CHAPTER 2

The Thinking Problem

The task is not so much to see what no one yet has seen, but to think what nobody yet has thought, about that which everybody sees.

—Arthur Schopenhauer

Organizational velocity (OV) leaders are great thinkers because they think about how and why they think what they think.

“This is all well and good, Alan, but how is this going to get us more packages or more money for the packages we send?”

The COO had asked the patently obvious question. And I knew the 3D Printing (also known as Additive Manufacturing or AM for short) initiative at UPS would do neither.

I had just spent a couple of years shepherding a novel concept to a fork in the road. An innovative UPS leader had researched the future of AM and its potential impact on the logistics business. He conceived the striking idea that UPS should pilot a small investment in an AM factory built within a UPS distribution center. As AM technology began to take hold, the futuristic thinking went, certain goods would be produced more frequently in lower quantities, closer to the point of consumption. UPS already had a global footprint, so similar factories could be stamped out anywhere in the world.

The beauty of AM, of course, is that there is no product mold. By eliminating the significant up-front investment on a mold, the need to sell thousands of the products merely to breakeven also goes away. Production is quick and low cost for limited quantities. A future of products tailored to individuals, where demand is created before supply, comes into view: a vision, consequently, that portends less need for storage and fewer shipments. UPS-ers used to say that we have nothing to worry about until “Beam me up Scotty” becomes a reality. I realized that time was fast approaching. UPS could either be a part of the trend—or its victim.

I was invited to join the initiative, and soon our partner, Fast Radius, established their first AM “Micro-factory” at UPS’s national air hub. I became the face of AM at UPS and was energized about the possibilities.

After several years of intense learning, we had to decide: either to lean into AM or refocus on other initiatives. While AM had advanced, it was far from mature. For most applications, it was still too slow and too expensive. I wanted to lean in. I put together documents, customer videos, and presentations to educate the management team, eventually asking for a modest investment. UPS could continue to be an arms merchant to the world, I argued, serving all AM companies with our logistics and package delivery services, or we could move upstream. We could become an on-demand manufacturer, create new manufacturing revenue streams with our customers, and take a leadership role in the emerging digital supply chain.

The CEO and CTO (chief transformation officer) seemed genuinely excited about the potential of AM at UPS. Everyone else—the intelligent, experienced executive team with tremendous day-to-day demands— hated it. “Come back when AM is ‘real,’” was a common refrain, a backhanded acknowledgment that AM was on its way to becoming accretive to profits but still too risky an endeavor. Tolerance for uncertainty in a company known for efficiency was not high.

The COO’s hardball question mirrored this mindset. I hoped my answer might open the door to another way of thinking.

“It won’t,” I replied. “If that’s what you want out of this investment, UPS should not invest in it. Only invest in it if you want to create new revenue streams with our customers and to become a leader in this emerging digital supply chain.”

This venture into AM was not part of the UPS mindset—efficiency was. At this moment, I could empathize with how Kodak’s Steve Sasson, the inventor of digital photography, may have felt when he positioned a technology with the potential to disrupt his company’s core business. Film photography was the core business; digital photography was a hobby. Two-and-a-half Kodak CEOs looked brilliant, focusing on their highly profitable core business until the market turned in 1992, leading to a painful 20-year slide to bankruptcy.

This was a mindset problem. Narrowly defining its industry was a classic case of what Theodore Levitt called “marketing myopia.”¹ Kodak thought it was in the film business, not in the business of capturing and storing memories. Likewise, Blockbuster was in the video rental business, Borden was in the dairy business, and UPS was in the package delivery business. John Casesa, a former Ford executive, lamented how the company could not understand how Uber’s brief but expansive brand message, “moving people,” would be important.² It was the breakaway antithesis of marketing myopia.

Changing your mindset is a choice incumbents make when they refuse to accept what their environmental observations are telling them. While I don’t have the inside story on Marriott and Hilton, I am confident they heard about Airbnb in 2008. As late as 2015, Chris Nasetta, the CEO of Hilton Worldwide, stated, “I do not believe—strongly do not believe— they (Airbnb) are a major threat to the core value proposition we have.”³

Today Hilton still has a viable business, but Airbnb had 247 million guest arrivals in 2019 and a market value more than Hilton and Marriott combined.⁴ Not a threat? In 2019, Marriott finally accepted what the market had been telling them and launched a home rental business.⁵

In chapter 1, I made the case that the Fourth Industrial Revolution is different from previous revolutions.⁶ Artificial Intelligence (AI), machine learning, Internet of Things, robotics, and AM, among other technologies, are fusing our digital and physical worlds. These digital threats pose risks to those who aspire to lead their companies forward in the 21st century.⁷ The biggest threat to most incumbent businesses, however, is not disruptive technological innovation. The problem of disruptive technology is largely a fixable problem solved with attention, creativity, and capital. The core issue, and deeper problem, is an entrenched way of thinking that stubbornly persists even after a couple of decades of digital disruption, unlimited books and conferences on the subject, and minions of consultants waving the revolutionary flag.

Wait for It. Wait for It. Wow, That Was Fast!

