CHAPTER

4

FOCUS MORE, THEN LESS

The Challenge Is to Figure Out What Not to Do¹

Airbnb is the world’s largest peer-to-peer lodging company. It has more rooms for rent each night than Marriott and Hilton combined, quite an achievement for a company that began less than a decade ago.² In 2016, the company hosted its 100th million guest.³ But there were no elaborate plans when the company booked its first rental—just two young men offering a room in their apartment to those attending a business conference in San Francisco. The founders were primarily interested in making their rent through additional income. However, in meeting their own needs, they were playing with a big idea. Millions of rooms in houses and apartments were going unused. They wanted to help people rent these rooms, using the Internet as a tool to simplify and enhance the process. But their idea was based on an audacious proposition—that people would invite strangers to stay in their homes. The founders created a website to profile the rental listings, with the goal of making renting a room in another person’s home no more difficult, and no more risky, than booking a room at the Marriott. The new company was called Airbed & Breakfast after the air mattresses placed on the floor of that first rental.

In the early years, the founders positioned the company as offering less-expensive and more-personal lodging than the hotel chains. Its singular focus, like many startups, was unambiguous—survival. Objectives, if they existed at all, covered what needed to be done in the next two weeks.⁴ After a few years, and the hiring of hundreds of employees, the firm’s leaders developed an annual company operating plan with a dozen key objectives. This plan eliminated some of the confusion that inevitably comes with a rapidly growing company. But it also created a new problem—notably, it was difficult to sustain focus and allocate resources within the company across so many priorities. Airbnb, for example, was partnering with vacation-rental firms that served as brokers who provided rooms to travelers. Airbnb was also building a loyal following of customers who were renting rooms directly for their own personal use. Vacation firms offered an opportunity for Airbnb to expand quickly, but the individual traveler was still its core customer. Both groups were important, but more effort was going into developing products and services for the rental firms (given the near-term benefit of doing so). The downside was that less was being invested in the development of products for the firm’s individual users due to the limits of the engineering resources within the company. Recognizing its mistake, Airbnb clarified the priorities and redeployed its resources. The lesson learned, however, was that more is not better when it comes to priorities.

The following year, Airbnb streamlined its objectives. It settled on four goals and a few success measures.⁵ All four goals were summarized on a single sheet of paper—with the goal of advancing those initiatives that would have the greatest impact on the long-term growth of the firm. The Sheet, as it came to be called within Airbnb, listed each of the four objectives, its target completion date, and an internal owner. Simplifying the firm’s priorities and getting them onto a single sheet, was difficult. It took a team of people within the company five months to determine the priorities. Having 10 priorities is easier, at least initially, than having 4 priorities in that it doesn’t require hard choices. But pursuing 10 priorities is close to having no priorities. Every firm and team has limits in regard to staff, time, and resources—and thus needs to focus on the areas that have the highest return on investment in relation to its growth strategy. The other factor that makes prioritization difficult is the risk inherent in doing so. Covering all the bases, placing many bets, spreads a group’s risk—or at least the appearance of risk. Focusing only on a few priorities means that those few priorities had better be the right priorities. Focus also requires that those selected priorities be executed at a high level. Otherwise, failure to do so will be evident to all. Airbnb, for instance, has recently focused on developing its mobile toolkit—viewing it as essential to drive its growth and meet its customers’ needs. Success in its mobile platform is easy to monitor, at least at a basic level in terms of users. Failure to achieve its targets in this area will be evident both within the firm and to its investors.

Airbnb learned, through its own experience, the importance of focusing on a small set of vital few priorities. It did this initially because it had limited resources and needed to focus on that which it could afford in terms of time and resources. The problem it faces now is the opposite. It has ample resources and can afford to pursue any number of good ideas. The concern, at this point in its growth, is that it becomes less focused and less willing to invest in its core business, which is enhancing the experience of its guests and hosts. One of the firm’s CEOs describes this as the “tyranny of choice”—a problem that comes when a company has plenty of resources and is highly empowering of its people and teams.⁶ This “high-class” problem can be as challenging as not having enough choices. Airbnb has also learned the importance of cascading its priorities in an effective manner. A great deal of effort in Airbnb goes into communicating the key priorities to its employees, including the reason each is important and how success will be measured. The intent is to make sure that people at all levels understand what is critical to the firm’s success. Then, and this is key, each person and team at Airbnb is responsible for figuring out how to best support the company-wide priorities. In essence, the firm is saying to its people, “Here is what we want to achieve and why. You need to determine how you and your team can add the most value as we pursue these goals.” This approach ensures a broad understanding of what the firm must do but also keeps ownership for specific tactics and decisions at the lowest possible level.

