Last month, I wrote this in 7 Best Practices for Business Model Innovation:

"Companies need to separate business model innovation from the core of their business, just as companies have separated new product and service development into R&D labs and skunkworks."

Confusion ensued. Some who know us at BIF and know our Business Model Sandbox approach questioned whether "skunkworks" really was the same thing as a "sandbox." Some who don't know us wondered whether, and why, we were advocating an approach that's been discredited.

To clarify: A business model sandbox is not a skunkworks.

Here's the difference:

  • A skunkworks is completely removed from the core business.
  • A sandbox is separate from the core — it's a connected adjacency staffed with people who are not working to execute the current business model.
  • A sandbox is connected to the core — innovators working in the sandbox explore opportunities to combine and recombine the company's existing capabilities to create new business models.

The distinction is critical.

A capability is the power to do something. How a business's capabilities are networked together comprises the value and the way in which value is delivered. Business model innovation is rarely about inventing anything new, but about how you combine and recombine capabilities to change value and how that value is delivered.

The existing business model often locks up capabilities, which precludes business model innovation. If we can unlock those capabilities and pull them, unconstrained, into a connected adjacency, we can begin to imagine and design entirely new business models.

In contrast, no core capabilities find their way to the skunkworks. And indeed, what happens in the skunkworks stays in the skunkworks. Unfortunately, this approach can't help but produce results that don't fit the business model or reimagine a new one. In fact, the products that come from a skunkworks most often wouldn't fit any business model, since they weren't created within a business model context. Result: huge risk, little potential reward.

The connected adjacency that we call the sandbox succeeds where skunkworks often fail, because those working in the sandbox keep an unwavering focus on business model.

As we design new business models — prototyping and experimenting within the context of combining and recombining the company's capabilities — we learn, and use what we've learned in more prototyping and experimentation. This iterative process sidesteps failure altogether and dials down risk.

So, let me correct myself:

A sandbox is not a skunkworks. A sandbox is a connected adjacency where business capabilities can be combined, recombined, and reimagined to design new business models.

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