You know the stories. Kodak developed a digital camera in the 1970s, but its images weren’t as good as film images, so it ended the project. Decades later, that decision ended Kodak. Blockbuster was given the chance to buy Netflix but declined due to its paltry library of titles (and the absence of late fees). A few years later, that decision led to Blockbuster’s decline and demise. Now, in the age of AI, disruption may be about to claim another victim – Google.
A very brief history of Google’s AI efforts
In 2017, Google Research invented Transformer, a neural network architecture that could be trained to read sentences and paragraphs, pay attention to how the words relate to each other, and predict the words that would come next.
In 2020, Google developed LaMDA, or Language Model for Dialogue Applications, using Transformer-based models trained on dialogue and able to chat.
Three years later, Google began developing its own conversational AI using its LaMDA system. The only wrinkle is that OpenAI launched ChatGPT in November 2022.
“In early 2023, months after the launch of OpenAI’s groundbreaking ChatGPT, Google was gearing up to launch its competitor to the model that underpinned the chatbot.
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The search company had been testing generative AI software internally for several months by then. But as the company rallied its resources, multiple competing models emerged from different divisions within Google, vying for internal attention.”
That last sentence is worrying. Competition in the early days of innovation can be great because it pushes people to think differently, ask tough questions, and take risks. But, eventually, one solution should emerge as superior to the others so you can focus your scarce resources on refining, launching, and scaling it. Multiple models “vying for internal attention” so close to launch indicate that something isn’t right and about to go very wrong.
“None was considered good enough to launch as the singular competitor to OpenAI’s model, known as ChatGPT-4. The company was forced to postpone its plans while it tried to sort through the scramble of research projects. Meanwhile, it pushed out a chatbot, Bard, that was widely viewed to be far less sophisticated than ChatGPT.”
Nothing signals the threat of disruption more than “good enough.” If Google, like most incumbent companies, defined “good enough” as “better than the best thing out there,” then it’s no surprise that they wouldn’t want to launch anything.
What’s weird is that instead of launching one of the “not good enough” models, they launched Bard, an obviously inferior product. Either the other models were terrible (or non-functional), or different people were making different decisions to achieve different definitions of success. Neither is a good sign.
“When Google’s finished product, Gemini, was finally ready nearly a year later, it came with flaws in image generation that CEO Sundar Pichai called ‘completely unacceptable’ – a let-down for what was meant to be a demonstration of Google’s lead in a key new technology.”
“A let-down” is an understatement. You don’t have to be first. You don’t have to be the best. But you also shouldn’t embarrass yourself. And you definitely shouldn’t launch things that are “completely unacceptable.”
What happens next?
Disruption takes a long time and doesn’t always mean death. Blackberry still exists, and integrated steel mills, one of Clayton Christensen’s original examples of disruption, still operate.
AI, LLMs, and LaMDAs are still in their infancy, so it’s too early to declare a winner. Market creation and consumer behavior change take time, and Google certainly has the knowledge and resources to stage a comeback.
Except that that knowledge may be their undoing. Companies aren’t disrupted because their executives are idiots. They’re disrupted because their executives focus on extending existing technologies and business models to better serve their best customers with higher-profit offerings. In fact, Professor Christensen often warned that one of the first signs of disruption was a year of record profits.
In 2021, Google posted a profit of $76.033 billion. An 88.81% increase from the previous year.
It’s easy to get caught up in the hunt for unique insights that will transform your business, conquer your competition, and put you on an ever-accelerating path to growth. But sometimes, the most valuable insights can come from listening to customers in their natural environment. That’s precisely what happened when I eavesdropped on a conversation at a local pizza joint. What I learned could be worth millions to your business.
A guy walked into a pizza place.
Last Wednesday, I met a friend for lunch. As usual, I was unreasonably early to the local wood-fired pizza joint, so I settled into my chair, content to spend time engaged in one of my favorite activities – watching people and eavesdropping on their conversations.
Although the restaurant is on the main street of one of the wealthier Boston suburbs, it draws an eclectic crowd, so I was surprised when a rather burly man in a paint-stained hoodie flung open the front door. As he stomped to the take-out order window, dust fell from his shoes, and you could hear the clanging of tools in his tool belt. He placed his order and thumped down at the table next to me.
