Dirk Knemeyer

The Digital Life #174: Business Model Innovation in Unusual Places

Episode Summary

On this episode of The Digital Life, we discuss business model innovation in places you might not expect. Bill Taylor, the founder of Fast Company magazine, spoke at the Business Innovation Factory Summit last week about his new book “Simply Brilliant”. We use his examples of companies experimenting and succeeding with unique business models and practices — from Lincoln Electric to Megabus — as a jumping off point for our discussion about progressive firms.

Jon: Welcome to episode 174, the Digital Life. A show about our insights into the future of design and technology. I’m your host, Jon Follett. With me is founder and co-host Dirk Knemeyer.

Dirk: Hey, listeners.

Jon: For the podcast this week, let’s chat a little bit about business model innovation in unusual places. What do I mean by that? I had the privilege last week of attending the Business Innovation Factory Conference. It’s a conference I enjoy very much. I’ve been there a total of six times. I feel like, in some ways, I’m a college senior there or a post-grad, right, having been there so many times. For listeners who are unfamiliar with the conference, it’s a collection of talks held in Providence, Rhode Island with the focus on business models and innovation in a variety of industries including health, technology, education and nonprofit and really attracts a group of people who are very interested in collaboration, in sharing new ideas, in pushing change forward. It’s led by our friend, Saul Kaplan, who is the emcee of the event and does an excellent job every year.

As I mentioned, last week was the …

Dirk: Not just the emcee. I mean, Saul’s the brainchild, right? He’s the big kahuna as well as baby emcee.

Jon: That’s right. Yeah, he has a – I’ll call it a – consultancy, but the business innovation factory does work in all of these industries and provides business model and innovation consulting to groups, large and small. The conference is just part of their offering that they have annually. This year was, as usual, is an excellent conference. It opened up with Bill Taylor who is the founder of Fast Company Magazine. You might be familiar with that, and he had a new book that he launched at the conference called Simply Brilliant, which basically took a look at a lot of unusual suspects – we’ll call it – industries where you wouldn’t necessarily be thinking about innovation and showing in a way that these companies had really built into their business models something different from the run of the mill in their industry.

I think this is so important right now to be thinking about how businesses can improve themselves just because we have this clash or intersection of technologies and the sort of stress of trying to figure out how we’re all going to move forward in the working world. We talked a little bit about that last week when we were talking about the uberization of everything and what labor rights were. Bill introduced a number of interesting case studies that he examines in his book Simply Brilliant. One of them – I thought they you would like very much, Dirk – is a company from Ohio called Lincoln Electric. They make welding equipment, cutting and welding equipment. They have about three billion dollars in sales and about 10,000 employees.

Dirk: Sounds like what you might imagine would be a more traditional, less progressive company.

Jon: Right, and what’s interesting, I think, about Lincoln Electric and what Bill pointed out in his talk was that they had this social contract with their employees that I think goes far and above what you would expect in a company of that sort. To start with, in the late 50’s, they put together a “no layoff” pledge. What that means is if you come to work for the company and provided that you’re doing your job and there’s not some other reason to fire you, they will not lay you off. In a world where layoff seem to be the preferred technique for cutting costs, this is a pledge that the company’s held since the late 50’s, I believe.

Dirk: How does that work? Are you familiar enough in the case studies to know how it works because what comes to my mind is global recession, sales are down 50%.

Jon: Exactly.

Dirk: Something big has to happen, right?

Jon: Yeah. That’s exactly what they encountered in the great recession. What happens is, I believe, that there maybe additional training for employees to do different sorts of jobs and reduced hours, things like that so the company can make it through.

Dirk: Got it, so it’s reduced pay as opposed to reduced head count.

Jon: Yes.

Dirk: Okay.

Jon: I believe that’s the mechanism that they used. A second item in their social contract – and I’m sure there’s more than three but I’m just going to talk about three today – they have a pay for performance mechanism for rewarding employees throughout the year and at the end of the year, which is based on individual productivity. There’s a series of metrics that employees perform against. If you have a particularly good year, you can have up to sort of double what your base salary is. It’s a very incentive-laden way of approaching production and that works for them. They have extremely high quality output and high productivity perhaps due and part of this second item.

Dirk: Given the industry there – and I’m assuming that safety’s part of their right so – if you cut off your finger, even of you’re the most productive gal in the whole shop, that’s going to hurt your bonus because you’re not following safety regulations.

