Death of Free Services?

The two articles this week complimented each other well. They provide a pretty good framework to either build a strategy or try and predict some of the business trends that will appear in the near future. The Global Forces Inspiring a New Narrative of Progress in particular has me thinking several of the trends are tightly interlinked, and once one ends, the other will as well. Since capitalism is based on economic expansion, businesses will shift trends quickly once growth is no longer an option.

Both articles discuss the focus on expanding markets referred to as ICASA (India, China, Africa, and Southeast Asia) and the ever increasing amount of connectivity between the people of the world. Combine these two, add in the fact that most of their services are free, and it’s easy to see why social media and other internet tech companies have been so successful in such a short time. The customer in the driver’s seat section highlights how important it was these services have been free up until this point but does mention consumers are willing to pay for things they value.

Once tech company growth becomes limited by increasing market size, most of the free services we currently enjoy will no longer be free. They continue to grow by improving and expanding both services and the markets they serve. Once markets no longer grow, it is easy to see their own growth will be hindered. To ensure a company continues to look good for investors they will need to continue growth, which means profit has to come from somewhere. Though there may be some initial backlash, it is not hard to imagine the public paying a small (or even moderate) monthly fee to enjoy all the products provided by a company like Google. Economist Glen Weyl was recently featured on the podcast, Planet Money, and presented research findings on the average amount of money consumers would be willing to pay for services such as social media, gps direction apps (Google Maps), email, or internet search engines [1].

Alternatively, society may cause the introduction of fees for these services sooner as we continue to attack these companies’ revenue sources. Free service internet companies make their money by selling consumer data and presenting advertisements. recently , we’ve seen  public backlash against the use of consumer data (particularly with Facebook) changing the personal data resource field for all companies from open harvest to a much more scrutinized practice. Add to that the effects the fear of “fake news” or foreign influence may have on suggested content and sponsored advertisements, and you’ve got another area which may inhibit growth.

Clearly there are ways current services can add “premium services” without charing everyone. For example, nearly of quarter of the respondents in a recent survey said they were willing pay for an ad-free version of Facebook [2]. However, I believe most of the services we enjoy today will end up having a price tag attached to them somewhere down the line.

[1] https://www.npr.org/sections/money/2018/03/26/597036173/dollars-for-data

[2]https://www.recode.net/2018/4/11/17225328/facebook-ads-free-paid-service-mark-zuckerberg

Charles McElroy - Blog 4 - The Coherence Premium, GE's Execution of the Coherence Philosophy and Cognitive Bias

Charles McElroy Blog #4 GE’s Performance and Cognitive Bias

Week 4’s readings emphasize the importance of having a strong focus in a company’s business sectors in order to provide the most value for the shareholder.  For example, the Coherence Premium article discusses the importance of having a logical connection between business divisions in order to build a synergy so that a corporation can thrive and build value in its business execution.  Similarly, the week’s articles include several about how GE’s coherence philosophy, articulated by the CEO J. Immelt, is focusing (successfully as is it purported in several sections of the readings) on areas in which it can thrive, e.g., areas of manufacturing which require a great deal of technological expertise, long term planning, with a renewed emphasis on robust research and development capabilities.  Unfortunately, while this philosophy on the surface appears to be sound, its apparent execution in the case of GE has been deeply flawed.

In the last two months punctuated with the delisting of GE’s place in the Dow Jones Industrial Average today, it appears that GE’s efforts at renewing its manufacturing offerings – even taking into account its coherence philosophy - have not been as successful as it has been conveyed by the CEO.   Indeed, in a recent article in the Wall Street Journal, GE’s board has been shell shocked by its recent plunge in its financial performance (Wursthorn & Gryta, 2018).  In a similar article from the Wall Street Journal, Board members are questioning the veracity of Immelt’s assurances about the strength of the core businesses, and an internal review is being conducted to determine how the financial predictions could be so far off the mark (Gryta, Lublin & Benoit, 2018).  The dynamic at GE would appear to resemble some elements of this week’s readings from Christensen about how difficult it is for an established company like GE to maintain its market dominance against new trends and startups which embrace new technologies.  At the heart of the issue is that the incumbent does not take notice of disruptive technologies or trends before it is too late.  Part of this inability to perceive the new developments in the marketplace is an unwillingness to accept that one’s current efforts are misplaced or inadequate relative to the market dynamics.  Put simply, it appears that cognitive bias is having a disproportionate influence on the tactical and strategic decisions of the leadership in a company.  Daniel Kahneman (Kahneman 2011) and others have articulated how easy it is for cognitive biases to effect corporate decision making. Thus, even though Immelt had adopted a winning strategy – according to the coherence premium perspective – the tactical execution of the effort may be flawed because of cognitive biases.  In the case of GE, apparent over confidence in the efforts they embraced, led to a downward spiral – predictable through the lens of the innovator’s dilemma - which results in its being delisted from the Dow Jones Industrial Average.

