Loonshots

02Even the best teams can suddenly change due to phase transition

Let's chat about a fascinating concept called phase transition. It's a term borrowed from physics, where it describes the change of a substance from one state to another, like water turning into ice or steam. But we're not here to talk about science experiments. We're going to apply this concept to the world of business, specifically to teams and companies that suddenly shift gears or change direction. Take Nokia, for example. Back in the 70s, they were known for making rubber boots and toilet paper. Fast forward a couple of decades, and they were leading the charge in the mobile phone industry, introducing the world to car phones, cellular networks, and GSM phones. By the early 2000s, they were selling half the world's smartphones and were the most valuable company in Europe. So, what was Nokia's secret sauce? According to Fortune Magazine, it was their flat structure and a culture that encouraged innovation and risk-taking. The CEO of Nokia believed in having fun, thinking outside the box, and not being afraid to make mistakes. This created a sense of ownership and dedication among the employees, which fueled the company's growth and innovation. But then, in 2004, something changed. A group of engineers came up with an idea for a new phone that was internet-ready, had a large color touchscreen, and a high-resolution camera. Despite the groundbreaking nature of this idea, the leadership team, who were once champions of innovation, turned it down. Fast forward three years, and Steve Jobs introduced these same features in the iPhone, which turned the smartphone industry on its head. Nokia's relevance in the mobile phone industry took a nosedive, and by 2013, they had sold their mobile business. The company's value plummeted by about a quarter trillion dollars from its peak. This sudden change in Nokia's path is what we call a phase transition. According to Safi Bahcall, these transitions happen because of two competing forces he calls stake and rank. When a company is just starting, the stake, or the potential rewards of success, is high for everyone. For example, in a small biotech company, if a new drug is successful, everyone could become a millionaire and a hero. But if the drug fails, everyone could lose their jobs. In this situation, the perks of rank, like job titles or salary increases, don't mean much compared to the high stakes. But as the company grows, the balance between stake and rank changes. The perks of rank become more important, and the stake in the outcome of the group project decreases. When this shift happens, the system goes through a phase transition. The same group, with the same people, starts turning down innovative ideas, or "loonshots," as Bahcall calls them. This is what happened at Nokia when the leadership team turned down the proposal for a new, innovative phone. While phase transitions are a natural part of any organization's growth, understanding what drives them can help manage these changes. By keeping a balance between stake and rank, companies can continue to encourage a culture of innovation and risk-taking, even as they grow and evolve.

Continue reading with LeapAhead app

Full summary is waiting for you in the app

Continue reading