QUES­TIONS FOR Jim Sten­gel

A mar­ket­ing ex­pert and au­thor de­scribes the ap­proach to in­no­va­tion that many large cor­po­ra­tions are em­brac­ing.

Rotman Management Magazine - - CONTENTS - In­ter­view by Karen Chris­tensen

You have said that many big, es­tab­lished cor­po­ra­tions are in trou­ble. How so?

A few things are go­ing on. First of all, many of th­ese ‘legacy com­pa­nies’ have failed to keep up with their cus­tomers. I was re­cently chat­ting with some of Face­book’s lead­ers, and even they said they’re hav­ing trou­ble keep­ing up with peo­ple. Things have been chang­ing so quickly that lots of com­pa­nies have fallen be­hind — in par­tic­u­lar, many of the es­tab­lished con­sumer pack­aged-goods com­pa­nies.

The sec­ond rea­son legacy com­pa­nies are in trou­ble re­lates to the first: They have been far too rigid with their busi­ness mod­els and haven’t been ag­ile enough in re­act­ing to change. A third thing I would men­tion — and I’ve wit­nessed this in just about ev­ery firm I’ve worked with —is that the top lead­ers of legacy com­pa­nies are spend­ing their time on the wrong things. They are not nearly fo­cused enough on what’s com­ing around the cor­ner. They fail to ask, ‘Given what’s com­ing, do we have the right tal­ent in place? Is our strat­egy right? Are our ex­ec­u­tives spend­ing enough time with cus­tomers?’ A re­cent ar­ti­cle by Har­vard’s Michael Porter showed that less than three per cent of the av­er­age CEO’S time is spent with cus­tomers — and 72 per cent of their time is spent in meet­ings. That’s a real prob­lem.

The last thing I would touch on is some­thing that is well-doc­u­mented among legacy com­pa­nies, and that is their ram­pant short-ter­mism. For­mer Rot­man School Dean Roger Martin has been writ­ing about this for years, and War­ren Buf­fet and oth­ers have spo­ken out about it — but we haven’t bro­ken the cy­cle yet.

The bot­tom line is that older brands need to ac­knowl­edge that the world has changed — and start act­ing more like start-ups. The good news is that most of th­ese com­pa­nies know they’re in trou­ble, and they’re try­ing to fig­ure things out. That’s the first step in any trans­for­ma­tion.

In ad­di­tion to act­ing like start-ups, you be­lieve they should part­ner with start-ups.

More and more com­pa­nies are be­gin­ning to in­ter­act with start-ups, es­tab­lish­ing pow­er­ful new kinds of al­liances. Those who don’t — and who con­tinue to strug­gle on their own, re­peat­ing the same out­dated habits — are lit­er­ally gam­bling with their fu­ture. By work­ing to­gether, legacy com­pa­nies and start-ups can learn a great deal from each other. Start-ups can teach older com­pa­nies how to move faster, take more risks and learn from fail­ure. On the flip­side, es­tab­lished com­pa­nies can teach start-ups how to build a brand that fos­ters a last­ing emo­tional bond and how to set up an or­ga­ni­za­tion to sup­port global ex­pan­sion. Bridg­ing the dif­fer­ent worlds and ex­pe­ri­ences of young and old com­pa­nies might ac­tu­ally turn out to be one of the keys to sur­viv­ing in an in­creas­ingly com­plex world.

What do th­ese part­ner­ships look like?

There are a few in­ter­est­ing mod­els out there. Mo­torola So­lu­tions — the pub­lic safety technology com­pany cre­ated when Mo­torola split in two — has been part­ner­ing with a bunch of start-ups on ven­tures that are of­ten out­side of its ar­eas of ex­per­tise. For in­stance, it re­cently started set­ting up an in­cu­ba­tor in Is­rael to stay on top of the lat­est tech trends. And Wells Fargo, which was es­tab­lished 165 years ago, has its own in-house ac­cel­er­a­tor that se­lects dy­namic young fi­nan­cial technology com­pa­nies to work with to de­velop prod­ucts that push the fron­tiers of fi­nan­cial se­cu­rity and cus­tomer ser­vice. The head of its in­no­va­tion ini­tia­tives ad­mit­ted to me that some of the best ideas come from start-ups.

You ar­gue that such part­ner­ships are re­plac­ing tra­di­tional ac­qui­si­tions. Why is that?

Part­ner­ships al­low an older com­pany to ac­quire ex­per­tise in a par­tic­u­lar area or to add to a line of busi­ness. But a lot of th­ese com­pa­nies use part­ner­ships with start-ups to ‘fish in new wa­ters’ and see what the tides kick up. The most for­ward-look­ing legacy com­pa­nies are try­ing to re­make them­selves from within, re­ly­ing on young com­pa­nies to teach them some ba­sic lessons in how to in­no­vate bet­ter, take smart risks, de­velop new prod­ucts quickly and draw the best and bright­est em­ploy­ees and cus­tomers to the com­pany. Many of the ex­ec­u­tives I speak to now treat ac­qui­si­tions as more of a last re­sort.

In ad­di­tion to part­ner­ing with start-ups, you found that some of the most suc­cess­ful legacy busi­nesses rou­tinely ‘blow them­selves up’. Please ex­plain.

