Half of CEOs rank new business building as a top three priority, and in the current economic environment, incumbents are advantaged over startups with relatively easy access to capital. While they are advantaged financially, they are often disadvantaged by their operating model. As Arthur W. Jones famously said, “All organizations are perfectly designed to get the results they get.” Many organizations reach a point where they realize that what got them to where they are is not what will ensure their future success.  

To win in today’s market, big companies need to move at the speed of growth. That means they need to experiment boldly, then convert successes into new capabilities at scale. They must learn to move faster at every step of their business innovation process: speed to customer insight, speed to strategy, speed to market, speed to impact, and – finally – speed to a new capability that can operate as a new, scaled business. 

What sets today apart is the rapid evolution of generative AI, altering the business terrain “slowly and then all at once,” to echo Hemingway. This swift progression presents equal parts opportunity and threat, yet instilling a sense of urgency around such technologies remains a challenge. The slow erosive impact of past technological advancements, like digital commerce and big data analytics, often desensitizes leadership to the acute needs of the moment. The dilemma persists: Is the best method to pursue widespread innovation across the organization, or should innovation be quarantined in specialized units?  

Many organizations have tried at least one of these methods in the past, and many have vacillated between them. At 3M, they tried to infuse innovation across the organization, but ended up with too many SKUs, without business rationale to justify a slew of new product innovations. More recently, the pendulum has swung the other way and their CEO has announced they need to accelerate new product development again. To insulate innovation from a potential drag from the core culture, American Family Insurance set up Tenney 110, a corporate venture studio stationed outside the core business. After a stint investing in external Insurtech startups, American Family Insurance leaders better understood gaps in the market. Further, they realized an in-house studio would enable them to bring their “unfair” advantages to the table to better serve their stakeholders (e.g., data, talent, capital, technology, access to customers). However, when funding and resources became constrained, and leadership did not provide adequate support from the top, the assets that made an in-house studio advantageous could no longer overpower the corporate inertia. 

In fairness, this is a dilemma that has been felt both by clients and consultants seeking to aid them. Clients have tried many methods, and they haven’t been alone in those endeavors. Over the years at Prophet, we’ve delivered ‘culture of innovation’ engagements for a company’s core business, and we’ve also helped to design centralized innovation functions that have subsequently struggled. 

What do organizations – both clients and consultants – that have tried both methods realize? That innovation is hard work and sometimes it requires a very particular model for success: active, hands-on capability building. Capability building means framing a clear ambition, an operating model and an organization designed to reliably enable the delivery of business innovation, in collaboration with the core business.  

To do this work, we bring our innovation expertise across the Human-Centered Transformation Model. This includes many ready-to-use frameworks that have proven successful in organizations of varying sizes and industries. These frameworks are highly durable, meaning that more effort can be spent on the unique innovation challenges and opportunities within a specific organization rather than reinventing the wheel when it comes to innovation methodology and capabilities. 

DNA

We define the organization’s DNA as the core ambition that should not change, ensuring everyone is aligned on the same target destination and direction of travel. This is an essential, yet often overlooked, foundational element. When an organization has a DNA problem, employees do not understand where they are going or when they will get there.  

A recent study reveals few companies have established a meaningful link between innovation and their overall corporate strategy or strategic intent. For many companies, innovation is perceived to be an expensive, time consuming, non-essential activity. Aligning around a clear and compelling ambition for innovation within or outside the enterprise can remedy this disconnect.  

“If innovation is not rooted in moving the purpose forward, then it exists for its own sake. Anything that exists for its own sake must continually justify its existence. And that lends itself over time to subjective scrutiny because the people around it can’t see how it’s moving our purpose forward.” 

Michael McCathren, Sr. Principal, Enterprise Innovation, Chick-fil-A 

Framework 1: The Ambition Template

The Ambition Template aligns the organization around a specific, measurable, transformative and timebound target destination. We unpack each part of the ambition with x-rays, and those x-rays then lead to KPIs. With this template, everyone understands what outcome is expected from innovation activities, and by when. 

BODY 

Next, we align the organization to the vision by co-designing a fit-for-purpose operating model, governance, processes, systems, and tools. If an organization has a body problem, then it feels too hard to get things done. 

 “A corporate innovation function must have disciplined governance and operating models so executive stakeholders have continuous engagement with how the team is driving applied impact.” 

Mark Jamison, Senior Vice President, Visa Inc. 

Framework 2: Innovation Capability Model 

The innovation capability model ensures the organization is building the capabilities needed for always-on innovation, from inspiration and investment to portfolio management and governance. Each of the 11 capabilities are based on underlying services. For example, the inspiration capability included safaris to learn innovation best practices, a speaker series to connect internal business leaders to external thought leaders, and hackathons to regularly source new ideas across the organization. 

Framework 3: DERPA 

Based on the innovation capability model, we determine the critical disciplines needed to progress new ideas through funding stage gates towards MVP and launch (or being halted as quickly as we can determine that it will not generate enough business value). Those skills include design, engineering, research, product management and analytics.   

Framework 4: Pods 

The operating model includes a studio of multidisciplinary “pods” each in charge of progressing a single idea and staffed with relevant disciplines. In addition, there is a portfolio management function in charge of determining which new ideas move into a pod, as well as inside-out and outside-in inspiration functions in charge of sourcing new opportunity areas for future innovation.  

Framework 5: H2A 

The hypothesis-to-action process, run in two-week sprints, ensures that all ideas are assessed fairly and killed as quickly as possible to re-allocate funding to more promising ideas.  

MIND  

Mind work includes the skills and competencies that the organization needs to operate the body. If you have a mind problem, you don’t have the right people to run the processes and contribute content and subject matter expertise.  

“The talent that you select is the single most important decision that an organization can make. It is a very different talent profile to drive true innovation versus managing a core organization. They need to be able to take risks, be analytical to make data-driven decisions, embrace diverse people and diverse experiences and be comfortable challenging the status quo.” 

Lisa Rometty, CEO, Zerigo Health 

Framework 6: Basadur Innovation Profile 

Mind work often includes using the Basadur Innovation Profile to increase awareness of how individual and collective preferences for different parts of the innovation process can impact the work and continuously delivering just-in-time teaching of new skill problem solving skills. This may include opportunity mapping, design research, business design and rapid prototyping and testing. At the end of each quarter, we codified our learnings and shared new methods for use within and beyond the innovation organization. 

SOUL 

Finally, the Soul motivates individuals inside of the innovation function by forging new rituals to work productively while also ensuring team health. If an organization has a Soul problem, employees don’t believe leadership is committed to transformation because their behaviors do not reinforce the ambition. Important leadership behaviors include separating process from content and championing agile ways of working for business activities, adding increment planning, sprint kickoff meetings and daily standups serving as forums for process discussion, and sprint closeouts and office hours provided adequate time and space to solicit feedback on work products.  

“There’s a certain amount of irreverence and risk tolerance that innovation leaders need to have. You have to be able to be strategic, but still be able to quickly pivot and flex, with a dogged determination to push through barriers. And you know you’re going to have barriers! You need to have team members who see barriers more like a speed bump or sales objection rather than an unchallengeable stop sign – a problem to be solved – and that’s a unique mindset.” 

Boris Pluskowski, Managing Director, Head of CXO Platform, HSBC 

Framework 7: SCARFS 

Innovation brings new ways of working and often sees employees working at pace and at the edge of their capabilities. As such, regularly checking in on team health and how individuals are processing the experience is essential. Our team uses the neuroscience-based model known by the acronym SCARF to evaluate how teams are doing across six key elements of psychological safety, satisfaction and productivity. We have improved it for innovation purposes, adding a second “S” to understand the individual and collective sustainability of our pace. 

While all these practices are essential to collective success, one of the most critical practices is that our team doesn’t design and walk away. We think of key roles within the operating model as “2-in-a-box,” meaning a member of the Prophet team is paired with a client so that learning and application is in real-world work, not merely a theoretical application in a workshop. This approach allows everyone to win and learn.  

“Innovation leaders build trust and credibility in an organization by delivering outcomes and the 2-in-a-box model is an accelerant.  By pairing innovation experts with talented insiders, the learning pace and time to results are exponentially faster with higher quality.” 

Diane Teed, Principal, Innovation, Brown Brothers Harriman & Co. 

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Growth is rarely easy. Based on conversations with senior business leaders across industries, we sense an increasing recognition that it has never been more difficult to generate and sustain growth. To be clear, we are talking about growth driven by customer interest and market demand, rather than the temporary variety driven by acquisition, cost takeout or organizational restructuring. The bottom line is that not even top performers can expect that continuing to do what got them to market-leading positions will deliver the next phase of growth.  

Some of the common barriers – continuous cycles of tech-driven disruption, relentlessly fickle customers, talent mismatches – are well understood. However, less tangible and often overlooked factors – including lack of C-level clarity and confidence, short-term thinking and a history of unactioned strategies and plans – may be even more hostile to growth. Consider how senior leaders may lose faith in growth strategies when market opportunities shift more rapidly than the organization can pivot, refine its go-to-market approach or reallocate resources. Even when the right strategy is in place, limited ability to execute – or execute at the pace which growth now demands – may undercut returns.  

