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companies can create a strategy for innovation that includes partnering with startups, thereby enabling an “innovation ecosystem.”   This post is the seventh of ten reviewing the various chapters of his book in preparation for the Leadership Forum 2016 event put on by the Chicagoland chapter of the Project Management Institute on May 20th, 2016.

In the first part of his book , Michael explains the reason why open innovation is the recipe for creating innovation that is truly transformative, rather than just maintaining or expanding the core business.   In the second part of his book, he lays out his prescription for “collective disruption” as a way to achieve that open innovation ecosystem.

In the last chapter, Michael laid out the four phases of the collective disruption process:

1. DISCOVER:  identify transformational opportunities relevant to your business.  Bring with a customer focus and then identify the key players and the networks.   You need to provide seed funding and resources for these activities.
2. DEFINE:   define opportunities for an initial business opportunity through an iterative process, and use assessments to decide whether to explore these opportunities further or drop them.
3. INCUBATE:    Apply a modified version of lean methodology which can be done in one of three ways–1) inside-in (integrated), 2) inside-out (accelerators), 3) outside-in (imbedded entrepreneurs).
4. INTEGRATE:   Design new teams and structures that are both separate from and connected to the corporation.    These teams need to be separated to allow them to operate outside of the tight financial control of the current business, but they also need to be connected so that they eventually be absorbed into the existing corporate framework or spun off as something entirely new.

This is the seventh chapter of the book, which discusses the DEFINE phase of the collective disruption process.

When you want to create new sources of revenue growth, this almost always entails business model innovation.   Too much attention can be focused in the beginning of a collective disruption partnership on the relationship at the expense of a focus on external market opportunity.   Rather than hammering out agreements about who gets what, you need to start out with the external perspective of “what does the customer get?”

Here is Michael’s blueprint for managing I/P (the “who gets what” question) in such a partnership.

1. Begin with non-confidential discussions.
2. Proceed to nondisclosure agreements for initial discussions
3. Move to teaming agreements that enable external exploration in the market; address existing I/P and sharing of limited new I/P creation
4. Finally, move to co-development and option agreements and complete I/P rights for co-development AFTER companies have progressed through step 1 through 4

Now, with the “who gets what?” question out of the way, it’s time to move on to the question of “what does the customer get?”, or the creation of a business model.   Here are the phases that Michael recommends to go through here.

Step 0.  Before beginning the business model mapping effort, ensure that the venture has the following:

• a clearly defined vision
• measures of success
• constraints
• the needs of each party.

Step 1:  Identify strategic levers,  i.e., variables at your disposal for bringing a big idea to market, which are relevant to the venture.   These are the columns of the framework.   Here are some examples of such strategic levers:

• Customer target
• Customer problem
• Value proposition
• Offering(s)
• Revenue model(s)
• Cost model (s)
• Distribution
• Partnering approach

Step 2.   Identify a realistic menu of options for each strategic lever that the venture could potentially explore or pursue.   You may add to this venue later as you begin to develop strategy options.

Step 3.  Map the default strategy.   Document it right up front; this will give you a base to compare other options you may explore later.

Step 4.  This is a “mixing-and-matching exercise”.    Pick a column.  For each menu choice under that column, use that item as the “stake in the ground” for that strategy option.  Have the group develop one or more strategies that are choices from the other columns that are a logical and coherent set of choices that support that strategy option.

Step 5.  Iterate on the process above.   Creative and yet internally coherent strategies will gradually emerge.   Start broad and fast and then go back and deselect those options that don’t pass the commonsense test, and then combine and redefine some of the more promising options which have surfaced.

Step 6.  Develop a business model summary statement for the most promising of the options which have surfaced.   The core elements of each strategy summary should include:

• Description of the strategy (target, offerings, etc.)
• Rationale
• Rough financial estimates (size of the potential revenue “prize”)
• Risks/uncertainties

Step 7.   Define which specific learning objectives can reduce risk.   Conduct limited-scope experiments to test your hypotheses around customer need, product/market fit, partnering approach, and related objectives.

These steps should be iterated until you have a promising direction that is worth moving to the next phase of development.   This is the “INCUBATE” phase, which is covered in chapter 8 and in the next post.

For examples of this business model concept map in action, please refer to chapter 7 of Michael Docherty’s book “Collective Disruption.”

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