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Innovation has become an idea arms race, an arms race that most of us cannot hope to win. We spend so much time trying to consume ideas, drinking from the innovation fire hose, that we have little time to devote to what really matters: synthesis.

When we’re focused on harvesting ideas from the environment around us—either inside or outside our organisations—we are, by definition, on the back foot. We must assume that we’re not the first to see an idea, when it’s discovered outside our organisation. Nor can we assume exclusivity on the ideas we generate. As Sun likes to point out, statistically all the smart people with the good ideas work for someone else.

My guitar teacher of some years back, Tom Fryer, had a bit of sage advice. It’s pointless to try to be original, as someone will always have had the idea before you. A more productive approach is to simply plow your own furrow; focus on the problems you want to solve, steal ideas shamelessly if they seem useful, and invent what you need to fill the gaps.

Tom has a good point. The challenge with being creative is in knowing what problems to solve, and bringing together old and new ideas to create a new solution. Hoarding ideas or worrying about their source, debating the worth of internally generated ideas against those sourced externally, misses the point when we have tools like open innovation at our disposal.

Success in innovation is driven by a smart approach to synthesis. Work to solve a problem. Take ideas from around you to incrementally building something new. Learn, tuning your approach as you go.

Take Sony’s Walkman as an example, an innovation which created the market for personal music devices.

The Sony Walkman was originally designed as a music player for couples, based on Akio Morita’s observation of teenagers lugging their radios with them on vacations (an incongruity) and came equipped with two headphone jacks and a recording facility. It even had a “hotline” button, partially overriding the sound from the cassette and allowing one user to talk to the other over the music.

Of course, nobody really used it like that and Sony was quick to see that most people used it as a personal, portable music player (unexpected) and redesigned it accordingly.

Snake Coffee

The Walkman wasn’t conceived and developed in response to a brilliant idea. Akio Morita noticed an incongruity in the market, which Sony created a new product to address. When they realized that the Walkman wasn’t being used as expected, the product was tweaked to align it with reality. As Peter Drucker pointed out with his seven sources of innovation, innovation usually has more prosaic drivers than brilliant ideas or shiny new technologies.

John Boyd

John Boyd

John Boyd called this process, creating snowmobiles. His area of interest was military strategy: the challenge of creating novel, unexpected and winning solutions when dealing with a rapidly changing and constantly evolving environment. Creating snowmobiles represented a thought experiment he used to challenge an audience near the start of his briefing on strategy.

The thought experiment goes something like this:

Imagine that you are:

  • on a ski slope with other skiers—retain this image,
  • in Florida riding in an outboard motorboat—maybe even towing water-skiers—retain this image,
    riding a bicycle on a nice spring day—retain this image, and
  • a parent taking your son to a department store and that you notice he is fascinated by the tractors or tanks with rubber caterpillar treads—retain this image.

Now let’s pull the:

  • skis off ski slope—discard and forget rest of image,
  • outboard motor out of motorboat—discard and forget rest of image,
  • handlebars off bicycle—discard and forget rest of image, and
  • rubber treads off toy tractors or tanks—discard and forget rest of image.

This leaves us with

  • skis,
  • outboard motor,
  • handlebars, and
  • rubber treads.

Pulling all this together, what do we have?

  • A snowmobile.
Snowmobile

Snowmobile

As Boyd points out, there are two distinct processes at work here. First we need to pull ideas apart and understand how they will work in different contexts (analysis), building a library of interesting tactics we can use in solving a future problems. Second, we need to put these ideas back together in new combinations (synthesis), providing us with the opportunity to understand how apparently unrelated ideas and actions can be connected to one another.

How do we create a situation where we can make snowmobiles?

We often strive for diversity, as we believe diversity brings with it a range of points of view, which in turn encourages innovation. This has prompted some organisations to search for T-shaped individuals: someone professional in one area, but with complementary skills. Their broad experience, so the theory goes, will enable them to look across a number of domains to harvest useful ideas. However, this does not address our core challenge: understanding which questions to ask, the questions which will driven the synthesis process.

The first step is take a mountain climbing approach to knowledge and ideas. At each stage in the innovation cycle we need to establish camp, scout the path ahead and then prepare our tools for the journey to the next camp further up the mountain. This requires a process of constant learning, and a willingness to explore new environments. Environments which might range from the various business functions, across technical and business domains to seemingly unrelated areas, such as John Boyd’s work on military strategy.