Christensen, Clayton M., and Clayton M. Christensen. The innovator's dilemma: The revolutionary book that will change the way you do business. New York, NY: HarperBusiness Essentials, 2003.

Kahneman, Daniel, and Patrick Egan. Thinking, fast and slow. Vol. 1. New York: Farrar, Straus and Giroux, 2011.

Giroux, 2011.Gryta, T., Lublin, J., Benoit, D., How Jeffrey Immelt’s “Success Theater” Masked the Rot Within: a culture that disdained bad news contributed to over optimistic forecasts and botched strategies, Wall Street Journal, February 21, 2018.

 

Wursthorn, M., Gryta, T., GE Drops Out of the Dow After More Than a Century, Wall Street Journal, June 19, 2018.

Charles McElroy

Blog 2

In the article “The Four Global Forces Breaking All the Trends” (McKinsey Quarterly, 2015)[1], the authors list the ever shortening life cycles of new information technology trends as a major factor in the world economy.  One of the major needs in this area, as markets explode with growth and much of the world has or will gain access to the internet, are technologies which promote privacy, transparency and economic resiliency.  One technology which provides advantages in these areas is the block chain. Block chain is a relatively new technology which was invented in 2011 by an anonymous creator Satoshi Nakamoto.  In essence, it is a digital public ledger which enables groups that may not trust each other to work together with the confidence that transactions are tamper resistant and easily confirmed.  As such, this new technology may provide enhanced security for Digital Certificate Authorizing Organizations (organizations which provide digital warrants that ensure someone is who they say they are) with regard to the integrity, confidentiality and accessibility of its use[2].

            This technology may become part of a burgeoning economic force where trust, decentralization, transparency and tamper resistance are of paramount importance. For example, this technology might be applicable to digital certificate issuing organizations.   In this system, integrity of information would be safeguarded because once it is accepted by the chain of computers, it cannot be altered.  This is due to the hash that is assigned to all of the information that is inscribed in the past with the block chain.  Altering one element of the information would alter the aggregate hash for the entire system of information, and therefore tampering is rejected.    Digital issuing organizations are integral to the process by which groups can securely communicate with one another and therefore underlies the confidentiality of the interchange.  However, some digital certificate authorizing organizations have been hacked, and this has ruined the claims of information security that they bestow upon their users.  By using a blockchain technology in their schema, these organizations may be able to enhance the confidentiality that their users enjoy in their system.  Finally, this process would be eminently accessible because the ledger can be easily checked by anyone in the system.  In summary, blockchain technology may provide enhanced security for digital issuing organizations, and therefore it will help to ensure economic activity this is robust, transparent and resillient.

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[1] Article: The Four Global Forces Breaking All the Trends (McKinsey Quarterly, April 2015); http://www.mckinsey.com/insights/strategy/the_four_global_forces_breaking_all_the_trends

[2] Swan, M. (2015). Blockchain: Blueprint for a new economy. " O'Reilly Media, Inc.".

Charles McElroy

Blog #3

Berkshire Hathaway as a noticeable counter-example to the coherence hypothesis.

