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ОглавлениеDEFINE: Discover Your Edge of Disruption
AS WE DISCUSSED IN THE INTRODUCTION to this section, if the most value is created where complexity reigns, healthcare certainly has a lot of value creation opportunities. We could start with looking at how the insurance industry works (both patient coverage and practitioner malpractice), move over to the ways physicians and nurses are educated, skip along to hospital care and the outcomes hospitals deliver, maybe spend some time in rural community access, tally the overall cost of delivering care (plus there’s the fact that the United States typically spends more on healthcare as a percentage of GDP than almost any other nation), and perhaps throw in changing patient expectations (admit it, you’ve diagnosed yourself via Google search—we all have), and we wouldn’t even scratch the surface of the massive changes that are happening. There are lots of places to go to find interesting and meaningful edges of disruption in healthcare.
No one knows this better than GHX, which you met in the section opener. GHX was founded during the heady days of the internet boom. Healthcare buyers were being bombarded with what Bruce Johnson, current GHX CEO and member of the founding executive team, calls “PowerPoint Promises” that sounded something like this: “Sexy startup from the Silicon Valley promises data nirvana. Every transaction and piece of inventory in your system will be instantly trackable and traceable via electronic data interchange, and there will be no more waste in the system.” Bruce and the founding team at GHX knew better. That vision described in the PowerPoint Promise was beyond the edge of disruption in 2000 and was deep in what we call “unproductive disruption,” the space where the technology, processes, and infrastructure and other environmental factors are not yet in place to make the vision a reality. At the other extreme, more conservative approaches by single manufacturers attempting to use their proprietary websites as a competitive advantage were too close to the status quo, offering no meaningful progress for the industry. Doing nothing risked leaving a market opening for a third party to enter and dictate how the industry would interact with its customers—also not a good option.
That was the edge of disruption upon which GHX was founded—somewhere between the hyperbole of the internet startup mania and the industry status quo. To avoid duplicating e-commerce investments and third-party disintermediation, which would worsen already spiraling healthcare-system costs, five competitive manufacturers created a digital data exchange that would benefit the industry.
GHX has successfully become the obvious choice for much of its industry. It grew from a first-year target of $20 million in transactions annually flowing through its exchange to more than $60 billion annually today, with its systems handling more than 168 million transactions per year. Ironically, some people who in 2000 were, at best, avoiding being involved with GHX now like to fondly remember their early support for it, revising history a bit in the process! As an example of the shift that has occurred since the company’s launch, Bruce noted that one of the early companies on the exchange back in 2001 took the minimum possible steps to be on it, sharing only very hesitantly and incrementally out of a fear of losing control of its data and contracts. Today it is one of the most active and vibrant members of the exchange, using its supply chain offering as a differentiator. It was tough at times, but GHX brought customers along to the edge of disruption with them. In doing so, GHX provided those customers with their own path to becoming the obvious choice for their customers.
With more than 417,000 unique trading partner pairs connected to the exchange, 22,000 healthcare facilities, and 85 percent of medical/surgical products represented by integrated GHX suppliers, the company is thriving. With metrics like that, GHX clearly has a track record in delivering from the healthcare industry’s edge of disruption, providing more value, and as a result becoming the obvious choice for the suppliers and providers they serve. Even more, it delivers to both sides of the market—suppliers and providers. As Bruce Johnson told us in our interview with him, the ability of GHX to provide solutions that work across the supply chain gives the company an elevated perspective about what will advance the industry as a whole, rather than simply helping one side to win over the other.
“Defining your edge of disruption should be driven by the question, What are the problems we are uniquely positioned to solve with a scalable solution?”
As GHX has learned what matters most to its customers and worked to deliver it, its elevated impact has pushed the industry into new potential edges of disruption, in the process opening up new opportunity for GHX to create more value. As we mentioned in the introduction, GHX has now tackled several edges of disruption. As Bruce explained to us, “Defining your edge of disruption should be driven by the question, What are the problems we are uniquely positioned to solve with a scalable solution?” As GHX grew, so, too, did its unique ability to solve problems that spanned multiple industry players—an ability supported by its engagement with both suppliers and providers.
It is worth pausing to consider the word “unique,” and it’s one to think about as you pursue your own edge of disruption. Keep in mind that one qualifier for “unique” may simply be that you are willing to take on a challenge where others are not. That shouldn’t be your only qualifier, but it can be a powerful one. “Scalable” is another word that jumps out. Can you envision a solution where you can get to enough scale to have a reasonable impact? Remember that scale is relative—if you are in consumer products, it might mean millions of buyers in an off year, whereas if you are in the business of customizing jets like the 787 Dreamliner, it might mean dozens of buyers in a good year. Regardless of your market’s actual size, “scalable” means you can address enough of it with your solution for it to matter.
