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ОглавлениеSix feet, four inches tall, gangly, but hunched now over his desk as he pens eighty-six meticulously written pages in fulfillment of his duties spelled out in Article II, section 3, of the Constitution of the United States of America. Nine hundred twenty-seven days before, he wrested his own party’s nomination from three better-known and more privileged rivals—William H. Seward, Salmon P. Chase, and Edward Bates—and began to change one of the great losing streaks in American politics. Depending on how you count, he had lost three or five or, some even argue, as many eight elections before rising to the highest office in the land.
One friend later observes the author’s “whole soul” seems consumed in the writing of the words contained in his eighty-six-page document. In this era, the author’s message will be hand-delivered and read aloud not by him but by the Secretary of the Senate. Only in the next century will the US president’s State of the Union Address become a spectacle in which the American world leader stands before his nation via radio and then television, hoping not merely to report but to inspire.
The message of December 1, 1862 follows a crushing defeat of the author’s own party in the mid-term elections, new and escalating cabinet power struggles, political unrest, and the horrors of Antietam, the bloodiest battle up to that point in the American Civil War.
Thirty days later, the author will sign one of the most famous edicts in the history of any nation: The Emancipation Proclamation. But the context for that signature to come must now be established with his own thinking, his own message, and with his own words, which include a long and fact-laden report on the progress of the war and the nation’s governance, words that contain some of history’s most famous statements and, in 1942, will inspire composer Aaron Copland to borrow excerpts in his evocative Lincoln Portrait. Here is a small part of what the author wrote: “The dogmas of the quiet past are inadequate to the stormy present. The occasion is piled high with difficulty, and we must rise with the occasion. As our case is new, so we must think anew and act anew.”
At America’s darkest of dark hours, no less a leadership authority than the sixteenth President of the United States, Abraham Lincoln, calls on his countrymen to “think anew and act anew.” And today, more than a century and a half later, in governance and business, so are we once more called.
Why don’t we just call it “Edsel”?
—Ernest R. Breech, Board Chairman, the Ford Motor Company
In the history of modern business, there is one failure that burns above the rest in symbolizing utter defeat. The trouble begins with the name—the name Henry Ford gave to his son, who had served as Ford Motor Company president from 1919 until his death from metastatic stomach cancer in 1943. For a person, the name was unusual, but not as bad as, say, Egbert or Poindexter. But for a car, Edsel rhymed with Lemon.
Remarkably, Ford Motor management put a lot of thought into it—or, rather, paid Foote, Cone & Belding to put a lot of thought into it. The advertising giant put so much thought into it that they came up with a laundry list of 6,000 names, and, as if that were not enough, Ford marketing research manager David Wallace asked avant-garde American poet Marianne Moore to make suggestions. These included “Utopian Turtletop,” “Pastelogram,” “Turcotinga,” “Resilient Bullet,” “Andante con Moto,” “The Intelligent Whale,” “Varsity Stroke,” and, my personal favorite, the “Mongoose Civique.” In the end, Ford chairman Ernest Breech, who complained that he had hired Foote, Cone to come up with a name, not 6,000, ended the search by surrendering: “Why don’t we just call it Edsel?” Even the Ford family objected. No matter. Edsel it became.
Even today, if you send your browser in search of “Edsel” and gaze upon a picture of the car, you will find that an uncomfortable chill runs down your spine. It just looks wrong. Feels wrong, awfully wrong, like a high school chem lab experiment gone dreadfully, stinkily awry.
So, cast your imagination back to the late 1940s for the rarely told story of one of industry’s most earnest misfires and America’s single most famous innovation and marketing failure—a seventy-year-old inability to think anew.
The abridged narrative goes like this: The Ford Motor Company set out to create a car affordable for middle-class Americans that offered “futuristic” technology and looks to match. Great notion, but the two-lane blacktop to hell is paved with good intentions. Timing, design, marketing, and the cold dead hand of corporate incumbency transformed laudable aspiration into an unexpected, catastrophic, but well-deserved flop. Intent on innovating, Ford failed to follow through and thereby turned an innovative intention into a malignantly half-assed automotive punchline. Produced for only three years, which turned out to be three years too many, the Edsel achieved immortality as a symbol of marketing and innovation misjudgment.
