“Uncertainty is when you’ve defined the variable but don’t know its value . . . But ambiguity is when you’re not even sure what the variables are. You don’t know how many dice are even being rolled or how many sides they have or which dice actually count for anything.”
– Dev Patnaik, cofounder and CEO of Jump Associates
The quote above comes from a recent Fast Company article on Gen Flux. While the distinction he draws between ambiguity and uncertainty may be somewhat arbitrary (and smack of a marketing sound bite, especially after a glance at the Jump web site), it is useful in exploring some of the fundamental challenges faced by companies in an environment of accelerating change.
Innovation has been the Holy Grail of profitable growth for some time. Thought leaders have identified numerous principles, frameworks, and methodologies for cultivating it. More recently, companies have come to appreciate the value of innovating beyond just products and services, thinking holistically about novel ways to create and capture commercial value from an offering, what I like to refer to as business model innovation (BMI).
Business model innovation is what start-ups and entrepreneurs have been doing since the dawn of the capitalist system, but they haven’t bothered giving it a catchy name. They’ve been too busy running their businesses, I suppose, to be so self reflective. This is why I frequently refer to launching new ventures and BMI almost interchangeably.
Seeking to shape (rather than just be shaped by) the inevitable changes from technology and globalization, large, established companies (of the Fortune 500 variety) are looking for help launching new ventures, hoping to understand and codify what it is entrepreneurs and start-ups do every day. They need help with business model innovation.
In another quote from the same article, Patnaik summarized well the difficulty these companies are facing: “Most big organizations are good at solving clear but complicated problems. They’re absolutely horrible at solving ambiguous problems–when you don’t know what you don’t know.”
The management discipline as a whole has gotten very good at scaling and optimizing businesses by controlling variability, increasing productivity and driving down costs. Innovation, however, depends on experimentation and risk taking. As the Silicon Valley adage goes, “Hurry up and fail so that you can succeed sooner,” suggesting a necessary tolerance for costs (in the form of failures) that do not always lead to clear, direct or immediate returns. How can a publicly traded company, tied to quarterly earnings and at the mercy of short term investors, ever succeed? This is why Facebook waited so long to IPO and why Zucky felt compelled to write his letter to investors.
As Eric Ries advocates in his book The Lean Start-up, management as a discipline needs to develop a new set of tools and metrics for ventures set up in an environment of extreme uncertainty (which Patnaik might call ambiguity). In some regards, what Ries offers is a synthesis of his tacit knowledge as an entrepreneur, preceding works on entrepreneurship (such as Getting to Plan B and The Four Steps to Epiphany), and more traditional management thinking, such as Six Sigma and Lean Manufacturing.
With his lean start-up concepts, Ries has really advanced the thought leadership around business model innovation (even if that may not have been his explicit intent). Nonetheless, much work remains to adapt these concepts more specifically to those characteristics of a large company that make it different from a start-up in the typical sense of the word (e.g. the two people in a Silicon Valley garage).
Fortune 500’s have existing businesses that are both an advantage and a burden. An advantage because resources at the existing company can be leveraged to launch a new venture. A burden because launching a new venture frequently requires a Cultural shift – with a big “C” intended to include all that goes with how a corporate culture is expressed – all while still ensuring nothing is done that will prematurely disrupt the existing revenue streams (although planned obsolescence or intentional “cannibalization” may be warranted). Sound easy? Maybe the bootstrapping entrepreneur is really better off after all.
The inherent tension is why companies use a variety of techniques – from joint ventures to pilots to corporate venture investing to spin outs – to insulate new ventures from the influences of the existing business. Setting up these kinds of structures – what I think of as minimum viable business models, borrowing from the concept of minimum viable products – is a competency companies are still trying to master because most have only had to do it only infrequently in the past. They still tend to rely on consultants (like me!) for help.
In the next few posts I intend to expound further on how established companies can successfully use business model innovation to deal with ambiguity and continually reinvigorate their existing business with new ventures. The future belongs to the companies that learn to operate with a split personality, one concerned with scaling and optimizing proven concepts, the other testing and incubating new ones. Business model innovation is the key.