Archive for October, 2009
the state of media
Posted by Tim in innovation on 8 October 2009
Here’s a video from Bob Garfield discussing the main ideas in his book The Chaos Scenario:
The Chaos Scenario from Greg Stielstra on Vimeo.
He has a lot of stats and a lot of stories that make the point about how all of the media business models have been breaking down recently. His recommendation is based around an idea Garfield calls ‘Listenomics’, which is mainly oriented around getting closer to customers. The second part is not as convincing the first for me, but it’s an interesting and entertaining video.
There’s more on his blog for the book too, including this entry with links to several excerpts.
Planning for Innovation
Posted by John in innovation on 6 October 2009
Tim and I get to talk to many managers as part of our research and consulting work. One of the good things about doing this is that we get to see common success factors and inhibitors of innovation.
A particular tension that exists in nearly all of the organisations that we see is between the desire to be innovative and the need to have formalised plans.
Plans are usually based upon projections of the future. The trouble with these projections is that innovations are notoriously hard to predict. This is especially true for more radical and disruptive innovations. The Nobel prize-winning economist Kenneth Arrow summed this up nicely by saying that if an innovation is truly an innovation, then by definition it is impossible to predict.
So, innovations are hard to predict and therefore plan, but to make matters worse we also know that there is something called the “planning fallacy”. This is based upon findings about psychological biases in predictions and decision making. Despite all the planning that goes on in the world, experimental psychologists tell us that we are naturally bad planners for several reasons.
One of these is that we tend to be overconfident about predictions and we use a limited amount of information to make these predictions. And the more we know, the more confident we become and therefore more prone to failure. Tversky and Kahneman have become famous for their work in behavioral economics (Kahneman won the Nobel prize in 2002) but if you want to read a good book on the topic of overconfidence and failure I can recommend Ego Check, written by Mat Hayward who is currently professor in strategy at the UQ Business School.
From this, it would seem that planning is the enemy of innovation. However, research that I am doing with Mat suggests that it is the type of planning that matters more to innovation performance. Based on survey data collected by Andrew Caldwell in his honours year at UQ Business School, we looked at how Australian biotechnology executives developed business plans for innovative products and services. The results from this survey were twofold. Firstly, it is possible to discern two categories of planners. One group attempted to base plans on formalised predictions of future costs and earnings. The other group relied more on being able to stage investments and try things out, without getting bogged down in predictions of profitability. Secondly, when we correlated these planning styles with innovation outputs (measured by patents) it was the second group that was more innovative, while we could actually show a negative correlation between formal planning and innovation.
Planning isn’t necessarily anti-innovation, but planning for innovation means adopting planning routines that involve a portfolio of experiments and the capacity to scale-up successful trials and quickly kill initiatives that aren’t showing signs of success. While there may be several methods for doing this type of planning, the most common and well known is stage-gate. It’s most used for products, but I can’t see why it can’t be used for a whole range of innovations.
babbage and lovelace solve the global financial crisis!
Posted by Tim in innovation on 6 October 2009
John & I are both working on other posts at the moment, but in the meantime, this is hilarious:
Charles Babbage & Ada Lovelace use the Difference Engine to solve the Global Financial crisis!
It’s a webcomic by Sydney Padua, and it’s fantastic. Padua touches on a lot of issues that I regularly talk about in lectures – the roles of Babbage & Lovelace in developing computing, the need to make inventions useful, the possible role of the Guassian Copula Function in causing the GFC, and a few other things. More important, it’s utterly hilarious!
And if you’re not familiar with the stories of Charles Babbage & Ada Lovelace, here’s Padua’s version of the story.
leaning into change
Posted by Tim in business models, innovation, replication on 5 October 2009
I’ve been teaching the MBAs today so I’m pretty wiped out at this point – so I’ll let Seth Godin do the work for me tonight. I’ve watched this twice in two days now – and Seth is, as usual, right on target. His stated objective is to show people how to lean into change, rather than simply cope with it, or survive it.
This is an essential part of all this recent talk about business models. Godin talks about how he sold his 10 books, and he has some great ideas about how to build successful business models in an industry that is struggling a bit right now. One of the key points is that publishing is all about getting ideas to spread, and the books don’t really do that. By the time you get the book, the idea is already out there. Consequently, books are souvineers of a discussion that you’ve already had (and enjoyed!). To put this in the terms that I’ve been using recently, you have to be clear about the benefit that you are providing your readers – that’s the only way to create an idea that will be replicated. Definitely worth 20 minutes of your time.