Let’s turn back to 1948. Henry Ford II and his top executives order what will later be called the “Forward Product Planning Committee” to begin researching design and production of a new medium-priced car to capture as much market share as possible from industry front-runner General Motors. Ford management’s theory is that GM’s wide range of price offerings is contributing to its success. The Korean War, between 1950 and 1953, breaks Ford’s momentum on the project, but, nevertheless, the company performs a marketing study in 1952 that confirms an opening in the automobile industry’s middle market. It is a gap of opportunity between the bottom-priced Ford and the higher-priced Mercury.
Over the next two years, the company founded by the innovator of innovators, Henry Ford, seeks to design and manufacture this “medium-priced” vehicle for somewhere between $2,000 and $4,000—a target lying in the crease between discount and luxury buyers. The category Ford has in mind is one the company terms “young executives.” Bogged down during the uncertainty of the Korean conflict, work chugged back into motion in 1954, when leadership on the project is transferred from the company’s engineers to its stylists.
From the beginning, then, the project is more about styling than technical substance, more about sizzle than steak. The point is that as Americans enjoyed their postwar mobility, they also came to crave symbols of status and success—emblems of affluence. So, more than ever before, style is selling automobiles. Little wonder that 1955 is labeled “the Year of the Car.” In America, manufacturers sell a record 7,169,908 automobiles. And in this Year of the Car, Ford’s rival, General Motors, sees its stock roar. It is in this desperate context that Ford focuses on what it calls the “E-car,” short for “experimental car.” Figuring that it will take something “special” to beat GM, on April 18, 1955, management assigns the task of design, development, and launch to its “Special Products Division.”
Headed by executive Dick Krafve, eager to make a name for himself, the mission is to innovate a car to match or exceed the Ford Thunderbird, a model then enjoying excellent sales—something executives believe is at least in part being driven by the car’s name, itself a product of extensive scientific research.
Strike one. Behind Thunderbird there was thought. Behind Edsel there is Henry Ford’s prematurely dead son.
After two years of work and at least a quarter of a billion 1957 dollars (the equivalent of 2.187 billion 2018 dollars), the Edsel is born in September of 1957. It brings with it a daunting ROI. Ford needs to sell 200,000 cars during the first year to begin to recoup its investment. The number sales actually hit is far different. Over the next two years and two months, the company sells roughly 100,000 Edsels, losing some $350 million. In fact, in a period of fewer than 800 days, Ford manages to lose $3,200 for every Edsel sold—basically the cost of the car itself.
So, the folks at Ford made just about every mistake possible. But even what they could not control moved against them. Conceived in a boom time for auto sales, the car was launched during an economic recession that hit Detroit especially hard. All automakers in 1957 saw sales dip to between 75 and 50 percent of 1956 sales. And Ford managed to make this economic affliction worse by undercutting sales of the mid-priced Edsel with the ill-timed introduction of another mid-priced car, the Ford Fairlane, released just one year before. The Fairlane made no pretense to innovation, but it was a reasonably handsome vehicle that sold for less than the Edsel and was manifestly the better value. Consumers perceived the Fairlane for what it was—essentially an honest car.
By contrast, the Edsel not only failed to be special, it failed to be good. Its few true innovations served only to make it worse. Pushbuttons replaced the shifter for the automatic transmission. The buttons were mounted on the steering wheel hub, where the horn button was expected. This ergonomic faux pas resulted in many drivers shifting gears when they wanted to honk the horn. Another shortsighted design decision was embodied in the taillights of the 1958 Edsel station wagons. They were shaped like boomerangs and positioned in such a way that they created a terrible problem when the turn signals were operated. From a distance, the left turn signal looked like an arrow pointing right, and the right looked like an arrow pointing left. Oops.
In 1959, Ford brought in Robert McNamara as the first company president whose name was not Ford. He was supposed to turn the company around, and he began to cut Edsel’s losses by ditching the separate Edsel division and consolidating the line into a single Mercury, Edsel, Lincoln (“M-E-L”) Division. McNamara pushed for a redesign to make the car look more like other Ford models. By 1960, the final year of its production, the Edsel was nothing more than a Ford with Edsel trim. That was just as well, since 1959 saw Edsel sales stall below forty-five thousand and McNamara cut the extravagant Edsel ad budget to near zero for 1960. Only 2,846 Edsels were sold in the automobile’s third and final year.
Requiem for a Lemon
With the wisdom of hindsight, what can we innovative innovators learn from the sad tale of the Edsel? Six lessons, to which we will return again and again.
Lesson One: Remember Perceptions Rule
The power of using consumer perceptions as your starting point is fundamental to Peter Drucker’s strategic focus on marketing and innovation. It is also at the heart of my argument about today’s need to innovate innovation itself.
