Disruption through business design
Disruption is impossible to engineer, right? This design discipline may have the methodology would-be disruptors need.
It wasn’t long ago that phones were tethered to walls, the Internet made noise, and watches were the only devices strapped to our wrists. These were the tools we used to do business and create value.
Digital has changed everything. Today, the hisses and whirrs of dial-up Internet are gone. We have new toolsets that are enabling new forms of value. And we’re building new businesses to deliver that value. Dropbox, Instagram, and Uber are all products of the technologies—data-transfer speeds, digital photography, location tracking—we have today.
Digital transformation presents an opportunity to companies that can keep up and a threat to those that stay static.
Business design is a new discipline of design that helps companies adapt. Where value creation previously meant making and selling a product, it is now about combining services, products, people and knowledge in novel, efficient ways. Business design takes a holistic approach to these design problems. It treats strategy and business model innovation as a design activity.
This report explores how design is coping with the new economy of disruption by expanding its scope to include the entire value-creating entity in its purview. In it, I make a case for the effectiveness of business design. And I explore business design’s unique capacity to tackle problems of comprehensive value creation. Finally, the report highlights the parallels between disruption and design and argues that design may be the methodology that disruption heretofore lacked.
Design and Innovation Theory
Capstone thesis, Hong Kong Polytechnic University
Delivering new value requires both business and design.
Business design is an innovation discipline (Fraser, 2012) that deals with the formation of new enterprises and parts of enterprises. It has emerged from both design’s broadening field of influence, and business’ need for constant, wide-reaching innovation.
Business and design share a focus on value creation. Design endeavors to create use-value. Business focuses on exchange-value. (Wetter Edman, 2010, pp. 95-96) Although divergent, these approaches to value creation are complementary. Enhanced use-value can increase an offering’s exchange-value. And exchange-value is a necessary element of making services, products or systems useful.
Business and design have each structured their logic, tools and methodologies around their unique perspective of value. Business design draws on both. In practice, business designers incorporate analytical and creative thought, have the objective to both explore and exploit, and value both reliability and validity. (Martin, 2009) The discipline melds the logic, methodologies, and tools of both fields, taking a balanced approach to complex problems.
It’s not about products anymore. Comprehensive value rules.
Business design emerged in the context of digital transformation to solve today’s business challenges. Businesses are in need of radical change, and new offerings. And design has incessantly expanded its scope in the pursuit of value creation. Designers have maintained their authority over the value proposition but are finding that value takes on all shapes and sizes today, and creating value requires interventions across the business.
Businesses have transitioned away from a product-oriented logic toward the creation of comprehensive value. Digital allows for a broad spectrum of value propositions that rarely fall at the extremes of the product-service spectrum. Offerings often include both tangible and intangible assets, as well as value from channel, bundled services, cross-compatibility and from unique business models. Buyer-seller exchanges are giving way to platforms, and B-Corps. Transactions benefit broad communities of actors.
Contemporary business and innovation literature both point to the fact that effective innovation is comprehensive. Both Doblin, (a prolific innovation firm) and the Business Model Canvas (a widely adopted business strategy tool) point to the fact that successful innovation incorporates a blend of multiple kinds of interventions to all parts of the business model. (Keeley, 2013; Osterwalder, Pigneur, Bernarda, & Smith, 2014)
Products aren’t the focus anymore. Comprehensive value is now the norm. Business designers consider the entire business in their interventions and see their outcomes embedded and entwined within the rest of the firm. This inclusive approach to innovation is suited to creating comprehensive value.
Constellations create comprehensive value.
Creating comprehensive value requires the design of entire value constellations. Value constellations are systems of actors that work together to co-produce value. (1993, p. 66) Developing value constellations includes reassigning roles among value-creating entities to “mobilize the creation of value in new forms and by new players.” (1993, p. 66) It requires an understanding of the company and its capacity, the customer, their needs and capabilities, and the context of available technologies and market competitors.
Airbnb perfectly exemplifies how value networks work. The company mixes and reassigns the roles in hospitality. Homeowners are hoteliers; travelers are houseguests. From the payment timing to the interior photos of the properties, the platform is structured around making that transaction feel normal, and helping people take on those roles. (Chesky, 2014; Gebbia, 2011)
Christensen proposes that disruptors find the right value networks for their technological innovations. (Christensen, 1997) They build new markets rather than competing within existing ones. Creating disruption requires complete transformation and working at a broad scale: from the value proposition to the value constellation.
Business design is adapted to working at this scale. It understands that offerings are rooted in multiple spheres each of which has norms that define their success: businesses that bring them to market, groups of people that value the offering enough to buy it, societal norms that prescribe doing things in one way or another, and a competitive landscape of other possible ways to satisfy the same human needs.
Disruption calls for new meanings, markets and customers for a technology. Business designers can help to find them.
Design is Disruptive.
Disruption is so compelling because it seems impossible to engineer. The original tenet was that managers who were doing everything right to run their business could still be disrupted. It appears to come from nowhere.
Design practices closely parallel the principles of disruption. Design’s empathy practices can be leveraged to match technologies with the customers that need them. It framing methodology can be used to build new markets around technologies. And its simultaneous exploration of the problem and solution is a fresh approach to the experimentation on which disruptors rely.
