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Roundtable

Roundtable: Book Report - Leap, by Howard Yu

This episode, we launch a new occasional format for the 'pod. A report on books that we think are worthy of your attention, and why. Rob kicks it off with his POV on Leap, by Howard Yu.

TRANSCRIPT

Rob:

Hello, this is Rob. Coming at you from the digital shelf institute's non-headquarters in the Berkshires in Massachusetts. Today, we have a new kind of segment for you that I've been thinking about for a long time. And that is a book review. I read a ton of books. Most of them are not worthy to be brought to this group, but every once in awhile, I read a book that has some great ideas that I'd love to share. And that I think is worthy of this audience. Today for the first-ever DSI book review is the book "Leap" by Howard You, the subtitle of the book is how to thrive in a world where everything can be copied on the digital shelf. Every single major brand manufacturer has competition from upstarts, Chinese competitors creating good-enough versions of the product for cheap that show up on Amazon as a three-piece seller, not to mention the retailers with their private label strategies, copying is everywhere.

So the question is in this day and age, what do you do about it? The book tries to answer that question in two parts, and I'm going to read a quote here from the book describing the two parts. One shows us the power of history, which acts as a prism to help us understand the past. So we may leap into new knowledge disciplines. Part two takes to the future to pinpoint the two intertwining trends that are propelling all companies into the 21st century, the inexorable rise of intelligent machines and the emergence of ubiquitous connectivity. That is Howard Yu describing the two parts of his book. I found the first part of the book really interesting to read. I love the whole first part of the book. In the first part, he describes what leaping means as a concept. Now, the idea of a leap is that a company gains success in the marketplace and gains competitive advantage by developing what he calls a discipline or knowledge discipline, and being the first to do it.

One case study he uses in his book, which is of course, germane to this audience is Procter and gamble. And the first knowledge discipline that they developed was mechanical engineering, Procter & Gamble, as most people know, was founded in the great city of Cincinnati, Ohio. Cincinnati at the time of P and G's founding had a bunch of meat, packing plants and meatpacking was one of the very, very first industries that used mechanical engineering at any type of scale in a factory setting to make production lines work at speed. And the reason they had to do that is, of course, that meat scales. Across the country, soaps and candles and things like that were made by local manufacturers and shipped within a tight geographic radius. Nobody could make a lot of soap at once. It was labor-intensive, but Procter and gamble in this environment, in which there were a bunch of factories that were using mechanical engineering to produce things at scale were inspired.

And they were the first you take that type of idea to soap. And so they went from a craftsman to mass production capacity. They were the first to do so. And of course, ivory soap came to dominate the market. In that era. They went further along that knowledge discipline, they went from basic mass production to full-on automation within these factories. And by the time that Ford and the assembly line production came in the early 20th century, P and G was already well on their way to being expert in this space. Of course, this is not a lasting advantage. Everybody has figured out how to do this over time. And if that was the only thing that P and G had done in this world, then at some point they would have been commoditized and their margins would have gone down. And we still wouldn't be talking about them in the same way in 2020.

So what P and G have done several times and Howard Yu goes through every single example is leap from one knowledge discipline in this case, mechanical engineering, to a totally separate knowledge discipline where they can reassert dominance. And the first major leap that P and G did in the early 20th century was to leap from mechanical engineering as a knowledge discipline to consumer psychology as a knowledge discipline. They were one of the very first advertisers to work on the new mass media mediums in the United States in the early 20th century. Now at first advertising was like candle making and like soap making, a bespoke business. People use a lot of subjective intelligence to figure out what they should be saying to the consumer and whom they're talking to. And P and G were first there. They developed a lot of capacity and strength internally around what makes good advertising and not, and eventually, they started leveling just like they went from being craftsmen making soap to mass production making soap to full automation facilities making soap.

