Is “8 steps to innovation” approach predictive or non-predictive?

“The Black Swan” fame Nassim Taleb calls authors of books with titles such as “8 steps to innovation” charlatans¹. It means people practicing quackery or similar confidence tricks in order to obtain money, fame etc. Taleb has two main objections to n-steps-to-xyz-approach: One, such an approach tends to be predictive in situations which may be inherently non-predictive. Two, it gives positive advice and only positive advice exploiting peoples’ gullibility and sucker-proneness. As a co-author of “8 steps to innovation” I thought, let me reflect on how we fare as charlatans. More specifically, I would like to explore following two questions: Is “8 steps” approach predictive or non-predictive? Does it give positive advice only?

Predictive vs non-predictive approaches:  A predictive approach tries to predict the future and based on the prediction arrives at a response. Imagine you run an educational institute. You may analyse the trends using a predictive approach and come to a conclusion that video-led online learning is going to be an important part of the education system five years from now. As a result, you may decide to explore various platforms available in the market which enable online education.

In an alternate scenario, you may ask yourself, “What do I enjoy doing?” And your answer may be “creating short animation videos”. So you end up creating one-or-two minute videos and upload them on the Internet. Over a few weeks you realize that your videos related to Physics are getting watched more often. Slowly you focus on Physics related animation videos. You narrate this story in one of the parties you attend. A week later you get a call from a guy you met in the party and he offers to sponsor your video series. Your business has started – without predicting anything about the future.

A non-predictive approach has three characteristics: (1) It has means-driven rather than goal oriented action (2) it uses affordable-loss rather than expected return as an evaluation criterion (3) it treats each surprise as a potential sign-post².

8-steps, a soft-predictive approach: Here is how 8-steps approach typically gets used. An organization that has intent to become more innovative does a self-assessment on the 5-levels of innovation maturity. Depending upon its current level, it decides its course of action in terms of building pipeline, improving idea velocity or enhancing batting average. Similarly, it identifies whether the problem primarily that of Rider (lack of direction) or Elephant (lack of motivation / habit). For example, here is how a bunch of managers assessed the situation in their groups using the navigation matrix.

While building the pipeline, the ideas may come as a response to a wave like Big Data (predictive) or it may come from an employee’s passion for data visualization (means-driven, non-predictive). 8-steps approach doesn't prescribe any policy using which ideas should be selected. However, 8-steps approach puts emphasis on low-cost experimentation. This makes 8-steps approach soft-predictive. It suggests that you can start with a prediction but not to take it too seriously. Build confidence only through experimentation.

Negative advice: Step-8 in the 8-step approach is “Margin of safety”. It is only about what can be done so that you don’t get crippled when you fall. Throughout the book, we use the Elephant-Rider model to warn the reader of slippery slopes of our decisions making process.

In summary, 8-steps approach is soft-predictive. It says, “By all means, predict. But don’t take your prediction too seriously. Perform low-cost experiments to validate your assumptions. And make sure you build a margin of safety”

Sources:

1.     Nassim Taleb, “Antifragile: How to live in a world we don’t understand”. Taleb’s quote related to charlatans is at kindle location 5051.

2.     A good source for the comparative study of predictive vs non-predictive approaches to strategy is: “What to do next? The case for non-predictive strategy” by Robert Wiltbank et. al., Strategic Management Journal, vol. 27, 2006, pages 981-998.

3.     Image source: attrition.org

My 3 take-aways from Nassim Taleb’s Antifragile

“What do you do if you cannot predict?” is the title of chapter 13 in Nassim Taleb’s bestseller The Black Swan (TBS). Antifragile expands the 10 page chapter into a 500 page book. I find the question important and its exploration useful in my work on improving innovation effectiveness. And hence I turned to Antifragile.  But I am allergic to fat books, notwithstanding the kindle versions. Fortunately, the essence of the approach to the “What do you do?” question is presented in four of the twenty five chapters (chapter 9 to 12). Rest of the book is about the definition and the importance of antifragile and equally about ranting against Harvard Profs, bankers with black tie, Alan Greenspan and loads of philosophy. It wasn’t difficult to skim and skip through most of it. In this article we look at my 3 take-aways from Antifragile on the “What do you do?” question. But before that let’s look at the definition of antifragile.

