Success depends less on acumulation and increasingly on innovation
It is no coincidence that the great department store chains in Japan are affiliated with railroad companies. The two assets were complimentary
The movement of people, products, ideas, information today shows no sign of losing velocity but only of speeding up even further. Steven J. Spear, senior lecturer, MIT, elaborates on how market leaders can outdistance the competition
Products, people and infor-mation move with incred-ible fluidity and velocity. This fundamentally affects how leaders have to manage the organizations for which they are responsible. The imperative once may have been to gather and hold assets when things were more static. With intense competition for resources and intense competition for customers, monopolies are hard to create and sustain. Hence, the managerial imperative is now ensuring that resources are put to better and more productive use.
The issue is not what you hold in any static sense, but how quickly you move from delivering on one great idea to the next. In short, success depends less on accumulation and increasingly on innovation. The products and services we make and use are so complex that it makes the need to cultivate high speed, sustained, broad based innovation even more compelling. This is because no one person is sufficiently dexterous (or even has enough time) to create great designs by him or herself. Fortunately, there are eloquent examples of how leading an innovative organization has done, and there are great rewards to those who learn to do the same.
What Does This Mean?
Until a few hundred years ago, people and the things they used, did not migrate very far. A person only traveled a few miles from his or her birthplace, if at all. Particularly when most people faced scarcity of one thing or another, the key was to accumulate and store as many assets as possible.
This may explain why the Spanish and Portuguese used nautical innovations in the 1400s to race to the ‘New World,’ to gather up gold, silver, and other precious commodities.
With advances in transportation through the 1800s, there were still rewards to asset accumulation perhaps not of physical items themselves, but in the ability to identify where they were and in the ability to get them to where they were most valued. Hence, we saw the rise of large merchants and department stores that succeeded based on their privileged access to information and means of transportation. It is no coincidence that the great department store chains in Japan are affiliated with railroad companies. The two assets were complimentary.
Basic economic theory would hold that commoditization is disastrous for corporate profits and the data supports that expectation. Writers John Hagel, John Seely Brown, and Lang Davison (‘The Big Shift’, Harvard Business Review, July-August 2009) document that the return on assets in the USA has fallen by 75% to a nearly ‘risk free rate,’ since the 1960s, exactly what one would expect if people are competing by buying some commodities and selling others.
What, then, are an organization’s leaders to do in the face of this gross commoditization of business? The only alternative for gaining competitive advantage is to have better insights and deeper knowledge about what products and services to provide the market, and how to deliver those items with maximum efficiency and effectiveness. Since everyone is trying to copy good ideas as soon as they are evident, the only way to sustain competitive advantage is to generate new, ever better insights and deeper knowledge at a speed and with a determined relentlessness that others cannot match.
The Toyota Example
I have spent many years studying Toyota, certainly the most successful company in its industry and one of the most innovative — early to build affordable and small reliable cars, followed by diversification of its model line, then new brand introduction, Lexus and Scion in the US, global regionalization, and technological innovation with the Prius.
Leaders’ behavior was a marked contrast with what is typical. The conventional model is of senior leaders using information that no one else has, making decisions for which no one else has authority. What to buy and what to sell; whom to hire and whom to fire; what markets to enter and which to exit.
At Toyota, the emphasis was less on making decisions and much more on fostering relentless discovery. When I was on a Toyota team and trying to develop a first tier supplier, I was hardly ever told if there was a ‘right’ way to solve a problem. I was constantly prodded with questions. The process I was trying to improve, how did it work? How did I know? What had I seen? What problems did it have? What had I learned about why they occurred? What had I tried, what experiments had I run to get those problems to disappear?
When I shadowed Norm Bafunno, responsible for production at Toyota’s Indiana truck plant, a regular part of his daily work was visiting the ongoing process improvement efforts, learning what had been accomplished in terms of improved quality, productivity, and safety, but focusing even more on what had been learned and discovered about the product they made, the process they used, the materials they manipulated, et al.
I have been following the career of Bob Dallis, a wildly successful senior manager at a Toyota competitor, who joined Toyota to work for a company investing rather than divesting in North American design and production. His earliest lessons were not about the nuances of ‘lean manufacturing’ tools like value stream maps and pull systems. Rather, he learned the importance of exceptional problem solving skills from shop floor to senior levels and his critical role in developing those skills in others.
Other superlative organizations have succeeded through a similar commitment to innovation, and the cultivation of problem solving and innovation skills in others. I write about Alcoa, which achieved near perfect workplace safety despite the inherent danger of its heavy industrial processes, and the US Navy’s nuclear propulsion program which had an exceptionally fast ‘time to market’. It took but six years to launch the first nuclear powered warship, despite the challenges of discovering new science, inventing new technology, creating new materials, developing new industries in support and train thousands of people in new specialties and disciplines.
The outstanding news is that this commitment to and competency with an innovation-based strategy is not limited to those who have already mastered it. Other companies can do the same if they make a similar commitment to relentlessly learn how to behave innovatively.
How do you get this hyper innovation started in your own organization?
Start by asking yourself, and then those who work for you the following questions:
1. What are the few business critical processes to which you are most vulnerable?
2. What are their shortcomings in terms of safety, quality, cost, responsiveness, yield and the like?
3. What have you tried to solve for those problems?
4. What have you accomplished?
5. What have you learned from trying?
6. What have you developed while doing this?
Ideally, anyone anywhere doing anything can give a detailed and comprehensive answer at a moment’s notice. Don’t worry if you and they cannot right away - most can not. The big difference is whether you make a commitment everyday to gain an ever deeper understanding of how things operate, what their difficulties are, and how to make them better.
Here are two promises. One, this is exceptionally hard work. Two, it is exceptionally rewarding.
Most people arrive to their jobs knowing that the frustrations they experienced yesterday will be repeated today and again tomorrow, with no end in sight. The lucky few who work in high velocity innovative organizations know that today is likely to be better than yesterday, and that whatever goes amiss today will be the feedstock for insights that will make tomorrow even better.
To sum, things have only gotten faster. If you are to compete successfully in a high velocity world, you must be high velocity too in meeting customer needs and in learning ever better ways to do so.
Steven Spear, author of the award winning and critically acclaimed book, Chasing the Rabbit: How Market Leaders Outdistance the Competition is a senior lecturer at MIT and a Senior Fellow at the Institute for Healthcare Improvement. He is internationally known for his expertise in innovation, operational excellence and organizational learning. His article ‘Fixing Healthcare from the Inside, Today’ in 2005 was an HBR McKinsey Award winner and one of his five works to win a Shingo Research Prize.