Sunday, August 30, 2009

Lower your batting average to increase innovation productivity

A. G. Lafley, ex-CEO of Procter & Gamble, was asked in an interview with New York Times last year, “Only half of your product innovations succeed. Why isn’t the rate higher?” AG answered, “I don’t want it to be. Human nature is such that, if we push our people to drive the batting average up, they’ll try to hit more safely, take shorter swing, go for singles instead of home runs.” In effect, AG is suggesting that we should lower our batting average in order to increase innovation productivity. Let’s explore this further.

Stefan Thomke of Harvard Business School writes about how Bank of America turned branches into service-development laboratories during 2000 to 2003. It was a novel innovation program in banking sector. Twenty Atlanta branches were converted into experimentation sites. A prototype branch was created in the bank's Charlotte headquarters where team members could rehearse the steps involved in an experiment and work out any process problems before going live with customers. By May 2002, more than 200 new ideas had been generated, and forty of them had been launched as formal experiments. While the overall program was successful in improving customer satisfaction, failure rate of experiments was a challenge. Team’s original plan called for a 30% failure rate. However, the actual failure rate in the first year turned out to be only 10%. Milton Jones, one of the champions of the effort and head of quality and productivity said, “So far most of our experiments have been successful. Perhaps we don’t fail often enough”. (see also case study Bank of America by Stefan Thomke)

Does it mean – lower the batting average the better it is? Of course, not. In fact, when AG took over as CEO in 2000, P&G’s batting average was hovering around 15% to 20% (see AG’s interview with Forbes) and it was systematically increased to reach 50%. So looks like there is an optimal zone of batting average: somewhere between 40% and 60%.

But, for most of us who live in the world of Six Sigma and 99.99% uptime, when it comes to innovation, we should learn to lower the batting average first.

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