Value Creation at its best.

Great article at The Next Web about how Apple’s long term strategy will likely dominate the tablet market.

They project a ten year dominance, similar to the experience of the iPod. In the article they provide, what I believe, are 7 compelling reasons for their dominance.

1. They are outselling (not just out shipping) by a factor of 10 to 1.
2. Tablets are not smartphones.  So competitors have to compete with Apple on device profitability alone.  In the tablet market there are no data plan subsidies to back them up.
3. Apple’s 336+ stores provide a high touch environment to learn whether to buy an iPad.  Moms and grandparents will be converted more by that experience than a tethered tablet at a Best Buy or WalMart.
4. Apple has the profit and cash reserves to invest heavily in the latest technology (solid aluminum skins) that make their designs more elegant and user friendly commanding higher prices and better experiences.
5. Apple, based on the above, has altered the relationships with suppliers, obtaining agreements that lock in their margins and lower cost advantage on the new technologies they fund.
6. Apple’s ecosystem.  Mac, iPod, iPhone, iPad.  Once they pull you into the fold it’s hard to leave as the devices work so well together.  This phenomenon is sure to accelerate with the advent of the iCloud in the fall.
7. It works better.  Technically the user experience is smoother with the iPad.  They give reasons why the touch interface works better based on the underlying technologies and iOS software.  Watch for improvements in the next iPad.

It’s a compelling read on value creation at its best and the execution of a business model strategy.  A must read for all executives about how to pull all the pieces together into a cogent sustainable differentiation strategy.

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Introduction

No-one is destined to be a me-too player. We can be game changers.

The second in a series of posts about how businesses can own their future.

In part one of this series I introduced the idea of the future being chunky.  That much of the future is knowable.  The paradox is that the part of the future that is knowable, is knowable by all.  So there’s no real advantage.

This next post explores how to reach into the unknowable future and pull something into the present that you can exploit before others in your marketplace.  I call that Sensing and Adapting.

Sensing and Adapting

Last April I posted here about how a solar powered lens would disrupt our business lives.  In the post, 10 predictions were made for how it might be used to disrupt existing markets.  You may well ask “if it was published in Fast Company magazine why doesn’t this piece of the future reside in the Knowable Now?”  (Knowable Now was defined defined in the first post of this series with the Apple iPad as an example of a technology that was knowable.)

To explain the difference let’s compare the iPad as a potential disruptive technology with the Solar powered contact lens.

Sensing

You’d have to be living in a cave not to be aware of the launch of the iPad in January 2010.  Big marketing campaign prior to the launch as only Apple can run.  Steven Jobs performing on stage followed by massive press coverage since then.

A simple question to ask ourselves is. . . How many people in our company did NOT know about the iPad? Was there even one?

Which means that everyone sensed the iPad.  They knew about it, and to a greater or lessor extent evaluated it.

Consequently:

• We have no inherent advantage over our competitors
• it will be exceedingly difficult to game change using the iPad
• and sustain that difference.

It’s too knowable.

Compare that to the Solar powered contact lens by Professor Babak Parviz at the University of Washington.  It was published in 2009 in a journal and picked up later by Fast Company.  No fanfare.  No glitz.

So how many people in our company DID know about the Solar powered contact lens? Was there even one?

Which means that no one sensed this nascent technology.  It is not broadly known.  Even now.

However, if our company had sensed this technology then we could have an inherent advantage over our competitors.  It’s possible.

Adapting

When it comes to using the iPad for competitive advantage, the path and processes are well understood and published. Technical specifications and developers kits are readily available.  Even the fee structure is published.  Everything we need to build apps for the iPad is right there, for us. . . . and everyone else.  It’s doable now.  It’s knowable now.

Which means, while we may not know how we would, or could use the iPad to enhance our offering that’s not important.  The day we start the project we’re simply in a race against our competitors.

The Solar powered lens is a different story.  It has not been commercialized.  As of September 2009 there was not even a fully functioning prototype.  Given that, we can only talk about the possible applications to a business, not the certainty of them.