At a broader level, Airbnb wants its people to determine how to best support the brand on which the firm is built—which centers on the idea of belonging. The company strives to provide its guests and hosts with a highly personal experience of being part of a larger community.⁷ It believes the people want an experience of community and connection, in contrast to staying in a more impersonal hotel. Toward this end, Airbnb broke down the experience of travelers into 15 discrete steps, starting with a guest finding a room on its website, followed by successive steps in a trip, including what it calls the moment of truth (when a guest first walks into rental), being “out and about” in the community, and providing feedback at the end of one’s stay. Airbnb leadership continually asks its people and teams how their work, both ongoing and proposed, helps provide the best possible Airbnb experience in one or more of these key steps. People at Airbnb thus understand their firm’s overall value proposition (creating experiences that enhance a sense of belonging for a traveler) and, within this context, its annual set of three or four company-wide priorities. Managers, teams, and employees must then determine the areas in which they can add the most value and how to work in a manner that best achieves those objectives.

The role of managers at Airbnb, unlike most companies, is not to set goals for their team members or tell them how to operate.⁸ Engineers at Airbnb, for instance, are engaged in the goal setting and planning of all major projects. They determine what needs to be done and how to measure success. The company then goes one step further—it gives its people the freedom to select which projects they want to work on.⁹ Airbnb engineers are encouraged to change teams if there is another project within the company that better matches their interests or skills.¹⁰ This practice is based on the belief that people do their best work and have the greatest impact when they are involved in projects that are of personal interest to them. This approach makes sense when one realizes that Airbnb values, above all, experience—and, more specifically, enriching the experience of its customers as well as employees.¹¹ Top-down control, from this viewpoint, is not a way to enrich experience or, more generally, build community. Airbnb doesn’t tell its hosts what to charge for a room or how to decorate their lodgings. It also gives them the option of not renting a room to guests who have lower ratings on the firm’s feedback forms. In a similar manner, Airbnb believes in giving employees a great deal of say in the workplace. It doesn’t tell them how to prioritize their work or how to go about achieving their objectives. It doesn’t even tell them where they need to work, as people can move about the corporate office and select an area that works best for them. Leadership will, however, ask how the work of a particular team or individual supports the firm’s overall mission and, in so doing, ensures that their efforts add value. The company also wants accountability for results once a goal is decided on. But that is a very different process than dictating the “what” and “how” of people’s work.¹² Once there is alignment at each level with the company’s overall objectives, the role of the manager is to help his or her team members obtain necessary resources and overcome obstacles that would hinder their progress.

Getting everyone to align around a set of priorities begins with context setting. The goal is to ensure that everyone understands the environment in which a company operates, as well as the strategies it will use to be successful in that environment. Context, a term that Netflix coined in regard to its culture, explains the “why” of a firm’s specific priorities, including the opportunities and threats facing it. This requires clarity on the part of a group’s senior management on the business environment in which they operate. At the minimum, people within a company need to understand the following:

Why do we exist as a company—what is our reason for being?

How do we make money? What drives our results?

Who are our most important customers?

What products or services do our customers value the most?

Who are our competitors—existing and emerging? What threats do they pose?

How do we measure our success as a company?

What is our plan to win in the marketplace?

What capabilities do we need to be successful?

What values are most important to us?

