Thank You for Disrupting

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Thank You for Disrupting Page 10

by Jean-Marie Dru


  paid subscribers. Free listening time is capped at 10 hours

  per month. No piece of music can be heard more than five

  times. You might think such constraints would put custom-

  ers off. They do, but the offer is so attractive that users be-

  come hooked and cannot bring themselves to forego paying

  the subscription.

  Jedidiah Yueh

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  Giving things away for free should not be left to only

  Internet companies. I recently asked the chief executive offi-

  cers of two major worldwide legacy companies, “What if you

  decided to offer part of your products and services for free?”

  This is one of the questions about innovation that we always

  ask our clients during Disruption Days. We propose a list of

  questions which might not seem obvious.

  The question I posed to these two CEOs intrigued

  them. It caused them to reflect. I believe that provoca-

  tive “what if” questions can prompt thinking that ends

  up improving business models, and sometimes even imag-

  ining new ones. In this case, a free offer can be a lever

  for growth for a traditional company, as it often is for an

  Internet pure player.

  5. Data is the best tool for legacy companies to “maintain their

  positions in the face of digital disruptors,”10 underlines Yueh.

  Because they were born on the web, agents of the Internet

  economy benefit from an advantage over traditional, legacy

  companies. The giants, Google, eBay, LinkedIn, Facebook,

  or the tens of thousands of start-ups created every year

  are built around big data since the outset. It’s their natural

  habitat, in which they’ve always evolved. They didn’t have

  to reconcile or merge big data technology with their current

  IT infrastructures, unlike legacy companies.

  By contrast, legacy companies actually have a determining

  advantage. Unlike new market entrants, they have the

  resources and financial means to invest massively in such

  things as hardware platforms, databases, extraction software,

  advanced analytic tools, maintenance, and storage systems.

  However, legacy companies, in their permanent state of

  anxiety about digital disruptors, have often forgotten that

  they have the means to prevail. If they accelerate their speed

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  to keep pace with the digital economy, they can become the

  real key players of the upcoming “analytics 3.0” era.

  The challenge they face is how to make sense of all the

  new streams of data that they have collected from a vari-

  ety of different sources. This data, which can be structured

  or unstructured, internal or external, is, for the most part,

  disconnected. Companies need to learn how to exploit this

  richness by changing the way they operate internally and en-

  suring that the way they work fits with the new technology

  available. They need translators to incorporate big data into

  their business strategy in an understandable way, to bridge

  the data gap between CMOs and CIOs and help them to

  work closely together. Equally importantly, they must clar-

  ify what data matters most for them, which is, in fact, the

  most challenging task they have.

  According to Cisco and McKinsey, “By 2020, some

  50 billion smart devices will be connected, along with billions

  of smart sensors.”11 Connected devices will generate an

  unprecedented diversity and volume of information in real

  time. For companies, this data will become assets as vital as pro-

  prietary technologies or financial resources. Companies will

  need to give themselves the means to exploit this abundance

  of information, most of which is currently unexploited.

  McKinsey states, “Though about 90 percent of the digital

  data ever created in the world has been generated in just the

  past two years, only 1 percent of the data has been analyzed.”12

  6. David Packard, a founder of Hewlett-Packard, once said,

  “No company can grow revenues consistently faster than its

  ability to get enough of the right people to implement that

  growth and still become a great company.”13

  Yueh saw the importance of this often-ignored advice

  primarily in his first company, Avamar. Located in Orange

  Jedidiah Yueh

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  County in Southern California, Avamar had difficulty hir-

  ing experienced executives and qualified engineers local-

  ly. And as a result, his company’s growth was slower than

  he had hoped and, when Yueh sold it, it was undervalued.

  To avoid a similar outcome, he decided to base his second

  company, Delphix, where the talent was, in the heart of

  Silicon Valley.

  Yueh describes this is in an unusual way. He explains that

  there is a parallel between how apps are developed and the

  geographical reality of Silicon Valley. The development for

  a basic app system starts off with the hardware platform, then

  the software platform, then the database, and finally, the

  front-end app. He had discovered that the Silicon Valley’s

  geography mirrors the steps in basic app development, fol-

  lowing the same four strata. In the south are located Apple,

  Intel, and Cisco. Moving north, one encounters Google and

  Facebook. Then, going further still, between San José and

  San Francisco, are companies like Oracle. Finally, at the

  northernmost point, in San Francisco, Uber, Airbnb, and

  Twitter are based. To be closest to the talent his business

  needed, he decided to install Delphix in Palo Alto, just be-

  tween Oracle and the software companies.

