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Back to the Future

December 19, 2011 By Leave a Comment

Sometimes I’m hard pressed to understand why I read what I do.  What is it that actually interests me about some stories?  Then, after a while, I see that it isn’t the content per se  but rather the narrative which keeps me engaged and draws me along.  Of the handful of narratives that mesmerize me, the recursive innovation narrative (or back to future story) stands out.

In this narrative, innovation comes about by rediscovering something that has been lost along the way.  Typically, the loss occurs because popular or commercial interest becomes caught up with an idea that, in the long run, is either revealed or proven to be false.  Or one idea has become so widespread that it crowds out another idea that is equally, if not more, important.  The innovation lies in reclaiming or reasserting the thing that was once known but became lost in the process.

Here are two stories of recursive innovation:

Running Redux

Humans are born runners.  The combination of an ability to cool ourselves through perspiration (rather than panting as other animals do) and the “springiness” of our legs allowed humans to outlast their prey when it came to running.  So, why is it that close to 80% of all contemporary runners suffer injuries each year despite specially engineered running shoes, running surfaces, and training regimes?  And why is it that in some cultures which lack all of these advantages, people we would consider elderly can run 100-mile races as a matter of course?

Christopher McDougall believes “…we don’t need smarter shoes, we need smarter feet”   He has resurrected an exercise routine that rewires the brain and the body to run the way that nature intended – the 100-Up Exercise.  An undeniably simple routine, the 100-Up (see the YouTube video) is a three-minute exercise that upends modern running dogma.  It isn’t about the shoes, the surface, the intensive training – it’s about rediscovering the way that humans were born to run.

So when and where did it go wrong?  Apparently, not so long ago and also apparently, the commercial shoe industry in the U.S. played a major role in leading runners astray.  In the 1970s and 80s, runners became obsessed with the notion that the proper running shoe was the key to great running because the biggest problem with running was heel-strike impact.  The first inkling that the shoe solution to heel-strike impact might be wrong came when researchers began to observe barefoot runners.  What they noticed was that barefoot runners did not land on their heels, but rather, on the balls of their feet.   This was not a shoe-problem, but a form problem.  However, ingrained notions of running are difficult to dislodge and even though barefoot running has taken off, it is still shoe- rather than form-focused for the most part.  The biggest evidence of shoe-bias is the invention of those strange looking glove-like shoes.  You can shell out the bucks for Vibram Five-Fingers, but if you are still running heel first, you are highly likely to injure yourself.  According to those who practice the new method informed by 100-Up, you can run with the shoes you already have because it’s not the shoes, it’s the way you run that matters.

Apples Lost and Found

The apple as a healthy snack is a relatively new invention.  Apples have been around a long time (from a human civilization perspective), but up to the Civil War period they were primarily used as either feedstock for animals or an alternative to water in the form of hard cider for humans because apples were not particularly tasty to eat.  Prohibition was especially bad for apples (hard cider was alcoholic), and it was during this period that they got a PR makeover with an adage promoting their health (“An apple a day keeps the doctor away”) and an agricultural focus on propagating better tasting varieties. Before industrial scale refrigeration, most people enjoyed local apples and there are a multitude of types associated with particular geographies.

Some Fun Apples (Esopus Spitzenberg and Yellow Newton Pippin):

However, with the advent of refrigerated rail cars, apples could be transported over long distances.  Refrigeration and the rise of the national grocery chain combined to promote the apple attributes of durability, long shelf life and aesthetic appeal.  As a result, the plethora of apple species dwindled to three – McIntosh, Red Delicious and Golden Delicious — and apples as a local treat gave way to the national grocery produce staple.  Apple breeding increasingly focused on making sure apples looked rather than tasted good.  We all know how delicious apples can look and how disappointing they can taste.  That shiny, beautiful outside masking a mushy, mealy, flavorless inside.  This is how it came to be that Americans now consume about half the amount of apples as their European counterparts.