What is Antifragile? Wind extinguishes candle and energises fire. Thus fire is benefited from the wind and candle is harmed by the wind.  Anything that has more upside than downside from random events (or certain shocks) is antifragilie. The reverse is fragile. In economic systems, fiscal deficit is a source of fragility and innovation is the source of antifragility. In personal life, corporate employment is fragile (to downturn) while tenured-prof-cum-fiction-writing is antifragile. A bestseller and your life may change.

1. Fragility is measurable, risk is not: Can you predict the chance of you getting fired from your job? No. But can you imagine the consequences of you getting fired? Yes, you can. Fragility is about the potential impact of rare events and not about predicting the occurrence of the events. As we saw in an earlier article, Ken Cox, Technical Manager of the control systems program of Apollo 13, didn’t have the foggiest idea of the probability of command module failure. However, it wasn’t difficult to imagine the consequences of such a failure.

One way to measure fragility is to calculate acceleration of harm due to unit change in something. For example, you may check additional harm from Fukushima reactor when tsunami goes beyond certain level. Similarly, you can check the additional delay in traffic when the number of cars on the road increases by certain percentage. If we detect acceleration of harm, it means the system is fragile.

2. First step is to reduce fragility: Taleb says – the first step towards antifragility consists in decreasing downside rather than increasing upside. To make profits and buy a BMW, it would be a good idea to, first survive. In the movie, Million dollar baby, the boxing coach Frankie (Clint Eastwood) tells Maggie (Hilary Swank) following during a coaching session:

Frankie: You forgot the rule. Now, what is the rule?
Maggie: Keep my left up?
Frankie: Is to protect yourself at all times. Now, what is the rule?
Maggie: Protect myself at all times.
Frankie: Good. Good.

Unfortunately, one can never know all such harmful events or create a full-proof protection. However, one can reduce one’s exposure. For example, adding redundancy helps. Commercial aircrafts have redundancy built into almost all aspects of their design – engines, autopilots, instruments, pumps, generators, air and hydraulic systems, controls etc. Another way to reduce fragility is to keep a system as simple and small as possible.

3. Optionality is the key lever to antifragility: Thales, a Greek philosopher from Miletus in pre-Socratic era (perhaps a contemporary of Buddha), is one of the heroes of Antifragile. According to a story, Thales reserved olive presses ahead of time at a discount. The harvest turned out to be good and Thales rented the presses out at a high price when the demand peaked. What Thales bought was an option – right but not an obligation to use the olive presses. Options which allow you more upside than downside are vectors of antifragility.

In an earlier article we saw how Paul Buchheit spent 6-7 hours building a Gmail prototype involving content-targeted ads. In fact, he himself didn’t believe that the experiment would work. But he didn’t lose much in doing the activity and it led to the most successful business model for his employer – Google. Taleb says that low-cost trial-and-error activity like that of Paul can be seen as the expression of an option. The tricky part is to recognize the favourable outcome.

It was a pleasant surprise to meet Seneca, a Roman philosopher, in Antifragile. Seneca’s method to counter fragility was to go through mental exercises to write-off possessions. So when losses occurred you don’t feel anything. Anything you gain is a bonus! For example, Seneca started his journeys with almost the same belongings he would have if he were shipwrecked – a blanket plus a few things. Taleb calls this antifragility in its purest form. Isn’t that similar to Krishna’s advice of non-attachment to Arjuna?

