Nonlinear Thinking

Business Models for Sustainable Consumption

Discovered an interesting report from the World Economic Forum published earlier this year discussing the need for new business models that are constructed on a platform of sustainable consumption.  The report offers a  “Business Case for Sustainability”  that provides “a cogent argument for sustainability as an issue that should be incorporated into the strategy and operations of business, not just as a matter of stakeholder responsibility but as a matter of business survival and value creation.”

 

Key elements of the business case include:

• Managing resource risks: Sustainability matters to business because it reduces exposure to volatile and rising resource prices, to the risk of increased scarcity of resources and to the risk that these (carbon, water, waste) are radically re-priced in the near future. Embracing models of sustainable consumption across the value chain will provide stronger resilience against external shocks.
• Shaping the regulatory environment: Principles of sustainability are increasingly being incorporated into the regulatory environment. If businesses wish to flourish in this environment, they must make themselves active participants in its construction.
• Engaging consumers as citizens: The biggest drivers of corporate sustainability investments are consumer concerns, employee interest and government legislation.8 For business, driving sustainable consumption can be an effective long-term strategy for deepening authentic engagement with consumers and employees.
• Engaging consumers as customers: Consumers increasingly want to be treated as customers, demanding not only more sustainable products and services, but also greater transparency over sourcing and content of existing ones. At the same time, the speed, spread and changing patterns of use of the media are forcing businesses to adopt pre-emptive strategies to manage their reputational risk on sustainability issues. Engaging proactively with the sustainable consumption is one way of managing these challenges in depth.
• Driving innovation: Businesses are the chief engines of value creation and innovation in society. The challenge of sustainable consumption presents an opportunity to enhance both, particularly when new partnerships and collaborations are opened along the value chain.
• Capturing opportunity: In the end, sustainable consumption matters to business because there will be winners and losers in the new economy, and those that move most swiftly are likely to reap the greatest benefits. Embracing sustainable consumption now offers a pathway to future markets and profitability.

What is made clear in the report is that continuing along a path of incremental adoption of today’s sustainability efforts will be insufficient as they are based on improvements to our existing model of consumption.  That model is, itself, unsustainable.  The graphic below illustrates the required shift from the traditional value chain to a closed loop value chain that incorporates reuse of consumed materials into the overall business model.

 

“The new normal for the global economy is one in which consumption is decoupled from negative environmental and social impacts, driven by a combination of innovation, evolving consumer values and more accurate product costs. In the end, it is not a world defined so much by scarcity and sacrifice, as a world defined by innovation and a new abundance.”

The “new normal” is an economy in which:     

• Consumers are the driving force 
• Consumption is about loops, not lines 
• Collaboration is a key
• Core business practices are sustainable    
• Public policy frameworks support sustainable consumption

Reports such as this support an emerging recognition, by early adopters at least, that those companies that are proactive in embracing sustainability will find themselves at a distinct operational, cost and branding advantage in the near future.

Sensing the Shifts and Taking Advantage

The analysis of trends and external drivers plays a critical role in my process for developing strategies and scenarios for industries and markets, products and services.  In a world that is moving/evolving/changing as rapidly as ours, it is fundamental to the construct of a viable and adaptable path forward that we incorporate an assessment of the potential and/or probable impacts that trends and drivers might have on our planning assumptions.

External driving forces are things/situation/events that manifest outside of the company and are by and large beyond the control of company leadership. Examples of external driving forces include changes to industry structure, revolutionary technologies, dynamic economic activity, evolving demographics, non-traditional competition, and political interference.

Trends very often emerge as the result of external drivers.  Identifying and assessing emerging trends is fundamental to establishing some understanding of new market opportunities that lead to innovation in products and services.  For a corporate strategy to remain reliable and relevant it must integrate a recognition of the company’s internal drivers and core competencies with knowledge of industry structure and the external drivers/trends that create change and opportunity.

 

McKinsey and Company have always possessed the intellectual bandwidth to identify the macro-level trends that will impact our lives, business and governments before most others see them.  They have recently identified five forces, or crucibles, where the stresses and tensions will be greatest and thus offer the richest opportunities for companies to innovate and change:

The great rebalancing. The coming decade will be the first in 200 years when emerging-market countries contribute more growth than the developed ones. This growth will not only create a wave of new middle-class consumers but also drive profound innovations in product design, market infrastructure, and value chains.

