What tools can most organizations, which exist in the spectrum between the Fox and the Hedgehog, leverage to build success through trust *and* risk-taking?
Executive Summary: How does an organization balance the pressures of building trust through, and incentivizing, sustained successful execution, with the need for some form of risk-taking (with positive outcomes). Are common control structures like bonuses enough? Does innovation have a role to play here? From the desk of They-May-Be-Buzzwords-But-You-Still-Have-To-Make-Hard-Decisions-About-Them.
Overview
Anyone involved with a business- from a startup to a Fortune 10 company- has dealt with the trade-offs involved in building trust across decision makers in the organization, managing levels of risk-taking (high, or low, as required), and structuring organizational incentives. In the middle of all this is the need for transparency, which is fulfilled via measurements and reporting as an accounting function.
The key here is is risk-taking for positive outcomes. This could be an imperative in hypercompetitive markets (Ref. Clayton Christiansen in Innovator's Dilemma). Examples of risk-takers for positive outcomes include Jeff Bezos and Steve Jobs.
What approaches can help us manage these parameters? Does innovation have a role to play?
Kicking off the Thought Process and the Initial Hypothesis
An Accounting researcher***, who I happened to have the pleasure of listening to recently, tackled the topic of business trust and the role of accounting, in which two things stood out:
1. A "laboratory experiment" seemed to indicate that record keeping, as a function of measurement in accounting, helped build trust across multiple transactions between anonymous parties,
2. Bonuses- as a function of incentives, which in turn are a function of organizational control- are better tools than penalties for trust within an organization.
This led me to think about the relationship between trust and risk-taking, and specifically this relationship:
Trust > Bonus Incentives > Risk-Taking
The hypothesis is that bonuses, as a means of control, are not great for some types of risk-taking.
Paradigms from Strategy and from Psychology
The "mom" readers of this post would point out the abundance of literature around child development and types of positive reinforcement. Case in point, this article:
http://www.nytimes.com/2012/08/05/opinion/sunday/raising-successful-children.html?pagewanted=all
Some strategic thinking readers might also frame this as a Fox vs. Hedgehog problem. Their point could be that organization must clearly choose between being a fox and being a hedgehog. If If you want your organization to focus on repeatable execution, then bonuses work well under the hedgehog paradigm.
In reality, most organizations have to do a balancing act between the two. So, how do you solve this problem for most organizations?
Some Pathways Towards Resolution
Here are a couple of thoughts:
1. Personnel:
Jack Welch has stated previously that, at GE, he looked for folks who had some failure under their belt. I take that as a proxy for an appetite of risk taking and an understanding of its potential consequences.
2. Innovation Program:
If bonus incentives are not helping with an organizational desire for risk-taking, then the positive reinforcement incentives need a more refined structuring. Innovation programs fill this gap for a more refined structuring.
Innovation
Several approaches to innovation are available to help make the appropriate trade-offs in the spectrum between the Fox and the Hedgehog. These focus on making innovation flexible and adaptable, and are available commercially, as well as in research literature.
However, structuring an innovation program in an organization is never easy, especially when it pertains to the core activity of a business unit, or even an organization. Enabling risk-taking though innovation requires a level of communication and buy-in across the organization that may take some time and sustained effort to achieve.
Do innovation programs at Google, Yahoo, and Amazon have interesting tales to tell? I have also previously posted about Netflix on this front:
1> Netflix bids for Original Programming: http://insightplusideas.blogspot.com/2011/03/innovation-and-tactics-series-netflix.html
2> Netflix and Organizational Capabilities: http://insightplusideas.blogspot.com/2011/03/netflix-and-organizational-capabilities.html
How would these contrast against innovation at a bank, at a perishable goods supplier and at a metals company?
Would an organizational skeptic call the innovation program old wine in a new bottle? Or is it all about results, and a rose by any other name is still a rose? Amazon has invested in risks for positive outcomes despite negative signals from the stock markets. Jeff Bezos had apparently asked potential CFOs if they had invented anything.
What do you think?
