Monday, October 22, 2007

The Levee in Business: What do Expedia, Wikipedia, Skype and Wal-Mart know that you don't?

A novel concept that has ramifications for strengthening a business model, as well as for innovating new business models

Digital Equipment Corporation (DEC) was a hallowed name in the technology industry during the 1960s and ’70s. However, faced with open technologies from IBM, Microsoft, DEC went into a decline from which it never recovered.

In the mid-1990s, Dell Computer introduced its direct sales, build-to-order model for selling PCs, bypassing resellers, retailers, and other industry intermediaries with resounding success. Within a few years, Dell grew into a mighty, multibillion dollar company.

Can you tell what's the common phenomenon underlying these two apparently diverse sequences of events? It is the levee in business - the abstract and often subtle “wall” that inhibits the free play of market forces, and holds environmental pressures from being transmitted to a business.

As the two examples hint, the levee in business is two-sided. Left unattended, the levee can be a disruptor to business performance. However there’s another, more exciting, reason to learn
about levees: used creatively, the levee can also serve as a basis for innovation. We’ve found that significant business-model innovation is often driven by would-be marketplace entrants or
audacious challengers breaking down the levees shielding entrenched players.

Although the levee in business is a new abstraction being defined by us, it is clear that Expedia, Travelocity, Wikipedia, Skype, Zopa, Wal-Mart and Dell are just a few of the companies that have innovated by using the principles underlying this concept. For details, read our article in Business Strategy Review (needs subscription*), or in Consulting magazine.

Levees of the nature we describe currently receive very little focus in organizational discourse. That needs to change.
* Or drop me a line and I will check if it is feasible to get you access to this article.