Tim Kastelle

Category: book riffs

  • Manage Knowledge Flow not Knowledge Stocks for Innovation Success

    I am always skeptical of ‘everything is different now’ style arguments. If we think about the history of business, we have been trying to manage in a state of turmoil going back at least to the start of the industrial revolution, possibly longer. The introduction of railways, the telegraph, electricity and the automobile were all disruptive to lifestyle and business to a degree that is at least equal to and probably greater than we are seeing with the introduction of computers and the internet.

    The real issue isn’t that ‘everything is different now’ – the real issue is that people are profoundly uncomfortable with uncertainty. Authors, consultants and others seeking to push an idea take advantage of this discomfort by making sweeping ‘everything is different now’ style arguments to justify whatever it is they’re pitching. It works, but it’s not a very good way to do business.

    That is not the approach taken by John Hagel III, John Seeley Brown and Lang Davison in The Power of Pull, which may well be the best business book of 2010. Hagel described some of the key points from the book at the recent Social Business Edge event organised by Stowe Boyd. The video of Hagel’s talk is worth watching (as are those by Venessa Miemis and Baratunde Thurston, among others – it looks like it was a great day!):

    Hagel’s talk emphasises two points that I haven’t seen discussed much in reviews of the book. The first is the statistical review that they use to identify just what it is that has been changing in the business world. This is based on the work published in The Shift Index, a report that the authors put together for Deloitte’s Center for the Edge. They assembled statistics on all of the publicly listed firms in the US from 1965 to now. One alarming thing that they discovered is that Return on Assets has steadily declined over that time – it is now about 25% of what it was in 1965 (the figure below is taken from the report).

    This is pretty good evidence that things are in fact changing, and the report also provides some evidence of how things are changing. The second point that Hagel brings out is that their belief, based on the evidence, is that this change in ROA is due in large part to a shift in emphasis from knowledge stocks to knowledge flows:

    The Flow Index focuses on the key drivers of performance in a world increasingly shaped by digital infrastructure. This includes both physical and virtual flows of knowledge, capital and talent enabled by the foundational advances as well as the amplifiers of these flows. Such amplifiers include the increased use of social media and the degree of passion with which employees are engaged in their jobs.
    …

    Improving performance starts with recognizing that knowledge flows can help a company gain a competitive advantage in an age of near-constant disruption. The number and quality of knowledge flows at a firm — both within the organization and especially across institutions — will be a key indicator of any company’s ability to master the Big Shift.

    This shift from knowledge stocks to knowledge flows has several critical implications for managing innovation, including:

    • As Hagel says, tapping into knowledge flows is not really about engaging in conversation – it is about using these flows to create new ideas. As we have discussed many times here, a fundamental error that many organisations make when they try to become more innovative is to focus on stockpiling ideas – this is a knowledge stock approach. It is much better to focus on making novel connections between ideas – this is the knowledge flow approach.
    • In other words, we need to get better ideas, not more. How? By tapping into knowledge flow through our networks. This is how Hagel and Brown describe this in an excellent paper on creation networks (.pdf), which tries to frame a rigorous approach to managing open innovation:

      Creation nets represent a particularly powerful form of open innovation
      designed to harness the potential of distributed innovation activity
      pursued by hundreds or thousands of participants. Creation nets
      implement a set of institutional mechanisms designed to mobilize
      independent entities in the pursuit of distributed, collaborative and
      cumulative innovation. These institutional mechanisms are critical to
      understanding how creation nets coordinate innovation efforts and how
      these creation nets will re-shape the role and structure of the firm.

      These networks are assembled by a network organizer who serves as
      gate-keeper, deciding who will be able to participate in the network. The
      network organizer also defines fundamental governance processes to
      coordinate the activities of the network, for example, determining how
      disputes will be resolved and how performance will be measured. These
      participation protocols are generally simple and informal, especially in
      the early stages of network formation. Participation in the network is
      rarely established through formal contractual documents, although
      specific initiatives within the network may be governed by such contracts.

      Network management is an essential business skill these days. And we need our networks not just as a source of information, but as a resource for generating novel connections between ideas. We can do this by co-ordinating idea exchange within networks of people that share our interests and/or objectives.

    We need to stop trying to stockpile ideas. It is much more important to use the ideas we have to create innovative connections. In managing innovation, this means looking at our process for managing ideas. We need to generate great ideas (better ideas, not more!), we need a system for selecting the best ones and trying them out to see if they’ll work, and we need to get the ideas to spread.