Business Adventures: Twelve Classic Tales from the World of Wall Street, by John Brooks, is among the favorite business books of one of my former clients, Microsoft founder Bill Gates, and of Berkshire Hathaway founder Warren Buffett. Brooks offers a convincing and detailed argument to debunk the legend that the Edsel’s marketing and innovation were based on scientific research. There was research, but nobody paid much attention to it. Then, when it came to manufacturing the car, what little of the research that went into design was mostly discarded so the car could be built on an existing chassis using existing machine tools and assembly lines. At a very basic level, therefore, the Edsel was a failure of both marketing and innovation. While marketing and innovation are together critical, trying to market a product shorn of any consumer-inspired innovation is a forlorn hope.
The blindness of Ford leadership did not prove temporary. Even after Edsel’s failure, J. C. Doyle, an Edsel marketing manager, steadfastly refused to learn anything about the power of consumer perceptions. Years after the demise of the Edsel, Utah congressman Mo Udall remarked the day after he lost a particularly close election: “The people have spoken, the bastards!” Like Udall, Doyle concluded the people had spoken (the bastards!) and, to his dying day, he blamed the dopey American public for the Edsel’s failed launch. As he told Brooks: “People weren’t in the mood for the Edsel. Which is a mystery to me. What they’d been buying for several years encouraged the industry to build exactly this kind of car. We gave it to them, and they wouldn’t take it. Well, they shouldn’t have acted like that… And now the public wants these little beetles. I don’t get it!”
If we look at Ford’s large market study of 1952 and the work of its “Forward Product Planning Committee” in 1954, it becomes apparent that, in designing the Edsel, Ford was focusing not so much on what consumers wanted, but on the gap between the company’s offerings and those of its competitors. Ford executives should have been obsessed with potential customers. Instead, they were obsessed with their competitors. In single-mindedly concentrating on producing a mid-priced vehicle, they built a car for their competitors, not their customers. As former Procter & Gamble Chairman A. G. Lafley observed, there is a fundamental difference between competitor-focused companies and customer-focused companies. For example, in phone manufacturing, a competitor-focused company says they are in the business of “making smartphones.” By contrast, a customer-focused company believes they are in the business of “connecting people and enabling communications any place, anytime….”
In fact, Brooks points out the market research was simply ignored, discarded, and replaced by whim, intuition, personal agenda, bureaucratic politics, plain-old guesswork, and, later, some old-fashioned snake-oil-selling methodologies.
The lesson: Successful innovation and business growth begin and end with consumer perceptions.
Lesson Two: Be Different or Be Damned
As my former client, The Coca-Cola Company chairman Roberto Goizueta, once advised, “Be different or be damned.” Notwithstanding its jarring looks, the Edsel actually represented a whole heap of same-old, same-old—particularly under the hood and from the inside-out. The January 1958 issue of Consumer Reports gave the Edsel its most damaging review. The editors hit it hard for sameness. Worse, they educated some 800,000 subscribers—and potential Edsel buyers—on what made the car tick. It “has no important advantages over other brands,” they wrote. “The car is almost entirely conventional in construction.… The amount of shake present in this Corsair [the next-to-highest Edsel trim level] body on rough roads—which wasn’t long in making itself heard as squeaks and rattles—went well beyond any acceptable limit… The Corsair’s handling qualities—sluggish, over-slow steering, sway and lean on turns, and a general detached-from-the-road feel—are, to put it mildly, without distinction.” Ugh.
And just when you think it cannot get worse, the Edsel came onto the market with another mortal wound, entirely self-inflicted. The vehicle was offered in eighteen different trim levels—Ranger, Pacer, Corsair, Citation, twenty-four door-hardtop, sedan, wagon, convertibles, six or nine passengers, and so on—smothering consumers in a confusing array of choice, far beyond what any sane buyer could want. Largely consisting of distinctions without differences, the lack of focus left consumers paralyzed, which is not what you want when the object is to get a showroom visitor to reach for his checkbook. When variety becomes a blur, indifference cancels out differentiation.
The thing is, Ford executives were less interested in designing and refining a distinctive product, image, and character and more intent on making the Edsel everything at once. Think of this as lazy innovation and lazy marketing, a dreary combination if there ever was one, shining a light on everything and everyone rather than focusing the spot on what is core to the success of your mission. The “everything approach” is easier, but doomed. In the words of Prussian monarch and strategic genius Frederick the Great: “He who defends everything defends nothing.” If Der Alte Fritz could have seen an Edsel, he might have noted, doubtless in disgust, that it indeed defends nothing and offends just about everyone.
