We’ll Have the World at Our Feet if We Think Like True Innovators
Blue-chip companies and governments need to stop just talking about new thinking and get into the mindset of tech startups, says David Rowan
This article was originally published on Friday August 16 2019, The Times
While Britain’s government has spent three years postponing decisions about its strategic priorities, China’s has been pushing ahead with its plan to become the world leader in artificial intelligence by 2030. It now accounts for 17 of the top 20 academic institutions involved in patenting AI and is also ensuring that its giant tech companies, including Baidu and Tencent, are investing imperially in high-potential AI startups abroad.
Meanwhile, the United Arab Emirates has not only appointed the world’s first minister of state for artificial intelligence, it has also created 45 “CEO of innovation” posts across every ministry and agency. It is setting Google-like “key performance indicators” to measure how fast every government unit is modernising, and is funding a national plan to send citizens to Mars by 2117. And let’s not forget Estonia, the tiny Baltic state of 1.3 million people that’s now boosting its economy by allowing people outside its borders to become digital “e-residents”, able to start a local eurozone business and pay local taxes without ever having a physical presence in the state.
In Britain, our political leaders have been napping while technology’s exponential curves have been quietly bestowing unstoppable competitive advantage on those nations that are looking forwards not back. As the costs of data processing, gene sequencing, battery storage, solar-energy generation and much more collapse, our traditional industries – from utilities to car-makers – are seeing yesterday’s business models fail.
It’s vital, if we are to compete, that policymakers and business leaders embrace the emerging technologies that will transform competitiveness. And yet the instinct of many firms is to appoint a “chief innovation officer” to solve their problems or to invest in fashionable new corporate job titles such as “innovation catalyst”, “innovation sherpa”, “chief disruptive growth operator” and “digital prophet”. Too often what is celebrated as innovation inside these large organisations is a box-ticking, public-relations-led alternative to radical changes in mindset and culture.
Today’s incumbent businesses have good reason to be worried. Barriers to market entry are falling in almost every sector, as agile startups take advantage of cheap cloud computing and open-source software. The time it takes for technology to be adopted is also getting shorter: the telephone took five decades to reach 50 million users, the iPod four years and Pokémon Go just 19 days. And decision-making has moved from hierarchical organisations to consumers, empowered as never before by social media.
“If we don’t create the thing that kills Facebook, something else will.”
As a result, the lifespan of large corporations is shortening. Richard N Foster, a former McKinsey director who described a theory of “creative destruction”, calculated that the average tenure of an S&P 500 company in the US fell from 61 years in 1958 to 18 years by 2012. A similar British study by Rita Gunther McGrath found that, of the hundred companies in the FTSE 100 in 1984, only 24 were still there in 2012. Even the digitally native replacements are worried. Facebook’s employee handbook states bluntly: “If we don’t create the thing that kills Facebook, something else will.”
As editor-in-chief for eight years of the UK edition of WIRED, the magazine about how emerging technologies are changing the world, I would regularly meet corporate executives from banks, insurers and industrial-legacy companies who assured me that they “got it” and were “doing” innovation. They had read Clayton Christensen’s 1997 bestseller The Innovator’s Dilemma, and they could talk about disruptive technologies introducing simplicity, convenience and affordability in markets where high costs and complication are the norm.
Invariably I’d ask these executives to share any concrete outcomes from their innovation projects that were starting to transform the business or its thinking. And the typical response was that it was too early in the process to define actual results, but all the fundamentals were in place. There seemed to be an unbridgeable gap between the genuinely innovative thinking of high-energy startup entrepreneurs I’d got to know, and the spuriously sophisticated nonsense I typically heard from corporate innovators. And so I began a global quest, which ultimately took me to 20 countries, to find the approaches to innovation inside successful incumbent organisations that actually worked.