The video only seems to work intermittently. If you have trouble, read the original post for some tips on how to get the video going…
business models summary
Posted by Tim in aggregate, business models, connect, filter, innovation on 4 October 2009
With all this recent talk of business models, it is probably useful to clarify what I mean by it – business model is yet another phrase that ends up meaning different things to everyone. I use the Henry Chesbrough definition, which splits the business model into six key issues (the summary is from quickmba.com):
- Value proposition – a description the customer problem, the product that addresses the problem, and the value of the product from the customer’s perspective.
- Market segment – the group of customers to target, recognizing that different market segments have different needs. Sometimes the potential of an innovation is unlocked only when a different market segment is targeted.
- Value chain structure – the firm’s position and activities in the value chain and how the firm will capture part of the value that it creates in the chain.
- Revenue generation and margins – how revenue is generated (sales, leasing, subscription, support, etc.), the cost structure, and target profit margins.
- Position in value network – identification of competitors, complementors, and any network effects that can be utilized to deliver more value to the customer.
- Competitive strategy – how the company will attempt to develop a sustainable competitive advantage, for example, by means of a cost, differentiation, or niche strategy.
The ideas are explained well by Chesbrough himself in this presentation:
As with all of these things, the six parts of the business model interact, and the answers you come up with for one part of the model enable (and constrain) choices in other parts. How can we use this to integrate discussions about how to build effective business models in disrupted industries like journalism, music and (potentially) higher education?
The hardest part of this model for people to understand is the idea of the value network. Basically, it is looking at how your offering fits in with all of the complementary products & services it needs to work correctly. Another way of thinking about his is to ask how your product or service fits within the ecosystem that surrounds it. For journalism, this means thinking about all of the functions in Steven Johnson’s news ecosystem model. You can create an innovative business model by linking these functions together in a unique way. Kevin Anderson has written an excellent post discussing how news organisations might encourage innovative thinking along these lines. He references a blog post discussing how innovators think, and says:
They call it associating; I call it lateral thinking. I see it in innovative journalists who find tools or technologies created for another purpose but who immediately see the editorial possibilities. They are journalists constantly striving to wrench out efficiencies in how they work and perfect the process. They are constantly looking for new tools and services that can either solve existing problems they have or allow them to do things they hadn’t thought of before. They experiment, and if something doesn’t work, they move on. It’s not something they were trained to do, it’s something they instinctively do.
That’s a great description of the innovation system works in general. It links to my ideas about how the three key functions in digital business systems are aggregating, filtering and connecting, which address the issue of the value proposition. My contention here is that mis-specifying what problem you are solving for customers is one of the fundamental mistakes that organisations make when building their business models. If you get this wrong, as the music industry did, then you end up making poor choices about the other five parts of the business model. Paul Graham has an outstanding post discussing how we’ve never really paid for content, which clearly shows some of the mistakes made in this respect.
One of the key parts of the model that is very closely related to your value proposition is the revenue generating mechanism. Jeff Jarvis and the CUNY Graduate School of Journalism have put together an outstanding resource called New Business Models for News. One of their pages lists twenty three ways that news organisations can generate revenue. I can’t emphasise enough the imprtance of creative thinking in this area. I’ve seen numerous comments recently that run along the lines of ‘well, there’s only two ways for news organisations to make money – advertisements or donations, so what else can newspapers do?’ Well, about 21 other things (at least!). Thinking creatively about how to combine these revenue mechanisms is another potential source of business model innovation. The CUNY site also includes a number of spreadsheets that allow you to play with revenue models for several different forms of news organisation. It is a tremendous resource. You might argue with the assumptions built in to their models, but doing so is an essential part of figuring out how to build a business model that works.
I guess the point that I’m trying to make is that if you are in an industry that is under threat of disruption, then you have to be thinking about these issues seriously. I find Chesbrough’s business model framework to be one of the most useful tools for doing so. It can be nerve-wracking, but disruption also creates great opportunity. As Scott Anthony says, some people actually court disruption in their industries. The point of his post today is that looking for disruption can actually be exciting, and he closes with some ideas that quite useful:
I suggest those of you contemplating your own career in the face of the challenges and opportunities presented by today’s economy consider three questions:
1. What are you doing to expose yourself to new challenges?
2. How can you get closer to the “action” in your field or organization?
3. What can you do to get closer to transformational efforts in your company?I’m greatly looking forward to taking the next step in my disruptive journey — and in sharing the learning with you.
