I wonder if I could just start by asking you about how you’ve been working now in the sphere of business strategy and innovation for, well for almost more than two decades now, in fact. But what is it about this particular moment, there is a lot of talk, a lot of hype about digital transformation, digital innovation and what it is it about this particular moment that you find interesting in context of your long career.
Well we have seen a tremendous amount of change over the last 20 years. I was at a conference just two days ago, I did a one-day with Rowan Gibson, in the Dominican Republic in the Caribbean. The theme for the day was winning in the transformation economy. So we are living in amazingly exciting times.
But I said to the audience – these were all senior leaders in that particular geography – I said, how much change have you seen in the last 10 years? They said whole industries have gone through tremendous transformation and disruption. And I said, what do you expect in next 10 years? And of course it’s exponential.
So is this an incredible time? Absolutely. Does it excite me? Yes. Why? Because we just see so much going on. We have seen a lot of change over the last 20, 30, 40 years but we have an exponential rate so it just gets more and more and more exciting.
What we’re seeing, sometimes I call it a change bomb, because you almost have this chain reaction where every little bit of change that we add to the system creates all kinds of other changes because it reacts and interacts with all the other changes. So rather than just add one new piece into the puzzle like AI or Robotics or cloud or Blockchain, when we add that new thing it interacts with all of the other changes that are already taking place. So you get this amazing chain reaction. That’s why the change is so exponential.
And is this whole idea of a chain reaction, is that why, in this current moment when we have digital innovation, is that why this is so disruptive? What I mean to say is, companies have always had to innovate – that’s not in itself a new idea – you always want to stay ahead and look at new things, but why is this moment with the digital, the new technologies like AI, like robotics, how has that changed what innovation is?
Well I don’t think it has changed what innovation is, you know I think innovation is essentially what it’s always been. It doesn’t matter if you go right back to the ancient Egyptians or Sumerians or right back to the natufians or the very first civilisation. I don’t think innovation has changed essentially.
I define it as creating value by doing things differently. So that’s really what it is and we have been doing that from many, many years. The difference is that when you add digital to the equation, it’s creating value by doing things digitally. And so basically it’s just given us a technology that we can leverage as a means to that same end, which is creating value by doing things differently.
When I look at innovation I have always said that innovation must apply across the entire business spectrum. So we’re not talking about innovation necessarily just in products or even just in services, but we are talking about innovation in products, services, technologies, processes. They could be manufacturing processes, but it could also be the process of delivery in the market, delivering whatever kind of value we have to the customer. It’s innovation in the customer experience, it’s innovation in marketing strategy, it’s innovation in cost structures, in the business model itself. which of course is now sort of the holy grail of innovation, how do we innovate around the business model? And digital innovation is a great tool for that.
But at the top end we have a thing called industry architecture innovation, which is where we are almost taking the original structure of an industry to pieces and putting it back together in a whole new way. So if you think about what Apple iTunes did to the music industry, what streaming media does to the movie and television industry, we are sort of taking the old industry structure to pieces, the old architecture to pieces and we are building a new one.
So innovation is always applied across that entire spectrum and the difference now is that we are creating value by doing things digitally. So basically you apply the same principle across the spectrum. So how does digital help us innovate around the product, around the service, around the process, around the customer experience, around the marketing strategy. The cost structure, how does it help us to innovate around the business model or change the business model or even change the entire industry architecture. So that’s kind of a long answer to the question but I think it’s a new means to the same end.
I can see there is a huge range of areas where you can apply these digital ideas, digital transformation, new way of doing things. I suppose two questions there: Is it now more or less difficult to innovate given all of this digital disruption? And when we talk about rebuilding industries this sort of sounds like it might be a case of disrupt or be disrupted, is that a fair summation? Because there must be companies out there who are going along quite nicely, they are not necessarily very digital in the way they do things. Why would they necessarily want to disrupt what they do and go digital, because that doesn’t necessarily sound like a good idea to them. But is it something that they have to do?
Well of course they have to. You used the term ‘disrupt or be disrupted’ and of course it has become a cliche but it’s nevertheless true and I don’t think many companies have even begun to come to terms with what that means.
You might be ignorant what’s going on but other people are not, especially startups at the edges of what you do. So the imperative really is to think about ways that you could disrupt yourself and your industry.