The lesson: A lack of focused differentiation will throttle any effort at innovative breakthrough.
Lesson Three: Innovate Forward
As bad an idea as it represented, the Edsel’s pushbutton transmission was at least capable of forward and reverse. Nevertheless, the car was resolutely aimed backwards. Whereas innovation is driven by forward momentum, the Edsel and its marketing were all about rolling to the rear. The car represented tried and tired conventional engineering wrapped in subjectively unattractive design billed as futuristic. Fueled by engineering sameness, it was promoted with depressingly conventional marketing strategies. As if to echo General of the Army Omar Bradley’s famous 1951 rebuke concerning Douglas MacArthur’s desire to extend the Korean War into China—“It is the wrong war, at the wrong place, at the wrong time, and with the wrong enemy.” Time magazine in 1958 called the Edsel, “The wrong car for the wrong market at the wrong time.”
Time was not just blowing rhetorical smoke. For instance, when the Edsel was on the drawing board, consumers seemed intensely focused on buying “big” and “bigger.” By 1958, when the car finally limped off the assembly line, these same consumers were starting to look for smaller economy cars. The public’s interest in gigantic, big-fin, chrome-encrusted, gas-guzzling cars was going stale. New, smaller, future-focused cars included the VW Beetle, the Nash Rambler, and the Studebaker Lark.
Congenitally conservative and shackled to the glacial pace of bureaucratic decision-making concerning matters of design and technology, Ford was innovating backward, not forward. It was not just that Ford suffered from an epidemic of wry neck, in which every head was turned backward and incapable of looking forward, the company’s processes—planning, design, production—moved at the pace of a mastodon. Massive time lags between every step meant research findings were about as fresh as moldy bread by the time it came to apply them. During the two interminable years between conception and delivery, consumer trends toward smaller economy cars roared in like a rip tide, pulling the Edsel deeper out into the briny depths of oblivion.
The Edsel emerges for us as an argument for the kind of research approach I have used for such clients as The Coca-Cola Company, McDonald’s, Microsoft, American Express, Verizon, KPMG, Nike, and many others. Importantly, this was not research, but pre-search—hypothesis and scenario testing rolled out into the future, pulling consumers as far forward as possible in their perception and thinking, driving market research to anticipate rather than react to consumer trends. Asking consumers, in effect, what will you want instead of what did you want helps us understand perceptions, attitudes, and behaviors and, most importantly, what might move consumers going forward.
The lesson: Aim your research and thinking forward, not backward, and put to work the same level of agility in dealing with change that today’s consumers bring to their everyday lives.
Lesson Four: Transform Your Business
I argue in this book for a wide-angle view of innovation, far wider than your company’s products, services, and technologies. Successful innovation today must take in a company’s business model as well as the platform on which that model is implemented. Today, it is the platform that will drive breakthroughs and success.
Consider an example detailed in Ron Adner’s excellent book, The Wide Lens: A New Strategy for Innovation. In the 1990s, Michelin innovated the self-inflating run-flat tire. Sounds like a breakthrough if there ever was one. But Adner shows how Michelin’s innovation process failed to contemplate, much less understand, how innovation must be adopted by the larger ecosystem into which it is delivered. Michelin’s 1990s innovation was a technological breakthrough, but the innovation fell short of commercial breakthrough because repair shops, auto dealers, and auto manufacturers were not prepared to accommodate run-flat tires. Failure to innovate beyond the confines of your business model—failure to innovate the required platform out in the ecosystem—will doom success.
Return to the Edsel. The “car of the future” brought with it widespread confusion in terms of workers, parts, and processes. Moreover, self-sabotaging mistakes—the misguided attempt to build the “new” Edsel on assembly lines also assigned to turn out “old” standbys—landed right inside the Edsel engines and drive trains, which became proverbial for their unreliable mechanics, missing parts, and other failures of engineering and quality control. It got so bad that Ford began selling Edsels with a kit of extra parts packed in the trunk, along with instructions to dealer service departments on how to use them.
And, oh yes, the dealers. Ford wanted to brand the Edsel as special. Instead of making it special, however, Ford snatched away ownership of the Edsel from its own dealership system and added a new category of dealer to sell the Edsel exclusively. This uniquely self-inflicted orgy of cannibalism ate away at Ford’s own long-established selling system. One thinks of the ancient Roman emperor who, when the people turned against him, settled into a warm bath, sliced open the veins in his wrist, and bled himself peacefully to death. Just so, Ford sapped away the force of synergy by not merely failing to leverage its existing dealer network, but by making such leverage impossible. This setup heaped inertia where momentum should have been at the very moment of the Edsel’s launch.