The productivity imperative. Developed-world economies will need to generate pronounced gains in productivity to power continued economic growth. The most dramatic innovations in the Western world are likely to be those that accelerate economic productivity.

The global grid. The global economy is growing ever more connected. Complex flows of capital, goods, information, and people are creating an interlinked network that spans geographies, social groups, and economies in ways that permit large-scale interactions at any moment. This expanding grid is seeding new business models and accelerating the pace of innovation. It also makes destabilizing cycles of volatility more likely.

Pricing the planet.  A collision is shaping up among the rising demand for resources, constrained supplies, and changing social attitudes toward environmental protection. The next decade will see an increased focus on resource productivity, the emergence of substantial clean-tech industries, and regulatory initiatives.

The market state. The often contradictory demands of driving economic growth and providing the necessary safety nets to maintain social stability have put governments under extraordinary pressure. Globalization applies additional heat: how will distinctly national entities govern in an increasingly globalized world?

 

Crowdsourcing for Innovation

One of the key challenges faced by almost every middle market enterprise is that of continuous innovation.  Whether we refer to business model innovation, product and/or service innovation, marketing/selling innovation or any other process, the ability to achieve real innovation rests on an almost insurmountable need to invest human, financial and, sometimes, structural capital that middle market enterprises generally don’t possess. But, there is a way.

The emerging process of “crowdsourcing” provides an avenue for creativity and innovation by tapping the power of the Internet and social media. According to Wikipedia, “crowdsourcing is a neologism for the act of taking tasks traditionally performed by an employee or contractor, and outsourcing them to a group of people or community, through an "open call" to a large group of people (a crowd) asking for contributions.” The community that sprang up around the development of Linux is a benchmark example of the success of crowdsourcing. The process of crowdsourcing is viable for any number and genre of tasks that might benefit from a varied and populous creative resource.  This includes developing new technologies, designing new products or analyzing huge amounts of data/information. Crowdsourcing can shorten time to market for new products, uncover ways to cut costs or improve service levels, and heighten market success for new products or enhancements.

The global economy remains challenging for businesses of all sizes, but particularly for those in the SMB market.  The notion of leveraging Web 2.0 technologies to harness the potential of tens or hundreds of thousands of talented and knowledgeable individuals in a forum for mass collaboration is the essence of crowdsourcing.  While the challenges may be local, the solutions could very well be global and make the difference for middle market firms looking for sustainable channel for competitive differentiation.

Critical to success in this emerging model is precise articulation of the objective.  Achieving that, companies can then access thousands of people possessing design, engineering, R & D and promotional skills that are simply not available to firms that are reticent to staff up in the current environment.  Crowdsourcing is not risk-free.  Participants are not employees and, thus, are not subject to enterprises’ established policies, procedures and controls.  That may be a small price to pay to access critical competencies in a cost-effective and expeditious manner.

A Night At the Opera

Not the Marx Brothers movie nor the classic album by Queen, I am referring to one of the coolest technology platforms and business models I have come across in a while.  Norway's Opera has just released their 10 Beta browser which advances further their agenda of defining and delivering on a ubiquitous platform for personal and professional computing.  Nothing is more exciting than seeing a company build a business model based on stretching the boundaries of what has come before.

Opera's vision is to deliver the best Internet experience on any device.  Opera's key business objective is to earn global leadership in the market for PC/desktops and embedded products.  Opera's main business strategy is to provide a browser that operates across devices, platforms and operating systems, and can deliver a faster, more stable and flexible Internet experience than its competitors.

To explore the full spectrum of what Opera has created, you can visit them at http://www.opera.com/

or check out this visual evocation of their One Web platform.

Challenges to World Class Innovation

Prophet is a global consultancy that helps senior marketers more effectively use branding, marketing and innovation to drive profitable growth.  Their 2008 Best Practices Study, “The Making of World-Class Innovators” outlined the continuing challenges that enterprises, and senior management, face when the need to innovate meets the challenge of change.

A variety of issues make tapping into innovation’s potential benefits problematic:

• While 70 percent of corporate leaders count innovation among their top three priorities for driving growth, 65% of them are not confident in their ability to execute.
• Senior executive satisfaction with returns on innovation is declining - to 46% in 2007 from 52% in 2006.
• Some 35 percent of global CEOs surveyed cite an “unsupportive climate and culture” as the greatest barrier to innovation.