Interestingly, Airbus group set up a small outpost in Silicon Valley called A to the power of 3, actually I don’t even know how they pronounce it; Is it A3 or A to the power of 3 I don’t know. But the explicit mission of A3, Airbus 3 is to disrupt Airbus, to disrupt Airbus group and the rest of the industry.
So that’s kind of increasingly what we have to do. You can take an old line, established company in an industry that’s got very little to do with software. Let’s take a company like Caterpillar. If you look at what Caterpillar is actually doing today, it’s all about digital transformation. So their strategy is, how do we go from selling iron to selling smart Iron? And if you look at the range of technologies that are now available to Caterpillar to revolutionize what they do, the same technologies are available to the disruptive startups to change what’s done.
So I do a lot with Caterpillar and what they’re currently using in their innovation strategy is basically all of the digital transformation technologies. They are saying, how do we embed sensors into all of our equipment? How do we offer telematics? How do we provide fleet management and increase productivity tools to our customers, whether the are in the construction industry or the mining industry?
But it’s beyond that. It’s, how do we create (and they have done this already), how do we create autonomous trucks? So if you’re in the mining industry, they have huge trucks that are basically autonomous, they’re robots, they’re running around, carrying materials and stuff like that.
That sounds like when you talk about Airbus, when you talk about Caterpillar they seem to be really embracing digital transformation and are not so much afraid of it but rather trying to get ahead of it. But is that typical of what you see? You’ve worked with many companies, presumably you don’t see that sort of embracement across the board.
Well, let me put it this way: let’s just get back to Caterpillar for a moment. You think about other things they are doing like 3D printing. So in other words they see something on the edges, like there’s a company now that has a 3D printing robot, that is literally printing houses, so constructing houses through 3D printing. So its on a very, very large scale, we are not talking about little tiny 3D printers but a robot that literally takes the materials and is printing a house for you. So they’ll go, “OK we’ve got to buy that company.” Then they’ll see another company that is doing sort of peer-to-peer construction lending in the construction industry. So kind of the Airbnb of construction or the Uber of construction. They can sit there and look at that and say, “wow isn’t that interesting” or “isn’t that worrying”, but what they do is they go out and buy that company. So they do disrupt themselves before they are disrupted.
So is everybody else doing it? No, not everybody. There are companies that are sort of sitting there and watching what’s going on saying ‘Wow, we really should be doing something’. And by the time they wake up and do it they are probably 5 years too late because the companies that are now coming out with those things started out 5 or even 10 years ago. So you do see that.
But I would say that if you look at the automotive industry, you know there are four sort of killer trends that have sort of converged to radically disrupt the automotive industry. So one is connected mobility, connected vehicles. The second is electric, the third is autonomous and the fourth is ride sharing. And they are huge, huge trends which can and will and are, changing everything in an industry that didn’t essentially change for a hundred years.
So what are the individual car companies doing about it, that’s the issue. So some of them have been very quick to embrace it, BMW is one. I was in Leipzig last week in Germany at the BMW factory there there is a dream factory that’s doing all the electric car work and BMW is one of the first if not the first German car OEMs to embrace digital in all its forms, so whether that’s new digital services – they have a thing called Drive Now, which is sort of BMW’s version of Uber; they have a thing called Park Now which through an app shows you where you should be parking; or Charge Now if you have an electric car with the nearest charging station. But it’s also things like intelligent car keys where you can do a lot of that from the key itself, you don’t have to use the phone. All sorts of stuff like that, that BMW is doing and they’ve been very quick to embrace it.
But others, let’s say Mercedes, were a few years behind. So Mercedes now finally launched in the last six months this strategy which they call CASE. Guess what CASE stands for? Connected, autonomous, sharing and electric, it’s the same four trends.
Volvo was very fast. Back in 2010 they set up a small group to embrace all of that. Ford, just in the last few years, the last, say, three years, they set up a little unit called smart mobility. So that’s designed to help Ford to embrace all of that.
So there are always going to be fast movers, there are going to be slow movers, there are going to be smart movers. The issue is basically across every industry.
Those four trends, by the way, apply in exactly the same way to the motorcycle industry, the construction equipment industry, the farming equipment, agriculture equipment industry. It’s still all about connected, electric, autonomous and sharing. And then of course it impacts the insurance industry and it goes on and on and on.
