Monday, May 26, 2008

When Innovation Means Starvation

(I've gone a little bit historical in this posting, but there's a great book--Carroll Pursell's "The Machine in America"--highlighted below, a recent "Wall Street Journal" article by Michael Malone, and a cool note about the American axe. Sometimes connecting-the-dots is a long, strange journey. Enjoy!)

In 1893, a 32-year old Wisconsin history teacher spoke at the Chicago World’s Fair, delivering a monograph entitled The Significance of the Frontier in American History to the American Historical Association.

In his remarks, Frederick Jackson Turner rejected the long-held concept that America could best be understood in terms of its European origins.

Instead, Turner said, if we want to understand the people of the United States, we should face not toward the Atlantic coast and Europe, but to the Great West. He wrote that “the existence of an area of free land, its continuous recession, and the advance of American settlement westward, explain American development.”

The Turner (or “Frontier”) Thesis came to be the best known, most powerful idea in American History, and likely the discipline’s single greatest innovation. (Don't ever forget that historians are among the world's great innovators, shaping events to their purposes.) The idea that the American character was conditioned by a series of frontier zones which succeeded each other until the year 1890 was taken as an article of faith for some 35 years after Turner offered it, revolutionizing the teaching of American history and the way in which Americans thought about themselves.

(As an aside, this is exactly what the Chicago World’s Fair was designed to do: highlight American “exceptionalism.” Held to celebrate the 400th anniversary of Columbus’s discovery of the New World, and to show that Chicago had arisen from the ashes of its horrific 1871 fire, the Fair barely broke even (thanks mostly to its ferris wheel) and made the great mistake of rejecting Buffalo Bill’s Wild West Show, the great purveyor of American exceptionalism. Bill Cody, determined to take advantage of the world audience, staked his tents next-door to the Fair and proceeded to dispense his own particular flavor of the American frontier myth, raking in cash and sharing none of it with the Fair.)

So, it was with great interest that I read Michael Malone’s article in the May 19, 2008 Wall Street Journal. In it, Malone suggests that the closing of the physical frontier in the nineteenth century led to a new kind of American cowboy and frontiersmen, one who would find his prairie to be “the uninvented new product, the unexploited new market and the untried new business plan.”

In other words, Malone suggests, with America’s push to the Pacific ending, “The great new American frontiers proved to be those of business, science and technology.”

We became, and continue to be (if you follow the argument) Daniel Boone with a semiconductor and a sixty-second elevator pitch.

It’s an interesting premise, and I suspect Mr. Malone is very smart and knows what he’s talking about. Certainly, the current myth in Silicon Valley—of the rootin-tootin cowboy entrepreneur—and before that, of the high-flying Wall Street financier, flows naturally from Turner’s Thesis and Malone’s premise.

But, as the saying goes, hold yer horses.

While the Turner Thesis was largely unchallenged for a generation, and continues to have its supporters, it is not without its problems.

For example, as powerful as the frontier might have been in American life in the 18th and 19th centuries, urbanization—the birth of great cities in America—was an even stronger social and cultural force. The headlong rush from farm to city impacted more Americans than did the movement West, and did at least as much to shape the American character.

Likewise, immigration—both for the immigrant and the “native”—was an incredibly powerful force shaping the national character, and completely independent of the frontier.

And, of course, Americans were busy exploiting, and being exploited by, the Industrial Revolution.

Indeed, for the vast majority of eighteenth-century Americans, urbanization, immigration and the Industrial Revolution would shape their affairs far more than the closing of some distant frontier.

In support of this, I’ve been making my way through Carroll Pursell’s The Machine in America, a highly readable overview of European technology’s crossing to America, and what Americans eventually made of it.

Here are four key takeaways from Pursell:
1. For 150 years from the founding of Jamestown and Plymouth, American technology changed very, very slowly. By the mid-eighteenth century, American artisans seemed quaint and backward to Europeans. (As an example, lighting used in American colonial homes was not much better than that found at the beginning of the Christian era.) So, after a century of frontier living, technological innovation was still a very weak impulse in America.

2. In fact, in colonial America, the very word innovation had negative and even sinister connotations of unsound and dangerously reckless pride.

