Core Issue

Spread_Core_IssueThe world is in flux, so it’s no surprise innovation is a top priority. Or is it? Shipping’s customers are crying out for a Model-T, but are we just delivering a faster horse?

It’s a curious fact that—in the Western tradition at least—apples have a long-established association with disruptive change and innovation. For a start, the apple which Eve consumed in the Garden of Eden was from the Tree of Knowledge. Contrary to what many assume, it wasn’t the disobedient act of eating the apple which caused Adam and Eve to be banished by God, it was the knowledge they gained by eating it. Part of that knowledge was an awareness of their nakedness. Once they were no longer innocent of that, they couldn’t remain in the garden. And the rest, as they say, is history.

Fast forward to the 1660s and possibly one of the most famous moments of innovation. Sir Isaac Newton, sitting under an apple tree and watching an apple fall to the ground conceived his theory of Universal Gravity. Some like to think the apple actually struck him on the head, a metaphysical representation of how random and how powerful Newton’s idea was.

29th June 2007 and another Apple changed everything—at least in the mobile phone ecosystem. The introduction of the first iPhone catapulted Steve Jobs from leading a floundering company to pride of place in the global pantheon of history’s great innovators. These days it’s easy to forget that Apple had its toes hanging over the edge of the precipice before Jobs saved it with the iPhone and turned it into America’s richest company. But Jobs never did. “Innovation distinguishes between a leader and a follower,” he once said, and continually reinforced his status as the genius innovator at the core of the company.

Apple has US$233bn cash in its back pocket and a price-to-earnings ratio of 10, yet investor confidence is dwindling, and the market is pricing its stock as a company in long-term decline. That’s the most tangible measure I can point to right now of just how central and crucial innovation is to a business.

It’s the way we all like to think about innovation—one individual having a sudden and blistering insight which fundamentally changes everyone else’s perception. In an age of global media and connectivity acquiring that kind of reputation can get new ideas funded and products bought. It can grow global brands and create cult-like status. But it cuts both ways. Jobs has been gone a while, and without him people are watching closely to see what’s left. The news hasn’t been too good.

Apple recently announced weaker than expected second quarter results which included its first year-on-year decline in profits in thirteen years. What followed was eight straight days of share price decline which saw it close last Friday at a level last seen in 2012. In eight days Apple has lost all the share price gains it made in the last four years.
At the heart of this is the concern that Apple has stopped innovating, and started renovating. Steve Jobs undoubtedly was an innovator, but new CEO Tim Cook is an operations guru. Although he’s talking about all the cool stuff they have up their sleeves, the thing they’ve been adorning people’s cuffs with recently—the Apple iWatch—hasn’t been an innovative game-changer. In the crowded field of wearables it was nice, but not transformative.

But this is a company with US$233 billion cash in its back pocket, and a price-to-earnings ratio of 10—lower than IBM (11), Cisco (13), Google’s Alphabet (31) and out of sight of Facebook’s (92). And yet investor confidence is dwindling and the market is pricing it as a company in long-term decline. Now just stop and think about that. Because it’s the most tangible measure I can point to right now of just how central and crucial innovation is to a business.

It’s always been important because—as others point out this issue—it’s part of human evolution. What we’ve experienced so far has been a mixture of incremental innovation, and some intense periods of disruptive innovation.

As an example of incremental innovation may I suggest the toilet. Water-flushed toilets appeared in Knossos and Akrotiri in the ancient Minoan civilization from the 2nd millennium BC. Although we now have those which heat the seat, shoot temperature controlled water jets at you from unexpected places, and come with a control panel which wouldn’t look out of place on the bridge of the Star Ship Enterprise, it’s taken quite some time to get there, and the basic concept hasn’t really altered. Disruptive innovations are fewer and farther between, and interestingly they often come in batches. Roman technology still underpins infrastructure today, whilst the flowering of the Renaissance and the industrial revolution all saw major scientific and technological disruptions that changed lives.

What’s happening now is that both kinds of innovation are speeding up, and that’s due to the exponential growth of a range of technologies which are combining together to create what’s described as combinatorial disruption. As they do so they’re spreading horizontally across business and society, breaking down the vertical markets we’re used to and eroding the power of domain knowledge and expertise.

This exponential growth is leading to dramatic falls in the cost of a range of technologies—from solar to robotics to biotech—which are bringing them within the reach of smaller, less well-resourced companies. These new companies are building on the technology platforms which have gone before, iteratively using them to experiment and test out their own innovative ideas, using them as the foundation for the next leap forwards.

