How to build an invincible company

Dr. Alex Osterwalder is one of the world's top management thinkers, a business model innovation expert, CEO, and a multiple bestselling author. In his new book, The Invincible Company, Dr. Osterwalder explains what every organization can learn from the business models of the world's most successful companies.

Dr. Alexander (Alex) Osterwalder is 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 also holds the Thinkers50 Strategy Award. He invented the Business Model Canvas, Value Proposition Canvas, and Business Portfolio Map together with Yves Pigneur -- practical tools that are trusted by millions of business practitioners from leading global companies. 

His books include the international bestseller Business Model Generation, Value Proposition Design: How to Create Products and Services Customers Want, Testing Business Ideas, and The Invincible Company, to publish in spring 2020.  Osterwalder is the co-founder of Strategyzer, a company that provides online courses, applications, and technology-enabled services to help organizations effectively and systematically manage strategy, growth, and transformation.

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Dr. Alex Osterwalder, Co-Founder of Strategyzer 

Osterwalder's latest book is about the invincible company -- how to constantly reinvent your organization with inspiration from the world's best business models. Alex Osterwalder and Yves Pigneurs' Business Model Canvas changed the way the world creates and plans new business models. It has been used by corporations and startups and consultants around the world and is taught in hundreds of universities. After years of researching how the world's best companies develop, test, and scale new business models, the authors have produced their definitive work. The Invincible Company explains what every organization can learn from the business models of the world's most exciting companies.

The book explains how companies such as Amazon, IKEA, Airbnb, and Salesforce have been able to create immensely successful businesses and disrupt entire industries. At the core of these successes are not just great products and services, but profitable, innovative business models -- and the ability to improve existing business models while consistently launching new ones.

To help us better understand how to build the invincible company, Ray Wang, CEO and founder of a Silicon Valley-based advisory firm Constellation Research, and I invited Dr. Alex Osterwalder to join our weekly show DisrupTV. Here are my main takeaways of our conversation with Dr. Osterwalder: 

1. To become an invincible company you must constantly reinvent yourself, compete on superior business models, and transcend industry boundaries. "To stay ahead of everybody else and beat disruption, you need to constantly reinvent yourself. Business models expire faster than ever before and you don't want to become obsolete. Leave competitors behind and maximize market opportunities, new customer needs, and emerging technologies by embedding them in a superior business model. And lastly, the most successful organizations are not confined by industry boundaries or forces," said Osterwalder. Success is the beginning of failure, according to Dr. Osterwalder. 

"Business models expire like yogurt in a fridge." -- Dr. Alex Osterwalder

Osterwalder defines the invincible company as the following: "An organization that constantly reinvents itself before it becomes obsolete. The Invincible Company explorers the future, while excelling at exploiting the present. It cultivates an innovation and execution culture that lives in harmony under the same roof. It competes on superior business models and transcends traditional industry boundaries." Dr. Osterwalder spoke about Tesla as a company that continues to reinvent itself. I have written about the disruptive model and the invincibility of Tesla.

2. An invincible company is focused on the holistic success of all its stakeholders. Invincible companies create value for society, customers, the team, and the owners. Successful companies provide economic growth opportunities for their communities and society. At Salesforce, we believe that businesses can be the greatest platform for change.  To deliver value to all stakeholders, we need management and organizational structure innovation. According to Dr. Osterwalder, the next big wave of innovation will expand from business model innovation to management innovation. We need management innovation to deliver value to all. Organization agility and adaptability will be highly dependent on new management structures and workflows. 

3. No company is invincible. "Those that come closest to invincibility are the ones that constantly reinvent themselves in the face of disruption. These companies manage a portfolio of existing business models that they exploit and continuously improve. Simultaneously, they manage a portfolio of new business models that they explore to systematically produce new growth engines," said Osterwalder. 

4. Successful companies adopt both explore vs. exploit portfolio management. Explore is about searching. Exploit is about growth. "The explore portfolio is all about the search for new ideas, value propositions, and business models to ensure the future of your company. Search involves maximizing expected returns and minimizing innovation risk. Exploit is all about keeping your existing business models on a growth trajectory. This includes scaling emerging business models, renovating declines ones, and protecting successful ones," said Osterwalder. The invincible company does both -- explore and exploit. Great companies do not separate the great explorers too much from the rest of the company. The moment established companies can figure out how to explore and exploit, they position themselves for long-term success. 

5. The five innovation myths (and the reality): Dr. Osterwalder reminds us that the journey of exploring new business ideas is not a linear one and differs radically from managing an existing business. Here are some innovation myth-busting by Dr. Osterwalder.

  • Myth #1: The most important part of the innovation and entrepreneurship journey is to find and execute the perfect idea. Reality: The innovation and entrepreneurship journey is about turning ideas into value propositions that customers care about and business models that can scale.
  • Myth #2: The evidence will show you a clear path forward when you systematically test ideas, The solution will magically emerge if you just test and adapt your ideas often enough. Reality: Innovation and entrepreneurship are about making informed decisions based on incomplete and potentially contradictory evidence. And sometimes killing an idea is the healthy thing to do. 
  • Myth #3: A small number of big bets will lead to a large return. Reality: Exploration requires making a large number of small bets that you gradually reduce over time, based on evidence. 
  • Myth #4: The skills required to explore a new business and to manage an existing one are pretty similar... Business is business. Reality: Exploration and exploitation are two radically different professions that require a different skill set and different experiences. 
  • Myth #5: Innovation teams are renegades or pirates that are out to disrupt the old business. They need to operate in stealth mode to survive inside a company. Reality: Innovators need to be seen as partners who are essential for the future of the company. Otherwise, any meaningful innovation is unlikely to emerge on a large scale. 

6. Explorers must be given the power to influence. The people assigned to identify re-invention must be given power to achieve success. Power means adequate resources and the opportunity to influence the ecosystem. Successful companies are not delivering innovation theater, instead, they have a strong commitment to explore. Dr. Osterwalder gave specific examples of companies that gave innovation power. For example, one company promoted an innovation leader and made her the co-CEO of the company. Identifying new business model innovation opportunities requires grit, persistence, and authority. 

7. The problem with re-invention is not creativity, lack of ideas or talent, the problem is not institutionalizing innovation in a way that it can thrive. We have the people, we have the ideas, but what most companies lack is a system where innovators can thrive. Exploring is hard work. This is not easy for leaders to champion because you may be risking your career to explore and exploit simultaneously. 

I highly recommend that you watch the entire video conversation with Dr. Osterwalder. I also highly recommend that you read his book. I am recommending The Invincible Company as my highest book recommendation of 2020. 

After Wang and I spoke with Dr. Osterwalder, we spoke with professor Paul Sheard, research fellow, Mossavar-Rahmani Center for Business and Government at Harvard Kennedy School, about the economic impact of COVID-19 pandemic. Previously, Sheard was vice-chairman of S&P Global, after serving as executive vice president and chief economist. Sheard also held chief economist positions at Standard & Poor's Ratings Services, Nomura Securities and Lehman Brothers, and was Head of Japan Equity Investments at Baring Asset Management. Sheard is a member of the World Economic Forum's Global Future Council on the New Economic Agenda (2018-2019). He was appointed twice, by Prime Minister Hashimoto and by Prime Minister Obuchi, to serve on committees of the Japanese Government's Economic Deliberation Council. I highly encourage you to watch our conversation with professor Shear.