In the article the “Coherence Premium,” Paul Leinwand and Cesare Mainardi suggest that companies that adopt a coherent strategy will ultimately be most successful.  In their paradigm, the power of coherence rests on “A capability (which) is something you do well that customers value and competitors can’t beat.  It’s more than an activity or a function: it’s the interconnection of people, knowledge, IT, tools and processes that enable a company to out execute rivals on some important measure (Leinwand and Mainardi, 2010, p. 4).  In the article it refers to a number of companies which seem to have an unfocused portfolio of eclectic acquisitions, e.g., Sara Lee which owns bakery goods to clothing to shoe polish (Leinwand and Mainardi, 2010).  The apparent point of these references is that no company can be good at everything, and therefore, they should focus on what they are exceedingly good at, and then build their portfolio of opportunities around this core set of competencies. 

I would like to offer Bershire Hathaway as a significant counter example to this argument.  Berkshire Hathaway has been outstandingly successful in building a holding company which is just as eclectic as Sara Lee only several orders of magnitude more successful in producing a return on investment which is far larger than any other similar company.  Berkshire Hathaway, directed over its history by Warren Buffet and Charles Munger, have developed a reputation for identifying under-valued assets and then investing in them or acquiring them for the Berkshire Hathaway portfolio.  Their acquisitions are as diverse as See’s Candy, Fruit of the Loom clothing company and Geico Insurance.  Buffet in particular is famous for maintaining a hand-off approach to management which allows the local manager the discretion to run the company as they see fit.

Perhaps, in trying to reconcile this seeming anomaly to the Coherence Premium, it might be argued that Buffet and Munger (as well as the rest of their investment team which is famously lean) have a true gift in evaluating prospective investments and determining their true market value as it plays out over time.  Thus, it might be suggested that this competitive advantage transcends the routine recommendations that companies focus on a core set of competencies and proceed from there.  Perhaps in the case of Berkshire Hathaway, the paradigm can be emended to suggest that if your core competency is evaluating a broad spectrum of companies, then your surest route to success is acquiring as many companies as you can afford with the provision that they are world class in their execution, and that they have an unusual ability to produce a high rate of returns for your investors.

Week 5: Disruptive Behaviors

Immediately upon reading these articles, I realized I did not see Google's name, and at first, I wonder if it was a timing thing. Was Google not relevant when Clayton Christensen wrote his writing or by some chance was Google like Cisco in it understands that it must make a significant adaptive change to stay ahead of the game and never fall behind. I am by no means an expert on Google, but I can recognize that it has made some very disruptive behavior in its industry that has allowed for it to remain a significant player in the game. Like Cisco, it was understood that sometimes these disruptions occur by breaking off and letting smaller companies emerge and then pulling them back in. Individually, Google has entered the philanthropy, arts, and now education. Google has over 100 campuses around the globe like Cisco CEO pointed out, Google is branching off to other places where it can be an industry change agent, utilize the capacity in that market all while improving the quality of life in a new area. It seems that Google like Cisco is always developing new technologies and not wondering if others are but are investing into its R&D departments at a pace and money that does not cause the entire company to shake if the project is not a success.

Another industry that I see as always having to stay ahead and be disruptive is the government. This is to my personal bias as I work in city government and I know that we are always faced with having to stay ahead, and we cannot get caught up on the significant trends but must still maintain a level of thinking of how to shake things up in the wake of turmoil. I see government engaging in disruptive behavior when it continues to think of new and creative ways to keep industries or sectors that are dying alive. Across the country, we have seen many cities heavily investing in their art spaces and scenes. For the past, few generations the art or creative space has been neglected by many industries outside of fashion and even mainstream media. Pittsburgh, for example, has partnered with its philanthropy community to keep these spaces protected and to have a means to offer the local artist a way of means. It was not until most recently have you began to see a trend of states adopting this and it has come at the expense of many artist relocating and taking their talent to cities and places that have been recognized for their continued commitment. Even in workforce development, I see government acting as a disruptor. Recently Pittsburgh adopted a new policy that it will use to work with the construction industry, as we move into a tech world we have seen how other sectors have become neglected, but these same industries will inevitability always be needed. Pittsburgh policy adoption focuses on targeted recruitment that aims to widen the spectrum of those recruited. 