    Our networks are particularly important in all of these steps. The creation nets that Hagel and Brown discuss are using networks to generate better ideas. Our networks also help us use empathy to help select the best ideas to pursue. And networks are obviously essential for getting our ideas to spread.

    Network thinking is at the centre of managing knowledge flows. And as The Power of Pull demonstrates, if we are going to be successful these days, we need to be managing knowledge flows, not knowledge stocks. I’m still not sure if ‘everything is different now’ – but I’m reasonably confident that this is a worthwhile change to make.

  • How Can We Motivate Innovative People?

    How do we encourage people to try out their new ideas? One of the big problems we face in managing innovation is figuring out a way to help the people we work with to be more creative. In this fantastic talk, Dan Pink outlines some of the key points from his new book Drive:

    The main point is that command and control management, using carrots and sticks, works ok when we are trying to manage routine jobs. However, when the jobs we are managing require any type of creativity, this style of management actually inhibits performance! If we’re trying to motivate innovation, Pink argues that the three things people need are autonomy, mastery and a sense of purpose.

    This is what he says it means for managing innovation:

    I would’ve done it this way three years ago, before this research: Give ’em a frickin’ innovation bonus. ‘Here’s $2500 if you do something cool.’ But they’re not doing this at all – they’re essentially saying ‘You probably want to do something interesting – let me just get out of your way.’

    The three factors of autonomy, mastery and sense of purpose are interesting. If we take these seriously, it leads to important implications for managing innovation:

    • Managers need to give up control: people respond strongly to having control of what they do, and having some choice in the projects on which they work. To provide this autonomy, you can’t tell people what to do. Managing isn’t directing – it’s giving people the space they need to execute their interesting ideas. Bob Sutton makes this same point:

      My job is to serve as a human shield, to protect my people from external intrusions, distractions, and idiocy of every stripe — and to avoid imposing my own idiocy on them as well.

    • To get good outcomes from this autonomy, we also need mastery. Innovation is about making new connections, but to do this well, we need deep knowledge. Innovation isn’t about inspiration. Innovation is about working hard. Sure, making novel connections is what it’s all about – but you can’t do that if you haven’t done the hard work to know what the connections mean. Here’s Gordon Gould, one of the people that invented the laser, talking about the moment of inspiration:

      In the middle of one Saturday night… the whole thing suddenly popped into my head and I saw how to build the laser… But that flash of insight required the 20 years of work I had done in physics and optics to put all of the bricks of that invention in there.

    • But doesn’t all this autonomy lead to chaos? It can – that’s we we need purpose, to provide some guidance to the autonomous work. This is where Mark Earls’ concept of the Purpose-Idea is critical. Here is how Hugh MacLeod summarises it:

      What’s far more interesting, Mark says, is the reason we all get out of bed in the morning. The thing that drives us as individuals, as a company. Ask yourself, what is our company for? Is all our professional life about just selling aluminum widgets for 16.7% margin, or is there some sort of higher meaning involved? What are we trying to change? To improve upon? To disrupt?

      Why are we here?

      Mark then goes on to say how much more fun, interesting and profitable it is for a company when what it does has a sense of shared purpose, an idea it can believe in. This is the “P.I.”

      It’s the sense of purpose that pulls people together. Leadership is not telling people what to do, it’s inspiring them to do great stuff

    Drive is not your typical business book where a bunch of appealing anecdotes are trotted out and treated like data. As you can tell from his talks, Pink is certainly entertaining, but his books are always grounded in research. And in this case, the research results are pretty clear: if we are trying to motivate innovative people, don’t use carrots and sticks – use autonomy, mastery and purpose instead.

  • Empathy and Innovation

    Check out this talk by Jeremy Rifkin:

    I’ve talked before about how innovation needs to be empathy-driven, and Rifkin’s talk illustrates why. We are inherently empathic – and many ideas spread not through persuasion, but through copying. This point is made emphaticaly by Mark Earls in his terrific book Herd.

    Earls talks about what this means for marketing. Many of the hot new ideas in marketing, like Word-of-Mouth marketing, are really just things that we naturally do. We naturally talk about things that interest us. We naturally copy people that we respect. Marketers talk about tapping into this, but Earls argues that we can’t really do this (to our great relief!).

    What does this mean for innovation?

    There are a couple of key points:

    • Getting our innovative ideas to spread is a critical part of the innovation process. If we use empathy to drive innovation, it is easier to set up pull processes to get our ideas to spread. John Hagel, John Seeley Brown and Lang Davison talk about this in their new book The Power of Pull.

