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Q: What is most compelling about the Age of Revolution—and what does it mean for companies?
A: For the first time in history, we can work backwards from our imagination, rather than forwards, from our past. The gap between what can be imagined and what can be accomplished has never been less. Change is now discontinuous, abrupt, seditious. Today, a company must be capable of reinventing strategy not once a decade or in the midst of a crisis, but continuously, year after year. The urgent need for radical innovation will democratize opportunity as never before. The privileges of the industrial oligarchy, the prerogatives of brain-dead SVPs [Senior Vice Presidents], the worshipful observance of corporate convention—all of these will be swept away. Most companies have yet to acknowledge these inevitabilities. They pretend linear strategies can sustain them in a nonlinear world. But the truth is their strategies are mostly dead—and if they fail to embrace the new innovation agenda, soon they will be too.
Q: But what about the extraordinary gains companies have delivered for shareholders in recent years? Are the strategies that delivered these gains running out of steam?
A: Many of the corporate programs and initiatives—massive efficiency programs, share buybacks, mega-mergers—that pushed share prices ever higher are now reaching the point of diminishing returns. These strategies focused on "releasing" wealth, not on creating new wealth. With attention focused internally on process and systems, or on trying to buy innovation "off the shelf" from the same tired old consulting firms, companies' strategies have become virtually indistinguishable from rivals. Meanwhile, the companies up there in investor heaven—Cisco, Home Depot, Pfizer, Charles Schwab, Intel, and others—have been creating new industries, new products, new services, all atop new business models. These revolutionaries are in the business of creating new wealth. You won't find them playing shell games with shareholders.
Q: How can companies tell if they have a dying strategy?
A: Every strategy is decaying as we speak. So to start, executives must be willing to be brutally honest about the rate at which their current strategy is dying. How many CEOs do you think will be willing to stand in front of their shareholders, or their employees, and own up to the obvious—"our business model is busted"? Yet that's exactly what they must do to avoid putting their company's future success in grave jeopardy. Thriving in the age of revolution requires a lot more than simply squeezing a bit more wealth out of yesterday's strategies. Executives must search for signs of diminishing returns in their efficiency programs, for evidence of unsustainable revenue growth, for creeping strategy convergence. A brutal honesty about strategy decay, and a commitment to creating new wealth are the new foundations for strategy innovation.
Q: You say the key competitive advantage in the Age of Revolution is business concept innovation. Describe this and how it differs from traditional competitive strategy.
A: Business concept innovation is the capacity to invent radically new business models or dramatically reconceive existing ones in ways that create new value for customers, wrong-foot competitors, and produce above average profits. Unlike competitive strategy, business concept innovation is not a way of positioning against competitors, but of going around competitors. It's based on avoidance, not attack. Here's the key thought: what is not different is not strategic. To the extent that strategy is the quest for above average returns, it is entirely about variety—not just in one or two areas, but in all components of the business model.
Q: What do you mean by the "Double Stuf Oreo phenomenon"?
A: In most companies, a call for "more innovation" is interpreted as a plea for new products or new features on old products. At Nabisco, innovation is when you stuff twice as much white gunk between two chocolate cookies as you used to. Don't get me wrong—Oreos are great cookies, and Double Stuf Oreos are even better, but this is not business concept innovation. Instead, it is focused on a single component of the business model. While product innovation is still important (ie: Gillette's Mach III razor), such a view of innovation is exceedingly narrow.
Q: What are some examples of business concept innovation in action?
A: The Gap went from selling Levi jeans and a motley assortment of teen clothing in an undistinguished mall format, to owning a portfolio of couldn't-be-cooler brands sold in some of the freshest retail digs around. Harley-Davidson went from supplying motorcycles to antisocial marauders to selling lifestyle makeovers to balding bad boy wannabes caught in the throes of a mid-life crisis. Starbucks is a completely different way of getting your morning buzz than firing up the coffee maker. Ikea has a business model for selling home furnishings that is quite unlike that of a traditional furniture store. No one mistakes Sephora for the cosmetics department of a major department store.
Q: Who are the "gray-haired revolutionaries"?
