What Innovative Companies Can Learn from Keurig’s Highs and Lows

24 June, 2016 / Articles

Leading an organization can sometimes feel like plate spinning: racing from pole to pole, trying to keep each plate aloft and whirling. To lead (and to spin), you have to achieve and maintain balance. Within an enterprise, this means balancing the demands of current operations while laying the groundwork for future opportunities, as well as reviewing past activities and policies that may be holding back your organization.

Too often, leaders focus only on current operations because it is the performance engine that generates the funds necessary to stay in play. But an organization’s success may be relatively fleeting if its leaders don’t simultaneously attend to the future and the past. It’s a balancing act that requires a unique mindset, a particular set of skills and tools, and a specific strategy.

 

Continuously reinventing your organization doesn’t mean you have to start from scratch with each new innovation. Exploring new opportunities is an incremental process that begins with sensitivity to changes in the broader environment. These changes, often unclear and barely perceptible, foreshadow new trends in human behavior, technology, and demographics. Futurists call them “weak signals.”

 

Weak signals — specifically Americans’ desire for flavorful, convenient, fresh coffee — in the late 1980s, inspired the development of the Keurig coffee system. Keurig’s founders started from scratch when they created their proprietary coffeemaker and K-cup technology. Green Mountain Coffee Roasters (GMCR) read these same weak signals but chose the lower-risk option of investing in Keurig (in 1996). GMCR’s leaders were thinking about the future when they took an equity position in coffee-brewing technology instead of holding fast to their role as coffee roasters. The partnership provided Keurig with the funding it needed, plus the value-added education in roasting and brewing coffee, and gave GMCR a stake in a promising innovation at relatively low risk. Over the next decade, GMCR increased its investment in Keurig as the two companies together resolved unknowns to evolve the technology. By 2006, GMCR owned 100% of Keurig and officially renamed Keurig Green Mountain (KGM) in 2014.

 

New ventures should stand alone to continue their experimental journey. If the venture is an acquisition, keep it separate from your company’s main business. If the innovation is developed within your organization, assign responsibility to a dedicated team. GMCR kept the Keurig team distinct and separate, enabling it to pursue its experiment while the company continued its market presence as a coffee roaster.

 

Keurig’s system was a huge success, especially the K-cup, which provides consumers with individual cups of hundreds of coffee brands to choose from. When the company’s K-cup patent expired in 2012, competitors flooded the market with their own, less expensive coffee pods, stealing away Keurig Green Mountain’s market share. KGM responded by releasing the Keurig 2.0 in 2014, a new brewer equipped with digital rights management technology that wouldn’t accept knockoff coffee pods. The new machine also rendered useless Keurig’s My K-cups, which allowed consumers to fill and reuse pods with their own grind. Consumers were outraged. As a result, what KGM undoubtedly intended to be a  move towards the future was instead an effort to protect the current performance engine and it failed miserably. Keurig 2.0 was designed to protect the company’s earlier K-Cup technology. Instead, what they should have done is  innovate a new business model.

 

Keurig Green Mountain tried to repeat the success of its early coffeemaker with the launch last year of Keurig Kold, a machine that brews cold beverages, such as sodas and sparkling water. The innovation was a bold move. Response, however, has been lukewarm at best. Consumers complain that the new machine is too big, too noisy, and takes too long to brew. And the syrup pods, which produce an eight-ounce beverage, cost more than $1 each. Consumers can purchase a two-liter bottle of soda at stores for under $2 — even less when on sale. Had KGM been as rigorous about testing assumptions with Keurig Kold as it was when developing its original coffeemaker in the 1990s, it might have avoided these problems before the machine hit the market. KGM withdrew the first-generation Keurig Kold brewer after a year of disappointing results.

 

I have used a three-box framework for over thirty-five years of working with and researching companies around the world that helps leaders successfully manage the present:  (Box 1), forget the past (Box 2), and create the future (Box 3) in their organizations.

 

If your company is doing well, it is due in part to your ability to succeed in managing the present. Simply put, you know your competition, understand the market, and have in place the workforce, infrastructure, and skills that allow you to take advantage of opportunities. Even unknowns, such as new competitors entering the market, are not totally unknowable. This is your comfort zone, and there is  danger in getting too comfortable. What you are doing today may not work as well — or at all — down the road, which is why you have to be vigilant about ridding practices and ideas that no longer are relevant. You can find yourself trapped by your own success, rationalizing, “if something ain’t broke, don’t fix it.” But, in fact, standing still in today’s competitive arena is tantamount to being “broke.” Avoiding the success trap can be painful because it means significant change. You may have to divest a business or activity that once was the very heart of your performance engine because it does not offer promise in the future. The upside is that this difficult but necessary change prepares your organization for the work of Box 3.

 

In Box 3, you create the future. You prepare for a future you cannot predict. You seek breakthrough ideas for new products or services based on certain assumptions and observations. You develop a process to test those assumptions and determine the risk involved in pursuing the proposed innovations. You ensure your organization has the necessary resources, including talent, to see this process through. Then, depending upon what you discover, you move forward, reboot, or exit, repeating this cycle with new assumptions and fresh observations while you continue working in Boxes 1 and 2, preserving the present and destroying the past.

 

Keurig’s story nicely illustrates three points: breakthrough business models are based on weak signals; experimentation is key to building the future; the three-box solution is not a project but is a continuing and ongoing journey.

 

The science man and innovator, Fernando Fischmann, founder of Crystal Lagoons, recommends this article.

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