Cultural Innovation
Cultural Innovation
by Douglas Holt
Building
the next billion-dollar innovation is an irresistible goal. To get a leg up,
many companies now emulate the innovation model perfected in the tech sector.
Procter & Gamble, for example, pursues what it calls constructive
disruption. The company has designed its innovation process like a
start-up’s, with a venture lab that pulls in tech entrepreneurs and a lean
probe-and-learn prototyping process.
That
approach is not working. The reality is that in most consumer markets,
innovation is a slow, incremental grind—extending master brands, adding a new
bell or whistle, tweaking a formula. P&G’s star innovations—such as a smart
Pampers diaper that signals when a change is needed—aren’t exactly threatening
to become the next billion-dollar product.
And
when companies do swing for the fences, they rarely achieve good results. Take
Coca-Cola, which has long prioritized building a business in coffee. After
years of research and testing, the company bet big on two innovations—Far Coast
Coffee (a retail chain premised on sustainability) and Coca-Cola BlãK (Coke
mixed with coffee). Both ideas failed badly, so the company eventually bought
Costa Coffee, a British coffeehouse chain, at a steep price: $5 billion.
This
problem is not an organizational one. Companies struggle because they put all
their chips on one innovation paradigm—what I call better mousetraps. As
Ralph Waldo Emerson noted long ago, “Build a better mousetrap, and the world
will beat a path to your door.” This is innovation as conceived by engineers
and economists—a race to create the killer value proposition. It wins on
functionality, convenience, reliability, price, or user experience.
Better-mousetraps innovation is often the right bet if you’re a tech company.
Thousands of experts, seminars, and boot camps provide advice to help you on
your way. But what about companies that operate in markets where new technology
is less consequential or impossible to defend? For many of them, confronted
with a pattern of poor return on investment, chasing better mousetraps seems
like an exhausting and expensive matter of running in place.
Fortunately,
building better mousetraps is not the only way to innovate. In consumer
markets, innovation often proceeds according to a logic I call cultural
innovation. Think of Starbucks, Patagonia, Jack Daniel’s, Ben &
Jerry’s, and Vitaminwater. Remember, innovation is in the eye of the beholder.
When those brands broke through, consumers viewed them as major innovations,
although a better-mousetraps perspective would reject that assessment. In each
case people responded to the brand’s ideology—a reimagining of the category
that transformed the value proposition. Cultural innovations are embodied in
distinctive products or services, to be sure, but also in founders’ speeches,
packaging, ingredients, retail design, media coverage, and even philanthropy.
The
result? Those brands don’t compete in the value-proposition race, trying to
lead the category as it’s currently defined; they play a different game.
Better-mousetraps innovation is guided by quantitative ambitions: Outdo your
competitors on existing notions of value. Cultural innovation operates
according to qualitative ambitions: Change the understanding of what is
considered valuable.
I’ve
spent the past 20 years researching and advising organizations on numerous
cultural innovations. My work reveals the strategic principles that allow
companies to pursue them—principles completely different from those used to
build better mousetraps.
Ford
Reinvents the Family Car
Buying
a sport utility vehicle would have been an oddball idea for American
middle-class families as late as 1989, but by 1995 the SUV was their
unquestionable favorite, thanks largely to the Explorer—the pioneering vehicle
that earned Ford roughly $30 billion in operating profit over its first decade.
A spartan enclosed truck, the Explorer was yanked from its traditional role as
functional transport on farms and ranches to become the aspirational choice of
suburban families for commuting, delivering youngsters to school, and heading
out to the mall. It succeeded wildly despite violating the rules of better
mousetraps at every turn. It was a classic cultural innovation, targeting a
fatal flaw in the family car culture of that era.
The
modern station wagon was a staple of the postwar nuclear-family ideal. All the
major makes and models competed within this culture of suburban functionality.
In the 1980s minivans rapidly replaced station wagons, winning on important
benefits—plenty of seats, great storage, easy entrance and egress—that allowed
families to haul kids and their friends around town and on summer trips.
The minivan’s pragmatic design and ubiquity created a big symbolic problem. Vehicles are judged as much for the identity they project as for function: Status, sophistication, and masculinity all play a role in creating “premium” cars, which at the time were predominantly imports. Minivans came to represent the quotidian life of suburban parents, mocked as the centerpiece of a boring existence organized by “mom mobile” routines. Parents began to yearn for a car that would replace this stigma with an aspirational identity.
