DuPont’s journey was about more than saving money, of course. It was also about attacking the indifference that had set in over the years. Even as it remade its production process, DuPont pushed its scientists to confront the future through multi-generation roadmaps, which were further reviewed and debated by DuPont’s technology council as part of a headquarters level strategic planning process. Although DuPont drew heavily on the best practices at General Electric and Motorola, its system was also tied to his- torical patterns of innovation unique to the chemical industry, which tends to innovate in 15- to 20-year cycles.
Many organizations do not look 15 to 20 weeks into the future, let alone years. Some simply refuse to challenge the load-bearing assumptions that underpin their strategic plans; others merely assume that the future will echo the immediate past; and others do not have the systems to plan across a range of futures.
Norwegian shipbuilder Kvaerner found out the hard way that the future often has a way of exposing weakness. At first glance, Kvaerner had every advantage when it took possession of the Philadelphia Naval Shipyard in 1997.
After all, the Navy had already spent $320 million to close the 114-acre facility, while the city and state were ready to provide almost twice as much to rebuild the site.
Moreover, Kvaerner had a proven record of both innovation and per- formance in its market. According to RAND’s case study of the decision, Kvaerner’s shipbuilding division had a 1996 pretax profit of $1.03 billion.
At a time when other shipbuilders were downsizing and consolidating, Kvaerner had decided to build around a simple philosophy.
Under Kvaerner’s team approach to shipbuilding, all its shipyards do what they know best—build the ship’s hull and manage and integrate the outfitting of the ship. Nearly all the other compo- nents of the ship are manufactured and assembled by subcontrac- tors and then delivered to the yard precisely when needed. Within the shipyard, teams of highly trained workers are provided with first-class facilities and organized around core processes, rather than trade skills. Outside the shipyard, Kvaerner relies on teams of suppliers, selected for their innovative ideas and desire to enter into a partnership with the firm, rather than their low bid offers.
As R AND’s study team noted, Kvaerner’s strengths were clear:
“Essentially, Kvaerner’s strategy for making money in the hyper-competitive shipbuilding industry involved using a highly trained workforce to build complex vessels with high profit margins.” It invested in first-class facilities;
built strong partnerships with local suppliers; and used its corporate size, which included 11 shipyards, worldwide locations, and a highly trained workforce; to exploit niche markets such as diesel-powered container ships.
This agility was not enough to guarantee success, however. In 1998 Kvaerner’s chief executive was forced to resign as his company’s stock plum- meted. In 1999 Kvaerner put all of its shipyards up for sale. In 2001 Aker Maritime won control of Kvaerner after a takeover battle with Yukos Oil of Russia.
Kvaerner was felled in part by its staggering debt load, which ballooned in the 1990s when it purchased the Masa shipyard and Trafalgar House, the British construction conglomerate. Although the two purchases gave Kvaerner control of the world’s largest shipyard and the Cunard Cruise Line, it also created a corporation with 80,000 employees in 100 countries. “We’ve long accepted that the mid-1990s expansion was too fast and too extensive,” a company spokesman acknowledged in 2001. “We were too slow in selling the businesses we didn’t want and the debt we created kept on growing.”17 Agile as it was in buying companies and building ships, Kvaerner was a victim of its own blindness to a rapidly changing future. Unable to sell off its shipyards, Kvaerner became a tempting and relatively inexpensive target for takeover. Kvaerner is not the only organization to bet the company and lose.
The Russian military learned about urban combat the hard way in the streets of the Chechen capital city of Grozny. According to RAND’s analysis of Russia’s failed Chechen campaigns, the soldiers who entered the city in December 1994 did not expect a fight. After all, their enemy was a loosely organized force of under-equipped, under-trained freedom fighters. They should have known better, if only because the word Groznymeans “terrible”
or “menacing” in Russian. “Although the Russians eventually managed to take control of the city, the learning curve was steep, and the costs high,”
RAND’s Olga Oliker concludes. “Moreover, the victory was short-lived. A rebel counter-offensive followed by a negotiated settlement ended the war in Chechnya in the fall of 1996.”18
As if to prove that hubris is a hard habit to break, the Russian Army returned to Chechnya for a second lesson in 1998. Having concluded that it could not win an urban war, Russia proceeded to bomb the city into submis- sion. But the rebels merely dug deeper bunkers and waited for another street fight, which they won again. Oliker argues that the failure to prepare for urban combat was hardly the only Russian error. “Hampered by poor training and supplies, decrepit equipment, and abysmal planning, the 1994-1996 war presented a stark picture of how much this once-great force had deteriorated.
