Clayton Christensen is today considered one of the foremost experts on business innovation. A veteran professor at the Harvard Business School, Christensen introduced the term "disruptive innovation" into the lexicon two decades ago, and it has become both a cliché and a driving force in business ever since. His ideas have been embraced by the likes of Intel leader Andy Grove and Apple cofounder Steve Jobs. But in the late 90s, Christensen was a relatively unknown professor with a question -- a Why question that sprang from a phenomenon in business that didn't make sense. Successful companies in tech and other industries were being blindsided by newcomers offering products or services that may not have been as good, but were more convenient and affordable. Even more puzzling, the companies suffering these reversals seemed to be doing all the right things: serving customers better, improving products, increasing profit margins. "They were doing what they were taught in business school," Christensen says.
He wondered why business leaders weren't able to respond. "I knew the failure could not be attributed to managers being stupid," Christensen recalls now. "So I framed the question as 'Why are the smartest people in the world having this problem?' Just thinking of it that way made me look in different places."
What he discovered was that although most of the companies in trouble focused on making good products even better, the real potential for innovation was at the low end of the market -- in everything from disk drives to automobiles. If you could take a product that was expensive, complex and exclusive, and make it affordable and accessible, you could open up a mass market -- toppling the established leaders. But why were only newcomers seizing this opportunity? Why weren't the established leaders able to dominate the low end of the market as well as the high end?
Christensen sees this as a dilemma. To pursue disruptive innovation at the low end, companies would have to move away from all they had worked hard to build. They faced this deceptively tricky question: "Should we make better products that we can sell for higher profits to our best customers -- or make worse products that none of our customers would buy, and that would ruin our margins?" If you were smart, you opted for the former -- and sealed your company's fate.
After Christensen published his theory in The Innovator's Dilemma, the idea of focusing on "disruptive innovation" at the low end of markets became standard, particularly in Silicon Valley, where Christensen's book was, for a time, a kind of innovator's bible. Although it's a testament to Christensen's ability that he was able to find and pursue the Whys and What Ifs that led to his discovery, one can't help wondering why others -- particularly the smart people running those companies he studied -- didn't see the "innovator's dilemma" themselves? Why did it take a business professor to point out what was going on under their own noses?
Christensen has a theory on this, as well: they hadn't been trained to question. In business school they were armed with management theory that was perfectly sensible -- up to the point at which the world changed and the old theory failed. When that point was reached, most leaders weren't able to step back and ask, Why isn't this working any more? What if the business market is now upside-down -- and the bottom has risen to the top? And if that's the case, how should my business respond to this new reality? How do we rewrite the old theories?
Today, as market conditions and challenges become even more complex, uncertain and subject to radical disruption across industries, Christensen feels that business leaders, for the most part, still aren't asking enough questions -- especially the right kinds of questions.
Keith Yamashita, a long-time consultant to top companies such as IBM and Coca-Cola, observes that in the business world, "We're coming off a 25-year post-80s period of efficiency, efficiency, efficiency. The unintended consequence of that entire efficiency era is that people diminished their questions to very small-minded ones. In this quest for incremental improvement, it became all about asking: how can we save a little bit of money, make it a little more efficient; where can we cut costs?" But Yamashita says the era of "small-minded questions" is ending. "Company leaders are realising that if they're only asking the small questions, it's not going to advance their agenda, their position or their brands," he says. "In order to innovate now, they have to ask more expansive questions."
What Yamashita is talking about is an evolution in business questions themselves. Those old, closed questions -- How many? How much? How fast? -- still matter on a practical level, but increasingly businesses must tackle more sophisticated, open questions -- Why? What If? How? -- to thrive in an environment that demands a clearer sense of purpose, a vision for the future and an appetite for change.
This affects new companies as much as the established ones. Startups have always had to ask tough questions about their reason for being: Why does the world need another company? Why should anyone care about us? How in the world are we going to break through? That's truer than ever in a market now crowded with newcomers.
But established companies in old-line industries may need questioning even more. Many of them are dealing with new threats and volatile changes that are suddenly calling into question why they're needed, what they do and how they do it. Small wonder, then, that, for top business consultants such as Dev Patnaik of Jump Associates, "questioning is now the number-one thing I spend my time on with clients."
It's not an easy matter to bring questioning to companies; most of them simply weren't built for it. American business in particular, and many of the major European companies that were set up after the Second World War, "were designed on a military model that came out of the war, built by people who'd been through that war, and the businesses were organised around that mindset," Patnaik says. Central to that was the idea of a formal hierarchy and chain of command that didn't leave much room for calling into question the accepted practices and procedures.
