Compare and contrast: incrementalism and breakthroughs.
The Incremental Improvement Strategy is based on finding things in your business that could work better and making small changes. Year after year your operations improve slightly and bit-by-bit become more efficient and more effective, producing small, consistent dividends for you and your family, and your investors if you have them.
Continuous improvement, or optimization, is always going to be a sound approach to running your business. Over time, those small but steady gains add up to solid increases in income. At 7% growth, your business will double in 10 years. At 10%, it will double in 7 years. At 15%, it will take 5 years.
If you’re risk averse, this can be very effective…
- As long as the external environment remains stable (for instance, no sweeping governmental changes in the Middle East.)
- As long as there are no oil price increases or surprise shortages of other critical raw materials.
- As long as there are no across the board price reductions (as we’ve seen in housing over the past 3 years.)
- As long as consumer tastes don’t change
- As long as there is no technological shift striking at the core of your product line.
- As long as there is no gorilla competitor altering the fundamentals of your market.
So as long as none of these things happen, it could all work out for you.
But when your market isn’t stable (and whose is?), when great sea changes are tearing at the very fabric of your environment, the only thing that is going to keep you in business is creating a business breakthrough.
A breakthrough is a discontinuous, non-gradual change in your business that shifts the revenue, production, and profit curves in a completely new direction.
Breakthroughs-the kind you’ll need if you are to compete with a global competitor or deal with a radical swing in consumer tastes-cannot come from “being reasonable” and sticking to existing business rules.
Breakthroughs are not predictable from where you currently are, and they have the nasty habit of making everyone in your organization totally uncomfortable.
Until 1983, Intel made most of its money selling memory chips. The company had come under increasing pressure from Japanese manufacturers, who were building significant capacity while cutting price to grab market share. Grove concluded Intel couldn’t continue to compete like this, and he came up with a new approach.
Intel saw that the future was in microprocessors, which until then had been a tiny portion of the company’s profits. He refocused the entire business to become a “single source” for computers-on-a-chip, increasing quality and diversifying the company not by product, but by geography, making it a more stable and reliable supplier.
He risked the company’s future on this strategy, broke every rule in the business doing it-and transformed Intel into one of the three most important players of the personal computer era.
Sometimes breakthroughs happen by accident, yet even when they do, it takes guts to pursue them, because the consequences create unbelievable levels of stress.
They are almost always – by definition – totally out of alignment with your current direction.
To deliberately set out to cause a breakthrough from scratch requires nothing less than a complete sacrifice of everything you hold to be reasonable. So what if profits are down; that doesn’t mean you should dump the main source of them, does it?
In Intel’s case, it did.
I decided to post this adaptation from my book, Be Unreasonable, to show the “other side of the coin” from my best selling programs, FormulaFIVE and BlueprintsToProfits, and even my newest program for start-ups and early stage companies, Getting Started in Business. Each of these programs use my “15% solution” combining incremental and breakthrough thinking, to reliably double entrepreneur’s businesses. These programs work so well because the incremental nature is easy to implement and pretty much failure-proof, while the breakthrough comes in combining small strategies into a blockbuster one.
It’s important to remain flexible and not get locked into one model. Think big and think small at the same time. Insure steady, incremental improvement and simultaneously, look for the breakthroughs.
By the way, if you don’t yet have your own copy of Be Unreasonable, get one from Amazon (They were temporarily out of stock but do have the Kindle version) or Barnes and Noble.
I’m pretty sure not everyone agrees with me on this. If you’ve got a minutes, let me know what you think in the comments.
And stay tuned, I have some really interesting promotions coming up.
couldn’t agree with you more Paul! Since starting to interview small business owners I find that most small businesses think too small to even create a breakthrough, could you give some advice for how to help them see bigger than they currently are?
Emily, I think you have to meet people where they are. Once you connect with them where they are, you can help them come along. Just not before. They’ll just think you’re wrong and that you’re making them wrong. –paul
Interesting coincidence. I was an Intel employee during the time of turmoil that you write of. Unfortunately, my employment was a casualty of those difficult times in our semiconductor industry. I subsequently delved deeply into a course of self-directed study into management, eventually focusing upon Quality Management theory, with particular emphasis given to the teachings of W. Edwards Deming.
