Don’t coddle the cow. Kill the cow.

March 17, 2008

Much has been written about the failure to innovate at dominant companies like Microsoft, Coca-Cola and Procter & Gamble. These companies have little chance to innovate because innovation requires letting go, relinquishing control and potentially undermining a cash cow. Something not tolerated in corporate corridors.

Instead of developing innovative products internally, corporate behemoths tend to buy innovation. But like an absent parent who tries to make up for lost time by bringing home a box full of toys, the initial giddiness wears off quickly. After awhile, things haven’t changed and just get messy and difficult.

Why does Microsoft need to buy Yahoo? Why did Coca-Cola need to buy Vitaminwater? Why did Procter & Gamble need to buy Glide? Don’t these companies have some of the best engineers, developers and researchers on the planet?

Of course they do. But what they don’t have is marketing sense; they have only management sense. Management sense tells them to milk what they already have. Marketing sense would tell them to also invest for the future in new categories and new brands.

That is really hard to do when (a) it is so easy and sometime initially so profitable to milk your brands and (b) when you have so much cash you can buy whatever and whomever you want to buy. But is this the best way to grow? Is this the best way to run a company?

I think not. The best way to run a company is by managing your brands much like you would manage a stable of racehorses. Don’t over-train, over-race or over-fed.

Management people often confuse innovation with ideas like Oreo cake sandwiches. That is not innovation; that is a sacrilege.

Innovation usually involves abrupt change that can take years to fully realize. That is why small companies run by entrepreneurs are willing to take chances and big companies run by financial types can’t be bothered because they are more concerned with their next quarters.

Sometimes big companies can make innovation happen. Either because they are down and out and have nothing to lose. Or they get ahead of an emerging new technology and face little competition.

In the first scenario, one can point to Apple. By the end of the 1990s, its future looked bleak. Betting everything on the iPod wasn’t a threat to the cash cow, because Apple’s cash cow was bringing in very little cash. The company was free to chase the future.

In the second scenario, one can point to Orville Redenbacher, now owned by ConAgra but obviously run by entrepreneurial-types. Going from popcorn jars to microwave popcorn bags was a huge shift. Excellence in one area does not necessarily translate to excellence in the other. But the company wisely jumped on the microwave trend early and established its authenticity. Waiting could have cost them dearly.

It took many years to get there, but the future belongs to microwave. And you’d be hard-pressed to find a jar of Orville kernels at your local supermarket. Most are long gone from the shelves.

Sometimes the delineations are clear. Everybody goes from using popcorn jars to using microwave popcorn bags. Or from typewriters to computers. Or from film photography to digital photography.

Sometimes they are not. Most people still drink Coca-Cola but many people also drink Red Bull, Gatorade, Propel, Dr. Pepper and Snapple too.

Microsoft faces the same problem that Coca-Cola and Orville Redenbacher faced. Today everybody uses packaged software. Tomorrow things could be different. Today, all the money is in software packages and closed operating systems, categories that Microsoft dominates. Why would the company want to undermine that?

One motivating force for innovation is getting mad at the way things are and agitating for change. If the enemy is external, nothing charges up the troops like discussions of the enemy and its weaknesses.

But when the enemy is internal, it becomes a much more difficult game to play. It is not safe for internal marketers to offer up solutions that could be seen as hostile. That is why rational, management-type thinking usually prevails. “Let’s focus on what we’ve got, milk what we’ve got and if something else pops up, we’ll buy them.”

So Microsoft goes after Yahoo. Besides the obvious challenges of integration, people and cultures, a merger creates another problem. It creates a company without a focus.

A company without a focus is a company without an enemy. And a company without an enemy is a company without a purpose.

There comes a time when a company needs the courage to kill its own cow. Without the courage to do is, the company has no future.

Which is what happened to Western Union, Wang, Digital Equipment, Polaroid and many other once-famous companies.