Understanding Rules Of Business

Business Horizons (2006) 49, 369 — 377

www.elsevier.com/locate/bushor

Understanding and breaking the rules of business: Toward a systematic four-step process Dodo zu Knyphausen-Aufsess a,*, Nils Bickhoff b, Thomas Bieger c a

University of Bamberg, Feldkirchenstrasse 21, 96045 Bamberg, Germany Nissen Bickhoff Carstensen GmbH, Strategy Brand Creation, Colonnaden 5, 20354 Hamburg, Germany c Institute for Public Services and Tourism, University of St. Gallen, Dufourstrasse 40a, 9000 St. Gallen, Switzerland b

KEYWORDS Business rules; Creative destruction; Strategy; Paradigm; Games

Abstract Knowing the rules of a business is a prerequisite of being successful. On the other hand, carefully and selectively breaking the rules of management is often the way to exceed the low margins of intensively competitive arenas, especially at a time when technological innovation is limited and industries are tending to consolidate. Drawing on their own practical know-how and intensive research into future business models, the authors of this article call for more dialectic in management thinking. Their brule-breaking strategy creatorQ process is a combination of tested consulting and venture capital tools, and provides an entirely new approach to systematic rule-breaking and, thus, competitive advantages. D 2006 Kelley School of Business, Indiana University. All rights reserved.

1. Breaking the rules raises the stakes If you break a rule, you have to assume there will be disadvantages; in most cases, at least. Take a soccer game, for example. An attacking player is deemed to be offside if, at the moment the ball is passed to him or her, he or she is closer to the opponent’s goal line than the last-but-one player of the opposing team. (A few fine details vary and expand this rule slightly; however, for our purpo* Corresponding author. E-mail addresses: [email protected] (D. zu Knyphausen-Aufsess)8 [email protected] (N. Bickhoff)8 [email protected] (T. Bieger).

ses, we can safely ignore them.) If the referee blows the whistle, the ball (and thus, the advantage) goes to the opponent. Life is not always like that, though. Sometimes we succeed precisely because we break rules. Consider a scenario involving a meeting at which one monotonous PowerPoint slide show follows another. The audience is getting restless and tired. Suddenly, a new speaker steps up to the microphone and does things differently. She does not bombard her listeners with viewgraphs; rather, she addresses them personally, gets them thinking, and powerfully conveys her message because she breaks with what have become the standard conventions for a modern presentation.

0007-6813/$ - see front matter D 2006 Kelley School of Business, Indiana University. All rights reserved. doi:10.1016/j.bushor.2006.01.001

370 As in other areas, rule-breaking in the world of business can lead to problems. With a global market volume of 17 billion dollars in 2001 and 47 billion dollars in 2002, the market for functional food (i.e., foods that have a medical or healthcare-related benefit) is growing by leaps and bounds; in fact, annual growth of 10% is expected through 2007. Hoping to capitalize on this trend, Campbell Soup Company, an American firm, was interested in launching a new line of products suitable for diabetics and people with high blood pressure. The deep-frozen meals were shipped via UPS, and consumers were instructed to follow a fixed, exclusive nutritional plan for at least 10 weeks in order to gain the hoped-for benefits. Unfortunately, the meals were not very tasty and the arrangement was expensive. Predictably, the market rejected the product and a test run in the state of Ohio had to be abandoned. Believing the company was punished for not heeding the ground rules of market entry, industry experts Jeffrey Worthington and Colleen Zammer (2000) said: bFor any nutraceutical product to be successful, it must meet four consumer demands: taste, convenience, simple proposition, and price. No matter what kind of health claim or benefit a product can offer, if it doesn’t taste good, consumers won’t buy it. This is the golden rule of all food product development. Consumers may be lured with a promise of great taste and nutrition once, but they won’t be repeat customers if their taste demands are unmet.Q Yet, the business world also presents examples that contradict the view that rule-breakers always pay a negative price, examples of market success realized by precisely those companies that do things differently. Traditionally, most small- and medium-sized firms in the European furniture industry only completed small production runs; as such, they could hardly exploit economies of scale. Assembling the furniture was time-consuming, freight costs were high because so much bairQ had to be transported, and sales outlets were usually located in downtown areas where real estate prices or rental costs are typically high. In all these dimensions, IKEA departs from the norm. Manufacturing is done in large volumes for a global market, giving the company more clout with suppliers. Since furniture is shipped in unassembled form and assembly is left to the consumer, transportation is comparatively inexpensive. Spacious exhibition halls are located out of town or in no-man’s-land next to freeways. In sum, the Swedish company

