Saturday, September 29, 2018

The Downside of Testing, Prototyping, and Experimentation?

I'm a big fan of the concept of testing, prototyping and experimenting during the product development process.  I believe in David Kelley's philosophy: Fail often to succeed sooner.   I think that "test and learn" and rapid iteration beats formal planning every time in highly ambiguous environments.  However, new research suggests one very important limitation to testing that involves going to market with a minimal viable product (MVP).  

Andrea Contigiani, a researcher at the Mack Institute for Innovation Management and a Wharton doctoral candidate, assembled a fascinating dataset on the product development efforts at over 1,000 software startups. He looked at how these firms' approaches to product development changed after a landmark court decision, Alice Corp v. CLS Bank International, made patenting software less effective.  He wondered if firms changed their behavior after this court ruling, for fear that prototyping and testing might invite many imitators and therefore make it harder to establish and defend competitive advantage.  He explains his findings:

I found two things, broadly speaking. One is that after Alice took place, the affected companies changed strategies. In particular, they seem to be less likely to test their product; they do less experimentation. Given that they can no longer use patents to protect their ideas, experimentation becomes risky. Sure, you get the benefit of learning, but the cost of doing so goes up. So it’s not necessarily a good idea.

On the other hand, they seem to launch their product faster. They go to market sooner and so they can start getting feedback. Adapting your product, or pivoting, once you are in the market is a little harder [than early testing], because adaptation costs are higher. But on the other hand, once you do that you are essentially creating other barriers to imitation, like brand and network effects. So it is safer.

The second result is more about performance, and there I looked at what happened to companies that did a lot of experimentation while in the new post-Alice regime where they could not really protect through patents. I saw a negative correlation between doing that and performance.

Companies that experimented a lot without potential access to patent protection were less likely to get funding, and they also seemed less likely to get acquired. And so overall, this choice seemed to really affect the performance.

The findings are fascinating.  I would offer one important caveat though.  Contigiani is studying testing that involves actually going out into the market with a product, or at least exposing ideas to public inquiry and study.  Much testing, prototyping, and experimentation can take place in a very private way, so as to not enable potential rivals to learn about innovations.  It seems to me that firms ought not to be eliminating testing and prototyping, but thinking instead about how to do it in a way that protects their ideas from imitation.  

Thursday, September 27, 2018

How Leaders Shape Team Creativity

Source: Pixabay
I recently came across an interesting article by Lei Huang, Dina Krasikova, and Dong Liu. It's titled, "I can do it, so can you: The role of leader creative self-efficacy in facilitating follower creativity."  They find that teams produce more creative work when leaders are highly confident in their own creative capabilities.   Writing in the BPS Research Digest, Alex Fradera points out that this result is not necessarily what one might predict.  the opposite could very well be true - leaders with confidence in their own creative abilities could focus on performing well individually, rather than faciliating the creative work of their team members.  Fradera writes: 

You could imagine the opposite to be the case: that creative leaders pursue their own creative ideas to the cost of supporting their followers, and are reluctant to view what their followers produce as creative, due to their own higher bar for what counts as such. No doubt such cases exist. But this study suggests that in normal functioning leadership contexts, managers recognise that the route for delivering the kind of work they care about is through their followers, so if they want creative results, they have to facilitate it, not produce it personally.

Naturally, a follow-up question might be:  What builds a leader's creative self-efficacy?  How do you build up what IDEO's David and Tom Kelley call "creative confidence"?  I believe that you can only enhance your self-efficacy through action.  You must learn by doing.  If you engage in small projects that require you to exercise your creative muscles, and if you are provided support and training, you can produce good creative work and build your confidence.  Practice, practice, practice.  Stop believing that creativity is simply a genetic trait, and start acting in ways that prove to yourself that you have creative capabilities.  

Monday, September 24, 2018

Do Intercultural Relationships Enhance Creativity?

Source: Flickr
MIT Professor Jackson Lu and his co-authors have published an interesting new study regarding the impact that intercultural relationships can have on creativity. They conducted a series of studies to explore this relationship. What did they find?

