Leading the Revolution: How to Thrive in Turbulent Times by Making Innovation a Way of Life
352
Leading the Revolution: How to Thrive in Turbulent Times by Making Innovation a Way of Life
352Paperback(REV)
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Overview
One of the world's preeminent business thinkers and co-author of the bestseller, Competing for the Future, Gary Hamel has helped set the management agenda for three decades. Now, he brings us into the twenty-first century with Leading the Revolution, which spent time on The New York Times, The Wall Street Journal, USA Today, and Business Week bestseller lists, among others.
Hamel lays out an innovative action plan for any company or individual intent on becoming—and staying—an industry revolutionary, for years to come. By drawing on the success of "gray haired revolutionaries" like Charles Schwab, Virgin, and GE Capital—companies that are always thinking ahead of the game and growing in new directions—and profiling individuals such as Ken Kutaragi, one of the pioneers of Sony Playstation, Hamel explains how companies can continue to grow, innovate, and achieve success, even in a chaotic world market. With insight culled from years of experience, Hamel:
• Explores where revolutionary new business concepts come from
• Identifies the key design criteria for building companies that are activist-friendly and revolution-ready
• Shows how to avoid becoming "one-vision wonders"
• Demonstrates how to harness the imagination of every employee
• Explains how to develop new financial measures that focus on creating new wealth
Packed with practical advice, Leading the Revolution is an accessible read, perfect for both businesses and individuals that don't want to get caught in the slow lane in the race for success in the twenty-first century.
Product Details
| ISBN-13: | 9780452283244 |
|---|---|
| Publisher: | Penguin Publishing Group |
| Publication date: | 07/30/2002 |
| Edition description: | REV |
| Pages: | 352 |
| Product dimensions: | 6.00(w) x 8.97(h) x 0.77(d) |
| Age Range: | 18 Years |
About the Author
Hamel is the most reprinted author in the Harvard Business Review’s history. His landmark books have been translated into more than 25 languages. His most recent bestsellers are The Future of Management and What Matters Now. In these volumes, Hamel presents an impassioned plea for reinventing management and lays out a practical blueprint for building organizations that are “fit for the future.”
Read an Excerpt
Chapter 2: Rising Expectations, Diminishing Returns
Maybe you're in one of those hot, young companies with millions in revenue and billions in market cap. That's cool, but you'd be foolish to mistake Internet investment fever for a rock-solid business concept. Sure the new economy demands some new math-companies can grow more quickly than ever before because they are less constrained by physical capital than ever before. But sooner or later you company's earnings performance will have to match its valuation, so you'd better be damn sure your company has a business concept that will live up to that implicit promise. If it doesn't, I'd hold off on pledging those stock options as collateral on a multi-million-dollar house.If you're under 30, you may not remember that the personal computer industry spawned dozens of "hot" companies-Osborn, Kaypro, Commodore, and AST Research to name a few. But only one, Dell, was a wealth-creating superstar throughout the '90s, and even its share price sat on a plateau for most of 1999. So is your company going to be Kaypro or Dell? Are you going to join the ranks of Yahoo!, AOL, and Amazon.com, or get washed down the drain of companies that were unable to recognize and change a decaying business concept? Let me be clear: there are even more poorly conceived, ultimately uneconomic, me-too business concepts in the new economy than there are in the old. And even the best ones decay rapidly in the fetid environment of the Internet. If you're not extraordinarily adept at perpetual innovation, that e-business wave of hype your company is riding on right now is going to crash.
The Revolution of RisingExpectations
Every year investors raise the bar. Read an annual report from a decade ago, and you're likely to find a company chairman bragging about exceeding the prior year's performance. Back then you just had to beat yourself. Then investors began demanding more: "We don't care how you did against yourself. We want to know how you performed against your bestin-class peers." So the bar went up a few feet. Every diversified industrial company was pressed to meet the standards set by General Electric. Every retailer was expected to match the returns achieved by Wal-Mart. And every software company was measured by Microsoft's yardstick. Navel gazing was out; financial benchmarking was in.
