Innovating on the Edge of Big Waves
January 30th, 2008 | Posted by innovOn Jan. 12 surfers from around the world converged on Maverick’s at Pillar Point, just a few miles from San Francisco, to challenge each other on the big waves that have made this a legendary surfing destination. The sixth Mavericks Surf Contest had been announced only forty-eight hours earlier to ensure optimal wave conditions for the contestants. Surfers from as far away as Australia, Brazil, and South Africa scrambled to make their way to this invitation-only competition. It was magical to watch these athletes challenge twenty-foot waves with an ease and grace that made it all seem so natural.
Beneath the surface, though, there is a different story here, one that contains important lessons for business executives. While all attention was on the athletes riding their surfboards, the technology and techniques used to master big wave surfing have evolved over decades, driven by dedicated, perhaps even obsessed, groups of athletes and craftsmen. Executives can gain significant insight into the innovation process by looking at this sport.
First, if you want to push your performance levels, find the relevant edge. In the case of big wave surfers there has been an ever-expanding search for the breaks that would produce bigger and rougher waves to test new board designs and surfing practices. In 1953 a group of Southern California surfers, including Greg Noll, inspired by newspaper photos of surfers tackling fifteen-foot waves, boarded flights to Hawaii and made the trek out to Oahu’s Makaha Beach. There the warm water and gently tapered waves proved to be a fertile ground for big wave surfing. Major breakthroughs in performance did not occur in the milder surf of Malibu, but in the pounding surf of Hawaii’s Waimea or Jaws, or the notorious Teahupoo break of Tahiti.
Following the lead of big wave surfers, business executives need to find relevant edges that will test and push their current performance. For example, companies making diesel engines and power generators should be actively engaged in finding ways to more effectively serve lower-income customers in remote rural areas of emerging economies. These demanding customers could prompt significant innovation in both product design and distribution processes in an effort to deliver greater value at lower cost. The innovations resulting from these efforts on the edge could lead to significant improvements in their product lines.
Second, attract motivated groups of people to these edges to work together around challenging performance issues. In the late 1950s, Waimea Bay, on the North Shore of Oahu, became the next test bed for athletes seeking to push the boundaries of big wave surfing. In the isolation of the North Shore, dedicated surfers spent eight to ten hours each day, every day, challenging themselves and each other on the big waves. The real advances in surfing technology and practices occurred at the breaks where surfers gathered and formed deep relationships over extended periods of time. They learned rapidly from each other and pushed each other to go to the next level.
Large companies have become very adept at establishing remote outposts in places like Beijing, Hyderabad, Haifa, and St. Petersburg to attract local talent and push forward challenging research and development projects. Often, though, these outposts either become disconnected from their parent companies or fail to establish deep links with other leading edge participants in the local area. The key challenge is to connect these company-owned facilities more effectively with their local environments as well as with each other through challenging and sustained innovation initiatives that build long-term, trust-based relationships.
Performance improvement generally comes first in the form of tacit knowledge that is difficult to express and communicate more broadly. You literally have to be there to gain access to this tacit knowledge. Big wave surfers who watched Laird Hamilton tackle the Teahupoo break in Tahiti for the first time in 2000 noticed that he put his right hand into the wave on a left-breaking killer wave, something unheard of in surfing. It was an instinctive move on Hamilton’s part; he had never done it before and he was not even aware of doing it, but it was enormously effective in coping with the distinctive power of these waves. Those who were there to observe this and who had deep understanding of the practice of big wave surfing realized immediately that a powerful new practice was being developed.
Third, recognize that the people who are likely to be attracted to the edge are big risk-takers. Greg Ambrose, a surfer, observed that: “When surfing Waimea, it is essential to have the proper crazed attitude that implies a certain reckless disregard for personal safety. If you paddle out thinking you are going to get hurt, you will [be]. If you think you can’t make the drop, you won’t. If you begin to wonder what in the world you’re doing out among those menacing waves, it’s time to be thankful you’re still alive and head for the beach.”
This is a key reason why the edge becomes such a fertile ground for innovation. It attracts people who are not afraid to take risks and to learn from their experiences. They relentlessly seek out new challenges. Executives need to be thoughtful about how to attract these people, provide them with environments to support risk-taking and reward them for both successes and failures.
A conventional response to this challenge is to create highly segmented organizations—one part of the company focuses on the core business while separate organizational units focus on highly innovative (and more risky) business initiatives. The challenge with this approach is to bring the edge back into the core. The innovations spawned in edge organizations are often critical to the continued success of the core business, yet the different cultures, mindsets and skill sets create significant barriers to learning. Executives need to balance organizational focus with aggressive performance challenges and incentive structures that reward collaboration across these organizational units.
Fourth, recognize that the edge fosters not just risk-taking, but very different cultures that are also “edgy.” The advances in big wave surfing did not come from the casual surfers but from those who developed an entire lifestyle and culture, fostered by intense and even obsessive concentration on pushing the envelope. The early big wave surfers in Waimea were so obsessed with the sport that they lived in close quarters right on the beach and relied on the sea and the occasional stolen chicken or pineapple for food. Dismissed as “surf bums” by mainstream society, they developed their own distinctive identity. Executives need to find ways to protect and honor these edgy cultures, whether they are inhabited by tattooed Web designers or the next generation of employees who learned how to innovate as members of guilds in World of Warcraft.
Fifth, find ways to appropriate insights from adjacent disciplines and even more remote areas of activity. The aerospace industry could not be further removed from surfing, yet early advances in surfing technology came from this industry, because some of the employees in this industry were also avid surfers. Some of Laird Hamilton’s greatest insights came from his experiences as an expert windsurfer and his colleagues’ experiences with snowboarding. By attracting diverse backgrounds and experiences to the edge, executives can foster creative breakthroughs.
Sixth, bring users and developers of technology close together. It is no accident that the most innovative surfers also tended to be expert shapers of surfboards. These folks not only designed surfboards but shaped the materials into the finished product and then took them out to life-threatening breaks to test and refine them. They were relentless tinkerers, integrating experience, intuition, and craft to come up with creative new boards. Downing and Noll were both proficient shapers, driven by their experiences in using their own surfboards, and Laird Hamilton is the adopted son of one of the most renowned surfboard shapers, Billy Hamilton.