Dell is one com­pany that has gone through cat­a­clysmic change. It quickly be­came an iconic com­pany when it started out, but then it got into a lot of trou­ble. All of a sud­den it went pri­vate and made some enor­mous ac­qui­si­tions. Since it re­booted it­self, its bot­tom line has been grow­ing and the or­ga­ni­za­tion is much health­ier, be­cause its lead­ers are spend­ing more of their time on the right things. It re­cently an­nounced that it might go pub­lic again, or at least make some of its shares avail­able to the pub­lic. Adobe is an­other ex­am­ple that proac­tively blew up its own suc­cess­ful model. It used to sell its soft­ware discs pack­aged in cel­lo­phanewrapped boxes, but a few years back, it sud­denly stopped

By work­ing to­gether, legacy com­pa­nies and start-ups can learn a great deal from each other.

do­ing that and be­gan of­fer­ing its ser­vices in the cloud. That is a case study of out­stand­ing busi­ness trans­for­ma­tion.

Some­times — as with Dell and Adobe — the change is cat­a­clysmic, and other times, it’s more el­e­gant and sub­tle. If you look at com­pa­nies like IBM, Le­vis and Estée Lauder — all iconic legacy brands — they are re­ally turn­ing their mod­els up­side down. They’re do­ing this very de­lib­er­ately, strate­gi­cally and ex­tremely well. Slowly and el­e­gantly, they are be­com­ing very dif­fer­ent com­pa­nies.

The smartest com­pa­nies re­al­ize that no­body has a mo­nop­oly on ideas, and there are some in­cred­i­ble ideas out there. They find a way to fil­ter through all of that and find peo­ple to work with that are com­pli­men­tary to them and that can en­hance their strat­egy go­ing for­ward.

On that note, your alma mater, Proc­ter & Gam­ble, was known for cre­at­ing in­no­va­tive new prod­ucts like the Swif­fer in the early 2000s, but it’s been a while. What was hap­pen­ing at P&G then that isn’t hap­pen­ing there now?

In the late 1990s and early 2000s, there was a huge com­mit­ment to in­no­vat­ing out­side of the com­pany’s es­tab­lished cat­e­gories. P&G was a pi­o­neer in de­vel­op­ing a ven­ture fund in­ter­nally to fund in­no­va­tive ideas, and it also ac­tively looked ex­ter­nally for ideas. There was a ded­i­cated group fig­ur­ing out how they could solve new prob­lems, get into new cat­e­gories and even cre­ate cat­e­gories. The CEO at the time [ A.G. Lafley] was ob­sessed with dis­rup­tive in­no­va­tion.

Over time, that ded­i­cated group and its fund­ing were re­duced, and re­sources were trans­ferred to the busi­ness units. Cer­tainly, we are still see­ing great in­no­va­tion in the com­pany’s baby care, fem­i­nine care and fab­ric care prod­ucts, but it’s typ­i­cally more in­cre­men­tal in­no­va­tion ver­sus cre­at­ing whole new cat­e­gories. In­ter­est­ingly, they seem to be go­ing back to that ear­lier strat­egy in some ways, but it takes a while to get the dis­rup­tive in­no­va­tion wheel spin­ning.

Clearly, there is more than one way to en­gage with star­tups. Which is the best ap­proach?

I wouldn’t say that one ap­proach is bet­ter than the other; we can learn from each of them. Per­son­ally, I’ve been im­pressed with Mo­torola So­lu­tions, which is not in the head­lines much any­more be­cause its cus­tomers are now pri­mar­ily pub­lic safety or­ga­ni­za­tions, first re­spon­ders and the mil­i­tary. But they have an ex­tremely co­her­ent and con­sis­tent way of part­ner­ing with start-ups that are im­por­tant to their strat­egy

IBM, Le­vis and Estée Lauder — all iconic legacy brands — are slowly and el­e­gantly be­com­ing very dif­fer­ent com­pa­nies.

for the fu­ture. They know pre­cisely which ar­eas they want to com­pete and win in, and they pur­sue th­ese few ar­eas with great en­ergy.

One start-up they work with is Eye­flu­ence, which fo­cuses on vir­tual re­al­ity and aug­mented re­al­ity eye con­trol. When the CTO of Mo­torola met its founders, he wasn’t in­ter­ested in eye-track­ing per se — but it sud­denly oc­curred to him: ‘Holy crap, that’s the an­swer; I can use my eyes as a mouse.’ His next thought: ‘If I can put that to­gether with a head-worn dis­play, now I’ve solved a prob­lem for my cus­tomers.’ Po­lice of­fi­cers and fire­fight­ers of­ten need to have their hands free, and he saw an op­por­tu­nity to go out and test the Eye­flu­ence’s ca­pa­bil­i­ties with his own cus­tomers. That is a pow­er­ful way to in­no­vate. Jim Sten­gel is the co-au­thor of Un­leash­ing the In­no­va­tors: How Ma­ture Com­pa­nies Find New Life with Start-ups (Crown Busi­ness, 2017). He is the for­mer Global Mar­ket­ing Of­fi­cer at Proc­ter & Gam­ble, where he worked for 25 years.

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