Transcription
So, my colleague Mike Tishner and I have been both doing research and consulting with organizations for the last decade. We noticed a very sort of puzzling phenomenon, and that is we noticed that big, successful companies are failing, and they're failing at an ever-increasing rate. And it's not obvious why that should be, because you know they've got all the resources when they're successful.
So, for the last 10 years, Mike and I have spent a lot of time talking with people, studying companies, and what we discovered, which we talk about in the book "Lead and Disrupt," is there are really a couple of things that trap successful organizations. The first is that when an organization is successful, they develop a set of processes and metrics and rewards and cultures of the organization that drive their success. The problem is that in the face of change, when strategies change, when technologies change, successful organizations often try to hang on to the past. So, so let me give you an example of how successful companies get caught.
Uh, in 2002, Blockbuster, the video rental company, was a five-billion-dollar company; they had 5,000 stores around the world. In 2002, Netflix went public. So, Netflix is a tiny little company. What happened over the next five years is Blockbuster stayed with their emphasis on renting videos through stores. Netflix began by renting videos by mail, but as the world changed, Netflix changed to video streaming. And by 2010, Blockbuster was bankrupt; they sold off all the assets, and today Netflix is actually making the transition not just from renting videos by mail to streaming, but now from going from streaming into content production, and they're beginning to compete with HBO and Hulu and some of these others.
Why do successful companies run into trouble? Why do they get trapped? Well, if you think about how organizations succeed over long periods of time, they have to do two very contradictory things: they have to be able to exploit their existing businesses, and that typically is about staying very close to customers, getting better and better incremental improvement, driving costs down. Say also, if they're going to succeed over long periods of time, have to be able to explore into the future, and that means running a very different type of business.
Let me give you a template for how to think about this. We spent a number of years working with IBM, and IBM has what we believe is a very useful process for, for how to explore and exploit. It is what they call the emerging business opportunity process. Every year, IBM asks for a set of ideas that might lead to, to big new businesses, and they get 150 of these, and they winnow all those down to a set and actually do some due diligence on whether this is a serious business. And every year they fund a number of new businesses, small businesses. These businesses are run the way a venture capitalist would run a business; that is, they are funded from the corporation, but they report to a senior vice president who is essentially their venture capitalist. If the market likes it, they scale the business; if the market doesn't like it, they kill the business, and then they fund new ones.
So, in the book "Lead and Disrupt," we describe in some detail how this IBM approach can be used by lots of companies. So, the, the question of how do businesses both compete in a big, mature business and also explore into the future is what we talk about as ambidexterity, for lack of a better term. And what, what does that actually look like in practice? Imagine you're in a company and you're trying to both explore and exploit; you're trying to do both. If you're going to make that work as a leader, what you have to do is first, you have to provide some overarching, compelling strategy and intellectual reason why this is important. And the reason you have to do that is if you want people throughout the organization to help each other, to share with each other, to share expertise, then they have to be convinced that there's, there's a reason why we're doing this. So, the first issue as a leader is to provide this compelling strategic intent.
Once you do that, you also have to provide for sort of an overarching vision that helps people understand that we're all part of the same team; that is, a common identity. That's the second thing. The third thing that the leader has to do is their team has to be completely aligned around this ambidextrous strategy. The fourth thing they have to do is they have to be prepared to run very different alignments; that is, you have to be prepared to have different cultures, to have different metrics, to have different values on which you evaluate these companies. You've got to be what we sometimes say is consistently inconsistent. And the last thing that a leader has to do, which is again easy for us to talk about, you see, to read about, hard to do, is you've got to be willing to tolerate the tensions that this creates.
So, so let me give you um another example of a company that I think is trying to be ambidextrous in an interesting way, and that's Google, or friends at Google. Google, of course, starts out as a search engine, and they make a lot of money in that business, uh, but what they're trying to do is they're trying lots of little experiments. Now, what we've seen at least in the press is they're recognizing the need to be, to run very different organizations, exploratory and exploitative organizations. And so what we've seen with this Alphabet is an explicit recognition of the need to do them, and they're separating their businesses out. What I like about it is that they were able to explore and exploit; they were able to take their assets and capabilities and use both, and it is the companies that can do that that manage to survive in the face of change.