Technology and practice are intimately linked. Very little performance improvement comes directly out of the technology itself. It is only when seasoned practitioners engage with the technology, especially in close-knit communities, and evolve their practices to better use it, that the real performance breakthroughs occur. One of the big wave surfers watching Laird Hamilton getting towed into a big wave said the wave was no bigger than the waves that had been paddled before, but the technique was clearly different. It set the stage for a new “S-curve” of performance improvement. Evolving practices in turn generate insight for product designers riding future waves of design innovation.
Finally, executives can profit from understanding the loose practice network that evolved around big wave surfing. Key individuals like Greg Noll, Laird Hamilton and Jeff Clark have played pivotal roles in shaping and growing this network. They certainly have not applied the traditional management techniques that most executives use, but they have been very effective in attracting world-class talent to collaborate with them in their athletic and commercial efforts, focusing that talent on challenging performance goals and helping to disseminate the learning that came from these efforts. Complex and shifting relationships among athletes, commercial enterprises, and competitions shaped the advances we have seen in big wave surfing. These new management techniques, or perhaps more accurately, orchestration techniques, will increasingly determine who creates value and who destroys value when seeking to innovate on the edge.
See images from the Mavericks surf competition and learn more about surfing legends—and their potential influence on big business.
In a Crisis, Sideline Your CEO?
January 24th, 2008 | Posted by innovIt’s a marketing axiom: The leader is the brand.
When the brand is in danger and a crisis is undeniably underway, conventional wisdom says the chief executive officer must be the one to take center stage. The thinking goes like this: He or she is in the best position to explain the facts to key stakeholders, and who is better-positioned to protect a company’s reputation under fire and to accept or deflect responsibility or blame for what happened?
But conventional wisdom doesn’t always translate into good advice. Theoretically at least, CEOs are in the best position to contain the damage, identify weak links, and prevent further erosion of public confidence. But what if the CEO’s communication skills are the weak link? After all, not all CEOs are created equal. Under scrutiny, some will pass that crucial grace-under-fire test and others will fail. Two examples starkly illustrate just how difficult it is to rely on titles alone when determining who is the best public face for a company under siege.
A Personal Apology
Exhibit A is Frank Blake, the plain-talking chief explanations officer of the heavily criticized Home Depot (HD) chain. After former CEO Robert Nardelli infuriated shareholders by refusing to take their questions at an annual meeting, the new chief executive stepped in with a novel approach: Blake held a two-hour, no-holds-barred, open session with investors, starting with a forthright apology for his predecessor’s actions.
And Blake didn’t stop there. He posted personal apologies to bloggers on MSN.Money, who flooded the site with stories of poor customer service at their local Home Depot stores. He told them, “We let you down. That’s unacceptable.” His willingness to face the music was widely hailed, while his promises of better service and open customer dialogue got wide press and are being credited with, at minimum, halting the decline in customer satisfaction.
Enter Exhibit B: The notoriously pugnacious Robert Murray, part owner of the ill-fated Crandall Canyon mine, and a man not previously known for sophisticated communication skills. Murray, as CEO, took on the role of chief spokesperson when a disaster at the Utah site took the lives of six miners as well as three members of the crew sent to rescue them in August, 2007.
A Different Approach
Murray stood center stage from the opening hours of the mining disaster. Unfortunately, he managed to just as quickly find a way to make an already tragic situation even worse. Rather than limit himself to the immediate concern of the safety of the trapped miners, Murray came out swinging with an ill-timed defense of the coal industry and a petulant concern for the reputation of his company and his personal reputation. Incredibly, in those opening statements, he managing to downplay concerns for the miners themselves.
Reaction was swift and predictable from the miners’ families, the media, regulators, and the public at large. And that chorus of condemnation came before an exposé by the Salt Lake Tribune contradicted Murray’s claims of following safe and accepted mining techniques. Even others in the industry rushed to distance themselves from Murray, in part because of his incomprehensible insistence on being the spokesman throughout the tragedy, even though it is hard to imagine anyone who could have done a worse job.
The time to decide whether your CEO is the one to fill the role of chief engagement officer with the public is before a criticism when there is less pressure and you can consider all the angles (BusinessWeek.com, 1/23/08).
Bob Young and the Rise of Red Hat
January 23rd, 2008 | Posted by innovOne of the most fascinating stories in the technology sector has been the challenge posed by open-source giant Linux to Microsoft’s (MSFT) dominance of the market for operating system software. One of the key players in the rise of Linux is Bob Young, co-founder of Red Hat Software (RHT), the largest distributor of the Linux operating system. Young’s creative resolution of a crucial strategic dilemma was the event that put Red Hat—and Linux—on the path to profit and power in the marketplace.
In the 1980s, a movement had taken shape to develop software based on UNIX, an operating system invented in the 1970s at AT&T Bell Labs, and made available at no cost to anyone who requested a copy. In 1991, programmer Linus Torvalds posted a message on a UNIX users’ bulletin board to announce he’d developed an operating system from the UNIX code. Before long, suggested improvements to Torvalds’ program, dubbed Linux, were pouring in.
New enterprises like Yggdrasil, Slackware and Red Hat Linux sprang up to try to bring some order to the chaos by selling their own versions of Linux to interested buyers. Young ran an outfit called ACC Corp. that distributed their free software. In 1995, Young combined his company with Red Hat, becoming CEO of what was now called Red Hat Software, and shifting the company’s focus from distribution of several flavours of Linux to direct sales of Red Hat’s Linux product.
From his experience as a distributor, Young knew that the still-tiny market for Linux software was growing rapidly. But the business was going to hit a ceiling unless it could find a new business model.
Young could see that the two dominant models then in existence were profoundly flawed. On one hand, there was the classical proprietary-software model employed by big players such Microsoft and Oracle. They sold their clients only the operating software, not the source code. All enhancements and modifications were in the hands of the software maker.
Young has nothing but scorn for this way of doing business. “If you ran into a bug that caused your systems to crash,” he says, “you would call up the manufacturer and say, ‘My systems are crashing.’ And he’d say, ‘Oh, dear.’ What he really meant was, ‘Oh, good.’ He’d send an engineer over at several hundred dollars an hour to fix his software for you that was broken when he delivered it to you, and he called this customer service.”
On the other hand was the free software model employed by Slackware, Yggdrasil and Red Hat itself, which Young found equally problematic. “You couldn’t make any money selling [the Linux] operating system,” Young says, “because all this stuff was free, and if you started to charge money for it, someone else would come in and price it lower. It was a commodity in the truest sense of the word.”
If Red Hat was going to be something more than a low-margin distributor of a commodity product, it would have to find some way of adding value to Linux that didn’t involve improving the code. That meant finding something salient about the Linux business that other programmers and distributors had overlooked.
