The Power of Transformative Goals
Embracing a transformative goal is one way to move a legacy business from the brink of disruption to a new business model.
the term ‘moonshot’ has emerged IN THE FIELD OF MANAGEMENT, to describe a breakthrough goal on a five-to ten-year horizon into the future. The idea is that a moonshot represents a goal so compelling that it motivates virtually all stakeholders to strive toward its achievement — despite the difficulty and complexity of the path to success.
In Silicon Valley, the term is reserved for only the most important innovations: The microprocessor was a moonshot, as was the first personal computer (the Apple II), the World Wide Web and Apple’s iphone. Google has famously invested more than $800 million in moonshots like autonomous vehicles, creating tens of billions of dollars of market value for the company.
The question is: Can an established organization that has been successful in a legacy business adopt this approach? Despite many studies showing the value of setting long-term goals on the model of a moonshot — including fascinating books by former Pepsi and Apple CEO John Sculley, and Lisa Goldman and coauthors — relatively little has been written about a process for developing a breakthrough goal at this level.
In this article, I will offer some insights on a process for developing a moonshot for an organization that seeks to address industry disruption by developing a fundamentally new business model.
A Historical Concept
Moonshots get their name from U.S. President John F. Kennedy’s 1962 speech announcing that his country would seek to put a man on the moon and return him safely to the earth — and that this goal would be accomplished by the end of the decade.
A number of management strategists have analyzed this speech, which is widely heralded as among the most compelling in history, to identify what made it so memorable, important and unifying. Their conclusion: What made the Moonshot ambition stand out was its simplicity, clarity, significance and technical feasibility.
Speaking at Rice University in Houston in September 1962, President Kennedy sold the moonshot idea on arguments that harkened back to the very foundations of the U.S. as a ‘frontier
state.’ The stakes, he argued, reflected the most essential and important purpose of government, which he framed as ‘assuring peace in space.’ Kennedy aligned the aspiration to put a man on the moon with a principle espoused by the pioneers that gave life to the U.S. centuries earlier: Harnessing technology in the interests of freedom.
The Moonshot speech was also backed by a detailed evaluation of the chances of success. The President’s advisors had determined that, while the precise route to putting a man on the moon within a few years was unknown, the technology existed to make it happen. The stakes for Kennedy were competitive: During the Cold War, the competition between the U.S. and the USSR would occur on technological terms that viewed space as a new frontier.
Members of government sitting with Kennedy in the hot stadium at Rice University that day were well aware that the President sought to motivate a large spending program that would require Congressional approval. And yet even small children listening to the speech could clearly understand the power of the achievement, should it occur: A man on the moon!
It is these characteristics of the Kennedy moonshot speech that strategists use to craft a moonshot: The goal must be essential to continuity of purpose; motivated by ambition and competition; inspired and visionary. A moonshot for a successful established company can be route to renewed leadership under radically new technological and cultural conditions.
The Roots of Disruption
The idea of disruption originated with theoretical concepts put forward by economist Joseph Schumpeter in the 1930s, 40s and 50s, which were developed by scholars of technological change in the 1960s, 70s and 80s. These ideas were rooted in Schumpeter’s observation that, in many industries, when technological advances created the potential for business-model innovation, pioneering firms that had achieved leadership in their industry were often unable to adapt.
The idea of disruption advanced considerably in 1997, with the publication of Harvard Business School Professor Clayton Christensen’s The Innovator’s Dilemma. The key idea in that book — which had its roots in prior work by Prof. Christensen with Joseph Bower and Richard Rosenblum — is that the leading customers of large organizations often discourage large companies from adapting technologically. These companies focus on creating the most value for their key customers, and as a result, neither large companies nor their customers have an interest in disrupting a system that is working for them. By contrast, disenfranchised customers — who are not benefitting from the established system — have the greatest interest in breakthrough innovation.
These ideas are often expressed through the S-curve, such as the one in Figure One. The vertical axis represents value creation in an established industry such as mainframe computing, landline telephones, retail video rental, traditional photographic film, paper newspapers, defined-benefit pension management — or any other business that is (or was) established and generating revenue.
Different scholars model value creation in this model differently. I find the most useful definition to be the one offered by Adam Brandenburger and Harborne Stuart, who describe value creation as ‘the difference between total customer willingness-to-pay and total supplier opportunity costs.’ The key insight here is that value creation reflects the translation by the industry of inputs into valuable outputs. The horizontal axis represents time or, in some models, the cumulative investment in research and development in an industry.
