LEAN + Business Model Innovation = Success & Results

By Zahid Salam (worked since early 2000 and immersed ever since on business transformation, target operating models, business architecture, business model innovation, ideation, design thinking, Lean Six Sigma, agile thinking, and “all that jazz.” This paper represents real world issues encountered during assignments although various things have been altered)

(Business Model) Innovation + Lean Design & Development = Discovery of remarkable (even disruptive) business ideas and testing them to find the solution which works (all at high velocity)

Business model innovation is about discovering remarkable new tomorrows for your business or organisation in the guise of products, services, or re-inventing your business models. Lean (and Six Sigma) is about eliminating waste (and defects, and variation) – wastes of effort, time, budget, rework/failure, talent, and goodwill.

Simply put, the value proposition of Lean Design & Development is this:

To discover promising breakthrough opportunities and to test them in order to identify the right one(s) which will generate remarkable results. All at high-speed, rapidly, within a month (or weeks if in design sprint fashion).

You’ll have something great to talk about with strong (real) evidence at your next progress report meeting. And you’ll eat The Dragons for breakfast and the whole Shark Tank. At the same time ;-)

The field of practice in business model innovation is generating game-changing results. Companies and organisations in all sectors respecting, developing, and nurturing this skill are getting ahead. Business leaders and those with career aspirations paying attention to this discipline are differentiating their personal and knowledge capital which are making them more attractive to be identified to fill positions.

Mastery of this doesn't lie in the technical knowledge of business modelling (like the technical approach of traditional enterprise and business architecture which has alienated many), but instead relies upon giving due importance, consideration, and time, to see the multiple big pictures (inside and outside of your organisation-view), the visual story, the shared vision, the relationships and roles between factors and elements which create, pass, and receive value, and, learning-to-see, and empathizing with, how and why that value flows throughout the entire enterprise ecosystem (i.e. not just within or near the boundaries of your business).

Apply Lean (and even Design for Six Sigma (DFSS)) to: Innovate on your business model or create a remarkable one from scratch with the purpose of surprising the market, thrilling your customers, and seizing the “white space”.

Lean Thinking for Action Towards Business Model Innovation

I got trained and certified in Lean and Six Sigma a while back by Raytheon Space Systems (similar company to Lockheed Martin and Northrup Grumman), and also by BT. Since then, I’ve come across and worked with many practitioners of Lean and Six Sigma, and with egos (massively) big and small. The repeating pattern I’ve noticed is that Lean in particular is well understood and used by practitioners and organisations only within certain spaces and contexts: product or service improvement, operational excellence, and CI (continuous improvement). What happened to innovation and design? Product, Service, or Business Model innovation and design. Doesn’t Lean do that? Actually, the concepts of Lean design and development can and should be applied to discover new visionary business models and define remarkable changes to existing ones.

How is Lean used to identify and understand uncaptured customer value? How is Lean used to grow and scale that value within a sustainable business model?

Lean Design & Development is best used (and comes into its own) in the Research, Design, and Development phases of change. Discovering and selecting the right business model choices. Deciding on the best route fit for implementation and then ready for beta release (or pilot end-to-end service). And then scaling and growth. Choices, choices.

You may already have heard about or have Lean Teams deployed throughout your organisation. These teams can play the role of researching, designing, and developing the next innovations and breakthroughs for your business model. They can apply the Lean process to get you from: high level ideas, complexity, what-ifs, how might we, should we, are we, can we, ambiguity, assumptions, and uncertainty. From that divergent “problem space” to a point where ideas have been validated, field tested, and proven-to-work cases for investment. Fluffy clouds to concrete ideas and implementations.

However, typically these Lean teams are instructed and scoped only to handle “improvements” masquerading as cost-reduction exercises, resource-side waste elimination, internal defect reduction, sub-optimized process quality improvements, excellence of operations, and continuous improvement of business processes and mostly (albeit), running the status quo. That’s pretty much how Lean (and Six Sigma get positioned). Use is like that then you’re missing so much capability. It’s like those people who have things, but have no idea of what they can really do with it!