They went from subjective advertising campaigns to advertising campaigns that look more like professional marketing that is data-driven to really advanced market segmentation. This gave them a massive advantage in a market that was becoming increasingly competitive. The next leap they took was from consumer psychology, this mastery of marketing into chemical engineering, and they started producing synthetic CPG products, drafts and things like that, that became market leaders and eventually leading to something like Tide, which is one of the greatest CPG products of all time. And so this idea that you can't stay still. What got you here isn't going to get you there. What makes your company great today is not going to make your company great tomorrow, is at the heart of this book and there's great case studies, P and G being one of them, John Deere being another one of them Novartis being another one of them where he goes in-depth and gives great examples on what makes leaping possible and who has done it well. Now, of course, he's not just an academic that's throwing out advice from an ivory tower saying "hey, you should be better at different things." He's acknowledging that actually, it's really, really hard when you've got a company that's operating at scale, that's exceptionally good at one knowledge discipline to ask them to somehow put it on the back burner and put all of their major thought power into advancing a new knowledge discipline. That's very, very risky. Here's a quote again from Procter and Gamble, in particular, this is William Procter Cooper in 1933, that talks about this change. He says "this synthetics detergent ruined the soap business, but if anyone is going to ruin the soap business, it had better be Procter and Gamble." And this was in reference to the launch of Draft, a synthetic detergent and dream synthetic shampoo, the first synthetic CPG products released in the United States. Howard You then from that quote, goes on to say self-cannibalization occurs when a company chooses to proactively replace one product or process with another, that is potentially worth less to leap into a new knowledge discipline is to deemphasize the old and quite often the new product or services launched will exert substitutional pressure on the old ones. That's why it's difficult for an established company to leap forward. It's hard.

So he talks about the types of management that have to be in place in order to make leaping successful. He discusses does leaping happen because you do from the bottoms up within a company, there's a rogue operator somewhere who invents the new thing and the company transforms whether it likes it or not, or is it from stellar, visionary leadership in the C suite, it makes changes from the top and pushes them throughout the company, or is it a mix of both? He discusses it's a mix of both, but the bottom-up approach is actually pretty important for the purposes of leaping and encouraging certain types of experimentation and new knowledge disciplines are really, really important to this in particular, the bottom soap approach that he advocates four is necessary when you're not really quite sure what the next leap is going to be. And he uses a Steve jobs story to illustrate this. To quote, a young Steve Jobs in 1995, described just how Apple came to develop the Macintosh. Quote "the problem is that market research can tell you what your customers think of something you show them, or it can tell you what your customers want as an incremental improvement on what you have, but very rarely can your customers predict something that they don't even quite know they want yet. So there are these sorts of nonincremental jumps that need to take place where it is very difficult for market research to really contribute much in the early phases of thinking about, you know, what those should be and quotes of Steve Jobs. Two decades later, when an editor asked him how much market research had gone into the iPad, right? None. Was Steve's reply."

So the idea here is that as a company, it's very difficult to know what's next, which actually brings me to my major criticism of the book, which is the entire second part of the book. It's really an attempt to say what the next leaps, what the next knowledge disciplines are going to be for companies to keep an eye out for, I feel like in reading it, it's almost, it's almost as if the publisher wanted him to have a book that was over 200 pages instead of a nice, tight, awesome book. That was about a hundred pages long. And so he said, well, you know, let me make some guesses as to what's going to come next. It really reads like one of those innovation books, that list all of the bads, AI, platforms, crowdsourcing design thinking, lean startups, Steve jobs quotes everywhere. You know, that type of thing. I mean, it's, it really was a little eye-rolling. Here's an eye-roller quote that I wrote down. "So what must executives do in the age of smart machines? The key is to automate as many routine cognitive tasks as possible, free your people up from white-collar drudgery. So it's leverage there, a fundamental human advantage to solve problems of the next frontier creatively." I mean, it's just, it's hard to read this stuff. Honestly, I don't know what to do with it. Exactly. It's kind of an apple pie, motherhood statement. So, you know, I really didn't like it that much, but that said, I don't want it to take away from the fundamental value of the book. I think the first half was exceptional. And I thought that the epilogue, the end of the book, once you get past the second part was also quite good.

I think he outlined a new concept. That's really, really what we're thinking about as a manufacturer today, who is under threat from seemingly all sides. The business models that got us to 2020 are not the business models that are going to get us in the future. And the book has a lot of material that allows you to go back to your company and start thinking through, man, what is next for us? What is the leap that we should be taking? How do we structure our company to allow us to develop the next knowledge, discipline ourselves, and not simply be copied from below and be copied by private labels and be copied by the Chinese and have margins driven out of our business and fade obscurity. But instead, a hundred years from now after the next several different technological innovations will still be the ones leading our markets. That's what I've got for you today. I'd be curious as to any feedback that you have, please send it my way. Thank you.