And for those cars that did manage to drive off the showroom floor and into some suburban garage, their owners were quickly confronted by two things: electrical and mechanical problems plus dealer mechanics unequipped to handle them. The much-ballyhooed and universally hated “Tele-Touch Transmissions” presented customers with problems and dealers without solutions.
Amid the unfolding scenario of disappointment, Ford pressed dealerships to pre-order large quantities of Edsels in anticipation of a crush of demand. When the demand failed to materialize, retreating, and finally turning into outright rout, dealers rebelled, and the entire system, along with Ford’s business model, seized up like an Edsel leaking dry of oil.
The lesson: In today’s hyper-change environment, wide-angle, continual strategic transformation of your business model is not optional, but mandatory to marketing and innovation success.
Lesson Five: Remember—Context Is Everything
As with so many failures of marketing and innovation, the Edsel was launched without proper regard for context. Two adages apply:
1. Timing is everything.
2. You can do the right thing at the wrong time, and it will be the wrong thing.
In a failure to understand the context into which they were selling, Ford made the mistake of moving heaven and earth to maintain consumer secrecy in conducting its market research. This was the same error The Coca-Cola Company made in designing and executing research for “New Coke” in the mid-1980s. Both Ford and Coke focused on what was for them “today,” but it was, more accurately, “yesterday.” In both cases, Ford and Coke failed to imagine, anticipate, and market test the consumer world of “tomorrow,” the context into which they will be selling. They failed to undertake pre-search.
And it was even worse. The companies not only failed to look ahead to anticipate where their markets were heading, but both Ford and Coke failed in all their market research to test, analyze, and understand fully the larger context of how their product was to be positioned in its marketplace. Their obsession with secrecy meant they did not want to risk revealing and testing with consumers in market research the fundamental and complete offering that was Edsel, or the idea that New Coke will completely replace Coke Classic. In quest of secrecy, executives denied their company the real-world consumer insights that are the very reason for market testing. Secrecy superseded context.
Coca-Cola focused its research mainly on the “Pepsi vs. Coke” dimension of blind taste tests. And executives discovered the sweeter New Coke began faring better against its Coke archrival Pepsi than did Coke Classic. But, by omitting the key fact that New Coke will take away Coke Classic from its loyal drinkers, the company robbed itself of any meaningful measurement of consumer preference within this larger, crucial context.
Some thirty years earlier, Ford made the same mistake with its Edsel research. Like Coke, Ford was obsessed with secrecy, and so the company’s endless market research never presented the entire Edsel package to respondents. The look, feel, brand, name, technical features, mechanics, drive dynamics—none of this was laid out. The equation was presented in fragments.
The absence of context left one thing both companies had in abundance: self-centered arrogance—a belief that top executives knew better than anyone else or any kind of market analysis. In the end, it was upon this commodity that most of the key internal decisions were made. Ford, for instance, failed to factor in a market and economy clearly changing during the months leading up to Edsel’s release. Rather than adjust to the market, Ford released the car exactly as planned in the context of a different time, a different economy, and a different marketplace. More than three decades later, The Coca-Cola Company Chairman Roberto Goizueta faced a hostile press conference at which he announced the arrival of New Coke. Here, for the first time, the company’s leader learned that media and consumers were uniting in their outrage at having something iconic taken from them without so much as an if-you-please.
In both cases, corporate arrogance was as hard to shed as a poker tell. It polluted any sense of the marketplace and descended on corporate vision like an old-school London fog. Arrogance, not the consumer, permeated all aspects of developing and marketing the Edsel and New Coke.
In addition, part of understanding and defining context involves the strategic principle that everything communicates. Even the smallest detail of marketing or innovation communicates loudly and profoundly. A single contradiction between promise and reality, once noticed by consumers, can undo hundreds of millions of dollars of marketing. In the case of Edsel, glaring assembly line errors, consumer confusion between the horn button and gear shift, misdirected turn signals, early and chronic oil leaks, sticking hoods, trunks that failed to open, buttons that needed a hammer to push them, and a pre-production average repair cost of $10,000 per car communicated more loudly and profoundly than any Edsel advertisement.
