Sunday, March 7, 2010

Seizing the White Space (2010)

The book, Seizing the White Space: Business Model Innovation for Growth and Renewalby Mark W. Johnson, is a rather quick read and primarily for people who have not read Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengersby Alex Osterwalder, Blue Ocean Strategy: How to Create Uncontested Market Space and Make Competition Irrelevantby W. Chan Kim and Renée Mauborgne, and Clayton M. Christensen's The Innovator's Dilemma.

For people who have followed the development of the business model concept, and read case studies such as Southwest Airlines, Hilti, Xerox, Kodak, DEC, FedEx, and Tata, this book is a bit of a disappointment. I looked forward to reading this book and wanted it to be a 5 star experience, but after reading it I have more questions about the author and the writing of the book, than about any new content or ideas.

The book in three bullet points:
  • It presents the concept "White Space" defined as an area where new or existing customers are served in fundamentally different ways and there is a poor fit with the current (incumbent) organization; "The range of potential activities not defined or addressed by the company's current business model".
  • It provides a business model framework, "The four box business model", comprising a customer value proposition, a profit formula and key resources and processes, very similar to the model presented in the 2008 HBR article Reinventing Your Business Modelby Mark W. Johnson, Clayton M. Christensen, and Henning Kagermann, with the focus point on the customers' job-to-be-done .
  • It briefly explores the circumstances when a new business model might be needed, being when you must change your current profit formula (overhead cost structure, resource velocity or both), develop many new kinds of key resources and processes, and/or create fundamentally different core metrics, rules and norms to run your business.
A brief summary of the different chapters:

1. The White Space and Business Model Innovation
Introductory discussion on core vs. non-core business, defining the white space that lies far outside an organization's usual way of working, where assumptions are high and knowledge is low. In contrast to the Blue Ocean concept, described in the book Blue Ocean Strategy by W. Chan Kim and Renée Mauborgne, (not mentioned in Seizing the White Space), the white space focus on what a specific organization can do, whereas blue ocean is about doing things differently than competition to be in uncontested markets. In the first chapter Mark includes a nice table on companies founded in the last quarter century that have entered the Fortune 500 in the last decade.

The book contains some questionable statements without references or discussion and chapter one is no exception: "Most successful innovative business models are forged by start-ups" (p. 18) - I would like to see the reference and discussion (and definition of "successful", "innovative" and "start-up") as most examples and discussions covered in this book are not on start-ups.

2. The Four-Box Business Model Framework
The chapter starts off with the discussion about the lack of a shared vocabulary, "No one to my knowledge squarely focuses on the elements in the business system that are central to value's creation and delivery and the way those elements work together to ensure or impede the overall success of the enterprise" (p. 23) I laughed out loud when I read the references related to the statement above, all from the same page: Peter Drucker (Harvard Business Review), Joan Magretta (Harvard Business School, former strategy editor Harvard Business Review), Henry William Chesbrough x2 (Harvard Business School Press). I would argue that the MAIN reason why there is a lack of shared vocabulary regarding business models is due to academics/consultants that ignore the work of other academics/consultants working in other schools/companies than their own.

The first element of Mark's Four-Box Framework is the Customer Value Proposition (CVP), an offering that helps customers more effectively, reliably, conveniently, or affordably solve an important problem (or satisfy a job-to-be-done) at a given price. In some versions of the model, such as Figure 9, 19, 20 and 24, there is no explicit customer mentioned in the CVP. In other versions, such as Figure 21 and in the model presented in the 2008 HBR article "Reinventing you business model", a target customer is included. The second element is the Profit Formula that defines how the company will create value for itself and its shareholders. It specifies the revenue model, the cost structure, target unit margin and how quickly resources need to be used to support target volume. The third element is Key Resources, the people, technology, products, equipment, information, channels, partnerships, funding, and brand required to deliver the value proposition to the customer. The fourth and final element is Key Processes such as design, development, sourcing, manufacturing, marketing, hiring and training by which a company delivers on the customer value proposition. Readers familiar with popular concepts such as Osterwalder's business model canvas recognize most terms and ideas.

3. The White Space Within: Transforming Existing Markets
Chapter three discuss business model innovation opportunities within existing markets by delivering new customers value propositions, something Mark argues often relate to predictable shifts in what customers are willing to pay a premium price for (at least the primary basis of competition). He presents an argument based on one example on how companies compete and differentiate with different forms of innovation according to the figure below. The references used for the "predictable shifts" are to colleague Christensen's The Innovator's Dilemma, and Geoffrey A. More's Crossing the Chasm, a book about selling disruptive products to mainstream customers. I would love to read more about these shifts, the research behind it, and how for example design and the use of brands affects the shifts in the basis of competition?
The chapter contains a nice case study on Dow Corning and Xiameter (mostly covered in HBR article from 2009), and the more classical case studies on Hilti, FedEx and IKEA.

4. The White Space Beyond: Creating New Markets
Seizing the white space beyond means developing new business models to serve entirely new customers and create new markets, often where large groups of potential customers are shut out of a market because existing offerings are too expensive, complicated or that the potential customers lack access. In the chapter Mark provides a table of archetypal business models and a nice case study on Hindustran Unilever and the Shakti Initiative together with some shorter versions covering MinuteClinic and SAP.

