by Tom Goodwin
The world of currency and money has had similar shifts: we had the era of cowrie shells and other forms of items of rareness, then we shifted and coins developed, and we had units of money with an intrinsic value. We then leapt to the idea of banknotes, the concept of the promissory note where something had no inherent value but was deemed by all to be trusted. We then shifted to another paradigm with the first credit cards, where the entire transaction was unattached to the physical token (a credit card isn’t a note, it’s a shortcut to a digital transaction). Now we tend to use physical currency less and less, we use formal bank and credit card transactions less, we use apps like Venmo or WeChat Pay or Alipay. In China today, $5 trillion of payments each year are done this way (Cheng, 2017). It’s likely that the bank of the future will soon largely operate with digital wallets, not physical locations.
And before we get comfortable with that, we could be about to see an even newer era of money: cryptocurrencies in which, rather than systems controlled by central banks and centralized control systems, money is digitalized, based on artificial scarcity and control by distributed communities of people.
Paradigms are complex
It’s been ages since I’ve paid with cowrie shells, but right now I do have coins, banknotes, credit cards, and money in a digital wallet. I nearly bought Bitcoins in 2011, but alas I got scared. In the same way that we may own Walkmans and Discmans and an iPod, paradigms typically overlap. Even in the UK canal use is coming back, as are vinyl records, but it’s normally obvious which is the paradigm of the future. I would not want to bet my company on the success of quartz watches, railways, shopping malls or the combustion engine.
Sometimes the future arrives and then vanishes too. In 1900, electric cars were so popular that in New York City there was a fleet of electric taxis, and electric cars made up a third of all vehicles on the road. But Henry Ford’s ability to make the petrol-driven Model T for less than half the price soon put an end to electric cars (Strohl, 2010). Direct shopping that avoided physical retail isn’t new either. One of the first mail-order catalogues, was selling scientific and academic books (just as Amazon started), and was set up by Benjamin Franklin in 1744 (Woloson, 2013). Mail order has long preceded e-commerce, yet strangely the businesses like Sears, Freemans, Montgomery Ward or SkyMall, that seemed to have the perfect structural foundation to win in the age of e-commerce, all survived until the internet took off and have since generally performed badly. Certainly none has gone close to accomplishing what Amazon has done. The lesson here is that it is only in retrospect that we can see what will win and sometimes you can be constructed perfectly for the future, and still mess it up.
The lesson from the paradigm shift: we have to break rules
Disruption is the art of identifying which parts of the past are no longer relevant to the future, and exploiting that delta at all costs.
LEVIE, 2014
We need to be clear that these shifts are always enormous. Within one specific industry, huge changes happen. The most successful companies the world has ever seen are typically those to enter a new paradigm with the first reasonable product. There is another theory from Jean-Marie Dru, the chairman of Global Advertising Agency TBWA, that he set out in 1996, around the same time as Clayton Christensen proposed his theory of disruption. Jean-Marie Dru’s theory was that disruption was about establishing category norms, finding the ways that everyone solved problems, and then specifically and precisely ignoring one of those rules.
My new theory for disruption is based on the idea that companies don’t go against category norms; they just base their approach on brand new thinking and change the parameters that fixed the design process.
Don’t let expertise or success kill you
At every stage, the new era demands totally new assumptions, different thinking, and a step change in performance. Often the dominant player changes, the incumbents build on the expertise of the past whereas the insurgent isn’t bogged down by expertise. What in theory should allow dominant players to win easily often acts against them. It’s not just that having a large network of banks on the high street, huge access to capital, a great reputation and trust with consumers isn’t that helpful if the world switches to cryptocurrencies or digital wallets; it’s that you are so invested in the old paradigm, that you actively seek to combat change. Sony made too much money from selling music. Kodak made too much money selling photography products.
Being different is scary
In the early days of Amazon Jeff Bezos needed over 60 meetings to raise $1 million. He was laughed out of many rooms, with most people first asking him, ‘What’s the internet?’ Being different is hard (Sawers, 2012). Even as recently as 2013, Matthew Yglesias called it a ‘charitable institution being run by elements of the investment community for the benefit of consumers’ (Yglesias, 2013). A lot of people don’t like businesses that appear to break rules.
When Roger Bannister broke the four-minute mile, he risked what doctors agreed would probably kill any man. Rules and assumptions are there to make us feel better, but they also hold us back.
Don’t apply old thinking to new eras
In 1994 the UK catalogue company Freemans saw the future and it was digital. It didn’t create a website to buy from, it didn’t do customer service and accept orders via e-mail. No, they took the entire catalogue, scanned it into images and distributed it on a CD. Often, we get thinking wrong. Coin was a well-funded start-up whose whole inception was based on the fact that affluent customers had many credit cards, and thus created a ‘digital’ credit card, which for a mere $100 would store many credit cards digitally. You could then select which card you wanted to pay for with a few taps and pay that way. Few realized at the time that Apple Pay was about to launch. Redbox spent millions solving the problems of Blockbuster DVD rental by placing thousands of DVD rental machines around the nation. Just as video streaming was taking off. We have to build for the right paradigm.