Then the bar went up again. Investors said, "Wait a minute. You may be doing okay when compared to your peers, but what about the absolute standard of 'economic value added'? Are you actually earning more than your cost of capital?" Amazingly enough, the idea that a business should earn its cost of capital struck many executives as a new thought. Clearly more than a few had slept through Finance 101. So diligent executives across the planet began weeding out projects that couldn't promise a positive net present value. J. C. Penney, Toys "R" Us, Siemens, and dozens of other companies signed up for the EVA diet. Investors said, "Make those assets sweat".
As investors became more demanding, and less patient, CEOs felt the heat. John Akers (IBM), Kay Whitmore (Kodak), Roger Smith (General Motors), Bob Allen (AT&T), Gil Amelio (Apple Computer), Eckhard Pfeiffer (Compaq), Doug Ivester (Coca-Cola), and dozens more got the boot or slunk off into early retirement as investors grew weary of empty promises. The message of this bloodletting wasn't lost on the survivors: deliver or else.
Today's investors have an unquenchable thirst for ever higher returns. Cisco, Charles Schwab, AOL, Lucent, Amazon.com, Gap, Yahoo!, Dell, and Microsoft. None of these companies is more than a generation old. Yet their collective market cap at the beginning of 2000 was nearly $1.5 trillion, or close to 10 percent of the total market cap of all publicly listed companies in America. These companies were the stock market stars of the 1990s. But the bar is going up get again. There's a new crop of wealth creators whose eye-popping returns are once again resetting the gauge of investor expectations: CMGI, Terra Networks, Akamai, Ariba, Conexant, COLT Telecom Group plc, Sycamore Networks, and Scoot.com plc are just a few of the come-from-nowhere chart busters that started the new century with $20 billion-plus market caps. Sure, some of these companies will crash and burn, but their stratospheric returns, however temporary, have further fueled investor passions.
There are no more widows and orphans. With a new economy aborning and billions of dollars of potential wealth up for grabs, every investor wants a piece of the action. Forget the high jump, investors expect you to pole vault. No longer are they fretting over whether or not you're earning your cost of capital. Nor do they care how you're performing against your equally underwhelming peers. Instead, they're asking whether you're likely to join the pantheon of wealth-creating superstars. Perched atop their IRA and 401(k) nest eggs, millions of investors are obsessed with beating the market. If you can deliver outstanding shareholder returns, you're a god. If you can't, you're a bum.
I can already hear you making excuses. "That's fine for Amazon.com or Cisco," you say, "but we're in a mature industry. We're not a start-up. We're not some Internet comet." I don't buy it. Wealth creators come in all sizes, can be found in all kinds of industries, and must often overcome the inertia of tradition and precedent. Scan the list of companies that delivered record-breaking returns during the 1990s, and you'll see companies such as Gap, Harley-Davidson, SunAmerica, Clear Channel, The Home Depot, Progressive Insurance, and Merrill Lynch hardly high-tech shooting stars.
It's not easy to become a stock market supernova, and it's even harder to stay one. At the same time that petulant investors have been demanding edge-of-the-atmosphere returns, the percentage of companies that have been delivering better-than-average returns has been steadily declining. In 1999 only 30.8 percent of the S&P 500 companies outperformed the S&P average-in terms of total return to shareholders. That was down from 58 percent in 1992, and the second lowest percentage in more than a decade. (In 1998, 27.6 percent of the S&P 500 did better than average.) Put simply, 7 out of 10 companies underperformed the market in 1999. By definition 50 percent of the S&P 500 outperformed the median, but fewer than 1 in 3 outperformed the mean. The discrepancy between the mean and the median is evidence that a few outstanding performers are simply outdistancing the rest of the field.
The brutal truth is this: there is an ever-growing population of mediocre companies and an ever-diminishing population of truly great performers. The explanation for the performance gap is simple. Companies that spent the past decade trying to wring the last ounce of efficiency out of tired, old business models have now reached the point of diminishing returns. Their strategies have become virtually indistinguishable from their competitors'. And with top management's attention focused internally on process and systems, they've left themselves wide open to unorthodox innovators. Only a few companies have escaped this writhing mass of mediocrity. Only a few companies have been successful in inventing entirely new business models, or in profoundly reinventing existing business models. These are the companies up there in investor heaven.
