Most business models are based on traditional ways of strategy formulation and implementation, leading to incremental and not disruptive change in the nature of business and industry practices. The ‘red queen effect’ refers to the red queen’s advice in Lewis Carroll’s Through the Looking Glass in which she says, in order to stay in a (competitive) place you have to run very hard, whereas to get anywhere you have to run even harder. In today’s knowledge and mobile environments we know that businesses cannot survive by just running harder, but rather by running differently and ‘smarter’ than competitors. The article suggests a sense-testing tool for managers to enable disruptive innovation of business models through corporate examples and case study evidence.
Organizational sense-making is a critical consideration both for managers and researchers. With disruptive innovations occurring in almost all industries, managers and their companies need to make sense of their competitive environment, the disruptions that continuously take place, and how they respond to these changes. However, most companies find themselves unable to “make sense” of and suitably respond to disruptions – either rendering the disruption to be insignificant and irrelevant to their businesses or being unable to break free from their established ways of doing business.
To counter direct competitive challenges, organizations often continuously learn new ways of improving their efficiency and performance. Having familiarized themselves over a number of years with such ways of doing business, their first reaction to discontinuous (fast-changing, disruptive) competition is to “work harder”, when what they need to do is to “unlearn” what they know and “work differently” (for sources on discontinuities see, e.g. Tapscott, 1997, Kelly, 1998 and Evans and Wurster, 2000). Several observers have commented that even though many companies work harder to improve themselves in increasingly fierce competitive environments, results improve slowly or not at all (Pascale et al., 1997, Prahalad and Oosterveld, 1999 and Senge and Carstedt, 2001). This is a characteristic situation that could be described as the “Red Queen effect”. It is a competency trap where “running harder” becomes customary: it is of an analytic-benchmark nature, it shows short-term success and is less risky in the near horizon, but ultimately holds long-term downfall.
Working “differently” seems to be an intuitively suitable approach for survival or even prosperity in the present era’s increasingly competitive business landscape. Companies need to change industry rules (the accepted way of doing business in the industry) by fundamentally questioning their tendency to conform to useful but “unoriginal” (copied, imitated, improved) practices, lessons, and experiences. But, how can managers and their organizations accomplish this? That is, how can companies broaden and update their approaches and way of thinking to include the fundamental factors that influence the creation of successful new business models? This article proposes an answer to this question by illustrating a new approach: a sense-testing tool. This tool emphasizes four aspects that assist organizations in creating or reinventing business models that transcend the “traditional” and “standard” practices. As elaborated in the latter part of this article, these four dimensions consist of continuously sensing the following key issues: the changes and direction that take place in customer value proposition(s); the impact and use of available and arising technologies; the configuration of the business infrastructure to better offer customer value; and the economic sustainability of a business idea or strategy.
The article first describes the charms and traps of the Red Queen effect and contrasts it with “holistic” business model thinking and strategy reinvention. Secondly, as an approach that companies can apply to appropriately (and consistently) adapt – especially pro-actively – to the shifting business environment, this paper provides a sense-testing tool, with illustrative cases and examples, for developing, evaluating, and adapting new business models. Finally, the key lessons for managers in applying the sense-testing tool are outlined and briefly discussed.
Companies often respond to uncertainty by imitating other, usually competing, organizations. The Red Queen effect implies situations when companies easily lapse into a self-reinforcing, intense direct competition, which brings them faster to failure if they just work harder or try to improve traditional industry key success factors. This is because best business practices and efficiency approaches are vulnerable when the industry environment becomes ripe for dramatic reinvention. In an increasingly discontinuous environment, companies should strive to be alert and capable, through effective sense-making, to take a possible lead in this reinvention, or at least be able to interpret such imminent changes for rapid adaptation and co-shaping of new customer value with other companies.
Corporate survival in today’s fast-changing world depends on being ahead in business model thinking and adaptation. By having a particular sense-making capability of the business landscape and the company within, companies can co-evolve and co-shape customer value propositions that reinvent the company’s and industry’s rules. The sense-testing approach provided in this paper helps managers and executives in identifying, developing, and evaluating the key dimensions of a future reinvented business model. Sense-testing helps to systematically conceive, develop, and evaluate possible new business models, and their chances of being successful.
