Archive for March, 2010
How Personality Shapes Your Network
Posted by John in innovation on 31 March 2010
A while ago Tim wrote an excellent post on the difference between networking and network structure. It’s one of my favorite posts and it’s among the most popular on the blog. Just to recap the main idea from that post – some network structures are better at supporting innovation and we need to understand how we can form these structures better.
As Tim says, there is a lot of evidence that bridging communities that don’t communicate is a precursor to innovation. In technical terms, this is called bridging a ‘structural hole’ and we can see this in different accounts of creativity and breakthroughs in the arts, sciences and business. Also, the divisioning of organizations and the consequent creation of silos is a creator of structural holes that puts up a barrier to innovation. The diagram below shows a network map where person 5 is bridging a structural hole.
Having a lot of contacts through being an active ‘networker’ will not support innovation if we just keep networking with people who are similar to ourselves and our friends. This might create bigger and denser clusters (e.g. nodes 1,2,3 and 4 in the diagram) but won’t help us to bridge clusters. In other words, the number of contacts that we have matters a lot less than the question of who our contacts are with.
One of the big questions in our research is how networks evolve and we are starting to understand how personality types affect the formation of innovation networks. The obvious statement to make is that extroverts will be essential to encourage innovation networks because they form and maintain contacts. However, this assumption falls into the networking trap where we assume that more contacts are better.
One of our PhD students, John Chen, is looking at small business networks and he has found that one particular psychological characteristic is highly correlated with the person’s positioning in the central points of networks where they can bridge groups and coordinate activity. This particular trait is called ‘self monitoring’ and is closely related to what I would call social adaptability.
People with high self-monitoring characteristics are aware of their own personality and can adapt it to suit different groups and circumstances. This is quite different from simply being ‘outgoing’. When Tim and I meet people in organizations who are playing key bridging roles they are very skilled in different social settings, but I wouldn’t describe all of them as being particularly extroverted.
While we still need to do a lot more to develop this research, I think this finding has some immediate implications:
We can’t assume that the extroverted people who get the most profile are necessarily the best organizational bridges. It’s really important to understand the network before making changes to the organization.
While some people have natural self-monitoring skills, it’s also possible to train people in becoming better bridges.
In the same way that many organizations take a lot of trouble to build emotional intelligence in their managers, there is really no reason why the same thing can’t be done to develop better ‘bridging intelligence”
Thanks to John Chen for allowing me to share his research findings.
Innovation Vision
Posted by Tim in aggregate, business models, connect, filter, innovation strategy on 30 March 2010
How do we decide what our innovation strategy should be? Jeffrey Phillips says that we don’t need an innovation strategy at all, we just need a strategy, and it should have innovation embedded within it. That’s pretty consistent with what I’ve said here before as well when I talked about four different ways to integrate innovation and strategy. But given that, what do we do?
A good first step is to figure out where you want to be positioned. Tom Fishburne has some very good advice in this:
I blogged a few months ago that companies can be classified either as Rule Makers, Rule Followers, or Rule Breakers. Most companies duke it out amongst themselves as Followers, trying to gain share against the market leader by playing the rules of the market leader. …
Instead of obsessing about market share, think market creation. Become “the only ones who do what you do”.
This is certainly the way to think if you’re working on radical innovations. In an interview that just came out, Roberto Verganti argues that the best way to do this is to work on innovating the meaning of your products and services:
In the blog I mentioned that companies that are focusing on stripped-down “value” products risk making the mistake of assuming consumers care more about utility and low price than meanings. In the current ‘Great Recession’ meanings are becoming even more important, and companies should not think consumers care less about the emotional and social dimensions of products.
Although it is counter-intuitive, utility is not the only thing that matters to consumers. Even when they are hard pressed financially they don’t want to feel poor.
Yes, they do care about prices and want to spend less. If you have a lot of money, who cares? If you have less money, you care a lot about how you spend the money. Every time you spend your money, it is a very emotional and symbolic act.
Another way to think of this is to find a way to do something that people really believe in, as suggested by Hugh MacLeod:
Of course, this approach can be risky. The chances of failure are non-trivial. On the other hand, the one sure way to fail at innovation is to try to avoid failing. Scott Anthony makes this point nicely in an interview that just came out:
Interview Question: A famous innovation story is about Bank of America, which mandated that 30% of ideas had to fail. Google also had a similar working line with 20% of the employee time being spent on side projects. What’s your take on such strategising?