Companies are often taken by surprise by the rapid ascension of an upstart competitor. Executives can be lulled to sleep by an unimpressive new offering at the low end of the market. They may see improvement in the product over time but misjudge the increasing pace of those changes. They are thinking linearly, while the change in the digital economy is often exponential. The oft-told story of the lily pad that grows exponentially to cover the entire pond in three years is applicable here (i.e., after one month, there will be two lily pads, after two months, there will be four, etc.). If asked when the pond would be half-filled with lily pads, the tendency would be to predict half the time or 18 months. In fact, it would take until month 35.⁸ Progress in the early days was almost imperceptibly slow, but it wasn’t invisible. Toward the end of the cycle, it appears the lily pads came out of nowhere.

We’re seeing this phenomenon now with technologies like blockchain, AM, and new AI-driven business models in incubators across the country. But it’s not enough to see the change; firms have to accept that the change could impact their business and allocate current resources to deploy against what may be a threat … or not. While it’s easy to disparage those that didn’t move to blunt a disruptive force, would you want to be the one convincing managers to forgo investment in profits today for uncertain profits tomorrow?

Ric Fulop, Founder and CEO of Desktop Metal, one of the fastest-growing “unicorns” in U.S. history, is living through this evolution in the AM industry.

“The world of technology is replete with examples where humans overestimate the short term and underestimate the long term,” said Rick, “If you asked somebody in the 1970s about computing which was invented in the 50s, they would think computers are reserved for the largest corporations to do their work. Meanwhile, you had a personal computer developing which nobody took seriously that made it affordable for everybody to get it.”⁹

Today the power of computing is not only in our homes, but also in our hands. There are more than 5 billion people with mobile devices.¹⁰ But initially, like the lily pads, progress was slow. A lot of naysayers looked brilliant during that time, until they didn’t. While computing was invented in the 50s, it didn’t make it into our homes until the 80s. In the 80s, cell phones were high-cost bricks. By 2015, the Apple Watch had the computing power of two Cray supercomputers from 1985. From the 80s to the current day, the pace of change has only accelerated. The “computing pond” is not yet half-full.

What do you think of AM today, if you think about it at all? Unlike computers, AM has not yet had its breakout moment. While the technology was invented in the 80s, the cost, quality, and material selection are still not competitive with existing manufacturing techniques for most applications. It’s easier and a lot less mentally taxing to ignore AM or make it a hobby if you’re in manufacturing. However, if you knew for sure that AM would allow you to manufacture customized products at a comparable cost and quality to current mass manufacturing techniques, what would you do differently? If you knew for sure in 1985 that 30 years later, you would have more computing power for less money on your wrist, what would you have done differently? The tea leaves in the market are there to read if we’re open and prepared to do so. It’s not a technology problem; it’s a thinking problem.

Scholars C. K. Prahalad and Richard Bettis tackled the issue of entrenched mindsets in their theory of dominant logic.¹¹ Essentially, companies get fixed on what rings the cash register (i.e., their dominant logic), and it’s difficult for them to conceptualize other ways to earn revenue. The force of dominant logic can be devastating. Nucor’s mini-mill technology disrupted US Steel decades ago, but US Steel didn’t invest in mini-mills until October of 2019. In February 2020, Nucor still held a market value nearly ten times higher than US Steel. Even more striking is Macy’s slow response to e-commerce; as of June 2021, their $5.5 billion market cap is not even 1 percent of Amazon’s market value. It wasn’t until recently that a Macy’s executive declared, “We found that technology is going to start to play a much bigger role in our future than it has in the past.”¹² No kidding!

Disruption is inevitable, but the effects of disruption are not. If a leader of an incumbent organization aspires to live on in the Fourth Industrial Revolution, the future starts with thinking differently. No longer can leaders optimize their existing competitive advantage (same revenue stream, same customer) only. Legacy companies must also embrace what is called “persistent advantage”^13,14, i.e., innovating continually with technology to create new capabilities and revenue streams.

From Chess to Mixed Martial Arts

In established companies, improving efficiencies is essential to sustaining innovation.¹⁵ I’m certainly not arguing for inefficiency. The danger is when organizations become so good at incremental improvements that they become deadly efficient sharpening their knives while not creating new knives.

Sam Walton had the fresh idea that instead of maximizing profitability, Walmart would focus on volume, making a little less on each item sold, but selling more items. Walmart built a juggernaut on everyday low prices. Walmart could have continued to squeeze more efficiencies out of the supply chain. Instead, while Walmart was still the envy of the physical retail world, it launched a digital strategy that stays true to its core value of everyday low prices while also expanding to those who want to buy online and pick up in-store. While Amazon puts up more and more distribution centers, Walmart already has over 10,000 distribution centers across the world in the form of stores.

Walmart asked the disruptive question, “How can we use the store as a distribution center to deliver locally? How can we take what’s good about the model, extend it into this new world, and create value for customers that wasn’t there before?”

