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In chaotic times, one leadership lesson is compelling: continued relevance should be the ultimate objective of organizations operating in an unpredictable world.
Continued relevance requires the organizational capacity to generate variance before the market demands it.
More variance, please!
As organizations and markets mature, they tend to eliminate variance.
Industries begin as a field of competing possibilities and gradually shed novelty until price competition remains alone as the prevailing strategic choice.
Continued relevance requires the opposite response: more variance, not less. This requires genius and ingenuity; novel ideas plus adoptability.
Organizations that deliberately generate new ideas, new value propositions, new organizational forms, and new ways of working can create alternatives to the trajectory on which their existing industry is traveling.
Not innovation for its own sake, but to preserve the capacity to remain relevant when customer needs, technologies, and competitive conditions change.
OpenAI’s ChatGPT demonstrated this in mature Search[1]. It introduced, from outside, novelty that established industry leaders could not easily match. Ambitious hiring supplied the genius; ease of adoption added the ingenuity. Together, they made user-switching more attractive than loyalty.
Amazon Web Services (AWS) behaves like a collection of small enterprises, generating more variety than most rivals. Small, decentralized teams, characterized by ownership and autonomy, build and run what they create. Entrepreneurship encourages the genius of experimentation with the ingenuity of a pioneering spirit.
Brazilian aircraft manufacturer Embraer innovates across more of its application’s S-curves than larger competitors. By concentrating on the underserved regional-jet market, it can be closer to user-needs, introducing variance via smaller, efficient, aircraft from modular components, and simplifying complex aftermarket services.
Haier’s pursuit of “zero-distance” with appliance users, combined with workplace autonomy and entrepreneurship, encourages variance by organizing innovation around user journeys, using multi-team “swarms” to pursue opportunities in multiple markets simultaneously. Founder Zhang Ruimin’s encouragement of continuous experimentation results in Haier’s learning faster with better-informed bets.
Introducing unexpected variance at any point on an application’s S-curve can create existential problems for incumbents. Unable to respond to emerging customer needs with sufficient speed or novelty, their organizational complexity overwhelms even well-intentioned efforts to adapt.
Meanwhile, unfamiliar entrants such as OpenAI can bring new mindsets to an established competitive arena; and new beginnings.
Moving innovation from episodic to continuous
P&G’s Tide dominates (38.3%) the U.S. laundry-detergent market thanks to pods. Yet soon after pods were introduced, P&G began investigating radically different detergent “tiles;” fabric-like squares containing multiple layers of brighteners, soaps, and stain and odor fighters.
Tiles cost more than pods, but they create more room for future ideas than three-compartment capsules. That option value may matter as consumer preferences change, water use declines, and washing machines grow larger and require more powerful cleaning agents.
Tide illustrates an unusual willingness to innovate deep into maturity. An early P&G president (1907-1930), William Cooper Procter, put the ambition bluntly: “If anyone is going to replace the soap business, it had better be Procter and Gamble.”
Continuous innovation is managerially more demanding than episodic innovation. It requires generating alternatives despite an existing business performing well.
The Need to Be Different
Variance-enlargement can be game-changing.
Jordan J. Baruch, former Assistant Secretary of Commerce for Science and Technology, made this point as early as 1985: “Power in a society will reside with those capable of imparting to a body of information the largest coefficient of nonlinearity.”[2]
Tide’s movement from pods to tiles introduces nonlinearity into the customer experience, while giving P&G additional options for creating future value.
The problem here is that established organizations are often very good at optimizing what already works, and increasingly poor at creating what might work next.
Joseph Schumpeter recognized “new combinations,” producing new things, or producing existing things differently, as key to economic development. Today, we call this innovation.
Innovation is an applied art.
All disruptive innovation begins with eccentricity
Eccentricity is at the heart of innovation.
Eccentricity means introducing new ideas, new idea-makers, value propositions, and organizational forms. Each is painful for organizations in which efficiency has reigned for years.
Yet, music historian Preston Lauterbach argues “without eccentricity, there is no art.”[3]
The art of innovation requires seeing the world differently; eccentrically.
The challenge is how to fit original thinkers, with eccentric perspectives, into disciplined structures.
The Organizational Challenge
Perhaps modern organizations are not designed for people capable of dealing with turbulent times?
Peter Drucker argued in The Effective Executive that “To make strength productive is the unique purpose of organization.” When employees create value through the genius of eccentricity, organizations need to organize around such idiosyncratic behavior rather than suppressing it. Yet few figure this out.
Innovation requires experimenting with new forms of value creation and organizational structures throughout an application’s S-curve, without pretending to know their final form.
Historian Daniel Boorstin differentiates between Discoverers, who advance along an established trajectory, and Creators, who make something new: “Discoverers follow the map. Creators make the map.” Boorstin appreciated creations as the strange fruit of diverging imaginations. Marshall McLuhan recognized that when information is brushed against information, the results can be “startling and effective.” This is the genius of diverse teams.
Creating Space for Eccentricity
Organizations designed for continuous innovation require autonomous space for experimentation. Hierarchies and silos are especially confining in chaotic environments. The answer is not to eliminate structure, but to create private spheres within public chaos[4]: spaces where people can experiment, diverge, create, and own without immediately conforming to the logic of the existing business.
If continued relevance depends on continuous innovation, organizations must learn not merely to tolerate eccentricity, but to encourage it.
The importance of all of this is that tomorrow’s leaders may be those who create enough space for people to do what the organization has never done before.
About the author:
Bill Fischer is Professor Emeritus of Innovation Management, at IMD; and Senior Lecturer at MIT’s Sloan School of Management.
[1]The application “search” is used instead of an industry descriptor. An application is used here because the traditional notion of an “industry,” with common assets, is no longer representative of competition to fulfill user needs. With AI, for example: there is arguably a highly competitive AI industry, but when we look at applications, such as search, for example, AI began its search-application in direct competition with non-AI rivals.
[2] “Comments by Jordan J. Baruch.” National Academy of Engineering. 1985. Information Technologies and Social Transformation. Washington, DC: The National Academies Press. doi: 10.17226/166.
[3] Lauterbach, Preston, “‘Looking to Get Lost’ Review: The Heart of Rock ’n’ Roll.” The Wall Street Journal, October 16, 2020.
[4] The original wording is by W.H. Auden, in the poem September 1, 1939.