The most successful companies are organisations that keep reinventing themselves when faced with disruption. They are actively transforming business ideas that matter to customers, embedded in scalable and profitable business models. At the same time, they excel at driving existing business. They live and work like a startup, while managing thousands or even hundreds of thousands of people and billion-dollar businesses. They cultivate a culture where innovation and execution live harmoniously under one roof. How do you also become such an invincible company?
According to the latest book by Alexander Osterwalder and Yves Pigneur, to do so you need to manage two portfolios that exist with completely different logics: the exploitation portfolio and the exploration portfolio. The first comprises existing businesses, products and services that you manage and grow. It is a portfolio that reflects who you are in terms of businesses you own (operate). The latter includes all your new business models, products and services that you are testing. That is a portfolio who you are trying to become through the businesses you are exploring (exploring). A successful company provides strategic direction – and that simultaneously for their portfolios of existing and new business.
The exploration portfolio is about searching for new ideas, value propositions and business models to ensure your company’s future. Search is about maximising expected returns and minimising innovation risk. You improve expected returns by working on the design of your business model. I am employed as a Venture Builder at DSG to explore new business models. In our innovation department, we reduce risk as much as possible by constantly testing and adapting ideas to launch successful new business models.
The exploitation portfolio is about keeping your existing business models on a growth track. This includes scaling up emerging business models and protecting successful business models. You ensure growth by improving returns and minimising disruption risks. You achieve this best by shifting all your business models from dated to strong business models. At my employer DSG, they are actively shifting from offline to online and winning awards in B2B e-commere to future-proof existing business.
Growth vs exploration
The most successful companies do not prioritise exploitation over exploration. They are exceptionally good at simultaneously managing the entire continuum from exploring new business to exploiting existing business. Increasingly, this ability to manage exploration and exploitation is not limited to large established companies. With the increasingly shorter lifespan of business models across all industries, it is also a matter of survival for SMEs.
Companies that can manage and harmonise both cultures do not only create value for themselves. Small and large companies that reinvent themselves have huge positive impact on society. They create economic growth and potentially game-changing innovations. The best of these companies put environmental and social impact at the heart of their efforts to positively change the world. Companies that constantly innovate and figure out new business models also constantly create new and better value propositions at attractive prices. Some innovations may be trivial and only lead to more consumption. But many innovations create substantial value for customers, in the form of convenience, entertainment, well-being and satisfaction.
It has become clear that, as an invincible company, you must simultaneously exploit and explore to create value for your own business, your customers and society. In doing so, most successful organisations are not constrained by industry boundaries. Indeed, they often push industry boundaries and disrupt others. Their business model or portfolio of companies is not the result of the area in which they operate, but it arises from an organisation constantly seeking new ways to create value around market opportunities.
Feel free to leave a comment if you found this article interesting. Want to learn more about a dual business portfolio including some practical examples of superior business models? Then buy Strategyzer’s latest book. Highly recommended! 😉
The Invincible Company by Alexander Osterwalder and Yves Pigneur