The sorry state of affairs persisted for some time until a confluence of events turned the tide to favor a tasty apple with great texture and crunch.  In the 1970s, several new apple varieties – so called “super apples” – were imported from outside the U.S. and began to be cultivated here.   At the same time, price controls were imposed to help the U.S. deal with stagflation, but produce was exempt from this constraint creating an opening for these new apples.   Americans got a taste of delicious, but less than perfectly formed apples and loved them. Once again, the apple as a flavorful, nutritious food found in many varieties was back on the scene and apple consumption began to increase.

Recursive Innovation

The article from which my much abbreviated apple mini-history is derived goes on to describe the equally fascinating business model of patenting and controlling the production of apple varieties.  But what struck me as I read about apples past and present was how much it reminded me of the story about running.   The themes in both stories are the same. In the push to scale an innovation, to achieve industrial capacity, a critical artisanal element was lost, left by the wayside because its importance was not understood.  This element would turn out to be a sustainability factor which had to be rediscovered in order to breathe life back into the innovation.

I am not suggesting that the sustainability factor is always apparent.  Clearly if people knew what it was they would not so casually allow it to be jettisoned in favor of other elements which might turn out to be helpful for a time, but ultimately outlive their usefulness.   Yet this challenge – knowing what to discard and what to retain – remains a key challenge of innovation.

As we come to the close of the year, this question – what to hold onto and what to let go of as we move ahead – has particular resonance, both organizationally and individually.  Much of the world is  captivated by the idea of sustainability whose light and fluffy exterior is characterized by “doing well by doing good” and whose dark underbelly is the stuff of self-preservation.   What I like most about sustainability as a screen for what should be retained or discarded is its strategic urgency.  Strategic – doing well by doing good.  Urgency – self-preservation.  I’ve been told and have experienced it to be true in my own life that what gets done is whatever is threatened by a burning platform (regrets to the “what gets measured, gets done” crowd – burning platform trumps measurement).   As we move into the new year and look for new ways to separate the proverbial wheat from the chaff, one possibility might be found in the recursive innovation narrative and its North Star of sustainability.

Sources:

  • “The Once and Future Way to Run,” Christopher McDougall, The New York Times Magazine, November 6, 2011
  • “Crunch,” John Seabrook, The New Yorker, November 21, 2011
Filed Under: Business Model, Innovation, Strategy, Sustainability

Timing Might NOT Be Everything

October 18, 2011 By Leave a Comment

Recently when I’ve been in the middle of political discussions with friends or family, I’ve found myself on the side of an argument where I rather sadly concede that President Obama might not be the right person for the times.   It occurs to me that this point of view might have less to do with the President and more to do with a middle-aged belief about what has limited or supported my personal accomplishments to-date – a belief that I’ve been fortunate to have predilections about what I do to make a living and a temperament about how I do it that have been well-suited to the particular state of the business world during my career lifetime (so far, at least).  A feeling that timing is everything.

A few weeks ago, I attended a one day seminar on the topic of Forecasting in the Face of Risk and Uncertainty.  Most of the people attending this event were involved in the financial markets and their main (and in most cases, only) interest is figuring out how to make money.  Ironically, virtually all of the presenters (other than the final session panelists) were people who are mostly interested in thinking about BIG problems – scientists and academics – and relatively unconcerned about how to convert their ideas into money.   The seminar’s major themes that interested me were these:

  • Risk = Hazard x Vulnerability
  • Risk should not be confused with Uncertainty.  Risk implies that future events will occur with measurable probability.  Uncertainty implies that the likelihood of future events is indefinite or incalculable.
  • It appears that uncertainty is increasing as systems become more complex and tightly coupled.
  • The more complex and tightly coupled the system, the greater the likelihood that there will be accidents.  In these environments, adding more controls or safeguards in attempts to offset the likelihood of accidents will have the perverse effect of increasing the likelihood that accidents will occur because the controls increase both the complexity and tight coupling of the system.
  • But, simplicity is not necessarily the solution to complexity because simple systems are just as vulnerable to phase shifts or environmental disruptions.  In fact, simple systems and complex, tightly coupled systems share one design feature – they tend to be optimized perfectly for a specific environment.  If the environment changes even slightly in a way that makes it difficult for the system to adapt, the system is prone to collapse.

