The Growth imperative
Innosight has long argued that growth doesn’t just happen; it’s a choice. In today’s business environment, incremental improvement of the status quo is no longer enough to achieve breakthrough growth. Business model—or even ecosystem—innovation is the biggest driver of long term value.
How leaders enable that—moving from vision and ideation to incubation and operationalization of disruptive change—was the focus of Innosight’s 2019 CEO Summit in Boston. Leaders from 35 companies gathered to share their experiences—both their challenges and their leading practices—from Boeing’s HorizonX incubator and NeXt business division to Twitter’s use of the “jobs to be done” framework for innovation to Siemens’ ten-year vision.
The ability to enable sustainable breakthrough innovation while still executing in the core business is a tall order. At its heart, it’s a systems issue, Innosight co-founder and senior partner Mark Johnson told attendees. It requires the integration of leadership, strategy, and innovation. “[You have to have] the right way of thinking to unlock a vision and then move that into a strategy for breakthrough growth,” Johnson said.
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Growth is particularly hard for large companies for three reasons, Innosight global managing partner Patrick Viguerie told the audience: math, market share, and maturity. The bigger you get, the more difficult the math is, the harder it is to achieve the next incremental bit of market share, and the trickier it is to identify new opportunities.
Yet that is what longevity demands in a disruptive market. The greatest predictor of long-term value creation is not margin expansion, but revenue growth. That’s why disrupters now dominate the S&P 500 Top 10 by market cap. “No one beats disruption just by trying to do what they currently do better,” Viguerie said.
That doesn’t mean that large incumbent firms have to throw away years of acquired knowledge, experience, and competitive advantage. Rather, they can harness that for exponential returns in what Viguerie described as dual transformation. “We’re talking about leveraging a core capability—something that you’re good at, something that you bring to the table—and using that as a basis of creating something new.”
Viguerie offered the audience five actions required for breakthrough growth:
1. Decide whether to grow or go. Growth is first and fundamentally a strategy decision. “Making that choice is decision number one,” Viguerie said.
2. Make “where-to-play” choices. The decisions about which parts of the economy you choose to participate in will enable—or limit—growth.
Read the 2018 CEO Summit Report
3. Determine whether to build a transformative growth platform or focus on the core. “The biggest choice in many companies facing growth is whether they’re going to bet on their core or create something new—and what the likely mix is between the two. In all cases, leaders seeking growth must make some curve-bending moves.”
4. Anchor innovation in customer jobs to be done. What jobs are the customers hiring your product or service to do? Anchoring innovation efforts in that can reveal powerful ideas for business model innovation.
5. Apply granularity. Value is created at the granular level in business. Looking at that level of detail, rather than averages, will sharpen insights and decisions about markets, opportunities and the growth portfolio.
Twitter and square ceo Jack dorsey on driving growth
In just a few years, Twitter and Square—game-changing, disruptive platforms in media and financial services—have together created more than $60 billion in value and changed the way we live today. Jack Dorsey, the founder and CEO of both fast-growing companies, joined a fireside chat with Innosight partner Brian Hindo and shared insights into how he and his leadership teams create strategy, find opportunities for innovation and make decisions.
Dorsey says that one of the keys to both companies’ impact has been keeping a laser focus on their core consumers, through the jobs-to-be-done concept. The jobs approach is built on this insight: When we buy a product, we essentially “hire” it to help us do a job. If it does the job well, the next time we’re confronted with the same job, we tend to hire that product again. And if it does a bad job, we “fire” it and look for an alternative.
At Square, a mobile payments provider and merchant service aggregator, understanding the jobs of its customers enabled the company to take a wider aperture to defining its business and move into providing small-business services. “We originally thought that we were being hired to accept credit cards, but in fact we were actually being hired to help grow [our customer’s] business,” Dorsey said. “It was about being able to participate in the economy.”
That opened up the team’s eyes to other jobs that fit within that category, such as providing access to capital. They initially thought small-business owners would want $100,000 loans, but customers told them they only needed $2,000 or $5,000. Square possessed a deep understanding of its customers’ financial health based on transactions. It created a model for sending prequalification loan offers to customers of its point-of-sale (POS) system, using processing volume and recent transactions to determine the loan amount and terms. Customers pay off the loan as a small fee tacked on to future transactions. This new model for lending never required the customer to think about taking out or repaying their loans, only about making sales and growing their businesses.