So, working with the professor to develop a working prototype that our company could use would give us a leap ahead of competition.  In addition we’d create barriers to entry.  Working with something in the early stages means we run across technical, legal and other issues that need to be resolved.  The resolution of those issues, that only we know, become the barrier to entry for competitors.  That creates the potential for game changing offerings with sustainability.

It could start with a simple phone call to the professor to enquire about development and partnership opportunities.

Summary

Not all data we sense about the future are equal.  Some of it is eminently knowable and resides in our Knowable Now.  Some of it is shrouded in uncertainty and lies in our Possible Future.

How we deal with these different future states determines in large part our ability to differentiate, and whether we ever have the chance to game change.

Working exclusively in the knowable now means we can certainly better our offerings.  However it comes at the price of a high probability that any advantage we gain is short lived.  We are in a constant never-ending race.

But, working as well in the possible future means we have the possibility of a game changing offering with barriers to entry behind us.

Questions to consider

Here are some questions to consider about the leadership behaviors in your company.

1. Beyond, industry journals and regular mainstream media what is your organization sensing in aggregate?
2. Do you know the answer to question one?
3. Do you have an organizational sensing strategy?
4. Supposing people in your organization read about a technology that could  possibly disrupt the market, would they recognize it for what it is?  In other words, could they interpret it correctly?
5. Is there someone in the organization to whom they could send it to who could correctly interpret it?  Do they know who that is?
6. Is it part of that person’s responsibility to explore the possibilities this nascent technology might represent?
7. Does the leadership team include in their strategic portfolio resources to explore the possible as well as the knowable?

Shouldn’t the possible future be in your lexicon and plans?  Future posts will explore the region of the future past the Possible Future.

The good news is that there are organizations that offer sensing.  So it’s easy to get started.

Here are a some good ones.

• Institute for the Future
• Fast Company
• Trend Watching
• Ted

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Critical Leadership Behaviors

When considering what it takes to imagine and launch a game changing product or service I start with the following premise.  Great leaders:

The result is that the organizations they lead shape their futures, rather than being shaped by it.  They are game changers.

In a series of blogs post I plan to explore the first behavior.  See more clearly, and with greater insight where the future is headed.

What is the future exactly?

We are so used to analyzing data from the past, I thought I’d start by providing a perspective on how to analyze data from the future. Sounds a little weird but stick with me for a bit.

The future flows towards us.

We know we live in the present.  As we live and breathe, time passes by and the future arrives.  Here’s what that means.

Reading those last three sentences took about 5 seconds.  When you started reading those sentences the end of the third sentence was 5 seconds away in your future.  By the time you finished reading it, that future, previously 5 seconds away, was now in your present.  And by now, is about 6 seconds in your past.

Clear?  As time passes by the future flows towards us.

Our life and business trajectories are mostly stable.

Yet, during the time you were reading those sentences your life (business, personal, etc.)  did not change dramatically.  Who you love, your finances, your career trajectory, and the other things important to you stayed on course.  So while the future was flowing towards you its impact on your life/business and all your relationships was negligible.  In that regard, your present, your near past and your near future are all the same.  They have little to no impact on your trajectory.  Unless of course, you were involved in a catastrophe such as an earthquake.

So….we normally think of time as flowing past us smoothly, much like the graphic below where we sit in the now and move towards the future. . . .

However, when we consider the flow of time’s impact on the trajectory of our lives and businesses it behaves more like the next graphic where the past, present and future are all part of now. What I call the Knowable Now.  Time does not flow smoothly.  It passes by in chunks.  Which explains why all societies have created ceremonies to delineate between moving from one chunk to another: adulthood, marriage, children etc.  It’s a cultural recognition that time is felt in chunks, not smoothly.

We know the past, we know now, and for a certain period of time, we know the future too.  In fact, much of our lives is spent trying to make the future part of our knowable now.  That’s one reason why businesses go through annual planning cycles; to take future events and put them into the knowable now.

The future is divided into know-ability.

