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THE FUTURE MAY LIE IN UNDERSTANDING THE PAST
For many companies, the future may lie in revisiting the past. Why was the company established? What kind of positive difference did it want to make for its customers? These are some of the questions companies can usefully ask themselves. Questions that can help them to find a path back to the company’s original purpose, or what Simon Sinek calls its why. And also help them in finding the task or the job-to-be-done that the company’s customers and users want help with. These were some of the questions which helped LEGO get through their most recent crisis which took place in the years around 2007. LEGO looked back to its past and used it to understand what the company’s future products and business model should look like. We could ask what Post Danmark might have been today – if they had seen themselves as a company that helps people communicate more easily with each other, rather than a company that provides postal services to individuals and companies? It is less a question of WHAT the company does, and more WHY it does it — to quote Simon Sinek once again. Danske Bank, whose purpose is to help their “customers become financially confident and help them build their lives and businesses on a solid financial foundation”, has formulated a strong why which focuses on the task they must carry out for the bank’s customers. It focuses on the strategic game board, which can be used to design, validate and scale the services and business models that must lead the bank into a new and unknown future after COVID-19. That is, if the innovation capability is strong enough.
IMPROVING WHAT ALREADY EXIST IS NOT ENOUGH
Today, many companies hold innovation portfolios with an outsized content of what can be termed “improving innovation”. This means improving what already exists rather than creating something new. The Innovation Board has spent years advocating that simply improving existing products, services and business models, is not sufficient if the company is to be future-proofed. Completely new ones must be designed, validated and scaled, and others need to be phased out. A good rule of thumb has thus far been that 30 per cent of the innovation portfolio should consist of projects which have the objective of doing something that is new for the company, or even completely new for the world, rather than just approving and implementing projects that improve the existing a little at a time. And for many companies, that figure will be even higher now that COVID-19 is in the process of disrupting the world. For example, many managing directors are already talking about steep learning curves within virtual forms of collaboration, and how this will in future reduce the need for a lot of expensive and time-consuming business trips. For airlines, this will mean that the number of passengers – also after the COVID-19 pandemic – will fall compared to before the pandemic, and that they will not be able to grow by improving what they already have. Brand new products, services and business models will need to be designed, validated and scaled to future-proof companies in these sectors. A strong and authentic why can help all companies to provide a clear and forward-looking direction for their innovation efforts.
INNOVATION MUST BE DRIVEN BY EXPERIMENT
A strong why is important in creating a clear and forward-looking direction for business innovation efforts, and as stated above, the key to this may lie in revisiting the past and the birth of the company. Returning to the thought experiment about Post Danmark and what it might have become if it had focused on helping people communicate more easily with each other – this would have given the company a strong why that could potentially disrupt large sections of the market for business travel. Perhaps it would have been them and not Eric Yuan who established Zoom, which right now is one of the most popular platforms for making communication with one another easy. Maybe they would have invested in Skype back in 2003, when Janus Friis and Niklas Zennström built the foundation for their billion dollar success. It is easy to be wise after the event, and back then no one knew what the future would look like. And neither does anyone know what the time after COVID-19 will look like. Companies will therefore have to experiment their way into an unknown future, and that demands different innovation models than e.g. the Coopers Stage Gate model, which was launched in the late 1970s. Innovation models need to be more iterative, more experimental and more agile. At The Innovation Board, we are strong advocates of venture-based innovation models. The benefits of venture-based innovation models are that the innovation takes its starting point in the task that the customers and users wish to see resolved, that innovation comes to market from day one, and that the company can gradually, quickly and cheaply test and validate the most critical uncertainties associated with the innovation. For example, through an iterative cycle as illustrated in the figure below.
VALIDATE THE BUSINESS MODEL BEFORE SCALING
In his business model canvas, Alex Osterwalder has defined a total of nine categories of uncertainties, and it is of course important to validate them all. We recommend that companies design their experiments in a sequence, beginning with the commercial and user-oriented uncertainties and ending with the technical ones. In this way, you do not spend time and your innovation budget building something without knowing if someone will use it or buy it. A good sequence for conducting innovation-driven experiments is:
- To validate whether a defined target audience wants help in resolving the task which the company’s hypothesis says they want help with.
- To validate whether the idea resolves the task that the target group wants help to solve in a better way than the alternatives.
- To validate how much and how the target group wishes to pay for the company’s help in resolving the task.
- To validate whether the company can design, launch and scale the idea at a price that makes doing so profitable.
The sequence is crucial, and being able to design and validate a profitable business model for an idea is vital. And also more important than being able to scale the idea. The innovation projects and start-ups that placed more importance on scaling rather than finding a profitable business model crashed when the dot.com bubble burst in the year 2000. The same thing happened during the financial crisis of 2008, and it will happen again with the current pandemic. “Only when the tide goes out do you discover who’s been swimming naked,” as Warren Buffett says.