How, then, could Red Hat establish itself as the Linux market leader? By imposing order and control on the chaotic process by which improvements to Linux are developed and captured. A typical Linux operating system is some 800 to 1,000 different packages compiled together. Those packages are maintained by different teams of people, and those people update those packages independently.
It’s clear why serious corporate users weren’t going to use Linux. Although the price was right, they wouldn’t save money if their systems administrators had to track all the random updates. But they would save money—and have a more stable, reliable operating system than Windows—if there were a way to manage the flood of updates. Red Hat would make itself invaluable to customers by taking on that management task.
Young was pleased with this resolution, which blended the best elements of the two competing business models into a new way of doing business. But there was a hitch. Corporate customers wouldn’t buy Red Hat’s Linux unless Red Hat was the clear leader in the Linux space.
Red Hat would have to find its way onto every hard drive in corporate America. To get there, Young’s programming team rewrote the Red Hat version of Linux so that it could be distributed over the Internet instead of via CD-ROM. Young told his team, “We’re going to put it up on every FTP [File Transfer Protocol] server we can find on the Internet everywhere in the world, and we are going to encourage people to download it for free.”
It was a risky move. Red Hat was sacrificing all the potential revenue it stood to earn from its new release of Linux. But that was the price of making Red Hat’s version of Linux the de facto standard. In a stroke, Red Hat’s Linux became legitimate in the eyes of the corporate users.
In 1999, Red Hat went public, and Young became a billionaire in the first day of trading. By 2000, Linux had captured 25 per cent of the server operating system market, and Red Hat held over 50 per cent of the global market for Linux systems. And unlike the vast majority of the dot-com era’s startups, Red Hat has continued to grow.
What made the creative resolution of Red Hat possible? Young recognized that the existing proprietary software and free software models weren’t reality; they were simply the accepted ways to cope with dynamics of the software business. He didn’t rest until he found a new business model that was clearly better than the existing alternatives.
Typically of an integrative thinker, he read the existence of unpleasant tradeoffs a signal to rethink the problem from the ground up. In doing so, he found clues to what was salient to corporate software buyers, and gained a key insight into the causal relationship between industry leadership and prosperity.
Moses Znaimer’s ‘Glocal’ Conquest
January 23rd, 2008 | Posted by innovMoses Znaimer has lived and breathed television ever since he bought a television set with money from his Bar Mitzvah in the mid-1950s. In 1972, Znaimer co-founded CityTV, an independent Toronto television station that competed against two giant Canadian networks, government-owned CBC and private CTV, as well as the Buffalo affiliates of the three big American networks of the day, CBS, NBC and ABC.
It was a challenging environment, but Znaimer’s quirky little station managed to thrive by making a virtue of necessity. Where mainstream TV was polished, practiced and bland, CityTV was funky, spontaneous and idiosyncratic. It featured hip newscasters, fringe U.S. and European shows, and late night movies that were racier than anything the big competitors would dare to show at any hour.
But mere survival wasn’t enough. By the early 1980s, it was clear to Znaimer that the competitive landscape was changing, requiring him to make a significant choice. On the one hand, the broadcast media business was globalizing. CNN and MTV were emerging as global brands and operations, and other regional media powerhouses, such as BSkyB in Europe and Rupert Murdoch’s News Corporation empire in Asia, weren’t far behind. The global players, he realized, could move into individual local markets brandishing resources that local players had no hope of matching.
On the other hand, he saw that viewers still loved their local television stations, which connected with communities in a way that the global players, cable channels and superstations could not. Advertisers were eager to reach those local viewers, and their continued spending gave the local stations a solid economic underpinning, even as the global behemoths grew larger and more powerful.
The apparent choice that Znaimer faced was to stay local or go global. If City TV stayed local, it risked being swamped as the TV business globalized. But the global alternative was equally unsatisfactory. Going global meant borrowing huge sums of capital, making expensive acquisitions with no guarantee that they’d earn out, and finding the management talent to negotiate tricky alliances while expanding at breakneck speed. Even if everything broke CityTV’s way, it might not catch the global players, who had a head start of a decade or more.
Znaimer’s easiest choice would have been to stay comfortably local, in the belief that going global was beyond his reach. The big players would swallow him up eventually, but he’d make a good living while waiting for the end. But being an integrative thinker, Znaimer refused to accept the slow encroachment of international media players into his market, just as he refused to miss out on the globalization of media.
The love of local media, he realized, wasn’t limited to Toronto. Viewers in virtually every local market are powerfully attached to the homegrown stations that reflect and foster their community’s sense of values and identity. Local media, Znaimer told me, helps members of a community find “unexpected connections.” That may sound obvious, but Znaimer, unlike his rivals, integrated his insight it CityTV’s operating philosophy. As Znaimer explains—in terms that might be a working definition of salience—a key to his station’s success is that “at City, we pay attention to things that others have chosen to ignore.”
In Znaimer’s view, stations should have identities distinct from the programming they carry. “Many would say, ‘People don’t watch stations, they watch programs,’ ” he told me. “But that’s because most stations aren’t there. Stations can speak through everything they produce themselves, through the space between the programs. I believe that the character is in the delivery.”
Znaimer uses “the space between the programs” to create CityTV’s distinct identity. The station’s personalities appear between programs to tell viewers what’s coming next and why they should stick around. Those personalities reflect Toronto’s ethnic diversity better than any competitor or any foreign station, create another bond with the audience.
With their regular, rhythmic appearances between shows, they embody Znaimer’s dictum that “the nature of TV is flow, not show.”
From the start, Znaimer used simple-seeming devices to forge a distinctive identity for CityTV, starting with its tagline: “CityTV—Everywhere…” CityTV’s fleet of television trucks are ubiquitous in the city, as are its ‘videographers’, camera-carrying correspondents whose interactions with passersby are broadcast throughout the day. CityTV’s real estate also reinforces its connection with its viewers. The CityTV building is located on Queen Street West, Toronto’s equivalent of Times Square. The station’s first-floor studios open up to the street, and include Speaker’s Corner, a tiny studio booth where passersby can film a 15-second message to be broadcast on air. The big U.S. networks now all have ground floor studios in Manhattan that interact with the local street life. They’re copying Znaimer, who was the first to make his station’s connection with its local environment the cornerstone of its identity.
