Thursday, May 17, 2018

Why innovators should focus on product deconstruction

I've been thinking a lot lately about innovation and how we may have emphasized one component at the expense of another.  Here I'm talking about something that should appear obvious - the focus of innovation in building new things.  We are constantly reminded that innovation is about building new products and services and experiences.  And this definition is entirely right and proper.

But I think it neglects something very important.  I was reminded of this recently when at dinner with an executive from a large manufacturing concern.  This company makes many different products, one of them components for mattresses.  Now, all of us want far more innovation to make mattresses more comfortable, to make them last longer and so on.  But, strange to think, the internal coil mattress is actually a very complicated product, a virtual lasagna of layers of cover, cotton, and steel.  While that finished product is very comfortable, it is very difficult to deconstruct when an individual is finished with the product.  And herein lies the rest of the blog post.

How might we make our products easily deconstructable?

I've been thinking about this ever since that conversation, because when we bought a new mattress for our son we asked the company that delivered the new one (and hauled away the old one) what would happen to the old mattress.  Goes into the landfill, they said.  And I thought, what a terrible outcome.  So much of the mattress could be reused - the cotton batting, the inner springs, some of the foam siding.  But the cost of deconstructing a mattress, which wasn't designed to be easily taken apart, makes it difficult to get a lot of reuse from the components.

Here's the question - are we willing to accept slightly less sleek or beautiful products that would become far more easily deconstructed, and therefore far friendlier to the environment and creating components that could be reused?  Why doesn't innovation focus on the obsolescence problem - what happens when a product reaches near end of life and should be easily deconstructed to reuse the component parts?

This is question of design, of cost and of conscience.  For years consumers have acquired shiny new products and discarded them without a thought as to what happens to the finished good once it goes into the waste stream.  If you've ever seen people taking apart circuit boards by hand, or seen large electronic devices or mattresses go into the waste stream, you'll know that we are 1) dumping a lot of stuff that won't decompose well into large pits and 2) there is inherent value in this waste stream but our designs don't anticipate or accommodate the simple deconstruction of a finished good.

What if innovation and design focused on deconstruction as well?

I think that there is a huge opportunity for companies to create products that can be easily taken apart once the product end of life is reached.  Doing so may require changes to the manufacturing and packaging of a product.  Making it easier to deconstruct may make the product less visually appealing or less sleek, but it is something we can do and should be thinking about as we design new products.  Too often innovators think about building the shiny new product but don't fully consider what happens when a product reaches end of life, and frankly we ought to be far more concerned about how products are being deconstructed or simply dumped into the Earth.

Could we be as innovative in the deconstruction of a product at its end of life as we are about its initial design and development?  Would it cost a lot more to build a product that could be easily deconstructed and taken apart for its components, to encourage reuse and recycling?  I think the market for fully recyclable or reuseable products is out there, waiting for this.  Good innovators should be thinking not just about creating new products, but how to quickly and easily build products that can be deconstructed as well.
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posted by Jeffrey Phillips at 5:51 AM 0 comments

Wednesday, May 09, 2018

The innovation skills you need

When a noted doyen of the Fortune 500 like Coca Cola talks innovation, your ears should perk up.  After all the consumer packaged goods conglomerate has been in business for a long time, and has been successful, but is facing a number of headwinds in its core business.  Selling sugary drinks seems passe, as bottled water, energy drinks and other health conscious foods and beverages seem to be taking over the "share of mouth" or "share of stomach" that food and beverage companies like to talk about.

When a company that has both succeeded at innovation and failed utterly at new product development and launch (remember New Coke?) talks innovation publicly, it's worth listening to.  When the Chief Talent Officer talks about the skills that Coke needs in order to sustain innovation, it's worth listening even closer.  Stacy Panayioutou, Coke's Chief Talent Officer, was recently interviewed by CBS News.  What's interesting in the discussion is the types of skills she says Coke needs in order to succeed in the future.

