Innovation is a process, the way resources are used to affect the common weal (a sound, healthy, or prosperous state), or to create a new resource. An innovation is the result of that process. Resources include people, capital, knowledge, relationships, tools, facilities, land and nature. The activities within the process of innovation (or projects) act on the resources within the context of an organizational, community or national culture. A culture is composed of philosophies, beliefs, values and behavior norms. Culture determines how innovative an organization or society is, and influences the process in subtle ways that shape the type of innovation that results. An innovation has impacts on and consequences for culture and resources. The capacity of the resources and culture for the process of innovation can be increased through education, communication, incentives, infrastructure and measurements.
An innovation that meets an emerging need is much more likely to be accepted and have a longer life than one that attempts to create a new need, or of course, one that meets a past or declining need. As the process of innovation requires time, leading the process requires foresight. The foresight horizon must extend into the future at least as far as the innovation process is long. And, the coupling between views of the future and the innovation process must be tight in order to adjust the target of the innovation process over time.
Today I believe that that means the development of real-time, collaborative, strategic and market intelligence systems, based on web 2.0 technologies, in order to facilitate the innovation process.
According to Wikipedia, “Web 2.0 is a living term describing changing trends in the use of World Wide Web technology and web design that aims to enhance creativity, information sharing, collaboration and functionality of the web. Web 2.0 concepts have led to the development and evolution of web-based communities and hosted services, such as social-networking sites, video sharing sites, wikis, blogs, and folksonomies.“
Thursday, September 25, 2008
Financial Crisis: A Proposal
It’s been interesting listening to various perspectives on the cause of our current financial crisis. McCain blames the greedy people on Wall Street. Obama blames the system. Financial people in the heart of the crisis blame the irresponsibility of the home owners who borrowed money outside of their means.
Listening to these financial people who were almost all in their 70s and 80s reminded me of the banker scene in Mary Poppins.
President Bush gave a very detailed logical explanation of the sequence of events leading to the crisis. He did not address the cause.
The truth is that our financial system is a complex system. This statement is not a truism. I mean complex in the mathematical sense. Complex systems have a very curious property – history matters, but effect is not linked to cause. Complex systems are in disequilibrium. A classic example of a complex system is the unstable system of dirt, rocks, and boulders on the side of a mountain. A large bolder can fall at the top and nothing may happen. Conversely, a small rock can trigger an avalanche.
President Bush described the chain of events after the fact. So, you can see that history matters.
Continuing the metaphor, we’re considering throwing another bolder on top of an unstable system. The question is, will that boulder stop the avalanche or start another one. No one really knows. The future in unstable, complex systems is impossible to predict. The only thing that you can do is talk about probabilities if you have a lot of statistical history on the system. We have that kind of data on earthquakes. We don’t on our present economy.
I would like to see this crisis evaluated by at least considering several scenarios with the economic and social consequences estimated. The rush to judgment prevents this approach unless we can slow the process down, and convince the economic culture to suspend all actions. It’s a matter of days, not weeks or months in order to think this through.
If we assume that there 100 million tax paying families in the US, the $700 billion means $7,000 in taxes for each family. If the tax rate is 15%, that means that each family will have to earn an extra $47,000 in taxable income to generate that much tax. Or, the economy is going to have to generate $4,700 billion in new economic growth.
As for the cause of or unstable economy, in my opinion, we have to look at the three systems of the U.S. as described by Novak:
“…three systems in one: a predominately market economy; a polity respectful of the rights of the individual to life, liberty and the pursuit of happiness; and a system of cultural institutions moved by the ideals of liberty and justice for all. In short, three dynamic and converging systems functioning as one: a democratic polity, and economy based on markets and incentives, and a moral-cultural system which is pluralistic and, in the largest sense, liberal”
The political, capitalistic and morale-cultural systems make up an integrated system. That integrated system has been compromised by a steady erosion of the boundaries between the systems, rendering it unstable. Balancing the three systems should be our prime goal.
The boundaries between the political system and the capitalistic and moral-cultural systems are being blurred. The encroachment of the moral-cultural system into the political system, and vice versa, should be obvious, but other than causing distractions from their individual missions, is not the cause of this crisis. Through enmeshment, our economic system has co-opted the other two.
Our capitalistic system has been the success story for our generation. As a result we have adopted the business paradigm in both the political and moral-cultural systems.
There are three elements of the business paradigm, when applied without the equal emphasis of the political and moral-cultural systems, are important to the instability - markets, disintermediation, and economic value added.
Markets –“ …the concept of a market is any structure that allows buyers and sellers to exchange any type of goods, services and information. The exchange of goods or services for money is a transaction. Market participants consist of all the buyers and sellers of a good who influences its price. This influence is a major study of economics and has given rise to several theories and models concerning the basic market forces of supply and demand. There are two roles in markets, buyers and sellers. The market facilitates trade and enables the distribution and allocation of resources in a society. Markets allow any tradable item to be evaluated and priced. A market emerges more or less spontaneously or is constructed deliberately by human interaction in order to enable the exchange of rights (cf. ownership) of services and goods.”: Wikipedia. The problem arises when we try to apply the concepts of a market indiscriminately. Not all elements in the political and moral-cultural systems can be treated as markets. Moreover, a market without the guidance of the political and moral-cultural systems will be corrupted.
