Why is it so hard for companies to do something truly new? After all, companies innovate all the time. They innovate products. They innovate marketing efforts. They innovate processes to increase efficiency. Through these efforts, companies innovate and improve their existing business model in incremental ways, streamlining and increasing its efficiency, tweaking the profit formula, bringing new key resources to the table, and changing and refining individual processes. But rarely do incumbent companies make the leap to reinvent their existing business models or create new ones in response to the opportunity or threat presented by a new customer value proposition.
Why not? Why can’t top executives get their employees to change course? I’ve never been comfortable with the “People don’t like change” explanation; even less convincing to me is the “My people are stubborn” or “My employees want to do what they want, not what the company wants.” If that were so, I suspect most well-run companies would have let those people go by now.
A far more interesting question to ask then is, “What’s stopping my most talented and loyal employees from doing what I want?” As an answer, let me suggest a thought experiment (taken from my recent book Seizing the White Space: Business Model Innovation for Growth and Renewal).
Imagine a fictional corporation, DogCorp, the world’s leading manufacturer of high-quality dogs. DogCorp makes the best, most efficient, most innovative dogs on the market. Its consistent success has made it the company of choice for talented designers and managers throughout the industry, who thrive in its strong canine culture.
But one day, a fairly free-thinking manager realizes that a significant number of customers hanker after a different kind of pet—a more independent and curious animal. Excited by this new growth opportunity, she puts together a team that designs something new—a cat—to satisfy this unmet need. Then she brings it to her superiors.
And the DogCorp managers go rabid. Their first impulse is to nip this cat-thing in the bud. It’s “non-dog,” and that is often reason enough for them to refuse to allocate sufficient people, time, or resources. That’s what Digital Equipment Corp. CEO Ken Olsen did when confronted with the PC. He wasn’t interested in selling low-margin computers piecemeal, having famously said he wanted to own the entire computing structure of his customers’ enterprises. In the 1970s, DEC actually had a PC under development in its laboratory, eventually sinking $2 billion into the effort, but by the time the poor cat received the serious resource commitment it needed, it was too late.
Fundamentally new customer value propositions, ideas that require different profit formulas, or projects that call for different key resources and key processes can all look like non-dogs. If managers could recognize them as cats, they might find potential uses for them or see untapped markets or underserved consumer needs they satisfy. But instead, all thinking stops at the conclusion “non-dog.”
Alternatively, the diligent DogCorp managers may try to “dog the cat” —that is, try to cram the new opportunity into their existing business model. “Your new cat venture calls for furry mice to fulfill its play need,” says the well-intentioned Product Happiness Manager, “but we have a state-of-the-art stick supply chain and an advanced throwing system we believe will be more efficient.” And it is. But the cats couldn’t care less. Unhappy, they don’t purr or pounce. Instead they get neurotic and start scratching the furniture. No one wants to buy a crazy cat, so the whole idea is scrapped. Or if it does make it to the market, the cat-that-fetches is such a strange animal no one buys it.
Finally, if the core organization runs out of patience and expects the cat to grow as large and as quickly as their big dogs do, the venture might be brought back into the mainstream organization too quickly to face a slow but certain death from unreasonable expectations. This is precisely what happened to a project aptly named Kittyhawk at Hewlett-Packard in the early 1990s. Part of HP’s disk memory division, the Kittyhawk team embarked on a disruptive play with a 1.3-inch disk drive, a cat that was a far cry from even the smallest 3.5-inch dog in HP’s pack. It was meant to be a “small, dumb, cheap” disk drive that could power diminutive devices like the Nintendo Gameboy and PDAs for UPS drivers, then a whole new market. But the disk memory division was very impatient for growth: It had its sights set on the big dogs at IBM and Seagate and wanted to bulk up quickly. So it projected second-year revenue growth at a highly ambitious $100 million, which didn’t give the Kittyhawk team the time it needed to explore the Nintendo or other promising opportunities as they came along. Having been set up to fail, Kittyhawk did so, and the project was shut down by 1994, just over two years after its initial launch.
It’s tempting to look at all three cases as change-management problems—that is, as a problem of attitude. If top managers could only work up a sufficient sense of urgency, or perhaps dismiss the dissenters early enough, or communicate their intentions often enough—they could get the loyal dog lovers to accept the new cats that represent tomorrow’s growth opportunities.
But while the situation does indeed call for top management action, I don’t think attitude adjustment is the key here. The pack at DogCorp are loyal to the dog-producing and improving business model because that’s the model that works (or worked before the recession)—and it’s still the model they’re being paid to implement.
It’s a lot to expect of an organization to produce cats and dogs at the same time and nearly impossible to do so using a consistent set of incentives. What’s needed is a separate cat division, populated perhaps with some of the more tolerant cat lovers who may be lurking among the dog purists that (let us not forget) have served your company so well. And while all employees might benefit from a dose of tolerance for creativity, only the top dogs in a company can allocate the resources, time, and personnel needed to create a pride of cats.
Mark W. Johnson, Seizing the White Space: Business Model Innovation for Growth and Renewal, is chairman of Innosight, a strategic innovation consulting and investing company with offices in Massachusetts, Singapore, and India, which he cofounded with Harvard Business School professor Clayton M. Christensen.