Experiments – the Key to Innovation

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)

Student and teacher of innovation - University of Queensland Business School - links to academic papers, twitter, and so on can be found here.

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21 thoughts on “Experiments – the Key to Innovation

  1. Tim – my favorite experiement is to try to sell something; try to sell the same thing in two ways or offer something which differs in one key viable, etc. etc. The orderbook is a neglected research tool. Existing sales records contain many natural experiments if one focuses on the unexplained variances.

  2. Tim, I couldn’t agree more. My new mantra is R&D for new business models and systems. We need to try more stuff. We know how to do R&D for new products and technology. It is time to move experimentation in to the business model innovation arena.

    My hypothesis is that the half-life of a business model is decreasing. If that is true tomorrow’s leaders will have to change their business models 2-3 times over their careers. Leaders are not prepared and do not have the experience or tools to design and run these experiments. This new imperative calls for active experimentation. We need to get ideas for new business models off of the white board and on to a real world test bed.

    All organizations should manage a portfolio of business model experiments on an ongoing basis. The best experiments are collaborative across industry silos since the biggest value creating opportunities are networked business models that span organizations and sectors.

    Your post is right on. Let’s try more stuff.

    Saul Kaplan
    Chief Catalyst
    Business Innovation Factory

  3. Thanks for stopping by Roger & thanks for the comment! I think that you make an excellent point. In every job that I had before coming into academia, I actually did exactly what you suggest – study previous sales patterns to see what I could learn. In every single case I was able to uncover something that no one within the company had known before. It’s amazing how much useful data firms hold that they never use.

  4. Thanks Saul! We’re thinking along exactly the same lines – I am in the process of setting up a business model incubator for firms in our region. That makes the idea sound more tangible than it currently is, but the point is that I fully agree that this is an area that we need to be working on. There is both great potential and great need for innovation in this area!

  5. Hi Tim…I agree that experimentaton is like “practice makes perfect”. An issue is though, coming off the GFC, many innovative firms, such as the one I work at are sometimes cautious when experimenting and the costs that surround this process. Personally, I disagree with this caution because I believe it does not promote a truly innovative environment or provide the confidence to its innovative staff…..Lastly, when will you be in Melbourne……!!! Saludos to you Professore…!!

  6. Thanks for the comment Ivan. I agree with you that this has been happening, and that it is not good.

    I’ll be in Melbourne on 20 April (and possibly the afternoon of 19 April) – I am giving a talk at the AIG breakfast forum.

  7. It is so simple. They only way to gain wisdom is by doing. Without doing, nothing can be gained. Let’s keep it that simple and gain this understanding and then we will not have to come up with so many concepts and models of how we learn. Experimentation is simply doing and limiting the potential for damage if error or unexpected results. Wisdom is gained by doing and sometimes innovation is achieved. It is so simple, I wonder who thought of it first?

  8. Thanks for the comment & link Lanny. I think that your last point is correct – I’ve been thinking of a follow-up post that touches on that exact issue.

    The Gawande link is great – I’ve not read that particular article yet so thanks. I’m a big fan of his – I’ve used his ideas in a couple of different posts here…