Often the scope of Lean is restricted to product and service improvements, omitting business model improvements and more importantly innovations i.e. new stuff. This means that there is a huge opportunity missed by most organisations deploying Lean. The organisations and teams who can unlock the value proposition which Lean Design and Development can give you in validating your big business model ideas, will win.

Here are some Lean concepts familiar to Innovation or Business Design Teams on the hunt for the next business model innovations and remarkable designs: Specifying value in the eyes of your customer; making value flow to satisfy that (genuine) value demand; upstream setup for downstream value flow (e.g. build, measure, learn); eliminating waste (time, money, effort across the 7 or 8 wastes); getting rid of non-value adding activity; process velocity of value-adding tasks; quality improvement rate and variation reduction; defect and risk reduction; doing more with less; doing the right things; doing the right things in the right way; and so on.   

Let’s explore 4 key concepts or features for innovating on your current business model. These are basic yet core areas where you and your Lean Teams can begin to strengthen, develop, and institutionalize them into your organisation culture (aiming for the unconsciously competent mode of operation).

It’s for you to try out, and it’s for you to discover the right innovation (or smart) initiative. This is Lean Thinking applied as Lean Design and Development. I think there is less value in explaining Lean concepts and Japanese terms (you can find many resources for that). It’s far better to demonstrate how Lean can provide both a mental long-term shift in thinking, and a bias towards action in your pursuit of finding smart next moves for your product, service, and ultimately your business model.

Concept #1: Follow the value. R.I.P: Typical strategic management practices are being superseded (made obsolete) by Wayfinding.

Your competition (incumbents as well as insurgents and disruptors) are doing this (i.e. wayfinding) to generate smarter moves. Gone or going are the days where strategy starts as a fully defined, neatly laid out in a bound embossed Strategy Paper, and concrete casted in a board room at a fixed point in time, to be "rolled out" from the top in waterfall sequential style for all to follow and execute.

The competition isn't doing this anymore. They've truly appreciated that tools and methodologies born and fit for use in the years of scientific management (production models) which still linger in the hearts and minds of old schoolers are not coping with today's context of agility, uncertainty, and internal and external complexities.

Value chains aren't linear chains anymore. They're webs and ecosystems. Value can originate from disparate players/actors and can be amplified in various combinations to capture business advantages.

Paying Customers aren't anymore the only stakeholders or actors that you need to respect and pay great attention to. Suppliers aren't servants at your beck and call anymore. They're value creating partners within their own contexts of value webs, the outcomes they seek, and they make intelligent choices in partnerships and alliances they make. Your value propositions to them will often be as important as the ones you have with your paying Customers.

Employees are not assets or resources anymore. They're dynamic packages of crucial and latent human talent with intelligent nano-bot self-repair like capabilities which need to be treated with care and respect. The employee journey, experiences, touch point moments, and the value propositions with which you attract and keep them keen with, cannot be ignored any longer.

Technology, Data, and Digital don't deliver instant business benefits (let alone continuous business benefits) anymore unless you understand how to weave and slot them in to your direction of travel and your business ecosystem. IT leaders can no longer afford to deliver on solutions but they are increasingly being asked to deliver on building strategic business capabilities.

Smart business model innovation ideas aren't coming from hierarchical structures anymore. They’re being generated where the action happens where staff “lower down the chain” have real knowledge and wisdom if anybody would care to listen and empower.

Innovation ideas are coming from nimble free-to-experiment design and innovation teams in labs which launch clumsy solutions to learn what works and what doesn't, which aren't intended to work first time. Business risk management isn't about the cleverest people identifying the permutations and combinations and mitigating risks in the cosmos anymore. It's now about accepting uncertainty and ambiguity and designing low fidelity experiments which are rapid learning vehicles which fail safely and provide crucial learning and feedback opportunities. There are no more “big risk, big investment” fail-safe designs and solutions that you will achieve in one single step, executed by the hero delivery lead. You must accept to have stabilisers (aka training wheels) fitted on your first wayfinding attempt, and be prepared to fall over, safely.