It is impossible to meet the rising expectations of shareholders without actually creating new wealth. To create new wealth you must innovate-in ways that competitors are not or cannot. You can't buy your innovation "off the shelf" from the same tired, old consulting companies your competitors are using. Cisco, The Home Depot, Pfizer, Charles Schwab, Yahoo!,...
Table of Contents
| Introduction | vii | |
| I | Facing Up to the Revolution | |
| 1 | The End of Progress | 1 |
| 2 | Facing Up to Strategy Decay | 31 |
| II | Finding the Revolution | |
| 3 | Business Concept Innovation | 59 |
| 4 | Be Your Own Seer | 119 |
| III | Igniting the Revolution | |
| 5 | Corporate Rebels | 149 |
| 6 | Go Ahead! Revolt! | 187 |
| IV | Sustaining the Revolution | |
| 7 | Gray-Haired Revolutionaries | 207 |
| 8 | Design Rules for Innovation | 251 |
| 9 | The New Innovation Solution | 283 |
| Notes | 325 | |
| Index | 327 | |
| About the Author | 338 |
What People are Saying About This
Most people on the front line of business know there is a revolution going on, but wake up each day not knowing in what direction we are heading. That's what makes the current environment both frightening and exciting. Gary Hamel captures the moment with a no-holds-barred assessment of the issues facing companies all around the world as they struggle to catch up with the new economy. (Sir Richard Branson, Chairman, Virgin Group)
Gary Hamel's 'revolutionary entrepreneurship' model represents a substantial advance in our understanding of what companies must do to become outstanding innovators. It should influence not only top management but also all employees who are, indeed, the CEOs of their business lives. (Kenneth L. Lay, Chairman and CEO, ENRON)
As venture capitalists, we like to finance swarms of startups that kick the stuffing out of established companies. So please put this book down. Now slowly back away from the counter…. Because if you and your company put Hamel's revolutionary principles to work, it's going to be a lot harder for our start-ups to take your company by surprise. (Steve T. Jurvetson, Managing Director, Draper Fisher Jurvetson)
Gary Hamel captures the new competitive business environment, one in which dreams and reality merge. Leading the Revolution will inspire innovation at all levels and provide insight into opportunities for rewarding revolutionary thinking in new and bigger ways. (Arthur M. Blank, President & CEO, The Home Depot, Inc.)
In today's world of continuous discontinuity, radical innovation is not a luxury-it is necessary for survival. As always, Gary Hamel has seen the challenge ahead of others. His Leading the Revolution is a call to action and a handbook for business revolutionaries. Your fate-and the fate of your company-depends on joining them. (Peter Schwartz, Chairman, Global Business Network)
Revolutionaries in the new economy are those leaders and companies willing to change the strategies that once made them great. Gary Hamel's clear and powerful blueprint for radical innovation is eye-opening for any business. (Michael Dell, Chairman and CEO, Dell)
Interviews
What is most compelling about the Age of Revolution-and what does it mean for companies?
For the first time in history, we can work backwards from our imagination, rather than forwards, from our past. The gap between what can be imagined and what can be accomplished has never been less. Change is now discontinuous, abrupt, seditious. Today, a company must be capable of reinventing strategy not once a decade or in the midst of a crisis, but continuously, year after year. The urgent need for radical innovation will democratize opportunity as never before. The privileges of the industrial oligarchy, the prerogatives of brain-dead SVPs, the worshipful observance of corporate convention-all of these will be swept away. Most companies have yet to acknowledge these inevitabilities. They pretend linear strategies can sustain them in a nonlinear world. But the truth is their strategies are mostly dead-and if they fail to embrace the new innovation agenda, soon they will be too.
But what about the extraordinary gains companies have delivered for shareholders in recent years? Are the strategies that delivered these gains running out of steam?
Many of the corporate programs and initiatives-massive efficiency programs, share buybacks, mega-mergers-that pushed share prices ever higher are now reaching the point of diminishing returns. These strategies focused on "releasing" wealth, not on creating new wealth. With attention focused internally on process and systems, or on trying to buy innovation "off the shelf" from the same tired old consulting firms, companies' strategies have become virtually indistinguishable from rivals. Meanwhile, the companies up there in investor heaven-Cisco, Home Depot, Pfizer, Charles Schwab, Intel, and others-have been creating new industries, new products, new services, all atop new business models. These revolutionaries are in the business of creating new wealth. You won't find them playing shell games with shareholders.