What behaviors are expected of us as members of the company?¹³

Even in a senior team, where we would expect people to be highly aligned, there is often a lack of agreement on the above questions. One study, for example, found that more than 90 percent of CEOs believe that their team members both support and actively communicate their firm’s strategic priorities. In fact, only 2 percent of their leadership team members, when asked, listed the same top three strategic priorities for their companies.¹⁴ Another study asked people to rank the most significant challenges in building global teams. Two of the top five challenges noted were obtaining clarity on the team’s objectives and aligning the goals of its individual members.¹⁵ The need, then, is be clear about the context in which the firm or group is operating—and then build alignment starting with one’s own team. One test of how well a group’s context is communicated is to ask people within the organization to delineate their firm’s key objectives and strategies. The answers people give to this question are often wrong, incomplete, or inconsistent.

Netflix, in particular, believes that context setting is necessary to sustain what it deems essential to its success—namely, a freedom and responsibility culture. The company maintains that the best outcomes occur when the context is effectively communicated by a firm’s leaders and managers. When done well, context allows people to make informed decisions about their priorities and even their day-to-day work. When managers do not provide context, those who report to them are more likely to do foolish things (such as invest time and money in areas where it doesn’t make any sense). Setting the right context, however, is not dictating the outcomes of decisions or what employees need to do. Instead, it provides the information and understanding that others need to make informed decisions. This is not to suggest that the line between setting context and ensuring alignment on Netflix’s objectives is always clean or easy. In some cases, senior leadership may be more involved in the details that some at the lower levels might prefer. But Netflix believes that setting the context is the opposite of the top-down approach found in many traditional firms—an approach that Netflix believes undermines employee initiative and slows down decision-making as people wait for higher-level managers to determine the best course of action. A top-down approach can also demoralize people, particularly the “creative types,” who want more autonomy in determining the actions they need to take in any given situation. Managers at Netflix are expected to clearly communicate what the firm is striving to achieve and what success looks like in terms of expected outcomes, providing as much detail as needed in regard to quality, time parameters, and cost. The employee then determines, within these parameters, what is needed to achieve success.

Creating the right context supports how Netflix wants to operate in what it calls a highly aligned but loosely coupled organization. The company insists that people be in agreement about the environment in which they operate and their overall goals but have the freedom to do what is needed for them and the company to be successful.¹⁶ Netflix describes this as follows:

Highly Aligned means. . . .

Strategy and goals are clear, specific, and broadly understood

Team interactions are focused on strategy and goals, rather than tactics

Large investment in management time required to be transparent, articulate, and perceptive

Loosely Coupled means . . .

Minimal cross-functional meetings except to get aligned on goals and strategy

Trust between groups on tactics without previewing/approving each one—so groups can move fast

Leaders reaching out proactively for ad-hoc coordination and perspective as appropriate—occasional post-mortems on tactics necessary to increase alignment¹⁷

The emphasis on setting context in Netflix was born of a near-death experience. In its early years, the company spent a great deal of money on the expectation of rapid growth. But sales failed to materialize at the pace that leadership anticipated, and startup financing became much harder to obtain. As a result, layoffs occurred, along with a newfound emphasis on cash flow management. One insider noted,

We were spending huge amounts buying DVDs, setting up distribution centers, and ordering original programming, all before we’d collected a cent from our new subscribers. Our employees needed to learn that even though revenue was growing, managing expenses really mattered . . . we had a meeting every week in the parking lot. We called it the metrics meeting, and we’d hand out a piece of paper with nine charts showing exactly how much money we had in the bank, how many customers we had, you know like a basic P&L.¹⁸

Setting context, of course, is not a one-time event in response to a financial crisis or the rollout of a new strategic initiative. A group’s business environment inevitably changes, and ongoing communication is needed to ensure that people’s understanding evolves in sync with those changes. Many leaders, however, mistakenly assume that team members understand what has changed in the firm’s environment and the resulting impact on priorities and behaviors. They assume, in short, that others have the same understanding as themselves in regard to that changing context. Other leaders are at fault for lacking the patience needed to engage others in understanding the broader environment in which they now operate.¹⁹ They don’t see this as important and consequently fail to invest the time needed to set the context.