Disintermediation – Coase won the Noble prize in economics for his understanding the impact of transaction cost on the size of organizations. When traction cost was high, vertically integrated corporations were advantageous. Now, with transaction costs (material, information or capital) essentially zero, any task is theoretically more efficient if it is done by an expert no matter where the expert resides. As a result, the lowest cost expert is sought. This gives rise to outsourcing, off shoring and even the transfer of costs and risks to customers or consumers. The problems arise when this is not tempered by the political and moral-economic systems, or applied indiscriminately to the other tow systems.
Economic Value Added - is touted as a measure of the true economic performance of a company and a strategy for creating shareholder wealth. EVA measures the residual wealth of a company when its cost of capital is deducted from its operating profit. Al Ehrbar, author of EVA: The Real Key to Creating Wealth, writes "EVA is the framework for complete financial management and incentive compensation system that can guide every decision a company makes ... that can transform corporate culture, that can improve the working lives of everyone in an organization by making them more successful, and can help them produce greater wealth for shareholders, customers, and themselves." The complete rationalization of this concept throughout a business without the guiding forces of the political and moral-cultural systems can result in the ruthless actions of some corporations and their leaders. And, the application of modified versions of these principles to entities within the political and moral-cultural systems is evil.
In summary, there are three things that we have to do for the future:
* Separate the three systems – capitalistic, political and moral-cultural
* Balance the three systems in our perceptions, decisions and actions
* Innovate
Innovation is a process, the way resources are used to affect the common weal (a sound, healthy, or prosperous state), or to create a new resource. An innovation is the result of that process.
Innovation is the way that we can avoid a crisis in the future. All three systems – economic, political and moral-cultural – are in desperate need of innovation. And, we need to understand and evaluate proposed innovations by their impact on all three systems. Innovation can create new markets. Innovation can eliminate the need for disintermediation. And, innovation is the only true rationalization system for corporations.
Listening to these financial people who were almost all in their 70s and 80s reminded me of the banker scene in Mary Poppins.
President Bush gave a very detailed logical explanation of the sequence of events leading to the crisis. He did not address the cause.
The truth is that our financial system is a complex system. This statement is not a truism. I mean complex in the mathematical sense. Complex systems have a very curious property – history matters, but effect is not linked to cause. Complex systems are in disequilibrium. A classic example of a complex system is the unstable system of dirt, rocks, and boulders on the side of a mountain. A large bolder can fall at the top and nothing may happen. Conversely, a small rock can trigger an avalanche.
President Bush described the chain of events after the fact. So, you can see that history matters.
Continuing the metaphor, we’re considering throwing another bolder on top of an unstable system. The question is, will that boulder stop the avalanche or start another one. No one really knows. The future in unstable, complex systems is impossible to predict. The only thing that you can do is talk about probabilities if you have a lot of statistical history on the system. We have that kind of data on earthquakes. We don’t on our present economy.
I would like to see this crisis evaluated by at least considering several scenarios with the economic and social consequences estimated. The rush to judgment prevents this approach unless we can slow the process down, and convince the economic culture to suspend all actions. It’s a matter of days, not weeks or months in order to think this through.
If we assume that there 100 million tax paying families in the US, the $700 billion means $7,000 in taxes for each family. If the tax rate is 15%, that means that each family will have to earn an extra $47,000 in taxable income to generate that much tax. Or, the economy is going to have to generate $4,700 billion in new economic growth.
As for the cause of or unstable economy, in my opinion, we have to look at the three systems of the U.S. as described by Novak:
“…three systems in one: a predominately market economy; a polity respectful of the rights of the individual to life, liberty and the pursuit of happiness; and a system of cultural institutions moved by the ideals of liberty and justice for all. In short, three dynamic and converging systems functioning as one: a democratic polity, and economy based on markets and incentives, and a moral-cultural system which is pluralistic and, in the largest sense, liberal”
The political, capitalistic and morale-cultural systems make up an integrated system. That integrated system has been compromised by a steady erosion of the boundaries between the systems, rendering it unstable. Balancing the three systems should be our prime goal.
The boundaries between the political system and the capitalistic and moral-cultural systems are being blurred. The encroachment of the moral-cultural system into the political system, and vice versa, should be obvious, but other than causing distractions from their individual missions, is not the cause of this crisis. Through enmeshment, our economic system has co-opted the other two.
Our capitalistic system has been the success story for our generation. As a result we have adopted the business paradigm in both the political and moral-cultural systems.
There are three elements of the business paradigm, when applied without the equal emphasis of the political and moral-cultural systems, are important to the instability - markets, disintermediation, and economic value added.
Markets –“ …the concept of a market is any structure that allows buyers and sellers to exchange any type of goods, services and information. The exchange of goods or services for money is a transaction. Market participants consist of all the buyers and sellers of a good who influences its price. This influence is a major study of economics and has given rise to several theories and models concerning the basic market forces of supply and demand. There are two roles in markets, buyers and sellers. The market facilitates trade and enables the distribution and allocation of resources in a society. Markets allow any tradable item to be evaluated and priced. A market emerges more or less spontaneously or is constructed deliberately by human interaction in order to enable the exchange of rights (cf. ownership) of services and goods.”: Wikipedia. The problem arises when we try to apply the concepts of a market indiscriminately. Not all elements in the political and moral-cultural systems can be treated as markets. Moreover, a market without the guidance of the political and moral-cultural systems will be corrupted.