You’ve listed there several companies and in the car industry perhaps you do see that there is a lot of companies who are making moves and that’s a fairly high profile one where you see things like Tesla, Waymo, and other car companies can’t ignore those things and so they have to move. But if you go into a company in another industry which is less digital, and then you have said in the past that sometimes these companies say, “well, we can’t do innovation because we don’t have the resources, we don’t have the ideas” or whatever other excuse they may give. So how do you convince them that it’s not really an option. Do you have to, for example, say “look what happened to Netscape or look what happened to Sun Microsystems. These companies don’t exist anymore because they fell by the wayside. Is that the approach you have to take?
It’s kind of all of the above. First of all you used the word excuses, I agree they are excuses: “we don’t have the resources. If I had the resources of Apple, if I had the resources of Google, if I had the resources of, say, Amazon, I’d innovate.”
Well you have to remember first of all, where did those companies start out, right? Amazon was in a garage, Google was basically a dorm room. Apple was in a garage, they didn’t have huge resources. I mean even when Apple was starting out, Steve Jobs back in the 1980s said that when we came up with the Mac, IBM was spending at least 100 times more on R&D.
You know when Apple came up with the iPod it was basically in a tech downturn. It was 2000-2001. They had recently had a brush with death. They had to reach out to Bill Gates even and others to inject cash and keep them going. So it wasn’t like they had huge resources and that’s why they came up with the iPod; not true.
So really it’s more about, how do we come up with big ideas rather than having the resources for that. Startups don’t have huge resources, do they? I mean they just have a big idea and they embrace things before a lot of the big companies do. So that’s the first thing. They are excuses, it’s not about resources.
It sounds like its more about mentality than necessarily about resources, having money.
Well it’s about mentality first of all, it’s about coming up with the breakthrough ideas in the first place and it’s about the innovation process. So how do we then quickly scale those ideas and so on.
But how do you come up with the big ideas in the first place? Well I have a methodology that I use around the world, it’s called the four lenses of innovation. What’s that designed to do is help literally anyone anywhere think like Steve Jobs or think like Elon Musk or think like Jeff Bezos.
It’s kind of, what are the perspectives innovators use to come up with their breakthrough ideas? The first of those lenses or perspectives is called challenging orthodoxy. Being a contrarian, thinking differently as Steve Jobs would put it, taking conventional wisdom and turning it on its head.
The second of those lenses is called harnessing trends. So if you think about the tech trends, if you think about lifestyle trends, if you think about industry trends, if you think about regulatory trends. What are the big waves of change that might right now be just ripples on the ocean but that are going very quickly turn into a tsunami? And how do we ride those waves instead of being washed away by them?
The third lens is called leveraging resources in new ways. So it’s saying, as a company what are the skills and the assets we have that we could stretch into new opportunities or especially if want to embrace digital, what are the skills we don’t have? What are the assets we don’t have? How do we part with or license technology from others or how do we create joint ventures or how do we acquire, buy, those kinds of startups on the edges that are doing things we are not yet doing?
And number four is understanding and meeting unmet needs. So we see that digitally connected customers – we are all, whether we are B2C or B2B, we are all digitally connected now – so we have this kind of magnification of customer expectation and the fourth lens is about understanding needs and emerging needs and saying, “how do we become solutionaries? How do we design solutions from the customer backward?” In this case particularly using digital technology to meet or anticipate these new needs.
So those are the first couple of things: not using lack of resources as an excuse, second not using lack of ideas as an excuse but third you talked about cautionary tales. Of course everybody uses Kodak. Its true, Kodak invented digital photography. So there’s a digital wave of change that they were unable to capture value from because they were afraid of it cannibalising and destroying their existing 35mm film business.
I think another great case is Netflix vs Blockbuster. So here along comes a digital trend, digital technology called streaming media and both companies at the time say, “what are we gonna do about it?” Well, it’s easy to say Blockbuster couldn’t change anything because they had this existing business model based on a chain of stores, physical stores around the world. They had physical media, DVDs that they were renting out.
But, you know what, Netflix had a similar model. They didn’t have stores but they had warehouses and guess what those warehouses were full of? DVDs. And they had people that were manning phones and computers that were turning customer orders into fulfillment. They had logistics so everything was based on physical DVDs and yet they were able to – and I give Reed Hastings a tremendous amount of credit for being able to shift the company away from this existing business model to a new business model based on streaming – he called it putting on the brakes in terms of DVD rental while stepping on the gas in terms of streaming.
And he was able to pull the whole business model away and deconstruct what they were currently doing in order to construct a new business model. At that time the board tried to fire him. I mean the board was saying, “you are destroying our business” and it was true, he was destroying their DVD rental business. But he was building a new business because he said, “look if we don’t destroy what we currently have we are not going to have anything.”
