Being able to reconfigure our business model often means being willing to blow up something we don’t yet see as defective. Five questions CEOs need to ask themselves today.
The post Chase The Unreasonable To Reimagine The Future appeared first on ChiefExecutive.net.
I very clearly remember one of my first meetings with Sears’s newish CEO, Alan Lacy, shortly after I had been promoted to head up corporate strategy. To refresh, this was shortly before we would launch what would turn out to be a too-timid transformation of the storied and once remark- able retailer.
As I recall, he started off our meeting saying something like this: “The first thing we all should accept is that in most respects, our current business model makes no sense. If you were starting a retail concept today, there is no way you would create anything that looks like what we do.”
It was a harsh statement, to be sure. But it was also true.
And what plagued us then was not a situation unique to Sears, to department stores, to other struggling retailers, or to just about any organization that had not reimagined itself for a very different future.
Would anyone build a massive regional shopping mall if they had to do it all over again? Does the idea of an auto dealership on a huge piece of land with millions of dollars in inventory sitting there for weeks on end make any sense in today’s context? What about a vast chain of bank branches with many thousands of ATMs and millions of plastic credit cards? How about a vast fleet of gas-guzzling cars cruising around town hoping to come across a potential fare?
How do we avoid repeating the sins of the past? How do we go from being built for an era that no longer exists to one that wins the future?
START WITH WHY NOT
To dream is to risk disappointment. To fail to do so is to risk irrelevance. We’re often encouraged to think outside the box, but maybe we need to forget about the box in the first place?
Sure, there are plenty of failures of execution, as well as misfires in communication that help explain why companies fall short and eventually lose relevance. But in my experience, in so many of these cases, what we are seeing is a failure of imagination. When it comes to transforming at the speed of disruption, it turns out that imagination is far more important than mere knowledge. I’m quite certain the major hotel players know the lodging business pretty darn well, but that didn’t prevent Airbnb and Vrbo from capturing most of the incremental value created in the industry during the past decade.
All the vast knowledge and accumulated experience of department store operators, taxi service owners, movie theater chains, publishers of the yellow pages, big-city newspapers, and the three major TV networks didn’t seem to help them much during the past twenty years as massive amounts of value migrated to the disruptors that challenged the status quo.
Our starting point can be trying to make what we already do better, or we can start by assessing the ultimate end state the customer is trying to reach and reimagining a novel way to get them there.
THE PERILOUS PROTECTION OF THE INSTALLED BASE
Say what you will about sunk costs being sunk, but a whole lot of energy goes into defending existing assets, clinging to long-standing customer relationships, and being unwilling to compete with ourselves.
During my tenure at Sears, very promising new off-the-mall concepts were either squashed, underinvested in, or slow-walked because we were fearful they would cannibalize our full-line (i.e., large, mostly mall-based) department stores. Sears’s once powerful Kenmore and Craftsman private labels steadily descended from the ranks of the world’s most valuable consumer brands (of any kind) mainly because they were not sold where consumers increasingly chose to purchase their major appliances and tools—namely from home product category killers like Home Depot, Lowe’s and Best Buy. The various expanded distribution options we evaluated multiple times over many years never went anywhere primarily because we were too worried that selling through other channels might doom our legacy, mall-based business.
Whoops.
DISRUPT YOURSELF
Clayton Christensen, the Harvard Business School professor and author of The Innovator’s Dilemma, believed that companies should be better at competing with themselves than their competitors. He argued that the biggest threat to a company’s success was not external competition but rather internal complacency. Companies that are too focused on protecting their existing products and services can miss opportunities to create disruptive innovations that could transition them away from their vulnerable core business to a stronger, more future-proofed position.
Christensen argued that companies should embrace the concept of disruptive innovation by creating new products or services that initially serve small, niche markets but have the potential to grow and eventually disrupt the company’s existing business. By doing so, companies can avoid being caught off guard by external competitors and stay ahead of the curve.
Said differently, we should focus on disrupting ourselves before someone else does it to us. Pay me now or pay me later, when it’s very likely to be a whole lot more expensive, and perhaps impossible.
WILL RERUNS BE OUR HISTORY?
