Don’t coddle the cow. Kill the cow.

Much has been written about the failure to innovate at dominant companies like Microsoft, Coca-Cola and Procter & Gamble. These companies have little chance to innovate because innovation requires letting go, relinquishing control and potentially undermining a cash cow. Something not tolerated in corporate corridors.

Instead of developing innovative products internally, corporate behemoths tend to buy innovation. But like an absent parent who tries to make up for lost time by bringing home a box full of toys, the initial giddiness wears off quickly. After awhile, things haven’t changed and just get messy and difficult.

Why does Microsoft need to buy Yahoo? Why did Coca-Cola need to buy Vitaminwater? Why did Procter & Gamble need to buy Glide? Don’t these companies have some of the best engineers, developers and researchers on the planet?

Of course they do. But what they don’t have is marketing sense; they have only management sense. Management sense tells them to milk what they already have. Marketing sense would tell them to also invest for the future in new categories and new brands.

That is really hard to do when (a) it is so easy and sometime initially so profitable to milk your brands and (b) when you have so much cash you can buy whatever and whomever you want to buy. But is this the best way to grow? Is this the best way to run a company?

I think not. The best way to run a company is by managing your brands much like you would manage a stable of racehorses. Don’t over-train, over-race or over-fed.

Management people often confuse innovation with ideas like Oreo cake sandwiches. That is not innovation; that is a sacrilege.

Innovation usually involves abrupt change that can take years to fully realize. That is why small companies run by entrepreneurs are willing to take chances and big companies run by financial types can’t be bothered because they are more concerned with their next quarters.

Sometimes big companies can make innovation happen. Either because they are down and out and have nothing to lose. Or they get ahead of an emerging new technology and face little competition.

In the first scenario, one can point to Apple. By the end of the 1990s, its future looked bleak. Betting everything on the iPod wasn’t a threat to the cash cow, because Apple’s cash cow was bringing in very little cash. The company was free to chase the future.

In the second scenario, one can point to Orville Redenbacher, now owned by ConAgra but obviously run by entrepreneurial-types. Going from popcorn jars to microwave popcorn bags was a huge shift. Excellence in one area does not necessarily translate to excellence in the other. But the company wisely jumped on the microwave trend early and established its authenticity. Waiting could have cost them dearly.

It took many years to get there, but the future belongs to microwave. And you’d be hard-pressed to find a jar of Orville kernels at your local supermarket. Most are long gone from the shelves.

Sometimes the delineations are clear. Everybody goes from using popcorn jars to using microwave popcorn bags. Or from typewriters to computers. Or from film photography to digital photography.

Sometimes they are not. Most people still drink Coca-Cola but many people also drink Red Bull, Gatorade, Propel, Dr. Pepper and Snapple too.

Microsoft faces the same problem that Coca-Cola and Orville Redenbacher faced. Today everybody uses packaged software. Tomorrow things could be different. Today, all the money is in software packages and closed operating systems, categories that Microsoft dominates. Why would the company want to undermine that?

One motivating force for innovation is getting mad at the way things are and agitating for change. If the enemy is external, nothing charges up the troops like discussions of the enemy and its weaknesses.

But when the enemy is internal, it becomes a much more difficult game to play. It is not safe for internal marketers to offer up solutions that could be seen as hostile. That is why rational, management-type thinking usually prevails. “Let’s focus on what we’ve got, milk what we’ve got and if something else pops up, we’ll buy them.”

So Microsoft goes after Yahoo. Besides the obvious challenges of integration, people and cultures, a merger creates another problem. It creates a company without a focus.

A company without a focus is a company without an enemy. And a company without an enemy is a company without a purpose.

There comes a time when a company needs the courage to kill its own cow. Without the courage to do is, the company has no future.

Which is what happened to Western Union, Wang, Digital Equipment, Polaroid and many other once-famous companies.

Comments

[Bill Gammell]

Laura,

It’s nice to hear that you will be here in good ol’ Utah. I would agree...we do need better branding. While you are at it, can you fix the font on our license plates and our utah.com website. The "U" just looks odd. I wish I could hear you speak!