Obvious concepts to discuss in relation creating new markets are the tools, frameworks and methodologies presented in Blue Ocean Strategyby W. Chan Kim and Renée Mauborgne. Even though the Blue Ocean Strategy concepts are trademark protected, registered by ITM Research (INSEAD), other authors have been able to refer to the concepts and tools presented in the book.

5. The White Space Between: Dealing with Industry Discontinuity
Chapter five focus on the uncharted territory between what was and what is to be, after game changing events such as the commercialization of Internet technology or the push to address greenhouse gas emissions. Mark presents ideas in relation to unpredictable or radical shifts in market demand, in technology and in government policy targeted at the business environment. Examples are in the defense industry (transformative market shifts), Encyclopaedia Britannica (technology driven shifts), and Better Place (shifts in government policy and regulation). The chapter also contains a nice table including the industries and infrastructure of each technological revolution, from Carlota Perez' Technological Revolutions and Financial Capital.

6. Designing a New Business Model
In the chapter Mark discusses the business model innovation process from identifying a job-to-be-done to creating the customer value proposition, and compares the new business model that would be required with the existing model. When searching for unfilled jobs-to-be-done Mark puts emphasis on not only functional aspects of a job but also its social and emotional aspects, together with a short reflection on that Web 2.0 tools give businesses the ability to deeply understand their customers through increased interaction, with Threadless as an example. He introduces a way to use levers to contrast offerings, and mentions the reverse income statement to working up the projections for a business with a new profit formula. This chapter also contains an original and interesting case study from a project undertaken by Innosight with the customer name changed for purposes of confidentiality and a table with business model analogies.

7. Implementing the Model
For the implementation of a new business model, Mark describes three stages: incubation (1-3 years), acceleration (2-5 years), and transition (1-3 years). Incubation is the process of testing (early, cheaply and often) to identify and verify the assumptions most critical to success. Once the new model is proven viable, the Acceleration stage focus on setting up processes, together with rules, norms and metrics, to make the business model profitable. The final stage addresses the question if the new business can be integrated into the core or if it must remain a separate unit in order to thrive. Mark also discusses acquisitions and some successful and less successful examples.

8. Overcoming Incumbent Challenges
In the final chapter Mark describes three dangers incumbent face when implementing new business models: 1) Failure the allocate resources, 2) The Urge to cram new opportunities into the existing business model, and 3) Impatience for growth. He also briefly addresses the problem of the existing rules, norms, and metrics used by the company something that would be very interesting to dig deeper into.

My main questions after reading this book:
Why do Mark ignore existing body of knowledge and obvious references when defining the White space and his business model framework, and instead almost exclusively refer to his own or colleagues' work? Why does he focus so much on old examples, already covered in other books and articles, without using his frameworks to provide more depth into the cases? Why not look at modern examples of companies pushing its core business into new areas? Why are several included figures not referenced in the text, nor referenced for source?

A quick comparison with some other popular books on business models:
All in all, Seizing the White Space is a good book, containing many valuable lessons. It will not WOW you, and it presents surprisingly few new case studies. One of the most important (implicit) lessons from the book is that business models need to be consciously designed and that companies must always stay on their toes looking for new opportunities around their core business, but also in the white space.

If you find this book review/summary helpful, please go to the Amazon book review page and rate my identical review "Helpful" Thanks!

4 comments:

  1. Anders,

    I appreciate your thoughtful review. But as the author, I would like to learn from your constructive criticism, where can I find other detailed case studies about Hilti and business model innovation, as well as the Tata Nano and business model innovation similar to what is provided? Also, you mention Xerox, FedEx, Kodak, and DEC but as you know these are only very brief case studies compared to the deep/multi-page case studies provided on The Hybrid Airship, Hilti, Dow Corning, Better Place, Hindustan Unilever, Tata Nano, and Whole Foods. In the book, Xerox is only a mention, Kodak and DEC are each a paragraph, and FedEx is explained specific to BMI in a page and a half. And, as you know Southwest is only used in comparison to explaining the problem with Delta's Song Airlines business model and why the airlines ultimately failed.

    You also mention the book "briefly explores" the circumstances when a new business might be needed but yet that is the essence of each of the chapters 3, 4, and 5, white space within, white space between, and white space beyond.

    You also mention this is for an audience that has not read Osterwalder's book but yet my book really focus on the large organizational challenges and HOW they can develop and implement a busines model within a large organization. As you know, Osterwalder's book is primarily about designing a new business model in a very visually appealing format and i've enjoyed reviewing and learning from its content I might add. But the books are really apples and oranges. I'd also like to understand how Blue Ocean Strategy and my book are overlapping or how my book is redundant since as you say my book is specific to really addressing the organizational challenges to succeed in pursuing a blue ocean vis a vis a business model change that might be necessary. Finally, as a close colleague with Clay Christensen, I can tell you Professor Christensen and I would both agree the Innovator's Dilemma addresses the phenomena of disruption but did not get into the particulars of how to address the underlying cause of disruption, a disruption to the business model, hence the reason for this book as a natural extension to the Innovator's Dilemma.