I mean it takes a lot of bravery I think to do that you know, and you’ve got to be quite bold to make that move.
That is an understatement by the way.
That is an understatement, indeed and I wanted to say that I suppose what the board might have been saying to Reed at that time, what they might have thought is that perhaps we have gone too far here with the innovation. I mean we always hear, “yes innovation is good we’ve got to keep up, disrupt or be disrupted” but is there some line there where you think, “ok this is actually too disruptive, our core business here is suffering, let’s just hold back here and do things a little more incrementally.” Is there an argument for that as well?
Well take that case. If for example Reed Hastings had said, “yes, okay you’re right, I am destroying the DVD rental business, I better stop.” They would have ended up like Blockbuster. That is exactly what happened to Blockbuster. We can’t do this because it’s going to cannibalise our existing business model.
At that time the board, they wouldn’t have known that Netflix was going to be so successful. So their arguments must have been quite convincing at that moment.
Yeah that’s why you need a vision, you need vision to be able to say, “no, I can’t listen to you, I can’t listen to this.”
Its like Steve Jobs. Basically Steve Jobs killed off the iPod with the iPhone and it was similar. I mean, the board didn’t try to fire him because he was Steve Jobs right, you don’t fire him again. We went through that experience once in the 1980s and we nearly killed Apple, we’re not going to do it again, he must be right.
So Steve Jobs was saying, “look, 60% of our revenues at the moment are coming from iPods and I can see this huge tsunami coming towards us because let’s face it downloading digital music is not difficult so Nokia and Motorola, they are going to download music tracks to the phone and no one’s going to want two devices in their pocket. In one pocket I have the music player and in the other pocket I have the phone, it’s going to be one device and it’s going to be a phone so we better make a phone. And well, yeah, that’s gonna kill off the iPod, too bad, too bad.”
So that’s what it’s about. You have to have the vision to be able to see, this is a tsunami and unless we surf that wave, which is difficult to do – I mean surfing, if you have ever tried to surf, it’s not easy but surfing a tsunami, that must be incredibly frightening – and as you said it takes a tremendous amount of boldness and courage to do that.
But I think courage is a key ingredient of innovation. If there were three key ingredients I’d say one is creativity. Of course you have to come up with the new ideas and the stuff in the first place.
Two is connection, we need to connect across organizations and beyond in terms of the ecosystem of what’s happening in the world around us.
But the third and maybe even the biggest at the end of the day is courage because innovation – I gave you a definition of innovation at the beginning which is creating value by doing things differently – well there are a couple of words in there that are really important one is creating and the other one is doing, doing things differently. And the doing part is where you need the courage, the boldness. There’s another definition of innovation which is the act of introducing something new, so the newness requires creativity but the act of introducing something new requires a tremendous amount of courage.
So if I go back and think about people like Steve Jobs, Jeff Bezos, Richard Branson, Elon Musk, the attribute that I associate most with them is not necessarily creativity, it is courage. It was the courage to initiate something new and then to keep it going in the face of adversity.
Elon Musk is a fabulous example of that now. Everyone’s against him, everybody wants to see him fail and Elon is trying to keep it going in the face of adversity. I’m a big believer, I believe he’ll do what he says, he might be late I don’t mind him being late, I don’t care. It’s not about the deadline to me, it’s about doing something fantastic, doing something great and that’s what Elon is doing.
Excellent, great well thanks so much. I think courage, creativity, connections: good notes to end on and a good vision for our entrepreneurs, would-be entrepreneurs and corporate executives to keep in mind. So all I would like to say is just a big thanks for joining us today.
It’s been a pleasure and looking forward to the webinar.
Exactly, and I was just going to remind visitors and viewers that if you have enjoyed our interview today with Rowan then do make sure you tune in on July 10th. He is going to be joining us again here at SVIC and giving a whole webinar so you will be able to hear in much more depth a lot of the points that we have discussed today. And don’t forget Rowan’s latest book, “The Four Lenses of Innovation”, which he was just telling us about, is out now and we’ll probably leave it at that and just wait until July 10th. I’ll be back Rowan I’m looking forward to that.
Great, looking forward to see you there again my friend.
Alright, excellent well Thank you very much for joining us and…
In the meantime go forth and innovate.
Absolutely, that’s exactly the message.
Thank you very much my friend.