Unleashing Thoughtful Innovation at Scale — with Alex Osterwalder

BOUNDARYLESS CONVERSATIONS PODCAST — SEASON 1 EP #12

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BOUNDARYLESS CONVERSATIONS PODCAST — SEASON 1 EP #12

Unleashing Thoughtful Innovation at Scale — with Alex Osterwalder

Alex Osterwalder talks about why, in the furiously changing world of today, innovation portfolio management is a must, as well as transforming innovation into a pervasive process inside the organization. Together with Bill Fischer, we ponder several ways to do this, looking into both the present and the future.

Podcast Notes

In this episode, Simone Cicero is joined by a special co-host and former guest on the podcast — Bill Fischer — Professor of Innovation Management at IMD Business School in Lausanne.

Together they pick the brain of nobody less than Alex Osterwalder, whose work continues to influence the way established companies do business innovation and how new ventures get started. The inventor of the Business Model Canvas, Value Proposition Canvas, and Business Portfolio Map together with Yves Pigneur, Alex just released a new book called The Invincible Company, whose ideas are mentioned throughout the conversation.

Alex talks about why, in the furiously changing world of today, innovation portfolio management is a must, as well as transforming innovation into a pervasive process inside the organization: we also debate a lot on the several ways to do it.

We also talk about the responsibility of companies to become great workplaces — being able to keep and reallocate talent across business units — and serve society beyond shareholder interests. Enjoy this jam full episode!

Here are some important links from the conversation:

About Alex Osterwalder and his work:

Other mentions and references:

Find out more about the show and the research at Boundaryless at: https://boundaryless.io/resources/podcast/

Thanks for the ad-hoc music to Liosound / Walter Mobilio find his portfolio here: www.platformdesigntoolkit.com/music

Recorded on May 11th 2020

Key Insights

1. Portfolio management — a key idea explored in Alex’s new book The Invincible Company — includes two main portfolio types: one to explore future directions and one to exploit and execute ideas in the present. What most organisations still need to figure out is how to empower people to innovate and create legitimate spaces in the organisation to explore new ideas on the one hand, and on the other hand having a process to sort out the ideas that get traction and incorporate them into the execution part of the business. The right level of integration between these two functions is the sweet spot that many companies still are trying to find. Like Alex says: “It’s about creating that giant incubator, that little Silicon Valley within, and at the same time being world class at execution”. Leaders, in the portfolio management context, need to provide “portfolio guidance”, a mix between art and science, where you’re constantly testing and adapting your ideas until it really makes sense.
In this process the role of distributed profit and loss and the idea to transform the organization in a dynamic entrepreneurial network migh constitute the next big shift out of bureaucratic thinking.

2. Related to portfolio management, there are different types of innovation that need to be in the mix: efficiency-innovation making business models and processes better, sustaining innovation, which is expanding about expanding existing business model with new value propositions, and more transformative innovation, inventing the future and creating entire new P&L or growth engines (think Amazon’s AWS). In order to unleash the potential of these levers, Alex ponders on the need to remove “innovation blockers”, like for example ex ante business plans through up on PPTs and spreadsheets.

3. While transformative innovation enabled through the organization can radically disrupt its structure, it does not need to cannibalise it and get rid of the people who have dedicated their careers to the “execution” side of the company. Instead, a more dynamic model is needed where talent is re-allocated across business units as the organisation evolves. Indeed, creating great workplaces that enable people to be their best — and to subscribe to the company’s wider purpose in society — is becoming an essential “layer”, following Alex’s words, building on top of user experience and growth.

Boundaryless Conversations Podcast is about exploring the future of large scale organising by leveraging on technology, network effects and shaping narratives. We explore how platforms can help us play with a world in turmoil, change, and transformation: a world that is at the same time more interconnected and interdependent than ever but also more conflictual and rivalrous.

This podcast is also available on Apple PodcastsSpotifyGoogle PodcastsSoundcloudStitcherCastBoxRadioPublic, and other major podcasting platforms.

Transcript

This episode is hosted by Boundaryless Conversation Podcast host Simone Cicero with co-host, Bill Fischer.

The following is a semi-automatically generated transcript which has not been thoroughly revised by the podcast host or by the guest. Please check with us before using any quotations from this transcript. Thank you.

Simone Cicero:
Hello, everyone. So today I’m so happy to be here with not just one legend, but two, as I said in the preliminary conversation I was having with my guests for today. So actually, I’m having a co-host, an exceptional co-host today — good afternoon to Bill Fischer!

Bill Fischer:
Hello, everyone. What a pleasure to be with two of my most favourite people.

Simone Cicero:
And the other one in the chat for today is Alex Osterwalder, who I don’t think he needs any introduction.

Alex Osterwalder:
It’s a pleasure to be here. I’m looking forward to a really exciting conversation.

Simone Cicero:
So thanks, Alex. And thanks Bill for accepting to co-host the conversation with me. And so as a starting point, I think it will be excellent to piggyback a little on the latest work from Alex that just released this great new book that is focusing really around this idea of portfolio management. So it’s really making a point for companies to go beyond the idea to make just one bet and really trying to get organised to manage a full portfolio of bets into the future. And when I was preparing this conversation, I was reconnecting this with the work that I’ve been doing also with Bill in the last year and a half working for example, with the Chinese Haier company, that has this idea of pervasive profit and loss in the organisation. So essentially, this idea that the organisation gets fragmented into a network and somehow I was stimulated by asking, you know, Alex, essentially these questions: so when you say managing innovation through a portfolio, my provocation will be that what are your feelings, what are your ideas about looking into organisational models that are more into, you know, basically creating the space for micro teams and organisations to self-explore the future without too much centralised coordination?

