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What followed was a remarkable guerrilla campaign to transform one of the world's largest companies. With the help of a sympathetic senior executive named John Patrick, as well as an underground network of far-flung Net-freaks throughout the IBM empire, Grossman overcame the odds and succeeded, helping to turn around IBM through his iconoclastic efforts.
Gary Hamel wants you to do the same thing. He doesn't care if you work for Cisco Systems in Silicon Valley or a Rust Belt widget maker in Youngstown, Ohio. If your work seems dumb, if your company seems brain-dead, if most of your waking hours aren't filled with the ardent pursuit of radical innovation, Hamel wants you to start fomenting revolutionary change to save your employer from the long, grim twilight of obsolescence. He wants you to think big thoughts, take chances and, most of all, care passionately about how it all turns out.
Hamel's new book, Leading the Revolution, purports to be a kind of Rules for Radicals, a once-fashionable work by the late Saul Alinsky. But instead of empowering society's downtrodden, Hamel wants to convince you that you already have the power to pursue "business concept innovation" of the kind that turns industries - and possibly even societies - upside down.
At this point sensitive readers may feel as if they've wandered into Charles Saxon's famous 1972 New Yorker cartoon about a party. "Steer clear of that one," one woman cautions another about a man across the room. "Every day is always the first day of the rest of his life."
Corporations, after all, do not typically welcome borderline insubordinate campaigns by low-level employees to radically alter the direction of their business. Media critic Ben Bagdikian might have been talking about the difficulty of drastic, bottom-up innovation at most large companies when he said: "Trying to be a first-rate reporter on the average American newspaper is like trying to play Bach's St. Matthew Passion on a ukulele."
Aside from the inherent improbability of his argument, Hamel has a couple of other things going against him. For instance, he's annoyingly impressed with himself, as is evident from the book's self-dramatizing preface. And he's a management guru by profession (his last book was Competing for the Future), which to some readers will make him seem something of a charlatan by definition. Full disclosure: As a species, these guys drive me up a wall. If they really know so much, why haven't they started a few multibillion-dollar companies instead of preying on the insecurity of executives willing to drop a few bucks on the latest management fad? These guys are always full of noisy brio as they lay bare the gross stupidity of corporate America, yet somehow the same corporate idiots who are staples of every consultant's books and videotapes have managed to create the largest, richest, most innovative economy in the history of the world. What an amazing paradox!
All that said, I've got to confess that I liked this book, and you probably will, too. I liked it for the same reason I like churches and synagogues: Because it's not that often, in this indulgent and therapeutic culture of ours, that we are called upon to be better than ourselves, and with admirable fervor this is precisely what Hamel does. Indeed, the single best thing about Leading the Revolution is its radical argument that work should be engaging, meaningful and passionately performed, and that the way to accomplish this is not by taking pride in some minute increase in efficiency but by coming up with radical innovation - in other words, by being really, really creative.
Fortunately, Hamel goes beyond mere exhortation to offer a blueprint for how to revolutionize your company, even if it means cannibalizing an existing business.
First you need an idea, and some of his suggestions for developing these are obvious: Read new magazines, meet new people, visit new places. Yet it's equally obvious how few people follow them. The point is to find and exploit giant social discontinuities, such as the refusal of baby boomers to grow old (which has created markets for oversize tennis rackets, parabolic skis and other never-say-die products). Hamel emphasizes both direct experience and deep study: Go and see how other people live, but make sure you get beyond first impressions. And distinguish form from function: Banking, for instance, may be essential, but banks aren't.
The goal is "not to speculate on what might happen, but to imagine what you can make happen," and along these lines Hamel offers a section called "How to Build an Insurrection." First you need a point of view, the equivalent of an ideology, but it must be "credible, coherent, compelling and commercial." Then write a manifesto, create a coalition, pick your shots, co-opt and neutralize opposition, find a "translator" to bridge the gap between revolutionaries and establishment, start building small victories, and stay underground long enough to build critical mass - but then be sure to infiltrate (rather than overthrow) the highest levels of the organization to win the resources you'll need to realize your vision. (If you're in senior management, don't feel left out; Hamel suggests ways to make your company revolution-ready.)
Leading the Revolution offers a wealth of stories along the way about people and companies who managed to create the kinds of revolution the author is calling for. And although he gives too little credit to the people in white lab coats, he's basically right that a lot of wealth has been created by the Gap, General Electric, Starbucks, Wal-Mart and other companies whose earth-shaking innovations--people will pay $4 for a cup of coffee!--did not require an engineering degree. In one of his best examples, the brainstorm of a twentysomething Enron employee in England quickly led the company in a whole new direction. "Enron went live in November 1999 with one of the first online markets for all forms of energy," Hamel writes. "Just months after its launch, EnronOnline was doing a dollar volume far greater than Internet stars like Dell Computer, Cisco or ..."
Or consider Ken Kutaragi, an obscure Sony researcher who almost single-handedly got his company to come out with a videogame system in 1994. "Less than five years later," Hamel writes, "the PlayStation business had grown to comprise 12 percent of Sony's $57 billion in total revenues, and an incredible 40 percent of its $3 billion in operating profits."
Hamel's examples show that, when the planets are aligned right, it really is possible to bring about revolution inside a company. That doesn't mean it's possible for all of us, or even most of us. But I agree that in the absence of passion and creativity, work is mere drudgery, and Hamel makes a strong case that bringing fresh thinking to the job can produce wealth as well as satisfaction - no surprise to those directly involved in the Internet revolution.
Perhaps, though, the ultimate message of Hamel's book is that in business the phrase "after the revolution" no longer has meaning, ironic or otherwise, since the revolution he's talking about is one without end.
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!,...
|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|
|6||Go Ahead! Revolt!||187|
|IV||Sustaining the Revolution|
|8||Design Rules for Innovation||251|
|9||The New Innovation Solution||283|
|About the Author||338|
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.