3. The transfer of technology depended on the immigration of particular people with particular skills. Need a tanner? Get one from England. Same with millers, weavers, sawyers and miners. The great frontier was dangerous and unpredictable, and when new skills were needed to tame it, they came not so much from Yankee ingenuity as from the Mother Country.

4. Until the eighteenth century—and not really until the nineteenth--technology was one of the most conservative of human activities. Since it provided the necessary link between human beings and their access to food, shelter and other basic means of survival, technology was too important to tamper with except under profound necessity.
In this context, “if it ain’t broke don’t fix it” is a deeply-held impulse of self-preservation, explaining why American business leaders have had such a difficult time creating innovation cultures in an age no longer ruled by "innovate and die," but by “innovate or die.”

Hence, I offer up what I believe to be the original Lesson of Innovation: “If it means the possibility of starving, you won’t innovate.”

When Google’s Eric Schmidt tells Business Week that good innovation is cultural—“You have to have the culture, and you have to get it right”—part of what he’s saying is: If your company has a near-monopoly in the online search business, and you can virtually mint cash at will, you can get people to innovate because it’s no longer a threatening activity—the company will survive it, and nobody will starve.

In contrast, companies reliant on a single, tenuous revenue source in a very competitive environment may well feel, like the colonial American farmer, that technology is just too important to tamper with.

The other point worth emphasizing is that the frontier alone clearly did not foster innovation. Something else happened to Americans, something more profound than their westward push, to convince them that innovation could improve their lives and not leave them empty-bellied. (But that’s a topic for another day.)

I’m not arguing that Yankee ingenuity and the frontiersman and the cowboy didn’t exist. I’m just suggesting that choosing the history that makes us feel good (and the frontier always makes Americans feel good), puffing it into a myth, and then relying on it to explain our twenty-first century business activities is a good way to get cut off at the pass, Partner.

Interestingly enough, perhaps the greatest technology innovation by Americans in the first fifty years from our founding was the American axe. Colonists took the short-handled, thick-wedged, narrow-bite European axe, with its handle set too far back from the cutting edge, and slowly transformed it.

By the nineteenth century, an English manufacturer summarized 150 years of innovation when he said that the American axe was “the most mechanically and best-constructed little instrument I know; the art being, that a man can fell three trees to one, compared with those which are ordinarily made in England.” The long, curved, springy handle set nearer to the center of the head was, by then, often custom made to fit the owner, and may have even come with a lesson in technique. (Today we would call this a “system sell.”)

Three trees felled in the time in took for one was a pretty good metric to post on the barn door.

Nobody knows the process by which this innovation occurred, but it’s safe to say we know why. Faced with the curse of having too much timber, and desperate to secure a dependable source of food, colonial North Americans would find the axe to be the single item of technology most likely to create useable farmland. And that meant more planting—and a greater chance for a sustainable food supply.

A better axe meant better eating. And that, not the frontier, was the impulse that drove early innovation in America.

Monday, May 12, 2008

The Man of Steel Does Scenario Planning

In 1991 Peter Schwartz, the President of Global Business Network, published The Art of the Long View, a description of, and recipe for, scenario planning by one of the very gents who invented the discipline.

I bought the book about five years ago, read it, lent it to someone and it has never been returned to me. I think I know to whom. In fact, I know who you are. But more on that later.

Scenario planning is a business tool seemingly invented for liberal arts majors because it’s all about telling stories. In particular, we tell stories of the future, which are called “scenarios” to make them acceptable to MBA programs. But they’re still just stories. And they all get cool, memorable names. And none of them even have to be correct. And they’re still useful.

See what I mean? That is almost the definition of a liberal arts education.

Schwartz writes, “In a scenario process, managers invent and then consider, in depth, several varied stories of equally plausible futures. The stories are carefully researched, full of relevant detail, oriented toward real-life decisions, and designed (one hopes) to bring forward surprises and unexpected leaps of understanding.”

