The world’s leading companies compete beyond new technologies, product innovation, and price alone. These so-called Invincible Companies invest in superior business models, transcend industry boundaries, and constantly re-invent themselves.
Dr Alexander (Alex) Osterwalder is one of the world’s most influential innovation experts, a leading author, entrepreneur, and in-demand speaker whose work has changed the way established companies do business and how new ventures get started.
Ranked No. 4 of the top 50 management thinkers worldwide, Osterwalder is known for simplifying the strategy development process and turning complex concepts into digestible visual models. Together with Yves Pigneur, he invented the Business Model Canvas, Value Proposition Canvas, and Business Portfolio Map – practical tools that are trusted by leading global companies.
Strategyzer, Osterwalder's company, provides online courses, applications, and technology-enabled services to help organizations effectively and systematically manage strategy, growth, and transformation.
In this highly interactive talk, Dr Alex Osterwalder outlines practical tools to help corporate leaders and entrepreneurs unleash the growth potential of their organizations. He outlines how to decrease the risk and uncertainty of new ideas, how to invest in new corporate ventures, and how to create a true culture of innovation followed by a 30-minute fireside chat between Dr Osterwalder and industry leaders.
The seminar and fireside chat will be moderated by technology journalist and iSPIRT volunteer, Venkatesh Hariharan.
The program is organized by the Indian Software Product Industry Round Table (iSPIRT), in partnership with CII and CII-Suresh Neotia Center of Excellence, IIM Ahmedabad Entrepreneurial Ecosystem SIG, CIIE.CO, NSRCEL at IIM Bangalore, and Mahindra Leadership University.
For more, Please checkout Growth Portfolio offer to build Invincible Companies:
https://www.strategyzer.com/growth-solutions/growth-portfolio-corporate-innovation-program and Alex's full 3-day virtual masterclass to go deeper on the topic of Invincible Companies: https://www.strategyzer.com/training/virtual-masterclass-building-invincible-companies
4. 1
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5. 1. Constantly Reinvent itself
2. Compete on Superior
Business Models
3. Transcend
Industry Boundaries
CompanyInvincibleThe Resilient
“— Vinod Khosla, founder of Sun Microsystem
All interesting things happen
at the edges of the system.
7. 1. Managing an Innovation Portfolio
2. Designing & Testing Business Models
3. Establishing an Innovation Culture
AGENDA FOR TODAY
1
Managing an
Innovation Portfolio
13
Challenges
in existing
companies
THE EXPLORE/EXPLOIT CONTINUUM
High uncertainty Low uncertainty
8. Focus
Search and breakthrough:
create the NEW
Efficiency and growth:
manage the EXISTING
UncertaintyHigh Low
Financial Philosophy
Venture-capital style risk
taking, expecting few
outsized winners
Safe haven with steady
returns and dividends
Culture & Processes
iterative experimentation,
speed, failure, learning,
and rapid adaptation
Linear execution,
planning, predictability,
and minimal failure
People & Skills
Explorers who excel in
uncertainty, who recognize
patterns, and navigate
between big picture and details
Managers who organize
and plan and design
efficient processes to
deliver on time and budget
High uncertainty Low uncertainty
(1) both (2) (3)
risk
reduction
(f)
financial
targets
(e)
dividends
(b)
predictability
(c)
innovation
(g)
iterative
processes
(d)
rapid decision
making
(h)
embracing
failure
(a)
linear
processes
(i)
classify the stickies in the three categories
portfolio
targets
quarterly
targets
High uncertainty Low uncertainty
(1) both (2) (3)
financial
targets
(e)
High uncertainty Low uncertainty
(1) both (2) (3)
financial
targets
(e)
portfolio
targets
quarterly
targets
dividends
(b)rapid decision
making
(h)
9. efficiency
innovation
transformativ
e innovation
High uncertainty Low uncertainty
(1) both (2) (3)
financial
targets
(e)
portfolio
targets
quarterly
targets
dividends
(b)rapid decision
making
(h)
innovation
(g)
High uncertainty Low uncertainty
(1) both (2) (3)
financial
targets
(e)
portfolio
targets
quarterly
targets
dividends
(b)rapid decision
making
(h)
innovation
(g)transformativ
e innovation
efficiency
innovation
embracing
failure
(a)
predictability
(c)
inno/bad
idea risk
disruption
risk
High uncertainty Low uncertainty
(1) both (2) (3)
financial
targets
(e)
portfolio
targets
quarterly
targets
dividends
(b)
innovation
(g)transformativ
e innovation
efficiency
innovation
embracing
failure
(a)
predictability
(c)
risk
reduction
(f)
rapid decision
making
(h)
High uncertainty Low uncertainty
(1) both (2) (3)
financial
targets
(e)
portfolio
targets
quarterly
targets
dividends
(b)rapid decision
making
(h)
innovation
(g)transformativ
e innovation
efficiency
innovation
embracing
failure
(a)
predictability
(c)
risk
reduction
(f)inno/bad
idea risk
disruption
risk
linear
processes
(i)
iterative
processes
(d)
10. 3 types of
innovation
+transformative sustaining +efficiency
High uncertainty Low uncertainty
improve processes &
existing business model,
refine value propositions
replace and extend value
propositions, new channels,
new geographies
new business models, value
propositions, and entirely
new growth engines
High uncertainty Low uncertainty
+transformative sustaining +efficiency
3 types of
innovation
+transformative sustaining +efficiency
High uncertainty Low uncertainty
THE EXPLORE/EXPLOIT CONTINUUM
High uncertainty Low uncertainty
+transformative sustaining +efficiency
fave
inno
fave
inno
fave
inno
fave
inno
fave
inno
fave
inno
fave
inno
fave
inno
fave
inno
fave
inno
fave
inno
fave
inno
fave
inno
fave
inno
fave
inno
11. THE EXPLORE/EXPLOIT CONTINUUM
High uncertainty Low uncertainty
+transformative sustaining +efficiency
fave
inno
fave
inno
fave
inno
fave
inno
fave
inno
fave
inno
fave
inno
fave
inno
fave
inno
fave
inno
fave
inno
fave
inno
fave
inno
fave
inno
fave
inno
THE EXPLORE/EXPLOIT CONTINUUM
High uncertainty Low uncertainty
+transformative sustaining +efficiency
fave
inno
fave
inno
fave
inno
fave
inno
fave
inno
fave
inno
fave
inno
fave
inno
fave
inno
fave
inno
fave
inno
fave
inno
fave
inno
fave
inno
fave
inno
THE EXPLORE/EXPLOIT CONTINUUM
High uncertainty Low uncertainty
+transformative sustaining +efficiency
INNOVATION IS
VALUE CREATION
NOT TECH OR R&D
MANAGING A PORTFOLIO
High uncertainty Low uncertainty
12. 3’ VIDEO to add outside iCloud
-
EXPLOIT
EXPLORE
+
SEARCH
GROW
SEARCH
GROWEXPLORE PORTFOLIO
Question for You
How many $100k innovation
projects does it take to
produce a mega success?
How many $100k innovation
projects does it take to produce
a mega success?
10
25
50
100
250
500
1’000
PollIn Zoom: single choice
13. EXPLOIT
EXPLORE
ExpectedReturn
+
ExpectedReturn
Innovation Risk
Death & Disruption Risk
Return
Exploit
Explore
13
Innovation Risk
The risk that a (convincing)
business idea is going to fail.
Risk is high when there is little
evidence beyond slides and
spreadsheets to support the
success chances of an idea. Risk
decreases with the amount of
evidence that supports the desir-
ability, feasibility, viability, and
adaptability of a business idea.
Expected Return
How lucrative a business idea
could be for the company if it
turned out to be successful.
Death & Disruption Risk
The risk that a business is
going to die or get disrupted.
Risk is high when a business
is either emerging and still
vulnerable, or when a business
is under threat of disruption
from technology, competition,
regulatory changes, or other
trends. Risk decreases with the
moats protecting your business.
Return
How lucrative a business area
is for the company.
-
ation Risk
Death & Disruption Risk
Return
Exploit
plore
13
Innovation Risk
The risk that a (convincing)
business idea is going to fail.
Risk is high when there is little
evidence beyond slides and
spreadsheets to support the
success chances of an idea. Risk
decreases with the amount of
evidence that supports the desir-
ability, feasibility, viability, and
adaptability of a business idea.
Death & Disruption Risk
The risk that a business is
going to die or get disrupted.
Risk is high when a business
is either emerging and still
vulnerable, or when a business
is under threat of disruption
from technology, competition,
regulatory changes, or other
trends. Risk decreases with the
moats protecting your business.
urn
lucrative a business area
r the company.
Innovation Risk
?250
162
projects
somewhat
successful
failures
87
1 Mega
Success
IDEATE/PIVOT/KILL
Explore Portfolio
5.9% 2.5% 1.1% 0.4%
25.3%
64.8%
Return Distribution in U.S. Venture Capital
(2004 - 2013)
Source: Correlation Ventures (data from VentureSource and other)
0 - 1.0x 1.0 - 5.0x 5.0 - 10.0x 10.0 - 20.0x 20.0 - 50.0x 50.0x +
Return Groupings
70%
60%
50%
40%
30%
20%
10%
0%
%ofFinancings
6 out of 10 investments
lose money
4 out of 1000
are home runs
3 out of 10 makes
some money
1
162
87
Sum = 250
Illustration — Bosch
The Bosch Accelerator Program has allowed
Bosch to implement a fast, structured, and
capital-efficient process for validating business
models at scale and has led to the establishment
of a Bosch-wide innovation portfolio
DR. UWE KIRSCHNER
VP Business Model Innovation, Bosch Management Consulting
“
14. EXPLOIT
EXPLORE
ExpectedReturn
+
ExpectedReturn
Innovation Risk
Death & Disruption Risk
Return
Exploit
Explore
13
Innovation Risk
The risk that a (convincing)
business idea is going to fail.
Risk is high when there is little
evidence beyond slides and
spreadsheets to support the
success chances of an idea. Risk
decreases with the amount of
evidence that supports the desir-
ability, feasibility, viability, and
adaptability of a business idea.
Expected Return
How lucrative a business idea
could be for the company if it
turned out to be successful.
Death & Disruption Risk
The risk that a business is
going to die or get disrupted.
Risk is high when a business
is either emerging and still
vulnerable, or when a business
is under threat of disruption
from technology, competition,
regulatory changes, or other
trends. Risk decreases with the
moats protecting your business.
Return
How lucrative a business area
is for the company.
-
ation Risk
Death & Disruption Risk
Return
Exploit
plore
13
Innovation Risk
The risk that a (convincing)
business idea is going to fail.
Risk is high when there is little
evidence beyond slides and
spreadsheets to support the
success chances of an idea. Risk
decreases with the amount of
evidence that supports the desir-
ability, feasibility, viability, and
adaptability of a business idea.
Death & Disruption Risk
The risk that a business is
going to die or get disrupted.
Risk is high when a business
is either emerging and still
vulnerable, or when a business
is under threat of disruption
from technology, competition,
regulatory changes, or other
trends. Risk decreases with the
moats protecting your business.
urn
lucrative a business area
r the company.
Innovation Risk
Accelerator Program
PHASE 1
200 teams (3 months, €120’000)
PHASE 2
60 teams (€300’000)
70% fail
75% fail
15 businesses
IDEATE/PIVOT/KILL
Explore Portfolio
Death & Disruption Risk
Innovation Risk
ExpectedReturn
Return
-
-
+
+
Exploit Portfolio
Explore Portfolio
You can’t pick
the winner
without investing
in the losers!!!
EXPLORE/EXPLOIT
Portfolio Funnel
Illustration - Laurastar
15. Death & Disruption Risk
Innovation Risk
ExpectedReturn
Return
-
-
+
+
Exploit Portfolio
Explore Portfolio
EXPLORE/EXPLOIT
Portfolio Funnel
86
ALL YOU TOUCH WILL NOT TURN TO GOLD.
YOU CAN'T PICK THE WINNERS.
EMBRACE SMALL FAILURES, OR YOU’RE
AVOID BIG FAILURES, OR YOU’RE DEAD
AVOID BIG FAILURES, OR YOU’RE DEAD
EMBRACE SMALL FAILURES, OR YOU’RE DEAD
16. EXPLOIT
EXPLORE
Death & Disruption Risk
Innovation Risk
ExpectedReturn
Return
-
-
+
+
Exploit Portfolio
Explore Portfolio
You can’t pick
the winner
without investing
in the losers!!!