Image sources: Wikipedia.org and movies.tvguide.com

How smart guys pitched their ideas to Steve Jobs, the prickly perfectionist

Steve Jobs looked at the world in binary mode. Either your idea was shitty or it was fantastic – nothing in between. That made the life difficult for people presenting ideas to him. How did they manage it? What tactics did the smart folks employ to get their ideas accepted? Let’s see in this article. Your boss or reviewer may not be as “binary” as Jobs, but the techniques may still come handy.

Show it privately: This is how Jonathan Ive, the key designer behind iMac, iPod, iPhone and iPad and Steve’s close friend dealt with the situation. Ive and his team were working on multi-touch technology for the MacBook Pro in their spare time. He knew that it could be a game-changer technology. Ive says, “Because Steve is so quick to give an opinion, I don’t show him stuff in front of other people,” Ive recalled. “He might say, ‘This is shit,’ and snuff the idea. I feel that ideas are very fragile, so you have to be tender when they are in development.” Ive demoed the multi-touch idea in a one-on-one meeting. Fortunately, Jobs liked it and said, “This is the future.”

Create a Fine-tune-It-Yourself kit: Chris Espinosa was a Berkeley drop-out and part of Mac development team. On his own he decided to design a calculator for Mac. When he showed the first demo to Jobs, he said, “Well, it’s a start, but basically, it stinks.” Jobs felt that the background color is too dark, buttons are too big etc. Espinosa started to refine the design based on Jobs’ feedback. But with every iteration came more criticism. After a number of iterations, Espinosa got fed up and created a brilliant solution - “The Steve Jobs Roll Your Own Calculator Construction Set”. It allowed Jobs to tweak and personalize the look-and-feel. Jobs spent ten minutes and fine-tuned it to his taste. This design shipped on the Mac and remained the standard for fifteen years.

Quietly disregard the comment and go ahead: During the Mac development, the team desperately needed a 5 ¼ inch hard drive. The one being developed in the Apple corporate office was buggy.  Belleville, head of Mac Engineering team, suggested two options to Jobs. One, sourcing it from Sony,  and two, sourcing a Sony-clone from Alps Electronics, a smaller Japanese supplier. Jobs and Belleville flew to Japan and saw both the products. Jobs thought Alps was great and Sony was shitty. Belleville was appalled as he felt that Alps could not deliver it within the required timeframe. Anyway, Jobs ordered Belleville to cease all work with Sony.

Belleville gave a go ahead to both the companies. One engineer from Sony, Hidetoshi Komoto, would work clandestinely at Mac engineering team. They would hide him whenever Jobs visited. Eventually, Alps folks admitted that they would need eighteen more months for production to start. At that point, Belleville told Jobs that he might have an alternative to the Alps drive ready soon. With a big grin on his face, Jobs said, “You son of a bitch!”

Source: “Steve Jobs” by Walter Isaacson. Jonathan Ives story is on page 468, Espinnosa story is on page 132, Belleville story is on page 145-147. Photo source: wikipedia.org

Practicality of Gandhi’s vision of “education through the hands” today

“The old idea was… the craft was to be taken in hand wholy separately from education. To me, that seems a fatal mistake… The brain should be educated through the hands. Why should you think that the mind is everything and the hands and the feet are nothing?” Mahatma Gandhi said while addressing the teachers gathered in Wardha for a three week training program in February 1939¹. Is this still relevant today? Let’s explore.

Gandhi illustrated his point through the example of hand spinning. He said, “Take the instance of hand-spinning. Unless I know arithmetic, I cannot report how many yards of yarn I have produced on the takli… Take geometry next. What can be a better demonstration than the disc of the takli? I can teach all about the circle in this manner, without even mentioning the name of Euclid.” He said one could teach history through the history of cotton.

Gandhi’s address is more than 70 years old. So let’s first check if the basic claim still holds according to the state-of-the-art research. Nobel Laureate Daniel Kahneman writes in his best seller Thinking, fast and slow, “As cognitive scientists have emphasized in recent years, cognition is embodied; you think with your body, not only with your brain².” For example, when you hold a warm cup of tea, you are more likely to think that the other person at the table is trustworthy after only a brief interaction. So looks like the basic claim still holds.