I could go on, but I think you get the point: That there are simply too many moving parts and emerging realisations that a pre-determined strategy can cope with.

Strategic management in effective, dynamic, and responsive organisations isn't a navigational act anymore. Where the C-suite says we're going from point A to destination point B via known and defined nodes. Instead there are various options which present various opportunities. It's the role of business model innovators and visionaries to discover and select the right options for redesigning and evolving current business models.

However, realising all of this isn't enough. Mental models of business teams involved in business strategy and planning, their perspectives, and dimensions of thinking, need to change first, which is often a cultural shift which many organisations will find hard to change in practice. But there is a need for change even if there isn’t the hunger for it. Doing your best isn’t enough. You must first know what to do, then do your best. Think big, start small, and scale fast.

Concept #2: Creative Opportunity Finding Vs. Analysis-paralysis: Use ideation and visual thinking to discover new opportunities and to play with business model patterns that matter.

“Designing a better future is your day job” (George Borst, former CEO, TFS). Ideation is a creative process used to get you or your team from mapping out your current business model and its environment, to designing a new and innovative one.

Ideation draws upon visual thinking to unleash both logic and emotion (in creative visualisations) to generate a large number of innovation ideas and then successfully isolating the best ones. Whether you’re designing value propositions, services, business models, or even complex challenges, ideation and visual thinking will greatly facilitate, communicate, and navigate from the current as-is state, to a future desired state. You should as centrepieces in ideation, use templates or canvases. These will help you build out alternative design options whether you use ideation in design thinking contexts, design sprints, or innovations in your products, services, and business model. Some useful tools for anchoring ideation are: the business model canvas, operating model canvas, value proposition canvas, empathy map, HMW (How Might We) structure, storytelling, scenario what-ifs, and the like. The ideation process can and should start with back-of-the-napkin sketches which are quick, easy, and very efficient to draw up. You will visualise many different ideas this way. As someone once said to me when I was in a design thinking sprint, “If one of those sketches is crap, no-one’s going to kill you cos it only took 10 minutes. But on the other hand if it took days, you’ll get sacked.” There are two golden rules to ideation:

(1) Make it rough and sketchy on purpose. At first make the focus on the areas that matter and which make a difference. Otherwise if you refine it too early and too precisely you'll become attached to it prematurely. (You can risk falling in love with it).

(2) Don’t dive into the details or make it detailed too early. Otherwise you'll lose critical perspective, and you'll miss related tangential opportunities and other (possibly better) options and value-adding combinations.

Concept #3: Think Big, Start Small, Scale Fast: Unlock remarkable results and value incrementally by nailing it before scaling it.

Product, Service, Business Model. If you limit your ideation and innovation thinking to only the Customer side of the business model you can miss some of the biggest and boldest opportunities available to you.

There is a difference between product innovation, service design innovation and business model innovation. Innovation in each of these areas sequentially will unlock value incrementally and increasingly as you innovate through those levels.

Simplistically, product innovation is about creating new products or modifying existing ones to possess features which WOW customers (i.e. deliver sought-after benefits, advantages, results, and outcomes, which can be economic, social, emotional, etc.). Service design innovation is about providing amazing experiences which thrill customers consequently generating a base of raving fans.

Business model innovation is about the creation and delivery of value in ways which are remarkable, game-changing, and ideally disruptive. Which of these are you currently mature in? Fast forward in time and consider multiple scenarios. Which of these will you need to become versed in to prevent undesirable consequences to your business? Remember the future of your business is subject to the known-knows (you know what you know), the known-unknowns (you know what you don’t know), and then the killer unknown-unknowns which are trending (you don’t know what you don’t know).

Unfortunately, I’ve seen many organisations address this by “bringing in Agile”, or Design Thinking, or Lean Design & Development. In reality it isn’t about the methodology, it’s about the value you’re trying to unlock with your team in using an approach or method. This is why many organisations adopt one or more of these methodologies, and unleash it upon the business problem they’re facing. The question is though, what problem are you trying to solve, or looking at it in another way, what opportunity are you trying to capture?

