In his speech and conversation with Stuart Crainer, Kaihan Krippendorff describes how outthinkers look beyond the existing concepts and at the emerging concepts to start shaping the future.
There are technologies underway that are changing the rules for us, and across most industries, things like blockchain, the internet of things, cyber security, etc. are changing the rules of the game. Now, there is a big change in the form of COVID-19 that is going to impact how we play and we have to decide if we are going to be a thinker or an outthinker. An outthinker is one who adopts a concept outside of existing vocabulary, and that creates a certain strategic dynamic among their competition or those who would resist them.
All innovators and strategic thinkers, while describing their thinking process, describe one concept or a dynamic they wish to create by adopting new concepts. The concept they describe can be phrased as the quote by Gandhi that goes, “First they ignore you, then they laugh at you, then they fight you, then you win.” This is an intentional sequence when you do something, and those who would normally resist you or fight you or copy you, they instead ignore and laugh at you. That allows you to continue, and by the time they realise that what you are doing is working, you have won. Today, we call a version of this as disruptive innovation, which involves targeting a customer segment that the competitors do not view as valuable with a product that they view as inferior, and using that opportunity to offer higher value products and target higher value customers.
Another version of this is the blue ocean concept, which involves targeting a segment of the market that the competitors don’t consider as a market or a customer they don’t consider as a target customer. This strategic pattern has been here for years, and I call it the fourth option because looking at the fourth option is at the heart of what great innovators do. The fourth option is just a metaphor that says there is a point at which others stop thinking when they start repeating themselves and believe their past success formula would work every time. They might be right but they have stopped trying to look for new options.
Language is a tool that helps us find the fourth option, helps us get outside of the thinking that our current vocabulary allows us to think in, and opens up possibilities.
Language is a tool that helps us find the fourth option, helps us get outside of the thinking that our current vocabulary allows us to think in, and opens up possibilities. It can be said that business strategies are a flow of concepts. There was a time before the term “inventory turnover” was known, and even though the companies were growing quickly they were burning cash, and they couldn’t understand why. But when somebody invented the concept of inventory turnover, that tool helped companies overcome this problem.
Strategy and innovation can be called a flow of concepts, and it began in 700 BC in Greece when the term stratego was used to describe a government official whose job was to rally resources to defend or to attack. In 1920, strategy came into the realm of the business wherein strategy was really about understanding what the business cycles are and whether we are investing ahead or behind the cycles, which later led to long-range planning, which further led to game theory in 1955, and so on. Thus, one concept opened the doors to another, and so a strategy can be understood as a flow of concepts.
Concepts tend to emerge with people realizing that the existing vocabulary is insufficient. It is not able to solve a problem or not able to create a possibility. Then, they work on a new language and introduce new language tools, and this defines the community, so that people begin coming together around this community, whether this is a community around a business model design or community around the blue ocean. Once the community reaches an agreement on what the language is of this theory/field/concept, it starts interacting with the outside world with existing concepts. Then, that theory or concept is either rejected, incorporated into the existing vocabulary, or it replaces the existing vocabulary. When it replaces it, that becomes a paradigm shift.
If we want to start shaping the future, we should look beyond the existing concepts and start looking at the emerging concepts. This is the reason why the OutThinkers summit was organized too, to bring together the people that are generating the emerging concepts that, if adopted, can help us shape the future.
We are shifting from a mindset in which power comes from control to one in which power comes from coordination.
Five macro concepts are emerging which we can apply now as we think about how we are going to design strategies for the future.
- Move early to the next battleground: It is a simple pattern that says skate towards where the puck is going to be. It is important because cycle times are increasing, we are starting to move into this change that is exponential rather than linear.
The book Why the West rules for now by the anthropologist Ian Morris depicts the measure of human social development across different factors like energy capture per human, size of the cities, and the level of communication technology in different societies and different times, going as far back as 8000 BC. His book started as a research to find why the West was ahead and when would the East catch up. However, as his research dived into the modern era and the curves of human social development for both the East and West started going straight up, his research question changed. Now his question was how do these curves continue upward, because if they continue, that would mean that energy capture for human would be the same amount of energy as used by Manhattan in a day, computing power would have to be powerful enough that we can take a human mind and programme it or represent it within a computer. This means that the type of long-year thinking, that 10-15-year planning that used to be only the domain of large established organizations now becomes five-year-planning that is available to all of us.