The Misplacement of PPS Career Ladder Teachers

In Pittsburgh Public Schools and across the nation, public education struggles to prepare all students for college, career, and life. This phenomenon is not new, however; reports such as A Nation at Risk and books like Savage Inequalities have called out these ills for decades. While there are myriad confounding factors both internally and externally, many districts, turned their attention inward to focus on teacher effectiveness. Riding the coattails and pockets of the Gates Foundation, PPS and other districts invested millions of dollars into human capital systems to pinpoint the strength and growth areas of teachers to provide targeted support to improve their practice.

 PPS made a large investment into an initiative called Career Ladder Teachers (CLT), educators who based on performance were placed into teacher leadership roles to serve as instructional leaders and cultural specialists responsible for coaching their fellow teachers around problem areas. Instructional Teacher Leader 2s (ITLs) taught half-time and were assigned caseloads of 3-5 teachers whom they regularly observed and provided feedback on their practice. Clinical Resident Instructors (CRIs) served in a similar capacity as the ITL2s but were also responsible for leading work around racial equity and managing professional learning communities. Learning Environment Specialists (LESs) were pulled out of their classrooms full-time to provide support around classroom culture and environment to teachers in their buildings. Promise Readiness Corps (PRC) teachers looped with the same students in grades 9-10, teamed with other PRC teachers to strategize and lesson plan, and advised small groups of students to keep them on track to remain eligible for the Pittsburgh Promise. CLTs were provided with annual salary differentials (some upwards of almost $15,000), reduced schedules, and intensive training to serve in their roles.

While some teachers benefited from the support of CLTs, the fundamental flaw of this initiative can be summed up in Principle #4 of Christensen’s five principles of disruptive technology: An organization’s capabilities define its disabilities. The assumption in this model was that teachers who were highly effective in their classrooms would be successful coaches and leaders to their peers. This was a process error. The skills it takes to support a struggling student are not directly transferrable to a struggling teacher. Additionally, the power dynamic between a teacher and student and a teacher and teacher are very different. In many cases, these elevated roles led to contention. From a values standpoint, significantly decreasing the amount of time highly effective teachers spent in front of students by making them CLTs was a poor decision. Since the district values student achievement, it would have made more sense to provide salary differentials for highly effective teachers to spend more time in front of students (e.g. larger class sizes or more teaching periods) while struggling teachers observed and/or co-taught with them. In prioritizing teacher evaluation and effectiveness, PPS lost sight of one of their most important tasks (and goals of the Gates grant work): putting the most effective teachers in front of the most vulnerable students.

Staying Ahead of the Technology Shift in Higher Education

Maintaining my focus on the topics of this course and their implications on higher education, I’ll be using Clayton M Christensen’s Introduction to Why Good Companies Fail to Thrive in Fast-Moving Industries (Harvard Business School Press; 2006) to illustrate some potential emerging threats. Christensen builds a framework centered around three central findings that describe why good management can lead to failure for businesses. These findings and their higher education implications are:

•          Sustaining Vs. Disruptive Technologies: Higher Education can be considered a sustaining technology by Christensen’s metric. Improvements are incremental. Syllabi and teaching methods are improved semester-by-semester, but rarely are any changes radical. The suppliers remain the same (Universities) and the customer base has remained similar (students looking for specific knowledge and education credentials). I propose that AI Tutors, paired with MOOCs (Massive Open Online Courses), will be the disruptive technology. Per the article, it should be noted that these AI Tutors will have worse performance compared to a tenured professor. However, it’ll be much cheaper and reach far more people. Eventually, the technology will displace the traditional education-setting and it is unclear whether global universities have been preparing for this eventuality.  
•        Trajectories of Market Need Vs. Technology Improvement: Some universities have pursed MOOCs in earnest. Stanford and MIT are notable examples. However, deals with organizations like Udacity and Coursera now offer hundreds of courses online. This may be an example of the technology progressing faster than the market demand. While hundreds of thousands are taking these courses globally, they tend not to be viewed as equal certificates of education. Universities that have relationships with these organizations should attempt to accurately define the state of the MOOC industry with their offerings, while ensuring a certain level of quality products. That way the market isn’t flooded with low-rate courses and can develop in conjunction with higher education leaders. AI Tutors have not had a wide introduction to audiences yet, but the same concept should work across industries.
•         Disruptive Technologies Vs. Rational Investments: Christensen notes several reasons organizations fail to adopt disruptive technologies. They are applicable to both AI Tutors and MOOCs. These disruptive technologies will have lower margins and will lower profits for universities. This makes them less lucrative to explore and promote. Next, a disruptive technology tends to be deployed first in emerging markets. MOOCs are widely popular in emerging economies, especially India and China. This huge market of eager learners will ensure the success of MOOCs and eventually AI Tutors through their growing market power. This subset of the population can’t always access traditional higher education and many universities will experience failure for ignoring this market. Finally, leading universities are listening to their highest paying customers now – they want a full, on-campus college experience with professors and TAs. This may not be the future of higher education, but at the moment it is the most profitable. Universities will need to balance their current curriculum with the benefits of AI Tutors and MOOCs.

