Vital Lessons on Disruption From the Demise of Corporate Giants

• BY PETER DIAMANDIS
• ON JUN 06, 2016
• |  

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This post is about how to not to be disrupted and, perhaps more importantly, how to disrupt yourself before someone else does.

I had the chance to sit down with Ed McNierney, who came out of Lotus 1-2-3 and ran digital strategy at Kodak. Over the years, he has learned a lot from both Lotus and Kodak’s failures.

Ed brings 30 years of wide-ranging technology expertise to the table — and he’s seen a lot of unintended disruption.

Who Is Ed McNierney?

In the late 1980s, Ed led the development of Lotus 1-2-3 for Windows in an attempt to compete with the highly disruptive Microsoft Excel (I’ll share the full story in a minute).

A few years later, he ended up leading digital strategy at Kodak. He didn’t last long; Ed left when he experienced firsthand Kodak’s unwillingness to change, rapidly racing into a brick wall of bankruptcy in 2012.

He’s been through several “disruptions” in his own right and has learned a lot along the way.

We’ll get into the do’s and don’ts from Ed’s experience in a minute — but first, a bit of history and context about Lotus and Kodak.

History — Context Around Lotus and Kodak

In the 80s, Lotus was the Google of its day — it was the software company.

Its core product, Lotus 1-2-3, was the killer app: it was the reason people bought PCs.

In parallel, Lotus saw that Microsoft was developing Windows and another product called Excel.

The Lotus team saw the incoming threat of Windows, but thought if they ignored Windows and didn’t build apps for it, everyone else would stay away from Windows, too.

Instead, their biggest customers — Procter and Gamble, Exxon and Shell, among others — thought differently. They were leaving Lotus and going to Windows/Excel.

Then Lotus rushed to bring a product to market.

But they made a fatal mistake: instead of looking only forward, they made their product entirely backwards compatible, or compatible with their past.

Meanwhile, Microsoft focused 100 percent on building a great Windows spreadsheet, compatibility be damned.

Lotus’ strategy didn’t work. They couldn’t keep up. Complete disruption.

The company was ultimately acquired by IBM in 1995 and, today, no longer has a product line.

Now, let’s look at Kodak:

Shortly after Ed left Lotus, he joined Kodak as its VP of Digital Strategy. This was 1996, the heyday of Kodak. Kodak had a $28 billion market cap and 140,000 employees.

In 1976, 20 years earlier, Kodak had invented the digital camera. They owned the IP and had the first mover advantage. This is a company that should have owned it all.

Instead, in 2012, Kodak filed for bankruptcy, put out of business by the very technology they had invented. What happened?

Kodak was married to the “paper and chemicals” (film development) business… their most profitable division, while the R&D on digital cameras was a cost center.

They saw the digital world coming on, but were convinced that digital cameras wouldn’t have traction outside of the professional market.

They certainly had the expertise to design and build consumer digital cameras — Kodak actually built the Apple QuickTake (see photo), generally considered the world’s first consumer digital camera.

Ed McNierney holding Apple QuickTake (by Kodak).

Amazingly, Kodak decided they didn’t even want to put their name on the camera.

What happened next? The “digital movement” decimated them… they simply couldn’t keep up and, as mentioned, filed for bankruptcy in 2012.

It’s difficult to create change in a large organization steeped in tradition, and even harder to disrupt yourself when you’re cranking out cash the way Kodak was.

But you have to disrupt yourself, or someone else will.

During his time at Lotus and Kodak, Ed learned a lot about what not to do.

Here are eight things you shouldn’t do if you want to avoid disruption.

Eight Don’ts — How Not To Be Disrupted

1. Don’t close out your options too early: For Kodak, they decided they weren’t going to be in the digital camera business. As a result, they stopped devoting resources to digital before it was too late. Don’t eliminate new products, new markets and new opportunities from your possible pipeline.
2. Don’t be tied to your history: As Ed relayed, “You have way more ahead of you than behind you…bringing the dead weight of your legacy from your past into the future can be detrimental to the business.” Just because Kodak was in the paper-and-chemicals business doesn’t mean they can’t be something else.
3. Don’t be overly attached to your existing business: All existing products/services will be disrupted, and revenues will eventually go to zero. Don’t be attached to them. You have to move with technology and the market. This is hardest when you are profitable, like Kodak. You must be aware that you’re most vulnerable when you’re doing well.
4. Don’t ignore the signals: Ed mentioned, “It’s easy to see that little disruptive force on the horizon and think to yourself, 'Boy I hope that thing goes away,' or, 'I hope if I ignore that, it’s just not going to happen.' Don’t ignore them. Your biggest threats are probably in the deceptive phrase.
5. Don’t be tentative: Kodak built the first digital camera. But they were tentative. They didn’t want to put their name on it. Don’t be tentative; be bold. Don’t play defense — spend money on accelerating (we’ll get to this in a second).
6. Don’t say, “We can’t do X because it is not the way we do things”: “It’s not the way we do it” is never a good enough argument NOT to try something new…
7. Don’t worry about the big guys: When looking at potential disruptions, don’t worry about the big companies. They are usually (with some exceptions) slow-moving and tentative, ironically enough (see Kodak and Lotus). Instead, you should be worrying about the small guys in a garage. They have nothing to lose. Try to find them…invest in them, partner with them or hire them.
8. Don’t fret! You are fighting against billions of years of human evolution. We have evolved to be linear thinkers. Just keep trying to innovate and avoid doing the things above. And keep reading.

