Executive Interviews: Interview with Dr. Bolko V Oetinger on Business Model Innovation
April 2009 - By Dr. Nagendra V Chowdary

Dr. Bolko V Oetinger
Senior Advisor, The Boston Consulting Group.

• Just like the way in which venturing into a new business model is important, is it also not important to bid goodbye to an old business model? What are the signals/triggers that the companies should look at to decide to divorce from the existing/ old business model? Are there any illustrative examples of companies that have successfully abandoned their old business model before inventing, adapting and nurturing the new business model?

  If you have an ongoing concern you cannot shut down your old business model before inventing the new one. This would be a financial disaster. First of all, you have customers who are your most precious assets; in addition, you have factories, employees and suppliers. Therefore, you need to find a creative process to let the old business fade away whilst you are building the new one. Schumpeter talked about “creative destruction”, not just destruction. When IBM discovered that the PC would definitely eat into their classic big machine business IBM did set up a separate organization to catch up in PCs. Later on the PC business overtook the big machine business. Many years later IBM sold the business to Lenovo and got out of the business. That was a very orderly portfolio process. The question is, of course, how do you figure out, it is time to prepare for the exit? You have to explore weak signals (anomalies!), you have to collect reactions from your customers, most importantly you have to talk to your non customers, and they might already jump to the new model.

• Through its “Design Thinking” initiative and other initiatives, P&G was able to instill a new innovation DNA in its organizational culture. How should companies go about fostering an innovation culture, wherein, innovation is no longer the prized prerogative of only the R&D department and it can come from any corner of the company?

  You have to start from a simple assumption: To invent something new is not the most difficult task; however, to get rid of the existing is the real problem. The new idea can only gain acceptance if you say good-bye to the existing idea. By nature, this is hard. The success of the existing business model is the most effective barrier to any innovation… “We have tried this already, it does not work… don’t confuse apple with oranges…don’t change a winning team…” You cannot get rid of your existing businessmodel over night, but you need a healthy ambivalent attitude towards your own strong and successful beliefs. There are several organizational actions you can take to make your organization more open minded, e.g.

1. protect the new idea in a separate organization, create multifunctional teams, demand job rotation, give the new idea more attention by an important acquisitions, set the incentives appropriately, experiment !

2. You have to lead the organization to the borders of its business. The border is always the place where you get the best insights.

3. You have to make sure that weak signals are not suppressed by the strong existing business model. Weak signals in business are anomalies, e.g. customers who suddenly buy strange things (e.g. coffeemachines for ¤3000) or competitors who behave strangely (e.g. Google buying YouTube), or activities that grow like hell (e.g. Web2.0).
   They signal that something important will change.

• Many new companies come with innovative business models. However, only a very few actually succeed in themarket place.Why is it so difficult to carve a success out of a well-planned business model?

  I think it has to do with (1) winning the customer and (2) with solid operations in executing the business model. Napster was the first real successful on-line music store, years before Apple discovered it, Napster understood the customer better than anybody else, but unfortunately their model was built on breaking the law. Tesco (in the UK) and Webvan (in the US) introduced simultaneously ebusiness in food. Both discovered that customers liked it, Webvan built a big organization and finally went into chapter 11, whereas Tesco experimentally added step by step more value to the business, ending up with a revenue model that worked for the customer and for Tesco. Madonna is well known for grasping the tone of the time and for controlling meticulously the artistic details of the implementation. So, what I am saying is, you have to have a great idea, but you must also be good in operations tomake it happen.