The lesson: At minimum, test, recognize, and understand the larger context into which your product, service, brand, or company competes. Better yet, develop and drive a strategy to control the dialogue and help define this larger context—and remember that everything communicates.
Lesson Six: Always Think Anew
Edsel was a failure of imagination, a failure to think anew, to “think different.” If Ford’s intention had been to build another run-of-the-mill car, well, they certainly knew how to do that, and it might have cost the company a lot less money and grief. Instead, they faked innovation, and their Edsel ended up an eternal punchline.
Edsel’s demise was all about the way Ford framed marketing and innovation. The roots of the car’s failure grew from how people initially thought about the Edsel, how they imagined it, went about inventing it, refining it, marketing it, and ultimately failing with it. From the beginning, company executives and Edsel designers failed to understand that the 1950s was a decade in which everyone made their case based on newness. Therefore, these executives and designers were obliged to think anew and act anew. But they did no such thing.
Nevertheless, the Ford organization did learn from the Edsel episode. The failure of the Edsel helped produce Ford’s legendary Mustang. Open your browser and click on some pictures of Mustangs through the fifty-four years of the car’s production history. Compare the look of the Mustang to the Edsel, which limped across the earthly sphere for a mere three years. In both the Mustang and the Edsel, everything communicates. It is just that they speak entirely different languages.
One very important lesson Ford learned from the Edsel Apocalypse is that it was not all bad. Many new automobile features were introduced on the Edsel, and Ford did not throw all of them out with the car. By 1962, such features as self-adjusting brakes and the self-lubricating chassis became technical synergies throughout the Ford line. Add to this the hard-learned lessons born of Edsel’s catastrophic quality control problems. These led the company not to tinker and tweak, but rather to reorganize all manufacturing under a single organization, thereby shifting the corporate culture to a focus on solving technical problems and human mistakes before they happen.
Of course, today, a cadre of collectors covets the car. Go shop for one of the fewer than 100 top-condition Edsels on the road at this writing. As of 2018, this icon of the failure of marketing and innovation, this Mt. Everest of lemons, which cost far too much at $2,500–$3,800 in 1958, can today be secured for your own garage from a trade collector for something over $100,000.
The lesson: Successful marketing and innovation demands three prerequisites: challenging assumptions, disrupting the status quo, and thinking anew.
Innovation Is Broken
Like the Edsel, innovation is broken today. It is in crisis. Innovation needs wide-angle, wholesale innovation. The problem is common these days. Attempts at innovation look backward. They react in an age when intelligent, proactive anticipation has never been a more critical advantage. To be sure, there is no shortage of books and articles and blogs on innovation. But you can safely ignore all that fail to focus ahead of where we are today. Innovation must foreshadow tomorrow.
So, we argue here for an anti-Edsel approach, relentlessly forward-focused and substantive. Not that looking ahead requires ignorance of the present or the past. What was once the future is now the present. That we live in this former future suggests that we live largely among products of successful innovation. Much as the Renaissance rejected aspects of its recent past (the Middle Ages), it recovered the innovation of its more distant past, that of Classical Europe.
Today, we can discover some proven ways to innovate and invent. These methods are inherently disruptive—that is, forward-focused. They are approaches that instinctively move out of the center of an organization, a society, a mindset, and go about innovation at what I call the “disruptive periphery.”
That is where we will be spending most of our time in the pages that follow. We will:
• Adopt a wide and global approach to innovation
• Deploy the power of an insurgent strategic overlay
• Leverage customer- and marketing-centric views of innovation
• Borrow the pragmatic lessons from the still-emerging world of Agile software development
We will not reject the value of experience—when that experience has succeeded in outlining a future—but we will not reflexively defend any experience for its own sake. Some three decades of battle-tested global consulting and training go into the stew of the real-world strategic principles you are about to savor. I have plated it in a simple bowl of “how-to.” Ingredients include:
• Proven change-leadership strategies counterpointed with insurgent organizational approaches
• Proactive marketing and communications strategies emphasizing customer-sourced perceptions
• Practical ways to “think different,” including ongoing and new inputs, voices, questions, perspectives, passions, and experiments
• Executional steps to bring innovation and change to the pragmatic and personal level where they will take root and grow, bearing new advantages for your business
Innovation Is Fixable
Matter is neither created nor destroyed. That a thing is broken implies that it can be fixed—can be fixed, taught, and accelerated. This requires innovating innovation with new thinking, approaches, and strategies, all of which can be taught, so that innovation can be produced on demand.