Once a group has a shared context, it needs to identify the few business priorities that will drive it forward. In some cases, firms have a clear set of priorities but become distracted by less important concerns that they then strive to address at a high level of effectiveness. This is what some call the “good plow, wrong field” phenomena.²⁰ For instance, a firm may focus on improving its operational efficiency, which, all things being equal, is a good thing. But all things are rarely equal. In this case, the firm’s success requires that it develop exciting products that win new customers and grow revenue. This is not to suggest that operational efficiency is unimportant—only that efforts to improve efficiency are less critical than growing revenue in this particular company. Work that goes into targeted areas needs to be assessed relative to other initiatives, perhaps more important initiatives, that also require resources and attention. Projects and issues outside of these areas are distractions that don’t offer the same return to the business.

Setting priorities also requires agreement on what “falls off the plate.” This sounds obvious, but many groups are reluctant to say what activities or projects will be minimized or stopped. Instead, they assume that it can all be done or done all at once (versus sequencing what needs to be done to ensure necessary resources and focus). The result is that people have more than they can accomplish and end up selecting on their own what they believe is the most important. The other outcomes is that people simply try to achieve more than can be done and suffer the consequences. The ability to focus requires saying no to some initiatives. Netflix, for example, decided early on that it would not compete with Blockbuster at a “brick and mortar” retail level. The firm’s founders assumed, correctly, that the Internet would be the demise of retail stores in its industry. Patagonia is an even more extreme example in deciding that it didn’t want to grow too fast, as expansive growth posed problems for a firm with its values and culture. The CEO noted, “You have to know your strengths and limitations and live within your means. . . . The sooner a company tries to be what it is not, the sooner it tries to ‘have it all,’ the sooner it will die.”²¹

Distractions for teams come in a variety of forms. In some cases, these are lower-value priorities that a team strives to achieve. Distractions also come in the form of administrative tasks that take time away from the crucial work that needs to be done. For instance, some firms want team leaders to submit a monthly report of progress against their objectives. These reports, if not done well, are a time-consuming “check the box” exercise that doesn’t promote productive dialogue or action. Another time drain comes in the form of too many meetings across a company. For example, people are pulled into higher-level reviews and meetings that take time better spent with their own teams and customers. This is not to say that meetings are always unnecessary or unproductive—but many meetings consume more time than needed, with a resulting opportunity cost to those involved (that is, they take time away from more important pursuits). A third type of distraction is political. In this case, competing factions and other forms of dysfunctional behavior within a company pull people into political battles that consume their energy with little return. One role of a team leader is to protect his or her team from unnecessary distractions that divert the group from the vital few priorities on which it must focus to be successful.

There is no shortage of opportunities and challenges facing leaders and their teams. They can easily generate a long list of necessary initiatives. Some leaders believe that pushing people to achieve more results in higher levels of overall performance. That is, giving people 10 things to do is better even if they accomplish only 8 things (compared with giving them 5 things to do, all 5 of which they achieve). The problem with this logic is that the achievement of the truly critical areas may be undermined because people simply can’t focus on them or the resources needed are not properly allocated. A related mistake is to have priorities that are overly complex. A test of simplicity is to ask people how they would explain to a family member the priorities being pursued within their company or team. These family members don’t know the details of how the group operates, but they need to understand the priorities. If you can’t explain them in a way that they understand, your priorities are too complex. Others use a test called the elevator speech. This requires that you place yourself in an elevator with someone and explain a single priority to him or her in the time it takes for the elevator to go from the first floor to the top floor of the building. This doesn’t mean that a firm’s priorities or challenges are simple or that a simple explanation is always better. It does mean, however, that the priorities need be explained in simple and memorable terms if they are to be internalized by the organization’s members and have the desired impact.

