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What we're seeing in the last ten years certainly are large companies failing.
Companies like Kodak, companies like Blockbuster, companies like Sears.
And if you step back and think about it, it's not obvious why that should be.
And when you ask people why that's so,
they typically say they're being disrupted.
But disrupted by what?
Disruption really means the emergence of a new set of competitors,
a different way of doing business,
a different technology that allows you to do business in different ways.
But the interesting thing is that the pace of change,
the pace of disruption is actually increasing.
And in the face of that disruption, those changes,
what we're seeing are big companies failing.
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There are three very separate disciplines.
That they have to be good at if they're going to
be successful at dealing with disruption.
They have to have a process, a discipline for developing new ideas,
what we call ideation.
They have to figure out which of those ideas are likely to be successful as
a business.
What we refer to as incubation and then the third discipline is that they have to
once they have an idea that looks like it could be successful,
they have to have a set of processes that ensure that, that new
business gets the assets and capabilities they need to grow and here's the problem.
Some companies are pretty good at incubation.
They're perfectly willing to spend money to come up with new ideas.
The problem comes when these businesses begin to scale and
it takes serious resources.
When that happens, suddenly these senior executives who are all in
favor of innovation suddenly realize that to develop new businesses,
they may, in fact, have to sacrifice some short-term profits.
That's when many CEOs suddenly step back and say, maybe not.
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Let's focus just for a second on Amazon.
Amazon was founded in 1994.
In 25 years, they have gone from 0 revenues to $230
billion with more than 600,000 employees.
They compete in businesses as diverse as online shopping,
but they also produce TV shows.
They have Amazon web services, which is the largest cloud provider in the US.
They run a variety of different businesses.
How have they done that?
They have done it by having very careful processes for ideation,
incubation and scaling.
They have a process which they called a PR FAQ, F-A-Q process.
This is the process that encourages people throughout the organization to come up
with ideas for new businesses.
If the idea is deemed to have potential,
then they immediately move into an incubation phase.
They form small teams.
These teams are responsible for
coming up with a minimal viable product to put in front of a customer.
If that idea turns out to look potentially successful,
they immediately move into a scaling mode where they provide resources for it.
They escalate it.
They get senior management attention.
One of the things Baso says is that most companies don't really do experiments.
They don't take the big risks.
What Baso says, if you place big bets
just a couple of those big bets succeeding will pay for all the small failures.
The nice thing about companies like Amazon and
Walmart and some of these other companies is that they do these things.
In very rapid pace, that is they don't take forever to
decide whether a new idea is potentially valuable or not.
The problem is that in big exploit organizations, the processes are typically
very measured very slow and that oftentimes can kill innovation.
So when you do these things, you need to do these processes rapidly.
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This is really a leadership issue.
When we look at companies that have failed, have been disrupted,
it's not because of technology.
They fail,
because they didn't have leaders who could play multiple games simultaneously.
Almost all companies today are really interested in innovation, but
the thing that they often are not sophisticated enough at is making this
distinction that we've been talking about between ideation, incubation and scaling.
The best of these companies have managers who understand that it takes
all three of these disciplines.
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