Scenario planning was first used by the military in WWII, but the classic case demonstrating its value was undertaken by Pierre Wack, a planner in the London offices of Royal Dutch/Shell. It was the early 1970s, and Pierre and his colleagues in the newly formed Group Planning department were looking for events that might affect the price of oil—which had long been a steady, dependable commodity. That’s when they proposed a set of scenarios, each one a plausible story of the future, but radically different in their outcomes.

I’ll spare you the details except to say, between OPEC and the Yom Kippur War, the energy crisis that followed caught the oil industry off-guard. With the exception of Shell. From one of the weaker of the “Seven Sisters,” the seven largest global oil companies, it became one of the two largest and, arguably, the most profitable.

Schwartz tells us, “The purpose of scenarios is to help yourself change your view of reality—to match it up more closely with reality as it is, and reality as it is going to be. The end result, however, is not an accurate picture of tomorrow, but better decisions about the future.”

I’ll share a recipe for doing scenario planning, and encourage you to pick up a copy of Schwartz’s book. It’s a good read, designed for liberal arts majors (and their number-crunching friends) who are always being asked to plan for the future. I’ll also point you to Bill Ralston and Ian Wilson’s The Scenario Planning Handbook which will allow you, with a little practice and a little luck, to take a group of managers through the process of scenario planning.

But first, perhaps an example will help.

Suppose you are Superman. ("Easy," you say? But of course.)

You’ve decided to spend some time doing some quiet, introspective, long-term planning—smack in Stephen Covey’s Quadrant II.

This is very unlike your day job, which tends to be urgent, very urgent, ultra important, near death, and close-to-catastrophic.

Sound familiar so far?

So, as Superman, you’re going to look out, perhaps ten years. (The longer the frame of reference in scenario planning, the more valuable it can be.) The big question for you is: Will I ever be able to retire? And as you ponder, there are two things that really trouble you.

One is kryptonite. Your personal weapon of mass destruction. The Daily Planet says that an evil scientist may have come up with a way to make it synthetically. Nobody really knows.

The other thing that troubles you is crime. It seems like crime is going down in Metropolis but up in Gotham City, where that wimpy Batman dweeb hangs. Again, nobody really knows which way the trend is heading.

So, unable to predict the future, you decide to write some scenarios. Maybe Lois Lane will take notes--that'll make the whole exercise worthwhile no matter what else happens. And, because you already know the things that are keeping you up at night, you decide to look at two sets of extremes:

First, you imagine, ten years from now, that the world still only has that one piece of kryptonite locked away safely (we’ll call that the “Low K” extreme), and, conversely, there will be a thriving black market for synthetic kryptonite and you’ll be in some deep trouble (“High K”).

Likewise, on the other issue causing you to lose sleep, ten years from now crime will be nearly eradicated (if Batman can get his act together—so “Low C”), or criminals will essentially be running the major cities (“High C”).

And, while K(ryptonite) and C(rime) are most certainly related in some ways, you’re now really in a good position to look at four different scenarios:
Low C/Low K: Easy City (and retirement)

Low C/High K: Phoning in Sick (and a good chance to turn the whole thing over to Batman)

High C/Low K: Bat Hell (cause it’ll mean partnering with that dog)

High C/High K: The Big Hurt
Or something like that. (Don’t worry—there will be no shortage of cool names when you get to this part of scenario planning.) Here's what it looks like on the white board.

Remember, you’re not trying to predict the future--just tell plausible stories about what might happen.

Got it? Can you think of any strategic initiatives that might make sense under most or all of the scenarios? How about partnering with Batman? I know, I know. He’s a gadget-geek and you can take him with one-arm tied behind your back, but he doesn’t give a hoot about kryptonite. And (Mr. Ego), that’s a huge plus. Also, it sounds like he could use some help over in Gotham City, which might influence the High C scenarios. And even in the Easy Street scenario (Low K/Low C), it would be nice to have a fishing buddy with whom you could swap stories.

Make sense? You’re still not telling the future, but you are finding strategic initiatives—like partnering--that make you stronger in almost every scenario.