These parallels point to an important possibility for both business and design: Design may be able to provide the methodology that disruption lacks. As a discipline, design has spent the last decades building robust toolsets that are capable at cutting through ambiguity to create value. These may be exactly the tools disruption is missing.
Empathy connects ideas with customers.
Creating disruption means creating value. But value is fluid. It depends on each person’s individual perspective. Designers use empathy to navigate value. (Liedtka, 2000, p. 21) (Cross, 2007) They relentlessly research the human experience looking for insights to work from. Their learning is useful in matching customers to use-cases and use-cases to technologies, creating disruption.
Warby Parker has succeeded through empathy. Selling US$95 eyeglasses, and donating one pair for each purchase, the company has structured itself around empathy for its customer and employees, as well as for society and the planet, (“Culture | Warby Parker,” n.d.) and is now worth billions after five years of operation.
Framing for market creation.
Building innovative value constellations requires a novel perspective. Designers use framing to find new views toward problems, enabling and inspiring solutions. (Cross, 2007) Designers generate frames from the concentrated inspection of different themes surrounding a problem. (Dorst, 2015) The process yields the new perspectives businesses need to match technologies to new customer groups and applications.
Paypal, Square, Stripe and M-Pesa all have different use different frames of the same problem: cashless payments. Each business’ frame structures the market they are addressing and the problem they are trying to solve in a tangible way that lets them target their market, ultimately defining their success.
Negotiating problem and solution simultaneously.
Design considers both understanding the problem and building a solution as components of its work and works iteratively to develop their understanding of both. This approach parallels Christensen’s suggestion that the market for a disruptive innovation converges through a process of trial and error. Businesses and would-be disruptors can leverage this approach to ensure that product-market fit.
Uber illustrates the disruptive effectiveness of simultaneously exploring the problem and solution. The company is structured around a single, simple value proposition: connecting riders with drivers. As they have grown, they have built their understanding of the global transportation market, and tailored a portfolio of products to each locale’s unique needs and capacities.
Business design is the methodology for disruption.
Businesses today are looking for transformation. Startups are finding ever new ways to leverage technology to create value. Established businesses are looking for options to adapt their offerings to the new possibilities. Whether threatened or excited by disruption, businesses small are large are looking for ways to create
Business design offers a solution for enterprises aiming to disrupt. Balancing the capabilities of both business and design, the discipline treats business strategy as a design activity. Comprehensive value and value constellations are becoming the norm. Business designers are adapted to working at this scale.
Disruption seems impossible to engineer, but design offers structured and tested methodologies to navigate the principles of disruption. It uses empathy for customer development, framing to construct markets, and co-evolves its understanding of the problem and solution to ensure product-market fit.
These parallels point to an important possibility for both business and design: Business design may be able to provide the methodology that disruption lacks. It leverages design’s robust toolset, and takes an inclusive approach that lets it intervene, design, and innovate in all corners of an enterprise. Through this, business design is capable of envisioning and implementing robust, comprehensive value propositions that are disrupting industries today.
Chesky, B. (2014, 9 September 2014). Brian Chesky on Airbnb’s Real Business | Full Interview. Interview at the TechCrunch Disrupt, San Francisco 2014.
Christensen, C. M. (1997). The innovator’s dilemma when new technologies cause great firms to fail. Boston, Mass. : Harvard Business School Press, c1997.
Cross, N. (2007). Designerly ways of knowing. Basel; London: Birkhäuser ; Springer [distributor].
Culture | Warby Parker. (n.d.). Retrieved from https://www.warbyparker.com/culture
Dorst, K. (2015). Frame innovation create new thinking by design. Cambridge, Massachusetts ; London, England: Cambridge, Massachusetts ; London, England : The MIT Press, 2015.
Fraser, H. M. A. (2012). Design works how to tackle your toughest innovation challenges through business design. Toronto: Toronto : University of Toronto Press, c2012.
Gebbia, J. (2011). Building A Story To Create A Business. Presentation at the PSFK Conference 2011, New York City, USA. Video retrieved from http://www.psfk.com/2013/03/joe-gebbia-airbnb-psfk-2013.html
Keeley, L. (2013). Ten types of innovation : the discipline of building breakthroughs. Hoboken, N.J: Hoboken, N.J. : Wiley, c2013.
Liedtka, J. (2000). In Defense of Strategy as Design.(Brief Article). California Management Review, 42(3), 8.
Martin, R. L. (2009). The design of business : why design thinking is the next competitive advantage. Boston, Mass.: Harvard Business Press.
Normann, R., & Ramírez, R. (1993). From value chain to value constellation: designing interactive strategy. Harvard Business Review, 71(4), 65.
Osterwalder, A., Pigneur, Y., Bernarda, G., & Smith, A. (2014). Value proposition design : how to create products and services customers want. Get started with. Hoboken: Hoboken : John Wiley & Sons, 2014.
Wetter Edman, K. (2010). The concept of value in design practice – an interview study. Paper presented at the ServDes: Service Design and Innovation Conference, Linköping, Sweden. http://www.servdes.org/conference-2010-linkoping/