      It’s an excellent book, and in it they discuss ways to construct networks that will pull people and information to you. They argue that this is a more successful method for getting your own ideas to spread than push models, where you try to force people to pay attention to your ideas. But we can’t build pull models without empathy, because to pull people in, we have to understand what they value. And we have to understand how our great ideas build value for them. This is challenging.

    • Using empathy to drive innovation helps us deal with the fact that not all innovation is good. We are more likely to create ideas that enrich people if we use empathy – it’s a skill that we all need to try to build.
    • If ideas spread through copying more than persuasion, this is another argument for the importance of empathy in innovation. Dev Patnaik makes an interesting point about this:

      The line between inside and outside the company starts to blur. Rather than seeing yourselves and your customers as us and them, you start to see yourselves as part of the same tribe. You start to think like your customers and feel confident enough to rely on your intuition. You find yourself anticipating what real people are up to and what they’re looking for from you. The effects can be profound.

      When you develop these deep connections with the people you serve, the ideas that you give them are more likely to spread.

    We are naturally empathic. This has enormous implications for how we innovate, and for how we do business. Developing an understanding of these concepts is central to using innovation to build an organisation that will be sustainable over the long term.

  • Build, Launch, and Tweak

    My biggest failing as an innovator is that I get over-attached to ideas. I’m getting better at this, but for a long time if I had a great idea, I was pretty content to just do stuff that managed the idea, or to just talk about the idea, or even to just think about the idea. That’s one of the reasons that I am so adamant here about how essential it is to execute ideas. I’m really yelling at myself.

    This is one of the reasons that a lot of the ideas to come from 37signals resonates so strongly with me – they are all about executing ideas. Their book Getting Real is ostensibly about making web apps, but it’s really about how to execute ideas. Here is how Wired UK describes it:

    The message: small teams, working on manageable systems, with fewer features mean that applications are better, quicker to market, and faster to improve. Moreover, it recommends that the best way to plan your ideas is to build them first. “The only real way to determine whether something’s worth doing is actually to do it,” explains Fried, 35. “When you sit down to plan something out, you typically make it bigger than it needs to be.”

    And then there’s this from the intro:

    Getting Real is about skipping all the stuff that represents real (charts, graphs, boxes, arrows, schematics, wireframes, etc.) and actually building the real thing.

    Getting real is less. Less mass, less software, less features, less paperwork, less of everything that’s not essential (and most of what you think is essential actually isn’t).

    Getting Real is staying small and being agile.

    I think that the reason that we sit on ideas is that if we don’t execute them, they will always have potential. If we try it out and it doesn’t work, we lose that potential value.

    The problem though is that the actual value of potential value is zero. If we try out a great idea and it doesn’t work, we’re not any worse off than we were before. In fact, we’re better off, because now we know more than we did before we tried out our idea.

    As Seth Godin says, real artists ship. They test out ideas, and they get them out the door. He recently wrote a post about Tim Burton – a display about Burton’s work showed that every single year over a 30 year career, he sunk substantial time into one or two projects that never went anywhere. Here’s what Godin says about that:

    One key element of a successful artist: ship. Get it out the door. Make things happen.

    The other: fail. Fail often. Dream big and don’t make it. Not every time, anyway.

    Tim got his ideas out the door, to the people who decided what to do with them. And more often than not, they shot down his ideas. That’s okay. He shipped.

    The lesson from this is simple – don’t spend time thinking about your great ideas. Implement them! All the time. The secret that people are always surprised to learn is this: the more time you spend implementing ideas, the more new ideas you’ll have. The paradox here is that if you hoard your idea and don’t try it out, you won’t get any more. You’ll be stuck with your one, great, unexecuted idea.

    Get things out the door. Test out your ideas, see what works, do more of that. Build, Launch and Tweak. The faster you do this, the more new ideas you’ll generate. And some of these will be even better than the ones you love right now.

  • When Planting a Garden is a Radical Innovation

    Nothing could be less innovative than planting a garden at your house, right? Maybe – but maybe not. Take a look at this:

    It’s a Green Roof that’s been planted as part of an initiative put together by Sustainable South Bronx. This is initiative started by Majora Carter. The gardens do three main things. They provide food for residents, with a surplus that can be sold to stores and restaurants. The insulate the roofs of the building, which reduces temperatures in the summer and increases them in the winter, saving on climate control expenses. And the extra plants scrub toxins from the air, creating a healthier environment.

