Federal Express's Fred Smith

The man who created overnight delivery says you absolutely, positively have to innovate -- if only to survive.

 

Distinguished Vietnam vet. Creator of the multi-billion-dollar overnight delivery industry. Employer of 38,000 who once met a payroll by winning at blackjack.

When it comes to Federal Express Corp.'s Frederick W. Smith, you've probably heard the tales before. The irony is that Smith may be the most private public figure in American business: even the prospect of a Time magazine "Man of the Year" nomination evidently wasn't enough to prod Smith to talk to a reporter. So when the man who convinced a nation that it "absolutely, positively has to be there overnight" agreed to talk with INC., we knew it would be a noteworthy event -- all the more so when the subject is innovation.

Like Peter Drucker (whose ideas about the same subject were featured here last October), Smith views innovation as a discipline that lends itself to study and practice. Unlike Drucker, Smith can talk about the importance of luck and intuition with the particular authority of the practitioner. And as with many successful businesspeople in rapidly changing industries, Smith thinks of innovation not only in terms of opportunity, but increasingly in terms of necessity and survival.

Contributing writer Robert B. Tucker spoke with Smith at a time when he is doing more than just philosophizing about innovation. In fact, this year Federal Express is betting $132 million in operating losses that its new ZapMail service will eventually come to be viewed as yet another in a long line of innovations. Smith is still very much the gambler, but it's not blackjack he's playing any longer.

INC.: There are a number of adjectives that are frequently associated with your name, among them "innovative." What, from your own experiences, are the secrets of innovation?

SMITH: I suppose you could look at innovation from two perspectives: the demand side and the supply side.

Pogo, the cartoon character, pointed out one time that the way to be a great leader is to see a parade and run like hell to get in front of it. And there's a lot of truth to that. I don't know of many innovations where somebody sort of just dreamed up an idea out of the clear blue and went off. I mean, there are usually some fairly discernible trends available for a long time indicating a demand for a product or a service. And the time to act on that -- to get to the front of the parade, if you will -- is when that demand, and the technology needed to meet it, begin to converge.

Take the example of Gannett and USA Today. We've been a national society in America for about 25 years now, largely as a result of television, but it is only recently that you could describe anything like a market for a national newspaper. And that's because there was only recently the technology available to send the copy via satellite to print sites all around the country quickly and inexpensively. So there was the convergence of a societal change or expectation, and a technology that allowed someone to fulfill it. Al Neuharth, Gannett's president, was one of the first to see it.

INC.: It's proven, so far, to be a very expensive innovation for him, however.

SMITH: Oh, I know. He's been sitting there taking it on the chin year after year, with hundreds of millions of dollars' worth of losses. But I think he's going to prevail -- and that gets me to the supply side of the equation.

Remember, Neuharth didn't have to start USA Today to pay the dividends and turn on the lights. But I think he was aware of a threat to his existing business, Gannett's local newspapers. There is, to one degree or another, a death cycle underway with the local papers. The TV gets you the news faster now, and has more or less co-opted the trendy, glitzy part of the news. And for more in-depth discussion of the issues, there are many other vehicles that do it better. So what the local newspaper is left with is the births and deaths and mirriages and the latest stabbings and the stupid machinations of local politicians. And so long term, you've got to say that, other than as a direct-mail advertising medium, the papers have lost much of their rationale.

It's at that point that the innovator says to himself, "Now's the time that I ought to take a risk. I see the threat on the supply side. I see the opportunity on the demand side. And, oh, by the way, I'd like to do something new and useful and important." And when all of that happens, that's when organizations tend to innovate.

INC.: Surely all organizations aren't the same in that respect, though, in the ability to identify threats and opportunities, to take risks.

SMITH: There is no rule about that, certainly. I think it really depends on what the company's culture is at the time, and how great the threat is. Some companies faced with a threat just lie down and die. Others see the threat but can't come up with a good idea.

IBM is a good example. Twenty-five years ago, the Watsons looked at the computer market and at the technology, and they concluded that IBM was either going to slide back into mediocrity, or that they were going to have to innovate on a very great scale to assume the leadership position in the industry. And so they decided to go for it, and bet the company's net worth a couple of times over on the 360 computer.And, of course, that was an innovation that paid off very nicely for them.

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