Introducing science of business

I’ll keep this one short. Its so late in the night that its actually early in the morning.

This blog was originally titled Extreme Innovation. After some interesting posts, there was a hiatus during which I (you might say) focused on doing things rather than talking about them. This involved getting an MBA from UCLA, doing management consulting, moving back to India, starting up, and then starting up again (the first time not having gone anywhere).

Today, I am renaming the blog to the “Science of Business”. The purpose and the context will be explained in a separate post, but at some level the underlying intentions remain the same. Extreme Innovation was meant to be a practical methodology to make innovation a predictable and systematic science. For that reason, I retain all my previous posts.

In this new avatar, this blog is meant to be a dynamic platform for evolving scientific practices for dealing with business uncertainty.

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Business Model Innovation- the why, what, where and how?

This survey by IBM on business model innovation comes out with these key findings:
1. Business Model Innovations are more likely to come from collaborators and partners (only 14% feel it comes from internal R&D).
2. In spite of the right intent about Innovation, senior executives are struggling with the execution of Innovative projects. Despite a desire to make changes, 80 percent of CEOs said their organizations have not been very successful at managing change in the past.
3. More than a third of CEOs polled said the top obstacle to innovation was an unsupportive culture and climate in their companies.

What does this tell us? There is a broad and growing consensus in the global economy about the why of Innovation. Questions like- why is innovation important to my industry?, why should I take up Innovation now? – are clearly answered in the minds of decision makers. What is not so clear is the what, where and most importantly, the how of Innovation.

The late Peter Drucker, in his seminal book Innovation and Entrepreneurship, gives a detailed answer to the Where question. He talks about the conceptual areas where an innovator must look in order to discover opportunities. Some such areas are: changes in demographics, disruption in the natural rhythm of a process, changes in perceptions of the population, unexpected success or failure and new knowledge.

Clayton Christensen, the author of various best sellers on Innovation (Innovator’s Dilemma, Innovator’s Solution, Seeing the Future) talks primarily about the What of Innovation. He provides a systematic overview of what the innovation process really is, what its nature is. In his second book (Innovator’s Solution), he talks about the how as well- addressing issues such as appropriate resource allocation methods, the right marketing techniques, and so on. I haven’t read his third book, but would love to shortly.

This leaves us with the how. Two books I recently read attempt to address this vexing and complicated question- Vijay Govindarajan and Chris Timble’s “10 Rules for Strategic Innovators” and W. Chan Kim and Renee Mauborgne’s “Blue Ocean Strategy”. Both books give tools and analytical frameworks for decision makers, so that they can structure the uncertainty inherent in the innovation process, and make informed decisions.


BusinessPundit: Why "Good to Great" Isn’t Very Good

BusinessPundit: Why “Good to Great” Isn’t Very Good

This article talks about how “Good to Great” isn’t that great a book, after all. What caught my attention in the linked article was this point by the author:

“humans tend to conveniently make random demarcations in data to get the patterns and results that we want, when you are looking for something specific, it is amazingly easy to find data to support your preconceptions.”

Clayton Christensen in The Innovator’s Solution talks about the same problem in the world of business. He explains how most “theories” are based on attributes rather than circumstance, and how this can be misleading and fallacious. For example, you see a white cow eating grass, and conclude that all white animals eat grass. Till you bump into a snow leopard. The problem in the argument you used (before the leopard got the better of you) was that while there was a correlation between the color of the animal and its eating habits, it was not a causal correlation. The cow did not eat grass because it was white, but rather because of the way it was constituted.

This is a classical problem in science. Physics noble prize winner Richard Feynman called the technique for avoiding this problem “bending over backwards”. The point is that when you formulate a theory using certain facts and observations, you must not only give the conditions in which the theory works, but also the conditions and circumstances in which the theory does not.

In fact, I would like to generalize the statement and point out similar “analytical engineering” techniques being used by a lot of consultants, market research firms, management “gurus”, and the likes. They would develop some interesting-sounding theory and then “go looking” for evidence. What ends up happenning is that they retro-fit the evidence they find, sometimes bending it out of shape to make sure it fits.

They do this because it works for them. Collins earned millions out of royalty. One set of people for whom it doesn’t work are the actual entrepreneurs and innovators on the ground. If they build a product based on a faulty theory of innovation, the results will be evident within 6 months. So the only people who can really talk about innovation are those who have built innovative products and made them a success in the marketplace. The problem there is that these people are often not very good at theory-building, at generalizing from their experiences and the experiences of others.

