Innovate or Perish
Giving a keynote at the Interstate All-Battery Centers Convention today. Here’s the text of the talk.
Nanovation was a three year case study of disruptive innovation in the automotive industry. It’s the story of a group of engineers in India who got tired of seeing entire families riding on motor scooters and getting killed. So they set out to see if they could build a car – A real car people would be proud to own – for the price of a scooter.
In India, this is a very common sight. Are these people nuts? No, they’re just unstoppable. They’re educated and they’re hard working and they want to make a contribution to the world. But they have to get around. They have to get these girls to school. They have to themselves to work.
And this is what they can afford. A scooter.
Here’s why. Trains are kind of crowded.
They figured out how to take 70% of the cost out of almost every part on a car and still have it be well built enough to survive Indian roads.
The result was that Suzuki, who had owned the low end of the car market in India, said we don’t know how to make a car that cheap. They gave up their 50% market share and left the market.
The other result is that, because many of the major OEM parts makers were in on the project – like Visteon, Delco and Bosch – the latest VW Passat now costs $7100 less than last year’s model.
And the next Range Rover will weigh 1,100 pounds less than the current one. That’s a 20% weight reduction and that makes the Range Rover more fun to drive and more fun to fill up at the pump.
And here’s one interesting point: that group of engineers in India is TATA Motors, who also own Jaguar Land Rover.
They bought them out of bankruptcy from Ford and turned them to profitability in three years, so these are actually pretty good people to learn from.
And what we learned from writing this book was a whole new way of looking at innovation that we call Nanovation.
The other thing we learned was this. In the new world we’re part of, a business will have only two choices: Innovate or Perish.
So let’s dig deeper.
I like the way Thomas Friedman says it:
“In today’s world, anything that can be done will be done. The only question is, will it be done by you or too you?”
Somebody is going to come into your industry with disruptive innovation.
It doesn’t matter if they’re in India or Indiana, somebody is going to do it.
Why shouldn’t it be you?
Where do you start? You start at the convergence of trends.
We have some major trends right in front of us now but we may not be seeing them.
Humans are fairly bad at perceiving trends as they’re happening. We’re better at seeing things in the rear view mirror. We tend to see a trend only when it’s passed us by. And today we are at the convergence of some monster trends. If we can’t see those trends and get out in front of them, we’re in trouble.
Innovate or perish.
Why can’t we see trends?
Well, let’s look at how magic works.
A magician gets you to focus on what he wants you to see and when you do that, you don’t see anything else.
It’s called “inattentional blindness” and it has to do with the way our brains are formed.
Imagine you’re in the rain forest and your survival depends on finding these little red berries in the middle of all that growth.
Or you have to find some kind of furry little creature or you will starve.
If we couldn’t tune out all the visual noise around us, we’d never find these things. Inattentional blindness is part of what got us here today.
So a magician uses that to entertain us by getting us to focus on what he wants us to focus on and then while we’re focused, he does his thing. He can pretty much walk a guy in a gorilla suit through the audience and you won’t see it.
So ask yourself this… you come into your store every day and focus on what’s really important. But what are you MISSING?
We underestimate the power of future technology and the rate at which it’s coming toward us because we imagine technology will change tomorrow at the same rate it’s changing today. Human beings experience our lives in a straight linear progression. That’s how it appears to us.
So we do our strategic planning for the future by looking back at the past and projecting that rate of change forward.
But here’s why that doesn’t work.
Every big technological change is a paradigm shift from what came before.
Humans got metal tools and wheels back around 3000 BC and then nothing much changed for thousands of years. But by 1000 AD, progress was faster and a paradigm shift required a century or two.
Then in the 1900s we saw more technological change than in the previous 900 years. Then, in the first 25 years of the 20th century, we saw more change than in the whole century before.
Now, by the time we reach 2012, paradigm shifts occur every few years.
So if you try to plan your business based on the pace of change you’ve seen in the last five years, you’ll be significantly off target.
Example, in 2000, a Nobel Laureate predicted it would take us at least 100 years before we had computers that could think like humans. And he was right, given the current rate of technological progress. But because the current rate of change doubles every decade now, we’ll see true artificial intelligence in the 2020’s.
That’s how fast things are moving.
Let’s talk about how the increasing rate of technological change affects the battery business?
Battery capacity is increasing at a rate of about 5 to 6% per year. That means battery capacity should double every 12 years or so.
But that’s at the current rate of change. But since the current rate of change doubles every decade, what’s going to happen to increases in battery capacity? This is a really hot area of research right now, and I expect we’ll see huge change fast.
But that’s only part of the story.
How many of you know what Moore’s Law is? The amount of computing power will double every 18 months. Because as much as computing power is increasing, the amount of electrical power that computer draws is decreasing at a similar rate.
Here’s Koomey’s Law, which says that the amount of electrical power needed to run an electronic device is cut in half every 18 months.
Think about that. The computer or camera or TV you buy in two years will be twice as powerful and use half the energy
But think about what else might happen.
As battery life extends and the amount of power electronic appliances require is cut in half every two years, what happens? More things can run on batteries.
We know cars will. But what if you could run a whole house on batteries and only have to draw current a few hours a night when the rates are lowest?
I know what you’re thinking – Dain, you’re nuts. That kind of technological change is going to take 50 years.