This presents a real issue for incumbent companies, burdened by cumbersome legacy structures, operational silos and—crucially—domain myopia. Some recognised the limitations of that model many, many years ago. For example, the origins of the Lockheed Martin Skunk Works—whose compact nuclear fusion reactor project I wrote about last year—go back 70 years to 1943 when the US Army needed a jet fighter, and they needed it yesterday.

Lockheed’s Kelly Johnson set up his Skunk Works based on an unconventional organisational approach, breaking rules and challenging the bureaucratic system that stifled innovation and hindered progress. For 1943 his philosophy was truly revolutionary, but Johnson and his team proved it was sound by designing and building the XP-80 in only 143 days—seven less than the US Army had demanded.


Clarence ‘Kelly’ Johnson, whose unconventional approach to innovation created the Lockheed Martin Skunk Works. It managed to deliver the XP-80 to the US Army in only 143 days. 70 years on it’s still going strong, current projects include compact nuclear fusion reactors.

There are many more skunk works around today—which in some respects is a measure of how little company structures and limitations have changed and how much they’re likely to soon—but they’re just one part of a much larger arsenal that organisations focussed on innovation are deploying.

Google famously has its R&D factory “Google X”, where Chief of Moonshots Astro Teller’s mission is to invent and launch ‘moonshot’ technologies that could make the world a radically better place. Some of their publicly known projects include the self-driving cars, the smart contact lens, high-altitude wind-power generation, and Project Loon, to name a few.

That’s all great, but spinning out an R&D skunk works is by definition separating that innovation from the core business of the company. What’s increasingly required is to harness and drive innovation within the company itself. And there even Google is having a problem. You may assume that anyone who was prone to having good ideas would want to work at Google, but the reality is those highly motivated employees also have a habit of getting great ideas and then leaving to make them happen.

The result is—reportedly—Google’s ‘Area 120′. Google already allows employees to work on ’20 per cent projects’, personal ideas they can spend a fifth of their working day on. Successful 20 per cent projects have included services like Google News, AdSense and Gmail.

But now Google is going further, creating a startup incubator that will allow employees to work on personal projects full time. Employees will pitch the company for a place in Area 120 and if accepted will access funding and support with Google becoming an early investor in successful projects.

Of course, you might say that tech companies like Google would do that, wouldn’t they. But here’s the thing. It isn’t just technology companies that recognise the importance of innovation.

The Boston Consulting Group has spent the last ten years undertaking an annual global survey of the state of innovation, and in 2015 79 per cent of respondents ranked innovation as either the top-most priority or a top-three priority at their company. That’s the highest percentage since the survey started in 2005.

79% of respondents to the 2015 BCG Innovation survey ranked innovation as either the top-most or a top-three priority at their company. That’s the highest percentage since the survey started in 2005.

The survey shows that science and technology continue to be seen as increasingly important underpinnings of innovation. The data has led BCG to identify four attributes that many executives point to as critical to innovation success—an emphasis on speed, well-run and very often lean R&D processes, the use of technological platforms, and the systematic exploration of adjacent markets.

In order to keep its innovators Google is launching 'Area 120', a startup incubator employees can pitch and which will allow them to work on personal projects full time. Google will give funding and support and become an early investor in successful projects.

In order to keep its innovators Google is launching ‘Area 120’, a startup incubator employees can pitch and which will allow them to work on personal projects full time. Google will give funding and support and become an early investor in successful projects.

The importance of technology to successful innovation means it’s no surprise that BCG’s list of the 50 most innovative companies over the last ten years has included those closely associated with that capability. The likes of Apple, Google, Microsoft, Samsung, Amazon, and IBM have made the list in nine out of the ten years, but that doesn’t tell the whole story. As the years have gone by technology companies have not elbowed their more traditional counterparts aside as you might have expected, there are still plenty on the list. In fact five of the top ten companies in 2015 are non-tech companies. On the longer list of 50, 38 (76 per cent) are non-tech companies.

That’s important. Because as I’ve said many times technology can enable a competitive advantage, but rarely is it the advantage in itself. What the non-tech companies on that list have done is to understand the scope and the power of exponential technology growth and leveraged it.

So what’s this telling us? Clearly building an innovative company is a complex challenge, but there appear to be some basic ingredients.

Technology is important in two respects. On a tactical level it’s key that the organisation has the correct technology infrastructure to allow it to take advantage of data and analytics, collaborate, secure itself, connect and share ideas inside and outside. But what’s also necessary is a much wider strategic grasp of the big technology trends reshaping the world, and how they will impact on traditional economics, markets, consumer demand and value chains.

