SVP, Global Head of Innovation, Product & Solutions, leading Iron Mountain’s digital transformation and disrupting Content Services industry
Kodak created the first digital camera in 1975 and promptly stuffed it in the closet, seeing the technology’s massive potential to disrupt its lucrative film business.
Blockbuster had numerous chances to either squash or buy Netflix, but the company was making easy money on late fees and decided against it. Today, there is only one Blockbuster store left, while Netflix has a market capitalization of more than $240 billion.
Compaq executives were so confident in their company’s market-leading position that they ignored the market’s growing perception that PCs had become commodities.
Even great companies sometimes make catastrophic mistakes because they fail to act on evidence that’s staring them in the face. Business leaders at these companies often even see calamity approaching but are too invested in the business model underlying their success to make the needed changes.
Digital leaders can avoid this fate by building a strong culture based upon exploitation and exploration. That’s a methodical approach to innovation conceived by Silicon Valley entrepreneur Steve Blank in which teams continuously evaluate new ideas, conduct low-impact tests, build upon winners and quickly discard losers.
You can’t build an organization with this kind of resilience by doing things the way they’ve always been done. Your legacy business matters, but you should examine it to understand your core competencies and value propositions so you can leverage them in new ways.
Here are five elements of effective digital leadership:
1. Seek Out Weak Signals
Change rarely comes from out of the blue. More often, trends gather steam for years until they reach critical mass, at which point early movers can have an unshakeable advantage.
Fewer than half of American adults had a broadband connection when Netflix made the bold decision in 2007 to put all its eggs in the streaming video basket, but the weak signals had been there for some time. Trendlines pointed to continued rapid growth in broadband adoption, and the company had the advantage of being unencumbered by the need to protect a legacy business.
Apple wasn’t the first company to build an MP3 player or a smartphone, but its impeccable sense of timing and ability to pick up on the weak signals of consumer value perceptions enabled it to pinpoint the moment when those markets were about to explode.
Weak signals may signify impending change. Part of the innovation process is to seek them out and watch the trendlines. The stronger they get, the faster you should be ready to act.
2. Look For Unvoiced Needs
People didn’t tell Procter & Gamble they needed a Swiffer. Rather, P&G’s research revealed that half the time consumers spent cleaning floors was wasted cleaning mops instead. Swiffer was a solution to a problem many people didn’t know they had.
If you ask people what they want, they’ll usually ask for a small incremental improvement on something that already exists. Big ideas address needs that can’t be verbalized.
That doesn’t mean you should go after every hunch. Work from your strengths and ask what unique value you can bring. If there isn’t any, or if someone else can solve the problem better than you can, then partner with them, buy them or stand aside.
3. Rein In The HiPPOs
People in big companies, in particular, tend to defer to the highest-paid person’s opinion (HiPPOs). They learn that advancing their own ideas is much riskier than going along with the boss — who, unsurprisingly, has the least incentive to change anything.
HiPPOs matter, but those people should be advocates of change, not obstacles. Job descriptions and reward mechanisms should advance risk tolerance, willingness to challenge assumptions and the courage to ask tough questions. The cultural default should be to take an analytical view of each idea to assess its validity and seek the additional evidence needed to determine whether it’s worth pursuing. Otherwise, people will continue with business as usual.
4. Smart Bets, Not Big Bets
Ideas are cheap. Execution is hard.
Resilient companies fund innovation incrementally. They invest small amounts to validate and test promising ideas. They cull the losers and ramp up funding modestly for those that show promise. The process continues until there are just a few left standing. Those are the ones to pursue aggressively.
5. Look For Multipliers
Multipliers are platforms, ecosystems, networks and anything else that attracts others who add value to your business. The value of giant companies like Apple, Amazon and Mastercard are more in their ecosystems than in their products.
Take the example of Apple’s App Store. It brought in roughly one-quarter of Apple’s total revenue of $274.5 billion in 2020 and grew nearly 30% with no manufacturing or channel sales costs and infinite scalability. The more than 3,400 compatible applications in Salesforce.com’s AppExchange are a nearly insurmountable barrier to entry for competitors.
Platforms and networks are highly profitable and sustainable sources of competitive advantage. It’s doubtful that anyone will ever challenge Microsoft on the desktop or Google in search marketing. Those platforms will be lucrative sources of investment capital as long as they remain relevant.
Metcalfe’s Law states that the value of networks is proportional to the square of the number of connections. The same principle applies to ecosystems. What can you create that will attract others to build upon it?
The Future Is Digital
During the Covid-19 pandemic, businesses were forced to digitize interactions with customers, suppliers, prospects, partners and other stakeholders at unprecedented scale and speed. We are never going back.
Nor should we. Digital businesses can thrive by enabling ideas to be rapidly tested, built upon and even funded through crowdsourcing. The innate scalability and adaptability of digital platforms create a multiplier effect for organizations that embrace them. Look at your own business as a framework for new value creation. Amplify your core competencies. Then start making those smart bets.