“We could cite many cases of companies’ similar attempts to create new-growth platforms after the core business had matured. They follow an all-too-similar pattern. When the core business approaches maturity and investors demand new growth, executives develop seemingly sensible strategies to generate it. Although they invest aggressively, their plans fail to create the needed growth fast enough; investors hammer the stock; management is sacked; and Wall Street rewards the new executive team for simply restoring the status quo ante: a profitable but low-growth core business.” ― Clayton M. Christensen, Michael Raynor The Innovator’s Solution.
In NFL, a Hail Mary pass is a long, high-arc throw made by a quarterback towards the end zone with the hope that one of their receivers will catch it for a touchdown. This type of play is typically risked as a last-ditch effort to win the game when little time is left on the clock. The success rate of a Hail Mary pass is usually low because it relies heavily on luck and the skill of the opposing team’s defence to prevent the receiver from catching the ball.
Businesses throw Hail Marys when encountering a crisis, such as declining sales or disruptive innovation, or technology suddenly upends their business plan. Equally, leaders throw Hail Marys to meet analyst expectations when they have been coasting in the game for a long time. In sports, there is a thin line between arrogance and confidence, and business organisations often fall into the success trap.
While the typical example is a rash acquisition in an attempt to acquire growth, we have recently witnessed companies laying off swathes of people the without considering the long-term effects on their company culture, morale, productivity and (the often-overlooked) costs of recruitment and onboarding. This decision may provide short-term relief but could ultimately harm the company’s reputation and bottom line.
The challenge is that disruption manifests gradually like coastal erosion and than suddenly like a tsunami. The need to change seldom arrives as an abrupt realisation. often it comes from the edges of your organisation. Depending on your leadership qualities, you might hear grumblings from a change agent you appreciate as a gainsayer or dismiss as a naysayer. You might lose a couple of clients, who you write off as the more demanding ones (often the ones you can learn from). You might even blame technology.
When any nascent technology accounts only for a tiny fraction of the total market, incumbents often conclude that there is no need to worry about the new approach because it will not be important for a long time. They wait until the crisis to throw a Hail Mary. But then the world flips fast, and they act when it is too late. The personal computer did not affect the incumbent mainframe producers for a decade. During these early years of disruption, after a disruptive innovation establishes itself in more straightforward and less-expensive applications, users still must take their complicated problems to incumbents. This masks the underlying challenge, and it happens despite corporate gainsayers speaking up about a crisis on the horizon. Like the proverbial boiling frog, little by little, the disruption improves. While the incumbent saw and dismissed the disruption because it was a lesser product or service in the early days, the incumbent doubles down on their incremental improvements to their offerings.
When the incumbent is busy improving, the same is true of the disruptor. New companies introduce what, for them, are improvements to their offerings. (Assuming the entrant has enough runway to reach this stage, the scene is set for a Hail Mary pass from the incumbent.) There often comes a point when technologies improve fast enough and become good enough for mainstream customers. When this happens, the result is collapsing prices and massive disruptions among the established players.
Take, for example, the case of Apple and the incumbent computer companies. Within a few years, powered by improvements in microprocessor technology, the smaller personal computers could do work that previously required mainframes or minicomputers. This made computing widespread and cheaper, creating a vast market. It left almost everyone — except the mainframe and minicomputer incumbents — better off. Disruption almost always kills such companies, as they lose their customers. Minicomputer companies were no different; virtually all collapsed in the late 1980s. Innovations gestate gradually in markets that differ from those of successful incumbents. Incumbent firms that take action when data shows a downturn in their core businesses take action too late.
Organisational Fight or Flight
When organisations experience a downward spiral of declining sales and profits, management often narrows their focus and searches for ways to stem the bleeding. They ramp up efficiency efforts and reduce costs. They kill future-oriented projects and shutter innovation labs. This is the paradox; they kill the same offerings that could have sustained them had they taken them seriously in times of abundance. In my workshops, I highlight what physically happens in fight or flight.
In this state of mind, we tend to double down on what we already know and become resistant to anything new. When our bodies perceive a threat, adrenalin is dumped into our systems. Adrenalin thickens the blood, so we bleed slower if we get cut in battle. Blood is diverted from our forebrain — where we do our best thinking — to our fists for fight and our legs for flight.
Our brains restrict non-essential thoughts so we can focus on survival decisions. In addition, stress interferes with the neurological mechanisms that govern language production and perception. Ultimately, when stressed, the language circuits in the frontal lobe become less active, and we become cognitively closed for business. We are closed to new ideas; we are closed to innovation. If people in your organisation have experienced failed transformation efforts in the past, they will be inclined to resist them even more. It is a mammoth challenge for leaders to shift mindsets in such situations. In such scenarios, more aggressive, dopamine-driven and often testosterone-powered leaders make risky bets, essentially throwing hail marys, selectively hearing information confirming their call.
The poster child of Nokia highlights the importance of not waiting too long. When it is evident that you need to transform, the degree of freedom you have to execute successfully goes way down. As your core business declines, you naturally focus on stemming the bleed.
“The development of mobile phones will be similar in PCs. Even with the Mac, Apple has attracted much attention at first, but they have still remained a niche manufacturer. That will be in mobile phones as well”.— Nokia chief strategist Anssi Vanjoki
When Nokia appointed an outsider CEO, Stephen Elop in 2010, Nokia’s cell phone business still showed significant signs of strength. While the iPhone (initially dismissed by incumbents) and the Android operating system were experiencing exponential growth, Nokia still dominated. After six months on the job, in a state-of-the-nation speech, Elop said the company was on a burning platform (the dying moments of a game). As we now know, by then, it was too late, and Nokia sold its mobile phone division to Microsoft for a fraction of its share price.
When it becomes overwhelmingly apparent that you need to transform, the degree of freedom you have to explore narrows. The emergency demands all your resources. You have no bandwidth (excuse the pun) to manage the future, and the passes you now make are hail Marys. The saddest aspect of the Nokia tale is that they had all the ingredients and developed working prototypes of a touchscreen phone, a tablet and even a conceptual application store!
In my book, “Undisruptable” I suggest we take heed of the Spartan warrior mantra, “The more you sweat in times of peace, the less you bleed in war!”
A company should always explore new paths to growth while exploiting existing transient advantage. This is a difficult task as it takes a leader to operate with what our guests on the latest series on the Innovation Show, Charles O’Reilly and Michael Tushman, call “ambidexterity”.
Reactive reinvention is risky because it must be implemented under crisis conditions and considerable time pressure. High-risk manoeuvres rarely work out, just like less than 10% of Hail Mary passes go to hand! The most successful firms do not wait for crises to occur. Play to win rather than not to lose.
Thanks for Reading