When people see VR headsets and want to create shopping malls within them, you realize the degree to which imagination fails us. We have to work around new parameters and new behaviours, not lazily transpose our thinking into the new one.
Don’t apply old models to new eras
We tend to need data in modern business. We need to see ROI projections of things that don’t exist yet. Yet those are success criteria from an out-of-touch era. When I grew up, even in safe rural England, there were three rules that were clearer than any others. One, never get in a stranger’s car. Two, never go to a stranger’s house. And three, ideally and if possible, don’t even talk to strangers. Yet we now live in a world where Uber, Airbnb and Tinder have built some of the world’s most successful businesses off the back of contradicting the rules we have all grown up with.
Amazon is showing the light at the end of the tunnel. After years of burning money in its retail offering, subsidized by the profits of its web services division, you can now see that it could finally get big enough to make money. As it becomes so large it kills others in the space, as it becomes so big it can put even more pressure on the incumbents in the space, as it decides to launch its own-label goods, we can see how a model that worked okay in the previous paradigm could actually lead to rampant success in the next.
Uber is the same. Uber can’t ever justify its valuation today as a ‘taxi killer’. The world’s taxi market isn’t enough to justify anything close to its valuation. But if Uber can become so big, so fast and, above all else, work in rural areas effectively, it’s no longer competing with taxi ridership, but all forms of personal mobility. When we can get a train to a large town and hail an Uber, when we can commute to work in rural areas with an Uber, all of a sudden, the model and the valuation can make sense.
Ignore most future models
The skill to thinking about the future isn’t to look at precise trend lines from the past and linearly project them forward, it’s not to obsess over technology, it’s to be empathetic to people, it’s to consi
der thoughtfully what enhances human feelings, what addresses our concerns, it’s to layer through use cases and to feel our way ahead. I don’t think large spreadsheet-oriented companies are best placed to do this.
Data is not always helpful. People are poor forecasters of their own future intent. We all love to make sense of complexity with a model; the Gartner Hype Cycle is a lovely way to confidently track technologies as they rise and fall, but it’s not actually proven to be useful. It has failed to track the actual path of most technologies.
References
Adner, R (2012) The Wide Lens: A new strategy for innovation, Portfolio Penguin, New York City
Cheng, E (2017) Cash is already pretty much dead in China as the country lives the future with mobile pay, CNBC, 08 October, available from: https://www.cnbc.com/2017/10/08/china-is-living-the-future-of-mobile-pay-right-now.html [last accessed 7 December 2017]
Clark, A (2007) Wear a watch? What for? CBS News, 16 February, available from: https://www.cbsnews.com/news/wear-a-watch-what-for/ [last accessed 7 December 2017]
Haire, M (2009) A brief history of the Walkman, Time, 1 July, available from: http://content.time.com/time/nation/article/0,8599,1907884,00.html [last accessed 7 December 2017]
Kaufman, G (1998) MPMAN threatens conventional record business, MTV, 4 May, available from: http://www.mtv.com/news/150202/mpman-threatens-conventional-record-business/ [last accessed 7 December 2017]
Kuhn, T (1962) The Structure of Scientific Revolutions, University of Chicago Press, Chicago
Levie, A (2014) Disruption is the art of identifying which parts of the past are no longer relevant to the future, and exploiting that delta at all costs [Twitter] 13 April, available from: Twitter.com [last accessed 7 December 2017]
Sawers, P (2012) Jeff Bezos attended 60 investor meetings to raise $1m from 22 people, just to get Amazon started, The Next Web, 29 November, available from: https://thenextweb.com/media/2012/11/29/in-the-early-days-amazon-founder-jeff-bezos-attended-60-investor-meetings-to-raise-1m-from-22-people/ [last accessed 7 December 2017]
Strohl, D (2010) Henry Ford and the electric car, Hemmings Daily, 25 May, available from: https://www.hemmings.com/blog/index.php/2010/05/25/henry-ford-and-the-electric-car/ [last accessed 7 December 2017]
Twain, M (1889) A Connecticut Yankee in King Arthur’s Court, Charles L Webster and Co., New York City
Van Buskirk, E (2005) Bragging rights to the world’s first MP3 player, CNet, 25 January, available from: https://www.cnet.com/uk/news/bragging-rights-to-the-worlds-first-MP3-player/ [last accessed 7 December 2017]
Woloson, W (2013) How Benjamin Franklin invented the mail-order business, Bloomberg View, 13 March, available from: https://www.bloomberg.com/view/articles/2013-03-13/how-benjamin-franklin-invented-the-mail-order-business [last accessed 7 December 2017]
Yglesias, M (2013) Jeff Bezos explains Amazon’s strategy for world domination, Slate, 12 April, available from: http://www.slate.com/blogs/moneybox/2013/04/12/amazon_as_corporate_charity_jeff_bezos_says_there_s_a_method_to_the_madness.html [last accessed 7 December 2017]
PART TWO
Unleashing the power of now
05
Digital transformation
In my experience, the two biggest questions an innovation endeavour must first ask are rarely raised. The first is why are you doing it, and the second is how much are you really prepared to change? We need to ask whether we are prepared to make changes right down at the core of the business, at the very foundations on which it is built.
