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NOKIA, the Finnish telecommunications company, was originally founded in 1865 in Tampere, Finland, as a ground-wood pulp mill. Over the years, the company periodically added a number of other business areas to its portfolio, including forestry, cable, rubber, tires, footwear, plastics, chemicals, power generation, and eventually electronic devices. However, it was Nokia’s entrance into the mobile-phone market that changed everything and made Nokia the brand we know today.

In 1992, new CEO Jorma Ollila was so convinced that Nokia’s future was in telecommunications, he made the strategic decision to divest the company of all of its non-telecommunications enterprises. So, during the course of the 1990s, Nokia sold off its legacy cable, consumer electronics, and rubber divisions and put its focus squarely on mobile telecommunications. By 1998, Nokia had surpassed its rivals in this fast-growing industry and became the largest mobile-phone manufacturer in the world. Revenue grew from 6.5 billion euros in 1996 to 31 billion euros in 2001, and the company could seemingly do no wrong.

Then, in 2007, Apple introduced the iPhone.

Apple’s vaunted capability for innovation and new product development made Apple the winner and Nokia the loser. Apple disrupted the industry. Nokia was late to the game. The iPhone ate up mobile-phone market share and forced other manufacturers to play catch-up. Nokia wasn’t able to do so successfully and announced its intention to sell off its mobile-phone division to Microsoft in 2013.

Or so the story goes.

The problem with this narrative—much like the story of Blockbuster in chapter one—is that Nokia was actually ahead of Apple in the smart-phone market. A few years before Apple introduced the iPhone, Nokia research engineers unveiled a prototype of an internet-ready, touchscreen mobile-phone handset with a large display that they thought would give the company a significant advantage in the fast-growing smartphone market. In 2004, at its headquarters in Finland, the company demonstrated it to customers as an example of what was in the company’s pipeline; it was greeted with much excitement and anticipation.

What happened then? A stunning series of cultural flops led to complete and total reversal.

Management at Nokia worried that the product would be costly and risky. A former employee, Ari Hakkarainen—a manager responsible for marketing on the development team for the Nokia Series 60, then the company’s premium line of smartphones—explained in a New York Times interview why the company did not pursue development.

“It was very early days, and no one really knew anything about the touchscreen’s potential,” Mr. Hakkarainen explained. “And it was an expensive device to produce, so there was more risk involved for Nokia. So management did the usual. They killed it.”¹ For a large and prosperous organization, there simply wasn’t a taste for pursuing possibility over profitability. Hakkarainen went on to say that the biggest obstacle for the company was without a doubt its stifling bureaucratic culture. In subsequent interviews with a Times reporter, Hakkarainen and other former employees depicted an organization so swollen by its early success that it grew complacent, slow, and removed from consumer desires. As a result, they said, Nokia lost the lead in several crucial areas by failing to fast-track its designs for touchscreens, software applications, and 3-D interfaces.

In other words, it’s not that Nokia lacked the innovation capabilities or the talent to come up with new, breakthrough products. Rather, it lacked an organizational culture to support these ideas. According to Adam Greenfield, a former Nokia employee, Nokia’s problem is not, and never has been, that it lacks creative, thoughtful, talented people, or the resources to turn their ideas into a shipped product. The problem with Nokia is that the company is fundamentally, and has always been, organized to trade in commodities. Think back to Nokia’s roots. Whether those commodities were stands of timber, pallets of paper, reels of cable, pairs of boots, or cheap televisions for deployment in hotel chains, much the same basic logic applied: acquire, or manufacture, great quantities of a physical product for the lowest achievable cost, and sell for whatever the market will bear. This worked with mobile phones up until the point when customers considered them as so much more than communication devices.

Nokia fought back and tried a variety of different strategies to stem the tide, including entering into an alliance with Microsoft to produce Windows phones, but the decline continued and the company was forced to announce several rounds of layoffs. On April 25, 2014, Nokia sold its mobile-phone business to Microsoft for 5.44 billion euros.²

Behind the story, the rise of Nokia and the subsequent demise of the company we knew rested on its ability and failure to pivot.

