Innovate or die. Here’s how to survive in the world of industry convergence.

On the eve of the iPhone’s 10th anniversary, The New York Times published an article with this headline: “It distracted Us. It Gave Us Uber. it Made Selfies a Thing.” I’d call that headline an understatement. The iPhone — or, more broadly, the mobile networked device and its bundled technologies like GPS, etc. — has ushered transformative change in old industries (think taxis, for example) and spawned entirely new ones. The biggest impact, however, of the widespread adoption of smart mobile devices in the last decade has been this: an acceleration in the pace of change in all industries, which has led to technological convergence across industries and types of businesses (consumer and enterprise).

For many, this convergence has come as a surprise. If, ten years ago, you told my stepfather — a general contractor — that he would have to adapt expand his capabilities as a carpenter to become proficient with IoT devices, solar energy collection and storage systems, and modular home construction, he would have doubted your sanity. But here I am, in 2017, designing a modular house, with every smart device imaginable, solar panels on the roof, Tesla Powerwalls in the basement, and a wired and WiFi network that involves miles of fiber optic cable and a sophisticated mesh network. And my guess is that incumbent players like Honeywell and Johnson Controls — the industry leaders in building automation HVAC controls — were almost equally surprised when former Apple engineer Tony Fadell created the Nest smart thermostat in 2010 and subsequently sold it to Google, which has since grown the business exponentially.

In our current economy — with low interest rates and rapid technological change — no industry has been spared the encroachment of venture capital and innovation from surprising players.

  • Travel/Hospitality. None of the major hotel companies seemed ready to believe that a small company called AirBnB could create a new model of hospitality, enabled by little more than a marketplace with thousands of “hosts” and some beautiful web and app design. You can bet that they are paying attention now. Expedia bought AirBnB’s next-closest competitor, HomeAway, in 2015 for nearly $4 BN. And the major hotel companies have opened their eyes to the competitive threats in the market.
  • Automotive. Nearly every legacy automotive manufacturer is fighting to catch up with Tesla’s battery and self-driving capabilities and Uber’s ride-sharing network. To wit: Ford CEO Jim Hackett insists that it is a mobility company, rather than a car manufacturer, and GM has a ride-sharing service called Maven.
  • Banking. Roboadvisors like Betterment and Schwab Intelligent Portfolios are now the wealth-management tool of the mass affluent, and big banks are investing billions in block-chain, the once-feared technology behind cryptocurrencies like Bitcoin and Ethereum.
  • Pets. Companies like CleverPet are making cloud-connected devices to train and entertain your furry friends during the day, with cognitive games that dispense treats as rewards.
  • Drones. Drones are fundamentally changing industries like agriculture (crop monitoring), entertainment (aerial cinematography), warfare and intelligence gathering (top secret, but you can guess a few applications), and more.
  • Logistics. Formerly staid businesses like warehousing and pack-and-ship operations have been part of the upheaval, with intelligent robots assuming tasks that humans long filled as complements to the long conveyor belts and sorting machines that marked the height of technical innovation in that business for so long. (Check out a great video of one of Amazon’s warehouses, which take advantage of its Kiva robots, here. Or read this article from Bloomberg about how Amazon ignited an arms race in robotics here.)

These are a few salient examples of convergence, and we haven’t even begun to talk about how AI (“machine learning” in Silicon Valley), chatbots, voice input and other technologies will impact nearly every business on the planet! (Check out this article on how business leaders are learning to harness the power of AI.) Convergence is already here and it is driving the direction of our economy. A recent McKinsey & Company study on the subject, “Competing in a World of Sectors without Borders,” examines the complicated interaction between businesses, and the necessity of a new way of thinking about ecosystems, rather than siloed industry sectors. This shift to ecosystems has profound implications for how businesses think about talent, as well as product design and innovation.

Talent

In the old days, large companies often had their obvious go-to sites for sourcing talent (e.g. Walt Disney famously sought animators from CalArts) and the recruitment process focused on traditional sector training (GM and Ford hired car designers, mechanical engineers, etc.). With convergence, hiring workers trained in the same discipline as the primary sector in which the company competes is merely a starting point. The most successful companies in any industry — Amazon being a leader — have shifted from thinking about passively hiring workers with a defined (often narrow) skill set to actively seeking intellectual athletes, lifelong learners, and generally-capable problem solvers with cross-disciplinary interests and capabilities.

Would Blackberry or Nokia still be leaders in mobile technology if they had hired hardware designers, software engineers, artists, and even consumer/retail experts? Creativity and innovation arise from a mosaic of skills and a diversity of experiences and frames of reference. If your company isn’t actively seeking talent of all backgrounds, including race, gender, country of origin, socioeconomics and experience, you are at a disadvantage in our fast-paced global economy. Group-think is comfortable, easy and dangerous to innovation; new ideas, new products, and new fortunes come from something much more robust.