There are several guidelines in developing a clear set of aligned priorities. The first is to have a very simple and easily explained set of goals (which are often updated annually but can be longer or shorter in duration depending on the situation). The most common mistake that groups make is having too many priorities, which was the case early on at Airbnb. The company now has a clear description of each company objective, along with a target date and internal owner. The goal, according to the firm’s CEO, is to focus on fewer but higher-impact goals and include just enough detail that people know when the company has achieved, or not, the desired outcome. A second guideline in creating clear priorities is spelling out the desired outcome in clear and, if possible, measurable terms. These are the “success metrics” that delineate how progress will be measured for each priority over time. For example, a firm or team may have a specific revenue target for the first year after launching a new product. This is an example of an “outcome” measure that delineates the desired result. In contrast, a process measure describes an activity or task but not the end result. A process measure might be to “launch a new product incorporating the lessons learned regarding forecasting from our previous product launches.” In most cases, groups want to develop a few outcome measures versus process measures because these measures don’t dictate the “how” but do specify the “what.” Ensuring that everyone agrees on their shared goals is more important, initially, than how those goals will be achieved.²²

The best way to develop success measures varies across teams. In general, it is often helpful for team members to be involved in crafting the measures that they will use to assess their own progress. Involving people in the development of metrics helps ensure that the metrics are linked to the broader context and that everyone buys into them as goals they value. The risk is that a team, in the spirit of being inclusive and complete, embraces either the wrong measures or too many measures. Each team leader, and group, needs to cut back the measures it uses to prevent the performance scorecard from growing too large. In some cases, however, the degree of autonomy teams have in developing success metrics is more limited due to the nature of the work or a company’s culture. Whole Foods, as noted earlier, has a group of metrics that it requires of its in-store teams (such as monthly sales and profit per employee). Each Whole Foods team is required to use these metrics to assess its performance. Whole Foods then links each team’s performance on these metrics to rewards that are paid monthly. In this case, the measures are mandated, but the way the teams go about achieving their goals is not.

An additional benefit of having a clear set of “vital few” priorities is that it creates a bond among those working to achieve a shared goal. Groups within an organization can easily become isolated and operate in silos with conflicting goals.²³ The typical approach is to cascade the objectives and associated scorecard from the top down, with each level explaining its goals and measures to the group below.²⁴ I have also seen cases where peer teams that are dependent on each other will share their goals to ensure necessary understanding and alignment. A research and development group, for example, will meet with the manufacturing group within its company to ensure necessary coordination on moving products from R&D into production. Some firms go even further and make the goals of each team transparent. In this case, the priorities and success metrics of each group, at each level, are posted for everyone to see. Those groups that are even more aggressive also post the results of each group for others to see.

A third important area to consider in regard to priorities is accountability. Each team needs to decide if the group in total is responsible for each priority or, instead, if there is a point person or subgroup that takes the lead. These “owners” then work with the larger team as needed to deliver on the specified target. Assigning owners for priorities doesn’t absolve the group from its collective responsibility, but it does clarify who is the go-to person or subgroup in moving a particular priority forward. Many leaders, as is the case in Airbnb, feel that having a single point of accountability results in greater progress (versus everybody owning everything). Netflix calls these individuals decision owners. The other important area to clarify, once accountabilities are assigned, is the authority that owners have in pushing a priority forward. For example, can these individuals and teams spend a project’s budget without the approval of others above them or in other groups? Can they determine a product’s specific features or cost? The intent in clarifying authorities is not to be overly rigid but, instead, to avoid the confusion that comes when authorities are unclear or in conflict.²⁵

A fourth guideline in priority setting is developing effective ways to review a group’s progress over time in each area. Some groups develop clear priorities but don’t have a robust process to check their progress over time. In the worst case, priorities are developed, communicated, and never reviewed again (or reviewed only at the end of the year in a manner that does not allow for midcourse corrections). Cutting-edge teams, in contrast, have weekly, monthly, or quarterly reviews where progress is assessed using specific numeric targets or a more general system of assessment. One element of creating a robust review process is to encourage transparency at a peer level in regard to performance—versus simply having team members reporting out to their supervisor. Some teams, for example, develop a scorecard with color codes to assess progress (such as red, yellow, or green indicators to signal progress in each area). These review meetings, however, should not be a rigid reporting out of scores on a set of metrics. Instead, cutting-edge teams create an environment where performance is actively discussed and go-forward actions debated. The greatest benefit in having a scorecard is promoting a productive and timely discussion among team members (in contrast to a process that is designed to simply identify those who are underperforming). Peer visibility and feedback around a set of priorities or even work product is a powerful means to focus and motivate people to higher levels of performance. For this to occur, there needs to be clear metrics and a high level of trust within a group to allow for a candid discussion about progress and the causes of any gaps in the team’s performance.