    Here is how Douglas Rushkoff describes the work of SSBs in his book Life, Inc.:

    Through her group, Sustainable South Bronx, she created opportunities for people to grow vegetables at home, to get paid to do environmental cleanup, and to work through local government to stop New York from using the neighborhood as a dumping site for 25% of the city’s waste. Her main innovation was to develop a new method of rooftop gardening that provides high yields of organic vegetables for urban dwellers and local restaurants.
    …
    Efforts like this scale up in two ways. First, they are shared with or copied by other groups in other communities around the world. Rooftop gardens can work in any city to lower energy bills and clean the air while providing food and jobs. Sharing the wealth is not a matter of Sustainable South Bronx franchising patented techniques to other cities – there’s enough work for them to do in the South Bronx, and they don’t need to extract value from other cities in order to achieve sustainability for themselves. By modeling what they do for others, they develop a network through which they too can learn new techniques.

    More significantly, the impacts of their highly local efforts trickle up in profound ways. Less pollution means fewer children with asthma, lower medical and insurance costs, and more time in school.

    That’s a lot of good outcomes just from planting gardens. Here are some of the key ideas that are illustrated by the Green Roof program:

    1. If you can innovate gardening, you can innovate anything. This is another example of major business model innovation. The initiatives that SSBx undertakes, and the work that they train people to do is nothing new. The new part is the infrastructure that they have built around these basic activities. In doing so, they are creating genuine value.
    2. This is a great example of what Umair Haque referred to last week as a ‘betterness model’. After describing some major problems with IKEA that he encountered, Haque said:

      IKEA’s problem is that it has a business model — but no betterness model. By that I mean, not a model to merely make, market, and sell more meaningless, mass-produced junk, but a model for creating authentic economic value that accrues meaningfully to society.

      Sustainable South Bronx is certainly doing this. Their initiatives create significant local value, making the neighborhood a stronger community, and a better, healthier place to live. That’s quite an accomplishment – and one worth aiming for.

    3. SSBx is creating value by connecting. They connect ideas to create new business models and new ways of doing things. Then they connect these ideas to people when they train them – the ideas get transferred as skills. And by creating a network of similar organisations in other cities, they create value for themselves and others through sharing ideas. This is an example of building a network by connecting others, rather than trying to create scarcity by occupying the most valuable network position themselves. Innovation creates value through creating connections.

    Innovation isn’t simply coming up with shiny new things. Developing new ways of doing things is a powerful form of innovation. In doing this, we need to consider the broader implications of our business model, which is what makes Haque’s Betterness Model so compelling to me. When you start thinking this way, you can figure out how to innovate something as simple as a garden.

    If you’re interested in learning more, here are two interesting talks. The first is Majora Carter’s TED talk, where she discusses her background, and how she came to be involved in sustainable development:

    The second is Douglas Rushkoff’s talk at SxSW this year, where he summarises some of the key themes from his book:

  • Think Like a Biologist to be a Better Manager

    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.

  • Innovation: The War of Ideas

    Innovations are ideas. Even if your innovation is a new gizmo, it is essentially an idea. Once you have a great idea (by making a new connection), you have to figure out how to get it to work, and once you’ve done that, you have to figure out how to get the idea to spread. The last part is often the tough part. Consider what Machievelli had to say about it about 500 years ago in The Prince:

    There is nothing more difficult to plan, more doubtful of success, nor more dangerous to manage than the creation of a new order of things… Whenever his enemies have the ability to attack the innovator, they do with the passion of partisans, while the others defend him sluggishly, so that the innovator and his party alike are vulnerable.

    Machievelli was talking about innovative political ideas, which is why he refers to “the innovator and his party”, but the same idea holds in economic innovation. Innovation is tough – and new ideas get attacked. This leads to a common mistake that smart people make – they often think that a great new idea will sell itself. In the fantastic new book Seeing Further: The Story of Science and the Royal Society edited by Bill Bryson, Rebecca Newberger Goldstein shows that even Galileo made this mistake:

    Galileo, for his part, could be high-handed in regard to experimentation, writing, for example that it was only the need to convince his ignorant opponents that made him resort to ‘a variety of experiments, though, to satisfy his own mind alone he had never felt it necessary to make any’. As [historian of science E.A. Burtt] has written, ‘If this was seriously meant, it was extremely important for the advance of science that Galileo had strong opponents…’

    In this case, experiments were critically important because those are what demonstrate that Galileo’s theories were right – that they worked when you applied them out in the world. It’s the same with innovation – we need to show that our ideas work. And then we need to get them to spread, which usually means defeating the opponents of our ideas.