And, sometimes in scenario planning, there are some eye-opening findings. For example, why not marry Lois Lane and have a baby? Maybe not the Kid of Steel, but perhaps the Kid of High Strength Polycarbonate? And maybe only slightly weak in the presence of kryptonite—which would certainly help out his old man. And maybe a third superhero on the block—if you can call Batman a superhero--might make the High C scenarios even less likely?

And, what the heck, you’ve been thinking about this for years anyway. And you're not getting any younger. (And either is she.)

See what happens? Four scenarios. Not a one likely to occur exactly. But all useful in generating strategic options and new ideas.

That’s a little bit about how scenario planning works.

Here’s your abbreviated & mind-mapped recipe, courtesy of Bill Ralston and Ian Wilson. (Click to see it better, write me if you want a copy, and enjoy.)

By they way, Schwartz appends a few additional considerations. Beware of settling on three scenarios, because the one “in the middle” is often treated as the “most likely.” This undermines the advantages of multi-scenario planning. And avoid assigning probabilities. Also, remember to use names that telegraph the scenario logic. Make them vivid and memorable.

Finally, Schwartz closes by saying, “You can tell you have good scenarios when they are both plausible and surprising; when they have the power to break old stereotypes; and when the makers assume ownership of them and put them to work. Scenario making is intensely participatory, or it fails.”

Now, about my stolen copy of The Art of the Long View: Keep it. May it do you good. I’ve bought another copy and it’s not leaving my office.

Just remember that you owe me if you ever come upon a piece of that synthetic kryptonite.

Friday, May 9, 2008

Drucker: Innovation and Entrepreneurship

I was sitting at the library recently, looking up something online, and happened to have a copy of Peter Drucker’s 1985 Innovation and Entrepreneurship on the table next to me. An older man—well, not only older, but circa 1920—walked by my desk and started muttering to himself, “Oh boy, Peter Drucker.”

He then turned to confront me and said, “Peter Drucker, huh? I was with GE in the 1950s and 60s and I had to go to way too many classes about good old Peter Drucker. What a pain in the ass that guy was.”

I had to laugh.

I also realized in that instant that, for a generation or more, Peter Drucker was the Tom Peters, Malcolm Gladwell, Stephen Covey (and six other author/consultants) of the management world, all rolled into one. And, for another generation he continued to turn out quality writing and thinking, pushing ahead the art and craft of management.

Despite the reaction of my octogenarian acquaintance, there are still some very good reasons to read Peter Drucker’s Innovation and Entrepreneurship, even if the book is almost 25 years old:

Drucker’s contrarian perspective. Innovation is about technical genius that changes the world, right? Wrong. Typically, Drucker tells us, innovation isn’t technical at all—it’s economic and social. Second, innovation is rarely about creating change, it’s about exploiting change that already exists. Drucker reminds us that Cyrus McCormick was one of many harvesting-machine inventors, but really changed the world when he created installment buying for farmers, giving them “purchasing power.” “Contrary to almost universal belief, new knowledge—and especially new scientific knowledge—is not the most reliable or most predictable source of successful innovations. . .In the theory and practice of innovation and entrepreneurship, the bright-idea innovation belongs in the appendix.”

Drucker’s historical perspective. Americans are superb at looking forward but, to put it bluntly, we stink at history. When we think about innovation we are only about as good as the last good thing we saw or read. So, right now Google and Apple are the historical cornerstones of our innovation world. But not so long ago it was WalMart, Before that, Microsoft. HP was in there (“the HP way”) and so was Intel (be paranoid). GE (you’d better be one or two in your market or get out). 3M (and that blinkin' Post-It Note). IBM. GM. Bell Labs. Ford. Edison. Did I get any of the genealogy wrong? Maybe Dell or the Wright Brothers. We shift our focus every 3-5 years when our current champion of innovation trips up or runs out of gas, or just proves that it’s human like the rest of us.

But when Peter Drucker looks back on innovation, he covers three centuries, the globe, and nearly every form of business endeavor. The birth of the university. The launch of the diesel engine. JP Morgan servicing the European “riff raff” emigrating to America that the House of Rothschild abandoned, or Citibank dropping retail branches into Germany. The failure of the Edsel (and associated success of the Thunderbird). The launch of penicillin. The importance of the textbook. The invention of the hospital. The invention of Management. The invention of Research. And, as an artifact of writing in 1985, when Drucker discusses Silicon Valley, he reminds us that there used to be lots of silicon there.