That’s turning the efficiency mindset on its head. The endless pursuit of efficiency is, first and foremost, an entrenched belief system about the math of business. The efficiency mindset is baked in early on in the executive training regimen. If tomorrow were 1990, the product that business schools turn out year after year would still be highly coveted. The MBA degree is still a rite of passage for entering senior management ranks in many incumbent organizations. Most MBA programs teach management more as a science than as a profession by professors who know the path but have seldom walked it. The curriculum focuses on discrete elements of the business (operations, marketing, finance, IT systems, supply chain, management, etc.) and equips students with formulas to solve historical problems. Students debate packaged case studies about past successes and failures. By the time these studies run the gauntlet of peer review, they are sometimes five years old or more. This kind of rigorous training—and thus approach to thinking about business problems—assumes a flat world. A world that can be mapped and organized, and graphed. A world before 1995, when Netscape ripped the curtain off the existing world order, giving everyone low-cost access to limitless information at their fingertips.

The modern MBA trains students to play chess, a sophisticated game of moves and countermoves. In chess, there are only two opponents and 64 squares. Each player has 16 pieces and the rules for winning are clear: check-mate. The game is a perfect metaphor for the skills needed for sustaining innovation. Good chess players anticipate scenarios and plan their moves far in advance. However, the digital economy demands different thinking, more like how an MMA (mixed martial arts) fighter acts and reacts. As with chess, he or she studies an opponent’s strengths and weaknesses, watches film, and plans for the match. But once the bell rings and the fighters touch gloves, the match takes on an unpredictable narrative. As boxer Mike Tyson famously quipped, “Everyone has a plan until they get punched in the mouth.”¹⁶

MMA fighting is all about adapting quickly to reactions. Unlike chess, MMA is lightning fast and unpredictable. An MMA fight is asynchronous, fluid, and full of surprises. The best fighters adapt quickly and learn on the fly, making continual adjustments to their opponent’s moves as the fight ensues. The speed and stakes of MMA are not that of chess. No math can plan for five periods of a championship MMA. There’s no algorithm (at least not yet) that can model the unpredictability of MMA.

The chess mindset works beautifully for sustaining innovations. It’s invaluable for optimizing the business. While incumbent organizations continue to need chess players, the relentless pursuit of optimization creates inevitable growth risk over time. One executive said to me, “When you are so entrenched in your existing business, it’s difficult to know what is actually transformational and where you should invest outside of just optimizing.” Some have argued for hiring ambidextrous managers who can manage processes while also fostering innovation.¹⁷ David Kidder, the author of New to Big, said it this way: “The role of creating growth is the opposite of operating, which means future CEOs are going to be ambidextrous leaders. They’re going to be great investors and great optimizers.”¹⁸ But, most managers today are either one or the other.

An MMA fighter has a unique mindset and thought process, able to adapt to every move. Fighters figure out how to solve problems (fists, headbutts, kicks, takedowns, and chokeholds) as they flash in real-time.

Fresh out of college, my son landed his first job at an AM startup company. His first assignment was to tinker with some first-generation 3D printers and get them to work. “You are not going to believe this,” he said. “None of these machines have user manuals.”

“You’ve been given a great gift,” I said, “the gift of figuring it out.” The mindset of figuring it out and learning from your mistakes is much different from the planning mindset, which is locked into processes for calculating marginal costs and increasing operational efficiencies. A company that hires only MBAs can end up with teams who all think the same way, equipped to create more processes that fortify the bureaucracy.

Faux Behavior

“If we don’t please investors today, there won’t be a tomorrow.”

This is the dominant default mindset of most public companies. One CEO, whom I interviewed, put it frankly, “There is no long term without the short term.” To assuage their anxiety about innovation, executives will dabble in innovation initiatives, but when the portfolio isn’t performing well (and the innovation portfolios rarely perform as the pro forma gloriously promises), the reptilian side of their brain takes over, “We’re not going to make our numbers. Let’s focus on the core and keep moving forward.” A sense of resignation follows, “That’s just the way it is; you can’t fight it.”

A publicly traded consumer goods company recently recruited a technology executive to build its data science infrastructure. The company’s leadership team had realized their customers had gained a much better command of their data, which diminished the traditional value of the company brands. Ten years behind in their data science capabilities, they needed to catch up quickly. The new Lead Data Scientist immediately recruited a team to work across the enterprise to create a data-centered model.

When the leader returned with a plan to accelerate the company’s data capabilities, management punched him in the face with the status quo. “We’ll give you 10 percent of what you asked for. Prove that you can get a return on that 10 percent, and we’ll give you more.” This is a typical, pragmatic response from an established company dealing with the demands of existing customers, competitors, and shareholders. The problem with this non-action is as fundamental as the business itself. All companies make trade-offs between time, cost, and scope. For example, if you increase the scope, you must also increase time or cost. In this case, the scope was enormous and the time was short. In this context, the “10 percent” answer created an exercise in futility. Management made the press-release statement that they wanted to be data-driven, but their actions did not back it up. Would they have made the same decision if data science was seen as a growth center rather than a cost center?