What this means is that the future can be grouped by its know-ability. We’ve just shown that when it comes to the fundamental trajectory of our business, barring an unpredictable event the future and the present are essentially the same:

• 5 seconds from now
• 5 minutes from now
• 5 hours from now
• 5 days from now
• 5 weeks from now
• 5 months from now

However, at some point we do reach a time where we don’t feel comfortable that the core issues and opportunities are knowable.  Our data projections are just too unreliable.  Therefore, the length of time between now, and that uncertainty point in our future, represents our knowable now.  Anything past that point we don’t feel comfortable that we can reliably predict our trajectory.   Our future, as we normally conceive of it as being unknowable, actually lies past that point.  Everything, of major importance, is mostly knowable between now and then.

So the future is, from a practical standpoint, divided into a period of time that is largely knowable, and a subsequent period of time that is mostly unknowable.   (Note: In a future post I will further subdivide the unknowable future into two other categories.)

Implications of time as chunky.

Here are some conclusions from this subdivision of the future on analyzing data from the future.

First, all value you will give and receive is in your future, some part of the knowable now and some part of the unknowable future.   Consequently, as business people responsible for  creating and delivering value (shareholder, customer, employee, etc.) we need to learn how to deal with the future.  It’s where we succeed or fail.  Success and failure lies ahead of us, not behind.

Second, I’ve blogged extensively about how innovation involves taking a technology, or new business process and deploying it in a way that allows new behaviors to emerge.

So let’s take the example of Apple’s recent launch of the iPad on Jan 27th, 2010 and determine what this chunking up of time means to us.

Implications of the iPad launch.

Prior to the launch, the capabilities of the iPad, it’s position in the computing market and functionality were largely unknown.

We knew something was coming but not what.  That knowledge resided in the unknowable future.  All that changed on the day of the launch.  Its capabilities, usability and functionality became part of the knowable now.  Of course, on the day of the launch we didn’t know the exact characteristics of all the apps that would be made.  BUT, we could make very intelligent guesses.  They became mostly knowable, as evidenced here and here.

Which means that if a business was thinking about using it to gain a competitive edge they were too late.  Why?  Because on the day of the launch all their competitors had the same data.  They could know the same capabilities and imagine the same kinds of uses.  There was no inherent advantage.  It simply became a race of the fastest and any leadership would only last until the competition caught up.

Working with data from the knowable now does not inherently provide game changing advantage.

Preliminary conclusions of working in the knowable now

1. When it comes to our lives and business trajectories time passes by in chunks.
   • Part of the future includes data that is largely knowable.  That data is in the now. Not in the future. Therefore, now includes part of the future called the knowable now.
2. When speaking about the future businesses should define the time period that represents their knowable now.
   • There will likely be different lengths of time for different topics.
3. Businesses and competitors have access to essentially the same data.  Consequently, if the data businesses are using to make their plans and develop  offerings comes from the knowable now they have no inherent advantage as it’s available to everyone.  They can’t see the future any more clearly than any one else.
4. The development of business strategies needs to embrace capturing data and using it from the unknowable future.
   • In my experience, that behavior, embracing the unknown is counterintuitive for most business people as they perceive it as highly risky.  So I will address how to effectively analyze largely unknowable data in my next post.
5. Businesses that mostly work in the knowable now condemn themselves to hard-fought, never-ending competition.
   • Game changing ideas come from the unknowable future, not the knowable now.

How far out is your knowable now?

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Is Innovation Risky?

A common perception is that innovation is risky.  The bolder the innovation the greater the risk.  Ask 100 people whether the previous statement is true and most would agree.  But is that really true?  I’m going to argue no.

Behaviour Space

To make that argument I’m going to suggest, that at its core, all innovation is about the creation of behaviour space. Perhaps it’s an internally focused innovation, like the value disruption project I’m currently blogging about where they want a new system to collaborate.  Or it’s an external innovation like the iPad.  But in all cases it’s about creating new behaviour space.  And, if you understand behaviour space you can reduce your risk.

What exactly is Behaviour Space?

Here’s what I mean by behaviour space. Take pens and pencils for example.

Imagine for a moment that pencils had never been invented and all we had to write with was pens.  Everything was written in ink.  Now, imagine introducing pencils to that situation.

Once the pencil becomes available you can perform (behave) new tasks you couldn’t do before.  Tasks such as writing upside down, erasing, writing on surfaces you previously could not because the ink would blot.  You see, the advent of pencils allows you to perform new behaviors.