In
the 1980s the Reagan-era revival of America’s frontier ideology, which
championed rugged individualists taming wild nature, inspired a critical mass
of urban and suburban residents to reimagine the family car as a swashbuckling
vehicle for off-road adventures. The offerings at the time were a poor fit for
families: The Jeep Cherokee (XJ) and Chevy’s massive Suburban were
rough-driving trucks that lacked the amentities of passenger cars. The Ford
Bronco and the Chevy S-10 Blazer offered only two doors. Nonetheless, many
families were willing to forgo the minivan’s creature comforts for the symbolic
value that trucks bestowed. It took the incumbent automakers the better part of
a decade to engage with this opportunity. They were lucky to be in an industry
with very high barriers to entry; otherwise they would no doubt have been
beaten to market by a challenger brand.
Eventually
the big three domestic truck players—Ford, General Motors, and Chrysler
Jeep—raced to bring a comfortable, luxuriously equipped four-door SUV to
market. The winner would be the brand that managed to seduce parents into
thinking about family cars in a new way. Jeep had the initial advantage, given
its potent off-road pedigree, and its new Grand Cherokee, launched soon after
the Explorer, won many plaudits. However, Jeep’s idea of a family SUV was a
straight take on the frontier-adventure myth, showcasing performance on
wilderness outings—a myth better aimed at young single men than at upscale
families.
The
Explorer was launched with advertisements that dramatized a new ideal of family
life, rejecting the dull suburban minivan. Ford made two crucial changes to the
frontier-adventure myth, both of which connected powerfully with parents.
Instead of Jeep’s macho excursions, the company offered a vision of families
communing in the wilderness. Ads showed them whisking off to remote places in
an Explorer to make memories while gathering under the stars, kids happily
trading in their tech for spiritual contentment. And parents who owned an
Explorer got to have a life too. Ads showed them escaping on urban
adventures—eating at boutique restaurants or attending the theater. They might
live in the suburbs, but they could still enjoy a cosmopolitan life.
In
the Reagan era people reimagined the family car as a swashbuckling vehicle.
Families
flocked to the Explorer. Sure, most of the time they were still hauling
groceries and dropping kids off at soccer practice, just as they would have
done with a minivan. But they were buying into a myth. Driving an Explorer
allowed them to feel they’d finally escaped the world of mom mobiles for a more
adventurous life.
In
the postwar era, safety was a modest concern, despite Ralph Nader’s best
efforts. Even getting people to use seat belts was a challenge. By the early
1990s, though, car safety had captured the public’s imagination owing to two
big better-mousetraps innovations—airbags and antilock brakes—that were
promoted heavily in auto advertising and the media.
Ford
discovered early on that people believed that the huge size and weight of SUVs
made them uniquely safe and that their off-road capabilities meant they were
especially skid-resistant in bad weather. So the company crafted a sales pitch
to reinforce that perception. The car’s elevated seats conferred a feeling of
power and invincibility, particularly for women. When couples came to a
dealership, the salesperson would ask the woman to test-drive the Explorer so
that she could appreciate the feeling of safety from the high perch. Ford was able
to persuade customers that they were buying the safest car on the road.
The
Explorer was a great success, comparable to celebrated Silicon Valley
innovations in terms of its market impact and profitability. Yet its
breakthrough is incomprehensible when viewed through the lens of better
mousetraps. The vehicle was not an engineering advance—quite the opposite. It
relied on dated technology. Explorers accelerated lethargically. They were
top-heavy and cornered poorly. They cost a lot and were far more expensive to
maintain than minivans. And they were gas-guzzlers that generated enormous
increases in CO2. But families were willing to pay near-luxury
prices because the SUV perfectly addressed the symbolic problem in the market’s
status quo.
The
Cultural Innovation Model
Let’s
look at a second case—Blue Buffalo dog food—to recognize the key steps in
cultural innovation and to explain why incumbents often fail at it.