Like other integrative thinkers, Znaimer describes himself, without any prodding, as “not an ‘either/or’ kind of guy but rather a ‘both/and’ guy.” He was never likely to accept a view of the TV business as simply a matter of globalization versus localization, with unsatisfactory trade-offs in both directions. Instead, he has squared the circle by making CityTV the template for quintessentially local television stations across the world. In his words, he has “globalized the science of local television.”
CityTV is now a truly global enterprise with affiliated stations in 22 countries around the world. In more than 100 countries, local stations unaffiliated to CityTV license its content and style of presentation. That licensing revenue provides CityTV with a resource base that’s not available to purely local players, allowing it to compete with the global players without losing its local advantage.
‘Glocalization’, as Znaimer calls it, is his creative resolution of the tension inherent in the television business. In the classic manner of integrative thinkers, Znaimer fashioned a solution out of apparently irreconcilable alternatives. His view of what was salient was broader than that of the conventional thinkers around him, and he explored more sophisticated causal relationships among the salient elements. He kept the whole firmly in mind while he worked on the parts, and drove relentlessly for a creative resolution. In doing so, he demonstrates both how integrative thinkers think, and why integrative thinking is worth the trouble.
Creating the Four Seasons Difference
January 23rd, 2008 | Posted by innovMeet Isadore Sharp, one of four children of Polish parents who immigrated to Toronto before his birth in 1931. Issy, as he is known to his friends, worked at his father’s construction company after college, and while building a motel for a client, formed the ambition of building and running a motel of his own. Sharp opened the Four Seasons Motor Hotel in 1961 with 125 affordable rooms in a rather seedy area outside the core of downtown Toronto.
At that time, a would-be hotelier had two choices. He could build a small motel with fewer than 200 rooms and simple amenities. The capital requirements were modest, and per-room operating costs were low. The alternative was the large downtown hotel catering to business travellers. Such hotels usually had at least 750 guest rooms and extensive amenities, including conference facilities, multiple restaurants and banquet rooms. Sharp’s fourth hotel, a 1,600-room downtown convention hotel featuring a huge shopping arcade, met that description. Like Sharp’s first motel, it was profitable and popular.
Each type of hotel had its advantages, as well as distinct drawbacks. For all its comfort and intimacy, the small motel wasn’t an option for the business traveller who needed a well-appointed meeting room or state-of-the-art communications facilities. Large hotels produced a big enough pool of revenues to fund the features the market demanded, but tended to be cold and impersonal.
After opening that fourth hotel, Four Seasons Sheraton, in 1972, Sharp sought, in his words, “to combine the best of the small hotel with the best of the large hotel.” He envisioned a medium-sized hotel—big enough to afford an extensive array of amenities, but small enough to maintain a sense of intimacy and personalized service.
Sharp reasoned that if the Four Seasons offered distinctly better service than its competitors, it could charge a substantial premium, boosting revenue per room to the point where it could offer top-of-the-line amenities. Before he could ask guests to pay a super-premium room rate, though, Sharp understood that he would have to offer them an entirely different kind of service.
When he considered what his guests, mostly travelling business executives, were looking for, Sharp’s view of salience was more nuanced and humane than that of his rivals. “Luxury, at that time, was seen chiefly as architecture and decor,” says Sharp. “We decided to redefine luxury as service—a support system to fill in for the one left at home and the office.”
Four Seasons became the first to offer shampoo in the shower, 24-hour room service, bathrobes, cleaning and pressing, a two-line phone in every guest room, a big, well-lighted desk, and 24-hour secretarial services. Defying the traditional approach in the industry, which was to set a relatively fixed standard of physical and service quality across the entire chain, Sharp made sure each city’s Four Seasons reflected the local color and culture.
Sharp also recognized the salience of the hotel’s ownership structure. To his rivals, operating and owning went hand in hand. But ownership tied up capital and exposed the hotelier to fluctuating local real estate values, and diverted valuable senior management time. Four Seasons shed those burdens by becoming the first big hotel company to manage, rather than own, the hotel facilities that bore its name.
Certain causal relationships are obvious to anyone in the hotel business. The traditional belief was that a full-service business traveller hotel needed at least 750 rooms to generate the revenue to pay for its amenities. Sharp saw a more complex relationship between hotel size and amenity. If he could provide his guests with a higher standard of service, they would pay significantly more per room per night.
How could Sharp attain that level of service? By seeing the causal link between the way a hotel treated its employees and the way employees treated their guests.
Rather than treating its employees as disposable, Four Seasons distinguished itself, in Sharp’s words, “by hiring more for attitude than experience, by establishing career paths and promotion from within, by paying as much attention to employee complaints as guest complaints…by pushing responsibility down and encouraging self-discipline, by setting performance high and holding people accountable, and most of all, adhering to our credo, generating trust.”
Sharp’s management has generated enough trust to establish Four Seasons as the employer of choice in the hotel industry. When the New York City location opened in 1994, more than 30,000 applicants applied for 400 jobs.
In architecting Four Seasons’ competitive strategy, Sharp did not proceed sequentially. Instead of first deciding how big a hotel would be, then establishing service standards, and then setting human resources policy, he kept the chain of considerations in mind while working on individual links in the chain.
One organizing principle runs through the entire Four Seasons organization. Everyone is guided by the Golden Rule: in Sharp’s words, “to deal with others—partners, customers, coworkers, everyone—as we would want them to deal with us.” Every phase of hotel operations coheres around this strategy. Significantly, Four Seasons has no separate customer service department. Everyone at the Four Seasons is not just a member of the customer service department, but in charge of it.
Sharp set out to create “a reputation for service so clear in people’s mind that Four Seasons’ name will become an asset of far greater value than bricks and mortar.” The results speak for themselves. With 73 hotels in 31 countries, and with 25 properties under development, Four Seasons is considerably larger than the next biggest luxury player. Condé Nast Traveler ranks 18 Four Seasons hotels in its global Top 100 list, more than three times the next most cited chain. A Four Seasons signifies that a city has become a global destination.
Sharp succeeded because he was willing to consider a broader set of salient features, delve into more complicated causal relationships, and architect holistically the decision facing him. His resolution produced a system of reinforcing activities, each of which fits with and strengthens the whole. In the process, he did nothing less than fashion a new way to succeed in the luxury lodging business.
P&G: Using the Past to Invent the Future
January 23rd, 2008 | Posted by innovAs I brought to a close my eight-hour interview with A.G. Lafley, President and Chief Executive of Procter & Gamble (PG), I was deeply struck with the power of well-considered and well-leveraged experiences. In walking through 33 years of decision-making experience with him, from running a U.S. Navy retail operation to running P&G since 2000, I came to appreciate how Lafley became a consummate integrative thinker. The most striking aspect was how he used his experiences both to deepen his mastery and nurture his originality, rather than focusing on one at the expense of the other.