That, plus domain expertise and data should allow you to identify the big problem that you should set about solving. But there is a fundamental prerequisite to all of this, which is that your company must have both the desire and the intent to innovate.

And in the shipping and maritime industry we fall at that first hurdle. Everyone in the industry seems to be talking about innovation—a point universally acknowledged by the contributors to this issue—but very, very few are doing anything about it. At this stage it’s important to separate out the maritime supply side and the ship owners and operators, because while there is clear desire and intent amongst some of the supply side, that’s in shorter supply amongst shipping companies themselves.

In most industries suppliers create products to meet the needs of customers, but we’ve reached a situation in the maritime industry where shipping companies buy so much kit and services to ensure compliance with regulations, the link between customer need and product development has all but decoupled.

Maritime suppliers have learnt to look towards the next set of regulations, creating products that IMO wants—and they know shipping companies will have to buy—rather than identifying the real problem and innovating to address it.

Maritime suppliers have learnt to look to what IMO is going to force ship operators to buy next, rather than innovating around their problems. In what one hopes is a low-water-mark, maritime manufacturers blocked the ECDIS ‘S’ mode their customers wanted in an heroic effort to protect their own profits at the expense of solving their customers’ problems.

But it gets worse. Take ECDIS for example. Speak to any shipping company and there is almost universal despair at the bugger’s muddle ECDIS has become. IMO’s mishandling of the affair is one thing, but what it did provoke was a very rare agreement amongst ship operators that the plethora of different ECDIS systems and user interfaces was complex and potentially dangerous. What ship operators wanted was an ‘S’ mode, something that would provide a common view across all systems.

In what one hopes is the low water-mark for maritime manufacturers, they blocked it. In fact one maritime electronics manufacturer association actually trumpets its part in preventing ship operator customers getting what they wanted—on safety grounds—lobbying heroically against ‘S’ mode in order to protect the profit of its members.

Is it any wonder that so many ship operators just don’t trust technology suppliers in maritime? And is it any wonder that suppliers are endlessly renovating their products and services, rather than innovating. The reality is that too many of them just don’t know enough about what their customers actually do day to day to identify the problems they might be able to solve for them. Wedged into their silos—HVAC, catering, pumps, navigation, paints, broadband—none of them are trying to understand the interactions across those silos which new technologies are driving and which are changing how ships will be operated in the future.



“The real problem,” says one commentator, “is working out how to make a lot of money in a non-expansionary market.” We aren’t even trying to give customers a faster horse, just the same old emphysemic donkey.

But the ship operators are no better. If you’re part of a shipping company which is genuinely innovating around your business model and customer requirements then, congratulations. Help yourself to a biscuit and shut the door on your way out.

As for the rest of you, let’s be clear that reducing your emissions and giving your seafarers access to broadband is not innovating. Nor is ordering more ships, or bigger ships, or slow steaming. I have a lot of conversations with shipping people and on the subject of innovation they are almost universally a bit helpless. I think there’s a simple reason for that. Great innovation comes from solving big problems, and shipping—in its usual, self-obsessed way—has picked the wrong problem.

Shipping thinks that the big problem is no one is making money. But that’s not the problem, it’s actually just a symptom. The real problem is that shipping isn’t providing an adequate service to its customers. But shipping can’t see that. It’s too busy doing anything it can to make money, and just to compound the problem, it’s doing it at the expense of the customers it serves.

Let’s take bigger ships. Huge, expensive boxships which allow the liner companies to get even better economies of scale. Customers hate them. They hate them because they can only get into a handful of ports, which means that customers are then faced with a variety of new surcharges—high-tide surcharge, low-tide surcharge, etc.

Reducing your emissions and giving your crew broadband is not innovating. Nor is ordering more ships, or bigger ships, or slow steaming. That alone potentially cost shipping’s customers around US$5.7bn last year. Still think shipping oils the wheels of world trade?

On top of that the customers then have to grapple with port infrastructure creaking under the weight of coping with tens of thousands of containers being discharged—if of course you’re fortunate enough to have your container arrive at all, or vaguely on time, which is close to an even chance. Then the customer has to truck that cargo from the only port big enough to accommodate your behemoth of a ship, adding emissions to the customer’s tally rather than yours.

And whilst we’re on the subject of emissions let’s look at the great innovation of recent years, slow steaming. We’re all very smug about that. Look at the emissions and cost we’ve saved and the market we’ve propped up. And what has that meant for customers?

According to an analysis by McKinsey, slow steaming adds three days to the supply chain between the United States and Asia. The additional annual inventory and obsolescence costs for US importers can reach $415 million. Worldwide, that same three-day delay could cost about $5.7 billion.