Disintermediation – Coase won the Noble prize in economics for his understanding the impact of transaction cost on the size of organizations. When traction cost was high, vertically integrated corporations were advantageous. Now, with transaction costs (material, information or capital) essentially zero, any task is theoretically more efficient if it is done by an expert no matter where the expert resides. As a result, the lowest cost expert is sought. This gives rise to outsourcing, off shoring and even the transfer of costs and risks to customers or consumers. The problems arise when this is not tempered by the political and moral-economic systems, or applied indiscriminately to the other tow systems.
Economic Value Added - is touted as a measure of the true economic performance of a company and a strategy for creating shareholder wealth. EVA measures the residual wealth of a company when its cost of capital is deducted from its operating profit. Al Ehrbar, author of EVA: The Real Key to Creating Wealth, writes "EVA is the framework for complete financial management and incentive compensation system that can guide every decision a company makes ... that can transform corporate culture, that can improve the working lives of everyone in an organization by making them more successful, and can help them produce greater wealth for shareholders, customers, and themselves." The complete rationalization of this concept throughout a business without the guiding forces of the political and moral-cultural systems can result in the ruthless actions of some corporations and their leaders. And, the application of modified versions of these principles to entities within the political and moral-cultural systems is evil.
In summary, there are three things that we have to do for the future:
* Separate the three systems – capitalistic, political and moral-cultural
* Balance the three systems in our perceptions, decisions and actions
* Innovate
Innovation is a process, the way resources are used to affect the common weal (a sound, healthy, or prosperous state), or to create a new resource. An innovation is the result of that process.
Innovation is the way that we can avoid a crisis in the future. All three systems – economic, political and moral-cultural – are in desperate need of innovation. And, we need to understand and evaluate proposed innovations by their impact on all three systems. Innovation can create new markets. Innovation can eliminate the need for disintermediation. And, innovation is the only true rationalization system for corporations.
Wednesday, September 17, 2008
Building an Innovative Enterprise
Building an innovative enterprise can be your most significant accomplishment for it can live beyond the your tenure or even your life.
Innovation is the way of transforming the resources of an enterprise through the creativity of people into new resources and wealth.
Innovation also reduces costs and increases profitability. But innovation is risky. Most innovations fail resulting in increased costs. On the other hand, to stay competitive you must innovate. To reduce risks you must target your innovations to meet customer needs and you must assure that your business is optimized to implement the innovation required by your customers.
Innovation is the lifeblood of a enterprise. It courses through a vital enterprise spawning new markets, enlarging existing markets, increasing market share or swelling profits.
Innovation flows from a strategy that balances the opportunities and threats in a market, the desires of stakeholders, the capability and capacity of the enterprise for innovation. Values derived from the market drive the development of the enterprise's resources, focus the organizational culture of the enterprise and align the enterprise's five innovation enablers inspiring people to be effective and efficient.
Innovation is not static. The need for innovation is a moving target that must be forecast as far into the future as it will take the enterprise to respond. Your foresight has to be greater than your ability to innovate.
In this seminar you will learn:
The material embedded in this blog includes:
Building an Innovative Enterprise
Building an Innovative Organization
A1.Introduction and Innovation
A2.Innovation
B.Innovative Enterprise
C.Organizational Development
D.Innovation Commons
E.Getting Started
Innovation is the way of transforming the resources of an enterprise through the creativity of people into new resources and wealth.
Innovation also reduces costs and increases profitability. But innovation is risky. Most innovations fail resulting in increased costs. On the other hand, to stay competitive you must innovate. To reduce risks you must target your innovations to meet customer needs and you must assure that your business is optimized to implement the innovation required by your customers.
Innovation is the lifeblood of a enterprise. It courses through a vital enterprise spawning new markets, enlarging existing markets, increasing market share or swelling profits.
Innovation flows from a strategy that balances the opportunities and threats in a market, the desires of stakeholders, the capability and capacity of the enterprise for innovation. Values derived from the market drive the development of the enterprise's resources, focus the organizational culture of the enterprise and align the enterprise's five innovation enablers inspiring people to be effective and efficient.
Innovation is not static. The need for innovation is a moving target that must be forecast as far into the future as it will take the enterprise to respond. Your foresight has to be greater than your ability to innovate.
In this seminar you will learn:
- A new perspective of innovation
- Definitions and applications of the nine different types of innovation
- How to build an innovative enterprise
- How to use the four basic building blocks to create an effective and efficient enterprise
- How to develop foresight and balance long and short term thinking
- How to develop an integrated innovation enhancement program
The material embedded in this blog includes:
- Two articles
- Slides
- Slides and audio in a movie format. Length: 2 hr. 23 min. Topics: A.Introduction and Innovation - 57:30; B.Innovative Enterprise - 24:30; C.Organizational Development - 34:00; D.Innovation Commons - 22:30; and E.Getting Started - 8:30
Building an Innovative Enterprise
Building an Innovative Organization
Building An Innovative Enterprise
View more presentations from Paul Schumann.
A1.Introduction and Innovation
A2.Innovation
B.Innovative Enterprise
C.Organizational Development
D.Innovation Commons
E.Getting Started
Tuesday, September 16, 2008
Adam Smith 2.0
By Irving Wladawsky Berger, AlwaysOn
The other day, I came across an interesting story about Adam Smith in The Economist. It appears that Adam Smith - the 18th century philosopher and economist, who is generally considered the father of free-market, free-trade capitalism - has been treated with remarkable indifference in his native Scotland. The 17th-century house where he spent the last years of his life has only a small, tarnished bronze plaque mentioning his name. His grave was overgrown until recently, and is still not easy for visitors to find.