If you are anything me, much of your success may be tied to repeating some version of what’s worked for you in the past. Just as much as we tend to go back to the same playbook, we often think that what’s made us successful in the past is likely to guarantee continued good fortune in the future. But more and more, that’s like practicing driving golf balls and expecting to post a good time running in the Boston Marathon. The game has changed, and so must we.
Although Double Stuf Oreos may be yummy and drive a nice bump in sales, they hardly transform the cookie category. There’s nothing wrong with the latest Chai Tea Whatever at Starbucks (except perhaps with the price and the calories), but some new formulation doesn’t represent a beverage breakthrough. And yet various product iterations and line extensions are so often what count as an innovation engine across many different sectors.
Returning once again to Christensen’s distinction between sustaining vs. disruptive innovation, we can see that the importance of sustaining innovation can exist on a continuum. In some situations, delivering comparatively minor iterations of what we’ve always done on a steady basis suits our competitive situation quite well. Our sustaining innovation programs can, in fact, help fund our short-term needs as we work to build a more successful bridge to the future.
But ultimately it doesn’t really matter what we call change. What matters is whether it’s enough.
As you’ve no doubt observed, too many companies rely excessively on the recycling of old ideas. If they had assets that could be leveraged in more profound ways (think back to my example of Sears’s Kenmore and Craftsman brands), they let them lie fallow. If we think about brands that have struggled to keep pace with the speed of disruption, it’s almost certain that what they thought of as disruptive innovation fell almost entirely into the category of sustaining.
Business as usual is increasingly business as vulnerable. And what got you here is not likely to get you to where you need to leap. Old keys won’t open new doors.
MAYBE YOU’RE ASKING THE WRONG QUESTION(S)?
As we make the shift from assuming the world wants a slightly better version of what we already do to radically rethinking how we go to market, it’s worth gaining clarity on just what it is that we’re solving for. This is an incredibly useful thing to do, especially because we may be making the wrong assumptions about the wrong problems.
Harvard Business School professor Ted Levitt is frequently quoted as saying, “Nobody buys a drill because they want a drill. They buy a drill because they want a hole.” That’s pithy, but it’s also not quite right. Why does someone want a hole? Well, because they want to hang some shelves. Why do they want to hang some shelves? Because they are redecorating their second bedroom. Why are they redecorating that bedroom? Because they are having their first child. And why is it important that this room is outfitted and decorated in this way?
This kind of process of inquiry—often called the “5 Whys”—can help us get at the root cause of the problem we seek to solve and, as a result, position us to deliver more value. “Design thinking”—sometimes referred to as human-centered or user-centered design—is another approach that remarkable companies like Nike and Apple regularly employ to unlock more comprehensive solutions to problems that go beyond merely tweaking a product’s features and benefits.
Here too Christensen can be our guide, as he’s the originator of the “jobs to be done” theory, which posits that we don’t buy a product, we hire a company to do a job for us. When we reframe our thinking to apply this approach, it can allow us to see the actual end state the customer seeks and the ultimate feeling they hope to achieve.
Making this mind leap therefore calls us to ask more expansive questions. In doing so, it allows us to see a different, more holistic, more game-changing solution.
BOUNDLESS ENTHUSIASM
Opportunities for organizations to reimagine their future and execute against them have expanded dramatically as technological and physical boundaries have come down. In the recent past, creating more holistic solutions was hamstrung by an inability to assemble all the pieces, an excessively high cost or staggering complexity. As more products and services can be delivered to customers using digital technology, however, radically new value propositions can be offered.
Until technology costs came down, sharing economy models like Uber and Airbnb were, for all intents and purposes, impossible. Similarly, adding complementary services like buy now, pay later or repair insurance to an online product purchase could not be cost effectively executed at significant scale.
Marketplaces operated by third-party entities like Amazon, Alibaba and Etsy, where individuals or small businesses can sell their products or services directly to customers, have become major components of many industries’ ecosystems and continue to grow rapidly. These sites provide a centralized location for buyers to browse and purchase products from multiple sellers while also providing a platform for sellers to list their products and reach a wider customer base.
“Super apps” like WeChat and Alipay are comprehensive mobile applications that integrate multiple services and features into a unified platform, providing users with convenience, efficiency and a seamless experience across various daily activities, including messaging, social networking, financial services, and more. These apps often leverage partnerships and collaborations with third-party businesses to expand their service offerings.