    Machievelli’s enemies are Galileo’s opponents. Whenever we come up with great ideas of our own, we have enemies and opponents too. One way or another, our innovative ideas have to displace ideas that are already out there, to which people often have strong attachments. To get our ideas to spread, we have to break these attachments.

    This is a large part of why business model innovation is so attractive. When we innovate our business models, we are creating new space, where the competing ideas aren’t as strongly embedded. The drawback to this is that it is harder to prove to people that the ideas work, because there are fewer references points. The advantage is that there are also fewer pre-existing connections that have to be broken.

    Getting ideas to spread is challenging. It’s a mistake to think like Galileo and to believe that it’s simply enough to have the great ideas in the first place. We have to show that they work, and then we have to enter the battle that Machievelli describes. This is often hard, because many innovators are ideas people. But it’s much more satisfying to see our ideas adopted. So don’t just have the great ideas, show that they work, and get them to spread.

  • Outsource Remembering to be More Innovative

    What do you think of this?

    [It] is a device in which an individual stores all his books, records, and communications, and which is mechanized so that it may be consulted with exceeding speed and flexibility. It is an enlarged intimate supplement to… memory.
    …
    [It has] slanting translucent screens, on which material can be projected for convenient reading.
    …
    Most of the … contents are purchased… Books of all sorts, pictures, current periodicals, newspapers are thus obtained and dropped into place. Business correspondence takes the same path. And there is a provision for direct entry. On top… is a transparent platen. On this are placed longhand notes, photographs, memoranda, all sorts of things. When one is in place, the depression of a [button] causes it to be photographed.

    The author then goes on to describe how the built-in camera will work.

    Sounds pretty cool, doesn’t it? When they go on sale, I may well buy one. So what is it?

    It is the Memex (MEMory EXtendor) – described by Vannevar Bush in his article his essay in The Atlantic As We May Think, published in 1945 (and you should definitely read it). Bush was primarily concerned with how to cope with what he saw as an overwhelming amount of information available to people, especially researchers.

    There is a growing mountain of research. We are being bogged down today as specialization extends. The investigator is staggered by the findings and conclusions of thousands of other workers – conclusions which he cannot find time to grasp, much less to remember.
    …
    The difficult seems to be not so much that we publish unduly… but rather that publication has been extended far beyond our present ability to make real use of the record… [It] must be continuously extended, it must be stored, and above all it must be consulted.
    …
    Creative thought and essentially repetitive thought are very different things. For the latter there are… powerful mechanical aids.

    The quotes from the Bush article are from the book Total Recall: How the E-Memory Revolution will Change Everything by Gordon Bell and Jim Gemmell. The book is about using technology to extend memory, much as Bush was. The description of the Memex made me think of what people are currently saying about the iPad (though I’m obviously not the first one to have this thought). Although, it sounds like it would be a lot easier to get data into a Memex, so the iPad is maybe only half-way there. That’s one of the reasons that I’m not so excited about it. I don’t need a portable library. Well, ok, I do, but that’s not the most important thing that I need. More importantly, I need a portable digital memory – and that requires data input.

    The larger point is one that I’ve made before: information overload has been around for a long time. Bush’s worries sound pretty familiar to us right now – there’s too much stuff to keep track of.

    And the problem started even before World War II – junk mail was invented in the 19th century. Check this out from the NYT:

    But a decade or so later, when Britain and the United States introduced cheap, flat postal rates, without regard to the number of sheets or distance traveled, correspondents enjoyed something like our unmetered broadband today. Communication became more frequent, and ties were strengthened among families and friends. But cheap rates also led to junk mail and postal scams.

    In Victorian London, though service wasn’t 24/7, it was close to 12/6. Home delivery routes would go by every house 12 times a day — yes, 12. In 1889, for example, the first delivery began about 7:30 a.m. and the last one at about 7:30 p.m. In major cities like Birmingham by the end of the century, home routes were run six times a day.

    That’s why I think that As We May Think is so prescient – the idea that we should outsource remembering things that are easily written down so that our brain can concentrate on creating novel ideas is exactly right. Creative thinking is how we make new connections between ideas – and this is the source of innovation, and the source of value. Anything that frees up cycles in our heads for this is valuable. That’s why I’d buy a Memex. I’m looking forward to someone actually building one.