Experimental research showed that dating others from different cultures seemed to have a positive impact on divergent thinking. To build on their experimental studies, the scholars then explored a large dataset of more than 2,000 professional repatriates from many different countries. They found that, "Participants’ frequency of contact with American friends since returning to their home countries positively predicted their workplace innovation and likelihood of becoming entrepreneurs." The scholars go on to conclude that, "Going out with a close friend or romantic partner from a foreign culture can help people 'go out' of the box and into a creative frame of mind." 

Past studies have shown similar impacts from travel experiences. Spending substantive amounts of time immersed in other cultures can have a positive impact on creativity. These studies speak to the importance of hearing and learning about others' disparate experiences, breaking out of our normal routines and getting away from our perhaps homogenous work groups, and honing our empathy skills, as important drivers of creativity and innovation.

Friday, September 21, 2018

Beware When Leaders Blame the External Environment

Source:  pexels 
My favorite comments from corporate quarterly earnings reports tend to be those that blame the weather for poor same store-sales growth, when no natural disaster or major weather event has occurred.  They simply blame the unusually rainy month of May or the above-average snowfalls in the month of February for lackluster sales.  Hmm..... what's really going on?    Analysts and investors must accept these explanations with great caution.

Remember that human beings tend to exhibit what psychologists call the fundamental attribution error.  When others fail, we look inside of them for their faults or their inadequacies that may have caused that failure.  When we fail, we look outside of ourselves, blaming external conditions or unforeseen situational circumstances.   Corporate leaders do the same, of course.  It's easy to find fault with external conditions, rather than looking in the mirror.

How does one distinguish between invalid attributions or honest assessments of external factors that may have inhibited performance?   One easy way is to look at competitors.  Are they suffering the same fate?  The analysis applies to many metrics, not just sales.  If a few rivals are doing exceedingly well in the same competitive environment, then one has to ask why executives are so readily blaming external circumstances for the poor performance.  

Tuesday, September 18, 2018

Building a Healthy Board of Directors Culture

Several years ago, I served as an adviser for the Alliance for Advancing Nonprofit Healthcare as the organization produced a terrific report titled, "GREAT GOVERNANCE:  A PRACTICAL GUIDE FOR BUSY BOARD LEADERS AND EXECUTIVES OF NONPROFIT HEALTH CARE ORGANIZATIONS.  I think the recommendations in this report apply to any board of directors, not simply those operating in the nonprofit or healthcare space.  One aspect of the report focused on developing a healthy board culture.  I'm glad to have contributed to that portion especially, because it is such a challenging, yet important, aspect of effective governance.  Here's the excerpt on board culture:

Great boards intentionally focus their time on critical issues, dedicating a substantial portion to strategic thinking, in addressing critical issues, they find ways to create healthy tension, constructive debate and respectful disagreement in the boardroom so that diverse perspectives are brought to bear in the decision-making process. 

Key Action Steps: 

Agenda Planning. Taking into consideration the overall board schedule for the year, the board chair and CEO jointly set in advance the meeting agenda, dedicating a substantial portion to strategic issues or ideas. 

Agenda Construction. The agenda should be annotated with a clear description of the issue and purpose of each agenda item and/or required action. Time should be allocated proportionate to the importance of the matters to be discussed. Consequently, board meetings should begin with agenda items that require action at that particular meeting. The next significant block of time should be devoted to learning about and deliberating on critical strategic issues that are likely to require action in the intermediate-to-longer term, with the board chair prepared with specific questions to be addressed in order to focus those discussions. Routine presentations and reports should follow the action items and strategic deliberations, with as many as possible being handled via a “consent agenda.” As appropriate to the agenda, committee chairs should be given the opportunity to make presentations. The agenda should include an item at or near the end of each meeting for the identification and assignment of follow-up actions. 

