Archive for category evolving economic entities
Don’t Hire Experience, Hire Learners
Posted by Tim in book riffs, evolving economic entities on 10 August 2010
A few weeks ago, the Australian Financial Review published an article discussing how Australian employers value job candidates with an MBA. The short summary is: they don’t value MBAs at all. One headhunter was quoted saying something along the lines of “most employers say that if you have to choose between getting an MBA or getting two more years of experience, you’re much better off with the experience.”
This is one of the dumbest things I have ever read. Ever.
Here’s the problem with this idea: if you get two more years of experience what are you likely to be going? You’re most likely to be doing exactly what you’re doing right now. This has no practical value at all.
Jason Fried and David Hansson make an important point about this in their book ReWork. They say:
Of course, requiring some baseline level of experience can be a good idea when hiring. It makes sense to go after candidates with six months to a year of experience. It takes that long to internalize the idioms, learn how things work, understand the relevant tools, etc.
But after that, the curve flattens out. There’s surprisingly little difference between a candidate with six months of experience and one with six years. The real difference comes from the individual’s dedication, personality, and intelligence.
I’ll add one other critical factor to this – the real difference comes from peoples’ ability to learn. The problem with experience in the same job is that you stop learning. So staying in the same position that you’re currently in instead of doing an MBA, or doing anything that’s different is a problem – you’re not learning anything new.
I’ve hired a lot of people over the years, and my track record has been pretty good. Reading ReWork made me realise something – I can’t remember ever hiring someone that had a lot of experience in the job I was hiring them to do. Why? Because I’ve worked in areas that were changing. People with experience in the job had a bunch of bad habits that weren’t suited to the changing environments. It was always better to hire someone that could learn. Learners are much better equipped to deal with change.
If your industry is stable, with very little change, then you can afford to hire experience.
On the other hand, if your industry is changing, then experience is too expensive. You’re much better off hiring someone that is a skilled learner.
There are plenty of ways to identify skilled learners. They move from position to position relatively frequently (even if they’re in the same organisation all the way through), the initiate things, they talk about learning when you discuss their career trajectory with them. Some of them might even take some time off from work specifically so that they can learn some new skills.
Forget experience – hire learners.
Nothing Lasts Forever
Posted by Tim in evolving economic entities, innovation, time on 21 June 2010
Nancy and I spend the day yesterday looking at what’s left of Hadrian’s Wall. It was a fascinating day. Around 200 A.D. the wall went for about 75 miles across the UK, with forts all the way along. This is what the fort at Birdoswald looks like now:
Seeing this makes me understand why it would be someone from the UK that could write Ozymandias:
Ozymandias
By Percy Bysshe Shelley
I met a traveller from an antique land
Who said: “Two vast and trunkless legs of stone
Stand in the desert. Near them on the sand,
Half sunk, a shattered visage lies, whose frown
And wrinkled lip and sneer of cold command
Tell that its sculptor well those passions read
Which yet survive, stamped on these lifeless things,
The hand that mocked them and the heart that fed.
And on the pedestal these words appear:
`My name is Ozymandias, King of Kings:
Look on my works, ye mighty, and despair!’
Nothing beside remains. Round the decay
Of that colossal wreck, boundless and bare,
The lone and level sands stretch far away”.
I think it’s important for people interested in innovation to think about the ruins of empires. Why? Because nothing lasts forever – especially in business. This means that our innovations have use-by dates – but it’s hard to know in advance how long they’ll last.
There are two ways to respond to this. One is to figure that since nothing lasts, you better get as much as you can now. Let’s call this the BP approach.
I think this is wrong. The better response to the limited life of our innovations is to try to make them as good as possible – to aim for developing ideas that will last as long as possible. Going for the quick hit is the easy way out – and, importantly, the odds of things going wrong while you’re still around are high.
As business lifecycles get shorter, we need to make sure that our ideas are built to last. We can do this by doing our best to ensure that we are meeting genuine needs, in ways that are sustainable. Not every idea will work for hundreds of years, like the plant press for botanists – and this is why we need to take people like Umair Haque seriously. The correct response to the limited life of our innovations is to aim for betterness:
Institutions are emergent: born from the bottom up, they suddenly catch fire, and then transform the fabric of economies. It’s through small changes massively distributed, like those above, that 21st century institutions are most likely to spark and ignite a great reboot. Call it a new American Dream. Its details aren’t visible yet, but it’s outline looms large. It’s about a more meaningful prosperity, that matters in human terms, and it is institutions to support and nurture meaningful work, play, and living, that the 21st century demands.