Cutting-edge firms and teams relentlessly focus on executing a small set of key priorities. In so doing, they avoid being distracted—pulled into peripheral activities that take time, energy, and resources away from what is truly needed to achieve something extraordinary. This means saying no to some proposals that show promise. It also means making tough choices to ensure focus. Netflix, for example, moved from DVDs to streaming online as quickly as possible—knowing that streaming was the key to its future success. The transition took longer than the firm anticipated, but the shift in its revenue was dramatic once the change took hold in the marketplace. Reed Hastings was adamant that the company avoid the fate of Kodak, a once-dominant firm that clung to its existing business model too long and missed the digital revolution in photography. He wanted his leadership team to eat, sleep, and breathe streaming. But the company retained its DVD business, which became an increasingly smaller, but highly profitable, segment of its revenue.²⁶ At one point, the company had 30 vice presidents, 5 of whom were dedicated to its DVD business. Reed decided that the DVD vice presidents should no longer attend the leadership meetings—as the firm needed to focus in these sessions only on streaming. This was not an easy decision, given the history of the firm and close-knit nature of the team, but Hastings believes it was the right decision to ensure necessary focus.

An apparent contradiction that characterizes cutting-edge firms and teams is that they also experiment with new ideas both in regard to their core business and outside of their core business. Getting that balance right is difficult, but they realize that too much focus, if not balanced with experimentation, can result in a business that fails to adapt to new opportunities and threats. As a result, they continually enhance their core business while also being managers of newness.²⁷ The goal is to try something that has not been done before and learn from the experience. Airbnb, for example, was founded on the belief that people would respond to an online rental site that was more detailed and engaging than other sites that existed at the time (such as Craigslist). The founders, on putting up their website, focused on providing high-quality photographs of their rental properties (as it reduced guest anxiety about staying in a unit they had never seen). They stumbled on the importance of photographs when staying with a host who had a great apartment but poor-quality photographs in her rental listing. This occurred before smartphones made taking photographs easier, and the owner of the unit was not savvy on uploading files from her camera to the firm’s website. The founders asked her how she would feel if someone would come to her apartment to take the photographs for her—that she could push a button and a photographer would appear free of charge to shoot her apartment. She said that it would be magical. The next morning, one of the founders came back with his camera and took the photos. Airbnb slowly expanded this option for hosts and now has thousands of freelance photographers around the world taking professional-quality shots of their hosts’ rental units. Airbnb looks for incremental improvements in its guest experience by using what it calls a seven-star design process.²⁸ Its guests provide ratings on a five-point scale at the end of each stay. The firm almost always gets the highest rating, but believes there is still opportunity to improve (in essence, it found that many people are easy graders). It asks its various teams, each focused on different parts of the traveler’s journey, what would need to happen for guests to give their visit six stars (if that was an option on the grading scale). They want people to contact Airbnb and say that they want to add a star to the rating scale because they were so pleased with their experience. Why? Perhaps the host knew their favorite food or what they like to read and provided those when they checked into their room. Then the Airbnb team is asked what would be needed to get a seven-, eight-, or even nine-star rating. Many of the ideas generated in this process are outlandish (“Banners with guests’ names on them are paraded through the airport when they arrive”), but the intent is clear. Think outside the box and make the experience of the traveler more memorable.