Before adopting the jobs-to-be-done approach, Twitter was getting in pulled in various directions, trying to keep up with Facebook or Instagram or Snapchat. “We got overly reactive to everything our peers were doing. We didn’t really have a clear sense of what our purpose was,” Dorsey said. “And that really hurt us a lot.” It scattered resources. It limited focus. It resulted in a bloated company that ultimately had to lay off 1,000 employees and reset Wall Street expectations.
“We wouldn’t have been able to do any of that unless we had an understanding of there is something unique here, and there is something fundamental, and there is something clear, and we’re going to put all of our focus on it,” Dorsey said. “A lot of our turnaround was due to applying this framework.”
Another advantage of the jobs-to-be-done approach, said Dorsey, is that it eliminates any single source of failure in innovation and business growth. “I don’t want to build a company that’s dependent upon any one person, including me,” he said. “I think if I have to make a decision there’s actually something wrong with the organizational structure, because I’m not the closest to the customer.”
“In almost every way, the jobs framework has provided insights into our business and into our customers. And it’s given us a scalable framework that is not dependent upon any one person—be it me or any of our product leads—to find the right insights to grow the company.”
Digital transformation: New business models and ecosystems
With digital transformation spending expected to reach $2 trillion in 2022, legacy companies are under increasing pressure to make the most of their digital investments and ensure they are on the right path to the future. How can they take today’s digital efforts to the next level— and at the same time assess the impact of emerging technologies like blockchain and artificial intelligence (AI)? Efforts at IBM, Siemens, and Change Healthcare point the way.
IBM has gone through seismic shifts nearly every decade, from tabulating machines to PCs to the cloud. It’s 3,000-plus employees in research are charged with identifying trends that will have a significant impact in the next 10 years.
Four years ago, blockchain made the list. “We said this could have some very interesting implications for our large scale platform and ecosystem businesses,” said Marie Wieck, general manager of blockchain for IBM Industry Platform. They began with a dozen projects, including dispute resolution in global finance, auditing, and cross-border taxes. Over time, the use cases matured, the team grew from two to 1,500, and they are now managing more than 500 blockchain projects.
Innovation happens in three ways, said Wieck: net new innovation, like a new technology invention; radical simplification of something, like the iPhone; and business model change. Most of the blockchain projects fall in the last category.
A project with the world’s largest shipping company, Maersk, to reduce the amount of manual labor and paper involved in container shipping has evolved into shipping blockchain TradeLens— which involves not only a number of shipping companies but also more than 100 supply chain participants, including ports, customs authorities and cargo owners. “It’s starting to now create an ecosystem with new business models that we didn’t think about,” Wieck said. IBM has seen similar network effects with a food trust blockchain that, although initially built in partnership with Walmart, is now approaching 200 members.
The key, Wieck said, is incubation. “Most people think about agile and a minimum viable product. With blockchain, we said we needed to add a focus on a minimum viable ecosystem,” Wieck said. “The technology is not the hard part. It’s getting agreement that all of the participants on the network are going to both feel comfortable and get business value.”
Change Healthcare competes not only with healthcare startups, but also those disrupters at the top of the S&P chart. “Our environment is changing extraordinarily quickly. The system is fundamentally shifting,” said Rod O’Reilly, Change Healthcare’s executive vice president and president of software & analytics, noting that $4 billion in venture capital funding went to digital health in the first half of 2019. “This is a real challenge and opportunity for us,” O’Reilly said. “We’ve had large market-leading franchises where we are investing internally and side by side with disrupters to help reshape the industry to reduce cost, improve quality and enhance the consumer experience.”
The company now processes more than $1 trillion in claims, or approximately one-third of the $3.6 trillion spent on healthcare in the U.S. The vision for future growth is to utilize the financial, administration and clinical data from the more than 14 billion transactions annually on its intelligent healthcare network and become an analytics and artificial intelligence partner for payors and providers. “We took the top 200 leaders of the company and basically said, ‘This is the journey that we’re on,” O’Reilly said.