For
decades Nestlé Purina, Mars, and Procter & Gamble dominated the profitable
U.S. dog food category with powerful brands, distribution muscle, strong
R&D, and big marketing budgets. Yet all three were beaten badly by Blue
Buffalo, a tiny start-up, which was so successful that General Mills eventually
bought it for $8 billion, while Procter & Gamble threw in the towel and
sold its entire pet food division to Mars for less than $3 billion. Blue
Buffalo bested the established brands by reinventing dog food culture. Here’s
how.
Step
1: Deconstruct the category’s culture.
Markets
are belief systems embraced by those who participate in a category: companies,
consumers, and the media. To understand your category’s culture, think like a
sociologist. Step back and make the familiar strange. What are the category’s
taken-for-granted organizing principles? What is the dominant ideology?
Blue
Buffalo convinced millions of owners it was a necessity for true dog lovers.
Before
Purina launched the modern industrial dog food category, in the 1920s, most
American families fed their dogs table scraps. Purina’s standardized extruded
kibble made inroads with consumers, and by the postwar era the company had
adopted the mass-marketing techniques pioneered by food manufacturers such as
Kraft and General Mills. Its ads featured heart-tugging images of cute dogs and
their loving owners. The implicit message was “Purina is the biggest,
best-known dog food company, so of course you can trust us to make food that
will keep your dog healthy and energetic.” Ingredients were rarely mentioned.
The
category’s first cultural innovation came in the 1970s, on the heels of media
hype about scientific findings that certain vitamins and superfoods could keep
people healthy. (Fiber and antioxidants were hot topics.) Cultural innovators,
led by Hill’s Science Diet and Iams, championed a new, scientific dog food
ideology. The companies produced separate products for the various stages of a
dog’s life. Marketing featured veterinarians announcing cutting-edge formulas
based on the best nutritional science. These products were sold in vets’ offices—the
ultimate sign of medical credibility. Purina launched a fast-follower grocery
brand, Purina ONE, with ads featuring scientists in lab coats and packaging
full of medical terminology.
These
new brands taught owners to value dog food primarily for its nutritional
benefits and offered them a scientific lexicon that “proved” quality nutrition.
They encouraged owners to view the making of pet food as a complex scientific
endeavor. The ingredients, however, remained hidden in small print.
Step
2: Identify the Achilles’ heel.
Categories’
cultures eventually develop a fatal flaw, and cultural innovators pinpoint the
emerging vulnerabilities. Throughout the early 2000s America’s
industrial-scientific food culture was subject to damning critiques in the
media and by dozens of insurgent anti-industrial food movements. Dog owners
began to feel similar concerns; they questioned whether those bags of kibble
made by big companies were actually good for their pets. Then, in 2007,
thousands of dogs and cats died after eating contaminated pet food. The media
reported that one ingredient, wheat gluten contaminated with melamine, was
bulk-sourced from China. Owners had had no idea that they were feeding their
dogs wheat gluten or that it was imported from China. They began to take far
more interest in the actual ingredients of dog food.
Step
3: Mine the cultural vanguard.
Category
transformations are usually prefigured by ideas and practices worked out at the
margins. When cracks form in a category’s culture, a cultural vanguard often
appears before big companies show up. Innovators study the vanguard closely,
and even participate in it, to find a strategic direction for their challenger
ideology and the symbols required to bring it to life.
A
small “natural” dog food subculture, separate from the national brands, had
developed in prior decades. Alternative-health companies and their avid
customers believed that healthful dog food should emulate what dogs ate before
they became domesticated. The subculture’s brands, which were sold in boutiques
and natural-foods stores, were very expensive and marketed to niche customers.
They made little effort to win converts from the big industrial-scientific
brands.
The brands lionized whole ingredients and transparent supply chains. They were all about real meat, poultry, and fish, along with whole-food carbohydrates (sweet potatoes, rice), and they fastidiously avoided anything artificial. The subculture encouraged customers to beware of “fillers” (processed starches such as corn, wheat, and soy) and meat by-products. Their packaging highlighted ingredients rather than happy dogs and loving owners.
Step
4: Create an ideology that challenges the Achilles’ heel.