EXPLORE/EXPLOIT
Portfolio Funnel
2
Designing and Testing
Business Models
8 9
The Iterative
Process
Business Concept Design
Design is the activity of turning vague ideas,
market insights, and evidence into con-
crete value propositions and solid business
models. Good design involves the use of
strong business model patterns to maximize
returns and compete beyond product, price,
and technology.
The risk that a business can’t get access
to key resources (technology, IP, brand, etc.),
can’t develop capabilities to perform key
activities or can’t find key partners to build
and scale the value proposition.
Testing and reducing risk
To test a big business idea you break
it down into smaller chunks of testable
hypotheses. These hypotheses cover three
types of risk. Firstly, that customers aren’t
interested in your idea (desirability).
Secondly, that you can’t build and
deliver your idea (feasibility). Thirdly,
that you can’t earn enough money
from your idea (viability).
You test your most important hypotheses
with appropriate experiments. Each experi-
ment generates evidence and insights that
allow you to learn and decide. Based on the
evidence and your insights you either adapt
your idea if you learn you were on the wrong
path or continue testing other aspects of
your idea if the evidence supports your
direction.
Desirability risk
Customers aren’t interested
The risk that the market a
business is targeting is too
small, that too few customers
want the value proposition, or
that the company can’t reach,
acquire, and retain targeted
customers.
Feasibility risk
We can’t build and deliver
The risk that a business can’t
get access to key resources
(technology, IP, brand, etc.),
can’t develop capabilities to
perform key activities or can’t
find key partners to build and
scale the value proposition.
Viability risk
We can’t earn enough money
The risk that a business can’t
generate successful revenue
streams, that customers are
unwilling to pay (enough), or
that the costs are too high to
make a sustainable profit.
Reducing
Uncertainty
and Risk
TEST
BUSINESS
DESIGN
Ideate
Business
Prototype
Assess
Learn
D
ecide
Hypothesize
Experiment
Idea
Key Hypotheses
Business Model
Experiments
Value Proposition
Key Insights
EXPLOIT
EXPLORE
12 13
1 2 3 4Design
Design the Team
p. 207
Shape the Idea
p. 207
Experiments
Select an Experiment
p. 207
Discovery
p. 207
Validation
p. 207
Test
Hypothesize
p. 207
Experiment
p. 207
Learn
p. 207
Decide
p. 207
Manage
p. 207
Mindset
Avoid Pitfalls
p. 207
Lead through
Experimentation
p. 207
Organize for
Experiments
p. 207
AFTERWORD
p. 207
TEST
DESIGN
Ideate
Prototype
Assess
Learn
D
ecide
Hypothesize
Experiment
Discovery
Business Design
Increase Expected Return
Test
Reduce Innovation Risk
Ideate
Prototype
Assess Hypothesize
ExperimentLearn
EXPLORE PORTFOLIO
Design & Test
EXPLOIT
EXPLORE
Innovation Risk -
ExpectedReturn
Innovation Risk
Death & Disruption Risk
Return
Exploit
Explore Innovation Risk
The risk that a (convincing)
business idea is going to fail.
Risk is high when there is little
evidence beyond slides and
spreadsheets to support the
success chances of an idea. Risk
decreases with the amount of
evidence that supports the desir-
ability, feasibility, viability, and
adaptability of a business idea.
Expected Return
How lucrative a business idea
could be for the company if it
turned out to be successful.
Death & Disruption Ri
The risk that a business is
going to die or get disrupte
Risk is high when a busines
is either emerging and still
vulnerable, or when a busin
is under threat of disruptio
from technology, competit
regulatory changes, or oth
trends. Risk decreases with
moats protecting your bus
Return
How lucrative a business area
is for the company.
ExpectedReturn
Innovation Risk
Death & Disruption Risk
Return
Exploit
Explore Innovation Risk
The risk that a (convincing)
business idea is going to fail.
Risk is high when there is little
evidence beyond slides and
spreadsheets to support the
success chances of an idea. Risk
decreases with the amount of
evidence that supports the desir-
ability, feasibility, viability, and
adaptability of a business idea.
Expected Return
How lucrative a business idea
could be for the company if it
turned out to be successful.
Death & Disruption
The risk that a busines
going to die or get disr
Risk is high when a bus
is either emerging and
vulnerable, or when a b
is under threat of disru
from technology, comp
regulatory changes, or
trends. Risk decreases
moats protecting your
Return
How lucrative a business area
is for the company.
ExpectedReturn
Innovation Risk
Death & Disruption Risk
Return
Exploit
Explore
ap
sly
mod-
ture
sting.
folio
ation
s mod-
tions,
vices,
ms of
Exploit Portfolio
Your portfolio of existing
businesses, value proposi-
tions, products and services,
all mapped out in terms
of Return and Death and
Disruption Risk. Innovation Risk
The risk that a (convincing)
business idea is going to fail.
Risk is high when there is little
evidence beyond slides and
spreadsheets to support the
success chances of an idea. Risk
decreases with the amount of
evidence that supports the desir-
ability, feasibility, viability, and
adaptability of a business idea.
Expected Return
How lucrative a business idea
could be for the company if it
turned out to be successful.
Death & D
The risk that
going to die
Risk is high w
is either eme
vulnerable, o
is under thre
from technol
regulatory ch
trends. Risk d
moats protec
Return
How lucrative a business area
is for the company.
ExpectedReturn
Innovation Risk
Death & Disruption Risk
Return
Exploit
Explore
DEFINITION
The Portfolio Map
A strategic management tool to simultaneously
visualize, analyze, and manage the business mod-
els you are improving and growing and the future
business models you are searching for and testing.
Explore Portfolio
Your portfolio of innovation
projects, new business mod-
els, new value propositions,
new products and services,
all mapped out in terms of
Expected Return
and Innovation Risk.
Exploit Portfolio
Your portfolio of existing
businesses, value proposi-
tions, products and services,
all mapped out in terms
of Return and Death and
Disruption Risk. Innovation Risk
The risk that a (convincing)
business idea is going to fail.
Risk is high when there is little
evidence beyond slides and
spreadsheets to support the
success chances of an idea. Risk
decreases with the amount of
evidence that supports the desir-
ability, feasibility, viability, and
adaptability of a business idea.
Expected Return
How lucrative a business idea
could be for the company if it
turned out to be successful.
Death & Disrup
The risk that a bus
going to die or get
Risk is high when a
is either emerging
vulnerable, or whe
is under threat of
from technology, c
regulatory change
trends. Risk decre
moats protecting
Return
How lucrative a business area
is for the company.
ExpectedReturn
Innovation Risk
Death & Disruption Risk
Return
Exploit
Explore
rtfolio
xisting
proposi-
d services,
terms
ath and
Innovation Risk
The risk that a (convincing)
business idea is going to fail.
Risk is high when there is little
evidence beyond slides and
spreadsheets to support the
success chances of an idea. Risk
decreases with the amount of
evidence that supports the desir-
ability, feasibility, viability, and
adaptability of a business idea.
Expected Return
How lucrative a business idea
could be for the company if it
turned out to be successful.
Death & Disruptio
The risk that a busine
going to die or get dis
Risk is high when a bu
is either emerging and
vulnerable, or when a
is under threat of disru
from technology, com
regulatory changes, o
trends. Risk decreases
moats protecting your
Return
How lucrative a business area
is for the company.
Death & Disruption Risk
Return
Exploit
DEFINITION
The Portfolio Map
A strategic management tool to simultaneously
visualize, analyze, and manage the business mod-
els you are improving and growing and the future
business models you are searching for and testing.
Explore Portfolio Exploit Portfolio
Expected Return
How lucrative a business idea
could be for the company if it
turned out to be successful.
Return
How lucrative a business area
is for the company.
p
y
od-
re
ing.
olio Exploit Portfolio
Expected Retu
How lucrative a b
could be for the c
turned out to be s
Return
folio Map
t tool to simultaneously
manage the business mod-
nd growing and the future
e searching for and testing.
Expected Return
How lucrative a business idea
could be for the company if it
turned out to be successful.
Return
How lucrative a business area
is for the company.
p
y
od-
re
ing.
Expected Return
How lucrative a business idea
could be for the company if it
turned out to be successful.
ap
usly
s mod-
uture
testing.
Expected Return
How lucrative a business idea
could be for the company if it
turned out to be successful.
Return
How lucrative
is for the comp
TESTING
Experiment
Reducing the Risk of Your Ideas
with Experiments
TEST
Learn
Hypothesize
Experiment
There are a multitude of experiments to
test your ideas. We describe 44 different
Funding
Uncertainty & Risk
PROGRESS
Idea BusinessSearch & Testing
Discovery Validation Acceleration
Execution
First evidence
of customer
understanding,
context, and
willingness to
pay.
Strong evidence
of interest and
indications of
profitability.
Proven model
at limited scale.
Move your idea
to the execu-
tion portfolio to
implement and
Transfer
TESTING
Experiment
Reducing the Risk of Your Ideas
with Experiments
To avoid building something nobody wants
you need to test your ideas thoroughly
with business experiments. Test your most
Definition
• a procedure to reduce the risk and
TEST
Learn
Hypothesize
Experiment
There are a multitude of experiments to
test your ideas. We describe 44 different
business experiments at length in our book
Testing Business Ideas [url]. Experiments can
range from simple interviews over discussion
prototypes, all the way to simulated sales,
Funding
Uncertainty & Risk
PROGRESS
Idea BusinessSearch & Testing
Discovery Validation Acceleration
Execution
4. Reduce uncertainty as
much as you can before
First evidence
of customer
understanding,
context, and
willingness to
pay.
Strong evidence
of interest and
indications of
profitability.
Proven model
at limited scale.
Move your idea
to the execu-
tion portfolio to
implement and
scale.
Transfer
Here are four rules of 1. Go cheap and fast at
the beginning.
2. Increase the strength
of evidence with multiple
3. Always pick the experi-
ment that produces the
SEARCH & TEST EXECUTE
PROGRESS
Test
Reduce Innovation Risk
DESIGN & TEST
Risk Reduction
& Funding
18. SCORING
Project Scorecard
Which innovation metrics do you
track at your organization today?
PollIn Zoom: multiple choice
EXPLOIT
EXPLORE
Innovation Risk -
Death & Disruption Risk
Return
Exploit
Innovation Risk
The risk that a (convincing)
business idea is going to fail.
Risk is high when there is little
evidence beyond slides and
spreadsheets to support the
success chances of an idea. Risk
decreases with the amount of
evidence that supports the desir-
ability, feasibility, viability, and
adaptability of a business idea.
Death & Disruption Risk
The risk that a business is
going to die or get disrupted.
Risk is high when a business
is either emerging and still
vulnerable, or when a business
is under threat of disruption
from technology, competition,
regulatory changes, or other
trends. Risk decreases with the
moats protecting your business.
k
Death & Disruption Risk
Return
Exploit
Innovation Risk
The risk that a (convincing)
business idea is going to fail.
Risk is high when there is little
evidence beyond slides and
spreadsheets to support the
success chances of an idea. Risk
decreases with the amount of
evidence that supports the desir-
ability, feasibility, viability, and
adaptability of a business idea.
Death & Disruption Risk
The risk that a business is
going to die or get disrupted.
Risk is high when a business
is either emerging and still
vulnerable, or when a business
is under threat of disruption
from technology, competition,
regulatory changes, or other
trends. Risk decreases with the
moats protecting your business.
business area
any.
ExpectedReturn
Innovation Risk
Death & Disruption Risk
Return
Exploit
Explore Innovation Risk
The risk that a (convincing)
business idea is going to fail.
Risk is high when there is little
evidence beyond slides and
spreadsheets to support the
success chances of an idea. Risk
decreases with the amount of
evidence that supports the desir-
ability, feasibility, viability, and
adaptability of a business idea.
Expected Return
How lucrative a business idea
could be for the company if it
turned out to be successful.
Death & Disruption Risk
The risk that a business is
going to die or get disrupted.
Risk is high when a business
is either emerging and still
vulnerable, or when a business
is under threat of disruption
from technology, competition,
regulatory changes, or other
trends. Risk decreases with the
moats protecting your business.
Return
How lucrative a business area
is for the company.
ExpectedReturn
Innovation Risk
Death & Disruption Risk
Return
Exploit
Explore
lio
g
si-
ices,
d
Innovation Risk
The risk that a (convincing)
business idea is going to fail.