Each of the firms in this book can tell similar stories about how they improved their core business. Netflix, for example, has algorithms to determine what people like to watch and how they watch it (for example, sporadically or binge). They can then suggest titles that fit each customer’s personal preferences and viewing habits. These successes, however, hide the fact that most experiments fail. Airbnb’s first three website launches failed to attract customers, and it was only the fourth launch that proved successful. But cutting-edge firms keep pushing for new approaches, testing them often at a small scale and then taking those that appear promising to the next level of execution. The challenge is to keep one’s company or team resolutely focused on its key imperatives while also testing new and innovative ideas that will drive the firm’s future growth. This happens in areas both great and small. The CEO of Airbnb, for example, wants people to consider what a competitor might do to undermine or even kill his firm’s business model.²⁹ That is, he wants his people to actively envision products or services that would render Airbnb’s business model obsolete. The goal is to ensure that Airbnb innovates faster than the competition and, in so doing, prevents others from doing what Airbnb is now doing to traditional hotels with its peer-to-peer model. Airbnb is constantly testing new ideas within its current model, such as hosts picking up their guests at the airport or providing them with walking tours and other experiences (for example, dinners or cultural events). It has also considered other areas in the “sharing economy” outside of its current business. The problem, of course, is that firms invest in a particular operating model and, especially if successful, are slow to recognize when that model is at risk. Being rigidly focused on a narrow set of priorities, if not balanced with an ability to consider creative alternatives, can hurt a company over the long term.

Pixar also sees the risk when firms and teams replicate their current practices and, in so doing, risk becoming stagnant. In particular, Pixar doesn’t want to simply repeat what worked in one film in another film. The CEO of the company, Ed Catmull, believes Pixar should deliberately strive to avoid what worked in the past and, instead, try something new. In terms of movies, this means not going back to an old storyline or even the emotions evoked in past films.³⁰ One way to encourage experimentation is to bring outsiders into a company or team. As noted in Chapter 3, there is a core set of beliefs and values that are needed for someone to become a team member. But a company like Pixar will deliberately hire outsiders in order to bring new perspectives and ideas on how to make the firm and its films better. This is the case even though Pixar is one of the most successful movie studios in history. It hires people, particularly directors, with very different backgrounds in terms of their training and experiences. The goal is not simply to get team members to think outside the box but to include people who come into the group thinking differently (because of who they are and what they have experienced). The ideal is to embrace people who are natural dissenters but can operate within the existing culture of the firm—pointing out opportunities as well as blind spots in how the company is operating. The goal for Pixar is to avoid becoming a clone of itself—which is easy to do in its industry, where sequels are often highly profitable but break no new ground.

One way to encourage innovation within a larger enterprise is to use teams to experiment with different models and approaches as they go about their work. These groups, in other words, are encouraged to incrementally innovate within their firm’s current business model to improve its performance. Whole Foods decided early in its history that each of its stores, and even more importantly, each of the teams within its stores, needed to have a great deal of autonomy in determining the products and services that fulfilled the needs of its local customers. The decentralized design of the company was also thought to encourage innovation as each team experimented with new practices. One store in California, for example, decided to open a wine and craft beer bar inside the store. Whole Foods had sold wine in many of its stores for years but no store in the company had a wine bar. The California store, located in Sonoma County, came up with the idea, which is not surprising given its proximity to some of the finest vineyards in the world. Within months, the Whole Foods bar was generating more income than many of the other departments within the store, including seafood. The bar, however, was not simply a new profit center. It was part of an ongoing effort in that store to create a sense of community with its shoppers. Other stores took notice and studied what was done in the California store, assessing whether they should also have a bar. Whole Foods now has more than 75 bars in its stores across the country.³¹

Consider another example of local innovation in Whole Foods. Two team members saw an opportunity to offer health and wellbeing services to other businesses (a business-to-business model different from anything Whole Foods had done in the past). The company liked their proposal and supported their experiment. The resulting program, called Full Spoon, helps employees in participating companies improve their health. They get a 20 percent discount when they buy foods at Whole Foods that are marked as healthy. They also can participate in programs that track their diet and exercise habits and attend educational seminars designed to improve their health. The Full Spoon program is only offered today in a few stores but will most likely expand to other regions of the company if successful.

