For most leaders and managers, the transition to the Creative Economy is a scary proposition. The shift involves more than re-engineering processes, acquiring new technology, setting up IT platforms, launching change initiatives, learning to use new tools and techniques, embracing social media and developing new strategies—which in themselves are massive challenges.
To succeed, leaders and managers also need to escape the gravitational pull exerted by decades of now obsolete management principles, habits, attitudes and mindsets that produced success in the old economy.
The future is likely to get even scarier. As Chunka Mui and Paul B. Carroll explain in their wonderful new book, The New Killer Apps, “A perfect storm of technological innovation—combining smartphones and other mobile devices, ubiquitous cameras and sensors, social media, the cloud, and ‘big data’ analytical tools—means that more than $36 trillion of stock-market value is up for what some venture capitalists are calling ‘re-imagination’ in the near future…. ten industries…. will be most vulnerable to change over the next few years: financials, consumer staples, information technology, energy, consumer goods, health care, industrials, materials, telecom and utilities. Incumbent companies will either do the reimagining and lay claim to the markets of the future or they’ll be re-imagined out of existence.”
Economic phase change
Thus over the last sixteen years since Clayton Christensen introduced the notion of disruptive innovation in his 1997 book, The Innovator’s Dilemma, disruption has generally been seen as a disease of individual companies. An individual market leader, applying the principles of “good management”, is stealthily undermined by an upstart that uses cheap, and seemingly inferior, technology with a segment of the market that the established firm doesn’t much care about and is in due course put out of business as the technology is upgraded so as to be good enough to attract market leader’s core customer base. Strategists have depicted such events as the victory of an individual David over an individual Goliath.
Today, we are seeing the creation of whole new ecosystems almost overnight, along with the abrupt collapse of traditional ways of doing business. These events involve what hi-tech industry observer Haydn Shaughnessy calls an economic phase change: “a complex transformation in human behavior produced by a new way to satisfy consumption needs.”
For businesses seeking to exploit the many opportunities and cope with industry phase changes, a new economy—the Creative Economy—is emerging. To thrive in it, organizations need to get beyond conventional “good” management, and instead embrace management of a radically different kind.
This is because the management needed for the Creative Economy requires different goals, different ways of organizing and coordinating work, different values and different ways of communicating from the way organizations were run in the 20th Century. In sum, it entails different ways of leading, thinking, speaking and acting in the workplace. These shifts in skills, attitudes, mindsets and behaviors promote continuous innovation and adaptation and help the organization compete successfully even in the midst of severe economic turbulence.
The management required by the Creative Economy means that leaders and followers must embrace a sharp focus on profitably inspiring customer delight and then implement all the changes that flow from that embrace. Fortunately, the concepts, principles and practices of the new way of managing are available in a rapidly expanding new canon of management literature.
From the extensive experience of small and medium sized companies, particularly in software development, as well as the experience of a growing number of large, well-known firms, including Amazon [AMZN], Apple [AAPL], Salesforce [CRM], Zara [BMAD: ITX]. and Whole Foods Markets [WFM], some principles have emerged as to what often works and what rarely succeeds.
Among the helpful principles emerging from The New Killer Apps, the following stand out:
1. Think big
Pilot projects are needed to test the idea but the vision must be large from the outset. As Chunka Mui and Paul Carroll explain from their research: “The successes considered their full range of possible futures. They debated, at a substantive level, every possibility from going out of business to building on current capabilities but moving in brand new directions. They dared to dream big, focusing on the killer apps that could rewrite the rules of a company or industry, rather than just looking for faster/better/cheaper, incremental change.”
2. Start small and proceed in small iterations
Mui and Carroll explain: “Our research found that, rather than jumping on the bandwagon for one potentially big idea, the successes generated multiple ideas and broke them down into small pieces for testing. They deferred important decisions until they had real data. Many companies make decisions early, based on intuition, which means that experience (also known as the past) unduly influences decisions that are all about the future. Relying on intuition protects vested interests and inhibits breakthrough innovation… The lure of starting big is pervasive. For many organizations, it’s so hard to get an innovation through all the approval processes that there simply isn’t the energy to bring more than one idea to market. Sometimes, a CEO decides that he has an insight, and the whole organization mobilizes behind that one idea, rather than place several smaller bets. But it’s crucial to start small.”
