By David Ryan Polgar, Contributor
The business world is littered with once-prominent giants that failed to innovate and adapt. In fact, according to Chris Zook, co-author of “The Founder’s Mentality,” only seven to eight percent of companies are able to retain momentum in the midst of growth, setbacks, and massive technology change.
(However, those Fortune 500 companies that do innovate year after year, the authors found, account for half of the net value created in the global stock market each year.)
And while success today can come in various forms, it’s important to reflect on the patterns that emerge among today’s top business leaders. Below we take a look at the decision-making strategies that have set these top companies apart from those that have failed—and illuminate the way to lead through digital transformation.
Be Flexible
Netflix is data-driven company that uses A/B testing to inform decisions during times of change. After recognizing the company would have to evolve its offering, in 2006, Netflix opened its trove of viewing data to coders in the form of a $1 million Netflix competition. The goal was to improve its recommendation algorithm. Findings from the contest informed the major business decisions that led to the phenomenon we now refer to as “binge-watching.”
Later, when traditional boundaries between content creators and network providers began to erode, Netflix pivoted again, moving to developing Emmy-awarding winning stories such as Stranger Things, The Crown, and Master of None. Last year the company spent $6.3 billion on original and acquired content, putting Netflix in the same league as Time Warner and Fox.
According to Hastings, the “North Star” to produce these levels of innovation is flexibility.
“Ultimately, flexibility is more important than efficiency in the long term.”
-Reed Hastings, CEO of Netflix
“Eventually, the market shifts on you in some way and all you’ve got is people who follow processes, follow rules, and you don’t have the DNA to change,” he told CNBC. “If you’re building for the long term, you need to tolerate some chaos. And you need to have lots of creativity.”
In the end, Hastings and his team opted for flexibility over perfection. “For Netflix, what we realized is that we should be sub-optimal in many cases because ultimately flexibility is more important than efficiency in the long term.”
Ruthlessly Prioritize
Facebook has outlived many predictions of death as it has grown from a social network for college students to a global behemoth with over 2 billion registered users—and a platform ripe for advertisers.
Despite being late in transitioning from desktop to mobile in 2012, in 2017 the company received 88 percent of its revenue from mobile. The answer to this type of growth, according to Facebook’s COO, Sheryl Sandberg, “is ruthless prioritization.”
“I think the most important we’ve learned as we’ve grown is that we have to prioritize,” Sandberg told Inc. in 2017. “We talk about it as ruthless prioritization, and by that we mean only do the very best of ideas.”
“We talk about it as ruthless prioritization, and by that we mean only do the very best of ideas”
– Sheryl Sandberg, Facebook COO
Based on Sandberg’s experience, the problem is not a lack of innovative ideas, but rather the need to focus on the best of those many ideas. If there are ten ideas on your company’s list, Sandberg said, you should find the five that can be done well—right now. This lesson applies to companies from every industry and of all sizes.
“Sometimes people think of prioritization as only doing things that it will have a positive impact on your business,” said Sandberg. “But prioritization is higher order than that. Prioritization means doing the best things for your business.”
Be Agile
General Motors has seen its share of setback in the last several decades. Once a stalwart of the auto industry, the company failed to innovate alongside changing consumer demand for features found in non-domestic vehicles.
In 2008, the company had to be bailed out by the U.S. government. And during her first year as CEO, in 2014, Mary Barra had to navigate the difficult terrain of managing safety recalls in 30 million vehicles.
Fast forward to 2018, and Barra has steered GM towards cutting edge of innovation with driverless technology and ride-sharing capabilities. For Barra, understanding that there may be a once-in-a-life disruption occurring in how people think about transit has inspired her to position GM as a leader in this innovation.
“In a big company, you can sometimes get bogged down making decisions,” Barra said when speaking about leadership at Duke University’s Fuqua School of Business last year. “I think [we should be] realizing that every decision not made is a decision made.”
Given the sheer pace of change and amount of data to inform decisions, it can be easy for overthinking to become the status quo. Staying innovative as a large company, Barra explained, may require pushing aside bureaucratic tendencies of group-think and over-analysis.
“Every decision not made is a decision made”
-Mary Barra, General Motors CEO
“You don’t want to be reckless with your decisions,” she emphasized, adding that they should be data-driven. But at the same time, decision makers should realize that there are many decisions you have to make where you don’t have perfect data and perhaps never will.