Risk is high when there is little
evidence beyond slides and
spreadsheets to support the
success chances of an idea. Risk
decreases with the amount of
evidence that supports the desir-
ability, feasibility, viability, and
adaptability of a business idea.
Expected Return
How lucrative a business idea
could be for the company if it
turned out to be successful.
Death & Disruption Risk
The risk that a business is
going to die or get disrupted.
Risk is high when a business
is either emerging and still
vulnerable, or when a business
is under threat of disruption
from technology, competition,
regulatory changes, or other
trends. Risk decreases with the
moats protecting your business.
Return
How lucrative a business area
is for the company.
Innovation Risk
Death & Disruption Risk
Return
Exploit
Explore Innovation Risk
The risk that a (convincing)
business idea is going to fail.
Risk is high when there is little
evidence beyond slides and
spreadsheets to support the
success chances of an idea. Risk
decreases with the amount of
evidence that supports the desir-
ability, feasibility, viability, and
adaptability of a business idea.
ss idea
ny if it
ssful.
Death & Disruption Risk
The risk that a business is
going to die or get disrupted.
Risk is high when a business
is either emerging and still
vulnerable, or when a business
is under threat of disruption
from technology, competition,
regulatory changes, or other
trends. Risk decreases with the
moats protecting your business.
Return
How lucrative a business area
is for the company.
Death & Disruption Risk
Return
Exploit
Expected Return
How lucrative a business idea
could be for the company if it
turned out to be successful.
Return
How lucrative a business area
is for the company.
Return
Expected Return
How lucrative a business idea
could be for the company if it
turned out to be successful.
Return
How lucrative a business area
is for the company.
Return
Exploit
Expected Return
How lucrative a business idea
could be for the company if it
turned out to be successful.
Return
How lucrative a business area
is for the company.
Return
Expected Return
How lucrative a business idea
could be for the company if it
turned out to be successful.
Return
How lucrative a business area
is for the company.
Return
Exploit
Expected Return
How lucrative a business idea
could be for the company if it
turned out to be successful.
Return
How lucrative a business area
is for the company.
of experiments to
scribe 44 different
Funding
Uncertainty & Risk
PROGRESS
Idea BusinessSearch & Testing
Discovery Validation Acceleration
Execution
First evidence
of customer
understanding,
context, and
willingness to
pay.
Strong evidence
of interest and
indications of
profitability.
Proven model
at limited scale.
Move your idea
to the execu-
tion portfolio to
implement and
Transfer
There are a multitude of experiments to
test your ideas. We describe 44 different
business experiments at length in our book
Testing Business Ideas [url]. Experiments can
range from simple interviews over discussion
prototypes, all the way to simulated sales,
Funding
Uncertainty & Risk
PROGRESS
Idea BusinessSearch & Testing
Discovery Validation Acceleration
Execution
4. Reduce uncertainty as
much as you can before
First evidence
of customer
understanding,
context, and
willingness to
pay.
Strong evidence
of interest and
indications of
profitability.
Proven model
at limited scale.
Move your idea
to the execu-
tion portfolio to
implement and
scale.
Transfer
Here are four rules of 1. Go cheap and fast at
the beginning.
2. Increase the strength
of evidence with multiple
3. Always pick the experi-
ment that produces the
SEARCH & TEST EXECUTE
PROGRESS
Test
Reduce Innovation Risk
DESIGN & TEST
Risk Reduction
& Funding
3 types of
innovation
+transformative sustaining +efficiency
High uncertainty Low uncertainty
19. PROGRESS
Pasche
BusinessIdea
Search & Testing Execution
Risk &
Uncertainty
TYPES OF INNOVATION
Levels of Uncertainty
feasibility
viability
desirability
adaptability
The Business Model Canvas
Revenue Streams
Channels
Customer SegmentsValue PropositionsKey ActivitiesKey Partners
Key Resources
Cost Structure
Customer Relationships
Designed by: Date: Version:Designed for:
designed by: Business Model Foundry GmbH, Switzerland
www.businessmodelgeneration.com
This work is licensed under the Creative Commons Attribution-Share Alike 3.0 Unported License. To view a copy of this license, visit:
http://creativecommons.org/licenses/by-sa/3.0/ or send a letter to Creative Commons, 171 Second Street, Suite 300, San Francisco, California, 94105, USA. strategyzer.com
94
MANAGE
95
MANAGE
Exploit
Explore
ExpectedReturn
Innovation Risk
INNOVATION METRICS
Portfolio
Level
You can visualize the state of your explore
portfolio once you get your teams to track
the KPIs of their individual explore project.
This gives you a powerful overview of the
financial potential of your ideas in explora-
tion and their current risk level. Equipped
with this data and overview you can make
better investment decisions and decide
which projects to fund and support and
which projects to retire.
Business Model Portfolio (EXPLORE)
PROJECT
Expected revenues
Testing costs / Time running
PROJECT C
$205 million
$180 thousand
/ 4 months
PROJECT H
$780 million
$1 million /
12 monthsPROJECT E
$500 million
$150 thousand
/1 months
PROJECT A
$750 million
$5,800 /
8 weeks
PROJECT D
$440 million
$120 thousand
/3 months
PROJECT B
$150 million
$500 thousand
/ 9 months
LEGEND:
93
MANAGE
HYPOTHESIS 1 10%
HYPOTHESIS 2 7.5%
HYPOTHESIS 3 7.5%
HYPOTHESIS 4 15%
HYPOTHESIS 5 10%
HYPOTHESIS 6 15%
HYPOTHESIS 9 10%
HYPOTHESIS 7 15%
HYPOTHESIS 8 10%
EXP. 1 $0.2K
EXP. 2 $0.5K
EXP. 3, EXP. 4 $1.2K
EXP. 5 $1.3K
EXP. 6, EXP. 7 $0.5K
EXP. 8 $0.2K
EXP. 12 $0.7K
EXP. 9, EXP. 10 $0.2K
EXP. 11 $1K
$5,800 70%
v/
X
v/
X
v/
?
v/
v/
?
0.75
1
1
1
0.5
0.25
0.5
10% x 0.75 = 7.5%
0%
7.5% x 1 = 7.5%
Persevere
Pivot
Persevere
Pivot
Persevere
Re-test
Persevere
Persevere
Re-test
$1 billion
$250 million
0%
10% x 0.5 = 5%
0%
10% x 0.25 = 2.5%
15% x 0.5 = 7.5%
0%
PROJECT A 9/12/2020 8 weeks
Learning Log Actions
Expected
Return
Experiment LogHypotheses Log
Project Metrics
Name
Name Start Date Project Duration
Name Cost
$
Overall
Cost
$
Innovation
Risk Level
%
Insight Confidence
#0 –1
Risk Reduction
= Risk x Confidence
Revenue Potential
Expected
Return
$
Cost Structure
Re-test, Shelve,
Perservere, Pivot
Risk
%
Desirability
Viability
Adaptability
Feasibility
$750 million
PROJECT F
$100 million
$10 thousand /
3 weeks
PROJECT G
$400 million
$20 thousand /
1week
INNOVATION RISK
INNOVATION METRICS
Project Scorecard
50 51
Risk Reduction · Feasibility Evidence
KEY RESOURCES
We have the right technologies and resources to
create our value proposition.
KEY ACTIVITIES
We have the right capabilities to handle the most
critical activities for creating our value proposition.
KEY PARTNERS
We have found the right key partners who are
willing to work with us to create and deliver our
value proposition.
Risk Reduction · Viability Evidence
REVENUES
We know how much our customers are willing to
pay us and how they will pay.
COSTS
We know our costs for creating and delivering the
value proposition.
Risk Reduction · Adaptability Evidence
INDUSTRY FORCES
Our idea/project is well positioned to succeed
against established competitors and new emerg-
ing players.
MARKET FORCES
Our idea/project takes known and emerging mar-
ket shifts into account.
KEY TRENDS
Our idea/project is well positioned to benefit from
key technology, regulatory, cultural and societal
trends.
MACRO-ECONOMIC FORCES
Our idea/project is adapted to known and emerg-
ing macro-economic and infrastructure trends.
Opportunity Value
We understand the financial potential of our idea.
EXPLORE
Project
Scorecard
Strategic Fit Alignment
CORPORATE IDENTITY
Our idea/project is aligned with our corporate
identity (strategic direction, organizational culture,
brand image).
INNOVATION GUIDANCE
Our idea/project is aligned with our company’s
innovation guidance.
LEADERSHIP SUPPORT
Our idea/project has support from at least one key
sponsor who can help it become reality.
Risk Reduction · Desirability Evidence
CUSTOMER SEGMENT
Our critical customer segments have the jobs,
pains, and gains relevant for selling our value
proposition.
VALUE PROPOSITION
Our value proposition resonates with our critical
customer segments.
CHANNELS
We have found the best channel(s) to reach and
acquire our critical customer segments.
CUSTOMER RELATIONSHIP
We have developed the right relationships to
retain customers and repeatedly earn from them.
none
unclear
little
poor to little
good
strong
strong
very strong
potential
some good
unclear
unclear
unclear
<$100K
poor to little
poor to little
poor to little
$3M+
strong
strong
strong
$50M+
very strong
very strong
very strong
$100M+
some good
some good
some good
$10M+
Icon?
50 51
Risk Reduction · Feasibility Evidence
KEY RESOURCES
We have the right technologies and resources to
create our value proposition.
KEY ACTIVITIES
We have the right capabilities to handle the most
critical activities for creating our value proposition.
KEY PARTNERS
We have found the right key partners who are
willing to work with us to create and deliver our
value proposition.
Risk Reduction · Viability Evidence
REVENUES
We know how much our customers are willing to
pay us and how they will pay.
COSTS
We know our costs for creating and delivering the
value proposition.
Risk Reduction · Adaptability Evidence
INDUSTRY FORCES
Our idea/project is well positioned to succeed
against established competitors and new emerg-
ing players.
MARKET FORCES
Our idea/project takes known and emerging mar-
ket shifts into account.
KEY TRENDS
Our idea/project is well positioned to benefit from
key technology, regulatory, cultural and societal
trends.
MACRO-ECONOMIC FORCES
Our idea/project is adapted to known and emerg-
ing macro-economic and infrastructure trends.
Opportunity Value
We understand the financial potential of our idea.
EXPLORE
Project
Scorecard
Strategic Fit Alignment
CORPORATE IDENTITY
Our idea/project is aligned with our corporate
identity (strategic direction, organizational culture,
brand image).
INNOVATION GUIDANCE
Our idea/project is aligned with our company’s
innovation guidance.
LEADERSHIP SUPPORT
Our idea/project has support from at least one key
sponsor who can help it become reality.
Risk Reduction · Desirability Evidence
CUSTOMER SEGMENT
Our critical customer segments have the jobs,
pains, and gains relevant for selling our value
proposition.
VALUE PROPOSITION
Our value proposition resonates with our critical
customer segments.
CHANNELS
We have found the best channel(s) to reach and
acquire our critical customer segments.
CUSTOMER RELATIONSHIP
We have developed the right relationships to
retain customers and repeatedly earn from them.
none
unclear
little
poor to little
good
strong
strong
very strong
potential
some good
unclear
unclear
unclear
<$100K
poor to little
poor to little
poor to little
$3M+
strong
strong
strong
$50M+
very strong
very strong
very strong
$100M+
some good
some good
some good
$10M+
Icon?
Desirability?
Feasibility?
Viability?
Adaptability?