The successful firms thus avoid the mistake made by Ron Johnson at J.C.Penney [JCP] of launching a big rollout of a bold idea that undermined the existing business, before it could build a new one.
3. Learn fast
Mui and Carroll conclude that, “Companies that learn fast take a scientific approach to innovation. They conduct extensive prototyping before they even get to the pilot phase—let alone the big rollout—so they can gather comprehensive information about their attempts at innovation and quickly analyze what’s working and what isn’t. The successes also develop the institutional discipline to set aside or alter projects as soon as it’s clear that they’re not working.”
4. Risk failure
Thinking big means embracing the certainty of failure. While Apple is noted for its game changing successes, people tend to forget it has often failed. As Forbes branding and marketing specialist Jonathan Salem Baskin writes in Forbes:
“Remember that iMac iteration that looked like a desktop lamp, or the Mac mini in a translucent cube? What about MobileMe? Apple has more than once sold major OS upgrades that rendered all its existing third-party software products inoperable. How many of us now use the VIP category on our mail accounts, or wish we could make the empty bookshelf icon disappear from our phones? Apple was never known for being consistently right. It screwed up all the time. That’s because risking failure is the prerequisite for achieving success.”
The firm must find ways to live with the inevitability of failure in real innovation.
5. Accept the death of the core business as inevitable
Even more important than accepting the certainty of individual project failures is the need to accept that the firm’s core business is very likely to be disrupted and as a result, to be willing to tackle the challenge of developing alternatives with the requisite energy and urgency. Working in a large, old, powerful and currently profitable firm can foster the illusion that the firm will survive with marginal changes forever. All too many firms work on alternative scenarios but end up choosing to stick with the “most likely” status quo, only to find themselves disrupted, not by a known competitor but by a firm coming out of nowhere, sometimes with “big bang” disruption.
A rational assessment of the history and prospects of disruption suggests that in most sectors, continued success of the status quo is unlikely. In most sectors, except where government regulation intervenes, eventual and often sudden destruction of the core business is all but inevitable: the only question is when. Strategic innovation ceases to be an option, but a necessity. The New Killer Apps offers the instructive example of FujiFilm and Kodak.
FujiFilm and Kodak
The book gives the illuminating example of FujiFilm, which embraced its doomsday scenario and Kodak, which didn’t. Thus FujiFilm was ready “to face up to the daunting threat from digital photography way back in the 1980s. Fuji realized that digital would mean the death of film, photographic paper, and related chemicals—and would mean the death of Fuji itself if it didn’t do something. Rather than kid itself and hope it could manage the transition to digital smoothly and keep investing in the traditional businesses—the fatal mistake at Kodak—Fuji treated those businesses as cash cows that could finance new opportunities. Fuji experimented with ways to apply its photographic expertise in new areas. Film, like skin, contains collagen, and Fuji found ways to make skin creams that are sold in Asia and Europe. Fuji also started making optical films for certain flat-screen televisions. For one sort of film, which enhances the viewing angle for LCDs, Fuji has 100 percent of the market. While Kodak has filed for bankruptcy, FujFilm had a market value of $9.4 billion as of May 2013.”
6. Ask the tough questions
Becoming a devil’s advocate is crucial. “Setting up the right process for demos, prototypes, and pilots is crucial—but it’s only half the battle when it comes to learning fast. The other half is making sure you ask the tough questions during the process and remain open to hearing uncomfortable answers… As Clayton Christensen has observed, More often than not, failure in innovation is rooted in not having asked an important question, rather than having arrived at an incorrect answer.”
7. Kill all the finance guys?
There is a great deal more in The New Killer Apps, a book that I strongly recommend. One principle in particular stands out and needs further discussion: “Kill all the finance guys.” What does this mean? And what sort of leadership is involved in accomplishing it?
To find out, read part 2 of this review, coming here shortly.
And read also:
Follow Steve Denning on Twitter @stevedenning
Originally published on Dec 18, 2013 4:46 PM, updated Feb 10, 2016