I feel that a more general principle underlying this vision is related to experiential learning. How do you create opportunities for students to experience the new concept through the body? In my lecture on introduction to design thinking at IIMB last week, each student re-designed a wallet for his/her partner. At the end, everybody prototyped their best idea using craft paper and got it validated from the partner. When students are learning about empathy, they actually interview shopkeeprs, people on the street or whoever is relevant to the topic. Case study method is another form of creating an experience, though it is somewhat weaker than “doing by hand” method.

What about literature? How do you create an experience? One low-cost medium is theatre. When you enact a literary piece, you are creating experiences especially for the participants. However, I am sure there are topics for which it may not be easy to create experiences, say for example, wave functions in Quantum Mechanics?

Gandhi held a strong view on this. He said in the same Wardha address, “I have said that all instruction must be linked with some basic craft. When you are imparting knowledge to a child of 7 or 10 through the medium of an industry, you should, to begin with, exclude all those subjects which cannot be linked with the craft. By doing so from day to day you will discover ways and means of linking with the craft many things which you had excluded in the beginning.” I feel that such exclusion is neither necessary nor practical.

For me the key take-away is this. For every concept that is being taught, I ask, “How can I create an opportunity for the student to experience the concept?”

Source:

1.     Gandhi’s address in Wardha is available online here. Also in “Mahatma: Life of Mohandas Karamchand Gandhi” by D. G. Tendulkar, Volume 5 (1938-1940), The Publications Division, Ministry of Information and Broadcasting, Govt of India, pages 41-43.

2.     Kahneman’s statement is in “Thinking, fast and slow”, page 51.

3.    Photo source: www.mkgandhi.org

Related blog: Your hand is wiser than your head ever gonna be, August 11, 2012

Uncontrolled: A case for experimentation in social sciences including management

Imagine a company that operates 10,000 convenient stores of which 8,000 are named QwikMart and 2,000 are named FastMart. It is observed that the average revenue per store is $1 million for QwikMart and $1.1 million for FastMart. Will the company benefit by renaming all QwikMarts to FastMarts? One way to answer such a strategic question is to build an analytical model of a typical convenient store with several variables including the name of the store as one. And then perform the analysis under different scenarios. An alternate method is to actually rename a few dozen randomly chosen QwikMart stores and test the revenue impact against another randomly chosen QwikMart stores whose name is not changed. Author Jim Manzi argues in “Uncontrolled: The surprising payoff of trial-and-error for business, politics and society” that our current methods carry a huge bias for the former (analysis) and can benefit from doing more of the latter (experimentation).

Causal density – key challenge:  Experimentation hasn’t been a popular method in social sciences especially if you contrast it with correlation analysis. A classic example is presented in the bestseller Freakonomics where the authors argue that a significant fraction of US crime reduction can be linked to legalization of abortions in 1970s. The research involved rigorous correlation analysis. However, in subsequent analysis two Federal Reserve economists found a bug in the software model and with a small change in assumptions the result shows no correlation between abortion legalization and crime reduction. Back-and-forth has continued without any conclusive result.

Building analytical models in social setting where behaviours are involved has a significant challenge. The causal density of a social setting is very high compared to physics laws applied to large objects. That means the number of variables that can impact the observed outcome can be very large, very difficult to find out and hence building a reliable analytical model is difficult. If finding all the causes is too cumbersome, why not experiment and find out? That is the view Jim Manzi presents at least for those situations where experimentation is practical.

Experimentation and business strategy: In my earlier articles, I have observed that Strategy gurus like Michael Porter and Richard Rumelt don’t emphasize experimentation. They present analytical models through which you decipher the internal and external context and create a game-plan as an outcome. And then you implement it. It has been over a quarter of a century since Rumelt-Henderson-Porter started publishing frameworks. It hasn’t worked predictably.  It is time managers consider experimentation as a complementary method to successful strategy building. Note that Manzi is not denying the role of Porter-style analytical models in creating hypothesis. He is suggesting that it is worth checking if we can test the crucial assumptions behind the strategy at low-cost quickly. And do those experiments whenever possible.