My own 2004 book, How Industries Evolve, describes the technical elements of this definition in further detail. The S-curve shape shows that industries generally begin in an entrepreneurial phase, in which value creation remains relatively low for a period of time. Once a breakaway firm emerges, the value created by the industry may rise relatively quickly, especially as the industry evolves to serve a mass market. Maturity occurs when the pace of new value creation hits a point of diminishing returns. This occurs because an industry’s structural capacity to generate new value is capped by the very insights that led to its breakout in the first place.
For example, the same systems that were developed in the 1920s to support the emergence of the modern automobile industry ultimately become limited in their capacity to create new value. There is only so much value that can be created through
A moonshot is a route to renewed leadership under radically new technological and cultural conditions.
the sale of motorized vehicles powered by combustion engines sold through franchised dealerships, manufactured in plants with histories of adversarial management-union relationships, and supported by a constellation of related industries, such as gas stations, roadway construction and maintenance, repair facilities, etc.
An important characteristic of industry maturity is that firms focus intensively on managing their costs, which they normally keep low by becoming large enough to achieve economies of scale in the processes that generate goods and services. Leading companies in mature industries create value for large numbers of customers precisely because they have become routinized and rationalized. The emergence of interlocking systems of relationships, incentives, regulations, activities and assets perpetuates the industry structure precisely because large numbers of stakeholders are enfranchised in its success.
So, in short, why does disruption occur? Because of the potential for breaking through the limits on value. Mature industries are based on approaches to value creation constructed a generation prior to their maturity, which means that they incorporate ideas that are widely accepted, but increasingly outdated. It is aging ideas, not technologies or incentives per se, that cause the potential for disruption.
The incentive to disrupt, depicted in Figure Two, reflects the potential to achieve a major increase in value creation using ideas, technologies and approaches that break through the limits on value creation. The potential arises because of the accumulated compromises that customers, suppliers and even the industry itself have made due to the increasingly-outdated approaches baked into the established industry structure.
The opportunity for a major breakthrough may rest on technological advances, but the breakthrough becomes motivated in particular by an awareness that a new business model is enabled by technology — new ideas enabled by technology that create so much more value than the established approach that it is worth going through the ‘pain’ of disruption.
This pain reflects that the early phases of disruption are normally unprofitable and fraught with risk. Indeed, a very high percentage of entrepreneurial ventures fail — by some estimates, more than 95 per cent. The skills of successful entrepreneurs include building early wins that can draw important attention and resources to the venture; failing early, when failing becomes inevitable; and learning from failure for future iterations. Because failure is so pervasive, the first buyers of products and services may be saddled with expensive and outdated lugs. The absence of regulation and supporting infrastructure creates other types of risk as well, including that products produced by the industry and jobs offered to employees are dangerous.
But if the current regime is bogged down by too many accumulated compromises, the payoff to successful disruption is considerable. Pioneering firms that achieve the status of ‘breakaway leaders’ become legendary, often driving so much value creation that their early owners become wealthy beyond precedent. These are high-risk, high-return enterprises. Established industries fall into disarray as leaders that once took their longevity for granted become threatened with large losses of revenue and even bankruptcy; just think back to General Motors, Kodak and Blockbuster Video.
Organizations that successfully accomplish moonshots have one thing in common: they are business-model innovators.
Facebook, Netflix, Google and ebay integrated technological insights into ways of delivering so much value to their stakeholders that they became iconic. But it is not inevitable that the breakthrough in value be accomplished by a newcomer or a technology company. Increasingly, established companies are finding ways to make moonshots happen by pushing through the limits baked into their industry structures. Kaiser Permanente, GE, Zipcar, Charles Schwab and JP Morgan Chase have reinvented themselves to drive large-scale increases in value creation that benefit not only these companies, but also their customers and suppliers.
Disrupting yourself to achieve a breakthrough is among the most difficult challenges that a successful company can face. The process of transformation in the organizations that succeed begins with a carefully negotiated and constructed goal—a moonshot — and then continues with the relentless and uncompromising pursuit of that goal, in collaboration with both new and old stakeholders.
The transition path from the established business to the innovative model requires years of painstaking work to renegotiate contracts, settle old problems, and build trust and capability. But the work is worth it, precisely because the breakthrough in value yields a large-scale improvement on fulfilling the organization’s mission.