I’m looking forward to sharing ideas about these issues as well.
aggregate, filter and connect
Posted by Tim in aggregate, business models, connect, evolving economic entities, filter, innovation on 3 October 2009
In response to my last post, my friend Ken Katkin said “Reading your essay make me glad that: (1) I traded in the music biz for academia when I did; and (2) I have tenure!” The only problem is that the more I’ve thought about it, the more uneasy I’ve become. I keep saying that the two ways to make money in the digital environment are aggregating and filtering, and in discussing the university business model, I thought it was good that universities were already doing some filtering. But there was something in Ken’s comment that has come to alarm me…
I’ve been saying for quite a while that the problems that the record industry have run into are in large part due to a fundamental misunderstanding of how they were adding value. Record companies thought that they were adding value by developing artists (which most artists don’t actually need help with), when in fact they added value by filtering (the amount of bad music out there is genuinely staggering, and someone has to help us figure out what’s worth listening to). Like universities, record companies were already performing one of the key functions that we need (filtering), but because they didn’t realise that this was where they were creating value, they protected the wrong part of their business model. The thing that scares me about universities is that the odds are high that they also don’t realise where value is being added either.
But then having a chat with my friend Jason Tangen gave me another idea which gives me some hope. UQ has recently opened a Centre for Educational Innovation and Technology, headed up by Phil Long. Jason and Phil have been talking about new teaching models, based on those that Phil helped develop at MIT. The basic idea is that classes will look something like this:
- Lectures (and other similar content) are pre-recorded via some form of podcasting. Students are expected to watch this material, and read whatever they’re supposed to read, prior to face-to-face time.
- The classroom time then is oriented around addressing issues that students bring to class. These can by anything relating to the content that they’ve already worked with.
- The role of the teacher is to facilitate the discussion – and the ‘teacher’ can be the lecturer, or a class member, or a guest speaker
There’s obviously a ton of detail that goes behind this idea, and I’ve almost certainly skipped some important ones here. But this model raises a couple of important points. The first is that the pre-recorded content can come from anywhere. The course co-ordinator can make it, or we can bring in material from superstar lecturers at other universities. The important business model idea here is that the role of the person putting the course together is not necessarily to create content, or to transfer it into the heads of the students. The main jobs here are aggregating and filtering – compiling information, figuring out what is essential, and then creating a framework within which students can explore this knowledge using all of tools (mental, physical and digital) at their disposal.
However, It’s the second and third parts of that model that gave me an important insight. John and I have done some teaching like this – and the real challenge to making this teaching method work is to being adept at connecting up disparate ideas. In general, this is where students gain value in this kind of setting. It’s a very challenging way to teach. There’s no set of slides to guide you, your primary resource is what you know, and there is a small but measurable chance that things can go completely haywire. On the other hand, when it works, it is exhilarating. So I’m adding a third key value adding activity for digital business models: connecting.
Clay Shirky just posted his latest thoughts on news business models. He did some analysis of the original content in his local newspaper, and discovered that the amount of original local reporting actually constitutes a small part of the total amount of information contained in a newspaper. Nick Davies came to similar conclusions using a much bigger sample in research for his book Flat Earth News. This original local reporting is what we need from journalists – this is where accountability comes from. As Shirky says:
There are dozen or so reporters and editors in Columbia, Missouri, whose daily and public work is critical to the orderly functioning of that town, and those people are trapped inside a burning business model. With that framing of the problem, the question is how to get them out safely…
The list of important stories that have been reported in the Columbia Daily Tribune made me realise that these journalists are also connecting. They take things that don’t make sense (why are the beaches at the local lake closed due to elevated e.coli levels), and connect them up with reasons that have been previously hidden (the state government was covering up the research into the cause because it suggests that the government is in breach of environmental laws). Connecting is the key value adding function here.
Connecting is critically important both in journalism and in education. So that makes three value adding activities in the digital economy: aggregating, filtering, and connecting. The lesson to take from the current states of both the music industry and journalism is that you have to have a clear understanding of how you’re creating value so that you build and protect the correct parts of your business model. Perhaps universities can learn this lesson before educational business models are disrupted as well.
how to finish your PhD
Posted by Tim in innovation on 2 October 2009
Here are the slides + audio from the talk I gave this afternoon to the PhD students in the Business School. Despite what the clock says at the bottom of the slides, it only runs for 18 minutes. Hit the green button to start. If I sound like Jabba the Hut, then you need to upgrade your flash player (thanks to Sam for figuring that out!).