Scott Anthony: Those are actually two different strategies, and generally I like the Bank of America one more. That metric tells people that it is acceptable to take some amount of risk. If you never tolerate failure what you eventually get are very close to the core, incremental ideas. Those are fine, but won’t produce blockbuster results.
The Google approach, which 3M has done for a long period of time, works well in particular cultures. But it works less well in organisations that are still getting their innovation legs. All things being equal I would rather have three people spending all of their time on innovation than 100 people spending 10% of their time on innovation.Part of the issue with replicating Google’s ‘20%’ system is there aren’t many people who have an end to end approach to innovation that is like Google’s. And if you copy one piece without the surrounding elements, it just won’t work.
So we have to be prepared to fail, at least with a few ideas. The key point here is to make the failures happen as quickly and as cheaply as possible. But we have to do it, even if it’s risky. After all:
The ROI on innovation is survival
— Andrew Howlett, CEO en Rain
That all looks pretty familiar, doesn’t it? Or maybe not. All of the quotes were included in my post yesterday, but there I asked you weave your own story around them. That was the least successful post that I’ve written in over three months, at least according to views, retweets, and every other metric that I normally look at. Why?
I think it says something pretty important about the aggregate, filter and connect idea – that to create value you have to do all three things. Yesterday, I only aggregated and filtered. All of the quotes were things that came through my aggregating tools – primarily the RSS feed and twitter. I filtered through all of that, and found four items that created a theme – at least inside my head. So I put them out there to see if they’d resonate with you in the same way. It doesn’t appear as though they did.
Today’s post might not be much better, but at least there’s a coherent story in it. That’s because in addition to aggregating and filtering, I connected up the ideas. In order to create value that people are interested in, you need all three components.
This also illustrates an interesting point that is currently being discussed. It started with Robert Scoble talking about the tools that are needed for curation. I love the way that he describes curation:
This is a guide for how we can build “info molecules” that have a lot more value than the atomic world we live in now. First, what are info atoms? A tweet is an atom. A photo on Flickr is an atom. A conversation item on Google Buzz is an atom. A Facebook status message is an atom. A YouTube video is an atom.
Thousands of these atoms flow across our screens in tools like Seesmic, Google Reader, Tweetdeck, Tweetie, Simply Tweet, Twitroid, etc.
A curator is an information chemist. He or she mixes atoms together in a way to build an info-molecule. Then adds value to that molecule.
This prompted interesting responses from Joanne McNeil and Erica Glasier. They both have some issues with Scoble’s post. But I think that really, both of them are responding to the more widely-held view of what “curation” is – more of an aggregate-filter process, like yesterday’s post. I think that Scoble is pretty clearly talking about an aggregate-filter-connect process. So maybe we need a new word for what he’s talking about?
In any case, I thought it would be fun to experiment with two different approaches to compiling and presenting related information. Which do you think worked better?
Innovation Riffs
Posted by Tim in innovation strategy on 29 March 2010
Today, just for fun, I’ll let you assemble the story yourself from the collected parts.
First up – Tom Fishburne says:
I blogged a few months ago that companies can be classified either as Rule Makers, Rule Followers, or Rule Breakers. Most companies duke it out amongst themselves as Followers, trying to gain share against the market leader by playing the rules of the market leader. …
Instead of obsessing about market share, think market creation. Become “the only ones who do what you do”.
And then there’s Roberto Verganti:
In the blog I mentioned that companies that are focusing on stripped-down “value” products risk making the mistake of assuming consumers care more about utility and low price than meanings. In the current ‘Great Recession’ meanings are becoming even more important, and companies should not think consumers care less about the emotional and social dimensions of products.
Although it is counter-intuitive, utility is not the only thing that matters to consumers. Even when they are hard pressed financially they don’t want to feel poor.
Yes, they do care about prices and want to spend less. If you have a lot of money, who cares? If you have less money, you care a lot about how you spend the money. Every time you spend your money, it is a very emotional and symbolic act.
Then there’s this from Hugh MacLeod:
And Scott Anthony says:
Interview Question: A famous innovation story is about Bank of America, which mandated that 30% of ideas had to fail. Google also had a similar working line with 20% of the employee time being spent on side projects. What’s your take on such strategising?