The Economist story attributes this indifference to one of Scotland's best known sons to modern politics and historical ignorance. "Smith's most famous work, The Wealth of Nations," the article says, "which describes wealth creation in a competitive commercial economy dominated by the market's invisible hand, has long been appropriated by right-wingers and anathema in left-leaning Scotland."
Driven by their narrow political ideology, some people seem to think of open markets as reflecting a kind of survival of the fittest competition in which anything goes. But such people, I believe, have totally misrepresented not just Adam Smith and open markets, but the principles governing evolution and natural selection, especially as it applies to social animals like us humans.
The Economist story goes on to say that, - led by Prime Minister Gordon Brown, himself a Scot, - people are discovering that Adam Smith is not the right-wing ideologue he has been misunderstood to be. "Leftists much prefer Smith's other big work, The Theory of Moral Sentiments," it says. "Its deeply Scottish Presbyterian fulminations against materialistic desires for trinkets of frivolous utility, and lofty observation that man has some principles which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it, can be made to sound almost socialist."
I don't think that Adam Smith had socialism in mind, but something much deeper - sympathy, that is, the very human ability to have a strong feeling of concern for another person. Experts generally agree that Smith advocated both the self-interest of Wealth of Nations, and the sympathy of Theory of Moral Sentiments, with no contradiction between these two positions. In his view, "individuals in society find it in their self-interest to develop sympathy as they seek approval of what he calls the impartial spectator. The self-interest he speaks of is not a narrow selfishness but something that involves sympathy.”
Read the entire blog by clicking here.
The other day, I came across an interesting story about Adam Smith in The Economist. It appears that Adam Smith - the 18th century philosopher and economist, who is generally considered the father of free-market, free-trade capitalism - has been treated with remarkable indifference in his native Scotland. The 17th-century house where he spent the last years of his life has only a small, tarnished bronze plaque mentioning his name. His grave was overgrown until recently, and is still not easy for visitors to find.
The Economist story attributes this indifference to one of Scotland's best known sons to modern politics and historical ignorance. "Smith's most famous work, The Wealth of Nations," the article says, "which describes wealth creation in a competitive commercial economy dominated by the market's invisible hand, has long been appropriated by right-wingers and anathema in left-leaning Scotland."
Driven by their narrow political ideology, some people seem to think of open markets as reflecting a kind of survival of the fittest competition in which anything goes. But such people, I believe, have totally misrepresented not just Adam Smith and open markets, but the principles governing evolution and natural selection, especially as it applies to social animals like us humans.
The Economist story goes on to say that, - led by Prime Minister Gordon Brown, himself a Scot, - people are discovering that Adam Smith is not the right-wing ideologue he has been misunderstood to be. "Leftists much prefer Smith's other big work, The Theory of Moral Sentiments," it says. "Its deeply Scottish Presbyterian fulminations against materialistic desires for trinkets of frivolous utility, and lofty observation that man has some principles which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it, can be made to sound almost socialist."
I don't think that Adam Smith had socialism in mind, but something much deeper - sympathy, that is, the very human ability to have a strong feeling of concern for another person. Experts generally agree that Smith advocated both the self-interest of Wealth of Nations, and the sympathy of Theory of Moral Sentiments, with no contradiction between these two positions. In his view, "individuals in society find it in their self-interest to develop sympathy as they seek approval of what he calls the impartial spectator. The self-interest he speaks of is not a narrow selfishness but something that involves sympathy.”
Read the entire blog by clicking here.
Collaboration
Howard Rheingold talks about the coming world of collaboration, participatory media and collective action -- and how Wikipedia is really an outgrowth of our natural human instinct to work as a group.
Writer, artist and designer, theorist and community builder, Howard Rheingold is one of the driving minds behind our net-enabled, open, collaborative life.
Sunday, September 14, 2008
Ubiquity
This is not a hard book to read, but it is difficult to integrate into the way you look at the world. Mark Buchanan is a science writer who has worked on the editorial staff of Nature and as a features editor New Scientist. In this book he is writing about the development of a growing field of physics - complexity. Complexity is chaos in critical states. A critical state exists in a system that is not in equilibrium. You may have heard of the "butterfly effect". That is, there is a possibility that a butterfly flapping its wings in South America can cause a storm in Europe weeks later. However, that same butterfly can flap all in wants inside a closed balloon with no effects, other than maybe slightly increasing the temperature of the air in the balloon. The air inside the balloon is in equilibrium, even though the molecules exhibit chaotic behavior. The atmosphere is in a critical, i.e. non-equilibrium, state. A small perturbation somewhere can lead to very big changes.
If the air inside the balloon is in equilibrium, its past, present and future are all the same. It has no "history". When things are in non-equilibrium, history matters since what happens now can never be washed away but affects the entire course of the future.
The applications of this model extend from the piling of grains of sand in an hourglass to economics.
"Despite what scientists had previously believed, might the critical state in fact be quite common? Could riddling lines of instability of a logically equivalent sort run through the Earth's crust, for example, through forests and ecosystems, and perhaps even through the somewhat more abstract "fabric" of our economics? Think of those first few crumbling rocks near Kobe, or that first insignificant dip in prices that triggered the stock market crash of 1987. Might these have been "sand grains" acting at another level? Could the special organization of the critical state explain why the world at large seems so susceptible to unpredictable upheavals?