Alex Osterwalder:
I think it’s exactly about that — I might be using different words for saying something very similar — but when we say portfolio management in our new book The Invincible Company, we actually mean two portfolios so you got to manage what you have: the business units that, you know, the business models that you have, and that usually are working pretty well (and even that part, more and more companies decentralise that and push the decision making out to you know, to the contact with the customer). But there’s another part that we are, I’d say still not very good at yet in most organisations from what I see: it’s the exploration part. So as a company you need to build an exploration portfolio of new ideas that you’re exploring in order to build the business of tomorrow. And that requires making a lot of small bets on different ideas, different potential futures. And then you only make follow up bets on those that really show evidence and traction; those can show we’re really working on a c customer’s job pain and gain. And you don’t, you know, decide in a centralised way when you make those small bets you give a lot of teams the space necessary to start exploring. You know, ideally you don’t select at all which ideas teams can start to explore because ideas are everywhere. They’re cheap, you know, they’re great to get started. Bill you know, talks about the idea hunters you just need to give people that space to get started, but then you need a system in order to weed out those ideas that should be killed and those ideas that we should continue to invest in. And, you know, I’m sure all of the people listening, have seen these zombie projects that should have been killed a long time ago. And we just need to find the right system to kill those projects and to invest in those that have traction. And that’s the role of the leader to create the conditions for everybody to know how this works, how we make decisions, in order for the best ideas to emerge in this ‘explore portfolio’. And you know, so we can transfer them into the exploit portfolio of the business that we’re managing. And I think a lot of organisations are doing some of this, but probably not yet in the best possible way. So I’d like to call this innovation theatre right. But you know, you need to get started with this whole idea of decentralised teams that can start to explore but they also have the legitimacy to explore and the power to make the decisions they need to make to advance. But then you also need to have a system in place that you know is able to kill those ideas that should not live longer. Right? That’s what it’s all about. I think there are a lot of people speaking about very similar topics, tackling it from different angles, the more organisational angle, the portfolio angle, the process angle, and we just need to start creating a good shared language. So we can really help these organisations to move in the right direction.

Simone Cicero:
It’s great that you speak about essentially giving them the legitimacy and so I think that was a very good point. And maybe, sometimes I feel like there’s an elephant in the room when we talk about innovation. You also just said something about the innovation theatre no? So my question is that, by quoting Hollywood movies, but isn’t it that “with great power, comes great responsibility”? So to some extent, enforcing let’s say these profit and loss as for example Amazon or Haier did in the past, could it be the case that this is essential, and not just one nuance of doing really good portfolio management at scale for innovation?

Alex Osterwalder:
So I’ll piggyback on what you just said: “with power comes responsibility”. I think, you know, in innovation — and already we should probably distinguish between different types of innovation — from efficiency innovation all the way to transformative innovation. These are very different types of innovation that require different approaches. But the challenge today is that you know, when it comes to innovation, when it comes to transformative innovation, there is no power right? You know, you have smart people working on really good ideas, but they’re literally almost somewhere in the garage. Right? And then they report to the person who reports to the person who reports to the other person who reports to the CTO who reports to the COO who reports to the CEO. Well, guess what? That’s not going to work. Right. So, you know, I’d say that the challenge today is that there is no power in innovation. And that’s why we’re getting innovation theatre. Now, it’s changing. Okay, this is definitely something that I’m sure Bill can talk about how he sees this change as well, because I look up to Bill, you know, he’s done so much great work in innovation. And I started a little bit shorter while ago, but what we really see is there is a change in the organisational structures to give innovation power and with that comes responsibility for sure. And my favourite example just to mention one concrete case, is actually Chinese company. Ping An because they have a co-CEO Jessica Tan, who is responsible for the future, you know. I’d like to call her — it’s not the title they use — but we use that title of Chief Entrepreneur, really giving innovation power, putting it that at the similar level as the CEO, not just, you know, reporting to somebody. Because if you really want to take the future seriously, you need either a co-CEO or a CEO who spends 42% probably 60% of his or her time on innovation or more. And the way you can figure that out, is you do the so-called “Rita McGrath test” if you look at the CEOs agenda, and if not, 40 or 60% are not marked out, you know, as blocked out for innovation, you’re not going to get innovation at that organisation. So I think there’s a lack of power. And there’s not even you know, the choice of responsibility that comes with it because innovation today, in many, many organisations that I see from the inside, it’s just not powerful enough to make a difference. So we need to put the future, how we think about the future and the systems we put in place to really take the future seriously. Build that future, we need to put that at the centre of our strategic intent, otherwise nothing’s going to happen.

Bill Fischer:
Let me jump in,you know, I couldn’t agree with you more: every organisation that I work with — I’m sure that you and Simone work with — has a present and a future and they’re different. And they require different skills to be able to navigate the challenges that they face. Inevitably, if there’s a conflict, the present always wins because the power is concentrated in the cash flows and the political power that goes along with creating the present. So, I want to make sure that I understand what you’re saying. Are you saying that the future is so important that in in some organisations like Ping An — maybe most organisations — that we need to separate the present from the future and put the present in a different part of the organisation structured differently and allow it to go through a different set of reviews and and assessments in order to see what works and what doesn’t work. Do I have that right?

Alex Osterwalder:
Absolutely Bill. So I think it’s incredibly important to create that space where you separate out and I’d say, it depends, right, so we’ll get back to it in a second. But you need a space where you can work in a very different way with a different toolbox with a different mindset on exploring the future. And if you don’t create that space, again, it’s not going to happen, but you have to be careful, because if that space is too separated, guess what? It’s going to be too easy to kill those ideas because the antibodies of the organisation are going to kill everything that comes from that outside entity. So you need to have just enough separation to, you know, have that culture, those metrics and those processes that are different to explore ideas, but you need enough integration. So the ideas will A. survive, make it into the core, you know, engine of the present, as you said, and for the exploration entity to be able to draw on brand. And the one thing that they have that, you know, startups don’t have, which is customers. It sounds really easy to give innovation teams access to customers, but the reality is, you know, the salespeople will say, “no, no, stay away from my customers”, because you’re gonna ruin my bonus, I need to sell, I don’t want you to talk to them about new ideas because they won’t make the sales they won’t close the sales now. So we need to create that separate entity, but taht’s just integrated enough that we can actually leverage the strengths of existing companies, large or small, right. You have assets, and that’s what makes an established company — again, small or large — different from a startup. There are enough challenges for corporations to innovate. So let’s use the strengths that they have. So it needs to be separate. But it also needs an integration part. And let me get back just to the different types of innovation: efficiency-innovation is really about making your business model and processes better: your existing. And that can happen inside of the core, you know, execution engine, the existing businesses, and you don’t need separate, you know, completely separate entity doing that, you do need to explore in a slightly different way. But when it comes to more transformative innovation, of inventing the future, or creating entire new P&L or growth engines, think Amazon Web Services: there, you really need a separate entity to be able to explore. So you know, it’s not that easy to design this kind of system, but we learned enough from the mistakes in the past, you know, how much to separate and how much to integrate, because it needs to be a mix of both because otherwise they’ll just be a start up and change that has to kind of struggle with the constraints of a large organisation. So we need to change enough that we can do both: manage the present, explore the future, but also really use the assets that corporations have that startups don’t have. Because right now in terms of funding, I still think startups are probably better funded. Not talking about R&D here. I’m talking about, you know, exploring new business and growth engines: startups are probably still better funded than corporations when it comes to exploring new growth engines.

