There was a lot of great stuff that came out of the Payments Innovation Institute at Harvard last week but two anecdotes that have absolutely nothing to do with payments specifically, I think, provide some of the more thought provoking insights around the pitfalls and promise of innovation. See if you agree.
The story of the typewriter industry and its demise in the face of the rise of the word-processing industry is not a new one. A possibly new spin on this story is that of Smith Corona - an anecdote Dan Schulman, President of Enterprise Growth at American Express shared. For all of you Gen X/Y-ers out there, Smith Corona was a U.S. company established in 1886 and the preeminent manufacturer of typewriters for the better part of a century. Having a portable electric version was akin to dying and going to heaven when it came to typing term papers back in the day. In fact, using a Smith Corona typewriter was about the only way that term papers got typed back then. And boy was it a chore. There were messy ribbons to replace that guaranteed ink-stained fingers. Fixing mistakes was impossibly tedious, requiring the removal of the document and using Wite-Out to obliterate the mistake and then reinserting the document and hoping you could line up the carriage in such a way that typing over the mistake was not noticeable. Ha! Fugetaboutit if you messed up a couple of sentences on a page - you had to start all over. But, believe it or not, that was state of the art document production through the late 1970s.
I did a little digging into their story after Dan’s presentation, and what I found was both interesting and stunning at the same time. Smith Corona was very, very proud of its history of innovation. It was the first typewriter to have uppercase and lowercase letters and the first to miniaturize the machines so that they were portable. It was the first to pioneer the removable ribbon cartridge (eliminating forever those ink-stained fingers). But, it was the last to see that computing would put it out of business about a decade later. When its CEO was asked in 1992 (no, not a typo, 1992) about its declining market share and what new products and services were on the horizon, he commented, “... nothing now ... Many people believe that the typewriter and word-processor business is a buggy-whip industry, which is far from true. There is still a strong market for our products in the U.S. and the world.” Wow, this gives a whole new meaning to the notion of having a strategic blind spot.
Now, let me challenge your French military history for a moment and recount a story that Mark Selby, VP at Nokia shared with the group at Payments Innovation Institute last week as well. It will sound totally unbelievable but is utterly true. The year: 1812. The scene: 600,000 French soldiers marching towards Russia, an army that was the most formidable in Europe - undefeated and unmatched at that point. In a move that was perhaps motivated more by hubris (Napoleon wanted his soldiers to look sharp) than necessity (his soldiers needed new uniforms), a decision was made to use tin buttons for the first time on those uniforms. As these very sharply dressed soldiers marched into Russia, a horribly unexpected thing began to happen. When exposed to bitter cold, tin literally disintegrates. So, all of those fancy-looking tin buttons holding those soldiers’ uniforms together began to crumble. The result was an army whose uniforms literally disintegrated as well. As soldiers across all ranks struggled to keep their uniforms closed, they also quickly succumbed to the cold and the approaching Russian army. In a short period of time, an army of 600,000 solders shrunk to 10,000.
So, what does all of this have to do with payments? Let me share three things that I think might come out of these two stories.
First, is the assumption of invincibility. Smith Corona, as late as 1992, refused to see the demise that was staring them right in the face. They had dominated one industry for 100 years and never thought that there would come a time when they wouldn’t. They fell prey to the “once a leader, always a leader” mantra and never took seriously what others were doing outside of their own four walls that could put their company at risk. And they weren’t the only ones. Only about 70 companies (give or take a few) that were on the Fortune 500 list in 1955 (the first year it was published) remain on the list today. Dan said his mantra at American Express is just because it’s been in business for 160 years doesn’t mean it will be for the next 160. What you see it doing in the marketplace today to innovate their products and the brand itself is their commitment to walking that talk.
The second is perspective. Smith Corona was focused entirely on improving its own product within its own narrow industry sector - the typewriter industry. Now that was a great strategy when the alternative to using its product was paper and pen(cil). But it never challenged itself to find new sources of value to help consumers and businesses prepare documents efficiently. They never wanted to disrupt the existing business. IBM, as a contrast, did. They too were in the typewriter business but recognized the opportunities and threats around personal computing (of course, they were more worried about the gun to the head of their mainframe business) and at least succeeded in getting into the new game in a big way.
The third is rigor. Napoleon was focused on an “innovation” that made uniforms look better (until these buttons were used, most were made of far more mundane materials) but did not bother to think beyond the superficial aspect of making that change. He also made a big change at a critical point in time with an assumption that the change would have only a positive impact, never questioning whether there was any risk to making that change at such a critical juncture, nor whether such a change added real value to his army. Hey, the soldiers looked good - what else did they need? As it turns out, they needed uniforms to stay closed, and the lure of the shiny new object, literally, was Napoleon’s demise.
As I have written so often, this is perhaps the most exciting time in payments. The opportunities to innovate are incredible, and all of the raw ingredients are in place to create considerable new value for the ecosystem and to find that new value at the intersection of payments, mobile, social and online. There are risks to be sure - risks to existing players, products, business models and brand. If the three insights above are to be believed, it may be that the greatest risks are those that have nothing to do with decisions about the blocking and tackling of the payments business - whether people want to tap or swipe, whether the Fed’s ruling today requires one or two routing networks or whether people will ever shop on Facebook. It may, in fact, be how organizations view their place in the ecosystem, and given that belief, how they choose to develop and implement their innovation agendas. As the Smith Corona story illustrates, believing that you’ll always dominate just because you once did (or now do) is dangerous. And, change for change sake also doesn’t mean that you have checked the “innovation box” and are guaranteed success.
So, who in your view is at risk of being the industry’s Smith Corona? And, who may be focusing on tin buttons? As always, I look forward to your comments and conversation.
And, have a wonderful 4th!
Karen Webster is the President of Market Platform Dynamics (MPD), a consulting firm that helps companies find, implement and monetize innovation. She serves as an advisor and member of the board for a number of companies operating in the payment, technology and digital media industries. More info here.