Reading the article closely

If you read the linked article closely you'll see that Coke, traditionally a bastion of marketing and financial management, is now looking for people with different skill sets.  Panayioutou says that Coke needs people who can spot trends, help Coke analyze what customers want and create more agility and speed.  She also says that Coke has a new strategy and purpose, innovating both around food and drinks as well as issues like packaging.  She needs people who can understand the new strategy and help implement it.  She's looking for people comfortable with creating and promoting change, who can help disrupt existing products and markets.  These skills and traits describe true innovators, people who can understand corporate strategy, find new opportunities through future scanning and customer research and create new products that disrupt the existing markets.

But she goes on to say they need good thinkers, people who are good collaborators and who have good learning agility.  The last skill there - good learning agility - means that people will have to learn new things and then implement them quickly, and then repeat the process, because new opportunities and new information won't come in periodic cycles but will come quickly and repeatedly. 

Fast, Nimble, Agile, Innovative

Not to toot my own horn too much, but there's a methodology aligned to this way of thinking, that my co-author and I outlined in our book OutManeuver.  We made the case that too often American business is focused on head to head competition, where the larger firm hopes to overwhelm or subdue smaller firms through size or mass.  But increasingly large firms are finding that small firms use their agility and speed and innovative skills to bypass this head to head competition.

If the article is to be believed, Coke could have it both ways - size and speed, depth and agility.  Coke has a lot of products and deep intellectual property to leverage, as well as a revered brand.  If it can add to that the speed and agility to address rapidly emerging needs and more innovative thinking, it could become a really formidable competitor. 

Innovators take note:  speed, agility, the ability to learn in iterative cycles, think disruptively, these skills are now valued at what would appear to be large behemoths, companies you may not think of as innovators.  The question will be:  can these firms leverage those skill to great effect, or will their existing cultures squelch the new additions and overwhelm their skills and passion?
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posted by Jeffrey Phillips at 7:19 AM 0 comments

Monday, May 07, 2018

Evolution and its impact on business models, slow and fast

Darwin teaches us that evolution is a long, slow process, gradually leading to new adaptive species that emerge over time with specialized capabilities.  Therefore, the change in species from generation to generation may be relatively small, but always purposeful and testing the best ways to win in a niche.  Just as both the Chihuahua and the Newfoundland emerged from evolution (and a fair amount of selective breeding) from the wolf, modern businesses are slowly emerging and adapting new forms and styles based on the first modern enterprises - the army and the railroads. 

What Darwin acknowledged but didn't fully explore is that most evolution happens as described above, slowly, over generations, evolving to meet the opportunities and needs of environmental niches.  Evolution in this regard is based on a slowly changing environment and heavy but balanced competition.  What Darwin didn't spend as much time on is the discordant evolution that accompanied dramatic environmental change, as when the dinosaurs were wiped out by (most likely) an asteroid or when an invasive species with no natural predators enters a niche in relative balance.

Disruption and Evolution

Business structures, models and processes have been adapted from older, original large enterprises and slowly modified over time.  The competitive landscape from the turn of the 20th century has seen some dramatic change, from World Wars to the Space Race, and now the advent of the Internet, but until recently the evolution was relatively slow and constant.  This means that if we parachuted Henry Ford into a major corporation today, he'd probably feel right at home in most of the operational and structural processes and decision making.

However, the transition to a mostly service based economy, compounded with the growing ability of almost anyone, anywhere, to create a company and effectively compete on a global scale, has the potential to be the major disrupter that the asteroids were to the dinosaurs.  Major environmental and competitive transitions are afoot that call into question existing management structures and business models.  Slowly evolving corporations must wake up to the fact that a major environmental change is underway, in which identification of customer needs and development of virtual solutions is taking place at a far more rapid tempo than ever before.

To go back to Henry Ford for a minute, the Ford Corporation has acknowledged this and other trends by getting out of the car manufacturing business all together.  Strange that in a time when urbanization is rapidly increasing and concerns about fuel efficiency and greenhouse gas emissions are growing that Ford basically eliminates itself from the segment where the most growth should occur.  This is an instance of seeing the asteroids in the distance and surrendering to the inevitable, rather than preparing and shifting a business model to win where opportunities will be the best in the future.