A Multi-Million Dollar Chat
He pulled out his cell phone and made a call. “Hey, yeah, I’m at the pizza place, and they need your help. Yeah, they hate their current system, but they don’t have the time to figure out a new one or how to convert. Yeah, ok, I’ll get his number. Ok if I give him yours. Great. Thanks.”
A few minutes later, his order was ready, and the manager walked over with his pizza.
Hoodie-guy: “Hey, do you have a card?”
Manager: “No, I don’t. Something I can help you with?”
H: “I just called a friend of mine. He runs an IT shop, and I told him you’re using the RST restaurant management system, and you hate it…”
M: “I hate it so much…”
H: “So my buddy’s business can help you change it. He’s helped other restaurants convert away from RST, and he’d love to talk to you or the owner.”
M: “I’m one of the co-owners, and I’d love to stop using RST, but we use it for everything – our website, online ordering, managing our books, everything. I can’t risk changing.”
H: “That’s the thing, my friend does it all for you. He’ll help you pick the new system, set it up, migrate you from the other system, and ensure everything runs smoothly. You have nothing to worry about.”
M: “That would be amazing. Here’s my direct line. Have him give me a call. And if he’s good, I can guarantee you that every other restaurant on this street will change, too. We all use RST, and we all hate it. We even talked about working together to find something better, but no one had time to figure everything out.”
They exchanged numbers, and the hoodie guy walked out with his pizza. The manager/owner walked back to the open kitchen, told his staff about the conversation, and they cheered. Cheered!
Are You Listening?
In just a few minutes of eavesdropping, I uncovered a potential goldmine for a B2B business – 15 frustrated customers, all desperate to switch from a system they hate but unable to do so due to time and resource constraints. The implications are staggering – an entire local market worth tens of millions of dollars ripe for the taking simply by being willing to listen and offer a solution.
As a B2B leader, the question is: are you truly tapping into the insights right in front of you? When was the last time you left your desk, observed your customers in their natural habitat, and listened to their unvarnished feedback? If you’re not doing that, you’re missing out on opportunities that could transform your business.
The choice is yours. Will you stay in your office and rely on well-worn tools, or venture into the wild and listen to your customers? Your answer could be worth millions.
“But even more importantly, our employees were working from home for two and a half years. And in hindsight, it turns out, it’s really hard to do bold, disruptive innovation, to develop a boldly disruptive shoe on Zoom.” – John Donahoe, Nike CEO
I am so glad CNBC’s interview with Nike’s CEO didn’t hit my feed until Friday afternoon. It sent me into a rage spiral that I am just barely emerging from. Seriously, I think my neighbors heard the string of expletives I unleashed after reading that quote, and it wasn’t because it was a lovely day and the windows were open.
Blaming remote work for lack of innovation is cowardly. And factually wrong.
I’m not the only one giving Mr. Donahoe some side-eye for this comment. “There were a whole bunch of brands who really thrived during and post-pandemic even though they were working remotely,” Matt Powell, advisor for Spurwink River and a senior advisor at BCE Consulting, told Footwear News. “So I’m not sure that we that we can blame remote work here on Nike’s issues.”
There’s data to back that up.
In 2023, Mark (Shuai) Ma, an associate professor at the University of Pittsburgh, and Yuye Ding, a PhD student at the university’s Katz Graduate School of Business, set out to empirically determine the causes and effects of a firm’s decision to mandate a return to work (RTO). They collected RTO mandate data from over 100 firms in the S&P 500, worked backward to identify what drove the decision, and monitored and measured the firm’s results after employees returned to work.
Their findings are stark: no significant changes in financial performance for firm value after RTO mandates and significant declines in employee job satisfaction. As Ma told Fortune, “Overall, our results do not support these mandates to increase firm values. Instead, these findings are consistent with managers using RTO mandates to reassert control over employees and blame employees as a scapegoat for firm bad performance.”
Or to justify spending more than $1B to double the size of its Beaverton, OR campus.
When you start blaming employees, you stop being a leader.
CEOs make and approve big, impactful, complex, high-stakes decisions. That’s why they get paid the big bucks. It’s also why, as Harry Truman said, “The buck stops here.”