Note though, that the pencil itself is useless until you use it.  It’s the behaviour that the pencil enables that provides us value, not the pencil.  In reality, the innovation is not the pencil.  The innovation is the new behaviour space.  The pencil is simply the disruptor that enables the behavior to emerge.  It’s role is to disrupt how we normally do things to allow new behaviours to emerge.

Granted the size of the behaviour space is limited, especially if we compare it to something like the iPad.  Which leads us to our second conclusion; the value of an innovation is the size of the new behaviour space it enables times the size of the population that desires that new behavior space.

The same holds true for internal innovation like the collaboration example above.  Why does a company look to acquire new technology (to collaborate)?  Simple.  They are looking for their people to behave differently: to perform new collaborative and communication  tasks that they are not able to do.  Technology, new business models, new services, by themselves are useless.  It’s the behaviour that they enable that creates the value.

Why Understanding Behavior Space Reduces Risk

So, how exactly does understanding behaviour space help us reduce risk?  There are lots of ways.  In this blog post I’m going to talk about just one – Assessing potential innovation success.  In subsequent posts I’ll explore other ways understanding behaviour space reduces risk.

Measuring Innovation Success

One of the challenges in innovation is deciding which idea has the better potential (e.g.  market potential or productivity potential).

Does idea #1 have the best potential or idea #2.  Into which one should we invest scare resources in exploring?

Here’s how understanding behaviour space reduces risk.

Upon grasping the concept of behaviour space you are quickly able to compare the value potential of  one idea to another.

Try this test.

Take a few moments and think about the behaviour space the Kindle provides as a B/W screen to download books and magazines.   Jot down all the times and places you’d want to do that (Use the pencil we talked about).  Okay, finished ?

Now compare that to the potential behaviour space of the colour iPad connected to the iTunes stores and 10s of thousands of app developers.   Jot down all the behaviors the iPad could bring to fruition, along with the times and places you’d want to do that.  Okay, finished?  (BTW You can find additional ideas here.)

After 5 seconds of behaviour space analysis it becomes self-evident that the behavior space potential for the iPad far surpasses that of Kindle.  That’s why I predicted in this post that the iPad will soar where the Kindle did not.  Just in as I’m writing this post; in this article they talk about how Barnes and Noble are adding an app to the iPad to download books.  Already, the size of the iPad behaviour space footprint is growing.

What does this analysis mean to you?

Well, when you compare two ideas competing for resources on their ability to create behavioral space you start to measure which has the greater potential.  In addition, behaviour space analysis allows you to tweak the design of your product or service to enlarge its behavior space footprint.   So your ideas have better value potential before you spend precious resources in implementing them.

Summary of how behaviour space reduces risk

1. Innovation is the creation of new behaviour space.
2. The product or service is simply the disruptor that enables new behaviour space to emerge.
3. The size of the behavior space footprint represents the size of the potential value your are offering.
4. The greater your value potential the greater your monetization potential.
5. Using behaviour space to analyze innovation ideas lets you compare two competing ideas for their value potential.
6. Also, using behaviour space analysis lets you tweak ideas to enlarge their behavior space footprint and hence their value potential.

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I originally had written about the Apple iPad in this post postulating its success because of the new behaviors it would enable.  Last week I crowd-sourced the following question on LinkedIn.

What are your best ideas on how the Apple iPad will value-disrupt the publishing and game industry?

Here are the three best answers I received.

Jeffrey Speiser

1. Publishers know that they can’t ignore Apple.  Book Shelf is going to take over the ebook market in the next few years the way itunes did. There’s a price war in the publishing industry already and this is just going to help Apple.  Consumers are already getting used to paying $9.99 for best selling hardcover books. Now they’ll be able to get them digitally for the same price.
2. Magazine subscriptions can now be distributed digitally. Same with comic books, trade journals, and newsletters. No costly printing, and users can easily archive all the issues they want without stacks of paper in their homes.  Unlike the Kindle or other readers the iPad is going to closely simulate the real world experience of reading a magazine, making it more accessible for older users, and cool enough for younger ones.
3. On the gaming front, users get instant access to the app store with thousands of games. They won’t be as graphic intense as a console unit, but that’s not the purpose of these games. Most of the best selling app games are more strategic in nature which is perfect for the iPad format.