Future of Philanthropy; Disruption in the Non-profit Sector

To succeed, non-profits must be able to carry out their mission. To do so, they must compete for funding with other organizations who may have similar goals and strategies. While this differs from the technological disruptions experienced by corporations, there are many similarities and ways that the same innovative principles can be applied. In the article, "Why Good Companies Fail to Thrive in Fast-Moving Industries" excerpted from The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail, Christensen discusses the theory of resource dependence, which states that “while managers may think they control the flow of resources in their firms, in the end it is really customers and investors who dictate how money will be spent because companies with investment patterns that don’t satisfy their customers and investors don’t survive.”[1] The article goes on to say that resource dependence can be avoided when organizations align with the forces of resource dependence.

Non-profit organizations have started to shift away from this idea of resource dependence and the traditional charity model. Kyle Zimmer, president and CEO of First Book, shares in her article “Collaborative Disruption in the Non-profit Sector” that the traditional charity model, fundraising for support and then the non-profit carrying out the work, is ineffective for creating lasting social change.[2] With the market in control of funding opportunities, non-profits are only able to carry out their work when charitable gifts are available. She continues by sharing a new model,

 “Nonprofit social enterprises are flipping that model around using collaborative disruption—they are putting the funding component front and center by making it an integral part of the core mission, and working with for-profits and other nontraditional partners to deliver on that mission.”[3]

Cisco’s CEO, John Chambers, shares that you should “put customer outcomes at the center of everything you do”[4], and by taking the new approach that Zimmer describes, non-profits are able to serve their customers, in this case the benefactors of charitable work, in a much more consistent and sustainable way. Chambers shares that there are three ways to adapt: create new technology yourself, acquisitions, or create a “spin-in”.[5] In the case of First Book and other non-profit organizations that have caught on to this collaborative disruption, they have chosen to adapt by becoming nonprofit social enterprises and establishing their own markets where need exists. These enterprises generate an income stream that allows them to carry out their mission.

Zimmer shares the following suggestions for other organizations that are considering creating markets through collaborative disruption:

•          Forget the myth that entrepreneurs are born, not taught.
•          Invest in analysis that will capture the dynamics and opportunities of the greater market.
•          Identify how you can add value to the industry to help solve the needs that your organization is working to fulfill. [6]

It will be interesting to see how this collaborative disruption evolves in social innovation enterprise and the non-profit world. It seems to be a more guaranteed way to make and sustain positive societal change in the world and our communities.

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[1] Why Good Companies Fail to Thrive in Fast Moving Industries (Christensen, Introduction to and Chapter 7 of The Innovator’s Dilemma, 1997) 

[2] Zimmer, Collaborative Disruption in the Nonprofit World, June 2013, Stanford Social Innovation Review, https://ssir.org/articles/entry/collaborative_disruption_in_the_nonprofit_world.

[3] Zimmer, Collaborative Disruption in the Nonprofit World, June 2013, Stanford Social Innovation Review, https://ssir.org/articles/entry/collaborative_disruption_in_the_nonprofit_world.

