It used to be that companies looking for substantial growth could comfortably rely on one or two dominant innovation frameworks to guide their work, such as the stage-gate process. But in the last two decades several new frameworks have emerged.
Blue Ocean Strategy, Lean Startup, Jobs-to-be-done Theory, Design Thinking, and Agile have become increasingly popular. All offer useful insights, but how can executives decide among them in seeking strategies for growth and innovation?
Companies seem to be forced to make choices. IBM and SAP bet on Design Thinking, for example, while GE adopted Lean Startup. But there’s actually no need to limit the company in this way. I’ve found several innovative companies who naturally embrace and synthesize these multiple approaches, often in ignorance of the underlying frameworks. We can distil their hybrid efforts into the following framework.
The Hybrid Growth Framework
At the heart of entrepreneurial leadership for new growth lie opportunities: discovering and seizing them through innovative offerings, business models, and revenue models.
01 – Discovering Opportunities By Centering on People
Design Thinking advises companies to start the innovation journey with buyers, not products or processes. Companies that put customers, their needs and motivations, at the starting point are more innovative as well as financially successful. This success is also more sustainable than innovations driven by internal concerns.
The most promising source of substantial growth is likely to come outside of current satisfied customers. Blue Ocean Strategy points to unsatisfied and underserved customers groups, and even non-customers. Substantial growth is unlikely to come from satisfied customers, for they already probably buy all they need.
Once you identify these customers, you need to dig into understanding their needs and where current solutions and experiences fall short. Here we can draw from both the Design Thinking practice of mapping customer journeys, and the Jobs-to-Be-Done approach of close observation. You can meet these unmet or underserved needs through innovation in your offering, business model, or revenue model.
Consider the leading German television broadcaster ProSiebenSat.1, or “Pro7.” In 2012, the company aimed in six years to boost its revenues from €2.4 billion to €3.4 billion. The usual growth path of selling more at a higher price would not work. Laws limited the advertising minutes Pro7 could broadcast per hour, and most advertisers bought those minutes through large agencies with considerable negotiating power on prices. So Pro7 considered an unexplored customer segment: startup companies, which rarely buy TV advertising because of the cost and their lack of knowledge of how to carry out a TV campaign. By understanding what drove these startups, Pro 7 could devise an arrangement that benefitted everyone.
The principle of being human-centred can be applied broadly to stakeholders in any situation requiring change. Klink Hirslanden is one of the most successful private hospitals in Switzerland, but changes in the healthcare market had made it vulnerable. When Daniel Liedtke became the managing director, he didn’t jump straight into developing a strategy. Instead he worked to understand different stakeholders’ perceptions of the hospital and their motivations in working with it. In his first three months he conducted 70 interviews with doctors, nurses, administrative staff, patients, and even external contractors such as emergency medical services. In short, he took an ecosystem perspective.
Those interviews confirmed to him that the hospital needed a strategic repositioning. But he and his management team also learned that patients didn’t choose the hospital — their doctors did. So Hirslanden focused on doctors as its customers, offering them a superior service and infrastructure. It was able to do this only because Liedtke and his colleagues took the time to understand the marketplace first.
02 – Designing Offerings Holistically
Once you identify opportunities with non-customers and understand their needs and pain points, it’s time to design your solutions. Here it’s important think broadly, with a holistic perspective.
Blue Ocean Strategy, for example, advises us to look across alternative industries, strategic groups, buyer groups, complementary products and services, functional and emotional elements, and trends. All of these can offer inspiration for the new growth strategy.
Design Thinking advises divergence: involves breaking the solution down into possible (1) offerings: products, services, and customer experiences; (2) business models: people, assets, skills and capabilities needed to produce those offerings; and (3) revenue models.
To converge, or bring those elements together into a workable strategy, you need to think holistically about the value that these potential solutions create. It is no longer enough to create value for customers; you must also create value for your company and for the ecosystem you are embedded in. You must not only add or improve some elements of your offering to satisfy customers, but also to eliminate or reduce others to preserve value elsewhere (a Blue Ocean Strategy practice).
After Pro7 learned about what startups faced, it made a bold move. It offered them advertising minutes in return for a portion of additional revenues that the advertising created, a model they called “media for revenue.” The new model for collecting revenue in turn led to a new business model.
Once Hirslanden realized that specialist doctors were now its main customers, it needed to make itself more attractive to them. The company reorganized around these doctors and their patients and developed new offerings for them.
Here the company in effect followed recent approaches that emphasize visual tools, such as Blue Ocean Strategy’s “strategy canvas.” The reorganization depended on a re-design of internal processes. Most of that happened in a single workshop, where a team first visualized the existing processes. Working from such a concrete basis, it quickly charted what needed to change in order to operate the company’s new business model.
03 – Validating the Offering with Iteration
Before making the risky investments to scale up the new offering, companies need to gain confidence in it. Lean Startup and Agile recommend rapid prototyping, with minimum viable products released to a limited number of customers. Companies can gain feedback and iterate using agile practices until arriving at a satisfactory version – which may be quite different from the first version. Trial-and-error should be try-and-succeed.
To test its media-for-revenue idea, Pro7 issued a press release to gauge interest. The response was overwhelming. Yet instead of going immediately to scale, Pro7 picked only five companies to work with. It learned that the model worked best with online businesses, yet most of these startups were funded by venture capitalists hoping for substantial growth. They wanted to conserve resources during the ramp up, so they refused to part with cash even as revenues climbed.
So Pro7 adjusted its offer: it would take an equity stake in these businesses in lieu of cash. “Media-for-equity” was fine with the venture capitalists, and the new offering took off. As it expanded to more startups, Pro7 learned it could add the most value in categories such as lifestyle and travel. So it built up its capabilities in those areas.
Eventually this “build-measure-learn” experimentation turns into a mature offering ready to be scaled. Once Pro7 figured out how to satisfy all the major parties, it founded a dedicated subsidiary company, hired more staff, and standardized operations.
By 2016 Pro7’s revenue (including equity stakes) had jumped to €3.9 billion, exceeding the 2018 target two years early. By pricing the product in a way that was truly accessible to the customer, the network achieved remarkable growth in a tough market. It kept margins high, while the traditional business remained stable.
Similarly, Hirslanden experimented for two years with its new business model. It tried different models in different departments, until it had found a structure that satisfied both customers and caregivers. Then it scaled the new model across the entire hospital, with promising initial results as revenue continued to grow.
This brief article can describe only the most notable ways that innovators can benefit from broadening their approach. Each company will want to draw a bit differently on the various frameworks. The key is to respect what each framework has to offer, and employ the tools that best meet your strategic needs.