Companies actually have two critical paths: today’s and tomorrow’s. Today’s path deals with meeting current customers’ current needs. Its product is available to customers now, and customers are buying it. This process creates the cash flow and profits that keep the enterprise afloat. It pays the bills and the salaries of the workforce.
Tomorrow’s path focuses on what the firm will offer future customers, whether they are also current customers or prospective ones. The company may continue to offer the same products and services as today. But, more than likely, it plans to develop new offerings that are better for the customer in some way. Or maybe it is planning to expand into new markets with its existing products. In either case, it is looking ahead to the next 1–5 years. Tomorrow’s products and services cost money but have no cash flow to support them.
Most employees are primarily on one path or the other. If you are in R&D doing forward-looking research, you are most likely on tomorrow’s path, creating and designing the next big thing for your customers. If you are doing development work meeting customers’ current needs, you are on today’s path.
Here’s an example of a single company navigating both today’s and tomorrow’s critical path. Pfizer sold Viagra at a steep price because it was the oldest and best-selling erectile dysfunction (ED) drug. The Pfizer folks who made and sold it to millions of male users were on today’s path. However, Pfizer knew that eventually the drug would come off government patent protection and that the generic companies would be allowed to sell a generic form at a much cheaper price. Consequently, Pfizer had newer drugs in the research pipeline that it hoped would replace the billions of dollars of revenue that were lost when Viagra’s patent expired.
Both paths need each other if the organization is to last. Without today’s path, there is no cash flow to support the work on tomorrow’s path. Without tomorrow’s path, there is no way to keep your customers when competitors start selling newer and better (and/or cheaper) products and services.
The company that made Blackberry cell phones went from #1, controlling over half of the smartphone industry, to near death because it did not invest enough in tomorrow’s critical path. When Apple’s iPhone exploded into the cell phone market, Blackberry was caught off guard and had no product to beat back the challenger. The company thought that their customers “tethered to their Blackberries” would stick with them. Instead, its customers flocked to the new iPhones and to Android-based phones with new features, such as embedded cameras and music players. Whether Blackberry invested too little in R&D or their R&D vision was too narrow, their future critical path was totally disrupted, and the company became a non-player moving forward at less than 1% of the market within five years.
But the fact that the two paths are interdependent doesn’t mean there isn’t sometimes tension between the two critical paths. Many industrial companies favor today’s path over tomorrow’s. This is particularly true if the products have long life-cycles, but it can also occur in industries with rapidly changing products.
Let’s return to Apple for a useful example of this tension. The company has a history of prizing future, evolving products over current ones. In the 1980s, when the Apple II computer provided over 95% of the company’s revenue, all Steve Jobs could talk about was the development of the Macintosh. This miffed people working on the Apple II, including co-founder Steve Wozniak, because they were doing most of the work—and making all the money. Yet they felt like second-class citizens within the company, and that new product development was getting all the attention and glory. A near-identical scenario played out again in the mid-2000s, when the Mac provided all the cash for Apple, but Steve Jobs was playing up the iPod and, then later, the iPad and iPhone. The iPhone now generates most of the revenue funding Apple as it pushes its way into watches, driverless cars, and movies.
Another way to think about this is that each product (as well as each market segment for each product) has its own critical path with its own timeline. Each product (or market) is at a different place on its path. One product, like the Macintosh computer, may be in the R&D stage of its critical path, while another product, such as the Apple II computer, is in production, sales, and delivery. As companies create more products (or enter new markets), those critical paths and timelines start to overlap. Some older products are coming to the end of their timelines and will soon be phased out, while others are at the very beginning of their timelines. Any company has to manage and balance these multiple timelines across today’s and tomorrow’s critical paths.
Amazon discusses this balancing act openly. According to Brian Olsavsky, Amazon’s CFO, the company has an unwavering commitment to investing for the long term. “I know they talk a lot about it externally,” he says, “but it is real. We work on two tracks. We’re trying to run the businesses we’re in as efficiently as possible, but we’re also making very bold bets for the future at the same time.”
Very bold bets, that is, on tomorrow’s critical path. While most people still think of Amazon for shopping, that’s just today’s critical path. For tomorrow, Amazon is a major player in drones, robots, and cloud computing. It runs a television production studio with Emmy-nominated shows, competes with Apple’s iPad, is going head-to-head against FedEx and UPS delivery services, and, with the purchase of Whole Foods, it is making a very bold bet on the future of the food delivery business to further wed their customers to Amazon.
One way to think about this balancing act is to not let today’s groove become tomorrow’s rut. Think about how you can cannibalize your products and your entire business before someone else does.
Critical Path Action Items
What is your company’s “today” critical path?
What is “tomorrow’s” critical path?
How are they in sync and how are they in conflict?
Which one are you on?