A decade of research by hundreds of other physicists has explored this question and taken the initial idea much further. There are many subtleties and twists in the story to which we shall come later in this book, but the basic message, roughly speaking, is simple: The peculiar and exceptionally unstable organization of the critical state does indeed seem to be ubiquitous in our world. Researchers in the past few years have found its mathematical fingerprints in the workings of all the upheavals I've mentioned so far, as well as in the spreading of epidemics, the flaring of traffic jams, the patterns by which instructions trickle down from managers to workers in an office, and in many other things. At the heart of our story, then, lies the discovery that networks of things of all atoms, molecules, species, people, and even ideas have a marked tendency to organize themselves along similar lines. On the basis of this insight, scientists are finally beginning to fathom what lies behind tumultuous events of all sorts, and to see patterns at work here where they have never seen them before."
The mathematical models of this science don't really exist yet, and may never exist. We have empirical observations and we have games. The empirical data suggests that all these phenomena follow a power curve, and all with roughly the same shape. For example, looking at earthquakes, as the strength of the earthquake doubles, the frequency of occurrence drops by one fourth. This simple rule seems to apply to many examples.
So what does this have to do with creativity, strategy, leadership and innovation in organization? Well, I'm not sure yet. My intuition tells me that this is very important to those concepts. It may help us understand the frequency of occurrence of breakthrough ideas and innovation. It may help explain why some innovations cause such change and others do not. It may help produce better strategies to deal with chaotic and unstable markets. And, it may provide lessons for leaders in chaotic times. I'd welcome a discussion.
Ubiquity: Why Catastrophes Happen
Mark Buchanan
Thee Rivers Press, 2000
273 pages
If the air inside the balloon is in equilibrium, its past, present and future are all the same. It has no "history". When things are in non-equilibrium, history matters since what happens now can never be washed away but affects the entire course of the future.
The applications of this model extend from the piling of grains of sand in an hourglass to economics.
"Despite what scientists had previously believed, might the critical state in fact be quite common? Could riddling lines of instability of a logically equivalent sort run through the Earth's crust, for example, through forests and ecosystems, and perhaps even through the somewhat more abstract "fabric" of our economics? Think of those first few crumbling rocks near Kobe, or that first insignificant dip in prices that triggered the stock market crash of 1987. Might these have been "sand grains" acting at another level? Could the special organization of the critical state explain why the world at large seems so susceptible to unpredictable upheavals?
A decade of research by hundreds of other physicists has explored this question and taken the initial idea much further. There are many subtleties and twists in the story to which we shall come later in this book, but the basic message, roughly speaking, is simple: The peculiar and exceptionally unstable organization of the critical state does indeed seem to be ubiquitous in our world. Researchers in the past few years have found its mathematical fingerprints in the workings of all the upheavals I've mentioned so far, as well as in the spreading of epidemics, the flaring of traffic jams, the patterns by which instructions trickle down from managers to workers in an office, and in many other things. At the heart of our story, then, lies the discovery that networks of things of all atoms, molecules, species, people, and even ideas have a marked tendency to organize themselves along similar lines. On the basis of this insight, scientists are finally beginning to fathom what lies behind tumultuous events of all sorts, and to see patterns at work here where they have never seen them before."
The mathematical models of this science don't really exist yet, and may never exist. We have empirical observations and we have games. The empirical data suggests that all these phenomena follow a power curve, and all with roughly the same shape. For example, looking at earthquakes, as the strength of the earthquake doubles, the frequency of occurrence drops by one fourth. This simple rule seems to apply to many examples.
So what does this have to do with creativity, strategy, leadership and innovation in organization? Well, I'm not sure yet. My intuition tells me that this is very important to those concepts. It may help us understand the frequency of occurrence of breakthrough ideas and innovation. It may help explain why some innovations cause such change and others do not. It may help produce better strategies to deal with chaotic and unstable markets. And, it may provide lessons for leaders in chaotic times. I'd welcome a discussion.
Ubiquity: Why Catastrophes Happen
Mark Buchanan
Thee Rivers Press, 2000
273 pages
Leading the Revolution
If you haven’t already read this book, you should read it now. It’s one of the best books on innovation I’ve read and innovation is the twelfth word in the long title. It’s also a book about strategy, that forgotten and banned word from business books. And, it’s courageous, full of things I wish I had written like, “…how many times have you heard a CEO or divisional vice president say, ’Our real problem is execution’? Or worse, tell people that ‘strategy is the easy part, implementation is the hard part.’ What rubbish! These worthless aphorisms are favored by executives afraid to admit that their strategies are seriously out of date, executive’s who’d prefer their people stop asking awkward questions and get back to work. Strategy is easy if you’re content to have a strategy that is a derivative of someone else’s strategy. Strategy is anything but easy if your goal is to be the author of industry transformation – again and again.”
The book is well written and full of gems of wisdom like:
"In a nonlinear world, only nonlinear ideas will create new wealth."
"By the time an organization has wrung the last 5 percent efficiency out of the how, someone else will have invented a new what."
"Somewhere out there there’s a bullet with your company’s name on it."
"The gap between what can be imagined and what can be accomplished has never been smaller."
We are limited not by our tools, but by our imagination.
"First the revolutionaries will take your markets and your customers Next they’ll take your best employees. Finally, they’ll take your assets."