That old model doesn't lend itself particularly well to a business market that favours speed, flexibility and collaborative inquiry. But changing that established business model -- specifically, in terms of allowing for more questioning -- requires difficult shifts in ingrained policies and approaches. For example, Eric Ries, the pioneer of the Lean Startup movement, which teaches how to adopt more agile, flexible approaches to business launches, points out that an incentive system has been built through the years to encourage the provision of answers, not the posing of questions. "The industrial economy was all about knowing the answer and expressing confidence," Ries said. "If you did your homework, you were supposed to know. If you had unanswered questions, that meant you did a bad job and wouldn't get rewarded."
Another challenge is that although rapid change makes it necessary for businesses to examine their practices more closely, it also causes people to feel as if they don't have time to question what they're doing. Tony Wagner, the Harvard education expert who has studied the role of questioning in business, notes that "the pressure on short-term results tends to drive questioning out of the equation". For those inclined to question, the difficulty may be in knowing what to ask. "With all the uncertainty out there," Patnaik says, "organisations don't even know what they don't know." Figuring out the questions that are most critical for a company, given current challenges and market conditions, may be the first order of business. Although the key questions vary depending on the individual business, a good place to start is at the most fundamental level -- with questions of purpose. Why are we in business? (And by the way, what business are we really in?)
Almost every company would acknowledge that it is in business to make money so that it can stay in business. But most companies, if you trace their origins, were started for more complex reasons than that. Many of today's standout companies -- Patagonia, WL Gore, Nike, Airbnb, Panera, Netflix -- started out on a quest to fill an unmet need, to make some aspect of our lives a bit easier, more convenient, more enjoyable. Most good companies are born trying to answer a question and solve a problem, which provides an early sense of purpose. But that motivating principle gets buried over time. Asking Why questions can help to unearth it. (And if, after being dug up, that sense of purpose needs to be freshened up and made relevant again, questioning can help with that, too.)
There are different ways of thinking about purpose. For example, a furniture retailer might choose to think its purpose is to sell people furniture. But it could also approach the business in a very different way. Its higher purpose might be that the company brings a sense of style into the lives of those on a budget or that it enables people to express their creativity through home furnishings. Getting this right is a subtle thing; advertising sometimes attaches generic or artificial purposes to companies. But if a company's leaders think hard enough and question well enough about where the company came from, what it does best and whom it serves, they will usually uncover a more meaningful and authentic purpose in its origins.
Yamashita uses a set of questions to try to identify purpose. One of the main ones is fairly straightforward, if a bit grand: "What is our company's purpose on this Earth?" Yamashita acknowledges that this may sound high-minded, but the business environment increasingly demands that companies think beyond mundane corporate concerns. To arrive at a powerful sense of purpose, Yamashita says, companies need "a fundamental orientation that is outward-looking" -- so that they can understand what people desire and need, and what's standing in the way. Business leaders also must look inwards to try to clarify their own core values and larger ambitions.
In terms of figuring out the internal values, Yamashita urges company leaders to look back in time and consider this question: Who have we (as a company) historically been, when we've been at our best? At the finest moments in a company's history, Yamashita holds, its core values usually come shining through. But it may be necessary, from time to time, to revisit that past in order to reaffirm the company's higher purpose.
Casey Sheahan, who recently stepped down as CEO of outdoor-apparel company Patagonia, admits that even a firm such as his, with its strong, well-defined mission tied to encouraging outdoor activity and protecting the environment, has to regularly revisit questions about purpose and mission. "There is great tension every day in the company between being successful in terms of growth, and what this means in terms of our environmental impact." And the bigger Patagonia gets, the more challenging this becomes. Sheahan grappled constantly with the question, How can we minimise the environmental impact of the tremendous carbon footprint of operating a $570 million (£343 million) business? What helps guide the company at all times, he believes, is the knowledge of how it began. "When the company was started by the founders, it was basically about protecting what they loved, nature, and trying to expand the sphere of influence in order to inspire others."
Not only is that the reason Patagonia exists -- it's also the reason people go to work there. "It's why they're going up the stairs two steps at a time to get to their jobs," Sheahan says. The company has enjoyed strong financial growth in recent years, but that's not the Why factor for most employees. When Sheahan talks about financial results, there is mild interest; "but when I say something like, 'By the way, we're sending 50 people down to the Gulf to help with the clean-up efforts down there' -- suddenly people are on their feet cheering. That's why they're here."
Not every company has a clear environmental mission like Patagonia's, but Sheahan maintains, "For any organisation, it is galvanising to have a strong purpose and values, no matter what they might be." A good way to bring that to the surface is by looking back to when the business was founded and asking, "What was that higher purpose at the outset? And how can we rally people around that today?"
At the same time, as Yamashita points out, it's just as important to look forward when asking big questions about purpose. He urges clients to ask: "Who must we fearlessly become?" That can be a difficult challenge, he says, because it requires "envisioning a version of the company that does not exist yet".
Purpose questions are important because, if you can answer them, that frees up company leaders to pursue all kinds of far-reaching opportunities and questions, knowing all the while that they are on firm footing. "Products come and go, leaders come and go, trends come and go," explains Yamashita. "But through all of that, you need to know the answer to the question, 'What is true about us, at our core?'"