Mastery requires repeated experiences in a particular domain. Because masters in their domain have seen particular phenomena before and know what they mean, they don’t have to interpret every input from scratch as a novice would. They can pull out the few salient data points that make a difference and mentally map their causal relationships. And because they have done it many times before, they know from experience how to architect the problem in order to create a resolution. Mastery isn’t gained by accident. It comes only through planned and structured repetition of a consistent type of experience. That is why I argue that experiences don’t necessarily deepen mastery.
At P&G, Lafley continued to deepen his understanding of consumers by repeatedly listening to needs and wants, taking responsive action, and measuring the results against expectations to hone his understanding.
His mastery was essential during an internal battle in 1984 over the naming of the new liquid version of Tide laundry detergent. Usually, when P&G developed a substantial innovation of an existing product, the new product got a new and entirely different name, but in this case, Lafley saw good reason for breaking precedent. “We had convinced ourselves that powder Tide was for particulate soil remover and liquid detergent was for greasy, oily food removal,” he says.
But Lafley had done enough loads of laundry at home to know that the distinction was meaningful only to the scientists who developed P&G’s detergent formula. “The issue was,” Lafley says, “how does the consumer see it?” The consumer saw the detergent as the same old reliable Tide in a convenient new form. Why not, then, call the product liquid Tide?
The logic of Lafley’s argument prevailed and within twenty years, the U.S. market for liquid detergent was more than three times the size of the powdered detergent market, and liquid and powdered Tide had claimed more than four times the share of the next biggest brand. Had the liquid detergent been branded under a separate name, it’s not likely that Tide would be an immediately recognizable brand, a sixty-year-old mainstay towering over an array of brands with twenty or fewer years on the shelves.
Some contexts don’t reward the repetition, structuring, and planning that are the hallmarks of mastery. Those non-standard contexts require the creation of a new approach or solution—that is, originality. Originality demands a willingness to experiment, spontaneity in response to a novel situation, and openness to trying something different than perhaps first planned or intended. Rooted as it is in experiment, originality openly courts failure. It’s important to become comfortable with the process of trial and error and iterative prototyping, or you’ll be tempted to focus on the less risky mode of mastery, to the exclusion of originality.
Lafley’s originality came into play when he faced a big decision about compacting packaged laundry soap. Though P&G’s research and development folks had devised a way to compact the big fluffy granules of powdered detergent into a form that was less than half the volume, consumer tests showed a lukewarm response and P&G mastery would have said that without a clear test win, the new product should not be launched.
But that verdict didn’t sit right with Lafley.
With his carefully nurtured capacity for originality, though, Lafley focused on what was potentially unique about the situation that might call for a novel response from P&G. He saw that, unlike the majority of product upgrades, this one had the potential for massive cost savings for retailers since the smaller boxes would take up half the space in warehouses and on store shelves for the same dollar of sales. In addition, P&G’s manufacturing and logistics operations would reap the same cost benefits as the retailers. And the voluntary comments that some of the consumers added to their quantitative research forms revealed that while consumers weren’t wildly enthusiastic about compact detergents, few were actively hostile to the idea.
Lafley totted up the data points. Retailers saw compact detergent as a big win, and so did P&G manufacturing. Consumers were neutral at worst. So despite the lack of conclusive consumer evidence, Lafley argued for a huge investment to convert all powdered detergents to compact. It turned out to be a big win for P&G. “We ran and we won the race,” Lafley says. “It was huge, absolutely huge.”
As Lafley illustrates, the great ones utilize their experiences to build and deepen their mastery while maintaining and expressing their originality. Mediocre leaders do one or the other. Some deepen their mastery over time but never learn to trust their ability to express originality. They keep the proverbial trains running but will never invent the future. Others express their originality but do not develop their mastery. They are sought out as “ideas people” but aren’t trusted to run organizations of size and endurance because they can’t or won’t cultivate the multiple masteries that large-scale leadership demands.
By the same token, originality without mastery is flaky if not entirely random. Mastery is required to distinguish between salient and unrelated features, to understand what causal relationships are in play, and how to architect a complex problem. Without such mastery, the creative resolution is likely to be a random guess. It might succeed once, but there’s little chance of repeated and consistent success.
At its core, integrative thinking requires the integration of mastery and originality. Without mastery there won’t be a useful salience, causality, or architecture. Without originality, there will be no creative resolution. Without creative resolution, there will be no enhancement of mastery, and when mastery stagnates, so does originality.
Integrative Thinking and AIC’s Rescue
January 23rd, 2008 | Posted by innovIt was September, 1999, and Michael Lee-Chin had a serious crisis on his hands—the worst of his business career. Lee-Chin had presided over more than 10 years of remarkable growth at his beloved money management firm, AIC, but now AIC was under withering attack. Its very survival was in doubt.
An admirer of Warren Buffett, Lee-Chin had pursued a strategy with virtually no parallel in the mutual fund business. The typical mutual fund manager holds 100 to 200 different stocks at any given time and turns over the entire portfolio every 18 months or so. But emulating Buffett’s approach of taking long-term stakes in a relative handful of companies, Lee-Chin’s AIC Advantage Fund would hold only 10 to 20 stocks and hang onto them, as he says, “more or less forever.” This “Buy, Hold, and Prosper” philosophy worked brilliantly, and by 1999, assets under management had grown to $6 billion.
But in 1999, everything was different. Investors were clamouring to buy Internet service providers and dot-coms, day-trading was suddenly respectable, and a mutual fund with a buy-and-hold philosophy and a portfolio of financial, manufacturing, and grocery store stocks seemed hopelessly out of step. Many investors lost faith in AIC’s approach, and for the first time, the Advantage Fund was suffering substantial net redemptions: more money was flowing out than new money was flowing in.
The low point for Lee-Chin arrived on the morning of September 2, 1999, when he opened his newspaper to find one of the most influential business columnists in Canada trashing AIC’s basic business model and calling on investors to get out while their holdings were still worth something. The article predicted that to raise enough cash to meet the tide of redemptions, AIC would have to sell many of Advantage Fund’s holdings. The columnist speculated that the forced asset sales would further depress the price of the stocks held in the fund, creating a downward spiral that would continue until there was, for all intents and purposes, no more AIC.