Drucker’s ego (and it’s a hoot). Few authors find their favorite and most reliable reference to be themselves. If you are an author, wouldn’t it be grand to have most of your footnotes begin with, “See my discussion of this topic in my book on. . . .”

Innovation and Entrepreneurship, despite its age, stands up well to anything being written today about innovation, and deserves a read-through every couple of years just to keep us all grounded.

Friday, May 2, 2008

You Can Be Rich or King, But Not Both: 4 Take-Aways

Thomas Edison was the greatest American inventor of the nineteenth century, credited with inventing not just stuff, but the very discipline of research.

And, while inventing was fine and dandy, what Edison really wanted was to build businesses. In that regard, he was—despite his 1,093 patents--a complete and utter failure; Peter Drucker reminds us that Edison “so totally mismanaged the businesses he started that he had to be removed from every one of them.”

It was, Drucker says, the archetype for the now familiar high-tech “rags to riches and back to rags” phenomenon.

In the February 2008 Harvard Business Review, Noam Wasserman goes a long way toward explaining folks like Edison and the thousands of other bright innovators who conceive brilliant products, bring them to market, and then under-manage or mismanage their companies to the point where investors insert new leadership, or the leader hangs on by the skin of his teeth to the great detriment of the firm.

“Four out of five entrepreneurs,” Wasserman says, “are forced to step down from the CEO’s post. Most are shocked when investors insist that they relinquish control, and they’re pushed out of office in ways they don’t like and well before they want to abdicate. The change in leadership can be particularly damaging when employees loyal to the founder oppose it. In fact, the manner in which founders tackle their first leadership transition often makes or breaks young enterprises.”

But, Wasserman says, when founders are honest about their reasons for founding the business, the chances of “happily ever after” are significantly improved. Here are 4 take-ways from this excellent article:
1. New ventures are usually labors of love for entrepreneurs, who become emotionally attached and often accept a smaller salary than folks with comparable backgrounds. In addition, many entrepreneurs are overconfident about their prospects and naïve about the problems they will face. This combination of attachment, overconfidence and naivete may, in fact, be necessary to get new ventures up and running, but these emotions later create problems.

2. Many founders believe that if they’ve successfully led the development of the organization’s first new offering, that represents ample proof of their management prowess. But, the shipping of the first products marks the end of an era. The founder then has to shift gears to build a company capable of marketing and selling large volumes of the product and providing customers with after-sales service. The venture’s finances become infinitely more complex. The organization needs to be structured. The dramatic broadening of the skills that the CEO needs at this stage stretches most founders’ abilities beyond their limits.

3. The faster the founder-CEOs lead their companies to the point where they need outside funds and new management skills, the quicker they lose control. The founder’s emotional strengths—being the heart and soul of the venture—often make it difficult to accept a lesser role, leading to sometimes traumatic leadership transitions within young companies.

4. Most founder-CEOS start out by wanting both wealth and power. But sooner or later, the smart ones grasp that they’ll probably have to make a choice. And the fundamental tension—being rich vs. being king—isn’t biased one way or the other. What matters is why the founder started the business in the first place. If he or she had a clear set of goals and a roadmap, the “new era” represented by the first product release doesn’t have to be traumatic.
In Milton’s Paradise Lost, Satan gives a rousing speech to his followers after being tossed out of heaven, telling them, “Better to reign in hell, than serve in heav'n."

Admittedly, this speech came after one of the worst career moves in history.

But it doesn’t have to be that bad for founders, so long as they know the goal—rich or king—when they first decide to launch a business.

As an afterthought, too, there is a third alternative alongside rich or king, and that is gifted. One of Edison’s contemporaries, George Westinghouse, was a prolific inventor, beat Edison in the race for electrical standards (betting on AC while Edison was pushing DC), and, by 1904, had founded nine manufacturing companies worth about $120 million and employing approximately 50,000 workers.

So, don’t forget “gifted” along with rich or king. Just be realistic when you choose your path.