A throwaway prototype of what later became AdSense was built overnight at Google. Within a week hundred Googlers experienced and assessed the usefulness of content targeted ads.  This eventually led to creating a successful monetization model for Google. Google today performs tens of thousands of experiments on search algorithm alone every year.

Experimental revolution in business:  Manzi cites companies like Capital One which has turned business into a scientific laboratory. Every decision about product design, marketing, channels of communication, credit lines, customer selection, collection policies and cross-selling could be subjected to systematic testing using thousands of experiments. In fact, Manzi’s own company Applied Predictive Technologies is helping 30 to 40 percent of largest retailers, hotel chains, restaurant chains and retail banks in America perform repeated standardized tests on its platform.

Whether experimentation really becomes a revolution worldwide is to be seen. However, if you want to understand how experimentation is pushing the boundaries in social sciences, Uncontrolled is an excellent place to start.

Note: I am thankful to Prof. Stefan Thomke of Harvard Business School for suggesting this book to me. Thomke himself is an authority on experimentation and has written an excellent book – “Experimentation matters: Unlocking the potential of new technologies for innovation”.

Four steps where “Frugal innovation” meets “8 steps to innovation”

When times are tough, anything frugal gains currency. “Frugal innovation” is no exception. Last week I attended a Tech Event of a global MNC where “frugal innovation” was the theme. CTO of the organization presented it as one of the key elements of his innovation strategy. Is there a process for frugal innovation? Perhaps there is no single answer to this question. In this article I would like to explore one such approach where “frugal innovation” meets “8 steps to innovation” - the framework in our book.

What is frugal innovation? Again there is no single answer here. However, it generally means creating products / services which cater to the needs of masses in emerging economies (check Wikipedia). That implies innovations which are affordable and accessible to a vast underserved population. Some of the examples of frugal innovation that I have come across are:  Low-end mobile phones, GE EKG, Tata Nano, Cisco cell-site router, Embrace infant-warmer, Aravind Eye Hospital, Vaatsalya Healthcare etc.

Now let’s look at the 4 steps which enable frugal innovation:

Challenge book (step-2): How you frame the problem significantly influences the solution you create. Vijay Govindarajan identifies an interesting characteristic of such products: 50% performance at 15% cost in his book “Reverse innovation”. However, that is just the starting point. If Jane Chen and team had applied the 50%-15% rule to their incubator project, they would have created a $3000 incubator. Instead they created an infant-warmer which costs $200 (1% of traditional incubator) and looks nothing like a traditional incubator. Jane & team visited villages in India and Nepal and met people like Savitha who lost her baby because she couldn’t travel to the nearest town with incubator facility in time (watch the TED video). After talking to several mothers like Savitha the team realized that they need a local solution that can work without electricity, simple enough for a mother or midwife to use, portable, that can be sterilized and used across multiple babies, and of course ultra-low-cost compared to the traditional $20,000 incubators.

Building the context into the challenge statement is extremely important and it is very difficult to do it without experiencing the situation in these markets first-hand. Govindarajan categorizes these aspects of the challenge as various gaps such as performance gap (50%-15%), infrastructure gap (e.g. lack of electricity), preference gap (e.g. usable by mid-wife) etc.

Experiment with low-cost at high-speed (step-4): Simple looking Embrace infant warmer has already helped over 22,000 low birth-weight and premature infants. However, during the design process the team had to iterate and test the solution dozens of time by going into the field and talking to doctors, moms and clinicians to ensure that it meets the need of the local communities. For a frugal innovation, doing each experiment at low-cost and with high-speed is highly desirable. Govindarajan calls this "focus on learning based on mini-experiments".