Because markets move faster than ever, we believe sustainable growth results from: 

• Unlocking compelling customer insights to inform growth strategies 
• Creating relevant, impactful growth moves 
• Executing faster and more efficiently

How Rapid Changes in Customer Behaviors Impact Growth

The customer often has the answer. In today’s volatile markets, growth comes either through a proactive insight-led and customer-back approach, which is more sustainable, or by riding the wave of macroeconomic or societal trends. Unilever proactively changed its portfolio strategy after scoping the impact of the weight-loss drug Ozempic on consumer behavior. Modeling the likely changes in eating habits, Unilever chose to spin off most of its ice cream business, retaining only a few key brands (e.g., Ben & Jerry’s, Magnum).  

During the pandemic, companies like Peloton and Calm realized unprecedented growth as consumers re-evaluated their health and wellness priorities. Both companies have failed to make strategic, post-pandemic pivots to stay relevant.  

For firms that don’t want to leave growth to chance or market timing, success starts with deep insights into customer needs, as Prophet research shows.  

Insights From Prophet Research   

Among innovative companies, 84% have a consumer and market insights capability. 

Among all companies, 37% of leaders say senior executives pay too little attention to customer needs. 

In devising growth strategies, firms should factor in the impact of external macro trends on customers and the opportunities to provide new products and services to help customers navigate them. Even more broadly, executives should reflect on how these changes may influence who their customers are today and who they should be tomorrow.  

Charting the right course forward requires thoughtful decisions across key growth drivers that go beyond customer insight. In other words, firms must ensure that their good ideas are converted from slideware to clear action plans supported by necessary capabilities. Among the questions to address:  

• Who is our target customer?  
• What products, services and experiences should we offer?  
• Why should customers care about our products, brand and purpose?  
• How do they perceive the value we offer? 
• Where and when should we engage customers – via which channels, ecosystems, platforms and partnerships?  
• How will we capture value?  
• What is the optimal operating model to deliver? 

The answers to these questions have short- and long-term implications. The resulting commitments will be ones the organization can sustain for years at a time. They will also determine what firms should do next quarter. Ideally, a clear customer vision will inspire the organization for the future while attentive, dynamic management of action plans will help firms keep up with constantly shifting customer needs and preferences. Firms should plan for frequent refinements and calibrations based on continuous learning about customer behavior, market feedback and competitors’ actions. Prophet research shows that organizations that meaningfully assess and recalibrate growth plans at least monthly are twice as likely to be successful, resilient innovators. Too many firms still think of growth investments as a matter of annual planning.  

What Happens When It’s All About the Short Term?

Unfortunately, immediate-term pressures – specifically that increasing revenue this quarter is always the top priority – may restrict investment in new offerings and thus narrow future horizons. According to Prophet research, 34% of business leaders say their firms overemphasize short-term results. A similar proportion, 37%, say their organization has no long-term planning process. “You’re constantly in this space of change,” one told us. “Plans are abandoned almost as soon as they are made. There’s no real plan because things just sort of happen.”  

Such reactive postures are no surprise given the pace of disruption. They necessitate that firms build new capabilities even as they are running their growth plays. Those capabilities are often housed in agile, test-and-learn oriented and cross-functional teams, which have proven to be more proficient in delivering against growth objectives. Fully 80% of respondents in our global survey said design-led innovation teams are important, but only 37% said their organizations have such units in place. Developing these capabilities is not easy, of course, but they provide the foundation for self-funding innovation programs and, thus, sustainable growth.   

Insights From Prophet Research   

• 63%: organizations lacking design-led innovation teams 
• 37%: organizations lacking a long-term planning process 
• 2x: organizations that meaningfully assess and recalibrate their innovation moves at least monthly are twice as likely to be successful, resilient innovators 

Pathways to Uncommon Growth  

Strategies aligned to these pathways will manifest differently in varying contexts and sectors and they are not mutually exclusive; some firms will emphasize one, while others will experiment with portfolio approaches that include all three. Boldness and creativity can be different makers for these approaches; the bolder the growth strategy, the more likely firms will differentiate themselves in competitive markets.  

1. Expanding Beyond the Core

In this approach, businesses narrow in on customer needs to enter a new market or customer segment, offering complementary products or services to meet a broader range of customer needs. This approach requires the least risk tolerance and least amount of change within a business. And it’s likely to produce quick wins. For example, through the height of the pandemic, companies developed products and services to reduce transmission and care for the ill. Today, companies are looking beyond point solutions and specific problems to focus on more holistic views of respiratory health. Large pharmaceuticals with separate products in testing, treatment and prevention of upper respiratory infections have reorganized their product portfolios around complete and cohesive solutions offered through retail channels.

2. Venturing Into Adjacent Territories

This approach is about uncovering value in products, services and experiences that are closely related to existing strategies. It requires a moderate risk tolerance and degree of change as it explores efficiencies based on existing strengths and capabilities. When done right, firms find differences from the core business but still share commonalities and avoid channel conflict.  

One financial services company coordinated loan refinancing through third-party aggregators. Realizing it had a unique capability to simplify fragmented lender requirements for consumers, it saw an opportunity to own more of the customer relationship. Prophet helped the company refine its value proposition, create a product roadmap and launch its first pilot into market, all while building the product, technology and marketing teams needed to sustain the effort. As a result, the company remained vital through a volatile inflation and interest rate environment, deploying its direct-to-customer capabilities to launch new services, reach new markets and grow its relevance. 

3. Pursuing Net New Growth From Innovation and Emerging Customer Demands

This is the boldest approach, the one most associated with breakthrough innovations from true disrupters. It involves playing in novel markets or industries, creating forward-looking solutions that get ahead of emerging preferences and aspirations that have yet to fully manifest in mass consumer behaviors.  

Not surprisingly, this mode of growth requires the highest level of risk tolerance, the greatest creativity and most substantial change as it pushes businesses to step out of their comfort zone to pioneer new offerings that anticipate customer needs. Companies often invest in cutting-edge technologies, enter new industries or markets undergoing disruption or create entirely new business models by bringing together an original set of capabilities. 

Durable goods manufacturers – faced with acute supply chain disruptions, a long-term trend towards higher-cost, near-shore manufacturing and mixed results from interventions by smart home technology companies – might reasonably wonder whether they can successfully stand up a services model to future-proof their businesses. Spurred by Tesla, car manufacturers now consider the automobile as an updateable software platform, requiring the application of digital integration, user experience and technology expertise throughout design and production processes; they then sell subscriptions to unlock services like OnStar and Apple CarPlay. Appliance manufacturers like Samsung continue to grapple with the elusive promise of Internet-connected screens on refrigerators, washing machines and other home appliances. And manufacturers of entry and exit points, like doors and windows, can seriously consider their products’ roles in connected, smart security services. 

Five Key Capabilities for Unleashing Growth

Once firms identify the right path to growth as outlined above, they must determine the best way to advance quickly, efficiently and purposefully. Too often, this step turns into a stumbling block. However, organizations that possess a few key capabilities and cultural attributes can create the capacity and build the organizational muscle memory to launch new products, devise new business models and execute other types of growth strategies repeatably. They’ll also enhance their ability to operate these new businesses efficiently and scalably. The keys to success are:  

1. Using Cross-Functional GTM Teams to Achieve Speed to Market

When growth is everybody’s job, it may become nobody’s job. On the other hand, growth is too important to be left to small innovation labs or single functions (e.g., marketing, sales, product development). Rather, firms should build cross-functional teams charged with launching new products quickly. Even if the team is small, it should pull from finance, HR, technology, design, strategy and other parts of the organization. Why? Because all of those domains make important contributions to the development of new offerings.   

2. Building a Coalition of Stakeholders for Informed Decision-Making

To execute successfully, growth leaders must have a clear understanding of the critical path of decisions, identify the necessary data inputs to inform key decisions and maintain a steady pace against clearly defined milestones and gates. However, informed decision-making typically doesn’t happen fast enough, especially in large and complex organizations. Delays are especially likely when decision rights are unclear, contested politically or when a large number of stakeholders must be involved n. Ideally, growth leaders will develop a comprehensive coalition of stakeholders throughout the organization parallel with the work to ensure that everyone is on board with coming changes and understands their role in execution. Such a coalition can help ensure depth and alignment of key capabilities. 

3. Making GTM Innovation BAU (Business as Usual)

Any organization seeking sustainable, customer-led growth must find ways to make the capabilities necessary for organizational reinvention, portfolio refresh and continuous learning part of business as usual. For instance, cross-functional growth teams should work within a well-defined go-to-market process, reflecting the reality that launching, operating and scaling new products and business are not “special projects” but an essential part of ongoing operations.  

4. Moving at the Speed of Growth

Across both growth strategy formulation and go-to-market execution, speed is the name of the game. Some organizations are equipped to strategize and execute at speed, but many struggle. To make these plays work for your organization, you need to increase your organization’s speed to:  

• Customer insight: understanding what they want, which channels they prefer and where they’re likely to go next
• Strategy: converting customer insight into strategic priorities 
• Market: turning strategic ideas into in-market action  
• Impact: accelerating the delivery of real-world results  
• Capability: creating the foundation to scale and sustain higher levels of performance 

Speed matters because organizations can only grow as fast as their ability to adapt.  

