This article was written with Nadim Yacteen.
What do the Dodge Dart Registry, Facebook, Old Spice deodorant, and Restoration Hardware have to do with the future of banking? All four contain seeds of a strategic innovation urgently needed in that industry: lowering the cost of retail distribution while improving the customer experience for an increasingly complex range of consumers (from old to young, urban to rural, wealthy to poor, tech savvy to technophobic, and so on).
We’ll explain more below, but for the moment, let’s focus on the bigger picture: Challenges as daunting as the one faced by bankers exist in almost every industry, owing to the new competitive forces and profitability pressures unleashed by globalization, digitization, and postrecession anemia. It’s why most executives are seeking more strategic innovation from their organizations. They want ideas that are big and proven. True strategic challenges will not be conquered with incremental solutions, and corporate life is already too risky to bet on a big idea that may or may not work.
Which brings us to the question of the day: Where do big, practical ideas come from?
In 2000, Eric Kandel won the Nobel Prize for showing how humans produce a new thought. He demonstrated that the right side of our brain is just as analytical and logical as the left, and the left side is just as creative and intuitive as the right. Thus, when it comes to innovation, the whole brain is involved. Kandel’s work also shows the human brain to be the greatest inventory system on earth. From birth, your brain takes in stimuli, breaks them down, and then stores them on “memory shelves,” which are distributed throughout your brain. When presented with a particular challenge, your brain searches to see if there is any connection with what is already sitting on your memory shelves. When your brain finds a match, your memories combine with new stimuli and you experience “Eureka!”—a novel thought that feels like a flash of insight.
This brings us to Columbia Business School professor William Duggan, who discovered an amazing parallel between how strategic innovation happens and Kandel’s model of how the mind works. Consider two examples, one old and one new:
- Henry Ford was looking for ways to improve the productivity of fixed assembly lines (where the cars are stationary and workers move from car to car), when one of his employees wandered into a Chicago slaughterhouse and observed that pig carcasses were hung on a line that rotated from one stationary butcher to the next until the pigs were fully disassembled. Eureka! Thus was born the first moving assembly line—a profound innovation that changed manufacturing forever.
- Reed Hastings’s inspiration for Netflix sprang from combining four seemingly unconnected experiences sitting in his memory banks: the $40 fee charged by Blockbuster when he was late in returning Apollo 13; the monthly membership dues from his local gym; his experience with Amazon’s Web-based ordering features; and a conversation with a friend who told him about the DVD, a new technology from Japan that was far less bulky than the videocassettes at Blockbuster.
These examples show that it’s not immaculate conception or miraculous deduction that produces strategic innovation. These breakthroughs emerged from neither the ether nor traditional brainstorming. And they certainly did not evolve from typical approaches to strategic planning or product innovation. Each arose from its originator’s “strategic intuition” (a term coined by Duggan): Ford and Hastings made seemingly random connections between things sitting in plain sight—for anyone to see—to crack a particular strategic challenge.
When one sees words like “intuition” and “random connections,” it’s easy to jump to the conclusion that innovation is largely based on individual brilliance and luck, and that Kandel and Duggan’s theories argue against the idea that companies can take any kind of systemic approach to creating truly novel strategic innovation. But, in fact, these theories help unlock the secret to building an entirely new way for companies to bring greater innovation to their strategies. The solution has three parts.