How much guidance do we need for a model to actually be useful?
The very value of models is that they are abstractions. They provide ways of taking complex situations and simplifying them through structure, categories and labels. They make the infinite shades of grey a little bit more black and white.
We use models to compare practices. We use models to suggest improvements. We use models to make choices. They are immensely useful, practical things.
At the same time, the results of any model need to be interpreted and adapted. Context is important and relevant. You can’t apply one process wholesale in a different situation and hope to get the same results. Or at the very least, you shouldn’t.
And yet, as human beings, we are conditioned to like clear answers. We dislike ambiguity. We desire certainty and clarity. And we can get awfully frustrated when it isn’t there. Models and processes help to provide some of the specific guidelines and concrete examples that we may desire. But there is still a balance that must be struck. The most accurate answer to most complex questions is, “It depends.” What is more important is knowing the factors that it depends on, and how those factors relate to our particular situation.
I was reminded of the truth of this last week, when I had the good fortune to attend the Toronto launch of Value Proposition Design. For those of that haven’t heard of it, Value Proposition Design is the latest book from the crew behind the amazingly popular (particularly given the corporate blandness of its title) Business Model Generation. Where the first book focussed on understanding how value is created for an organization (by understanding the drivers of its business model), the new book explores how to create value for customers by offering products and services that specifically targetting their wants, needs and problems.
I had an opportunity to chat during the event with one of the authors, Alan Smith. In particular, I commended him on the design of their earlier book, and how it provided so many examples and illustrations that could be adapted and evolved in different situations. His surprising response? He stated that a lot of readers were frustrated that it didn’t provide more specific guidance and step-by-step instruction on how to use the business model framework on which the book was based. The result was that they tried to make the new book much more concrete and specific in its guidance.
In that one premise, we find a head-on collision between the promise of models as conceptual ideals, and the practical reality of applying them. Business models are conceptual frameworks of how organizations unlock strategic value. The value proposition of a product or service does the same thing at a more concrete and specific level. We find value by identifying differences and advantages that are specific and unique to an organization. This is the basis of creativity and innovation, and the source of real competitive advantage. A flexible model can be adapted creatively; a specific step-by-step process will get you to a predictable result. In other words, it is in the interpretation of shades of grey and the messy exploration of differences that we find opportunities and advantage.
As an example, the business model of the mobile phone industry used to be largely consistent and predictable. Telephone carriers controlled supply and pricing. Manufacturers competed on features, look, feel and size. Market success was a product of convincing carriers to take on your product, and convincing consumers that they should by it from their carrier. Then Apple launched the iPhone, and turned the business model on its head. The key differences were a flexible user interface, an application marketplace that Apple controlled, and GPS-enabled phones that enabled presence-based context within the apps. Apple reoriented the business model of the mobile handset business, and fundamentally realigned the value proposition of what a mobile phone should do.
If Apple were to have followed a prescriptive, step-by-step path to business model development, they would have arrived at the same place as the rest of the industry. Or, more likely, they would have decided the barriers to entry precluded the opportunity for a new dominant player that could fundamentally shift market share, revenues and profitability within that market. They didn’t, of course. They creatively challenged the role of the handset, the influence of the handset provider and the dominant position of the carrier, while creating an entirely new marketplace for app developers. Apple makes money from the direct sale of phones, from carrier arrangements and particularly from royalties earned through its exclusively controlled App Store.
Think of that the next time you get frustrated by the flexibility of a model, or wish the process was more clear or specific. Creativity isn’t enabled by clarity. Innovation is what happens when fuzzy concepts are reinterpreted in new contexts. New ideas are born when the boundaries and lines of existing models get challenged and reinterpreted. The value of Business Model Generation wasn’t challenged by the lack of clarity in how to apply it. It was enabled by the number of examples it provided that could be adapted, edited, reworked and rejected in favour of something else. We don’t need more black and white; we need more people that are comfortable with sensing and encouraging opportunities to take shape within the mists of grey. Models are indeed useful abstractions; their greatest value, though, is in helping to understand where current thinking and knowledge stops, and new opportunities can be found.