Unleashing the power of small ideas
Companies can prosper by going back to basics, not disrupting, a new book argues
David Robertson of MIT with Cathy Byrne and Ryan McCarthy of KPMG.
Disruption is overrated and deciding what not to do is an essential ingredient of successful innovation. These were just two of the quite surprising if not near heretical messages delivered by Prof David Robertson to the audience at a KPMG Inspire business event in Dublin last week.
A senior lecturer at the MIT Sloan School of Management, Robertson is the award-winning author of Brick by Brick: How Lego Rewrote the Rules of Innovation and Conquered the Global Toy Industry, which describes the company’s near bankruptcy and subsequent spectacular recovery. His latest book, The Power of Small Ideas, describes the Lego formula for success in greater detail.
That formula saw the company go back to basics and instead of thinking outside the box almost literally innovated around the box; the box of bricks, in this case.
“Lego thought bricks were being overtaken,” says Robertson. “They thought they had to innovate or go bankrupt. They were right, but they didn’t understand the difference between sufficient and necessary when it came to innovation.”
The company embarked on a series of ill-advised forays into areas such as video games and action figures and came perilously close to ruin. “One thing they learned from their brush with bankruptcy was that other companies were already doing these things better than they could. They had forgotten the things and the core product that had made the company great.”
Robertson advises companies to innovate around the core brand and products to make them more interesting, compelling and valuable. He mentions Marvel Comics as another company which had lost its way in this respect and nearly went to the wall as a result. The company had tried different ways of making money but forgot about its core strength for creating compelling characters and stories.
“It was basically a talent agency for superheroes and it needed to look for ways to express stories and characters in different channels such as games and movies and so on. One of the worst decisions in recent business history was Sony’s rejection of an offer to buy the rights to all of Marvel’s characters for $25 million.
“They said they just wanted Spider-Man and Marvel could keep the others. Look what’s happened since with Iron Man, Thor, the Avengers, Black Panther and so on. Marvel went back to innovating around the core and Sony missed out on all that value.”
But how should companies go about this? “The first step is counterintuitive”, he says. “You have to ask yourself the question where are you not going to be innovative? What are you not going to change? What are the things you did yesterday, are doing today, and will continue to do tomorrow? What would the world miss if you were gone? That’s the question Lego asked itself. That gives you a base, a stable platform to innovate around.”
The next step is to look at what customers want you to do. “What do customers want to do and how can you help them with that.”
That was the basis for Steve Jobs’s success over the years, he contends. “Steve Jobs was not a disrupter. He was a fairly incremental innovator. In 2001, iPod and iTunes were launched simply as ways of making the Mac more valuable. They fought like hell to keep iTunes off the IBM platform because it was designed to enhance the value of the Mac. The iPod was just an MP3 player. The iTunes store didn’t open until 2003 and wasn’t anything particularly new. Sony had already tried selling music by the song.”
Apple continued to innovate, and it was a fairly natural and incremental move to add phone capability to the iPod in 2007. “That did change another industry, but it happened 10 years after Jobs had returned to Apple,” Robertson points out. “Everything was about the Mac up until then.”
“Disruption is overrated,” he adds. “Yes, it happens and sometimes established companies get put out of business; but not as often as people like to believe. Often the best strategy is to watch other people do it, learn from their mistakes and copy them.”
KPMG partner Ryan McCarthy believes many Irish businesses are naturally innovative. “Irish businesses innovated their way out of the crisis very well and Irish people are very good at solving problems and navigating their way through complex situations”, he says.
“Irish companies took products and services and tailored and packaged them in different ways to meet the needs of the market. We have businesses in this country that have survived for a very long time and, given the nature of our economy, come through a lot of difficult times. We don’t celebrate their achievements enough. But some companies miss out on the obvious stuff. They don’t look at what they are good at. They are looking for something transformative instead of the obvious around what they are good at.”
More could be done to encourage innovation and entrepreneurship in this country, however. “The tax environment for share options, exiting businesses and passing them on to the next generation could be improved,” he adds. “Whether that would spark the next wave of innovation we don’t know, but it certainly wouldn’t do any harm and could be a big help.”