"In the new industrial order, the battle is not democracy versus totalitarism or globalism versus tribalism, it is innovation versus precedent."
It is a call to “conscious” people in organizations to lead a revolution. The title says so in bold print on the cover. (I was walking through a hotel lobby with the book in my hand with the title clearly visible, a person that could have been someone attached to security stared at the book as I walked past.) He points out that for a company to embrace revolutionary change requires bottoms-up revolutionary thought and someone at the top supporting the change. The middle are almost always slaves to precedent. But, this is not a book aimed at executives, it is aimed at workers.
“Most of us pour more of our life into the vessel of work than into family, faith or community. Yet more often than not the return on emotional equity derived from work is meager. The nomadic Israelites were commanded by God to rest one day in seven – but he didn’t decree that the other six had to be empty of meaning. By what law must competitiveness come at the expense of hope?”
The opening paragraphs of the book encapsulate his view of the world of business:
“The age of progress is over. It was born in the Renaissance, achieved its exuberant adolescence during Enlightenment, reached a robust maturity in the industrial age, and died with the dawn of the twenty-first century. For countless millennia there was no progress, only cycles. Seasons turned. Generations came and went. Life didn’t get any better; it simply repeated itself in an endlessly familiar pattern. There was no future, for the future was indistinguishable from the past.
Then came the unshakeable belief that progress was not only possible, it was inevitable. Life spans would increase. Material comforts would multiply. Knowledge would grow. There was nothing that could not be improved upon. The discipline of reason and the deductive routines of science could be applied to every problem, from designing a more perfect union to produce semiconductors of mind boggling complexity and unerring quality.”
He continues, “We are now standing on the threshold of a new age – an age of revolution. Change has changed. No longer is it additive. No longer does it move in a straight line. In the twenty-first century, change is discontinuous, abrupt, seditious.”
And later, “It’s not that things didn’t change back there in the age of progress; they did” he continues, “But to use a metaphor from the theory of biological evolution, it was a world of punctuated equilibrium, where change was episodic. Today, we live in a world that is all punctuation and no equilibrium. To thrive in this new age, every company and every individual will have to become as nimble as change itself.”
He asks the question, “Who will create new wealth and who will squander the old?”
“Companies today are rightly obsessed with satisfying stockholders. Spin-offs, de-mergers, share buybacks, tracking stocks, value-based management programs – all these things release wealth, but they don’t create wealth. Neither do mega-mergers. These strategies don’t create new wealth because they don’t create new business models, new markets, new sources of competitive advantage or new customers. So while they may deliver onetime gains to shareholders, they don’t fundamentally change a company’s long-term earning potential. Industry revolutionaries are in the business of creating new wealth. You won’t find them playing shell games with shareholders. Any company that wants to thrive in the age of revolution is going to have to do more than wring a bit of wealth out of yesterday’s strategies. Revolutionaries don’t release wealth, they create it. They do more than conserve, they build.”
He continues, “In truth, CFOs and CEOs have been mistaken the scoreboard for the game. They have spent too much time trying to manipulate quarterly earnings and the share price, and too little time trying to build their company’s capacity for radical innovation. Shareholder wealth may be the scoreboard, but the game is radical innovation.”
Hamel makes the point convincingly that we are at the top of an economic s-curve. We’ve squeezed all incremental and imaginary costs out of present business strategy and it’s time for radical innovation, what he calls strategy decay. He also attacks the sameness of business strategies. Through the process of best practices, industries have reached centrality. All the businesses are all so close to each other strategically because they have for years determined best practices and adopted those in their own organization. Revolutionaries can break out of the pack and establish the new rules of competition.
“In the age of revolution, every company must become an opportunity seeking missile – where the guidance system homes in on what is possible, not on what has already been accomplished. A brutal honesty about strategy decay and a commitment to creating new wealth are foundations for strategy innovation. But you can’t be an industry revolutionary unless you’ve learned to see the unconventional. You won’t have the courage to abandon, even partially, what is familiar unless you feel in viscera the promise of the unconventional.”
Hamel doesn’t specifically define business concept innovation, but he does give us some of its characteristics. “The goal of business concept innovation is to introduce more strategic variety into an industry or competitive domain. When this happens, and when customers value that variety, the distribution of wealth-creating often shifts dramatically in favor of the innovator.” Later he writes, “Business concept innovation is meta-innovation, in that it changes the very basis for competition within an industry or domain.” Still later, “Business concept innovation starts from the premise that the only way to escape the squeeze of hyper competition, even temporarily is to build a business model so unlike what has come before that traditional competitors are left scrambling.”
To me a business concept innovation is a collection of product, process and procedure innovations with the right mix of incremental, distinctive and breakthrough change. If it is the right mix, i.e. the mix creates unusual value for the customer, then a shift of wealth occurs.
Hamel identifies four components of a business model – core strategy, strategic resources, customer interface and value network. He then unpacks his concept of a business model. He identifies four factors that determine a business model’s profitability (and its potential for wealth) – efficiency, uniqueness, fit and profit boosters. Along the way, he gives examples of radical innovation driven business models.
The book then turns and focuses on the individual, the revolutionary. He spends three chapters on advice to revolutionaries in Be Your Own Seer, Corporate Rebels and Go Ahead! Revolt! These chapters provide some really useful information for people who sense that revolutionary change is required, but aren’t sure what they can do about it.