Incremental innovation is also found at Netflix, which believes in giving its teams a great deal of autonomy to come up with new ideas and, more importantly, the responsibility to make them work. A few years ago, a team within Netflix realized that some of its customers wanted to watch a complete set of shows in rapid succession. A sign that people liked to binge watch was evident from those ordering DVDs that contained an entire season of a particular TV show and then watching the episodes in rapid succession. The company knew that a customer might watch a full season or two of Mad Men in one weekend. As Netflix moved into providing on-demand streaming of shows over the Internet, it realized that many people wanted to do the same—which Netflix viewed as being similar to reading multiple chapters of a book at once. The innovation occurred when developing the show House of Cards. Netflix decided that all 13 episodes of that show’s first season would be released at the same time (versus the historical practice of releasing one show per week over an entire TV season). This relatively simple but bold idea came about because the members of one Netflix team thought that a simultaneous offering of an entire season was simply giving customers what they wanted (which was to watch the show they wanted, when they wanted it). The company, based on a monthly subscription model, did not need to cater to advertisers who were paying for prime-time spots, which could be assured only with a traditional approach of one show per week (what some call “appointment TV”). House of Cards was a hit and accelerated a revolution in the industry in supporting the binge watching of shows. A recent survey indicates that more than 90 percent of TV viewers now engage in binge watching, which it defines as viewing more than three episodes of a show in one day at some point over the course of a year.³²

Cutting-edge firms also productively defocus by encouraging people and teams to innovate outside of their core businesses. A well-known case is Google. Engineers in the firm are encouraged to spend 20 percent of their work time on personal projects unrelated to their current responsibilities—taking time to play with ideas of interest to them and see if they can develop a new product or line of business for the company. The founders of the company noted over a decade ago, “We encourage our employees, in addition to their regular projects, to spend 20% of their time working on what they think will most benefit Google. . . . This empowers them to be more creative and innovative. Many of our significant advances have happened in this manner.”³³ This approach is not without problems because the company doesn’t require or monitor the allocation of employees’ time (who, in this case, are mostly engineers). Those who want to spend the 20 percent do it on their own with the company’s blessing. However, many don’t have time in their current demanding jobs to dedicate to outside interests. When Marissa Mayer left Google to become the CEO of Yahoo, she noted, “It’s funny, people have been asking me since I got here, ‘When is Yahoo going to have 20% time? . . . I’ve got to tell you the dirty little secret of Google’s 20% time. It’s really 120% time.”³⁴

The leaders of Google understand the challenge of finding time to innovate beyond one’s current project. But they believe the 20 percent rule is best deployed without formal guidelines or mandates. The value of experimenting is what they want to instill within their culture—notably, the value of playing with new ideas that will generate new business opportunities.³⁵ Another approach to fostering productive defocusing is found at Airbnb. Each week, the firm has what it calls “demo days.” People in the company demonstrate for others, usually those from other teams, what they are working on. This allows for people to get out of their own areas of responsibility and learn from those doing very different work. This supports the development of people as well as the potential areas of innovation across groups.

A related practice in cutting-edge groups is to encourage experimentation through fast failures. The concept is that work products, both in existing projects as well as out-of-the-box innovations, should be surfaced and tested on an ongoing basis. This stands in contrast to individuals or teams that spend long periods of time on a piece of work, seeking to refine it, before getting feedback from their peers or customers. The power of fast failures is evident in the film company Pixar. It conducts fast-cycle reviews in what it calls dailies. These are meetings where a team reviews the work in progress of animators to promote feedback, both positive and negative. During the hour of each morning’s dailies, the group will review the shots of selected animators. The company wants work that is far enough along to be critiqued but not so far that it is set in stone.³⁶ In that meeting, the director of the film, other animators, as well as anyone else who wants to join in looks at the shots and discusses changes that would improve the work. A secondary benefit of the process is that animators whose work is not being reviewed learn from the feedback given to their peers. The logic of the dailies is that people waste a great deal of time, and limit their own creativity, when they strive to perfect something before showing it to others. Failure is viewed as a given in any creative effort, and Pixar wants those failures to be addressed faster—which allows for necessary changes earlier in the work process. This requires that people be comfortable showing work that is incomplete and getting feedback on it (which, of course, can be painful because work in progress is often not very good). Pixar strives to create a culture where people are comfortable, or at least less uncomfortable, reviewing their work with peers and obtaining direct but supportive feedback to see if they are on the right track.

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