Strategic Entrenchment

About ten years ago, after a mind-numbing series of meetings at work, and in a fit of frustration, I became convinced that "the best predictor of future failure is past success." The conversations were about how to get ready for tomorrow, assuming today is going well, but growth from today's businesses won't be sufficient to meet tomorrow's growth objectives.

Invariably, when one is in a meeting like this, the most closed-minded people are those with the deepest attachment to the "today" businesses. It's a damned shame, since before they got to be "today," they were creative, innovative, anti-establishment people who wished to shake things up and make a difference. But now, their cognitive dissonance makes them completely closed to new ideas that might cannibalize the fruits of their labor. The worst part of this is that they're in charge now.

There is no openness to the idea that future success might come from an altogether different direction, and while it might cannibalize existing, better us than our competitors.

This type of entrenched (some might call it constipated) thinking seems to permeate the large organizations that I've encountered in my life. As I wrote here, the bigger you get, the more distant you become from the things that mattered when you first started, building great products that customers want, and focusing on customer service.

In the case of my employer, this intractability led directly poorer versions of products for our customers (where in some cases they actually preferred the older generation to the new one).

This doesn't just apply to engineering and product development, I've seen the same behavior in marketing and planning organizations who insist on using a certain planning method or marketing framework because it worked once for them back in 2007, and got them promoted. It's akin to a student writing essays only in the format they used in grade 7 because they got an "A" on it, and can't understand why they got a "D" in grade 9.

I'm absolutely not saying that the old way is always the wrong way. I'm just saying that being open to new ideas and opportunities can lead to even better outcomes.

In many cases, the entrenched thinking leads to what Clayton Christensen referred to as "disruptive innovation." The incumbent is so committed to their existing path and product vision that they are simply blind to the possibility of someone fundamentally altering the game. Examples of this from Christensen's book include the mainframe to the mid-range to the PC, or tape drives to disc drives to flash memory, etc. This also happened to Microsoft with Netscape (Internet Explorer) and Linux (Windows), movie theaters with the advent of video cassettes and VCRs, to catsup when Heinz came out with Ketchup [this, IMO is one of the most brilliant marketing strategies ever employed, I will write about this tomorrow], and there are many other examples.

In all cases, the prior success of the "today" leaders simply shuts them off to innovations out of left field that in the end dramatically disrupt their engines.

What then can the leaders of today do to prevent this type of situation? It's very hard to be told your baby is no longer beautiful, nor is it reasonable to expect the "parent" to listen to these nay-sayers. Though one of the best examples of bucking this trend would be Apple and their willingness to cannibalize their amazingly successful iPod line with the iPhone and Touch, or to abandon PowerPC technology for Intel. These were bold moves, that flew in the face of "conventional" thinking, and you have to applaud Apple's management for that.

One approach to helping companies stay open to new ideas, while making sure they extract maximum return from existing events, might tie back to that blog entry Size Does Matter.

What if there was also a policy that once a successful business line in the main company hit a certain profitability and had achieved a specified return (say 200% of the original investment), it was required to spin off 20% of its employees and fund that "start-up" with 5% of the profits for 2-3 years? The start-up is  charged with beating the incumbent and taking down the mother-ship. If after those 2-3 years there are no promising results, the start-up is on its own. But if it succeeded, the parent company would have a choice of bringing them back in-house, or sticking to the program as defined in Size Does Matter, and creating a whole new revenue stream, while milking the last drop out of their cash cow.

How many of us would not jump at the chance to form a whole new group for a well-funded "do it the right way this time"??  I know I would.