He then turns his attention to revolution within old hierarchies in Gray-Haired Revolutionaries. He makes the point that an organization is never too old to change if they establish the right climate for change and provide the support and encouragement for rebels within the organization.
The book closes with Design Rules for Innovation and The New Innovation Solution. Hamel’s design rules for innovation are:
- Unreasonable expectations
- Elastic business definition
- A cause, not a business
- New voices
- A market for innovation
- Low risk experimentation
- Cellular division
- Connectivity
“Most companies use a decidedly unbalanced scorecard – one that is heavily weighted toward optimization rather than innovation. Measures like RONA, ROCE, EDVA and ROI often encourage managers to beat a dead horse ever harder.” These and other metrics are not pro-innovation. “Without strong pro-innovation metrics, the default setting in most organizations is ‘more of the same’” He continues, “Traditional metrics do not force a company to consider how it is performing against new and unorthodox competitors in the quest for wealth creation.”
Hamel’s suggestion for a radical business concept innovation metric is a Wealth Creation Index (WCI). “The WCI lets a company determine how it has performed against a relevant set of ‘competitors’ in creating new wealth. The process of determining your company’s WCI involves two steps: defining the domain and calculating changes in the market value of your company versus the value of the entire domain.”
This is a good start but I don’t believe it’s sufficient to guide a revolution. WCI is a measure of the consequences of previous actions. The examples he gives are over a ten year period. In my experience what is also needed are predictive and present metrics – people, processes, outcomes and consequences.
Hamel ends with a real call to revolutionaries, “Do you care enough about the future to argue with precedent and stick a thumb in the eye of tradition?” He continues with other exhortations ending with, “Do you care enough to lead the revolution?”
This is a powerful book crammed full of ideas. It’s a fun book to read, but a real bear to really understand and implement. My suggestion, if you think you want to be a revolutionary, find a group like your self, read this book and create a study group or discussion group.
The book has nine chapters divided into four sections:
Facing Up to the Revolution
1. The End of Progress
2. Facing Up to Strategy Decay
Finding the Revolution
3. Business Concept Innovation
4. Be Your Own Seer
Igniting the Revolution
5. Corporate Rebels
6. Go Ahead! Revolt!
Sustaining the Revolution
7. Gray-Haired Revolutionaries
8. Design Rules for Innovation
9. The New Innovation Solution
Leading the Revolution: How to thrive in Turbulent Times by Making Innovation a Way of Life, Gary Hamel, Plume Book, 2002, Paperback, 337 pages
The book is well written and full of gems of wisdom like:
"In a nonlinear world, only nonlinear ideas will create new wealth."
"By the time an organization has wrung the last 5 percent efficiency out of the how, someone else will have invented a new what."
"Somewhere out there there’s a bullet with your company’s name on it."
"The gap between what can be imagined and what can be accomplished has never been smaller."
We are limited not by our tools, but by our imagination.
"First the revolutionaries will take your markets and your customers Next they’ll take your best employees. Finally, they’ll take your assets."
"In the new industrial order, the battle is not democracy versus totalitarism or globalism versus tribalism, it is innovation versus precedent."
It is a call to “conscious” people in organizations to lead a revolution. The title says so in bold print on the cover. (I was walking through a hotel lobby with the book in my hand with the title clearly visible, a person that could have been someone attached to security stared at the book as I walked past.) He points out that for a company to embrace revolutionary change requires bottoms-up revolutionary thought and someone at the top supporting the change. The middle are almost always slaves to precedent. But, this is not a book aimed at executives, it is aimed at workers.
“Most of us pour more of our life into the vessel of work than into family, faith or community. Yet more often than not the return on emotional equity derived from work is meager. The nomadic Israelites were commanded by God to rest one day in seven – but he didn’t decree that the other six had to be empty of meaning. By what law must competitiveness come at the expense of hope?”
The opening paragraphs of the book encapsulate his view of the world of business:
“The age of progress is over. It was born in the Renaissance, achieved its exuberant adolescence during Enlightenment, reached a robust maturity in the industrial age, and died with the dawn of the twenty-first century. For countless millennia there was no progress, only cycles. Seasons turned. Generations came and went. Life didn’t get any better; it simply repeated itself in an endlessly familiar pattern. There was no future, for the future was indistinguishable from the past.
Then came the unshakeable belief that progress was not only possible, it was inevitable. Life spans would increase. Material comforts would multiply. Knowledge would grow. There was nothing that could not be improved upon. The discipline of reason and the deductive routines of science could be applied to every problem, from designing a more perfect union to produce semiconductors of mind boggling complexity and unerring quality.”
He continues, “We are now standing on the threshold of a new age – an age of revolution. Change has changed. No longer is it additive. No longer does it move in a straight line. In the twenty-first century, change is discontinuous, abrupt, seditious.”
And later, “It’s not that things didn’t change back there in the age of progress; they did” he continues, “But to use a metaphor from the theory of biological evolution, it was a world of punctuated equilibrium, where change was episodic. Today, we live in a world that is all punctuation and no equilibrium. To thrive in this new age, every company and every individual will have to become as nimble as change itself.”
He asks the question, “Who will create new wealth and who will squander the old?”