  This story highlights an unavoidable truth. It has

  become crucial to eliminate any barriers to the best talent.

  To attract the most competent staff around the world, a

  number of companies such as BMW, Siemens, Pfizer,

  DuPont, and L’Oreal are opening R&D centers in places

  where they can find the best engineers, computer techni-

  cians, or biologists. More and more frequently, Western

  companies find that their labs located in Shanghai, Seoul,

  or Tel Aviv are among their most productive. The center

  of gravity of innovation is shifting. Whatever the sector,

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  whatever the company, executives increasingly understand

  that if they can’t get the talent to move to them, they need

  to move to the talent.

  7. In the start-up world, people are more open to changing

  their minds.

  Yueh believes this to be an essential key to success in a

  digital world where time cycles are moving faster and faster.

  When time becomes the enemy, you cannot hang on too

  long to a bad idea. Tim Cook, Apple’s CEO, says that Steve

  Jobs could completely change his mind from one day to the

  next. Yueh puts it paradoxically, “If they want to be ‘right

  a lot,’ leaders have to be willing to revise their understand-

  ing and reconsider what they already know.” He concludes,

  “Leaders can’t be obsessed with only one point of
view.”14

  This is not dissimilar to Charles Darwin’s philosophy

  as described by Charlie Munger, Warren Buffet’s business

  partner. In his book, Yueh recalls the comparison drawn by

  Munger: “He [Darwin] tried to disconfirm his ideas as soon

  as he got them. He quickly put down in his notebook any-

  thing that disconfirmed a much-loved idea.”15

  These seven preceding points cover the views I have forged

  since reading the words of Yueh, Ries, and Peter Thiel, and also

  following discussions with the heads of many start-ups. I think

  that so-called conventional companies, which were not born

  from the Internet, can learn from these findings and apply them

  to their own ways of working, thus reinforcing their competitive

  stance.

  Considering what Yueh writes in the conclusion of his

  book, this is more important than ever now, when estab-

  lished companies are being challenged more drastically than

  before. Yueh writes, “As the Innovation Cycle continues to

  Jedidiah Yueh

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  accelerate, every company is about to be eaten by a software

  company. Even the software companies.”16 I cannot say if his

  predictions will come true, but I do know of a great many

  legacy companies from the old economy that I believe will be

  able to resist longer than Yueh thinks. Better than resist, they

  will know how to really take advantage of what this new world

  has to offer them.

  The future is not yet written, and the old economy may still

  have a few surprises for us. It won’t be the old economy versus

  the new economy but, as Jim Collins would have said, it will be

  both.

  Category of One

  Great entrepreneurs don’t try to gain market share; they cre-

  ate markets. They branch out and create their own categories.

  They come up with totally different value propositions. They

  think beyond mere products, considering instead business mod-

  els, as Apple, eBay, or Netflix have done so brilliantly. Compa-

  nies that are neither technological nor digital, such as Starbucks,

  Lego, or Disney, have also succeeded in making such leaps. All

  of these organizations address customer needs that were pre-

  viously unknown. They are not category leaders, but category

  creators, like Salesforce, which built the success of software as a

  service (SaaS).

  In a 2011 Harvard Business Review issue, it was underlined

  that “Wall Street exponentially rewarded the category-creation

  companies, giving them $5.60 in incremental market capitaliza-

  tion for every $1.00 in revenue growth.”17 I imagine this is still

  the case today.

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  Thiel, who created PayPal, is also one of the associates of

  the Founders’ Fund and was among the first to have invested

  in Facebook. His voice is one of the most listened-to in Silicon

  Valley. Thiel recommends creating monopolies. Considering

  that competition destroys profit margins, he incites people to

  create value where it is least expected. As a result, a monopolistic

  situation will emerge. In this way he denounces the “ideology of

  competition.”18 His thinking is based on common sense: “Every

  business is successful exactly to the extent that it does something

  others cannot.”19 So when he encourages young entrepreneurs

  to create their own monopolies, he’s obviously not talking about

  illegal, but creative ones.

  He gives lots of advice on the subject in his book From Zero to

  One. Here is some of it:

  “Creating value is not enough. You also need to capture some

  of the value you create.”

  “If you’ve invented something new but you haven’t invented

  an effective way to sell it, you have a bad business. No

  matter how good the product.”