D. zu Knyphausen-Aufsess et al. does just about everything differently, and the results speak for themselves: IKEA has a presence in 35 countries, turned over more than 14.5 billion euros in fiscal 2005, and the company’s founder, Ingvar Kamprad, is ranked as the 6th richest human being in the world by Fortune magazine (http://www.forbes.com/2005/03/09/ bill05land.html). The two preceding examples vividly illustrate how, both in the business and private spheres of everyday life, the dialectic between keeping and breaking rules plays an important role. In the following, we elaborate this dialectic and present a structured process that can help not only identify the current rules of a business, but also develop ideas regarding how to break those rules. The basic hypothesis which serves as a guideline for this article can be summarized as follows: Breaking rules creates opportunities, but also increases the risks. The critical factor is an exact knowledge of the rules that shape one’s own line of business and the various corporate functions. Only then can one, as systematically as possible, assess where there might be valid opportunities to deviate from these rules in a manner that adds greater success.

2. The dialectic between keeping and breaking the rules What do we understand by the term bruleQ? The Gabler business dictionary, an authoritative German reference work, begins its definition with two circumscriptions: bregularity of appearances or activitiesQ and bprecept or prescription.Q Veering toward information technology usage, it then states: bIn artificial intelligence, especially in knowledge-based systems, [a rule is] a widespread way of presenting knowledge. A rule consists of two parts: a) the assumption (bif. . .Q) and b) the conclusion (bthen. . .Q).Q As paradoxical as it may sound, this definition should remind us not to take too narrow a view of the term brule.Q Doesn’t the very terminology, bassumptionsQ and bconclusions,Q conjure up images of scientific laws? There are evidently a series of related terms that possess very similar meanings. There are the said scientific laws and the muchvaunted blaws of the marketplace.Q There are standards, institutions, paradigms, and dominant designs. In the following sections, four models will serve us to exemplify the dialectic between keeping and breaking rules, and offer insights that we can use in our business context.

Understanding and breaking the rules of business: Toward a systematic four-step process

2.1. Scientific laws and the principle of criticism The dialectic of observing and modifying rules is fundamental, especially in the scientific realm, where the aim is to advance knowledge systematically. In the natural sciences in particular, inquisitive minds have, since ancient times, sought to discover laws that explain the occurrence of natural phenomena. Ideally, the validity of such laws should not be limited in space and time. In the behavioral and social sciences, however, this ideal will doubtlessly not be feasible. Here, putative laws are mostly tailored to more narrowly defined contexts. How are blawsQ discovered? David Hume’s idea was to make as many individual observations as possible and then distill their essence into generalized statements. Philosopher Karl Popper (1959) demonstrated the logical problems inherent in this view. He formulated the notion that our scientific research, rather than focusing on confirmation or verification, should in fact attempt to falsify (or bdisconfirmQ) insights hitherto assumed to be valid. In taking this line, Popper advocated a bcritical rationalismQ that recognizes the value of existing knowledge but, at the same time, seeks to develop and expand this knowledge base. Rules and laws are, in other words, only of a temporary nature. It follows, then, that we should see it almost as a sporting challenge to consider whether supposed rules and laws might not, in fact, be broken. The obvious consequence would be the creation of a new scientific status quo, against which still others would, in turn, test their mental agility. Popper’s notion of falsification merely constitutes an initial approach to fleshing out the bprinciple of criticismQ and finding ways to apply the insights gained in practice. Max Weber (1946) left us the legacy of brationality,Q the idea of bsystematizing factsQ according to bthe most recent assessment criteriaQ; in other words, (business) ideas must be thought through from A to Z in order to gauge their feasibility. Paul Feyerabend (1975), one of the best-known critics of Popper, repeatedly insisted on an banything goesQ theory. He argued that we should not allow the corset of supposedly rational science to suffocate our creativity; instead, we should explore all available avenues to gain knowledge and thereby advance toward our concept of a successful life. Bertolt Brecht (1964) introduced the notion of alienation, which contends that new insights cannot emerge if we identify too closely with a subject or issue; therefore, we need to distance ourselves from it and shed light on interrelationships from a different