We do need to face the fact that the challenge of fixing, teaching, and accelerating innovation has never been more urgent. Today, 50 percent of startups will fail in their first year, 80 percent by their fifth, and 96 percent by their tenth anniversary.
Then, it gets worse.
With only 4 in 100 new businesses still standing, only 5 percent of those will achieve $1 million in revenue, four tenths of 1 percent will rise above $5 million, and an even smaller fraction, 6 out of 100,000, will exceed $10 million in annual revenue.
Given the odds, the need for more and better innovation is clear as day and bright as the sun. The management titan Peter Drucker has already told us what that better innovation will be: the “specific instrument of entrepreneurship” and “the act that endows resources with a new capacity to create wealth.” Innovation is always an instrument and an act. As innovation pioneer 3M defines it, innovation is a simple equation: “New ideas + action or implementation = which result in an improvement, a gain, or a profit.” I would change just one thing—the first instance of or to and. Innovation requires both action and implementation. In the first of these, innovation is an act. In the second, it is an instrument. There is an act and its strategic application, verb and noun, motion and tool.
The action and implementation of innovation is delivered in three ways:
By Leadership: Defining your own innovation vision, values, and priorities by managing creative disruption (or disruptive creation) and by personally exemplifying the power of “thinking different.”
By Company: Creating and executing on a platform, driving a unique and effective business model, fueling a change culture and organization, forming a uniquely powerful alliance, or inventing a new set of processes.
By Offering: Inventing new, relevant, and differentiated products, services, or technologies.
So, we have choices. But we must start fixing innovation right away. A recent Boston Consulting Group study finds 70 percent of CEOs interviewed put innovation among their top three leadership priorities. Great! Seven out of ten are already on board—except that the same survey reveals that a mere 16 percent believe their own company outperforms their peers in terms of innovation.
As World Economic Forum founder Klaus Schwab tells us, “We stand on the brink of a technological revolution that will fundamentally alter the way we live, work, and relate to one another. In its scale, scope, and complexity, the transformation will be unlike anything humankind has experienced before.”
Faced with change at an exponential pace, we must all—CEOs and non-CEOs, inventors and non-inventors—take charge of innovation. Consider, for instance:
• Airbnb: Founded in 2008, born on the idea of renting air mattresses on the floor of its founders’ San Francisco loft, it is today one of the world’s largest hotel and real estate companies…yet it owns no buildings.
• Uber: Founded in 2009, an idea birthed on its founder’s smartphone amidst his own frustration over not finding a taxi in the rain, it is today one of the world’s largest transportation companies…yet it owns no vehicles.
• Facebook: Founded in 2004, inside a now infamous Harvard dorm room, it is today the world’s largest media company, with nearly 25 percent of all internet users signing in to look for news, photos, music, or videos…yet it produces no content.
• Bitcoin: Founded in 2009, based on an academic paper by Satoshi Nakamito, it is the world’s first decentralized digital currency, with somewhere between 3 to 6 million unique customers…and, of course, it uses no central bank.
• Alibaba: Founded in 1999, it is today the world’s largest retailer, featuring a billion different products on just one of its many portals, and managing as much as 80 percent of China’s e-commerce market…but it has no inventory.
• Salesforce: Founded in 1999, it is at this writing among the world’s largest marketing and sales companies, with over $10 billion in annual revenues…yet it neither employs nor offers any salespeople.
One glance at this remarkable list, and it is impossible to doubt the existence of exponential change all around us. The average age of these examples as of 2018 is thirteen years and, together, these relatively new companies represent over 1.3 trillion dollars of value.
For super achievers like Airbnb and the rest, innovation is happening earlier and faster than ever before. Our age of exponential change is an era of exponential opportunity. For example, companies such as Apple, Google, Amazon, Facebook, and Microsoft are, at their best, driving innovation at an exponential pace. And Airbnb and the other digital enterprises that control much but own little or nothing are known as “platform businesses,” digital (or digitized) business models that create connected ecosystems of producers and consumers, or, as the authors of Platform Revolution explain, the sheer innovative force of a platform is empirically impossible to ignore today. When it comes to disruptive innovation, platform beats pipeline, just as exponential thinking beats linear thinking. The elimination of gatekeepers atop platforms, just like the rejection of status quo thinking inside the world’s most innovative companies, almost magically unlocks new sources of value creation. The proof is in the numbers, which are staggering. Today, more than half of US startups are platform businesses.