The Business Model Canvas
Revenue Streams
Channels
Customer SegmentsValue PropositionsKey ActivitiesKey Partners
Key Resources
Cost Structure
Customer Relationships
Designed by: Date: Version:Designed for:
designed by: Business Model Foundry GmbH, Switzerland
www.businessmodelgeneration.com
This work is licensed under the Creative Commons Attribution-Share Alike 3.0 Unported License. To view a copy of this license, visit:
http://creativecommons.org/licenses/by-sa/3.0/ or send a letter to Creative Commons, 171 Second Street, Suite 300, San Francisco, California, 94105, USA. strategyzer.com
The Business Model Canvas
Revenue Streams
Channels
Customer SegmentsValue PropositionsKey ActivitiesKey Partners
Key Resources
Cost Structure
Customer Relationships
Designed by: Date: Version:Designed for:
designed by: Business Model Foundry GmbH, Switzerland
www.businessmodelgeneration.com
This work is licensed under the Creative Commons Attribution-Share Alike 3.0 Unported License. To view a copy of this license, visit:
http://creativecommons.org/licenses/by-sa/3.0/ or send a letter to Creative Commons, 171 Second Street, Suite 300, San Francisco, California, 94105, USA. strategyzer.com
95
MANAGE
Exploit
Explore
ExpectedReturn
Innovation Risk
ur explore
ms to track
e project.
ew of the
in explora-
Equipped
can make
decide
ort and
Business Model Portfolio (EXPLORE)
PROJECT
Expected revenues
Testing costs / Time running
PROJECT C
$205 million
$180 thousand
/ 4 months
PROJECT H
$780 million
$1 million /
12 monthsPROJECT E
$500 million
$150 thousand
/1 months
PROJECT A
$750 million
$5,800 /
8 weeks
PROJECT D
$440 million
$120 thousand
/3 months
PROJECT B
$150 million
$500 thousand
/ 9 months
LEGEND:
93
MANAGE
HYPOTHESIS 1 10%
HYPOTHESIS 2 7.5%
HYPOTHESIS 3 7.5%
HYPOTHESIS 4 15%
HYPOTHESIS 5 10%
HYPOTHESIS 6 15%
HYPOTHESIS 9 10%
HYPOTHESIS 7 15%
HYPOTHESIS 8 10%
EXP. 1 $0.2K
EXP. 2 $0.5K
EXP. 3, EXP. 4 $1.2K
EXP. 5 $1.3K
EXP. 6, EXP. 7 $0.5K
EXP. 8 $0.2K
EXP. 12 $0.7K
EXP. 9, EXP. 10 $0.2K
EXP. 11 $1K
$5,800 70%
v/
X
v/
X
v/
?
v/
v/
?
0.75
1
1
1
0.5
0.25
0.5
10% x 0.75 = 7.5%
0%
7.5% x 1 = 7.5%
Persevere
Pivot
Persevere
Pivot
Persevere
Re-test
Persevere
Persevere
Re-test
$1 billion
$250 million
0%
10% x 0.5 = 5%
0%
10% x 0.25 = 2.5%
15% x 0.5 = 7.5%
0%
PROJECT A 9/12/2020 8 weeks
Learning Log Actions
Expected
Return
Experiment LogHypotheses Log
Project Metrics
Name
Name Start Date Project Duration
Name Cost
$
Overall
Cost
$
Innovation
Risk Level
%
Insight Confidence
#0 –1
Risk Reduction
= Risk x Confidence
Revenue Potential
Expected
Return
$
Cost Structure
Re-test, Shelve,
Perservere, Pivot
Risk
%
Desirability
Viability
Adaptability
Feasibility
$750 million
PROJECT F
$100 million
$10 thousand /
3 weeks
PROJECT G
$400 million
$20 thousand /
1week
DECISIONS
Project Scorecard
50 51
Risk Reduction · Feasibility Evidence
KEY RESOURCES
We have the right technologies and resources to
create our value proposition.
KEY ACTIVITIES
We have the right capabilities to handle the most
critical activities for creating our value proposition.
KEY PARTNERS
We have found the right key partners who are
willing to work with us to create and deliver our
value proposition.
Risk Reduction · Viability Evidence
REVENUES
We know how much our customers are willing to
pay us and how they will pay.
COSTS
We know our costs for creating and delivering the
value proposition.
Risk Reduction · Adaptability Evidence
INDUSTRY FORCES
Our idea/project is well positioned to succeed
against established competitors and new emerg-
ing players.
MARKET FORCES
Our idea/project takes known and emerging mar-
ket shifts into account.
KEY TRENDS
Our idea/project is well positioned to benefit from
key technology, regulatory, cultural and societal
trends.
MACRO-ECONOMIC FORCES
Our idea/project is adapted to known and emerg-
ing macro-economic and infrastructure trends.
Opportunity Value
We understand the financial potential of our idea.
EXPLORE
Project
Scorecard
Strategic Fit Alignment
CORPORATE IDENTITY
Our idea/project is aligned with our corporate
identity (strategic direction, organizational culture,
brand image).
INNOVATION GUIDANCE
Our idea/project is aligned with our company’s
innovation guidance.
LEADERSHIP SUPPORT
Our idea/project has support from at least one key
sponsor who can help it become reality.
Risk Reduction · Desirability Evidence
CUSTOMER SEGMENT
Our critical customer segments have the jobs,
pains, and gains relevant for selling our value
proposition.
VALUE PROPOSITION
Our value proposition resonates with our critical
customer segments.
CHANNELS
We have found the best channel(s) to reach and
acquire our critical customer segments.
CUSTOMER RELATIONSHIP
We have developed the right relationships to
retain customers and repeatedly earn from them.
none
unclear
little
poor to little
good
strong
strong
very strong
potential
some good
unclear
unclear
unclear
<$100K
poor to little
poor to little
poor to little
$3M+
strong
strong
strong
$50M+
very strong
very strong
very strong
$100M+
some good
some good
some good
$10M+
Icon?
51
Risk Reduction · Feasibility Evidence
KEY RESOURCES
We have the right technologies and resources to
create our value proposition.
KEY ACTIVITIES
We have the right capabilities to handle the most
critical activities for creating our value proposition.
KEY PARTNERS
We have found the right key partners who are
willing to work with us to create and deliver our
value proposition.
Risk Reduction · Viability Evidence
REVENUES
We know how much our customers are willing to
pay us and how they will pay.
COSTS
We know our costs for creating and delivering the
value proposition.
Risk Reduction · Adaptability Evidence
INDUSTRY FORCES
Our idea/project is well positioned to succeed
against established competitors and new emerg-
ing players.
MARKET FORCES
Our idea/project takes known and emerging mar-
ket shifts into account.
KEY TRENDS
Our idea/project is well positioned to benefit from
key technology, regulatory, cultural and societal
trends.
MACRO-ECONOMIC FORCES
Our idea/project is adapted to known and emerg-
ing macro-economic and infrastructure trends.
Opportunity Value
We understand the financial potential of our idea.
strong
very strong
unclear
unclear
unclear
<$100K
poor to little
poor to little
poor to little
$3M+
strong
strong
strong
$50M+
very strong
very strong
very strong
$100M+
some good
some good
some good
$10M+
Exploit
ch
23
TOOL
n Risk
o
EXPLORE
Explore
Actions
Ideate
A still exists but outside
the portfolio
↓
A belongs to the portfolio
The activity of turning market
opportunities, technologies, prod-
ucts, or services into first business
model and value proposition pro-
totypes. This typically happens in
a workshop setting. At this stage,
there is no real evidence that
significantly reduces innovation
risk, only assumptions that you
plan to test. You capture results in
slides and spreadsheets.
Retire
A belongs to the portfolio
↓
A is killed
The decision to kill a search proj-
ect based on evidence or lack of
strategic fit. The evidence might
show that an idea won't work in
reality or that the profit potential
is insufficient.
Spinout
A belongs to the portfolio
↓
A still exists but outside
the portfolio
The decision to spin out rather
than to kill a promising idea. This
can either be in the form of selling
it to another company, to inves-
tors, or to the team that explored
the idea. The company might
invest in the spinout, or buy it
back at a later less-risky stage.
Transfer
A belongs to the Explore portfolio
↓
A is transferred to the Exploit
portfolio
The decision to move a business
model idea from exploration to
exploitation based on strong
evidence. This typically happens
once you’ve produced strong
evidence of desirability, feasibil-
ity, viability, and adaptability.
Transferring requires finding a
good home in the exploit portfolio.
This may be as part of an existing
business or as a new stand-alone
business.
There are seven actions you perform in your
EXPLORE portfolio. All of them are related
to shaping and testing new business ideas
in order to improve their return and reduce
their innovation risk. The exploration of new
ideas may include everything from radically
new business models all the way to testing
incremental improvements of existing busi-
ness models in the EXPLOIT portfolio.
Transfer
Spinout
Retire
Persevere
Invest
A exists, outside the portfolio
↓
A partly belongs to the portfolio
The decision to invest fully or
partially in an outside start-up or
exploration project to bolster your
portfolio of internal projects.
Persevere
A belongs to the portfolio
↓
A is unchanged, inside the portfolio
The decision to continue testing
an idea based on evidence. This
typically happens after gaining
insights you feel confident about
from the analysis of the evidence.
You persevere by further testing
the same hypothesis with a stron-
ger experiment, or by moving on
to your next important hypothesis.
Pivot
A belongs to the portfolio
↓
A is changed into B, inside the
portfolio
The decision to make a significant
change to one or more elements
of your business model. This
typically happens after learning
that the idea you’ve been testing
won’t work in reality without
major modifications. A pivot often
means that some of your earlier
evidence may be irrelevant to
your new trajectory. It usually
requires re-testing elements of
your business model that you've
already tested.
The idea to visualize actions with a triangle emerged
after a discussion with Luis Felipe Cisneros. See p.XXX
in MANAGE for more on Explore Portfolio Actions.
Transfer
Expected Return
Cost of Testing to Date
Time Spent Testing
Innovation Risk
Desirability?
Feasibility?
Viability?
Adaptability?
INNOVATION METRICS
94
MANAGE
95
MANAGE
Exploit
Explore
ExpectedReturn
Innovation Risk
INNOVATION METRICS
Portfolio
Level
You can visualize the state of your explore
portfolio once you get your teams to track
the KPIs of their individual explore project.
This gives you a powerful overview of the
financial potential of your ideas in explora-
tion and their current risk level. Equipped
with this data and overview you can make
better investment decisions and decide
which projects to fund and support and
which projects to retire.
Business Model Portfolio (EXPLORE)
PROJECT
Expected revenues
Testing costs / Time running
PROJECT C
$205 million
$180 thousand
/ 4 months
PROJECT H
$780 million
$1 million /
12 monthsPROJECT E
$500 million
$150 thousand
/1 months
PROJECT A
$750 million
$5,800 /
8 weeks
PROJECT D
$440 million
$120 thousand
/3 months
PROJECT B
$150 million
$500 thousand
/ 9 months
LEGEND:
93
MANAGE
HYPOTHESIS 1 10%
HYPOTHESIS 2 7.5%
HYPOTHESIS 3 7.5%
HYPOTHESIS 4 15%
HYPOTHESIS 5 10%
HYPOTHESIS 6 15%
HYPOTHESIS 9 10%
HYPOTHESIS 7 15%
HYPOTHESIS 8 10%
EXP. 1 $0.2K
EXP. 2 $0.5K
EXP. 3, EXP. 4 $1.2K
EXP. 5 $1.3K
EXP. 6, EXP. 7 $0.5K
EXP. 8 $0.2K
EXP. 12 $0.7K
EXP. 9, EXP. 10 $0.2K
EXP. 11 $1K
$5,800 70%
v/
X
v/
X
v/
?
v/
v/
?
0.75
1
1
1
0.5
0.25
0.5
10% x 0.75 = 7.5%
0%
7.5% x 1 = 7.5%
Persevere
Pivot
Persevere
Pivot
Persevere
Re-test
Persevere
Persevere
Re-test
$1 billion
$250 million
0%
10% x 0.5 = 5%
0%
10% x 0.25 = 2.5%
15% x 0.5 = 7.5%
0%
PROJECT A 9/12/2020 8 weeks
Learning Log Actions
Expected
Return
Experiment LogHypotheses Log
Project Metrics
Name
Name Start Date Project Duration
Name Cost
$
Overall
Cost
$
Innovation
Risk Level
%
Insight Confidence
#0 –1
Risk Reduction
= Risk x Confidence
Revenue Potential
Expected
Return
$
Cost Structure
Re-test, Shelve,
Perservere, Pivot
Risk
%
Desirability
Viability
Adaptability
Feasibility
$750 million
PROJECT F
$100 million
$10 thousand /
3 weeks
PROJECT G
$400 million
$20 thousand /
1week
DECISIONS
For every project:
Exploit
search
22
TOOL
ExpectedReturn
Innovation Risk
Potential Actions in the Explore Portfolio
EXPLORE
Explore
Actions
Ideate
A still exists but outside
the portfolio
↓
A belongs to the portfolio
The activity of turning market
opportunities, technologies, prod-
ucts, or services into first business
model and value proposition pro-
totypes. This typically happens in
a workshop setting. At this stage,
there is no real evidence that
significantly reduces innovation
risk, only assumptions that you
plan to test. You capture results in
slides and spreadsheets.
Retire
A belongs to the portfolio
↓
A is killed
The decision to kill a search proj-
ect based on evidence or lack of
strategic fit. The evidence might
show that an idea won't work in
reality or that the profit potential
is insufficient.