Many of the traditional gatekeepers have left the building. Many of the roadblocks of old are now gone. As the boundaries have come down, the ability to create powerful new ecosystems, especially on our mobile devices, has gone up dramatically.
BRAND AS PLATFORM
The era of more singularly focused customer value propositions is giving way to operating models built more on the idea of an ecosystem. By this I mean related products and services that are complementary to each other and, taken together, provide a broader set of solutions for a defined set of customers.
Today, many companies are exploring ways to go “beyond trade,” as Bain & Company calls offering additional products and services beyond traditional core offerings. This approach is growing so rapidly that the consulting giant estimates that by 2030, more than 50 percent of all retailer profits could come from areas outside of their historical areas of trade.
Apple is often cited as a platform brand because it has built an ecosystem of products and services that work together seamlessly. Customers who buy an iPhone can also purchase apps, music and other products through the App Store and can use their iPhone to control other Apple devices like an iPad or Apple Watch.
Aggregation sites like Expedia in travel, Cars.com for automobiles, LendingTree for mortgages, and many others make it easy for customers to see a wide range of related or complementary options all under one organizing brand. The idea that a brand can go it alone is increasingly anachronistic. Reimagining your brand as a platform to leverage both operational capabilities and loyal customer relationships, on the other hand, can create a whole new range of opportunities.
Another new and rapidly growing area is retail media networks, which allow advertisers to monetize their data to display ads to customers as they shop online or in-store. Media networks are projected to reach over $50 billion in annual high-margin revenues by 2025 in the U.S. alone.
When a brand is considered a platform, it means that it serves as a foundation for a larger set of products, services and experiences. That said, the goal of a platform brand isn’t just to sell products or services, but to create an entire customer experience that extends beyond the point of purchase. Well executed, this can lead to increased loyalty, repeat business, and positive word-of-mouth recommendations.
LET ’S GET READY TO BUNDLE
Delivering a bundle of benefits can provide real value for customers and allows the bundler to leverage customer relationships built over time. Conceptually, bundling is hardly new, but most applications of this were, until recently, fairly prosaic (e.g., fast-food combos, cable TV packages).
Disney is a great example of what successful bundling looks like. Its offerings include but aren’t limited to the following:
• Theme parks. Disney operates theme parks around the world, providing visitors with an immersive experience that includes rides, shows, and other attractions (in addition to food and lodging).
• Movies and TV shows. Disney is known for its extensive library of movies and TV shows, including those produced by its own studios, such as Pixar, Marvel, and
• Streaming services. Disney operates several streaming services, including Disney+, Hulu, and ESPN+, which provide access to a variety of movies, TV shows, and live
• Merchandise and consumer products. Disney offers a wide range of consumer products, including toys, clothing, and home goods featuring its popular characters and
The holy grail of platform business models and bundling may be rundles, the term Scott Galloway, the NYU professor, author and podcast host coined for the recurring revenue stream of subscription-based offerings. Customers appreciate the simplicity of “set it and forget it” while companies love the lock-in value these memberships provide.
Quip is a well-known disruptor brand that fits this model. Their electric toothbrushes feature a sleek design, built-in timers, and gentle vibrations to guide users through their brushing. The toothbrushes also come with a subscription service that delivers replacement brush heads, fresh batteries, and toothpaste directly to customers’ doors at dentist-recommended intervals, ensuring one never runs out of essential oral care supplies.
But they are hardly alone. Dollar Shave Club, Harry’s and Billie follow a similar playbook in personal care, as do Hims and Hers for health and wellness, HelloFresh in meal kits, and on and on.
Thinking more radically about the customer value we can deliver empowers us to leap beyond old constraints, like providing a single product offering when a broader solution or more comprehensive service is just what the customer wants.
THE FUTURE IS BIGGER THAN YOU THINK
It may be a bit of an exaggeration to say that our possibilities are endless, that we are playing an infinite game, or that we operate on a plane of pure potentiality, as spiritual guru Deepak Chopra is prone to opine.
And yet it’s not the least bit hyperbolic to suggest that your future may exist far beyond the current horizon, well outside the fence you’ve put around your present ways of operating. There’s a classic story that perfectly illuminates the limitations we can arbitrarily put on ourselves and the rewards from breaking them down. Even if you know it, it’s worth revisiting:
There were three allied soldiers who were fighting in France during World War II when one of them was killed. His friends wanted to bury his body in a special place, not in the field where he had so tragically fallen. They carried his body to a nearby churchyard that had a cemetery and asked the priest to bury their friend there.
