Cannon Financial Institute

Iterative Innovation


Innovation and Business Modeling are classic management activities used by long term successful companies of all sizes and most industries.  All businesses today operate in an ever accelerating state of change, and those who plan to survive have a plan that includes innovation and business modeling as key tools to help discover the way forward.

Though some companies in the financial services industry innovate, and some of the new business models are innovative, my observation is Advisor practices have not built their capacity to innovate or use business modeling in any meaningful way.  As an industry, there are pockets of success, but the need for this skill set is significant.  As our industry continues to mature, and the forces driving competitive convergence increase, the inevitable consequences of consolidation in order to increase profitability leave all of us vulnerable.  The greatest risk for maturing markets comes from the loss of focus to build skill and perform activities that reinvent from the inside.  This void creates opportunity for disrupters, which may be technology based, process based, or business model based to make the traditional model obsolete. 

This obviously is not a new observation on business vulnerability.  But my orientation about disruptors may be counterintuitive to the general view that destruction by disruption is an inevitable consequence when an industry hits a tipping point and the disruptor becomes the normal.  After studying this topic from several different perspectives I have come to believe that businesses in a mature industry do not have to succumb to replacement by someone or something else.  To avoid obsolescence they merely need to stop obsessing on operational efficiency as the ultimate goal, but to add back in a focus on business strategy.  Michael Porter, a professor at the Harvard Business School, created clarity for me [with this statement:]

“Operational efficiencies drives profitability, but business strategy creates competitive advantage which drives revenues.”**   Without a focus on both, the imbalance can create an unavoidable tipping point.  It does not matter how profitable you can produce an output, if there is no revenue from buyers, you don’t have a viable business.

So how might one create a sustainable business?  And I am not talking about “green” sustainability here.  I started to think about what conditions were required to stay in business. Certainly “a business who provides value to customers in a profitable manner” meets the conditions.  But I was not satisfied with that. Something was missing. 

I went back and reread Michael Porter’s What is Strategy, which had turned on the light for me.  Then I connected Daniel Pink’s book, A Whole New Mind Copyright―and that illuminated for me a new path.  I then came across Jeremy Gutsche’s Exploiting Chaos, which helped me understand that lessons can be learned from those who succumbed to changes in the market, and we can use those lessons to avoid the same fate.  From all that, I added the element of time to the conditions.  Not an intellectual leap, and it took a lot of other people’s brainpower, but their works helped me create a rational definition of a sustainable business: “a business who can provide value to customers, in a profitable manner, over a long period of time.”  Turns out that is harder than it sounds, just ask the several hundred CEOs of companies that have been added to and then dropped from the S&P 500 since it was first established.

It was my work and friendship with Harold Langlois, PhD and longtime leader in change management, that helped me make the connection of all these works to discover and then think through a helpful solution for our industry, Iterative Innovation.  In and of itself this is not really a discovery, just look at John Kotter’s work on creating innovation capacity in organizations.  But it is a way to execute Iterative Innovation and operationalize it in a way that firms and Financial Advisors can actually do it, that makes Iterative Innovation a solution that can work for many. 

Many of you are familiar with my experiences and interest in “systems thinking” and modeling ideas as an alternative to top down strategic planning from recent keynotes and workshops.    It may be serendipitous that this interest happens to coincide with the state and the need of our industry.  However much is owed Dr. Langlois, who at times gently and other times brusquely, helped me coalesce “a way,” certainly not the “only way,” to meet the real challenge of building innovative capacity at the Financial Advisor Practitioner level.

Iterative Innovation is premised on several ideas:

  • We don’t live in a linear world; it is complex and therefore unpredictable.  In other words, the old adage “as soon as the ink is dry on a plan, it is out of date,” rings true.  Top down, once a year strategic planning assumes the next 12 months will match our assumptions about tomorrow (a linear thinking approach); we know intuitively that is not right.  So we need an alternative to annual strategic plans.  We have to be more nimble in order to direct our activities to keep our business sustainable.
  • Making big one time bets on business direction and market need is very risky. Why do that if it is not necessary?
  • Our current business activities are working in some form and fashion; otherwise, we would not have a business.  But the world in which we operate is changing as we need to match that pace of change.  It may or may not be obvious, but the assumptions we used to build our business model years ago seem to be losing validity by the hour.  We need to challenge our assumptions, and those that are no longer are valid must be addressed so we remain relevant to the market.
  • A simple but disciplined methodology to identify and explore the implications of changes is a critical business practice.  It keeps us from being surprised and unable to absorb disruption or take advantage of insight that can create competitive advantage.
  • Business Models are not the same thing as Business Strategy and modeling should always come first.  Our industry and especially Advisors run practices as business people; but most are not classically trained as business strategists.  There are simple business model frameworks that can provide immediate remediation to this gap.   These frameworks can be easily understood and used to regain the balance between a need for operational efficiency to manage profitability and crafting business strategy to drive revenues.

The goal of Iterative Innovation is to give every Advisor’s Practice a platform and the tool set to behave in new ways that realize the freedom and financial promise of being the owner of a sustainable business.  So just what is Iterative Innovation?

Iterative Innovation is a system of action, tools and engagement that works together.  Its components are:

  • A disciplined process to identify and determine what changes in the market environment we should pay attention to and act upon.
  • To collect a set of tools that are simple to use and help us to:
    a. Identify the disrupters and influencers on our customers, industry, and businesses.
    b. Provide a rubric to assess the potential impact of change and determine if we can ignore, address or monitor what we have identified.
    c. Ideate potential solutions for opportunities or challenges we determine need to be addressed.
    d. Model the impact of that idea against all the components of our complicated business.
    e. Test, validate or refine our model in real time before full deployment.
  • To partner with others to take advantage of creative, analytical and operational strengths to end up with a better potential for sustainability.

Iterative Innovation is a rich, robust, but easily executable way for any Practice, Home Office, or firm to embody the definition of a sustainable business.  The processes, tools and engagement activities result in businesses that can absorb disruption, therefore riding the waves of change instead of being engulfed by them.  Mature Industry? Consolidation? Inevitable Creative Destruction?   I Don’t Think So!

I would love to hear your thoughts about building Advisor capacity to stay relevant and create sustainable businesses.  Drop me a note and let’s innovate together.

**Michael Porter’s  2009 HBR article titled What is Strategy, copyright © 2000 Harvard Business School Publishing Corporation, which had turned on the light for me.  Then I connected Daniel Pink’s book, A Whole New Mind Copyright © Daniel H. Pink, 2005 - Riverhead Books  Penguin Group (USA) - and that illuminated for me a path to future.  I then came across Jeremy Gutsche’s book Exploiting Chaos  Jeremy Gutsche © 2009 Gotham Books, Penguin publishing,  [John Kotter’s work presented in the July 2013 issue of Harvard Business Review magazine]

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