Matco Tools had a problem. The toolboxes that it sold to auto mechanics across North America—the flagship of its business—were becoming dated as manufacturers loaded more and more technology into their automobiles. Mechanics needed more sophisticated tools like vehicle diagnostic kits and recharging stations, and their needs varied from model to model.
So, starting about two years ago, Matco, a $450 million subsidiary of Danaher, based in Stow, Ohio, launched an innovation project with an outside business-innovation firm, Cleveland-based Nottingham Spirk, to disrupt its biggest line of business. Matco assigned some of its best and brightest to an innovation team that also included representatives from Nottingham.
Why work with an outside partner? “Sometimes you can have a view of what your products or markets are, but having outside eyes come in, people who challenge what we think, is really is a critical thing,” says Tim Gilmore, Matco’s president. “They challenge us. And our team will challenge them. That helps us to push the envelope as to what the customer is looking for.”
The end result was a brand new type of toolbox, starting at about $4,000 and ranging as high as $40,000, that provides room for laptops and iPads, plus charging systems for anything that needs power, and a newer way of organizing tools for easier access and therefore, enhanced productivity. These Revel and RevelX boxes were unveiled in February and Gilmore expects they will cannibalize the sale of existing toolboxes when they go on sale this autumn.
“Our approach is, how do you cannibalize yourself so that you’re out in front with the innovation?” Gilmore asks. “Disruption has to happen. For example, what you might have used to jumpstart a vehicle years ago might have been large and heavy. Now, with the advent of lithium ion batteries, that device can fit in the glove compartment. That will obviously cannibalize the sales of the older product; but if it is designed right, it will drive incremental sales.”
CEOs across many different traditional sectors of the American economy are realizing that they must disrupt themselves and that technological disruption, a term famously created by Harvard’s Clayton Christensen in his 1997 book The Innovator’s Dilemma, does not apply only to Silicon Valley. Leaders of companies of all sizes, in every sector of the U.S. economy, must overcome inertia and sometimes outright resistance from inside their organizations to not only allow, but encourage disruption, particularly in view of intensified global competition.
The key question is how to do it. Vijay Govindarajan, a professor at Dartmouth and Harvard universities and author of a new book entitled The Three Box Solution, argues that CEOs have to think of their current business as representing Box 1, old products that are fading as Box 2 and future products as Box 3. The most difficult thing to manage is the gap between the present (Box 1) and the future (Box 3). “They require different capabilities and different metrics,” Govindarajan says. “This is the central strategic challenge.”
Govindarajan is skeptical of turning to outsiders for product design help. He argues that transferring any new product ideas from an outside team back into the heart of the business is too difficult. Instead, a CEO has to create a separate internal innovation team by borrowing people, technology and resources from his existing business unit in Box 1. The Box 3 team should be physically separated from people running the existing business, he says.
In this process of cross-fertilization, there are bound to be clashes between the teams, and only a CEO can manage those. A chief innovation officer may be able to act as a champion for disruption, but only a CEO can control the necessary resources to make it happen. “The reason this is so hard to do is that you, as CEO, have two jobs,” he adds. “There are inherent tensions
Not everyone agrees with Govindarajan. Bill Nottingham, a principal at Nottingham Spirk, argues that there is great logic in a CEO’s working with outside experts. “A partnership mentality makes business sense,” he says. “The market keeps changing and, if you as a CEO have to keep creating new teams and paying for them, that gets expensive.” Why not, he asks, bring in specialized brain power, a kind of a SWAT team, and use them on a case-by-case basis? His firm says it has helped companies create new products that have reached a total of $50 billion in sales.