Eventually, all our great stuff will look like Hadrian’s wall. We need to make sure that between now and then, we’re coming up with creative ideas that make things better – that’s the way to win with innovation these days. And that’s the way to respond to the realisation that nothing lasts forever.
(photo of Birdoswald from flickr/The Amatura Press under a Creative Commons License)
Searching for the Perfect Innovation
Posted by Tim in evolving economic entities, innovation on 15 June 2010
How can we come up with the perfect innovation? One that will last forever, and make us rich, and perfectly solve the problem it was designed for?
The short answer is – we can’t.
Well, it’s not completely impossible, but it’s awfully unlikely. Here’s an example that shows why.
I’m in London for the DRUID (Danish Research Unit on Industrial Dynamics) Summer Conference, which starts tomorrow. Yesterday, Nancy and I went through the new Darwin Centre at the Natural History Museum. It is absolutely superb, and the next time you have a chance to see it, you must go.
The main feature in the Centre is the Cocoon – a large, climate-controlled structure that houses all of the Museum’s plant and insect collections. There is a walk down the outside of it with state of the art exhibits, explaining the science that is going on inside, along with numerous windows inside that allow you to watch the Museum’s scientists at work. It’s one of the best natural history exhibitions I’ve ever seen.
One of the stops include a place where you can look through the window at one of the scientists working on preparing plant or insect specimens, and you can also talk to the person while they work. It looks like this:
What jumps out at you from that picture?
The thing that grabbed my attention immediately is the gigantic mechanical plant press. In the middle of this building with perfect climate control, state-of-the-art analytical tools, and incredibly display technology, we have the plant press – a design that has been in use for hundreds of years in the preparation of plant specimens – it was invented not long after Linnaeus invented his taxonomy. Still in use after several hundred years – it’s a perfect innovation!
How many of our great ideas will last that long? Will the iPad last 200 years? No, not even close. Even things that are fairly simple, designs that have been around forever, evolve. But not the plant press – it looks and functions almost exactly as it has since at least the mid-1800s.
What does this tell us?
It reinforces a couple of points that I made earlier this week – first, our innovations don’t have to be perfect, because they are unlikely to last in their current form for long. This is because in most cases, our ideas co-evolve with the people that will use them. As our innovative ideas diffuse, people add to them, subtract from them, modify them and play them. This changes the ideas, and often the end use for our ideas is substantially different from our original intention.
Second, this why we should take a build, launch, tweak approach to our innovations. They will evolve quickly through iteration – improving as they do.
Finally, consider what it takes to have an idea last for hundreds of years. It might mean that it’s a great idea, but usually it means that the environment is incredibly stable. In the case of the plant press, there hasn’t been much innovation in the way that we catalog plant specimens. There have been radical changes in the way that we categorise these specimens, driven by DNA sequencing and other technical advances, but this hasn’t required major changes in the way that we save and display specimens. The job of being a botanist in a museum has changed quite a bit, but this one small part of it hasn’t.
As we come up with innovations within our organisations, it is unlikely that our environments will be as stable as they have been for museum plants. We need to come up with ideas that are adaptable. Version 2.0 will nearly always be better than the original. The lesson is this – don’t search for the perfect innovation. Innovation creates change, which requires further innovation. It is a dynamic process. Don’t expect your innovation to last forever like the plant press. Our innovations are transient – this is another reason why we need to manage knowledge flows, not knowledge stocks – knowledge stocks usually become obsolete.
We don’t need to find perfect ideas – what we really want is to work on finding the best possible process for generating and managing ideas. That is what leads to innovation success.