Changing actions without first changing the leaders’ shortsighted mindset is futile because the end of the quarter is never more than three months away. Time is always short. The math that leaders use to report to the board and investors is simple. And irrefutable. Faced with the numbers, the senior team reveals their traditional mindset; new initiatives are shoved underwater. Not surprisingly, a recent downturn of this company’s stock price was credited in part to its lack of data infrastructure. This issue, however, is not an isolated illness; it’s an epidemic.

The lack of data infrastructure was not the only root cause of the value destruction of the firm’s brands. Wall Street analysts blamed the company’s belt-tightening strategy that went too far (coupled with declining sales in its traditional brands). Nonetheless, a data-centric business model is endemic to thriving in the Fourth Industrial Revolution.¹⁹

This business model needs to be driven by a corresponding mindset. Research published by MIT in 2020 showed that just 12 percent of respondents strongly agreed that their leaders have the right mindsets to lead them forward. While 82 percent believe that leaders need to be digitally savvy, less than 10 percent strongly agreed that their organization has leaders with the right skills to thrive in the digital economy.²⁰

Often, an organization’s response to an imminent threat or even opportunity is not driven by a change in the leadership’s belief system. Executive FOMO (Fear of Missing Out) may cause them to act in a way that seems strategically innovative. Much of this is a form of what has been called innovation theater. For example, companies create “innovation” teams that never incubate long enough to innovate and are quietly disbanded when it’s time to cinch up the belt. Lucky executives are whisked off to cutting-edge strategy conferences and return trumpeting the language of “value innovation” or whatever is the latest mantra.²¹

Actions that arise from innovation theater are superficial. Leadership behavior is not supported by a change in worldview. Executives return from their boondoggle refreshed, motivated, armed with new metrics; they feign change, yet everything for which they are accountable never changes. The coup de grâce is when the company hires a world-class consulting firm to interview all the employees, who already had the innovative ideas in the first place, and drafts a strategic innovation plan that is never implemented.

A recent Accenture survey illuminates the problem: while most companies demonstrate a strong commitment to innovation, few are actually innovating. According to the survey, 82 percent of organizations run innovation exactly the same way they run regular operations, with an overriding commitment to the status quo. The result is that 72 percent admit they missed a crucial growth opportunity.²²

For many leaders, innovation is merely theater. It’s faux. It’s jejune. Corporate actions will never change until the belief system is altered.

The Consensus Mindset

At UPS, I was tasked with making the case to the CEO and the executive team for a new business venture in reverse logistics, a growing area in the expanding world of e-commerce. The project aimed to make UPS a provider of systemic reverse logistics solutions instead of returns transportation only. The results would be two-fold: economic and environmental sustainability for both UPS and our customers. My direct managers were all in the room. I had alerted them to how I planned to move the new initiative through the process. This meeting was not a deep dive into the proposal. It was simply a pre-meeting to set the stage for the full proposal.

It worked. The CEO was convinced that UPS had to move forward and asked point-blank, “So what is the proposal, exactly?” He felt a sense of urgency—and wanted to dig into the details. Think for a moment about what you might do in this situation. The direct manager wanted consensus for the proposal before sharing it with the CEO, who was now in front of me asking for it. Despite the dagger eyes from my management team, I dug in; and planted the right seed in the wrong soil! My managers had agreed to what was in the proposal but were unwilling to take the risk of acting on it without previous consensus from the leadership team. I overstepped my bounds, again, and a new leader was tapped for the project. Over the next two years, she trudged through a series of additional presentations and proposals before leaving the company. The project—which I figured cost UPS over a million dollars—was shelved after keeping it on life support for several years. The issue is not whether the innovation was right. That was unknowable. However, the idea could have been tested five years earlier for a fraction of the cost to determine if it was viable. The organization’s consensus mindset was not ready for that.

Consensus thinking may be the number one killer of innovative thinking in incumbent organizations. Dr. Joe Astrachan, Emeritus Professor of Management at Kennesaw State University, saw groupthink smother innovation in several boards he chaired. He says consensus is not agreement; it’s not even a solution everyone thinks they can live with. Consensus is when a group talks and talks until the person with the most power in the room says, “I think we have a consensus, and it is x.” If there is any lingering disagreement, talking continues, and the process repeats until no one voices disagreement.²³ An Amazon executive I spoke with put it this way, “You put all these people together and end up getting a negotiated outcome that doesn’t actually appease anyone. So, you have to ask what value are you ever really creating by aligning across the organization?”

The consensus mindset strives to avoid the kind of open conflict that might lead to new discoveries. A lack of open conflict characterizes political systems. In the absence of an all-powerful leader, political systems cannot innovate. People are afraid to risk saying something. Reaching consensus on a purportedly innovative idea is the surest sign that the idea is not innovative. And if the loudest voice in the room (the archetypical Alpha Dog) drives decision making, then the risk just increased. George Manners, a former professor, inventor, and Director at James River, sums it up. “In the absence of data, bullies and bullshitters always win.”²⁴ The data exists somewhere, of course, but it’s held hostage in siloes and isn’t readily available or transparent to the decision makers.

The consensus mindset can also be described as a high-cost safety net. When consensus is reached, responsibility is diffused. Large bets need broad support. But when a firm truly understands the downside of consensus, they move forward with small risks that are not hampered by the consensus process before the commercial truth is revealed.