5. Getting up to Speed With AI

Faced with the need to go faster, many companies are turning to AI. One media company used AI to track consumer preferences, which led to the creation of a new business model centered on interactive and original content. AI tools are helping CPGs to develop prototypes more rapidly. A hospitality leader has embedded AI in enhanced search experiences to drive discovery and rentals of vacation homes.  

While these applications make sense, leaders should recognize that AI is not a silver bullet to accelerate capability development. Rather, businesses need to understand the targeted ways AI-powered customers interact differently with AI-enabled employees. From that customer-back vantage point, organizations can look to create opportunities to optimize, enhance and reinvent engagement (Be on the lookout for upcoming Prophet research that reveals how consumers really feel about and use AI.)  

One More Thing: Balancing the Risks and Rewards of Growth 

Strategic discussions often emphasize the external barriers preventing firms from realizing the upside.  The risks of growth – and the organizational appetite or tolerance of such risks – is less frequently examined. We believe this is an oversight. Senior leaders must attend to the necessary cultural aspects of unleashing growth, including management mindsets.  

While everyone automatically says they want growth, they won’t necessarily be comfortable with the risks involved in launching new products, deploying resources, modifying operations and all the other necessary steps to achieve meaningful growth. As such, leaders would do well to explore just how “growth tolerant” their firms really are. That’s especially true of today’s dynamic, “high-VUCA.” When firms face high degrees of volatility, uncertainty, complexity and ambiguity, growth demands greater organizational resilience. In other words, senior leaders that help the organization become more flexible, adaptable and agile are laying the foundation for sustainable growth.  

How Prophet Helps

We take a collaborative and human-centered approach to help leaders unlock compelling customer and market insights; create relevant growth moves; and develop the capabilities to execute faster and more efficiently.  

Acknowledgments: Marc Anderson and Griffin Olmstead

If you look at your phone’s home screen, you will see many digital business models in the form of frequently used apps: Uber, LinkedIn, Teams and Spotify to name a few. Each of these companies has a native digital business model in contrast to non-native digital companies that use digital as a sales channel (e.g., Walmart). In this article, we dive into the five archetypes of digital business models with examples to show the tradeoff decisions and investments required to be successful in each archetype. 

At Prophet, we define a business model as how a company creates, delivers and captures value with five main components: 

Two components of this model can be used to deconstruct the five archetypes of digital business models: (1) the value proposition, what you offer in the form of products and services and (2) the revenue model, how you commercialize those offerings.  

Digital Business Model Decision Tree  

Value Proposition 

The first decision when designing a digital business model is how you will create value. Will you own your own supply or aggregate third-party suppliers? Marketplaces connect suppliers with buyers for products and services. Content providers create or aggregate content that can be read, listened to or watched. Infrastructure providers’ own enablers needed to get things done. 

Revenue Model 

The next decision is how you will monetize your offering. Will it be paid for by end users or by a third party? Marketplaces are primarily monetized through transaction fees charged to both suppliers and buyers. In addition, marketplaces can charge suppliers to advertise or offer their users subscriptions to reduce transaction fees. For content providers, the decision to monetize through advertising versus subscription depends on scale. An advertising model reduces costs on end users, enabling scale and network effects. A subscription model provides more predictable revenue from each user and locks in revenue for longer cycles. For infrastructure providers, an on-demand model can provide a cost-based competitive advantage but requires a huge investment in upfront costs. Infrastructure as a subscription provides more funding for ongoing product development and innovation. 

An Example of Each Digital Business Model: 

1. Commission-based Marketplace (e.g., Uber) 

In this business model, suppliers and advertisers pay to access customers in a marketplace. The main revenue drivers are transaction fees, listing fees and advertising. This business model requires creating a flywheel between multiple parties. Uber’s business model includes a DTC service and separately a B2B and B2D (business to driver/courier/biker) marketplace. In Winning Through Platforms, Prophet Senior Partner, Ted Moser describes the advantage Uber gained through creating a unique “customer coalition edge” among multiple parties: riders and delivery recipients, ride and delivery drivers, app developers, advertisers, restaurants and regulatory bodies. By bringing together such a robust customer coalition, Uber can provide more value to each customer group, while also diversifying their revenue sources and differentiating from competitors. Uber attracts more drivers than Lyft by offering revenue from rides, deliveries and in-car advertising. By attracting more drivers, Uber can also attract more riders to their platform with greater ride availability. That, in turn, has the flywheel effect of bringing on more suppliers – including advertisers, developers and restaurants. As a result of these moves, Uber commands a 20x higher valuation than Lyft today at $128B. 

2. Content via ads (e.g., Google) 

Back in 1999, Google’s founders considered two ways of monetizing: subscription and advertising. The subscription model they considered was $20 a year paid by the end user. For that same user, the advertising market would value them at an average of $52 per year in 1999, so 2.5x more. A Wharton paper found that platforms monetized via advertising versus subscription are more likely to invest in content moderation to expand the user base to large, heterogeneous populations. A central tension in the ad-supported business model is that polarizing content is good at getting attention, but over time, it can lead users to be less satisfied and engage less. In addition, advertisers require a high level of stability to ensure that their ads do not appear next to harmful content.  

3. Content via Subscription (e.g., Netflix) 

Platforms with a subscription model must balance growth alongside increasing the willingness of the user base to pay. There is fierce competition for recurring revenue, so subscription players must continue to increase the value that they provide to end users each month. For Netflix, it became difficult to continue to show growth once almost everyone in the U.S. had access to a Netflix log-in through their family and friends. In November 2022, Netflix launched a new ad-supported tier, and a few months later, Netflix began cracking down on password sharing outside of households to force new customers into the ad-supported tier. Netflix also raised the price of the non-ad-supported tier, which forced customers to choose between paying more each month or allowing Netflix to monetize their viewing with advertisers. These moves caused Netflix to have its strongest quarterly increase in customer gains in three years.  

A note that these first three business models all fit into Ben Thompson’s definition of Aggregators: companies that have a direct relationship with users, zero marginal cost for serving those users, and decreasing acquisition cost as the user base grows. This theory explains how platforms have radically reshaped industries by making control of demand much more important than control of supply. For example, Uber has been much more successful than taxi services by focusing on the end-user relationship rather than trying to control the supply of drivers. In the digital world, attention is a scarce commodity rather than a finite resource, so it is much more important to own the end-user relationship than it is to own the supply.  

4. Subscription Access to Infrastructure (e.g., Microsoft Office).  

In this business model, customers pay per seat to access a service. This provides monthly or annual recurring revenue in the form of licensing fees. It is a capital-intensive model that requires ongoing investment in product maintenance as well as product development to retain and acquire new customers. Microsoft recently debuted Copilot, an AI-enabled enhancement to the suite of Office products to differentiate itself from workplace software competitors such as Google. Another form of competitive differentiation is being the one-stop shop for everything. Microsoft is essentially the operating system of work, with all the necessary applications and services – from communication to email to productivity and presentation tools, in one place and connected to each other. Microsoft does not have to have the best single product for anything, for example, many employees prefer Slack to Teams, but by integrating everything in the cloud, the switching costs are too high to opt out of Microsoft’s ecosystem for a single app.  

5. On-Demand Access to Infrastructure (e.g., Amazon Web Services) 

This business model requires significant upfront fixed costs to have capacity available on demand. One of the most in-demand types of digital infrastructure today is Nvidia’s H100 AI chips, which are used to power ChatGPT and other AI apps. Crusoe Energy, a digital infrastructure provider, raised $200M to buy these chips and is forecasted to make half of that investment back in just one year by charging companies for access. The biggest incumbent in the digital infrastructure model is Amazon Web Services, which Jeff Bezos has likened to the utility companies of the early 1900s. Back then, factories had to build their own power plants to generate electricity, but once the factories could buy electricity from a public utility, they no longer needed to invest in expensive private electric plants. In this analogy, electric plants are physical computing technology. By providing servers and storage in the cloud, companies can reduce their fixed investment in computing and storage and pay for what they use, and when they need to use more, it is easy to scale up the capacity. Today, the cloud platform industry is valued at $180B, with AWS controlling a third of the market. In addition, AWS is responsible for about three-quarters of Amazon’s total operating profits. 

Overview of revenue attractiveness and investment required for each business model: 

These are just a few examples of companies that fit into the five digital business model archetypes. We have partnered with a number of clients to design and launch new business models as well as to innovate existing business models in the face of change. 

Creating a new Digital Business Model: 

• We helped a hardware manufacturer create a new on-demand access to infrastructure business model by embedding smart home technology into their physical products, enabling our client to become an essential infrastructure and service provider for home security players. 
• We worked with a healthcare association to transform its business model from membership fees to a new digital learning platform that prepares healthcare workers for the jobs of the future.  

Evolving a Digital Business Model: 

• We partnered with a content provider to quantify the impact of transitioning from a subscription-only model to an ad-supported model.  
• We worked with a telecommunication provider to pivot from a usage-based model to a monthly subscription. 