(the picture from the Darwin Centre Cocoon is from flickr/ulle.b under a Creative Commons License)
Innovation Creates Uncertainty
Posted by Tim in evolving economic entities, innovation on 8 June 2010
One of the reasons that firms are often hesitant to innovate is that innovation creates uncertainty, and a lot of people are uncomfortable with uncertainty. Here is short clip from one of our earlier Executive Education courses where I talk about how we can use innovation technologies to reduce uncertainty a little bit:
Innovation technologies are those that support the innovation process. They are particularly useful for rapid prototyping and simulation – two processes that help us cycle through potential ideas more rapidly. This gives us one way to overcome uncertainty. While the outcome of each individual idea that we try out is uncertain, the more experiments we attempt, the more likely we are to find a great idea. We can overcome uncertainty by increasing our experiments.
Bob Sutton’s recent post, Innovation Will Always Have Messy Parts addresses this issue nicely. He includes this great quote from Bill Coyne, who used to lead R&D at 3M:
Finally, don’t try to control or make safe the fumbling, panicky, glorious adventure of discovery. Occasionally, one sees articles that describe how to rationalize this process, how to take the fuzzy front end and give it a nice haircut. This is self-defeating. We should allow the fuzzy front end to be as unkempt and as fuzzy as we can. Long– term growth depends on innovation, and innovation isn’t neat. We stumble on many of our best discoveries. If you want to follow the rapidly moving leading edge, you must learn to live on your feet. And you must be willing to make necessary, healthy stumbles.
The front end of innovation is fuzzy because of the uncertainty. If we reduce the fuzziness, we reduce our chances of finding and executing a great idea. If we are going to successfully innovate, we have to be comfortable with ambiguity. We can reduce overall uncertainty by increasing our experiments, but this doesn’t come naturally.
Nevertheless, trying more things that are individually uncertain can reduce the uncertainty in the overall process. It’s one of the many paradoxes which we must become comfortable if we are to successfully lead innovation.
Innovation through Exaptation
Posted by Tim in evolving economic entities, innovation on 7 May 2010
John Tropea made an interesting comment on twitter about one of my recent posts – asking how the idea of exaptation might be used to get our innovative ideas to spread through the network economy. This is a superb question, and well worth investigating (John’s blog is fantastic, by the way, and you should check it out).
First off, what is exaptation? It is a term from evolutionary theory that refers to shifting the function of a trait over time. An example of exaptation is bird feathers – their original purpose was to regulate temperature, but over time they were used to aid flight. Exaptation is a co-evolutionary process and is one of the ways that complex structures come to exist.
What does this have to do with innovation? Quite a bit, actually. One of the widely acknowledged characteristics of innovation is that the inventor often doesn’t know what the invention is for – the actual function of the innovation is discovered in use. John linked to a nice blog post by my friend Pierpaolo Andriani. In it, he talks about the introduction of micro-projectors.
Often when new things are introduced, everyone thinks that they will end up doing whatever people are currently doing, just slightly differently. Pierpaolo suggests that this is shortsighted, and that it is likely that micro-projectors will actually end up being used in some completely unanticipated way. He ties this in to Clayton Christensen’s ideas about disruptive innovation, and he says:
The take-home message is that disruptions are often preceded by a process of application discovery: underperforming technologies survive by creating new niches based on new non-competitive applications. How are the new applications discovered? Well, once prototypes are set free in the market, they will link with the nearly infinite universe of idiosyncratic needs, contexts, wants and combinatorial imagination of users out there. The co-evolutionary process between prototypes and users creates the new application space, it makes the rules of the game as it goes along.
So what’s likely to happen with the micro-projectors? That depends on another set of questions? Is the microprojector an underperforming technology? Is it disruptive? Is it going to be exapted into something else? If scaling down causes a change in the way projectors are used, then a microprojector might become something very different from a conventional projector. If this happens, then the last to know (what may happen) will be the experts!
If I were in charge of the development and commercialisation of microprojectors, I’d rather give a number of them to a group of highly diverse (cognitively diverse, á la Scott Page) group of people and invite them to play with the microprojectors, link with existing technologies, invent new behaviours (that the MP enables), form communities around the new behaviours, etc. In other words ‘exapt’ the microprojector!
This is a great example of the way that innovation works. In many cases, the final use of a new innovation ends up being completely different from what it was originally intended to do. A good example of this comes from a firm with whom John and I have done a fair bit of work – GroundProbe. Their technology is radar equipment that works with an extremely high degree of precision over a relatively short range. Originally, they thought that this would be very useful for locating pipes and underground power cables when people were digging things up – hence the name GroundProbe.