The study uncovered some underlying principles from the best practices of firms that have come the furthest in meeting the innovation imperative:

1. Become a catalyst.  Inspire and engage others regardless of your role in the organization.
2. Get and stay connected.  An innovation ecosystem has no limits or borders, and is best built on the broadest possible base.  Internal and external networks of sources must be tapped and powered to unleash a rich flow of ideas.
3. Articulate your strategy.  Go beyond platitudes and buzzwords to ensure employees hear it and believe it - and understand how they’ve been empowered to live it.
4. Encourage teams to execute.  An empowered team will see the challenge through to completion when given the tools and the incentives to act.
5. “Test and learn” your promising innovations.  To innovate successfully requires acceptance that there’s more you don’t know than you do, and an openness to the risk that learning more may entail.

BCG's Innovation 2008

The Boston Consulting Group, in partnership with BusinessWeek, has released their fifth annual report on innovation, “Innovation 2008: Is the Tide Turning?” The report covers the entirety of the innovation processes that are critical to turning ideas into financial returns including idea generation, new product development, portfolio and life-cycle management, organizational alignment and demands on leaders.

As always, the BCG report provides some great insights on the state of innovation in business.  Key findings from the report include the following:

• Innovation remains at or near the top of most companies’ agendas, with the majority (66%) considering it one of their three most important strategic priorities.
• Fewer than half of executives (43%) are satisfied with the financial return on their investment in innovation.
• Rising dissatisfaction with the return on their investments in innovation may be taking a toll on companies’ willingness to spend
• Executives consider lengthy development times, a risk-averse corporate culture, difficulty selecting the right ideas to commercialize, and a lack of internal coordination to be the biggest factors driving down the return on innovation spending.
• For the second straight year, executives ranked Apple, Google and Toyota the world’s three most innovative companies, with Apple once again on top.
• Most companies have the means to greatly boost their return on innovation spending and, in the process, gain a decisive competitive advantage but few are acting with the commitment necessary to achieve that.

There is much excellent detail in the report supporting these observations. It is a bit discomforting that the reality or perception of innovation’s poor return on investment continues to be a mainstream meme.  The trend of the past few years showing continued erosion in satisfaction levels with the return on innovation combined with a deceleration in the rate of investment in innovation suggests that many companies are finding it difficult to establish sustainable innovation programs. 

On the other hand, it is good to see that innovation remains top of mind with companies, whatever the issues with measuring it’s success. With product and service life-cycles growing ever shorter and investments in human, intellectual and structural capital being constantly challenged by macro-economic drivers that are often out of their control, enterprises must invest more in innovation, not less.

Full of insight and some good charts, you can read the whole report here.

The Masters of Business Imagination

Jim Carroll appears to be on the warpath. He ardently believes that our traditional ways of thinking about business, and the skills that support that thinking, are obsolete.  To that end, he has created a manifesto for The Masters of Business Imagination aka The Masters of Business Innovation. I think it is both a fun and a smart read as he takes on the premise of our MBA-centric business environment by proposing that a new, forward-looking, innovative set of skills are needed for success in the emerging global economy.  In Jim's words:

Complacency in a time of rapid, disruptive change can be a death sentence - not only for organizations, but for the careers and skills of those who work there! 

It's time to abandon the thinking that has had you anchored firmly to the past - and to shift your focus to the future, with enthusiasm, motivation and imagination.

You can do this by abandoning any pretense that the skills of yesterday will be important tomorrow. Figuratively and literally, it is time to move beyond the thinking that has led us to a world of MBA's - Masters of Business Administration - and focus upon the critical skill that will take you into tomorrow.

The world doesn't need more administrators. It needs more MBI's - Masters of Business Imagination!

Carroll identifies the core attributes and attitudes which individuals awarded with the new degree should possess.  You can read his Masters of Business Innovation Outline document here and, in PDF form, here.

Changing the Architecture of Our Revenues

John Seely Brown has, for almost four decades, been one of information technologies' true visionaries.  A recent, fresh review of his 1997 compilation of articles by thought leaders of the day, Seeing Things Differently: Insights on Innovation, uncovered this prescient thought on business model innovation:

"To do things differently, we must learn to see things differently. Seeing differently means learning to question the conceptual lenses through which we view and frame the world, our businesses, our core competencies, our competitive advantage, and our business models... If there is anything actually coming into focus today, it is the realization that we need to question much of what we think we know about how to conduct commerce, including marketing, distribution, service and the notion of competition itself. Hardest of all, we need to be able to think about changing the architecture of our revenue streams, that is, the way we make money." 

