What Comes Next?

What comes next?

By Stephen Shaw

The future has a nasty habit of creeping up on businesses when they least expect it. The corporate graveyard is filled with infamously complacent brands which ignored the storm warnings.

The reluctance of most companies to conceive of a future much different from today narrows their thinking to proven ways of making money, even in the face of disruption. How else can you explain BlackBerry ignoring touchscreen technology? Or Blockbuster failing to anticipate the streaming revolution? Or Nokia undervaluing the importance of software? All textbook examples of temporal myopia, so fixated on the current reality that they failed to see what comes next.

That myopia is suicidal when you consider the velocity of change. Society is entering the early stages of a “Fourth Industrial Revolution” which will usher in an age of ubiquitous connectivity. Massive aggregation of data from connected devices, combined with machine learning, will transform the functioning of society. This new hyper-connected world will have a profound impact on how people behave and how value is created. It will obliterate current business models. And it will affect every company, large or small, in profound ways: how they market themselves, create new products and take care of customers.

Every business needs to be thinking now about what that future could look like. But most businesses are poorly equipped to think about the future, never mind plan for it. Futurism is often seen as a waste of time by short-sighted companies afraid to tamper with what they know works. As noted business strategist Gary Hamel pointed out, “More often than not, companies miss the future not because it was unknowable, but because it was disconcerting”.

Culture of obedience
A classic example of temporal myopia is General Electric (GE), once admired for its history of innovation. How is it possible that one of the industrial titans of our times, whose lighting systems modernized everyday life, could lose nearly half its share value in the past year alone?

The origins of this dramatic change in fortune lie in the ethos of the 1980s when most companies surrendered to the ideology of shareholder value. Virulent “short-termism” infected the upper ranks of publicly traded companies, especially GE which, under the lean and mean regime of Jack Welch, valued productivity and cost cutting over risk-taking. His infatuation with earning profits today at the expense of tomorrow turned out to be costly. His greatest misstep was turning GE Capital into a virtual bank, which, at its peak, accounted for close to half its revenues. The industrial heart of the business—power turbines, jet engines, magnetic resonance imaging machines, and the like—became secondary to money lending—that is, until the financial crash of 2008 almost took down the company.

Welch’s successor as CEO, Jeff Immelt, was determined to return GE to its innovator roots. But the company’s innovation muscles had atrophied. Managers had been trained to salute, not to think differently. Their religion was Six Sigma. Failure to perform was punished. And management’s obsession with “making the numbers” encouraged risk aversion and conformity. To save costs, GE fatally cut back on basic research, which is the lifeforce of any industrial products company. As former chief marketing officer Beth Comstock explained in her tell-all book, Imagine It Forward: Courage, Creativity, and the Power of Change: “GE had become a reliable performance machine, not a place for change-makers”.

Immelt chose to grow revenue organically. To do that, according to Comstock, he had to “make marketing into an innovation engine that inspired cultural transformation”. Marketing had to turn a culture of obedience into a challenger culture—one prepared to break the rules and invent new rules—just like a start-up would. A tough transition to make when most of the company was programmed to believe “if we build it they will come”.

Immelt started to play the long game, knowing that new ideas take time to incubate and grow to scale, often on the back of trial-and-error. He invested in the creation of GE Digital Business, which developed a promising industrial Internet of Things (IoT) platform. He launched an “Ecomagination” sustainability programme to make GE products more energy efficient. And he pushed for every business unit to come up with novel ideas under a marketing-led programme called “Imagination Breakthroughs”

. But no matter how hard the now former CEO tried he could not overcome years of hubris. GE’s belief in its own immortality had finally caught up with it. Today GE faces a shrivelled future under new leadership.

Lean innovation
GE is certainly not the only iconic brand whose imagination withered under the pressure of shareholder returns. Consider the plight of Kraft Heinz, owned by 3G Capital. The company’s recent $15 billion write-down of its Kraft and Oscar Mayer brands was a clear indictment of 3G’s single-minded insistence on cost management above all else.

The big food giant was oblivious to the growing consumer preference for healthier eating. At a time when people steer clear of the processed food aisle in favour of natural products, Kraft Heinz slashed its advertising and research budgets, resulting in across-the-board market share losses1. Brands that had been household names for generations were no longer reliable earners. As Jorge Paulo Lemann, co-founder of 3G Capital, recently confessed: “I’ve been living in this cozy world of old brands and big volumes. We bought brands that we thought could last forever. All of a sudden we are being disrupted”2.

Fear of disruption is why globally leading consumer goods company Proctor & Gamble (P&G), has renewed its commitment to innovation, knowing the consumer market has radically changed. Challenger brands are stealing market share, doing end-runs around traditional distribution channels.

Under the leadership of former CEO A. G. Lafley, the company invested in a mix of “disruptive” and “incremental innovation”. Novel brands like Swiffer, Febreze and Pampers gave life to brand new product categories while Tide maintained its long grip on the household detergent market by simply getting better every year. In his book The Game-Changer: How You Can Drive Revenue and Profit Growth with Innovation, co-authored with Ram Charan, Lafley stated: “Innovation must be the central driving force for any business that wants to grow and succeed in both the short and long term”.

Recognizing the need to create more connected and “holistic” brand experiences, P&G recently adopted the practice of “lean innovation”, taking its cue from the growing universe of direct-to-consumer start-ups. It also launched a company-wide initiative called “Hands on Keyboard” to raise the digital fluency of the company. And P&G is rethinking the whole process of brand-building. The chief brand officer, Mark Pritchard, has even said, “The days of advertising as we know it are numbered. We need to start thinking about a world with no ads.”