Related to what you have said, I offer the following as a broad generalization. I will suggest that Continuous Improvement focuses attention inward, its objective being to improve that which is being done. It does not incorporate an intention to determine whether or not what is being done is what in fact should be done. In this regard, while Continuous Improvement may be a strategic management decision pertaining to various implementations of operations, it is inherently tactical in scope. I’ll also suggest that the Breakthroughs you mention equate to Paradigm Shifts [ala, Joel Barker]. If so, such Breakthroughs impose mandatory strategic address and management focus upon issues that manifest fundamental and disruptive change to the environment of their business. Interestingly, such shifts may occur both internally, such as exemplified by the example of Intel, or externally such as the automobile industry’s transition from the use of carburetors to fuel injectors.
What does it mean to be the ‘best’ manufacturer of carburetors in an age defined by fuel injection? The answer may just be that they were too busy managing to have paid attention.
Glenn, excellent distinction — CI = inward, Breakthroughs = outward. Without a doubt, continuous improvement is tactical, and yet for short term profit improvements (occaisionally dramatic) it works so easy and so well. That’s why my Blueprints To Profits program is 100% tactics in a strategic wrapper, and works 100% of the time for the folks who apply it.
Hi Paul,
Another great article…
Question 1: why don’t you put your book on itunes so we can buy it from Apple devices?
Question 2: how can I get access to your online “Getting Started in Business” course?
Thanks again,
William, KSA
William – thanks.
Great idea about the book; I’m in dialog with McGraw-Hill to do a few things that are “out of their comfort zone,” this might be one of them.
Regarding Getting Started in Business, the program was incomplete – and only got finished about two weeks ago. It’s about to go on sale again very soon. Stay tuned.
pl
I just had a breakthrough of my own…
Downloaded the Kindle app for the iPad and bought your book through it. Nice workaround and well worth it!
W.
William – that’s a workaround? I thought it was the way to go… Waiting for my iPad delivery. Ordered his and hers.
I wish our government was more tuned in to this kind of thinking, it’s going to take some bold action to solve the problems we have, but politicians are notoriously risk-averse (at least when there’s a risk of losing votes). I was hoping for some bolder moves from Obama but so far not so good.
Jurgen — and I say this sadly, don’t expect bold moves from our government.
I actually voted for Obama as I thought he was my least worst choice. He talked a pretty good game about change and I fell for it. We’ve seen very little.
Change needs to be preceded by thinking – asking the right questions and coming up with useful answers. But thinking seems to be in short supply now, as it typically is. Plus the real agenda for any elected official is always getting re-elected. Which means that their thinking, such as it is, is always about what will win (or keep) voters. Because most voters (most humans) FEAR CHANGE, change almost always loses more voters than it gains. Which means that lawmakers and executives both, eschew change, unless it is change “backwards” to something they were previously more comfortable with.
This, by the way, is the real argument for slightly longer terms with one term limits in all three branches of government. And although the problem is different in the judiciary, it might just be worse: twenty-thirty years of ideologically skewed judicial interpretation ends up being governed by what are essentially random events. Whoever happens to be President when more than one old guy quits sets the tone of things for a long, long time.
Here’s what might work better: give the people you vote for a long enough time to do something meaningful and remove the incentive to continually pander to the electorate. That way you can keep all the pandering upfront (that’s called running for office) and let them do their supposed jobs during their time in office. (Oh, and we should add some mechanism to “throw the bums out.”) This system would allow for the greater chance of “bold action” or breakthroughs.
In any case? Don’t expect any breakthroughs from our government any time soon.
Nice one. I think there are a few number breakthroughs everywhere because most people are reasonable – they play safe. They act or not act at all due to fear of failure, loss, rejection etc.
I think it’s innate though. We have all been trained to rather tolerate the average life rather than take chances…
And you have decide to not to do a video today?
Some very good points. I agree the strategy of incremental changes is becoming more risky. It seems to me that the secret is to understand that when you try something new there is a high probability of failure. So plan on failure, realize that failure is a possibility but set things up so that it will not failure will not ruin you.
The key is to fail fast and fail early. Most people try to avoid failure. They delay, hide or put off failure and then when it does happen it is way too costly. The earlier you can detect that something is not working and ADMIT it, the less expensive it will be.
Excellent points! One of the chapters in Be Unreasonable is “Fail Faster,” and now I’d augment that to say, “Fail faster, fail often, and fail cheaply.”