Scott Anthony: Those are actually two different strategies, and generally I like the Bank of America one more. That metric tells people that it is acceptable to take some amount of risk. If you never tolerate failure what you eventually get are very close to the core, incremental ideas. Those are fine, but won’t produce blockbuster results.
The Google approach, which 3M has done for a long period of time, works well in particular cultures. But it works less well in organisations that are still getting their innovation legs. All things being equal I would rather have three people spending all of their time on innovation than 100 people spending 10% of their time on innovation.Part of the issue with replicating Google’s ‘20%’ system is there aren’t many people who have an end to end approach to innovation that is like Google’s. And if you copy one piece without the surrounding elements, it just won’t work.
And finally:
The ROI on innovation is survival
— Andrew Howlett, CEO en Rain
All of us have the opportunity to take these ideas seriously, and to act on them. I think we all should do both. Let’s start today.
(for an explanation of the experiment that I tried with this post, see this)
Experiments – the Key to Innovation
Posted by Tim in experiments, innovation strategy, variety on 28 March 2010
There is a big problem that organisations often face: they want to be innovative, but they also want to minimise risk. This creates a certain amount of tension. If I had to pick the number one thing that I would recommend to organisations that are trying to become more innovative, it would be this: experiment. Experiment all the time. Try everything that you can possibly think of to try. An experimental mindset is absolutely essential to successful innovation.
We were talking about this idea in class this week, and it clearly makes people nervous. I was suggesting that in an uncertain environment, normal strategy tools such as SWOT analysis, five forces and so on are actually pretty dangerous to use. One of the students asked “so everything is chaos, and we throw out the tools and models, then what? What are we supposed to do?”
That’s a good question. I replied that in part this was a rhetorical trick – in terms of the narrative of the class, we were at a point equivalent to just before the end of the Two Towers in The Lord of the Rings trilogy: we’re trapped in a castle surrounded by tens of thousands of orcs, Gandalf is missing, the hobbits are spread all over middle earth, and we have absolutely no idea what is going on. How do we navigate from this point to the five different happy endings that conclude the story?
Again, my answer is to experiment. The tools that I have talked about previously that are designed for linking innovation to strategy are all built around experimenting. The way to combat high levels of uncertainty is to spread your bets. Try as many cheap experiments as you can.
There must be something to this idea, because I’ve run across three different people saying basically the same thing in the past three days. The first was Dan Ariely:
They asked me what I thought the best approach was. I told them that I was willing to share my intuition but that intuition is a remarkably bad thing to rely on. Only an experiment gives you the evidence you need. …
Companies pay amazing amounts of money to get answers from consultants with overdeveloped confidence in their own intuition. Managers rely on focus groups—a dozen people riffing on something they know little about—to set strategies. And yet, companies won’t experiment to find evidence of the right way forward.
Unsurprisingly, he goes on to make a case for the value of experimenting. Part of this reluctance is that experimenting leads to short-term losses – if you try several things to find out what works best, you have wasted resources by trying the ideas that end up not working. Or do you? Rita McGrath doesn’t think so:
If your organization can approach uncertain decisions as experiments and adopt the idea of intelligently failing, so much more can be learned (so much more quickly) than if failures or disappointments are covered up.
So ask yourself: are we genuinely reaping the benefit of the investments we’ve made in learning under uncertain conditions? Do we have mechanisms in place to benefit from our intelligent failures? And, if not, who might be taking advantage of the knowledge we are depriving ourselves of?
She includes a list of conditions that can lead to what she’s calling ‘intelligent failures’, the approach that she outlines is both good and practical. Then I ran across this by Bob Sutton:
The final point that Jeff Pfeffer and I make in Hard Facts is about failure. We emphasize that is impossible to run an organization without making a lot of mistakes. Innovation always entails failure. Most new products and companies don’t survive. And if you want creativity without failure, you are living in a fool’s paradise. It is also impossible to learn something new without making mistakes. …
Failure will never be eliminated, and so the best we can hope for from human beings and organizations is that they learn from their mistakes, that rather than making the same mistakes over and over again, they make new and different mistakes.
To be innovative, we have to try out new ideas. Some of these will fail. If we’re smart, we’ll set up our experiments so that we can learn as much as possible from the ideas that don’t work.
