by Tom Goodwin
Reference
Meixler, E (2017) IKEA furniture is about to get easier to buy than ever, Fortune, 10 October, available from: http://fortune.com/2017/10/10/ikea-third-party-websites-selling/ [last accessed 7 December 2017]
06
Starting your disruption
Question everything generally thought to be obvious.
RAMS, 1980
For all the talk of change in the business world, you see remarkably little actual change appearing.
In Asia it’s different, especially China. Here, it’s not so much that they have changed, but more that they have constructed businesses for the first time in the new world. Here we see an abundance of mobile first thinking, common design around digital wallets, companies leveraging the power of instant messaging, QR codes and contemporary logistics that you can build when you have nothing to destroy first. But outside of these markets little has really changed.
As I said earlier, the changes we notice are the most visual and the easiest to do, a sort of MTV Pimp my Ride approach to digital transformation. A show in which, while the car owner really needs a new, sensibly priced family car to get around, the producers insist on taking a structurally flawed, mechanically dubious vehicle, gluing it together with paint and putting on wheels so shiny you can’t see the smoke bellowing from the exhaust. It makes great TV, but it’s a terrible way to change a company.
Now that we’ve seen the turbulence in the world, and appreciated how businesses can rebuild for the digital age and with new thinking at the core, it’s time to plot a path for change. Do we want to continue the slow steady slide to obsolescence, to be the frog that boiled to death, or do we want to be the one that took the brave path to change?
In this chapter, I’ll start to outline some of the fundamental questions to be asked, before giving guidance on initial steps to follow. This chapter will be about building a platform for change, establishing core beliefs and values. Chapter 7 then builds in more detail on how companies can practically make it happen.
We need to establish a broader base from which to work, outline a more holistic strategy and take the time now to ask the fundamental and awkward questions.
What is your risk level?
Most people in life are, by human nature, risk averse. We have evolved as a species to reduce losses not maximize gains. We are most driven by the need to avoid humiliation, more than by the need to be the standout winner. There are only two things that both people and companies hate most: when things don’t change and when they do. So we need to establish early on, in an era that is chaotic, changes fast and in unpredictable ways, what is your level of personal risk? Do you want to go down in flames as the hero for some (but the fool to others), or do you want to tread carefully like most people do?
Ron Johnson, the ex-senior vice president of retail operations at Apple, was selected to be the CEO of JC Penney. He made bold choices, tried to rewire the company significantly, he was potentially on the verge of great things, but the board threw him out before the moment when these changes could have changed the fortunes of the company forever. In that time the share price fell 50 per cent. So do you see him as a fool or as the kind of charismatic bold leader the world needs?
Real change takes time and involves a lot of hard decisions. It’s rebuilding ancient IT systems, firing people who don’t want to come along for the ride, establishing new criteria for hiring people, new pay and reward structures. It involves speaking and listening endlessly to customers, auditing all aspects of a company and preparing them for change. It’s not a trip to DJI in Shenzhen where you play with drones; it’s talking about back ends and protocols. It’s not as much fun as a day trip to an innovation lab would suggest and it makes you feel vulnerable.
How vital is this change?
Waves of change are indeed sweeping the world; music and news have suffered, magazines seem on an inevitable path to death, the automotive sector is about to undergo huge shifts as electrical propulsion changes more than would first appear, and new business models proliferate. But it’s important to note to what extent your business must change. If you are a consumer packaged goods company, then Dollar Shave Club shows what can in theory happen. However, while it was bought for a billion dollars by Unilever, it only threatened to remove value from the market while it was aiming to be acquired; it didn’t necessarily change the market as much as trends presentations and over-excited articles suggested.
There is changing because you have to, and there is the opportunity cost of not changing. What is the risk of not changing? Banks may be strong, stable companies that are not forced to change – they can probably buy most start-ups who get interesting and dangerous enough to threaten their business – but wouldn’t it be wise to be in control of your own destiny?
Even companies that don’t have to change have a lot to gain from change. People are more likely to get divorced than change their bank, even though banks offer all sorts of incentives to move, and yet Monzo Bank in the UK has 40,000 people on a waiting list (Martin, 2017). This is the power of a new clear proposition and of a customer-centric service. When you take on large legacy companies, especially those that are not loved, when you are clear in being an alternative, whether commercially or philosophically, then people will either love you or hate you. This is a powerful emotion and tension to unlock. We would all do well in business to be hyper-aware of what has changed, but even more, remind ourselves frequently of what has stubbornly not changed.
If you are a large legal firm, then yes, you would be wise to employ best-in-class IT staff, to leverage cloud-based software solutions and try out Slack. Legal firms can make heaps of money advising on changes to intellectual property or patent laws, or new disrupted threats, but your business isn’t likely to be destroyed by artificial intelligence (AI), robots, or freelance platforms like Upwork; it’s likely to be augmented by them. From teaching to general healthcare workers, from dentists to firefighters, there are many industries not facing clear and massive dangers from not changing.
