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Implementing Innovation and Transformation:
Creating a Roadmap for the Future

By Teresa Di Cairano
|


There is nothing permanent except change. If you want to sound brainy, this quote is from the Greek philosopher, Heraclitus, but has been echoed by many. It reminds us of the perpetual lifecycle that organizations, the economy and people go through.

For most, a relatively stable state is eventually interrupted by periodic or dramatic leaps into new ones. Even when these changes are welcomed or planned, their impact on organizations, systems and people is significant.

While businesses increasingly respond to compressed product and service innovation cycles, governments are pressured to evolve their organizations to one of increased transparency, integrated service delivery and more participatory approaches. As new strategies emerge, organizations need to make a shift in their states and align their operations to respond to a new reality.

Whether the terms used are innovation, business transformation or modernization (in the public sector), change agents are tasked with creating a roadmap for the future.

So what tools do leaders use to make sense of these changes and build a blueprint for moving forward?

Well, the toolbox is actually a layered set of thinking, analysis and modeling tools that help to articulate the emerging strategy and evolving states. These approaches include: Business Model Innovation, Business Architecture and Target Operating Models. Also critical at the cusp of change is Strategic Capability Modeling, as it becomes imperative for organizations to rethink their value chain for better alignment.

Change before you have to.
Jack Welch

Business Model Innovation
Business model innovation differs from traditional product and service innovation. It focuses on creating a new value proposition, which at times can also become a game changer, and as such positions organizations proactively.

As it is more than a snappy new product design, it often brings a fundamental shift in how the organization (and sometimes the sector) operates. Because of this, business model innovation hits at the heart and soul of organization.

Now part of business legend, everyone is of course familiar with Apple’s business model innovation. While not the first to the market to offer digital music players, other companies focused more on product innovation (i.e. the device) rather than the more comprehensive business model. Examples of business model innovations can also be found in other sectors such as with retail discounters like Wal-Mart and Target. As well, major airlines that had to scramble from their high cost models to respond to the threat of low cost carriers, have also had to adjust their business models.

Apple’s Business Model Innovation

In 2003, Apple introduced the iPod with the iTunes store, revolutionizing portable entertainment, creating a new market, and transforming the company. In just three years, the iPod/iTunes combination became a nearly $10 billion product, accounting for almost 50% of Apple’s revenue.  Apple’s market capitalization catapulted from around one billion dollars in early 2003 to over $150 billion by late 2007.

Source: Reinventing Your Business Model, Harvard Business Review, December 2008

When disruption hits, the knee-jerk reaction is to rationalize operations and increase product cycle development. However, business model innovations are complex and often need to address many aspects of the organization.

In 2010, Alexander Osterwalder and Yves Pigneur co-authored Business Model Generation – A Handbook for Visionaries, Game Changers, and Challengers. In this unconventional business book, the authors propose a business model prototyping tool named The Business Model Canvas. It provides a shared language for describing, visualizing, assessing and changing business models. The canvas walks stakeholders through key aspects of the business model including - customer segments, value propositions, channels, customer relationships, revenue streams, cost structures and key resources, activities and partnerships.

This is a good team tool for front end business model design – the stage when ideas of the new model are still essentially fuzzy. It allows for a high conceptual level sketch of business models and the ability to model their impact horizontally across the organization. In addition, the visual approach allows teams to rapidly iterate several scenarios before focusing the business model strategy on a given configuration.

The pessimist complains about the wind;
the optimist expects it to change;
the realist adjusts the sails.

William Arthur Ward

Business Architecture
While also enterprise-wide in scope, Business Architecture approaches analyze the impact of change cross-functionally. However, they typically provide an additional level of granularity from the high-level business models mentioned previously.

Alignment with transformation/modernization initiatives are at the core of Business Architecture methods. The Business Architect is the realist that makes the change happen. It is with the business architecture, that an organization ensures alignment with strategy and business operations. Often, it is used in the context of Enterprise Architecture to derive the impact of strategy on enterprise IT capabilities.

Business and Enterprise Architecture approaches to mapping change are being used in public sector to meet the requirements of the Affordable Care Act from the Obama Administration as well as in Canada for modernization efforts in the federal government. In the private sector, business architecture is being used to implement change and transformation in insurance, banking and other sectors.

Key roles of Business Architecture in Business Transformation and Modernization:

  • Identification of business transformation opportunities
  • Alignment and integration of extended enterprise value chain
  • Clarification of extended enterprise roles and responsibilities
  • Specification of business model design for re-engineering and automation

Source: Business Architecture: Strategies for transformation and innovation –  Intervista Executive Education Program

They always say time changes things,
but you actually have to change them yourself.

Andy Warhol

Target Operating Models
Business models and target operating models are sometimes used interchangeably. However, while business models tend to focus on how organizations create, deliver and capture value  – target operating models provide a high level design of the organization’s future operating model.

Target operating models typically define views of the organization’s processes, organizational structure, capability and IT support. The goal is to strategically optimize operations and service delivery. One way to understand it is that target operating models help organizations understand how the operational processes create value.

As such, target operating models are closely aligned with strategy, business architecture and change management programs.  They can also often relate to strategic capability models, metrics/key performance indicators (KPIs) and sector benchmarks. The tag words for this type of transformation tools are – optimization and efficiency. Sectors with stagnant growth potential like banking and government will find these tools very useful for adapting to the ‘new normal’ of this economy.

Create, Align, Optimize 
In summary, the toolbox for change agents come in three, albeit, large categories:

  • Business Model Innovation: Creates and captures a new value proposition
  • Business Architecture: Aligns strategy to business across the enterprise
  • Target Operating Models: Optimizes the organization for change

Now choosing which methods and approaches to use, and when to use them, will depend on your stage of evolution as well as the sector you are in. To avoid too many black box assumptions, it would likely be best if some kind of mix is used throughout the change process.

Change is hard work.
Billy Crystal

A final thought is that although change has been immortalized in memorable quotes and at times, glamorized, it is not an easy task.  The use of a common language and thinking tools do however, contribute significantly to a shared understanding of the future and how your team and organization might get there.

© 2014 Intervista Inc.

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