Spinout
A belongs to the portfolio
↓
A still exists but outside
the portfolio
The decision to spin out rather
than to kill a promising idea. This
can either be in the form of selling
it to another company, to inves-
tors, or to the team that explored
the idea. The company might
invest in the spinout, or buy it
back at a later less-risky stage.
Transfer
A belongs to the Explore portfolio
↓
A is transferred to the Exploit
portfolio
The decision to move a business
model idea from exploration to
exploitation based on strong
evidence. This typically happens
once you’ve produced strong
evidence of desirability, feasibil-
ity, viability, and adaptability.
Transferring requires finding a
good home in the exploit portfolio.
This may be as part of an existing
business or as a new stand-alone
business.
There are seven actions you perform in your
EXPLORE portfolio. All of them are related
to shaping and testing new business ideas
in order to improve their return and reduce
their innovation risk. The exploration of new
ideas may include everything from radically
new business models all the way to testing
incremental improvements of existing busi-
ness models in the EXPLOIT portfolio.
Transfer
Spinout
Pivot
Invest
Retire
Ideate
Persevere
Invest
A exists, outside the portfolio
↓
A partly belongs to the portfolio
The decision to invest fully or
partially in an outside start-up or
exploration project to bolster your
portfolio of internal projects.
Persevere
A belongs to the portfolio
↓
A is unchanged, inside the portfolio
The decision to continue testing
an idea based on evidence. This
typically happens after gaining
insights you feel confident about
from the analysis of the evidence.
You persevere by further testing
the same hypothesis with a stron-
ger experiment, or by moving on
to your next important hypothesis.
Pivot
A belongs to the portfolio
↓
A is changed into B, inside the
portfolio
The decision to make a significant
change to one or more elements
of your business model. This
typically happens after learning
that the idea you’ve been testing
won’t work in reality without
major modifications. A pivot often
means that some of your earlier
evidence may be irrelevant to
your new trajectory. It usually
requires re-testing elements of
your business model that you've
already tested.
The idea to visualize actions with a triangle emerged
after a discussion with Luis Felipe Cisneros. See p.XXX
in MANAGE for more on Explore Portfolio Actions.
Transfer
Expected Return
Cost of Testing to Date
Time Spent Testing
Innovation Risk
INNOVATION METRICS
20. 8 9
The Iterative
Process
Business Concept Design
Design is the activity of turning vague ideas,
market insights, and evidence into con-
crete value propositions and solid business
models. Good design involves the use of
strong business model patterns to maximize
returns and compete beyond product, price,
and technology.
The risk that a business can’t get access
to key resources (technology, IP, brand, etc.),
can’t develop capabilities to perform key
activities or can’t find key partners to build
and scale the value proposition.
Testing and reducing risk
To test a big business idea you break
it down into smaller chunks of testable
hypotheses. These hypotheses cover three
types of risk. Firstly, that customers aren’t
interested in your idea (desirability).
Secondly, that you can’t build and
deliver your idea (feasibility). Thirdly,
that you can’t earn enough money
from your idea (viability).
You test your most important hypotheses
with appropriate experiments. Each experi-
ment generates evidence and insights that
allow you to learn and decide. Based on the
evidence and your insights you either adapt
your idea if you learn you were on the wrong
path or continue testing other aspects of
your idea if the evidence supports your
direction.
Desirability risk
Customers aren’t interested
The risk that the market a
business is targeting is too
small, that too few customers
want the value proposition, or
that the company can’t reach,
acquire, and retain targeted
customers.
Feasibility risk
We can’t build and deliver
The risk that a business can’t
get access to key resources
(technology, IP, brand, etc.),
can’t develop capabilities to
perform key activities or can’t
find key partners to build and
scale the value proposition.
Viability risk
We can’t earn enough money
The risk that a business can’t
generate successful revenue
streams, that customers are
unwilling to pay (enough), or
that the costs are too high to
make a sustainable profit.
Reducing
Uncertainty
and Risk
TEST
BUSINESS
DESIGN
Ideate
Business
Prototype
Assess
Learn
D
ecide
Hypothesize
Experiment
Idea
Key Hypotheses
Business Model
Experiments
Value Proposition
Key Insights
EXPLOIT
EXPLORE
12 13
1 2 3 4Design
Design the Team
p. 207
Shape the Idea
p. 207
Experiments
Select an Experiment
p. 207
Discovery
p. 207
Validation
p. 207
Test
Hypothesize
p. 207
Experiment
p. 207
Learn
p. 207
Decide
p. 207
Manage
p. 207
Mindset
Avoid Pitfalls
p. 207
Lead through
Experimentation
p. 207
Organize for
Experiments
p. 207
AFTERWORD
p. 207
TEST
DESIGN
Ideate
Prototype
Assess
Learn
D
ecide
Hypothesize
Experiment
Discovery
Business Design
Increase Expected Return
Test
Reduce Innovation Risk
Ideate
Prototype
Assess Hypothesize
ExperimentLearn
EXPLORE PORTFOLIO
Design & Test
8
The Iterative
Process
Business Concept Design
Design is the activity of turning vague ideas,
market insights, and evidence into con-
crete value propositions and solid business
models. Good design involves the use of
strong business model patterns to maximize
returns and compete beyond product, price,
and technology.
The risk that a business can’t get access
to key resources (technology, IP, brand, etc.),
can’t develop capabilities to perform key
activities or can’t find key partners to build
and scale the value proposition.
TEST
BUSINESS
DESIGN
Ideate
Assess
Learn
D
ecide
Hypothesize
Experiment
Idea Business Model Value Proposition
strategyzer.com
Gain Creators
Pain Relievers Pains
Gains
Products
& Services
Customer
Job(s)
The Value Proposition Canvas
Value Proposition Customer Segment
strategyzer.comThe makers of Business Model Generation and Strategyzer
Copyright Business Model Foundry AG
makes explicit how an idea creates
value for your organization
makes explicit how an idea
creates value for the customer
Resource
Activity
Partner Your Value
Proposition
Your
Customer
Cost
Channel
Relationship
Revenue
business people don’t just need
to understand designers better;
they need to become designers
“
”– Roger Martin, Rotman School @ Toronto
21. Testing and reducing risk
To test a big business idea you break
it down into smaller chunks of testable
hypotheses. These hypotheses cover thr
types of risk. Firstly, that customers aren
interested in your idea (desirability).
Secondly, that you can’t build and
deliver your idea (feasibility). Thirdly,
that you can’t earn enough money
from your idea (viability).
You test your most important hypothese
with appropriate experiments. Each expe
ment generates evidence and insights th
allow you to learn and decide. Based on
evidence and your insights you either ad
your idea if you learn you were on the wr
path or continue testing other aspects o
your idea if the evidence supports your
direction.
Feasibility risk
We can’t build and delive
The risk that a business ca
get access to key resource
(technology, IP, brand, etc.
can’t develop capabilities
perform key activities or c
find key partners to build a
scale the value proposition
TEST
BUSINESS
DESIGN
Ideate
Learn
D
ecide
Hypothesize
Experiment
Business Model Value Proposition
Business Model Pattern
141
at new ventures and
anies can apply to build
petitive business models.
pattern so that you can
a reference library.
tration
to highlight a pattern
t outline the company’s
odel—just show how
ular pattern to build
ve business model.
e business model might
patterns.
These are variations of a
particular pattern to help
you understand different
ways to apply the pattern
in question.
– Greenfield
– Business Model
Pattern
– Case
Illustration
– Pattern
Building Blocks
– Optional Pattern
Building Blocks
– Original Business
Model Blocks
– Other Business
Model Blocks
‣A repeatable configuration of different
business model building blocks to strengthen
an organization’s overall business model
8
The Iterative
Process
Business Concept Design
Design is the activity of turning vague ideas,
market insights, and evidence into con-
crete value propositions and solid business
models. Good design involves the use of
strong business model patterns to maximize
returns and compete beyond product, price,
and technology.
The risk that a business can’t get access
to key resources (technology, IP, brand, etc.),
can’t develop capabilities to perform key
activities or can’t find key partners to build
and scale the value proposition.
Testing an
To test a big
it down into
hypotheses.
types of risk
interested in
Secondly, th
deliver your
that you can
from your id
You test you
with approp
ment genera
allow you to
evidence an
your idea if
path or cont
your idea if
direction.
TEST
BUSINESS
DESIGN
Ideate
Business
Prototype
Assess
Learn
D
ecide
Hypothesize
Experiment
Idea Business Model Value Proposition8
e
sign
turning
vague
ideas,
evidence
into
con-
sitions
and
solid
business
design
involves
the
use
of
ness
m
odelpatterns
to
m
axim
ize
nd
com
pete
beyond
product,price,
echnology.
The
risk
thata
business
can’tgetaccess
to
key
resources
(technology,IP,brand,etc.),
can’tdevelop
capabilities
to
perform
key
activities
orcan’tfind
key
partners
to
build
and
scale
the
value
proposition.
Testing
To
testa
big
itdow
n
into
sm
a
hypotheses.These
types
ofrisk.Firstly,t
interested
in
youridea
(d
Secondly,thatyou
can’tbuild
deliveryouridea
(feasibility).Thir
thatyou
can’tearn
enough
m
oney
from
youridea
(viability).
You
testyourm
ostim
portanthypotheses
w
ith
appropriate
experim
ents.Each
experi-
m
entgenerates
evidence
and
insights
that
allow
you
to
learn
and
decide.Based
on
the
evidence
and
yourinsights
you
eitheradapt
youridea
ifyou
learn
you
w
ere
on
the
w
rong
path
orcontinue
testing
otheraspects
of
youridea
ifthe
evidence
supports
your
direction.
Feasibility
risk
W
e
can’tbuild
and
deliver
The
risk
thata
business
can’t
getaccess
to
key
resources
(technology,IP,brand,etc.),
can’tdevelop
capabilities
to
perform
key
activities
orcan’t
find
key
partners
to
build
and
scale
the
value
proposition.
TEST
BU
SIN
ESS
D
ESIG
N
Ideate
Business
Prototype
Assess
Learn
Decide
H
ypothesize
Experim
ent
Idea
Business
M
odel
Value
Proposition
8
tive
s
ept
D
esign
ctivity
ofturning
vague
ideas,
hts,and
evidence
into
con-
ue
propositions
and
solid
business
s.G
ood
design
involves
the
use
of
ong
business
m
odelpatterns
to
m
axim
ize
eturns
and
com
pete
beyond
product,price,
and
technology.
The
risk
thata
business
can’tgetaccess
to
key
resources
(technology,IP,brand,etc.),
can’tdevelop
capabilities
to
perform
key
activities
orcan’tfind
key
partners
to
build
and
scale
the
value
proposition.
Testing
To
testa
big
itdow
n
into
sm
hypotheses.These
types
ofrisk.Firstly,
interested
in
youridea
(
Secondly,thatyou
can’tbuild
deliveryouridea
(feasibility).Thir
thatyou
can’tearn
enough
m
oney
from
youridea
(viability).
You
testyourm
ostim
portanthypotheses
w
ith
appropriate
experim
ents.Each
experi-
m
entgenerates
evidence
and
insights
that
allow
you
to
learn
and
decide.Based
on
the
evidence
and
yourinsights
you
eitheradapt
youridea
ifyou
learn
you
w
ere
on
the
w
rong
path
orcontinue
testing
otheraspects
of
youridea
ifthe
evidence
supports
your
direction.
Feasibility
risk
W
e
can’tbuild
and
deliver
The
risk
thata
business
can’t
getaccess
to
key
resources
(technology,IP,brand,etc.),
can’tdevelop
capabilities
to
perform
key
activities
orcan’t
find
key
partners
to
build
and
scale
the
value
proposition.
TEST
BU
SIN
ESS
D
ESIG
N
Ideate
Business
Prototype
Assess
Learn
Decide
H
ypothesize
Experim
ent
Idea
Business
M
odel
Value
Proposition
8
The Iterative
Process
Business Concept Design
Design is the activity of turning vague ideas,
market insights, and evidence into con-
crete value propositions and solid business
models. Good design involves the use of
strong business model patterns to maximize
returns and compete beyond product, price,
and technology.
The risk that a business can’t get access
to key resources (technology, IP, brand, etc.),
can’t develop capabilities to perform key
activities or can’t find key partners to build
and scale the value proposition.