A: These are companies that have managed to reinvent themselves and their industries more than once. Their gray hair comes not from years, but from the experience of having lived through several strategy "lifetimes." While no company has totally cracked the code of the new innovation agenda, we can learn a lot from those who've made a start. Enron has been named America's most innovative company five years running. Cisco has transformed itself continuously in the lightening fast world of the Internet, going from a one-product company to a data communications kingpin. And no one in the brokerage industry would doubt Charles Schwab's capacity for radical reinvention.
Q: What do you mean when you say that companies need to "bring Silicon Valley inside?"
A: Many corporate leaders envy the success of Silicon Valley's entrepreneurs, yet few have thought about how they might bring the creative ethos of the Valley inside their own organizations. What makes the Valley a hothouse of business concept innovation is the existence of three tightly interconnected "markets": a market for ideas, capital, and talent. In the Valley, these markets meld into whatever combinations are most likely to generate new wealth. In most large companies, by contrast, they don't move unless someone orders them to. Big companies need to transform themselves from centrally planned economies to vibrant markets. They must create an environment where ideas are welcomed from every corner of the organization. They must be willing to put some money behind the unorthodox and encourage a culture of experimentation. They must allow talent to migrate so that their best people can work on the most exciting new projects. Bringing the Valley inside won't be easy, but it is possible.[See "Bringing Silicon Valley Inside"]
Q: You say that revolution won't start at the top, but with "citizen activists." Yet most employees feel they are powerless to create change. How can they overcome this?
A: Every organization is no more or less than the collective will of its members. And individuals can shape that will. Activists who created social change in America provide us with principles that can serve as the foundation for corporate activism. How to build a grassroots movement. Ways to unbalance the status quo and convert the masses. How to bend the political system to their own ends. The truth is this: revolution is never easy, but I have yet to see a company in which a few hundred or even a few dozen like-minded employees can't radically impact corporate direction. The very fact that they are organized and are speaking from conviction is a powerful message to corporate leaders. Several corporate activists have already changed the direction of some of the world's largest companies. A computer nerd and a marketer launched the campaign that helped transform IBM from technology sloth to the e-business solutions company. A mid-level engineer began a radical underground movement that ultimately pushed Sony into the digital age.
Q: How can companies enable the revolutionaries in their organizations?
A: Every senior executive claims to "embrace change." Isn't it rather odd, then, that the principles of activism haven't been drilled into the head of every employee? Isn't it horrifying that most successful revolutionaries will tell you they succeeded "despite the system?" Companies must institutionalize activism if they want to succeed in the age of revolution. Gray-haired revolutionaries like Enron, Schwab and Cisco provide some key design principles that collectively, can help companies to create an environment that allows individuals to habitually innovate.
Q: How will that change the role senior managers currently play in strategy creation?
A: Too many executives spend too much of their time working on "the strategy," and not enough time working to create the preconditions out of which new wealth-creating strategies are likely to emerge. Top management's job isn't to build strategies. Its job is to build organizations that are capable of continuously spawning cool new strategies. Its contribution is to design the context rather than the content. Its role is to operationalize the design rules for creating deeply innovative organizations. Give employees a truly noble cause to work toward. Make sure that strategy discussions involve the voices of young people and newcomers, rather than the same tired old executives. Create open markets within the organization for ideas, talent, and capital. Make it easy for innovators to try out new ideas. Give them a chance to reap big rewards. In such an environment, drones become activists; reactionaries become revolutionaries.
Q: How can something as effervescent as innovation by "systematized?"
A: It goes without saying that Eureka moments cannot be programmed in advance. Innovation will always be a mixture of serendipity, genius, and sheer bull-mindedness. But while you can't bottle lightning, you can build lightning rods. Non-linear innovation can be legitimized, fostered, supported, and rewarded. Just as it took most companies systemic, cross-company training to firmly embed quality as a capability, the same will be true of business concept innovation. Forget all that blather in your company's mission statement about creativity and innovation. Unless it's running bootcamps for industry insurgents, it's still substituting rhetoric for action.
Q: What is the innovation portfolio?