Incidentally, W. Chan Kim’s Blue Ocean Strategy points out that most of the companies which Good to Great called great acually lost their market leadership within 5 years. Did they lose their greatness in the short duration (short considering the scale of analysis that Jim Collins – the author- and his team used)?


The Randomness of Corporate Innovation.

The Randomness of Corporate Innovation.

This businesseweek article by Bruce Nussbaum talks about how corporate Innovation is inherently unpredictable, and how over 50% of game-changing innovations arise from initiatives outside companies’ formal structures and processes for Innovation.

Let me ask this in return: how will you fare if you were let loose in the pacific ocean with no knowledge of swimming?

I think that there is another way to look at the whole problem, which is that given our lack of clear understanding of Innovation as a discipline, as a business process and as a practice, it is amazing that even 40% of the companies achieve success through their innovation structures. We do not know how to swim, yet we are managing to stay afloat in the pacific.


Won the Tuck Essay Contest

The Tuck school of business recently organized a essay contest. The subject was: “How can strategic innovation be used for solving real world problems like corruption?”. I won the first prize- a neat iPod, a signed copy of Prof. Vijay Govindarajan’s new book (10 rules for strategic innovators: from ideas to execution), and an admission into Prof. VG’s excellent session on Strategic Innovation. Let me thank the Tuck school for creating this opportunity; such systems which facilitate the flow of information and insight in the society play a key role in enhancing the innovation-capability of any region/country.

Quite a few people have asked for the essay- so I am putting the original submission right here, inline:

How can strategic innovation be applied to solve real world problems such as corruption?

——————————————– ANSWER BELOW———————————————

Let us look at Strategic Innovation not as a buzzword heard in corporate alleys, but as a broader means to achieve an all-encompassing end: Change. The need for Change is ubiquitous- from removal of poverty to limiting corruption, from improving performance of athletes to establishing new social institutions. The question is- why are we not already using the principles of Strategic Innovation to solve such real world problems? How can we do this in the future?

The answer lies pithily, again, in one simple word: Context. Strategic Innovation as a discipline has attained a certain maturity in the corporate world, but is in its nascence in other contexts. Applying strategic innovation in these new contexts, therefore, demands a re-look at the core and periphery of strategic innovation: in the frameworks used, in the principles applied and in the analyses adopted.

The late management expert Peter Drucker gave the best analysis of the special considerations for using innovation in public service projects [1]. According to him:

The key inhibitor for innovation in such areas is effort-orientation.

The biggest challenge, therefore, in using strategic innovation for such areas is having a focus on results.

Besides Mr. Drucker’s advice on result-orientation, another crucial question to answer is: where do we look for the potential for Innovation? From the strategic innovation perspective, there are two such areas in issues like corruption and poverty [2]:

  1. New Solutions to Known problems: In such cases, the innovation would lie in finding new ways of solving problems which have precedents in other contexts. For instance, the known problem of supply chain management is solved innovatively by the Tiffin suppliers in Mumbai, overcoming many of the contextual problems [3].
  2. New Solutions to Unknown problems, which are generally not found elsewhere and we don’t have precedents for them. A number of approaches to removing poverty are of this nature. We don’t know what to do in such cases, and so we have little knowledge about how it is to be done. The analysis has to start from a step back, by defining the problem first.

With this in mind, the approach to solving real world problems like corruption is given in Exhibit 2. The key steps in the process are:

  1. Understand the context and generate context-specific insights
  2. Modify Strategic Innovation frameworks and principles
  3. Piloting and feedback, and repeat steps 1 and 2 if necessary
  4. Full scale managed execution of Strategic Innovation

[1] Innovation and Entrepreneurship by Peter F. Drucker (pp 179), HarperBusiness, Copyright © 1985 by Peter F. Drucker.

[2] The third possibility, that is a known problem and a known solution which would work in this context, becomes a management issue. For instance, if we know that the police dept. can remove 40% of the corruption simply by making sure its existing processes are managed properly, that does not constitute innovation.

[3] see, for example, http://edition.cnn.com/2004/BUSINESS/08/16/mumbai.dabbawallahs/



Open Innovation by Microsoft

Microsoft recently arranged a design contest for building the next generation PC. See these links:

http://images.businessweek.com/ss/06/01/ms_design/index_01.htm
http://www.startsomethingpc.com/

This is a great example of Open Innovation, wherein a company leverages external knowledge of partners, suppliers, customers, universities and any other community (designers, in this case) for carrying our part of the innovation process.


Design Gets Its Due in World Economic Forum

Businessweek writes about how the world economic forum in Davos, Switzerland, is getting a generous dose of Innovation related topics.