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angle in order to make progress. Finally, military theoretician Liddell Hart (1991) refers us to the principle of taking alternative courses of action, first gaining a distance and then coming back if one wants to win battles. The search for laws and what we call bthe principle of criticismQ lies at the heart of science; however, this bscientific methodQ should also lie at the heart of management’s thinking about their business. Suggested by Frederick Taylor (1911), this concept has more recently been articulated by Steven Spear and H. Kent Bowen (1999) in their analysis of the rigorous problem-solving mindset that lies behind the success of Toyota’s production system. This bscientific methodQ should not be understood in too restrictive a sense, however. It is not only a trial-and-error process for reaching minor improvements, but a way of thinking that combines rigor with creativity and, therefore, includes all the elements highlighted above. Thus, it is not a matter of a new bTaylorismQ when we suggest a framework for systematically mapping existing rules and searching new rules for business success. Rather, it is about using the full potential of a modern scientific thinking that is self-reflective and always open to new and path-breaking ideas.

2.2. Paradigms and cognitive maps Scientific laws are always anchored within a wider framework, or, as Thomas Kuhn (1962) put it, a paradigm. Indeed, it is only the existence of these paradigms that gives laws their meaning. Popper’s description of advances in knowledge relates to the refinement of laws within such a paradigm. Kuhn describes this as bnormalQ science. There are, however, phases in which research problems stubbornly resist attempted solutions and cannot be resolved within an existing paradigm. These are the situations in which a shift of the paradigm itself ushers in a bscientific revolution.Q The best-known example of this kind of paradigm shift is the transition from Newton’s mechanics to Einstein’s theory of relativity. Although this example may seem far removed from management issues, we need only think of the computer industry to understand that it makes a difference, whether you build mainframes with more and more computing power (e.g., IBM from the 1950s onward) or modify the underlying concept of data processing and move over to personal computers or networkbased solutions (e.g., Apple and Sun Microsystems in the 1970s and 1980s). A paradigm, therefore, is rather like a basic theory. From a sociological point of view, a paradigm is a school of scientific thought, a community

372 that shares the same values. Paradigms are typically linked to a blead solutionQ that can also be applied along similar lines to solve other kinds of problems. Whatever the case, paradigms are always more than a mere isolated statement or hypothesis. Management activity, too, always derives from certain attitudes and mindsets that we often hold in common with the people with whom we work. To borrow a term from the realms of psychology, these attitudes are bcognitive mapsQ that give us direction, that we depend on to find our way in a complex world of infinitely varied information. Whereas the primary order of learning takes place within an existing context, the adjustment of cognitive maps requires a secondary order of learning (Argyris & Scho ¨n, 1973). By analogy, the ability to make such adjustments permanently implies a tertiary order of learning. Within social organizations, learning primarily elicits fear and resistance. In a 2002 interview with Harvard Business Review, American organizational psychologist Edgar H. Schein (2002, pp. 103—104) expressed this understanding in the following terms: bI believe that all learning is fundamentally coercive because you either have no choice, as is the case for children, or it is painful to replace something that is already there with some new learning. . . You can’t talk people out of their learning anxieties; they’re the basis for resistance to change.Q We live within paradigms, and it takes tremendous energy to break out of those paradigms and redraw cognitive maps. In order to facilitate the process, there is a need for techniques that help us deal with our weaknesses. As such, it proves helpful to have a framework (such as the one suggested in the final section of this article) that allows us to identify the paradigm in which we live, and provides us with ideas how we can escape this paradigm.