During the final session one of the panelists observed that the cockroach is a very successful creature – having survived massive disruptions in its external environment time and time again.  Apparently, cockroach survival has been enhanced by its extreme sensitivity to puffs of wind (indicating a potential predator on the move).  Puff of wind, cockroach senses it,  and initiates evasive maneuvers (turns and moves in the opposite direction).  However, cockroaches are not very well-designed insects.  In fact, this panelist described them as a perennial runner up in the competition for best insect design.  However, their less than perfect optimization for the environment has served them well in the long run.  They haven’t gotten to dominate the planet at any given time, but they’ve outlasted many other perfectly adapted insects (and other life forms as well).

Optimizing for a particular set of circumstances (tightly coupled complex or simple system design) is analogous to being the right person at the right time at the right place (etc., etc.).  In business settings we often talk about a process being well designed if it gets the right information to the right person at the right time.  But what if all this rightness is wrong?   What if it’s better in the long run to be almost right?  What if the right time is too short a timeframe for rightness?  What if timing is not everything?

Organizational innovation, it seems to me, is an attempt to survive (retain relevance) over the long term.  But, some of the limitations that organizations place on themselves in order to manage the inherent risks and uncertainty that accompany innovation might inadvertently increase those risks and not effectively manage uncertainty.  For example, companies believe that it is risk limiting to hew close to their existing markets – explore adjacencies where they can leverage existing resources and expertise.  And, on some level, this makes sense – you’ve got all this stuff (resources, expertise, infrastructure, systems) available and you know how to use it to make money (or create value if you’re a non-profit or an institution with a mission that has a broader definition of value than a financial one).  But what if by staying close to what you know and using similar or the same resources and expertise, you are adding complexity to your system and more tightly coupling success to the same set of value drivers and risk factors?  What if what looks like you’re managing risk is actually creating more risk and giving you a false sense that you are prepared to handle uncertainty?  Rather than having created a more robust and resilient organization, you have created one that is ever more sensitive to slight shifts in its environment and has a reduced capacity to adapt.  So you get to be the perfectly right organization for the time, but you have not become the organization that has a better chance of being around for a long time.

So, how do organizations use innovation to help manage for the long term?  First, I think we need to distinguish between the long term and forever.  While this might seem obvious, I’m not sure that most of us really acknowledge that every major organizational system will cease to exist at some point – nothing is forever.  Even serially successful innovative companies like Apple will not last forever.  Among the many musings about the significance of Steve Jobs and Apple in the wake of his untimely, recent death, one rang most true to me because it seemed like a perfect restatement of Clayton Christensen’s theory of innovation from below.

In this article (some of it is excerpted below), Cliff Kuang makes the point that Steve Jobs understood design better than anyone.   For a long time, personal computing devices were pretty ugly and hard to use – they were badly designed – but they were fast and powerful.  And, for an equally long time, design was too costly to be delivered to or desired by more than the elite.  (Market penetration of Macs was always a fraction of the PC.)   But, not very long ago, the price point of delivering great design in computing devices fell within reach of the many and computing power was a given, no longer a differentiator.  Today, great design has become a standard feature required of computing devices.  So, it’s possible that the wave of great design as an innovation in technology has passed.  That, more than anything else, may cause Apple to stumble going forward, but Apple has already figured out how to use innovation to manage for the long term.  The company has survived failures (NeXT Cube, Lisa, Newton), customer unhappiness (the iPhone 4’s antennae), and now, the death of its visionary founder/leader.

So, what makes systems resilient?  Just the sort of things that have been engineered out of lean organizations – slack and redundancy – the less than perfect design.  I frequently hear executives bemoaning the “hobbies” that employees pursue as evidence of innovation gone wrong.  But, I think that hobbies are the quintessential redundancies that pop up when there’s a bit of slack.  They’re good and necessary for innovation.  At the same time, organizations must also be willing to invest in some of the hobbies that appear to be scalable which requires leadership in the face of risk and uncertainty.