  • How to Experiment to Support Innovation

    Earlier this week I did a talk on innovation for a local firm that was the opening session of their strategy-making work for the year. During the questions, one person asked for suggestions about a specific initiative that they had been trying to get off the ground for a couple of years, but which just kept stalling. Before I could even answer, someone else jumped in and suggested that maybe the problem was that they simply hadn’t figured out yet how to test out the idea quickly and cheaply.

    I’d like to say that he came up with such a great answer as a result of my inspirational talk, but I think that the truth of the matter is more mundane – he’s a smart guy. They talked about some of the ways that they might try an experiment to get the initiative off the ground, and the discussion gave me a clue about how to integrate a couple of ideas that we’ve been talking about here recently.

    I’ve talked frequently about the importance of experimenting in innovation, and John has been discussing the use of real options in costing innovation initiatives. The key question is: what do these ideas mean in practical terms? Saul Kaplan makes the case compellingly in his post Think Big, Start Small, Scale Fast – here’s a quote, but go read the whole post:

    Systems transformation is all about experimentation. It is about combining and recombining capabilities from across silos until something clicks and value is delivered in a new way. It is never just one thing. It starts with a big idea that gets the juices flowing and attracts others with similar passion to the purposeful network. The big idea has to be translated from the white board on to a real world test bed to demonstrate that the idea is feasible. Starting small and demonstrating progress is key to building credibility and expanding a network of interested stakeholders. An ongoing portfolio of small-scale experiments to fail fast on those without merit and to prioritize those with the potential to scale is critical. Those experiments that demonstrate the feasibility of a new model or approach become candidates for expansion.

    There’s a great case study of how this can work in Seizing the White Space: Business Model Innovation for Growth and Renewal by Mark Johnson. One of the cases that he describes in detail is that of Hindstan Unilever (HUL), and their introduction of the Shakti Programme. You can read more about this initiative in this article from Fast Company – I will just focus on a couple of the key points.

    The goal of the scheme was to reinvent the firm’s distribution model. Previously, they had sold all of their personal care products through stores in India. Unfortunately, the majority of the population of India still lives in villages, most of which don’t have stores – which meant that HUL was unable to get their products to nearly 60% of the population.

    The Shakti Programme set up a completely new distribution channel – HUL helped local women set up their own entrepreneurial ventures within the villages. The women, called Shakti Ammas, received training from HUL, and then sold soap, shampoo and other small goods door-to-door. This was a radical business model innovation.

    How did they do it? They started with a group of 17 women – this was the experiment. The point of the experiment was to figure out if they could help these women set up their own successful businesses by helping them build their skills, to figure out if there was sufficient demand for these products in the poorer regions of the country, and to sort out how to best build the distribution network. In the second year, they expanded the program to sixty women. During this time, the focused on learning the answers to the first two questions. Then they expanded to 2800 women covering 12,000 villages – this was still an experiment, and it was designed to address the third question.

    The experiment was a success. They learned that in this model, the real customers were the Shakti women, and so the supply chain was built around meeting their needs effectively. Once they had proven that there was a market in these villages, that they could successfully train local women to effectively reach it, and that they could build a supply chain that could scale, only then did HUL invest heavily and roll it out through the entire country. There are now 45,000 Shakti Ammas in India, covering over 100,000 villages. The program is profitable (low margin but high volume) and it has become a substantial source of revenue for HUL. Furthermore, they are getting ready to start experiments to try out similar programs in other developing countries.

    This case illustrates several key points. The first is that it is a great example of how to experiment. The small launch, with just seventeen women, was relatively inexpensive, and it was designed to answer specific questions. Even if it had failed, HUL would have learned valuable lessons about how to work in the villages. And if it had failed, no one would have ever heard about it, because it was a really small experiment. These are the kinds of experiments we should be trying – small ones, aimed at answering specific questions.

    This also illustrates how the real options approach works. Instead of evaluating whether or not they should try out a program employing 45,000 women covering a huge geographical range – which would have looked awfully risky – HUL was able to make scaled investments. The real options approach is designed to figure out how to do exactly this – scale your investments, with clear ideas about whether or not to proceed to each new step. You can see how this worked for HUL – at each step they could have pulled out if the experiment hadn’t worked.

    Here are some conclusions:

    • Follow Saul’s mantra – think big, start small, scale fast.
    • Set up your experiments to test specific questions.
    • Make sure that you learn from experiments that don’t work.
    • Use a real options valuation approach to valuing your projects.

    Whenever you are trying to get a new innovation off the ground, ask yourself how you can test it out cheaply and quickly. People are much more willing to help you scale up a project that has already been demonstrated to work, than one that is just a great idea.

