Skating to where the puck will be

innovateby jordigraells

Microsoft and the Innovator’s Paradox


“The Odds Are Increasing That Microsoft’s Business Will Collapse”

That’s a pretty good title if you (like Henry Blodget from Silicon Alley Insider, the writer of the article) are trying to grab eyeballs. It also provides a useful introduction to what I call the “Innovator’s Paradox.”

Blodget’s article was provocative. He argued that Microsoft is in a no-win situation. It isn’t sitting on any idea that is on the cusp of turning into a multi-billion dollar business. The personal computer is losing its dominance to mobile devices and tablets. The company’s core profit drivers (Windows and Office) are under disruptive assault from Google’s freely available applications and operating system. At best, Microsoft will respond with its own free products and erode its profit margin.

The most telling thing in Blodget’s post was a chart that showed the sources of Microsoft’s profits over the past few years. Microsoft’s core business has continued &#8212 despite continued proclamations of the company’s coming demise &#8212 to throw off cash and to grow. But new growth businesses that were specks in 2006 (entertainment and devices and online services) remain tiny, and Microsoft hasn’t created any material new businesses over the past few years.

So the real problem isn’t what Microsoft is doing today. It’s what Microsoft did, or didn’t do, five, or even 10 years ago. At the time, its base business was a bastion of strength. Today’s threats were in their infancies. It would have been the perfect time to plant seeds that today would be blooming profit generators.

Why didn’t it? It’s The Innovator’s Paradox: When you don’t need the growth, you act in ways that lead to you not getting the growth you will need. And when you do need the growth, you can’t act in ways that deliver it.

Got that?



The problem here, as stated so well in the Innovator’s Dilemma is that even companies that recognize they need to change, that they need to come up with the next big product, are too often totally unable to do so. There are lots of reasons for this but one of the major ones stems from the difference between the truths of exploitation (marketing) and formulation (research).

As was explained to me many years ago, research costs money directly from the bottom line. But marketing makes money, that for every dollar spent on marketing the company makes $4. So it is simply idiotic to spend money on research.

That is the difficulty during the exploitation stage – it is too easy for those who are doing the exploiting to really support the work of those doing the formulation. It takes tremendous personal effort by engaged management to keep the company on the course of innovation.

How do you know where the puck is going? One way that I have personally seen work quite well involves continuous vetting of the ideas from all points of view. The project is examined and critiqued, always in a way to make it better.

And this requires a very special sort of corporate culture – one that abides failure and one that does not abide zero-sum solutions. Let me expand the latter.

What often happens in many mature companies that have low resources for new growth is that the only way I can get my project funded to to make sure that your project is not funded. The only way for me to succeed is for you to fail. Once this happens, innovation is really strangled.

Any innovation that arises will either be destroyed by those with more power or co-opted, removing it from the very people who were innovative. This is one reason why many mature companies only innovate by buying another company’s innovation.

Breaking the Paradox requires not permitting this rot to take root. But simply putting resources into innovation is not enough.

There are two companies today that continue to demonstrate an ability to overcome the Innovator’s Dilemma/Paradox – Apple and Google.. A key point is that management there follows Wayne Gretzky’s maxim: I skate to where the puck is going, not where it has been.But each take very different routes to the puck.

Google allows its workers to spend up to 20% of their time working on innovative ideas. This is a really effective way to allow innovative people to create wonderful things.

Google does its vetting in public. Google often thrust these innovations out into the wild as a public beta, giving us lots of possibilities but asking the public to do the vetting required to determine whether the innovations were really useful. This we have had lots of Google novelties – Wave, Knol,Chrome, Android, etc – that are somewhat hit or miss. It is almost as if Google skates everywhere, waiting for the odds to allow success. Even when one succeeds in being where the puck is, it is often not strong enough to be ready to score. Some more tinkering will be necessary. But at least now they know where to focus some effort. With some further help, the innovation can become a success.

It can do this because it really has to spend little time making sure each item is great. It follows the DIKW model, working through rapid iterations to reach the correct choice. This allows it to throw out a lot of innovations but even the best ones are often just good enough. It can take many more iterations to move towards perfection where more focussed vetting may be necessary while, especially as the products move into the exploitation phase, there is less incentive to.

I’ve written a lot about innovation at Apple. Apple supports innovation but takes a different route to a released product. Apple keeps its vetting much more private. They put a lot of focus on releasing products that are already successful, rather than simply iterating itself there. When the public learns of a new innovation, it is almost totally fully realized. Apple has continually driven innovative approaches through several different products – iMac, iTunes, iPod, iPhone, iPad, etc. – any one of which most companies would be happy to maintain.

Apple most likely has a range of possible innovations in the stream – we hear rumors of all sorts of things. But, whereas Google places its innovation in the public eye for us to vet, Apple does this in private. It harshly examines them, rapidly arriving at only one place to meet the puck, but what is there is incredibly strong and is able to drive to success almost by itself.

Apple has a focus on its innovations that permits it to attain success repeatedly. Google may have less focus on specific innovations, but its iterative cycle can be so rapid that it can reach success also.

Each approach has real benefits. By focussing so strongly on where it believes the puck is going, Apple has actually been able to create products that were actually inconceivable for the public before release. But by putting many eggs in one basket as it were (yes I know too many metaphors) it runs the risk of mistaking where the puck will be.

Google does not really need to be sure of where the puck will go. It can simply put so many innovations out there, that one of them is bound to hit. However, its lack of focus can often mean that really disruptive innovations may not get the push they need – they get lost in the crowd.

Both Apple and Google are exemplars of their particular niche when it comes to sustaining innovations. The ways they figure out where the puck will be are different but the basic recognition that anticipating the puck is paramount for their company is the same.

So, companies that want to break the innovator’s paradox need to figure out if they should follow the Apple model or the Google one.

[As an aside, it is obvious that Pixar follows a similar model as Apple and has, not too surprisingly, become the most successful studio in Hollywood.]

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