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7
BUILDA DEFIANT
PIPELINE
We know about the power of a great product, as demonstrated by the
waiting lists for the newest models of the Toyota Prius and Apple
iPod, or the quasi-blockbuster status of DanoneÕs Activia (a yogurt
that helps digestion) and Actimel (a dairy drink that strengthens the
immune system). But what makes Toyota, Apple, and Danone suc-
cessful is not one killer product, which will ultimately be imitated and
commoditized, but steady pipelines of cool, compelling products.
Their pipelinesÑÒdefiantÓ as in defying conventional wisdom and
challenging what everyone else is doingÑare more than a steady sup-
ply of ordinary, same-old-same-old products. Instead, those pipelines
provide steady waves of breakthrough stuff.
In this chapter, we dissect the process of developing your defiant
pipeline and keeping it constantly replenished with percolating ideas,
prototypes, interesting and intimate alliances, fast experiments, and
cool designÑall for the purpose of bringing to market break-from-
the-pack products and services.
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The Power of the Pipeline
As weÕve learned, in a Copycat Economy, an exceptional product is
quickly imitated. When 3ComÕs Palm division came out with its
PalmPilot and Internet-ready Palm VII in the 1990s, sales shot
through the roof, and the estimated value of the tiny division soon
exceeded that of its multibillion-dollar parent. But within two years,
PDAs themselves had become commodities. In 1996, Bandai, a
Japanese toy manufacturer, had an unprecedented hit with its tiny
digital-pet Tamagotchi. Mass hysteria swept over Japanese teens and
preteens for a ÒpetÓ that had to be digitally fed and comforted to be
kept alive. After quickly selling a whopping 10 million Tamagotchis,
Bandai manufactured more of them in anticipation of ever-increasing
sales. But as competitors brought similar products to market, Bandai
wound up carrying a massive amount of inventory as its sales began to
slide. Even though the company ultimately wound up selling as many
as 40 million units worldwide, and still continues to do so, overall its
entire product line has barely broken even.
Even mighty Toyota is recognizing that its once-breakthrough,
now-mainstay U.S. products like the Camry sedan, the Tundra pickup,
and the Sequoia SUV are entering the latter phases of their product
life cycle. Replenishing the pipeline is absolutely necessary if Toyota is
to maintain its dominating position in the auto industry.
But to stay ahead of the pack, neither Toyota nor any other com-
pany can rely on a mundane pipeline filled with new but boring, Òme-
tooÓ products. Nor can they rely on a pipeline of just one home-run
product. To break from the pack, a company must develop a pipeline
of continuously emerging products that defy and visibly transcend the
weaker Òme tooÓ value of whatever is currently being offered by
rivals, or by the company itself. Strong defiant pipelines have rejuve-
nated large companies like Procter & Gamble. For years, P&G owed
its flat financials to its strong reliance on marketing strategies that
emphasized Ònew improvedÓ (a.k.a. dressing up old existing) products
like Crest and Tide. Today, P&G concentrates more on strengthening
a pipeline of hot, new, defiant products like Swiffer mops,
CarpetFlick nonelectric Òvacuum cleaners,Ó Crest SpinBrushes,
Home Caf� coffee makers, and Auto Dry car cleaners. This defiant
pipeline is propelling substantial spurts in P&GÕs revenues, reputa-
tion, and market capitalization.
Defiant pipelines allow automobile parts suppliers like Johnson
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CHAPTER 7¥BUILDADEFIANTPIPELINE 157
are obsessed with pricing. Johnson doesnÕt simply wait for orders from
GM and Ford; it generates interesting auto-related products, like pul-
sating, massage-like seat cushions and devices that can simultaneously
turn on house lights while opening garage doors. Because Johnson
Controls comes up with innovations before its giant customers do, the
company has both the pricing flexibility and the credibility to push its
customers to outsource more of the carsÕ total interiors to Johnson.