Let’s examine some of the decisions Mr. Donahue made or supported that maybe (definitely) had a more significant impact on innovation than working from home two days a week.
Ignoring customers, consumers, and the market: Nike has a swagger that occasionally strays into arrogance. They set trends, steer culture, and dictate the rules of the game. They also think that gives them the right to stop listening to athletes, retailers, and consumers, as evidenced by the recently revealed Team USA Track & Field uniforms, the decision to stop selling through major retailers like Macy’s and Olympia Sports, and invest more in “hype, limited releases, and old school retro drops” than the technology and community that has consumers flocking to smaller brands like Hoka and Brooks.
Laying off 2% of its workforce: Anyone who has ever been through a layoff senses it’s coming months before the announcement and the verdicts are rendered. Psychological safety, feeling safe in your environment, is a required element for risk-taking and innovation. It’s hard to feel safe when saying goodbye to 1500 colleagues (and wondering if/when you’ll join them).
Investing too much in the core: Speaking of safety, in uncertain times, it’s tempting to pour every resource into the core business because the ROI is “known.” Nike gave in to that temptation, and consumers and analysts noticed. Despite recent new product announcements like the Air Max DN, Pegasus Premium, and Pegasus 41, “analysts point out these ‘new’ innovations rely too much on existing franchises.”
Innovation is a leadership problem that only leaders can solve
Being a CEO or any other senior executive is hard. The past four years have been anything but ordinary, and running a business while navigating a global pandemic, multiple societal upheavals, two wars, and an uncertain economy is almost impossible.
Bosses blame. Leaders inspire.
Mr. Donohue just showed us which one he is. Which one are you?
One MORE thing
This is a losing battle, but STOP USING “DISRUPTIVE” INCORRECTLY!!!! “Disruptive Innovation,” as defined by Clayton Christensen, who literally coined the phrase, is an innovation that appeals to non-consumers and is cheaper and often lower quality than existing competitors.
Nike is a premium brand that makes premium shoes for premium athletes. Employees could spend 24/7/365 in the office, and Nike would never develop and launch a “boldly disruptive shoe.”
“Time is a flat circle. Everything we have done or will do we will do over and over and over and over again – forever.”
– Rusty Cohle, played by Matthew McConaughey, in True Detective
For the whole of human existence, we have created new things with no idea if, when, or how they will affect humanity, society, or business. New things can be a distraction, sucking up time and money and offering nothing in return. Or they can be a bridge to a better future.
As a leader, it’s your job to figure out which things are a bridge (i.e., innovation) and which things suck (i.e., shiny objects).
Innovation is a flat circle
The concept of eternal recurrence, that time repeats itself in an infinite loop, was first taught by Pythagoras (of Pythagorean theorem fame) in the 6th century BC. It remerged (thereby proving its own truth) in Friedreich Nietzsche’s writings in the 19th century, then again in 2014’s first season of True Detective, and then again on Monday in Jamie Dimon’s Annual Letter to Shareholders.
Mr. Dimon, the CEO and Chairman of JPMorgan Chase & Co, first mentioned AI in his 2017 Letter to Shareholders. So, it wasn’t the mention of AI that was newsworthy. It was how it was mentioned. Before mentioning geopolitical risks, regulatory issues, or the recent acquisition of First Republic, Mr. Dimon spends nineparagraphs talking about AI, its impact on banking, and how JPMorgan Chase is responding.
Here’s a screenshot of the first two paragraphs:
He’s right. We don’t know “the full effect or the precise rate at which AI will change our business—or how it will affect society at large.” We were similarly clueless in 1436 (when the printing press was invented), 1712 (when the first commercially successful steam engine was invented), 1882 (when electricity was first commercially distributed), and 1993 (when the World Wide Web was released to the public).
Innovation, it seems, is also a flat circle.
Our response doesn’t have to be.
Historically, people responded to innovation in one of two ways: panic because it’s a sign of the apocalypse or rejoice because it will be our salvation. And those reactions aren’t confined to just “transformational” innovations. In 2015, a visiting professor at Kings College London declared that the humble eraser (1770) was “an instrument of the devil” because it creates “a culture of shame about error. It’s a way of lying to the world, which says, ‘I didn’t make a mistake. I got it right the first time.’”
