For more than two thousand years people have been using the phrase “necessity is the mother of invention.” Some attribute it to Plato's Republic. Others believe that it originated as an anonymous Latin saying from Roman times - Mater artium necessitas, which is still in use to this day.
In my talks on innovation, I paraphrase that ancient dictum to “survival is the mother of innovation.” For a business, our rapidly changing times are full of opportunities, but they are equally full of competitive challenges and dangers. In fact, these are two sides of a coin - the same technological, market and societal forces that are democratizing competition and opening up all kinds of opportunities for new businesses around the world often represent big threats to existing businesses, large and small, that have been leaders in their industries.
In fact, given enough time, it seems almost inevitable in our brutally competitive, Darwinian IT industry that leaders will ultimately get in trouble in the marketplace. Sometimes they will be able to reinvent themselves and overcome their troubles, but more often than not, their problems will prove lethal. My colleague Linda Sanford wrote about this in her book Let Go to Grow: Escaping the Commodity Trap, co-written with Dave Taylor. They presented some sobering statistics about the market realities every business faces. Of the 172 companies that have appeared in the Fortune 500 between 1955 and 1995, only 5 percent grew their revenue above the overall inflation rate, and only 16 percent of 1008 companies tracked from 1962 to 1998 have survived. And things have only gotten tougher in the last five years, given the additional competitive pressures brought about by the forces of globalization.
“Survival as the mother of innovation” may appear overly dramatic to some, perhaps a bit academic to others. But anyone who has lived through the very painful process of having one’s company decline from a position of leadership to a serious survival crisis knows it is an indelible experience that stays with you forever. About fifteen years ago, IBM went through such a near-death experience. For those of us who lived through it, the feeling is almost as real today as when it was actually happening.
IBM's travails in the early '90s are well known and have been written about in many articles and books, but let me just mention a few facts. In 1986 we were the most profitable company in the Fortune 500. We had more than 400,000 employees around the world. By 1994, we had lost almost $16 billion in the previous three years, and our employee population was around 220,000. In the mid '80s we were on top of the world, leaders not just in the mainframe market that dominated business computing, but also in the new, fast growing personal computer business, and numerous other important IT areas as well. Only a few short years later, we were a symbol of business failure, victims of a technology revolution that in many ways we helped create but did not take advantage of. It was not only painful, but humiliating.
As the statistics in Let Go to Grow starkly show and as I have personally observed in my many years in the IT industry, surviving a serious crisis is more the exception than the rule for a company. It is frankly sobering how many once-powerful IT companies no longer exist or are shadows of their former selves: mainframe and supercomputer companies; companies in minicomputers, office systems, workstations and PCs; software and application companies. Consider how many IT companies you were once familiar with are simply no longer around.
How can you innovate your way through a serious crisis, so you not only survive it but remain an important player in your industry? Let me offer a few personal observations based on my own experience during the IBM crisis.
Talent and R&D investments
First of all, you need talent and investments in research and development that are focused on looking out a few years into the future. In my innovation talks I usually say up front that a business needs to think of the technology and market changes battering us from all sides in the same way you might view the asteroids that are supposed to have significantly changed the environment long ago. Once the asteroid hits, the environment may be quite different, perhaps no longer favoring you no matter how strong a leader you previously were.
You never, ever want to first learn about the incoming asteroid when it is about to hit, and then have to improvise your survival strategy in the middle of a crisis. Talented people, especially in a company that seriously supports R&D, should have spotted the incoming asteroid years before, usually in the form of a major, disruptive technology change, and should have been developing alternative products, services and market strategies based on the new technologies.
This was precisely the case at IBM with the mainframe transition that almost did us in. The technical community in our R&D Labs had been anticipating the transition from bipolar to the much less costly CMOS technologies for several years, and had been designing and prototyping a new family of CMOS mainframes based on parallel architectures that would be compatible with the installed base of mainframe software. Even so, the transition was very rough, and the business actions we needed to take - plant closings and layoffs - were exceedingly painful. But, I am convinced that the main reason we survived was the heroic innovation of the highly talented people in our labs.
Harmony with the Marketplace
The reason we got into so much trouble to begin with is that while the marketplace was changing all around us, we did not like the changes and were slow to embrace them. We liked things as they were.
When the market started to change in the late '80s, with the popularity of PCs, workstations, client-server computing, UNIX and other new IT capabilities, we felt that they threatened our highly profitable mainframe business - which they certainly did. We embraced them only half-heartedly, even though we had developed the IBM PC to begin with, and invented the RISC microprocessors that powered the new generation of UNIX workstations and servers. We were frankly baffled to see the marketplace - customers and competitors alike - moving in a direction different from the one we had planned for in our business strategies.
It took our near-death experience and a change of management at the top in 1993 for the culture of IBM to radically change. We finally accepted some very important realities: the marketplace is much more powerful than any single company. Even if you don't like the direction of the marketplace, you go against it at your own peril. And innovation is much more effective when it is in harmony with the overall direction of the marketplace.
Like the reformed sinners we are, we have become marketplace zealots, embracing its major dictates, from parallel supercomputing, to the Internet, to open standards and open source software. We have learned that if you are a company with the kinds of ambitious goals we have, innovation is absolutely critical, but that innovation will be a fantasy if not aligned with the natural forces of the marketplace.
Relationships and Collaborations
There is no time when you need people rooting for you more than when you are in really big trouble. When many in the early ‘90s were predicting the death of the mainframe, not to mention IBM's own demise, it was frankly our customers who were our strongest supporters and were rooting for us to make it. Pundits, competitors and others were filled with schadenfreude at the spectacle of the high and mighty IBM brought to its knees.
But our customers were not among them. We enjoyed good relationships with most of them, which had been developed over the years through close working collaborations. Many of them were dependent on our products and support for key processes in their businesses. They wanted us to transform ourselves and keep going.
In the late ‘80s and early ‘90s, we met fairly often with key customers, sharing with them our strategies for transforming the mainframe and carefully listening to their feedback. We wanted to know if we were on the right path. We learned that, in general, our customers liked their mainframe platforms, especially for mission-critical applications, but felt they were too expensive and proprietary. They wanted prices to drop significantly, to become more in line with those of the emerging platforms. They also wanted mainframes to become more open, so they could integrate them with everything else in their enterprises and view the mainframes essentially as enterprise servers in their overall IT infrastructure.
I cannot say enough for the confidence inspired by the feedback our customers gave to our transformation strategy. There was a time when even senior people within IBM were questioning whether it was possible to continue our mainframe business. Those of us who fought hard to do so were able to cite our customers’ sentiment as perhaps our strongest argument. Listening to and collaborating with customers, especially in times of trouble, might very well be one of the most important cultural innovations that every company needs to embrace.
Finally, we need to keep in mind that circumstances out of your control often affect your fate and can make the difference between survival and failure. So, in addition to talent and R&D investments, embracing major marketplace-based initiatives and listening to and collaborating with your customers, a little luck always comes in handy.