Coming back to GHX, the company gained momentum in the market during its first decade, working through startup mode to stabilize itself and grow. In the process, it built up its ability to discover new edges of disruption that leveraged its unique capabilities, including its aptitude for standing in the center of a complex and often contentious environment, between competitors, providers, suppliers, distributors, and others. The team learned to see its inherent neutrality not as a limiter but as a distinguisher in terms of problems it is uniquely able to solve. As it solved for and scaled the first edge of disruption it was charted to deliver, the ability to have e-commerce between suppliers and providers, they quickly moved on to more ambitious edges. And as we mentioned earlier, GHX more recently has taken on leading the industry in defining the solution for documenting implantables used in patient care. We’ll be getting deeper into that, together with advances it has made in tracking pharmaceuticals, in Chapter 2, “Learn.” Given how often the company has done it, defining new edges of disruption is almost a core competency of GHX!
In any edge of disruption it defines, GHX looks for the challenge that matters most to the suppliers and providers that use the exchange, and to the broader population—including you as a potential patient. You might be wondering how all of this work on electronic data interchange could be relevant to you. Isn’t it really just about suppliers getting paid faster and providers getting more accurate billing? What does it have to do with patient outcomes or your experience at the doctor?
Consider this. Imagine you are at the doctor’s office, and you have a latex allergy. With interoperable systems sharing accurate data about product descriptions, it is possible for your electronic medical record to be matched to the inventory being used for your doctor’s visit. This could help ensure that the nurse setting up the tray is flagged to pull the right latex-free gloves from inventory and confirm that they are being used during all aspects of your treatment. Without accurate supply data, your risk of coming in contact with latex is exponentially higher. Clearly, the work that GHX and others in the supply chain do influences not just the flow of money but also the quality of care patients receive. Because of GHX’s ability to scale solutions to inventory problems, the edges of disruption it tackles deliver against all of the Triple Aim goals, not just cost containment.
Developing an elevated perspective about the right edge of disruption is critical to success. In a space where trust between industry participants was a major barrier, GHX had to learn to navigate among its competitors, customers, and customers’ customers. Through the trust it has earned, the results delivered, and the value created, GHX has been able to anchor itself as a neutral arbitrator of industry solutions that require broad participation and support to deliver. This position enables GHX to drive solutions across the industry for even more complex challenges—the ones that matter more—like the ability to track and trace implantables. That’s a perfect edge of disruption for GHX to address, because the company has unique access to data, people, and the market to challenge industry assumptions, think optimistically about how to solve problems, and ask the yet unanswered questions about crafting a full solution.
You might be thinking that healthcare is so rich in opportunity that it is easy to find a “good” edge of disruption there and run with it—who wouldn’t want to solve for something like tracking implantables? But let’s think about that differently. Step back and consider some of the different edges of disruption available in healthcare. Consider for a moment that it is unlikely that GHX or its clients would benefit from GHX developing, for instance, a nuanced and in-depth perspective on the cost of medical education that synthesized all of the current issues in a credentialed and meaningful way. Could GHX do that? Probably. There are a lot of smart people working there who could direct attention to it. Would GHX working on this issue drive significant outcomes in terms of positive change in solving the problem, or in advancing the GHX core strategy, or that of its customers? Unlikely. Is GHX uniquely placed to have a meaningful and sustainable position on the issues surrounding the cost of medical education? No. Would a perspective on medical education help GHX get into the right conversation with its clients about how to positively impact the Triple Aim goals? Probably not. While there are plenty of disruptions happening in the medical education space, it is not the best edge of disruption for GHX to explore—it might be someone else’s, but it likely isn’t for GHX. Being selective about your edge of disruption is critical—remember Bruce’s criteria of unique and scalable for GHX. As you look for the right edge of disruption, being able to say “no” is critical, and is a skill we will revisit in several of our case studies.
Defining your edge of disruption is about looking toward the future, determining where your capabilities and credibility uniquely position you to take advantage of the wide array of changes you see there, and developing a unique perspective about the disruption these changes will bring. You then use that perspective to drive meaningful insight for the people you need to influence the most.
Likewise for you, there are many problems in the world to solve, and many exciting new opportunities and spaces to explore, but you need to be selective in defining your edge of disruption. Defining your edge of disruption is about looking toward the future, determining where your capabilities and credibility uniquely position you to take advantage of the wide array of changes you see there, and developing a unique perspective about the disruption these changes will bring. You then use that perspective to drive meaningful insight for the people you need to influence the most.