2.3. The economic concepts of equilibrium and bcreative destructionQ bRulesQ also have much in common with the economic doctrine of equilibrium, which teaches us to always bear in mind the possibility that competitive advantages can be eroded. Competitive advantages are nothing other than deviations from a state of perfect competition, and are the cause of dominant market positions that are associated with higher profits. These higher profits, however, attract fresh competition such that initial advantages are quickly evened out. Consider the frequent-flyer programs initially introduced by American Airlines in the 1980s. Inno-

D. zu Knyphausen-Aufsess et al. vative at the time, the incentives proved a competitive advantage for the company. Other airlines were quick to follow suit, however, and what was once a bunique selling propositionQ has become standard practice. Netscape offers another example. In 1995, the company brought the first web browser to the market and appeared able to pose a threat to Microsoft’s market dominance. When Microsoft spotted the challenge and sparked a bbrowser war,Q however, Netscape’s market share dwindled rapidly until, in early 1999, it was sold to AOL. It is no surety that early moves will be successful in the long run and that pioneers can reap the benefits of their innovative ideas, as Porter (1980), Teece, Pisano, and Shuen (1997), and Lieberman and Montgomery (1988) have rightly pointed out. On the other hand, as Christensen’s (1997) path-breaking work conveyed, a simple wait-and-see strategy is no viable alternative. There is a clear need for innovative and entrepreneurial activity (Schumpeter’s (1942) bcreative destructionQ) that enables us to break out of static equilibria and carve out an advantageous position. Nevertheless, it is a truism that new equilibrium statuses will emerge over time as initial advantages are eroded, and that we need a permanent and systematic reflection of the basic principles of our business.

2.4. Games Let us look at one final model: the games model. Games are defined by their rules. The previously mentioned offside rule in soccer is part of an extensive body of rules that, together, define the game of soccer. Similarly, we are all familiar with card games such as rummy or canasta. If we do not know how to play a game but want to learn it, we typically begin by studying the instructions in order to understand the rules. If we notice another player breaking the rules, we usually draw their attention to the fact. Strange as it may seem, players who break the rules are not taking the game seriously, and a game is usually only fun to play when we do take the rules seriously. A game can, of course, also get into a rut and grow boring. At this point, a time-out may be called and rule changes agreed upon. Developing new rules is itself a creative act. A set of rules works well if it ensures that the outcome of the game cannot be known in advance; this generates tension and excitement. Only under these conditions can all players compete to the best of their abilities and hope to win the game. Once the rules have been redefined, the game can start over. You think all this has nothing to do with business? Consider the class of motor sports that is most

Understanding and breaking the rules of business: Toward a systematic four-step process interesting to the majority of European sports enthusiasts: Formula 1 racing. Formula 1 is big business. The 10 firms that participate (including Toyota, BAR-Honda, Renault, Williams-BMW, McLaren Mercedes, and Ferrari) spend nearly a billion dollars a year on the circuit, in effort to prove (and improve) their technical excellence. For the right to broadcast races on free TV in Germany, the RTL channel is paying no less than 80 million euros a year from 2004 through 2007. Bernie Ecclestone, the strong man of Formula 1, is estimated to be worth around 5 billion dollars, while top driver Michael Schumacher has to get by on the modest income of 56 million euros a year: 38 million from Ferrari, 10.5 million from assorted sponsors, and 7.5 million from the sale of merchandise. Translated into a bstandard rate,Q the reigning world champion earns 3.5 million euros per race, or 11,900 euros per kilometer. Most people would probably settle for that. While Formula 1 (as well as NASCAR and other racing series) is big business, there is a problem: races have become boring in recent years, quite simply because bSchumiQ and Ferrari won too often. The more boring the bgameQ becomes, the more its commercial potential is undermined. This puts Ferrari and other top teams in a strange position: they are successful, and that is good, but if they are too successful, that might not be so good after all. In consultation with the SLEC, an organization controlled by Bernie Ecclestone (and in which various investment banks have held a stake since the Kirch Group was dismantled), the International Automobile Federation (FIA) agreed to changes to a number of rules as of the 2003 race season. These changes were intended to restore the element of excitement, and thereby shore up the sport’s marketing potential. Although the more successful teams were not happy about this move and actually threatened to start up their own series of races, it was nevertheless clear to everyone, including the teams themselves, that things could not go on as they had been. It was necessary to reach a new agreement on a number of issues, including revenue distribution from the marketing of Formula 1 racing. Since Ferrari was undisputedly the strongest team, all parties concerned were prepared to make up-front payments of 50 million dollars. The negotiations were a complex process whose end product, once again, was to be a new game; a game in which chances were distributed such that the outcome of virtually every race was no longer a foregone conclusion. Also, within this new constellation, the individual race teams would once again have an incentive to give their all to win the prize. Despite all these changes and the attempt to craft a new game, Michael Schumacher again