Darren Yan

1. It’s my belief that the education sector will lead the adoption of the iPad as the preferred e-book tool, and it’ll be the students who will act as the brand ambassadors for the iPad who’ll take the product mainstream.  This strategy will disrupt the value chain for academic publishing businesses worldwide, with online libraries managed by companies such as Reed Elsevier uniquely placed to deliver an integrated research tool for students in universities.
2. Moving forward, traditional newspaper and magazine organizations should take advantage of this promising tool by turning all their published contents to be “click-able” and integrated across all major social networks that allow the content to move beyond the reader (i.e. iPad user) to the network, thereby allowing the same content to evolve into a viral distribution.   However, most newspaper and magazine companies have not invested adequately in their content management system that effectively integrates keywords to the Internet where complementary content can be incorporated in the content developed by the organization.  Moreover, the traditional editorial approach to content development in these organizations makes the adoption of an integrated news story difficult. Most editors and journalists take great pride in their work, and appending external links to add the social elements in the content could inadvertently be construed as their work being incomplete.

Hence, many challenges remain, and the degree of disruption to the value chain will take time.

George Hazapis

1. Apple is shaking up the digital book market like it did the music industry with the iPod & iTunes music store. The agency model is a departure from the way Amazon has been doing business with book publishers. With Kindle, Amazon sold digital versions cheaply to drive sales of its e-reader. Publishers make less on each e-book sale under the new model but are willing to accept a lower return for e-book sales because they can control the value of their product, that is, books and content. Consequently, the distribution and pricing models will be redrawn.
2. iPad seeems to revolutionize the digital media and may offer publishers a new way to present content and charge for it.  Apple has been able to control the price of music while boosting the sales of iPods without bringing the music industry much money.  Apple’s iphone gives content producers a platform on which to charge for their products/services. The iPad brings innovations to the market and appears to be a convergent electronic device as telecom firms, computer makers and consumer electronic firms are set to produce the same product.

In other iPad value-disruption  news

1. CBS plans to reduce prices to $1 on some iTunes TV episodes
2. Disney turning its attention on iPad for games, Marvel comics, TV
3. iPad Revolutionizes Online Continuing Education
4. Apple iPad to Have Big Impact on Online Poker

My take

As with all innovations, the greater the number, types, and breadth of new behaviors a disruptor (iPad) causes to emerge, the higher the probability that it will create new value.

New value in the form of new relationships between the user and:

• Self
• Space
• Friends
• Family
• Co-workers
• Communities
• Companies
• etc.

Now re-think iPad.  Imagine new relationships that individuals, groups, communities, content suppliers can build because of its capabilities.  Only then can you begin to see its trajectory.  And having seen how behaviour and relationships can so readily predict outcomes can you then begin to decode where we’ve come from:

• Language
• Fire
• Writing
• Printing Press
• Morse code
• Phone
• Internet
• Mobile phone
• Smartphone

and use that trajectory to predict where we’re going:

• iPad
• pure voice activation
• symbiotic measurement
• etc.

Value-disruption questions

1. What behavior can you see yourself now doing?
2. How would it impact your relationships?

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There has been a lot of  negative press about Apple’s launch of the iPad.  Some commentators have focused on the name choice.  Others have lamented the lack of features: no multitasking, no video, no touch keyboard, to name just a few.

Missing the point

They’re missing the point about creating new market spaces.  Creating a new market space occurs when you enable new behaviors to emerge in a target population.  Specifically, if your offering (the disruptor) allows people to do something they couldn’t do previously, and many people want to do that, then it takes off.  The new behavior disrupts the norm of how people interact with each other and with space and in so doing, creates new value.