Let’s think about where you might find your own edge of disruption. To be clear, we are not suggesting that with an elevated perspective, you need to be an expert on all areas of your business and that of your customers. We are, however, suggesting that you need to figure out the edge of disruption that is most likely to matter to your customers—where you can add the most value, and about which you have the most to say—and go there. Everyone has a different edge of disruption, depending on interest, industry, competition, customer base, strategic goals, and market position, so figuring out yours is critical.
As you work on defining your edge, you will need to take a hard look at what’s going on around you. It might feel unsettling, or even scary, but it is a critical step to becoming the obvious choice. Places to look for your edge of disruption include the contracting process (especially if you are in a business-to-business model; we’re going to share an example of how that can yield amazing outcomes), customer experience, product positioning, technology, customer relationship, service models, internal data and information, areas where legislation is looming, changes in adjacent industries, and other parts of the value chain. We believe that wherever you go to find your edge of disruption, it should ultimately generate market-facing value. It must have an impact on your customers, and if appropriate, your customers’ customers. For GHX, its leaders look for edges of disruption where they can advance all three Triple Aim goals and uniquely deliver scalable solutions to their customers in ways that matter. So yes, healthcare has plenty of complexities to explore, but they aren’t all good opportunities for every player in the industry. And even industries that seem more mundane and less complicated have pushed out onto edges of disruption to challenge norms and create new products, markets, and ways of working.
As you start to think about defining your own edge of disruption, let’s consider an example that everyone has experienced— grocery shopping. In 1916, grocery shoppers typically made a list, brought it to the store, and handed it to a clerk, who would then fill the entire order, bag it, and give the shopper a total price. That’s just how it was done. If you asked a grocer in 1916 about how his business worked, he would have talked about the importance of clerks knowing everything about all the inventory and managing the customer experience. If you had asked customers what they needed or wanted in their shopping experience, they likely would have said faster clerks and lower prices.
Saunders didn’t just ask customers what they wanted. And he didn’t try to do what his competition was doing . . . he looked at what was happening . . . synthesized it with what he knew about the economics of his business, had the courage to challenge the assumptions almost everyone was making about shopping for groceries, and single-handedly reinvented the experience.
In the face of deeply held beliefs about how to shop for groceries, a guy named Clarence Saunders was optimistic enough about the industry to launch his own unique brand, and curious enough to challenge many of the deeply held assumptions about how people shopped for groceries. He set his sights on the customer’s shopping experience as his edge of disruption when he opened the first Piggly Wiggly in 1916. It was the first grocery store to use checkout lanes and to price each individual product so that shoppers could browse and select for themselves—using a radical new object Saunders invented called a shopping cart. He was the first to create this self-service format, overcoming deeply held industry and customer beliefs about what the ideal grocery-shopping experience looked and felt like. Saunders didn’t just ask customers what they wanted—the likelihood of them coming up with checkout lanes was incredibly remote. And he didn’t try to do what his competition was doing, only better or cheaper or with nicer people. Instead, he looked at what was happening in retail and in the way shoppers were starting to behave, synthesized it with what he knew about the economics of his business, had the courage to challenge the assumptions almost everyone was making about shopping for groceries, and single-handedly reinvented the experience.1
Fast-forward almost 100 years and Saunders’s self-service format, so radical when he first launched it, is still the norm for the industry. He was truly on the edge of disruption in 1916, and he created an enduring model as a result. In an interesting twist, today grocers are starting to experiment with “concierge service,” where shoppers order online and drive up for curbside pickup, and a clerk loads their bags into the car (sound familiar?). Why take this on? Because grocers are seeing the disruptions that are happening around them and they are defining their new edge of disruption in the shopping experience.
As the grocery industry shifts to accommodate these changing shopping behaviors, one company, Homeplus (owned by Tesco), decided to take a radically new approach. It defined for itself a new edge of disruption to explore—one invested in technology, shifting cultural norms, activity in adjacent sectors, and the reinvigoration of a historic business model while solving for how to create a new shopping experience. While the competition installed self-scanner technology for customers to use in the traditional checkout environment, Homeplus ventured out into the real world of its customers. Let’s take a look at what has become a case study for defining your edge of disruption in the real world.2
In 2015, Homeplus was succeeding as the second-largest Korean grocery retailer, with more than 400 stores serving 6 million customers weekly.3 Flash back to 2011, though, and the company was concerned about losing sales to online retailers (e-tailers). Homeplus did have a conventional website for ordering products, but it felt vulnerable to dedicated e-tailers. South Korea was by most measures the world’s most web-savvy country, with 84 percent of its more than 40 million residents using the internet. Residents especially loved using their smartphones to order all sorts of retail goods on the spot. But in 2011, grocery had eluded the e-tailing boom, and shopping for groceries online represented only 2 to 3 percent of Homeplus’s market.