Lee-Chin remembers that morning well. “I felt awful,” he admitted to me. But despite his distress, he sensed that an opportunity lurked within the crisis. Lee-Chin, who is of both Jamaican and Chinese descent, pointed out that “The Chinese character for ‘crisis’ combines the characters for ‘danger’ and ‘opportunity.’”
He had to choose, and quickly. Would he sell shares to cover the redemptions, concede that his “Buy, Hold and Prosper” strategy was fatally flawed, and diversify into the technology stocks that were the flavour of the month? That might save the firm, but at the price of everything he believed in and valued as an investor. Or would he stick to his principles and risk the firm’s falling into a death spiral that might destroy the business he had built virtually from scratch?
Lee-Chin thought hard—but not long—and made his choice. The option he selected was: neither. Or rather, both. “The marketplace was expecting that we had to sell,” he told me. “I said, ‘What if we didn’t sell? What if we turned around and bought? Then what?’ We’d turn the assumptions upside-down and upset the whole applecart.”
Lee-Chin had little choice but to sell some of the Advantage Fund’s holdings to meet redemptions; but then he took a startling tack. The marketplace expected AIC to use any money left over after meeting redemptions to load up on technology stocks. Lee-Chin would confound those expectations. “Okay,” he decided, “we’re going to identify this one stock, Mackenzie Financial Group, and we’re just going to put everything we have into purchasing that one stock.” He poured every cent he could into Mackenzie, one of the Advantage Fund’s major holdings and a stock he and his staff knew well. “We did everything to buy Mackenzie,” he recalled. “The share price went from $15 to $18 overnight. The rest is history. Mackenzie was sold [in April 2001] for $30.
Our unit holders made $400 million, and we made a handsome return.”
His move didn’t just save AIC, it helped the firm become Canada’s largest privately-held mutual fund company, in the process making him a billionaire, and providing him with the wherewithal to buy and turn around the National Commercial Bank, Jamaica’s largest bank, and fund philanthropic projects in Jamaica, Canada, and beyond.
The lessons of AIC’s cash crisis and Lee-Chin’s response to it may seem to have limited application to other business dilemmas. But this bold counterattack wasn’t just a spur-of-the-moment gamble by a swashbuckling entrepreneur in response to an unrepeatable set of circumstances. The thinking process that he followed is, I believe, common to some of the most successful people in the business world today.
I have spent the past 15 years, first as a management consultant and then as the dean of a business school, studying leaders with exemplary success records, trying to discern a shared theme running through their successes. Over the past six years, I have interviewed more than 50 such leaders, and as I listened to them, a common theme emerged with striking clarity. These leaders share at least one trait: they have the predisposition and the capacity to hold two diametrically-opposed ideas in their heads. And then, without panicking or simply settling for one alternative or the other, they are able to produce a synthesis that is superior to either opposing idea. Integrative Thinking is my term for this process that is the hallmark of exceptional businesses and the people who run them.
I believe that we were born with an “opposable mind” that we can use to hold two conflicting ideas in constructive tension, and that we can use that tension to think our way through to a new and superior idea.
And just as we can develop and refine the skill with which we employ our opposable thumbs to perform tasks that once seemed impossible, I’m convinced we can also, with patient practice, develop the ability to use our opposable minds to find solutions that once appeared beyond the reach of our imaginations.
HBO Joins the Movie Download Derby
January 21st, 2008 | Posted by innovIt seems you can’t read the news these days without coming across a new, improved, gee-whiz service that will make downloading movies and TV shows easier than opening a jar of peanut butter. DVD-by-mail service Netflix (NFLX) is gearing one up. Sony (SNE) just expanded its offering; same for TiVo (TIVO). And of course, Steve Jobs announced his new, improved Apple TV and video iPod on Jan. 15 with all the fanfare that only Apple (AAPL) zealots can muster (BusinessWeek.com, 1/16/08).
Here’s the latest entry in the what-you-want, when-you-want-it movie download race: HBO, Time Warner’s (TWX) iconic superbrand pay-TV service. The new service is called HBO on Broadband, and while Comcast (CMCSA) CEO Brian Roberts mesmerized a recent Consumer Electronics Show audience (BusinessWeek.com, 1/11/08) with visions of TV shows and movies capable of streaming lickety-split across his cable TV wires, the guys from Time Warner are offering what is clearly a work in progress.
First, the basics: You can watch the live HBO feed online, choose from more than 350 movies, and download and store such TV shows as Sex & the City, The Sopranos, and Entourage. It will set reminders for you when things are on, allow you to preset to record movies and TV shows when they air on the cable network, and suggest new stuff that maybe you would like to watch.
HBO describes HBO on Broadband as free. But to get the service, a cable subscriber will need to have already paid not only the $12 or so a month to get the pay channel, but also the $30 or $40 a month to get a cable operator’s broadband service. That’s right. The free HBO actually costs subscribers $52 or more per month because consumers will first have to dip into their pockets to buy HBO from their cable or satellite provider, and then add broadband service from the same provider. By contrast, a rival pay-TV network, Starz, offers a similar download service for $9.99 a month that doesn’t require you to have a video subscription. (Starz says it will soon start offering an HBO on Broadband-like service called Starz Play that will be “free” if you already have a video and data subscription.)
Service Makes Debut in Wisconsin
Sounds great, doesn’t it? And technologically, it is first-rate: Downloads are near instantaneous, thanks to buffer technology that allows you to start watching even while the show is being downloaded. Pictures are ultrasharp, even when they’re blown up to a full screen from their three-inch by three-inch display box.
So when Time Warner starts to roll out the new service on Jan. 21, why are they only doing it in a single system in two areas—Green Bay, Wis., and Milwaukee—when Time Warner owns 23 systems from Hawaii to Portland, Me.? No, it’s not a test, says HBO Co-President Eric Kessler, although he expects some fine-tuning. “We’re involved with discussions with other service providers, and we expect to have some to announce down the road,” he says.
In fact, Time Warner has been dabbling with HBO on Broadband for more than two years. According to sources, HBO had all but locked up the giant cable operator Comcast, which had been expected to have Roberts announce their agreement during his Jan. 9 speech to the crowds at CES. The deal, according to those sources, collapsed over how much of the operating costs—roughly 50¢ a subscriber—that Comcast was willing to absorb. Comcast was also being asked to front some of the costs to market the service. Comcast didn’t respond to requests for comment. HBO declined to comment.
