CEOs can’t tweak their way to innovation

May 22, 2012, 6:36 PM UTC

FORTUNE — Sometimes tweaks aren’t enough. Sometimes nothing short of reinventing yourself, your organization, or your community is called for. The start of the 21st century is one of those times. If anything is certain about the new millennium it’s the pace of change. New technology relentlessly hurdles into our lives. Ideas and practices travel around the world at Internet speed. Social media enables individuals to self organize and reorganize in ways unimaginable in the 20th century. We also live in anxious times marked by economic uncertainty but one thing is clear, relevancy is more fleeting than ever. How to stay relevant in a changing and uncertain world is one of the most important questions of our time.

Thriving in the midst of today’s frenetic pace of change requires a new set of approaches and tools. Incremental change may have been enough at the end of an industrial era marked by me-too products and services, process re-engineering, best practices, benchmarks, and continuous improvement. We have built institutions that are far better at share taking than at market making. We have become really good at tweaks. There are tons of books, experts, and tools to help us make marginal improvements in the way things work today and to fight it out with existing competitors for one more share point. But how do we become market makers? Incremental change may be necessary but it isn’t sufficient for the 21st century defined by next practices, disruptive technologies, market making, and transformation.

In the face of a serious disruptive threat most leaders do what they are comfortable with and know how to do, they strengthen and become even more entrenched in their current business models. They add new products and services to the current model. They deploy technology to strengthen current capabilities. They extend the current business model into new markets. And they try to create favorable laws and go to court to block new business models. These strategies may create value in the short-term but none of these efforts to strengthen existing business models are effective for long in the face of a disruptive competitor that is changing the way value is created, delivered, and captured through an entirely new business model. Disruption is now the norm instead of the exception.

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Leaders could get away with blindly focusing on a single business model in the 20th century when business models rarely changed. Most industrial era leaders never had to change their business model. One model worked throughout their entire careers. They could focus on improving their market position and competitiveness by making incremental improvements to the existing model. Disruptive threats were rare and could be safely ignored. Not so in the 21st century when the half-life or longevity of a business model is decreasing. Business models just don’t last as long as they used to. New players are rapidly emerging, enabled by disruptive technology, refusing to play by industrial era rules. Business model innovators aren’t constrained by existing business models. Business model innovation is becoming the new strategic imperative for all organization leaders. But how do you transform a business model while still living in the current one?

Transformation is hard. We have to make it easier by creating the conditions for ongoing experimentation. It’s easy to sketch a new business model on the whiteboard. It’s much harder to take the concept off of the whiteboard and put it in to the real world. We spend far too much time thinking and planning and nowhere near enough time experimenting in the real world to see what works. We need to try more stuff. We can’t possible know if a new business model idea will work sitting in a conference room. We have to create the conditions in the real world where we can do R&D for new business models. If we want to stay relevant in the 21st century we have to experiment all the time. Leading organizations will have several business model experiments going on at all times.

The real trick is creating a business model innovation factory where technologies and capabilities can be remixed in new combinations to deliver value. The imperative is to do R&D for new business models. Not just concepts on a whiteboard or in a consulting deck but R&D in the real world to explore the viability of a new business model in real market conditions. Not just tweaks of the current business model but entirely new ways to create, deliver, and capture value. Organizations need a business model innovation factory to explore new business models unconstrained by the current one.

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It’s a great time to be a business model innovator. This is the innovator’s day. The good news is that during turbulent economic times everyone looks to innovators for new solutions. The bad news is that we have turned innovation into a buzzword. Everyone is an innovator and everything is an innovation. And of course when that happens no one and nothing is. We have to get below the buzzwords.

This piece is adapted from The Business Model Innovation Factory. Saul Kaplan is the author of The Business Model Innovation Factory.  He is the founder and chief catalyst of theBusiness Innovation Factory (BIF) in Providence, RI, and blogs regularly at It’s Saul Connected. Follow him on Twitter at @skap5