[Sam]

What are your thoughts on Red Bull's Cola (http://www.bevnet.com/news/2008/03-24-2008-red_bull_cola.asp)
? I thought they were running the right way with Carpe Diem (completely new line), but that this is a step in the wrong direction, as consumer don't think soda when they think Red Bull.

[jeffe]

What an interesting way to get people interested in reading! Book trailers are like movie trailers, but for books! You can find them all over the internet now, but here is a site that's featuring them on YouTube. http://www.youtube.com/booktrailers

[alex]

microsoft never inveted a useful think. everything which has some sense, was bought or stolen. no new category or new idea from redmont, only copies (and mostly spoilages). i dont know how we can think that now (when they have problems in web) they will act differently.

[Richard Saling]

Sadly I have worked for a couple of those companies. My present company, ICRossing is excluded from that list as we are very focussed on who we are as a company and what we do and do not stray from that which is so tempting to so many companies to be all things to all people instead of finding your strengths and sticking to that. When you dilute your brand, your message or even the service provided, you confuse the employees who don't have a purpose and confuse the clients who don't know your value proposition.

[Laura Ries]

Pepsi's enemy is Coca-Cola. But Coca-Cola's enemy is not Pepsi.

Coke's enemies are energy drinks, water and other sodas. But the biggest enemy of Coke is Diet Coke.

That is why line extension is a killer. Coke needs to say "why drink that sissy diet stuff when you should be drinking the real thing!" But they can't because Coke is in the name.

And don't get me started on Coke Zero! Great product, terrible name.

Coke buying Honest Tea is interesting. I think the brand is going to lose a lot of its specialness. I don't think it has the broad appeal they think it will either. Coke will push it too fast too soon. Since they probably paid too much for it.

I'm skiing in Utah, enjoying great powder. I talk to the Salt Lake City convention and tourism board on Thursday. Utah is a fantastic place, I've been coming here for over 20 years. But they need some better branding. Colorado kicks their butt in terms of brands, but never snow!

- Laura

[tyler dewitt]

Theres another great post by Laura

[tyler dewitt]

There another great post by Laura

[Sam]

Great post, I agree that "a company without an enemy is a company without a purpose" but I think a lot of companies pick enemies that really shouldn't be their main purpose...is Coke really Pepsi's enemy or is the consumer's changing neeeds the enemy Pepsi should focus on? Or is it both?

[Neil Bull]

Quote of the year:

"A company without a focus is a company without an enemy. And a company without an enemy is a company without a purpose."

Brilliant.

[Mario Sanchez]

Hi Laura:
I had just read about Coca-Cola's recent acquisition of cult brand Honest Tea when I read your article, and I wonder what will happen to Honest Tea's culture and positioning in the name of synergies. Great, thought provoking post.

[Geoff Livingston]

Great post, Laura. I just saw C.K. Prahalad speak last week on this very topic. Spot on.

The worst is companies see innovation as an end result, when in reality entrepreneurs understand that innovation is a process to get somewhere: Usually helping your customers or the marketplace.

[Martin Calle]

Laura,
You are always so spot on. What a great conversation starter. As decades progressed in the new product and brand invigoration arena I'd had so many similar thoughts as to why some managers got it while others did not. Over time, I came to witness new brands in the rapid growth versus mature earnings phases of their lifecycles, then it dawned on me that the managers managing the businesses were not creators, they were managers, and typically had never created a brand, a positioning or new product concept from scratch. They simply continued to manage something that was handed off to them previously similarly managed by someone else. The origins of the brand (no pun intended) so distant as to be inmaterial.

I do not wish to slam managers for lackluster performance in innovation. Having repeated the innovation process successfully many times, I only find it sad that it takes people a lifetime to gain their first career worth of experience. J. Peter Grace told me that "life was a matter of exposure." And that "the more you expose yourself to, the more likely you are to succeed." So what processes are in-house, or that may be outsourced that can provide multiple lifetimes of experience in one "less than a year" new product development lifecycle? Maybe that could offer such managers a creative jolt of on-demand understanding, insight and execution.

[Bill Gammell]

Dripping with Awesomeness. Thanks Laura!