How can companies tell if they have a dying strategy?
Every strategy is decaying as we speak. So to start, executives must be willing to be brutally honest about the rate at which their current strategy is dying. How many CEOs do you think will be willing to stand in front of their shareholders, or their employees, and own up to the obvious-"our business model is busted"? Yet that's exactly what they must do to avoid putting their company's future success in grave jeopardy. Thriving in the age of revolution requires a lot more than simply squeezing a bit more wealth out of yesterday's strategies. Executives must search for signs of diminishing returns in their efficiency programs, for evidence of unsustainable revenue growth, for creeping strategy convergence. A brutal honesty about strategy decay, and a commitment to creating new wealth are the new foundations for strategy innovation.
You say the key competitive advantage in the Age of Revolution is business concept innovation. Describe this and how it differs from traditional competitive strategy.
Business concept innovation is the capacity to invent radically new business models or dramatically reconceive existing ones in ways that create new value for customers, wrong-foot competitors, and produce above average profits. Unlike competitive strategy, business concept innovation is not a way of positioning against competitors, but of going around competitors. It's based on avoidance, not attack. Here's the key thought: what is not different is not strategic. To the extent that strategy is the quest for above average returns, it is entirely about variety-not just in one or two areas, but in all components of the business model.
What do you mean by the "Double Stuf Oreo phenomenon"?
In most companies, a call for "more innovation" is interpreted as a plea for new products or new features on old products. At Nabisco, innovation is when you stuff twice as much white gunk between two chocolate cookies as you used to. Don't get me wrong-Oreos are great cookies, and Double Stuf Oreos are even better, but this is not business concept innovation. Instead, it is focused on a single component of the business model. While product innovation is still important (ie: Gillette's Mach III razor), such a view of innovation is exceedingly narrow.
What are some examples of business concept innovation in action?
The Gap went from selling Levi jeans and a motley assortment of teen clothing in an undistinguished mall format, to owning a portfolio of couldn't-be-cooler brands sold in some of the freshest retail digs around. Harley-Davidson went from supplying motorcycles to antisocial marauders to selling lifestyle makeovers to balding bad boy wannabes caught in the throes of a mid-life crisis. Starbucks is a completely different way of getting your morning buzz than firing up the coffee maker. Ikea has a business model for selling home furnishings that is quite unlike that of a traditional furniture store. No one mistakes Sephora for the cosmetics department of a major department store.
Who are the "gray-haired revolutionaries"?
These are companies that have managed to reinvent themselves and their industries more than once. Their gray hair comes not from years, but from the experience of having lived through several strategy "lifetimes." While no company has totally cracked the code of the new innovation agenda, we can learn a lot from those who've made a start. Enron has been named America's most innovative company five years running. Cisco has transformed itself continuously in the lightening fast world of the Internet, going from a one-product company to a data communications kingpin. And no one in the brokerage industry would doubt Charles Schwab's capacity for radical reinvention.
What do you mean when you say that companies need to "bring Silicon Valley inside"?
Many corporate leaders envy the success of Silicon Valley's entrepreneurs, yet few have thought about how they might bring the creative ethos of the Valley inside their own organizations. What makes the Valley a hothouse of business concept innovation is the existence of three tightly interconnected "markets": a market for ideas, capital, and talent. In the Valley, these markets meld into whatever combinations are most likely to generate new wealth. In most large companies, by contrast, they don't move unless someone orders them to. Big companies need to transform themselves from centrally planned economies to vibrant markets. They must create an environment where ideas are welcomed from every corner of the organization. They must be willing to put some money behind the unorthodox and encourage a culture of experimentation. They must allow talent to migrate so that their best people can work on the most exciting new projects. Bringing the Valley inside won't be easy, but it is possible.
You say that revolution won't start at the top, but with "citizen activists." Yet most employees feel they are powerless to create change. How can they overcome this?
