Reinvent Your Business Model

How to Seize the White Space for Transformative Growth

Mark W. Johnson

• Publisher: Harvard Business Review Press
• Year: 2018
• ISBN:
  9781633696471
• Topic: Betriebswirtschaft
• Subtopic: Unternehmertum

Named a Top 10 Business Strategy Book of 2018 by Inc. magazine

In his pioneering book Seizing the White Space, Mark W. Johnson argued that business model innovation is the most proven path to transformational growth. Since then, Uber, Airbnb, and other startups have disrupted whole industries; incumbents such as Blockbuster, Sears, Toys "R" Us, and BlackBerry have fallen by the wayside; and digital transformation has become one of the business world's hottest (and least understood) slogans. Nearly a decade later, the art and science of business model innovation is more relevant than ever.

In this revised, updated, and newly titled edition, Johnson provides an eminently practical framework for understanding how a business model actually works. Identifying its four fundamental building blocks, he lays out a structured and repeatable process for reinventing an existing business model or creating a new one and then incubating and scaling it into a profitable and thriving enterprise. In a new chapter on digital transformation, he shows how serial transformers like Amazon leverage business model innovation so successfully.

With rich new case studies of companies that have achieved new success and postmortems of those that haven't, Reinvent Your Business Model will show you how to:

• Determine if and when your organization needs a new business model
• Identify powerful new opportunities to serve your existing customers in existing markets
• Reach entirely new customers and create new markets through disruptive business models and products
• Seize opportunities for growth opened up by tectonic shifts in market demand, government policy, and technologies
• Make business model innovation a more predictable discipline inside your organization

Business model innovation has the power to reshape whole industries--including retail, aviation, media, and technology--redistributing billions of dollars of value. This book gives you the tools to reshape your own company for enduring success.

Reinvent Your Business Model is the strategic innovation playbook you need now and in the future.

Part One

A New Model
for Growth
and Renewal

1

The White Space and Business Model Innovation

He who moves not forward, goes backward.

—Goethe

If you happened to be driving past a certain desolate airstrip in Palmdale, California, one sunny morning in January 2006 and glanced out your window, you would have seen something extraordinary—a large, lighter-than-air aircraft being readied for flight.¹ This was not your usual blimp. It resembled three puffy hot dogs strapped together and mounted on four round pillows—a floating version, if you will, of the Oscar Mayer Wienermobile, with large swinging fans protruding from each side and the rear.

Pulling your vehicle off the road, you would have watched in amazement as this strange craft bounced and bumped down the short runway, rose from the ground, and climbed to about four hundred feet. Then, as its fans swung into action, you would have seen it glide into a long gentle bank, turn back parallel to the runway, and cruise down its length, banking gracefully again at the other end and then flying in nose-first for a landing, leveling off before gently touching down on its four hovercraft-like pads.

FIGURE 1

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The Lockheed Martin P-791 hybrid airship

Photographs by Bob Driver and Gerhard Plomitzer.

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Palmdale, a high desert community northeast of Los Angeles, is a typically sprawling exurb. Local residents know that the Skunk Works, the famed R&D division of the aerospace giant Lockheed Martin, often uses this airstrip as a proving ground. The Lockheed Martin P-791, which was on its maiden flight that day, was a half-scale prototype of a hybrid airship that combines the aerostatic lift of its gas-filled body with the aerodynamic lift supplied by its winglike shape and forward propulsion to achieve flight.

As lumbering as it appears, this hybrid airship can do two very valuable things exceedingly well. First, it can take off and land in relatively small, unimproved spaces. Because it floats above the ground, it needs no runway in the conventional sense; it doesn’t even require a smooth landing surface. Second, it can carry a very large payload, much larger than any helicopter or other short-takeoff-and-landing aircraft.²

As word of its successful flight spread, Lockheed Martin found itself fielding inquiries from a host of potential commercial customers for a product it had not yet decided to make. Management quickly realized that their experimental airship could generate substantial new growth for the company. Mining companies that want to extract valuable ore from remote locations, for instance, are often thwarted by the cost of transporting heavy extraction machinery to the sites. A hybrid airship could simply float the machinery in. In places like India, where poor road infrastructure inhibits reliable truck transport, packaged-goods manufacturers could use a hybrid airship to move large quantities of their products to previously inaccessible areas.

But despite its huge upside, the Lockheed Martin hybrid airship had yet to be commercialized when the first edition of this book was published in 2010, four years after potential purchasers had begun beating a path to its inventor’s door. Why not? It should have been a slam dunk for Lockheed Martin, which is the same company that delivered the storied F-117 Nighthawk stealth fighter, the F-16 Fighting Falcon, and the F-35 Lightning II joint strike fighter. Did technical obstacles stand in the way, or were the financial hurdles too steep? Perhaps the problem was with Lockheed Martin itself.

VENTURING INTO THE WHITE SPACE

For decades, businesses of all stripes have wrestled with, failed to capitalize on, or passed over unique growth opportunities that don’t seem to fit in with what they already do well. Just think of Xerox’s Palo Alto Research Center (PARC), which famously owned the technologies that helped catapult Apple, Adobe, and 3Com to success. Why didn’t Xerox exploit these technologies? More broadly, what underlying forces prevent great companies from embracing transformational opportunities?

