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Facing A Post-Catalyst Reality

Naveen Krishnamurthy, Director, Consulting
October 29, 2020

THE NARRATIVES WE WEAVE

The Narratives we WeaveHistory is replete with stories of long-drawn battles, finally ending with the resolute underdog vanquishing a mighty opponent after one last skirmish.

Politics, for example, presents the case of a relatively unknown peanut-farmer-turned-Governor – being greeted with this headline from the Atlanta Constitution: “Jimmy Who Is Running for What!?” when he announced his candidacy for the nation’s highest office – subsequently going on to win the Presidency against the incumbent in 1976.

In sports, some still remember the U.S. ice hockey rookie team prevailing over four-time defending Soviet champions at the 1980 Winter Olympics – a Miracle on Ice – that seemed to foreshadow how that decade would end. And just about twenty-odd years ago, a software program taking down an international chess champion in 1997 – igniting enrollments in graduate programs in computer science and artificial intelligence. In politics, sports, war, and elsewhere, we love these David vs. Goliath narratives. Some “Davids” harness the catalytic times they inhabit as they ride to victory; others set off catalysts of their own.

Who do you want to be?

In startup-land, successful underdogs are celebrated as "Bold Visionaries."

For example: In the mid-90s, an online bookseller in Seattle sees the internet as a marketplace not just for ideas, but also for civilization’s other essentials like detergent, face masks, and lifelike elephant inflatables – the truly Everything Store.

Around the same time, an English teacher in Hangzhou envisions that the same internet could bring his country’s products to the world’s doorstep – his company was going to be the “Crocodile in the Yangtze." Or more recently, a technology maverick imagines a camera-equipped smartphone as just the kind of social lubricant that the selfie-generation was waiting for.

Sure, for every Amazon, Alibaba, and Apple, a retinue of also-rans and also-forgottens stand witness. VarsityBooks.com and BigWords.com, leaders among a mere handful of online bookstores in 1999, come to mind. Yours truly may have purchased a book or two from these erstwhile Goliaths back when most of my grad school cohort in Environmental Engineering knew the Amazon as a place of earthly wonder, and not much else. Long-dead or long-forgotten companies like Borders, VarsityBooks, and BigWords now populate the ranks of the "Dearly Departed."

Ostensibly, a formidable cliff separates the Bold Visionaries at the top from the dearly departed at the bottom. And ostensibly also, companies favor the former outcome to the latter. So, what actions bring a company closer to effecting that preferred outcome – while conquering catalysts on its journey? Catalysts like unforeseen macroeconomic upheaval leading to an inability to obtain credit for production scaleup; or a critical product quality error resulting in the departure of many key customers just prior to a capital raise; or a miscalculation around scope and timing of regulatory intervention.

We deliberate that question – provoked by many conversations with clients in recent months on how to formulate technology strategy in a post-COVID world. For example, how can an aircraft builder ride out the next few years of negligible new orders for commercial aircraft? Can a clothing company out-innovate its way out of a double-whammy of lower demand for both business attire as well as sportswear?

And what will your company do, now that a pandemic has scribbled all over your blueprint for fiscal-year 2020?

As clients bring us into these deliberations, some of our more candid conversations require us to ask those clients: What does your company want to be best known for – when it emerges on the other side of this medical-economic shear plane? The answer to that question helps us to begin constructing the elements of a technology strategy that is both catalyst-responsive today as well as catalyst-ready for the next kahuna.

What follows is a framing of our observations as we work with clients across diverse industries – from tobacco to therapeutics – in the Americas, EMEA, and Asia-Pacific.

Same-old or all-new?

Much of the motivation to do something – anything – when faced with a catalyst lies in the recognition, nay acceptance, that a transition is afoot. Yes, the cheese got moved. In that transition, and after, should you do more of the same or switch to all new, or, a combination of the two?