The thing with picking and choosing a methodology (which may be flavour of the month) is that, "If all you have is a hammer, then everything looks like a nail". The opportunity in front of you needs to be understood and defined in a business context first, and then the appropriate methodology applied. The common mistake is putting the cart in front of the horse. There is often pressure to do digital transformation because “everyone else is doing it, and you’ll get left behind”, or to bring in Data Science, Artificial Intelligence, Robotic Process Automation, or the latest thing, but without first figuring out the appropriate direction in which you want/need to take your business.

These types of transformations will be sub-optimal at best and an incoherent business model mess at worst which does not work as a whole. Figuring out how you’ll innovate in your products, services, and business model will define how you want to appear to your customers, what you will serve them, how and when, who you’ll partner with, what business capabilities you’ll buy and which you’ll retain-to-develop, and what resources you’ll grow, get from elsewhere, or do away with, and so on.

Once you’ve figured that out, a good coherent design will be easy to see. Good and coherent business design is a necessary prerequisite for the “shiny objects” mentioned above. These tools and techniques will help you decide on a coherent business model which can now act as a compelling and clear case for change to execute your business design in the right direction towards success. Speed is only useful if it’s in the right direction.    

Concept #4: Pin-point Your Distinguishing Characteristic: Understand your key (unique like) capabilities, cross-pollinate them, and continue to grow them.

There are aspects of your business model that are (value-generating) sources of advantage, which are resident in your business model, perhaps at superior levels to your competition or even uniquely. These are your key capabilities or differentiators. What you're good at doing (excel at), but also the differentiating qualities, attributes, and resources you possess or enjoy (like brand, infrastructure, or a raving fan base). In essence something you are great at doing, or resources/advantages you have access to, that another company would pay big money to buy from you. These are your differentiating capabilities right there. Ignore them at your peril.

For Marvel it was the access to its vast content re-imagined, re-segmented, and sequenced for a global 21st Century audience. The BBC are using a similar business model innovation strategy if you look closely. For Dyson it was the re-purposing of its air circulation technology to create room fans and air hair curlers to serve new market segments, leaving behind copy-cats of its vacuum innovation. "A better fighter is the one who can master and deploy a few techniques very well. Not the one who has many techniques but can master none", (Bruce Lee).

Innovating in your business model, and innovating it continuously is no longer a nice-to-have. It's a must-have if businesses want to stick around let alone grow. Business model innovation is the new operating zone for delivering products and services which will thrill your customers and confound (even dumbfound) your competitors. You will enjoy years of unrivalled success and growth until your competitors catch up. And when they do you'll already be executing your next business model innovation move. Continuously outsmarting and continuously growing.

So..

Lean and Six Sigma initiatives are typically implemented across the organisation in CI (continuous improvement and operations excellence fashion). But what about Lean and Six Sigma when it comes to research, design, and development of a choice of excellent business moves, which if taken could transform the position of your company in the eyes of your customer, the competition, and the market as a whole.

Lean and Six Sigma people will be familiar with the PDCA, DMAIC, and DMADV cycles, but your Lean team could approach business model innovation by continuously scanning the environment and the changes and the scenarios for potential changes within it using SWOT and PESTLE. This long-range radar will provide powerful input for ideation, visual thinking, and design thinking anchors to provide various solution options. Then, selected solutions (which are still only hypotheses based on assumptions) can be proto-typed and tested as MVPs (Minimum Viable Products) or MVSs (Minimum Viable Services) for validation.

Then, pivot at each stage of feedback and learning into new iterations of proto-types until viability is found. Then finally a Minimum Viable Business can be validated to prove that the innovation not only works, but can scale and generate sustained value.

Research-Design-Development Team Process:

Scan Environment -> Ideate Business Model Solutions -> Build Prototype -> Test -> Learn & Pivot

So pick your colleagues, discuss these ideas, build a small group which support this approach, call them to action, and get creative. Think big, start small, and scale fast.