Why R&D For New Business Models Must Happen In A ‘Connected Adjacency’

Don’t try this within, or separate from, your current business.

That Clay Christensen tweeted about business model exploration the day after I posted an article on the same subject is likely a coincidence, but Saul Kaplan’s response was certainly not. Saul and I have been flying the business model innovation flag for some time now, especially on our new Business Model Sandbox site.

Leaders already executing one business model who know they must do R&D to design new business models are to be commended for even knowing this is a new strategic imperative for business. Round of applause, please.

The question of where to explore new business models is a critical, foundational decision.

Startup entrepreneurs have it relatively easy, since they can explore new business models at home, at the coffee house, or at their favorite pub.

The issue is much trickier issue for existing companies. Writing about this recently in 7 Best Practices for Business Model Innovation, I said:

“Companies need to separate business model innovation from the core of their business…”

Unfortunately, I continued: “…just as companies have separated new product and service development into R&D labs and skunkworks.”

Wrong. Wrong metaphor. In fact, existing companies DO need to separate business model innovation from the core, but not as completely separate as in a skunkworks.

At the Business Model Sandbox, we call this separate-but-still-connected place a sandbox (surprise!).

And, say it with me now,

Here’s the difference:

  • A skunkworks is completely removed from the core business.
  • A sandbox is separate from the core — staffed with people who are not working to execute the current business model.
  • A sandbox is connected to the core — in the sandbox, innovators explore opportunities to combine and recombine the company’s existing capabilities to create new business models.

The Sandbox: A Place To Play With A Company’s Core Capabilities

A capability is the power to do something. How a business’s capabilities are networked together comprises the value it offers, and the way in which value is delivered. The existing business model often locks up those capabilities, which precludes business model innovation.

Business model innovation is rarely about inventing anything new. It’s about how you combine and recombine capabilities to create new value.

If we can unlock those core capabilities and pull them, unconstrained, into a connected adjacency, we can begin to imagine and design entirely new business models.

In contrast, few or no core capabilities find their way to the skunkworks. And indeed, what happens in the skunkworks stays in the skunkworks. Unfortunately, this approach can’t help but produce results that don’t fit the business model or reimagine a new one. In fact, the products that come from a skunkworks most often wouldn’t fit any business model, since they weren’t created within any business model context.

Result: huge risk, little potential reward.

The Sandbox: A Connected Adjacency

The connected adjacency that we call the sandbox succeeds where skunkworks often fail, because those innovating in the sandbox keep an unwavering focus on business model.

As we design new business models, we prototype and experiment within the context of combining and recombining the company’s capabilities. Through prototyping and experimentation, we learn. Using what we’ve learned, we redesign and do more prototyping and experimentation. We test new business models in the real world, learn, and test again.

By the way — this iterative process for business model design dials down risk and sidesteps failure altogether. But that’s another story.

The bottom line:

A sandbox is a connected adjacency — connected to and at the same time separate from the core — where business capabilities can be combined, recombined, and reimagined to design new business models.