Comcast Could Still Come on Board
HBO’s Kessler says the company is talking to all providers, including telcos such as Verizon (VZ) that have deals to also offer Internet service. Comcast, which controls roughly 20% of America’s TV sets, may soon come on board. The cable giant is in the process of renegotiating its contract with HBO.
What HBO does have going for it is a killer brand name and some of the best shows on TV today. It has 400 hours of entertainment, compared with maybe 150 hours of video on demand for many cable operators. You get HBO movies, and they come from most of the biggies, such as Warner Bros., Fox (NWS), Universal, and New Line, but only when HBO has the rights to them, which starts about nine months after they hit the theaters and then lasts for only 18 months.
You also get its Emmy Award-winning lineup of shows, but not the entire season for some of them. For example, you can get the full season of Curb Your Enthusiasm. But there are only four to six episodes of Sex & the City available. HBO, which will refresh about 25% of its offerings every week, says it needs to save space on the service for sports documentaries, kiddie programs, and other stuff. HBO could also be wary of cutting into its DVD sales for some of its more popular offerings.
There are some other aspects to HBO on Broadband that were clearly designed to appeal to cable operators, who still pay the majority of the pay-TV service’s bills. While the online service is available on up to five registered computers or various devices, there is a very sophisticated authorization process to make sure nonsubscribers can’t log on. What’s more, you can’t gain access to the service away from your house like you can with Slingbox. You can, however, download and store movies to watch them on your laptop when you are away from home.
Still, HBO can give subscribers what HBO’s Kessler says is the real prize—”the content that they want, when they want it.” He figures the service will help operators such as Comcast attract new customers who haven’t plunked down their money for either HBO or Comcast’s online service.
January 16th, 2008 | Posted by innovThe theme of this year’s annual meeting of the World Economic Forum at Davos (Jan. 22-27) is “Collaborative Innovation.” Important developments in information technology, demographics, business, and society are enabling new paradigms in collaboration in the global economy and leading to profound changes in every institution.
Companies, governments, educational institutions, and others can now orchestrate capability, innovate, and create value for their stakeholders in new ways. Collaborative innovation may hold the solution to many of the vexing problems facing our shrinking planet.
As a Davos fellow, I’m looking forward to discussing a number of issues at this year’s events. Below are some of the big issues I’m anxious to explore:
1. Collaborative Democracy
Democracy is in trouble in many countries. Most citizens are passive observers of government, becoming engaged only at time of elections. Is the current model inappropriate for the global “Net Generation” that has grown up collaborating and interacting and participating in social communities? What new models are emerging to engage citizens?
2. The Wikiversity—Collaboration, Learning, Pedagogy, and the Schools
The current model of educational pedagogy hasn’t changed for centuries. Based on the lecture, it is one-way, one-size-fits-all, teacher-focused and isolated. The student is a recipient, not a creator of knowledge. For a new generation of young people who have grown up interacting online rather than watching TV (as their parents did), this model is no longer appropriate. A new model is emerging—one that is interactive, customized, student-focused, and collaborative. Schools, colleges, and corporate learning programs that can change along these lines will experience breakthroughs in learning.
3. Collaborative Marketing—Consumers of the World Unite
Collaborative buying communities, predictive markets, new exchanges, and market-extending technologies are shifting power to consumers, with enormous implications. What are leading companies doing in response? Every business school graduate and marketing manager has learned the four P’s of marketing—product, price, place, and promotion. The paradigm was one of control—simple and in one direction: Companies marketed to customers. Businesses created products, defined their features and benefits, and set prices. Companies selected places to sell products and services and promoted aggressively through advertising, public relations, direct mail, and other in-your-face programs. They controlled the message. Is marketing changing fundamentally?
4. Changing the Weather—Mass Collaboration and Climate Change
Mark Twain famously said about the weather “Everyone’s talking about it but no one’s doing anything about it.” That’s changing. We’re in the early days of something unprecedented. Thanks to Web 2.0, the entire world is beginning to collaborate—for the first time ever—around a single idea: changing the weather. For the first time, we have one affordable, global, multimedia, many-to-many communications system, and one issue on which there is growing consensus. Climate change is quickly becoming a nonpartisan issue and citizens, businesses, and governments each have a stake in the outcome. Indeed, the global consensus emerging on climate change is that solving the crisis will require leadership from every country and every sector in society. The killer application for mass collaboration may be saving planet earth—literally.
5. Collaborative Science—When Great Minds Collide
Just as the Enlightenment ushered in a new organizational model of knowledge creation, the technological and demographic forces turning the Web into a massive collaborative workspace are helping transform the realm of science into an increasingly open and collaborative endeavor. In just about every discipline, plummeting computing and collaboration costs are encouraging the formation of large-scale research networks.
Collaboration in collecting data, verifying discoveries, and testing hypotheses is not only speeding things up; it’s improving the veracity of scientific knowledge itself as a much greater proportion of the scientific community engages in the peer-review process. Projects such as MIT’s OpenWetWare are already doing this and showing the way forward for a new era of collaborative science.
6. Global Civil Society—Power to the People
People outside the boundaries of traditional institutions have at their fingertips the most powerful tool ever for organizing collective action. But the so-called “smart mobs” and “wise crowds” of the past are being superseded by movements for social change on an unprecedented scale. This is not simply occurring within nation-states, where the third pillar of society (after corporations and governments)—the civil society—has historically addressed the needs of communities not met by the market or government. Increasingly, “the people” are organizing across borders and exerting their power and influence on the global scene.
7. Mass Collaboration and Evil
Past technological paradigms—the printing press, broadcast media, and the centralized model of the computer—were hierarchical, immutable, and centralized. As such, they carried the values of their powerful owners. By contrast, Web 2.0 is interactive, enriched with services, and control is distributed. As such it possesses an awesome neutrality—reflecting what is good and bad in society. Religious fundamentalists, terrorists, hackers, and criminal networks have harnessed the power of mass collaboration to promote hate and commit heinous acts. The key to global security and freedom may lie in harnessing this same power.
8. The Net Generation Grows Up
The largest generation ever—ages 13 to 29—thinks differently due to its exposure to interactive media. They have grown up bathed in digital bits and do not fear technology. As they enter the workforce and marketplace, they are a huge force for transformation in every institution. But are we ready? How are they different? What do companies, governments, educational institutions need to do to embrace them?