Low Cost IVF Foundation

Low Cost IVF Foundation

The Low Cost IVF Foundation is a good example of this approach. The program started with a clear goal in mind: of converting IVF from a luxury of the West into a tool for alleviating the public ridicule, accusations of witchcraft, loss of financial support, abandonment and divorce, not to speak of the shame and depression associated with being childless in the third world. At each innovation camp they scouted the path ahead, exploring the environments around them, identify the problems, and challenging the conventional assumptions about how they should be solved. Incrementally, over a number of iterations, they synthesised a new approach which radically cut the cost of IVF. While the journey might seem prosaic (much like Sony’s), the result is quite profound.

To support this approach to innovation, we need to become fluent in a wide range of environments, the second step. Fluency implies that we have sufficient experience in an environment to make understanding ideas automatic. We’re not devoting our time to basic comprehension. This creates the cognitive time and space to focus on understanding the connections between ideas, and their application to the task at hand. Fluency creates the time and space for synthesis.

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As Andy Mullholland pointed out in a recent post, all too often we manage our businesses by looking out the rear window to see where we’ve been, rather than looking forward to see where we’re going. How we use information too drive informed business decisions has a significant impact on our competitiveness.

I’ve made the point previously (which Andy built on) that not all information is of equal value. Success in today’s rapidly changing and uncertain business environment rests on our ability to make timely, appropriate and decisive action in response to new insights. Execution speed or organizational intelligence are not enough on their own: we need an intimate connection to the environment we operate in. Simply collecting more historical data will not solve the problem. If we want to look out the front window and see where we’re going, then we need to consider external market information, and not just internal historical information, or predictions derived from this information.

A little while ago I wrote about the value of information. My main point was that we tend to think of most information in one of two modes—either transactionally, with the information part of current business operations; or historically, when the information represents past business performance—where it’s more productive to think of an information age continuum.

The value of information

The value of information

Andy Mulholland posted an interesting build on this idea on the Capgemini CTO blog, adding the idea that information from our external environment provides mixed and weak signals, while internal, historical information provides focused and strong signals.

The value of information and internal vs. external drivers

The value of information and internal vs. external drivers

Andy’s major point was that traditional approaches to Business Intelligence (BI) focus on these strong, historical signals, which is much like driving a car by looking out the back window. While this works in a (relatively) unchanging environment (if the road was curving right, then keep turning right), it’s less useful in a rapidly changing environment as we won’t see the unexpected speed bump until we hit it. As Andy commented:

Unfortunately stability and lack of change are two elements that are conspicuously lacking in the global markets of today. Added to which, social and technology changes are creating new ideas, waves, and markets – almost overnight in some cases. These are the ‘opportunities’ to achieve ‘stretch targets’, or even to adjust positioning and the current business plan and budget. But the information is difficult to understand and use, as it is comprised of ‘mixed and weak signals’. As an example, we can look to what signals did the rise of the iPod and iTunes send to the music industry. There were definite signals in the market that change was occurring, but the BI of the music industry was monitoring its sales of CDs and didn’t react until these were impacted, by which point it was probably too late. Too late meaning the market had chosen to change and the new arrival had the strength to fight off the late actions of the previous established players.

We’ve become quite sophisticated at looking out the back window to manage moving forward. A whole class of enterprise applications, Enterprise Performance Management (EPM), has been created to harvest and analyze this data, aligning it with enterprise strategies and targets. With our own quants, we can create sophisticated models of our business, market, competitors and clients to predict where they’ll go next.

Robert K. Merton: Father of Quants

Robert K. Merton: Father of Quants

Despite EPM’s impressive theories and product sheets, it cannot, on its own, help us leverage these new market opportunities. These tools simply cannot predict where the speed bumps in the market, no matter how sophisticated they are.

There’s a simple thought experiment economists use to show the inherent limitations in using mathematical models to simulate the market. (A topical subject given the recent global financial crisis.) Imagine, for a moment, that you have a perfect model of the market; you can predict when and where the market will move with startling accuracy. However, as Sun likes to point out, statistically, the smartest people in your field do not work for your company; the resources in the general market are too big when compared to your company. If you have a perfect model, then you must assume that your competitors also have a perfect model. Assuming you’ll both use these models as triggers for action, you’ll both act earlier, and in possibly the same way, changing the state of the market. The fact that you’ve invented a tool to predicts the speed bumps causes the speed bumps to move. Scary!

Enterprise Performance Management is firmly in the grasp of the law of diminishing returns. Once you have the critical mass of data required to create a reasonable prediction, collecting additional data will have a negligible impact on the quality of this prediction. The harder your quants work, the more sophisticated your models, the larger the volume of data you collect and trawl, the lower the incremental impact will be on your business.

