Interview with Design Thinking Leader Steven Forth on What Makes Business Model Innovation So Challenging
Ibbaka is a consulting and technology development company focused on helping companies bring innovations to market and to help them to scale. IdeaScale was introduced to Ibbaka because they are working with us on a very special project to help us innovate on our business model, but we were impressed at their experience, conversancy in design thinking and innovation and passion for subjects like growth models. They’ve authored a great deal of work on all these subjects, but we thought it would be interesting to settle down with Steven Forth, Ibbaka’s co-founder who is an expert in pricing, team building and obtaining value from innovation.
IdeaScale: So, how did Ibbaka get started and what do you do?
Steven Forth: Ibbaka was founded by a group of six people who have worked together in different configurations over several decades at different companies on different open source projects. And our goal in the world is really to help organizations grow in the ways that are meaningful to them. We do that in several ways:
One is we help companies understand how they create value and who they create value for and how that value is different from the value that other organizations may be trying to create. We do this, because we’re trying to support what we call the “value cycle.” This relates to pricing, because if you’re not sure what your value is then you’re not able to price effectively which means you’re not able to continue to innovate and grow.
There is another side to our work, which is around enabling performance. This means we work with companies on their skill and competency models. We try to understand how people develop skills, how they apply them, how they combine with other people. This helps us find new patterns of skills and helps us understand how those things contribute to innovation and growth.
As a result of this, we’re sharing with the world what we call open competency models. An open competency model is a model that is open in the sense that it’s distributed under a Creative Commons license so that anyone can use it but also repurpose it, so long as they’re willing to share about it.
IS: Why did you name your company Ibbaka?
SF: We were looking for a unique name that we could fill with meaning. My Co-Founder Karen’s daughter Sarah was studying Egyptian hieroglyphics and Karen noticed three glyphs that appealed to her.
Ib = Heart
Ba = Personality
Ka = Creative spark
So Ibbaka is about helping people express their personality (unique value), connects to purpose (the heart) and does so by fueling their creative spark.
IS: What’s an example of an open competency model?
SF: The one that we are investing in quite heavily right now is one for design thinking. It covers the different roles in design thinking, the behaviors associated with those roles and the skills that enable those roles.
There are currently six different roles, we are about to add a seventh, and there are roughly 55 to 60 skills documented. The reason I’m not sure about the number is that the system is dynamic and new skills get added in and sometimes subtracted through our AI.
IS: How did you discover those six roles? And what made you decide to add the seventh?
So the six roles: we are very active in the design thinking community and have been for more than a decade. We also manage the design thinking group on LinkedIn, which has about 174,000 members. We uncovered these roles through a combination of looking at the roles that people actually play in design thinking projects and through a lot of surveys and interviews with those in our design thinking community. We made sure to speak with thought leaders and experienced practitioners, but also with people new to the field (the beginner’s mind provides important insights) and with people in HR responsible for building new capabilities.
We actually have an artificial intelligence application we’ve developed over the last few years that helps give us insight into how these things fit together and we’ve used that to inform the model and keep the model open and dynamic. Now, we’re sad to say that we missed a very important role: someone who is the champion of, or accountable for, diversity and inclusion.
One open question is whether values should be included in these models. About two and a half years ago, we reached out to the design thinking community (primarily through LinkedIn, but also in other ways) to trigger this conversation and we got far and away the most engaged response we’ve ever had to any of the things we’ve done with that community. About 70% of people said, “Of course we should include values in our model. Values are critical to any kind of work that one is going to do with innovation and design.” The other 30% said, “That’s ridiculous. Why are you even asking that question? Values are outside of the competency and they should not be included.” I actually got a surprising amount of hate mail on this!
IS: How is value at the center of both pricing and an innovation strategy? How do you put it at the center?
Back in 2006, I encountered Tom Nagle’s work on pricing and read his classic book The Strategy and Tactics of Pricing. Tom Nagle is really the father of value-based pricing. And he’s the person who developed a lot of the concepts that we use. Before him, most people would say “pricing is easy. You take the price elasticity of supply. Price elasticity of demand and you find out where they cross and that’s your market clearing price. And there you go.”
In fact, Tom had said that to the dean of the business school that he was engaged with when he was a young man. The Dean was a sort of gruff old guy who said “Yeah. Do you think so? I’d like you to go out and talk to some of our customers and see if anyone knows what their price elasticity of demand is.” And of course, in B2B, if it’s not a commodity, then nobody knows it. You can estimate it. And in some cases it’s useful, but it’s not a knowable thing.