Betting on Today or on the Future

Ford is betting on consumer appetites and demands that are true today by betting on building more trucks and SUVs.  As a shareholder concerned about short term revenues and profits, we are likely to applaud this move.  But this is equivalent to seeing the asteroids and knowing they'll hit in five to ten years and deciding to become a bigger dinosaur, rather than preparing for the inevitable switch.

Innovators need to understand this.  One of the biggest challenges to innovation is current success.  Ford is banking on customer sentiment and the desire for large vehicles to remain high.  Some of this bet is reasonable, as electric motors become more powerful and efficient and people seem to demand larger vehicles.  But other trends suggest that smaller cars will be very attractive, as the price of energy rarely falls and urbanization and other trends indicate the need for smaller vehicles.  One factor that cannot yet be measured or perhaps even understood is the impact of autonomous vehicles on vehicle usage and ownership.  Ford is banking on demand for larger vehicles increasing regardless of what happens with autonomous viability and usage.

Is there an innovation asteroid?

Like the dinosaurs before us, which dominated the Earth for far longer than humans, and significantly longer than human corporations, we need to ask - are their disruptive points of change in corporate evolution, just as their are in the evolution of species - and if so, what might they look like?  Does the shift toward full digital transformation of businesses create an asteroid targeting the existing corporate model?  Are they prepared?  Can innovators and innovation create a bridge to the future?

I think so.  With enough forethought and the appropriate use of trends and scenario planning, we should be able to identify some potential future scenarios and understand the impacts of dramatic environmental and competitive change.  Simply ignoring the change around us is a recipe for failure and obsolescence.  How long will it take for a new generation of management to rise to address the discontinuity emerging from new technologies and new business structures?
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posted by Jeffrey Phillips at 6:33 AM 0 comments

Monday, April 30, 2018

Which pace of change to align to?

You've heard it before - the pace of change is accelerating.  I can present all of the technology adoption charts, the fascinating nuggets of data that tell you how quickly different products or technologies were acquired by millions of customers.  And so on and so on.

You already know this.  Change is real, and change is accelerating.  Whether we are talking about change in your global markets, in your industry or in your customer base, change is everywhere.  The real question isn't: should we change?  The answer to that question is obvious.  The question isn't even:  should we become more agile or more nimble?  The answer to that one is "yes" as well, and (shameless plug) I wrote a book about how to become more nimble, agile and innovative.

Look at just one of my favorite data nuggets:  how long it took specific products or technologies to reach 50M users. Please go ahead, the rest of the blog can wait.  Having seen this, we can draw several conclusions:  the pace of change is accelerating, and the more reliant you are on the internet or virtual solutions the more you need to accelerate.

Deciding on the pace of change
If the question isn't "should we change" or "should we be more agile" then what's the real question?  It's "which change benchmark should we pay attention to?"  Because if your market, your industry or your customers are changing faster than you are, you are toast.  Choosing a benchmark and deciding to change at least as fast as the benchmark is a good place to start.

Question now is: which benchmark?  Do you decide to match the pace of the commercial market generally, or more specifically match the pace of change in your industry?  Or, do you match the pace of change of your customers and their expectations and demands?  Of course you can ignore change and hope for the best, but hope is rarely a good strategy.

Which do you pay attention to and which do you ignore?

This is a really good time to start paying a lot more attention to your existing customers, potential customers and future potential customers. These are the people who will determine how quickly your market moves and the rate of acceleration.  These, along with new entrants and substitutes.

Your customers and prospects will constantly seek new solutions and become disenchanted with existing products and services.  You can lead them, if you can move fast enough, or you can follow along with them if you are intimate with their wants and needs.  Few established companies are innovative enough and have enough marketing heft to constantly lead their customers - even Apple is failing at that strategy right now.  So, the next best alternative is to get really close to your customers and prospects and understand their current and future needs, which will establish the rate of change.