Bill Fischer:
Alex, and of course you know, we’ve seen this with Nespresso right down the block and we started with IBM where they created the original IBM PC, the PC jr. I guess it had to be taken out of the Armonk and moved down to Boca Raton. So there’s a lot of history around what you’re saying. One of the things that I’m interested in, though, is — as you go through the different processes in the ‘explore portfolio’, which is, you know, separate but close — do you see a point where you say this is successful enough, let’s integrate everybody around the new model, or does it play out differently? Does it play out with the startup, in fact becoming the new present? And the old present, either being spun off or fading.. Or how does that work? I will tell you the reason behind my question: I’m wondering what the obligations are. So the people in the present, no matter how they work around efficiency and performance, they’re building a platform for the future to be explored. If they’re successful, they’re also putting themselves out of work. And so what I’m wondering about is what is the long term leadership obligation to the people in the present who are assumed to become the past? Does that make sense?

Alex Osterwalder:
Absolutely, I think that’s a central question to how we organise and, you know, thinking about the rigid, corporate structures that we have today, when one part of the business dies, we fire the people who get rid of them, and it shouldn’t be that way right? It should be constant renewing reinvention, where you know, okay, the value propositions and business models you have they go away, but those people should be reallocated. Those are, you know, capable resources. You should always be, you know, constantly reinventing yourself and shuffling around resources. Because, you know, if you take the explorers and the executors, guess what? The explorers at one point, you know, once they figured out a business small that can scale, then the whole thing goes into territory that they’re not good at, which is managing. So you already, you know, you have to, you know, maybe handover is not the right word you need. So you need something more delicate, but then it becomes part of the execution engine. So it’s not that easy that we say, okay, you’re going to build something new. And that’s the new entity. No, you need to share and move things around. Once a project is explored, there’s enough evidence to scale it, probably it’s going to be a different team or more resources from the traditional, you know, management, part of managing the present that are going to be added to that exploration to that new business model. So I think we need to really stop thinking about rigid structures where this old business model or business unit is dying, we’re going to fire those people we need to really constantly think about reallocating resources. And I remember a couple years back at the Drucker Forum, where the head of HR of W.L. Gore — also a very interesting company, very decentralised model — where she was explaining how they’re doing exactly that right: reallocating resources. So that’s one aspect of my answer, things really important to consider. And, you know, also for the exploration side, what’s interesting — take Amazon — they had a lot of big failures, but the people who are in those projects that failed, they didn’t get fired. They started working on new projects, guess why? Because that’s what happens in exploration, you’ll have a lot of failure, but you’ll learn from it. And it’s not the you know, it’s not a challenge that okay, these people screwed up is just that it was the wrong idea at the wrong time. So it’s really about, you know, keeping the best talent you have and reallocating it constantly. And that’s a real challenge for the rigid organisation structures that we have. Now, there was another part of your question, which was no one model that we’re exploring, replacing existing models that we have, I kind of split it into, you know, a couple of different, you know, trajectories. So I like the example of Netflix. When that was, you know, started as a startup that disrupted an entire industry. But when Reed Hastings and the co founders started Netflix, they already had this vision of streaming video. But the infrastructure back at that, at that time was not good enough. So guess what they started with? They started with DVD by mail order. And they worked towards a new business model. So it was, you know, almost like a long term vision that they worked towards, with a more approachable vision. That’s what I would call evolution. And the team grew. And then at one point, I think they’re still actually making money from a DVD by mail: funny enough. They grew into two structures, and they had some struggles with figuring that out. Okay, that’s one model of evolution. Now, if you take Amazon with Amazon Web Services, that was a completely new P&L that didn’t replace. So I think there’s this misconception sometimes in innovation, that everything new is going to cannibalise the existing or replace it. That can be the case. But it doesn’t have to be. So in the case of Amazon Web Services, that was an entire new Profit and Loss, it became a business unit and is today the most profitable business unit, not the biggest one, but contributes most to profit. So that’s a different organisational model where you actually need to open up a whole new space for this new business unit. And of course, you know, sometimes you do have the challenge of disruption. If we take you know, Gillette and that startup equivalent with $1 Shave Club to ultimate it was acquired by one of the big I think was Unilever right? There. You have more of a cannibalization relationship but again, rather than saying, okay, we’re gonna kill that old business unit and fire all the people there. We need to think a little bit more dynamically of how we are going to use the talent that we have there because we paid a lot of money to make them keep them world class, it makes no sense. Now sometimes, of course, when you shifting your business model to something new, where that talent doesn’t, you know, work anymore, now you’re IT based and there’s no more need for people who are not technology based, okay, that can happen. But I think we just need to generally be a little bit more delicate, more thoughtful of how we create these transitions, what types of transitions exist and how we, you know, work with talent and keep talent I think the rigid structures, kind of these, you know, this ownership model of this is mine and okay, I can’t have to protect it, otherwise, it’s gonna die. That’s exactly why we don’t see innovation happening in companies, because people who own a “P&L” they’re gonna fight you know, as much as they can against anything new. However, if you have a more dynamic model where talent is reallocated, people will not fight because they see it’s in the interest of the company because if they fight and kill everything else, the company is going to die. So it’s about getting people to associate more with the company rather than kind of the P&L that they might be leading or protecting. So long answer to a very, very important challenge, because I think we haven’t figured that one out totally yet. That’s one of the biggest challenges I think — and the both of you, right, with the research you’re doing — you’re working a lot on that more dynamic model, which I think is very exciting.

Bill Fischer:
Um, so what you’re suggesting is that organisations will increasingly move over time, from people who manage assets to people who manage opportunities to almost like giant incubators, rather than the traditional brand holders that we’ve looked at in the past, the focus will be on action, not on control. Is that right?