We face an environment that is filled with uncertainty. This makes planning dangerous. The best possible way to meet this uncertainty is not with intuition and guesswork, but with experimentation. If you can combine experimenting with empathy, then you’ll be building a formidable innovation capability.
(Photo from flickr/jurvetson under a Creative Commons license)
The Innovation Fight
Posted by Tim in innovation strategy, replication on 27 March 2010
Thursday was one of the worst days of work I’ve had in a long, long time. John and I had major problems arise on three different projects that we’re working on, and it seemed like the entire day was taking up with fights. It was absolutely exhausting, and by the time I got home, I was discouraged.
All three were related to different innovations that we’re working on. In two cases, we were fighting bureaucratic rules – the systems almost built to prevent new ideas from getting implemented. It was frustrating in the extreme.
In the afternoon, I went for a walk to clear my head and I ran across Mark. He said “running into problems like this is a sign that you’re actually doing something.” He’s right. And it’s a fight that all innovators end up having. If they’re in big organisations, they have to fight the rules, and the entrenched interests. If they’re on their own, they have to fight to get someone to listen to them.
It’s easy to be glib about breaking connections to get your ideas to spread, or about creative destruction. But the impacts of both are real. That’s why there’s always resistance to new ideas. This is another reason why having a great idea simply isn’t enough. If you’re going to innovate, you have to be ready to fight. You have to persuade. You have to change minds.
Thursday was a lousy day, but it’s good to be reminded of these things periodically. It makes it that much better when you have a breakthrough. Now that I’ve had a couple of days to rest and reflect (and to work on fixing things!), I’m ready for another fight. I better be – I’ve had a few more ideas, and now I have to figure out how to get them to spread!
Putting in the Hours
Posted by Tim in filter, innovation, time on 26 March 2010
When I was in university I spent a whole lot of time at the campus radion station. I started out as a trainee DJ in the first semester. I was in the practice studio constantly, spinning records, making segues from one cut to the next, talking on the microphone and taping it so I could try to get better. And I hung out with the experiences DJs while they were on the air – watching how they did things and learning everything I could through osmosis (and asking a lot of questions). Whenever the trainees were asked to volunteer for something, I was there – cleaning up the station, and doing all kinds of little crummy jobs that no one else wanted to do.
At the end of my semester as a trainee, all that work was rewarded in two ways. I was given my own show for second semester (Mondays from 12-3 pm!), and I was given the position of Assistant Music Director. AMD was a lousy job, but it had some good parts to it as well. Every day I had to walk over to the post office to pick up the mail (which mostly consisted of vinyl records – so hauling them back to the station was a pain), and I did any other crummy jobs that we couldn’t find eager trainees to do. I also reviewed 5-10 new records a week. The Program Director and the Music Director had first pick of the really good records to review, so I had to sort through all the stuff that no one had heard of before. There were a few gems in there, but there was an unbelievable amount of crap too. That’s when I first started thinking about the importance of filtering.
I kept working hard (and having a lot of fun), and over time I did a lot of stuff at the station. I was a DJ all the way through, and a few people seemed to enjoy my shows. After my time as AMD, I was Program Director and then Station Manager. After a few years, I really felt like I had accomplished a fair bit at the station.
Then I took a break of a couple of years from university. I worked during that time and saved up money to pay for the last bit when I went back. While I was doing this, I went to see about maybe getting involved with the college radio station in my home town. I hung around a bit, asked about how to get a show. The answer was pretty much the same as it was the first time around – volunteer to do a bunch of the crummy work that no one else wants to do, do that for a while, and then I’d eventually earn my shot to get on the air.
I started doing that – going in once a week to add up stats on how many times the new releases got played. And I hated every minute of it. I just didn’t have the stomach for working my way up the pecking order all over again. I was 20 years old, and thought that I’d earned some respect. Back then, in a lot of ways, I was pretty stupid.
I was reminded of all of this recently because there have been a couple of situations recently where I’ve had to earn respect – where I’ve figuratively had to go back to doing the crummy work that no one else wants to prove that I’m worthy. Since my time in radio, I’ve learned how to do that a little bit better. Social networks have been a useful part of that learning process. Every time I enter a new one, I’ve realised that I’m starting at 0, and have to work my up. It took nine months of writing this blog before it really started to click with people. There were plenty of chances to give it up in that time. But we kept writing, and kept telling one person at a time about the blog. We put in the hours and the blog has grown.
