I’ve done two sessions with corporate groups in the past two weeks where we’ve discussed the imperative to innovate. In both sessions, I was asked if there were examples of large firms that weren’t very innovative that then started innovating.
There are, but not tons of them.
We know that startups tend to pivot as they search for a scalable business model. But what if you’re already at scale?
Here are some examples of firms that have done this:
- Hilti moved from selling one tool at a time to contractors to a model where they leased tools by the job.
- IBM moved from selling cash registers to selling tabulating machines. Over time, this evolved into their mainframe business. Then in relatively short order they shifted from selling mainframes to selling PCs, and then again from selling PCs to selling services.
- Intel shifted from selling memory to selling microprocessors at a time when the latter made up less than 20% of their overall sales.
- Loudcloud made a similar move when they sold their cloud services to concentrate on selling the software that ran it as Opsware.
- Nokia started out as a paper mill, then they sold cabling, and then they shifted into mobile phones.
- Tata attempted to shift into cars when they introduced the Nano.
There are basically two patterns for making this kind of shift. In his new book The Hard Thing About Hard Things, Ben Horowitz makes the distinction between being a wartime CEO and a peacetime CEO. The differences tell us about the two approaches to transformation that we can take.
Peacetime CEO focuses on the big picture and empowers her people to make detailed decisions. Wartime CEO cares about a speck of dust on a gnat’s ass if it interferes with the prime directive.
Peacetime CEO builds scalable, high-volume recruiting machines. Wartime CEO does that, but also builds HR organizations that can execute layoffs.
Peacetime CEO spends time defining the culture. Wartime CEO lets the war define the culture.
Peacetime CEO always has a contingency plan. Wartime CEO knows that sometimes you gotta roll a hard six.
The book is excellent. Horowitz talks about the transformations of Intel and Loudcloud – these were both wartime pivots. In other words, both firms faced a crisis, and they had to change. There were many challenges, including the fact that they were trying to make very important decisions, with very limited information:
As already noted, courage is particularly important, because every decision that a CEO makes is based on incomplete information. At the time of any given decision, the CEO will generally have less than 10 percent of the information typically present in the post hoc Harvard Business School case study. As a result, the CEO must have the courage to bet the company on a direction even though she does not know if the direction is right. The most difficult decisions (and often the most important) are difficult precisely because they will be deeply unpopular with the CEO’s most important constituencies (employees, investors, and customers).
That’s a tough pivot to make. But sometimes, you have to make this kind of move.
After four or five successful transformations over two centuries, it looks like Nokia might be tripping up now as the industry has been moving to smart phones. If you read Steven Elop’s famous “Burning Platform” memo, it is clear that this is a wartime pivot:
How did we get to this point? Why did we fall behind when the world around us evolved?
This is what I have been trying to understand. I believe at least some of it has been due to our attitude inside Nokia. We poured gasoline on our own burning platform. I believe we have lacked accountability and leadership to align and direct the company through these disruptive times. We had a series of misses. We haven’t been delivering innovation fast enough. We’re not collaborating internally.
Nokia, our platform is burning.
We are working on a path forward — a path to rebuild our market leadership. When we share the new strategy on February 11, it will be a huge effort to transform our company. But, I believe that together, we can face the challenges ahead of us. Together, we can choose to define our future.
Maybe one of the reasons that this transformation has been so hard for Nokia is that their others have been peacetime pivots.
What does a peacetime pivot look like? It looks like The Innovation Loop:
A peacetime pivot still has some urgency behind it, but it is based on finding new opportunities through the normal innovation process. That is what Nokia did previously, that is what the Hilti move was, and that is what Google is trying to do with all of their Google X initiatives.
With the Loudcloud pivot, the firm was on a burning platform – they faced bankruptcy in a matter of months (war). With a potential pivot via Google X, the firm will move into new markets that they help to invent and develop (peace).
As competitive advantages have shorter lifespans, innovation becomes more fully integrated with strategy. This means that more and more large firms are going to have to pivot as they face disruptions.
That’s the bad news. The good news is that you might be able to take some control of this process, and reduce the uncertainty that Horowitz talks about (by at least a little bit) if you start experimenting.
It’s better to try a peacetime pivot than a wartime one. It might make sense to start making those little bets now.