Accomplishing this kind of breakthrough requires discipline, commitment, and a mission-driven sense of purpose — all of which characterized of Kennedy’s vision for reaching the moon by the end of the 1960s.
The Concept of Future-back
In a 2013 Hbr.org article entitled “What a Good Moonshot is Really For”, Scott D. Anthony and Mark Johnson explained how adopting a ‘future-back’ planning horizon is integral to the idea of the moonshot. Let’s take a closer look at what that means for the strategy process.
We are learning that the process is most successful when the moonshot is a loosely held, flexible expression of how the organization can create value through business-model innovation. Kennedy’s argument for why the U.S. should invest in sending a man to the moon rested on the idea that the nation’s very purpose would be fulfilled by the achievement of this goal — and that the nation would be put in jeopardy by its failure.
For any organization, the moonshot must rest on fulfillment of its mission and an awareness of what technology can deliver on a five- to ten-year horizon. Why five to ten years? This time horizon is a rule of thumb rather than a hard-and-fast requirement. The idea is that it usually takes this long for something major to happen at the level of a system. In fact, implementing the change in its entirety may take much longer than ten years; but five-to-ten years is usually sufficient for a breakthrough. In 1962, Kennedy set the goal for the end of the decade, and it was July 20, 1969, when Neil Armstrong stepped off the Eagle into the Sea of Tranquility.
Because business-model innovation is an experimental process, and because unknowable technological changes may occur over the planning horizon, it is impossible to specify the details of a moonshot with precision. What you need to be is directionally correct about the details — to be about 75 per cent right — to get started on a conversation about business-model innovation with critical stakeholders.
The next step is to identify steps that take you out of the gate toward achieving the goal. Most established organizations cannot simply step away from their current commitments and successes — and ‘building a bridge as you walk over it’ carries the risk of being consumed by the day-to-day operational problems that characterize established business models under the stress of becoming outdated.
This stress cannot be overstated. Any CEO of a public company that must deliver on earnings targets — especially if the organization carries debt and employs a large workforce — faces unbelievable financial and operational pressure to drive value out of its established business models. For a leader who has been charged with stewarding a successful organization into the future, it is simply impossible to simultaneously lead responsibly and walk away from the legacy model.
Yet, at the same time, CEOS must find a way to deal with the encroaching reality that the ideas that led to the success of their organization — the technologies, business models and ecosystem architecture around the firm — are becoming outdated. Because the problem of innovating at scale is so conceptually challenging, it can easily become swamped by the problems of making
It is aging ideas, not technologies or incentives perse, that cause the potential for disruption.
payroll and fulfilling customer contracts and dealing with shortterm regulatory matters and other critical operational demands. So, how do you get out of the gate?
What is needed is both a vision for a new system and a process for migrating from the current system to the new one. Theories from the fields of entrepreneurship and strategic management offer insight on how to move forward.
As tempting as it is to contemplate the range of changes that would make the current system better, that is not the best place to begin. The reason is that, if you try to build a bridge to a future that you haven’t yet envisioned, then you will get stuck soon after you begin. Instead, you need a clear vision for what is possible, based on new ideas, technologies and processes.
Roughing out the implications of the moonshot for the ladder of capabilities, conversations and commitments that the organization will need is enough to get started. Unforeseeable changes will inevitably require adjustments on the path toward realizing the goal, but what is needed in the beginning is to cultivate a shared understanding of what is possible, in principle, to inspire and guide change. Once that happens, refining the moonshot becomes a conversation — a process — that the leadership team can return to periodically.
Once the moonshot has been envisioned and the path has been roughed out, how do you move forward? The answer depends on the specific situation facing the organization, of course, but three critical principles normally emerge.
THE LEADERSHIP TEAM MUST FIGURE OUT HOW TO ALIGN THE INTERESTS OF INTERNAL AND EXTERNAL STAKEHOLDERS WITH THE TRAN
A breakthrough business model will inevitably SITION PATH. raise questions about the roles of committed stakeholders — including employees and suppliers — that may not initially have the capabilities, interest or intention to participate in the moonshot. How do you get these stakeholders on board? It is critical at the early stages of a transformation to identify peoples’ frames of mind; their issues and concerns; and the expectations of everyone who will be integral to the change. In my studies of transformation, I have found that great leaders tend to talk at least as much about how the change will benefit core stakeholders as about the change itself.