The Innovator’s Hypothesis: Michael Schrage Tells Us How to Take the First Step


Imagine that your organisation currently doesn’t innovate at all, but you’d like to do more (this might not be much of a stretch for some of you). What’s the best first step?

Many organisations start with strategy. After all, we can’t innovate without a plan, right? Others will jump straight into forming an innovation team and telling them to start innovating. Some will take a light touch, and just have the CEO to tell everyone to innovate more because it’s really important.

None of the these are the best first step. None of these create action.

Experiments create action – start there.

The thing is, this is harder than it sounds.  Here is a quote from Austin Kleon from his book Show Your Work:

Amateurs are not afraid to make mistakes or look ridiculous in public.  They’re in love, so they don’t hesitate to do work that others think of as silly or just plain stupid.  “The stupidest possible creative act is still a creative act,” writes Clay Shirky in his book Cognitive Surplus.  “On the spectrum of creative work, the difference between the mediocre and the good is vast.  Mediocrity is, however, still on the spectrum; you can move from mediocre to good in increments.  The real gap is between doing nothing and doing something.”  Amateurs know that contributing something is better than contributing nothing.

I highlighted the key point – the real gap is between doing nothing and doing something.

I’ve talked about this before. The problem with innovation strategies, and teams, and CEO exhortations is that they are mainly designed to take you along the innovation spectrum – they help with that. But they don’t get you across that gap from doing nothing and doing something.

Experiments will.

Though he doesn’t frame it this way, that is one of the key points that Michael Schrage makes in his new book The Innovator’s Hypothesis: How Cheap Experiments are Worth More Than Good Ideas. The book does two main jobs: it makes the case for experimenting as your core innovation skill, and it outlines the 5x5x5 technique for effectively running experiments.

First, the gospel of innovation.  Schrage makes the case that most organisations overvalue great ideas. Here is an example of what happens as a consequence:

But I had to ask: Why was his group so sure that “big bang” strategic approaches were best? Both on paper and Excel, my experiments offered far greater bang for the buck – and faster – than the grand plans did. Why did a simple, cheap experiment provoke such visceral negative reactions? What hot button did it push?

His response said it all. “We think we know what he problem is,” he said. “We want a plan that’s big enough to solve it without putting our revenues at risk. You didn’t help us with that.”

The company he was working with there? Blockbuster.

Technology is one of the critical drivers of the growth in experimentation. Here is what Schrage said in an earlier piece with Eric Brynholfsen:

Technology is transforming innovation at its core, allowing companies to test new ideas at speeds and prices that were unimaginable even a decade ago. They can stick features on Web sites and tell within hours how customers respond. They can see results from in-store promotions, or efforts to boost process productivity, almost as quickly.

The result? Innovation initiatives that used to take months and megabucks to coordinate and launch can often be started in seconds for cents.

And that makes innovation, the lifeblood of growth, more efficient and cheaper. Companies are able to get a much better idea of how their customers behave and what they want. This gives new offerings and marketing efforts a better shot at success.

His method for doing this is pretty cool:

The 5x5x5 design is simple and straightforward. A minimum of 5 teams of 5 people each are given no more than 5 days to come up with a portfolio of 5 “business experiments” that should take no longer than 5 weeks to run and cost no more than 5,000 euros to conduct. Each experiment should have a business case attached that explains how running that experiments give tremendous insight into a possible savings of 5 million euros or a 5-million-euro growth opportunity for the firm.

This will work. Schrage has plenty of examples – but it also makes intuitive sense. I love this approach for a few reasons:

  • The best way to become innovative is to innovate more. Developing an innovation strategy doesn’t actually achieve this, but running a bunch of experiments sure will. Put another way –
  • Experiments will help you bridge the gap between doing nothing and doing something. By definition, running experiments require you to do something. None of the other popular first innovation steps do. They are designed to set up you to innovate. Experiments get you innovating – big difference.
  • It helps reduce perfectionism. This is a big enemy of innovation. If we have to have our ideas perfectly formed before we can execute them, then nothing will ever happen.  The emphasis on learning that is inherent in this approach is a great tool for working around this problem.
  • It shifts us from looking at expected returns to considering affordable losses. The whole point of experiments is that they are frugal – especially compared to the processes that we often use to try to help implement innovation.

If you think you know what the problem is, like Blockbuster, you’re probably wrong, like Blockbuster this approach will be challenging to implement. But if you’re willing to try things so that you learn, then this approach is great.

It might even make it unnecessary to develop a formal innovation strategy.  But one thing that you do need is a clear sense of purpose. That helps set the challenge that will be the organising principle for the experiments.

Here is one last quote from the book to explain why you should experiment with experiments:

The rhetorical and substantive importance of a provocative hypothesis to real-world innovators is difficult to overstate. The Googles, Amazons, Apples, Netflixes, and Capital Ones – not to mention world-class research universities – fluently hypothesize and culturally commit to experimentation in ways utterly alien to most commercial enterprises. These firms don’t insist on performing lots of interesting experiments because they’re rich; they’re rich because they insist on performing lots of interesting experiments.

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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