The other factor you must be paying attention to is the rate of new entrants or substitutes.  AirBnB is a good example here.  The hospitality industry became accustomed to slow change, and domination by a few large chains.  Then a radical upstart came in and upset the apple cart, and change is accelerating in the hotel space, mostly driven by AirBnB.  How good is your competitive intelligence?  The rate of change will be dictated by the smaller players or the outliers more than the large companies.

What impact does this have to your business?

If you decide to try to compete on speed and innovation, it has a significant impact on your operations.  Decision cycles must be shortened, more rapid experiments and minimum viable products created and tested.  Your innovation pipeline must get wider and shorter.  Your product development pipeline must get shorter as well. 

It's not a question of if, but a question of when, you'll need to accelerate.  The more you rely on software or virtual products or services, the faster the change will be upon you, but every company in every industry must adopt a new velocity.

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posted by Jeffrey Phillips at 6:16 AM 0 comments

Tuesday, April 24, 2018

Winning the explore:exploit game

So we come to the ultimate post on explore and exploit, at least for now.  In past posts we've looked at the origin of explore and exploit, the emergence of true innovation explorers like Edison, Bell and a host of others.  We've noticed the rise of the corporation to exploit the discoveries of said explorers.  Last but not least we touched on the future of explore and exploit and how it might upset existing business models and organizational structures.

With all of this insight, we must ask:  how can a business win as the explore:exploit model continues to change?  Herewith, some of the answers. 

How might we win as the explore:exploit model changes?

We've examined the fact that existing business models place far more emphasis on exploiting existing ideas than they do on discovering new ones.  Much of the last 30 years of management thought has been consumed with improving exploitation skill - Six Sigma, Lean, Outsourcing and right-sizing are all efforts to improve the efficiency and effectiveness of the exploiting portion of your business.

Those are sunk costs, and should not direct the future direction of your strategy or organizational structure.  But for your emphasis to change to focus more on exploring rather than exploiting, a couple of things must change:

First, your organization must recognize the shift in power from exploiting to exploring.  If you look at the high tech industry, almost every handheld device manufacturer has recognized this shift.  Product development cycle times are now longer than shelf lives.  You simply cannot crank enough efficiency in the development, launch and marketing phases to win back enough revenue to account for a poorly constructed exploration phase.  Yes, you need to improve the efficiency and effectiveness of your exploitation phase, but putting increasingly poor product ideas into a reasonably efficient development process isn't the answer.  Instead you must shift people, resources and focus to the exploration phase.  Acknowledge the shift, communicate it to your people, embed it in your culture.

Second, decide who is going to do exploration.  While there are many people who are good at and appreciate the work in exploitation, there are far fewer people who are good at and enjoy exploring.  This is because of personality traits, comfort with risk and ambiguity, the work associated with exploring and the way we've educated and trained people for the last several decades.  You've got to find the right people and incentivize them in the right ways to improve exploration, and those people are very likely not working for you now.  You can either outsource exploration to others or you can place a capable leader in charge of exploration who will accelerate the build out of your exploration team.  I'd recommend the latter, because outsourcing exploration may benefit you at first but it does not build skills or competence.  Find the right people and put them to work.

Third, rework your financial models. Determine to make money from better exploration, rather than from better exploitation.  There are no longer long product cycles, except in industries that can protect products with long patents (pharma) and we can expect that these protections will be chipped away.  Learn how to make money from shorter exploitation cycles and how to renew or even replace and destroy your own products more rapidly.  Decide how to gain more revenue and profit from the insights and ideas you discover.  You don't have to commercialize your discoveries yourself - leverage the innovation ecosystem to generate licensing or even IP sales revenue for ideas you cannot exploit yourself.  Be ready to change your revenue and business models.

