The term “paradigm shift” was first coined by American philosopher Thomas Kuhn in his 1962 book The Structure of Scientific Revolutions. A paradigm shift describes a fundamental change in the basic concepts and experimental practices of how something works or is accomplished.
Understanding a paradigm shift
The term “paradigm shift” was first coined by American philosopher Thomas Kuhn in his 1962 book The Structure of Scientific Revolutions.
Kuhn used the term to articulate his views about how science changes over time, arguing that it does not evolve gradually toward a truth.
He was inspired by psychologist Jean Piaget, who described children’s development as a series of discrete stages punctuated by transitional periods.
As a result, Kuhn put forth two kinds of scientific change:
So-called normal science, which Kuhn argues is scientific work done within the bounds of an existing paradigm theory. Examples of these theories include electromagnetism, Darwin’s theory of evolution, and Newtonian physics.
Scientific revolution, or periods of rapid development within normal science but resulting in paradigm shifts.
Although once confined to the scientific discipline, paradigm shifts have made a seamless transition to popular culture, technology, manufacturing, and finance.
What causes a paradigm shift?
Kuhn noted that for a paradigm shift to occur, scientists must first be working under a paradigm theory.
This encompasses normal scientific work, including solving problems, collecting data, and making calculations.
However, normal scientific work sometimes uncovers anomalies that cannot be explained by the current paradigm.
Once a certain number of anomalies have been detected, individuals begin to question the paradigm resulting in what Kuhn calls a “crisis”.
In the 18th century, the fact that some metals gained mass during combustion contradicted the phlogiston theory – or a belief that combustible metals contained a substance called phlogiston that was released via combustion.
This contradiction led to a new theory being developed that combustion actually required oxygen.
In the 19th century, scientists failed to detect an invisible medium called ether which they thought explained the behavior of light and gravity.
This crisis resulted in the eventual formation of the theory of relativity by Albert Einstein.
Paradigm shifts in business
Paradigm shifts in business can be seen in many contexts and are usually caused by rapid advancements in technology and society.
Here is a look at some notable paradigm shifts in a business context:
Personalized marketing
Historical marketing efforts focused on reaching as many people as possible through TV, print, radio, and billboard advertising.
Although a more personalized form of marketing was proposed in the early 1990s, technology has only very recently allowed companies to market to individuals.
Spotify and Netflix have set a high standard with their personalized content recommendations.
Consumer trust
Consumers now expect more brand humanity from the organizations they do business with.
Stalwarts such as Macy’s and Adidas lost the trust of consumers due to a lack of transparency and data breaches.
The role of trust in consumer expectations has been made doubly important in the wake of the COVID-19 pandemic.
Companies such as Amazon, Google, and many food delivery companies were held in high regard for adapting their products and services within a pandemic framework.
Cultural and technological change
Brands that resist or ignore paradigm shifts associated with cultural or technological change are doomed to fail.
Blockbuster, Nokia, and BlackBerry are all prime examples.
The same can be said of horse and cart operators before the automobile attained critical mass in the early 20th century.
Telecommunications
The pandemic has also caused a paradigm shift in the way we work. Companies like Zoom have benefitted tremendously from the need for remote communication capability.
Perhaps more to the point, remote work is now seen as a viable alternative to working in an office in many industries.
From sales funnels to flywheels
Before the web was a primary way to distribute a product and service, companies focused on so-called sales funnels.
The sales funnel is a model used in marketing to represent an ideal, potential journey that potential customers go through before becoming actual customers. As a representation, it is also often an approximation, that helps marketing and sales teams structure their processes at scale, thus building repeatable sales and marketing tactics to convert customers.
While sales funnel are still extremely useful, especially to prioritize sales activities.
The virtuous cycle is a positive loop or a set of positive loops that trigger a non-linear growth. Indeed, in the context of digital platforms, virtuous cycles – also defined as flywheel models – help companies capture more market shares by accelerating growth. The classic example is Amazon’s lower prices driving more consumers, driving more sellers, thus improving variety and convenience, thus accelerating growth.
Today successful business players have learned to switch their paradigm from linear funnels to non-linear feedback loops and flywheels.
Indeed, while the flywheel seems to follow linear logic, in reality, it creates momentum.
In contrast, the result of following processes skewed toward a flywheel unlocks, over time, non-linear growth!
From linear to platforms
In a linear business model, you build a product, sell it, and get more nad more customers.
In a platform business model, which represented a paradigm shift of the last twenty years, you need to enable a business ecosystem to flourish in order to make money.
A platform business model generates value by enabling interactions between people, groups, and users by leveraging network effects. Platform business models usually comprise two sides: supply and demand. Kicking off the interactions between those two sides is one of the crucial elements for a platform business model success.
Platform business models like Airbnb, Uber, eBay, and Amazon all make money as a result of the transactions happening on top of the platform/marketplace.