Now let’s talk about a few things you CAN do to disrupt yourself.

Six Do’s of Disruption: How to Disrupt Yourself

1. Disrupt your adjacencies: It’s hard to disrupt yourself; few companies have ever done this. So instead, try to disrupt your suppliers and/or your customers. You can disrupt your suppliers by vertically integrating and building business around the systems that power your existing business. You can disrupt your customers by looking at the other products and services they are already using and build better ones. Apple, Amazon and Google are all great at both of these.
2. Build the best products, or get a piece of them: The best product wins. Either build the best product in your category, or if you can’t, find a way to get a piece of the best one.
3. Be agile: Agility is everything. Make sure you have the right culture and people to support agility. Oftentimes organizations have an immune response to new innovations — instead, try to make innovation and change a part of your culture.
4. Watch your customers, then listen to them: It sounds intuitive, but it’s not. As Ed mentioned, Lotus saw that their customers were switching to Excel. Then they heard them say they preferred it. And yet they didn’t do much about it. Your customers are your lifeblood. Listen to them and adapt to them.
5. Build a Skunkworks: Ed mentioned, “I would have loved to have had a business inside Kodak whose job it was to totally destroy the core business.” I’ve talked about this idea before — you need to create a safe, secure place for innovation to happen.
6. Have an abundance mindset: As Ed puts it, “There is more ahead of you than behind you.” Don’t be afraid to reinvent yourself.

Image credit: Shutterstock.com

Into the future

By Udo Gollub at Messe Berlin, Germany

I just went to the Singularity University summit. Here are the key points I gathered.

Rise and Fall: In 1998, Kodak had 170,000 employees and sold 85% of all photo paper worldwide. Within just a few years, their business model disappeared and they were bankrupt. What happened to Kodak will happen in a lot of industries in the next 10 years – and most people don’t see it coming. Did you think in 1998 that 3 years later you would never take pictures on paper film again?

Yet digital cameras were invented in 1975. The first ones only had 10,000 pixels, but followed Moore’s law. So as with all exponential technologies, it was a disappointment for a long time, before it became superior and mainstream in only a few short years. This will now happen with Artificial Intelligence, health, self-driving and electric cars, education, 3D printing, agriculture and jobs. 

Welcome to the 4th Industrial Revolution. Welcome to the Exponential Age. Software and operating platforms will disrupt most traditional industries in the next 5-10 years.

Uber is just a software tool. They don’t own any cars, but they are now the biggest taxi company in the world. Airbnb is the biggest hotel company in the world, although they don’t own any properties.

Artificial Intelligence: Computers become exponentially better in understanding the world. This year, a computer beat the best Go player in the world, 10 years earlier than expected. In the US, young lawyers already don’t get jobs. Because of IBM Watson, you can get legal advice, (so far for more or less basic stuff), within seconds. With 90% accuracy, compared with 70% accuracy when done by humans. So if you are studying law, stop immediately. There will be 90% fewer generalist lawyers in the future; only specialists will be needed.

‘Watson’ already helps nurses diagnose cancer, four times more accurately than doctors. Facebook now has pattern recognition software that can recognize faces better than humans. By 2030, computers will have become ‘more intelligent’ than humans.

Cars: In 2018 the first self driving cars will be offered to the public. Around 2020, the complete industry will start to be disrupted. You don’t want to own a car anymore. You will call a car on your phone; it will show up at your location and drive you to your destination. You will not need to park it, you only pay for the driven distance and you can be productive whilst driving. Our kids will never get a driver’s licence and will never own a car. It will change the cities, because we will need 90-95% fewer cars for our future needs. We can transform former parking spacesinto parks. At present,1.2 million people die each year in car accidents worldwide. We now have one accident every 100,000 kms. With autonomous driving, that will drop to one accident in 10 million km. That will save a million lives each year.