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Software transforms every industry, and many have enviously observed the impressive growth and returns that software companies have amassed over the past two decades. Think of a hugely successful software company and chances are it espouses a product-led model. Naturally, traditional companies are realizing that to compete and grow, they must look, think, and act like product-led, software companies themselves. But simply hiring product management experts is not enough. Functioning as a modern software company requires building the right kind of product ecosystems and teams in order to find new ways to engage with customers around existing offerings, cross-sell opportunities and to create new channels for revenue. For many of these companies, the ambition to innovate is there, but the capabilities often aren’t. Unclear strategy, siloed functions and multiple handoffs cripple the speed and effectiveness of product releases, subsequently ruining the end customer experience. It’s an extremely challenging shift to tackle.  

We frequently encounter organizations that struggle to advance beyond one of these three critical stages of maturation. Let’s break these steps down: 

1. Building cross-functional product teams – this is the first step, and is about connecting the requisite skill sets, ways of working and focus to successfully build and deliver a digital touchpoint.  
2. Build and support multiple products – second, it’s time to move past those baseline capabilities and explore how to build and support multiple products in-market. Many often do this inefficiently, without connection to a strategy, capabilities or in a way that effectively delivers ROI across segments. It’s important to ensure that expansion doesn’t come at the price of the business’ reputation or quality of products or services. It requires a shared understanding of product excellence, visionary leadership and an unrelenting customer focus.   
3. Scale – finally, when the capabilities are established and products are successfully sustained across a range of customer types and use cases, companies see this as the time to scale in market. However, often they are unable to build a connected approach that allows them to scale in line with the ambitions of the business and grow their customer base. 

Embracing a Software Company Mindset and Unlocking Success: Three Strategic Solutions for Product Delivery & Maturation Hurdles 

1. Embedding Product Fundamentals 

Let’s start with an example of what happens when you are learning a new capability for the first time. We were working with a physical medical device manufacturer who had deep-rooted relationships with physicians and hospital networks. They had data, clear use cases and insights aplenty. Despite some successful pilot projects that sales reps were able to bootstrap to support their doctors, the company lacked the methods and capabilities to scale these projects or monetize them consistently for realizable ROI. We worked with them to define clear strategic goals metrics and a documented strategy on what opportunities they would and wouldn’t spend time and effort on to deliver customer and business value. In support of this strategy, we set up product pods of cross-functional capabilities, enabling each pod to work without functional dependencies. Armed with our Hypothesis 2 Action methodology, the pods would work at pace to bring market-backed evidence on the critical assumptions allowing them to quickly discard concepts that weren’t viable and focus on delivering clear customer value.  

2. Developing a Product Based, Customer-Centric Organization 

Transitioning into a product-centric, agile organization requires strategic coordination of product pods and experiences to create efficiencies across people, processes, data and technology and in the important use cases across the customer journey. Organizations at this stage often have a myriad of products in market but lack the structure to manage them in a way that reduces redundancy and gains a clear ROI against strategic business goals. The challenge is twofold: internally, numerous pet-projects have emerged organically in response to market needs, while externally, there is a scattered approach to different customer requirements, often leading to confusion.  

We worked with an international digital real estate firm in Europe that had built several digital product pilots across a range of customer needs and countries. They had the upper hand in multiple European markets but operated disparately amongst the countries. The vision was clear: a consolidated European digital real estate platform, like Zillow’s dominance in North America. Using our Product Maturity Model, we worked with them on a three-pronged approach: assessing the current ability of their cross-functional product pods, strategy and products; identifying what their future ambition was for strategic use cases and ways of working; and delivering a phase-by-phase transformation plan, which led to the creation of a cohesive digital product platform, thereby maximizing economies of scale. 

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3. Scaling Product Management  

As businesses grow, scaling becomes inevitable. There’s a compelling need to deliver a consistent level of product excellence, build direct-to-consumer relationships and unlock new avenues for revenue. Yet, scalability often opens the doors to redundancies, lack of clarity in customer segmentation and the sunk cost and effort to support ‘zombie projects’ kept alive for continued customer relationships rather than for the strategic use of resources.  

Over the past few years, we’ve been working with a leading national hardware big-box retailer. With a clear aim of generating exponential new revenue in the next three years, they had acquired several e-commerce companies catering to a professional segment of their customer base. The path forward involved evaluating the existing landscape of competitors for this segment and simultaneously assessing existing operational capabilities and ways of working using our Product Maturity Model. With this grounding, we helped the retailer articulate a comprehensive North Star strategy on where to invest, where to sustain and where to exit in exponentially growing this software-led business. After doing a deep gap analysis of their capabilities internally alongside a build/partner/buy strategy, we developed a multi-year digital product transformation roadmap. This aligning of internal enablers with the desired customer experience outcomes provided clear guidance for training, resource allocation, product management, investment and metrics to track their growth strategy. 

In the evolving business landscape, the art of creating, developing and scaling products is paramount. Evolving to become more like a software company with strategic insights, well-structured approaches, empowered product management and a customer-centric mindset means organizations will be better equipped to rise to the challenge.  

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Future back planning is key to unlocking uncommon growth during times of economic uncertainty. 

In our latest global research report, Building Business Resilience Through Innovation, we found that a leading barrier to increasing innovation efforts is that the organization lacks a long-term planning process. Unfortunately for many companies, this has only worsened in the last few years as reactive thinking characterized by the pandemic era.   

As innovation leaders emerge from this reactive phase and begin to chart out the next few years of growth during a time of great economic uncertainty, it is essential to create a growth strategy that spans these three-time horizons.

Across these horizons, there is an inverse relationship between the investment in resources and the investment in strategic decisions. Running the business of today is resource intensive and requires operating with excellence with much less space for strategic exploration. In contrast, exploring the business’ target destination over the next five to ten years within a wide open divergence environment is time intensive. Due to the scarcity of resources, it often requires time-bound investment to collect data on the most relevant drivers of change, model potential scenarios that could unfold over time, and based on that, determine what new opportunities are worth further validation and investment.  

In Horizon 1, the existing value chain is used to optimize and scale the business, but in Horizon 3, the needed value chain will most likely be adjacent to today’s value chain. The inversion point of building the new value chain is challenging to manage because resources are ramping up as the ability to make strategic decisions is fading. At this point, the skills required to be successful change. It is operationally complex to get something to move through the inversion curve.   

If a business neglects Horizon 3 activities today, it sets itself up to be leapfrogged by the competition because it will not have invested in the assets and capabilities needed to act on emerging opportunities.

Future Back Helps Companies Maximize Growth Opportunities in Horizon 3  

While it is impossible to predict the future, market leaders and makers proactively anticipate preferred and disruptive future scenarios. The first step is understanding the most impactful drivers of change that will shape the future market landscape. Drivers of change come from a range of sources: the classic Porter’s Five Forces of suppliers, buyers, new entrants, substitutes and competitors that determine industry profitability, as well as macro-forces that are broader than industry boundaries, often categorized as social, technological, economic, environmental, and regulatory drivers (STEER).  

From doing future back work across industries, we have found three non-mutually exclusive factors that help us see around corners. Across these factors, emerging technology is critical in reshaping societal norms, enabling new interaction modes, and determining future profitability and competitive advantage sources. 

3 Non-MECE Factors that Shape the Future Market Landscape 

1. The Overton Window describes the range of policies that are accepted by the mainstream at a given time and can be used to identify ideas on the threshold of gaining mainstream acceptance. For example, over the last 50 years, public acceptance of in-vitro fertilization (IVF) has rapidly increased as the availability of IVF technology has also grown. In 2021, fertility support startups raised $345M, up 35% from the previous year. Health systems and payors that anticipated this shift ten years ago were able to differentiate themselves within a rapidly growing market. However, with the overturning of Roe v. Wade, societal progress regarding IVF is now under threat. Industries heavily funded by the government, such as healthcare and clean energy, are also strongly shaped by changing societal norms. 

2. Behavioral shifts often emerge due to technological advancements that make it easier to do more with less or create new modes of interaction between humans and machines. For example, Figma’s significant innovation was being browser-first, with the ability to edit files in real-time in the cloud, allowing teams of developers, designers, and product managers to collaborate in one place efficiently.  
 
Adobe was late to the game of browser-first collaboration and, as a result, paid $20 billion to acquire Figma, which had roughly $400M in revenues at the time. The steep price was considered a solid investment given the future value of Figma’s product spaces. Thinking more broadly, technological advancements across the Internet of Things, artificial intelligence, artificial and virtual reality, and autonomous machines will enormously impact behavior and interaction modes, changing how we learn, work, collaborate and entertain ourselves.  

3. Business model shifts are often required to capitalize on or meet emerging technology demands, regulation, the economic environment, and ESG agendas. For example, Fundrise was the first company to crowdfund real estate investment successfully, and the founders did it by seeking the expertise of regulators from the beginning. Working with a former regulator, Ben Miller figured out how to use Regulation A to raise money from non-accredited investors, which was the first time anyone had ever done. Eventually, the regulation changed to Regulation A+, which allowed the company to raise more equity from non-accredited investors while streamlining the filing process. Still, at that point, Fundrise was already the category leader in a new market.

