I recently re-read Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers. The book is available on Amazon.com, and you can currently download the first chapter of the book here. The goal of the book is to provide a useful framework and set of techniques for developing new business models. Reading it this past weekend also led me to reflect on the relationship between innovation and systematic approaches to business. As I have reflected on before, large corporations are often torn between two extremes: on the one hand the best way to control risk, to manage a large corporation, and to form incremental improvements is through systematization. On the other hand, such systems tend to reaffirm the status quo, and thereby stifle genuine innovation.
Business Model Generation is an attempt to develop a system that can lead to more innovative business models, and thus bridge these two extremes. The system the book presents is outlined in the first chapter, and it involves separating a corporation or business into 9 key components: a value proposition, key activities, key resources, customer relationships, distribution channels, customer segments, key partners, cost structure, and revenue streams. The different components are arranged on a "canvas" in which the value proposition is front and center, and it is possible to chart flows between components. The "canvas" helps one visualize different business models.
But the real value of the book is that it begins to augment this framework with actual examples of innovative business models and explains the trade-offs of each, and when it outlines design techniques that can be used to create new ones. The examples come from a wide range of industries. One reads about the contrasting approaches of the Maerki Baumann and Pictet banking institutions, how Telco unbundled the components of its infrastructure in order to better align its capabilities, how Lulu changed the publishing model, how Lego experiments with user-generated content, and how Nintendo Wii re-imagined the video game model. Apple and Google both have their requisite due. Metro's publishing model is explored. Red Hat is used to introduce the fremium model and Skype and Amazon are discussed. P&G's R&D gets significant attention, as does the classic Gillette bait and hook. All of these business models are related to the canvas developed in the first chapter, and it produces a type of alignment that allows one to see each innovative model as a general type. The presentation of each business model is entertaining and insightful.
After this rich list of examples, the book turns its attention to more in-depth discussion of some aspects of the design approach to business including brainstorming techniques, how to gain customer insights, the importance of storytelling, and ways of analyzing markets for strategy. All of these topics are covered in more depth in other books, and serious innovation designers may find them old-hat. However, as with the canvas developed earlier in the book, having all these techniques in one place, with quick efficient overviews can give even an experienced innovation designer a nice bird's eye view of the business model landscape.
When all of this is put together the team responsible for Business Model Generation has created an ideal way to get a quick overview of cutting-edge approaches to business design. I have actually used the book on several occasions now. It has helped me and a group of colleagues understand our own business much better than other techniques we have used. But the understanding is peculiar: I have found that although Business Model Generation is a useful read, the practical utility of the "canvas" presented in the beginning can be somewhat limited. The divisions that the 9 components of business force on a particular case can often be too restricting and feel unnatural. This effect oddly reminds me of David Trood's famous National Geographic photos in which David uses hundreds of photos to produce unified images. In both cases the resulting products end up giving you a general picture from which you can glean some insight, but one is struck by how much is lost in the resulting image. As in life we often learn more from differences than similarities.
The limitations of the framework reminded me of a philosophical work I studied in graduate school. René Descartes once set himself the task of providing a unified system for developing new ideas. He called it his Rules for the Direction of the Mind. At the time Descartes was already an accomplished mathematician and had solved several problems that had baffled mathematicians for centuries. He did this by developing new innovative techniques for solving problems, including imagining the line of a curve to be traced by a complicated mechanical machine. The results of such thought experiments were not immediately accepted by the mathematical community, but in a suitably translated version they became the basis for much of modern mathematics. (The best account of Descartes' mathematics is Henk Bos' Redefining Geometrical Exactness: Descartes' Transformation of the Early Modern Concept of Construction.) Having been extremely successful in mathematics, I assume Descartes thought it would be easy to develop a formal approach to creativity that could be applied in all instances. However, he soon abandoned his work, and left the book incomplete. Many theories have been offered for this, but I think it is very likely that he realized at a certain point that truly innovative solutions could not be codified or mechanized in such a formal manner. One has great difficulty formalizing the process of innovation.
I bring up the case of Descartes, because I think a similar phenomenon occurs any time one discusses innovation. A creative process generally ceases to be innovative the moment it is codified and mechanized. Even a system designed to produce random results, such as that of Ramon Llull, is rarely as effective as someone thinking creatively outside of the rules, whether it is through analogy, brainstorming, or applying an example from a very different domain. The best that one can do to capture this kind of innovative thinking is to review examples and develop rough techniques for thinking about problems.
To Business Model Generation's credit it is pleasantly situated between the extremes of random creative thinking and a mechanized and codified process that stifles innovation. It provides enough detail to stimulate thought, but does not attempt to develop it to the level of being a formalized and unresponsive framework. This means that the reader has a loose and flexible tool that she or he can use to think about their own businesses, and perhaps stumble on an insight that will lead to new, truly creative developments. But, it is important to understand that having a framework is only the beginning of the road to innovation.
P.S. I should add that one of the most fascinating aspects of the book is the innovative way in which it was written. You can find more on the book website here.
By @jfhannon, CEO at Justkul Inc., a research firm focused on the needs of strategy and private equity.