Every Monday I post the next section from my 2001 book. I think the idea explained in the excerpt below is one of the most important ones in the book, and something that few others write or talk about. I called it "First Step for Innnovation: Redefining and Reclassifying Your World."
Quick, what is the largest stringed instrument in a typical orchestra?
Did you think only of instruments shaped like violins, such as the cello, viola, and bass? Or did you think of the piano, the correct answer?
Our thinking usually starts with a set of definitions and classifications. Often, we are so familiar with these definitions that we don’t even think about them. “Major” sports means baseball, basketball, and football. “The Networks” means ABC, NBC, and CBS. Whoops — now we have to include Rupert Murdoch’s Fox. But our definitions sometimes go astray. What often holds companies back from innovative thinking is using worn-out definitions. So we should start by checking our definitions before proceeding.
Here are examples of definitions that have gone astray or become bent out of shape:
· We have been told all our lives that Europe is a continent. But by any rational definition of continent, such as “a large hunk of land surrounded by water,” Europe is not a continent. It is a peninsula on Asia. There has even been a book written about this quirk of our culture’s Eurocentrism.
· If you go to a bookstore and pick up a guide to North American mammals, it will almost never include dogs, cats, or cows, and certainly not humans. Are we not mammals? The reality is these books are not guides to mammals, they are guides to wild mammals.
· In the 1950s, one of the biggest figures on the world stage was Soviet “dictator” Nikita Khrushchev. He was supposed to have the same kind of “job” as Hitler and Stalin. Then all of sudden Khrushchev was sent to live incommunicado in his country cottage outside Moscow. If he could be fired, then what did this word “dictator” really mean?
· Go to the history section of a bookstore, or sit in a history class. When academics and authors say “history,” much of the time they mean military and political history. But real history includes more: the history of General Motors, of Microsoft, of restaurants, of salads, of pets, of sports, of aviation, of churches, and of movies.
· I love machines. Sometimes people ask me what my favorite machine is and I say, “My thirty-six-inch Balinese gong,” and they say that isn’t a machine. But look up “machine” in the dictionary and you’ll see that a giant metal disk that is struck so it vibrates and sends pressure waves through the air to our ears is certainly a machine. As cool a machine as man has ever made, in my humble opinion.
Great minds break through definitions that aren’t right. For years, most of the work done in economics was restricted to money and business. But anyone who really understands the power of the economic way of thinking realizes that it is the study of the allocation of scarce goods. These “goods” can include religion, love, and many other things. If the only reason we did things was to maximize the amount of money we had in the bank, why would anyone (except a farmer) ever have kids? It took Gary Becker at the University of Chicago to begin to apply economic logic to family and marriages, to racism and discrimination, even to crime and punishment. Eventually he won a Nobel Prize for his work, which changed the way we define “economics.”
My first job out of college was working for Citibank. At the time, Citibank was led by a great thinker named Walter Wriston. While the other banks considered Citibank the competition to watch, Wriston told us that we were not just a bank, we were a financial services company, and that we should watch not just the other banks but companies like Visa, Sears, Merrill Lynch, and Household Finance.
Lessons from Retail Definitions
Later in my career, I got to know the people who ran one of the best supermarket chains in the US. They were talking about how disappointed they were in their sales of greeting cards. They asked my advice. I looked at their organization chart to see how they classified their world. It read: “meat, produce, canned goods, dairy, baked goods, nonfoods.” That was all I needed to know. In their world, all those “nonfoods” combined — magazines and pots and pans and cookbooks and school tablets and garden sprays and greeting cards — got no more attention than baked goods. To this day, it is amazing that I can walk into the office-supply section of that supermarket chain and find no inkjet printer cartridges, no Zip disks. But the truth is that they are limited by their own classification system, by their definitions, by the structure they have put on their world.
The big department stores I worked for, companies like Macy’s and May were equally off-center in their own way: they saw their world as young women’s clothes, teenagers’ clothes, jeans, ready-to-wear, designer clothes, menswear, and the home store (appliances, furniture, books, stationery, records, sporting goods, pet supplies, toys, hardware, auto parts, tires, and sheets and towels). Apparel is where these companies made their money and their reputation. The apparel department was also where most of the top executives came from. The long collapse of many of these “home store” departments in the 80s and 90s could have been foreseen by studying a 1975 organization chart. Many of these categories were the fastest growing, allowing the creation of such companies as Toys “R” Us, Barnes & Noble, Office Depot, Tower Records, and Home Depot. The department stores that really flourished, such as Wal-Mart and Target, did not run away from these categories, but they also did not start out by thinking of them as stepchildren in an apparel-centered map of the world.
Today, booksellers continue to define themselves as booksellers. But the customer often may be “agnostic” about the format in which “content” is delivered to them. They may want business information in an online subscription service, they may want electronic bird guides with sound and pictures in their pocket, they may want novels in paperback. The two things that booksellers really sell – information (or education) and entertainment (stories) – have a great future. But books in themselves may not have such a great future. In coming years, I expect that books’ share of total information and entertainment sales will decline (although I believe the total sales of books will continue to grow, just not as fast as other “delivery” formats).
I have been talking to grocers who are in charge of the meat department. If they continue to define themselves as meat departments, they may miss out on the great opportunity called “meals” or “dinners.” That is, shouldn’t hot dog buns be sold next to hot dogs? And if I want a vegetarian meal for a change of pace, might such meals be most successfully marketed as an alternative in the same “department?”