Four Questions to Determine a Company’s Options within the Future Market Landscape 

Once we understand the most impactful drivers of change, the next step is modeling the most viable opportunities for a specific company to pursue. We begin with four questions:  

1. How is a company encumbered and advantaged?  

This includes understanding a company’s options based on its funding and regulatory moats. Firms funded by unregulated capital have an entirely different set of options than firms funded by regulated capital. A venture capital-funded firm can take on much higher fixed costs to stand up a new capability without a near-term path to profitability. For example, the data cloud company Snowflake raised $2.1B over eleven rounds of funding since 2012 and isn’t expected to reach profitability until 2023.    

On the other hand, an advantage of being a large, publicly traded company is that it is easier to find suppliers and partners to test and validate Horizon 3 growth hypotheses with and bring new offerings to market. Along with understanding the implications of funding sources, it’s essential to know where margins come from today – is it from hardware, software, or services? Who has the most power in the value chain to extract more margin over time? What parts of a company’s existing product line, assets, and capabilities might serve as a moat? Does it have access to a rare resource on the supply side or a lock-in effect on the consumer side? Finally, is there a regulatory moat that will make it difficult to unseat an incumbent?   

2. Who has the preferred position in the market to launch and scale this idea?  

The most critical mindset of future back work is humility. We always assume that another player is better set up to execute an idea. The big four (Alphabet/Google, Amazon, Apple, Meta/ Facebook) dominate their innovation ecosystems due to their scale, network effects, and ability to buy entire markets. Firms operating within these ecosystems are often unlikely to win share-of-wallet among end consumers and are much more likely to succeed by playing a critical infrastructure or support role. We look at the role of aggregators and integrators in the innovation ecosystem to understand how parts of the market are consolidating and where technology is being abstracted away from the end user.   

3. Who is the player that can shut this idea down? 

As Archimedes said, “The shortest distance between two points is a straight line.” In highly regulated industries such as financial services and healthcare, a significant source of Horizon 3 growth is creating new business models based on the changing regulatory landscape. Like the Fundrise example, the founder of Coinbase realized that abiding by U.S. law rather than moving offshore could act as a long-term defendable moat for the company. With the collapse of FTX, that bet has already paid off.   

4. What has prevented this idea from being launched and adopted before? 

Is the idea on the threshold of becoming mainstream? Is there a consumer experience problem or a price-to-value problem? Or does capital not think it’s worth an investment? The inevitable endpoint of markets is to solve consumer problems rather than business and technical problems. Enterprise capital is good at solving Horizon 1 business problems, such as increasing conversion in existing channels, creating efficiencies, and increasing margins.  

On the other hand, venture capital is good at investing in long-plays that create new consumer markets because it has a risk appetite and is willing to be too early. Too early might mean taking on the cost of educating the market about a problem that they should have realized could be solved. For example, Netflix was loved for eliminating late fees (a consumer problem previously considered unavoidable in a physical rental market). Still, the company was perceived as shifting to a digital-first business model too quickly. Success in bridging the gap between its Horizon 3 digital-first business and its Horizon 1 DVD rental business required subsidizing the price of the new service for end consumers.   

The Mindset We Bring to Future Back Work 

The future back process combines design methodology (outside-in and hypothesis-led) with business rigor (commercial opportunity assessment with an asset-forward view of value-chain adjacencies and potential competitive moats).   

The mindset we apply to this work draws from design and consulting. We’ve distilled it into three design principles: 

Humble 

We begin this work by assuming that another player has a better solution as well as a preferred position in the market.  

Anti-fragile 

We create a durable portfolio of growth moves in order to hedge our bets, with the understanding that it is impossible to know exactly how the market will reshape over time. 

Effective collaboration  

You need to keep running the business of today while exploring what your business might be in the future. At the same time, your hypotheses around how the market might shift and what options are most attractive for your company are the entry point into this work. We design future back engagements to extract maximum input in the most time-efficient way by starting with stakeholder hypotheses, bringing in external experts to identify new opportunities and threats quickly, and then designing workshops and executive communications that bring your team along the right way at the right time. 

The Outcomes We Achieve Through Future Back Work 

There are three main outcomes that we have consistently achieved through this work: 

1. Board-level alignment and buy-in on a future vision. For example, supporting the approval of a board-level, multi-hundred-million-dollar M&A strategy in order to create an entirely new product category. 
2. Driving capital allocation for new business building. For example, on a recent project, this work led to a $5 billion acquisition as the centerpiece of a new business unit. 
3. Updating the product roadmap to transition from now and near-term investments to decisions that will drive the next horizon of the business. 

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Given the turbulent global economy and widespread cutbacks, Prophet’s innovation team had some burning questions. What makes a business resilient–not just able to survive tough times but thrive?  

We intuitively believed there was a connection between innovation and resilience. But we wanted to know if others thought that, too. So, we talked to 300 senior global business leaders across 30+ industries. We learned that innovation and resilience are connected, and organizations that are both innovative and resilient are 2X more likely to exceed their financial targets and 3X more likely to create more shareholder value than their competitors.  

Download our latest research, Building Business Resilience Through Innovation, to learn how the most financially successful organizations innovate their way to business resilience.  

As we continue to unpack our findings, we’ve got plenty of new questions, which is why we recently invited a few innovation experts to join us for an on-demand webinar. Professor Jan-Erik Baars, who teaches industrial design at the Lucerne School of Business in Switzerland, and Chris Reinke, vice president of design and product development at Masonite, an industrial manufacturer. 

Below are a few key highlights from that discussion.  

Defining Innovation 

Innovation is “about solving the problems people care about,” says Reinke, who formerly directed design at Bose. “Innovation needs to be uniquely relevant, hard to copy and something your customers want to pay for.”  

But in his experience, many companies rely too much on their history and current knowledge. They’re reluctant to look far enough into the future to understand what might happen next. As a result, these companies tend to be slow to pivot and capture the next growth opportunity.  

“The viewpoint of the organization has a huge influence on its ability to be innovative and resilient,” says Baars. He spent nearly two decades in design at Philips. During his time there, he noticed that future casting was specifically assigned to the inventors of the organization, while business managers were limited to a much shorter horizon. 

“If you don’t allow an organization to open for larger and longer horizons, you will not have enough time and stamina to understand customer needs and respond accordingly to develop something truly meaningful,” Baars says. “You can’t sketch something out on a napkin and expect to have it ready next quarter.” 

Our research confirms that the most innovative companies are explicitly organized to innovate on multiple time horizons, simultaneously. They work hard to advance organizational capabilities. “They’re like successful musicians,” Baar says. “They’re dedicated, disciplined and committed. They stick to the plan, grow, learn and improve. “Layla Keramet, partner and EMEA head of Prophet’s Experience and Innovation practice, believes there are three tiers to innovation opportunity:  

1. We are not using the existing technology, product or solution in a way that can improve our human condition, and there is an opportunity to optimize and make it better. 
2. People are making a significant shift to a new type of product and service, therefore driving the demand for innovation. 
3. The technology, product or solution doesn’t have use cases for today, but we think it will in a plausible future. 

Financially Thriving Companies Invest in a Diverse Range of Innovation Techniques

No matter which path companies are on, they can benefit from increasing the number of innovation tactics they use. Our research asked business leaders to identify which best-practice innovation techniques their organizations consistently rely on. Those that describe themselves as innovative and resilient use between five and six of these innovation techniques, on average. Companies that were neither innovative nor resilient used only 3.5. 

That surprised us, especially since these tactics are widely known in the innovation community and general business world. Baars, on the other hand, wasn’t shocked at all. 

“Most companies are dominated by management thinking,” he says. “They are very focused on output and time to market, even though that makes no difference to the consumer.” Yet that type of thinking tends to limit the variety and scope of innovation techniques. 

Becoming more innovative requires “a change in the culture so that these techniques can be introduced, accepted and deployed.”  

Innovation must be more than just a function. Building an innovation lab and detaching that group isn’t useful. “It’s like having a satellite with nothing to satellite around,” Baars says. “Innovation has to be a part of the core business.” 

Companies that aren’t sure where to begin should start small and build from there, advises Reinke. Look at products that have proven successful and ask, “How can we make them better? What does the future look like?” 

Masonite recently completed an activity with Prophet that looked to 2030. “We created a vision that enables us to walk back to the current day and understand where we are going with our product line,” says Reinke. “Now, we have a roadmap.” 

The C-Suite Must Have Skin in the Game

Through our research, we discovered that only 11% of senior leaders set and are accountable for their organization’s innovation agenda. That didn’t surprise Baars, “Most companies are dominated by people with MBAs. They’re not trained in the company’s primary activity, which is creating impact for customers. Very few have degrees such as a Master of Business Design, which trains people to understand the inherent uncertainties of design thinking and set innovation agendas.” 

“In many organizations, there is an over-representation of traditional business managers and an under-representation of designers and engineers,” Baars says. “So, they focus on driving operational excellence and efficiency, and not on creating an impact for customers.”  

Final thoughts 

Our recent research and conversations with innovation leaders demonstrate that an organization’s innovative strengths correlate with its resilience, the kind of bounce-back flexibility all companies need to prosper in changing markets. As innovation leaders make their case for corporate support, they should enlist the involvement of the C-suite to spark new cultural thinking and organizational strategies. 

Get in touch with our innovation experts. 