“Companies today are rightly obsessed with satisfying stockholders. Spin-offs, de-mergers, share buybacks, tracking stocks, value-based management programs – all these things release wealth, but they don’t create wealth. Neither do mega-mergers. These strategies don’t create new wealth because they don’t create new business models, new markets, new sources of competitive advantage or new customers. So while they may deliver onetime gains to shareholders, they don’t fundamentally change a company’s long-term earning potential. Industry revolutionaries are in the business of creating new wealth. You won’t find them playing shell games with shareholders. Any company that wants to thrive in the age of revolution is going to have to do more than wring a bit of wealth out of yesterday’s strategies. Revolutionaries don’t release wealth, they create it. They do more than conserve, they build.”
He continues, “In truth, CFOs and CEOs have been mistaken the scoreboard for the game. They have spent too much time trying to manipulate quarterly earnings and the share price, and too little time trying to build their company’s capacity for radical innovation. Shareholder wealth may be the scoreboard, but the game is radical innovation.”
Hamel makes the point convincingly that we are at the top of an economic s-curve. We’ve squeezed all incremental and imaginary costs out of present business strategy and it’s time for radical innovation, what he calls strategy decay. He also attacks the sameness of business strategies. Through the process of best practices, industries have reached centrality. All the businesses are all so close to each other strategically because they have for years determined best practices and adopted those in their own organization. Revolutionaries can break out of the pack and establish the new rules of competition.
“In the age of revolution, every company must become an opportunity seeking missile – where the guidance system homes in on what is possible, not on what has already been accomplished. A brutal honesty about strategy decay and a commitment to creating new wealth are foundations for strategy innovation. But you can’t be an industry revolutionary unless you’ve learned to see the unconventional. You won’t have the courage to abandon, even partially, what is familiar unless you feel in viscera the promise of the unconventional.”
Hamel doesn’t specifically define business concept innovation, but he does give us some of its characteristics. “The goal of business concept innovation is to introduce more strategic variety into an industry or competitive domain. When this happens, and when customers value that variety, the distribution of wealth-creating often shifts dramatically in favor of the innovator.” Later he writes, “Business concept innovation is meta-innovation, in that it changes the very basis for competition within an industry or domain.” Still later, “Business concept innovation starts from the premise that the only way to escape the squeeze of hyper competition, even temporarily is to build a business model so unlike what has come before that traditional competitors are left scrambling.”
To me a business concept innovation is a collection of product, process and procedure innovations with the right mix of incremental, distinctive and breakthrough change. If it is the right mix, i.e. the mix creates unusual value for the customer, then a shift of wealth occurs.
Hamel identifies four components of a business model – core strategy, strategic resources, customer interface and value network. He then unpacks his concept of a business model. He identifies four factors that determine a business model’s profitability (and its potential for wealth) – efficiency, uniqueness, fit and profit boosters. Along the way, he gives examples of radical innovation driven business models.
The book then turns and focuses on the individual, the revolutionary. He spends three chapters on advice to revolutionaries in Be Your Own Seer, Corporate Rebels and Go Ahead! Revolt! These chapters provide some really useful information for people who sense that revolutionary change is required, but aren’t sure what they can do about it.
He then turns his attention to revolution within old hierarchies in Gray-Haired Revolutionaries. He makes the point that an organization is never too old to change if they establish the right climate for change and provide the support and encouragement for rebels within the organization.
The book closes with Design Rules for Innovation and The New Innovation Solution. Hamel’s design rules for innovation are:
- Unreasonable expectations
- Elastic business definition
- A cause, not a business
- New voices
- A market for innovation
- Low risk experimentation
- Cellular division
- Connectivity
“Most companies use a decidedly unbalanced scorecard – one that is heavily weighted toward optimization rather than innovation. Measures like RONA, ROCE, EDVA and ROI often encourage managers to beat a dead horse ever harder.” These and other metrics are not pro-innovation. “Without strong pro-innovation metrics, the default setting in most organizations is ‘more of the same’” He continues, “Traditional metrics do not force a company to consider how it is performing against new and unorthodox competitors in the quest for wealth creation.”
Hamel’s suggestion for a radical business concept innovation metric is a Wealth Creation Index (WCI). “The WCI lets a company determine how it has performed against a relevant set of ‘competitors’ in creating new wealth. The process of determining your company’s WCI involves two steps: defining the domain and calculating changes in the market value of your company versus the value of the entire domain.”
This is a good start but I don’t believe it’s sufficient to guide a revolution. WCI is a measure of the consequences of previous actions. The examples he gives are over a ten year period. In my experience what is also needed are predictive and present metrics – people, processes, outcomes and consequences.
Hamel ends with a real call to revolutionaries, “Do you care enough about the future to argue with precedent and stick a thumb in the eye of tradition?” He continues with other exhortations ending with, “Do you care enough to lead the revolution?”
This is a powerful book crammed full of ideas. It’s a fun book to read, but a real bear to really understand and implement. My suggestion, if you think you want to be a revolutionary, find a group like your self, read this book and create a study group or discussion group.
The book has nine chapters divided into four sections:
Facing Up to the Revolution
1. The End of Progress
2. Facing Up to Strategy Decay
Finding the Revolution
3. Business Concept Innovation
4. Be Your Own Seer
Igniting the Revolution
5. Corporate Rebels
6. Go Ahead! Revolt!
Sustaining the Revolution
7. Gray-Haired Revolutionaries
8. Design Rules for Innovation
9. The New Innovation Solution
Leading the Revolution: How to thrive in Turbulent Times by Making Innovation a Way of Life, Gary Hamel, Plume Book, 2002, Paperback, 337 pages
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