basedonthe“CongruenceModel”developedbyColumbiaUniversityprofessorsDavidA.NadlerandMichaelL.Tushman

andthen(c)decidingwhatyoucanaccept,bend,orchangeinordertodesignamodelthatwilldisruptyourmarketwithoutdisruptingyourbusiness.