“You need the courage to accept mistakes!”

“You need the courage to accept mistakes!”
Marginal Column
Prof. Karolin Frankenberger, PhD

Prof. Karolin Frankenberger, PhD, is assistant professor for business economics at the Institute for Innovation Management at the University of St. Gallen and there heads the Competence Center or Business Model Innovation. Her research interests center on business models and their innovative development. She participated in the development of the St. Gallen Business Model Navigator. www.bmi-lab.ch

Copyright Photo: Prof. Karolin Frankenberger, PhD

Content

July 2015

 

In the future, new and innovative products will no longer be sufficient to ensure that a company is successful. This claim is made by Prof. Karolin Frankenberger of the University of St. Gallen in Switzerland.

Why will business models be more important than products in the future? Is an innovative technological process no longer as valuable as it once was?

Innovation has always been important to attain a competitive advantage. The era in which it was sufficient only to develop product or technology innovations is past, however. There are many reasons for this. Globalization continues, competition from the Far East is closing in, product life cycles are becoming ever shorter. This means that one has to bring out innovations ever more quickly – and what reaches the market will be copied ever faster. What’s more, the boundaries between industries are becoming blurred. New players from other sectors are muscling their way into certain markets. Examples include Apple with its Apple Pay billing system or Google, with its foray into the heating market with its Nest brand. Making the great leap forward among competitors is possible only with new business models. I do not mean to imply that product innovations are no longer important. I see this much in the spirit of simultaneous engineering: One needs new products but, at the same time, also a new business model with which to market those products. Then the company is well prepared to assert itself against the competition.

What all goes into a business model?

We define this on the basis of four key points. The first is the promise of usefulness: Which product do I manufacture and which service do I offer? Second are the underlying processes: How do I approach that – on my own or with partners? What is my marketing model? Third are the customers: Do I need new customers or do I already have a sufficient customer base? And the fourth questions the model for yields: How do I actually earn money - through product sales, by measuring effort, through subscriptions?

How broad is the awareness of these points among companies?

Awareness is already well rooted. Especially in the traditional industries the managers understand that they have to get off dead-center. The difficult thing is the step from understanding to implementing. Many founder right there. I work with many companies, and especially with large corporations. They have great difficulty in modifying their business models, because they are so strongly influenced by the rightness of their own logic, the demands of day-to-business, their product innovations, and their technical thought processes.

How can companies accomplish the transformation from the current situation to the target status?

All this has a great deal to do with change management. The knowledge and the transparency have to be on hand – and you have to have the courage to accept mistakes! In addition, you have to motivate people, offer them breathing room for new ideas, give them the correct tools, and establish the required context. This is the mixture that you need to be successful in constructing business models.

Does every business model have an “expiration date”? Or is it possible to continuously update them?

That is the beauty of our approach. Business models can certainly be advanced and refined. Our research efforts have shown us that no business models are actually new, but rather copies or transformations of existing models. A modified context gives rise to new business models which, as a result of their transfer into other industries, can even be revolutionary.

How do I know whether a signal from the market is actually relevant to the future? How do I differentiate between a genuine trend-setter and a flash in the pan? Is there any way to distinguish them?

There are no methods for doing so. One simply has to be aware and to look about to determine which trends are appearing and how these could change one’s own business model – either today or in the future. Being future-oriented is essential! The most important thing is to give it a try – it might culminate in success. A new business model should be tried out in a small market segment, with a limited circle of customers. If it becomes apparent that this works as planned, then it is a good step; if not, then something else needs to be tried. But true here, too, is that the courage to accept failure is critical to making the grade. Because no one knows exactly what the business model of the future will look like. One simply has to test it, rework it, adapt it. That is an extremely arduous and demanding process.

Do technology companies need new models for forecasting?

No, they don’t need new forecasting models but instead should use the ones that already exist. It is important that one’s own business model be questioned and tested by applying these forecasts. One must thank about what the business model will have to look like in the future. A large number of future business models should be developed and tested, in a trial-and-error process, in one’s own market. This is the technique used by an architect. He drafts a plan, then he builds a model, and then tests it to see how the builder responds.

What, in your point of view, do companies have to do today so that they will be successful tomorrow, as well?

First they have to question the existing business model: What will happen when it is no longer viable? What might a new business model look like? Especially if you are earning top dollars today, you must keep an eye on the doomsday scenario.