OK, let’s say you’re right. Let’s say I’ve just described 50 years of technological change to have a battery that could power a whole house for 24 hours.
But that’s 50 years change at today’s rate of change. And since the rate of change is doubling every decade or less, what are we really talking about? Maybe 12 to 15 years?
Are you planning for that?
With a pace of change like we’re experiencing, you put yourself at a serious disadvantage if you aren’t operating on the latest technology, or pretty close to it.
If you haven’t updated your POS system, you’re leaving yourself open to a competitive disadvantage. If you’re not taking social media seriously, you’re open to a competitive disadvantage. If you’re not Googling each and every customer you have, you may be missing some big connections you could use to accelerate your business.
Innovate or perish.
I know when people hear “Less is More” it gives them heart palpitations, because it sounds like we should go on a diet and be satisfied with less in our lives. It has a crunchy granola feeling.
But less is more only when less is better. And there are a lot of cases where that’s true. Koomey’s Law is one such case. We can do more and more with less juice.
It’s about simplicity.
Two quotes, the first from Leodardo da Vinci: “Simplicity is the ultimate sophistication.”
It’s what we call elegance of design. Driving force at Apple. Everything that needs to be there but nothing more. When you want to design the world’s least expensive car, that pretty much has to be your mantra.
So take the Nano as a case in point.
The leaders at Tata Motors were tired of seeing whole families on scooters wipe out in traffic and go under a bus. They said let’s do something about that. Let’s build a car for the price of a scooter. Incredibly hard to do, they almost quit.
But then they had a breakthrough on a part and learned how to take 70% of the cost out of it. The breakthrough was to think in terms of really elegant design and making it really simple. Doing more with less and doing it better … or at least just as good.
And here’s the result. The Nano is a little car designed to sell for $2100. And it’s a real car. They took advance orders for about 200,000 cars and have delivered about 150,000 in the last couple of years, with sales increasing as they figure out how to market it to people who don’t know how to buy a car.
In real terms, in today’s dollars, the Nano costs one fifth what the first VW bug in America cost. One tenth the cost of the model T. What this means is, we’re getting to be geniuses at taking the costs out of production.
So… What would happen if one of your competitors figured out how to cut 50% of their costs?
What would happen if you beat them to it?
Here’s what happened with to Suzuki.
Suzuki came into India in the early 80s with the first really affordable car in India, the Maruti. Huge market share. They trash talked the Nano from the beginning, and then when it was released they had no response.
They just walked away from that market segment in India
Survival tomorrow depends on being able to do what you do today … but better and at a lower cost. This has been the key to the success of Southwest Airlines. Everybody talks about their great customer service, but the real secret of their success is that they believe keeping their costs down so you can fly more often is the best customer service they can give you.
Here’s the other quote on simplicity, from Albert Einstein. “If you can’t explain something simply, you don’t understand it well enough.”
Everybody who worked on the Nano can explain what they did very simply. Everybody who works at Southwest Airlines can explain their value proposition very simply. What about All-Battery? Can YOU explain YOUR value proposition simply?
If you can’t explain your business simply, you don’t understand it well enough. If you don’t understand it, you’re employees won’t either. And if you employees don’t understand the value you provide in this world, their work won’t be very meaningful.
When my grandfather went to work in the ‘30s, a paycheck was meaning enough. But I’m going to guess one of the things that drives somebody to become a franchisee is that sitting in a cubicle taking orders from someone wasn’t MEANINGFUL enough for you. Am I right?
Everybody talks about the culture at Zappos or Southwest… and I see something similar here. Zappos or Southwest are filled with people who come to work every day with one idea in their heads. They really believe they’re going to spend their day making a difference to other people. It gives their lives meaning.
When the people in a company have meaning, the culture becomes a competitive advantage. But it does something else.
We have a very large generation called the Millennials who believe it’s not what you sell, it’s what you stand for. And if you don’t stand for something they find meaningful, you’re going to have trouble attracting them. They won’t want to work for you and they won’t want to buy from you.
Which leads me to Interstate All Battery Centers. How can you ride the convergence of trends to build your business and be a brand that changes the world?
One word: value. Add value. To your customers. To your employees. To everyone who comes in contact with you and your store. If you add value to my life and to my work, I’ll be a loyal customer. I’ll be a loyal employee.
Your future depends on how good you can be at taking converging trends in technology, supply chain and HR and using them to take costs out of your system so you can offer your customers value in ways others can’t begin to. Innovating in these areas takes you into the 21st century and lets you operate more efficiently.
Taking costs out is smart for profitability but it’s smart for another reason. If you can take costs out of your system, you can be more agile. You can respond faster to your customers changing needs. You can invest more in providing me with value. You stop being a commodity and become someone who helps me be more successful in what I want to do.
It’s a tempting idea but it won’t get you anywhere.
You have to be out there with your eyes open looking for the trends everyone else is missing. You have to get into the heads of your employees and your customers. You have to get into the head of your competition.
You have to innovate new ways of adding value to the lives of others, in a way that blows the doors off your industry.
Because if you don’t someone else will.
We live in the greatest time ever to be alive. For all the talk of economic recession, there’s never been a time when so many people lived above the poverty line and had access to resources. For all the talk about war and terrorism, there’s never been a time where there was so much peace. For all the talk about unemployment, there’s never been a time where there was so much opportunity.