By Mike Schmidt, AEM Industry Advisor Editor
There’s an often overlooked downside to success in business no one really likes to talk or think about, yet time and again it has factored into the eventual downfall of some of the most prominent and profitable manufacturers of the modern era.
Success breeds complacency and, as the equipment manufacturers and dealers in attendance at last week's AEM-AED Economic Forum: Drivers of the Industry event learned, complacency is the most insidious threat to companies today. It operates below the conscious awareness of business professionals, it prevents them from seeing the future of their respective industries, and it hinders their ability to foster organizational growth through disruptive innovation.
“You have to free yourself from seeing the state of your industry as it stands right now in order to have any chance to see what it might become, because the changes coming to human behavior and preferences are going to conflict with deeply held convictions everyone holds dear,” said Luke Williams, a leading consultant, educator, author and speaker specializing in disruptive innovation, who keynoted the AEM-AED forum in Rosemont, Illinois and this week's AEM Thinking Forward event at Eastern, Pennsylvania-based Volvo.
Ideas Fuel Disruptive Innovation
Not long ago, the vast majority of theories related to business or economic growth were rooted in the following idea: Labor, land capital and other resources of the material world are precious resources to be allocated carefully and strategically. However, work conducted by a group of economists – one of whom was Paul Romer, chief economist of the World Bank – found a critical component was absent from existing models of economic growth.
“Models based on hundreds of years of research and assumptions were missing a fundamental ingredient,” said Williams. “That ingredient was ideas.”
The realization led Romer to develop the Endogenous growth theory which, according to Williams, can be summed up by a single premise: Ideas are an inexhaustible resource.
Ideas, knowledge and concepts are subject to increasing returns, he explained. The more they are consumed, the more they grow in value. Conversely, everything in the physical world is subject to diminishing returns, decreases in value, wears down over time and eventually needs to be replaced.
To help illustrate his point, Williams encouraged the audience to envision themselves as master chefs standing in front of a kitchen table, with access to a wealth of cooking ingredients. To make the ingredients more valuable, he said, they need to be rearranged through disruptive innovation.
“Business and economic growth do not spring from more cooking, they spring from better recipes,” explained Williams. “The challenge for everyone in this room, in my belief, is not the more cooking part. It’s not getting faster and more efficient at cooking the recipes you are already using. The challenge is how to rearrange the ingredients to create new value and wealth. That’s the message of economic growth.”
Success Breeds Complacency
The vast majority of companies today, however, don’t want new recipes for innovation. They don't want to spark growth through disruption. Instead, they focus their attention and effort on developing and implementing incremental ideas and strategy options designed to support their existing products, services and business model. Nothing new or forward-thinking in nature gains any real traction within most manufacturers, and it’s not difficult to see why.
“If you're a leader, and someone is looking at you to make a decision, you're going to bet on the ideas and strategies you think are going to be successful,” said Williams. “Of course, the ones you think are going to be successful are those that track best with everything that’s made you as an executive and the organization successful in the past. And there’s nothing wrong with success. It’s what we’re aiming for.”
However, in putting their stock in tried and true ideas and strategies, manufacturers not only allow complacency to set in, they lead themselves down a dangerous path toward irrelevance.
The biggest mistake most manufacturers make when trying to innovate is they do it around existing assets, resources, core capabilities and core competencies. Simply stated, it puts them at a disadvantage. Meanwhile, industry outsiders and entrepreneurs leverage the fact that they don’t have existing assets, resources, capabilities and competencies, and it ends up freeing them to clearly see the future from a different and – more importantly – better vantage point. Their freedom only grows in value over time, especially as traditionally slow-moving and established industries become increasingly vulnerable to disruption.
“Whatever the excuses were for not disrupting, they have been completely blown away,” said Williams.
Reinvention Through Disruptive Innovation
Williams asked the audience to consider the fundamental challenge facing their businesses in the following way: How do you stick your hand into an engine that’s running in order to change a fan belt? In the metaphor, the engine represents a company’s business model. Comprised of the organization’s value proposition, the customer segments it serves, the channels employed to reach customers and deliver value, resources, partners, suppliers, cost structure, revenue and more, a business model is designed to keep a company running. The fan belt represents the organization’s mental model or, considered another way, the thought process behind how the components of the business model are to be arranged in order to maximize success.
“The biggest drag in organizations trying to change is not outdated business models,” Williams explained. “It’s outdated mental models, and the challenge at the moment is our external circumstances are changing faster than our mental models keep up.”
Treating new ideas and concepts as recipes to invest in and continually reviewing them to assess their potential value can help companies challenge their existing mental models and – hopefully – accelerate positive change through disruption.
“Some of these unconventional strategies are going to make it through and influence what you are doing, but that’s not the objective,” said Williams. “You aren’t using the strategy options for their utility or return on investment. You are using them for their effect on triggering change in the way you think about your business and its future.”
Business professionals spend the better part of their careers solving problems of varying significance and complexity, and they are either lauded for quickly making decisions or criticized for their failure to act in a timely fashion. The problem with problems, though, is they are “seductively clear,” meaning they are constantly in need of attention.
“In any sort of leadership role, the problems are the only things getting any of your attention, and the richest areas for disruption are the seemingly unbroken aspects of a situation,” said Williams.
Creating disruption for disruption’s sake is a fool’s errand, but leveraging it to deliver value leads to reinvention. And, according to Williams, the only way for manufacturers to achieve growth through disruption is by “placing lots of small bets and seeing what resonates.”
Generate Disruption To Create Value
Williams offers a number of suggestions to help manufacturers generate disruption and use it to their advantage: Take clichés and turn them on their heads. Disregard traditional success factors. Determine weaknesses with the potential to evolve into strengths and vice versa. Target situations where customers have been overlooked and underserved, and take advantage whenever competitors are lazy and complacent.
But above all else, said Williams, manufacturers should actively try to create an instinct for change. Because, he continued, looking at an industry through existing conceptual filters will only lead to seeing the same organizational opportunities and threats time and time again.
“There’s never been a more exciting time for you to be in the position to think about how to structure or restructure your businesses, communities and even peoples’ lives in new ways to create value,” said Williams. “The potential for reinvention, and the potential for turning points, is all around you.”
Luke Williams was one of a number of speakers at the AEM-AED Economic Forum: Drivers of the Industry event in Rosemont, Illinois, and he also appeared at AEM's Thinking Forward conference in at Volvo in Eastern, Pennsylvania. The next free event will be Sept. 28 in Milwaukee, Wisconsin featuring a presentation from McKinsey and Co.'s Richard Kelly on Industry 4.0. Hear examples of how global industry leaders, from construction and other sectors, are capturing value from this disruption and discuss key success factors for driving impact at scale. LEARN MORE