ESTABLISHING A TRIPLE THREAT

Nimble organizations have a distinct ability to innovate. They do so by deliberately structuring and positioning themselves either to pivot toward new opportunities or to counter forces that might otherwise diminish their competitiveness. This first mode of innovation is a way of going on offense—organizations pivot to create new products, services, or markets. The second mode is a form of defense—organizations hold off competitors or preserve the value of their offerings by improving performance or otherwise shoring up their market position.

Leading a sizable and established organization today is a daunting task, given the critical need for flexibility, innovation, and rapid reaction to sudden changes in the market or the competitive or technological environment. It seems appreciably easier for an organization to be fast and adaptive when its culture is young, its market is immature, its founders and people are entrepreneurial, and its customers are fickle and demanding. Indeed, I have found that many (but importantly not all) NFF organizations are new-economy companies in their first or second generation of leadership.

And yet, in truth, it is difficult for any organization, large or small, upstart or market-leader, to pivot.

The modern concept of the “pivot” was actually coined by a venture capitalist and author of The Lean Startup, Eric Ries, in 2009. Ries was talking about the challenges that startups face in deviating from their original vision to seize new and better opportunities. Focused relentlessly on that vision or the process of building and directing their organization, the founders or leaders avoid distractions that might impede momentum or energy, even turning aside customer feedback that can get in the way.

“So how do you know it’s time to change direction?” Ries asks. “And how do you pick a new direction?”³

Ries observes that unsuccessful startups either avoid such discussions and decisions entirely and fail to change, or they jump too completely or unthinkingly from one vision to another. The latter kinds of changes are just as risky because they “don’t leverage the validated learning about customers that came before.”⁴

As an alternative, Ries introduces the concept of the pivot, “the idea that successful startups change directions but stay grounded in what they’ve learned. They keep one foot in the past and place one foot in a new possible future. Over time, this pivoting may lead them far afield from their original vision, but if you look carefully, you’ll be able to detect common threads that link each iteration.”⁵

A pivot, then, is neither a wholesale change nor a blind leap into the unknown, but a flexible and calculated shift that straddles what has worked in the past and what will work in the future. I think of it as being like a basketball player who gets the ball in the Triple Threat position and has the opportunity to seek an open lane through dribbling, pass to a teammate, or take a shot. In other words, when an organization makes such a move, it is not coming to a full stop or becoming paralyzed, nor is it losing its grip on what it knows how to do well. Rather, it’s leveraging its agility to alter direction, bolt forward, and seize opportunity quickly and decisively.

Although Ries was talking about startups, his concept is even more critical for established businesses. An organization’s ability to pivot—to quickly change direction, and to just as quickly move people, finances, and other resources into place to support this shift—is absolutely essential to success in today’s fast-moving VUCA world.

A couple of decades ago, five-year plans were the norm for businesses in nearly every industry, and these plans worked quite effectively if their leaders picked the right strategy and stayed on a steady and solid course of executing. Today, due to the constantly shifting nature of businesses and industries, three-to-five-year strategies do little more than set up organizations for failure. To meet this challenge head-on, organizations need to make fast decisions, pivot toward opportunities quickly, and rally the workforce to engage on new challenges.

Most twentieth-century organizations, however, were never designed to proactively change. The very best ecosystem they could build for themselves, in the pursuit of operating efficiently at scale, was based on rigid hierarchy and reinforced by a “stick-to-the-knitting” approach to process and strategy. As Gary Hamel, a leading business thinker and author, has observed, “There’s a great mismatch between the pace of change in the external environment [today] and the fastest possible pace of change at most organizations. If it were otherwise, we wouldn’t see so many incumbents struggling.”⁶

Fundamentally, new-era organizations—the ones that are nimble today—have no expectation that they will always be doing what they are currently doing. This is because they know that what they are doing today may not carry them to where they ultimately want to go. Their core mindset is that “fast is better than big” because they believe that they must be incredibly responsive to the changes of their external ecosystem in order to survive and be successful in the long term. Primarily, they are driven by their understanding of the customer, and what value they can deliver or provide. They base that value on what they do well, but they are willing and eager to discover new sources of value through innovation on every front.