However, once the technology was brought to market, people were less enthusiastic for this service than expected. After quite a bit of experimentation, GroundProbe found several other uses for their technology. One of these was using the radar to monitor the stability of rock walls in mines. Wall collapses at a mine are extremely dangerous, and often very costly as well. These collapses are preceded by small changes in the face of the wall, and these changes can be detected by GroundProbe’s radar. Consequently, this technology can be used to evacuate a sight before a wall collapse, and sometimes it can provide enough advance warning that the rock wall can be reinforced, avoiding the collapse altogether.
This is an exaptation. Pierpaolo’s example shows how we can use our networks to facilitate exaptation. This is one of the things that makes open innovation so powerful – it is a great way to find the diverse set of potential users. Doing this will make us more effective innovators – by finding the best possible function for our innovation through experimentation in use. You can improve innovation by pro-actively taking advantage of exaptation.
Think Like a Biologist to be a Better Manager
Posted by Tim in book riffs, evolving economic entities on 4 May 2010
The first Archaeopteryx fossil was found in 1861, and it now resides in the Natural History Museum in London. It was an important find – two years after the publication of The Origin of Species by Charles Darwin, Archaeopteryx was the rarest of fossils, and one that was quite useful for Darwin’s theory – an intermediate form. Archaeopteryx very clearly shows the transition from dinosaurs to birds.
The specimen in London is the type fossil – Richard Owen published the first full description of the species in 1863. However, after that, the fossil hasn’t just been sitting around on display. It was re-described in great detail by Gavin de Beer in 1954 – this description integrated evolutionary theories known as the modern synthesis. More recently pieces of the braincase embedded in the fossil were CAT-scanned in order to learn even more about the nature of Archaeopteryx.
Richard Fortey describes all of this beautifully in his chapter in Seeing Further: The Story of Science and the Royal Society edited by Bill Bryson. He says:
All these endeavours have served to confirm the transitional nature of Archaeopteryx – but have also confirmed that in most important functional respects it is closer to birds than to dinosaurs. This in turn has contributed to the debate about whether birds descended from one particular group of dinosaurs: most paleontologists nowadays concur that they did. One might say the the meaning of Archaeopteryx has changed, while the information that has been extracted from this specimen (and other new discoveries) has increased fitfully as scientific hypotheses have shifted.
The Archaeopteryx story is important for managing innovation. The first lesson is on the research side. When people undertake business research, we like to think that we are being scientific. To many, this means acting like physicists and looking for laws. The problem with this approach is that people and their organisations don’t act like atoms. So it’s really difficult to find laws that apply equally well in all situations, and which allow for prediction.
People and firms are a lot more like organisms. Well, people are organisms – but my point is that we need to act more like biologists than like physicists when we are trying to learn what makes our organisations work. This means that we have to study the past, and use abductive reasoning to make our generalisations.
This is where the Archaeopteryx story is important. If we’re studying business like biologists, we need to start by describing things well, and by classifying them correctly. Research that is ‘merely descriptive’ is frowned upon in business schools, and this is wrong. We need more case studies, with a fair bit of detail, so that we can refer back to them in light of new theories and findings, just as biologists have with the Archaeopteryx fossils. Building grand theories might seem to be where the glory is, but we need to get a whole lot better at describing and classifying if we want our theories to hold up over time.
This leads to the second lesson – this time for managers. One of the dangers of being a manager is that often when we try to improve our skills, we end up falling prey to fads. One of the huge giveaways to someone trying to sell you on a fad is when part of the argument is “everything is different now.” This is usually a sign that there isn’t much research behind the idea – it’s often explained just through anecdotes.
One of the signs of a theory that is more grounded in reality is that whoever is explaining it makes some attempt to place it in history. They understand how previous cases fit in with their ideas, and the theories can explain not just what is happening now with dot.coms and social media, but also what happened back in the days of steam engines and telegraphs. Good business theories will do what the biologists are doing with Archaeopteryx – they will go back and reinterpret old evidence in light of the latest ideas.