On the face of it, there was no need to push e-tailing forward. Indeed, it would seem to be in Homeplus’s interest not to—it had plenty to focus on in its traditional business operations to compete with the other traditional grocery stores. The more pessimistic or defensive-minded thinkers in the industry might have been inclined to simply continue to work in the current model, driving out cost and other internal operations in traditional environments—the place where they were comfortable working.
But Homeplus executives were reportedly curious about an unanswered question in the market. They had noticed some developments in other adjacent markets that pointed toward e-tailing being important in Homeplus’s own market. The staggering adoption and use of apps on smartphones was a cultural phenomenon in South Korea. In parallel, in the United States, online sales of staple products like diapers and razors were exploding, with online subscription models claiming upwards of 30 percent of the market. This new fringe behavior was gaining critical mass, and Homeplus saw a chance to answer the question of how consumers would respond to a fresh take on internet grocery shopping.
Homeplus chose to be optimistic about the future of grocery shopping in this new world by framing e-tailing as an opportunity, and to be curious about how to accelerate it even further. This was a stark contrast to most retailers’ desire to halt the progression of online grocery shopping for as long as possible. Standing back from the daily realities of their business, Homeplus executives challenged deeply held industry assumptions by asking a very important question. Instead of considering ways to dissuade shoppers from going online for groceries, they asked, “How can we remove barriers to ordering groceries online and take the lead in online grocery sales?” We suggest that solving this question became Homeplus’s edge of disruption in 2011, and it was the perfect place to bring together its understanding of the market, its enthusiasm for technology, and its interest in the shopping experience.
The company’s executives pulled together a team of partners that included their ad agency in Seoul, which came forward with an idea for making orders much easier for time-pressed consumers. The team hypothesized that consumers were reluctant to take the time to get out their computers, log on to a grocery site, and scroll through static lists of products to find what they liked to buy. It was all too much bother; worse, it didn’t make sense in either the traditional model or the emerging model. To make headway with consumers online, Homeplus had to engineer a new kind of online shopping.
The team looked to cultural norms and technology trends in particular for insight. South Koreans relied heavily on public transportation to get around their highly urbanized country. As they waited for the subway, they liked to pull out their phones— maybe to do something important, or maybe to surf, check social media, or play games—it didn’t matter. For Homeplus, this was a potentially disruptive way to engage.
The company invested in a dedicated app and outfitted train stations with images of grocery products. This allowed commuters to use their smartphones, stroll along the train station with its walls plastered with images of products just as they would a grocery store aisle, and capture the products they recognized and loved on their phones. With the help of their ad agency, Homeplus was able to mimic the visuals of a grocery store’s aisles, with items displaying QR codes shoppers could scan with their phones.4 As items were selected, the app added them to the consumer’s shopping basket. Assuming payment details were filled out in advance on the app, a single click would allow the customer to make a purchase. During the campaign, online sales rose 130 percent.5 Clarence Saunders would be proud!
Imagine for yourself the kinds of questions you need to ask, the assumptions you need to challenge, if you want to completely reconstitute your customer interactions. These market-facing, customer-impacting moments are rich and generative places to look for your edge of disruption. You may want to ask your customers, but remember that they likely will struggle to envision something different as well, so don’t stop there. Ask your employees, talk to people outside your industry, and understand the cultural changes that are affecting your business. Take a good look at your assumptions and test yourself. Are you pushing out of the echo chamber of your own business far enough, or are you stuck on the model as it is known today? It is tough to do on your own—collaboration is great for brainstorming as you define your edge of disruption. Bring in outside voices; industry watchers, customers, board members, employees, vendors, technology experts, consultants, and others will help you to really focus on where you can create the greatest value for your organization and your customers.
If you feel like defining your edge of disruption is a little overwhelming, you are right where you should be. If it feels like it may change the fundamentals of your business forever, you are on it. Don’t worry—once you get there, you will have the ability to stay there, while continuing to look forward and to push your customers, your industry, and your markets in new directions. But first, you need to learn about the three things required to get there.
When we looked at companies that have succeeded on the edge of disruption, that are delivering the highest value possible to customers, we observed that they brought three things to the journey. Every person and every company you meet in this book has these three things in common, and you need to find them for yourself if you wish to become the obvious choice in your market. The three things you must have are the courage to challenge your assumptions, the ability to take an optimistic stance about the future of your industry and your place in it, and a desire to explore the unanswered questions, to know more about the world around you. Let’s consider each of these in turn.
