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Kay Plantes is an MIT-trained economist, business strategy consultant, columnist and author. Business model innovation, strategic leadership and smart economic policies are her professional passions. A former Madison, WI resident, Kay now resides in San Diego, CA. The views on her blog are not those of her employer, IBM.

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March 30th, 2011

Business model innovation starts with challenging hidden assumptions

Impressionist artists were excluded from top official exhibitions because their “fuzzy paintings” did not fit the mold (i.e., set of assumptions) of what constituted great art of its time.  So Monet, Van Gogh and others formed their own association, held their own exhibits, and attracted an art dealer who needed to differentiate himself from established art sellers. And that’s how modern art was born. Do these century-old reinvention patterns feel familiar?

Treating an assumption as a fact can be very dangerous, as dealers of classical art discovered. Great leaders are willing to unearth hidden assumptions and challenge their validity.

Consider the watch industry, at the edge of creative destruction with the explosion of digital communication devices telling time.  If you’re like me, a millennial generation parent, you may know that look of disbelief when you ask your child if she’d like a watch for her high school graduation gift. If watch industry leaders assume watches are purchased to tell time (an assumption that was true for decades), the industry will shrink dramatically into a few niches like sports watches.

One company that will avoid the trap of holding onto old assumptions is Switzerland’s The Swatch Group, Ltd., world leader in manufacturing finished watches. Thirty years ago, as digital technology disrupted mechanical watches, the company made watches cool with Swatch™ plastic watches, saving Swiss jobs.  Today, the company is transforming upper-end watches into exquisite jewelry that flaunts wealth and style.

Will an emphasis on fashion and prestige be enough to save watches? Or will the industry have to diversify? The fact that the Swatch Group purposefully leverages its microelectronics and micromechanics competencies to supply components to multiple industries is telling.

All great business model innovations emerge when leaders operate under a different set of assumptions about how to create customer value and company profits. I recall conversations with Bob Drane and Peter Dunn who championed Oscar Mayer’s Lunchables™. They discussed the challenge of winning investment dollars for a new business model, a competion that pitted them against internal divisional lunchmeat leaders who threatened, “We’ll lose share by cutting investments”—which was a palatable argument against Drane and Dunn’s untested value promise of offering a “fun lunch solution” for kids (containing crackers no less).

Drane and Dunn had a new assumption about moms: they and their kids were bored with the same old lunch and working moms wanted to please kids. The CEO listened to the innovators, leading the way to the most successful grocery store introduction of recent years.

Great business model strategy requires that you test the validity of assumptions too often taken as industry “facts.” Walmart challenged the need for middlemen. Trader Joe’s challenged the need to sell well-known packaged food brands to succeed as a grocery store. All kinds of non-profits are challenging the assumption that you solve social problems with donations and grants; in the process they are building break-through earned income business models.

Economic policy is also subject to hidden, mistaken assumptions that keep us locked into policies that no longer work. My favorite example is healthcare policy. As pharmaceutical companies, providers and insurers keep ratcheting up our prices, the bologna guys in the national debate fight change by holding onto false assumptions.

Rick Ungar, a blogger for conservative business magazine Forbes, acted like the Lunchables™ champions in refuting “facts” that Wisconsin Senator Ron Johnson presented in his recent Wall Street Journal column arguing we should abolish Obama Care. Senator Johnson said great healthcare innovation can only occur in our free-market system, referring to procedures that saved his daughter’s life but which, as Ungar then demonstrated, were developed in health care systems far less “free market” than our own.

Ungar also called Senator Johnson to task for calling the US health care system the “greatest in the world,” when many of the uninsured and underinsured cannot get similar care to Johnson’s daughter’s care, and others go bankrupt or become uninsured when they reach the dollar limits of their insurance policies. In fact, without Obama Care, Johnson’s daughter will have preexisting conditions impeding her insurance coverage options. Obama Care, Ungar argued, addresses these problems.

Senator Johnson is right to care about maintaining cutting edge care. But his mistaking false assumptions for facts and then basing policy positions on them is as dangerous to our nation as a naysayer leader clinging to a dying core business is to a company facing a changing customer base or disruptive technology.

What assumptions underpin your business model(s)? Which of them do you treat as fact versus regularly test (as all assumptions should be)? What external changes could make your assumptions no longer valid? These are the questions that strong strategic leaders regularly ask, be it in the for-profit, non-profit or government sector.


2 comments to Business model innovation starts with challenging hidden assumptions

  • Amen. And waiting for perfect means true innovation can never happen. The disruptions of a new health care system or fun lunches need to jump in, learn, and adjust so they have a chance to find their success in the marketplace. It is safe and easy to be against the disrupter since you can’t measure the impact of what never was.

    The risk is in which the naysayer will experience if disruption goes forward: getting to say “I told you so” when the disruption fails or having egg on his face when it succeeds. A great way to avoid this risk (Senator Johnson) is to pitch in and help the disruption find its success, so you can share in the credit, or avoid having the face full of egg all to yourself.

  • Doug Quam

    I think you’re hitting on one of the great inhibitors of step-change growth. Our growth programs too often fall into the trap of assuming that the future is an extrapolation of the past. By taking the time to actually think about the assumptions we’re making, and then question those assumptions, we open our eyes to possibilities we might not otherwise imagine. Thanks for the examples.
    By the way, your story of the watch industry hit home to me. I am FINALLY coming to accept the fact that my 19-year-old is just fine with using his iPhone to keep time in lieu of a watch.

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