Faced with a world of growing volatility, uncertainty, complexity and ambiguity (VUCA), business resilience is being tested like never before. And, continuing with business as usual becomes the biggest risk.  

Innovations’ power to boost resilience is more important than ever. Yet organizations are barely scratching the surface when it comes to innovation and missing opportunities for meaningful and sustainable revenue growth.  

So, how can business leaders chart a path for their organization to join the high-performing ranks of the truly innovative and resilient? Especially when innovation and resilience are treated like conflicting priorities, with innovation seen as a cost center and resilience as cost-cutting.

We talked to 300 senior global business leaders across 30+ industries to learn how successful organizations use innovation to drive business resilience. And we learned these types of organizations are more likely to practice a wide range of innovation techniques, have C-suite buy-in and strive for sustainable change.  

Organizations that are both innovative and resilient are two times as likely to exceed their financial targets and three times as likely to create shareholder value than their competitors.  

Download our global research report to learn:  

• How the most financially successful organizations use innovation to build business resilience 
• The common barriers that slow innovation in organizations 
• The top techniques used to expand commitment to innovation through the enterprise 
• How to use Prophet’s Human-Centered Transformation Model to become more innovative and resilient 

Frequently Asked Questions

The last few years have proven that disruption is the only “normal” in business. The world is still slogging through seismic plot twists of the previous few years, making inflation, supply chains, Ukraine and hybrid workplaces a critical topic on virtually every corporate agenda.   

While most forecasts call for nothing but grey skies, we disagree. History shows that periods of economic uncertainty heighten innovation and lead to new products, services and business models. After all, companies like General Motors, Microsoft and Electronic Arts formed during recessionary times.  

In 2023 we expect to see new ideas and products emerge from the rubble of disruption we’ve experienced on a global scale. But to get there, c-suite leaders will need to rethink how they lead their organizations.   

We expect the most successful c-suite leaders to lean into these six key leadership trends in the coming year.  

1. Productivity Improvements Will be a Critical Path to Profitability   

Over the last few years, a handful of digitally native organizations have chosen growth over profitability and had ample investors who were happy to take risks on future opportunities.    

Rising interest rates have ended that party. And as a result, investors are pressuring companies to continue to grow and make money or at least commit to concrete paths to profitability.   

Throughout the second half of 2022, many organizations abruptly shifted their focus from growth at all costs, even if that meant risking profitability, to achieving profitability by cost-cutting measures. 

 And while some companies may need to lean into cost-cutting efforts in 2023, more c-suite leaders will look to enhancing productivity within their workforce to achieve sustainable growth and profitability. For these leaders, the productivity improvements will come from technology, data and analytics.  

2. Balancing Short-Term and Future-Back Planning to Drive Sustainable Growth  

Long-term planning will always be a core component of business strategy. But the upheaval of the last few years has made it painfully clear that companies need to speed up the journey from thinking to doing. And that means integrating quick wins with future vision, so that the results you drive today do not hinder your long-term progress. 

Take, for example, Disney’s recent decision to increase prices for park admissions, annual passes and vacation clubs. This decision infuriated loyal Disney fans, who accused the company of price gouging. While the company may have achieved a quick win from this plan, the long-term effects of the decision may slow Disney’s progress toward its vision.  

In 2023, c-suite leaders will need to carefully balance short-term and future-back planning:  

• Short-term planning: This type of planning requires leaders to think and make at the same time. Risks are reduced with small bets to show progress quickly. Using data and behavioral insights, companies can identify things they know, which they can execute now. They can also explore what they think they know with new and near-term concepts. And those efforts will inform what they think, allowing them to hypothesize, and validate along the way.
• Future-back planning: This approach is about creating predictive models of the future, nine years or more out, to model the probable and preferable future. Which levers should a company pull to get there? Might they do better to build, buy or partner? It considers complex elements, such as politics and socioeconomic shifts, so leaders can confidently see where the business fits in the future and the immediate steps they need to take to get there.    

C-suite leaders who successfully lean into this leadership trend will be well-positioned to achieve immediate wins while also investing in the future of their organizations.   

3. Purposeful Data-Driven Decision-Making Will Reduce Risks   

Data-driven decision-making is critical to increasing confidence and reducing risks. And while that’s been true for decades, more and more companies realize they may have too much historical data and need more predictive data to better inform their decisions. As a result, many executives are making different demands of their AI and analytics teams, aiming to sharpen their business strategy.   

But being data-driven in your decision-making is only one part of the equation. During times of uncertainty, it’s essential to be purposeful in utilizing data to inform your decision-making.   

Amazon has long aced this approach, using analytics to evaluate whether a decision is a one-way-door or a two-way-door.    

Two-way-door decisions are safer and relatively easy decisions to reverse. For example, if the pricing strategy for a new service is hindering performance, it is possible to right-size and reposition the offering or pricing strategy.    

One-way door decisions are more complex, nearly impossible to undo, and require rigorous scrutiny. For instance, a company that misjudges the demand for a product or service has no opportunity to take that decision back. These decisions require rigor and high confidence levels that predictive data modeling can provide.    

In constrained business environments, risky decision-making can be detrimental to the success of your organization, which is why it is more critical than ever to understand the true impact of the decision and be purposeful in how you evaluate the opportunity.   

4. Environmental, Social and Governance (ESG) Regulations Will Require Businesses to Rethink Their Global Approach 

There was a time when everyone building a global business and a global brand thought they could have one approach that would work across different countries: One operating model. One brand positioning. One value proposition. That time is over. Every country has divergent priorities, consumers and governments requiring differentiated business strategies.   

Consider the increase in ESG regulations that have surfaced globally. For example, the European Union (EU) recently passed the Corporate Sustainability Reporting Directive (CSRD). This new directive will soon require large companies that meet specific requirements or are listed on EU-regulated markets to disclose environmental and social metrics across their supply chains. It will also hold these companies legally responsible for their ESG commitments. To meet CSRD targets, large companies doing business in the EU will have to rethink their supply chains and operations and their entire value chain from product and service design to business models and innovation.   

And in the U.S., the Securities and Exchange Commission’s new proposed rule amendments will require domestic and foreign companies to disclose climate-related risks, governance of climate-related risks, greenhouse gas emissions, climate-related financial statement metrics, and information about climate-related targets and goals.  

Global businesses need to ditch their one-size-fits-all approach to international expansion to meet evolving government regulations and consumer preferences. Instead, these companies will need to find new innovative ways to tailor their brands, business strategies and operations to meet the diverse needs of each market. 

5. New Models of Production Will Unlock Sustainability, Efficiency and Customer Intimacy   

The era of mass production may be ending right in front of our eyes. As a result, we’re seeing a new leadership trend emerge from the c-suite: decentralization. Not only is this a solution for the supply chain challenges it is also a more sustainable and efficient way to impact local communities.    

Many leaders also realize that decentralization can get their products into the hands of their customers in a quicker and more sustainable way. Localized production also allows for co-creation with their customers, improving service and a low-cost path to differentiated and more relevant product offerings.   

There are risks, however. Getting decentralization right will require leaders to closely re-examine their operating models, decision rights, and leadership skills. Without leadership setting a solid direction for the organization, leaders risk efficiency without innovation or innovation without efficiency.   

6. Leaders Will Walk a Tight(er) Rope When It Comes to Political Issues   

The purpose-driven gospel of recent years insists that companies take a stand on issues–or risk losing employees and customers. But figuring out how to do so keeps CEOs, CPOs and CMOs up at night.     

BlackRock’s struggles are emblematic of this challenge. Six states (thus far) have yanked billions in investments from the world’s largest money manager, protesting its commitment to environmental and social change.    

Over the last few years, organizations have been called upon to take a stance on hot-topic political issues ranging from healthcare to ESG. But taking a stance (or not) has become more complicated as companies increasingly navigate accusations of being either too woke or not woke enough.    

In the year ahead, leaders will strive to sort out political agendas with three different pathways:    

• Publicly support political issues     
• Stay silent on political issues     
• Show support for political issues within their workforce policies without publicly supporting the cause     

Regardless of where you or your company stand, the decision to engage publicly on political issues needs to consider the full range of potential consequences that might arise. Speaking out quickly might feel good in the first 24 hours, but unintentionally create outcomes that fly in the face of the very values you espouse. 

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Launching successful digital products is extremely difficult. In fact, 95% of products that are introduced each year fail. The digital product landscape has become much more complex and specialized – from grocery delivery apps to customer service chatbots – digital products shape the way we live, connect and do business.

However, it takes more than a killer novel idea to make it rich and successful. The process of bringing the digital product to life, from an idea on paper to practical reality, with development, testing and refinement is daunting and where many fail. While you can never guarantee success (who knows when a once-in-a-lifetime pandemic will dramatically change the world and markets), you can greatly reduce the risk of product failure by taking a methodical and intentional approach to how you build digital products.

While each product is different, successful digital product creation requires an intentional chain of steps to validate. Through our tried, tested and validated iterative approach, we collaborate with clients across industries and verticals to define, launch and scale successful digital products in-market at pace. A digital product is not simply a mobile application or a website. We think of a digital product as having these four components:

(1) A clear user value proposition, that is (2) delivered through a value-generating business model and is (3) supported by an operational model that optimizes consistent delivery of services, which (4) customers and/or employees interact with through digital interface(s).

