Watch the full interview here
Have a long term strategy, especially in a fast changing world; listen to the customer, but don’t always do what they say; don’t feel threatened by disruptive innovation; promote innovation in the face of core resistance; and, finally, do your best to bridge the know-do gap.
A guest of Pirelli’s Executive Convention, which took place in December, Costas Markides, Professor of Strategic Leadership at London Business School, offers five important pieces of advice to those managers and entrepreneurs facing the ‘age of disruption’, when the rise of innovation can quickly make a business model obsolete. ‘Pirelli is a very innovative organization, I am impressed: everywhere you go, the brand name is very well known for innovation and excellent quality products,’ said Costas Markides, author of the book Game-Changing Strategies: How to Create New Market Space in Established Industries by Breaking the Rules.
However, when we speak to him on the sidelines of the Executive Convention, rather than ‘breaking the rules’, Costas Markides seems to advocate the flexible application of existing conventions, guided by common sense. ‘One of the marketing ideas that we tell people is: listen to the customer. That’s very important. But sometimes listening to the customer may not be the best idea. Sometimes, when you offer a disruptive product, your customers may look at it and say they do not want it. But this product may improve over time so that 10 or 20 years later, your customer may look at it again and say “it is good enough for me.” At that point, your customer will switch to the new product and you’d be in trouble! So listening to your customer maybe will lead to the wrong direction. That’s why sometimes you have to tell your customer: thank you very much for your opinion, but I don't always need to do everything you say, sometimes I should use my own judgment.’
Customer expectations are changing and business models are evolving with them at an increasingly fast pace. According to Costas Markides, this by no means implies that long-term strategies are becoming redundant: ‘It’s exactly in a fast changing world that you need a strategy. Strategies are the difficult choices that a company has to make: whom am I going to target as my customers? What am I going to offer them? And, more importantly, what am I not going to offer them? And how I’m going to play that game to deliver value to the customers that I chose with the products that I chose to deliver to them.
Once these choices are made, that is the strategy of the organization and you must stick to it. In a dynamic environment, you may need to adjust your strategy to the feedback you get, but this doesn’t mean you need to change it every six months. Strategy is like a compass that guides the company in a certain direction.’
True, disruptive innovations can cannibalize the old business but also create new markets: we should go after them in an aggressive way, not a defensive one
In a continuously evolving environment, Costas Markides continues, it is important to view innovation as a resource and not a menace, even when it is of the disruptive kind, subverting the existing order: ‘Most managers look at disruptive innovation as a threat. They say, Oh my God it’s going to cannibalize my business. True, disruptive innovations can cannibalize the old business but also create new markets: we should go after them in an aggressive way, not a defensive one.’
Too often innovation generates resistance within a corporation. ‘If I am a manager in the core business, and I see this disruptive innovation that, if it grows, it is going to maybe cost me my job, then my natural inclination is to resist it. ‘There are two possible ways to get around the issue, according to Costas Markides. One is to allow the most disruptive innovations to grow within a separate unit, to ‘protect them from the politics and sabotage of the core business’. The other is to ‘allow small start-ups and entrepreneurs to grow disruptive innovations externally, monitor them and integrate them in your business when the time is right.’
One of the most common issues in companies, he noted, ‘is the “know-do gap”: What is this? Many times as managers we know what we have to do, but we still don’t do it.’ There are several strategies to close such gap. For instance, companies should try to create an environment (such as culture and incentives) that encourages employees to act: ‘What creates behavior in a corporation is its underlying environment: a business’ culture, not words. If my boss is telling me to experiment and not worry about failure but then if I fail I run the risk of getting fired, I am not going to experiment even if you tell me.’ Then, he concluded, it is very important to avoid the “we” pronoun when delivering an important message: ‘When companies use the pronoun “we”, you often see an attitude that somebody else has to get things done. It’s what social psychologists call social loafing. When someone says “we have to change X, Y and Z”, what they mean is “you have to change X, Y and Z”. Then you agree with them, but what you actually mean is that they have to change X, Y and Z. So them mean you, you mean them… and nobody ends up doing it.”