Neither reaction is true. Fortunately, as time passes, more people recognize that the truth is somewhere between the apocalypse and salvation and that we can influence what that “between” place is through intentional experimentation and learning.
JPMorgan started experimenting with AI over a decade ago, well before most of its competitors. As a result, they “now have over 400 use cases in production in areas such as marketing, fraud, and risk” that are producing quantifiable financial value for the company.
It’s not just JPMorgan. Organizations as varied as John Deere, BMW, Amazon, the US Department of Energy, Vanguard, and Johns Hopkins Hospital have been experimenting with AI for years, trying to understand if and how it could improve their operations and enable them to serve customers better. Some experiments worked. Some didn’t. But every company brave enough to try learned something and, as a result, got smarter and more confident about “the full effect or the precise rate at which AI will change our business.”
You have free will. Use it to learn.
Cynics believe that time is a flat circle. Leaders believe it is an ever-ascending spiral, one in which we can learn, evolve, and influence what’s next. They also have the courage to act on (and invest in) that belief.
What do you believe? More importantly, what are you doing about it?
You want to make life better for others. This desire is reflected in the optimism and positivity of your language – create value, love the problem, and delight the customer. But making life better requires change, and, as the adage goes, “People want change, but they don’t want to be changed.”
You are confident that the solution you created will make life better and that the change people need to make is quite small and painless, well worth the dramatic improvement you offer. Yet they resist. No amount of explaining, showing, convincing, or cajoling changes their mind. What else can you do?
To quote Darth Vader, “Give yourself to the Dark Side. It is the only way to save your friends.”
“If only you knew the power of the Dark Side…”
The Dark Side is populated by “negative” emotions like anger, fear, and frustration, which are incredibly powerful.
Consider that:
Negative events are remembered more accurately and in greater detail than positive events
Unfortunately, these are also some of the first emotions experienced when confronting change.
Change requires people to let go of what they know in exchange for the promise of something better. This immediately triggers Loss Aversion, the cognitive bias in which the pain of losing is psychologically twice as powerful as the pleasure of gaining.
As a result, people won’t let go of what they know until the pain of holding on becomes unbearable. When you point out the problems and pain of the current situation, you help people understand and experience the unbearableness of the current situation.
“Anger, fear, aggression; the Dark Side of the Force are they”
Not every “negative” emotion elicits the same behavior, so carefully choose the one to tap into.
Fear motivates people to seek safety, which can be good if your solution truly offers a safer alternative. It’s a motivator used well by companies such as Volvo, SimpliSafe, and Graco. But lean on it too much, and people may feel overwhelmed and remain frozen to the status quo.
Anger motivates people to take risks, which can be good when the change requires bold decisions and dogged persistence. It can be great when it bonds people together to achieve a shared goal or protect a common value. Apple used this emotion to brilliant effect in its famous “1984” commercial announcing the launch of Macintosh. But incite too much anger, and things can get broken and not in a helpful way like Apple’s ad.
Frustration, one of the emotions that often drives aggression, is anger’s polite little sister. When people feel frustrated, they’re likely to act, persistently pursue solutions, and creatively approach and overcome obstacles. But if the change is big, feels scary, and puts their sense of self at risk, frustration isn’t powerful enough to convince people to let go of the old and embrace the new.
“If you start down the dark path, forever will it dominate your destiny.”
Yoda is incredibly wise, but he gets this one wrong. Using the Dark Side to speak to people’s “negative” emotions doesn’t doom you to a life or career of fear-mongering or inciting violence. Start here, don’t stay here.
Multiple research studies show that positive emotions, like hope and joy, are more powerful than negative ones in maintaining motivation and even enable more creative thinking and problem-solving. By speaking to both negative and positive emotions, the Dark Side and the Light, you enable change by giving people a reason to let go of the past and a future worth reaching for.
When people stop resisting and start reaching to the future you’re offering, change happens, and you realize that Yoda was right, “Luminous beings are we, not this crude matter.”
It’s award season, which means that, as a resident of Boston, I have the responsibility and privilege to talk about The Departed (pronounced: The Dep-ah-ted). The film won the Oscar for Best Picture in 2007 and earned Martin Scorsese his first, and to date only, Academy Award for Best Director. It is also chock-full of great lessons for corporate innovators.