Preparing to Make Major Decisions.The board should rarely, if ever, make decisions on highly significant issues the first time they appear on the agenda. Adequate time should be provided for discussion at one or more meetings, with the decision made at a subsequent meeting. As noted earlier, the necessary information should be provided in a timely manner in advance of discussion, and the board should consider having at least one “outside” member to help stimulate robust discussion on major issues. In addition, the board chair should use one or more of the following techniques to help stimulate effective discussion: 
  • In advance of the meeting discussion, assigning alternative positions to two or more groups, requesting each group to make the best case for its position (irrespective of members’ personal views)
  • Appointing “devil’s advocates,” on a rotating basis
  • Encouraging all board members during the meeting to express and debate their diverse opinions and even, on occasion, to register minority votes 
Oversight of Committee Work. Where committees are needed, the board should establish charters spelling out their charges, which should relate to the organization’s strategic priorities approved by the board. In addition, the board should challenge committee recommendations wherever appropriate and require periodic assessments of such committees, by their members and by the full board.

Monday, September 17, 2018

Orangetheory's Success & Behavioral Science

Source: Flickr
Charlotte Blank, Chief Behavioral Officer of Maritz, has written an interesting article called, "Sweatin' to the Behavioral Sciences."  In the article, she tries to explain some of Orangetheory's recent success in the fitness business. For those who are not aware, Orangetheory offers boutique exercise studios at a substantial price premium to many gyms.  It has attracted many fans.  Of course, the fitness industry's history is littered with fads that have come and gone.  Exercise gyms and clubs have notoriously fickle customers. Still, for at least awhile, Orangetheory has attracted a large following.  The question is why.  Blank offers some interesting explanations drawn from behavioral science.   Here's one portion of her explanation:  

Embrace the "Medium Effect." Orangetheory has become a phenomenon because it masterfully gamifies the workout experience. In each high-intensity interval workout, participants wear heart-rate monitors and track their stats on overhead screens.

Their goal is to reach the desired “orange zone” for at least 12 minutes, each one represented by a “splat point.” Earning 12 splat points “unlocks” up to 36 hours of post-workout metabolism “after burn.” Free calorie-burn! To me, all the fast-turning points, rounds and rewards make an Orangetheory class feel like an intense 53-minute video game (minus the luxury of sitting on my couch).

One explanation for why these point-based gamification systems are such powerful motivators could be the “Medium Effect.” In their research at the University of Chicago, Christopher Hsee and his associates demonstrated that when there’s a medium point between our effort and our goal, we have a bias toward maximizing the medium itself.

In this way, the “splat points” serve as a medium between our effort (panting on the treadmill) and our goal (fitness). “Fitness” is an ambiguous concept, so we focus on earning points and trust that have a linear relationship to fitness. Hitting our 12 points each day is a satisfying proxy for reaching our fitness goals.

Monday, September 10, 2018

How Might We?

Too often, we find it easy to poke holes in a proposal put forth by colleagues.  We find all the flaws rather easily.  However, we don't provide feedback that actually helps strengthen the proposal, nor do we offer any plausible alternatives.  In those moments, team leaders need to consider what might be the best secret weapon at their disposal. It's a simple question:  How might we?   In those cases, when the discussion is quite negative, focused only the flaws in a particular idea, the leader might interject by asking:  How might we make this idea work?  How might we address the shortcomings that have been identified?  How might we find a different way to achieve the same objectives?  How might we deisgn a test or experiment to validate the assumptions that are being scrutinized here?  The goal with a good "how might we" question should be to encourage the team to consider new possibilities.  Moreover, it should help shift the dialogue and the mindset from "it will never work" to a "maybe we can find a way to get this done."  

Source: Blue Diamond Gallery
The question, of course, presumes that the group agrees on the goals and objectives, but simply disagrees on the path to achieving those outcomes.  What if the team doesn't actually agree on the goals?  Then the leader needs to step back, put aside the proposals on the table, and try to clarify why alignment does not exist.  In some cases, leaders may be taken aback by lack of agreement on core goals and objectives.  It may be because people feared speaking up and expressing their disagreement regarding a particular goal.  A lively dialogue about goals need not be a negative occurrence.  Sometimes, such discussions can really help clarify the strategy moving forward.  From time to time, it's useful to check in and make sure that a team is aligned with regard to the outcomes it is trying to achieve.  A shift or evolution in the goals might just be in order.  