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became world champion in 2003. Consequently, the rules for the 2004 season were altered once more, especially with regard to the use of tires and the mode of qualification. Nonetheless, with Schumacher still as its top driver, Ferrari cruised to another championship title in 2004, this time by a wider margin than before. Since the battle to become the world’s number one therefore still lacked excitement, the organizers had no choice but to make further amendments to the rules of the 2005 season, in order to preserve the commercial potential of the sport. In the end, something happened: Ferrari was clearly outcompeted by Renault and McLaren-Mercedes, and their driver stars Fernando Alonso and Kimi Ra ¨nen. ¨ikko The modern world of professional sport is an exceptional case, as its rules are defined more explicitly and are more binding than in any bnormalQ business context. Yet, even in more mundane settings, situations can arise in which, in order to shape the competitive arena, companies are obliged to collaborate with other market players. In 1980, Intel was forced to license its 8086 chip to competitors, thereby giving them access to the market. Why? Because this was the only way the company could win IBM as a customer, as the large corporation did not want to make itself dependent upon a comparatively small supplier such as Intel. As a result, Big Blue insisted on the option of bsecond sourcing,Q and thereby tried to make the game more exciting. This example conveys an important message: When we define rules, we sometimes should collaborate with our competitors in order to produce an arena which creates value for the customers. This insight fits nicely with the idea of standards, which has become a stimulating area for economic analysis (Shapiro & Varian, 1999). In the end, the dialectic of understanding and breaking the rules implies very different facets. It is not only that we need a rigorous and, at the same time, critical thinking to understand and break rules, guided by a method that does not consider our psychological resistance against change. It is also that we have to keep in mind the very dynamics of competition, and sometimes the value of cooperation with our competitors when new rules are to be defined.

3. The relationship between rules and strategies The trouble with strategies and business models is that, in fast-moving markets, they have to be

374 changed very frequently. But how can such constant adaptation be ensured? Recently, the concept of bdynamic capabilityQ has been the subject of extensive debate (Eisenhardt & Martin, 2000; Teece et al., 1997). The term embraces processes such as product development, strategic decision-making, and commitment to and management of strategic alliances. In this context, our understanding of organizations themselves takes on a new meaning. Early approaches to strategic management concentrated on the pivotal aspect of strategy implementation. Now, however, it is becoming increasingly clear that organizations must create a context in which strategies can be generated and adapted. In other words, the strategic process is becoming the focus of attention, as has been observed by strategy scholars such as Pettigrew (2003) and Mintzberg (1994). In this context, strategy itself is no more than a set of simple rules by which to seize opportunities as they arise. In the words of Kathleen Eisenhardt and Donald Sull (2001, p. 116): bWhat is strategy? Like all effective strategies, strategy as simple rules is about being different. But that difference does not arise from tightly linked activity systems or leveraged core competencies, as in traditional strategies. It arises from focusing on key strategic processes and developing simple rules that shape those processes.Q From the strategic process perspective, the crucial factor is to select and bundle the strategic initiatives that emerge throughout the enterprise. It is important to know the rules of the business; however, it is equally important to try out departures from these rules in order to set oneself apart from rivals and secure competitive advantages. As mentioned previously, such advantages can often only be exploited for a short period of time, as competitors inevitably catch up. Nonetheless, potential for dynamic and longer-lasting competitive advantages is unleashed the moment the practice of breaking the rules is anchored in a company’s continuous improvement process. Rules are not normally broken bout of the blue.Q Indeed, finding the right rule-breaking strategy is a complex activity that will always be fraught with a measure of uncertainty. Precisely because the success (or failure) of a strategy may only become apparent in the long run, most risk-averse decision-makers try to avoid breaking the ground rules that prevail in their industry, preferring instead to toe the line. Logically, it is easier to break rules if such uncertainty can be scaled back. To promote rule-breaking, a process that can improve the prospects for success of creative strategies is needed.