Fourth, be ready for resistance.  The existing business as usual (BAU) won't appreciate these changes one bit and will fight back, mostly through resistance and inertia.  Sloth, resistance and inertia in an age of accelerating change leaves you far behind, decelerating while everyone else accelerates.  The ultimate challenge leaders face when shifting the explore:exploit model is in the day to day operations and corporate culture.  This is the "resistance", and it must be addressed.  Provide rationales, paint the picture of the future corporation.  Change incentive models.  Hire new people and, probably, let a few people go who resist or aren't willing to change.  Culture will either be your friend or your enemy in this shift.

Finally, do it now.  We can argue about how fast this impending shift in explore:exploit will occur, but you can't change an existing organization as fast as the markets and technologies will thrust change upon you.  Debating about timing is like dancing about architecture - it's nonsensical at this point.  The change is starting and won't be slowing.  Assign good people to start thinking about this shift now.  Waiting makes you Kodak in the early 1990s as everything moves to digital while you hold many of the patents.

While this series of blog posts may seem like a thought exercise, this shift is happening. More value is being extracted from the explore phase and the exploit phase is growing ever shorter and less profitable.  Will your organization be ready when exploring becomes more important than exploiting?
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posted by Jeffrey Phillips at 10:41 AM 0 comments

Wednesday, April 18, 2018

The future of explore and exploit

In my last two posts I examined the origin of explore and exploit, and where it has taken us so far in the innovation space.  In this post I want to explore why everything we believe about explore and exploit from a strategic and business model perspective is increasingly wrong, and what innovators and strategists need to do now in order to compete effectively in the future.

In the first two posts I've made the case that the relative investments in explore and exploit and the way we think about them have been shaped by our historical experiences and this has also colored how we structure our strategies and business models today.  The Spanish exploration and ultimate exploitation of South America proved a good model - an inexpensive exploration mostly outsourced to third parties led to a massively profitable exploitation for centuries.  Over time the players changed but the model didn't.  Eccentric innovators and inventors took the place of nautical explorers and massive corporations seeking outsized market share or outright monopoly replaced governments, but for the most part the model remained the same:  occasional, half-hearted exploration, typically outsourced to someone else, and a strategic business model built on long term profit generation through exploitation.

This version of explore and exploit has been successful for centuries, and has become embedded in the way most businesses compete.  But it needs to change, and change quickly.

Why this model must change

As I think has been clear over the last two posts, there are massive structural changes in both the explore phase and the exploit phase. 

In the explore phase, we can see these changes afoot:
  • Today almost anyone, anywhere can explore
  • The costs of exploration have fallen dramatically
  • The advent of the internet has opened up information and access to millions of more potential explorers
  • Advances in education mean that far more people are more capable of exploring
In short, there are far more people doing far more exploration than ever before.  Intellectual property rights are stronger, but market shifts and consumer sentiment change fast enough that few companies can really lock in consumers.  No one has a monopoly on exploration, and when you consider the breadth of exploration underway, from research institutes to universities to private inventors to corporations and beyond, there's a lot of exploration underway.

When exploration was limited to a small handful of individuals or companies, a single discovery could mean large rewards over a long time frame.  Today, a single discovery leads to hundreds of  'fast followers' who seek to provide alternatives and substitutes, chipping away at the new discovery almost as quickly as it is discovered.  Also, as more new opportunities are discovered and publicized, any one new discovery seems inconsequential since so many are underway.  I liken this to the wonder we all had in the Apollo program, when it was years between launches, and the almost ho-hum response when the shuttle went up on a regular basis.

Exploration is easier now, but perhaps even more important, as customer demands and expectations accelerate.  Getting there first isn't necessarily as important as understanding the total opportunity and building broad offerings that lock in a lot of value quickly.

In the exploit phase, we can see these changes afoot:

 Meanwhile, exploitation is changing as well.  In the same way that skills have proliferated in the explore phase, design, development, manufacturing and distribution skills have exploded around the globe, to the extent that many companies no longer actually make the products that they sell.  Apple outsourced its manufacturing to Foxconn, making Apple essentially a design and marketing organization.  As large corporations chased cheap manufacturing costs, many countries and regions gained manufacturing and distribution chops.  That means that almost anyone, anywhere can rapidly introduce new products or services that compete with your idea.