Before we can answer that question, we must first understand something about where and how businesses tend to spend their time and resources in pursuit of new growth. At its most basic level, a company exists to deliver value in return for compensation. Every functioning company has a discrete sphere of operation—the activities it performs to serve customers and make a profit in return. Early in a company’s life, this space may resemble an inkblot with no logical boundaries, flowing tentatively along the paths of least resistance. As a company matures, its operations become better defined and its borders more clearly established. Company efforts and capabilities become concentrated on this core operating space.

Over time, a successful company becomes very good at growing its core. It secures resources, improves existing products and creates new ones, expands markets, and increases efficiencies by improving processes, all to extract the most value from its core activities. It also continues to develop and refine the key business rules and metrics that ensure proper execution, establish discipline, and exert control throughout the organization. Either explicitly or implicitly, the company is operating according to a business model that defines the way it delivers value to its customers at a profit. Like a highly specialized organism, this model evolves until it perfectly suits the company’s needs—showcasing its competitive strengths, honing its key resources and processes, and eliminating its vulnerabilities.

But what happens when an opportunity arises outside a company’s core, an opportunity to serve a wholly new customer or an existing customer in a radically new way? What happens when an opportunity arises to create an entirely new market or to significantly transform an existing one? What of challenging new growth opportunities like the hybrid airship?

Many of these opportunities—even those that appear at first glance to be very different from the traditional core opportunity—fit quite well with the company’s existing business model and are thus called adjacencies. But some require a company to fundamentally change its operations—adopting a different formula for making money, a new set of resources and processes, other expertise, and maybe a new way to coordinate and control activities. When such an opportunity arises—when delivering new value to the market requires you to reconsider the building blocks of your existing business model—that opportunity lies in your company’s white space.

The term white space has been used before in business parlance to mean uncharted territory or an underserved market. But I use it to refer to the range of potential activities not defined or addressed by the company’s current business model; that is, the opportunities that exist outside its core and beyond its adjacencies and that require a different business model to exploit. White space is a subjective valuation: one company’s white space may be another company’s core. What matters is that it describes activities that lie far outside a firm’s usual way of working and presents a series of unique and perplexing challenges to that organization. It’s an area where, relatively speaking, assumptions are high and knowledge is low—the opposite of conditions in the company’s core space.

FIGURE 2

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Defining the white space

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The chance to seize a piece of white space presents a tantalizing opportunity. Success can bring the transformational growth that business leaders seek. Yet understandably, a play for the white space feels risky, and often the numbers don’t appear to add up. The market seems too foreign, or core capabilities don’t apply. Some executives, having made one unsuccessful foray, just won’t risk failing again.

LOCKHEED MARTIN’S WHITE SPACE

From Lockheed Martin’s perspective, the commercial application of the hybrid airship lay far out in the white space. The firm’s core operating space is the relatively low-volume, high-margin world of multibillion-dollar fighter aircraft, missiles, space satellites, and specialized integrated-systems work. From its beginning as a naval ship and airframe maker in the first half of the twentieth century, Lockheed (Lockheed Martin after it merged with Martin Marietta in 1995) has served government customers using government contracting systems. It excels at delivering extremely complex solutions in a highly structured way to a small number of clients. Everything it makes is built to order, and every step in the process—from systems development and safety testing to aircraft assembly—is tracked and billed against detailed requirements or specifications. This extreme structure means that margins are well defined in advance. Moreover, the defense industry’s labyrinthine procurement process creates an effective barrier to entry for new rivals. As a result, Lockheed Martin occupies a relatively safe niche and has little incentive to stake out new territory. Sticking to its knitting has been a successful formula so far: everything Lockheed Martin does fits into four specialized business units—Aeronautics (military aircraft), Electronic Systems (military electronics and system integration), Information Systems & Global Services (US federal IT services), and Space Systems. Advanced Development Programs, as the Skunk Works is called today, is part of the Aeronautics unit.

The hybrid airship is in an entirely new, and far more mercurial, market space for Lockheed Martin. The company is accustomed to accurately projecting its products’ potential markets, but since nothing like the hybrid airship has been built before, few existing metrics or market studies can predict its success. Making a significant investment in a product whose potential market size is merely assumed to be large seems irrational—especially since Lockheed Martin would probably have to shoulder the entire risk without government contract guarantees. Although comfortable with some types of uncertainty, the company has no processes for reducing the uncertainty of an unknown market.

Ironically, the very factors that signal the size of the opportunity are causes for concern in Lockheed Martin’s world. To sell to the variety of customers that expressed interest in the P-791, the company would need to develop a wide range of new capabilities, including a commercial sales force and distribution channels, comfort and expertise operating in various cultures (mining, automotive, shipping, and the like), and a variety of marketing skills to reach multiple markets. Because commercial clients demand individual atte...

Table of contents

• Cover
• Title Page
• Copyright
• Dedication
• Epigraph
• Contents
• Foreword to the New Edition by Clayton M. Christensen
• Introduction
• Part One: A New Model for Growth and Renewal
• Part Two: When New Business Models Are Needed
• Part Three: Business Model Innovation as a Repeatable Process
• Epilogue
• Notes
• Index
• Acknowledgments
• About the Author