by the Lionesses of Africa Operations Dept
Kaizen is Japanese for ‘continuous improvement’, literally Kai (change) Zen (good) and has a great following amongst the business community in Japan for whom large scale, sudden and ‘disruptive’ moves are not often encouraged. Kaizen allows them to adapt and grow their businesses over time to keep ahead of the competition. It should be pointed out that ‘Over time’ is a little different in Japan where nine of the oldest companies in the world sit.
‘Kaizen’, for Kongo Gumi, Japan, founded in 578AD (yes!) is central to how they have survived and thrived for the past 1,443 years. In managing the company which used to be a family-run business, they realized around 1603AD that to keep ahead of the competition that was biting at its heals, it would have to move away from family succession and instead pick on merit. Sadly little is known of the person in the 1600’s who was chosen to tell the son and heir of this change in the company’s rule book - without a doubt the oldest and original ‘hospital pass’!
"Success doesn't come overnight, it comes over time.” according to one of the original management gurus, Zac Ziglar. Kongo Gumi would certainly agree, with the meritocracy they were able to keep ahead of the young upstarts nipping at their heels.
So how does all of this match or mix with ‘Disruption’ the buzz word in the modern world of company management? Surely Kaizen goes against the whole idea of Disruption that we have grown to know over the past 5-10 years. Sadly Disruption is misunderstood by many. To simply change things for the want of changing things is daft or to disrupt just because you can, is crazy, yet many try this with seemingly no plan.
‘Disruption’ is far more focused
HBR in an article entitled: ‘What Is Disruptive Innovation?’ shines light on what is a daily process for so many of us, yet so badly misunderstood. As they say: “Disruption describes a process whereby a smaller company (‘Challenger’) with fewer resources is able to successfully challenge established incumbent businesses (Defender’).”
The larger and usually older Defender overtime starts to concentrate resources such as capital and R&D on its more profitable customers, leaving their less profitable customers behind. Those who listen to people who constantly quote the Pareto Principle or to give it it’s usual name - ‘The 80/20 Rule’, (which asserts that 80% of outcomes (or outputs) result from 20% of all causes (or inputs) for any given event), will recognise that the side effect of this Principle is that crumbs, small and large, drop from the table of the larger ‘Defender’. These ‘crumbs’ can be extremely profitable for smaller Challengers.
“While it doesn’t always come to be an exact 80/20 ratio, this imbalance is often seen in various areas:
20% of customers account for 80% of total profits.
20% of the sales reps generate 80% of total sales.
20% of the most reported software bugs cause 80% of software crashes.”
Sadly so many of the proponents of this Pareto Principle forget the importance of the ‘annoying’ balance of 80% that only generate or account for or cause the 20%. They are happy to drop the 80% of customers who generate only 20% of the profits (perhaps with a bit of effort and understanding this could be changed?), and if under the same rules, you drop 80% of your salesforce - who knows what effect that will actually have on your business? And ignore the 80% of software bugs just because they take up far too much of your time? When one of the 80% hits, you’ll certainly wake up then! Take it further - should the Government look at the 20% who have the most wealth…or the 20% who pay the most taxes (we might argue these are not necessarily the same)? Should they have preferential treatment? In a democracy, all agree this is not a good idea. The 80% who under this rule are often ignored we would argue is an area that needs to be addressed, understood and worked with if the Defender is going to keep innovating.The customer who has left, has left for a reason so ask and learn from that, the one who stays, may simply be asleep at the wheel.
The Challenger sees this and understanding why these customers are less profitable (often because there is a great deal of old-style heavy lifting going on and little technological innovation) steps in with a cheaper, more efficient, usually tech driven way in which to pick up these crumbs that have dropped from the Defender’s table. Because the Defender’s attention is elsewhere, the Challenger is allowed the time to fine-tune their efforts that are now delivering profits where before there were little or none, and then starts to move up-stream taking one by one the Defender’s customers. At some point the Defender will wake up suddenly to this threat and change, frantically throwing large sums of money at the problem.
That is the point at which it becomes ‘Disruption’
So how can you keep ahead of the game if you have a successful business. You want to keep focus yet your Team is being distracted by ‘noise’ away from either your core business or core clients. Kaizen or continuous improvement of course is what most businesses are looking for, but that too will often result in non-core clients being thrown to one side with the increased concentration on the core to the detriment of innovation. More is often needed, think Tobacco and the move to Vaping, think Oil and Gas. One of the huge success stories of the recent years has been Dong Energy – the Danish Oil and Natural Gas Company. A dirty carbon intensive company that saw what was coming down the hill towards it and decided to disrupt itself before the competition did…
Dong Energy spewed out at least one-third of Denmark’s carbon dioxide emissions (mostly through Coal fired power stations - bit ironic given their name!). The CEO woke one morning and announced that he too was going to follow the 80/20 rule, but with a difference. 80% of their power came from carbon intensive Coal, Oil and Gas (‘COG’), a mere 20% from Green energy.
He was going reverse this.
10 years on they are almost 99% Green, 1% COG. They now account for 30% of the World’s wind energy and have a cool market cap of about US$30 billion, making it one of Europe’s most valuable energy companies (Article here). Not bad for the little country only 1.6 times the size of Rwanda, that gave the world Lego (still a family run company, btw). Obviously this transformation came with an extra headache - a name change was needed!
Is this so unusual? Think Apple, Google, Amazon they have all to a certain extent reinvented their business model at one time or another (maybe not in such a dramatic way as Dong, now Ørsted).
What do all of these companies have in common? It’s not just the incredible foresight of the CEO. It is that all these companies have Teams that think outside the box. These Teams have different names, but the ones we at the Lionesses Den have met all have ‘Ventures’ in their name. These Internal Ventures Teams (‘IVT’) have a brief to think the unthinkable, to create a business proposition, provide proof of concept, then take to market. According to McKinsey (here) IVT has three main things in their favour:
They start with a competitive advantage - a start up doesn’t have such a huge client list for example!
They have Capital - so no worries about a Seed round or Series A, B or C!
There is serious talent and experience within the parent organisation that can be tapped at will.
Granted very few have the kind of capital of those mentioned above (no kidding!), but the issue now (increased with CV19) is that technology is so fast to market and so cheap, this allows for an easier disruption process. Do not think you are safe simply because you are small, perhaps now new competitors can not only do what you do better, but widen the sales to a greater audience.
So keep in mind Kaizen, keep faith with those small improvements. Continue on your road of Disruption as you pick up your larger competition’s customers through innovation and technology. Encourage thinking outside the box, you may not have the millions of customers, you probably won’t have the capital, but you certainly have the knowledge and expertise within your company.
Ask the question - how will I disrupt our business model, to attack ourselves, to make back better? What would I do different if I was a young Challenger? The answers may surprise you!
Think like an entrepreneur but this time from within your organisation. Indeed McKinsey (here) have found that because “companies that prioritise business building tend to grow faster than their peers, respond with greater resilience to volatility and economic shocks, and, as they gain experience building businesses, see more success from it.” it has grown so popular amongst Fortune 500 companies that it now has a name:
Intrapreneurship.
…can you and your Team see the way forward?
Stay safe.