After all, the current value proposition of their goods and services can be eroded as successful strategies and approaches get copied or improved upon. Companies that are positioned to pivot structure their organization and employees so that these decisions to turn toward new opportunities are made quickly, innovation comes more easily, and leaders and employees take risks and play bold. They have the environment and infrastructure in place (including the company structure, processes, systems, resources, and people) to enable quick moves and experiments that may not pan out—while not breaking business operations. Their “How” enables them to have a quick and effective process to refine and change their “What.”

In this chapter let’s look at three strategies that large organizations have used to position themselves to pivot: learning from startups, spotting opportunities, and simultaneously exploring and exploiting.

THEY GO TO STARTUP BOOT CAMP

John Chambers led Cisco Systems from 1995 to 2015—a period of enormous disruptive change across every market and platform in the information-technology sector. Unlike so many other IT companies, Cisco has managed to stay on the forward edge of change and often leads its market as the disruptive innovator rather than the business struggling to catch up. As Chambers puts it, “I’ve watched iconic companies disappear—Compaq, Sun Microsystems, Wang, Digital Equipment—as they failed to anticipate where the market was headed . . . When you’re a large company with significant market share, it’s tempting to view market disruptions as a threat, but we view them as an opportunity.”⁷

To manage this, Cisco works to actively nurture a startup mentality. One of its most successful strategies for doing so, Cisco calls a “Spin-in.” A team of engineers and developers is formed to work on a specific project. But instead of keeping that team within the confines of the organization, it is actually moved outside the organization and “launched” as if it were a startup. One team that Chambers describes has 280 employees focused on a multi-billion-dollar business. The team members are incentivized with financial rewards just like the founders and early employees at a startup. They work long hours closely together, recruit the talent they need, and foster the cultural norms and processes necessary to make decisions and change direction quickly.

Cisco’s approach differs from a Skunk Works project (an innovation endeavor that is set off from the rest of an organization) in some fundamental ways. Rather than establishing a permanent off-site headquarters for a renegade culture devoted to mad-scientist projects, a Cisco Spin-in is a very deliberate, strategic approach to developing a specific project that is believed to be critical to the growth opportunities of the company. Even more important, Cisco’s team of engineers and developers are subsequently brought back into the organization proper, and the startup itself is absorbed into the business.

No doubt, Cisco could do just as well financially, and motivate talented employees to develop a startup mentality, if it assigned and spun-out its projects into stand-alone businesses. However, Cisco’s own culture would not receive the long-lasting benefit of that experience and learning. It would be a motivational tool to encourage talent to leave the organization, not lead it.

Instead, by spinning-in the startup project team once that project has become viable, Cisco gains immeasurably from the startup mindset and skills that have been learned. If you work for a large company, can you imagine going off-site to work in a startup for an intense eighteen months, tasting the glory, and then coming back to your old company? You would be a changed person, and you would find your company’s stifling processes and approaches intolerable. How many endless meetings or stale performance reviews could you sit through? How much dithering over decisions could you stand? In other words, once you’ve tasted what a startup is like, and experienced the exhilaration of a nimble culture, you are going to be driven to bring that energy back to your old place of work—and change it for the better. And that’s what John Chambers counted on when developing the muscles to pivot at Cisco.

GE takes a similar approach with its own twist. CEO Jeff Immelt says, “If the only common thread you have as an industrial company is that you’re well managed, you can still be a pretty good company, but you’re not going to be a dominant company, a competitive company over time.”⁸

Immelt took over GE four days before 9/11 and subsequently experienced the rocky markets that accompanied the downfall of many once high-flying internet startups. Even before the Great Recession of 2007 that brought the global economy into another nosedive, Immelt anticipated that industrial giants like GE would enter a period of tepid growth. He believed that GE’s relentless focus on operational excellence, market dominance, and the constant improvement of existing processes, while still critical, was no longer sufficient to ensure that the organization would continue to thrive in the future. A business-as-usual approach, even if it successfully protected GE against new competitors, would not position the company to take advantage of explosive growth opportunities going forward.