That’s without factoring in the environmental impact of manufacturing that additional inventory. But at least these big cargo owners benefit from their own economies of scale. Don’t they? Apparently not. According to research by our friends at Xeneta, big cargo owners making long term deals with container lines are getting worse rates than the little guys booking stuff on the fly. Still think shipping oils the wheels of world trade?

It isn’t even as though customers aren’t queuing up to tell shipping what’s wrong, but they aren’t listening. Henry Ford famously said that if he’d asked his customers what they’d wanted they would have told him a faster horse. Shipping doesn’t even have that excuse. Shippers are begging for a Model-T and they’re getting an emphysemic donkey.

Access to the kind of intelligence, research, data and information about what’s happening globally to disrupt markets and economies is there for the taking. It’s so prevalent that one wonders how shipping can really avoid knowing what’s going on, but they’re doing a marvellous job. One commentator, a ship operator writing for a popular shipping website, plaintively asked recently if anyone had a ‘big idea’ for shipping, before going on to make the following statement.

“Consider the 3D printer,” he wrote, “– at the moment, not much more than a toy, but capable of very much more.” Tell GE it’s not much more than a toy; they’re 3D printing everything from transducer probes to aircraft engines. “The real problem,” the commentator continues, “is working out how to make a lot of money in a non-expansionary shipping market.” No. Wrong problem.

Kirsi Tikka of ABS writes this issue about the need for an innovation infrastructure for the shipping industry. It’s a genuinely good idea. I’d like to see it start with a new kind of innovation event, one that is truly collaborative, instead of pulling in ship operators for free and then pimping them out to suppliers whose only interest is in flogging them stuff.

But whilst shipping companies and maritime suppliers are by and large still flogging their dead horses to their respective customers, there are others who are working together to create some real disruption. At our Autonomous Ships roundtable late last year we brought together ship operators, customers, technology suppliers, insurers, lenders and cyber security experts at Rolls-Royce’s technology centre in Aalesund.

The result of that morning was a fascinating arc of disruptive innovation which encompassed everything from the design, size, propulsion, maintenance and autonomous operation of the ship, to regulation, ports, sea traffic management, smart logistics and intelligent transport systems, new ownership ecosystems encompassing lenders and insurers, and new seafarer skillsets.

So to that commentator I say, there are ideas. Big ideas. The kind that have the capacity to sweep things away very, very quickly. And they are slowly taking shape in maritime suppliers, class, flag states, ship operators, and customers. What at the moment I think we’re missing is the link between them all that’s going to hook everything together. But that’s on its way.

When asked about his multiple achievements, innovations and contributions, Sir Isaac Newton said, “If I have seen further it is by standing on the shoulders of giants.” The disruption, when it comes, may feel to those like our friend trying to get to grips with 3D printing, to be an unexpected bolt from the blue. But the foundations for them are being laid down now. And for some of us they won’t be any surprise at all.

We need to gather, showcase and connect those big ideas whether they’re from seafarers, start-ups or Silicon Valley in a big, bold way. Not for fear of the potential threats, but in search of the huge opportunities.

Kirsi Tikka of ABS writes this issue about the need for an innovation infrastructure for the shipping industry. It’s a genuinely good idea. I’d like to see it start with a new kind of innovation event, one that is truly collaborative, instead of pulling in ship operators for free and then pimping them out to suppliers whose only interest is in flogging them stuff. We need a space in which shipping, its suppliers and its customers can come together to identify what the big problems are and go about solving them together. We need to gather, showcase and connect those big ideas whether they’re from seafarers, start-ups or Silicon Valley in a big, bold way. Not for fear of the potential threats, but in search of the huge opportunities.

Of course you can only take the shipping horse to water; you can’t make it drink. At the moment it isn’t thinking big enough so those identifying the big problems, and with the thirst to solve them, aren’t shipping companies.

As Martin Kits van Heyningen says in his article this issue, there’s no point in trying to solve the little stuff. It’s the big, hairy audacious goals that innovators like him, and Walter Hannemann, Oskar Levander, and Tero Hottinen, and Constantine Komodromos want to get their teeth into. And that also goes for the people outside shipping that these guys are helping to draw in.

In the meantime most ship operators remain oblivious to everything other than their own sticky situation, delivering a marginally faster horse, that eats a bit less and farts a bit less, but will ultimately end up as glue.

Image credit © Lockheed Martin/Google/Getty Images

This article appeared in the April 2016 issue of Futurenautics.


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