Hacking Innovation. Josh Linkner
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Shifting from pioneer to protector, Schwinn largely missed out on or played copycat to new industry trends such as the 10-speed, BMX, and mountain bike crazes. With declining revenue and a void of innovation, the company shifted to cost-cutting mode to salvage near-term profits. Accordingly, they didn’t modernize their manufacturing plants, and in an effort to extract every drop from their products, they ran into combative labor relations issues as they overworked and underpaid employees. Unable to compete, the once high-quality company outsourced all manufacturing to the lowest-cost source they could find in Asia.
The hits continued as Schwinn’s decline accelerated into a free fall of despair. By the time the company filed for bankruptcy in 1992, the brand was a shell of its former self. The company’s name was sold to the highest bidder, a financial firm that cared only about numbers and not a lick about bikes. Predictably, the company was bought and sold several more times over the next two decades, today being an asset of a holding company owned by another holding company.
Stories like this are far too common. Once-great leaders and organizations become intoxicated by their own successes. They fail to adapt, fail to hack, fail to innovate, and then simply fail. In the Harvard Business Review, Martin Reeves defines the ‘Success Trap’ as “Companies that over exploit their current business models yet and fail to explore future growth opportunities.” From Blockbuster Video to Compaq, PanAm Airlines to Oldsmobile, the success trap has been the death knell of hundreds of previous market leaders. For most of us in the business world, this is common sense, even cliché. Common sense, unfortunately, is not always common practice. Leaders fail, and more often than we’d like to think.
Why don’t more organizations embrace hacking as a long-term strategy? “Unfortunately, these firms are rare – most follow a path towards lower exploration and risk falling into the success trap,” explained Reeves, Senior Partner at the Boston Consulting Group and author of Your Strategy Needs Strategy:
Why does this happen to large companies with a legacy of success? Paradoxically, doing so often seems like the right choice. Fine-tuning the established, successful model provides higher immediate rewards at low risk. Over a five-year period, one in three companies makes that mistake. This comes at the cost of lower growth, which jeopardizes the company’s future. Fast forward a few years, and lower growth means fewer interactions with new, demanding customer groups and less inspiration to innovate. Eventually the company is likely to be out of touch with changing market requirements. At that point, it is often too late to course-correct. Once in the trap, it is difficult to escape: seven out of ten fail to leave it in the next five years and get back onto the path of higher exploration.
Hacking mindset #3 – Nothing Is Static – is your primary weapon to fight this trend toward complacency. Hackers understand that the only constant must be our ability to learn, grow, and adapt. They understand that innovation is a continuous process, not a once-a-decade initiative. In these turbulent times, embracing this philosophy is no longer optional; it has become mission-critical to sustainable success.
QUANTITY IS A FORCE MULTIPLIER
As the stock market crumbled in 2007, a loose gang of six Russian hackers were raking in profits. According to federal prosecutors from the U. S. Department of Justice, the hackers “used sophisticated hacking techniques to steal more than 160 million credit and debit card numbers, target more than 800,000 bank accounts, and made off with at least $300 million.” Not only were the targets large in numbers, so were the breach points. The criminals obtained their rewards not through a single infiltration, but by penetrating dozens of retailers, banks, and payment processors. From 7-11, to Nasdaq, to Global Payment Systems, Inc., multiple entry points were exploited.
Unlike a typical heist involving a single devious strike, these attacks occurred over a seven-year period between 2005 and 2012. Due to the massive number of small, individual attacks (estimated in the millions) the crimes went largely unnoticed for years.
In contrast to a typical criminal structure, or commercial enterprise for that matter, the organization was loose and democratized. One hacker with code names including “Grig,” “G,” and Tempo was 26-year-old Aleksandr Kalinin of St. Petersberg. Another, 29-year-old Dimitriy Smilianets of Moscow, is now in U. S. custody. Each of the six worked both independently and collaboratively. Sharing ideas and teaming up, the group bore no formal allegiance to one another. The baton of leadership was passed freely among the men as they realized that the best ideas, always shifting, should establish the only form of organizational hierarchy. The gang came from diverse backgrounds, ideologies, and training, yet collaborated to perpetrate the largest hacking scheme ever prosecuted in the United States.
In this case, hacker mindset #4 was the weapon of choice: Quantity Is a Force Multiplier.
Ones and zeroes aren’t the only numbers adored by hackers. In fact, there’s a core belief that bigger is better in nearly every aspect of the hacking process. A bigger target means not only more loot, but also a lower probability of being detected. A large quantity of small attacks (or ideas) generally beats a single attack (or idea), even if the latter is significantly better – more input from more people with more diversity of thought.
Let’s say you set out to open a new Italian restaurant. The traditional approach would involve carefully studying the market to select an ideal location. Next, you’d invest in kitchen equipment, décor, and permanent signage. A single chef would craft the menu of his or her choice, which would then be printed en masse and released with a sense of permanence. Marketing message crafted by you or your agency get printed in ads that will run for months. Big bets, decided upon in advance, with limited post-launch variation. If the veal parmesan isn’t selling, you may switch to chicken but your concept is mostly locked and loaded.
The hacker, on the other hand, would approach the problem in a very different way.
First, she’d embrace mindset #1 – Every Barrier Can Be Penetrated – and set out to not only open a moderately successful restaurant, but to crack the code and do something unique. Next, through mindset #2 – Compasses Over Maps – she would likely take a step back to consider if Italian was even the right cuisine to serve. She’d connect with her broader target, which may be to open a successful food company, and not assume that Italian is the right choice even if it was her first instinct. Knowing Nothing Is Static (mindset #3), she would learn as much as she could to enhance her knowledge and shun conventional approaches.
With the first three mindsets in play, Quantity Is a Force Multiplier can also contribute. “How can I quickly test dozens of variables before locking down a solution?” she might ask. Perhaps she negotiates with other restaurants to add one special dish – that she would prepare and deliver for free – to their menu for 30 days. In this way, she could test dozens of recipes, price points, and ingredient combinations against different times of day, locations, and clientele. Or she may strike a deal with a local food truck where she takes over for a couple weeks, providing the owner a vacation along with all the near-term profits, so she can use the truck as a real-world test kitchen. The hacker would want to leverage rapid experimentation to the extreme, so she may offer an online delivery service, a mobile app, a recipe blog, a make-your-own-food kit, or a subscription service instead of the obvious solution of a single physical restaurant. She would deconstruct every aspect and even question the geography by running simultaneous experiments in other markets. Rather than just her own recipes, she’d establish a loose coalition to offer diverse ideas. Instead of traditional business partners, she may seek advice from dozens or hundreds of people far outside the food industry. She’d want the marketing perspective not only from a creative agency, she might seek ideas from professionals in the musical arts, software, or accounting industries.
Multiple tests, multiple ideas, from multiple sources.