D. zu Knyphausen-Aufsess et al. As discussed previously, we primarily learn within existing contexts; that is, we develop our strategies within the framework of given environments, such as a particular industry, legal constraints, et cetera. This framework also stakes out the natural limits of strategic creativity. Unable to look beyond the narrow confines of our own business, we remain blinkered by traditional patterns of thought; consequently, we only realize marginal, incremental changes to our strategies. That does not involve breaking any rules, however. To throw creative ideas into the strategy formulation ring, a company can involve experts from other industries in the process of strategy development. One common example is the practice of recruiting new senior executives from other industries to put fresh wind in the organization’s sails. Frustratingly, these people usually acclimatize very quickly to their new surroundings, whereupon the refreshing breeze decelerates to a ghostly calm. On the other hand, a constant game of musical chairs in the boardroom would not be the solution, either, and could prove very unsettling to the company. Another alternative is to hire consultants, whose broad experience and depth of knowledge can also be a rich source of new ideas. The downside to this arrangement is that, at some point, every project comes to an end, and the people who contributed the ideas and the stimulus do not usually stay with the company. The need, therefore, is to find a way for the organization to independently look beyond its backyard and derive innovative strategies of its own from what it sees and learns. To this end, we propose a new strategy development method we call the brule-breaking strategy creatorQ process. This process is a combination of tested consulting and venture capital tools derived from the practical experience and knowledge of the authors, and was developed in four years of close collaboration within the bAcademic NetworkQ of Roland Berger Strategy Consultants, a leading consulting company in Europe.

4. The brule-breaking strategy creatorQ process: Four steps to breaking the rules The rule-breaking strategy creator process can be broken down into the following steps, with Steps (1) and (2) deriving from consulting and Steps (3) and (4) from the venture capital scene: (1) Develop and maintain a generally valid framework for analysis and exploration;

Understanding and breaking the rules of business: Toward a systematic four-step process (2) Regularly combine the knowledge gained from the framework into innovative approaches and strategies; (3) Map the innovative approaches and strategies onto enterprise-specific opportunities (business models); and (4) Evaluate these opportunities and the underlying strategic considerations. The innovative combination of these tools integrates the capital market perspective with entrepreneurial aspects and creativity instruments, and utilizes them on the background of the analyzed, existing contexts within a richer strategy development process that minimizes the risk for a firm whilst maximizing the strategic creativity. In the end, this process will help raise overall firm performance through discovery and exploitation of new competitive advantages.

4.1. Step one The first step is to broaden the company’s horizons so that identified rules can be called into question. It is important to do this systematically so that newly gleaned information is not lost (e.g., when someone leaves the firm). The exploratory framework itself breaks down into a fixed sequence of six exploratory questions (see Fig. 1). Consider the following example: A German company wants to transform the capacity (sites, human resources, assets, etc.) it has built up over the years into a fresh competitive advantage. The superordinate theme (e.g., overcapacity) can be

split up into different segments by asking such questions as:

! What innovative ways are there to make work time more flexible? ! How can storage capacity that is only required seasonally be marketed to external companies?

Within the industry or country in question, it is fair to assume that all market players will adopt a relatively similar approach to this issue; regardless, maybe it is worthwhile broadening one’s horizons. Within the exploratory framework, these questions can be analyzed systematically in respect of different industries, countries, and even links in the value chain. In order to do so, the six dimensions of exploration, which are valid for all industries and all firms, have to be addressed. The six dimensions of exploration ask: (1) What are the existing rules of the game? (2) What alternative rules are there? (3) Why are these rules better (assuming that they are)? (4) What enablers are behind these alternative rules? (5) What drivers are behind these alternative rules? (6) How can these rules be implemented? Although these exploratory questions become more complex as they go along, the further an industry or country expands on a theme, the easier it becomes to answer the questions. As a result, existing knowledge about all kinds of issues in the world outside one’s own backyard becomes easy to

Context/superordinate theme

1

Exploratory questions (standardized)

Segment 1 Own Industry industry A

Industry B

Industry ...

Segment 2 Own Industry industry ...

Segment ... Own Industry industry ...

What rules currently exist in this business and lead to the prevalent strategies? What alternative rules/processes could be used to shape strategies? Why are these alternative rules better? What are the enablers that could create these alternative rules? What are the drivers that could create these alternative rules? How can these rule-breaking strategies be implemented?

Figure 1

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Step (1): General framework for analysis and exploration.

