What is the secret of business longevity? Many organizations rightly focus on fostering innovation and invention to capture new markets and boost profitability, yet reinvention may be a more sustainable formula for staying on top.
Packed with real-life examples, this week’s reading recommendation equips you with the blueprint to build a resilient corporate culture that embraces both innovation and reinvention, ensuring your organization’s long-term success.
Many organizations rightly focus on fostering innovation and invention to capture new markets and boost profitability, yet reinvention may be the secret of longevity. Companies that explore new endeavors while improving their existing business create strong portfolios that can withstand internal and external pressure. Alex Osterwalder, Yves Pigneur, Fred Etiemble and Alan Smith’s captivating guide introduces practical mapping tools and detailed examples from dozens of organizations to show you how to lead work groups that capitalize on innovative ideas while strengthening your existing business models.
- Organizations that seek growth opportunities while improving their existing business models safeguard against disruption. This requires two portfolios.
- The Explore portfolio: Create an environment that systematically develops new growth opportunities.
- The Exploit portfolio: Continually examine your current business models to increase profitability and remain relevant.
- Promulgate clearly defined strategies to guide your Explore and Exploit portfolios.
- Strategically guide projects in the Explore portfolio to increase profitability and reduce risk and uncertainty.
- Manage the Exploit portfolio to assess current performance and improve value propositions.
- Employ the Business Model Canvas, which offers repeatable patterns you can use to advance new and existing business ventures.
- Intentionally define a corporate culture that embraces resilience.
Organizations that seek growth opportunities while improving their existing business models safeguard against disruption. This requires two portfolios.
All companies experience threats to their business. Disruptive start-ups, new technologies and shifting customer preferences can jeopardize even the strongest products. Companies that innovate with new products while renewing existing lines of business are in the best position to withstand these existential threats. Successful companies must manage two distinct portfolios to build and strengthen their business models:
- The “Explore portfolio” – Focus on new ideas and innovation measured according to your firm’s anticipated return on investment (ROI) and its level of tolerance for uncertainty and risk.
- The “Exploit portfolio” – Improve existing business models using metrics that show financial, social or environmental benefits as well as your company’s vulnerability to disruption and changing economic conditions.
“Invincible Companies…keep a culture of Day One, maintaining a start-up spirit, while managing thousands or even hundreds of thousands of people and multibillion-dollar businesses.”
The Explore portfolio focuses on iterative experimentation, with the goal of finding new ideas that potentially will yield strong financial returns. By contrast, the Exploit portfolio focuses on using strategic planning to bolster the steady, predictable returns of existing product lines. Each team requires different staffing: Assign innovators to projects aimed at exploring new ideas, and appoint strong organizers and planners to projects focused on improving existing business models.
The Explore portfolio: Create an environment that systematically develops new growth opportunities.
The Bosch Group established the Accelerator Program in its Business Model Innovation Department to jump-start new technology and innovation projects. It funds multiple project teams that experiment with new ideas and test them for consumer interest and product viability. Teams that achieve initial success receive additional time and resources. Fewer than 10% of the program’s projects move into development, yet the company finds that its overall experimentation and refinement process leads to faster turnarounds and more innovation.
Like other companies, Bosch learned that innovation rarely follows a straight line from the initial idea to a consumer-ready product and that limiting yourself to a very short list of ideas from the start closes off potential opportunities. Instead, support dozens of ideas, then winnow them down slowly, letting the best ideas reveal themselves through testing.
“No company is invincible. Those that come closest are the ones that constantly reinvent themselves in the face of a disruption.”
New business models evolve through iterative testing, validation and refinement. Organizations can achieve a successful innovation process by implementing specific actions:
- Generate ideas – Develop ideas as potential opportunities and value propositions.
- Offer resources – Provide time, staff, funding and other resources to chosen projects.
- Be persistent – Persist in testing ideas that show early promise.
- Be agile – You may need to significantly change part of your business model depending on test results.
- Know when to quit – Abandon an idea when it proves to be a poor strategic fit.
- Cash out – Sell a promising yet high-risk idea to external investors.
- Make the transition – Move a proven idea into the organization’s Exploit portfolio, either as an addition to an existing product line or as a stand-alone venture.
The Exploit portfolio: Continually examine your current business models to increase profitability and remain relevant.