So Immelt, from his first days as CEO, began to institute a massive pivot in the company’s culture and focus: GE would continue to be exceptional at operational excellence, but it would also learn to seize opportunities for organic growth through innovation. The aim of the efforts would be, as Immelt put it in his shareholder letter of 2007, “to embed growth into the DNA of our company.”⁹

This began with a challenge to GE leaders to develop at least three “Imagination Breakthroughs” per year, designed to bring in at least $100 million in new business. These ideas would be put to review and receive billions in investment if deemed worthy bets, and the results were tied closely to bonuses. The essential message, however, was that making bets, being creative, and staying growth-focused was now critical for success at GE. This way of thinking about the business of GE was a developmental stretch for managers long steeped in Six Sigma, but in the new GE, as Immelt put it, “you’re not going to stick around this place and not take bets.”¹⁰

In support of this, GE developed a new curriculum for leadership development called “Leadership, Innovation, and Growth” (LIG). Participants visited Crotonville, the company’s management-training center north of New York City, to learn how to identify and overcome barriers to change, develop a better balance between short-term priorities and long-term opportunities, think about their businesses differently, and communicate in the language of change, growth, and innovation. Most important, they were guided in how to build an action plan for a concrete change agenda for their business. Then, these leaders were returned to their business units and set to work, their learnings, skills, and values reinforced by new measures in the performance-review system.

The value of this is enormous. Not only is GE developing new leaders, but it is also putting them to work on practical plans that will drive new growth for the company; and then it is seeding those leaders back into the organization and reinforcing their changed mindset with performance measures and rewards.

THEY SPOT OPPORTUNITIES FAST AND CHASE THEM CHEAP

As Ranjay Gulati of Harvard Business School notes, “The problem these companies face is, as they get bigger, as they scale, things slow down. They lose speed because they have so many systems and structures and processes, and they lose the ability to take risks. GE’s a smart company. They understand the pathology of bigness, and this allows them to be responsive.”

GE did not stop with its LIG program and its focus on Imagination Breakthroughs; it wanted to create a culture of pivoting throughout the organization. So the company turned to Eric Ries, the source of the concept of the pivot, and asked him to help inculcate that lean twenty-first century startup mentality in a $150 billion enterprise. The result was FastWorks, a program designed to create a culture, according to Beth Comstock, GE’s chief marketing officer and FastWorks sponsor, “where we operate faster while delivering better outcomes. At the heart of it is the discipline of testing and learning that permeates the entire the organization.”¹¹

Ries helped GE build an approach and develop a playbook based on those practices, and my team and I worked with GE’s nearly 300 FastWorks coaches scattered across all the businesses to navigate and influence the existing culture, knowing that those practices would promptly fall flat if they were to hit a resistant or ill-equipped organization. This program has had a profound effect on GE’s ability to become growth-oriented and innovation-focused at all levels.

As an example, in one of GE Healthcare’s groups, a small team of engineers, marketers, and product designers is plotting the future of medical devices. With hopes of disrupting the market, the group is using a limited budget to streamline the development of a new PET/CT scanner while addressing customer concerns over price, performance, and ease of use. Similar to what all other GE businesses now have, Healthcare has a growth board that approves or rejects potential FastWorks projects. Wei Shen, whose team is developing the PET/CT scanner, felt as if she were on the TV show Shark Tank when she pitched the idea, which was initially rejected early in 2015 because it involved building a prototype that would cost a few million dollars. She secured approval after nixing the full prototype and cutting the projected cost by more than half.

If Shen’s team followed tradition, it would have spent two to four years building a new product based mostly on basic market-research surveys. Under FastWorks, the group constantly takes its ideas to customers throughout the development process to learn what will sell and what won’t, redesigning the scanner before devoting the time and money to creating a final product. The first two iterations cost a total of less than $300,000. Shen aims to have a product out in about half the normal time. The customer feedback is invaluable, Shen says. “I can build a product to have the best image quality, but it may not be at the right price point. Or I can build a product that’s so fast it can accommodate thirty to fifty patients a day. I can have a system that’s 50 percent lower-cost.”¹²

In this way, a corporation once so focused on execution and operational excellence is now developing a culture in which there is room for failing, learning, and seizing opportunities—all at an accelerated pace. Recently Immelt even launched a “Power of the Pivot” award to recognize those in the organization who will speak up, call a spade a spade, and lead others to change. The goal is to have an organization in which thousands of small changes can take place every day, even as larger “imagination breakthroughs” are also happening.