Iterate on the business model (step-6): Traditional business models may not work in these situations. Typically several iterations are required on who (customer), what (offering) and how (to reach and monetize). Vaatsalya healthcare, a hospital chain focused on rural & semi-urban areas, experimented on two business models for six months: full-service 20-bed hospital in Gadag and consulting mode no-bed clinic in Karwar. Gadag model worked and was replicated across 17 locations. Do you rent new space or do you partner with existing practitioners? Vaatsalya had to experiment to figure out that senior doctors whose kids are not interested in father's business are the ideal partners while entering a new town. You not only get a hospital but also relationships. Iteration of this kind is inevitable during frugal innovations.

Build an innovation sandbox (step-7): For Embrace infant-warmer the phase change material (wax-like substance) that melts at human body temperature and maintains it for 4 to 6 hours is the only non-trivial technological element. However, in a product like Tata Nano or GE’s low-cost EKG, the technological complexity is much higher. Hence, dozens of testing iterations are not enough. You need thousands of experiments. That needs a dedicated team and infrastructure investment such that experimentation goes from low-cost high-speed to low-cost high-speed high-volume. And you need to have this closer to customer base so that iteration with customer happens fast. Check out sandbox stories of Tata Nano and Wright brothers. 

Govindarajan calls such a dedicated team Local Growth Team (LGT) in the context of a global MNC. Companies like GE Healthcare & John Deere created LGTs in India and China for frugal innovation.

Photo source: embraceblog.org

Why does Ram Charan say “It is a myth that innovation is expensive”?

A couple of weeks ago I got following question during a webinar to senior managers of an IT services firm: “Isn’t systematic innovation expensive?” That reminded me of what Ram Charan, a leading CEO coach, said in an interview in Economic Times, “It is a myth that innovation is expensive”. I want to explore this quote in this article. Why does Ram Charan say innovation is not expensive? 

Let’s begin with Ram Charan’s complete response. He was asked, “Is innovation expensive?” And he answered:

It is a myth that innovation is expensive. We need to consider it in three parts. Part one is sourcing of ideas, which can be done inexpensively. The second part is the conversion of that idea to the point where you can scale it up and execute it. The third part is actual execution. The middle part needs very small amount of total revenues; the large amount goes to the final part. That is a business decision, not an innovation decision. So you have to ring-fence a certain amount of money, select a few projects, focus on it, fail more and fail often.

For the sake of simplicity let’s call the three parts Ram Charan mentioned as – idea generation, incubation and execution. After having facilitated / witnessed several idea generation sessions, I can safely say that generation of ideas is not expensive. I don’t recall any session where less than 3 ideas per person were generated no matter how hard the challenge is. With the advent of Internet and collaboration tools, the cost is further reduced.

Ram Charan doesn’t consider financing the third part – execution - as an innovation expense.  Perhaps that can be debated. But for now let’s focus on the middle part – incubation where innovation efforts usually falls through. Question is: Are you ring-fencing a few incubation projects expecting them to fail often?  As Ram Charan says, you don’t need a big army of people here. Even Tata Nano got incubated with a four member team.

Resources is just one part of the story. The second part is related to design of experiments in order validate assumptions of an idea. During a workshop last month where 11 startup teams applied our “8 steps to innovation” framework, many found out very inexpensive experiments (1 day to 1 week duration) to validate some of the crucial assumptions behind their ventures. The third part is related to the rigor and rhythm of innovation review. I feel that most organizations have a long way to go in their effectiveness with which incubation projects are run.

Irrespective whether you consider execution of new ideas as part of your innovation budget, you definitely need a small part for running incubation projects and in all likelihood you will benefit from understanding the design of “low-cost high-speed experiments” (step-4 in our book) and what it means to “do the last experiment first” (part of step-8). Moreover, it will help to do effective reviews of incubation projects.

Photo source: www.ishaeducation.org