USUAL SUSPECTS: Most companies do much to retain their core while gingerly stepping into the new. Not that there’s anything wrong with it. But observe for a moment, packaged beef product suppliers like Tyson Foods. A few years ago, a growing segment of consumers was already embracing the idea that protein and slaughterhouses are not synonymous. The trends were undeniable and accelerating. Still, when faced with the catalyst of well-capitalized alternative-protein challengers like Beyond Meat and Impossible Foods, Tyson Foods hemmed and hawed but eventually announced plans to develop its own beef alternatives. Reluctant, but eventual, adopters of the zeitgeist. From inertia-ridden large corporates to initially-reluctant in-laws, a temperament of slow-acceptance appears to be innate in all of us. We see this type of lethargic catalyst-response behavior so often. After years of building bigger power plants to try and compete in coal, natural gas, and nuclear in the face of a rapidly-commoditizing energy generation business, e.g., as rooftop solar power attrited retail customers away from the standard utility model, electric utilities are now coming around to the idea that EV charging stations is where it’s at.

Cranking out more of the same, and meagerly attempting some of the new – that’s the behavior on display among the "Usual Suspects" in the global energy transition.

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ENLIGHTENED STRATEGISTS: Let’s say you’re a major international airline. Rising disposable incomes among the middle class means more air travel to tourist destinations. Globalization and bullish economic trajectories mean increased business flights to more destinations in your stronghold. Amid these wholesome trends, how do you train flight attendants in emergency response as they prepare for in-flight crises in increasingly complex language/cultural scenarios that are hard to faithfully recreate in printed, standard operating manuals? Perhaps you roll out VR modules as part of official flight attendant training programs. VR-driven training could also make way for instantaneous updates to flight attendant recertification programs as new situations are envisaged and airline directives change. Fair, but this is a response akin to reaching for low-hanging fruit. Still firmly in the domain of a Usual Suspect – incorporating some of the new digitalization “stuff” while still entirely focused on eking out greater share of global passenger-miles.

Now, let’s say you are not just any other airline, but instead a conscientious $20B Asian carrier that realizes that half the fun in travel is coming back and sharing stories with friends and family. In many instances, those who want to live that travel experience vicariously are near and dear ones that are too young, too old, or otherwise unable to travel. So, in return for a small fee, you as the airline, now let airline passengers access an app that uses their smartphone camera to livestream pictures and video back to their eager “co-travelers” who are hooked to a VR device. Commendable. But we wager that this still doesn’t rise to anything beyond what a Usual Suspect could fathom and implement – i.e., marketing campaigns to attract the flying public with ancillary services. Just slightly more of the new but still focused on more of the same.

Then, a global pandemic sweeps the travel industry. You suffer one of the worst economic quarters in your history, with revenues for January-March 2020 too appalling to discuss openly. You announce furloughs for nearly half of your workforce. Your results for quarter-ending June 2020 bring no consolation either – they’re 75.7% down year over year. And that’s not the final straw. You realize that you’ll need to live with years, not months, of lackluster passenger traffic. How do you even begin to embrace the new normal?

If you are ANA, Japan’s biggest airline, you invest in a two-person Japanese startup called Avatar-in, which allows home-bound would-be-travelers to remotely control robots at popular tourist destinations like museums in select cities, so that travel becomes “possible”, in the loftiest extension of the word, for the masses. That’s preparing for the 0-3 year horizon by embracing the reality that the core will remain a shadow of its former self, and therefore, far more of the new is required to plug gaps. That’s the mindset at play for an Enlightened Strategist. A perceiver of shifts and a doer of new at the expense of the same old. Sure, in ANA’s case, one could argue, that the airline was simply using tools at its disposal to react to a catalyst at its doorstep. But take heed, ANA was already experimenting with this idea of virtual travel long before COVID-19 entered our consciousness. That speaks to readiness, not just responsiveness, to harsh catalysts like the current pandemic.