Take, for example, just four US companies—Apple, Amazon, Facebook, and Google. Together, as of 2018, these companies have created $2.3 trillion—that’s trillion—in wealth (in terms of stock ownership) and have entwined themselves in the daily lives of billions of people. More specifically:
• Amazon in some ways has eliminated the consumer pain of shopping for things that are not fun. (Think toothpaste vs. Porsches) It is heading for a market capitalization perhaps twice that of its incumbent archrival, Walmart.
• Apple represents something of a religious offering to its loyalists and displays nearly unprecedented profit margins by offering low-cost products at premium pricing. At this writing, it is history’s most profitable company.
• Facebook is, by the numbers, perhaps the world’s most influential company—notwithstanding current privacy and security challenges. At present, one-sixth of the global population—about 1.2 billion people—sign in daily and spend an average of 50 minutes a day on the company’s platform.
• Google has become the modern world’s transcendent navigator—earning the trust of over 2 billion people, more than any other institution in terms of search and guidance. It is the Benjamin Button of companies, aging in reverse to become more relevant and valuable the more it is used, since it is through use that its associative database grows.
To put into context the ongoing platform-driven and disruptive innovation revolution, consider that the average employee at General Motors today creates $231,000 in economic value. Impressive—until you compare it to the $20.5 million in economic value created by Facebook employees today.
Separately and together, this new “Big Four” of mega-companies is driving the most exciting and disruptive technological wave ever seen. Moreover, imagine the coming rounds of future breakthroughs in, for example, machine learning, artificial intelligence, mixed reality, quantum computing, green energy and, even more fundamentally, the future of our human minds. Or just consider the extent of change already wrought by the power of platform. Founded in 1768, Encyclopedia Britannica defined the future of accumulated knowledge until 2012, when it ceased print publication and even shriveled into relative irrelevance as a paywall website thereafter. Back in 1999, Microsoft was sufficiently innovative to spend $450 million to develop an online encyclopedia. But even that was eclipsed just two years later when Jimmy Wales and Larry Sanger started Wikipedia, offering their web-based encyclopedia for free and today managing the fifth most-visited internet site in the world—one that is still maintained exclusively by volunteers.
Wikipedia and its ilk have prompted Wharton professor Jeremy Rifkin to forecast a paradigm shift from market capitalization to what he calls the “Collaborative Commons.” Rifkin writes, “the Collaborative Commons is ascendant and, by 2050, it will likely settle in as the primary arbiter of economic life in most of the world.”
Those who hate today’s modern monopolies can find a crumb of comfort in the fact that all this exponential change will not necessarily save even the biggest mega platform businesses from destruction. Consider that 88 percent of Fortune 500 companies from the 1950s are not just missing from today’s list, they are gone, bankrupt, or out of business. In the 1970s, IBM defined the business marketplace and was unstoppable. In the 1990s, Microsoft could do no wrong inside the electronics industry. And, in the 2000s, Enron looked to be the best or even only company ready to successfully ride the e-commerce wave of the future. Each of these companies either failed, went backward, or went bankrupt.
Today, the great majority of companies will fail to innovate and break through or they will move across a life cycle that takes them into thinking more like a status quo incumbent than a forward-looking insurgent.
And, in the meantime, outside, along some marketplace periphery, a wild-card company will be imagining a fresh-eyed innovation breakthrough that will someday turn the business world upside down. This is what the transistor did to the world of 1947, the integrated circuit to the world of 1958, the personal computer to the world of the 1990s, and the smartphone to the world of the 2000s. Perhaps here, out along this marketplace periphery, at a Starbucks table or garage or dorm room, will begin the gestation of the world’s next trillion-dollar company.
How Do I Cash In?
Creating or reinventing the next breakthrough mega-company almost certainly means putting to work some form of the insurgent innovation framework.
Driving innovation breakthrough means continually asking a version of the five fundamental questions that, in 1997, the newly appointed Apple CEO, Steve Jobs, asked his top executives when he began a well-nigh Shakespearian return to the company he himself created, the same company that, in 1985, had fired him. These questions formed the nucleus of the greatest corporate turnaround in the history of business:
1. What do you (really) do?
2. Why did you begin doing this originally—and now?
3. Who are you—and who do you need to be to win?
4. Where are you? (and where are your chokeholds?)
5. What’s next? (What keeps you up at night?)
Fundamental to answering these five strategically loaded questions is a commitment to thinking and acting anew. This entails not a single magical moment or dramatic epiphany, but rather a step-by-step journey. And it means taking a first step and walking toward a commitment—a decision—to begin the battle to innovate. This is our next subject.
