Quick Take: Freedom through innovation

Russia’s “vertical imperialism” stands in stark contrast to the success of the modern, collaborative business world—how can distribution help further the cause of freedom?

Horizontal innovation and the future of business

I am disgusted by Putin’s onslaught against the Ukrainian people. As a cold warrior from the Reagan years, I am heartened by the response of governments, businesses, and citizens. Russia’s invasion threatens us all, and we all must pay attention, taking care to understand how our world is shifting, committing to values, and making new plans. In the Wall Street Journal, Andy Kessler explains why Putin’s ‘Vertical’ Empire Will Fall. Kessler offers a valuable analysis of how Putin, and all like-minded despots, are directly opposed to how the modern world prospers—not by conquest but through innovation.

Kessler frames Putin’s ambitions as vertical imperialism, in contrast to a horizontal world of developing and developed nations collaborating, not warring, to create value and wealth. The entire article is a must-read, but these three paragraphs go to reframing the role of business innovation as a force for protecting values as free and open societies:

As digitization allowed design and control to be separated from manufacturing, the world got horizontal, organizing into stacks of companies, industries and even countries to which markets provide capital based on their value-add.

IBM vertically integrated computers, while Microsoft, Intel, Dell, Singapore-made disk drives and Japanese memory chips dominated slices of the personal-computing stack. AT&T was vertical, the Internet horizontal, with Google and Amazon sitting on top of the data-center, fiber-optics and cable-modem slices. Apple adds its operating system to smartphones after paying Foxconn to assemble Korean screens and Taiwanese chips in China. Successful companies give up owning everything to expand opportunities.

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Commodities come and go, while productivity drives progress. Horizontal rules. This will be true in the future for cloud computing, machine learning and autonomous vehicles. But staying on top requires constant innovation. Despite all the talent in Russia, Mr. Putin never understood this. I’m not always convinced U.S. leadership does either. [Emphasis added.]

I see opportunity and challenge in Kessler’s view of horizontal collaboration and innovation. At a minimum, B2B innovators must think not in vertically organized value chains but horizontally within their local markets and globally across nations. Today, companies and their industry associations reinforce vertical mindsets by defining markets as products—electrical, plumbing, construction equipment, heating and ventilation, lubricants, bearings, and many more. This mindset is vertical, forcing unnecessary limits on creating value and wealth.

Distribution is evolving through the actions of distributors and manufacturers. Customer experiences, not products, are the center of gravity for innovation. Distributors are leading the way, transforming their business models to operate at the center of commerce, bringing not just products but technology, expertise, educators, social organizations, and more, to work with customers and help them transform for the digital age. B2B innovators can step up, lean in, and do more.

By adopting a horizontal mindset, distributors might gain access to the Internet of Things, adding value to data and creating wealth across communities. Manufacturers could authorize distributors to manage customer user experiences, rewarding distributors for creating value in customer businesses. These innovations would start in local or national markets and extend globally as innovation ideas are developed and shared, setting standards for doing business as humans for humans.

In an earlier Deep Dive edition, I reported on Andreessen Horowitz’s call for startups to solve our biggest problems. I suggested collaborating with distribution practitioners to leverage what startups don’t have—deep, longstanding, trusted relationships with customers. By taking this collaboration global, Kessler’s horizontal vision, combined with the actions of startups and established companies, could strengthen business values as committed to a free, open, and innovative society. Business people could help stare down the ambitions of those who believe absolute control is the path to wealth and power.

Your take?

I can sense a new business role to help fight against tyranny through collaboration and innovation, but I am far from having tangible recommendations. Innovation is a human endeavor, and by innovating within a horizontal frame, we may all protect and strengthen our societies. Your thoughts are greatly appreciated. Please share your comments below or reach me at mark.dancer@n4bi.com.