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D. zu Knyphausen-Aufsess et al.

standardize and collate systematically. It should be self-evident that this kind of exploratory framework can never be rigidly defined. It is a living entity that usually fills up slowly and never stops growing. Consultants use these kinds of tools to systematically file knowledge such that they can offer cross-industry solutions to their clients. By utilizing an exploratory framework, the German company in our example may well learn how copper mining companies in Australia approach work time issues and how food processing firms in India deal with seasonal storage requirements.

4.2. Step two The second step (see Fig. 2) kicks-off the creator concept by combining the observations culled from one or more exploratory frameworks. New information can thus be fashioned into creative strategic approaches. Harkening back to the previously mentioned principle of banything goes,Q it is important to apply the entire spectrum of creative technologies, including both systematic and logical approaches (e.g., morphological methods, problem loop analyses, relevance tree methodologies) and intuitive/creative methods (e.g., brainstorming, method 635, synectics). External experts (academics, consultants, and industry specialists) pick out certain observations and use them to confront senior management in a workshop context (e.g., could the Australian approach to work time issues be of relevance to our business and provide a possible competitive advantage?). This classic, everyday consulting exercise helps everyone concerned to identify new approaches. Any rulebreaking strategies that are rooted in other fields

and are thrown up by this exercise must be examined in light of the company in question.

4.3. Step three The challenge of the third step (see Fig. 2) involves mapping possible innovative strategies onto the existing business system and corporate situation so that new strategies and business opportunities can be derived. The managers involved have to develop an internal outlook on these strategies; in other words, they must become bintrapreneursQ who, to stay with the same example, draft new models for dealing with overcapacity (such as a group company that applies the kind of flexible work time models used by Australian copper mines, or that models a shared service/storage strategy of an Indian food processing firm). Such an internal outlook, and the resultant business opportunities, can only be gained if the company’s organizational and incentive structures are sufficiently conducive to innovation (Hamel, 1999). When this step is completed, the company will have emanated innovative business opportunities that could never have been formulated without the combined observations culled bbeyond its own backyard.Q From time to time, large corporations provide this within an incubator context: employees become intrapreneurs with the task and are allowed to take time and capital to work on new business models. With the Formula 1 and IBM/Intel cases in point, it is necessary to remain aware that these rule-breaking business opportunities can rely on fruitful cooperation with competitors or other players from outside the industry. While such cooperation, although technically feasible, does not always make sense, the

Creator concept 2

Module

3 Creative techniques

4 Internal perspective

Map general rule-breaking strategies onto the company's situation Establish an organizational and incentive culture that is conducive to innovation Develop creative/innovative opportunities

External perspective

Content

Combine the results of the general framework (cross-industry analysis) in new ways and adapt them along innovative lines

Result

General rule-breaking strategies

Company-specific rule-breaking strategies

Genuine business opportunities

Who

Experts, academics, consultants, managers

Consultants, managers

Fund managers, bankers, VCs, consultants

Figure 2

Evaluate these business opportunities and the underlying rule-breaking strategies from a capital market perspective

Steps (2)—(4): Utilizing the general framework within the creator concept.

Understanding and breaking the rules of business: Toward a systematic four-step process mere exercise of considering it illuminates what, in principle, is truly possible.

4.4. Step four In Step four (see Fig. 2), the business opportunities formulated in step three are evaluated, together with the underlying rule-breaking strategies. This exercise cannot be performed by company insiders for two reasons. Firstly, the company’s managers will usually already be actively involved in developing these opportunities to be evaluated. Secondly, rivalry between the company’s managers might prejudice fair evaluations. These two elements would create a conflict of interest, a context in which objective evaluation is unlikely. A sounder policy would be to have these opportunities evaluated by a number of experienced but neutral capital market experts (investment bankers, fund managers, consultants, and managers). Exposed to the relevant information, these experts only have one question to answer: Would you, yourself, work for or invest money in a firm that aims to break the rules in this way? This is the typical and tested question asked by everyone who thinks about engaging in a new business model. If the answer is affirmative, it does more than simply mitigate the uncertainties attached to nonconformity; it may also generate capital and/or management capacity!

5. Conclusions Rule-breaking is the flywheel in any and every industry. In the long run, only companies that break the rules will enjoy competitive advantages and substantial market success. There is, however, no guarantee that breaking the rules will always succeed. The approach described in this article can diminish the risks when rules are broken, without requiring the investment of more resources than are already earmarked for corporate development.

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