Quick Synopsis
If you’ve seen The Departed, you can skip this part. If you haven’t, why not and read on.
The Departed is loosely based on notorious Boston crime boss Whitey Bulger and features three main characters:
Frank Costello (Jack Nicholson), a vicious and slightly unhinged Irish mob boss
Colin Sullivan (Matt Damon), a Massachusetts State Trooper in the Special Investigation Unit (SIU) formed to catch Costello, who, in his spare time, is a spy for Costello.
Billy Costigan (Leonardo DiCaprio), a police academy recruit who goes undercover to infiltrate Costello’s organization
But wait! There’s more. Alec Baldwin plays Colin’s SIU boss, George Ellerby. Martin Sheen and Mark Wahlberg (who received an Oscar nomination for this role) play Billy’s Mass State Police (MSP) bosses, Captain Queenan and Staff Sergeant Dignam, respectively. Completing the chaos is Vera Farmiga, who plays Madolyn Madden, Colin’s girlfriend and Billy’s court-ordered psychiatrist.
There’s a lot of other stuff going on, but that gives you enough context for the following quotes to hopefully make sense.
Listen to the words people use.
Colin (after Dignam refuses to hand over undercover files): I need those passwords.
Ellerby: No, you want those passwords
It’s not often that Ellerby says something useful, let alone wise, but he nails it with this one. Colin wants the passwords to Dignam’s files on undercover agents because it will make both Colin’s official job of finding Costello’s rat in the MSP and his unofficial job of finding the MSP officer in Costello’s crew easier. He doesn’t need the passwords, however, because, with enough time and effort, he can find the rats he’s looking for.
When we hear from customers that they want something, it’s tempting to run off and create it. But as Ellerby points out, wants and needs are different. Just because customers want something doesn’t mean they are willing to pay for or change their behavior to get and use it.
Figuring out what a customer needs is difficult because it requires them to trust you enough to admit they have a problem they can’t solve. It’s also difficult because most of us have access to solutions to our functional needs (think the bottom few layers of Maslow’s hierarchy). As a result, the needs consumers grapple with tend to be emotional and social, and it’s far more challenging to admit those to a stranger, especially in a focus group or product-focused interview.
How you feel impacts everyone around you
Madolyn (after a counseling session): Why is the last patient of the day always the hardest?
Billy: Because you’re tired, and you don’t give a sh*t. It’s not super-natural.
Billy and Madolyn get off to a rough start in their first counseling session, culminating in Billy asking for a prescription for Valium. Madolyn calls him out for “drug-seeking behavior” and throws two Valiums across the desk before Billy storms out. A few minutes later, Madolyn catches up with Billy, hands him a prescription for Valium, and asks the above question.
Being a corporate innovator can be difficult, sometimes soul-crushing work (ask the good people at Store 8). It can also be thrilling and inspiring. It can even be all those things in one day. That’s what makes it tiring, even when you give a sh*t.
Managing your energy and monitoring your behavior are leadership qualities we don’t discuss often enough. It’s okay to be exhausted after a day of facilitating ideation sessions or intense strategic meetings. It’s normal to be frustrated after a contentious conversation or demotivated when you get bad news. But leaders usually find a way to not take those emotions out on their teams. And, in the rare instance when they punish the team for someone else’s sin, they apologize and explain.
Your job is not your identity.
Billy: Look, I just want my identity back, all right? That’s all.
Colin: All right, I understand. You want to be a cop again.
Billy: No, no, being a cop’s not an identity. I want my identity back.
Towards the end of the film, Billy is tired of working undercover and reports to MSP headquarters to complete the paperwork required to expunge his criminal record and get his identity back. That’s when Colin makes the same mistake most of us make and confuses Billy’s job with his identity.
We spend so much time at work. We rely on our paychecks for so much. We even introduce ourselves to new people using our job titles. It’s easy for your job to feel like your identity, especially when your job aligns so closely with your deeply held beliefs and values. But your job is not your identity. You are still a Tempered Radical, even without your corporate title. You are still an optimistic problem-solver, even when it’s been months since your last brainstorming session.
You are an innovator, even if you don’t have a business card to prove it.