And what does it look like if you’re on the wrong side of a bet?  Ask yourself if you’d like to be Reed Hastings of Netflix – a guy who is experiencing what looks like BIG failure at the level of the institution. Or if you’d have been happy being Steve Jobs when Apple decided to offer Lisa customers the option of trading in their purchase for a Mac as a mea culpa for having sold them an expensive product that the company was not going to support because it was a failure.  Probably not.  But, if you are almost right (rather than perfectly right) and if you have a resilient organization that can absorb shocks to the system, you probably have a much better chance of thriving over the long haul because timing is not everything, even if it helps.

Sources:

“Wind Direction Coding in the Cockroach Escape Response: Winner Does Not Take All,” Rafael Levi and Jeffrey M. Camhi, sourced on 10/12/11 at  http://www.jneurosci.org/content/20/10/3814.full.pdf

“What Can Steve Jobs Still Teach Us?,” Cliff Kuang, Fast Company Newsletter, October 5 2011, sourced on 10/14/11 at http://www.fastcompany.com/design/2011/what-can-steve-jobs-still-teach-us

From What Can Steve Jobs Still Teach Us?:

A decisive factor that aided Steve Jobs was fortuitous timing. He came of age just in time to become a founding father of the personal-computer movement. And he was still young enough when he returned to Apple, in 1997, that his own instinctive sense of what a computer might become could be brought to life. In the 1980s and 1990s, computers were sold on their speed and technical capabilities. But by 2000, these features had largely become commoditized–it no longer mattered how fast a computer was when basic issues of usability and integration became paramount. What did speed matter if you didn’t know what all the menus meant, or if you were hit with pop-up errors every time you clicked your mouse?

Before 1997, Jobs was ahead of his time: The computers he made were overpriced for the market, because he thought that usability was more important than capability. But as computers reached maturity and became a staple in every home, his obsessions became more relevant to the market. Indeed, many of Apple’s recent signature products, such as the iPad or the iPhone, were ideas first conceived in the 1990s or even the 1980s–they had to bide their time.

Jobs is ahead of his time in other ways too: He has taught his entire organization to play in the span of product generations rather than product introductions. Apple designers say that now, each design they create has to be presented alongside a mock-up of how that design might evolve in the second or third generation. That should ensure Apple’s continued success for a long time, aided, of course, by the tremendous momentum that Jobs’s leadership has provided the company.

And for fun, it appears that cockroaches will NOT inherit the earth even though they are more resilient than humans.

Filed Under: Business Model, Innovation, Risk Management

Friendship – the perfect blendship!

September 12, 2011 By Leave a Comment

 

Pixar makes magical films – Toy Story, Up, Wall-E, Cars – so you might expect that it would be magical place to work.   And yes, it seems to be every bit as employee-friendly as every other high tech enterprise in Silicon Valley you have ever read about (even though it is not located in Silicon Valley, but in Emeryville – also outside of San Francisco, but in another universe altogether apparently).

You know what I’m talking about – the carefully designed workspaces that encourage collaboration and serendipitous interactions, the mind-body solicitousness of the fitness center and outdoor sports areas, the “you could live your entire life here” cafes, bars, and eateries.  But what I think is really remarkable about Pixar is this:  employees really like each other.

When John Lasseter, Pixar’s CEO, describes how the Toy Story team “saved” the project when it was imperiled, he says, “’We went back to what we wanted, and that was: the characters liked each other.  Because we liked each other.’”  And this, according to Anthony Lane, one of The New Yorker’s film critics and the author of a Pixar profile story, is the essence of Pixar distilled in the message of Toy Story – “You got a friend in me.”  At Pixar, friendship is cemented by intense devotion to craft that is married inextricably to technologies that continue to extend the possibilities for the special brand of enchantment that the company produces.  Lane notes that friendship is often the most enduring form of human relationships   He writes:  “[friendship is]…that practical momentum, conservative in its emotions, but radical in its taste for adventure….”