It’s a useful lesson to have learned.
So what does this have to do with innovation? Plenty. The main lesson here is that I think it’s important to never assume that we have already earned respect or someone’s business simply because we’ve already had some success with others. Every time we ask someone to adopt our idea, whether it’s a proposal for a new product, a new service, or a new way of doing things, we are starting at 0.
We can’t assume that they already know how great our idea is, or that the value in it is self-evident. This is a particularly important lesson if we are trying to cross domains. If you are a lab scientist trying to commercialise your great discovery, out in business your reputation starts at 0, no matter how much reknown you’re held in as a scientist.
It’s easy to get caught up in how great our ideas are – but when it comes time to get them to diffuse, we have to win people over one at a time. And with every one of them, we’re starting at 0. A little humility goes a long way when we’re innovating. Every time we start something new, we have to put in the hours.
Playing to Save the World
Posted by Tim in innovation strategy, time on 25 March 2010
In this week’s class we talked about Jane McGonigal’s TED talk on using games to save the world. It’s one of my favourite recent talks, and it’s worth a watch:
Her key idea is that we can harness the efforts put into online games can to solve real-world problems. Her latest game is called Evoke, which just started and is running until May (so you can start playing right now!).
The description of the game is here, and it’s pretty interesting. The game is organised a number of tasks such as this week’s: “Today, 1 out of every 6 people on Earth lacks access to clean water. Your mission this week: help at least one of those people.” The tasks require cooperative work within networks of players, so community building is inherent in the structure of the game. Here’s what happens if you do well with these tasks:
Players who successfully complete 10 game challenges will be able to claim their honors: Certified EVOKE Social Innovator – Class of 2010.
Top players will also earn online mentorships with experienced social innovators and business leaders from around the world, seed funding for new ventures, and travel scholarships to share their vision for the future at the EVOKE Summit in Washington DC.
We had a spirited discussion of the talk afterwards. A lot of people were stuck on the idea that she’s telling everyone to play an online game, but we worked hard to get past that to some of the broader themes within the talk. I think that there are some pretty interesting innovation and strategy ideas in here:
- The first is that it illustrates the value of having a big goal to pursue. In an outstanding column this week, John Kay discusses the benefits of pursuing something other than profit:
Obliquity is the idea that complex goals are often best pursued indirectly. In general, oblique approaches recognise that complex objectives tend to be imprecisely defined. These objectives contain many elements that aren’t necessarily or obviously compatible with each other. Furthermore, we learn about the nature of the objectives and the means of achieving them during a process of experiment and discovery.
McGonigal’s games are great examples of building your strategy around the pursuit of ambitious goals. And really, if you’re building a company around executing a great idea, shouldn’t it be something that will make the world a better place?
- This relates closely to an idea put forward by Umair Haque last week – that competitive advantage must be built on creating resources more than on consuming them:
The future of advantage is radically different from the past for a simple reason: because it’s economically better. 20th century advantage focuses firms on simply extracting resources from people, communities and society — and then protecting what they extract. 21st century advantage focuses firms on creating new resources, and allocating them better. The former is useful only to shareholders and managers — but the latter is useful to people, communities, and society. The old Microsoft was useful to shareholders, but a lot less useful to society — and that’s exactly how Google and Apple attacked it, and won.
Evoke is a great example of lateral thinking in developing strategy. It takes a fact of social life that on the surface seems negative – the huge number of hours put into playing online games – and figures out a way to repurpose that effort more positively. That’s creating value. And if the actions carry through into real life, as they have with some of her earlier games, this will also have a positive impact in reducing the consumption of real-world resources as well. That seems like a pretty good kind of strategy to have.
- It taps into the idea that play can have positive benefits within the workplace. This is something that Mark has put a fair bit of effort into researching (see his page on research projects). Michael Schrage talks about this as well. This is why things like Google’s 20% rule work – you’re given 20% of your time to work on projects of your own design. This is essentially a playful approach – you’re given time and resources, and you get to make up your own project. It is one good way to increase the innovation within your organisation.