Every organization is no more or less than the collective will of its members. And individuals can shape that will. Activists who created social change in America provide us with principles that can serve as the foundation for corporate activism. How to build a grassroots movement. Ways to unbalance the status quo and convert the masses. How to bend the political system to their own ends. The truth is this: revolution is never easy, but I have yet to see a company in which a few hundred or even a few dozen like-minded employees can't radically impact corporate direction. The very fact that they are organized and are speaking from conviction is a powerful message to corporate leaders. Several corporate activists have already changed the direction of some of the world's largest companies. A computer nerd and a marketer launched the campaign that helped transform IBM from technology sloth to the e-business solutions company. A mid-level engineer began a radical underground movement that ultimately pushed Sony into the digital age.
How can companies enable the revolutionaries in their organizations?
Every senior executive claims to "embrace change." Isn't it rather odd, then, that the principles of activism haven't been drilled into the head of every employee? Isn't it horrifying that most successful revolutionaries will tell you they succeeded "despite the system?" Companies must institutionalize activism if they want to succeed in the age of revolution. Gray-haired revolutionaries like Enron, Schwab and Cisco provide some key design principles that collectively, can help companies to create an environment that allows individuals to habitually innovate.
How will that change the role senior managers currently play in strategy creation?
Too many executives spend too much of their time working on "the strategy," and not enough time working to create the preconditions out of which new wealth-creating strategies are likely to emerge. Top management's job isn't to build strategies. It's job is to build organizations that are capable of continuously spawning cool new strategies. Its contribution is to design the context rather than the content. Its role is to operationalize the design rules for creating deeply innovative organizations. Give employees a truly noble cause to work toward. Make sure that strategy discussions involve the voices of young people and newcomers, rather than the same tired old executives. Create open markets within the organization for ideas, talent, and capital. Make it easy for innovators to try out new ideas. Give them a chance to reap big rewards. In such an environment, drones become activists; reactionaries become revolutionaries.
How can something as effervescent as innovation by "systematized"?
It goes without saying that Eureka moments cannot be programmed in advance. Innovation will always be a mixture of serendipity, genius, and sheer bull-mindedness. But while you can't bottle lightening, you can build lightening rods. Non-linear innovation can be legitimized, fostered, supported, and rewarded. Just as it took most companies systemic, cross-company training to firmly embed quality as a capability, the same will be true of business concept innovation. Forget all that blather in your company's mission statement about creativity and innovation. Unless it's running bootcamps for industry insurgents, it's still substituting rhetoric for action.
What is the innovation portfolio?
The innovation portfolio is actually three distinct portfolios: the portfolio of ideas-credible, but untested new business concepts; the portfolio of experiments-ideas that are validated through low-cost market incursions; and the portfolio of new ventures-experiments that look promising enough to scale up. All too often, executives expect every new idea or experiment to yield a big payoff. Such an expectation will invariably make a company overly conservative, and will quickly drain the portfolio of ideas and the portfolio of experiments of many interesting strategic options. A company's chance of creating new wealth is directly proportional to the number of ideas it fosters and the number of experiments it starts. A sizeable organization should have a portfolio of 1,000 ideas, and 100 ongoing experiments. If it doesn't , its future is at risk.
Where does all of this leave the idea of strategy, and the concept of the "corporation"?
Somewhere in this brave new model, size and scale will still matter, consistency still counts, and strategy is still vital to success. Innovation may be the big story, but it is not the whole story. Most companies have already figured out the scale and scope thing-but now they need to start planting new seeds. In the age of revolution, the challenge will be to marry radical innovation with disciplined execution-to merge the efficiency of a Toyota production line with the radical innovation of Silicon Valley, to blend curiosity with diligence. To be a gray-haired revolutionary, a company must be spontaneous and systematic, highly focused and opportunistic, wildly imaginative and brutally efficient.
What about companies that are just now beginning to recognize signs of strategy decay-are they hopelessly behind the curve?
For once, companies are not starting from behind. Yes, there are companies that embody some of the design rules for innovation, but none will claim to have made innovation as ubiquitous as six sigma, cycle time, or rapid customer service or any of a dozen less essential capabilities. That's the good news. The bad news is that by the time you read salutary stories in national business magazines about companies that have bolstered internal activism, baked the "design rules" into their organizations, and declared innovation to be a core competency, it's going to be too late. Companies must ask themselves right now: how quickly can we make ourselves ready to embrace the new innovation agenda? Their share of the future's wealth depends on their answer.