dominant logic

One of the key ideas in the business models research is that once a firm develops a successful business model, they tend to replicate it with all of their future innovations. This is Henry Chesbrough’s explanation for why Xerox was unable to successfully launch all the great inventions that came out of their Palo Alto Research Center like the graphical user interface, portable document format (PDFs), ethernet networking, and the mouse. I ran across a good example of dominant logic problems today.

girl scout cookies

It turns out that Wal-Mart is trying to develop knock-offs of the two most popular flavours of Girl Scout Cookies. This is a pretty bad idea on a number of levels. Bob Sutton describes what’s going on and explains why he thinks it is dumb. The part that jumped out at me though is this:

The brilliance –and the Achilles heel — of Wall-Mart is that they talk and act as if the answer to every problem is to use their scale, bargaining power, and speedy implementation to tackle any problem by driving down the price they pay and pass it along to consumers. This is great, for example, when they use their bargaining power to bring down the cost of environmental friendly LED lights in their refrigerators so that they become cheaper than traditional lights. But when “everyday low prices” is the solution to every problem and — despite lip service to other constraints — almost nothing else drives your behavior even when it hurts you badly (as in this cookie caper), your core cultural values can hurt you badly.

That is dominant logic at work. One of the key ideas in using the business model concept is that you need to customise the business model for each idea that you bring to market. As always, this involves a delicate balancing act (but then, that’s management!) – in this case between the need to customise each business model and the imperative to stick with what you’re good at. Often you’ll find that this poses a problem that can’t be resolved. In that case, you should either drop the idea (which is almost certainly what Wal-Mart should be doing in this case), or find a way to partner with someone that has skills more suited to executing the business model that fits your idea best.

In any case, you definitely need to think these things through, otherwise you end up doing dumb stuff like trying to crush the Girl Scouts like a bug, which isn’t sustainable over the long term…

(photo from flickr/Merelymel13)

Student and teacher of innovation - University of Queensland Business School - links to academic papers, twitter, and so on can be found here.

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3 thoughts on “dominant logic

  1. I found your last paragraph really funny. 😀 I agree with you completely and have nothing at all to add to it. There is no upside to this business decision for anyone concerned. There is unlimited downside.

    What’s also apparent is that you understand the reasoning behind the situation more thoroughly than Mr. Sutton appears to, too. It’s a business model, and they can’t see past their business model to a lot of things. If something is desirable, what could be the harm in offering it more cheaply? It’s a very singular mindset that illustrates Wal-Mart’s continuing lack of awareness of the complexity of the society and cultures they build, or attempt to build, near.

    I’m having trouble finding Chesbrough’s thoughts on PARC, though. It seems he may have laid them out in a book – could you summarize? :)

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