  “All companies must be ‘lean,’ which is code for ‘unplanned.’

  Planning is arrogant and inflexible.”

  “Selling your company to the media is a necessary part of

  selling it to everyone else.”

  “Successful people find value in unexpected places.”20

  These points of view may first have been directed toward

  tech start-ups, but they can also be a source of inspiration for the

  heads of more traditional companies. Even today, the majority

  of new businesses created are not start-ups, in the strict sense of

  the word.

  As for me, I advise clients looking for new sources of inspi-

  ration to proceed in the following way. Start with the four com-

  ponents of the digital revolution: sharing, disintermediation,

  Jedidiah Yueh

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  transparency, and client centricity. It is always worthwhile for

  a company to ask how it can move to the next level on each of

  these topics. For instance, how could sharing take a different

  form than just crowdsourcing? What kinds of disintermediation

  can be envisaged? How can a company have more transparency

  in its activities? What is the difference between a company that

  says it’s customer-centric and one that really gives the power to the

  consumer? These questions are at the very heart of a company’s

  digital transformation and the answers can help it accelerate the

  rhythm of its innovations.

  A major leader in the food industry, dominant in its mar-

  ket and apparently unattackable, asked us recently to imag-

  ine a competitive business model, one that would be highly

  destabilizing. We examined the company’s current activities

  against the four components just described, and came back

  with some very competitive ideas. The result was particularly

  telling. The company in question has eventually integrated

  elements of the model we imagined, to better prepare itself

  against the entry of a disruptive newcomer into its sector. Of

  course, we will never know, but perhaps we have kept at bay, or

  discouraged, potential new entrants who were contemplating

  disrupting our client’s business.

  As this illustrates, innovation includes knowing in advance

  how to reduce the capacity of disruption by new competitors. If

  you cannot predict the future, at least you can always be prepared.

  As General Douglas MacArthur once said, “The history of

  failure in war can almost be summed up in two words: too late.”21

  PART

  THREE

  DISRUPTIVE

  CORPORATE

  CULTURE

  In this part, I don’t refer to the word culture in its noble sense, literary, artistic, or scientific. I also don’t mean it as popular

  culture, born of social networks and used daily by marketing and

  advertising agencies striving to insert their clients’ brands into

  our lives.

  What I want to evoke here is corporate culture. Definitions

  abound. Here are several that work harmoniously:

  • “Culture is a blend of the values, beliefs, taboos, symbols,

  rituals, and myths companies develop over time.”1

  • “Culture is the tacit social order of an organization.”2

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  • “Culture is the identity of a company as perceived by its best

  customers.”3

  To these brief definitions, I would add an extract from an

  article I wrote some years ago:

  All corporate culture is the fruit of a collective adventure.

  The sensitivity and intelligence of thousands of men and

  women creating something they share in common. A mental

  structure, a communion of desires, a sort of collective élan.

  An interpretation of the future, coming from the values of

  the past.4

  Corporate culture is evidently intangible. At first sight,

  it would appear to have nothing to do with the numbers.

  It’s conceptual and unquantifiable; however, it can provide

  a real competitive advantage. As well as elements such as

  assets, turnover, growth, return on investment, share price,

  which are measurable, there also exist numerous studies that

  have scientifically proven the importance of a strong culture.

  The benefits of corporate culture are not just intuitive; they

  have been confirmed by the social sciences. James Heskett,

  who co-authored a book on the subject with John Kotter,

  analyzed the cultures of 200 companies and demonstrated the

  impact of culture on their results. He concluded, “On aver-

  age, culture can account for 20 to 30 percent of the differential

  in performance when compared with the quartile which is the

  least culturally remarkable.”5

  On this subject, I often quote David Maister, former pro-

  fessor at Harvard Business School and member of Omnicom

  University. Over the course of his career, he has examined hun-

  dreds of service companies and questioned literally thousands of

  people. The data he gathered shines light on the direct correla-

  tion between culture and profit. Maister explains, “Offices with

  Disruptive Corporate Culture

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  strong corporate cultures enjoy the highest employee satisfaction,

  and offices with the highest employee satisfaction are the most

  profitable ones.”6 In other terms, a powerful corporate culture

  attracts the best talent and contributes to employees’ well-being.

  This, in turn, translates into increased productivity and reduced

  staff turnover, the combination of which goes on to generate

  higher profits and greater success.

  Some may say that these facts are out of date, that the

  research is 20 years old, and that business has since moved on.

 

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