Jon: Yeah, I don’t have insight into the particulars of the metrics but I’ve imagined that …

Dirk: Without that, it’s a different type of dystopia, right?

Jon: Sure. The last …

Dirk: Go faster. Go faster.

Jon: Yeah. One other piece of this is that they have a employee advisory board that helps guide the company. I believe that employees are elected to those positions, so there’s a seat at the table for the employees, as well. Those are three sort of unusual items, innovative mechanisms, that are present in kind of a main line or sort of industrial-age organization that has allowed them to become great exporters and really competitive in a global economy. Precisely because they’re treating employees and people like people.

Dirk: Yeah.

Jon: What a strange thing that that would be considered innovation, but it is.

Dirk: Yeah.

Jon: It’s counter intuitive.

Dirk: It feels more like progressive than innovative if you get the distinction I’m making.

Jon: Sure. It is progressive but I think that’s part of what I’d highlight as being unusual, right, because it’s this marriage of sort of a progressive viewpoint but coupled with very competitive blue collar type industry. You don’t see that marriage very often.

Dirk: Working class sound. Working class.

Jon: Okay. When I was growing up the …

Dirk: Me too.

Jon: It was blue collar, white collar, right?

Dirk: Once upon a time, collared people was a good thing to say too, right? We just dated ourselves with all these rubbish.

Jon: That’s right.

Dirk: The terms change overtime, and sometimes we, inadvertently, say something someone might find offensive just because we’re a little older.

Jon: Yeah, thanks for pointing that out. The second company that Bill talked about was Megabus, which is essentially a point-to-point bus transportation company that would compete with the likes of Greyhound or the inexpensive buses that go from, say, Boston to New York that you can get in China town. Megabus is transporting a million people every six weeks. They are sort of changing what bus transportation is, and they’re doing it by employing entirely digital ticketing, for instance, and creating an experience on board, the bus, that is really connected experience; so WiFi, outlets for everybody, big windows, double-decker bus and different kinds of seating, business class seating and things like that.

Additionally, they have all sorts of clever ways. They get the people on board to fill up the bus. The first ticket on the bus is a dollar, right? It doesn’t matter what your destination is. The price changes as more people buy tickets, but by looking at the transportation industry, the bus industry, as something that you might be able to draw people out of their cars and into this mass transit rather than it’s just something that was – I don’t know – sort of the old school like, “Hey, I need to get from point A to point B,” by aiming for people who might be taking cars instead. They really changed the experience for the bus ride.

Now, there’s what’s called the Megabus effect, which is basically that they are including so many riders in these point-to-point transportation that they’re actually changing the way that people get from place to place. I thought that that was another great example of an old line industry that was being invigorated by new ways of thinking and sort of the digital life graphed it on, on top of it. Additionally, there are all sorts of environmental benefits to people taking mass transit as opposed to each of us sort of getting from place to place in our cars. Some added bonus there.

Dirk: Megabus, that’s an interesting example.; I happen to ride a Megabus this summer.

Jon: What did you think? Was it a good experience? Was it okay?

Dirk: I flew to Chicago for Lavapalooza. My son took a Megabus to Chicago to meet me from Toledo, Ohio where he lives. Then we took a bus back together to Toledo. It wasn’t very comfortable. I mean, to be honest, it was comparable to the buses in China Town. From my perspective as a rider, it was kind of the same experience. Those buses have the reputation of catching on fire, breaking down, sort of calamities and I kinda lump Megabus in with them. To me, it’s not like, “Oh, Megabus is the shining star.” Then there’s those sketchy guys in China town which those are where the buses originate but there’s also some sort of perpetually questionable racist, prejudice identification going on there. To me, Megabus just as part of that same group of, they’re trying to deliver a very inexpensive transportation option.

I know it’s not the pinnacle of convenience or comfort, certain and I strongly suspect, it’s far from the pinnacle safety but the odds are still fine. Nothing will happen and so it’s okay. From a personal perspective, would I ride Megabus again? Sure. Would I come thinking, “Wow, Megabus like this is going to change everything.” Absolutely not. The fact that I lump Megabus in with these other faceless services like there’s not a premium product there for my perspective. The internet service sucked. The power access was okay but I can get that in other buses too. The challenge, I think, for Megabus like sticking with that particular case study is how do you truly brand differentiate from these other commodity product that you do resemble more than you might like to.