But (I can imagine you thinking out loud) they are Pixar – a smallish company with highly skilled (PhD-techno nerd-graphic design-type) employees operating in a rarified atmosphere making animated movies.  What does this have to do with anything other than a highly specialized corner of the entertainment industry?  What indeed?  To me, the idea of friendship – its practical momentum, conservative emotions and radical taste for adventure – is the energizing, forward-moving spirit that the corporate world says it wants and then crushes with a deadening, faint-hearted  version that it calls “employee engagement.”

Just compare the two – would you rather be friends with the people you work with or engaged to the company you work for?  (I know that you don’t really get engaged to a company, you are engaged with the work you do for the company, but just humor me a bit.)   The whole construct of employee engagement seems devoid of feeling which is odd because it’s supposed to be about attachment.  Just imagine, for a moment, if organizational life was built on friendship.  If products and services were really all about making friends with customers, suppliers, and other stakeholders.  If the strong bonds of friendship were what underpinned business decisions – a balancing of short and long term consequences, a desire to sustain relationships, trying to make something last beyond the ups and downs of the moment.

I believe that the nascent corporate social responsibility movement (another label that just kills all of the passion and power of what’s going on) at its most basic is an embodiment of friendship  There is something in the air these days and it’s bigger than engagement.

Perhaps it’s a consequence of how quickly changes that once seemed to take more than one person’s lifetime to experience have now become observable well within the boundaries of one person’s lifetime.   We might just well have come to a point in history when kicking the can down the road doesn’t really achieve the goal of palming problems off to another generation.  It may be that we are going to have to dig in and be responsible for the world in which we live – whether we inherited it or we created it.

How observable?  In an article discussing the US government’s investment in lithium battery production as part of a highly controversial US-style industrial policy (betting on certain industries having the potential to create jobs and economic leadership in the world economy),  the unforeseen consequences of having outsourced industrial production to Asia in the 1960s is identified as one of the major contributing factors to our lagging position industrial technologies.    The author quotes a seminal article by Pisano and Shih, two Harvard professors, who believe that globalization has had the unwitting effect of tearing apart the ecosystem that generates future innovation.

Pisano and Shih write that “…US corporations, by offshoring so much manufacturing work over the past few decades, have eroded our ability to raise living standards and curtailed the development of new high-technology industries.”  When consumer products companies offshored production to Asia, the drive to improve battery technology migrated to that part of the world too, because that was where it was needed – for toys and then small electronic devices.  Fast forward to 2010 and now the transportation industry (manufacturers of essentially large consumer electronic devices) needs this technology, but its locus is in Asia.

While no one is prescient enough to foresee how the arc of history will bend, if one takes a long view, it’s easy to see that caring for interlocking relationships in the present might serve to strengthen the foundation for future endeavors.  And what else is friendship but relationships that we tend today with a view towards tomorrow?

If we want our organizations and our economic systems to have a better chance at withstanding the vicissitudes of time, perhaps friendship is the best template we have.

 

Sources:

  • “The Fun Factory,” Anthony Lane, The New Yorker, May 16, 2011
  • “Make or Break,” Jon Gertner, The New York Times Sunday Magazine, August 28, 2011
And, another take on Friendship (thanks to Cole Porter, Ethel Merman and Bert Lahr)

Filed Under: Business Model, Collaboration, Sustainability

Bye Bye Business Model

December 20, 2010 By Leave a Comment

It seems a fitting way to wrap up 2010 by looking at business models that are on the way out as we head into 2011.

Business models change without warning to those who are invested in them.  Standing outside of an industry looking in, it isn’t hard to see when big changes are in the works or to conclude that the way things are is not going to continue.  In a conversation with a former Chief Investment Officer of a foundation a few weeks ago I heard the phrase “expected surprise” which I think nicely expresses what I’m talking about.  While it may be close to impossible to predict when a change will occur, it’s not at all difficult to predict with certainty that it will occur.  Yet somehow, the argument among those cashing in on an existing business model shifts to knowing when it will occur which has the effect of kicking the can down the road.  If change isn’t imminent, then more important and pressing things take precedence, always.  Which is why when the change inevitably comes, it seems to have been utterly unpredictable and unknowable – a complete (unexpected) surprise. 