Siemens created a new strategy around the key trends that it identified as driving the business in the future. “Think about global megatrends: urbanization, climate change, an aging population. These kinds of changes are happening in front of us,” said Siemens USA CEO Barbara Humpton. “The key question we ask ourselves at Siemens is: How can we use our capabilities across electrification, automation and digital technology to help society achieve the future we want?”
The changes made possible by today’s advancing technologies are not like any seen in the enterprise before. “What’s cool about digital transformation,” Humpton said, “is that in a year and a half, you can be a completely different company.”
Moving through the process isn’t always pretty. “It’s arguments every single day,” Humpton said. “Culture eats strategy for lunch. We have that conversation all the time: How much change do you have to make in a leadership team to actually instigate change throughout the organization?” At 50,000 employees and growing, making sure that vision is embraced and understood throughout the ranks is key; it’s also proven to be a selling point for new talent.
“We have people who put together the old mechanical systems, and then we’ve got digital natives joining them. One of the things we’re working on is multigenerational teams,” said Humpton. “The most compelling thing is—I don’t care if it’s young people, old people, men, women, from anywhere in the world—when they see the kinds of things we get to tackle at Siemens, they say, ‘I want to be a part of that.’”
converting vision to strategy
Vision—and just as importantly, passion—is where breakthrough growth begins. Where do you see your core business 10 years from now? What opportunities are there to move to adjacent business models? What other spaces might you play in?
Most large organizations are so busy with execution, there’s little time left for discovering—the tyranny of the urgent. However, sustainable advantage is an artifact of the past; Innosight predicts that the average duration a company spends on the S&P 500 list will shrink by another 10 years over the next decade. Leaders therefore must become as comfortable with inquiry as they are with facts, data and operations, Johnson said.
Having a strategy process that converts this vision into an actionable road map is critical. Most leaders approach strategy as from a present-day perspective—adapting today’s paradigms for the future. Transformative growth, however, requires letting go of what is and thinking about what could be. Innosight’s Johnson described that as a shift from present-forward thinking to future-back thinking. In most companies, present-forward thinking is appropriate for some 90% of what’s going on—sustaining the core, improving existing products, increasing efficiencies. Devoting that other 10% to forward-back thinking can unlock bigger opportunities.
That requires connecting the dots from an idea to inform the tangible initiatives of today. Johnson laid out a three-step approach to doing so: identifying opportunities seven to 10 years out, quantifying growth objectives for them, and outlining what near-term initiatives will serve that intended future. That’s how leaders can convert vision to strategy. “There’s a walk-back from these major areas of opportunity, to what you would do as a set of initiatives to get started,” said Johnson. “It’s in the learning process of moving those initiatives forward that you begin to get information back as to whether this intended future growth opportunity is real or not.”
At Boeing, leaders are pushing the organization to look decades ahead while still managing the core business. The company is pursuing innovation in additive manufacturing, avionics and data analytics while bringing in ideas from outside related to aerospace technologies, manufacturing innovations and emerging business models through its Boeing HorizonX innovation incubator and accelerator. In 2018, it launched Boeing NeXt, a new business division focused on defining the future of mobility.
“It’s an acknowledgment that the way the company will operate over the next hundred years is probably different from the way it operates today,” said Logan Jones, vice president of Boeing HorizonX. The company’s narrow-body aircraft business is a big margin contributor to the company. However, the 737—a plane built to fly long distances —often is being used for shorter flights. The question they began to ask was, What if aviation became a bigger part of everybody’s daily life? What jobs need to be done in the future to solve the issues of urbanization, congestion and transportation? That led to cargo drone and air taxi projects. “When we shifted the problem statement, we found an opportunity in it and started to incubate this concept of NeXt,” said Jones.
Steve Nordlund, vice president and general manager for Boeing NeXt, envisions a day in which a passenger could leave Boston at 3 p.m., arrive in Sydney within two hours, have a breakfast meeting and be home by midnight via hypersonic flights in a lower earth orbit. “We know technology-wise that’s possible within the next two decades,” he said. “There’s a lot of work to be done, but we think that’s the world that we’re heading to.”
Boeing’s future-looking groups are relatively insulated from the ups and downs of the day-to-day business. They report to the corporate level. And they participate in a standing meeting with the CEO, CFO, and COO every several weeks. “No decks. No charts. Just talk,” said Nordlund. “We pivot and we learn. It’s a constant iteration of what we’re doing and where we’re trying to go.”