[4] Cisco’s CEO on Staying Ahead of Technology Shifts (Chambers, Harvard Business Review, May 2015); https://hbr.org/2015/05/ciscos-ceo-on-staying-ahead-of-technology-shifts

[5] Cisco’s CEO on Staying Ahead of Technology Shifts (Chambers, Harvard Business Review, May 2015); https://hbr.org/2015/05/ciscos-ceo-on-staying-ahead-of-technology-shifts

[6] Zimmer, Collaborative Disruption in the Nonprofit World, June 2013, Stanford Social Innovation Review, https://ssir.org/articles/entry/collaborative_disruption_in_the_nonprofit_world.

Week #5 – Developing Strategic Options (Part II)

“Such seemingly unaccountable failures happen in industries that move fast and in those that move slow; in those built on electronics technology and those built in chemical and mechanical technology; in manufacturing and in service industries.”

Failure is not seen in one specific industry or company, not in one size, but across borders in all different industries, sizes, and if they can move and create quickly or they are stuck in at a snail’s pace. 

Clayton Christensen’s article “Introduction: Why Good Companies Fail to Thrive in Fast-Moving Industries” discusses the failures of companies and what can lead to their demise. Christensen broke his article down to five principles that need to be seen to harness disruptive innovation. These include:

·         Companies depend on customers and investors for resources

·         Small markets don’t solve growth needs of large companies

·         Markets that don’t exist can’t be analyzed

·         Organization’s capabilities define its disabilities

·         Technology supply may not equal market demand

While in my current position at the SEI we (read: software developers/researchers, not me specifically) conduct research on cutting edge technologies and innovative ideas that our government customers may not even realize that is possible. Like I have said previously, our division’s motto is “making the recently possible mission practical.”

Our division faces many of these challenges, especially markets that don’t exist can’t be analyzed and technology supply may not equal market demand. While working in such niche markets we face challenges of getting our information to those who would need it. Many times our director poses the question of “why” and especially “who cares?” when looking to publish papers and target conferences to speak at.

Just as Cisco was the first to start talking about the internet of everything, we (at the SEI) are looking to start trends in human-machine interaction, advanced computing, and applied artificial intelligence and machine learning. By speaking on new topics and ideas first in the academic setting it can and will gain traction for those in the same space. Making sure to speak at the right places at the right time allows us to get the demand needed to continue to grow and make smart choices in the projects and research we continue to work on. Getting a feel for and having a wide array of contacts allows our group to see how the specific market is doing (or lack of market if we are the ones initiating a new practice/idea/etc.).

As we continue to grow and expand we will have to make sure we are continuing to harness the principles set by Christensen. Keeping ourselves in check with these will allow us to succeed and not become just a statistic as a failure.

Systematic Approach to Disruption?

Systematic Approach to Disruption?

In addition to the CMU courses I am taking this mini, I am also enrolled in a distance course through the Naval War College (I am a naval officer).  Coincidentally, the topic of disruptive technologies and innovation was discussed last week in my War College course (including reference to this week’s HBS excerpt by Clayton Christensen: Why Good Companies Fail to Thrive in Fast-Moving Industries).  Of note, I was exposed to an interesting read about how to develop or promote the idea of innovation within an organization.

While this week’s readings clearly discussed the distinction between disruptive and sustaining technologies, there was not much insight into how organizations can deliberately develop a strategy that embraces the identification of future/potential disruptive technologies.  A discussion about (in my War College course) Chris Sherwood’s 1998 Unlock Your Mind: A Practical Guide to Deliberate and Systematic Innovation described a systematic process in which innovative ideas can be developed through “provocative” thought.  He uses the example of developing provocative ideas (innovations) pertaining to the passenger rail industry through four provocative thought methods (Sherwood, 1998):

·        Negation: deliberate challenge to any assumptions about a specific product, process, or idea (e.g. trains without drivers: led to explore the “what-if” scenario of placing an engine in the middle of a multi-car train, thereby allowing passengers an unobstructed view of the scenery)

·        Distortion: exaggeration about aspects/traits of the product, process, or idea (train wheels are gigantic: large wheels can be placed in between cars to allow faster speeds due to better structural stability from the wheel placement)

·        Fantasy: describes the perfect/ideal result (e.g. what would the “perfect” rail service look like? What obstacles prevent “perfection”?)