It also demonstrated how poorly Russian military organizational structures functioned when disparate forces were called upon to work together.”
The Russians did not make the same mistakes when they returned to Grozny in 1999. They did a better job of sealing the city, improved their sup- ply lines, streamlined their command structure, gave increased authority to junior officers to make battlefield decisions, brought more troops into battle, and strengthened communication between their ground and air forces. They also developed a more sophisticated battle plan for winning the war, and placed a premium on avoiding casualties.
As Oliker writes, however, the Russians were still drawn into bloody urban combat. “In 1994 the Russians had ignored all evidence that a Chechen resistance remained in Grozny. In 1999 they convinced themselves that weeks of aerial bombardment had driven the rebels out.” In both cases the results were the same: heavy Russian casualties and a block-by-block battle to hold the city. Having put all their eggs in one basket of bombardment, the Russians had no contingency plans for another round of urban combat.
Moreover, even though their forces had become more agile, their equip- ment was still old, spare parts were often unavailable, their forces could not fight effectively at night, and the new command structure quickly broke down as the urban warfare increased. As the U.S. would find out in Baghdad, the biggest mistake the Russians could have made was to assume a future that did not exist: “By believing that they could avoid urban battle by not preparing for it, the Russian military guaranteed that any fight, successful or otherwise, would have a very high cost.”
Kvaerner and the Russian Army could both take adaptability lessons from the Intel Corporation, which uses a highly structured, but fluid product development process to maintain the leading edge in the computer chip indus- try. As RAND’s study of environmental research and development suggests, Intel built a technology treadmilldesigned to exploit the exponential growth in the number of transistors per integrated circuit that has characterized the industry since the 1960s.19For its first three decades, Intel bet its future on rapid, incremental technological advances in processing speed. It did so in part by designing new chips and their manufacturing processes concurrently, and by employing two product development teams to leapfrog each other in a race to market. The result, according to RAND’s four-member research team, is a complete retooling of production facilities every two years.20
Intel managed this process through a fluid, amoeba-like organization that supported the entire corporation as chips were designed, tested, and trans- ferred to full-rate fabrication facilities. The virtual organization allowed Intel to move chips to market quickly, which RAND’s study team suggests is particularly difficult given the capital intensity of fabrication and the expe- riential knowledge needed to increase production yield. As a result, “yields can be kept high, and most important, changes and new technologies can be diffused rapidly.”
Incremental technological advances could only take Intel so far, how- ever, especially in an industry where a single breakthrough can create an entirely new future. It is a point well illustrated by Intel’s own decision to introduce an entirely new line of chips in 2005. “All of our microprocessor development going forward is now multi-core,” Intel’s president and chief operating officer said of the decision to put the equivalent of two brains on
one chip. “The design paradigm has shifted at Intel.”21Intel expects half of its chips to be at least dual-core by 2006.
In placing its bet on multi-core chips, Intel acknowledged the limits of its technological treadmill, especially given the need to reduce heat and power in the highly competitive laptop and consumer-electronics industry.
Even though rapid incremental innovation kept Intel a step ahead of the competition on processing speed, it needed breakthrough innovation to stay alive for the future. This is not to suggest that Intel will abandon its old sys- tem once the new chips are established, however. There is a time for break- throughs, and a time for technology treadmills. “We knew that we had to invest our way out of the downturn,” Intel’s CEO, Craig Barrett, said in 2004. “So continuing to invest in new products—$28 billion over the past three years—wasn’t frightening. I have a cast-iron stomach. It was just the recognition of, that’s the way the chip industry works, and that’s what we had to do. It’s a majority of self-preservation. Our whole product line turns over every year. About 80 to 90 percent of the revenue we have in December of each year comes from products that weren’t there in January.”22
As Intel’s decision suggests, organizations cannot be indifferent to alternative futures for their current products and strategies. Unlike Kvaerner, which bet the entire company on a single shipbuilding future, or the Russian Army, which bet its second visit to Grozny on a single strategy, Intel adapted an entirely different future by abandoning a product that had taken its global dominance in its market.