  • Neil Gaiman on Connecting

    I keep talking about how connecting ideas in novel ways is the central act in the innovation process. I’ve been on a bit of a Neil Gaiman kick recently ( he’s SO good!), and today I was reading the Introduction to Smoke and Mirrors and found more examples of this. In the intro he includes brief descriptions of how each of the pieces in the book came into being. Here’s one of these descriptions:

    This story came from a number of things coming together (that’s where we writers Get Our Ideas, in case you were wondering). One of them was the late Roger Zelazny’s book A Night in Lonesome October, which has tremendous fun with the various stock characters of horror and fantasy. At about the same time, I was reading an account of a French werewolf trial held 300 years ago. I realised while reading the testimony of one witness that the account of this trial had been an inspiration for Saki’s wonderful story ‘Gabriel-Ernest’ and also for James Branch Cabell’s short novel The White Robe, but that both Saki and Cabell had been too well brought up to use the throwing-up of the fingers motif, a key piece of evidence in the trial. Which meant that it was now all up to me.

    That’s the way that most innovative ideas occur – combining things that already in exist in novel ways.

    How can we make it easier to do this ourselves? There are two ways. One is to build expertise in an area. This makes it easier for you to make these connections. They look like bolt of lightning-type insights, but these are built on hard work.

    The second step is to do something that you love – something that Hugh MacLeod hit on in his post today on unifying work and love. People keep asking me how I find time to blog. There’s two answers – one is that I don’t watch television (this blog is part of the cognitive surplus that Clay Shirky talks about!), but the main answer is that I’m doing what I love. So everything that I do, even if it’s ‘just’ leisure, triggers ideas (connections!) that I can use here on the blog, in the classroom, in talks and in research.

    I’m fortunate to be in the position, but then, if I can do it, why can’t you?
    Hugh

    (the picture is from Hugh’s daily newsletter – you can subscribe to it here)

  • Olympic Innovation

    The test of a first-rate intelligence is the ability to hold two opposing ideas in mind at the same time and still retain the ability to function.
    -F. Scott Fitzgerald

    That’s the quote with which Richard Lester and Michael Piore open their outstanding book Innovation: The Missing Dimension. The opposing ideas that they discuss throughout the book are interpretation and analysis. They argue that both are necessary components of innovation, but that they require completely different skills and mindsets to manage. Here is how they describe the issue:

    In new product development, interpretation and analysis exist in perpetual tension. This tension is inevitable and unavoidable, and we believe it is the central management problem that innovative businesses must confront. The tension… springs from many sources. Interpretation proceeds through conversations over time – within and among the various communities that contribute to new product development and between the designers and the customers who use those new products and incorporate them into their lives. Analysis, on the other hand, takes place “outside of time” – at the point when a product must be optimized according to well-defined and articulated objectives.

    This line of thinking is very similar to the argument that Roberto Verganti puts forward in Design-Driven Innovation – and I’ll talk about those links later this week. Today, however, I want to use this dichotomy to talk about another perpetual question that arises every four years:

    Here’s an idea: sports where there is an unequivocal winner, like skiing and ice hockey, are primarily analytical, while the judged sports are primarily interpretive. As a consequence, they have different forms of innovation, and it explains in part why they seem so different to us.

    In the analytical sports, who wins is reasonably straightforward. If you get down the mountain fastest, or skate the fastest, or score the most goals, you win. In these sports, the problems are well-defined, and most of the innovations are primarily equipment-based. The well-defined problems lead to engineering-style solutions. So you have innovations like this:

    The innovation there is the clapskate – a blade where the back detaches at the end of the stride. This allows the full blad to be in contact for a longer period of time, which transfers more power from the skater’s legs to the ice. So you go faster.

    In the analytical sports, these type of innovations lead to continually faster speeds, or longer jumps, but in the main, the sport still looks the same. Interestingly, most of the innovations don’t come from the athletes.

    It’s a different story in the interpetive events. In these sports, the athletes themselves are coming up with the innovations. As they do this, they remake the sport. Dominic Basulto has a great post about the nature of innovation in snowboarding – where the judges often don’t understand the difficulty of new moves.

    He includes this quote from a WSJ article called When Snowboarders Baffle the Judges – it explains why Shaun White showed off all his new jumps in events leading up to the Olympics:

    The emphasis on innovation this season has snowboarders grappling with whether they can trust the judges to score their new moves fairly at first sight. Many top riders, including Mr. White, are haunted by the prospect of becoming the next Jonny Moseley, the free-spirited American mogul-skiing champion who failed to medal at Salt Lake City in 2002 despite his debut of a revolutionary trick he dubbed the “Dinner Roll.” Though he executed it perfectly and the move has since elicited higher marks for difficulty, he received lower scores for his jumps at the time than his competitors got for their tried-and-true twists.

