Innovation is a discovery process

I also enjoyed this Wall Street Journal article about innovation and Thinking Inside the Box.


How could business leaders rate innovation as so important yet feel so dissatisfied with their own organizations’ performance? Because what they really want to know is how: How do you actually generate novel ideas and do so consistently, on demand?

The article goes on to provide five suggestions for taking a different approach to innovation by taking an existing idea and doing things like removing essential elements, combining unrelated tasks, and so on. Less ‘pie-in-the-sky’ thinking.

They provide good real world examples of each. One such, under the combining unrelated tasks, was the online security measure where you have to type in the letters of a fuzzy image to prove you’re not a computer.

The unrelated task is that those images are old texts that haven’t been converted to digital format yet. So, as we all verify that we’re not computers trying to buy tickets to our favorite sporting events, we’re also helping someone digitize an old book.

Even though I found their examples interesting, I’m still skeptical that their recommendations would improve effectiveness in producing innovation on-demand.

I think there’s 20/20 hindsight bias in their observations. They key in on the innovations that work, but don’ts consider the innovations that used the same approaches and didn’t work.

What “works” isn’t obvious. Even the people who eventually get the most out of an innovation would never had guessed that they would find that value prop useful prior to its existence. The Sony Walkman is a good example:

Even Akio Morita, Sony’s chairman and the inventor of the Walkman, was surprised by the market’s enthusiastic response.

Here are the suggestions for innovation that I’d add to the authors':

Try stuff in the real market, even on a small-scale. It doesn’t have to be perfect or refined to the level of your other products to find out if you have something. The things that I’ve worked on that have worked were not pretty in their initial stages, but they still ‘moved some numbers’ and refining them didn’t seem to improve the effectiveness.

Don’t let your biases get in the way of trying something. Let the market test it.

I’ve seen too many things that are actually working get canned because someone with political clout didn’t like it. They didn’t like it because it wasn’t their idea. Or, they didn’t feel it ‘fit with the brand’, though customers did. Or, they simply relied on poor business analysis that focused on a negative trade-off and ignored the positives.

When people have ideas, encourage them to put their money where there mouths are to try to prove it out. Reward them handsomely if it works. Encourage them to try again if it doesn’t. Understand, failure is likely and not a sign of incompetence. Good baseball players strike out much more often than they hit home runs.

Alos, read Nassim Taleb’s trilogy: Fooled by Randomness, The Black Swan and Antifragility.  Then read F.A. Hayek’s The Fatal Conceit. And, finally, read Russ Roberts’, The Price of Everything.

After reading these, you may see the world differently. Innovation is not a planning process, it’s a discovery process.

Toughen up

1. Milton Friedman’s comment, “Capitalism is a profit and loss system. Profit encourages risk-taking. Loss encourages prudence.”

2. Nassim Taleb, author of the Black Swan and Fooled by Randomness, released the prologue of his new book on Anti-Fragility online. In it, he expounds on Friedman’s point:

Which brings us to the largest fragilizer of society, and greatest generator of crises, absence of “skin in the game.” Some become antifragile at expense to others by getting the upside (or gains) from volatility, variations and disorder and exposing others to the downside risks of losses or harm from them.

In the housing crisis, losses were spread to other parties — investors in mortgages and ultimately to taxpayers — while the upside was retained by the bankers. This caused the bankers to exercise less prudence. How many lottery tickets would you buy if someone else was paying? Likely many more than you would buy on your own.

Then Taleb makes an even more important point:

And such antifragility-at-the-cost-of-fragility-of-others is hidden — given the blindness to antifragility by the Soviet-Harvard intellectual circles, this asymmetry is rarely identified and never taught.

Very few people see this. They even blame the problems on capitalism, never realizing that  spreading losses across taxpayers is not capitalism.

3. A blog post from the Wall Street Journal: Half of U.S. Lives in Household Getting [Federal Government] Benefits.  And, we’re not talking about benefits like driving on Federally-funded roads or sending a child to a public school that receives some Federal funds. No. We’re talking about getting a direct benefit from the government.

I’m guessing that Friedman and Taleb would suggest that this doesn’t end well.

Friedman might say that we are removing losses and therefore, removing prudence. Taleb might say that we are letting people gamble without having “skin in the game”.

Ultimately, this leads to folks taking risks they wouldn’t take if they had to pay the loss. This is dangerous itself. But, it also leads to something else that is even more dangerous. The loss of resilience, hardiness, grit and adaptability.

Why I may throw my vote away: Part II

I wrote about why I may throw my vote away here.  On his blog, Zombiehero posted the video below of Nassim Taleb, author of The Black Swan, on CNBC’s Squawk Box agreeing with me.

In the video, Taleb explains why he supports Ron Paul. The key point is at the 6:40 mark when the host asks Taleb what kind of chances does he give Ron Paul?  Taleb responds:

I don’t think in terms of chances. I’m supporting him, regardless of the chances. Whether he has 1% or 99%, I’m supporting him, because we have no other solution…it’s my duty as a citizen, as a person who lives here, as a taxpayer who doesn’t want to be hoodwinked….in the long run, by bureaucrats.

Trader Joes: Lesson in Value Proposition

One topic I talk about often in business presentations is value proposition.  It’s a simple concept that few people seem to grasp, even though we each deal with it many times a day.

Value proposition is simply why you bought the product you bought.  But, answer to that isn’t always as simple as you think it is or very clear.  There can be many factors.  Some you may be aware of and some you may not be.  Sometimes we think we understand the value proposition, but it often turns out to be something else.

Trader Joes offers an excellent illustration of value proposition.  It has a successful value proposition as evidenced by  its success.  People want what Trader Joe’s sells.

When I first walked into a Trader Joes, I commented to my wife “this seems to be like an Aldi for organic.”  I then read this article about Trader Joe’s a few days ago.  It turns out there’s some truth to my observation.  An excerpt from the article:

Few customers realize the chain is owned by Germany’s ultra-private Albrecht family, the people behind the Aldi Nord supermarket empire. (A different branch of the family controls Aldi Süd, parent of the U.S. Aldi grocery chain.)

Aldi and Trader Joe’s are both low-priced grocery stores that carry fewer off-brand items in smaller footprints than other grocery stores. On those factors they are very similar.

But, after researching the history of both chains on wikipedia, it occurred to me that the ownership mattered little to producing these similarities as both chains resulted from successful, independent black swans (experiments that worked).

And, while they are similar on some basic descriptors, they serve consumers who want very different things.  Aldi serves cash constrained, practical, bargain shoppers, while Trader Joe’s appeals to a different crowd.  As the article put it:

Who’s a fan of Trader Joe’s? Young Hollywood types like Jessica Alba are regularly photographed brandishing Trader Joe’s shopping bags — but Supreme Court Justice Sonia Sotomayor reportedly is a fan too.  Kevin Kelley, whose consulting firm Shook Kelley has researched Trader Joe’s for its competitors, jokes that the typical shopper is the “Volvo-driving professor who could be CEO of a Fortune 100 company if he could get over his capitalist angst.”

Many business managers and owners could benefit from understanding the simple but subtle art of value proposition.

Black Swan Spotted

Searching some old e-mails today and I came across this picture from a past contributor, Raoul Lufberry.  Nice.  He sent it after the market crash blip back in May.