Alex Osterwalder:
So I’d say it’s both right because again, we have been managing the present. And that’s where it becomes a bit different from a huge incubator because there is a point where a business is mature enough and the leaders I talked to in companies, they say usually after $10 million in revenue, then it really becomes an entity that we need to scale and manage. So there is that part of managing and we need to be world class at that. And at the same time, and that’s the challenge we need to create this world class incubator where we manage opportunities. But what I do think is absolutely the case is we need to see things as you know, transit, right, going to Rita McGrath, thinking of the ‘transient advantage’. So anything that exists we need to see it as something that’s going to die right is a business unit, and when we know it’s going to die, we also know that we have to reallocate the resources from a core engine to new opportunity. So it is about that opportunity management. Two cases: one where it didn’t work and one where it work. Take Kodak, right, the old example that we always like to use, but it’s interesting, because they invented the digital camera, right? Or they really contributed to that. And they weren’t able to shift the business model. Well guess why? because they didn’t, you know, shift the resources aggressively enough away from analogue film in the factories that they had around that into new opportunities, not just digital cameras, but a business model that could be valuable around digital photography. They didn’t do that seriously enough. But now take Logitech, a Swiss American company, a beautiful turnaround in the last couple of years. Under the CEO Bracken P. Darrell. What did he do? He talks about what you just said, opportunities management, right? He says, look in a company you have seeds, plants and trees. Trees are those businesses that are mature, but they’re going to fall over, right? So you want to reallocate the resources back to the seats. And that’s exactly what he did. When he took over, he took 75% of the resources from the traditional, you know, periphery PC, periphery business, mouse mice and all that, and shifted it into new businesses like gaming, which you could say, oh, that sounds like a PC business, but it’s very different with different customer segments. So it is that opportunity management. But what it does still mean is you’re not just creating one giant incubator, you’re also maintaining an execution engine. Maybe a last example of showing that when you don’t do that, it can get very tricky is GE, right. So GE, under Jeff Immelt did some really interesting stuff around innovation, but they didn’t really and again, you know, I’m staying modest here. It’s easy for me to say I didn’t have to manage that multibillion dollar business, right, but they weren’t able to fix some of the core. So it means you need to remain world class at managing what you have, but start to reinvent yourself early enough. And that’s what we call ‘The Invincible Company’. No company can be invincible, but what you can do is constantly think of, hey, you know, we’re going to die. So we need to invent the future already. But that doesn’t mean we shouldn’t manage the existing because there is, you know, shelf life. So it’s about both right? It’s about creating that giant incubator, that little Silicon Valley within, and at the same time being world class at execution. And that’s the challenge. It’s two very different cultures under the same roof. And very few companies can, you know, get an execution culture and an exploration culture to coexist in harmony.

Simone Cicero 25:43
You know, all great points and I have like tonnes of questions, but I would try to stay focused on this topic for a few minutes more. But, so, if I think about this idea, essentially with all these opportunities that we have, the question that arises when I was listening to you is: how to make the case for innovating inside the organisation, for entrepreneurs instead of just, you know, being outside? And that’s a key question, I think, two aspects that I would like you to touch quickly on: what are the structures — both managerial structures or even infrastructure, technological ones — that are supposed to on the one hand support exploration? I’m thinking for example of functional aspects of the organisation that need to be integrated, and then are not subject to entrepreneurial innovation essentially. So what are these structures that the organisation needs to create on the side of supporting exploration? And on the other side, what makes the case for belonging? So what makes — you know, you work with a lot of cultures as well — and so what makes the case for entrepreneurs and for employees to belong to an organisation? I was listening to Rita McGrath — you you spoke about her a few times and a few days ago — and she was essentially depicting in this modern context of work, where do you have this top guns, people that are, you know, able to generate results and they roam from one organisation to another, they become like professional sports players that she said no. And so the question is twofold: how do you support exploration with functional structures, technologies? And on the other hand, how do you make the case for people to innovate inside an organisation? How do you create the ownership and how do you create the, you know, the real cultural space for them to feel part of something?

Alex Osterwalder:
So we split into three things in ‘The Invincible Company’ that you really can use to leverage your innovation, you know, exploring opportunities, but also managing the existing. The first one, and it almost sounds trivial when I say it, but I’ll get into details a little bit more in my answer. The first one is leadership support. And that is, you know, in terms of time, but also, you know, money, but also the portfolio reviews that you do every quarter to put innovation at the centre, and really show that leadership is serious about this, because guess what? If this is not on the agenda of all of your important meetings, if it’s not in the agenda of the CEO or a co-CEO, nobody is going to take innovation seriously, and everybody will see it as legitimate to shoot down innovation. And as Bill said, right, in most companies, the present will always win over the future, but that’s because we still have those blockers in place. So we need to work at the leadership level, to give innovation, power and legitimacy. Then comes the organisational design. So you need to put in place the right organisational structures to support managing the present, that culture. And in parallel, not instead of, but in parallel an exploration culture and how they can live in harmony. We created one job title, which I like to call the Chief Internal Ambassador, the CIA, the person in the middle with his or her team who creates peace between both sides and connects both sides, you know, opportunities with business units, business units with technological or, you know, value proposition, Business Innovation opportunities. But then the last one is also the innovation practice that you put in place. And I like to say, you know, you need to work from the bottom up from the innovation practice, creating a shared language, the same tools to use an execution and exploration, but then also top down, you know, getting the leaders to create the right structure an organisational system for this to take off. Now, there are a couple of things like what I just mentioned these levers that are the same across every single company. But then how do you actually work on innovation specifically: Do I mainly acquire? Do I mainly do homegrown? Do I mainly invest in startups? That will vary across organisations. So there’s some things that are very similar across all established organisations, across all industries or arenas, and that’s what we need to put in place. And then how you execute that can be very different. So an example you know, take Tencent they invest a lot in startups or Alibaba, but it’s not just an investment. They actually create the infrastructure data infrastructure, for example, so they can benefit from all of those very agile players. Then, you know, Haier, the both of you could speak more about that example again: decentralised, so you can work with internal teams to explore, you know, one that I know more is Amazon where they don’t make that many startup investments or they don’t do that many acquisitions, you know, smaller ones, they actually do a lot of homegrown and then they every now and then make very big acquisitions. Right. So I don’t think there is a one size fits all answer. But there are questions that fit every single organisation right? What is the leadership support you’re providing for World Class execution and exploration? What is the organisational structure that you are putting in place to get you know, exploration and execution to live in harmony and to share with each other? And what are the innovation practices that you’re putting in place? And again, you know, innovation is a word I think that means nothing let’s be very specific. And there is this difference between efficiency innovation which we can do with the existing structures, mainly about making things better. And we have sustaining innovation, which is expanding maybe the existing business model or business models with new value propositions, right, a car company creating a new car model. But then you also have the completely transformative innovation, which is about building business models for the future are completely new growth engines like, like Amazon Web Services, right. So we do need to work on those three levers. And then one thing you know, I was always asking myself, okay, what, what are the enablers for this to really start taking off? And I had a conversation with Scott Anthony, great thinker in the innovation space. He said, well, Alex, why don’t we just start with taking away the blockers because innovators, they’re motivated to innovate, and we’re just holding them back because we’re putting so many roadblocks into their path, that if we just start with that, we can already kick start innovation and then work towards world class organisational structures that really enable them, I think we can get huge wins by just taking away the blockers. Let me give you one example. This is a funny one, it’s my personal enemy. It’s the business plan. I still can’t figure out why established companies still ask teams who aren’t exploring idea to make a business plan on 40 to 60 pages, you know, drop in detail how they’re going to execute a fantasy that has no proof whatsoever with you know, wonderful spreadsheet and curve that goes upwards, you know, $2 billion, because the CEO happened to say, we need billion dollar opportunities. That doesn’t work. We’re forcing people to make beautiful PowerPoints, and great spreadsheets, rather than exploring and testing in the field very quickly, killing bad ideas, and changing ideas until they become really good ideas. That’s how innovation works. So Just taking away or killing the blockers would have a huge impact.

