In a glass-walled boardroom overlooking the Hudson River wrapping around downtown Manhattan, the Statue of Liberty in the distance, our guest lecturer flicked on one of the strangest slides I’ve seen. Juxtaposed against a sleek, modern room were two medieval paintings. One of a fortress. The other of a ship.
This was one of our Outthinker Strategy Network Roundtables. Fifteen heads of strategy of Fortune 500 companies were discussing the challenges and methods for managing innovation with Kellogg professor Rob Wolcott. What Wolcott said next had all our CSOs scribbling notes.
Numerous frameworks abound to help people understand the challenges of simultaneously managing a stable core business and seeking innovation: “three horizons,” “dual operating system,” “three-box solution,” etc. But Wolcott’s simple analogy captures the challenge more elegantly.
He suggests you can think about your business as composed of a fortress and a ship. The fortress is your stronghold, around which you build walls to protect the gains you have accumulated. The ship represents your activities to seek out new lands. If you just protect your fort, you will miss out on future lands and will eventually find your fort attacked and taken over. Your core business will eventually erode into a commodity.
As Bruce Greenwald of Columbia Business School puts it, “In the long run, everything becomes a toaster.” Everything commoditizes as alternatives proliferate and margins fall.
Strengthen your fortress walls
You can slow the slide into commoditization by strengthening your fortress walls in three ways:
- Expanding and leveraging economies of scale by building larger factories so you can produce at a price others cannot match, for example, or creating assets you can use over and over without significant margin costs.
- Increasing customer captivity through strategies like raising switching costs or making it undesirable for customers to leave you.
- Increasing your control of key inputs including tangible ones (e.g., owning the diamond mines) and intangible ones (e.g., intellectual property and brands as Disney does when it acquires and controls characters).
In the fortress, you play defense. You ironically are motivated to slow down the pace of innovation.
But the mindset of those on your ships exploring new territories is in many ways the opposite. You are seeking change, not stability, which comes with risk rather than certainty. You are seeking to change the order of things rather than defend it.
Leading your ships
Leading your fortress and your ship simultaneously is challenging because each requires a different leadership approach across at least seven dimensions (this is drawn from Chapter 10 of my upcoming book, Driving Innovation from Within):
|Fortress leaders||Dimension||Ship leaders|
|Driven by controlled resources||Your strategic orientation||Driven by perception of opportunity|
|A single stage with complete commitment out of decision||How you commit resources||In stages with minimal exposure at each stage|
|Hierarchy||Your management structure||Flat, with multiple informal networks|
|Responsibility and seniority||The basis on which you assign rewards||Value creation|
|Safe, slow, steady||The type of growth you seek||Rapid growth with acceptance of risk|
|Risk should be minimized||Risk orientation||Risk should be comparable to pay-off potential|
|Coordinating||Your primary skill||Designing new organizational structures and processes|
The challenge of simultaneously adopting such different leadership styles may make you want to throw up your hands and give in to the commonly accepted belief that established companies cannot innovate, that entrepreneurs are the disruptors, that large corporations should resign themselves to acquiring innovations that others create.
But as we sat in the conference room, high above the city, far away from our offices, we came to realize that we were doing it already. These roundtables are like our ship. They give us time to step away from the fortress, climb the crow’s nest, and peer into the future. You can walk and chew gum, you can work and play, you can play defense and offense, you can relax in the comfort of your home and explore the wilderness.
To begin doing this, simply sit with the “fortress and ship” analogy, and:
- Ask yourself, “Who are my fortress protectors and who are my ship explorers?”
- In every meeting you are in and in every interaction you have, ask if this is a fortress or ship discussion.
- Then adjust your leadership approach accordingly.