- One theme that really came through in the class discussion is how people want to have some of the features of games replicated at work. They want clear paths to the next level. They want positive feedback when they’re doing well. They want to work within optimistic teams of fired-up, engaged people. McGonigal describes gamers as “Super-Empowered Hopeful Individuals” – and I think there’s a pretty good case for trying to build organisations filled with the same type of people.
Is this an optimistic view of the world? Yes. Of course it is. But in the end, it’s the kind of vision that I think we need. When you are trying to do something great, your energy level goes up, your engagement increases, and you build skills in pursuit of your goals. People do this all the time when they’re playing games. Wouldn’t it be great if we were simply doing it all the time?
Fighting Against Short-Termism
Posted by John in innovation on 24 March 2010
Our post and press release on how accounting kills innovation has generated some really nice debate. Although I had a lot of criticism from my academic colleagues in accounting and finance, most of that was from people who hadn’t actually read the research paper. One of the biggest objections was that innovation academics like me should stay out of finance because it’s not my discipline. Obviously, this got me pretty fired up and I started thinking about why I got interested in the valuation and selection of innovation projects in the first place.
About five years ago I was in discussions with a firm to create a joint-venture research project on open innovation. After developing the proposal, the project was taken to the directors of the business and the subsequent phone conversation went a little bit like this….
Them: Well, this is a really nice project that relates to a very important part of our business but can you tell us how much the project will return in dollar terms?
Me: This is a research project and we don’t know what the outcomes will be. There is a chance that it might create a completely new stream of business for you but there is also a chance that we will not find anything of immediate value.
Them: Yes, we understand that it’s a research project…. but how much is it worth?
There was more to the discussion, and we cycled around this conversation for some time but it was pretty clear that it was going nowhere. The company’s executive were interested in solid and immediate returns and a long-term project with outcomes ranging from nothing to potential business transformation just didn’t fit into their framework.
While valuation methods are part of the problem, the biggest issue is the tyranny of short-term thinking. The future is always heavily discounted. Even though we know that innovation gives payoffs in the long term (as someone said recently, the net present value of innovation is survival) the attraction of not making long term investments in order to improve current returns is too great. A recent survey of 400 CFOs in US public and private firms showed that an amazing 78% admit to sacrificing long-term value to maintain short-term predictability in earnings and financial disclosures (Graham et al. 2005).
Short-termism pervades our psychology and our institutions, which means that we are swimming against the tide when we try to create an environment that supports innovation. We focus on what we know and we extrapolate from the past. The result of this is that we start to believe that the short term is also the long term. I have seen classes of MBA students who are genuinely shocked to learn that only two of the top 100 US firms in 1900 are still around today and only about 1% of firms are able to sustain competitive advantage over their peers for periods of 20 years or more.
I think the best way to fight short-termism is with evidence and here we have three big weapons at our disposal.
1. The growing evidence from behavioral economics about how psychology affects decision making. A Nobel prize has been won for this research and if we know what the biases are that make us short-term thinkers then we need to be vigilant against our own biases. This area is now being taken very seriously by major consulting firms.
2. Consistent evidence that the price of not innovating and adapting is death. I wrote a post about this a while ago, but as the Jack Welch quote goes, “if change is happening on the outside faster than the inside, the end is in sight.”
3. We know a lot about effective innovation processes that build value over the short, medium and long-term. Lots of really great things have been written and there is an accumulation of evidence that points to the value of having a portfolio of innovation activities, managing innovation as a process and valuing innovation projects differently. The short-termist’s excuse that innovation can’t be managed just isn’t true. Leading firms disprove this every day.
I don’t think we are ever going to win the fight against short-termism. It’s just too deeply embedded in our psychology. However, the cost of not taking up the fight is great. Our collective futures are at stake.
Source: “The Economic Implications of Corporate Financial Reporting,” John Graham, Campbell Harvey, and Shivaram Rajgopal, Journal of Accounting and Economics, 2005, 40: 3-73 (Thanks to Mat Hayward for telling me about this study).
Four Women that Have Shaped My Research – Ada Lovelace Day
Posted by Tim in innovation on 24 March 2010
I already told you about Ada Lovelace Day – it’s the day for everyone to write blog posts celebrating inspiring women in science and technology. As I mentioned, there are a ton of good candidates doing great work these days. Since there are likely still a bunch of hours left in March 24 wherever you are, you should write a post yourself about one of them. Or someone else. But I’d like to talk about four women who have had a substantial impact on my academic career.