My prescriptions today then are these: if you’re a researcher, think like a biologist. And if you’re a manager, look for help from research that looks more like biology. Try to use theories that are just as good at explaining Thomas Edison as they are at talking about twitter.
Electric Cars & Business Model Innovation: Better Place
Posted by Tim in business models, evolving economic entities, time on 2 May 2010
When was the first car fully powered by electricity built?
Depends on how you define it. There was a prototype built in 1835. One built in Belgium set the land speed records in 1899 (68 mph!). And a few were on sale from at least 1895 on.
In all that time, they’ve had one fundamental problem – battery life. They’ve all had restricted range. As a consequence of this, most of the recent electric cars have been small, with poor performance – making these trade-offs extends the range of the vehicle. It’s always been possible to make electric cars that perform as well as or better than petrol powered vehicles. Just look at the Belgian land speed record – or the cars from Tesla Motors today.
So electric cars have been around for a long time. Why haven’t they take off? There are a variety of reasons, but one critical one is that for the most part, they have primarily been conceived and sold using the same business model used for petrol-powered cars. Consequently, they are judged against the performance of petrol-powered cars, and in this regard they consistently come up short.
What’s the solution?
Business model innovation, of course! Watch this talk by Shai Agassi from last year’s TED Conference, and think about the business model that his company Better Place is trying to implement:
We discussed this video in class this week – when I asked how this business model stacked up against the traditional one for cars, one woman enthusiastically said “Everything is different!” She’s right. That is why Better Place is becoming a popular example among people interested in business model innovation. Mark Johnson talks about them in Seizing the White Space, Anders Sundelin has written several excellent posts on Better Place on the Business Model Database Blog, and it’s been discussed on Knowledge @ Wharton Innovation and Entrepreneurship page.
Because Better Place has already been pretty widely discussed, I want to focus on just two parts of their business model innovation: revenue generation, and their value network.
The Better Place vehicles are being sold on the mobile phone model – the hardware is pretty cheap, because it is subsidised by a usage fee. You get the car for very little, but you pay Better Place a mileage fee. This is important for several reasons. One is that dramatically changes the economics of buying a car. In Denmark, you will be able to buy a BP car for about 1/3 the cost of a petrol-powered car of similar specs, and running costs will be about the same. This introduces a new buying decision for people. It’s no longer “I’d like to be green so I’ll accept a bunch of severely limiting performance trade-offs to do so.” This payment structure actually makes BP cars attractive whether you want to be green or not.
The changes in the value network are driven by these changes in the revenue generation mechanism as well. Better Place is not manufacturing cars – they are assembling an electric vehicle ecosystem. Here is the description from the Wharton piece:
Just like telecoms operators established a wireless network to enable mobile phone communication, Better Place established a network, but in its case to enable mobile transportation with electric vehicle charging spots and battery exchange stations powered by renewable energy. It is creating an ecosystem of companies, which will produce electric cars with batteries that can be exchanged or recharged at the stations, manufacture batteries, set up electric-car dealerships and more. Just like telecoms customers paying for minutes used on a wireless network, its customers pay for miles driven. The vehicles become the means of generating revenue for Better Place.
“The company thought about a novel way to [change] the automotive industry in a way that alleviates a reliance on fossil fuels. It’s good for the environment, good for national security, good for consumers,” Amit notes. Better Place “may even give customers a car for a nominal fee because it makes money from renting a battery, just like the cell operator gives you a free phone to use on their network.” The Better Place business model, he says, has turned much of what the auto sector does on its head. “Right now, when a dealer sells you a car, he doesn’t make money when you drive it. The Better Place revenue model is based on car usage. This is a different business model.”
By approaching their business model this way, Better Place accomplishes two important things. One is that they establish an ongoing relationship with the car buyers. For as long as you are driving one of their cars, you’re connected to the firm. The second accomplishment is that this extended recharging and battery-swapping network gets around the range problem that has been the critical issue for electric cars for well over 100 years. By taking that out of the equation, they eliminate the primary reason for not driving an electric car.
Finally, this business model positions Better Place to take advantage of what will be substantial falling costs of producing electricity for their cars. As Agassi notes in the talk, the cost of producing and storing power will drop in half about every five years. This is staggering – it means that these savings can either be passed on to consumers, or held as extra profit. Either way is good Better Place.