Sunday, September 09, 2018

Musk, Tesla, and the Leap of Faith

Elon Musk and Tesla have dominated the business news over the past several months.  Observers and analysts have watched closely to see if Tesla can successfully ramp up production of the Model 3 sedan.  The ability to scale production will prove essential in the organization's efforts to achieve profitability.  The company has little chance to turn a profit, regardless of the appeal of the brand and the quality of the vehicles, if it cannot produce higher volumes so as to lower manufacturing cost per unit.  Of course, more recently, Tesla has made news of a different sort, as many people have questioned Musk's ability to manage an increasingly complex organization.   Late-night tweets, strange comments with regard to the Thai cave rescue, surprise pronouncements about taking the company private, and even smoking marijuana on a podcast have all captured a great deal of attention.   People wonder if he can keep up the long hours, as well as whether he can retain executives on his team.  He has churned through a great deal of managers in the past year, just as he needs the ability to delegate key operational responsibilities to trusted subordinates.   

For me, the interesting part about Tesla's situation has to do with the way people value the company.  How can a firm lose tons of money quarter after quarter, yet until recently maintain a market value over $50 billion?  Faith.  Lots of it.  Investors believe that the company has a promising future.  In particular, they have a great deal of faith in Musk himself.   Investors have viewed him as a visionary, and they expect strong future cash flows because of the strong brand that he has built and the lead he has taken in building electric vehicles.  However, in these cases, where so much of the market value is predicated on the faith in one leader, much risk comes along too.  What if investors lose faith in the leader?  How damaging will that be both to the firm's market value and its ability to raise additional capital?  In the case of Amazon, the firm lost money for years, yet investors and analysts retained a great deal of faith in Jeff Bezos not simply as a visionary, but as an operational leader.  They believed that he could execute.  Musk faces an inflection point now.  Can he inspire renewed faith among the investor community?  Can he regulate his behavior so as to make people comfortable with his ability to lead the organization as it scales production substantially?  Can he build a management team that is willing and able to work for him, despite his micromanagement tendencies?   Amidst all the numbers and the debates about production costs, margins, and the like, the future of Tesla rests in large part on the "soft stuff" - the behavior of a leader and the faith of others in that leader.  Small stuff matters.  Musk has to recognize that his every action and word will be scrutinized closely, fairly or unfairly.  Words and small deeds do matter, regardless of how beautiful the car looks and how well it drives.  Meanwhile, the Board has a crucial responsibility.  The directors must exercise their duties and obligations vigorously, to insure that Musk addresses some of his shortcomings quickly and effectively.  The coming weeks and months are sure to be fascinating to watch.  

Monday, September 03, 2018

Retraining Workers as Jobs Evolve

Source: Pixabay
The Wall Street Journal published an interesting article today by Austen Hufford titled, "Companies Ramp Up Worker-Retraining Efforts."  Hufford explains that many firms are struggling to find good people given the very tight labor market.  Moreover, many jobs have evolved due to technology innovation.  Thus, companies have invested in new initiatives to retrain workers for their emerging needs.  As an example, Louisiana-based Lamar Advertising is retraining workers accustomed to painting billboards to now repair digital billboards.  These digital displays only account for a tiny fraction of the company's billboards, yet they generate more than 20% of the firm's billboard revenue.  

How should firms think about launching worker-retraining initiaves?  First, I think that companies have to recognize that these investments, while perhaps quite substantial, often pale in comparison to the alternative.  Firms have to weigh the cost of retraining against the extraordinary expenses that they often must incur to recruit and onboard new talent.   In high employee turnover situations, the recruiting and onboarding costs can be astronomical.   Retraining often proves to be a worthwhile investment when judged in this way.   Second, retraining efforts often yield other substantial benefits.   For instance, organizations may find that employee engagement increases when people feel valued and have the opportunity to better themselves through retraining.  Third, investing in internal retraining efforts enables companies to customize their worker training, development, and education to suit their organization's specific needs.   Finding talent from the outside often means that firms rely on training that is quite general and does not meet their particular needs.   Finally, retraining efforts enable dedicated employees to share their newly developed skills with others.  As people master new skills, they can become the trainers for the next group of workers who enter training programs.   Sharing expertise in this manner often has two important benefits.  It reinforces the skills that one has learned, while offering a tremendous sense of satisfaction and pride for workers.