The first is Edith Penrose – author of the groundbreaking book The Theory of the Growth of the Firm. Here is what she set out to do in the book:
So far as I know, no economist has as yet attempted a general theory of the growth of firms. This seems to me so very strange that I am sure anyone attempting it should indeed watch his (or her) step, for naturally there is always a good reason for what economists do or do not do. Perhaps such a theory is impossible to construct, unnecessary, trivial, or outside the ale of economics proper. I do not know, but I offer this study in the hope that all four possibilities will be rejected.
Penrose succeeds admirably in rejecting those four possibilities. It is a beautifully constructed study, and a wonderful book to read. It’s been cited over 10,000 times, although her ideas are oftened mangled so sometimes I wonder how many times it’s actually been read. In any case, her key thoughts have formed an important part of the development of evolutionary economic thought. She builds on many of Schumpeter’s ideas, and in turn, her ideas contributed to great subsequent work like A Behavioral Theory of the Firm by Cyert and March and An Evolutionary Theory of Economic Change by Nelson and Winter.
Here is a brief statement that encapsulates the key points in her approach:
One of the primary assumptions of the theory of the growth of firms is that ‘history matters’; growth is essentially an evolutionary process and based on the cumulative growth of collective knowledge, in the context of a purposive firm.
Those are some of the key ideas that have driven evolutionary economics ever since. Edith Penrose conducted beautiful research. She developed important ideas based on deep observation and understanding of firms. Even though she’s been widely cited, I still think she’s a bit under-appreciated. If you have any interest in how firms grow, you owe it to yourself to read her book. The idea that firms grow through the growth of knowledge is a strong argument for experimenting, data gathering and innovation as key functions within organisations.
The next great economist that has influenced my research is this year’s Nobel Laureate Elinor Ostrom. I’ve already written both about why I think it’s great that she won the Nobel, and also some of the implications that I see in her research for innovation studies. I’ve already said quite a bit about how great her research on common-property resources has been. I’ve modeled part of my overall research program after this work, and I also think that Ostrom’s ideas will provide valuable insights when they are applied to open innovation initiatives.
Ostrom and Penrose have both had a substantial impact on my approach to research. So has the third person that I want to talk about, even though her profile is much lower – and that’s Elizabeth Garnsey. If I remember this correctly, Edith Penrose was Elizabeth’s PhD advisor. In any case, I know that they were friends, and that Elizabeth is in my view the current scholar with the best handle on Penrose’s work. Furthermore, she is a wonderful researcher in her own right. I met Elizabeth when I was four months into my PhD at a conference here in Australia aimed at teaching PhD students how to apply complexity theory to innovation studies. I had already decided to take this approach while working on my masters, but Elizabeth’s two keynotes were inspirational.
Her work has been a longitudinal study of the evolution of firms that have been spun-out of Cambridge University, and the business ecosystem that has developed around them. The central puzzle that she’s worked on is this: many firms start-up, but only a small number are successful – what distinguishes the successful ones? There is a fundamental problem in most of the research into this question – it is based on panel data which end up being so noisy that the majority of variance in performance is never actually explained. Elizabeth has done great work in documenting the different trajectories that firms take, identifying the pitfalls that occur at different stages of the growth cycle, and using these to help identify what actually drives success.
For me Elizabeth is a great role model. She is doing meaningful research in a very effective manner. She has developed a deep understanding of firms that is based on studying firms over an extended period of time. Like Penrose and Ostrom, she does research in a way that makes good sense to me. Elizabeth’s work is seriously under-read. I recommend going to her web page and looking at some of her articles – they’re readable, and packed with insight.
Edith Penrose, Elinor Ostrom and Elizabeth Garnsey are all fantastic economic researchers. All have generated ideas that have significantly influenced my thinking. The last scientist that I’d like to talk about for Ada Lovelace Day is another excellent researcher – my wife Nancy Pachana. Nancy studies ageing and has done great work looking at issues around older adults and driving, nursing home care and especially geriatric assessment. She was just finishing her PhD when we started dating, so she ended up with about a 15 year head start on me in academia.