*** Many thanks to Dr. Kristy Towry at Emory.
Showing posts with label clayton christiansen. Show all posts
Showing posts with label clayton christiansen. Show all posts
Wednesday, March 6, 2013
Tuesday, May 15, 2012
Creativity, Market Domination and Innovation
Executive Summary: Filter thoughts on creativity, competition, and market domination, through the lens of experience and business history. Play devil's advocate to the obvious- Is all creativity about finding monopolistic market positions? How about sustaining advantages through competition? From the desk of Silver-Bullets-Are-Often-Traps.
Overview
David Brooks wrote an interesting article on creativity, and the importance of creative minds seeking monopoly like market domination, for society:
http://www.nytimes.com/2012/04/24/opinion/brooks-the-creative-monopoly.html?_r=1&ref=davidbrooks&pagewanted=print
The article has some great lines, like "we sometimes confuse what is hard with what is valuable." I also found this article to be a good springboard to sift through some common thoughts and touchstones about creativity, competition, monopoly, and market domination.
An example from the non profit world, ModelAlliance.org, and its founder, Sara Ziff, may well be textbook cases for David Brooks' article. To get us started, let's break the article down into two contexts: Creativity in Industry and Business, and Individual Creativity.
A. Creativity in Industry and Business:
Let's pick key thoughts in the article around this context and find supporting cases for them.
Quote 1: "We often shouldn’t seek to be really good competitors. We should seek to be really good monopolists."
If you are familiar with the different flavors of innovation, David Brooks appears to be saying that breakthrough, disruptive innovation trumps incremental innovation.
Let's take Pharma industry as an example- the policy support for orphan drugs dovetails with this view.
In the technology industry, Facebook could be touted as an example of this strategy.
Quote 2: "It’s often more valuable to create a new market and totally dominate it."
Besides Facebook, Apple products like the iPod, iPhone and the iPad come to mind.
Quote 3: "The competitive spirit capitalism engenders can sometimes inhibit the creativity it requires."
Clayton Christiansen's examples from the hypercompetitive hard disk industry seem to support this. Business is littered with examples, where an organization's momentum often prevents it from acting differently, when required, to maintain leadership through market change. IBM had to face a major crisis to undergo change.
Quote 4: "Value to society is often bigger (with dominant market positions)".
Facebook is being valued at over $100 Billion. That is a useful yardstick for impact on society.
Following this train of thought leads to these questions:
1. First Mover Advantage:
Are we only talking about the first mover advantage here?
There are very few business contexts where a first mover maintains a competition free market position indefinitely, or for a long time.
2. Sustaining the first mover advantage:
Once the market has been created, would you need skill in competition to find dominating differentiation, and to maintain profit margins?
Would you call that incremental innovation?
Or would you call that moving the market/ shifting the goal posts every time competition makes a move?
The current Apple iPhone 4S, and iPhone 5 rumors, are examples of this tactic.
3. Supporting Environment:
What kind of industry, business, public policy and cultural environment would support this consistently?
Would society be able to substantially increase the number of disruptively innovative people, and also allow a significant percentage of them to demonstrate achievements at a significant scale in society (these are two separate things)?
4. Impact on Society:
Given that several world economies have lost out on manufacturing exports, where sustained, incremental innovation is important, would it be fair to call breakthrough innovation a silver bullet?
Would a "portfolio" strategy toward innovation be more effective, whether active or passive (creating the right conditions for all type of innovation to prosper)?
B. Individual Creativity:
An individual's decision paths are complex, and heavily driven by the environment he/ she operates in. However let's simplify this section with some "devil's advocate" questions:
Quote 1: "Instead of being fastest around the tracks everybody knows, creative people move adaptively through wildernesses nobody knows."
This is a great description of one type of creativity. This type of person would be in the same category as Beethoven and Picasso. If even Steve Jobs could be said to have x number of great products in him, would you say this type of creativity is common?
What social, economic and cultural context would you need to harness this creativity?
Quote 2: "Competition has trumped value-creation."
In an effort to create value, wouldn't you need skill at competing for resources to achieve your monopolistic position?