Yet a lot of us really need to wake up. Many of us, and I mean many of us, have our heads in the sand. If you work in the real estate, automotive or insurance markets, big changes are coming. If you are a department store, talent manager or a toy maker, you need to look out. If you write code, you need to be alert to the fact that you are soon likely to be training computers how to do your job and they will self-improve faster than many ever expected. There are many roles like accountants or executive assistants or anyone in media that face pretty big changes ahead. Sectors such as higher education have so far been rather immune to disruption; they’ve used societal norms to feel confident that things won’t ever shift. They probably won’t in the near future, but in a world with free information online, where reputations can be built on LinkedIn or by forming your own company, or writing posts that go viral, things seem different. I can learn more from a month on Twitter with a well-curated feed than I did on a four-year master’s degree course.
It is up to everyone at this moment in time to look ahead and to establish an understanding of the degree to which you need to change, decisions about whether changing is mandatory, unnecessary or a helpful way to bring an abundance of opportunities your way.
Establishing a role
It is human nature to get small when times feel threatening. It is natural to focus on core activities and cut costs when things look bad. Yet by looking at the role of your company, the value it adds, the brand, and the permission it has to operate in customers’ lives, it may be possible to do more. You must consider not only your company’s need to change, but also the real opportunity in changing. What business are you really in? Fashions have always come and gone, but if you make athletic clothing, life doesn’t seem that different. Yet if you think about things more expansively, if you reconsider your role, things get more interesting and optimistic. If you are a wellness company, you can suddenly do a lot more.
When Harvard marketing professor Theod
ore Levitt said to his students, ‘People don’t want to buy a quarter-inch drill. They want a quarter-inch hole’, we started to think about products and marketing in new ways (Christensen et al, 2005). Clayton Christensen famously took this further with his ‘Jobs to be done’ framework (Christensen et al, 2016). The idea here was that we are not so much in the business of selling items, drills, milkshakes, or new watches but are actually trying to accomplish something more bold and ambitious.
Marketing experts do a great job of trying to elevate the role of a company and product. Pepsi, for example, is touted as being a solution to racism, or violence, while Coca-Cola just settles for owning the entire concept of happiness, globally. Some tangy chocolate cookies go from standing for ‘crunchy and tasty’ to ‘satisfying hunger’ to ‘celebrating world peace’ in about three meetings with advertising agency strategists.
But the truth is there is much to be said for standing for something greater, particularly when it comes to promoting transformation and innovation.
Hyatt, Holiday Inn and Starwood hotels are in the business of making and running world-class hotels, which is a great business to be in, but it limits these companies. In this model of thinking, they need total control over the management of the property. It means they are totally to blame for any problems that arise: no rooms available, dirty service areas, it’s all tarnishing the brand and not the property owner. Quality control issues limit the speed at which you can expand, the areas that are profitable to enter, the liability you face rises the more you control.
Airbnb challenged this. Initially, it stood for ‘a roof over your head’ regardless of how it was delivered, with first an ‘AIRmattress and Bed And Breakfast’ and later, more proper beds and fewer breakfasts. The platform can now grow in two very interesting horizontal directions: it can stand for humanity and the idea of ‘people helping people’, which allows it to run tours (as it has started to do); but also offers potential future expansion into anything about people that requires trust, such as casual jobs, food preparation, ride-shares. The business can be propelled in any direction that requires a reputation online and the codification of trust. ‘What’s empowered this shift in values is the codification of reputation – it’s the five stars next to people’s names that make it possible to trust someone we otherwise know nothing about’ (Stan, 2016).
And it could also move vertically, It could branch out into the ‘housing’ arena, building (or leasing out its name) to liveable hotels, friendly-feeling apartments, murphy beds, and interior design. Airbnb has the potential to stand for anything in the horizontal or vertical. That’s quite something.
Thinking about the role your business plays in people’s lives is a big way to grow. The roles of many incumbents are under threat and this is the core issue. Why do we need department stores at a time when we can see everything we love online? Living in a small city in 1980 they made sense. Someone gathered a selection of good things together, then arranged them nicely to showcase for me, but in the modern age this has no value; we don’t need a bundler. So from car rental firms to department stores, from record labels to magazine brands, how can we re-imagine the role we have? Perhaps department stores need to become ‘advisors’ for fashion, health and life, perhaps magazines need to become lifestyle brands that run hotels and exclusive parties.
When we think of it this way, life becomes exciting for many. Gyms are not places you pay money to each month in order to access their space and machines; they become holistic lifestyle organizations that can help you attain any goal. The gym becomes less about a nice big room and clean mirror and the latest equipment, and more about fitness tracking with apps, access to wellness coaches and nutritionists, places that can make money in new ways, affiliate marketing for live insurance, spa break holidays. Gyms could own our health and wellness.