One of my close collaborators at GE, Simeon Sessley, whom you may recall from the foreword, believes that GE’s Six Sigma heritage has allowed it to become a company capable of thousands of pivots, large and small. Six Sigma, after all, is a discipline for making many small incremental improvements in processes. However, the innovation, growth, and customer-focus framework that has been culturally ingrained in the company changes the way people think, communicate, and work. In the past, Simeon says, GE, like most companies, was focused on answering financial-first questions such as, “Where are we in meeting our revenue goals, our profit margins, and our execution objectives?” Now, people are starting to focus increasingly on secondary questions that challenge beliefs and the status quo, such as, “Are we really meeting our customer needs with this path? Are we innovating enough? How will we disrupt our own businesses?”

These questions lead GE to think more about continual transformation and long-term opportunities rather than on the meeting of quarterly results.

THEY BALANCE EXPLORATION AND EXPLOITATION CONSTANTLY

What does an organization look like when it is positioned to pivot at any level and toward large or small opportunities? Maybe a lot like Toyota.

According to Matthew May in The Elegant Solution: Toyota’s Formula for Mastering Innovation, Toyota implements a million new ideas a year, many of which stem from their employees. These ideas are often small and easy to implement, but cumulatively they snowball to create a major impact.¹³ In a Harvard Business Review interview, Katsuaki Watanabe, the former CEO of Toyota, said, “There is no genius in our company. We just do whatever we believe is right, trying every day to improve every little bit and piece. But when seventy years of very small improvements accumulate, they become a revolution.”¹⁴

Toyota’s innovation in how cars are made enabled it to make cars more quickly and cheaply with less labor than American companies. In other words, by focusing on “How”—the culture and work processes of the organization—Toyota was able to achieve a faster and more effective “What”—the production and sale of vehicles.¹⁵

Incremental and disruptive innovation are commonly discussed as diametrically opposing philosophies, when really they should work in concert within an organization. Being able to make small incremental changes actually positions an organization for innovations that are more disruptive and that have a greater impact. This positioning occurs because once change and innovation are normalized in the way organizations operate, it becomes easier to surface, accept, and enact more disruptive or non-linear innovations. A culture of innovation gives employees and leaders the muscles and agility they need to make quick changes, develop breakthrough ideas, and diminish the common fear of failure and risk.

Toyota understands this. While it continually refines and produces some of the most reliable, affordable, and best-selling vehicles on the market, like the Corolla, which passed the 40-million threshold in 2013, it is also capable of seeking out and exploring new industry-shaking innovations, like the Prius, the first vehicle since the Stanley Steamer to offer a viable alternative to the internal-combustion engine.

Despite some doubts and hiccups in developing a new technology, the company fought through adversity to unveil the Prius in Japan in October 1997, two months ahead of schedule.¹⁶ The first Prius came to North America in July 2000, when national gas prices averaged about $1.50 a gallon. Some questioned whether the new technology would be appealing given low gas prices, so the company set modest sales goals of 12,000 units per year.¹⁷ Customers, however, thought differently. By the end of 2013 Toyota announced that it had sold more than 6 million hybrid vehicles throughout the globe, generating 41 million fewer tons of CO₂.¹⁸ The Prius has become not just the best-selling hybrid, but also one of the world’s top-selling cars. Toyota managed this pivot because it was good at making continual improvements to existing processes, while also being culturally oriented toward making small and large bets.

Companies that are nimble—even giant companies like Toyota and GE—believe that being fast is more important than being big. They refuse to rely on the comforting view that “scale never fails.” Instead, they consciously architect an organizational culture that embraces risk and change; and they structure their organizations and processes to eliminate bureaucracy, improve communication, and speed up decisions. They avoid becoming stuck in the product-lifecycle loop, and make sure that experimentation and the surfacing of new ideas is always on the agenda. Most important, they focus those innovations, changes, and investments on a keen and curious understanding of the changing customer.

QUANTUM LAWS OF BUSINESS

According to quantum mechanics’ Heisenberg Uncertainty Principle—something I still struggle to get my head around—atoms can be in two places at once.¹⁹ Sometimes, when I talk to leaders at new-era companies, I sense that they believe they need to be two companies at once.

To which I say, Yes, you do.