Organizations face both internal and external risks to their existing portfolios. If a company focuses primarily on competing with other businesses in terms of products, services or prices, it makes itself more vulnerable than firms that focus on constructing superior business models. External forces, such as waning consumer interest, disruptive technology and increased competition can also threaten a product line’s viability.
Recognizing these realities, Nestlé assessed the strengths and weaknesses in its existing business categories, such as beverages, pet care and nutrition. It moved to acquire a global license from Starbucks to boost its beverage line, enhanced its Gerber baby food products and sold its Gerber Life Insurance brand.
Executives can take one or more of these steps to bolster their existing business models:
- Purchase an extension – Buy a business to enhance the overall portfolio.
- Create a partnership – Join forces with an outside business to boost a product line.
- Acquire an asset – Partially or fully buy into an outside company.
- Make it better – Upgrade an existing product to capitalize on shifting market trends.
- Find a merger – Combine an acquired business with an existing product.
- Go to market – Sell a product line to another company or an investor.
- Call a halt – Retire an existing product line.
Companies need to support separate Explore and Exploit functions within their organization, since each requires a different mind-set.
“The journey in the Exploit portfolio is one of growth and decline of a business. The aim is to continuously prevent existing business models from declining by protecting, improving and reinventing them.”
Managing these two portfolios differently offers leaders opportunities to evaluate new ideas while refining existing product lines, all while strengthening their businesses against external threats and disruption.
Promulgate clearly defined strategies to guide your Explore and Exploit portfolios.
Executives who manage business models must define their organization’s corporate identity and integrate that identity with its strategy, culture and image. Peter Ma exemplified this approach in 2008 when he recognized the vulnerabilities of the financial services company he had founded two decades earlier, Ping An Insurance. The global financial crisis prompted Ma to branch out into other sectors, such as health care and smart-city ecosystems. He used a three-pronged approach tied to the company’s revamped corporate identity, which focused on building resilience. His approach incorporated:
- Strategy – Ping An shifted its corporate objectives from providing insurance and banking services to offering technology solutions to multiple sectors.
- Culture – The company integrated a start-up mind-set into its corporate culture; this redefined its leaders’ values and guided its technological transformation.
- Branding – Ping An’s evolution to a fintech company necessitated rebranding to gain recognition across industries.
Portfolio guidance requires leaders and teams to look for opportunities to improve existing business models or to create new ones for future growth.
“Invincible Companies strategically guide, diversify, measure and act upon their portfolio of existing and potential new businesses simultaneously.”
Overall, executives should steer their organizations toward desired markets and technologies by defining their corporation’s identity and prescribing the necessary resources and skills. Leaders must also determine when and how to integrate successful innovation projects with existing businesses.
Strategically guide projects in the Explore portfolio to increase profitability and reduce risk and uncertainty.
Explore portfolio teams aim to produce new products or services that translate into a corporate value proposition that offers high potential returns and low risk. However, the progression from idea to profitable business follows an uncertain, nonlinear path with no guarantee of success.
To reduce uncertainty, teams iteratively test and refine ideas in two processes:
- Design loop – Individuals and teams develop ideas, create prototypes and analyze each design’s strengths and weaknesses, with a focus on learning and adapting.
- Testing loop – Individuals and teams outline their assumptions, experiment to produce evidence and analyze the results, with a focus on reducing risk.
At any point in the process, the company can allocate additional resources to ideas that generate encouraging results. This allows its team to continue to design and test. Likewise, teams abandon ideas that fail to show promise.
“In innovation, the main task is not to measure if you are on time and on budget…it is crucial to measure whether you are reducing the risk and uncertainty of new business ideas before you invest big and scale.”
Teams track the progress of their individual projects by documenting each hypothesis with test results, costs, insights, confidence levels and next steps. Detailed metrics ensure consistency across multiple innovative projects and give leaders the ability to assess potential returns by presenting a picture of the entire portfolio of projects. Additional metrics should offer insights into the project’s strategic alignment with the organization’s corporate strategy and identity.
Manage the Exploit portfolio to assess current performance and improve value propositions.
Microsoft CEO Satya Nadella recognized the consumer trend away from PCs to smaller devices, such as phones and tablets. He subsequently redefined the company’s corporate identity, adopting a growth mind-set strategy to develop cloud platform technology and build partnerships with other technology companies. Microsoft applied this strategic shift to its existing products using Exploit portfolio actions. It bought GitHub and LinkedIn; it upgraded Office and Azure; and it disassembled Nokia.