Defiant pipelines allow companies like Puma AG, stuck in the
midst of crowded mass markets, to differentiate themselves. The
Puma pipeline includes Òdriving shoes,Ó (which have an inner slipper
within a sturdier outer shoe), 1950s boxing- and skating-style shoes,
and martial arts types of unisex clothing.
Defiant pipelines are so potent that they help companies hedge
errors. Electronic Arts (EA), the video game king, took a temporary
hit on its Sims interactive online game by rushing it to market too
quickly, with too high a price. Because of its strong, constantly replen-
ished pipeline of gamesÑMadden NFL, NBA Live, Tiger Woods
PGA Tour, Need for Speed street racing, and constant new games
based on blockbuster movies like Harry Potter, Batman, and
SpidermanÑthe Sims setback was just a minor blip. In fact,
Electronic Arts nearly made up the Sims $63 million impairment
charge on Pogo, a downloadable family game that on its own boosted
online revenue by $50 million.
A defiant pipeline allows companies to survive and ultimately
thrive under seemingly impossible circumstances. For several years,
even after Steve JobsÕs return as CEO, Apple floundered, with a 3
percent share in the computer business. Despite repeated claims that
the company was dead or irrelevant, it survived by supplying its tiny
but fanatical customer base with a pipeline of cool, technologically
exceptional multicolored iMacs and related software. In fact, writing
in InfoWorld in 2003, a supposedly dark year for Apple, Tom Yager
sang the praises of AppleÕs PowerBooks and OSX client and server
operating systems, Safari Web browser, and Java platform. ÒTracking
the innovation coming from this dead, irrelevant company is wearing
me out,Ó he declared.
In contrast, mundane or stalled pipelines can lead companies to
make bad decisions. Remember when ABC bled its successful Who
Wants to Be a Millionaire?show to death by showing it three and four
times a week, until it died from overexposure? ThatÕs what happens
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158 BREAK FROMTHE PACK
I am convinced that one of the reasons that Merck pushed Vioxx
so extensively, even in the face of troubling data that suggested some
nasty side effects, is because the companyÕs pipeline was weaker than
executives hoped for. When youÕre not confident about your new
product pipeline, you market the hell out of anything that sells and
pray for some deliverance later. ThatÕs a dangerous way to do business.
Until the 2005 hit Desperate Housewivesfinally gave ABC a little lift,
the company had dragged down its parent DisneyÕs earnings for years.
With the Vioxx debacle, the impending lawsuits, and the shrinking of
replacement products, some analysts predict that Merck may not see
any significant earnings growth for the remainder of this decade.
The Power of Defiance
Pipelines are powerful to the extent that their contents defy conven-
tional wisdom, defy what everyone else is doing, and sometimes even
defy what the company itself is currently doing. Defiant pipelines are
loadedÑand constantly reloadedÑwith transformational intellectual
property, ideas that challenge tradition and dogma, provocative pilots
and betas, controversial projects and alliances, and constant, quickly
executed experiments to test potential new products and services.
Defiance reflects your companyÕs unique, challenging, controver-
sial, even shocking point of view about your business and your market.
Defiant pipelines take a companyÑand, ultimately an industryÑto a
place of transformation. For example, with video game products like
The Sims, a game that allows viewers in different locations to create
and control an entire community, EAÕs technological breakthroughs in
product after product are now becoming recognized by computer
giants like IBM as the future of computing because they are visual,
interactive, graphic, sensual, and immediate. Small wonder that from
1994 to 2004, EAÕs revenues and profits grew at an annual compound
rate of more than 20 percent, while 2005 saw operating margins of 21
percent and return on invested capital of 60 percent.
While EA is definitely ahead of the pack, some observers of the
video game business argue that the leader of the pack is an even more
defiant Rockstar Games, the creator of notoriously violent hits like
Grand Theft Auto and other products that have a distinct ÒgangstaÓ
vibe. In developing products that allow up to six people to have a Wi-
Fi gang war, one Rockstar executive explained, ÒWe try to take stuff