As you can see there is a lot necessary to get right in building digital products. So, where do you start?

The Six Stages of Digital Product Creation

At Prophet, we take an agile, insights-driven approach to helping our clients develop valuable and successful new products. As quickly as possible we move from assumptions to concrete knowledge fueled by market evidence around every element of the potential product. Our approach breaks the process into six specific stages:

1. Opportunity Definition
2. Rapid Experience Design
3. Alpha
4. Beta
5. Core
6. Retirement

Let’s dig into how these phases work in sequence to reduce risk and increase chances of success.

Stage One: Opportunity Definition

The opportunity stage is one of the most critical phases of digital product creation. Before even beginning to sketch a design or write a line of code, it all starts with defining a valuable opportunity asking, ‘what is the problem that needs to be solved, is it worth solving and does it match the strategic goals for the company?’  Often, businesses think they already understand the problem, and this is precisely why many new products fail.

Prophet’s Experience and Innovation experts bring a human-centered design approach to the process of defining and designing these opportunities. It will often start by uncovering and designing a compelling experience strategy for how a company can distinguish and deliver value for its customers in desirable ways across the entire customer journey. This perspective, along with our deep expertise in service design and business design, defines initial concepts and objectives that formalize compelling product opportunities aligned to our client’s business strategies.

Questions we focus on answering in this phase are: 

• Can we find valuable opportunities that match the strategic goals?
• Who is the target audience, and do they have a large enough problem in line with the client’s aspirations?

Stage Two: Rapid Experience Design

The goal of this next stage is to iteratively validate and refine the opportunity and assumptions with target customers to gain essential evidence, deep dive into their unmet needs and embed decisive learnings. This level of fast-paced evidence-driven learning can be eye-opening for clients used to longer bureaucratic cycles of decision making and analysis paralysis.

Through this rapid process, we quickly arrive at a minimum viable concept (MVC). There are many steps to get to a fully finessed product, but we need to start with a concept from which we can get quick iterative end-user feedback so that we can best understand the opportunity and a possible solution. In this way, the MVC lets us quickly and cheaply test while we are iteratively improving our understanding of the opportunity.

Questions we focus on answering in this phase are: 

• Can we design a solution for the target audience’s needs?
• Does our evidence indicate the solution can deliver on the target audience’s unmet or underserved needs?
• Can we define the functional capabilities necessary to deliver the solution?

Stage Three: Alpha

Armed with the best probable solution to the problem, the alpha phase is focused on the design, build and testing of the components of the product offering. Technical functionality, customer support, business models, content and data requirements enabled by strategic organizational coordination all become the levers we nimbly adjust to build the product offering. This requires frequent and consistent testing with target customers to refine every element of the product offering. Ultimately, the goal of this phase is to deliver the minimum functionality necessary to achieve product/market fit.

Questions we focus on answering in this phase are: 

• Is this a sustainable product people will consistently reuse and/or pay for?
• Does the evidence indicate that this solution would deliver differentiation and is there a viable business model?
• Is there the will/skill/bandwidth to deliver this minimal viable product (MVP)?
• Have the necessary people/process/data/capabilities been identified to deliver this solution at scale?

Stage Four: Beta

At the beta stage, the mythical product/market fit has been reached and now it’s about proving active customers would use the product consistently through a valuable business model. Groups that may have lightly engaged previously across marketing, sales, corporate development, legal, compliance, operations and others, now become fundamental to the success of the product and its go-to-market strategy. This is when we actively pursue approaches to grow the audience, reduce operational and customer acquisition costs and build new functionality to attract new customers without losing existing customers. It is an artful dance requiring sizeable bets to be placed on people, process, data and technology all while taking a measurable outcome-based focus on how to grow the business.

Questions we focus on answering in this phase are: 

• Can we build scalable and profitable business value?
• Does our evidence identify a scalable business model with a route to profitability?
• What is the go-to-market strategy for scaled commercialization?

Stage Five: Core

This fifth phase is the promised land, where all the work has paid off and we have a validated product in the market, delivering customer and business value.  At this stage, we no longer need proxy metrics for product success but can move to standard business accounting and processes to support sustained growth in the enterprise – the scaling phase.

Despite the effort that has been expended up until this point, this is still a very common point of failure for products as they transition from incubating a new product to delivering through existing business metrics and accounting. This is part of why it is important to bring the company along on this incubation process to avoid organ rejection and yet keep enough distance to give novel and innovative ideas the space to grow. This product can be sustained either through an existing business unit within the company or by creating a wholly new business unit.  Either direction will require the product team to adopt a new set of goals, focus and investment to scale in a competitive market while consistently delivering value for customers.

Questions we focus on answering in this phase are: 

• How do we structure the functional and operational capabilities within the company to scale this product successfully?
• Which capabilities require partnership with outside companies, where might new capabilities need to be built or companies acquired to fuel growth?

Stage Six: Retirement

All products and services companies deliver will, at some point, outlive their value to the business and/or their customers. The ability to objectively evaluate which products and business lines to employ focus and resources is critical to the longevity and stability of the company.  In this way, we need to understand not only when it has outlived its use, but how impactful it will be to sunset the product line to the brand, the bottom line, the current customers and the larger market.  Through these lenses, we can begin to understand whether we will need to plan a migration of customers to another product offering, spinoff or sell this product to remove it from the brand and company responsibility, or simply turn off the lights.

It is very difficult to deprecate something that has been such a part of your company’s history, but being a resilient business requires tough choices about capital and resource allocation for sustained growth.

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Companies have become hyper-focused on delivering frictionless customer experiences, often stripped down to the simplest elements, that brand identity has become an afterthought. With many brands using the same technology platforms and focused on the same goals of “ease” and “speed,” the experiences often begin to fade into a sea of sameness. Too often, the three clicks customers used to book a luxurious escape to a high-end resort, feels exactly the same as that of an overnight at a roadside motel.

Branded experiences remind consumers why they prefer some brands over others and reinforce unique company positioning while encouraging ongoing brand loyalty. Yes, they should be streamlined and seamless. But simple doesn’t have to mean bland. When everyone is offering speed and convenience, companies must find ways to be memorable. That’s because each customer experience, no matter what channel, is a valuable chance to gain relevance. When businesses offer experiences that feel generic, they miss opportunities to deepen connections with customers.

“Simple doesn’t have to mean bland.”

Some companies excel. No one thinks of Costco as just another supermarket – they remember all the times an enthusiastic employee has offered them a tasty free sample or satisfied their cranky toddler with a $1.50 hot dog. And who doesn’t love the way Disney’s magic band allows beloved park characters to know your child’s name without asking?

But when experiences are off-brand, they are destructive. Ask anyone who has recently flown an airline that promised safety but then crams passengers together or has shopped a fitness brand that focuses on self-care but shames larger body sizes.

Critical Connections for High-Impact Experiences

When companies produce unremarkable customer experiences, we typically find the same cause: marketing, product and experience don’t come together early enough. Instead, each group works in their individual silo and by the time they meet to “collaborate,” they’re already entrenched in less-than-ideal solutions. While all three teams are focused on customers, the internal dynamics need to align to provide more clarity on the role each plays.

To be effective, companies need to spell out:

Brand positioning: The brand strategy is the foundation of customer experience. It is what encircles every aspect of how customers meet your brand. Brand positioning delineates a brand’s purpose, promise and principles and should be internalized by employees and resonate with customers.

Experience principles: Overseen by the experience team, these carefully developed standards explain how a company delivers its brand through user experiences and categories of interactions. Experience principles are inspired by brand principles and act as a filter for what differentiates the branded customer experience from its competitors. They guide the team as they develop experience concepts and signature brand moments.

Design parameters: These are the nitty-gritty details that ensure experiences are both helpful to customers and offer genuine moments of brand connection. They guide audience-specific touchpoints, such as products, channels and service. They reflect the brand and experience at the most precise moments, like when a Chick-Fil-A employee says, “My pleasure” instead of “You’re welcome.”

These three components make up the tenets of success. When teams use them to develop projects they are no longer just functional moments —they become branded building blocks that drive emotional responses from consumers. Each parameter clicks into a growing universe of interactions, deliberately reinforcing the brand’s relevance in people’s lives.

3 Tenets of Branded Experience Design

The Three-Step Secret to Powerful Customer Experiences

There are three moves organizations can make to immediately enrich customer experiences.

Come to a High-Level Agreement on the Value of Branded Experiences: Once companies understand that these are a critical component of brand relevance, it’s easier to break down silos. Organizations can avoid tensions and increase productivity when their goal — to create memorable moments of engagement — is aligned from the beginning.

Infuse Brand Strategy in Each Step: It’s important to make the distinction that brand is not more valuable than customer experience. Though brand positioning should be considered at every level of decision-making, encouraging brand police is also not the answer. To do this, the brand team must work harder to distill and communicate a positioning strategy that is most helpful to the experience and product teams. They should also check in with one another early and often, to make sure brand identity isn’t compromised.

Prioritize the Branded Moments That Matter Most: In an ideal world, there would be enough time and money to make every touchpoint perfect. But for most companies, certain moments matter more. Using the experience principles and journey maps will illuminate areas where your brand can best delight customers and differentiate itself from that sea of sameness.