If we could formulate a new Uncertainty Principle for business, it would help us understand why winning today is so challenging. At one point companies could do one thing exceptionally well—build a computer like Dell, master execution through Six Sigma like GE, dominate a market like McDonald’s, deliver a catalogue like Sears—and that capability would create a channel for growth and prosperity. At one point markets were similarly static and manageable. Today, organizations must be capable of meeting challenges on multiple fronts in order to deal with splintered and dispersed markets, and even—gulp—multiple realities.

By learning how to position to pivot, they gain the adroitness, agility, awareness, and decisiveness needed to be more than one company at any one time.

Accordingly, they can stay lean by constantly making improvements to existing processes or solutions; seizing new technologies that might help them solve problems better or meet needs in better ways; changing existing products to meet new needs in the same markets, repositioning products for new markets, or entering new markets with new products.

And, at the same time, they can be vigilant about innovation because it leads to disruptive growth and helps reshape markets in ways that give them advantage.

They are able to make these shifts successfully because their how—the culture, mindsets, and philosophy of the organization—is more important than their what. By keeping one foot firmly stable in the “How” they can pivot toward any “What” and shoot for any measure of success.

In most organizations, as Gary Hamel notes, change is regarded as an episodic interruption of the status quo; something initiated and managed from the top. The power to initiate strategic change is concentrated there, and every change program must be endorsed, scripted, and piloted before launch. Transformational change, when it does happen, is typically too late and convulsive—and often begins only after a “regime change.”

What’s needed is a real-time, socially constructed approach to change in which the leader’s job isn’t to design a change program but to build a change platform—one that allows anyone to initiate change, recruit confederates, suggest solutions, and launch experiments. A pivot, in other words, doesn’t have to be an earth-shattering move, nor does it need to be a complete reinvention of the organization. Instead, companies that are nimble pivot by making thousands of changes every day—from strategic decisions to small tweaks—rather than by relying on a few big, multi-year initiatives. They are, in Nilofer Merchant’s words, not 800-pound gorillas but a cohesive group of 800 gazelles that can move quickly and lightly across the landscape, changing direction at a moment’s notice and in unison.²⁰

Make no mistake, these companies also have big and bold initiatives. But they don’t rely on them as their sole driver of change and growth. They constantly experiment, and they constantly make small bets—believing that some will eventually lead to business opportunities even bigger than their current one. They’re attuned to their markets. They use social media to interact with and listen to customers—not to broadcast or promote. They rely on data, but they don’t obsess about risk parameters or consequences, nor do they navel-gaze and gerrymander decisions to meet the needs of the organization over the needs of customers or markets. They empower their people to make adjustments. They leverage their intuition as a guide and apply agile development processes to bring concepts into action. They don’t view change management as a set of processes for moving from point A to point B, but as a workplace philosophy that encompasses real-time collaboration, participation, alignment, and awareness.

How can you position your organization to pivot?

Too often, I run into organizations that try to become more innovative or customer-focused by adopting the processes and models of more successful organizations without making deeper changes. I’ve seen the leaders of retail organizations come back from the Disney Institute and say, “Let’s start calling all of our store sales people ‘cast members!’” As if that label will turn a slightly wary and perhaps cynical twenty-something into a more engaged, customer-focused, crowd-pleaser in the store. How many organizations successfully Zappos their customer service, or GE their way to flawless execution?

It’s not about processes and operating models. Those can be adopted, but they won’t stick or make a meaningful impact unless they are embedded in your culture. The way you structure and position your company must be a conduit for the beliefs and mindsets you have in place.

So, when contemplating the attributes I’ve described above for companies like Cisco Systems, GE, or Toyota, recognize that whatever approach you take must be right for your culture. At the same time, the approach you take—if you push it hard enough—is going to change and develop your culture, so be sure that this is where you want to go and what you want to become. GE is the master at this—using initiatives that drive innovation and growth to deliberately change culture and give the company the how it needs to tackle the what it wants to pursue.

QUESTIONS FOR YOU TO CONSIDER:

Does your company focus more on exploration or exploitation, or is there an equal emphasis on both?

On a scale of one to ten (ten being most likely), how likely is your leadership to recognize the need to pivot?

What processes, structures, and beliefs may be preventing your company from making necessary pivots?

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