Story #1:  The book publishing industry.

The paper-based, time-intensive, highly complex process that brings us books has been convulsing for many years now, but the glue that has bound writers and editors and publishers and publicists and book sellers and even e-sellers of books and e-books is rapidly losing its stickiness.  In August 2010, Seth Godin, a prolific, best-selling author, announced his departure from his longtime publisher, Pearson PLC’s Penguin Group because “…his blog attracts an estimated 438,000 followers…” and that means he knows who reads his books.  “’Publishers provide a huge resource to authors who don’t know who reads their books…”, but that isn’t the case for Mr. Godin.  What are Mr. Godin’s plans for the future?  He’ll hire his own editor and someone who can format his book for electronic distribution and then, it’s up to him to decide how he wants to “package” up the work, how to price it, and how to sell it.  

While Mr. Godin thinks that there still is role for publishers, not everyone agrees.  An e-book publisher, Mark Coker of Smashwords, says that not only will major authors consider this approach, but also those mid-list authors who don’t get much marketing support from publishers.   Those who are not on any list are already in the business of self-publishing, self-promoting and self-distributing.  If top-list, mid-list, and not-on-a-list writers don’t need publishers – who does?

 Story #2:  Knowledge creation.

That’s right – knowledge creation.   When the developers of new knowledge (scholars and researchers) seek to publish their work in career-making academic or professional journals – the ones that christen what is and what is not knowledge – they participate in another time-intensive, complex, opaque process – peer review.  But even in the change-resistant halls of liberal arts academe, a big change has come to the business model of peer-reviewed articles.  A crowd-sourced approach has emerged.   

The Shakespeare Quarterly “posted online four essays not yet accepted for publication, and a core group of experts…were invited to post their signed comments on the Web site MediaCommons, a scholarly digital network.”  This process contrasts with the traditional method in which a hand-selected and small group of academics evaluate submissions anonymously over a period of time which can drag on for years.   And how did what is now regarded as the traditional process come to be?  Like so many traditions which are resistant to change, “[it]…is not so much a gold standard but an effective accommodation to the needs of the field.”   

Yet, the belief persists that democratizing the peer review is not in the best interests of academics.  Many hold fast to the dogma that only experts in the field can truly evaluate whether work makes a significant and unique contribution to the field.  This belief is anchored by the reality that to receive tenure, scholars must be published in peer-reviewed journals.  Only when the authors of the articles that underwent this new process were assured that, if accepted, their pieces would be counted as “peer-reviewed” were they willing to participate.   (Much like the process of ending foot-binding in China, the system (a set of practices) has to change in order to make change stick.   See a previous blog post Formula for Positive Change.)

Story #3:  Manufacturing by printer.

Order of magnitude cost reductions, extreme customization, and just-in-time production – the 3-D printer is bringing all of this to the manufacture of prosthetics, architectural models, furniture, fixtures, cars, and houses.  3-D printers deposit layers of material, often plastic or metal, one on top of the other, controlled by algorithms, to build up an object, layer by layer. 

Bespoke Innovations will use the technology to create customized prosthetics at about one-tenth the cost of traditional prosthetics which are, by comparison, generic templates.  Contour Crafting is using the technology to transform the business of building homes.   A 3-D printer that sits on a tractor trailer does away with most of the manual labor involved in the construction of the structure of the house by not only fabricating walls, but also structural supports and conduits for electrical, plumbing, and heating and cooling systems in one pass.  The Urbee is a completely printed car.  Kor Ecologic, the venture behind the Urbee, is using a volunteer-based, collective approach to bring the car to the market (you can make a donation via PayPal to fund the project).  The president and chief technology officer of Kor Ecologic (Jim Kor) says that the 3D printing technology “lets us eliminate tooling, machining, and handwork, and it brings incredible efficiency when a design change is needed…If you can get to a pilot run without any tooling, you have advantages.”