Jon: Yeah, that’s definitely a challenge. Certainly, we have all heard the stories of the buses catching on fire from China town. At least in the Boston-New York quarter, that’s a regular or it was a regular occurrence for a while there. I think Megabus does have a national presence and marketing and things like that. Certainly, they are more well-represented across the country than the single route providers that we’re talking about as well. I think the next point I wanted to get to just sort of based on these examples was the idea that as we move from the industrial age into our knowledge economy, there’s this rethinking of the way business can be conducted that I think is really critical for companies to gain a foothold and survive and thrive.

In particular, I was struck by Lincoln Electrics. Perhaps, old school but certainly a long standing social contract. This idea that the relationship between the employee and the employer could be innovative, could be changed, could be designed, right? For me, just sort of based on our discussion last week given all of the concerns about labor not having a seat at the table anymore or at least having a lot harder time of it, that example made for me … It made me feel hopeful that there were new ways of doing business that we could pursue.

Dirk: You know I only have thimble full amount of detail about Lincoln Electric, so what I’m saying may be speaking out of term but in order to just address the issue for the benefit of our listeners and in a broader way, what I was hearing from Lincoln’s example was the same sort of mistake the progressives have been making for hundreds of years. I’ll specifically mention communism and communism in the former Russia becoming the Soviet Union. The idea behind communism, the power to the people. I mean, that all sounds great, right, but the problem is when they set it up, they have the people take over and then the people created the same hierarchical power structures that existed before, just instead of it being a hereditary monarchy, now it was this iron-fisted dust butts, right?

We can argue to what is dust butt. We certainly cannot argue that Stalin was a major freaking dust butt. With Lincoln, what they’re doing is they’re bringing elected group of labor people – it’s sort of how you put it – in to join the management in some capacity. To me, that’s going down that same path of communism which is namely seeing the world through the top-down hierarchical structure, so we’ll elevate the leaders from the workers who will join the owners in some degree of management and how much of that is really that the labor leaders’ contributing and how much are they passive observers? I don’t know. We cannot know.

I would have found it far more progressive if what Lincoln was doing was saying, “Look,” whatever the model is, right? Every week there’s a senior executive meeting and there will be three workers who are randomly selected and everybody’s going to get their turn over the years or each month, there’s a board meeting and three members of the workforce randomly selected. Whether or not that’s the correct solution, I’m not sure but the point being they’re going back to the hierarchical top-down model of, “These are the people in charge who are going to filter information and push it down to the masses below them.”

It’s a very different thing when you’re able to have every person come up and be a part of that. I mean, it’s one reason why in all of my companies, I’ve always insisted on a human scale where the owner of the company is tied to the, basically, the lowest person on the totem pole. There’s a direct connection where they’re working together, know each other’s name, see each other on a daily basis. That creates more humane outcomes. I would have been much more heartened if Lincoln was saying, “Look, the CEO is going to meet Jane who is the lowest of the low on the hierarchical worker pole.” Jane’s voice matters just as much as Bobby who is this charismatic guy who can get voted to be the leader of our labor group, right? I don’t want to take anything away from Lincoln. I’m sure what they’re doing is progressive.

It’s better than many other companies are doing, but what I’m looking for innovation, things that would turn my head or more down to the kind of path of what I was talking about. I’m suspicious that what … Well, at least what you shared with me that Lincoln is doing is making similar mistakes to what many people have done in terms of bringing up some of the masses to just create a new level of overboard.

Jon: Yeah, I think they have been successful as a company for quite a long time, so clearly there’s …

Dirk: Stalin was successful for quite a long time too, right? What do you know? What is that, right?

Jon: Just a final shout out to the Beef Conference, lots of food for thought, as usual, down in Providence every September. Listeners, remember that while you’re listening to the show, you can follow along with the things that we’re mentioning here in real-time. Just head over to the digitalife.com. That’s just one “l” on the digitalife, and go to the page for this episode. We have included links to pretty much everything mentioned by everybody, so it’s a rich information resource to take advantage of while you’re listening or afterward if you’re trying to remember something that you liked. You can find the digital life on iTune, SoundCloud, Stitcher, PlayerFM and Google Play. If you want to follow us outside of the show, you can follow me on Twitter at jonfollett. Of course, the whole show is brought to you by Involution Studious, which you can check out at goinvo.com. That’s g-o-i-n-v-o.com. Dirk?

Dirk: You can follow me on Twitter at dknemeyer. That’s at D-K-N-E-M-E-Y-E-R. Thanks so much for listening.

Jon: That’s it for episode 174 of the Digital Life. For Dirk Knemeyer, I’m Jon Follett. We’ll see you next time.

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