As my student pointed out, all aspects of the Better Place business model are different – not just these two things. This is a great case study of business model innovation. It shows how new business model can reinvent an industry. It’s pretty easy to see how the auto industry will change enormously if this approach works. It also demonstrates how all of the elements of a business model need to be integrated. I didn’t talk about all of them, but you can see in the talk how the market being served, the problem being addressed, and the firm’s place in the value chain are all different too – and that everything fits together.
Business model innovation is a powerful, yet often overlooked form of innovation. Innovating your business model not might have results as radical as Better Place’s, but it is an option that is open to all organisations. And it’s one to which you should give some thought.
Creating Value Through New Connections
Posted by John in connect, evolving economic entities, innovation on 28 April 2010
Tim does a really nice talk on the invention of the computer and he has posted the slides on this blog. While he uses the story to discuss the difference between innovation and invention, I think there are a lot of other really interesting lessons here. Firstly, I’d like to add to Tim’s story by claiming that Hindus invented the technology that allows the modern computer to exist and then I’d like to make the observation that the fundamental difference between innovation and invention is connections.
So, what was the amazing technology developed in India nearly 2000 years ago? Quite simply, it was the number 0. Before this invention, there wasn’t a numerical way of describing nothing. It seems such a trivial idea, but it the basis for the digital economy. The first record of a 0 in use can be found in a temple in India where the inscription dates to 876 AD (the inscription below is the number 50).
The idea of 0 is an invention but it becomes an economically valuable invention (an innovation!) when it gets connected to other things. When we combine 0 with other numbers then we can start to develop some pretty powerful mathematics, which become more valuable when we connect them to systems of accounting and government. It isn’t surprising that the Moghuls were masters of empire building through careful accounting and measurement of every activity. Fibonacci brought the decimal number system to Italy at the beginning of the Renaissance , which set the Medici family on the path to greatness through the development of modern banking. Imagine trying to perform complex financial calculations with Roman numerals!
Finally, when we connect the humble 0 to 1 to develop binary code and then connect this to other inventions such as transistors and silicon chips, we get the computers and their applications that would have been unimaginable for the Indian mathematicians who invented the 0 in the first place.
The point is that valuable innovations come about through connecting things together so that there are new applications for things that already exist. It’s a bit like the conservation of matter principle. Matter can’t be created or destroyed but we can get new combinations of matter that are innovations.
I think what this means for firms is that they can’t think of managing innovation without thinking about managing connections. They are two sides of the same coin. Tim and I get to see many firms who have innovation management processes but few consciously think about the role of connections. One exception though is one of our research partners, Rio Tinto. They don’t describe themselves as being particularly innovative, although we can see many incremental innovations that have resulted from their community of practice program that tries to bring people together to match solutions to problems.
If we are getting serious about managing innovation then we need to start to understand the connections that are behind them. One way of doing this is through network analysis and we are currently looking at how network structures in firms influence innovation performance (there is a chapter by us on this subject in a recent book published by the Australian Business Foundation).
The Importance of National Innovation Systems
Posted by Tim in evolving economic entities, innovation on 18 April 2010
One topic that I’ve done quite a bit of academic research on is Innovation Systems (National, Regional and Sectoral), but strangely, I haven’t written much about it here. However, over the weekend I saw a recent report released here in Australia called Management Matters in Australia (the summary is here, and you can also download the entire report from that page). The report is part of an international study of management skills across countries, run by the London School of Economics and McKinsey internationally, and a group headed up by Roy Green at University of Technology Sydney here in Australia.
The study looks at eighteen different areas of management skill in three broad categories – operations, management performance, and people management. The scores are based on surveys of firms of all sizes and across all industries, and each area is scored on a scale from 1 to 5. The averages for Australia are shown in this diagram from the report:
That rings true to my experience with Australian firms – they tend to be very strong on operational stuff, but less good on big picture thinking and people management. From an innovation standpoint, these results are a bit alarming. As you might expect, there tends to be strong correlations between innovation performance and overall management skills, particularly people management. This figure shows just how strongly correlated management skill and innovation were in this study:
Flexible people management is shown to be a key element of successful management, and well-managed firms tend also to exhibit superior innovation capabilities
The chart shows this pretty clearly – firms with higher scores on managements skills are vastly more innovative (at least in terms of formal IP outputs) than those that are less skilled. Differences in innovation performance actually explain about 8% of the differences in overall management performance – in a study like this, that is a huge number.