The approach has been to experiment around assumptions, potentially fail and get better. “You identify all the assumptions that underlie your business case or your vision, you break it down into small sub-components, [you figure out] how can you quickly test those assumptions to get smarter, and collect as much information on those assumptions as you can.” Vision is important, but you’re not going to look out the window and see air taxis flying around tomorrow, said Nordlund. “It’s going to be baby steps that happen.”
That’s enabled both organizations to move forward with focus and speed. “In the beginning everybody in the industry was saying, well here comes a big, global scale company. Let’s see how slow they are,” said Jones. The first mobility aircraft went from a thought in someone’s head to its first flight in 90 days. “In aerospace, that’s unheard of,” Jones said. “Nothing happens in 90 days, you know, that flies.”
New thinking from people who came to Boeing through their joint ventures and minority investments has also helped. “I have an entrepreneur in Austin who is an expert in the area of AI,” Nordlund said. “You get this multiplier effect [where] you have all these people aligned on where you’re trying to go, and it allows you to move so much faster with so much more horsepower than you would otherwise.”
Seeing around corners
How do you come up with a vision for the future when the rate of technological development and change is happening faster than ever? What’s the way of thinking that harnesses these opportunities in the right way? Most leaders have spent their lifetimes exploiting and extending the reach of existing advantage, said Rita McGrath, professor of management at Columbia Business School. They won’t have that luxury in the future. “We’re going to have to get smarter about the innovation process,” McGrath said.
As McGrath lays out in her new book Seeing Around Corners: How to Spot Inflection Points in Business Before They Happen, there are clues that leaders can tune in to that will point them in the direction of new opportunities. Oftentimes, however, companies miss them. “In any business, there are constraints that were in place at the time it was created. And those constraints evolve to create a set of metrics, of KPIs [key performance indicators], of the lenses through which you see the world,” she said. “And when something happens that suddenly makes those constraints less relevant or less germane, that existing world view can blind you to what is going on.”
Take the razor market. Entrepreneurs exploited its existing flaws and built a direct-to-consumer model enabled by technology which would steal 16% market share from the dominant players. Incumbents believed that competitive advantage would continue to accrue from investing in research and development, charging a premium price, advertising to win over consumers, and exploiting massive scale to get it into retail outlets. “If that’s the way you look at the world, the idea that two guys with cheaper Korean razors, cloud-enabled technology, and a keen sense for how to connect to a younger customer demographic could undermine 70 years of accumulated wisdom… that takes a lot of thinking,” said McGrath. “That’s the nature of a strategic inflection point.”
Companies can get better at sensing these moments of opportunity. “A lot of senior leaders don’t do enough to really make sure that we’re at the edges of our organizations where the new truths are going to be revealed,” she said.
synthesis and Takeaways
Growth is a choice. Innovation leaders drive long-term value by choosing to move from vision and ideation to incubation and operationalization of disruptive change.
The greatest predictor of long-term value creation is revenue growth. Incremental improvement of the status quo is no longer enough in today’s business environment. Disrupters dominate.
Dual transformation is possible. Incumbent firms can leverage their core capabilities – acquired knowledge, experience and competitive advantage – as a basis of creating something new.
The customer jobs-to-be-done framework supports innovation efforts in a number of ways. Considering what jobs the customers are hiring your product or service to do and anchoring innovation efforts in that purpose can uncover valuable ideas for business model change. Operationalizing it can also eliminate any single source of failure in business growth efforts.
Winners make big bets. One of the biggest mistakes companies make is underinvesting in the future. Successful innovators understand that the bigger risk is not making the big moves and devote a percentage of investment to transformative innovation.
Organizations take different approaches to incubating innovation. Some create a separate organization or division, protected from the demands of day-to-day business, for transformational work. Others see value in embedding innovation efforts throughout the organization.
Converting the future vision into an actionable road map is critical. Most leaders approach strategy with a present-forward perspective – adapting today’s paradigms for the future. Transformative growth demands a future-back approach: connecting the dots from an idea to inform tangible initiatives for today.
LAURENT GUINAND, PH.D.
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AARP Services, Inc.
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DR. JERRY WOHLETZ
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Columbia Business School
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Strategy and Corporate Development
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G. RICHARD WAGONER, JR.
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