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BOLD VISIONARIES: While subscription fees for vicarious travel experiences like those ushered by Avatar-in offer a modicum of support for falling revenues from core operations, what else could ANA do with this newfound capability? ANA could conceive of global mobility as comprising two travel segments: (i) Conventional mobility – i.e., travel as we know it – pre-scheduled, pre-routed, pre-paid transportation of humans and freight; and (ii) Aspirational mobility – impromptu, immediate, open-routed, pay-later (or pay as a subscription) “teleportation” experiences. Today, ANA participates in the former. The airline could embrace a future where it becomes the provider of choice for remote, instantaneous mobility – i.e., Aspirational mobility – for all kinds of needs. 

Need to help an Alzheimer’s patient find their way home from a remote corner of the neighborhood greenspace? Perambulate an ANA robot avatar with them and lead them back to familiar surroundings, guided by the simulated voice of that patient’s loved one while the camera-equipped robot allows an ANA support specialist to “see” and get their bearings around the patient who has wandered off. Reckon that the worst part of being an opera lover is being crammed into an embryonic position for three hours with novices and tourists? No matter; La Traviata comes alive with an ANA telepresence robot stationed at the opera house. Neither the walk to and from the neighborhood park nor the trip to the local opera house was previously conceivable for an airline to intermediate. Technologies like AR/VR allow for that. An example, we think, of envisioning a world where conventional air travel is permanently upended, creating the opportunity for an airline to incorporate not just some of the new but a whole truckload of what’s “new” into its paradigm. 

And of course, if you’re ANA, as you’re bridging to the “new”, you are also investing in your core – by firing up marketing engines to continue to keep the business jet-set excited about choosing you in the midst of the pandemic and beyond. You expose would-be business travelers to VR experiences of “The Room”, an upgraded business class seat in your 777-300ER aircraft. Committing to retain market share as and when business travelers do return to the skies. 

In reality, ANA is yet to transport itself from Enlightened Strategist to Bold Visionary. The company doesn’t yet offer the kinds of ageing-in-place or remote entertainment solutions we hypothesize above. But, the awareness of these possibilities could already exist at the carrier. If ANA were to manifest these possibilities indeed, it then demonstrates a duality of even greater focus on the same while embracing so much of the new. That could make ANA a potential contender in the realm of Bold Visionary.

Clearly, the bar we’ve set for a large company in a mature industry to be termed Bold Visionary is perhaps too high….and a tad unfair. And indeed, that is the point. Even though computer manufacturers Dell, IBM, Gateway, and others had the advice of armies of futurists, it took a former-fruitarian-turned-tech-messiah – selling computers at a company named after a popular fruit – to really intuit that computing power was not going to stay shackled to desktops and laptops; computing needs were going to become the province of smartphones. The “Jesus phone”, as some dubbed the iPhone when it was released in 2007, sold 3.5 million units in its first 12 months. Impressive? Apple shipped 10 times that many iPhones in the first quarter of 2020 alone. In comparison, Nokia shipped about 10 million phones that same quarter. Gateway computer anyone?

DEARLY DEPARTED: Should we spare a moment of silence for former titans who are no longer with us, or that are close to extinction? Apparel sellers, like JCPenney, Lord & Taylor, and Neiman Marcus that were so tied to in-store sales at the shopping mall that they got left behind as COVID-19 roiled through the industry. Cautionary lessons from the southwest quadrant could be the subject of another blog article. Suffice to say, when faced with a catalyst, doing less of the same and very little of the new could seed the idea among customers that they didn’t need your products/services after all.

The Roads We Travel

Three – perhaps simplistic – interpretations are likely from the foregoing.

First, companies are very likely populated by individuals who are exceptionally strategic or visionary, by themselves. These individuals might even be able to craft their companies’ enlightened strategies or bold visions. But not many companies earn the status of Enlightened Strategist or Bold Visionary – per our framing. Why? Execution encapsulates the gap between exemplary vision and laudable outcome.

Second, it is likely that the Usual Suspects, Enlightened Strategists, and Bold Visionaries are merely differentiated by their calibrations to meet different perceived horizons. The Usual Suspects mustering a classic immune response to clear and present threats in their midst. The Enlightened Strategists sensing a disruption in the forcefield, and acting today, to bring about good tidings 3-7 years from now. And the Bold Visionaries peering 8-10 years away – their radars attuned to make sense of both butterflies as well as ballistics.