The final important point that the report makes is that innovation and management skills drive economic growth. One very interesting figure compares the breakdown of firms with particular scores from China and India versus those in Australia:
This shows that the top 27% of firms in China and India have higher levels of management skill than the bottom 50% of Australian firms. Other studies have shown similar results for innovation. Boston Consulting Group just released their annual report on the 50 most innovative companies in the world - there are two each from China and India on that list. There are also plenty of firms from Japan, Taiwan and South Korea on the list – three other countries that used to viewed as imitators rather than innovators (an issue that I looked at with Mark Dodgson and John Matthews in my first research publication).
There are important lessons to take from this report, including:
- The innovation system within which a firm works has a big impact on their ability to innovate. Policy issues like infrastructure, education and innovation policy all drive performance in this area. The idea that this is one area where government policy can have a substantial impact on firm performance is a robust research finding that has been replicated many times over the years, in studies all around the world. As the report puts it:
In today’s rapidly changing economic environment, governments play a key role in harnessing the creativity of their people, their enterprises and the economy as a whole. Through the national innovation system and links between stakeholders, government can instil, drive and support the development of good management practices and behaviour, especially targeted towards small and medium sized firms. The LSE study not only concluded that “Governments can play their part in encouraging the take-up of good management behaviour” but it also maintained that “Doing so may be the single most cost-effective way of improving the performance of their economies”.
- Strength in people management skills is a critical part of innovation. If you are going to sustain innovation performance over time, you need to be able to attract and retain good people. This is true even if you are pursuing an open innovation strategy – you still need good people in your firm to evaluate and integrate ideas that come from the outside.
- Personally, I find the Australian results alarming.
- Finally, do not underestimate the innovation capability in developing countries. Often when I hear people discount firms from China and India as “imitators” it seems like they are using this as an excuse for not being innovative themselves. This is dangerous. There is a lot of innovation going on in these countries, especially in all of the green technologies. We’re only a few years away from seeing the impact of these innovations start to spread more widely.
Innovation systems are important. They often determine how effective the firms within them can be in innovation, because they can both enable innovation and also constrain the ability and vision of firms. Australia has recently been putting quite a few resources into programs like Enterprise Connect, which are designed to spur innovation. Wherever your firm is, it helps to gain a better understanding of the resources available to you there. Developing this understanding can have a big impact on your firm’s ability to innovate.
Don’t Fear the Social Media Bubble
Posted by Tim in evolving economic entities on 4 April 2010
In a blog post last week, Umair Haque put forward the idea that we’re currently experiencing a social media bubble, and he also explained why he thinks this is a bad thing:
Call it relationship inflation. Nominally, you have a lot more relationships — but in reality, few, if any, are actually valuable. Just as currency inflation debases money, so social inflation debases relationships. The very word “relationship” is being cheapened. It used to mean someone you could count on. Today, it means someone you can swap bits with.
He then says that this relationship inflation leads to inefficient allocation of attention, investment in low-quality content because that is what’s most popular, and a weakening of the internet as a force for good.
That’s pretty alarming.
As much as admire Haque’s work, I think there are a couple of flaws in his argument. I’m 100% with him in his desire for the creation and sustenance of thick, meaningful relationships and for the creation of awesome things that make our lives genuinely better. But I’m not convinced that social media is preventing progress towards these goals.
There are two parts of his argument that I’m not so sure about. The first is the contention that all ties within social media are weak ties. Now, social tools like facebook and twitter certainly do conflate genuine friends with acquaintances. But does it follow that because the tools do, that we do as well? I don’t think so. In a highly recommended post, Stowe Boyd responds:
He suggests that because we are creating and expending time on a growing number of weak ties then we are diminishing our involvement with intimates. I think this is debatable. While the time I spend writing this blog or twittering could in principle be applied to talking to loved ones directly, in reality many of my closest friends read this blog and my twitter stream to remain in contact with me, at no extra cost (here I am adopting Umair’s economics jargon). This in no way weakens my strongest ties, and certainly is the wellspring of thousands of weak ties.
