The wonder of the Amazon Kindle was not the technology. It was the business model that the device represented. Amazon’s move from books into general online retail was hardly surprising. One-click ordering was insightful. Free delivery with Amazon Prime was unexpected. But a move into hardware, against an established player like Sony, in a market that had never proven itself? And with a product that would certainly cannibalize Amazon’s sales of physical books? A brilliant, counterintuitive strategic move by Chairman Jeff Bezos and his management team.
Leveraging their relationships with publishers to jumpstart the eBook business and spread the Kindle standard to the Apple iPhone, they’ve created avenues for growth by re-writing the rules of the e-book world, taking focus away from devices and into their area of competence – a rich supply of well priced, desirable content a mouse click away.
Less adventurous companies look on and wonder how such pioneers soar past what had appeared to be immovable boundaries around their businesses. Brainstorming and similar approaches that endlessly recycle the same time-worn set of possibilities lead to paralysis. Approaches that seek to extend company capabilities into adjacent markets remain earthbound. But for achieving breakthroughs like Amazon’s there is no better method than testing “walls” and “fences. ”
Walls are the boundaries around any business that are assumed to be immovable – so much so that executive teams don’t even bother to approach them. But by challenging these assumptions teams discover that the walls are sometimes fences – boundaries that can in fact be moved, opening up strategic space for the company.
Watch Bob Frisch explain the concept of Walls and Fences:
You start by convening a team of high-potential executives from the second tier of management or below. These should be people unencumbered by history, who will question the very fundamentals of the business — the ones who, when told “you can’t do that”, are most likely to reply: “why not?”
UnitedHealth Group, like most insurers, had always required physicians to request approval before sending their patients into the hospital in non-emergency situations. If, for example, a patient needed a pacemaker for cardiac arrhythmia, the doctor had to show that the procedure was a ‘medical necessity’ before hospitalization was allowed. It was cumbersome for physicians, expensive to administer, and created uncertainty for patients. Yet it was standard industry procedure. How else could costs be controlled? It was an immovable boundary, a “wall” around the business.
UnitedHealth Group’s then Chairman appointed a team of executives, led by a physician relatively new to the insurance industry, to look for opportunities to “re-write the rules.” What they found was that admissions were almost never denied – doctors sent patients into the hospital when they had to. And observation of practice patterns could flag doctors over-using the system.
What the team also found was that what cost UnitedHealth Group, employers and patients money was re-admissions – patients going back into the hospital once they had been discharged.
And so UnitedHealth Group turned the situation around 180 degrees. They stopped pre-admission authorization requirements for almost all diseases, replacing it with a simple requirement that doctors inform them when a patient was being admitted. Instead of acting as a gatekeeper, they began to focus on the coordination of patient care to prevent readmission. Making sure there was a discharge plan. Arranging for homecare. Putting a return-to-work protocol in place. The same employees that had been screening admissions refocused almost completely on hospital discharge and ongoing patient care.
The result? Much less hassle for doctors. Lower anxiety for patients. The repositioning of UnitedHealth Group as a partner with both, rather than an adversary. And reduced total system costs through a dramatic decline in re-admissions. An immovable ‘wall’ that had always defined the American health insurance model was blown away.
You need a team with courage, creativity and an outsider’s perspective to push hard against walls. Once a team has been formed, they should start by soliciting from the top executive team and representatives of the company’s various geographies and markets a list of the ‘inviolable’ rules of the business.
The team will get plenty of examples – boundaries are well known. But they are rarely discussed and almost never questioned. Yet it is beyond those boundaries that opportunities lie.
The team winnows the list of presumed walls to a critical few. They then choose a promising one to see if it’s an immovable wall or a movable fence. For example, a division of a global financial services company was looking for growth. Expanding into banking services appeared to be a possibility – their customers wanted banking products. But one of the barriers around the business was a well understood prohibition against the company going into banking.
Instead of shying away from discussing it, the team decided to walk up to the barriers and test them. Like UnitedHealth Group, they asked why the barriers were there, what purpose they served, and whether they were actually barriers to growth. Under this kind of explicit questioning, it emerged that the real concern wasn’t banking, but top management was reluctant to bring the company under the supervision of additional regulatory agencies. Once the true nature and location of the wall had been established, a variety of products could be introduced that had never been seriously considered in the past.
In addition to sizing the opportunities beyond the wall, the team must also understand what will be required to move the wall, and the competencies of the company that will allow them to secure and hold the competitive space beyond. In Amazon’s case their relationships with publishers give them tremendous advantages over the emerging Google/Sony alliance.
If companies are to survive and thrive through the current recession, they must find ways to reinvent their businesses, open up new strategic space, and secure new sources of revenue. At the same time, they undoubtedly face more constraints. Knowing which are walls that can’t be moved, and which are fences that can, is more important than ever.