Testing and reducing risk
To test a big business idea you break
it down into smaller chunks of testable
hypotheses. These hypotheses cover three
types of risk. Firstly, that customers aren’t
interested in your idea (desirability).
Secondly, that you can’t build and
deliver your idea (feasibility). Thirdly,
that you can’t earn enough money
from your idea (viability).
You test your most important hypotheses
with appropriate experiments. Each experi-
ment generates evidence and insights that
allow you to learn and decide. Based on the
evidence and your insights you either adapt
your idea if you learn you were on the wrong
path or continue testing other aspects of
your idea if the evidence supports your
direction.
Feasibility risk
We can’t build and deliver
The risk that a business can’t
get access to key resources
(technology, IP, brand, etc.),
can’t develop capabilities to
perform key activities or can’t
find key partners to build and
scale the value proposition.
TEST
BUSINESS
DESIGN
Ideate
Assess
Learn
D
ecide
Hypothesize
Experiment
Idea Business Model Value Proposition
8
The Iterative
Process
Business Concept Design
Design is the activity of turning vague ideas,
market insights, and evidence into con-
crete value propositions and solid business
models. Good design involves the use of
strong business model patterns to maximize
returns and compete beyond product, price,
and technology.
The risk that a business can’t get access
to key resources (technology, IP, brand, etc.),
can’t develop capabilities to perform key
activities or can’t find key partners to build
and scale the value proposition.
Testing and reducing risk
To test a big business idea you break
it down into smaller chunks of testable
hypotheses. These hypotheses cover three
types of risk. Firstly, that customers aren’t
interested in your idea (desirability).
Secondly, that you can’t build and
deliver your idea (feasibility). Thirdly,
that you can’t earn enough money
from your idea (viability).
You test your most important hypotheses
with appropriate experiments. Each experi-
ment generates evidence and insights that
allow you to learn and decide. Based on the
evidence and your insights you either adapt
your idea if you learn you were on the wrong
path or continue testing other aspects of
your idea if the evidence supports your
direction.
Feasibility risk
We can’t build and deliver
The risk that a business can’t
get access to key resources
(technology, IP, brand, etc.),
can’t develop capabilities to
perform key activities or can’t
find key partners to build and
scale the value proposition.
TEST
BUSINESS
DESIGN
Ideate
Business
Prototype
Assess
Learn
D
ecide
Hypothesize
Experiment
Idea
Key Hypothes
Business Model Value Proposition
idea
8
The Iterative
Process
Business Concept Design
Design is the activity of turning vague ideas,
market insights, and evidence into con-
crete value propositions and solid business
models. Good design involves the use of
strong business model patterns to maximize
returns and compete beyond product, price,
and technology.
The risk that a business can’t get access
to key resources (technology, IP, brand, etc.),
can’t develop capabilities to perform key
activities or can’t find key partners to build
and scale the value proposition.
TEST
BUSINESS
DESIGN
Ideate
Business
Prototype
Assess
Learn
D
ecide
Hypothesize
Experiment
Idea Business Model Value Proposition
business
SEARCH
GROW
SEARCH
GROW
INVENT IMPROVE
INVENT & IMPROVE
Shift
Patterns
Invent
Patterns
Pattern
New Business Model
INVENT
Invent Patterns
Business Models Canvas
Backstage
Disruption
• Resource Castles
• Activity Differentiators
• Scalers
Profit Formula
Disruption
• Revenue Differentiators
• Cost Differentiators
• Margin Masters
Frontstage
Disruption
• Market Explorers
• Channel Kings
• Gravity Creators
226
Shift Pattern Library
EPICENTERS
Invent Patterns
Library
22. FRONTSTAGE DISRUPTION
?What did all these three companies
add to their business model that
keeps them ahead of competition?
They added “switching costs”
that make it difficult for
customers to leave or switch
to competitors.
Gravity Creators Gravity
Creators
Lock in
Customers
Key Partners Key activities Value Proposition Customer SegmentCustomer
Relationship
Key Resources Channels
Cost Structure Revenue Streams
23. Exercise — iPod
with
this amazing device you
can put thousand songs in
your pocket
...
and you’re locking
us in because it has just
become more difficult to
switch devices
3:00
How would you map out Apple’s iPod
business model using the ‘Gravity
Creators’ pattern ? 1 2
3
4
56
Gravity Creator
iPod:
1’000 songs in
your pocket
a
Mass marketd
iPod
hardware
& software
c
Switching
cost
b
Recurring
transactional
sales
e
Retailf
write down the full sequence of 6 letters matching the numbers
Key Partners Key activities Value Proposition Customer SegmentCustomer
Relationship
Key Resources Channels
Cost Structure Revenue Streams
24. 1
2
6
3
4
5
1 2
3
4
56
a
d
c
b
e
f
iPod:
1’000 songs in
your pocket
Mass market
iPod
hardware
& software
Switching
cost
Recurring
transactional
sales
Retail
Gravity Creator
Solution: adbefc
Key Partners Key activities Value Proposition Customer SegmentCustomer
Relationship
Key Resources Channels
Cost Structure Revenue Streams
iTunes
TRIGGER QUESTION
How could we make it difficult for
customers to leave and increase
switching costs in a positive way?
Lock in
Customers
Gravity
Creators
Different flavors
Assessment Question
How easy or difficult is it for our customers
to leave or switch to another company?
Making the shift from
competitive advantage
to transient strategy
- Rita McGrath, Columbia
“
”
The Iterative
Process
Business Concept Design
Design is the activity of turning vague ideas,
market insights, and evidence into con-
crete value propositions and solid business
models. Good design involves the use of
strong business model patterns to maximize
returns and compete beyond product, price,
and technology.
The risk that a business can’t get access
to key resources (technology, IP, brand, etc.),
can’t develop capabilities to perform key
activities or can’t find key partners to build
and scale the value proposition.
Testing an
To test a big
it down into
hypotheses.
types of risk
interested in
Secondly, th
deliver your
that you can
from your id
You test you
with approp
ment genera
allow you to
evidence an
your idea if
path or cont
your idea if
direction.
TEST
BUSINESS
DESIGN
Ideate
Business
Prototype
Assess
Learn
D
ecide
Hypothesize
Experiment
Idea Business Model Value Proposition
8
The
Iterative
Process
Business
Concept
D
esign
D
esign
is
the
activity
ofturning
vague
ideas,
m
arketinsights,and
evidence
into
con-
crete
value
propositions
and
solid
business
m
odels.G
ood
design
involves
the
use
of
strong
business
m
odelpatterns
to
m
axim
ize
returns
and
com
pete
beyond
product,price,
and
technology.
The
risk
thata
business
can’tgetaccess
to
key
resources
(technology,IP,brand,etc.),
can’tdevelop
capabilities
to
perform
key
activities
orcan’tfind
key
partners
to
build
and
scale
the
value
proposition.
Testing
To
testa
big
itdow
n
into
sm
a
hypotheses.These
types
ofrisk.Firstly,t
interested
in
youridea
(d
Secondly,thatyou
c
deliveryouridea
thatyou
can’t
from
yourid
You
te
w
it
TEST
BU
SIN
ESS
D
ESIG
N
Ideate
Business
Prototype
Assess
Learn
Decide
H
ypothesize
Experim
ent
Idea
Business
M
odel
Value
Proposit
8
The
Iterative
Process
Business
Concept
D
esign
D
esign
is
the
activity
ofturning
vague
ideas,
m
arketinsights,and
evidence
into
con-
crete
value
propositions
and
solid
business
m
odels.G
ood
design
involves
the
use
of
strong
business
m
odelpatterns
to
m
axim
ize
returns
and
com
pete
beyond
product,price,
and
technology.
The
risk
thata
business
can’tgetaccess
to
key
resources
(technology,IP,brand,etc.),
can’tdevelop
capabilities
to
perform
key
activities
orcan’tfind
key
partners
to
build
and
scale
the
value
proposition.
Testing
To
testa
big
itdow
n
into
sm
hypotheses.These
types
ofrisk.Firstly,
interested
in
youridea
(
Secondly,thatyou
can’tbuild
deliveryouridea
(feasibilit
thatyou
can’tearn
eno
from
youridea
(viab
You
testyourm
w
ith
approp
m
entge
allow
ev
TEST
BU
SIN
ESS
D
ESIG
N
Ideate
Business
Prototype
Assess
Learn
Decide
H
ypothesize
Experim
ent
Idea
Business
M
odel
Value
Proposition
8
The Iterative
Process
Business Concept Design
Design is the activity of turning vague ideas,
market insights, and evidence into con-
crete value propositions and solid business
models. Good design involves the use of
strong business model patterns to maximize
returns and compete beyond product, price,
and technology.
The risk that a business can’t get access
to key resources (technology, IP, brand, etc.),
can’t develop capabilities to perform key
activities or can’t find key partners to build
and scale the value proposition.
Testing and reducing risk
To test a big business idea you break
it down into smaller chunks of testable
hypotheses. These hypotheses cover three
types of risk. Firstly, that customers aren’t
interested in your idea (desirability).
Secondly, that you can’t build and
deliver your idea (feasibility). Thirdly,
that you can’t earn enough money
from your idea (viability).
You test your most important hypotheses
with appropriate experiments. Each experi-
ment generates evidence and insights that
allow you to learn and decide. Based on the
evidence and your insights you either adapt
your idea if you learn you were on the wrong
path or continue testing other aspects of
your idea if the evidence supports your
direction.
Feasibility risk
We can’t build and deliver
The risk that a business can’t
get access to key resources
(technology, IP, brand, etc.),
can’t develop capabilities to
perform key activities or can’t
find key partners to build and
scale the value proposition.
TEST
BUSINESS
DESIGN
Ideate
Business
Prototype
Assess
Learn
D
ecide
Hypothesize
Experiment
Idea Business Model Value Proposition
The Iterative
Process
Business Concept Design
Design is the activity of turning vague ideas,
market insights, and evidence into con-
crete value propositions and solid business
models. Good design involves the use of
strong business model patterns to maximize
returns and compete beyond product, price,
and technology.
The risk that a business can’t get access
to key resources (technology, IP, brand, etc.),
can’t develop capabilities to perform key
activities or can’t find key partners to build
and scale the value proposition.
Testing and reducing risk
To test a big business idea you break
it down into smaller chunks of testable
hypotheses. These hypotheses cover three
types of risk. Firstly, that customers aren’t
interested in your idea (desirability).
Secondly, that you can’t build and
deliver your idea (feasibility). Thirdly,
that you can’t earn enough money
from your idea (viability).
You test your most important hypotheses
with appropriate experiments. Each experi-
ment generates evidence and insights that
allow you to learn and decide. Based on the
evidence and your insights you either adapt
your idea if you learn you were on the wrong
path or continue testing other aspects of
your idea if the evidence supports your
direction.
TEST
BUSINESS
DESIGN
Ideate
Business
Prototype
Assess
D
ecide
Hypothesize
Key Hypothes
idea
The Iterative
Process
Business Concept Design
Design is the activity of turning vague ideas,
market insights, and evidence into con-
crete value propositions and solid business
models. Good design involves the use of
strong business model patterns to maximize
returns and compete beyond product, price,
and technology.
The risk that a business can’t get access
to key resources (technology, IP, brand, etc.),
can’t develop capabilities to perform key
activities or can’t find key partners to build
and scale the value proposition.
TEST
BUSINESS
DESIGN
Ideate
Business
Prototype
Assess
D
ecide
Hypothesize
business
SEARCH
GROW
SEARCH
GROW
INVENT IMPROVE
INVENT & IMPROVE
Shift
Patterns
Invent
Patterns
25. Shift Pattern
(Pivot)
New Business Model
Original
Business Model
IMPROVE
Shift Patterns
226
Shift Pattern Library
Value
Proposition Shifts
p. XXX From Product to
Recurring Service
p. XXX From Low-Tech to High-Tech
p. XXX From Sales to Platform
Frontstage
Driven Shifts
p. XXX From Niche Market
to Mass Market
p. XXX From B2B to B2(B2)C
p. XXX From Low Touch
to High Touch
Backstage
Driven Shift
• From Dedicated to Multi-Usage
• From Asset Heavy to Asset Light
• From Closed to Open (innovation)
Profit Formula Driven Shift
• From High Cost to Low Cost
• From Transactional to recurring revenue
• From Conventional to Contrarian
Frontstage
Driven Shift
• From Niche to Mass Market
• From B2B to B2(B2)C
• From Low to High Touch
Value Proposition Shift
• From Product to Service
• From Low-Tech to High-Tech
• From Sales to Platform
EPICENTERS
Shift Pattern Library
From Product
to Recurring Service
Sales
force
Customer
acquisition costs
Tool
manufacturing
& distribution
High
quality
tools
Builders
Transactional
Transactional
tool sales
232
RNS
232
In 2000, one of Hilti’s customers asked for
a holistic tool management solution. That
made Hilti realize that customers didn’t
want to own tools, but always wanted their
workers to work productively. Hilti began an
initial pilot program for tool fleet manage-
ment in Switzerland and eventually rolled
out the service worldwide in 2003.