In 2010, Unilever shifted its corporate identity to “Sustainable Living” and repositioned many of its existing consumer brands to reflect this purpose-driven standard. Like many organizations, Microsoft and Unilever recognized that to deflect disruption, they had to invest in evaluating the strengths of their existing business models (just as they had evaluated their innovation projects) to reduce any risks they posed to the corporation’s viability.
“Shifting to a new business model is very risky, because uncertainty whether it will work is high. However, if you apply the testing process and principles from the Explore portfolio you can substantially reduce the risk of shifting toward something that will not work.”
Assessing existing business models involves measuring performance, which includes applying metrics on product quality, customer retention and contribution to profits. It also means analyzing market trends, which involves assessing competition, new technologies and any risks stemming from evolving economic conditions. While building on an existing business model carries the advantage of already understanding its customer base and technologies, many organizations fail to evaluate existing models objectively, and thus, end up with outdated businesses.
Employ the Business Model Canvas, which offers repeatable patterns you can use to advance new and existing business ventures.
Innovators and product managers alike use patterns to design new business models or perfect existing ones. The Business Model Canvas template covers three areas:
- Back end – This includes product design, resources, technology and value chain partners.
- Front end – This considers customer loyalty, delivery channels, markets, and social and cultural trends.
- Cost and revenue considerations – This focuses on business viability and profitability.
Leaders can learn how to invent and improve their business models by analyzing the patterns of different businesses. For instance, The Dollar Shave Club sells men’s shaving products. In 2012, it disrupted the industry by marketing directly to consumers. From the perspective of the Business Model Canvas, the company focused on disrupting front-end channels by selling online, bypassing retailers and creating a better customer experience. In another example, furniture retailer IKEA found success in back-end disruption: It streamlines production and reduces storage and staffing costs by prepackaging modular pieces for customers to assemble post-purchase.
Intentionally define a corporate culture that embraces resilience.
Invincible companies don’t just happen.Leaders must advance the dual cultures of exploration and exploitation to adapt their business models to their markets. An effective exploration culture accepts failure and embraces iterative testing and refinement to build a successful project. The exploitation culture, by contrast, depends on disciplined planning and reliable delivery. An organization’s corporate identity – its beliefs, policies, behaviors and goals – should enable both portfolios to flourish.
“Leaders do not create growth; leaders create conditions for growth.”
Leaders can map their organization’s behavior to identify any corporate factors that inhibit growth. For example, if managers say time constraints prevent them from developing new ideas, executives can create a separate innovation channel and strategy. When organizations balance innovative skills and attitudes with the discipline and energy to improve existing models, they build the foundation needed to resist disruption and thrive over the long term.
About the author
Alex Osterwalder and Yves Pigneur invented the Business Model Canvas, the Value Proposition Canvas and the Business Portfolio Map. Osterwalder and Alan Smith cofounded Strategyzer, an innovation consultancy, where Fred Etiemble is an associate partner. Osterwaler, Pigneur, Smith and Gregory Bernarda cowrote Value Proposition Design. Osterwalder and Pigneur coauthored Business Model Generation; and Osterwalder and David J. Bland wrote Testing Business Ideas.
Business, Entrepreneurship, Management, Nonfiction, Leadership, Design, Literary Fiction
Table of Contents
The Portfolio Map p. 10
Explore Portfolio p. 14
Exploit Portfolio p. 27
Explore and Exploit p. 37
Strategic Guidance p. 50
Explore Portfolio Management p. 70
Exploit Portfolio Management p. 109
3 Invent Pattern Library
Frontstage Disruption p. 142
Backstage Disruption p. 162
Profit formula Disruption p. 188
Assessment Questions for Leaders p. 212
4 Improve Pattern Library
Value Proposition Shifts p. 230
Frontstage Driven Shifts p. 242
Backstage Driven Shifts p. 254
Profit Formula Driven Shifts p. 266
Questions for Leaders p. 280
The Culture Map p. 296
Designing an Exploration Culture p. 308
Innovation Culture Readiness Assessment p. 314
Simply being the best is no longer enough. Companies whose willingness to change is embedded in their business model are winning the competition today. In the fourth book in the Strategyzer series, Alex Osterwalder and his co-authors Yves Pignet, Fred Etiembele and Alan Smith describe the adaptation strategies of successful companies that have reinvented their business models time and again: Amazon, IKEA, Airbnb, Microsoft, Logitech, Zara and others. Using their examples, you’ll learn how to shape and apply a portfolio of business models, implement and sustain a culture of innovation to continuously fuel your business with new ideas and make it unbeatable.