Simone Cicero:
Oh my god, Alex, I’m so thankful for these — I’m gonna record this and putting some chimes on the record, because it’s really, really something that comes back every time you speak about innovation, or the study of business cases and business plans. It’s really, you know, I think I’m gonna use this quick explanation, record it and use it a few times in the future. So thanks for talking about that. So maybe I can try to infuse another topic into the conversation that I think is also central to the research we are doing now. So, you know, we’re living in a world of network effects and also everybody’s connected, somehow also Rita McGrath again, that I’m gonna piggyback on a conversation she shared last week with Aperture. So basically, she made the point and said, you know, “markets work and now we have technology” and so it’s somehow unavoidable that the pattern of marketplaces and organising networks is going to pervade all, you know, the economy to some extent. So what is your take, and especially I’m interested in your point of view or marketplaces, as innovation drivers, and maybe, you know, for example, in contrast or in opposition to technological innovation. And also your take on essentially the role of the incumbent. I was listening to another podcast a few days ago with Erik Torenberg that with some guest, they were making this point and say, you know, incumbents, they have already the network effects, they don’t need to achieve network effects. They have such a big amount of customers that they can somehow generate these network effects much quicker than any other startup, and especially in a moment where it seems like opportunities for marketplaces are becoming more complex, you know, more complex in terms of business process and more complex in terms of investment and regulation. So what is your take on the future of marketplaces and the interplay with the cooperate?

Alex Osterwalder:
So first, I really do think there is an opportunity, I would call, you know, a marketplace, one type of business model innovation, right: there is not just an opportunity, I think there’s a requirement that companies move beyond competing on technology, innovation, product, service and price. That is a game you can’t win anymore, because you get copied so quickly, that you can hardly get a return on investment. What you really need to do is start to think about superior business models because when we looked at these, what we call Invincible Companies, we saw okay, yes, they constantly reinvent themselves, but they also compete on superior business models and they transcend industry boundaries, right? They don’t just compete on product and price. And I think the whole idea of a platform or a marketplace, that is one, we call that a business model pattern that allows you to compete beyond your product. Now, here’s the challenge, of course, you know, in many markets, you can only have one or two big marketplaces, what’s gonna happen to all of the other ones? If you take, if you take the mobile phone arena? Well, guess what? There are two marketplaces, right? There’s the Android platform, and there’s the iOS platform of Apple. And all the apps are built around that right. So there are two winners, and everybody else can’t catch up, right? Microsoft, you know, died with Windows Mobile because they couldn’t keep up not with developing the phones alone or the operating system. It’s because they needed to create this platform. But no, there’s no way anybody can easily catch up with Android and iOS. So that’s a great example of a platform, you know, that that that they created around a product. So that’s the challenge for many companies. Well, if you are not number one or two, is there a space for me? Right? So it becomes a little bit the Holy Grail that companies are working towards. But I don’t think that many companies are doing that deliberately or doing it well. So that is a typical business model pattern that can be extremely powerful, and very hard to disrupt. So I definitely advise people to go more in that direction of those kinds of marketplaces and platforms. So definitely a wonderful way to differentiate, but there are also many other ones. So I don’t like to be dogmatic and say everybody needs to become a marketplace. So you know, when you know you are in the space of Apple and Android, well, you know, it’s gonna be hard to be You can’t be the third marketplace, it’s going to be very hard. So you need a different strategy. So I always think, to find the right strategy at the right time, in order to create your space, but if you can be, you know, the one or two, the second company that creates a marketplace in your arena, wow, then you practically become you know, “indisruptible”. It’s very hard. It’s very defensible business model. It’s very hard to disrupt an established marketplace. It can’t happen, you know, to a certain extent you know, we could call MySpace was a marketplace so it can happen. It was that marketplace for content you know, mainly musicians at the beginning it can happen but it gets really hard.

Simone Cicero:
I wanted to shift to the conversation in a new space, as we entered the final part of the conversation. I know that you are very thoughtful about these so I’m looking forward to your reflections. So, we spoke a lot about the present and the future and also, somehow today’s we are living now and also the days of the pandemic, I think, pushes us a little bit into the present a little bit more. So, somehow we know the Greeks have this idea of time that has two nuances, no, that is the Chronos which is all about today, tomorrow and the future and the past and that is Kairos. No, that is more like the moment we are living, and especially the special moment we are living. So in terms of you know, business model transformation, culture, transformation, organisational transformation, what are your thoughts, in terms of thinking how organisations can — and are possibly re-embedding themselves — inside the present? So inside it for example, their responsibilities for ecosystems, for communities for landscapes. So are we somehow seeing a shift in perception in companies to be more grounded in a concept of innovation that doesn’t necessarily only work in the future, but also works in the present? You know, how do we innovate for example, the way we show up in the world as organisations, how we deal with our constituents with the ecosystems that are impacted from our work? You know, somehow one starting point for this reflection that I can offer is that it feels like we are perceiving a shift from the user experience as a driver of organisational development like Joe Pine, taught us in the last decade into something that is more like a health. So something that is more systemic, you know, so how do we have organisations that fit into society at large and are driven by care and health instead of just, you know, providing people with enjoyable user experiences, what are your thoughts on that?