Tom realized that what really is important for pricing is understanding differentiated value, so answering the question “what value do I bring to my customers that they cannot get elsewhere?” is the most important thing and it is this differentiation value that really creates pricing power.
At Ibbaka, we’ve realized that economic value is only part of the equation and that the emotional and community value are also absolutely critical to understanding the whole field in which one is operating and innovating. I would actually go so far as to say that if you are only offering economic value and you cannot make that emotional connection you are not going to be successful.
There are many different ways to create differentiation. Let me give you an example. There is a landfill company in New Jersey that has a very strong differentiation. Now you start thinking about that: It’s landfill who cares? It could be dirt rocks, mud, sand, old refrigerators, as long as it fills up the space. So how do you differentiate a landfill company? The answer these guys have is quite creative. They say we will guarantee delivery within a 30-minute window.
Now, when you think about it, for their customer, the contractor, the biggest expenses are generally labor costs. Having a bunch of people and equipment standing around waiting for the landfill to arrive costs money. So if you can guarantee delivery within that very narrow window, that’s differentiation and that’s value. They are able to charge a premium for their landfill.
The downside here is that whatever your differentiation is today will not be your differentiation tomorrow. Other people will find ways of copying it so that it is pulled into the commoditized part of the offer. Innovation is never complete. You have to continue innovating because whatever you do today that is innovative will be table-stakes tomorrow.
IS: So what is business model innovation or how would you describe it?
SF: Business model innovation is primarily innovations on how you create value for specific market segments and how you capture part of that value. It’s around both models for creating and delivering value, and also capturing part of that value in price.
The other way we think about this is in terms of the growth model. Product-led growth is an extremely popular model these days and it can get misapplied to businesses that want to execute on product-led growth but don’t operate in a low friction market. We need some other growth models. At Ibbaka we’re working on archetypes for these: service-led growth and community-led growth.
Service-led growth occurs when one leads with services, but delivers the service through software. The software is provided as a subscription, so there is a recurring component to the revenue. The software gathers data, that generates insights, that drives additional services. The result is a positive feedback loop or growth flywheel.
Community-led growth is going to be very important over the coming decade. You grow by creating a community. The larger the community is the more value is created for everyone involved. This can also create a positive feedback loop, that is to say, a growth flywheel.
We are beginning to see another archetype. We don’t have a name for this yet, but let’s call it architecture-led growth. There are some companies that have a very complex technology, service, data stack that allows them to solve a problem that nobody else can really solve. For example, there’s an Israeli company called Ree that has created a new model for the electric vehicle. It is highly modular and configurable and has real innovation. For example, the engines are inside the wheels! It’s brilliant. Architecture-led growth, like all other growth models, requires a growth flywheel. We are working out when and how this works for this strategy.
IS: We hear over and over that business model, innovation is one of the most difficult innovation initiatives that accompany can undertake. Why do you think people say that? Do you agree?
SF: Yes, I do. The reason is that companies very rapidly optimize for their current business model. All of their processes are designed to optimize for that business model, but re-structuring business processes and culture for a new model is much more difficult.
I’m actually going to take a step back. One of the things that we see is that organizations go through three phases: where resilience is valued; where adaptation is valued and where efficiency is valued. Historically we have seen that most organizations spend roughly 70% of their time in the efficiency phase space.
As you become more and more efficient, you lose resilience and you lose the ability to adapt. Then, something like COVID-19 happens, and all of a sudden resilience is very important. But companies that are highly resilient can fail to adapt. They don’t need to adapt because they’re so resilient, so there’s another very difficult trend phase transition from resilience to adaptation. But eventually successful adaptations emerge and the economy starts selecting for efficiency again. At least until the next shock comes along.
So there’s this cycle from efficiency to resilience, to adaptation. Each of these phase transitions is hard because processes, habits, compensation, structures, rewards, reporting, skills and competencies are all organized around the current phase. The transition from phase to phase is always difficult and some organizations will disappear along the way.
One company that I really like is a company called ThoughtExchange. They actually help people understand how consensus evolves through distributed conversations. Two years ago when I was working with them they had ninja teams. The ninja team’s sole purpose was to introduce new ideas, new processes, and new software into the organization. Most of the organization was churning away on effectiveness, but they had this small part of the organization that was testing things out and responding to customer challenges in new ways. Not everything the ninja teams tried worked or was scalable, but what did work was passed back to R&D to come into the standardized product development process. This company was always managing the transition between efficiency, resilience and adaptation.
IS: Well, Steven there’s a lot to think about here as organizations figure out which phase they are in, but I thank you for taking the time and look forward to more great insights in the future. Thank you!
SF: Thank you! IdeaScale is doing important work in innovation. Work that is critical to a robust economy.