Though published prior to the mainstreaming of the Internet revolution and the reordering of the cosmos, much of the book retains currency in this era of globalization, dynamic commerce ecosystems, social networks and on-demand delivery of services.

Advances in technology in general, and information-related technologies in particular, continue apace.  It can be difficult sometimes separating the real from the imagined, but for those enterprises that do not understand or, worse still, fail to embrace the changes/opportunities that are manifest in this environment, life can become brutal pretty quickly.  The quote above speaks to the importance of constantly assessing, testing, reframing and reinventing your business model.

The Desk of the Future

Walls are absolutely indispensable to the processes of brainstorming, strategy development, and innovation. If you are casting your conceptual net widely enough, it becomes extraordinarily difficult to organize all the issues and understand the linkages between and among them.  I rarely get too far into the process before throwing everything up on the nearest wall to help codify and clarify my thoughts. Thus, this presentation from Alex Osterwalder resonated deeply.

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More on Innovation from OVO

I have commented before on OVO, a firm that is on the front lines in promoting innovation and the processes that deliver sustained innovation in enterprises. In their May newsletter, OVO Views - Conversations About Innovation, they addressed one particular topic that I thought was extremely important and worth passing on - Important Criteria for An Innovation Leader.

There are a number of characteristics we have found in innovation leaders who have been successful. Conversely, at least one of these and characteristics has been lacking in less successful innovation team leaders. Let's examine five key criteria for successful innovation leadership and why we believe they are important.

Desire

Some people grow up wanting to be accountants. Some grow up wanting to be engineers. Everybody starts out in life wanting to create the next "new" thing, but somewhere along the lines many of us give up on that dream. Individuals who are successful at leading innovation teams have a desire and innate belief that they can not only envision new products and services, but they can implement those ideas successfully. They've never lost the dream or the desire to innovate.

Several individuals we've worked with who were "assigned" to the innovation lead were less than successful because they viewed the assignment as a job and did not have the desire to innovate.

Innovation leadership a job that requires volunteers who have a desire to innovate. Innovation leadership can't be easily assigned.

Vision

Successful innovation leaders have a vision of what they can accomplish. Often, that vision is shaped with senior executives who map out corporate strategy and the innovation leader uses that strategy to inform his or her innovation goals. Sometimes innovation simply bubbles up from a mid-level innovator with great vision that takes over, supersedes or reinforces strategic vision from the executive team. Innovation leaders need to be able to craft a vision of the future, identify opportunities and communicate this vision to the organization and innovation teams. 

An innovation leader has a specific vision to drive innovation in his or her business, and aligns that vision with the strategic intent of the business

Commitment

Innovation leaders must be fully committed to the success of the innovation initiative or program, and must have the time and resources necessary to engage the work effectively. Part-time innovation leaders eventually become full-time "day job" participants. Innovators with desire and vision will find the time and resources to get the job done, but will be hampered if they do not have the "blessing" of the leadership team. Good innovation leaders are fully committed to a task that has a significant amount of risk and will face organizational headwinds because it creates change and uncertainty.

The story of the chicken and the pig at breakfast comes to mind. At breakfast, the chicken is involved (eggs) but the pig is committed (bacon). Innovation leaders can't have "chicken" commitment.

We don't expect a CFO or CEO to be part time, so why would we expect an innovation leader to shoulder an important responsibility on a part time basis?

Fearlessness

Good innovations often fail, for many reasons. Yet that failure should not stop the firm from trying again. Innovation likewise can be fraught with risk or uncertainty. Innovations may require that a firm cannibalize its existing market or products, or disrupt a competitor. Good innovation leaders recognize the amount of change and risk inherent in innovation, and are willing to challenge the status quo and are willing to face the risks of change and uncertainty, with the knowledge that many of the new products and services will fail. 

Good innovation leaders do not succeed by trying not to fail.

Communication

Good innovation leaders are constant communicators - finding the channels and messages that best relay the intent and message of innovation to the broader audience. Since innovation creates uncertainty and change, people throughout the organization must understand the goals of innovation and the rationale behind the activities of the innovation teams. A good innovation leader is constantly communicating what is happening and why. Without good communication, an innovation team may seem more like a "wild hare", unfocused and dangerous to the rest of the organization.

Innovation happens in firms where clear goals exist and people understand how innovation aligns to those goals.