Betting on Change
We expect that the pandemic will lead to a new normal that will be significantly different than the old normal. Perhaps there will be opportunities for innovations in the marketplace. What changes deserve our bets?
We can assume that people will always want pasta, potatoes or rice, as well as beans, broccoli or mushrooms. But will they want driverless cars? Will they want robots in their homes? Will they want vacations in outer space?
The profit margins achievable for those selling pasta, potatoes or rice are limited by the commodity nature of these offerings. The profit margins for driverless cars, home robots, or space travel could be enormous — or zero.
Entrepreneurs pursing markets for driverless cars, home robots, or space travel cannot nibble their ways into these markets. They have to make big bets. These bets are laced with uncertainties.
What will customers really like — after they see it? What technologies will really pay off — after we have invested enormous sums in trying to get these technologies to perform? Will it have been worth it?
One way to think about these questions is to think in terms of “betting the business” or not. I think that there is a prudent middle ground. There is typically a portfolio of bets to be made that can balance risks and returns.
Formulating this portfolio depends on understanding the range of uncertainties in play and the various ways to address these uncertainties in the process of maximizing the value of market offerings.
In several earlier books, I addressed the difficulties established players face in entertaining transformative changes. Thus, we know why it is tough, but what can truly enable change? What is the key to success?
Leadership is central — Lou Gerstner at IBM, Steve Jobs at Apple, and Bill Gates at Microsoft are great examples. We can include Lincoln during the Civil War, as well as Churchill and Roosevelt during WWII in our pantheon.
However, leadership is not just about having somebody in charge. Leaders need vision, communications, and broad support, perhaps engendered by these leaders articulating the “burning platform,” reinforced by other societal signals.
Resistance to change is compelling. Why is this so compelling? Is it a lack of vision or a lack of motivation or a lack of confidence? It might also be a sense of history. Labor seems to always loose. Jobs disappear. New jobs slowly emerge.
There are countless examples of failure — Kodak, Polaroid, Digital, Xerox, Motorola and Nokia. These industry darlings faltered and failed. The status quo, despite being beleaguered and threatened is compelling. Hundreds of thousands, more likely millions, of people depended on the status quo being maintained.
It wasn’t. Film photography disappeared. Personal computing replaced professional computing. Smart phones displaced cell phones. Many jobs disappeared. Creative destruction will not be deterred.
Fortunately, new jobs emerged, but they required technical skills seldom prevalent among the population needing the jobs. The dilemma has increasingly become overwhelming, as our education system does not prepare people for the jobs of the future.
What is the evidence that bets on change pay off? When has transformation actually succeeded? My sense is that enormous sums have been invested in failing. Enterprises wait too long until the time and money needed for fundamental change are no longer available.
I saw a news item recently that a well-known large company was paying executives enormous bonuses before declaring bankruptcy the next day. The people at the top seem to be able to safeguard their winnings as the ship sinks.
The capitalists – Vanderbilt, Rockefeller, Carnegie, Morgan or the current generation of Bezos, Brin, Gates, Page and Zuckerberg – are not the only folks focused on preserving the status quo. There are also labor unions, suppliers, politicians, and others who want to keep the current gravy train running.
The players who want innovation – change in the marketplace – are those trying to displace the status quo. Everyone one else wants the cash flows provided by the status quo to be sustained. Nowhere is this more evident than in the defense industry. Factories producing weapon platforms best suited for 10-20 years ago are sustained by the repeated appropriations led by their Congressional delegations. It is all about jobs.
I read Janesville not long ago, where GM closed their Wisconsin plant in 2009. Workers were devastated. Many had worked at the plant for four generations. All four generations hated their assembly line jobs, but the pay was good. Once laid off, few workers had developed any skills beyond that required for their position on the assembly line. Workers in their early 20s had no computer skills.
If there is a “burning platform” and everyone agrees about it, change is more likely. For example, as sea levels continue to rise and Miami, New Orleans, and New York City disappear, will people still see this as “fake news?” When employment is 50% and healthcare has disappeared, will people still accept the assessments that everything is fine?
Of course, there is the risk that increasing numbers of people will buy guns and proceed to kill others for food, eventually resulting in no food for anybody. We could more successfully address these challenges together, but the levels of tribalism and mistrust are enormous. Our current leaders see this divide as their path to reelection. Destroying the country is apparently worth it if you win.