    “Tricks can be deceiving,” Mr. Moseley says. “I worked twice as hard to be able to perform that in the Olympics than anyone else.” Mr. White says he could have saved his surprise moves for Vancouver to increase the “wow” factor and prevent copycats from stealing his thunder, but he decided it was more important “to educate the judges.

    That sounds a lot like the conversations between stakeholders that Lester & Piore describe, doesn’t it? As the athletes in interpretive events innovate, the look and feel of the sport changes dramatically. The last interpretive-style innovation in an analytical-style sport that I can think of is the Fosbury Flop in high jumping. Dick Fosbury actually came up with a completely new way to do the high jump. I can’t think of a similar shift in skiing, or the other more ‘objective’ sports. Verganti and Lester & Piore all conclude that interpretive processes are more likely to create radical innovations. We see the same outcomes in the Olympic sports. The innovation in snowboarding is definitely more radical than the innovations we see in downhill skiing. This is a useful thing to keep in mind when we’re managing innovation within our organisations.

    I’m not sure if this resolves the question of whether or not ice dancing is a real sport. But I think we should embrace the Lester & Piore argument – both analysis and interpretation are important, and we need to be comfortable with both to be genuinely innovative. We need to have both skills within our firms to innovate successfully. So maybe we need to embrace both forms of sport, and both forms of sporting innovation in the Olympics as well.

    NOTE: This article talks about innovation at the Winter Olympics, and it’s all analytical!

    (Speed skating picture from flickr/BWJones, snowboarding picture from flickr/prosto photos, both under Creative Commons Licenses)

  • Establish Authority by Creating Value

    One of the best ways to build connections within the economic network is to be an authority – and since revenue often follows connections, this is a useful strategy to consider. How do you become an authority? I’ve run across a couple of suggestions recently.

    First up – this from the JournaMarketing Blog (I’m not trying to pick on the guy, his recent posts are much better, and worth checking out):

    Services like Friendfeed make it easy to pull together information from a lot of different sources. So if you’re looking for a way to become an authority in your field, find the 5-10 top sources in that field, and pull their feeds into one location — on your own website. You’ll earn the goodwill of those other sources by linking to their content. And you’ll gradually become the 1-stop shop for anyone looking for information in your field.

    Compare that process to the one outlined by Chris Brogan and Julien Smith in Trust Agents:

    Say that you’re asked a question by e-mail about a specialty of yours… You could just respond by e-mail, but you don’t. Instead, you write about it on your blog. You point the person who made the original inquiry to what you wrote, so taht person gets what he or she wants; but now, anyone else can see it as well. People who arrive via Google by searching for similar information can visit and post comments weeks, even months, later. Your blog post, which used to offer answers to typical questions asked by a few people, has now become a resource…

    Imagine that you do this 500 times. Over time, you’ve probably been asked 500 questions about your specialty; suppose you had answered all of them on your blog. These 500 posts now make up a pretty hefty set of resources, with a lot of insider information and tips, and you’re heping a fair number of people. As you do so, you’re starting to become known for your expertise.

    So, our choice: establish your authority by creating value for people, or do it by appearing to create value. Which do you think will work better? Which person are you most likely to believe? Which takes the most work?

    Aggregating by itself does not create value – this is a common fallacy doing the rounds these days. To create value, you have to aggregate, filter and connect information. In the Trust Agents example, you are not just aggregating the stuff that you know. You are filtering it so that it addresses specific problems that people have, and you are connecting up ideas to help solve those problems. And you are also connecting your solutions to people, actively through e-mail and telling people about your blog, and more passively through search engine visits.

    The difference, of course, is that it takes a lot more effort to create 500 good quality blog posts. It will probably take more than a year, or even longer. And even then, you’re only “starting to become known” as an expert. But that’s what it takes to establish genuine authority. You have to put in the hours – there’s just no way around it. Of course, the payoffs (both emotional and financial) to being a genuine authority are generally higher as well.

    These ideas apply whether you are building a personal brand, or whether you are creating an innovative business model. You need all three skills to creat value. You have to be able to aggregate, filter and connect to establish authority by creating value.

    (Photo from flickr/Wessex Archaeology under a Creative Commons License)