Knowing that becomes especially critical when a company finds itself in the midst of dramatic change. The digital revolution has had this effect on many companies -- forcing them to have to rebuild and rethink, sometimes pushing them into unfamiliar territory. A company that has figured out the basic questions of identity and purpose is in a better position to handle unsettling new questions such as, "What business are we in now?"
Nike provides an instructive example of how a company can continually adapt through constant questioning of its most basic approaches. The company tends to guard its secrets closely, but a few years ago I talked to a design researcher who'd done some work with Nike and got an up-close look at how it ventures out with athletes (professional and amateur) to study their movements and try to detect their needs.
About a decade ago, Nike's researchers saw that digital technology was profoundly affecting athletes. The many more ways to measure, improve and enrich the running experience also created complications. Runners were fumbling with gadgets -- stopwatches, heart monitors, music players -- as they ran. Nike went into classic Why mode (Why does this problem exist? Why hasn't anyone addressed it?). Then, in considering What If, the idea emerged of a hybrid, networked tool, connected to a Nike running shoe, that could encompass many of a runner's needs: measuring distances, charting progress, listening to music and connecting with other runners. In effect, what if a running shoe could run your life?
But getting to the How was another matter; Nike was a sneaker company, not a digital-device maker. The only way to pull this off was through partnership with a tech company. Striking a deal with Apple wasn't easy. (According to a press report, Steve Jobs berated Nike chief executive Mark Parker for trying to expand into digital; stick to the sneakers, was Jobs's message.) But Nike won him over and produced Nike+, a hybrid product that wirelessly connected a running shoe to an iPod, which linked to a website. This helped Nike begin to think outside the shoebox, and it now has a line of digital products, such as its highly successful FuelBand activity tracker. It is becoming a digital company as much as a shoe company. So if you ask, "What business is Nike in?", the answer is constantly changing, though it's grounded in serving an athlete's lifestyle needs, in whatever form they might take.
Nike isn't the only company going through core changes. Other top companies -- Nike, Apple, Netflix -- have been finding success by moving outside their primary area of expertise. Whatever it is that got you to where you are might not be the thing that gets you to the next level. It's a sobering realisation: businesses can't rest on what they've done or what they know. The need to bring a "beginner's mind" to bear may make it necessary to -- if only temporarily -- set aside all notions of what worked in the past, in order to ask questions from a fresh perspective.
Early in its history, the microprocessor company Intel faced a difficult decision. The company had started out making computer memory chips and its success with that product established Intel. But as the memory-chip business slowed, Intel's cofounders, Andrew Grove and Gordon Moore, had to decide whether to shift the company's focus. They were torn: chips were central to their identity -- and Intel wouldn't have got to where it was without them. Then Grove posed an interesting question: "If we were kicked out of the company, what do you think the new CEO would do?" They reasoned that a new leader would feel no attachment to the declining memory-chip business and would probably leave it. So they did likewise, shifted Intel's focus to microprocessors -- and set the stage for remarkable growth.
When companies are facing disruptive change (and these days, what company isn't?), old habits and traditions can get in the way of progress. One of the things hypothetical What If questioning can do is remove those constraints to allow for more fresh thinking. You could ask, as Grove and Moore did, "What if different leaders were brought in?"; but Clay Christensen suggests a bolder version of this question, "What if the company didn't exist?" That question allows you to take a clean-slate approach in thinking about the industry and your place in it. Christensen points out that thinking about your company as if there were no history enables leaders to stop focusing on pre-existing beliefs and structures -- "the stuff they've already invested in" -- and consider new possibilities. That's particularly useful "if, at any point in the future, you see the possibility that the core business might slow down," Christensen says. Another question to consider is, who would miss us? The answer can help identify your most important customers and clarify your real purpose.
It's not easy for a company to move away from what it has done in the past. In fact, the consultant Jack Bergstrand of Brand Velocity thinks one of the most important questions companies should regularly ask is, "What should we stop doing?" There's a natural tendency for company leaders to focus on what they should start doing, but coming to terms with what you're willing to eliminate is always harder. Yet if you can't answer that question, Bergstrand maintains, "it lessens your chances of being successful at what you want to do next -- because you'll be sucking up resources doing what's no longer needed and taking those resources away from what should be a priority". Moreover, if you can't figure out what you should stop doing, it might be an early warning sign that you don't know what your strategy is.
Bergstrand explains that it's difficult for most companies to stop doing things -- especially putting an end to programmes or products that were once successful -- because "we don't like to kill our babies". Corporate politics can also get in the way; individuals or groups within a company are inclined to protect their own projects. "Even asking 'what should we stop?' makes people inside a company uncomfortable," Bergstrand says. For that reason, it may be necessary to adopt the "What if the company didn't exist?" mindset -- so that you can then be willing to cut ties with old programmes, products and practices.
Written by Warren Berger for Wired Magazine
Source: Wired
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