Hostess Brands, amongst different name variations, originated in 1919. The company rapidly became and remained a staple of Americans’ diet throughout the rest of the century, bringing to the public Wonder Bread, Dolly Madison Baked Goods, and the jewel of packaged desserts, the Twinkie. As a result, most houses and nearly every lunchbox in the 1970s contained a Hostess brand product. Yet, 30 years later, their company is an apparition of the past.
Hostess was never able to effectively move into the second phase of the corporate lifecycle. Because the company never introduced new products that would align with the changing customer base, their game clock started counting down. As America became more health-conscious, Hostess products were targeted as a direct contributor to the obesity epidemic. Instead of introducing a new line of health-oriented snacks to combat this threat, Hostess maintained their posture of continuing to wring every dollar out of their historic products when they should have been focusing their efforts on establishing a second life. This culture of maintenance over innovation was the first symptom of their eventual death.
By the time of the company’s demise, Hostess had over 18,500 employees, 600 distribution centers, and 36 bakeries. After navigating through a maze of bankruptcies, buyouts, and acquisitions, the company found themselves in a poor strategic position. Having 372 separate union contracts to adhere to and 5,500 overlapping delivery routes throughout the United States that were controlled by collective bargaining agreements handicapped the company. Furthermore, increasing costs in gasoline, flour, and sugar, depreciating equipment, and unmanageable pension plans compounded their issues.
In 2012, Hostess finally capitulated as their costs continued to overwhelm their revenue. While this is a specific example of a company faltering from a failure to innovate and reinvent themselves, it is more of a precursor to a multitude of organizations that continue to operate for the time being. This book will focus on the contribution of leadership to facilitating innovation within an organization. One requisite leadership skill of the future will be the ability to create an environment that actively encourages and enables innovative thought. As a result, this ability to facilitate creativity throughout the organization will prevent the next great corporate meltdown.
In 2004, W. Chan Kim and Renée Mauborgne wrote about competitive marketplaces and coined the terms Red and Blue Oceans. A Red Ocean is analogous to contested markets in which there is a constant fight for dominance. However, a Blue Ocean represents an uncontested marketplace because it is newly created. Through their research, the authors demonstrated that the companies that have succeeded over the long term are the ones that have continued to prioritize the creation of new Blue Oceans instead of fighting wars of attrition while trying to maintain a grip on market share.
The BlackBerry mobile smartphone is an example of achieving a Blue Ocean by pairing their cell phones with an e-mail service in 1999. For several years, they dominated the mobile market and maintained a stronghold in business sales. Eventually, the market became saturated with competitors. Instead of trying to create a new evolution, BlackBerry chose to fight to maintain their share of the market. Their corporate death followed.
Most MBAs leading organizations will repeat these stories of failing to innovate and continue to fall into similar traps. As organizations grow and shareholders, analysts, and executives express rising expectations, leadership responds by emphasizing innovation but behaving in a way that stresses stability and repeatability. Having a desire to create a foreseeable performance leads to the development of safe evaluation models. As a result, models become predictable in nature, which leads directly to favoring incremental over disruptive initiatives. It is easier to predict incremental innovations. Empirically grounded initiatives are easier to recover from if they fail.
Both disruptive innovations and the Blue Ocean strategy fall into a different category, one of unpredictability. With the proposal of a disruptive innovation, modeling financial returns on investment and customer adoption both become unknowns. Because the data are poor, the market is yet to be defined, and the risks are significant, which leads to organizations choosing safer incremental projects. However, these incremental gains are only tactical maneuvering to win a battle in a war that will continue for years. The disruptive model is the strategic approach that views losing a handful of battles as necessary sacrifices to win the longer-term war.
It is easy for an executive and management group to instruct their teams to be more creative, to bring forward disruptive ideas, and to be beacons of innovation. However, there are two specific occasions when these plans fail. The first is to start with roles built for standardization and not for innovation. For example, a pharmacist technician refilling a prescription would not want to be creative when following a standardized procedure. This would be targeting creativity to areas more apt for innovation versus providing a generalized notion to be creative.
Secondly would be to kill an idea as it is brought forward. This happens because the organization doesn’t have the capability, capacity, or courage to act on those ideas. As a result, the innovator becomes dejected and loses faith in the possibility that the organization will act upon the best ideas.
Enabling Innovation Preface
Enabling Innovation Preface
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