·        Random Word Association: explore the applicability of a list of attributes/characteristics of a random word to the product, process, or idea being evaluate (e.g. randomly selecting the word “frog” led to the consideration of “frog legs” and how they could be related to passenger rail service.  Eventually a link had been established: frog legs are sold in grocery stores; perhaps train tickets could be sold in more convenient locations such as grocery stores)

I believe Sherwood’s systematic approach to provocative thought should be included within an organization’s overall strategy to identifying innovative ideas that may lead to the development of a disruptive technology.  This is not to say that disruption can only be the outcome of a deliberate process, but I would argue that the GEs, General Motors, and HPs of the world do need to commit to a formal approach to exploring innovative ideas to avoid losing market share to small players that develop disruptive technologies (whether deliberately or because of serendipity) as was the case with Blockbuster and Netflix.  

 For instance, how would the Blockbuster of 1998 respond to the negation of, “Movies are rented at stores”?  Would Netflix be the present day movie rental behemoth if someone at Blockbuster responded to the negation exercise by saying, “What would happen if movies were not rented at stores?  How else could movies be rented?  Mail-order catalogs?  Have you seen this newfangled Internet thing Al Gore invented?   I wonder if that is worth pursuing….”

References

Sherwood, D. (1998). Unlock Your Mind: A Practical Guide To Deliberate And Systematic Innovation. Gower Pub Co.

La Croix: The Disruptive Technology that is Just Fizzy Water

I touched upon this concept in my cola wars paper but it really deserves to be expounded upon - La Croix has become a disruptive force within the beverage industry. The sparkling water brand is changing the American beverage landscape, especially the soda industry, by forcing beverage makers to introduce new products and market those products to a more health conscience consumer (especially Millennials) which was once a rapidly growing niche market and now is just the market. [1]

La Croix's lightly flavored sparkling water has been around for over 30 years but has really taken off as a brand in 2010 due to creative marketing and the above mentioned shift with consumers.  In the last two years alone, their parent company, National Beverage, has more than doubled its profit going from $49.3 million in 2015 to $107 million in 2017. [1] While these numbers are impressive, it still pales in comparison to the profits of both Coke and Pepsi which have annual sales of over $40 billion. That being said, both companies are taking notice and have recently introduced their own versions of flavored sparkling water – Pepsi with Aquafina Sparkling Water and Coke with Dasani and SmartWater. Additionally, both companies have started to buy out other brands and companies that pose a threat, ex: Zico coconut water, Honest Tea, and Glaceau. [2]

So why the shift? Why is La Croix, who has been around for more than 30 years, distrusting the market place now? An article entitled, "Here’s Why It Feels Like You’re the Only Millennial Not Drinking La Croix", appearing in Fortune Online (July 27, 2017) and written by Laura Entis answers that questions – fairly simply too. She postulates that La Croix has become a disruptor for four big reasons: 1. their very active with their branding/marketing particular online with their Instagram campaigns (Entis also comments that the cans look very sleek in pictures too), 2. Millennials enjoy being different or at least don't do something their parents do (drink soda), 3. Millennials, as well as most of America, are well aware of the obesity epidemic and that one of the bigger contributors to it is sugary drinks especially soda, and 4. Millennials and much of America is becoming more price conscience when it comes to beverages (maybe true for groceries too – rise of Trader Joe's and Aldi's?). La Criox answers all three of these concerns by not being soda, by not adding any sugar or artificial flavors and having zero calories and costing on average $6.00/12 pack.

It remains to be seen if La Croix is just a fade or if they can keep this momentum up but at least for now they are leading the way with Americans shifting from drinking soda to drinking flavored sparkling water.  I am sure Coke and Pepsi, both of which are excellently run companies, will responded at each step of the way and ultimately be fine in the long run but this disruption is impressive nonetheless.

1. http://fortune.com/2017/07/27/la-croix-trend-millennial/

2. https://www.fool.com/investing/2017/10/25/coca-cola-takes-aim-at-la-croix.aspx