Cultural
innovators source materials from the vanguard to build a new brand concept. The
natural-foods subculture’s ideology was hidden: Alternative-health zealots
talked to one another and used rhetoric aimed at the already converted. Blue
Buffalo, which was founded in 2002 by a Connecticut family that had become
obsessed with the link between pet diet and health after their Airedale terrier
(named Blue) died of cancer, acted as the subculture’s proselytizer. The brand
challenged the weak assumption that anchored the industrial-scientific
ideology—that kibble was surely nutritious, even though owners had no idea what
the compressed brown pellets were made from. In doing so, it created a litmus
test for responsible dog ownership.
Blue
Buffalo pushed owners to evaluate dog food as food. Those
other kibble brands were full of industrial products that pet owners would
never eat. People needed to take control and make sure their dog food contained
healthful ingredients, no different from what they’d feed their families. Blue
Buffalo’s pet food was made with the same ingredients as a good human diet, so
by switching brands, owners could ditch their newfound guilt and claim an
enlightened identity—they really did feed their dogs nutritious food.
Step
5: Showcase symbols that dramatize the ideology.
Cultural
innovations are brought to life by a combination of symbols that dramatize them
in the most compelling manner. They select symbols from the marketing mix that
work together, attack the Achilles’ heel, and draw a clear contrast with the
category’s dominant culture.
Blue
Buffalo leveraged the leading symbols of the natural-foods subculture and
created additional symbols to illustrate the notion that Blue Buffalo was, in
effect, the same healthful food that owners themselves ate, converted into a
compact, convenient, nonperishable form. The company repurposed the
subculture’s four foundational claims—real meat is the number one ingredient,
no meat by-products, no fillers, nothing artificial—and used them in dozens of
low-budget ads, produced to look like documentaries: Owners gathered in a
living room, comparing notes on their preferred dog foods. Some were taken
aback to read that their favorite brand contained “chicken by-product,” while
Blue Buffalo users proudly proclaimed that the first ingredient in theirs was
deboned chicken. The company taught owners to read the label the next time they
considered buying a bag of kibble.
And
Blue Buffalo developed its own mini-kibble: LifeSource Bits—small, dark-purple
(rather than brown) balls made with superfoods such as blueberries, flaxseed,
cranberries, and kelp. The company pushed owners to draw a connection between
what their families ate to avoid chronic disease and what would give their dogs
the same kind of protection.
As
Blue Buffalo’s challenge worked its magic, millions of owners decided to spend
far more on dog food to avoid guilt. They bought into an entirely new value
proposition: a new nutritional benefit (healthful dog food contains the same
ingredients that healthful human food does) and a new identity benefit
(switching to Blue Buffalo proved that they were truly caring owners).
Why
Incumbent Counterattacks Failed
Despite
the company’s strategic brilliance, Blue Buffalo should never have been able to
build a business that was worth $8 billion. The three incumbents completely
dominated the market and should have prevailed over the upstart. All three
invested heavily in new brands and line extensions, but they struck out
because, working with a better-mousetraps mindset, they misunderstood the nature
of Blue Buffalo’s cultural innovation.
Iams:
cultural incoherence
P&G
believed that Blue Buffalo was gaining ground by making a big deal of a simple
“new and improved” ingredients claim. The company assumed that if it matched
those ingredients with a line extension, owners would choose the trusted brand
over Blue Buffalo. So P&G launched Iams Healthy Naturals, featuring two of
Blue Buffalo’s ingredients claims (no fillers, no artificial ingredients), with
a big ad campaign and promotions. When that attempt failed, the company tried a
more expensive iteration, Iams Naturals, which had meat as the number one
ingredient. But to no avail.
What
went wrong? Both products relied on brand names that tried to knit together the
dominant industrial-scientific ideology (which Iams had championed for decades)
with the natural dog food subculture—and the result was culturally incoherent.
Iams came off as an impostor. It didn’t help that the company’s advertising
campaigns used exactly the same trope (loving owner playing with energetic pet)
that industrial-scientific brands had relied on for 40 years instead of
showcasing ingredients, a key concern in the natural pet food subculture.
P&G unwittingly sabotaged its rebuttal with its confused symbolism.
Purina: purpose gone awry
Purina,
too, launched a line extension—Purina ONE Beyond—to defend against Blue
Buffalo. The effort led with not one but two industrial-scientific brand names
(Purina and ONE), inadvertently signaling to consumers that this was not a
credible natural dog food.