As the software required to create the design programs plummets in cost and the cost of accessing the printers puts them in reach of more commercial applications, a new business ecosystem is developing in which designers use software to encode their visions and then send these programs to printers whose equipment produces them.  As entire classes of labor costs are removed from the equation, the dynamics of labor cost arbitrage are rebalanced making outsourcing to cheap labor countries which must factor in shipping costs less attractive.  What has seemed inexorable, the United States’ inability to retain its position as a dominant player in the manufacture of goods, might not be as much of a foregone conclusion as it once appeared.

Conclusion

These stories about systems that are in the midst of or on the cusp of radical disruption are all stories about expected surprise.  If you are willing to move outside of the system of which you are a part, and look at it as if you were an outsider, no matter what system you are part of, you would most likely see signs that big changes are coming.  If you subscribe to the idea of the expected surprise, then you know what happens to the rest of a business model when one key element undergoes a transformation. It’s like dominoes that are lined up in such a way that they connect ever so slightly with one another – when one falls, the others must follow.

Sources:

  • “Author to Bypass Publisher for Fans,” Jeffrey A. Trachtenberg, The New York Times, Tuesday, August 24, 2010.
  • “Scholars Test a Web Alternative to the Venerable Peer Review,” Patricia Cohen, The New York Times, Tuesday, August 24, 2010.
  • “3D Printing Spurs a Manufacturing Revolution,” Ashlee Vance, September 13, 2010, sourced on 12/17/10 at: http://www.nytimes.com/2010/09/14/technology/14print.html
  • “The Urbee Hybrid – the first 3D printed car,” Ariel Schwartz, October 29, 2010, sourced on 12/17/10 at :   http://www.fastcompany.com/1698943/the-urbee-hybrid-the-first-car-to-have-its-body-3-d-printed
Filed Under: Business Model, Change, Innovation

Garbage Out, Gold In

March 16, 2010 By 1 Comment

Back in my knowledge management days, I used to think that the kind of organization that would succeed in the future would be the organization that sat on a lot of interesting data, understood that it was sitting on a lot of interesting data, and, most critically, was able to do something to transform that data into knowledge.  I still believe that what will separate organizations that are successful from those that are not is the ability to transform data into knowledge – actionable information.  However, ownership of the data itself appears to be a lot less critical than being able to lease access to the data, understanding how to learn from data, and engaging communities in the learning process.

The Economist’s recent report on managing information introduced me to a few concepts that are clearly going to impact wealth creation for an increasing number of organizations in the near future beyond those that have already grasped these concepts and applied them to the creation of new business models.  Craig Mundie, head of research and strategy at Microsoft, is quoted as saying, “What we are seeing is the ability to have economies form around data….”  So, the notion that success in the future will derive from data might be in the early stages of taking shape.  Here are my favorite new concepts:

Data exhaust – The detritus of digital interactions.  Example:  When I make an online purchase, the ultimate goal of the vendor is to get me to the object I desire at a price point that I’m willing to pay.  Along the way, I might enlarge photos, change colors of the object, check out reviews on another site.  Some vendors might consider all of that data to be garbage.  Others are zealously collecting it and using to better understand how to present purchase opportunities to me, Wendi Bukowitz.  And some of them are selling that knowledge to other vendors who want me to consider their products but lack the data and the ability to analyze it.

Big data – As the amount of data skyrockets to a mind-boggling size, analytics on very large data sets is revealing previously hidden connections – some of the most important may be the ability to detect early indications of pending system failure, whether in machines or in human beings.  The store of data surpassed storage technologies in 2007, and is growing at a compound annual rate of 60%.  And it coming from more and more sources, not just the old standby’s of computers, cellphones, and cameras but increasingly sensors that are embedded in everything – products, buildings, pets, roads, people.

Crowd-sourcing is better than smart algorithms – Okay, it’s good to start with a smart algorithm, but if you can get lots of people to tweak that algorithm by using it, it turns out that you will achieve a better outcome.  For example, rather than trying to write the best translation rules, it’s proving more successful to write good enough ones and then let people who use translation systems select the translation option that is most accurate.  The combination of judgment and number crunching, rather than an exclusive reliance on one or the other, is asserting itself as the best way to make really good decisions about almost anything.

