I love a good “David beats Goliath” story, and it seems that these days, there are plenty to choose from: Netflix humbles Blockbuster, Tesla takes on big car companies, Zynga disrupts video game giants.
We love to wax on about the usual demons. Large companies as victims to their own success, unwilling to disrupt their core business, tripped up by organizational complexities, they grow too rigid to respond to in an accelerating marketplace, and the innovative attacker--like Robin Hood fighting for the people--triumphs! This “David beats Goliath” story is particularly resonant in the United States, where it plays to the historical and entrepreneurial narratives that define our culture.
But as with all folktales, this narrative is only partly true. Goliath can win, too.
Recently one of our clients asked us to help them find strategies to out-innovate younger innovators disrupting a new market segment. So we looked for cases that matched a specific situation: a large, dominant incumbent facing a market disruption--a new technology or emerging market segment. This disruption was not threatening to challenge Goliath’s core business, which one would expect would lull Goliath into complacency, and yet Goliath took bold action. The big guy out-innovates the innovators, seizing the opportunity, and wins.
Seems like a long shot, I know, but we were surprised by how many we found. Consider what American Express and MasterCard are doing in payments, how HBO has responded to Hulu and Netflix, why the New York Times remains relevant in a digital world, how Amazon keeps leaping ahead in retailing and now cloud services, or how Google boldly stole the show in mobile phones. GE, IBM, McDonald's, Marriott Hotels, Nike, and Disney are just a few more innovative Goliaths to learn from.
I don’t have space here to dig into all there is to learn from how these Goliaths out-innovated the innovators, but here are three key lessons:
1. Play the beginning, not the end. Every game has unique phases. In chess, for example, we see beginnings, middles, and ends. How you play the end game--when there are just a few pieces left on the board--is fundamentally different from how you play the beginning, when every move is pregnant with hundreds of possibilities. Innovative Goliaths understand this difference. They understand they are playing the beginning of a new game and adjust their approach. They measure opportunities not by Net Present Value and projected ROI but the value of the possibilities the strategy opens up. This is like placing a piece on the board because it gives you future options, not because it is part of a carefully defined plan. For example, common strategic logic would have said Nike should never have launched the Fuel Band. But this innovation has created a platform with innumerable valuable possibilities. Is there something you believe your company should be doing, but you can’t support that belief with an NPV calculation? If so, measure the strategic value, the possibilities that the move buys you.
2. Be good. In the new era, companies that pursue missions that benefit society will enjoy a meaningful advantage over those that do not. The evidence is clear. But I find frustrating the knee-jerk reaction to believe little guys must be up to good while big guys only care about profits. Granted, large companies, because they have power, run a greater risk of abusing that power. But I’ve met hundreds of small companies and entrepreneurs after little more than self-enrichment. Goliaths who out-innovate the innovators often hold a strong sense of higher purpose. They seek to survive for reasons beyond survival. And this makes them magnetic. MasterCard, for example, is driven by eliminating negative social costs of a cash-based society. What higher purpose led you to greatness? How can you reconnect with and authentically communicate that purpose?
3. Play big. Historically large companies relied on three sources of competitive advantage--economies of scale, captive customers, or captive resources. As these advantages erode in value, the temptation is to believe in a flat world in which size does not matter, in which all compete on a level playing field. But just as no two people are the same, every company is unique. To play the game like everyone else is to pursue mediocrity. Instead, innovative Goliaths embrace what makes them unique; they leverage their brands, assets, and capabilities to open up opportunities that don’t make sense for others to pursue. When Amazon pointed its servers at providing cloud services, taking on hundreds of technology upstarts, it was playing big. When McDonald's applied its consumer insights and fast retailing skills to create RedBox, it was playing big. When HBO applied its catalog of content to jump into the game with Hulu and Netflix, it was playing big, too. What unique brands, assets, and capabilities can you use to open possibilities not open to others?
While critics love to prophesize the fall of Goliath, remember they are simply replaying a cultural narrative, a folktale. Large companies that embrace the new game, pursue good ends, and leverage their greatness to do it, will win.
The game has just begun.
[Image: Flickr user Ludovic Hirlimann]