Uncertainty Is an Unlikely Friend

There’s a chasm of difference between risk and uncertainty. Risk can be mitigated with analysis. With risk comes a known range of outcomes that can be quantified using probabilities.²⁵ There is no data to mitigate uncertainty fully; the threat has yet to materialize. Apple was not even on Nokia’s list of competitors one year before the iPhone launched and began to erode Nokia’s position in the market.²⁶

Uncertainty may be the most accurate word to describe both the mood and context of the Fourth Industrial Revolution. If the most crucial information for an incumbent company’s future is the data that has not yet been created, senior management must grasp the significant difference between risk and uncertainty. An organization adapts and moves its way to the future in response to observed human behavior, which also helps organizations predict human behavior. Uncertainty makes this impossible. This is where leaders of incumbent organizations falter: action must be taken before outcomes are known.

However, today’s managers appear weak if they cannot confidently predict the future. This leads to a kind of uncertainty-driven dishonesty, especially when it’s combined with the allure of improving efficiency and profitability. If I, as a manager, am not introducing anything new, then I’m taking out of the equation the most significant source of uncertainty. If I’m not innovating and piloting new initiatives, I’m only sharpening the blade; every decision is about marginal cost. If everything is a marginal cost, then short-term profitability will improve. When metrics are tied to capital efficiency measures, the safest play is to improve what I have. Iconic brands often rely on their historical success and are slow to respond to the shifting tastes of the consumer. A good example is the dairy industry, where brands like Borden’s and Dean’s never responded effectively to trends of soymilk and other alternatives, resulting in bankruptcy. Kraft relied on zero-based budgeting for years, starving its brands of innovation while boosting profits through cost cutting. Without reinvesting in innovation (and self-disruption is seen as an enormous risk), profits do not ensure survival.

Measures Matter

If that’s how managers are evaluated, they can’t take all the blame. They simply mirror the systemic worldview of the leaders at the top of the house, including the board of directors. In general, established firms tend to favor capital allocation metrics like return on invested capital (ROIC) and earnings before interest, tax, depreciation, and amortization (EBITDA). A COO said in an interview, “We do a good bit of marginal analysis in [our firm], and most people … can do a 15-year net present value in their head darn near off of EBITDA. We’re good with math. And so, we want to make sure that we’re kind of seeing the signs of the benefits materialize to give us confidence that we keep going so we don’t just run down an alley for two or three years.”

The issue is not about running down an alley with bad math. The problem is the deep-rutted thinking that there is only one kind of math tied to short-term profitability. Another recent conversation with an executive captures the essence of the mindset problem: “This is where I struggle,” he said, “because many of the companies that people say are successful, how do we measure those companies? So, Uber, okay, successful company, by what standard? From a profitability standard? I don’t think so. They don’t make any money.”

There is not one kind of business math that fits all. Newer firms tend to favor metrics that are aligned with growth, not profitability. That doesn’t mean that established enterprises can’t become growth companies (and capital markets love growth companies!). Bill Gates grew Microsoft into a $600B powerhouse over his 25 years. Over the next 14 years, the incremental strategies of Steve Ballmer cut the company’s value in half. Enter Satya Nadella, a longtime insider who reinvigorated Microsoft with a completely different mindset. He recaptured Microsoft’s growth company status and supercharged the company’s value over 430 percent to $1.3T by the 6th anniversary of his appointment as CEO.

Executives need to be comfortable being uncomfortable. The conversation has shifted from managing ambiguities to developing a strategy at the edge of being wrong. The Overton Window shown in Figure 2.1 can provide a framework to think about the aggressiveness and timing of proposed actions.²⁷

Joseph Overton developed the framework to evaluate a range of ideas that may gain acceptance given the state of public opinion. The window ranges from unthinkable to popular, with gradations of radical, acceptable, and sensible until it becomes policy. In Figure 2.1, the Overton Window is applied to the proposition, “People will get into the car of a person they don’t know who will drive them where they want to go.” In a business context, multiple indicators will tell whether an action is right in time. For example, broadband adoption was an indicator of the viability of the Netflix move to streaming. A year earlier and their offering would likely have fallen flat. OV leaders need to live on the edge between radical and acceptable, leveraging real-time information from the external environment.

Figure 2.1 Overton’s window

For those not comfortable being uncomfortable, there is hope. It’s a learned behavior and can be developed. Those public speakers that make speeches look effortless have put in hundreds of hours of work to make it look that way. At the fast-growing e-commerce company Shopify, employees will occasionally shift their mouse to their non-dominant hand to remind them not to be complacent.

Offense Is the New Defense

At the end of World War II, the United States captured several German generals, and some of the U.S. military’s current strategy can be traced to interviews with those German generals. One of them was Hermann Balck, who led the 11th Panzer Division. Balck was known for nearly wiping out the Soviet Fifth Tank Army in a few weeks, even though he was outnumbered in infantry 11 to 1 and tanks by 7 to 1.²⁸ When asked how he succeeded, he said, “Go on offense. We never relented. We attack, attack, attack, attack, attack.”