The priest asked them if he had been a Catholic. “No,” they said, “he was not.” The priest said that the consecrated grounds of the church were reserved only for Catholics and therefore he could not be buried there.
Disappointed, the two men decided to do the next best thing they could think of: they buried him just outside the fence of the churchyard.
The next morning, the two friends went back to the church to pay their final respects. When they looked where they thought they had buried their friend, they could not find the simple grave.
Confused, they went to the priest’s house and knocked loudly on the door. “We cannot find the grave of our friend at all!” they said. “We buried him just outside the fence.”
“Yes,” said the priest, “I could not sleep last night thinking of your friend and the love you have for him. I tossed and turned, until I decided what I had to do. I got up in the night and moved the fence.”
Making the shift from conventional to more radical thinking requires that we redefine boundaries, that we fight against our limiting beliefs, that we recognize the lines we have previously told ourselves we cannot cross—and then decide to cross them.
LEAP INTO THE VOID
Voids are empty space, rife with potential.
Sometimes the opportunity to fill a void, to create something radically new, stems from seeing the gap, appreciating what others have missed, and going for it. Other times it emerges from a fearless willingness to explore uncharted territory or remix things in totally new ways.
Gaudí, Picasso and Pollack; Bird, Miles and Jimi—they didn’t invent their genres, but they went to the edges, defied convention, and took the brave plunge.
Disruption by its very nature introduces something to the world that at some point seemed unworkable or even downright crazy. So, in many ways, thinking radically requires us to engage in what may feel like momentary lapses of reason. But chasing what seems unreasonable is often not only a savvy strategy—over the long term, it may be the only one that has any chance of working.
BLOW IT UP
As we’ve seen, the future is increasingly elastic. And so must be our thinking and our actions. Much of what has been disrupted in recent years wasn’t broken. It just was unremarkable, and entrepreneurs were willing to take on the status quo.
Being able to rethink and reconfigure our business model often means becoming unmoored, pushing ourselves way outside of our comfort zone. It also may mean that we are willing to blow up something we don’t yet see as defective. That, as the British say, takes stones.
Many of the areas that have been reshaped by disruption during the past two decades weren’t fundamentally defective. In many cases they were operating rather smoothly. Taxis weren’t broken. There was nothing inherently wrong with Blockbuster’s video rental retail format, Borders bookstores, Kodak’s camera business or Nokia’s mobile phone operation. They all got the job done decently.
Until they didn’t.
When the writer Graham Greene declared “destruction after all is a form of creation,” he meant that the process of tearing down or removing something old or outdated can create opportunities for something novel and differentiated to emerge. In other words, destruction can be a catalyst for creative or transformative change.
Greene’s idea is a lot like the concept of creative destruction introduced by economist Joseph Schumpeter, who observed that the process of innovation and technological progress can both destroy existing industries and markets and birth new ones.
Blowing up the old to enable the new may seem scary, but there’s no reason it has to be framed as a negative experience. What if, instead, you thought of it as a necessary albeit messy component of the creative process?
By embracing destruction as a force for progress, we can break free from old patterns and limitations, opening ourselves up to new possibilities that can help us fight against irrelevance and build a remarkable, sustainable future.
QUESTIONS TO HELP YOU THINK MORE RADICALLY
1. Where do you currently draw the lines of your business (customers and markets served, distribution channels, pricing strategy, collaboration partners, )? What new opportunities might emerge if you were to remove one or more of those boundaries?
2. What does your competition see that you don’t that is allowing them to steal profitable market share from you?
3. If you were to create a new business to attack your company’s weaknesses (or mediocrity), what would it look like? Why aren’t you doing it now?
4. What percentage of your resources are spent on either protecting your core business or making incremental changes to what you already do? How much are you investing in exploring totally new areas of growth?
5. What boundaries are coming down that have historically limited or made impossible your entry into new areas of business?
What initiatives “beyond trade” might make sense for your company over the next few years? What would launching some pilot activities involve?
Excerpted with permission from LEADERS LEAP: Transforming Your Company at the Speed of Disruption.
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