Alex Osterwalder 42:07
So I think that, you know, we’re going through a pretty radical time now. And I think there’s a shift that is going to happen. Here’s reliving a big crisis, where corporations really have to ask themselves about their role, how they’re, you know, organising and what their team members mean to them. And I want to bring it back to you know, you’re talking about the role of incumbents. And, you know, sometimes people say, Well, you know, I think startups should be the future and it’s just normal that established corporations at one point die. And I think that’s a very easy thing to say when you’re sitting at a comfortable table, you know, you’re getting paid your salary, or you know, every month or so, but the the costs behind a large established company going bankrupt Or, you know, tens of thousands or hundreds of thousands of people being fired. That is not something, you know, we should have to go through. And I think that’s what we’re seeing right now. You know, the way corporations are treating their, their team members, the big difference between how, you know, Disney fired 100,000 people or how Airbnb, you know, separated paths from 25% of their team members. That is a huge difference. So that’s one aspect there is a really, really important rule of innovation that contributes to, you know, a more stable workplace when companies can reinvent themselves. They don’t have to fire people, right. And that, I think, is almost a moral obligation. So I can’t get excited about just helping a large corporation create new profits for shareholders, it just doesn’t excite me right. But if I can help in order organisation, do better work more meaningful work and create better workplaces and grow in the process and create more profits. That’s when I start getting excited, because then I really make a contribution to the world. And that’s exactly what a lot of companies are now starting to think. Right? So Airbnb is a great example of trying to do that. And then innovation doesn’t just become a means to create more profit, which is not bad. That’s great. That’s how capitalism works. But it’s not at the expense of the environment. It’s not at the expense of team members. It’s so we can continue to collaborate together with the talent that you brought into your company. That I think is the interesting thing that we can do with innovation. And you know, I like to say, great companies, they do four things. Number one, they create value for customers because otherwise like, they’re not going to earn any money and they’re going to go out of business. Number two, they create value for the organisation because they need to capture some of the value that they create for customers. But then number three, they also create value for their team members, a great place to work, you know, decent financial remuneration, all of that, right, helping people, you know, work towards what they really aspire to be. But then the fourth one is also the role in society, right, you know, contributing to society, in terms of a better workplace in terms maybe they like the environment like Unilever did, or a social impact, right. And those are the kind of things that you see in World Class organisations. And that really goes back to you know, companies playing an important role in society, not just making money for shareholders. That is not a bad thing. But that’s not the only thing but I really do believe organisations have an important role to play in this society, because we’re spending a lot of our, you know, waking hours at companies so guess what? We better create great workplaces. And that’s not really the case right now, seven out of 10 people — research shows in North America — they don’t want to do what they’re doing at the companies they’re doing. That’s really sad, right? We have to change that. And that’s where innovation and the organisational structures we put in place really starts to have a real meaning beyond making more profits for companies. I can’t get excited about that part. I think we need that that’s an essential part of, you know, growing, but it can’t be at the expense of all of the other things that I mentioned.

Bill Fischer:
I agree with what you just said. I have two questions. One question is very short. And does that mean that this flirtation that we’ve had with the user experience, which has driven design thinking and all of the innovation changes that have come, that could come from that? Do you see that fading a bit and other social concerns becoming equally important on the way we deploy asset, obligations to workers? Or is it full out on customer experience, and we’ll have to figure the other things out as we go along?

Alex Osterwalder:
I wouldn’t say it’s fading, I’d say we build on top right. That’s why I mentioned that for me, it’s almost like four layers, right? We create value for customers. That’s all about the user experience, you know, really, are we really creating relevant value for customers and users? That is fundamental. Without that we have no reason to exist as a company is less and less probable that you can survive if you’re not creating good user experience, like who goes out and buys crappy products. Nobody does, right? But then the second one, of course, is creating value for the organisation. You won’t survive if you don’t capture value for the organisation which comes back to business model innovation, which comes back to the portfolio management. It’s not enough to create value for customers. You can still go bankrupt, right? Is Kodak creating digital cameras that people love? They went bankrupt. Why? Because they couldn’t reinvent their business model. So you have to think about the second one. And then the two on top, I think those are the trends that are happening again on top because you have to have the first two, which is creating value for your team members. Because guess what they’re gonna leave, right? So it’s just, it’s again, it’s not, because you just want to be a good person, good leader or good company. It’s because you have to do that if you want to attract the best talent and it’s this cheesy thing right out of the war for talent or so. But guess what? That is really starting to become real. People don’t want to work for organisations that are not creating great value for customers. But that brings me to the last one. Today, a lot of people don’t want to work for companies that don’t have a really good purpose anymore. That’s why social and environmental impact becomes so important. And again, It’s not just “to create a better world” It’s because it’s just good business. And that’s where I really love. You know what Paul Polman did with Unilever when he was CEO, he showed that long term thinking and focus on sustainability is not at the expense of profit. It’s actually in the interest of profit. And guess what happens? You also happen to attract the best talent. So I’d really argue that it’s not one is fading, you know, or another one is taking over. It’s okay, I think we’re pretty good now at creating good customer experiences, great products. We’re not too bad at that. But we are still pretty bad, if I may say from what I see, at business model innovation, and we’re pretty bad at the other two. It’s not enough for companies to have started, so I’d see it more as layers that you need to build on top of each other.

Bill Fischer:
Okay and in a recent conversation with Martin Reeves of the Henderson Institute BCG, where you said that there’s a new type of conglomerate on the scene, and it’s defined, it’s being defined by the synergies between the business models that are in the portfolio, whereas the old conglomerates took pride in being independent from their business models. Could you say a little bit about that? And who is it that within the organisation within the invincible company who makes the call on assessing those synergies?

Alex Osterwalder:
Absolutely, that’s that’s a great question, right? Because sometimes we get confused, right? And say, “well, you know, those are completely different business models”, we should get separate, we should separate from this or that. But you know, again, just quickly to go back to Amazon — bit boring to use the same example but it is a really good one of a company that built a true business model portfolio where they’re very strong synergies -, and what’s interesting about that case is when Amazon started to invest in Amazon Web Services because they, from their first experiments, they saw traction, they did have to invest billions of dollars into the infrastructure, the stock market and the analysts hated it. They said, “what are you guys doing? You’re an e-commerce!” This is pure stupidity, focus on e-commerce. And of course, you know, visionary entrepreneur, Jeff Bezos, he was more into we’re building growth engines. And we’re building growth engines, you know, where there are strong synergies because the backbone of their e-commerce empire and their infrastructure empire is the same. They didn’t need to invest to scale that platform. But it’s actually the same infrastructure. And if you want, Amazon is clearly becoming an infrastructure player. And they just happen to start testing with their own business model first, before they move completely towards infrastructure. They did that with Amazon Marketplace, they’re giving their competitors their own infrastructure, but they’re earning from it. You know, they did it when they acquired the, you know, Whole Foods, the same thing, right, they’re also going to over time offer the same infrastructure to other corporations. That’s a wonderful example of a business small portfolio with very strong synergies. You could say Tencent, in a very strong synergies in terms of data. At Ping An with oneconnect, the banking infrastructure that they create for other banks, very similar to the Amazon model, you say they almost copied that. So that is an incredibly strong play. And when it comes back to who’s actually going to make those calls? I do think that is now really the domain of the leadership to create that strategic direction. And that portfolio guidance, so everybody actually knows what’s in what’s out. Because, you know, I do think those different business models and wherever they land they still need to keep that independence a little bit like in the old conglomerate, there should be autonomy. Because otherwise, you know, this is not a centralised system. We know that doesn’t work. There’s synergies, but there’s also autonomy. And that comes back to we could say, you know, platform business model, Amazon, built it on infrastructure Tencent, maybe on data. So what is that underlying infrastructure that makes you unique, in order to compete in very, very many different arenas, and that’s where it’s gonna get interesting, where you have companies like Netflix, extremely powerful, but they don’t really have a business model portfolio, right? How are they going to survive against that? Apple, Amazon and Google? We don’t know yet. Right? Right now, they’re still ahead, but it’s gonna be interesting to see if they as a more you know, one business model play will survive against others, which are no portfolio place like Disney, Apple, and so on. So very interesting, but the leadership needs to create that shared direction. That that strategic vision of where we’re going, and what those synergies kind of are right while providing the autonomy to the different parts of the business to continue to make the right decisions. And again, back to Logitech to take an example that maybe is not used that much bracket around as the CEO really believes in entrepreneurial thinking. So he wants the teams the different parts of Logitech to be very autonomous, to be very entrepreneurially driven, while contributing to some of the shared infrastructure and some of that shared infrastructure is how Logitech, you know, puts devices out into the world that the large retail network and partnerships that they built that’s very hard to copy, right? It’s easy to make devices. Easy relative, right, but to copy devices that Logitech makes, but that business small part of having an incredibly strong retail partnership network, that is what makes it unique. So I think every company, the leadership has to create that strategic direction. What are we really going to focus on? What kind of organisational design do we need? What brand image do we want, and then create portfolio guidance. So this independent, you know, kind of units or pieces know exactly, you know where to go and you know how to play. So I think that’s the way I see it, and I see more and more organisations moving towards that new type of conglomerate. It’s really interesting to see this evolution. I think we’re only at the beginning.

Simone Cicero:
Alex, one quick question before you know before Bill closes the conversation, I think, with some considerations. One quick one that I wanted to ask you to give me your experience in creating these models. It’s really the role of a common language and also sometimes, you know, contrarians or generally, critiques of models and languages, of common languages raised this idea that innovation cannot be standardised. So what is your experience in, you know, the importance of having common practices, common tools across the whole organisation? I suspect that this plays a role and also in reconnecting these with the leadership, right.

Alex Osterwalder:
It’s a very interesting question because, you know, it can go into the extreme. So, I believe we need tools and processes to make these things, you know, more structured but without stifling creativity. But the moment I learned my lesson was when I had a meeting with Bracken P. Darrell and he said “Alex, isn’t this, you know, isn’t creativity about no structure?”, so I had to almost overshoot it, the way I was explaining these things that it became like, “oh, this almost feels like an algorithm”. But innovation is not an algorithm, right? It’s this fine line between art and science. You need the visionary who has a direction. That’s the artistic part. But guess what, you know, Steve Blank, the founder of the Lean Startup movement, he likes to say, well, you know, there’s a fine line between vision and hallucination. So you need that science part where you’re constantly testing and adapting your ideas until it really makes sense. But again, you can overshoot there, you know, you need to have this balance between the creativity and the vision and the rigour of testing and changing so that’s what we what we really need in order to kind of move into the right direction. So, you know, I think the tools and the processes leverage the creativity of human beings. Think of Roger Federer, you know, world’s best tennis player, some Nadella fans might disagree. But, you know, you don’t wake up one morning and become a world class tennis player. There’s a lot of hard work and training. But there’s also you know, over time very clear training methods that work or that don’t work. So we need to get to that level of professionalism, where we bring the right processes and tools to the table to become innovation surgeons and become very professional in the way we do this. Without stifling the creativity of human beings that will always remain a central part. But again, you know, you don’t want your surgeon to show up and say, Oh, I went to this workshop over the weekend. I’m going to snip it around you know, you know, because I learned this new procedure. No, it’s a profession, innovation. So we need to find that right balance of being professional in the way we creatively explore our ideas.

Simone Cicero:
That’s great, and then that will lead to up for the closure. I think that the example of the tennis player is great, no, because from your familiar answer, I get that discipline is fine when it’s learning focus, and also when you really discipline adopting this discipline to test more, learn more, not just because you will end up doing lots of PowerPoints with smaller canvases on that. So totally, and I think Roger Federer had this, you know, continuous feedback system with play matches with, you know, with other players, which is somehow something that I think corporate leaders need to ensure that they, their teams are really in touch with reality all the time.

Alex Osterwalder:
And what I add to that is actually also the experience, right? So we always can have this cliche image of the young entrepreneur, you know, on the cover of a magazine, but the reality is, if you look at the data: turns out that the most successful entrepreneurs are after 40 years of age, and that has to do also with the experience. Innovators and entrepreneurs get better with experience because they’ve learned so much because they’ve made so many mistakes. So it’s not just about the training. It’s also about the experience that you accumulate, you won’t make the same mistakes. And you know, in Silicon Valley, there’s this joke that you know. How do you call a failed entrepreneur? Experienced, right? So, the most seasoned venture capitalists, they don’t like investing in first time entrepreneurs because they know they don’t have the experience, they’ll make really silly mistakes. So we need to start seeing innovation as a profession with tools and processes that you can actually learn. That doesn’t mean like in tennis, not everybody’s going to be a Roger Federer, but you need some system, you know, to actually get to the next level.

Simone Cicero:
Like a martial art. Let’s say.

Alex Osterwalder:
Exactly, exactly.

Simone Cicero:
Bill, do you want to close with a final reflection so we can free up Alex?

Bill Fischer:
What we were just talking about, it’s really important. I also think that innovation, which used to be the servant of leadership, if you will, to the extent that innovation was ever anybody’s servant, really now has become a source of instruction for leadership. And so one of the things that I think is that leaders think about the lessons that we’ve learned from design thinking and, you know, prototyping, pretotyping and lean startup and all these things, that those are now becoming more and more increasingly general management tools rather than just the province of technology. And I think that’s an amazing turnaround for our time. But that’s not the question. Here’s the question. I read the book. It took me the weekend. I enjoyed it. Thoroughly. I’ve told you before that, I thought Business Model Canvas really changed the way we think about innovation. I still believe that’s true. But when I read this book, this book really took that conversation — the book is ‘The Invisible Company’ — this book really took that conversation to a much higher level to a much more sophisticated and much more strategic level than any of your prior books. And my question is, when did you see that that was possible? Did you when you were writing Business Model Canvas? Did you already know that in some way or some fashion? You were going to do this? Or did this come about someplace else along the journey that you’ve gone through?

Alex Osterwalder:
That’s an interesting question I’d like to answer with, of course, we’ve seen it you know, we work towards that. That would not be the truth. Right? So actually, you know, every time we create a new tool, business tool, we create it, we write a new book, or craft a new book is very visual, we ask the question, does the world need another business book? And the answer should generally be no, and then we arrogantly “yes, it does”, but it’s because it’s informed by what we see in the field. So I always see, you know, when I see a company that can’t innovate on a large scale, I see it as a personal defeat. I don’t say oh, they’re stupid they don’t know how to do this. I see it as “damn what did we still do wrong that we can’t get them to that next level?” Right so we started with the Business Model Canvas and I think that filled a gap, you know, took off, but it wasn’t enough, right? Then we put this stuff together with Steve Blanks work, Eric Ries’ work around Lean Startup still wasn’t enough. So we wrote one book after the other. But you know, about three years ago, two to three years ago. For me, it was very clear that we need to create a shared language at the leadership level, like we created at the doers level with the Business Model Canvas, and that’s when we started with Eve, we went to the mountains, we took two days locked ourselves in, did some walking of course, but then we asked what is that shared with language for leaders. And that’s when we developed the Portfolio Map, because in established companies larger or small, you don’t, you don’t just look at the business model, you allocate resources into different business models, actually your portfolio and it’s your portfolio existing. And if you’re really good, at your portfolio of the future, right, present and future. And that’s how the whole thing started. And then we just, you know, looked at the experience we had in the field, what are all of the things that leaders are really struggling with, and we tried to kind of condense that into something that would be usable for them. I think the challenge we had with this book is we didn’t want to make it just in quotes for a small group of senior leaders. We wanted to make a book that is for everybody, while it targets senior leaders with that language to do portfolio management. We also wanted to, you know, bring business people in general entrepreneurs to the next level with a Business Model portfolios, so we created this mix of what we think were the missing pieces in innovation. And again, I don’t want to be arrogant. There are a lot of people who wrote great stuff. And we really built on top of that, there’s been a lot of stuff around the ambidextrous organisation for many years, and your work great, you know, really moved the needle, we’re just, you know, I sometimes laughingly say we’re the plumbers of innovation, we tried to create those tools that might have still been missing for this to scale and take off the user experience and user interface of those tools that help all of the knowledge that we’re building on really take off because at the end of the day, you know, we have to ask ourselves the question, what is still missing, that is holding these these corporations, large and small, same for small, medium sized companies, what is holding them back from really investing in the future. Because many are being disrupted and now COVID-19, you know? we’re all disrupted, what is holding them back from doing the right thing? That’s the question we try to ask, and we contribute in our small way with the tools that we put forth in the conversation.

Bill Fischer:
I’ve just been delighted to be part of this conversation, Simone.

Simone Cicero:
That’s great. I mean, I don’t have much to add on top of your excitement. I think our listeners would really enjoy that. And Alex normally I finished the the calls by asking the guests to say, you know, let’s tell the listeners where they can find your work but I think with you it’s it’s more easy now because everybody knows about Strategyzer’s work, but if you want to say a couple of things about what the what people can find your latest thinking,

Alex Osterwalder:
yeah, just you know, either Google, Alex Osterwalder or go to the Strategyzer website, you get a lot of stuff for free. And we, you know, always put out a quarter of the book for free — I believe in this idea of freemium — give people a taste or a teaser, and then they can decide if they like it. So that’s something you’ll find on the Strategyzer website. But then I would also encourage people to just take the best thinking out there, you know, beyond ours, you know, Simone, that the research that you are doing, Bill, you know, the books that you wrote in the research that you’ve done over the years, I think if we really want to be professional innovators, we need to draw on this knowledge that has been created over the years and become more like, you know, surgeons, and I like using that profession because they constantly continue and might have a little bit of an idealistic view of surgeons, but the medical profession, you know, does constantly try to improve and the, you know, the rigorous in that exploration of better processes to get to the next level. Now, the difficulty of course, we’re talking about social sciences, some moving pieces, not living organs for this natural science. But I do think, you know, if we really want to be innovation professionals, we need to draw on the best work out there from the best innovation thinkers and doers.

Simone Cicero:
Totally, never stop learning, you’re right. So thanks very much, Alex. It was great. And we really look forward to talking to you again, maybe in the future. So, thanks again. You want to say hello to our listeners.

Alex Osterwalder:
Thank you very much. Simone. Thank you, Bill. This is awesome, great conversation.

Simone Cicero:
Thanks everybody for listening, and we’ll catch up soon