We need to stop thinking of technology as a tattoo, a surface-level commitment best kept on a conspicuous but infrequently used part of the body. Instead, let’s think of it as oxygen: essential to the beating heart of your business. In this chapter, we will explore the idea of the depth to which we apply new thinking and technology. We need to raise the issue of, and tightly define, digital transformation. It’s only by starting to see what a powerful lever technology is that we can see the size of the gains possible for businesses that get transformation right.
An era of bolted-on change
Remember the millennium (Y2K) bug? Potentially, it was the moment when we’d realize the whole world’s software was created on a foundation that wasn’t built to handle it. The virtual world would come crumbling down, planes would drop out of the sky … and it never happened.
So we kept building.
When airlines now routinely face software crashes that ground their entire fleet of planes, it seems odd that companies with such good apps, with iPads for pilots, flying the most advanced aircraft in the world, could suffer from such a fundamental flaw. When week after week we see large retailers hacked and their data stolen, it seems remarkable that they can offer such incredible logistical marvels to keep products on shelves, yet be so open and vulnerable to destruction. A glitch in the New York Stock Exchange causes a shutdown with increasing frequency, and yet this seems at odds with a world of trillions of dollars flowing at the speed of light with the fastest processing the world has ever seen.
I’d proffer the thought that this is all too common, that companies built for the past may offer glimpses into the incredible, but are mired in vulnerabilities in other places. Modern-day businesses are asymmetric constructs: a legacy of patches, quick fixes, hacks, workarounds, and hope.
If IT systems and processes were visualized as engineering, and companies as buildings, we’d see unwieldy buildings, the ugliest, messiest structures we’ve ever known. Oddly shaped towers, temporary structures and hatchet jobs, built on non-existent foundations, mixtures of prevailing engineering theorems that got fashioned together with steel and concrete wherever possible. Our buildings would be the messiest, heaviest, clumsiest buildings ever known. They would work pretty much all the time, but we’d worry about the days when too many people visited, or the wind was strong, when they would just about work out, but not be what you set out for. They would be a total mess, and we’d see it.
From Slack to Shyp, from Blue Apron to WeWork, Upwork to Seamless, Postmates to Handy, I’m getting increasingly spoiled by companies that seem simply to work. How is it that the online news site Quartz can both make a book and create one of the nicest and best functioning retail sites I’ve ever seen?
A lot of it is about attitude. As we look around us, the world is a monument to companies that have never really wanted to embrace the digital age. At each and every turn, and seemingly with all business decisions, we encounter companies whose digital body language has been poor while it’s been saying the right things. It’s a landscape of companies that, at best, created small units to manage this change and, at worst, have entirely buried their heads in the sand. I don’t understand how a brand-new luxury hotel in Peru is even able to buy a phone dock that doesn’t work for a phone made after 2004, let alone decides it’s the best purchase decision to make.
Onions
There is a theory in social science that the characteristics and attributes of people can be best represented by a stacked Euler diagram, or more easily visualized as an onion. The work in social penetration theory, started by Irwin Altman and Dalmas Taylor, suggests that people are based around concentric layers, the most superficial and visible behaviours on the edge, the innermost and existential at the heart or core.
The easiest aspect of people to see is behaviour, the outermost layer. A little deeper in the onion is our knowledge and skills. The next layer within the onion is our attitudes. These are the core ways in which we think about the world, how we tend to behave and how we understand and make sense of the world. They are our default ways of dealing with situations and are typically built upon our values – the next layer in.
Our values are deep. They develop slowly over time in response to our experiences. Values take months or years to change. Values are central to who we are as a person. They are a representation of how we interact with the world, how we make decisions, how we go about our life. But they are not the core element of who we are. At the very he
art of the onion lie personality and ability. These are the very foundational elements of who we are.
I don’t think anyone would agree that companies are people, but the analogy of onions works well to better understand the structure of businesses, what drives them to be what they are and what layers make them up. Figure 5.1 illustrates this concept of multi-layered companies.
Figure 5.1 The conceptual layers of a company
Imagine your business as an onion, as a series of concentric layers around a small core, each and every layer built on top of the next innermost layer. We can start to make sense of the complex structures of businesses and how they do everything from finding meaning to making products, creating and supporting brands. The following section, which moves from the outermost to the innermost layers, illustrates the similarities between personality traits and business traits.
The communications layer: the outermost layer
For businesses, people’s behaviour equates to the communications they put out: the paid-for, controlled messages of advertising and the websites they own, or of the brand’s and the business’s PR strategy These are the environments where companies proactively decide what the world or their target audience should think of them. They are the places where the company gets to control most tightly ‘the message’ and most precisely visualize and make real ‘the brand’. This layer explains to the world what it is that a company makes. Communications can be: