As technology continues to shape the way we work, organizations are looking for new methods to enable innovation within their companies. For those working in corporate innovation or organizational management, this interview will shed light on how design thinking is used as a framework for innovation.
Michael Lewrick (PhD) lives and works in Switzerland, where he is the author of the international bestseller, “The Design Thinking Playbook,” which is currently published in 34 languages. Michael is a frequent visitor to the Bay Area, working closely with Stanford University, a comfortable traveler between the “Crypto Valley” and “Silicon Valley.”
One method from the playbook that caught our attention is the “Design of Business Ecosystems.” This framework is also presented in his newest book, “LIVE from Crypto Valley: Blockchain, crypto and the new business ecosystems,” where Michael provides a holistic view on how to evaluate the potential of blockchain initiatives in mature industries and for blockchain start-ups.
We had the chance to interview him in Zurich.
Can you briefly explain what the work of a business designer entails? When many people hear the word “design,” they associate the work with making things pretty.
In Design Thinking and Business Ecosystem Design, we apply — in the first instance — the mindset of a designer. It starts always with a deep understanding of the user and the problem to solve. We challenge our assumptions and find solutions in an iterative process.
Design thinking is a mindset that helps to innovate and solve wicked problems. Various tools and methods have been created over the years to find out more about the needs of potential customers and users, the possibilities of new technology, and the requirements for business success.
In short, Design Thinking is a hands-on way of working on problems, with the intention of generating alternative strategies and solutions, which might not be instantly apparent with our initial level of understanding. Especially when it comes to business ecosystems, we’re often trapped in the traditional thinking of customer-supplier relationships and business models.
In entrepreneurship classes, students become familiar with the concept of business model design, how is that different from business ecosystem design?
The concept of business model design is great, and provides a fundamental logic in designing business ecosystems. However, when creating a decentralized business ecosystem, it becomes of paramount importance to apply multidimensional views to business models.
That means that you must design your own business model and a potential model of all other actors in the system. Only if all actors have substantial benefits and have agreed on value propositions will the ecosystem be able to stay alive. We start by using 10 steps to create a Minimum Viable Ecosystem (MVE). It helps to align with some partners in the ecosystem and to test the value streams.
Along the same lines, how is a Minimum Viable Ecosystem (MVE) different from a Minimum Viable Product (MVP)?
The concept of an MVP has three basic characteristics. First, it has enough value that customers are willing to buy; second, it has enough future benefit to retain early adapters, and third, it provides feedback loops to guide future developments. The same pattern becomes relevant in designing Business Ecosystems. While the MVP evolves out of the Problem-Solution-Fit, the MVE comes with the definition of the Product-Market-Fit. So basically, instead of designing for a specific customer, you are designing for a marketplace with many different actors in the value chain — some of whom are customers.
Tell us about the role of values in designing a business ecosystem.
The value streams are very interesting, especially in the process of designing the token-economics for blockchain initiatives.
Most Initial Coin Offering (ICOs), I have observed over the last year, put not much brainpower into ecosystem design and how values are exchanged over the long term. However, it becomes important because the token economics are defined on the basis of a working business ecosystem and the type of token used — e.g., asset, utility, or payment tokens. Tokens can also be linked to various conditions, such as the temporary transfer of ownership or monetary deflation. The resulting “crypto economics” is based on well-known models of microeconomics, game theory, and cryptography. Economic incentives such as artificial scarcity also underpin it.
However, it must be designed and resistant against external factors. Today, over 800 cryptocurrencies are already dead, worth less than one cent. Of course, some were scams anyhow, but many had no idea how generate value out of the ecosystem.
Blockchain is seen as a useful technology to increase trust and transparency in business, despite some scams with ICOs. However business has not been seen traditionally as having a social purpose. Do you think that Blockchain changes that traditional view of business?
Yes, I believe that we see an emerging shift of the power structures in the market enabled by blockchain. The barriers of entry into a system are lower for new market participants, and the value creation is redistributed. Ideally, this leads to an increased benefit for the whole ecosystem, a reduction in the power of intermediaries and the decentralized management of data and information. This, at least, is what we expect from many new ecosystems that are currently being designed and implemented.
A well-known example of a blockchain application is the case for diamonds. Each diamond is recorded and uniquely identified as an asset on the “Diamond Protocol” where every transfer of ownership, as well as the provenance of the diamond, is recorded. This enables, for example, an Auctioneer to completely retrace the history of each diamond and thus give potential buyers the certainty that the coveted stone originates from a reliable source. The same information can also be made available to other stakeholders such as insurance companies or law enforcement. Pushing diamonds on a blockchain enables better and digitalized insurance — WOW!
There are many business opportunities, but only if the first effort has been achieved, which is putting digital assets on a blockchain.
How do you see the changes that you described above in relation to the role that digitalization is playing in the business world, and in the larger society in which businesses exist?
New technologies like Blockchain are enablers that allow a radical shift for many market players simultaneously, if they are curious about the envisioned future. The development of new value streams and business models become more complex — and it’s not just technology we have to understand.
The most prominent challenges are: dealing with uncertainty, the multi-dimensionality of business models, participation in business ecosystems, and the scalability (growth) required to generate significant revenues in these new models.
In the case of the blockchain, it is not only a matter of mastering a new technology, but also of rethinking our current market role, value streams, and existing business ecosystems. This is a complex system in which many elements have to be (re)designed. And how to manage them?
For me, digital transformation starts always with a new mindset. For the Design Thinking mindset outlined in The Design Thinking Playbook, co-creation and the radical collaboration of interdisciplinary teams helps to succeed in dancing with the ambiguity.
From my experience, it is good to give the people in the organization space so they can go through the cognitive process on their own and shape a new shared understanding — a mindset that matches the respective organization and its employees.
In your book you talk about the goal of a Black Ocean strategy as making market entry impossible for competitors vs. the Blue Ocean strategy of creating new markets. Isn’t a Black Ocean strategy pro-monopoly and anti-consumer at the end of the day? I’m wondering if there is some kind of paradox involved here.
Very good question. I believe that the design of superior ecosystem generates the best value and best experience for the customer. Second, the system will survive only if all actors in the system have benefits and a shared perspective on the value proposition. There might be other mechanisms that are more anti-consumer, like creating hook-effects or log-in effects at the customer side. However, I assume that those are the new marketing and customer retention mechanism.
At swissnex, we focus a lot on open innovation. How does business ecosystem design relate?
There are some principles in designing ecosystems, and for swissnex and open innovation, I believe it will stay key to building trust and personal relationships with all the actors in the system. This is fundamental regardless of whether you’re starting a blockchain business or a creating open innovations.