  • Seek talent with a diversity of backgrounds, in the hope that this additional perspective will guide better product development and stronger relationships with diverse customers
  • Seek talent with a diversity of experiences, across industries and companies. If you’re a hiring manager who scours resumes looking for many years loyalty to an employer, you are missing strong talent from the gig economy, or from workers who learn valuable new lessons at each employer for which they’ve worked. A design executive from a beauty company can make strong contributions to a consumer electronics company, for example, in the same way that a software engineer could bring value to a retailer.
  • Seek intellectual athletes and people with a voracious appetite for knowledge. The only consistent force in life is change, and people who are intellectually curious, with wide-ranging interests and the ability to adapt, will make the biggest positive impact in any organization.

Product Design and Innovation

Product design has been transformed as much by convergence as it has by widespread adoption of practices from startups and agile software development. Whether you subscribe to the Lean Startup, the Startup Playbook, or some other guide, the principles are much the same: focus on customer paint points, work quickly to solve problems, learn from both successes and mistakes, and never stop innovating. In practice, the methodology works like this: assemble cross-functional teams (designers, marketers, engineers, analysts, managers) to conceive of and research a business opportunity, develop a minimum viable product (MVP), and gauge product-market fit in a short period of time (3–6 months). Once a product gets some traction in the marketplace, the team continues to iterate, constantly measuring what’s working and what’s not working, and continually making the product better. No product release is perfect — think about how many times Apple has released software and firmware updates to fix their devices — and customer feedback is an essential tool to guide future product iterations.

Smart companies don’t rest on the laurels of any single successful product. In fact, the smartest companies are almost always cannibalizing the success of the products that they currently have in market with even better products down the road. Clayton Christensen addresses such an approach in The Innovator’s Dilemma, as well as some of the attendant difficulties with it. Executives, particularly those who must speak to quarterly numbers as leaders of public companies, worry about declining sales of the current product(s), and it can be difficult to unite the various factions and forces inside large organizations and align around constant innovation. But there can be no sacred cows in business, and even the best companies will fail if they do not continually seek disruptive innovation — lest we forget companies like Kodak, Nokia, Blackberry and others. Rather, companies should adopt a portfolio strategy of products and manage their investments in products as an investor would: placing calculated bets on business opportunities by constantly launching mini-startups that incubate new products. Some companies can do this in-houses, some turn to innovation facilitators like bionic, prehype, and others.

The portfolio approach to product offerings poses a challenge in any large organization, which is one reason why we’ve seen the rise of corporate venture capital, for example. But companies cannot rely on the market to come up with their new products; it’s simply too difficult for large companies to adopt the same risk model as true venture capital firms, and if large companies depend on an acquisitive strategy, then they’ll often end up buying companies too late at too high a valuation, only to eviscerate the value of tose acquisitions as they attempt to incorporate them into the larger corporate parent. The best alternative to the corporate venture capital model is to create a company’s internal capabilities for agile product development, in the form a “skunk works” lab, with a cross functional team that includes facilitators who can guide the commercialization and serial launches of products in beta. Bells Labs (created in 1925, later called Lucent Technologies) and Xerox PARC are classic examples of skunk works-style research-and-development teams. But without the agile approach to development and the inclusion of experts in commercialization (e.g. product marketing managers, visionary sales leaders, etc.), we end up with stories like that of Steve Jobs’s supposed “theft” of several critical concepts from Xerox PARC. There are a few success stories where large companies have quickly developed and launched products that became unicorns in their own right — my favorite example is the creation of Charles Schwab’s Intelligent Portfolios — but even that story is about a response to market trends, rather than a true agile approach to product development. Enduring as a corporate entity requires persistence and periodic self-reinvention in the guise of both agile product development and serious efforts to commercialize and market new products to customers.

The dissemination of startup business ideas across industries and legacy corporations has also led to a remarkable cross-over between consumer (B2C) and enterprise (B2B) products and services. Increasingly, enterprise products incorporate the high-design and user-friendliness that we expect of consumer products because, not surprisingly, it is humans who ultimately use these products — not faceless companies. At the same time, consumer products are incorporating the functionality and scalability of enterprise products. Occasionally, both enterprise and consumer products merge into the same product. Consider Uber, which in one platform manages to serve all sorts of riders (customers, including individuals traveling for personal or business purposes, people ordering cars on behalf of other people, etc.) and drivers (the providers of the service). Uber is at the nexus of mobile, sector convergence (technology, logistics, transportation), and marketplace platforms, and the result is amazing.

More in my next post on go-to-market strategies…