Innovation Now!

A radical idea has the power to change customer expectations. Not long ago, the PC was the ugliest thing in your home. Then Apple hired Jonathan Ive, a young British designer who turned that monstrosity into the first iMac -- a jazzy, fresh work of art that changed customer expectations. Apple is still just a footnote in the computer industry, but the one thing that has kept the company alive is its product innovation. Apple keeps raising the bar on what people expect to see in a PC. That's radical innovation at the product level.

A radical idea changes the basis for competition. In a world of increasing income bifurcation, conventional wisdom in retailing said that shoppers would go either to a Wal-Mart or to a Saks Fifth Avenue -- and that it would get ever tougher for companies in the middle to make money. Then Kohl's proved that conventional wisdom wrong. The company has half the number of stores as Sears and one-third the number of stores as J.C. Penney, and yet its market value is greater than that of either of its two century-old competitors.

The radical idea? To rethink what it means to be a department store. Kohl's created stores that are laid out in an attractive way. You don't feel as if you're wandering the soulless canyons of a warehouse when you're there. At the same time, the store's displays are arranged to get you in and out quickly. Says Kohl's CEO R. Lawrence Montgomery: "Our whole philosophy is to get shoppers to spend less time in our stores and buy more." If you've ever been in a Bloomingdale's or a Saks, you know their philosophy: How do we confuse customers with our layout and get them to spend as much time as possible walking in circles?

A radical idea is one that has the power to change industry economics. By adopting a point-to-point routing system, Southwest Airlines keeps its jets in the air for two or three hours longer than most of the other airlines (which use the hub-and-spoke model), thereby using its capital more efficiently. The result: Southwest, which is barely a generation old, now has a market value that is greater than the next five airlines combined. (Of course, Southwest has to be on the lookout for JetBlue Airways, which offers rock-bottom pricing with better than rock-bottom service.)

Does the word "radical" still make you uncomfortable? Get over it. Today's world is a tough place. It's going to remain a tough place for the foreseeable future. You can wallow in timidity, or you can realize that the case for radical innovation is stronger than it has ever been, because there are fewer options than there have ever been. My question to anybody who's still skeptical is this: What other choice do you have? What's your Plan B?

Innovation or Perpetuation?
Recently, I had the honor of sitting next to Nobuyuki Idei, the chairman of Sony, during a long dinner. One of the things he commented on was the enormous success of PlayStation, by far Sony's single most profitable business. While Mr. Idei was talking, I couldn't help but think back to an interview I had done two years earlier with Ken Kutaragi, who invented PlayStation.

When Ken started dreaming about the video-game business as an opportunity for Sony, he found little support inside the company. Sony was so hostile to the video-game business that, at one point, Ken moved his office to a distant facility on the outskirts of Tokyo. Despite the internal resistance, Ken managed to strike a deal to sell a Sony sound chip to Nintendo for use in a game console (his way of getting close to Nintendo and learning more about the business). Eventually, he won a senior-executive sponsor for PlayStation: the head of Sony Music in Japan, who hoped that the CD-based PlayStation might be another device on which consumers would play Sony music CDs.

Here's the point of the story: When I talked to Ken about PlayStation, he said that his success had come despite the system , not because of it. And he's not the only one. Most people who succeed at radical innovation inside large companies will tell you that they did it despite the system. What I find remarkable and disturbing is that so few senior executives seem to find that state of affairs to be remarkable and disturbing. Apparently, they're willing to accept the fact that their organizations are built for perpetuation rather for than innovation. I'm not. Now, there's nothing wrong with perpetuation. Control, hierarchy, diligence, efficiency, replication, quality -- we inherited those virtues from the industrial age, and virtues they will always be. But in a discontinuous world, we need to turn down the dial a bit on perpetuation and turn up the dial a bit on innovation.