A lot of companies that come up with new technologies do not go ahead and commercialise it, primarily because the new technology does not fit into their existing business model, saysMark Johnson, cofounder and chairman of Innosight, a strategic innovation consulting company. Johnson has most recently written Seizing the White Space – Business Model Innovation for Growth and Renewal. In this interview, he speaks to DNA.
“Businesses have often let go in the past of opportunities that did not fit with what they already have,” you write in your book. Why does that happen?
Lockheed Martin came up with this new technology called a hybrid airship which is a cross between a lighter-than-air dirigible and an airplane. It was a pretty amazing invention in that it could take off from short, rough areas. Also, it could lift very heavy cargo and an unlike a helicopter it could lift much more. The opportunity was such that a lot of commercial companies, mining companies, transportation companies — even the Government of India — could have used it given the poor road infrastructure here. But it didn’t fit into the Lockheed Martin business model — as a defence contractor for the US government. So it chose not to go ahead with the hybrid airship.
Any other examples?
The example fairly well known for a while is Xerox and the Paulo Alto Research Centre. Their R&D labs came up with the graphical user interface and the mouse which became Apple. Then ethernet technology, which became 3Com, and Postscript graphical technology, which became Adobe. And that was all because Xerox was a copier company and they could not figure out how these technologies fit within their copier business model. If they would have done some sort of R&D on the business system, they could have actually enjoyed revenues in some form instead of having them go to somebody else.
What exactly is white space?
People have been using this term in business for long, about an area of opportunity, an area where there is no competition, an area where this is an untapped market, an area that is somewhere a place outside the company which hasn’t been pursued before: like a new geography. But as I thought more about what truly is a company’s white space, which means really what truly is a company’s unchartered territory. It is not necessarily a whole new market because a company could go into that market with its existing business model and do okay. Really, white space is when you have to change the fundamentals of the business. When you have change the essential business model in a real way, in terms of the way it makes money, the way you have to organise people, the way you have to measure the process, change the metrics etc. It is when there is an area of untapped opportunity where you have to change the business model to seize it, that’s the white space.
Can you give us an example?
Lockheed Martin’s hybrid airship was its white space. Not just because if it went to the Government of India there would be a new opportunity there, but because to seize that opportunity it would have to change its business model. Xerox’s white space was being able to come up with a computer business model when it had a copier business model. Apple iPod went into the white space to come up with iTunes when it was a computer company but it went into the music world. It’s white space not only in terms of coming up with the technology but in terms of integrating a whole new system to be able to deliver a whole new way to listen to music.
Do you see companies tapping their white space?
I don’t. Companies tend to build a strength in terms of the way they run the core business. They come up with rules, norms and metrics to control and operate a business again and again and refine it to beat competition. They tend to improve what they already have. It is very difficult for a company to say we are going to change, and do something totally different. The other reason it is very difficult is management discipline has said for a while now to stick to your core.
Can companies successfully come up with new business models all the time?
It is hard to find a company that is successfully doing it over and over again.
A few times?
A good example would be Apple. The other one is Amazon. Again Amazon is a common example. But Amazon has done a number of business-model innovations. It went from basically selling books online and opened up a whole different way of making money. And that it was able to sell the books before it had to pay for them (As Johnson points out in his book, Amazon held a book in inventory for just 17 days, instead of 168 days which was the industry norm. At the same time, Amazon paid its publishers in about 58 days – its profit formula created a float that kept the customer’s money in its hands for an average of 41 days). This was a whole different way of sort of having your cash flow go as well as just the benefits of not having to keep books in inventory the same way in a book store. After this, it moved to selling its powerful back-engine in terms of web services to entrepreneurs who could actually use a back-end type of model to do their own web based commerce. And then it went to the Kindle, which is their book reader. You can order books right on to the Kindle. Amazon with the Kindle became a hardware manufacturer and does things a wholly different way.
When do companies need to re-examine their business model?
Technology is one reason. The engineers and the scientists come up with a brilliant idea that just doesn’t seem to fit in the way they normally do business. So it will just get put onto a bench. Like Kodak came up with digital imaging which was a big threat to its photo film business…
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