A: The innovation portfolio is actually three distinct portfolios: the portfolio of ideas—credible, but untested new business concepts; the portfolio of experiments—ideas that are validated through low-cost market incursions; and the portfolio of new ventures—experiments that look promising enough to scale up. All too often, executives expect every new idea or experiment to yield a big payoff. Such an expectation will invariably make a company overly conservative, and will quickly drain the portfolio of ideas and the portfolio of experiments of many interesting strategic options. A company's chance of creating new wealth is directly proportional to the number of ideas it fosters and the number of experiments it starts. A sizeable organization should have a portfolio of 1,000 ideas, and 100 ongoing experiments. If it doesn't, its future is at risk.
Q: Where does all of this leave the idea of strategy, and the concept of the "corporation"?
A: Somewhere in this brave new model, size and scale will still matter, consistency still counts, and strategy is still vital to success. Innovation may be the big story, but it is not the whole story. Most companies have already figured out the scale and scope thing—but now they need to start planting new seeds. In the age of revolution, the challenge will be to marry radical innovation with disciplined execution—to merge the efficiency of a Toyota production line with the radical innovation of Silicon Valley, to blend curiosity with diligence. To be a gray-haired revolutionary, a company must be spontaneous and systematic, highly focused and opportunistic, wildly imaginative and brutally efficient.
Q: What about companies that are just now beginning to recognize signs of strategy decay—are they hopelessly behind the curve? For once, companies are not starting from behind.
A: Yes, there are companies that embody some of the design rules for innovation, but none will claim to have made innovation as ubiquitous as six sigma, cycle time, or rapid customer service or any of a dozen less essential capabilities. That's the good news. The bad news is that by the time you read salutary stories in national business magazines about companies that have bolstered internal activism, baked the "design rules" into their organizations, and declared innovation to be a core competency, it's going to be too late. Companies must ask themselves right now: how quickly can we make ourselves ready to embrace the new innovation agenda? Their share of the future's wealth depends on their answer.
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Training Exercises for Industry Revolutionaries
Innovation in the Age of Revolution, says Gary Hamel, depends on corporate activists driving change at every level of an organization. But individuals, he says, have to learn how to unlock their own imaginations before they can unlock that of their companies. Here, Hamel offers some exercises to "train yourself in the art of 'seeing around corners.'"
1) Exercise Your Imagination: Pick the worst service experience you've had in the last year and think about the business model that failed to meet your expectations. How would you change it—element by element?
2) Get Addicted to Change: Keep asking yourself, "What's changing? What's the opportunity this presents?" Do this at least a dozen times a week.
3) Search for What's Not There: Next time you go to a conference or pick up a trade magazine, ask—what is no one talking about?
4) Find the Big Story: Keep a list of things that strike you as new or different. Scan it occasionally for broad themes. If you get above the trees, you'll have a view that few can match.
5) Follow the Chain of Consequences: Whenever you see something changing, get in the practice of asking a series of "then what" questions.
6) Dig Deeper: Every year pick a couple of big things that are changing (E-commerce, Genetics, Deregulation in Japan) and resolve to understand them far more deeply than you do.
7) Know What's Not Changing: Be attuned to the timeless—the deep needs of human beings—and try to imagine new tools and ways to address those needs.
8) Design Experiences: Next time you do a presentation, get rid of the overhead projector and figure out how to help people to feel and experience the power of your ideas.
9) Get a Routine: Begin to exaggerate the small and new—reading new magazines, going to conventions outside your "industry," hanging out with people really different from yourself.
10) Surface the Dogmas: Ask yourself: "What are ten things you would never hear customers say about our company and our industry?" Then ask: "What are the ten things the major competitors in this industry believe in common?" What orthodoxies and opportunities present themselves?
11) Never Stop Asking Why: Revolutionaries ask "why" more than the rest of us.
12) Celebrate the Stupid: Ask lots of stupid questions, and be prepared to look foolish once in awhile. Only stupid questions create new wealth.
13) Go to Extremes: Pick a performance parameter that's important in your business—time, cost, efficiency, quality, speed—whatever. Push this to the extremes and ask, why not?
14) Find the "and": Search for novel solutions that make trade-offs unnecessary.
15) Distinguish Form from Function: Get in the habit of divorcing "things" (form) from what they actually do (function), to help you imagine radically new ways to deliver the function.
16) Start a New Conversation: Educate people on the difference between operational discussions and strategic dream-fests. Don't let anyone get in the way of your imagination.