Third, there may be some truth to the narrative that may have coalesced for some of you by now: Companies traverse a zig-zag pattern from lower-right to top-left and finally to top-right.

  • A company that is fully invested in a core paradigm that is likely to be upended permanently due to a coming catalyst (climate change, shifting demographics, declining economics, or others) is likely to first position itself in the South-East quadrant. Plain survival instinct is the impulse. There, it fights more strenuously than ever before, to maintain market share in a declining market – rolling out greater discounts/promotions, increasing opex in pursuit of efficiency gains, and attempting to acquire its rivals. Car dealerships, rubber tire manufacturers, construction material suppliers – and many others have exemplified this behavior of the Usual Suspects.
     
  • At some point in its tenure in the South-East quadrant, the company realizes that a pivot is needed – it begins to relinquish its “same old” and starts stepping into the “new” in a bigger way, thereby transitioning to the North-West quadrant as an Enlightened Strategist. Not all companies can make that transition to the North-West quadrant however; some companies slip into the ignominy of the South-West quadrant. Many a former steel mill in the U.S. will bear testimony as Dearly Departed.
     
  • Finally, only a few companies graduate to the North-East quadrant – having earned their stripes from diligent and repeated application of envisioning – of the kind we mention in our webinar in June, titled Building a Catalyst-Responsive Technology Strategy. Companies that make it to this last quadrant are adept at applying the rational and the creative, in judicious amounts. Their journey thus far has shown them how to embody a culture of repeated visioning and executing. Think about how General Electric made electricity its own. Over the course of the 20th century, the company repeatedly crafted more and more refined visions of the modern American home and developed electric products around those visions – an electric iron, a vacuum cleaner, a washing machine, a television set, an electric razor, a microwave – all predicated on making household chores less onerous, and family life more enjoyable. was indeed the company’s most important product. During long stretches of the prior century, this company epitomized Bold Visionary.

Faced with a catalyst – or better yet – long before a catalyst arrives at the doorstep – can a company skip the trials and tribulations associated with being a Usual Suspect and instead, not only envision, but also execute to become an Enlightened Strategist? That prospect is in the realm of possibility. Almost invariably however, many prior decades of investment in “same old” means the next marginal dollar spent on current business is likely to yield more immediate economic “rationale” that that’s where energies should be targeted. Especially for large, publicly-listed companies in mature industries. Curtail next quarter’s earnings guidance or shrink this year’s innovation budget?  

Of course, it is possible that some companies skip this arduous journey altogether. These are natural-born bold visionaries. They’re always ahead of the game, as it were, disrupting themselves before somebody does disruption unto them. Sadly, these exemplary entities are observable, it appears, only among the ranks of startups, leaving the big companies to perennially lag small, nimble innovators. Many clients, especially those domiciled in Asia, recognize this. We’re frequently called upon to assist them in investment candidate selection and diligence among startups, especially those startups given to irreverent questioning, envisioning, reaching, failing, picking up, and restarting – the kinds of virtues that are imbued in the U.S./European startup. And that brings us to the epilogue.

Facing up to a post-catalyst reality

So much of our work on consulting engagements is stimulated by a client’s search and selection of new business opportunities – to build or to acquire. Sometimes those partnership/investment targets are startups; at other times, those partnership candidates can be medium-size and large companies. A CEO of one large company recently brought us in because his own conversations with a variety of seemingly attractive investment targets had yielded no bites. No doubt due to the market positioning and culture of being a conservative, staid, company in danger of becoming a Dearly Departed.

These client engagements place us in very frank conversations with the C-level at companies that are investment/partnership targets for our clients. Those discussions lead us to this exhortation: As you cogitate on the implications of our 2x2 framing above, ponder the question that a potential partner will ask you during a transaction negotiation in 12-18 months: What were you doing as an industry leader in the depths of this downturn that makes your company deserve my best ideas, talent, and mindset? In other words, who do you think you are?

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