He explained that people have the misperception that it’s safer to play defense than go on offense. They mistakenly think there will be more casualties going on the attack than trying to defend. There’s nothing more immobilizing for established firms than the frightening uncertainty of going on offense. As businesses get bigger and bigger, they create processes to control their “bigness.” They talk about sustainable competitive advantage and “creating moats” around their offerings through cost leadership or differentiation. Today, however, competing firms can cross those moats with increasing ease. Digital conglomerates like Amazon, Alibaba, Google, and Apple are leveraging Industry 4.0 technologies and customer-centric business models to penetrate multiple industries simultaneously. Today’s leaders must practice second-order thinking pushing the envelope by asking, “And then what?”

Whenever one of UPS’s 500,000-square-foot distribution centers was close to running out of capacity, a business case to build a new one was developed. However, before the senior team gave the green light to put up the building, UPS typically required at least half of the space to be pre-sold to clients. This invariably slowed down construction, which took about six months. During the same time, retailer Amazon was standing up the samesized facility every month. We were getting lapped six times over, but there was no sense of urgency. No one said, “We need to move faster, or we’ll be in trouble.” Our burning question was, “What will this project do to our return on invested capital?” Our traditional competitors were using similar metrics, but Amazon was not. “Defending our moat” against traditional competitors using similar metrics opened the door to a new competitor that focused on receivers, not shippers. Amazon now has over 260 Distributions Centers and 450 Delivery Stations enabling short-zone same-day and next-day deliveries and turning the traditional hub-and-spoke delivery model on its head.²⁹ Playing not to lose is the surest way to lose.

When companies focus solely on a handful of tried-and-true formulas, they die a death by a thousand cuts, so small they are nearly imperceptible. Innovative companies eat away at the edges, stealing tiny slices of their value proposition. I started at UPS corporate as a competitive analyst. I spent my early years grinding through FedEx data, ripping apart their financial reports, and tracking the package vehicles leaving their facilities. FedEx made UPS a better company. When I moved to corporate strategy, I never laid awake at night worrying about FedEx. I knew that if FedEx invested a dollar in logistics, they had to make a dollar in logistics. Amazon, however, was a completely different animal (as were Walmart, Target, Alibaba, etc.). Amazon can invest a dollar in logistics and never have to make a dollar from logistics. It seems so obvious now. As recently as a decade ago, it wasn’t.

The defensive mindset at the top trickles down to managers. They play “good soldier” and go on defense. A good soldier knows the processes inside and out and is mission-critical when the market is stable. When the market is churning, as it is today, a different kind of soldier is also needed, one who is trained to go on the offensive; who is comfortable with being uncomfortable. The ability to grow as an incumbent company in an uncertain world requires going on the offensive. The trick is to use existing resources to take the next step—to “discover growth.” Moving into uncertainty demands being uncomfortable.³⁰

Bionic CEO David Kidder recently said to me, “When you’re going to the unknowable, you’re going from planning to discovery. You don’t plan the future; you discover growth in the future. When you’re going for growth, the mindset of an investor is the opposite of an operator. It’s a creator [mindset].”

A creator can only be on offense because there is nothing yet to defend (or measure); it doesn’t exist, so its data has not yet been created. The only way to protect against the relentless attack of more nimble learning-and-connecting companies is to go on offense. Offense is the best defense. Several military theories that support this come from John Boyd, whom I introduced earlier. Boyd’s theories influenced everything from the design of the F16 to the US assault strategies in Iraq.³¹ Still, he’s best known for his “OODA Loop,” which stands for observation, orientation, decision, and action cycles. It’s a conceptual model built around going on offense while adapting to changing conditions. Boyd believed that only open systems could adapt adequately to change. This was demonstrated by his loop-back model that increases a leader’s ability to make decisions faster than the adversary because real-time information is leveraged.³²

Boyd’s OODA Loop is not a “how-to” guide; it’s a way of thinking based on centuries of military and academic theory, science, and experience. The series of feedback loops don’t create set answers as to the future of the company. The loop of current data—continuously monitored, analyzed, and assimilated—creates a system that continually adapts to the changing reality. It’s constantly being “refreshed.” A leader’s mental patterns should be fluid, based on the business context and what’s happening “on the ground.”

Offense is, first of all, a mindset.

This mindset is prominent in Jeff Bezos’ 2016 letter to Amazon shareholders, which highlighted not only making “high-quality” decisions but “high-velocity” decisions. The two go hand in hand. “Most decisions,” writes Bezos, “should probably be made with somewhere around 70 percent of the information you wish you had. If you wait for 90 percent, in most cases you’re probably slow.” Choosing not to move forward fast comes at a price; that is, “if you’re good at course correcting,” Bezos continued, “being wrong may be less costly than you think, whereas being slow is going to be expensive for sure.”³³ Moving fast involves failure, for which the “course correction” compensates so you can learn fast from your failures. If you’re not course correcting and thus learning about what’s not working well, moving fast is simply a waste of resources.

Slow Is a Choice

UPS ultimately made the investment in AM, but the resources and support didn’t follow. The epilogue does not condemn the executives who wanted to do the right thing. They acted with integrity and confidence within the parameters of the mindset that governed their careers.

