March 26, 2010

Given that my personal and professional quest for elegant ideas hinges on the premise that what isn’t there can often trump what is, it should come as no surprise that I would be attracted to a book entitled Seizing the White Space. The book is written by Mark Johnson, who is Chairman of Innosight, an innovation strategy firm he co-founded with Harvard professor and bestselling innovation author Clayton Christensen.

What I like most about this book is that it focuses innovation not on product, service, or even process, but on the engine of any company big or small: the business model. Mark offers a great framework for how to think about the “white space,” which he admits is not a new term or concept, but which he redefines within the context of strategy as “the place where a company needs to operate with a different business model that it’s currently using.”

The conceptual framework, a continuum really, has three major elements:

• The white space within. The white space within contains opportunities to fulfill important, unsatisfied, and what Mark calls “jobs-to-be-done” for existing or new customers within your existing markets.

  Mark cites the case of Whole Foods Market. Reaching out from its “crunchy granola” core, Whole Foods defined a new customer value proposition that embodied a focused, complementary set of jobs to serve its high-end customers. To deliver that value profitably, the company inverted the establish supermarket model and fundamentally shifted the economics of the grocery business.

  The new model relied not on volume but on higher prices and margins on the customer’s desirable perishables—produce, meats, baked goods, and prepared foods. To sell customers on the higher prices it required to deliver the customer value proposition it made the shopping experience more pleasurable. By considering customer experience an integral part of its customer value proposition and then devising a profit formula to satisfy it, Whole Foods found a way to serve important jobs-to-be-done at the high end.

• The white space beyond. The white space beyond involves opportunities to create new markets by making products and services available to individuals for whom existing offerings are blocked from being used or consumed, because they are too expensive, too complicated, or too inaccessible.

  Tata Motors is a case in point. Ratan Tata, president and chairman of Indian carmaker Tata Motors, saw the danger in entire families riding atop a single motor scooter to travel the crowded streets of New Delhi. He saw a national problem and recognized a critical job-to-be-done. Knowing that many families could not afford a safer alternative, he saw the need for a lower cost offering: an automobile that could be profitably sold for the price of a scooter.

  Tata had to sell the Nano for one lakh (about US $2,000) in order to deliver its customer value proposition to scooter families. Anything higher would be price-prohibitive. The challenge to create a less expensive car forced Tata’s engineers to fundamentally rethink how they designed, manufactured, and distributed cars. They built it out of fewer parts, outsourced production, and reconsidered their distribution strategy.

  Within a month of the Tata Nano becoming available for pre-sale, Tata’s website garnered 30 million hits, showrooms welcomed 1.4 million visitors, and buyers put down deposits of as much as 80% on more than 200,000 cars—roughly 17% of the annual new car market in India.

• The white space between. Opportunities (and very often imperatives) in the white space between are those created by seismic shifts in markets, technologies, or government policies, where, as Mark writes, “tectonic forces...have created the highest states of uncertainty, there are also opportunities for transformative growth through new business models uniquely suited to the radically altered terrain.”

  Here Mark uses the case of Apple, whose core personal computer market potential was tapped out at the end of the last millennium. Apple introduced the iPod in 2001. But it wasn’t about the gizmo. It was about the business model, the system: iTunes. Music lovers had discovered a radically new way to obtain and share music—over the internet. They wanted to download single songs for free, or nearly free. Artists, record companies, and performing rights organizations all fought the trend tooth and nail on the regulatory battlefield. (Remember the Napster wars?)

  Apple realized that digital rights were blocking what consumers really wanted. It created iTunes, to deliver songs the way people were wanting them delivered, designed to allow the iPod and its user to fit seamlessly into the whole mechanism. Apple cut deals to make everyone gain. Result: complete turnaround. In just three years, the iPod/iTunes combination became a $10 billion product accounting for nearly 50% of the company’s revenue.

  Mark notes that Amazon is following suit with its Kindle e-book strategy.

Whether you’re a company of ten or ten thousand, a startup or Fortune-listed, there are some great takeaways in Seizing the White Space on how to reinvigorate, grow, or even entirely change the game and transform your company through business model innovation.

Matthew E. May is an innovation consultant and the author of In Pursuit of Elegance: Why the Best Ideas Have Something Missing. He blogs here. You can follow him on Twitter here. 

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