In
addition, the company (which fancied purpose-driven branding at the time)
decided to tie Beyond to a purpose. It knew from trends research that upscale
owners favored green products, so it decided that Beyond would be the dog food
that helped save the planet. An anthemic launch ad, depicting a glowing field,
proclaimed, “We believe together we can make the world a better place one pet
at a time.” The problem was that environmental sustainability had nothing to do
with Blue Buffalo’s challenge, which centered on nutrition and health. Dog
owners simply ignored Beyond.
Mars:
a mismanaged acquisition
Incumbents’
standard response when threatened by cultural innovation is to buy the
threatening company or a close competitor. In 2007 Mars did just that by
acquiring Nutro, a strong brand in the natural pet food subculture and a
credible challenger to Blue Buffalo. That was a promising move. To make it
work, though, Mars would have had to shift Nutro marketing to attack industrial
dog food, copying Blue Buffalo. It’s unlikely that Mars ever considered that
move, which would have meant attacking its biggest brand, Pedigree. Instead
managers did just the opposite: They converted Nutro to a mass-marketing
approach using ads little different from those of Iams.
P&G,
Purina, and Mars never understood that they were fighting an existential battle
to sustain their brands’ authority as experts on healthful, nutritious dog
food—not just racing to clean up their ingredients panels. As a result, Blue
Buffalo convinced millions of dog owners that a product once viewed as a fussy
extravagance was actually a necessity for people who truly loved their dogs.
Stuck
in the Better-Mousetraps Mindset
Cultural
innovation has often been an entrepreneur’s gambit. Even when incumbents happen
upon extraordinary cultural opportunities that should be easy to spot and
straightforward to execute on, they fail time and again. If companies are to
succeed at cultural innovation, they need to avoid three pitfalls.
Working
eternally in the present
Even
if they don’t think in such terms, companies are masters of their category’s
existing culture. They have to be to excel at their current business. Their
metrics and planning focus on it. As a result, managers come to perceive the
category as an immutable reality, even though it’s actually built on a fragile
consensus. If you’re trapped in the present tense, it is extremely difficult to
examine the category from the outside and identify its emerging flaws. These
ideological blinders explain why hundreds of highly trained professionals at
the biggest pet food companies responded inadequately when Blue Buffalo
attacked their billion-dollar businesses.
Being
wedded to a product’s features
The
better-mousetraps paradigm assumes that a product’s features are objective
characteristics that consumers value. As a result, products are construed in
building-block terms—as stacks of features that together create a value
proposition. Innovation, then, requires improvements to particular features
that consumers value. But features aren’t just building blocks—they can be
malleable cultural symbols of an ideology. The incumbent dog food companies
assumed that Blue Buffalo was simply offering trendy new ingredients claims.
But in fact those claims became “evidence” in Blue Buffalo’s whistleblower
project, revealing that owners had been hoodwinked by the industrial-scientific
brands.
Ignoring
the value of identity
The
better-mousetraps paradigm views innovations as great functional achievements,
but that overlooks a critical component of many innovations: bolstering aspects
of consumers’ identity. Ford, as we have seen, persuaded customers that they
could trade in the dreary suburban minivan lifestyle for outdoor adventure and
sophisticated city excursions. Blue Buffalo consumers traded up to garner
status as enlightened dog owners.
CONCLUSION
In
1995 Clay Christensen introduced one of the most influential ideas in business:
disruptive innovation. He famously asked why great companies fail when they’re
doing everything right. Christensen’s answer: Incumbents focus on serving the
most-demanding customers with the best products because margins are high. So
entrants provide simple, cheap, “underperforming” solutions to low-end niches.
Incumbents tend to ignore segments with poor margins and “inferior” products
until it’s too late. If one were to turn Christensen’s advice into a mantra, it
might be “Think like a cheapskate.”
But
that’s not the only innovator’s dilemma. Great companies are also disrupted by
innovations that don’t involve new technologies; a cheap, low-performance
product; or a price-sensitive target. Incumbents are so intent on winning the
category as it’s currently defined that they fail to identify cracks in its
foundation. Cultural innovators outmaneuver them because they look for
opportunities to blow up the dominant ideology in favor of a new regime. So for
incumbents to innovate, they’ll need to adopt a second mantra: “Think like a
cultural entrepreneur.”
A
version of this article appeared in the September–October 2020 issue
of Harvard Business Review.