The power of new behavior space

For example, the Blackberry brought us push email.  That allowed us to stay connected everywhere.  New behaviors emerged, not all of them desirable mind you (emailing during a meeting).  This new behavior enabled by the Blackberry disrupted other phones and organizers (the Palm).

iPhone utilized the programmable touch screen.  That allowed more intuitive interfaces and a whole slew of new behaviors to emerge.  Face-Book, Twitter, Traffic alerts, conversion calculators, games, games and more games, etc.  Over 100,000 apps have been created in all sorts of areas with a corresponding increase in new mobile behaviors.

What they, and others (the telephone, steam engines to name a few oldies) did was create new behavior space.  As new behavior space grows, so too new market space grows.

(Behavior space = the number of people x the frequency at which they demonstrate a behavior.)

The iPad’s new behavior space

So what new behavior will the iPad allow to emerge?  When you inspect the core functionality of the iPad through the lens of behavior space you see that it was built primarily for two purposes, both of which do not currently have large “mobile” behavior spaces.

1. Playing games
2. Viewing media content (books, movies, magazines, newspapers, etc.)

Let’s just explore the latter.

Yes, the Kindle and Sony Reader already exist.  However, their adoption rates are small.  They haven’t swept the market.  I suggest two reasons for this lack of explosive growth.

1. Their offering is mostly one dimensional.  They only offer reading.  More critically, there is no obvious path for a potential consumer for new behavior growth. Consequently, potential buyers only have one reason to buy.  Do I want to be able to read in a mobile environment?  If yes they buy.  If no they don’t.  They’ve hung their hat (mostly) on one behavior.
2. Their business model does not include the potential for rapid evolution of content experience.  You can buy a book from Amazon, or you can download it.  In either case the book is largely the same.  Where is the capability to change the nature of the book, or magazine to take advantage of the new technology (disruptor)?

Look at how the iPad value-disrupts

1. iPad offers room for growth.  It has both games and media content (including movies) so it is multi-purposed to begin with.  Combine that with iphone apps and the device has more room to grow.  People will buy the iPad because there is more behavior capability there, and there is an expectation that those capabilities will grow even further.  This is especially true given Apple’s reputation.
2. With the app capabilities expect to see all kinds of new media content.
   • Self book-publishers will now publish their books through the iPad.  I worked with a self-publisher (Dr. Alex Osterwalder) on his recent book Business Model Generation.  Now he can publish on the iPad and make the experience far more interactive and rich.
   • Apps will allow successful bloggers to monetize their blogs.
   • The newspaper industry, which is in death throes, will do what the music industry did – migrate their offering to the iPad.  Some have calculated that printing The NYT costs twice as much as sending every subscriber a free Kindle.  With a multipurpose iPad it will make sense for them to build their own apps for their newspaper.
   • Creative magazines and newspapers will use color, 3G connections, GPS locators, video-play and gaming capabilities to develop an incredibly rich multi-media, multi-connected, location-specific experience to the user.  Think about that for a moment from a behavioral perspective.  What will the world be like when you can be at the corner of Main and Water street in your home town and point to a building and be presented with a multi-media array of games, news, background information, promotions, etc. all relevant to the entities you are pointing at?  Or, imagine what a “NYT experience” could be.  Even better, imagine what a small town paper could do (the Saskatoon Phoenix experience).  How exactly does Kindle compete against that?

The secret to market space is in creating new behavior space through a value disruptor.  The iPad, like the iPhone before it, and the iPod before that, is their next value-disruptor.

Watch the publishing industry be value-disrupted

So, no the iPad is not a replacement for the laptop.  No, it doesn’t do multitasking, or have video, nor phone capabilities.  It doesn’t need to.  It’s going after a much larger market.

100′s of thousands of  iPhone app developers combined with a mobile multi-media device creates the potential for a massive increase in behavior space in the publishing industry.  Apple will do to the publishing industry what they did to the music industry.  They will value-disrupt it.

What new behaviors can you imagine emerging?  In gaming?  In publishing?  How will the business models of publishers change?

You can learn more about value-disruption from the following posts.

1. How to differentiate - a story about a small janitorial firm
2. How LinkedIn is disrupting the recruiting industry
3. Pepsi uses crowdsourcing. Commoditizes Superbowl advertising
4. Will Google’s Nexus disrupt the smart phone industry.  Not yet
5. Companies value-disrupting their markets; a dialogue

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