- Coordinate the uncoordinated: We are shifting from a mindset in which power comes from control to one in which power comes from coordination. Online business platforms like Airbnb and Uber are coordinating things that they do not own. Blockchain is a coordination at the next level because you are not just coordinating the information but coordinating the coordinators with notes that are checking each other.
This pattern applies to any industry in which IoT is connecting things and allowing things to coordinate in ways that we hadn’t imagined, whether that is at home, in manufacturing, or in the farms where you have sensors that tell you when something needs to be watered and it is watered automatically, and you have autonomous tractors that are activated as needed. In automotive, we see something interesting, like vehicle to everything (V2X). One issue with automotive cars right now is they cannot see around corners but it is not much far in the future when all cars are coordinated and alerted by each other about obstacles and corners on the road. We call these different things in different industries, but if we step back and see, we can call it as coordinating the uncoordinated. So, a powerful question to ask is what is uncoordinated that we could coordinate if we took action?
- Force a two-front battle: Successful organizations today less often define themselves by their industry, but define themselves as something else. For example, Howard Behar, who was the right-hand man of Howard Schultz at Starbucks and later the co-founder of Starbucks International, said that for him the fourth option that led to the success of Starbucks came down to the realization that they are not in the coffee business serving people but in the people business serving coffee. He meant that their customers are not the people who are going in to buy coffee, their customers are their workers. So, when they were having to make decisions like giving healthcare to employees including the part-time workers, that became obvious because they are the customers. Therefore, a very helpful thing to say is what business we are in is not defined by our industry, it could be a purpose, a capability, or a mission, and how does that type of organization behave differently.
- Be good: We are moving from a paradigm in which the idea of a corporation existed just to serve shareholder value. This creates a resistance to growth, and if you focus only on shareholders, you actually diminish your shareholder value because you create resistance for the stakeholders. A smarter strategy is one that is good for shareholders by creating a situation where your growth is good for the community, the employees, the government, the country, the environment, and the world. That is the ultimate strategy. Mastercard has been able to engage its employees more than ever before because the CEO Ajay Banga has aligned the company behind the idea that it is a force for good. What he means is that they are driving for a world beyond cash and there is a financial rationale for that, which is converting most transactions in cash into digital and capture a fair share, but a world beyond cash creates accountability and transparency, which is a better world. So, the thing to look at here is how are you creating strategic value by creating good in the world that is good, how can you align your growth with something that is good for all stakeholders.
- Create something out of nothing: We tend to play our games following the rules that do not exist, or in other words, we limit ourselves by the constraints that are not real. This is like a blue ocean strategy. For example, Tony Fernandes bought a near bankrupt Air Asia and turned it into the second largest budget airline in the world. His core strategy was to not compete for airline customers but the non-airline customers like the railroad customers. Another way to think about it is categories; we tend to think within categories. If we step out of our category thinking, we can create new categories.
Stuart Crainer in Conversation with Kaihan Krippendorff
Stuart Crainer: You say power comes from coordination, which suggests that the big challenge for companies is management rather than technology or leadership. If power comes from coordination, isn’t that a managerial challenge?
Kaihan Krippendorff: I think so. I think the technology is introduced and then it commoditizes quickly. The cost 10 years ago was much higher than the cost now. Blockchain also allows us to engage in platform technologies at a lower cost, so after your competitive advantage, you cannot own the community by preventing people from creating a competing community by over-investing in technology. The barriers to entry decline, so then the main challenge becomes management, leadership, but also purpose, and creating communities around a purpose.
Crainer: Companies like Starbucks are redefining who customers are; do you think that is a general trend?
Krippendorff: I think so. People are less loyal to brands in the traditional way and more loyal to brands as representing an identity or being part of the community, so you go to Starbucks not only because of the advertisement but you feel like you are a Starbucks customer and you have a connection to other Starbucks customers. It represents a set of values.
Crainer: A lot of language around competition remains rooted in the military and aggression, but you are talking more about coordination.
Krippendorff: I think we are shifting the core frame of business. From the 1950s to the 1980s, it was about the company and the market, the 1980s to 1995 was very much focused on beating the competition. We then shift from 1995 to the 2000s to today where it is very much about the customer. We are now seeing another shift to the employee. As Starbucks is seeing employees as customers, we are starting to see that shift with other companies as well.
Crainer: Moving early to the next battleground sounds simple but might be the toughest thing to walk straight. Can you offer high-level suggestions for succeeding?