Electric cars will become mainstream around and after 2020. Cities will be cleaner and much less noisy because all cars will run on electricity, which will become much cheaper. 

Most traditional car companies may become bankrupt by tacking the evolutionary approach and just building better cars; while tech companies (Tesla, Apple, Google) will take the revolutionary approach and build a computer on wheels. I spoke to a lot of engineers from Volkswagen and Audi. They are terrified of Tesla.

Insurance companies will have massive trouble, because without accidents, the insurance will become 100 times cheaper. Their car insurance business model will disappear.

Real estate values based on proximities to work-places, schools, etc. will change, because if you can work effectively from anywhere or be productive while you commute, people will move out of cities to live in a more rural surroundings.

Solar energy production has been on an exponential curve for 30 years, but only now is having a big impact. Last year, more solar energy was installed worldwide than fossil. The price for solar will drop so much that almost all coal mining companies will be out of business by 2025.

Water for all: With cheap electricity comes cheap and abundant water. Desalination now only needs 2kWh per cubic meter. We don’t have scarce water in most places; we only have scarce drinking water. Imagine what will be possible if everyone can have as much clean water as they want, for virtually no cost.

Health: The Tricorder X price will be announced this year - a medical device (called the “Tricorder” from Star Trek) that works with yourphone, which takes your retina scan, your blood sample and your breath. It then analyses 54 biomarkers that will identify nearly any diseases. It will be cheap, so in a few years, everyone on this planet will have access to world class, low cost, medicine.

3D printing: The price of the cheapest 3D printer came down from 18,000$ to 400$ within 10 years. In the same time, it became 100 times faster. All major shoe companies started printing3D shoes. Spare airplane parts are already 3D-printed in remote airports. The space station now has a printer that eliminates the need for the large amount of spare parts they used to need in the past.

At the end of this year, new smart phones will have 3D scanning possibilities. You can then 3D scan your feet and print your perfect shoe at home. In China, they have already 3D-printed a complete 6-storey office building. By 2027, 10% of everything that’s being produced will be 3D-printed.

Business opportunities: If you think of a niche you want to enter, ask yourself: “in the future, do you think we will have that?” And if the answer is yes, then work on how you can make that happen sooner. If it doesn’t work via your phone, forget the idea. And any idea that was designed for success in the 20th century is probably doomed to fail in the 21st century.

Work: 70-80% of jobs will disappear in the next 20 years. There will be a lot of new jobs, but it is not clear that there will be enough new jobs in such a short time.

Agriculture: There will be a 100$ agricultural robot in the future. Farmers in 3rd world countries can then become managers of their fields instead of working in them all day. Aeroponics will need much less water. The first veal produced in a petri dish is now available. Itwill be cheaper than cow- produced veal in 2018. Right now, 30% of all agricultural surfaces are used for rearing cattle. Imagine if we don’t need that space anymore. There are several start-ups which will bring insect protein to the market shortly. It contains more protein than meat. It will be labelled as “alternative protein source” (because most people still reject the idea of eating insects).

Apps: There is already an app called “moodies” which can tell the mood you are in. By 2020 there will be apps that can tell by your facial expressions if you are lying. Imagine a political debate where we know whether the participantsare telling the truth and when not!

Currencies: Many currencies will be abandoned. Bitcoin will become mainstream this year and might even become the future default reserve currency. 

Longevity: Right now, the average life span increases by 3 months per year. Four years ago, the life span was 79 years, now it is 80 years. The increase itself is increasing and by 2036, there will be more than a one-year increase per year. So we all might live for a long, long time, probably way beyond 100.

Education: The cheapest smartphones already sell at 10$ in Africa and Asia. By 2020, 70% of all humans will own a smartphone. That means everyone will have much the same access to world class education. Every child can use Khan Academy for everything he needs to learn at schools in First World countries. Further afield, the software has been launched in Indonesia and will be released it in Arabic, Swahili and Chinese this summer. The English app will be offered free, so that children in Africa can become fluent in English within half a year.

Whew!

How to keep humanity busy (and earning) is becoming increasingly uncertain. And how to deal with population numbers is another matter. But at least the GINI index may not be so critical if most of essentials are dog-cheap.

 

Why? What makes a city enticing for entrepreneurs and innovators to be there?

Austin was cited best city for a business to startup in USA , And ranks No. 6 among U.S. cities for fostering entrepreneurial growth and for its readiness to shift to the digital economy, according to a new report by the U.S. Chamber of Commerce Foundation, 1776 and Free Enterprise.