HAVE THE COURAGE TO CHALLENGE ASSUMPTIONS
First and foremost, when you set out to define your edge of disruption, you absolutely, unequivocally must have the courage to challenge your assumptions and deeply held beliefs about your industry, including how you make money and provide value. You must step out of the container of your immediate environment and be willing to stretch your imagination and your understanding of possibilities.
Let’s take a minute to flash back to 1916, and imagine what might have been on Clarence Saunders’s list of assumptions. We’re willing to bet “The highest level of service is to serve someone yourself” was on there, along with “Customers like to make a list of what they want,” because it was assumed that browsing around a store was no way to spend precious time!
Take a good look at your assumptions and test yourself. Are you pushing out of the echo chamber of your own business far enough, or are you stuck on the model as it is known today?
What about GHX? According to Bruce, in those early days plenty of industry players assumed no one would ever really be willing to share their data. They suggested that manufacturers would bias the exchange for their own benefit, or that providers would not be willing to participate, fearing a loss of influence over their suppliers. Everyone seemed worried about losing control of their data, which was a big assumption, given that many of them actually didn’t have much control over their data when it was managed in-house at the time. Some leaders in the founding companies even admitted later to not believing GHX would succeed. Thankfully GHX did succeed, and it did in part because it was willing to challenge these assumptions head-on.
It would have been no different for Homeplus. You can hear critics saying, “People prefer to buy fruits and vegetables in person, carefully selecting their own.” Another assumption might have been, “Growth in apps for phones isn’t relevant to buying groceries.” Whenever you are getting close to the edge of disruption, the assumptions become louder and harder to ignore.
Do it for yourself right now. Pull out a piece of paper and write down the five most irrevocable truths that you believe about how you do business. Truths that, when you are honest with yourself, may in fact be blinding you to opportunities that are right in front of you. Opportunities that the insular world of your industry and your organization are hiding in plain sight. Embedded in the results will be pointers to your edge of disruption—the ideas that are too precious to challenge are the very ones you must examine. Hang on to that piece of paper while you read this book; use it as a bookmark if you have a paper copy. You may feel the need to come back to it time and again.
We know it is hard to challenge your assumptions, but you must do it because those sacred beliefs and unconscious biases blind you to the opportunity that is hidden in plain sight all around you. You can challenge your assumptions about how you do business and what makes you special—what you believe about yourself and about your competition. You can also orient around the customer perspective and examine assumptions about what they expect from you. It may be necessary to tap into outsiders to gain access to thoughts on industry convergence, legislation, or cultural trends that are hard to see from an internal view. Take a broad inventory of the assumptions you have in each of these areas, and test them by talking to others, doing research, and getting diverse input to help you to see them differently. Test yourself. If you aren’t feeling a little uncomfortable, if you don’t see anything on your list that makes you think, “That’s just not possible to change,” you may not be pushing far enough.
Going along with the courage to challenge assumptions, defining your edge of disruption requires you to take an optimistic stance about the future of your industry and your place in it. People sometimes shy away from sounding overly optimistic, because they worry about sounding naïve. But without optimism that your industry and your business can thrive, there’s almost no point in doing the work of heading to the edge of disruption.
Pessimism is the foundation of price wars. Because you can’t see any other way to do business and charge a premium for your services, you focus on driving down cost and winning on price. Time and again we’ve encountered people who feel deeply pessimistic about the future of their industry or their place in the market. This is a crushing situation to be in, because it diverts all of your energy into protecting where you are and prevents the best people from spending time thinking about what “could be.”
We believe there are not really pessimistic and optimistic people; rather, there are pessimistic and optimistic questions. Finding your edge of disruption, and then thriving from what you learn there, is about asking more optimistic questions. Optimistic questions are growth questions for the future. Questions like “How can we use this to our advantage?” “What opportunities are hidden in this disruption?” and “How could we get ahead of this change and profit from an early-mover advantage?” Pessimistic questions are the survival questions about today’s models. Questions like “How do we stop customers from moving to this new, more user-friendly technology-based experience?” or “How can we use our market strength to kill the spread of this new innovation?” We understand the need to be practical; sometimes you have to meet and outdo your competition where your buyers are today, not where they will be in a few years. But if you are optimistic about the possibility that the future can be even better than today, you will keep pushing out of the box you are in, even if it is a box that is currently serving you reasonably well.
Homeplus asked an optimistic question that focused on the future possibilities: “How do we help shoppers to buy our products differently?” A pessimistic question that kept them concentrating on the status quo would have been: “How can we keep shoppers coming into our stores and buying more from us in the model we know best?” Developing Piggly Wiggly’s new format was an optimistic position to take as well. It asked “what if” questions about shopping—“What if the cost of service could be lowered?” “What if customer satisfaction could be improved?” “What if these things happened through a different experience altogether?”—rather than asking, “How do I attract more customers to the same experience that my competition offers?” The answer to that inevitably would have led to a “lower prices” conclusion, leaving Saunders to slug out a commodity pricing strategy along with all the other grocers.