This has been very useful, because she has provided me with an excellent blueprint to follow as I’ve started my own academic career. It’s been great to see the enormous positive impact that she has had on people through her work. Nancy has been a partner, role model, advisor and guide for me in my career.
As I’ve been in academia longer, I’ve also come to realise that even today, there are definitely issues that arise for women in research that do not come up for men. That’s why I think that Ada Lovelace Day is so important – so that we can give the women that are shaping our world the recognition that they deserve. These are four of the people that have helped shape my intellectual world. Who are yours?
Empathy-Driven Innovation
Three things came together to make me think of this post:
- I regularly get feedback from my research interviews that people really enjoy them. That’s interesting, because I’m a lousy interviewer. After the last round, we got some feedback from our contact at the firm who said that he had received thank-you emails for setting up the interviews. My colleague was a bit taken aback by this, and said to me “but we didn’t say anything”. True, I said, but we listened to them.
And it occured to me how infrequent that is in a lot of workplaces. It’s sad, really. I was reflecting on this on the walk in to my office this morning, and decided that in a lot of businesses, having genuine empathy could be a source of competitive advantage. This is built on scarcity, since genuine empathy is rare. Something to think about I guess…
- Then when I got to my office, I ran across several excellent articles tweeted by Elizabeth Sosnow (they were so good that I’ve almost gotten over her saying that she didn’t see why hockey was exciting). One of them was a post called Empathy is a Presentation Skill by Sims Wyeth. Among other things, Wyeth says this:
Remember, empathy is not the same as sympathy. Sympathy implies that you feel the same as the other person. Empathy only means that you understand how they think and feel.
By using your powers of empathy, you are more able to get and hold their attention by making your ideas more relevant to their frame of experience.
So, more evidence that empathy is important.
- Finally, those two things got me thinking about Roberto Verganti’s controversial post called User-Centered Innovation is Not Sustainable. Verganti argues:
It’s time to move beyond user-centered innovation paradigms that have brought us into this unsustainable economy. Are executives and innovators ready to take the lead in establishing a new design-driven process? Are they willing to stop observing the use of existing products and instead propose new scenarios and solutions that are meaningful for people, good for the environment, and profitable for businesses?
Many people interested in customer-centred innovation have reacted strongly against this post, as Verganti discounts the value of all customer feedback. Maybe empathy can get us out of this conflict?
Verganti’s two examples of non-user-centred innovation are the Toyota Prius and the innovator Ezio Manzini, founder of the Sustainable Everyday Project. The Prius and Manzini’s various initiatives are described as visionary, and they certainly are. But the Prius didn’t evolve in a vacuum. It’s true that while it was in development, the overall market trend was running towards gigantic SUVs with ever-dwindling fuel economy. And yet, at the same time there were a significant number of people that desperately wanted a more fuel-efficient car. Toyota clearly designed the Prius with them in mind. The Prius is user-centred, but not majority-centred.
Another classic example of non-user-centred design is Apple’s decision to cut the 3.5″ floppy drive from the iMac (or their current decision to drop Flash from the iPad). This was done without extensive user consultation – after all, who in a focus group would say ‘yes, I think it would be great if you dropped a feature’? But the decision was made based on an excellent understanding of what users were doing – at the time they were switching over to USB drives in great numbers. It’s not exactly rocket science to decide that users might prefer USB drives with a 50 mb capacity to a floppy disk with 1.44 mbs. So this decision was also driven by an understanding of customers.
My view of Verganti’s approach is that he’s overselling vision. Even in his book, his examples of design-driven innovation (which are great) all include a deep understanding of what customers are trying to get done. I think that what the examples really show are the dangers of letting the majority of customers drive innovation. That just gets you the ‘faster horses‘ solution.
I think that Verganti’s examples show innovation from leaders with vision, and a deep understanding of customer objectives. When you combine this with empathy, you are able to figure out which of the customers at the fringe are the ones that will lead to the next mainstream. Design-driven innovation can’t just be based on intuition alone. It has to be anchored in empathetic understanding of the people that will respond to your proposals.
The key to good design-driven innovation is vision combined with empathy.
(Matt Perez has written a good response to this post)
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Tim was named #5 in the Top 40 Innovation Bloggers in 2011 at Innovation Excellence.
Tim and John were both named in the Top 40 Innovation Bloggers in 2010 at Innovation Excellence.
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