Andy’s point is a big one. It’s not possible to accurately predict future market disruptions with on historical data alone. Real insight is dependent on data sourced from outside the organization, not inside. This is not to diminish the important role BI and EPM play in modern business management, but to highlight that we need to look outside the organization if we are to deliver the next step change in performance.

Zara, a fashion retailer, is an interesting example of this. Rather than attempt to predict or create demand on a seasonal fashion cycle, and deliver product appropriately (an internally driven approach), Zara tracks customer preferences and trends as they happen in the stores and tries to deliver an appropriate design as rapidly as possible (an externally driven approach). This approach has made Zara the most profitable arm of Inditex, a holding company of eight retail brands, and one of the biggest success stories in Spanish business. You could say that Quants are out, and Blink is in.

At this point we can return to my original goal: creating a simple graphic that captures and communicates what drives the value of information. Building on both my own and Andy’s ideas we can create a new chart. This chart needs to capture how the value of information is effected by age, as well as the impact of externally vs. internally sourced. Using these two factors as dimensions, we can create a heat map capturing information value, as shown below.

Time and distance drive the value of information

Time and distance drive the value of information

Vertically we have the divide between inside and outside: internally created from processes; though information at the surface of our organization, sourced from current customers and partners; to information sourced from the general market and environment outside the organization. Horizontally we have information age, from information we obtain proactively (we think that customer might want a product), through reactively (the customer has indicated that they want a product) to historical (we sold a product to a customer). Highest value, in the top right corner, represents the external market disruption that we can tap into. Lowest value (though still important) represents an internal transactional processes.

As an acid test, I’ve plotted some of the case studies mentioned in to the conversation so far on a copy of this diagram.

  • The maintenance story I used in my original post. Internal, historical data lets us do predictive maintenance on equipment, while  external data enables us to maintain just before (detected) failure. Note: This also applies tasks like vegetation management (trimming trees to avoid power lines), as real time data and be used to determine where vegetation is a problem, rather than simply eyeballing the entire power network.
  • The Walkman and iPod examples from Andy’s follow-up post. Check out Snake Coffee for a discussion on how information driven the evolution of the Walkman.
  • The Walmart Telxon story, using floor staff to capture word of mouth sales.
  • The example from my follow-up (of Andy’s follow-up), of Albert Heijn (a Dutch Supermarket group) lifting the pricing of ice cream and certain drinks when the temperature goes above 25° C.
  • Netflix vs. (traditional) Blockbuster (via. Nigel Walsh in the comments), where Netflix helps you maintain a list of files you would like to see, rather than a more traditional brick-and-morter store which reacts to your desire to see a film.

Send me any examples that you know of (or think of) and I’ll add them to the acid test chart.

An acid test for our chart

An acid test for our chart

An interesting exercise left to the reader is to map Peter Drucker’s Seven Drivers for change onto the same figure.

Update: A discussion with a different take on the value of information is happening over at the Information Architects.

Update: The latest instalment in this thread is Working from the outside in.

Update: MIT Sloan Management Review weighs in with an interesting article on How to make sense of weak signals.

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Gavin Clarke (Editor @ The Register), Rob Janson (President @ Enterprise Java Australia) and myself are on Mark Jones’ The Scope this week.

For loyal Sun customers and industry watchers, it was almost unthinkable – Oracle buying Sun. Sun Microsystems is one of Silicon Valley’s iconic technology companies, and Oracle doesn’t do hardware. And Sun was proud to wear the underdog badge. But the proposed acquisition raises fresh questions about the long-term health of the industry’s dominant suppliers. What’s the future hold for Oracle & Sun customers?

  • Oracle license inspections – costs to rise? What about Oracle’s famed licensing complexity. Will this get any better?
  • Consolidation problems: Will customer service deteriorate and product innovation wane?
  • What of Java – what’s Oracle likely to do with this prized jewel?
  • Did Oracle buy more problems than opportunities? (Sun’s debt, poor revenues…)
  • Enterprise app consolidation leaves CIOs with fewer choices: how will they bargain with suppliers now?
  • Larry Ellison said he wouldn’t buy Sun, or a hardware company, back in 2003. What changed? Does this mean that Oracle is likely to divest itself of Sun’s hardware business once the acquisition is completed?
  • What the growth engines for Oracle now – hardware/servers appear to have little headroom for serious growth.

About The Scoop

The Scoop is an open, free-flowing conversation between industry peers. It’s about unpacking issues that affect CIOs, senior IT executives and the Australian technology industry. The conversation is moderated by Mark Jones, The Scoop’s host and producer. More information about The Scoop, including a list of previous guests, can be found here:

http://filteredmedia.com.au/about-the-scoop/

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