9. Radical Transparency
Transparency is a new force that can be harnessed for innovation, growth, and success. More than compliance with regulators, new research shows companies that share pertinent information about themselves with stakeholders can perform better, build trust, and develop sustainable business models. Employees of open enterprises have greater trust in one another and their employers—resulting in lower costs, improved quality, better innovation, and loyalty. Transparency is critical to business partnerships—lowering transaction costs between companies and enabling collaborative commerce. Transparency with customers builds trusting relationships. But how do you win in this new world?
10. The Digital Conglomerates
Google (GOOG), Amazon (AMZN), eBay (EBAY), Yahoo! (YHOO), and even Microsoft (MSFT) represent a new business species—the digital conglomerate (DC)—expansionist business engines that challenge industry incumbents from automotive to telecoms. In seeking to respond, traditional companies face hurdles ranging from legacy offerings and technologies to creaky cultures and embedded business models. Some seek anti-competitive regulatory protections such as the elimination of Net neutrality, but likely winners will be more adaptive: Digital conglomerates present both threats and opportunities to incumbent players. Strategies for exploiting the opportunities include partnerships, acquisitions, and adoption (or at least mimicking) of DC business practices.
Google Takes on the Phone Business
January 9th, 2008 | Posted by innovThe peripheries of the global business world are the spawning grounds of new innovation. In these vital locations edges emerge and consolidate before giving rise to new edges of their own. Executives who stay mindful of these dynamics can make the most of their innovation strategies.
The telephone business provides a classic example. Two decades ago, wireless telephone networks created a vibrant new edge to the wire-line telephony business. Many analysts at the time viewed mobile phones as a fringe event, something that would never take hold in the mainstream telephone business, except perhaps as a status symbol among the very wealthy.
Twenty years later mobile telephones are ubiquitous in the U.S. despite continuing challenges in service coverage, particularly in buildings. In many other parts of the world, these devices have replaced the old wire-line phone as the primary means of communication. What was on the edge has now become the core.
While highly innovative in many dimensions, the mobile phone business in the U.S. in at least one respect represents a curious throwback to a previous era. In 1968 the Federal Communications Commission issued a landmark decision known as the Carterfone ruling, deciding that any communication device could be connected to the wire-line phone network as long as it did not damage the network.
But no such ruling applies to U.S. wireless networks, where service providers retain the right to determine which mobile devices are permitted to connect to their networks. The edges, in this case represented by mobile device manufacturers, have remained tightly controlled by the core. This stands in sharp contrast to another major wireless telephone market, China, where the freedom to connect into wireless networks has spawned rich innovation by device manufacturers.
China’s mobile network operators were responding to the proliferation of bootleg phones connecting to their networks without authorization. Without any effective ability to enforce restrictions on mobile device manufacturers, the network operators decided that it would be better to let these devices hook up “legally” rather than simply have them “steal” bandwidth. This choice, born of necessity, opened up a flood of innovations, including robust audio short message service (SMS), and multiple screens both within and outside a phone to allow selected information to be displayed without opening the device, and private information to be displayed within.
A player from the edge of the communication business is now challenging this anomaly in the U.S. through a series of innovative initiatives. Google (GOOG), a highly successful Internet company but a novice in the phone business, has decided that the mobile communications business will become much more innovative if device manufacturers can be freed from the control of network operators.
In a bold effort to reshape the mobile communications business, Google has harnessed a series of edge plays. First, it has targeted the 700-megahertz portion of the wireless spectrum that had been allocated for use by television stations and will now be made available for mobile telephone service in an auction scheduled for Jan. 24.
In an effort to influence public policy, Google indicated it would be prepared to bid for this spectrum if the FCC would agree to a number of rule changes, including the requirement that any mobile device manufacturer would be able to freely connect into services provided over this spectrum. Google did not win all it wanted in this initiative but it did win acceptance of this key provision. The edge, including such nontraditional telecom players as computer manufacturers and game console manufacturers, will be free to innovate without the control of network service providers.
But Google’s edge initiatives don’t stop there. With the Open Handset Alliance, Google is seeking to mobilize a broad set of companies to join together in creating a robust software platform (known as Project Android) for a new generation of mobile phone devices. In designing this mobile phone software platform rather than focusing on the core of the mobile phone industry—voice communication—Google seeks to unleash the edge by focusing on innovative data communication services as broadband wireless services become more ubiquitous.
To catalyze this innovation, Google is going to the edge of the software industry. Rather than developing a proprietary software platform for mobile phone devices, Google has chosen to adopt an open source development and licensing model under the sponsorship of a broad industry consortium including Sprint Nextel (S), T-Mobile and Samsung Electronics. In this way, Google is inviting software developers around the world to supplement its own commitment of software developer resources and help deliver innovative functionality to mobile phone users.
Obviously these initiatives are still at their earliest stages, and it is far from clear how successful they will ultimately be (yesterday’s shuttering of Frontline Wireless, a high profile candidate expected to be a key player in the government auction which had nonetheless failed to attract the necessary funding to take part, is just one indicator of the field’s complexity). Nevertheless, executives can begin to draw important lessons regarding innovation:
• Don’t get distracted by your existing competitors
Look for players on the edge of your traditional markets who have the assets and incentives to disrupt the industry. And don’t forget to scan the startup world: Google is highly visible and well-known, but other disruptors may not be.
• Look beyond product innovation
If Google succeeds in its wireless plans, it won’t be just because of product innovation. In fact, the success of any product innovation will hinge upon the broader efforts by Google to shape public policy and to mobilize creative talent through innovative institutional arrangements.
• Mobilize others in support of your innovation initiatives
We are too often influenced by the stories of heroic individual entrepreneurs. We often forget that, in this increasingly connected world, some of the most powerful innovations will come through distributed innovation involving hundreds, if not thousands, of independent participants.
• Don’t be deceived by theoretical concepts like “emergent” and “self-organizing.”
Mobilizing large numbers of participants requires deep insight into their motivations and thoughtful structuring of coordination and governance mechanisms to focus and amplify the efforts of individual participants. These distributed innovation initiatives rarely, if ever, happen on their own. They require shapers who understand how to strike the right balance between self-organization and leadership.
• Target the edges
When focusing your innovation initiatives, find relevant edges that deliver greater value to customers. If the value can be demonstrated on the edges, participants in the core will adapt over time. Change is always easier to accomplish on the periphery, rather than by directly confronting large entrenched players with deeply held beliefs in the core.
The mobile phone industry in the U.S. provides a graphic example of the role of edges as seedbeds for innovation and for reshaping industries and markets. As what was once edgy become core, new edges emerge to begin the process all over again.
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