    I hope you appreciate a candid dialogue to get to real learning and understanding for both of us as well as for your audience.

    All the best,
    Mark W. Johnson

    ReplyDelete
  2. Thanks for your comment Mark!

    I understand that we have a difference of opinions about your book, as well as quite different incentives. I respect you and your colleagues highly, and have as you know promoted videos with you, Clayton Christensen, and Scott Anthony at The Business Model Database. I have no competing book or competing company or other incentives to give your book 3 stars instead of 5. In fact, writing 5 star reviews are more fun and, would probably result in my review spreading much more quickly and widely. I read papers and literature that touches upon the subject of business models on a daily basis, and my reviews need to be understood in the light of that fact.

    The book contains some good case studies, and you are right that I do not mention all of these in my review. For people who have followed the development of the business model concept, however, my opinion is that the book presents few truly new insights (I will grant, however, that the Lockheed Martin example was really novel). Better Place is covered on several pages – yes, it is a really interesting business model, but in my opinion the book leaves out fundamental aspects of Better Place's business model, perhaps due to the focus of the job-to-be-done from a consumer perspective. I see at least three vital dimensions to their business model which I felt were partly or entirely missing from the book:

    1. The business model is hugely capital intensive and even though the company has been brilliant in raising capital and using local companies such as Better Place Australia to raise funding for individual markets, it is highly dependent on getting other companies (not only government incentives) to invest in building the system. To get those companies on board, Better Place has to give them solid value propositions.

    2. The obvious new player in this new market, that I don't think is mentioned in the book, would be the utility companies who of course look forward to the conversion of transport energy from oil to electricity. Better Place will be able to provide demand management capability being an intermittent consumer to match intermittent suppliers such as wind power and solar, using the vehicles as a huge distributed repository. Better Place also enables the utility companies to expand renewable energy investments, since each time they put a car on the road they buy a long-term power purchase agreement from a renewable source. And of course, the utility companies don’t have to deal with all the micro payments from every individual charging their car, but only with one company, “the car operator” Better Place.

    3. The backbone, probably considered by many the enabler of the business model, is the distributed software system only mentioned very briefly in the book "charging locations would be linked by GPS to powerful back-end computer networks, so drivers would know where to park, and when they returned their cars would be fully charged". In fact, in each of the cars there are high performance (Intel's Atom) computers with full Wi-Fi, and GPRS capabilities, which I’ll agree enable basic services such as data communication between vehicle, battery switching stations, and electric utilities, and which I would also agree help you navigate to the charging station when the range reaches a critical level, but perhaps most importantly act as a guarantee that there won’t be hundreds of thousands of cars that all start fully charging their batteries at 6 p.m. In addition to that, Better Place will be able to provide third party developers a highly valuable platform for future in-car applications, which has the potential to be comparable to, for example, the Apple App Store.

    Yes I used the words "briefly explores" even though chapter 3, 4 and 5 have as their aim to cover the subject of when new business models might be needed. I believe this is appropriate as, and I’m sure you would agree, this is a complex issue.

    ReplyDelete
  3. Also, I think there may have been some potential misunderstandings of the points my review was making, since some of it was misquoted in your reply. I said that the book is "primarily for people who have not read Business Model Generation, Blue Ocean Strategy, and The Innovator's Dilemma". The three books together provide very interesting reading and cover many important concepts that are also included or highly relevant for the ideas that are presented in Seizing the White Space. Also, I never said anything about Blue Ocean Strategy being overlapping or making your book redundant, but "the white space focus on what a specific organization can do, whereas Blue Ocean is about doing things differently than competition to be in uncontested markets". However, when you introduce a concept and call it "the white space" when there is an existing concept called "the blue ocean", without referencing or relating to the other concept it is, in my view, confusing for the reader. I have heard several people saying that "the white space" and "the blue ocean" is the same thing, something I clearly state in the sentence above, it's not.

    My opinion about Pigneur and Osterwalder's book is probably very different than yours for obvious reasons. In my opinion Business Model Generation also targets large organizational challenges and HOW they can develop and implement business models, while still using a visually appealing format. Both books are also trying to introduce a standard language, a business model framework, and ideas on how to develop, test and implement new business models. Given that the business model canvas has been around since early publications in 2002 I was surprised that you did not mention it – particularly given the traction it has begun to have lately – when you write "No one to my knowledge squarely focuses on the elements in the business system that are central to value's creation and delivery and the way those elements work together to ensure or impede the overall success of the enterprise." Again, I understand that all authors want to be unique but I can only see that this was either a conscious choice to exclude the model, for reasons that are your own, or a lack of awareness of the model in the first place. As you are a highly successful consultant and author, the former reason appears far more realistic to me.

    I make no claim to being better or providing better solutions, and I even enjoy that the business model concept is vague, as many smart individuals including you are all trying to illustrate and visualize how organizations create and capture value in different ways. Every new way that adds to our understanding on how to create value is valuable.

    Take care,
    Anders

    ReplyDelete