A famous essay by Theodore Levitt, “Marketing Myopia,” tells how the railroads lost out to the truckers because they saw themselves as railroads rather than as freight transportation companies. Today articles about the education industry go on and on about universities and schools. But among the strongest “competitors” in the education industry are the A&E channel, the Public Broadcasting System, Barnes & Noble and Borders bookstores, Amazon.com, the public library network, and DeVry Technical Institute. Articles about health care focus on hospitals, HMOs, and doctors, but aren’t Whole Foods Market, GNC, fitness centers, Johnson & Johnson, and Walgreen’s an equally important part of our health infrastructure?
When you use the phrase “making my investments,” do you mean just investing cash, or do you also value your time and energy? When I form new enterprises, my investment in time and heart is several times as great as my investment in money, no matter how much money I put in. When I borrow from the bank to take a trip overseas, I believe that I may be earning the highest “return on investment” of anything I could do with these funds.
Every time we stick a label on something or someone, we are classifying them. Some retailers call their customers guests. This may lead to a positive mindset about the customers. At the other extreme, a friend told me about a large “power and light” utility that refers to its customers as “ratepayers.” It is unlikely such a company is prepared for a deregulated world in which customers have real power, in addition to some new light on the rates they pay.
One of the most misleading classification systems that we grow up with is the division the world into politicians, lawyers, doctors, dentists, writers, ministers, educators, gardeners, and businesspeople. If you study the greatest businesspeople, they were often people with a very specific craft. Allen Neuharth, who created USA Today, was a newspaperman, one of many greats in that industry. Walt Disney was an animator-turned-dreamer. Lee Iacocca was a car guy through and through. Bill Gates is a nerd. These people are no more or less “businesspeople” than the lawyer who runs a giant law firm, the doctor who runs a medical clinic, or a university president. They are leaders of people, trying to get things going in the same direction, trying to build their enterprises, trying to make their dream of the future become real. Walt Disney could no more have run a bank than Madonna. Yes, there are people who are purely “great managers” — Harold Geneen and Jack Welch come to mind — but they do not outnumber history’s great merchants, great inventors, great marketers, great broadcasters, and great engineers.
Another of our current misdefinitions is the way we look at the Internet. We have this wonderful new technology that lets us network easily with everyone else on the planet. The Internet promises to bring us multimedia interactivity, twenty-four hours a day, seven days a week. It is perhaps the most powerful communication and transaction tool in history. But that’s all it is — a tool. Just as the automobile, the airplane, the television set, the movie screen, and the microprocessor have changed our lives, the Internet is changing our lives again — perhaps more than any of these other tools, perhaps not. But this fact does not make every company that uses the Internet an “Internet company,” to be studied by “Internet analysts.” Amazon was a “mail-order” book retailer, one of the best-run retailers ever. Today it has evolved into a “mail-order” shopping mall, using this new technology to deliver information and services that old-fashioned mail order could never have done. Amazon may go on to greater and greater things, but it is no more an “Internet company” than Lands’ End was a telephone company back when it got all its orders by phone. We cannot properly understand the business components and economics upon whose success or failure Amazon relies, unless we understand the company’s true industry and its direct competitors — Barnes & Noble, Borders, and every other seller of competitive merchandise.
eBay is not an Internet company; it is a wonderful clearinghouse for collectibles and other items — a great business model that can transcend any single technology such as the Internet. eBay could not have existed without the technology of the Internet, but eBay may be even more powerful when it adopts the next technology.
When I first started Reference Press, which later became Hoover’s, CD-ROMs were all the rage. About 1991, everybody was asking when we were going to come out with a CD-ROM version of our books. My friend Patrick Spain, who became CEO of Hoover’s, said, “The CD-ROM will pass; that’s not where we want to focus our primary efforts.” Most of us thought he was crazy, but he was one of the few people who saw the future: he wanted to focus our efforts online.
People are today so enamored of technology that we forget its transient nature. My town of Austin proudly calls itself “Silicon Hills.” But the high-tech center of America in 1880 was Pittsburgh, in 1920 Cleveland. Technology will by definition move on. Brands and customer relationships, however, have proven more durable over the years. When I began studying the top companies, Xerox and Digital Equipment were high-tech success stories, vying with Coca-Cola and Procter & Gamble for investor attention. Thirty years later, Coke and P&G still stand, but Xerox is weak and Digital is gone.
It is just as bad to lie to ourselves about the definition of our own enterprise. If you are an insurance company but call yourself a financial services company, you’d better not be just an insurance company. Are you cashing checks, taking deposits, paying interest, trading stocks, or helping with taxes and accounting? Those are all financial services. If you’re not providing at least some of those services, you’re misleading yourself.
If you start your search for understanding with bad definitions and classifications, you will not learn what you hope to learn. When you first begin to think about any subject, take a hard look at how it is defined. Study the generally accepted categories, the way people normally divide things up. Is it a logical system? Is it an inclusive system that takes into account all of the players? If the definition other people are using is wrong, if it is not robust enough, discard it and think up a better one. You cannot afford to build your whole structure of understanding on weak foundations. And you may not be able to afford to see the world in the same light as everyone else.
If you have a strong foundation in place, if your mind is ready to absorb and connect new information, then it’s time to get out and start looking – in the oddest of places and in the most unexpected ways.