Summary
Creativity and innovation come in many flavors. Diverse social, economic, cultural, and market structures may be required to support them all. Can we tweak these structures to support one type of creativity and innovation, with the intention of benefiting society more? Would it work, i.e. would it truly benefit society?
What do you think?
Overview
David Brooks wrote an interesting article on creativity, and the importance of creative minds seeking monopoly like market domination, for society:
http://www.nytimes.com/2012/04/24/opinion/brooks-the-creative-monopoly.html?_r=1&ref=davidbrooks&pagewanted=print
The article has some great lines, like "we sometimes confuse what is hard with what is valuable." I also found this article to be a good springboard to sift through some common thoughts and touchstones about creativity, competition, monopoly, and market domination.
An example from the non profit world, ModelAlliance.org, and its founder, Sara Ziff, may well be textbook cases for David Brooks' article. To get us started, let's break the article down into two contexts: Creativity in Industry and Business, and Individual Creativity.
A. Creativity in Industry and Business:
Let's pick key thoughts in the article around this context and find supporting cases for them.
Quote 1: "We often shouldn’t seek to be really good competitors. We should seek to be really good monopolists."
If you are familiar with the different flavors of innovation, David Brooks appears to be saying that breakthrough, disruptive innovation trumps incremental innovation.
Let's take Pharma industry as an example- the policy support for orphan drugs dovetails with this view.
In the technology industry, Facebook could be touted as an example of this strategy.
Quote 2: "It’s often more valuable to create a new market and totally dominate it."
Besides Facebook, Apple products like the iPod, iPhone and the iPad come to mind.
Quote 3: "The competitive spirit capitalism engenders can sometimes inhibit the creativity it requires."
Clayton Christiansen's examples from the hypercompetitive hard disk industry seem to support this. Business is littered with examples, where an organization's momentum often prevents it from acting differently, when required, to maintain leadership through market change. IBM had to face a major crisis to undergo change.
Quote 4: "Value to society is often bigger (with dominant market positions)".
Facebook is being valued at over $100 Billion. That is a useful yardstick for impact on society.
Following this train of thought leads to these questions:
1. First Mover Advantage:
Are we only talking about the first mover advantage here?
There are very few business contexts where a first mover maintains a competition free market position indefinitely, or for a long time.
2. Sustaining the first mover advantage:
Once the market has been created, would you need skill in competition to find dominating differentiation, and to maintain profit margins?
Would you call that incremental innovation?
Or would you call that moving the market/ shifting the goal posts every time competition makes a move?
The current Apple iPhone 4S, and iPhone 5 rumors, are examples of this tactic.
3. Supporting Environment:
What kind of industry, business, public policy and cultural environment would support this consistently?
Would society be able to substantially increase the number of disruptively innovative people, and also allow a significant percentage of them to demonstrate achievements at a significant scale in society (these are two separate things)?
4. Impact on Society:
Given that several world economies have lost out on manufacturing exports, where sustained, incremental innovation is important, would it be fair to call breakthrough innovation a silver bullet?
Would a "portfolio" strategy toward innovation be more effective, whether active or passive (creating the right conditions for all type of innovation to prosper)?
B. Individual Creativity:
An individual's decision paths are complex, and heavily driven by the environment he/ she operates in. However let's simplify this section with some "devil's advocate" questions:
Quote 1: "Instead of being fastest around the tracks everybody knows, creative people move adaptively through wildernesses nobody knows."
This is a great description of one type of creativity. This type of person would be in the same category as Beethoven and Picasso. If even Steve Jobs could be said to have x number of great products in him, would you say this type of creativity is common?
What social, economic and cultural context would you need to harness this creativity?
Quote 2: "Competition has trumped value-creation."
In an effort to create value, wouldn't you need skill at competing for resources to achieve your monopolistic position?
Summary
Creativity and innovation come in many flavors. Diverse social, economic, cultural, and market structures may be required to support them all. Can we tweak these structures to support one type of creativity and innovation, with the intention of benefiting society more? Would it work, i.e. would it truly benefit society?
What do you think?
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