GroupThink Eats NewThink for Breakfast
Little Mikey in the original 1972 Life cereal ad created by art director Bob Gage. The campaign remained in regular rotation for more than 12 years.
Market Innovation Always Needs a Beginner
Sometimes it simply feels safer and more comfortable cognitively to fail with what you already know rather than suffer the psychological pain of navigating the novel. Leadership teams, pressed and stressed for energy and attention (the average time spent on a task is 75 seconds), become kinetically-trapped in outmoded orientations and incentives, doomed to be, always, in defense of whatever market definition allowed them to be successful in the first place.
But in the end, leaders risk more to avoid losses than to achieve gains.
“Takeda has good company in restructuring its business, joining other large pharmas like Pfizer, Bristol-Myers, Bayer, Sanofi and Novartis that have recently cut back on spending, laid off staff or reprioritized their research,” writes Ned Pagliarulo, lead editor for BioPharma Dive, last week (see: Takeda targets ‘efficiency’ in restructuring, pipeline cuts). Alongside the R&D prioritization, Takeda plans to invest further in what it terms “data, digital and technology.”
Which is pretty much what everyone else, including Takeda competitors Pfizer, Bristol-Myers, Bayer, Sanofi and Novartis, are also saying.
But most ‘digital transformations’ don’t create strategic differentiation; they create competitive convergence. Worse, they tend to “automate the horseless carriage” instead of ‘inventing the automobile’ because organizations are hardwired to see and sustain what they already know. So any new set of technologies and capabilities will be used to cultivate success in a market people are already comfortable with, of “sticking with your area of focus”.
In pharma, that means drug development and promotion.
Which means not risking the base layer, the core, the value proposition that has made you and your shareholders successful in the past, by investing patience and resources to build a weird new market, where forecasts are often fantasy, the upside is unknown and unknowable at the start, and the only thing the experts agree on is that they have no idea.
So the Standard Model is probably not going to be the source code for something radically different strategically, say a new market objective positioned on the ‘production of cardiometabolic health’, something like high-end fitness chain Equinox is doing. They’re linking medicine, biotech, fitness and nutrition to launch a $40,000/year personalized health program called “Optimize by Equinox”.
What Equinox is doing is a rare example of market innovation based on systems thinking, of understanding how to invent a unique offer by positioning themselves as an aggregator, the ‘nail’ from which to pin other markets and spark a self-producing economic system. How big can this “ecosystem-centered market strategy” become? Just ask Amazon.
Which gets at the root problem in healthcare innovation agendas generally, and in the drug market specifically. They tend to be under-conceputalized, under-powered and shaped by a fragmentary worldview, with pieces and parts operating in separate domains. The center-of-gravity for thinking about big growth and new power is bounded too narrowly, too operationally, too conventionally, too focused on the technical push.
“Strategy” doesn’t create a system advantage (which, in the United States, is what’s needed to displace the power and control of Big PBM + Big EBC). It doesn’t create gravitational pull. It doesn’t create leverage.. And so in the drug market, you get what we have now: a business model stuck in a loop in time, another cycle of patent cliffs begetting another cycle of restructurings (for more insight, see ‘Why the Pharmaceutical Industry Needs to Think Like Quentin Tarantino’).
To make the magic leap to new value, the stuck organization must devolve into a new being. And it starts by letting go at the top, not as an act against perfection and against using artificial-intelligence-for-everything, but as an act against shortsightedness.
It’s the vision thing.
“Sixteen years ago, Airbnb launched, and today, it's worth $91 billion.
They almost didn't make it. On June 26, 2008, Brian Chesky, the co-founder and CEO, along with his team, presented their idea to seven influential Silicon Valley investors.
They aimed to secure $150,000 at a $1.5 million valuation. A $150,000 investment would have translated into a 10% ownership stake in Airbnb, a share that, as of today, would be valued at $3+ billion.
But plans didn't unfold as expected.
After the meetings, rejection emails started coming in from five investors. The other two investors opted to ghost the team and not respond at all.To quote from the rejection emails:
“While this sounds interesting, it is not something we would do here — not in our area of focus from an investment perspective. The potential market opportunity did not seem large enough for our required model.”
Shout-out to Kevin Jurovich for this post on LinkedIn.
Economist Joseph Schumpter called the simultaneous act of destroying + building “creative destruction”. It’s an apt term. Letting go of “optimization” and “efficiency” as a belief system requires a brute act of will. And it can be done badly. But there can be no expertise in innovation unless there is also expertise in demolishing the ensconced with a better strategy story.
So it’s the ‘leadership margin’ that now separates:
You have to be comfortable crossing the river as you’re feeling for the stones. The skill in short supply is not technical, but visionary, able to articulate and propagate a new direction, a ‘modern strategy’ to manage a new interface layer with the world.
Making a Big Dent Takes Patience
How to blow $230 million/year:
Sell a big market forecast to the board
Base the big market forecast on Standard Model thinking
Confuse said big market forecast (i.e., metrics) for a strategy
Point resources and capabilities in the wrong direction
Change said wrong direction early and often
Assume expert knowledge of the past is the way to construct a future
Ignore, misread or pretend-away the ‘ground truth’ from the frontline
And when the mathematical gymnastics packaged in the PowerPoint don't manifest NOW in terms of the 'next $1 billion in growth' or, even better, deliver on the true center of the American Way of Healthcare (i.e., more shareholder value, ideally next quarter), throw in the towel, announce layoffs and revert to the place you're comfortable with conceptually.