And, as Erica Glasier points out, there are lots of valuable things that we can do with weak ties:
Thin relationships, or “weak connections” make these upper-Maslow interactions possible. You don’t need a high level of investment in someone to trade ideas. Their input is valuable precisely because they come from a different perspective, and aren’t bound by politeness or concern for your ego. I’ve mentioned the findings that novel input from new friends sparks more innovative, creative solutions. The more the merrier.
Weak ties can actually be pretty useful. There are tons of things we can do with our weak ties:
- We can get a job. The first use of the idea of strong and weak ties came through Mark Granovetter’s paper The Strength of Weak Ties (summarised here). His study showed that people are far more likely to find a job through weak ties than they are through strong ties, because people that we are less closely attached to are more likely to know things that we don’t already know ourselves.
- Like Erica says, we can use our weak ties to swap ideas, and to get ideas to spread. For examples of this, just look at the ways that Umair, Stowe and Erica use twitter, just for starters.
- Large numbers of weak ties can be incredibly useful for finding out specific information quickly. Paul Gillin has a good example in the comments to his recent post on search:
OK, I want to take a run after dark and avoid bad areas of town. In that case, recommendations from my Twitter followers would be my most useful source of advice. In fact, I probably couldn’t even find that kind of information on a search engine.
So, I agree with Boyd that having social tools equate strong and weak ties does not necessarily devalue weak ties. Furthermore, there are plenty of uses for weak ties, many of which actually do create thick value. I think that the key to this issue is ensuring that we keep the distinction between friends and acquaintances clear in our minds.
The second thing I’m not sure I agree with is the idea that bubbles are bad. They’re certainly inefficient, which is bad from a neo-classical economic view. But in many cases bubbles create an incubator for experimentation, which is often the only way we can discover the value in novel technologies. Here’s the way Jason Potts put it (a link to the pdf):
Bubbles are good because they promote variety and experimentation in an economic system. The bubble process facilitates the sort of structural change that economic growth always, in some form, requires. Economic systems, when they are open and therefore competitive, need bubbles to grow. So they require institutional systems and policy frameworks capable of (perhaps vigorous) interaction with bubbles.
A bubble works by concentrating financial liquidity and entrepreneurial attention onto an asset class and its forward prospects. Inside a bubble, the cost of experimentation, and therefore variety generation, is lowered and, by incentive effect, the process of structural change is accelerated. Access to finance is easy inside a bubble. Similarly, the cost of failure is reduced, and the uptake of novelty is high. The economy becomes energised around the bubble, as do the entrepreneurial spirits of agents who happen upon it. Learning is accelerated within a bubble, and radically new business ideas can get a start, as can radically new products. Real bubbles theory, then, is the idea that from a bubble environment there flows the incipient variety upon which the evolutionary economic process of enterprise and wealth creation feeds. Bubbles breed variety, and variety feeds economic evolution, and therefore growth.
Jason is talking about bubbles more like the dot.com boom than policy-driven bubbles like those in housing. The issue is that when we have something new, like the internet, or social media, we have to figure out what the best use of it will be. In the dot.com bubble, it is only obvious in retrospect that pets.com was a dumb idea (those huge shipping charges!) and amazon.com was brilliant. At the time, this was still an open question – and plenty of people thought that amazon was pretty stupid when it launched (Who buys books without seeing them first? How will we know what we’re looking for without book store clerks? etc.). It’s only through experimentation that we discover what the killer ideas are.
It’s the same with social media. It wasn’t obvious when it launched that twitter was going to work as it had – it couldn’t be because twitter is built on the network of connections within the tool. Bubbles are useful precisely because we can’t pick the winners in advance.
The issue that Umair might take with this is that growth isn’t by definition good. I agree with this, so in as far as bubbles drive growth, then they aren’t necessarily good. But I don’t think that they are by definition bad either. Our challenge is to figure out how to drive investment in creating things that have genuine sustainable value. This problem is the same whether or not the social media bubble exists. What we really need is an awesomeness bubble.