The GHX founding companies did the same. Instead of asking a more scarcity-driven question like “How do we protect our data and ourselves in the process?” the founding companies asked, “How can we avoid duplication and create a data exchange that doesn’t just reduce the cost to serve but also allows the industry to deliver even more value?” That same optimism is alive and well at GHX today as it forges ahead to solve the industry challenges present in implantables and pharmaceuticals, and as it works to create value in other markets, like those in European countries. There is a belief at GHX that they can make a difference, and that makes all the difference in how they define their edges of disruption.
Over and over, we saw optimism, coupled with the willingness to challenge assumptions, as crucial characteristics for success.
During our research, embedded in the case studies, and in our work, we’ve consistently found that optimism was a foundational element of success for people who decided to re-create their businesses. By adopting a more optimistic stance, leaders asked better questions—questions that pushed them to identify the opportunities, not just the threats, at the edge of disruption. Over and over, we saw optimism, coupled with the willingness to challenge assumptions, as crucial characteristics for success.
The power of optimistic thinking holds true for companies of all shapes and sizes, and in all industries. Let’s shift gears and look at an example of a company that is smaller in size, but not in impact: a mid-sized plumbing distribution company from the southwestern United States.
Standard Plumbing Supply is no multibillion-dollar giant like Homeplus. It is a family-run, increasingly vertically integrated plumbing supply business based in Utah, and it faced a competitor that strikes fear in the hearts of many established market leaders: Amazon. That’s right, Amazon wasn’t just unsettling consumer-facing retail giants like Barnes & Noble and Best Buy, but also business-to-business players such as electrical and plumbing distributors. Lowe’s and Home Depot were tough enough competition, but now this plumbing distributor was squaring off against this disruptive online wizard and its world-class user experience.
In 2014, with Amazon encroaching, a group of plumbing suppliers invited Karrikins Group (then ChangeLabs) to address its annual convention and offer guidance on how to respond. In conducting a preconference briefing, Karrikins Group brought multiple business owners into the same room to explore their perceived challenges and opportunities. Richard Reese, CEO of Standard Plumbing, dialed in, and for much of the discussion, was content to listen. When the question “What opportunity does Amazon actually present to the distributor and its current role in the value chain?” was posed, the other plumbing suppliers responded with versions, some unprintable, of “Amazon is the devil.”
Richard’s response was very different. He noted that while Amazon was indeed a disruptive force, in that disruption lay tremendous opportunity to grow their businesses, both in store and online. We were shocked to hear this. It may have been the first time we heard someone speak so positively about a competitor and the change they were bringing, let alone one as aggressive as Amazon. If we had known the history of this family business, we might not have been so surprised.
Disruption was not new for Standard Plumbing. In fact, the company was founded as a disruptive force. In 1952, following a graduate degree from the New York University School of Retailing and a stint at Macy’s, Dale Reese returned to his home state of Utah and did for plumbing supply what Piggly Wiggly had done for grocery retail—he made it self-service. Many years later, Standard Plumbing, now under the leadership of one of Reese’s sons, Richard, faced a choice: ignore the emerging forces of online commerce that were starting to bubble up on the fringe of the industry, or lean into them, move to their edge of disruption, and embrace this mostly uncertain online channel opportunity.
The company chose to move toward the edge, with confidence and optimism, and set up an online department. Although a pallet in the back of the warehouse is hardly a “department,” it was a symbolic move that the future was coming, and Standard Plumbing would be a part of it. Where did Standard Plumbing choose to sell most of its supplies? That’s right: Amazon!
Like most entrepreneurial businesses leaning into the online world in those days, Standard Plumbing did not realize that by doing so it was essentially making transaction and product information (called a “stock keeping unit” or SKU) across almost every product category on earth available to Amazon. Amazon would track SKUs and categories, and when one reached a sizeable enough volume, Amazon would begin competing with those suppliers who had been listing on its site. The B2B industrial product space is twice the size of the entire retail market in the United States,6 so it’s no wonder Amazon decided to target a pretty large share of it.
Now one might be forgiven for crying foul, but Standard Plumbing’s leadership team saw no value in complaining. They merely dealt with the facts and made future-focused decisions instead of exerting effort holding on to a world that would eventually crumble. Reese had been learning at the edge of disruption the whole time, and had come to know two things. First, in an online market, it was all about search. If you could rank higher than the competition, you won. And no one could beat Amazon in search. Amazon dominated organic rankings on sites like Google, and could also control rankings on its own site. Second, Reese also knew that to truly win with plumbers across North America, Standard Plumbing would need to stock and make available a much broader range than just the highest-volume SKUs, and this would include the heavy and bulky items that Amazon traditionally resisted carrying.