My journey began with a visit to meet one of the most accomplished European tech entrepreneurs of the past decade, a man who took a fast-declining incumbent industry and somehow persuaded it to save itself by killing its current business model. Back in 2006, Daniel Ek, the CEO and co-founder of Spotify, was repeatedly rebuffed when he told the record labels that they should stop selling expensive plastic discs at huge margins and instead give away their music for frictionless digital streaming. Eventually Ek persuaded almost all the main labels to work with Spotify — which ended its first day as a public company, in April 2018, valued at $26.5 billion.
“So many companies talk about innovation, and they try to put processes in place,” Ek told me. “I don’t think any innovation happens at a desk, by someone structuring a creative brainstorm. Innovation is serendipity. It happens when people get totally new influences or ideas that come totally from the sidelines. It almost never happens with someone who’s been staring at a problem for long enough.”
You need team diversity, he suggests, not just of gender or ethnicity, but of thinking, of income levels, of educational backgrounds. At Google’s Mountain View “moonshot factory”, X, which has spun off hugely ambitious and valuable businesses such as Waymo, making autonomous cars, and the drone company Wing, cognitive diversity is central to innovation. A culture that has former US Navy Seals working in small teams alongside fashion designers, and theoretical physicists alongside an Oscar-winning sound and visual effect specialist, helped, for instance, make Wing a lot more relevant.
Its drones were first used to deliver defibrillators to heart-attack victims. Engineers focused on making drone and defibrillator work; but user-experience researchers discovered that bystanders took so long to work out how to use the defibrillators that in the meantime an ambulance would arrive. The engineers were thinking about how to make the tech work; the researchers thought about why. Collectively, they arrived at a successful outcome. It’s certainly an argument for more demographic diversity (and, let’s face it, more women) in leadership roles that define a business culture, but also for more diversity of thinking inside an organisation.
There’s no reason why a startup culture can’t be effectively imported inside a corporation, provided that leadership protects the agile risk-taking team from internal politics. In India, the media conglomerate 21st Century Fox launched a free-to-use streaming-video service called Hotstar that directly challenged the broadcast-based business model of its parent, Star TV. By summer 2018, Hotstar had 150 million monthly active users, with its mobile app downloaded more than 350 million times, and had established a record of 10.3 million concurrent mobile-phone viewers watching an Indian Premier League cricket match.
“We saw expanding access to smartphone and internet consumption in India, and we thought, let’s chase this even at the expense of broadcast television and blow up the current business.”
For all its corporate heritage, Hotstar is run independently, like a fast-growth technology startup, with full permission to cannibalise the parent company’s existing revenue streams. “There was no fear of us disrupting the existing business,” its launch CEO Ajit Mohan told me. “We saw expanding access to smartphone and internet consumption in India, and we thought, let’s chase this even at the expense of broadcast television and blow up the current business.”
And so, like the best startups, Hotstar thought of itself as a technology business first and put its greatest efforts into attracting the top 1 per cent of tech talent. It then set them free “to do the best work of their lives” in small autonomous teams that can set their own targets and strategies.
Startup thinking needs to be embedded even in lumbering bureaucracies such as the military. Today our front-line troops are confronting agile enemies such as Islamic State, which innovate on the fly like a startup — modifying consumer drones, for instance, to deliver grenades over enemy lines. Three years ago, the US Department of Defense finally acknowledged that its three million employees and its traditional procurement processes weren’t moving fast enough to compete. So the Pentagon made space for a 40-person team of tech specialists on secondment from startups and told them to solve the problems bequeathed by legacy thinking.
The team is called Defense Digital Service, but with its pirate mindset it has renamed itself the “Rebel Alliance”; aloof from the military hierarchy, its engineers have jumped to confront problems in unconventional ways that are saving lives, including working with US soldiers on the front line to build radio-signal jammers that neutralised the Isis drones.
Even at London’s Natural History Museum — the original dinosaur institution, which opened its doors in 1881 — startup hacks are being used to turn a legacy academic organisation into a modern digital business that can survive declining visitor numbers and uncertain government funding. As the museum slowly digitises its vast collection and finds new ways to engage with consumers via smartphones, it is hiring outsiders from companies such as Amazon to challenge its thinking.
