This chapter is from the book
This chapter is from the book
This chapter is from the book
Introduction
Strategists, both academics and managers alike, search for novelty, foresight, and what’s next. When novelty becomes ubiquitous, what is “really” new? Boilerplate strategy is being challenged as theories of momentary competitive advantage are being disrupted by industry shifts and the strategic innovation that organizations, which do not fit established ways of doing things—outlier organizations—bring about. Such outlier organizations are often found at the fringes of industries where they are already challenging, uninvited, the prevailing industry or business logic.
Our focus is on strategic novelty, where to look for it, how to recognize it, and even how to harness it. We believe that composing music for a “clavier,” even before the instrument has been conceived, is useful—both for musicians as well as for creators of instruments. Outliers, and their perspectives at the frontiers of (not-yet-formed or to-be-challenged) industries, can provide valuable lessons for strategists, whether they are in that particular industry or not. We are not advocating generally applicable silver bullets, nor are we focusing on “lessons learnt” in the conventional sense.
Consider two quite opposite approaches for tackling the important task of distilling “generalizable” lessons learned. One is to look back at the historically successful, proven to be relatively stable bloc of incumbent organizations, i.e., those which are said to be driving and often dominating an industry. A second, alternative way, of looking for novelty is to borrow the lens, insights, and visions of the outliers that are driving the not-yet fully formed businesses, or seeking to disrupt established industry models. They are outliers precisely because they lie outside, or at the very edge of, the conventional understanding of industry dynamics and even industry boundaries. By analyzing outliers that lie outside the boundaries of “something,” we can also gain more knowledge about that particular “something,” in new and important ways. By focusing on outliers, their business models, constraints, and opportunities, we also gain a better understanding of the industry, the incumbents, that the outlier differentiates itself from.
We believe that the second perspective is not only the more exciting, but also the more sustainable, approach. However, it is admittedly more challenging intellectually, cognitively, and even emotionally (more on these aspects of detecting outliers in our toolbox). Yet, it is precisely because such vanguards are underdefined—their outlook is less stable, their vantage points are less clearly defined, and their impact on incumbent structures and emergent markets is more uncertain—that these outliers are an often overlooked invaluable source of strategic novelty.
How to study outliers, then? In management and social science at large, there is a long-standing divide between those believing in quantitative methods, with a focus on large samples to come up with generalizable averages, and those who believe in deep, qualitative insight into idiosyncratic patterns of only a handful of cases. We believe both camps provide meaningful insight. There is a practical snag, though. Outliers by definition are small in number, so a method relying on large sample sizes just isn’t feasible. In this book, we therefore use a qualitative analysis, deviant case methodology, to uncover characteristics of outliers as they evolve. The methodology and analysis are less concerned with generalizable, abstract insights—insights already well-known to any experienced student of management. Instead we aim to study examples of those few companies and the business models about to challenge you and the lessons outliers divulge as they do so. This is what Intel’s long-standing CEO Andy Grove meant by “only the paranoid survive.” The deviant case analysis seeks to expose what is really different and novel about a particular company and its strategy. That is our focus here. It is curious to us that so much of strategy research is focused on understanding similarity when being different is at the very core of any strategy worth its name.
We find that outlier companies often exploit digital or industry leading technologies in new ways. However, though technologically savvy, the novelty exhibited by these companies is largely strategic in that they have found new models by which to organize their business. For example, one of our outlier cases, Quirky, a New York-based consumer goods producer rapidly gaining a foothold in the market, is able to harness ideas for new product inventions from an open community of more than a million enthusiasts. Despite its digital innovation and technological and production capabilities, the decision on which ideas to develop and launch is made at a town-hall meeting, via show of hands. It thus brings together digital technology and onsite presence, to launch up to three new consumer products per week to the product development pipeline. Quirky is a pioneer in collective innovation.
Recognizing and Acting on Strategic Novelty (Before Everyone Else Does)
The deviant case analysis allows us to identify, track, and ultimately analyze real-time phenomena as they evolve, and in the contexts in which they evolve. This is critical as it helps us address a strange paradox: The emergence of important novelty often goes unnoticed in its early stages, i.e., before “novelty” starts to have an impact. Yet the impact is obvious in retrospect. It is easy to overlook (and dismiss) a company that is still experimenting with its business model, and is far from being able to prove its sustainability along conventional metrics such as business stability. So, one may ask, why should I pay attention to something that may still fail?
