I'm reading Constantinos Markides' book on Game-changing Strategies right now. Constantinos (Costas) is professor of Strategic and International Management at the London Business School so knows a thing or two about business strategy and if, like me, you've had the good fortune to see him present you'll know he's also a brilliantly engaging speaker. The book is about business-model innovation, a form of innovation which he is at pains to show is a very different beast to product and technological innovation.
His central truth is that without the benefit of a technological innovation, it is extremely difficult for any organisation to enter a market where established players are dominant, let alone usurp them from their preeminant position in the market. The one thing which can help increase the probability of this happening is business-model innovation. Yet established companies find it difficult to innovate in this way and ultimately the majority of business-model innovations end up being introduced by newcomers to the market. Why is this?
This book is interesting in that instead of dealing with how to generate a higher level of innovation within organisations in order to seek out new business models (like reams of other business books do), it deliberately focuses on the difficulty of implementing business model innovation in established businesses. Because, as Costas says:
"The issue is not discovery. The real issue is organisational, and the only advice that can prove helpful to established firms is how to overcome the organisational obstacles that hamper the implementation of new business models."
He hits on what is undoubtedly one such obstacle – the fact that most business model innovations are unattractive because they do not make economic sense for established companies. In this context there is, once again, an interesting parallel to draw between one type of content provider – this time newspapers – and another type of content provision – advertising.
Newspapers are arguably at the sharp end of the internet's effect on traditional media. Printed newspapers once delivered you news you didn't already know. Now that the web is wearing the immediacy crown they are having to transform what they do from the bottom up, and the top down. Its a strange irony that inspite of their image of decline, the output of newsrooms on both sides of the pond is currently read by more people in more places than at any time. But the revenue model which has sustained this output is under attack.
The Project For Excellence In Journalism has conducted a survey using face-to-face interviews in over 250 newsrooms across America. The results are sobering. A smaller newsroom staff, younger, more tech-savvy, more oriented to serve the needs of both print and web, under greater pressure, less institutional memory, less aware of the history of individual beats, less knowledge of the community, of news gathering, fewer editors to catch mistakes. The paper they produce is thinner, has shorter stories, less foreign and national news, less science, arts and features. But fundamentally, newspaper publishers, editors and owners find themselves caught between two competing positions that the web presents their organisation:
"On one hand, financial pressures sap its strength and threaten its very survival. On the other, the rise of the web boosts its competitiveness, opens up innovative new forms of journalism, builds new bridges to readers and offers enormous potential for the future."
So many editors see the industry's future as effectively a race between these two forces, and are torn between the advantages and potential afforded by the web and the threat it poses to traditional models and standards. Their web readership may be growing, but their challenge is to find a way to monetize it before newsroom staff cuts irretrievably weaken their their competitive advantage.
Product innovation is not enough. What is needed is business-model innovation. This is tough when (to quote Costas) "a pre-requisite to creativity is a fundamental questioning of the firm's existing business model", a model which is no doubt still supporting the majority of incoming revenue. Meaning that there is little short-term economic incentive to innovate. The pressure to hit the next quarter's number does not go away, and the average ad revenue per user for the newspaper's online properties is likely to be a fraction of the average ad revenue per print reader. So this means revenue diversification, yes, but it could and should also mean a complete rethink of how they do what they do. At best it means a tricky balance between two business models, between "the benefits of keeping the two models separate while at the same time integrating them enough so as to allow them to exploit synergies with one another" (Costas)
There are encouraging signs, notably in the UK with the recent Future of Journalism conference run by The Guardian (and Jeff Jarvis' excellent talk on "10 Questions We Should Be Asking Now"). But all content producers need to understand that the new world operates not only from a different model, but from a different mindset. Just as models founded on scarcity are giving way to models based on ubiquity, so limited thinking needs to be replaced by free-thinking that is framed by abundance.
And this, to a large extent, is where advertising finds itself. Caught between the threat that the web poses to the very model of how advertising traditionally works, and seeing it as the biggest potential opportunity to do what it does exponentially better. Consider this – advertising activity has traditionally been concentrated in bursts of intensity since it is cost-prohibitive at the kind of weight typically deployed to advertise continuously in traditional media. For this reason, the vast majority of ad campaigns still have a beginning, middle and an end. In the beginning we define our objectives, what it is we want to say, and how we are going to say it. At the end, look at what has been acheived and attempt to understand how successful we've been. And then we start all over again.
But people don't work in this way. The web doesn't work in this way. Your customers can talk about your brand, and interact directly with you whenever they want. The web enables not only a continous conversation but the opportunity to build value through interactions steadily over time. It allows you to test and refine. To have real-time feedback. To continously improve and optimise what you do and how you do it. A conversation doesn't stop after you've introduced yourself.
The opportunity that agencies have can only be fulfilled through business-model innovation. Costas makes the point that the implementation of a new, game-changing model can be highly profitable for the company that introduces it because it redefines and enlarges the market. And in order to redefine the market, you first have to redefine yourself.