They are replicating Amazon and Facebook hiring processes for technology roles, emphasising a “product mindset” that challenges existing museum thinking and even adopting an Amazon process at the start of planning a new project known as the “working backward” process. This starts by making every participant collaborate in writing a detailed press release that’s due to be issued at the very end of the project.
My quest left me with a few transferrable lessons to offer Britain’s corporate and government leaders. First, empower your team: everyone in the organisation should feel responsible for innovation. At the Helsinki games company Supercell, the most successful in Europe, the boss Ilkka Paananen aspires to be “the world’s least powerful CEO” by returning power to the games-development teams (the “cells” that make up the Supercell) so that they do their best work.
Often this is easier to achieve in a co-operative ownership structure: the Fitzrovia-based consulting-engineering firm Arup, which takes on the world’s toughest challenges, is owned by its 15,000 staff, who have unusual freedom in what they choose to work on, and how. Arup recently completed the creation of five basement floors below Claridge’s hotel in Mayfair, even though the brief insisted that the hotel stay open. Arup’s team solved what the industry had called the “impossible basement project” by thinking laterally and importing miners from Donegal to hand-dig 1,800 metres of deep shafts that were then filled with concrete to support the entire hotel. No boss gave them that idea.
Second, in a world where the internet is commodifying so many businesses, innovation can lie in adding a “service” layer. Op, a century-old Finnish bank, knows that many of its profit lines, from car loans to currency transfers, are being attacked by startups; so it set out to enhance its customers’ quality of life in other ways — and is now performing surgery in five highly efficient hospitals that it built.
Similarly, the Heywood Hill bookshop, which has traded on Curzon Street in Mayfair since 1936, has found a bold service-led way to withstand the pressures of online retailers. If Heywood Hill’s expertise in selling books was no longer viable, why not reframe its expertise around recommending books? Why not turn a retail business into a curation service, using the knowledge of its specialist booksellers to create bespoke libraries for discerning customers, while also promoting a personalised book-subscription offering? Thousands of customers are now paying hundreds of pounds a year to be sent a monthly book specially chosen for them.
And third, harness the tech tools that the startups use to gain market advantage. They’re obsessed with collecting data and using it to measure changing customer needs; why shouldn’t a legacy industrial business do the same? The Australian airline Qantas is analysing the data captured by its loyalty programme to launch profitable new businesses to these customers, ranging from health insurance to a food and drink club. In 2017, businesses built on the loyalty programme made up almost 30 per cent of total group profits.
Finally, government itself needs to radically rethink how it works in an era when innovation can transform national destiny. At least Beijing has not yet dominated the emerging field of superfast quantum computing, which will in the coming decades affect everything from encrypted financial transactions to pharmaceutical drug discovery. You don’t need to be a cryptographer to understand that, as the era of transistor-led computing draws to a close, the nations and businesses that build early leads in its replacement will lock in economic as well as military and geopolitical advantage.
The main priority of the UAE’s Minister for AI is to boost the efficiency of government services and ensure that they are tailored to individual citizens’ needs. But the mission is also to evaluate government policies: before launching a new education strategy, for instance, the government builds a computer simulation to understand how it will affect schools in practice.
A government optimised by a smart machine that prioritises national progress? How utterly refreshing is that.
This article is authored by David Rowan , a leading expert on the impact of technology on business. As the former Editor-in-Chief of WIRED UK, Rowan shares his valuable insights on how emerging technologies shape the business landscape. David Rowan is the author of Non-Bullshit Innovation: Radical Ideas from the World's Smartest Minds (Bantam Press)
Drawing from his firsthand knowledge and connections with notable startup founders, including those behind WhatsApp, LinkedIn, Google, Didi, Spotify, Xiaomi, Nest, and Twitter, Rowan equips leaders with the necessary understanding to prepare for the future.