Here was Standard Plumbing’s opportunity—its edge. Richard Reese asked the more optimistic question: Could Standard Plumbing become partners with Amazon, rather than the two being competitors?
The answer turned out to be a resounding yes. There were two relatively important and high-value challenges Standard Plumbing could solve for Amazon. First, Standard Plumbing could assume the inventory-carrying risk and storage cost for larger bulky items that have lower volume. And second, it could act as a direct distributor for these same expensive-to-ship items in the states where it has physical locations.
In our conversation with Richard, he noted that 85 percent of Standard Plumbing’s sizeable online business is currently with Amazon, on its behalf.7 Focused mostly on carrying inventory risk and associated costs, Standard Plumbing now makes available for Amazon customers some 63,000 SKUs, which are sent across not just Standard Plumbing’s eight states, but the entire United States and Canada. This small Utah-based family business has become the obvious choice not just for its traditional market, but also for the biggest disruptor in its market, because it solved a relatively important problem for Amazon—the need to penetrate this important and growing market in a way that worked for Amazon and for its customers, which meant being able to manage inventory and delivery effectively at a local level.
Reese is not just optimistic about the disruptive opportunity that Amazon provides; he also speaks very positively about its approach to business. He admits that “when doing business with Amazon, there is the Amazon way and there is the Amazon way. Choose.” And yet he adds that an abundance mind-set (an expression of optimism) pushes the company to do business with its competition as well. To Amazon, Reese explains, a “box is a box, and as long as they are part of the transaction, they are more than happy to share the margin.”
The explosion of Standard Plumbing’s online business has enabled the company to aggressively grow its brick-and-mortar wholesale supply business as well. With the increased volume came greater buying power, and therefore better prices and enough capital to expand its offering in the physical world, too. It was win-win. When Richard Reese took over from his father they had thirteen stores. In 2015 they had more than eighty, in eight states, and now do business across a North American footprint. “My father could never have imagined this world,” said Richard. But he could raise a son with the same optimistic and entrepreneurial attitude he had way back in 1952.
This entrepreneurial attitude was evident not just in Richard’s optimistic response to the threat of Amazon, but also in his response to the largest housing downturn since the Great Depression. As you can imagine, the plumbing business was battered by the bursting of the housing bubble in July 2008. It was a time when many manufacturers and distributors just like Standard Plumbing were struggling to survive. And it was during this time that Standard Plumbing was the most optimistic. The company was in no way enjoying the social consequences of such a severe downturn, but at the same time it looked for the proverbial silver lining.
Change is how an environment continues to unlock new and vibrant forms of value, so you will have to keep moving.
As more and more manufacturers came up for sale, Richard began a process of vertically integrating his business, using his powerful distribution position—both online with Amazon and offline through its growing store footprint—to increase Standard Plumbing’s sales by acquiring other distributors and bringing them into the Standard Plumbing processes. He bought real estate for pennies on the dollar as well, placing wholesale stores in increasingly convenient locations across a growing interstate footprint. We could not help but laugh during the research when Richard earnestly suggested that growth was tougher in 2015 than it had been in 2010 through 2013. He semi-jokingly suggested that the best years for growth were when companies were being sold below true value and real estate was being auctioned at fire-sale prices. He was optimistic in even the toughest times! It is no wonder he has grown the business his father started into the obvious choice not just for the local tradespeople, but for the disruptor (Amazon) as well.
Optimism underpins everything that follows. If you find it hard to be optimistic about your business, take a minute and think about what worries you. Is it that your current business model won’t survive? Is it a new competitor driving margins down? Perhaps it is the burden of legislation slowing your ability to service your customers. The truth is, these things most likely will continue to happen. The trick to reclaiming your optimism is to realize that disruption is actually normal—people are always finding new ways to solve problems. No single offer or business model will ever stand the true test of time. Change is how an environment continues to unlock new and vibrant forms of value, so you will have to keep moving, keep looking for where you can have the highest possible impact. And to do that, you have to be optimistic about your ability to move with the changes; you have to be willing to understand them while looking outward. It takes curiosity to find the edge of disruption and stay on it.
EXPLORE THE UNANSWERED QUESTIONS
Being willing to challenge assumptions and being optimistic are the first two consistent characteristics we have observed in companies that have successfully found their edge of disruption. They all shared a third characteristic that is worth discussing. It became clear as we talked with these companies that you must have an insatiable desire to explore the unanswered questions that face your industry, your company, your team, and your customers, wherever you find them. This is fueled by a desire to know about what’s going on around you, wondering what others are doing and what might be possible. That keeps you watching for the next opportunity, pushing to understand what’s happening broadly and how you can create more value for your clients, and doing the work that matters most by solving complex problems with innovative solutions.