It rated  number 5 in access to available workforce.

In the Innovation That Matters report, Boston ranked No. 1 followed by the San Francisco Bay area, Denver, Raleigh-Durham and San Diego. The 35-page report studied 25 U.S. cities.

Why? What makes a city enticing for entrepreneurs and innovators to be there? 

Culture 

In city culture, meaning the correct “mindset and lifestyle” to attract entrepreneurs, Austin ranked No. 5. Raleigh-Durham topped the list for culture.

Response to technical innovation 

The way cities respond to technological innovation will play an important role in deciding which localities become leaders in the future, the authors write.

“Geographically, the digital economy is not advancing consistently across the country,” the report says. “It is concentrating in cities: densely populated and highly connected urban centers where people can work together closely to share and discuss ideas, build and test new products, and bring companies to scale with access to large pools of customers.”

It recommends that local officials do four things: 

1. Understand the trajectory of the digital economy; 

2. imagine a future where technological possibility intersects with legacy assets and strengths; 

3. focus beyond startups to include corporations, universities, nonprofits and local government; 

4. work toward a new governing framework that combines technological possibility and regulation.

How to Start from Scratch and Become a Thought Leader

Jeff HadenGhostwriter, Speaker, Inc. Magazine Contributing Editor

August 10, 2015 • 1521 Likes • 148 Comments

Want to be seen as a leading thinker? Want to be the Seth Godin or Malcolm Gladwell of your field?

Want to revolutionize entire industries -- and business paradigms -- like Steve Jobs?

It’s not easy. It takes a lot more than sitting at a computer while the children are nestled all snug in their beds and visions of thought leadership dance in your head.

Some of my clients are visionaries and leaders in their fields. I know what they've done to set themselves apart. I've seen firsthand their approach, energy, and most important, persistence.

Here are a few principles that thought leaders embrace:

1. Start with show, not tell.

Everyone has ideas. Ideas are cheap. Talk is even cheaper. We listen to leading thinkers because their ideas are validated by success.

Think about it: Would anyone consider Tony Hsieh to be a visionary thinker in customer service and employee engagement if Zappos had not experienced tremendous growth?

Sure, occasionally a Chris Anderson will popularize a concept like the Long Tail, but he had already built a platform at Wired where he could share his ideas. (A visionary without a platform is a tree that falls in the forest and makes no sound.)

When you prove your vision is valid, gaining recognition for visionary thinking is much easier.

2. Fearlessly go against the crowd.

Most of us follow basic business principles. How we apply those principles may be (slightly) different because each of us is unique... but not really.

To be a visionary you must take a very different approach, and that means many people will disagree with your thinking even after you've proven you're right. See pushback as a sign you may really be on to something.

But also make sure you're prepared to take the heat when others attack -- because they will.

3. Be willing to start small.

Cobbling together a platform and building a following is incredibly hard.

The Wall Street Journal won't take your calls, but trade publications, local papers, radio stations, and moderately influential bloggers may, especially when you have something different to say and a story that proves your point.

In some cases, smaller mainstream media outlets not only don't mind when you reach out, they want you to reach out, because many are starved for content. Be humble and speak and write for just about anyone who will have you. If nothing else, post on LinkedIn. That's the only platform you're guaranteed access to -- and the only platform with hundreds of millions of potential readers.

Remember: if you're only willing to start at the top... you'll never get off the bottom.

4. Persist when no one seems to listen.

Visionary thinkers not only have great ideas, they can effectively communicate those ideas.

The same goes for you. You must be able to write and speak extremely well. Unless you have the resources to hire a ghostwriter to write articles, books, speeches, etc., it's all on you.

That's another reason starting small is important; not only do you get the time you need to refine your message, you also get lots of practice writing and speaking and sharing that message.

And most importantly...

5. Be sure the effort is worth it.

If you're a consultant or an author, being seen as a thought leader can have a direct payoff. Heightened credibility and increased visibility can create broader opportunities, drive higher fees, and boost revenues.

But in many cases the only boost you will receive is to your ego.

Building a platform and an audience for your ideas is really, really hard. You'll invest countless hours writing, speaking, promoting, and networking, possibly for very little return.

Take a hard look at the tangible benefits you expect to receive. If you can't quantify the return, put your time into other activities that will produce a real return.

If it's just about your ego, you'll never succeed, and in fact probably shouldn't, because thought leaders place all the emphasis on their ideas -- not on themselves.