It's no secret that product lifecycles are shrinking.  In a recent conference I heard a speaker lament that the product development cycle for his products was longer than the lifecycle of the product on the shelf!  This isn't limited to products, by the way.  Corporate lifecycles are shrinking rapidly as well.  Increasingly corporations have a half life and can quickly grow stale and fade away unless they are able to re-invent themselves.  This means that corporations need to rethink their exploitation capabilities, and speed up product development, product renewal and the introduction of new products.  They must be more confident about cannibalizing their own products before a competitor steals the show.

There are other contributing factors as well

Finally there's a geographic context to this as well.  For the last four or five centuries most of the really large organizations have been based either in Western Europe or the US.  As these regions grow older and the economies slow down, new emerging economies will be the places that take on more of the explore and exploit activity, and their market needs and demands may be different. How much different will the exploration and exploitation of Chinese, Indian and African firms be, both in terms of customer needs and markets as well as exploitation of discoveries?  As other markets rise and become more vital, will innovators in the US and Europe be able to command the market share they've become accustomed to when the bulk of the market shifts to other locales?

Why exploration is more important than exploitation

For centuries exploitation was more important than exploration.  One good discovery could mean a century or more of exploitation.  The full weight of governments and then corporations was thrown behind exploitation of a single country or technology.  Companies like GE rose on the back of a single discovery or patent.  Now, however, when anyone, anywhere can do good exploration and exploitation, the focus must change.  Good exploration becomes even more important, and increasingly I think corporations will place more of their investments in exploration - to find new opportunities, discover new needs, find new markets - and place less emphasis on exploitation, because they can outsource that function.

In this regard Apple may be the closest model to the successful competitor in the future - doing more with discovery and design and marketing, to find opportunities, address them quickly and build a powerful brand - and outsourcing so much of everything else.  Their model I think lacks true exploration without Jobs and risks relying too much on the past mystique and the power of the brand, but if they can recapture more exploration and marry it with the their brand and powerful exploitation partners, they will be the model that other firms seek to follow.

What this means for businesses

If this suggestion is true, it means that the strategic nature of the firm and its business model must change.  For centuries businesses have been successful with limited exploration, limited R&D, while placing tremendous investments in product development, fulfillment and marketing.  If the change I've described is truly underway, those investments and the way a company makes money and profit will need to change, to reflect a much larger and continuous investment in exploration, and perhaps less investment or even outsourcing exploitation.  This changes the business model, the revenue model, the distribution of skills in an organization and shifts power away from manufacturing, distribution and finance to design, innovation and research, organizations that are more qualitative, harder to measure and evaluate and far more variable.

These factors suggest that the very factors that have been so helpful in the growth of corporations - defined processes, careful financial analysis, risk avoidance, long term exploitation of IP and so on are no longer as valuable, while other skills and capabilities that have been considered less reliable become far more important.  This is true, by the way, for companies that rely on high technology and build physical products as much as it is true for companies that are purely services driven.  Creativity and insights and exploration are required to create new solutions in any type of company.  Demand for skills in design, insight, research, creativity, exploration and experimentation will only continue to grow, and these aren't skills we teach in high schools and universities. 
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posted by Jeffrey Phillips at 11:15 AM 0 comments

Monday, April 16, 2018

Exploring and Exploiting for Innovation (part 2)

If you are following along, I'm writing a series of posts about the opportunities and challenges with the way we think about and implement the concepts behind explore and exploit.  In my first post I wrote a short introduction to the topic.  In that post I looked at the history of exploring and exploiting, which I'll suggest comes from the conquest of the new world by the Spaniards, when Columbus and others explored, and the Spanish government exploited the opportunity for centuries.