Hilti
Hilti shifts from selling high quality
tools to selling tool fleet manage-
ment services to construction compa-
nies, after a key customer requests a
holistic tool management system to
increase productivity.
From Product to Recurring Service
2000 2003
3 From Sales Chan
Service Delivery
Hilti retrains its sa
tives rather than p
logistics and effic
adds new online s
tional sales chann
the service, helpin
their inventory on
access Hilti easily
their tools.
s
To
From the original product model...
SALES
CHANNEL
PRODUCT-
RELATED COST
PRODUCT-
RELATED
ACTIVITIES
∗
PRODUCT
CUSTOMER
SEGMENT
SALES
PRODUCT-
RELATED
RESOURCES
Original product business model
Recurring service pattern
CUSTOMER
SEGMENT
Original product business model
CUSTOMER
SEGMENT
Recurring service pattern
231
is the shift from manufacturing (and/or buying) and selling products toward providing a
recurring service. Selling products on a transactional basis requires a continuous effort for
every sale and it is often unpredictable. Recurring services require upfront customer acqui-
sition costs that lead to recurring revenues. Revenues become more predictable and grow
exponentially, because you build on top of a continuously growing base of customers.
STRATEGIC REFLECTION
How might we grow recurring and
predictable revenues by providing
a recurring service, rather than
selling a product?
Upfront acquisition costs per
customer might be higher,
but revenues become more
predictable and the lifetime
value of customers often
increases. Product and/or
technology innovation can
often provide the foundation
for new services.
EXAMPLE
HILTI
From Product
to Recurring Service
COST OF
SERVICE
SERVICE
DELIVERY
CHANNELS
GET CUSTOMER
TO USE SERVICE
UPFRONT
CUSTOMER
ACQUISITION
COST
RECURRING
REVENUE
CUSTOMER
SEGMENT
∗
SERVICE
SERVICE
PROVISIONING
SERVICE
RESOURCES
STRATEGIC REFLECTION
How might we grow recurring and predictable
revenues by providing a recurring service,
rather than selling a product?
[sources: Mark W. Johnson, photo: Hilti.com]
Illustration — HILTI
Hilti shifts from selling high quality tools
to offering tool fleet management services
26. “The big benefit of recurring service
revenues helped us to stabilize our
business during the financial crisis,
a time when most contractors
wouldn’t purchase new equipment
- Christoph Loos, CEO of Hilti
Sales
force
Customer
acquisition costs
Tool
manufacturing
& distribution
High
quality
tools
Builders
Transactional
Transactional
tool salesTransactional
tool sales
232
IMPROVEPATTERNS
232
1.5
Million tools
Hilti had 1.5 million to
fleet management in
2
Billion CHF
Total contract value o
under fleet managem
In 2000, one of Hilti’s customers asked for
a holistic tool management solution. That
made Hilti realize that customers didn’t
want to own tools, but always wanted their
workers to work productively. Hilti began an
initial pilot program for tool fleet manage-
ment in Switzerland and eventually rolled
out the service worldwide in 2003.
With tool fleet management, Hilti became
more relevant to construction companies
by reducing nonproductive time for workers
and adding a gain of taking on more cus-
tomer jobs (e.g., tool repair).
Hilti also discovered that customers were
willing to lease more tools than they had ever
purchased. Some even asked Hilti to include
non-Hilti tools in the service to completely pre-
vent nonproductive time due to broken tools.
When the 2008 financial crisis hit the con-
struction sector, many stopped purchasing
new equipment. Yet Hilti’s business model
shift from a product to a recurring service
allowed it to overcome the crisis and it has
continued to grow since.
Hilti
Hilti shifts from selling high quality
tools to selling tool fleet manage-
ment services to construction compa-
nies, after a key customer requests a
holistic tool management system to
increase productivity.
From Product to Recurring Service
2000 2003
1 From Product to Recurring
Service and Revenues
Managers of building companies have a lot
more to worry about than just buying tools. Hilti
recognizes that in 2000 and starts offering to
track, repair, replace and upgrade the whole
tool fleet for their clients. This increases their
productivity by ensuring they always have the
right tools, properly maintained and reliable
at all times. Hilti allows customers to lease
the tools through a monthly subscription
rather than paying for them upfront – enabling
predictability of costs for building company
managers and recurring revenues for Hilti.
2 From Product-Related
Activities to Service
Provisioning
Hilti evolves its key activities
from its core of manufacturing
and sales to fleet manage-
ment activities that enable
tool tracking, repairing,
replacement and upgrading.
3 From Sales Channel to
Service Delivery Channels
Hilti retrains its sales force to speak to execu-
tives rather than project managers, and about
logistics and efficiency rather than tools. It
adds new online service channels to the tradi-
tional sales channel, raising awareness about
the service, helping fleet customers access
their inventory online, enabling them to access
Hilti easily in case of a problem with their tools.
4 From a Product to a Service Cost Structure
Hilti’s cost structure adapts to this new service
orientation with new fleet management costs.
To date, this shift has added over CHF1 billion
worth of receivable volume to Hilti’s balance
sheet. Even customer acquisition costs (CAC)
increase, due to the longer sales and contract-
ing process with building company managers.
The CAC, however, is now a one-time cost,
leading to recurring revenues and opportuni-
ties for additional revenues with the long-term
relationship.
“The big benefit of
service revenues
to stabilize our bu
during the (globa
crisis—a time whe
contractors would
purchase new eq
—DR. CHRISTOPH LOOS
CEO of Hilti
2
3
4
1
Service-focused
sales & marketing
Fleet
management Tool fleet
management
Construction
company
managers
Monthly
service
revenue
Fleet
management
infrastructure
Inventory
of tools
Online
Fleet
management
costs
Long-term
contracts
Sales
force
Customer
acquisition
costs
Tool manufacturing
& distribution
High
quality
tools
BuildersTransactional
Transactional
tool sales
From the original product model...
…to new recurring service model
Recurring service pattern
Sales
force
Customer
acquisition costs
Tool
manufacturing
& distribution
High
quality
tools
Builders
Transactional
Transactional
tool sales
232
IMPROVEPATTERNS
232
1.5
million tools
Hilti had 1.5 million t
fleet management in
2
billion CHF
Total contract value
under fleet managemIn 2000, one of Hilti’s customers asked for
a holistic tool management solution. That
made Hilti realize that customers didn’t
want to own tools, but always wanted their
workers to work productively. Hilti began an
initial pilot program for tool fleet manage-
ment in Switzerland and eventually rolled
out the service worldwide in 2003.
With tool fleet management, Hilti became
more relevant to construction companies
by reducing nonproductive time for workers
and adding a gain of taking on more cus-
tomer jobs (e.g., tool repair).
Hilti also discovered that customers were
willing to lease more tools than they had ever
purchased. Some even asked Hilti to include
non-Hilti tools in the service to completely pre-
vent nonproductive time due to broken tools.
When the 2008 financial crisis hit the con-
struction sector, many stopped purchasing
new equipment. Yet Hilti’s business model
shift from a product to a recurring service
allowed it to overcome the crisis and it has
continued to grow since.
Hilti
Hilti shifts from selling high quality
tools to selling tool fleet manage-
ment services to construction compa-
nies, after a key customer requests a
holistic tool management system to
increase productivity.
From Product to Recurring Service
2000 2003
1 From Product to Recurring
Service and Revenues
Managers of building companies have a lot
more to worry about than just buying tools.
Hilti recognizes that in 2000 and starts offering
to track, repair, replace, and upgrade the
whole tool fleet for their clients. This increases
their productivity by ensuring they always
have the right tools, properly maintained and
reliable at all times. Hilti allows customers to
lease the tools through a monthly subscription
rather than paying for them upfront – enabling
predictability of costs for building company
managers and recurring revenues for Hilti.
2 From Product-Related
Activities to Service
Provisioning
Hilti evolves its key activities
from its core of manufacturing
and sales to fleet manage-
ment activities that enable
tool tracking, repairing,
replacement, and upgrading.
3 From Sales Channel to
Service Delivery Channels
Hilti retrains its sales force to speak to execu-
tives rather than project managers, and about
logistics and efficiency rather than tools. It
adds new online service channels to the tradi-
tional sales channel, raising awareness about
the service, helping fleet customers access
their inventory online, and enabling them to
access Hilti easily in case of a problem with
their tools.
4 From a Product to a Service Cost Structure
Hilti’s cost structure adapts to this new service
orientation with new fleet management costs.
To date, this shift has added over CHF1 billion
worth of receivable volume to Hilti’s balance
sheet. Even customer acquisition costs (CAC)
increase, due to the longer sales and contract-
ing process with building company managers.
The CAC, however, is now a one-time cost,
leading to recurring revenues and opportuni-
ties for additional revenues with the long-term
relationship.
“The big benefit o
service revenues
to stabilize our b
during the [glob
crisis—a time wh
contractors wou
purchase new eq
—DR. CHRISTOPH LOOS
CEO of Hilti
2
3
4
1
Service-focused
sales & marketing
Fleet
management Tool fleet
management
Construction
company
managers
Monthly
service
revenue
Fleet
management
infrastructure
Inventory
of tools Online
Fleet
management
costs
Long-term
contracts
Sales
force
Customer
acquisition
costs
Tool manufacturing
& distribution
High
quality
tools
BuildersTransactional
Transactional
tool sales
From the original product model...
…to new recurring service model
Recurring service pattern
From Product
to Recurring Services
SHIFT PATTERN
3
Establishing an
Innovation Culture
Your exploitation culture
cherishes the management,
systematic improvement, and
growth of existing business
Your exploration culture cultivates
the creation, discovery, validation,
and acceleration of new ideas that
are foreign to an organization
Cultivate Explore and Exploit
Under One Roof
27. Innovation Culture ?
The Culture Map
“If you want to understand a culture,
you need to map it.
Dave Gray, author and entrepreneur
The Culture Map
Outcomes
Beta
Behaviours
Enablers/Blockers
copyright: Strategyzer AG & Dave Gray, 2015
The makers of Business Model Generation and Strategyzer
dave gray:
davegrayinfo.com strategyzer.com
A Change Management Tool
Designed by: Date: Iteration:Designed for:
Every company has a corporate culture.
Yet, too many companies let culture just happen.
Invincible companies actively understand, design,
and manage culture. They create world-class
innovation and execution cultures that live in har-
mony. In this section we outline how you can map
corporate culture and what it takes to create a
world-class innovation culture.
What enables and blocks
us from our goals?
What behaviors will
allow us to achieve
our desired outcomes?
What are our
desired outcomes?
294 295
DEFINITION
The Culture Map
policies, processes, reward systems, rituals, …
28. Exploration Culture INNOVATION CULTURE
Designing an Exploration Culture
INNOVATION CULTURE
Leadership Support
Resource
allocation
Portfolio
management
Strategic
guidance
Strategic Guidance
Resource Allocation
Portfolio Management
Question for You
How much time does your CEO spend on
innovation every week ?
29. <10%
(less than 1/2 day)
10-25%
(approx. 1 day)
25-50%
(more than a day)
>50%
(1/2 week or more)
How much time does your CEO
spend on innovation every week ?
Poll
In Zoom: single choice
0-10%67%
10-25%16%
25-50%10%
> 50%7%
How much time does your CEO personally
spend on innovation every week ?
I spend 40% to 60% of my time
on innovation
- Bracken Darrell, CEO, Logitech
“ ”
2019
EXPLORE
ExpectedReturn
Innovation Risk
Death & Disruption Risk
Return
Exploit
Explore
12 13
DEFINITION
The Portfolio Map
A strategic management tool to simultaneously
visualize, analyze, and manage the business mod-
els you are improving and growing and the future
business models you are searching for and testing.
Explore Portfolio
Your portfolio of innovation
projects, new business mod-
els, new value propositions,
new products and services,
all mapped out in terms of
Expected Return
and Innovation Risk.