I was perhaps the guiltiest of all in terms of a fixed mindset. It was my job to champion AM, like thousands of leaders who fight every day for the projects on which their reputation and career depend. Fighting means not conceding to the fixed mindset and capitulating to the stock answers, “The organization is not ready” or “I need to lower my revenue or raise my spending.” Attitudes are significant inhibitors to OV, and I gave up too soon. As Morpheus in The Matrix said, “It’s one thing to know the path; it’s another to follow it.” I didn’t follow the path.

The era of long-term survival through increased efficiency is waning. It’s morphing into an age where there is no sustainable advantage, only persistent advantage, which is cyclical, ongoing, and demands that leaders act amidst uncertainty. This means going on the offensive. It’s not failing fast but learning fast—and then adapting.

OV requires speed, but it’s about much more than merely moving faster in response to changes in the external environment or spotting disruption more quickly and accurately. OV calls for a new mindset about how to redeploy capital and resources into areas vital to the company’s future success—before the impact of the investment is known. This is a mindset of continual learning. Even when you’re at the top of your game, you study the tape the morning after the last game you won, and you learn.

If You Don’t Know, You Know

The thinking problem permeates company meeting rooms, but it should not permeate all decisions. Be sure to separate reversible from irreversible decisions.

For example, most decisions regarding moving a product or service into testing are reversible. If the test doesn’t work out, you’re out some time and money, but it doesn’t undermine business as usual. Many decisions we make in our personal and professional lives are reversible and should be made quickly. Irreversible decisions, however, are a different story. These decisions may not be completely irreversible but very difficult to unwind, such as code changes in legacy IT systems, acquisitions, or marriage. In these cases, I had a wise manager at UPS who told me, “If you don’t know, you know.” I’ve used this decision-making framework with much success and have passed my manager’s advice on to my kids. As most decisions are reversible, the mantra allows you to overcome the thinking problem and act with speed and agility more often.

The same applies to legacy businesses. In chapter 3, I will lay out the complete system for operating a legacy business in an age of disruptive innovations.

What? Get your mindset right and success will follow.

So What? The status quo is a mighty force that will pull you to the middle where it’s safe. Actions taken to “create the new” will fade like a pebble in a pond when status quo mindsets rule. The OV discovery process requires leaders with a mindset comfortable with uncertainty, able and willing to pivot as information is created, with the fortitude to look past the naysayers.

Now What? Critically evaluate your mindset and work with other leaders to do the same. Is your mindset aligned to move at the speed of the challenge?34 Take inventory of your biases. What mental barriers are holding you and your team back from achieving your persistent advantage? The new mindset will filter through culture, processes, metrics, and rewards allowing your company to operate with Organizational Velocity.

 

¹  T. Levitt. 1960. “Marketing Myopia,“ Harvard Business Review 38, no. 4.

²  J. Casesa. January 11, 2019. “Senior Managing Director at Guggenheim Partners and former Group Vice President, Ford Motor Company.” Interview by Alan Amling.

³  B. Bryan. October 29, 2015. “Hilton CEO: Airbnb Doesn’t Scare Us—Here’s Why,” Business Insider, www.businessinsider.com/hilton-ceo-airbnb-competition-2015-10

⁴  “Airbnb‘s IPO: 6 Key Things to Know,” Fortune, https://fortune.com/2020/12/09/airbnb-ipo-share-price-covid-revenue-profit-2020-brian-chesky-abnbnasdaq// (accessed December 09, 2020).

⁵  N. El-Bawab. April 29, 2019. “Marriott Plans to Launch Home-Rental Market Platform that Would Compete with Airbnb, Report Says,” In CNBC, www.cnbc.com/2019/04/29/marriott-to-launch-home-rental-platform-to-compete-with-airbnb-report.html

⁶  K. Schwab. 2017. The Fourth Industrial Revolution. Currency.

⁷  In this book, I am addressing the specific threat of disruptive innovation only, where new competitors target non-consumption at the low end of the market. Incumbent organizations tend to focus primarily on higher margin products, serving customers farther upstream, what is called “sustaining innovation.” But they often ignore the bottom of the market at their peril, given today’s learning and connecting technologies. Start-ups often take the low ground first and then improve the quality of their products, eventually surpassing the incumbent. Tesla, the electric car company started by Elon Musk, would not be considered an example of disruptive innovation in the automotive space, but it may be in battery storage. Tesla attacked the high end of the market and went directly after the big car companies.

⁸  J. Becher. 2016. “Lily Pads and Exponential Thinking,” Manage By Walking Around. https://jonathanbecher.com/2016/01/31/lily-pads-and-exponential-thinking/

⁹  R. Fulop. October 05, 2020. “Founder & CEO, Desktop Metal.” Interview by Alan Amling.