10x thinking
Reimagining the customer experience through the lens of new and emerging technologies is becoming the surest path to growth. It is how start-ups gain fast traction. But for established companies, how much time and energy should be given to innovative thinking? And whose job is that, exactly?

According to Beth Comstock, marketing is best positioned to “look through the eyes of the user to find gaps in the market, to look at what’s happening and imagine what could”. Marketers are used to probing for the problems that customers are trying to solve. Serving as customer advocates, marketers can make the case for truly bold thinking (what Google calls “10x thinking”) that transform the customer experience. And as the brand storyteller, marketing can convert that aspirational thinking into a compelling narrative which ladders up to the business vision and purpose.

But while marketing should take point on “big picture” visioning, new ideas are born out of free thinking involving many different perspectives. Innovation is a team sport. Collaboration and alignment are crucial. Otherwise even the most promising ideas will never be given permission to grow. People move back to their day jobs, figuring the cool ideas they dreamed up with will take flight on their own. But conflicting priorities will inevitably stall any momentum. The burning issues of the day will always take precedence, even when failing to act opens the door to disruption.

For innovation to become an entrenched part of the business culture, a repeatable process is required to keep new ideas flowing from ideation to commercialization. The funding formula should assume more misses than wins, like a prospector panning for gold. And market successes need to be celebrated to sustain enthusiasm. That process should be structured around two objectives: one, achieving incremental innovation that leads to an immediate competitive advantage and two, transformative innovation that rewrites the rules of the game.

Bold, bolder, boldest
An innovation programme should not be confused with digital transformation. While they may overlap, digital transformation is usually tighter in scope, enabling a company to compete in an always-on world. An innovation programme, by contrast, is a breeding ground for novel ways to create value for customers, either by inventing new products, overlaying a service dimension or developing entirely new business models. The main goal of innovation is not to disrupt; instead it is to create a bond with customers resistant to disruption. If that happens to result in a disruptive idea which creates uncontested space, all the better.

A structured way for companies to think about innovation is the “Horizon Model” first introduced in the book, The Alchemy of Growth, by Mehrdad Baghai, David White and Stephen Coley. According to this model, sustainable business growth depends on the right mix of near- and long-term innovation. The key priority is incremental innovation within the core business, followed by more speculative bets on the medium and distant future. That way, the company can improve upon its current market position while ensuring the company remains relevant and viable for years to come.

When that seminal book first came out, a long-term innovation was defined as taking a decade or more to incubate, contingent on an imagined scenario playing out as hoped. It has come to be known as a “moonshot” (think SpaceX or Google X). Yet “change the world” thinking is no longer bound by time: technology is moving too fast. Companies must now pursue different innovation streams—bold, bolder, boldest—with the expectation that any idea, no matter how far-fetched, could be born at any time.

Since the primary goal of innovation is to create new customer value, most tools and methodologies begin by looking at problems the customer needs to solve, now and in future. Harvard Business School professor Thales Teixeira, in his new book, Unlocking the Customer Value Chain: How Decoupling Drives Consumer Disruption, suggests looking for “weak links” in how customers interact with brands through the relationship lifecycle. Like by identifying gaps between what they experience and what they want. A complimentary approach is to consider market trends that might inspire a business opportunity, lead to a brand repositioning or demand a strategic pivot. An adoption curve can help identify tipping points when these trends are likely to set off sweeping social change.

A critical stage of innovation is scenario design: imagining what an alternative future might look like five to ten years from now. That decade-long time horizon is a short enough to make some educated guesses without crossing over into the realm of science fiction. For example, one certain eventuality is that people will manage their entire lives through their voice-controlled mobile devices. Those devices will likely serve as gateways to an ecosystem of interconnected platforms, each of which will play a functional role in the life of a customer (e.g. think health and wellness, food delivery, home services, transportation). People will opt into a wide range of on-demand subscription services that support their everyday needs, aided by virtual agents that are intimate with their preferences and habits. All information will be personalized and presented in the context of the moment, driven by self-learning algorithms. Working with that one plausible hypothesis, the innovation team can start to reimagine the customer experience.

Game of chance
What happens when the idea deemed most likely to succeed actually makes it through the pitch stage and receives initial start-up capital? That’s when ideas enter what venture capitalists call the “Death Valley Curve”: the period between initial funding and revenue generation. For those ideas to survive, there must be an end-to-end innovation process that protects them from being snuffed out before they can fend for themselves. Generally, a promising idea goes through some form of prototyping and minimum viable product testing before it is greenlighted. An innovation lab may be set up to steward those ideas, just like Walmart has done with “Store No.8” whose mandate is to develop “strategic assets that will impact the enterprise on a 5 to 10+ year time horizon”. Alternatively, innovation specialists can be embedded in each line of business to champion the design thinking process.

The more bets on the table, the greater the odds of success. But no matter how many checkpoints are put in place, no longer how long the incubation periods, no matter how big the wagers, innovation will always be a game of chance. Which is why most companies prefer to focus on recognizable near-term challenges rather than making the effort of conjuring a theoretical world that may never come to pass. But with the future approaching faster than anyone can imagine, companies can no longer afford the risk of being taken by surprise.

Stephen Shaw is the chief strategy officer of Kenna, a marketing solutions provider specializing in customer experience management. He is also the host of a regular podcast called Customer First Thinking. Stephen can be reached via e-mail at sshaw@kenna.ca.