From economies of scale to network effects
Another paradigm shift, when going from physical to digital business models is the move from economies of scale to network effects.
Indeed, in the physical world, as the theory goes, as a companies scale, it can take advantage of the achieved scale by lowering the cost to further grow. the business, which is known as economies of scale.
In Economics, Economies of Scale is a theory for which, as companies grow, they gain cost advantages. More precisely, companies manage to benefit from these cost advantages as they grow, due to increased efficiency in production. Thus, as companies scale and increase production, a subsequent decrease in the costs associated with it will help the organization scale further.
A network effect is a phenomenon in which as more people or users join a platform, the more the value of the service offered by the platform improves for those joining afterward.
Key takeaways
A paradigm shift describes a fundamental change in the concepts or best practices of a way of operating. It was first described in the context of scientific development by Thomas Kuhn but applies to many other industries.
A paradigm shift is precipitated by anomalies that cannot be explained by the prevailing paradigm theory. Multiple anomalies cause a crisis and subsequent shift in thinking.
For businesses, paradigm shifts are apparent in personalized marketing, consumer trust and expectations, telecommunications, and cultural or technological change.
Business model innovation is about increasing the success of an organization with existing products and technologies by crafting a compelling value proposition able to propel a new business model to scale up customers and create a lasting competitive advantage. And it all starts by mastering the key customers.
The innovation loop is a methodology/framework derived from the Bell Labs, which produced innovation at scale throughout the 20th century. They learned how to leverage a hybrid innovation management model based on science, invention, engineering, and manufacturing at scale. By leveraging individual genius, creativity, and small/large groups.
According to how well defined is the problem and how well defined the domain, we have four main types of innovations: basic research (problem and domain or not well defined); breakthrough innovation (domain is not well defined, the problem is well defined); sustaining innovation (both problem and domain are well defined); and disruptive innovation (domain is well defined, the problem is not well defined).
That is a process that requires a continuous feedback loop to develop a valuable product and build a viable business model. Continuous innovation is a mindset where products and services are designed and delivered to tune them around the customers’ problem and not the technical solution of its founders.
Disruptive innovation as a term was first described by Clayton M. Christensen, an American academic and business consultant whom The Economist called “the most influential management thinker of his time.” Disruptive innovation describes the process by which a product or service takes hold at the bottom of a market and eventually displaces established competitors, products, firms, or alliances.
In a business world driven by technology and digitalization, competition is much more fluid, as innovation becomes a bottom-up approach that can come from anywhere. Thus, making it much harder to define the boundaries of existing markets. Therefore, a proper business competition analysis looks at customer, technology, distribution, and financial model overlaps. While at the same time looking at future potential intersections among industries that in the short-term seem unrelated.
Technological modeling is a discipline to provide the basis for companies to sustain innovation, thus developing incremental products. While also looking at breakthrough innovative products that can pave the way for long-term success. In a sort of Barbell Strategy, technological modeling suggests having a two-sided approach, on the one hand, to keep sustaining continuous innovation as a core part of the business model. On the other hand, it places bets on future developments that have the potential to break through and take a leap forward.
Sociologist E.M Rogers developed the Diffusion of Innovation Theory in 1962 with the premise that with enough time, tech products are adopted by wider society as a whole. People adopting those technologies are divided according to their psychologic profiles in five groups: innovators, early adopters, early majority, late majority, and laggards.
In the TED talk entitled “creative problem-solving in the face of extreme limits” Navi Radjou defined frugal innovation as “the ability to create more economic and social value using fewer resources. Frugal innovation is not about making do; it’s about making things better.” Indian people call it Jugaad, a Hindi word that means finding inexpensive solutions based on existing scarce resources to solve problems smartly.
A consumer brand company like Procter & Gamble (P&G) defines “Constructive Disruption” as: a willingness to change, adapt, and create new trends and technologies that will shape our industry for the future. According to P&G, it moves around four pillars: lean innovation, brand building, supply chain, and digitalization & data analytics.
In the FourWeekMBA growth matrix, you can apply growth for existing customers by tackling the same problems (gain mode). Or by tackling existing problems, for new customers (expand mode). Or by tackling new problems for existing customers (extend mode). Or perhaps by tackling whole new problems for new customers (reinvent mode).
An innovation funnel is a tool or process ensuring only the best ideas are executed. In a metaphorical sense, the funnel screens innovative ideas for viability so that only the best products, processes, or business models are launched to the market. An innovation funnel provides a framework for the screening and testing of innovative ideas for viability.
Tim Brown, Executive Chair of IDEO, defined design thinking as “a human-centered approach to innovation that draws from the designer’s toolkit to integrate the needs of people, the possibilities of technology, and the requirements for business success.” Therefore, desirability, feasibility, and viability are balanced to solve critical problems.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