¹⁰  L. Silver. February 05, 2019. “Smartphone Ownership Is Growing Rapidly Around the World, But Not Always Equally” Pew Research Center‘s Global Attitudes Project. www.pewresearch.org/global/2019/02/05/smartphone-ownership-is-growing-rapidly-around-the-world-but-not-always-equally/2019

¹¹  C.K. Prahalad and R.A. Bettis. 1986. “The Dominant Logic: A New Linkage Between Diversity and Performance,” Strategic Management Journal 7, no. 6, pp. 485–501.

¹²  R. Habersham. February 23, 2020. “Macy’s Tech Hub Brings Hundreds of Jobs to Midtown, Could Help Reinvigorate Company,” The Atlanta Journal-Constitution. www.ajc.com/news/local/macy-tech-hub-midtown-could-help-reinvigorate-company/u3zkRGAPuiaytXb8rg2znL/

¹³  L.A. Thomas. 1995. “Brand Capital and Incumbent Firms’ Positions in Evolving Markets,” The Review of Economics and Statistics, pp. 522–534. Thomas mentioned “persistent advantage” once, but he did not define the term.

¹⁴  W. Darity, J. Dietrich, and D.K. Guilkey. 2001. “Persistent Advantage or Disadvantage?: Evidence in Support of the Intergenerational Drag Hypothesis,” American Journal of Economics and Sociology 60, no. 2, pp. 435–470. Darity and Dietrich used “persistent advantage” in their title, but not in the text.

¹⁵  I credit much of my thinking on sustaining innovation to Clayton Christensen, who coined sustaining and disruptive innovation in The Innovator’s Dilemma (1997).

¹⁶  M. Berardino. November 09, 2012. “Mike Tyson Explains One of his Most Famous Quotes,” Sun-Sentinel.com. www.sun-sentinel.com/sports/fl-xpm-2012-11-09-sfl-mike-tyson-explains-one-of-his-most-famous-quotes-20121109-story.html

¹⁷  M.L. Tushman and C.A. O’Reilly III. 1996. “Ambidextrous Organizations: Managing Evolutionary and Revolutionary Change,” California management Review 38, no. 4.

¹⁸  D. Kidder. February 21, 2019. “CEO, Bionic.” Interview by Alan Amling.

¹⁹  A. Gasparro. February 21, 2019. “Kraft Heinz Divulges SEC Investigation, Swings to Loss—WSJ,” The Wall Street Journal. www.wsj.com/articles/kraft-heinz-discloses-sec-probe-misses-earnings-forecasts-11550789493

²⁰  D. Ready, C. Cohen, D. Kiron, and B. Pring. 2020. “The New Leadership Playbook for the Digital Age,” MIT Sloan Management Review.

²¹  S. Blank. 2019. “Why Companies Do ‘Innovation Theater’ Instead of Actual Innovation,” Harvard Business Review, https://hbr.org/2019/10/why-companies-do-innovation-theater-instead-of-actual-innovation

²²  “Three Years Later, U.S. Companies Continue to Struggle With Innovation, Accenture Survey Reveals,” Newsroom. www./news/three-years-later-us-companies-continue-to-struggle-with-innovation-accenture-survey-reveals.htm (accessed March 21, 2016).

²³  J. Astrachan. May 25, 2020. “Professor Universitat Witten/Herdecke, Family Business Fellow, Cornell Johnson Graduate School of Management, Board of Directors for 9 companies.” Interview by Alan Amling.

²⁴  G.E. Manners, Jr and R.T. Barth. 1978. “Organizational Climate Factors and the Evaluation of Technical Ideas,” R&D Management 8, no. 3.

²⁵  D. Teece, M. Peteraf, and S. Leih. 2016. “Dynamic Capabilities and Organizational Agility: Risk, Uncertainty, and Strategy in the Innovation Economy,” California Management Review 58, no. 4.

²⁶  R.G. McGrath. 2010. “Business Models: A Discovery Driven Approach,” Long Range Planning 43, no. 2–3.

²⁷  J. Lehman. 2014. “A Brief Explanation of the Overton Window,” Mackinac Center for Public Policy.

²⁸  H. Balck. 2015. Order in Chaos: The Memoirs of General of Panzer Troops Hermann Balck. University Press of Kentucky.

²⁹  “Amazon Distribution Network Strategy | MWPVL International,” https://mwpvl.com/html/amazon_com.html (accessed September 2021).

³⁰  D. Kidder and C. Wallace. 2019. New to Big: How Companies Can Create Like Entrepreneurs, Invest Like VCs, and Install a Permanent Operating System for Growth. Currency.

³¹  J. Fallows. 2014. “John Boyd, From US News,” The Atlantic. www.theatlantic.com/national/archive/2014/03/john-boyd-from-em-us-news-em/284223/

³²  J. Boyd. 2018. A Discourse on Winning and Losing, Vol. 13. Air University Press.

³³  J. Bezos. 2017. “Amazon 2016 Letter to Shareholders,” Exhibit 99.1. www.sec.gov/Archives/edgar/data/1018724/000119312517120198/d373368dex991.htm

³⁴  I am borrowing the phrase, “moving at the speed of the challenge” from a conversation with a U.S. military general in which he described the different kind of challenges while he was at the European Command, such as high-end Russian issue as well as addressing Isis fighters in the streets of Paris returning from the Middle East.