By identifying these areas, teams can focus on what we call signature moments. Signature moments are proof points for customers, embodying the brand’s promise. They aim to elicit specific, positive emotions that relate to the brand’s positioning. Signature moments deepen the relationship with customers, reminding them of what the brand stands for and why they’ve made the right choice. Whether it’s Spotify’s Year in Review, Nike’s self-driven in-store digital exploration or BMW’s driver experiences (including on-ice training in Austria), these connect with customers in ways that are much larger than a single transaction.

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Remote teams want a better employee experience. Where to start?

Getting work done remotely isn’t the issue. It’s getting it done well, in a way that’s best for the organization and most engaging for the virtual workforce.

Through our efforts in digital transformation, customer and employee experience and cultural change management, we’re discovering straightforward approaches that companies can implement quickly. And by focusing on increasing employee engagement and productivity, they are leading companies to more effective–and even transformational– solutions.

Learning the ropes of engaging a remote workforce

It goes without saying that the work-from-home trend was well underway before the pandemic began. Many companies have long allowed at least some employees to contribute remotely. These organizations are already enjoying long-term benefits. They recruit the best talent from all over the world, regardless of location. And they enjoy a higher retention rate, especially among Millennials and Gen Z workers, who crave a better work/life balance, shorter commutes and more affordable housing.

But with the global surge in home-based workers holding strong, it’s important for all companies to design the best remote employee experience. That means supporting the company’s purpose, culture and customers, as well as its people.

4 Steps to Optimizing the Remote Employee Experience

Step 1: Start by analyzing workflows

Smart companies are treating the evolved employee experience as an opportunity to accelerate digital transformation, digging into which internal workflows might remain virtual for the long-term, even as recommendations of social distancing begin to ease.

To continue to identify workflows that make the best fit, implement metrics for what’s working so far, measuring productivity and engagement in all departments.

Step 2: Create engagements that support the culture

Zapier, a global remote company that helps users integrate web applications, has been primarily remote since it started back in 2011. To increase the sense of collaboration, it hosts a weekly Design Club, a digital open house that allows anyone in the company to present work for feedback. Anything is fair game, including research plans, visual designs and new concepts from product teams.

Using a Design Club channel on Slack and a weekly Design Club video call, colleagues can sign up to receive asynchronous or real-time critiques from their peers and stakeholders. It fosters an inclusive culture of appreciating and leveraging diverse perspectives, giving people visibility into what others are working on. And best of all, it improves the quality of the work.

With a little effort, most companies could implement similar ideas in less than a week.

Step 3: Review tools and applications often

Workers have grown numb to the onerous burden of email. And while switching to remote work offers much more efficient options, like Slack, Teams and Zoom, they can be just as paralyzing if they’re poorly managed. Finding the right mix and balance of communications channels becomes even more critical for a remote workforce.

Pay close attention to what seems to be working, and what’s burying staff in pointless group alerts and notifications. In an interview, Matt Mullenwegg, founder of Automattic, which operates WordPress.com and a host of other properties, discussed the importance of trial-and-error in building a virtual company with 1,200 people around the world.

“Today we use an internal blogging system called P2 instead of email,” he tells Ben Thompson, author of the popular business strategy blog Stratechery. “We use Slack for real-time chats and things like Zoom for calls and meetings. But over the years, we’ve also developed just a lot of cultural things around how we use these tools.”

For example, with employees in multiple time zones, meetings in real-time become more difficult, so asynchronous options are essential.

Step 4: Keep weighing the long-term implications

What changes might remote work have on your business long term–in terms of recruitment, retention and profits?

Automaticc’s Mullenwegg often surprises people when he talks about the company’s considerable investment in employee travel. Because almost everyone is a remote worker, real-estate outlays are minimal. But it spends heavily on group meetings, bringing the entire company together at least once a year. And individual teams of up to 15 people meet more often. “There’s nothing, no technology, VR or otherwise, that has the same effect of breaking bread across the table or sharing a drink with someone, for building trust, for building communication, for getting to know someone,” he says.

“There’s no doubt that as companies adjust to the new normal, they must revisit the definition of their employee value proposition.”

For many companies, building for the future means getting past the question of whether employees will like working remotely. Not all will, just like some people hate open-floor office plans. The point is to quickly pick up on employee concerns about efficiency, productivity and engagement.

Try fostering models for continuous exploration of better ways of working remotely. Those might include a group of colleagues who have this as a side project, internal and external surveys to see what different teams and companies are doing, or a Slack channel where people share ideas.

It’s important to keep looking at new tools that are worth testing. For example, new video-conferencing platforms, such as Around, offer features like AI-driven background noise cancellation and facial focus.

Shockingly, many companies have stopped probing employee sentiment at this critical time. And if they are, they are often asking about process and technology, instead of the key question: “How is this working for you personally, and how can we make it better?” Tools like Glint, an employee-engagement platform, make this kind of pulse-checking easy.

There’s no doubt that as companies adjust to the new normal, they must revisit the definition of their employee value proposition. And as companies thread their way through the after current of the virus, , we don’t expect to see many overnight decisions. But we do believe this will be the most durable change wrought by the coronavirus and one that will benefit both employers and their employees.

The reality is that there are far more people who are underserved in their desire to work virtually than most employers realize. Many will fare better as remote team members. And as best practices continue to emerge both from digital pioneers and remote newbies, we see the best results for those who design the optimal remote employee experience. That means creating a continuous model for improvement, steadily looking for net new benefits and using the right tools for the right reasons.

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While 2020 may go down in history as among the most challenging years, it’s been a surprisingly encouraging time for those working in experience and innovation. As the pandemic pushed stuck-at-home people into an almost entirely digital world, they had time to think about bigger questions–like social justice and community impact.

Without their usual in-person channels, companies scrambled into new realms of inventiveness, often accomplishing difficult tasks in days and weeks. Braced by this crash course in risk-taking, many are emerging with clear eyes and new energy.

Amid so many changes, we believe three trends will shape the months ahead. Smart companies are already using them as a springboard to a stronger purpose and uncommon growth.

Equity-Centered Design Goes Mainstream

The intersection of social responsibility and design isn’t new. But between Black Lives Matter protests and stark inequities, CX and innovation strategists spent much of 2020 asking each other hard questions. As a result, organizations are taking a closer at how their work perpetuates (and possibly amplifies) the deepening of privilege in a world full of unequal access, opportunities and outcomes.

That means enlarging definitions of human-centered design by expanding to community-focused thinking. And it requires stepping beyond the usual approach of designing for an individual, persona or archetype, making decisions based on empathy and inclusion.

“By thinking beyond the “average” person, companies often find innovations that benefit everyone.”

We expect more companies to strive to design for fairness, especially as it becomes clear that doing so can lead to growth. Tapping into previously ignored markets, such as the disabled, non-English speakers and older consumers, are important avenues for new customers. Microsoft’s Seeing AI app, for instance, was developed by a designer who is blind, recognizes facial expressions, reads documents and more for people with visual limitations. But by thinking beyond the “average” person, companies often find innovations that benefit everyone. Those include easier-to-navigate digital experiences, better audio services and more accessible product design.

Certainly, these innovations can prevent legal troubles down the line. But the best design thinking includes equity from the very beginning, not as a late-in-the-game modification from the compliance department.

Led by organizations like the Creative Reaction Lab and the Stanford DSchool, more practitioners recognize that good experiences must reflect diversity, equity and inclusion at every level. Often, that means including inspirational stories of people who have been shut out in the past. Fairness serves the triple bottom line—profits, people and the planet.

Digital Project Management Grows Up

By now, businesses are well aware that digital projects need continuous management, led by a professional community of digital natives. But increasingly, companies are switching from a project management perspective to one of product management. The former are things a company makes. The latter are businesses that must be managed.

That means viewing them through the lens of finance, governed by profit and loss. Companies like Google have always done this. But increasingly, legacy brands, including CapitalOne, are waking up to the reality that these digital efforts are core to an organization’s value chain. This isn’t a fad. It’s a fundamental way of organizing. Rather than evaluating their work as engineering projects delivered on time and on budget, these professionals are becoming mini-CEOs.

Mature Enterprises Learn to be Young Again, Warming Up to the Reality of Profitable Waste

Google, with its well-publicized history of rewarding failure and encouraging moonshots, has gotten more than its share of attention, especially for Google X. But older companies know they have to become young again if they want to keep pace with digital natives. And more of these legacy brands–including Philips, Verizon 5G, Citi and Nestle–are owning up to the reality that meaningful innovation can’t be predicted in advance. When businesses take only small chances, they can only achieve small wins.

Businesses are aware of this, of course. A study from Partners In Leadership found that 84 percent of executives agree that their company’s future depends on innovation. But only 37 partners in their organization are willing to take the necessary risks.

These forward-looking companies are, in effect, learning to plan for breakage. This new realism means recognizing that every success may have required ten flops. They’re developing more practical ways to encourage risks. And most importantly, they are looking for new ways to measure success and reward innovation.

Those that don’t do this will have to be content with small incremental wins while bolder competitors make meaningful gains.

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