Walmart announced a surprise shutdown of its primary care business in April, five years after launching it with great ambitions shared by many other retailers who have likewise attempted to enter the healthcare services industry and are now getting out (see Walgreens and Dollar General). In its public announcement about the closure, Walmart blamed poor healthcare payments and rising operating cots for a lack of profits. According to Endpoints News exclusive reporting, Walmart had lost $230 million last year alone on the effort.
Endpoints sent a detailed list of questions to Walmart, which didn't dispute the characterization of the healthcare business’ operations and closure. “We’ve determined this is not a sustainable business model for us at this time,” the company said in a statement to Endpoints. But then added this head-scratcher:
"What we learned through Walmart Health centers will help us continue to innovate and support the healthcare needs of our communities through our legacy pharmacy and vision."
Possible, but not probable.
By definition, the only place a "legacy" vision can lead is back to the past.
If there's a "learning" here -- the kind of thing Harvard Business School can itself package in a PowerPoint to sell as a new corporate/executive education program -- it is that making big market innovation come to life is hard work. It isn't a solo sport (Walmart can/would have fared better collaborating with a big pharmaceutical company on the roadmap). And it doesn't start with a forecast that everyone knows is bullshit, particularly the people buying and selling it.
The upside of a new market is unknowable at the start, just ask the team at Amazon/Amazon Web Services, who ten years ago invented what is now a $600 billion market for 'cloud infrastructure' services. They had no idea it could be that large. What turned an “awkward side project” into a behemoth that is now four times bigger than the original shopping business was an operating philosophy that encourages a Punk Rock Ethos of disruption:
“To me, it’s the concept of insurgents versus incumbents,” said Adam Selipsky, who became AWS’s CEO when his predecessor, Jassy, took over as Amazon CEO, in a story for Fortune by Geoff Colvin (see Over Two Decades, AWS has Become the Ultimate Case Study in Corporate Innovation).
It took three years before AWS went live. In 2005 Jassy hired Selipsky from a software firm to run marketing, sales, and support, Selipsky recalls: “Amazon called and told me there was this initiative for something about turning the guts of Amazon inside out, but other companies could use it.” AWS’s first service, for data storage, “was such a novel concept that it was even hard to explain and hard for me to understand,” he says.
Wall Street didn’t get it. “I have yet to see how these investments are producing any profit,” a Piper Jaffray analyst said in 2006. “They’re probably more of a distraction than anything else.”
The rest of the world didn’t get it either. “I cannot tell you the number of times I got asked, with a quizzical look on people’s faces, ‘But what does this have to do with selling books?’ ” Selipsky recalls. “The answer, of course, was: AWS has nothing to do with selling books. But the technology we use to sell books has everything to do with AWS and what we can offer customers.” Those customers were software developers, an entirely new target market that baffled outsiders.
AWS was prepared for that reaction. One of Amazon’s principles reads in part: “As we do new things, we accept that we may be misunderstood for long periods of time.”
So maybe the biggest learning of all from Walmart’s foray into market innovation is that making a Big Dent happen, particularly in healthcare, takes time, a more original vision and a completely different starting point. Something both Jeff Bezos and Leo Tolstoy understood.
Quoting from the epigraph to War and Peace:
"The two most powerful warriors are patience and time."
You Can’t “Fix” a Strategic Collapse
We keep re-submerging ourselves in familiar storylines.
Having normalized cliche, old narratives have veto power over the new, keeping us running on the watery residue of the past. We tinker in proven domains. We put the new operating model ahead of the new thinking model.
From the article, What Strategy is Not, published by Blue Spoon in Sloan Management Review:
“Strategy is not technology. No one gains competitive advantage from letting technology lead strategic visioning. This is the short road to parity. The ever-expanding universe of specialized technology applications makes possible almost any conceivable operational vision, but strategy is not forged from technological (or economic) power alone. Strategic understanding cannot be keyed to a specific technology application. When the same communication and knowledge acquisition technologies are accessible to everyone, and everyone works with the same set of ideas to deploy technology in the same way, there is competitive convergence. Commoditized performance sets in because actors are copying one another using cut-and-paste methods. Advantage instead flows from getting ahead of the technology curve and using holistic thinking to guide the process of change. This is concept-driven innovation, a very different sort of framework than technology-driven innovation.
The only way to “fix” a strategic collapse is to step outside the current system of thought responsible for causing it in the first place.
If the pressure and the measure is creating quality growth from inventing new markets (as opposed to the poor quality kind that comes from cost cutting, making operational efficiencies or buying companies), then the shortest route to get there for most brands, industries and governments will be to start with a different strategy story altogether, a more original screenplay.
Without a modern strategy to give modern technologies new direction, without management innovation to guide and imagine with different concepts than what we’ve been using in the past, “data, digital and technology” can’t produce a world much different than what we already have now.
The Standard Model powered by ChatGPT is still the Standard Model.
/ jgs
John G. Singer is Executive Director of Blue Spoon, the global leader in positioning strategy at a system level. To craft a new strategy story: john@bluespoonconsulting.com