While it’s designed for PhD students, it probably has some generalisability to anyone that is trying to do things that involve writing.
higher education business models
Posted by Tim in business models, evolving economic entities, innovation on 1 October 2009
After all this discussion of journalism, it’s only fair to turn the focus on to my current industry – higher education. Despite the fact that most academics spend a fair bit of their time trying to come up with new ideas, it is not often regarded as an overly innovative field. This is probably due to the fact that many of the teaching methods used in universities are centuries old. However, a big part of university education consists of transferring knowledge – and since it is the reduction of the cost of reproducing information that is driving the current business model problems in the newspaper and entertainment industries – so it seems reasonable to think that higher education may well be the next big industry that is disrupted, doesn’t it?
We’ve started to see some discussion of this already, but it hasn’t really blossomed into a dialog yet – at least not within the blogosphere. The first big shot there was fired by Don Tapscott – who wonders if universities can stay relevant. He concludes with these questions:
The digital world, which has trained young minds to inquire and collaborate, is challenging not only the lecture-driven teaching traditions of the university, but also the very notion of a walled-in institution that excludes large numbers of people. Why not allow a brilliant grade 9 student to take first-year math, without abandoning the social life of his high school? Why not deploy the interactive power of the internet to transform the university into a place of life-long learning?
Since his piece was originally written for Edge, it is deliberately provocative. And I think that a lot of his points must be considered. Teaching does need to change to accommodate the learning styles and skills of the people currently entering universities. I disagree with one of his fundamental premises, however, which is that universities currently teach in a broadcast method – which knowledge flowing from lecturers down into the waiting, receptive brains of the passive students. There are classrooms where this happens (or at least where this is the model being used), but I would argue that this approach has never been an effective approach. Successful higher education is nearly always a dialog.
David Parry gives an interesting lecture here that takes a similar angle on things, and I think that his arguments are actually more successful. One of his key points is his contention that newspapers have made a mistake by trying to protect their business model rather than their social function, and that he believes that universities are making the same mistake. He follows by saying that it is a fundamental error to think of knowledge as a product, and that if universities are designed to primarily produce and sell knowledge, then changes in technology will destroy that business model as a going concern.
I agree with him on nearly of his main points. However, he is mainly talking about university teaching. And one of the things that I’m not sure we can do is to separate out teaching from all the other functions of universities. They end up serving a number of various (often conflicting) functions, including:
- Teaching – which may be a transfer of knowledge, or it may be training in the craft of thinking
- The generation of new knowledge & ideas through research
- Propagating this new knowledge both through publication and through teaching
- Accreditation – assuring society (or employers) that graduates are adequately prepared to contribute
- Providing sheltered independence for people that are often away from their homes and their families for the first time in their lives
The current university business model is an incredibly complex mixture of all of these elements – with complicated cross-subsidisation across them. If we take my two methods for making money in digital markets, aggregation and filtering, you can see that universities are performing three very important filtering functions. First, they filter available knowledge in order to certify that which is most worth knowing for students. This is the function that is probably most directly under threat right now. There are many new entrants such as StraighterLine that are offering to do this much less expensively than universities do.
Second, they filter new knowledge as it is produced via peer review and all of the other mechanisms of the scientific process that are supported by universities. We’re starting to see new digitally-enabled approaches to this function, such as the Public Library of Science. However, while these initiatives take entirely new approaches to the distribution of new knowledge, importantly, the production and filtering of this knowledge is still university-based.
Finally, universities help filter graduates for employers. While some view this signaling function fairly cynically, it is undeniably still important.
So I guess my feelings on this are mixed. While physically being in a classroom when things are working well is one of the more exciting experiences one can have, there are certainly less expensive ways to teach people. They might be a bit less effective than face-to-face, but it is foolish to believe that they won’t become important – and soon. Nevertheless, I remain optimistic that universities can still have a place in the world, and an important one. I’m giving a lot of thought to issues like how I can personally integrate digital technologies in my teaching and research, and what my role will be in the future. I’m certain that in a few years it will be quite different from what it is now. There is enormous opportunity for innovation both in the delivery of education, and in the business models surrounding it. Personally, I find that both incredibly exciting, but also a bit scary…
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Tim was named #5 in the Top 40 Innovation Bloggers in 2011 at Innovation Excellence.
Tim and John were both named in the Top 40 Innovation Bloggers in 2010 at Innovation Excellence.
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