Unanswered questions that are worth exploring are the “what if,” the “where else,” the “how might we” questions. When was the last time you asked a curious question about your business? Do you know the basics of your industry at the moment: the stock price of your own company and those of others in your industry, the health of your suppliers, the technology changes happening for your customers, what’s going on with your competition, how new employees learn the ropes? These are serious questions—we are regularly surprised by how removed people can be from their own business and how their industry operates at a foundational level. When you lose touch with those kinds of basics, it is hard to contextualize larger, more important problems that need solving. Too often these types of questions are left up to a specific function like marketing or research and development, while the rest of us stay focused on the task at hand. This is not okay in companies that matter. Inside those companies, almost everyone is curious about their company, industry, and market—they are continually exploring. It is ingrained into the culture to be “ever forward,” as DPR calls it.
If people in your company aren’t investing in exploring those unanswered questions about how your business gets done, you will entirely miss the edges of disruption that can propel you forward. If you personally aren’t exploring, the people around you likely won’t be, either, so it is up to you to model the way. It is critical, no matter where you are in the company, that you take the time to be curious about your business and your customers, and that you allow others to explore, too.
If the people at GHX had not asked the big question of “What if we did business differently?” they wouldn’t be tracking to take billions of dollars out of healthcare for the foreseeable future. If Richard Reese had not been open to asking how the internet could be useful to his traditional wholesale supply business, he would never have become the obvious choice for Amazon. If Clarence Saunders had not been curious enough to not only explore other ways groceries could be bought, but even go as far as to design a contraption to enable those other ways, shopping would be a very different experience today. And if Homeplus had not asked how it could take the converging disruptions of the internet, shopping behaviors, and cultural norms, it would never have discovered how to create whole new shopping models for the next generation of grocery buyers.
If you have the decision-making authority to make investments, invest in the curious questions, rather than proving what you already know to be true. Anyone can prove that their assumptions are correct. History generally provides plenty of data for them. But in our opinion, paying to have history researched and restated is often a waste of time and money (although we see it happen all the time). Instead, put your resources toward exploring the unknown, the ideas that challenge those very assumptions you may want to prove.
When you are ready to invest to satisfy your curiosity, take a page from Homeplus and put your money where it matters. Homeplus could have commissioned a study on how to drive more people into the grocery store after work and then launched a splashy subway campaign promoting the value of hitting the store on the way home. Instead, it chose to explore something new and different, unlike anything people had seen before, and the value it got out of pushing to a new edge of disruption has been ongoing for years now, far beyond the original investment in the pilot.
Interestingly enough, for Homeplus, despite staggering adoption numbers at first, the subway experiment was not a complete success, at least not initially. It turned out that there were some serious flaws in the initial model, and customers quickly fell off after the first experience with the new shopping approach. Homeplus still had to spend some time learning about what was happening on its edge of disruption, so it could anchor its position as the leader in the online grocery shopping experience. We’ll dive into that in more detail in the next chapter when we unpack the challenges of learning about your edge of disruption. Even Piggly Wiggly continued to tweak and develop the shopping model that rocked the world in 1916 (earning multiple patents along the way). That’s why defining your edge of disruption is step one on the journey; learning about your edge is the next.
Bring It to Life . . .
1. Develop a “disruption chart,” listing or visually plotting the most likely disruptors your industry will face in one year, three years, and five years. Think in terms of macro-trends (social, political, economic, community, and cultural), internal developments (workforce, products, geography, structure, and leadership), and outside developments (competition, customers, regulation, technology, and supply chain).
2. Using your disruption chart, select the top five disruptors and develop three possible scenarios of how your industry will evolve over the coming years.
a. Host a diverse team of creative thinkers to engage in debate over the scenarios you have developed. The goal of the discussion should be to challenge assumptions and produce specific outcomes that the group believes are viable.
b. As you debate, compile a list of the assumptions that are the strongest in pushing you to accept or reject potential scenarios and opportunities that exist within them.
c. Do a quick “alternative assumption” on each of these that is both optimistic and future oriented.
3. Using your new assumptions, refine the scenarios.
4. Based on these new possibilities, and coming from a place of optimism, what is the one edge of disruption that you believe offers the best opportunity to evolve your existing capabilities in a way that creates more value for your team, your organization, your company, and your customers?
5. Take that edge of disruption and identify three unanswered questions you could explore in a more intentional way.
6. Identify the people and process you could engage to explore these unanswered questions.
7. START exploring!