Skipping ahead through history

If we fast forward from Columbus to say Edison or Alexander Graham Bell, we can see that the explorers were still relatively few, eccentric outsiders who were scientists or people bent on geographic or scientific discovery.  In the late 1800s and early 1900s there were even competitions between explorers.  There was the "race" to the poles.  Teams from several countries raced through blinding snow and ice to get to the North and South pole first.  As we've seen before these explorers were exceptional people, iconoclasts, outsiders, driven to win.  What becomes a bit different in this time frame is that multiple governments were exploring the same locations simultaneously.  They were in fact "racing" each other to get there first.  Exploration became more intense and was seen as a competition for limited resources.

Similarly, Edison was racing other inventors, as was Alexander Graham Bell, who filed for his patent only a day before his competitor.  We can see from these examples that the number of explorers and the simultaneous exploration in the same fields was increasing as was the nature of competition.  While the amount of exploration was increasing, however, the nature of the explorers remained much the same:  eccentrics, outsiders, often poorly resourced and intrinsically motivated.

Exploitation was changing too

During this time the concept of exploitation was changing as well.  Bell and Edison were famous inventors but were also very focused in patenting and protecting their work.  They and others went on to found large corporations that attempted to build monopolies or very strong competitive positions to allow them to exploit their discoveries and extract value.  The business of exploitation was shifting from governments to businesses, from a king's or pope's edict to the ability to scale a business, protect intellectual property and extract a lot of value from the idea.

While who was managing the exploitation was changing, the nature and time frame of exploitation stayed relatively the same.  GE, Ford and other large companies of the era expected to reap benefits from a relatively small IP portfolio for decades.  They had learned this lesson from history and from the firms in the "gilded age" - Standard Oil and the railroads.

But change in  the explore phase  was increasing.

By the 1950s and 1960s, a dramatic shift was underway.  The world had been through the ravages of the Second World War and rebuilding was underway, while the Cold war funded a significant amount of new research.  The GI bill in the United States sent millions of ex-soldiers to college, and because of the Soviet threat many went into technical, science and engineering fields which created a renaissance in many fields.  In a very short period of time there was a rapid increase in exploration, research and development, first in the US, then in Europe and Japan.  The rate, pace and depth of exploration increased, but still mostly directed by government or corporations.

The Internet changes everything

But perhaps the most interesting change that will subvert the old models was the advent and widespread distribution of the Internet.  On this platform, information, content and education are widely distributed, making exploration far more simple, and allowing people to create new businesses and explore new business models far more quickly.  More people in more locations with more access to information means far more exploration, in far less time.

Additionally, the Internet also creates markets and channels for goods, services and ideas, which means new products, alternatives and substitutes come to market far more quickly and can be evaluated by a larger customer group more rapidly than ever before.  This factor has significant impact on the historical thinking about the time frame and nature of exploitation.

But businesses still operate as if these changes haven't occurred

But most corporations cling to the past understanding of explore and exploit, where small teams of unusual suspects explore ideas and markets surreptitiously, in random, episodic activities, while exploitation teams anticipate long product cycle times and little competition.  Most businesses still think, plan, strategize and operate as if little to nothing has changed in the competitive environment, as if any business can afford to dabble occasionally in the explore phase and extract value over a long period of time in the exploit phase.  This simply isn't the case any more.

Business must become far better and invest more time and focus on exploration, in many fields and opportunities simultaneously.  They must also accelerate their product or service time to value, scaling a product or service quickly, gaining revenue and profits quickly and reworking or replacing a product quickly.  As anyone familiar with most of the product or service development processes in large organizations, that's nearly impossible.  A huge shift is underway and many companies have ignored the warning signals.  Research from a number of organizations shows that the lifecycle of companies on the S&P 500 list has dropped from close to 40 years in the 1950s to closer to 12 years today.  It's not just product cycles that are shrinking - it's corporate lifecycles that are shrinking as well.

In the next post we'll explore what the future holds for explore and exploit.  If you are good at reading between the lines, I think you'll understand where I think this is going.
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posted by Jeffrey Phillips at 6:03 AM 0 comments