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The long-awaited follow-up to the international bestsellers, Business Model Generation and Value Proposition Design
Alex Osterwalder and Yves Pigneurs’ Business Model Canvas changed the way the world creates and plans new business models. It has been used by corporations and startups and consultants around the world and is taught in hundreds of universities. After years of researching how the world’s best companies develop, test, and scale new business models, the authors have produced their definitive work. The Invincible Company explains what every organization can learn from the business models of the world’s most exciting companies.
The book explains how companies such as Amazon, IKEA, Airbnb, Microsoft, and Logitech, have been able to create immensely successful businesses and disrupt entire industries. At the core of these successes are not just great products and services, but profitable, innovative business models–and the ability to improve existing business models while consistently launching new ones.
The Invincible Company presents practical new tools for measuring, managing, and accelerating innovation, and strategies for reducing risk when launching new business models. Serving as a blueprint for your growth strategy, The Invincible Company explains how to constantly stay ahead of your competition.
In-depth chapters explain how to create new growth engines, change how products and services are created and delivered, extract maximum profit from each type of business model, and much more. New tools—such as the Business Model Portfolio Map, Innovation Metrics, Innovation Strategy Framework, and the Culture Map—enable readers to understand how to design invincible companies.
The Invincible Company:
- Helps large and small companies build their growth strategy and manage their core simultaneously
- Explains the world’s best modern and historic business models
- Provides tools to assess your business model, innovation readiness, and all of your innovation projects
Presented in striking 4-color, and packed with practical visuals and tools, The Invincible Company is a must-have book for business leaders, entrepreneurs, and innovation professionals.
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This handbook features the leadership toolkit decision makers, innovators, and entrepreneurs need in order to build The Invincible Company.
Strategic Guidance: Decide where to compete and what strategic decisions are required. Build a disruption-proof business.
Business Portfolio: Manage your portfolio of new ideas and business model improvements with the Portfolio Map. Build a solid innovation funnel to constantly reinvent your business(es), while measuring and reducing risk and uncertainty.
Innovation Culture: Assess your innovation readiness and build a world-class innovation culture with the Culture Map.
Business Model Patterns: Compete with superior business models―not just product, service, technology, and price.
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The Invincible Company is the latest book by Alex Osterwalder and Yves Pigneur, authors of the international bestselling Strategyzer book series and the minds behind some of the most innovative business model tools that have changed the way the world creates new products.
The Invincible Company decodes how some of the world’s most successful companies managed to build superior business models and reinvent themselves while others have failed.
Together with coauthors Frederic Etiemble and Alan Smith, Osterwalder and Pigneur draw on years of research and practice to reveal how companies such as Amazon, Ping An, Airbnb, Microsoft, and Logitech have been able to disrupt industries, turn themselves around, and build resilient organizations that are able to reinvent themselves constantly. The authors show how “the invincible company” is equally equipped to search and explore new opportunities to exploit and grow existing businesses.
New Tools in the Book
Portfolio Map: The book builds on a new tool, The Portfolio Map, that helps leaders of large and small companies manage a portfolio of new ideas and existing businesses simultaneously. The Map is completed with a suite of practical tools to reduce the risk and uncertainty of exploring new business opportunities.
Business Model Patterns: The content doesn’t stop there. The book outlines a library of 21 business model patterns that Invincible Companies use to compete beyond great products and services or to shift outmoded business models to superior ones. Discover the patterns and questions for leaders to improve your own business model.
Innovation Culture Readiness: The last section of the book helps you ask nine innovation culture readiness questions and learn what you need to do in order to implement an innovation culture.
The Three Characteristics of an Invincible Company
They Build a Capability for Constant Reinvention: Invincible Companies constantly reinvent themselves by exploring a portfolio of new business ideas to stay ahead of everybody else and beat disruption.
They Compete on Superior Business Models: Invincible Companies compete on superior business models, not just product, service, or technology.
They Transcend Industry Boundaries: Invincible Companies are increasingly able to transcend traditional industry boundaries.