Design Thinking and Innovation: A Real Life Example

PHILMCKINNEY | APRIL 21, 2016

What is design thinking? How does it contribute to innovation? Are design and innovation fundamentally integrated?

In a nutshell, design thinking is problem-solving that uses design principles: human-centered ideation, pattern recognition, marrying meaning to function, and prototyping. There aren’t necessarily an orderly set of steps, but there are three major spaces, according to IDEO, who helped pioneer the modern concept of design thinking: inspiration, ideation, and implementation.

Inspiration finds a problem that inspires innovative change. Ideation creates ideas for solutions and tests them. Implementation is the process by which an idea goes from initial testing to substantial product or process that changes people’s lives.

While some people name four elements and others name ten, they all come back to the same basic process: identify the problem, come up with ideas to solve it, and test those ideas until there’s a clear winner and make that winner into reality. This is the basic foundation of all design: coming up with multiple possible solutions and testing them until you have the best design within budget, time, and other constraints.

Design Thinking in Practice

So how would we apply design thinking to a real-world problem? Here’s a good example. In this TED Talk, Jeff Chapin, an executive at IDEO, discusses how their design principles worked to bring sanitation systems to Cambodia and Vietnam. He discusses how they learned to communicate and help local business entrepreneurs, community leaders, and salespeople manage their own sanitation systems, and what it took to design the systems in the first place.

Chapin took multiple trips to Cambodia to design and execute cost-effective clean toilets and to Vietnam to create affordable hand-washing stations. The designers worked with villagers to create their prototypes and used villagers’ feedback to improve their designs. They designed each of these systems to be reliably sourced, manufactured, and distributed by local business people so that the innovation did not require continued outside influence.

Chapin summarizes his team’s findings on design and innovation with the following points:

• “Build upon cultural norms”: Use analogous existing practices to come up with new solutions.
• “Learn from subtlety of communications”: Pay attention to subtle user reactions that may indicate problems with the product or how it’s being communicated.
• “Listen to lead users”: Which people in the family and in the community make decisions about the product or process you’re trying to improve? Go to them first.
• “Be open to serendipity”: Learn from your mistakes and unexpected developments.
• “Support local expression and adoption”: From source materials to the location of a sink, local expression changed the designers’ thoughts.

How Design Thinking Relates to Innovation

Why is design thinking useful in the innovative process? Design thinking always has the goal of improving what was there before. And the stages of innovation as I see themcorrespond pretty neatly with design thinking:

Focus on a problem

Ideate solutions

Rank the solutions and pick the best one

Execute the best solution in the real world

Design thinking simply uses its own unique language and tends to focus on the user experience more than some other ways of solving problems. Taken together, these two ways of thinking provide a powerful process for creating practical, human-centered change.

• Focus on a specific problem: Specific problems are more easily and practically solvable than general ones. Chapin’s group did not go into Cambodia with the general goal of improving the lives of Cambodian villagers, rather they had the specific goal of creating cheap, effective latrines to improve sanitation and prevent disease. Specific problems clarify focus, enable goal setting, and provide a path for communication between users and designers.

• Ideation draws on experience: In order to come up with ideas, Chapin and his team drew on the experiences of the villagers. The designers came up with an analogous process that the villagers would connect with. The villagers in Cambodia were used to slowly building up their homes one piece at a time from the most basic bare bones. This was an additive process. The team’s first attempt to draw on this experience failed because they used a flow chart to communicate their ideas, and the chart’s linear nature didn’t mesh with the additive process the Cambodian villagers used. They finally were able to communicate effectively using layered slides to show the additive process and get feedback.
• Ranking through prototyping and testing: The team went directly to the people who would use the product, determined from them what would work and what wouldn’t, and where their own assumptions were wrong. For example, there was a man in Vietnam who kept giving them suggestions about their design for a hand-washing station. They sent him home with it and came back a week later to see what additions he made. The most substantial was the fact that he put it in the kitchen: the team discovered that people preferred keeping hand-washing stations in their kitchen because it was the place they were most likely to get other family members sick through contaminated food.
• Execution: Just get the basics out there and allow the innovation process to continue. The most important elements in Chapin’s example were toilets and hand-washing stations, which were pretty basic products. The end users built from simply executable designs—they didn’t need anything more than the basic plumbing necessary to have a working toilet. The rest of the work—building a business around the product, customizing it, and adding features—they do themselves, continuing the innovation process.

As with innovation, the goal of design thinking is always to make something better than what was there before. What is unique to design thinking is the language and specific processes it uses (prototyping, for example) and its focus on the experience of the people actually using the end product.

Contact me for information about this and other great methods of innovation.