Business model innovation is most likely to succeed with small, low-cost, low-risk tests precede choosing a new direction.
Starting with tests of business model innovation is always a better idea than simply implementing a new idea. Specify that each test must reasonably provide reliable information about:
(1) how much ultimate consumption and intermediate demand changed as a result of the test
(2) whether these changes in consumption and demand are likely to be permanent to the same degree
(3) operational problems that the test created along with suggested solutions
(4) effects on costs due to the test
(5) what difficulties would be presented by expanding the test throughout the organization
(6) what went unexpectedly well and poorly during the test, and why
(7) what the long-term impact of implementing this new program is
(8) a forecast of the resources needed and results that will likely be obtained by employing what was learned, and
(9) proposals for any other tests that need to be run to take advantage of what was or could be learned.
After your organization has chosen to pursue whatever tests it finds most attractive and can afford to do, you should then call upon your partners and suppliers to see if they would like to take lead roles in testing any of the other opportunities. In many cases, the potential benefit to them and resources available from them can greatly expand the scope of tests that can be pursued.
After you have explored whatever proposals make sense from partners and suppliers, share your opportunities to provide more benefits with customers and end users to see if any of them would like to take the lead in establishing tests. This is particularly powerful because it provides a potent look at how valuable their initial perceptions are of the benefits they would receive. In most cases, you will be providing some funding and personnel through a team approach. Cooperation should, however, lower the cost and make the results more likely to bear fruit.
Unfortunately, a good opportunity may be represented by a poor test proposal, while a poorer opportunity may have a wonderful test outlined. Now is when to choose your initial bets. How should you choose?
Before deciding, make the proposals available to all interested people and organizations, and ask them to comment on what the company's risks are if the test fails. Also, ask them how the nature and size of those risks could be reduced. Invariably these reviews turn up important problems that have not yet been identified and dealt with.
After attaching what you have learned from the risk review, then ask the key functional heads to tell you how much is the least amount they would agree to increase revenue and profit budgets for during the first year after the new approach was implemented, following a successful test of each proposal.
Although these amounts will provide little accuracy about what the test will prove, they are usually quite accurate at differentiating the larger potential areas from the smaller ones. You will probably receive over 70 percent of the demand improving potential from 10-30 percent of your potential tests. You don't want to leave out one of those few tests that has the highest potential.
If you suspect that certain proposed tests cost more and would take longer than is absolutely necessary, challenge the proponents to speed them up and reduce the costs before agreeing to or dismissing the proposal.
Copyright 2008 Donald W. Mitchell, All Rights Reserved
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