I’ve been thinking a lot lately about organizational behavior and innovation, and how the former can hinder the latter. It comes to mind not because I like to dwell on the negative, but rather out of hope that understanding the root cause of problems can help us all avoid the mistakes of the past.
This is an important exercise because, as many of us were reminded in the re-imagined “Battlestar Galactica” series, “All of this has happened before, and all of this will happen again.” Or if you prefer the non-geeky version: “Those who cannot remember the past are condemned to repeat it,” as George Satayana said. If we can learn from what didn’t work so well yesterday, perhaps we can collectively use that knowledge to help make things better tomorrow.
This is all the more important in the current economic climate, as even the smallest vulnerabilities of businesses are magnified — sometimes fatally so. And just to be clear, while I work in newspapers now, I’m not talking only about them. This is true of many, many industries, most notably even relative newcomers with highly technical, highly intelligent employees. As just one example, when I worked at AOL, I saw many of the same group behaviors that I see in newspapers today.
The other night I started to explore this on Twitter with the question. “Why is it so hard for old companies with existing customers to change quickly?” People replied to me with additional ideas, and together we built the list below. But don’t let it stop there. If you can think of other ideas please post them in a comment below. (Note: One thing we discovered in the Twitter conversation is that it’s easy for this to turn into a gripe session about specific situations or industries, and the symptoms they show. There’s no end of blog posts about that and they’re not that helpful. Here, let’s try to get to the root causes that apply to any mature business.)
With that, here’s our short list…
1. FEAR: Too much money can be the enemy of progress.
This is perhaps the biggest irony of all, so I list it first. How can too much money keep you from innovating? It’s because of a phenomenon that someone named Siddhartha Gautama — otherwise known as Buddha — explained a long time ago. It’s because you’re attached to it. That kills innovation because you’re focused on keeping what you have rather than serving your customers’ changing needs.
In general, successful companies are either too afraid to stop making money the old way or they’re not allowed to. This is true even when a pool of money is decreasing. On the flip side, I have noticed that once revenue drops past a magical percentage, it triggers a panic which can result in a flurry of last-minute innovation — but that’s not a plan for success.
It’s even worse for publicly traded companies. The shareholders they really work for, whom they have almost no control over, are often even more afraid. Or worse, they can’t agree on a course of action — with half of the shareholders punishing a stock when it makes drastic changes and the other half punishing it for not changing fast enough.
But this is also true for privately owned companies. If an inspired leader sees a storm coming that will likely result in a 30% drop in long-term revenues and tells the board of directors that it needs to proactively cut current profits 20% while it focuses on emerging business opportunities, what happens? That leader is most likely fired and nobody wins. A few years later, the company is still down 30% or more, but in this case without any game plan whatsoever.
I once, probably foolishly, told one of the leaders of a company I worked for that she would one day have to eat her own children to compete with free advertising. She looked at me like I was crazy, but this is basically what I was talking about. Sometimes you have to kill a large portion of your current business to preserve your future. Very few newspapers — let alone many established companies — have done that, and now they’re paying the price of inaction.
2. BRAND ADDICTION: Companies are addicted to their current products and brands.
I’m surprised at how many businesses act as if their job is to protect a current brand from change, as if the brand itself is the customer as opposed to the audience. This blinds them to their customers, who are usually the ones driving the rapid change.
The good news is that we’re finally seeing some movement with newspapers. More and more are creating new brands that go after audiences that didn’t read the newspaper anyway, or extending their brands to audiences like Facebook and Twitter. But think of how much further along they’d be if they had started four years ago? (Side note: At the Bakersfield Californian, where I currently work, new brands have increased our audience by 100,000 individuals in a city of only 330,000. This can work, but it takes time.)
The bad news is that many still think that creating separate brands means they’re killing or competing with existing brands. I’m reminded of this every time I see a niche brand that is “Brought to you by” a newspaper. This mindset only makes sense if your goal is to better serve an existing audience, but it’s usually a bad idea if you’re trying to grow your audience. It’s the vestige of protectionism, and you can only hope that the new audience isn’t turned off by the marketing tag.
Just to be clear, I’m not opposed to building and growing existing brands, but in today’s fragmented world I think that “one size fits all” brands have limited appeal. My advice to mature information companies is to think of their brands as “wrappers” for capabilities and expertise. They deliver solutions to customers. But every audience prefers different packaging, so if you use the same brand for everything you end up polluting their potential.
3. PARANOIA: Companies assume everyone is their competitor, as opposed to potential partners or members.
This is something that affects business people of all types, including sole proprietors. The other day I was talking to a friend who was starting a technology consulting business in a tourist town. I gave her the name of someone else I know there who could help her out. A cloud passed over her face, and she told me, “Oh — I don’t want to talk to someone who’s in the same business because they may compete with me.”
If you multiply that mindset by a few hundred or thousand, you can see how paranoia can be ubiquitous in many large companies. But in my opinion, the entire premise of this argument is disproven by the open source movement, which shows that sharing leads to more opportunities and lower costs for everyone.
A corollary to this is that information businesses in particular never talk openly about their problems. This makes absolutely no sense because, in my experience, everyone will eventually find out if your traditional business model isn’t working. Your current customers are also most likely to want you to succeed, and they may even be able to help you out if you’re more honest about challenges up front.
4. BUSINESS BLINDNESS: Most innovation is on the consumer side, but not with the business model.
Finally, the biggest hindrance of all is that core business models don’t fundamentally change until it’s too late — and that’s a huge problem. You can innovate your ears out on the consumer side, but if you can’t eventually grow revenue to pay for that it doesn’t matter.
I was reminded of this three years ago when former Knight-Ridder exec Brian Monroe addressed winners of the Knight-Batten Awards. I wrote about his chilling words then, but I’ll repeat them here for emphasis.
He told us about how the Knight Ridder newspaper chain — which has since been sold — was a pioneer in using digital technology to better inform citizens, “but that wasn’t enough. In the end, our shareholders didn’t believe in our ability to be relevant in the future. They placed more value in our assets when sold than they did in our future potential.”
He said that everyone needed to innovate even more quickly or history would repeat itself and more newspapers and news providers would go out of business. He was right. Lots of innovation has happened, but it hasn’t been enough. As a result, people in places like Ann Arbor, Mich., have no daily newspaper.
Power of Fear and Attachment
How is it possible that this could happen when there was so much warning? I think the answer is clear in #1 above: the paralyzing power of fear and attachment. But it also comes down to how businesspeople are motivated and compensated. If you feed your children based on a percentage of sales, are you going to do anything to upset the department store that makes up 20% of your salary? Probably not — until it’s too late and two department stores merge or one goes out of business.
To summarize, innovation is hampered by fear, brand addiction, paranoia, and insufficient focus on the business. What else? Post your ideas here. If we can make a good list, maybe some people who can make a difference will read it and help break the cycle of mediocrity.