Mavericks at Work: Why the most original minds in business win. William Taylor
but inspired squeals of delight from banks, credit card companies, and giant retailers—powerful organizations whose executives and lobbyists had marched in lockstep for years on Capitol Hill. Virtually everyone who was anyone in the financial services sector applauded their glorious political victory.
Everyone, that is, except Arkadi Kuhlmann. He was the only CEO of a U.S. bank to oppose the bill publicly, comparing it to “using a cannon to kill a mosquito.” He submitted written testimony to a U.S. Senate committee, participated in a press conference with liberal Senate stalwarts Ted Kennedy and Russ Feingold, and took out a full-page ad in the Washington Post. Time and again, he raised the ire of his industry colleagues by raising a host of uncomfortable questions about their pet project on Capitol Hill. What about the tens of thousands of families who go bankrupt because of catastrophic illnesses and huge medical bills? What about the 16,000 military personnel who declared bankruptcy in 2004? What about the credit card industry’s stubborn refusal to curb its most aggressive marketing practices?2
“To the banking establishment, I’m sort of the bad guy,” Kuhlmann declares with undisguised relish. That reputation applies far beyond its challenge to the industry’s political strategy. Indeed, it’s at the heart of ING Direct’s business strategy. “Before we launched the company, we looked around and said, ‘The banking industry is bust. The consumer always loses.’ Then we said, ‘How can we do something radically different? How do we re-create and re-energize an industry? How can we build a company around a big new idea?’”
That big idea involves using the future-forward power of the Internet to champion the timeless virtues of thrift and financial security. ING Direct USA, essentially an Internet-based savings bank, is a direct-to-the-customer operation. (Customers can also bank by mail or phone, but more than 70 percent use the Web.) Everything about its operations emphasizes speed, simplicity, and low overhead. ING Direct has no brick-and-mortar branches, no ATM machines, no highly paid commercial bankers or smooth-talking financial advisers. It also charges no customer fees, requires no minimum deposits, and avoids paper like the plague. Most importantly, the bank offers a limited number of easy-to-understand product offerings: old-fashioned savings accounts (with no minimum balances), a selection of CDs (with no minimum deposits), nine easy-to-understand mutual funds (which can be combined into portfolios described as conservative, moderate, and aggressive), and no-frills home mortgages with an online application that takes less than ten minutes to complete.
The intentional simplicity of the company’s products and business model keeps ING Direct’s costs extremely low: in some parts of the business, they are one-sixth the costs of a conventional bank. Low costs enable ING Direct to guarantee higher interest rates to depositors (with some basic savings products, as much as four times the industry average) and charge lower rates to its mortgage customers. The end result is an online money machine that adds 100,000 customers (40 percent of whom are referred by word of mouth) and $1 billion in deposits every month. Indeed, by the end of 2004, ING Direct had become the country’s largest Internet-based bank, the fourth-largest thrift bank, and one of the forty largest banks of any sort.
But the bank’s animating spirit isn’t about low costs or fast growth. It’s about an agenda for reform. Kuhlmann and his colleagues declare that they are “leading Americans back to savings”—presenting a clear-cut business alternative to the excesses and shortcomings of how the financial sector does business. “Everything we do starts with our big idea,” the CEO says, “which is to bring back some fundamental values: self-reliance, independence, having a grubstake. One way or another, most financial companies are telling you to spend more. We’re showing you how to save more. What’s better than apple pie, the little guy, fighting for the underdog? We want to own that space.”
WHAT IDEAS DO YOU STAND FOR? STRATEGY THAT MAKES A STATEMENT
For decades, a well-defined set of parameters governed the logic of business competition. Strategy was about delivering superior products: Is your company’s automobile or appliance or computer cheaper, better, nicer to look at? Strategy was about selecting attractive markets: What demographic segments or customer categories matter most to your organization? Strategy was about mastering economics: What advantages in scale, costs, margins, and pricing allow your company to deliver superior performance in productivity, profitability, and shareholder returns?
Which is why, truth be told, so much of strategy has been about mimicry. Big companies in most industries have been content to compete from virtually identical strategic playbooks and to vie for advantage on the margin: Whose products can be a little better? Whose costs can be a little lower? Whose target markets can be a little more attractive? Think General Motors versus Ford, CBS versus ABC, Coke versus Pepsi. Every once in a while, of course, something genuinely new alters the trajectory of an industry: the rise of sport utility vehicles or zero percent financing in the auto business, the creation of reality programming in the television business, the ubiquity of bottled water and natural drinks in the beverage business. But inevitably (and almost immediately), innovation gives way to duplication. Every big player is quick to copy the original creative impulse (or acquire one of the creators), so that strategy returns to its familiar and predictable formulas.
In the 1990s, with the explosion of the Internet and the rise of a generation of ambitious, venture-funded start-ups, business competition took on a more heated, more frenetic, less copycat tone. Strategy was about designing radically new business models that would overthrow decades of perceived wisdom on how specific industries worked: Who could apply high-speed computers and networked communications to slash production costs, vastly increase consumer choice, and otherwise do violent harm to established economic models? Who could, in the dot-com-driven lingo of the era, “Amazon” their rivals or “Napsterize” their industry?
No book better summed up this revolutionary fervor than the aptly titled Leading the Revolution by Gary Hamel, the celebrated strategy guru. Hamel is one of the most influential business thinkers of his generation, a brilliant speaker, consultant, and professor who’s been affiliated with the London Business School and the Harvard Business School. Hamel’s core constituency is senior executives in the world’s most powerful companies, and his book took these power players to task for the groupthink that afflicts so many of them in the executive suite. “Most people in an industry are blind in the same way,” Hamel warned. “They’re all paying attention to the same things, and not paying attention to the same things.”
So what’s the solution? Revolution! Hamel urged aspiring “corporate rebels” and “gray-haired revolutionaries” to “start an insurrection” in their industries. “You can become the author of your own destiny,” he thundered to his readers. “You can look the future in the eye and say: I am no longer a captive to history. Whatever I can imagine, I can accomplish. I am no longer a vassal in a faceless bureaucracy. I am an activist, not a drone. I am no longer a foot soldier in the march of progress. I am a Revolutionary.”3
Phew! Of course, this period of explosive innovation ended the way most revolutions do—badly and bloodily, choked on its own excesses. Some of the most celebrated business revolutionaries of the 1990s—Enron and Worldcom leap to mind—became some of the most notorious corporate outlaws of the early 21st century.
This is the backdrop for the emergence of a new generation of maverick companies and the arrival of what we believe is the next frontier for business strategy. The logic of competition has evolved from the imitative world of products versus products to the revolutionary fervor of business models versus business models to, now, the promising realm of value systems versus value systems. Call it strategy as advocacy: Who can redefine the terms of competition by challenging the norms and accepted practices of their business before disgruntled customers or reform-minded regulators do it for them? Who has the most persuasive and original blueprint for where their business can and should be going—not just in terms of economics but also in terms of expectations? Who can unleash a set of ideas that shapes the future of their industry and reshapes the sense of what’s possible for customers, employees, and investors?