These outliers’ early commitment to experimental business models opens up the window for new discoveries of strategic importance—learning something others have not yet seen or understood. Subsequently, once this window closes, the impact of the novelty will have manifested itself and become blatantly clear and obvious for everyone to see. Business journals write about it, consultants repeat the story. Heard enough about Apple? It is easy to point at proven success stories and nod in unison. Unfortunately, by the time we are at this “nodding” stage, where any useful information has been masked as a myth, the very aspects that brought about the success are long gone. The sheen has worn off or expired—any instance of strategic novelty is neither strategic nor novel any longer. We might still not be able to easily imitate or learn the source of competitiveness, as its originating contexts would also have changed. Who would not wish to become another Apple today? (Despite many efforts and detailed historic analysis you don’t see too many likes of Apple replicating the company’s profitability or novelty.) While you wait for the second coming of Steve Jobs, you might as well sit back, relax, and enjoy this book.
The old adage about only searching under the streetlight reminds us to widen our perspective and to peer fearlessly into the dark. The challenge lies in recognizing, tapping into, and experimenting with novelty in a meaningful way, and while it is still relevant to do so, before the novelty becomes the new normal. Yet some courage is required: Novelty is intricately tied to humor, novelty makes you smile, and perhaps therefore is also often ridiculed by those inclined to sarcastic upmanship. Novelty often fails, but in the process of experimentation, you may have learned something very valuable, serendipitously. You may have found something you were not looking for, which is the only free lunch there is! You have met serendipity, and she is powerful; indeed many if not most valuable things in the world are side effects, unintended consequences, or unexpected discoveries of the pursuits of something else, from love (most likely) to penicillin to Viagra.
Far too seldom do people go out looking to be surprised. Far too seldom are we ready to be WOW-ed, least of all in strategy! We find inspiration thinking of a young chef examining the gifts of Nordic forests and gathering wild ingredients, while also exploring Helsinki’s city parks to examine what is growing there naturally, finding Polypodium ferns and spruce. A few years later Sasu Laukkonen’s Chef and Sommelier restaurant gains its first Michelin star.
Surprise, while often seen as negative and dismissed as a failure of strategy, outliers have been clinically shown to have tremendous impact in terms of learning. Neuroscientists have found that young learners learn best when expectations are defied (Stahl and Feigenson, 2015). However, in order to process all that we see efficiently, we need to look through serendipity and surprise and ask ourselves the infamous question, SO WHAT? We need to systematically interrogate the significance of what we see for ourselves, for our companies. Indeed, learning happens when existing predictions and patterns are found to be wrong and windows of opportunity open in which we are challenged to try to figure out how the world really works, or could work. Unfortunately many companies that rely on uncertainty minimizing corporate strategy have developed a tin ear for surprise and serendipitous discovery. Instead, they favor and reward the familiar using established, safe, and proven metrics, to which, they together with their competition, have decided to limit their strategy. Receptivity to surprise requires a certain degree of vulnerability. Like Odysseus, we have to hear the sirens’ song in order to know when to tie ourselves to the mast. This means accepting the risk of a possibly painful unsettlement of one’s beliefs, with the attendant need to rework one’s expectations and redirect one’s conduct (Scheffler, 2010). The outlier companies featured in this book seek to reawaken this natural curiosity for novelty and bring it back into strategy.
Being a strategic novelty hunter may be a lonely undertaking. This book keeps you company: It offers guidance on how and who to learn from, ahead of others, but also addresses the risks related to strategic novelty. In other words, we invite you to learn from things that have not yet happened. Are you ready?
Learning from Outliers and Benefitting from Their Strategic Novelty
So what does the process of “Learning from things that may not quite have happened yet” look like?
An essential first step is to get over the attitude of dismissal, by embracing what can be learned serendipitously. “You cannot be more wrong than be right, before your time.” Dismissal or wariness of the unfamiliar seems hardwired into humans. Indeed, we would have trouble making sense of the world without some resistance or skepticism to every new idea that we come across. However, strategists must, in the process of finding a useful middle ground between all novelty-denying skepticism and all-accepting radical credulity, avoid resorting to strategic management dogmas—denying or overlooking important evidence simply because it does not support existing paradigms or known business models. Instead of epistemic apathy (Scheffler, 2010), the inherent surprise of novelty ought to be capitalized on and investigated further.
Outlier organizations are outliers precisely because they are unique and different. Once they become mainstream, they no longer lie outside the main distribution of organizations on the industry scatterplot. Therefore, unless we open our minds during this fleeting window of opportunity we will miss the strategic novelty and all that can be learned about pioneering new ways of doing business. Think of how to integrate this hypervigilant learning approach into your company’s strategy process. Outliers may be potential disruptors to your industry or may indicate a new reference group that you can compete or collaborate with. This vigilance may also be directed inward allowing for learning to be gained and better metrics to be developed that capture the experimentation of overlooked divisions and undervalued subsidiaries within your company. There may be outliers inside your organization to learn from also.
By studying such cases that deviate from the mainstream, especially incumbent companies can draw important serendipitous lessons for inventing the future before it happens.