Banks can stand for being the gateway to spending, saving, all the bills we pay. They can go from being places to trust with our savings, to being the guardians and advisors on financial health. Mobile operators around the world are terrified about being ‘dumb pipes’. How can they leverage the relationship they have with all of us and our billing details, and become owners of content, managers of mobile payments, advisors in our relationship with data and news?
The steps to think about here are: realistically, what role can you have in your audience’s life? What do you have credibility to do? How deep can it go? Do you have permission to do this? I don’t think a tea company can own social networks, despite its social roots, but I think a car company can stand for mobility, an airline can represent leisure, and a home improvement store can represent interior design and architecture. There is no reason IKEA or Muji can’t sell homes.
Establishing a time to change
Where were you when you got your very first bar of 3G reception? One of the worst first-date questions you can ever ask, but for me it was memorable. It was early 2007, and I was high in the Durmitor mountain range in Montenegro. As the rusty train meandered past medieval villages and creakily zigzagged its way through derelict train stations, I was quickly e-mailing images of the previous night’s disgusting meal I’d had in a burnt-out train station. Progress happens in unexpected ways.
We’ve all been there. You’ve been wanting a new games console for ages and the week you buy it they bring out a new one. Well, just imagine you’re a car company that just spent $100 million on a new engine plant, just as electric propulsion looks to be the future. Or you’ve just bought Blackberries for all your staff, or committed to bringing back coal jobs. Sometimes the future happens so fast it’s hard to know when to take the leap.
We see brand new planes with no power outlets – whoops, someone didn’t think. You ride high-speed train lines costing billions that nobody thought to put Wi-Fi in. New roads with manned toll booths. It’s amazing to travel to countries where they built for the new world from nothing. You can pay by text for parking in Romania, because they didn’t need meters in the communist age. TeliaSonera was the first operator in the world to commercially launch 4G cellular systems in late 2009, in Lithuania. Some of the fastest internet speeds in the world are in Estonia. China now accounts for as much as 70 per cent of the world’s total installed solar thermal capacity.
New technology is always better in ways we can’t imagine. In New York City, when I watch TV in my apartment, I watch it via a huge cable box, I get standard HD resolution and a choice of 200 channels for $120 per month. Yet whip out my iPhone 7, 45 times smaller and 16 times lighter than my cable box, use it as a hotspot and I can stream video from anywhere in the world, at four times greater resolution via 4G and my Apple TV. It’s amazing how the latest technology can be orders of magnitude better. It’s incredibly exciting to witness the progress that this sort of leapfrogging allows.
Villages in Africa can in theory equip themselves not with expensive-to-build, hard-to-maintain, slow-to-stock libraries, but could hand out $10 smartphones and tablets and let kids learn how to do anything. An underdeveloped nation like Tanzania will officially kick off the world’s largest delivery drone service in 2018 (Walcutt, 2017). Who needs roads any more?
Four ways to change
When you know what you are about to do, what you can reach for, what market you can be part of, you can then think about how deeply you must change, and ponder one of four ways to change.
There are many ways to change your business. It is a sliding scale; there is no point at which a company that is putting a big effort into buying new and non-core businesses is suddenly a company that is re-engineering itself. How much do you have to invest in start-ups before it goes from being a nice way to outsource research & development and maximize learnings, to becoming a hedging strategy for the future of the business? So, these ways do not have clear boundaries, but I think in each case it should be fairly clear what approach is being taken when I give examples.
1 Self-disruption
By far the riskiest, most aggressive, most potentially rewardin
g approach towards change is to self-disrupt. There are two clear elements that define self-disruption vs any other form of wholesale change.
Firstly, self-disruption has to involve a degree of cannibalism. The driving force behind self-disruption is to create a business that first wins market share and gains new customers, but ultimately should become so large and successful that it becomes the driving factor in the future of the company itself. The goal is to create an entity that challenges so many industry norms, becomes such a valuable and clear consumer proposition, that at some point it’s likely to be more successful than the original company. While in an ideal world both entities, the legacy unit and the thrusting start-up, would survive, there will always be a risk of cannibalism. To some extent, assuming the companies are in the same general industry, the more successful the start-up becomes, by definition the more it’s likely to eat its parent. It’s the degree of risk and sacrifice in this model that is key.
It’s easier to define the idea with examples of what it’s not.
When British Airways set up Go, they were not doing so because they wanted the whole airline to become a low-cost carrier and give up on premium passengers. They did it reluctantly and defensively because of a threat from low-cost carriers.
When the Inditex Group, most famously known for the Zara brand, decided to open a premium fashion retailer, Massimo Dutti, in 1985, while it was ambitious enough to want to own a premium market and increase profitability, it was never expected to eat the parent brand of Zara and become the future of the company. Both British Airways and Inditex are just portfolio approaches to brands from parent companies.
