Bill Gates mythology speaks of his dream in the 1980s where every house had a personal computer. What seemed unfathomable became a reality. Bringing to life the new model for company sustainability in the digital age. There were multiple manufacturers ranging from IBM and Apple to Gateway and Compaq. During the early 2000s consolidation occurred, and companies started to buy up smaller players. Thus creating a market of three main players in the industry: HP, Dell, and the Chinese Lenovo. There were a few remaining outliers with Apple’s Mac computers and Acer. However, most of the market share was dominated by the main three.
Each of these three companies was able to manage their market share and channel partners where they could build mature businesses. With finite infrastructures, they had dialed in planning and forecasting models. Each year initiatives would go forward that would inch into others’ market share. This resembled the trench warfare of World War I where significant sacrifice and effort were taken for only minimal results. As competitive prices came down to maintain healthy margins the manufacturing plants were sent overseas. Unfortunately, prices continued to drop turning healthy margins turned into razor-thin profits.
Sales continued in this model until mobile tablets and smartphones became more prevalent. Their functionality increased which started to make the personal computer obsolete. Then sales began to decline, gradually at first and then to the point where there was no longer any margin-left in the personal computing business. These three companies are still able to rely on their business to business sales model, but their consumer businesses are now revenue liabilities which is the first stop on the path to product end of life.
One of the side players, Apple, had invested heavily in their Mac computers. Positioned to be a specialty product that was never intended to be for everyone. Their Mac was a part of an overarching system of products. This consisted of the iPod and later the iPad and iPhone. Their goal was to establish an ecosystem of products that were integrated. They did not care about what product you had, just if you used the IOS operating system. The operating system provided a special selection of subscription products. Becoming their key revenue stream, the services provided that locked a consumer into a product set and service offering for life instead of two-year hardware buying cycle.
The personal computer adheres to the standard product cycle. It begins with a concept, the concept is tested and validated that it provides value. The concept becomes a product and is sold on the market. Sales ebb and flow until the proprietor achieves a consistent pattern of production and sales. With this consistency, the proprietor tries to scale the business and sell as many products as possible.
During this growth cycle, competitors come to the market. They identify gaps in the original offering and build their product to encompass those gaps. What may look like the original offering, there are nuanced differences. These changes may force the original proprietor to add features to upgrade their product. This begins the war over market share and fighting for sales. This is spurred on by incremental innovations that give the customer more reason to purchase.
These incremental battles continue, and more companies come to the market. Competition increases and prices continue to drop, then one company will buy another with the hopes that they can take over a larger market share which would put them in the lead. This strategy works so well that their competitors do it as well leading to just a few remaining players in the industry.
Sales eventually begin to wane, and prices drop so that budgets can continue to be met to match investor expectations, the margin has evaporated but the illusion of repeatability is present. In a short time, new products come to the market that revolutionizes the business and turn the original product obsolete. Sales drop drastically, the talent has left the company and layoffs permeate the air before the company finally folds the business up. This is the new 18-year lifecycle of a company from conception to the grave.
The personal healthcare company Procter and Gamble, better known as P&G, was founded in 1837 in Cincinnati by brothers-in-law William Procter and James Gamble. Their business was a budding enterprise that experienced steady regional progress during the mid-19th century. It then exploded with growth during the Civil War winning Union contracts to provide soap and candles to the war effort. By the turn of the century, they had expanded across the United States. Following, international expansion making everyday items from toilet paper and shampoo to fabric softener and toothpaste. Over the last 50-years, P&G continued its evolution absorbing companies and becoming one of the top global conglomerates at one point reaching $83 Billion in annual sales. They had become an iconic company of personal healthcare and a standard in the American household.
Today’s corporate environment calls on mature companies to create around 5% of organic growth a year to maintain market share and stock stability. For P&G that equates to $4 Billion a year in new business. While many corporations look at this as a continual innovation crisis, P&G has positioned themselves to systematically introduce new products on a routine basis. This begins with their investment in 26 research and development (R&D) centers around the world while spending approximately $2.1 Billion per year in these efforts.
This renewed commitment came in the year 2000 when their performance of new products was hitting a success rate or achieving a return on investment in only 15% to 20% of each new product introduction. A renewed focus and investment back onto innovation proved successful wherein 2008 P&G achieved a success rate of 50% to 60% on new product introductions. Surprisingly enough, their goal is not to achieve a higher percentage of successful product introductions. Their belief that their strategy would be too limited by risk management and that they wouldn’t be pushing the edge of innovation far enough.
Their culture of innovation has led to P&G being not only a hub for human talent but also an American mainstay in the corporate lexicon. They do this in simplistic terms by maintaining their focus on the customers’ needs. Everybody in the company plays a role in innovation, not just the R&D department. Their goal is to achieve a cross-pollination of different groups to blend ideas to counteract the natural evolution of a very large company to become insular and parochial.
Crest Whitestrips film came from this type of interaction where specialists from paper products, the bleach from fabric products, and glue from production came together for a unique product. P&G points to two main elements of their environment which have renewed their success in facilitating innovation with the first being their culture of experimentation and the second being their changes in recruiting from hiring the smartest to searching for the most agile and flexible.
Borders took a strong foothold in the publishing and retail environment with its revolutionary inventory tracking system. This drove such a high level of efficiency that Borders could expand significantly. In the early 1990s, the Border’s brothers sold their company to Kmart which then made independent four years later. During that time, both Barnes & Noble and Borders were growing aggressively during the dawn of the internet. Barnes & Noble chose to develop their own eCommerce platform to sell books, while Borders chose to focus their efforts on global expansion and decided to outsource their online book sales to a small start-up, Amazon.
During this timeframe, Borders experienced significant management turnover and their original culture of aggressive innovation had turned into passive maintenance. Another side effect of the rotating management team was that the people leading the organization no longer had industry expertise and had a limited ability to diagnose the key issues their company was facing. Now they owned a culture that was built to silence the insight of their staffs, the same staff that had the ability to diagnose the issues. Awash in several concerns, Borders overextended themselves, slow to get on the web, and they never developed an e-reader. By 2011, store closings and layoffs were inevitable and could not stop the company from being insolvent within months, only living a short 40 years in corporate existence.
Clearwater Analytics, founded by Goldman Sachs alumni Douglas Bates and brothers David and Michael Boren in 2004. One of the very first software-as-a-service (SaaS) that would provide real-time and automated reporting to investment firms. Information provided seconds before competitors can result in millions. Gaining a large client base of fortune 500 companies, their software offering became the standard for business intelligence.
In 2018 Clearwater decided to invest heavily in its new Innovation Lab. This lab would focus on the product in the future and the company’s second life. They kept the lab’s focus on creating something that would be a step-change for the company. It took the form of science for profit. Embodying the goal to fail fast and keep moving forward. Unique to this initiative was that their customer base was not asking for new features and functionalities. Customers focused on the present-day needs and keeping the daily churn in place. The foresight behind this investment was understanding there would be a need for something new and different. Their goal was to find that and monetize that before someone else did.
Clearwater applies four key ideation methods to tease out ideas. The first being the application of a value stream analysis. Understanding where they provide value. What additional value could be provided by extending those services? Their second approach is mining their troves of data and being able to find gaps in the aggregate. Their third approach is the Kaizen and theory of constraints model of exploring inefficiencies not only in their workflows but in their partners as well. Lastly, they open source ideas throughout their employee base and then try to scaffold those ideas upon other ideas to creating the potential for entirely new product sets.
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