Most organizations treat the majority of the data they generate as garbage – data exhaust.  They routinely fail to investigate the possibilities of mining their data for new opportunities and, under the knee-jerk banner of data security, routinely lock anyone except a (relatively) small stakeholder group of employees and customers out of the data creation playing field.  This is not to say that there aren’t good arguments (and sometimes requirements) for sequestering some of the data, but I would like to see a more thoughtful and strategic approach to exploring the possibilities of gigantic piles of data.  Because, more and more, it’s looking like garbage out, gold in.

Filed Under: Business Model, Knowledge Management, Strategy

Inventing New Business Models

November 7, 2009 By Leave a Comment

While idly listening to NPR during one of the many short commutes that define suburban American life, I heard a piece about a restaurant in Denver that asked diners to pay a price that balances what they can afford for what they have eaten with what it is worth to them.  The café’s owners (a married couple) had been soup kitchen volunteers at a previous point in their lives and decided that they wanted to devote more of their life’s work to feeding people.  One of the owners was just making the transition from working another job to support the café to working fulltime at the café.  SAME Café (So All May Eat) was not going to make him or his wife rich, but it had gotten to the point where it could modestly support them. 

A little later, while sitting in my optometrist’s office and leafing through More magazine, I came across an article in its “second acts” series about Denise Cerreta, founder of One World Everybody Eats.  [She]…”is determined to change the way restaurants do business and to bring delicious, healthful food to everyone, even those who can’t pay.”  At her restaurant, diners can pay with money or with chores, adding a barter system dimension to the value exchange.  She is also focused on eliminating waste from the restaurant in the belief that if the food waste is eliminated across the entire food ecosystem, it could eliminate the problem of world hunger.   In addition to running her restaurant, Ms. Cerreta has established a foundation which advises other nonprofits (including SAME Café’s owners) and small business owners.  

Why is it that the people who invent new business models are nearly always not the usual suspects?  They are always passionate about what they are doing, but they do not suffer from preconceived ideas about how business works or even how you create wealth.  One way of thinking about a business model suggests it has three basic elements that interact with one another – resources and processes, customer value, and an earnings model.  The puzzler is, of course, the earnings model.  This element mediates between resources and processes, and customer value.  It determines how the value exchange will be divvied up among the stakeholders – employees, managers, owners, investors, customers, community.  Most new business ideas fall short of inventing a new business model.  They attack resources and processes and customer value.  But with rare exceptions, they leave the earnings model intact.  It is assumed that the owners and investors will get the lion’s share of the economic gains and it is assumed that the way to measure success is strictly economic. 

You can say that the new world of “free” that comes to us from the internet reflects a new business model.  And, in many ways, it does.  But I think that the new world of wealth creation that embraces more than pure economic gain is even more radical.   In the case of SAME Café and One World Everybody Eats, the objective is not to get rich in a purely economic sense, but to live a rich life. This includes making enough money to satisfy basic needs and somewhat more than that, but includes making a contribution to solving world problems on a local level and planting seeds that can scale the model globally.

What I love most about this new business model is that it blends the very old – barter – with the very new – social responsibility and mixes in some of the current – money.  It is not clear to me how this way of thinking can be or should be applied to traditional business, but I know that it indicates what we think is new or radical has only scratched the surface.  Thinking differently is very difficult because we know what we know.  Being an expert speeds you toward an answer, but it does not necessarily help you explore new territory.  To innovate a new business model, businesspeople would be well-advised to study non-businesspeople who invent kooky new approaches to solving big problems.  Looking away from the problem at hand is often the best way to see the solution.

Sources:

  • So All May Eat Café (http://www.soallmayeat.org/)  
  • “Second Acts: No Prices.  No Menu.  No Waste,” Jennifer Margulis, More, May 2009.
  • Business Model: Arkadi Kuhlman, 2007

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