Krippendorff: The future is getting to us much more quickly. I got a chance to interview Elon Musk soon after he launched SpaceX, and I asked him “Why did you take the $150 million that you netted for yourself and decided to invest that in building rocket ships?” and he said, “I just think a future in which anyone can shoot stuff into space is more ‘exciting’ than the one in which the government only can.” He basically argued why NASA would need to privatise the part of the space program that is building and launching vehicles. Now, if that would have happened in the past, that might have taken 10 or 20 years to happen but that future got to us much more quickly, so then it is about doing a few small things. Navi (Radjou) talked about constructing inexpensive some frugal experiments that give you options so that when one of the different possible futures come to be, you are already positioned there.
Crainer: Where does this leave corporate social responsibility, which has been talked about a lot over the last 10-15 years?
Krippendorff: Roger Martin once said something like we are entering a world in which we don’t get to choose, and I think in the past, the view has been if you are making money, it’s a good thing to do good. Jack Welch once said “I love CSR but you can’t give away things until your cart is full. You have got to take care of the business first.” I think that we are moving from that thinking to something like “if your goal is just to make money, you should do good,” so CSR becomes core to the strategy, as even if you want to optimise shareholder value, that is the smart thing to do.
Crainer: Can you explain the fourth option more and what do you mean by it?
Krippendorff: When I was at McKinsey, they trained me to break everything down into threes, so three is just a metaphor which represents the point where we get satisfied with the options we have, so we stop looking for other options. It’s like we get mesmerised or overwhelmed by the options, so now we want to start selecting the options. When you reach that point, you are not looking for the next option, so the fourth option just invites you to say, “we have three options, what’s the fourth option?” but it could be the fifth option or sixth or seventh option.
Crainer: Does COVID-19 give us an opportunity to change the shape of competition to a more collaborative model?
Krippendorff: I think there is a great opportunity for that. I think Scott Galloway said that the one superpower that humans have is the ability to collaborate. Unfortunately, we also like to fight an enemy, so when we don’t have an enemy, we fight with each other, but now we have a common enemy. There is a reason for us to collaborate now. No significant human invention was created by an individual, it was created by collaboration, and often through collaboration that wasn’t organised. 70% of society’s most transformative innovations have not come from small individuals or small teams but have come from people working inside large established companies, and so that is what the future needs, and I hope COVID could give us a reason to move more deeply into collaboration again.
Crainer: It is interesting because large established companies get a bad press generally.
Krippendorff: It’s true. If it weren’t for employees innovating within established companies, we wouldn’t have internet, a PC, a mobile phone, an MRI, etc. Large employers do and they are going to do a lot more good in the world.
Crainer: When you ran through the flow of concepts and strategy, it was a great history of strategic thinking over the last century, but strangely, it is a flow of concepts rather than a list of achievements.
Krippendorff: I guess it is because I look at the concepts, and that’s what I am studying. That brings us to the question of what is the purpose of strategy and what do you want to achieve with strategy? I think it is probably at the base level just the sustaining of our organizations, so these concepts are new places to look. It’s almost like when in medicine, when we want to keep someone alive and give them a long life, we first learn about the physical structures, and then once we understand that, we move to DNA, and then we move to neuroscience. We are expanding where we look to create longevity for our organization.
Crainer: Can you elaborate a bit more on how ecosystems thinking helps coordinate the uncoordinated?
Krippendorff: I think of it as comprising an individual, a team, the organization, and beyond that the partners, and beyond that the larger ecosystem. Ecosystems thinking is very related to systems thinking but certainly, ecosystem thinking is probably a prerequisite for effective coordinating.
Crainer: In the evolution of strategy, it is interesting that Sun Tzu’s Art of War still appears to be relevant.
Krippendorff: It does and I think in part because it wasn’t written by one person. It was probably written by lots of people and it probably packs many thousand years. We have been studying business strategy for 70 years. Sun Tzu might have taken 300-400 to 1000 years to write, so in a way, it is a collaborative co-creation of research that represents a lot of thought.
Crainer: How can large companies more effectively partner with smaller ones for mutual benefit?
Krippendorff: Small companies bring a certain operating rhythm in culture that large companies are learning to develop, which is this entrepreneurial orientation inside. Large companies bring assets, scale, the ability to diversify risks that small companies don’t have, and so if you pair those up, that becomes a logic for a partnership but certainly through corporate venturing, through collaboration.
Crainer: What is the one thing you’d like everyone to take away and put into practice, or start thinking differently about from today amid this pandemic?
Krippendorff: I love this phrase “all models are wrong but some are useful”. All that we are learning here is not real, there is no such thing as a business model or a community, but a word that represents something we can use. If we think of it that way, it allows us to pick and choose and apply what we learn as tools.