Exploit Portfolio
Your portfolio of existing
businesses, value proposi-
tions, products and services,
all mapped out in terms
of Return and Death and
Disruption Risk. Innovation Risk
The risk that a (convincing)
business idea is going to fail.
Risk is high when there is little
evidence beyond slides and
spreadsheets to support the
success chances of an idea. Risk
decreases with the amount of
evidence that supports the desir-
ability, feasibility, viability, and
adaptability of a business idea.
Expected Return
How lucrative a business idea
could be for the company if it
turned out to be successful.
Death & Disruption Risk
The risk that a business is
going to die or get disrupted.
Risk is high when a business
is either emerging and still
vulnerable, or when a business
is under threat of disruption
from technology, competition,
regulatory changes, or other
trends. Risk decreases with the
moats protecting your business.
Return
How lucrative a business area
is for the company.
ExpectedReturn
Innovation Risk
Death & Disruption Risk
Return
Exploit
Explore
12 13
DEFINITION
The Portfolio Map
A strategic management tool to simultaneously
visualize, analyze, and manage the business mod-
els you are improving and growing and the future
business models you are searching for and testing.
Explore Portfolio
Your portfolio of innovation
projects, new business mod-
els, new value propositions,
new products and services,
all mapped out in terms of
Expected Return
and Innovation Risk.
Exploit Portfolio
Your portfolio of existing
businesses, value proposi-
tions, products and services,
all mapped out in terms
of Return and Death and
Disruption Risk. Innovation Risk
The risk that a (convincing)
business idea is going to fail.
Risk is high when there is little
evidence beyond slides and
spreadsheets to support the
success chances of an idea. Risk
decreases with the amount of
evidence that supports the desir-
ability, feasibility, viability, and
adaptability of a business idea.
Expected Return
How lucrative a business idea
could be for the company if it
turned out to be successful.
Death & Disruption Risk
The risk that a business is
going to die or get disrupted.
Risk is high when a business
is either emerging and still
vulnerable, or when a business
is under threat of disruption
from technology, competition,
regulatory changes, or other
trends. Risk decreases with the
moats protecting your business.
Return
How lucrative a business area
is for the company.
121
MANAGE
BRACKEN DARRELL
Logitech CEO
Explore
ther
Jaybird (2016)
Leader in wireless audio
wearables for sports and
active lifestyles
Blue Microphones (2018)
Microphones for audio
professionals, musicians,
and consumers
Logitech’s Fiscal Year 2019 vs. 201336
2013 2019
$2.79
Billion
Total sales
Net Retail Sales
Growth +10%
Non-GAAP
Operating Income
$352M
Strategic Growth
as % of Sales 60%
SMART & OTHER CLOUD-BASED
PERIPHERALS
$49 million –44%
In 2015 exits the OEM Business
for the PC mouse, which for a long
time accounted for a large portion
In 2016 Lifesize, an HD video
conferencing solution, split from
Logitech as a fully independent
GAMING
$648 million +32%
CREATIVITY & PRODUCTIVITY
$1.3 billion +10%
VIDEO COLLABORATION
$260 million +42%
B
MUSIC
$508 million –10%
A
Divest
Saitek Pro Flight (2016)37
Advanced manufacturer of flight
simulation controllers
ASTRO Gaming (2017)
Leading console gaming
accessory brand for professional
gamers and enthusiasts
Beyond Entertainment (2018)
Online platform that offers the
latest news from the console
industry
Acquire
Acquire
-7%
10% $352M$67M20% 60%
2019 End of Year Results
75%
30. INNOVATION CULTURE
Organizational Design
Legitimacy and Power
Bridge to the Core
Rewards and Incentives
Bridge
to the core
Rewards
and incentives
Legitimacy
and power
Legitimacy, Power
and Bridge to the Core
EXPLOITEXPLORE
ORGANIZATIONAL DESIGN
Org Chart
Chief Entrepreneur
Ping An Finance Center; Shenzhen, China / KPF. Image Courtesy of CTBUH
Illustration — Ping An
Legitimacy, Power
and Bridge to the Core
EXPLOITEXPLORE
ORGANIZATIONAL DESIGN
Org Chart
Chief Entrepreneur
Jessica Tan Peter Ma
31. Revenue of Ping An from 2010 to 2019
ORGANIZATIONAL DESIGN
INNOVATION CULTURE
Innovation Practice
Innovation Tools
Process Management
Skills Development
Skills
development
Process
management
Innovation
tools
MEASURE
Innovation Metrics
EXPLORE
MEASURE
94
MANAGE
95
MANAGE
Exploit
Explore
ExpectedReturn
Innovation Risk
INNOVATION METRICS
Portfolio
Level
You can visualize the state of your Explore
portfolio once you get your teams to track
the KPIs of their individual explore project.
This gives you a powerful overview of the
financial potential of your ideas in explora-
tion and their current risk level. Equipped
with this data and overview you can make
better investment decisions and decide
which projects to fund and support and
which projects to retire.
Business Model Portfolio (Explore)
PROJECT
Expected revenues
Testing costs / Time running
PROJECT C
$205 million
$180 thousand /
4 months
PROJECT H
$780 million
$1 million /
12 monthsPROJECT E
$500 million
$150 thousand /
1 months
PROJECT A
$750 million
$5,800 /
8 weeks
PROJECT D
$440 million
$120 thousand /
3 months
PROJECT B
$150 million
$500 thousand /
9 months
LEGEND:
93
MANAGE
HYPOTHESIS 1 10%
HYPOTHESIS 2 7.5%
HYPOTHESIS 3 7.5%
HYPOTHESIS 4 15%
HYPOTHESIS 5 10%
HYPOTHESIS 6 15%
HYPOTHESIS 9 10%
HYPOTHESIS 7 15%
HYPOTHESIS 8 10%
EXP. 1 $0.2K
EXP. 2 $0.5K
EXP. 3, EXP. 4 $1.2K
EXP. 5 $1.3K
EXP. 6, EXP. 7 $0.5K
EXP. 8 $0.2K
EXP. 12 $0.7K
EXP. 9, EXP. 10 $0.2K
EXP. 11 $1K
$5,800 70%
v/
X
v/
X
v/
?
v/
v/
?
0.75
1
1
1
0.5
0.25
0.5
10% x 0.75 = 7.5%
0%
7.5% x 1 = 7.5%
Persevere
Pivot
Persevere
Pivot
Persevere
Re-test
Persevere
Persevere
Re-test
$1 billion
$250 million
0%
10% x 0.5 = 5%
0%
10% x 0.25 = 2.5%
15% x 0.5 = 7.5%
0%
PROJECT A 9/12/2020 8 weeks
Learning Log Actions
Expected
Return
Experiment LogHypotheses Log
Project Metrics
Name
Name Start Date Project Duration
Name Cost
$
Overall
Cost
$
Innovation
Risk Level
%
Insight Confidence
#0 –1
Risk Reduction
= Risk x Confidence
Revenue Potential
Expected
Return
$
Cost Structure
Re-test, Shelve,
Perservere, Pivot
Risk
%
Desirability
Viability
Adaptability
Feasibility
$750 million
PROJECT F
$100 million
$10 thousand /
3 weeks
PROJECT G
$400 million
$20 thousand /
1week
KPIs
?
32. EXPLORE
95
MANAGE
Exploit
Explore
ExpectedReturn
Innovation Risk
Business Model Portfolio (Explore)
PROJECT
Expected revenues
Testing costs / Time running
PROJECT C
$205 million
$180 thousand /
4 months
PROJECT H
$780 million
$1 million /
12 monthsPROJECT E
$500 million
$150 thousand /
1 months
PROJECT A
$750 million
$5,800 /
8 weeks
PROJECT D
$440 million
$120 thousand /
3 months
PROJECT B
$150 million
$500 thousand /
9 months
LEGEND:
93
MANAGE
70%
.75
.5
.25
.5
10% x 0.75 = 7.5%
0%
7.5% x 1 = 7.5%
Persevere
Pivot
Persevere
Pivot
Persevere
Re-test
Persevere
Persevere
Re-test
$1 billion
$250 million
0%
10% x 0.5 = 5%
0%
10% x 0.25 = 2.5%
15% x 0.5 = 7.5%
0%
Log Actions
Expected
Return
Innovation
Risk Level
%
nfidence
–1
Risk Reduction
= Risk x Confidence
Revenue Potential
Expected
Return
$
Cost Structure
Re-test, Shelve,
Perservere, Pivot
$750 million
PROJECT F
$100 million
$10 thousand /
3 weeks
PROJECT G
$400 million
$20 thousand /
1week
Measure:
Innovation Risk
Expected Return
Time Spent Testing
Cost of Testing
Innovation Metrics
– Jeffrey Bezos, Amazon founder & CEO
“
”
I believe we are the best place in the
world to fail (we have plenty of
practice!), and failure and invention
are inseparable twins
SCORING
Innovation Culture Readiness
INNOVATION CULTURE
Designing an Exploration Culture
33. How ready are you to become
an invincible company?
□ Give your company a score from
0 to 5 for each area.
□ Define which area you’d like to
improve over the next 12 and 36
months.
□ Eliminate the blockers and imple-
ment the enablers that will help
you achieve your improvement
goals.
BEGINNER
We have little
to no experience
with this topic
We have
some
experience
INTERMEDIATE
We regularly
work this way,
but not systematically
We
frequently
work this
way
WORLD CLASS
Our practice is
used as a case study
for others to learn from
Leadership
Support
Strategic
Guidance Leadership does not provide
explicit strategic guidance for innovation
There is some strategic guidance for innovation but
not everybody in the company knows it
Leadership provides strategic innovation guidance
at important meetings and everybody knows it
Resource
Allocation Resources for innovation are
bootstrapped or on an ad-hoc project basis
Resources for innovation are available, but they are
not substantial and not protected
Resources for innovation are institutionalized and
leaders commit at least 50% of their time to innovation
Portfolio
Management Leadership is
mainly focused on
improving the core business
We make some investments to
explore the future and new business models,
but it's not systematic
Leadership is eager to pioneer and invests in a
large innovation pipeline of small bets of which the
best get follow-up investments
Organizational
Design
Legitimacy
and Power Innovation projects are skunk work
and outside official channels
Innovation is officially in the org chart,
but lacks power and influence
Innovation is at the very top of the org chart
and has power and influence
Bridge to
the Core Innovation teams have limited or no access to cus-
tomers, resources, and skills of the core business
The core business and innovation teams
collaborate, but there are conflicts
There are clear policies that help innovation teams
and the core business collaborate as equal partners
Rewards
and
Incentives Innovation does not have a dedicated incentive
system that differs from the core business
We have some incentives in place to encourage
innovation and reward it differently from execution
Innovation has a dedicated incentive system that
rewards experimentation and new value creation
Innovation
Practice
Innovation
Tools We do not use business model, lean startup,
or design thinking tools for innovation
Business model, lean startup, or design thinking
tools are used in pockets of the organization
Business model, lean startup, or design thinking
tools are widely adopted and mastered
Process
Management Our processes are linear and
requiredetailed business plans with
financial projections
We occasionally use iterative processes
and systematic business experiments
to test business ideas
Our processes are optimized for innovation
and we systematically measure the reduction
of risk in new ideas
Innovation
Skills We don’t hire for innovation skills and experience
and don’t develop them
We occasionally hire experienced innovation talent
and train some specialized staff in innovation
We hire and develop world class innovation talent
with extensive experience across the organization
Innovation
Culture
Readiness
1
1
1
1
1
1
1
1
1
3
3
3
3
3
3
3
3
3
5
5
5
5
5
5
5
5
5
2
2
2
2
2
2
2
2
2
4
4
4
4
4
4
4
4
4
344
CULTURE
344
ASSESSMENT
Innovation Culture Readiness
Corporate Identity
WHO WE ARE
Portfolio Map
WHAT WE’RE DOING
Culture Map
HOW WE’LL DO IT
PORTFOLIO MANAGEMENT
GROW
SEARCH
Business Model Patterns
HOW WE’RE DOING
Corporate Identity
WHO WE ARE
Portfolio Map
WHAT WE’RE DOING
Culture Map
HOW WE’LL DO IT
Invent Improve
SEARCH
GROW
PORTFOLIO MANAGEMENT
Prediction is very difficult,
especially if it's about the future.
– Niels Bohr, Nobel Price of physics (1922)
”
“
34. No need for lengthy debates to demystify charlatans
Did you see that one coming?
I foresee the future …
Thank you