A blog by Martin Erasmuson
First published April 2016, updated and republished August 2018.
In my last post I talked about how most organisations struggle to foster and sustain innovation or leverage new practices that deliver real value. In that first blog I reference the work of Sir Ken Robinson who suggests it all starts with our education system that systematically kills off creativity. That follows us into our career where organisational culture of 'status quo bias' manifests as loss aversion, sunk cost thinking, a need to feel in control, and regret avoidance.
Ancient research (1982) like that of Kahneman and Tversky suggest that we feel more regret for bad outcomes from some new action we've taken [innovation] than we do for bad consequences from status quo actions [our best practices and SOPs]. The alarming thing is, this mindset is so powerful that neither scarcity nor repetitive failure is necessarily sufficient to drive change. Indeed Thomas Kuhn suggests in his great book: ‘The Structure of Scientific Revolutions’: “there is one thing that [organisations] consistently never do when confronted by even severe and prolonged failure. They will never renounce or even question the overarching model on which they operate”. In traditionally structured organisations, even in the face of those consistent, repetitive failure, they will doggedly maintain, even reinforce the status quo, emphasise existing Command and Control structures and unwavering reliance on best practice. A pertinent example being the demise of Nokia. At his press conference in 2013, then CEO, Stephen Elop ended his speech saying, “We didn’t do anything wrong, but somehow, we lost”. How much of that failure could be attributed to status quo bias? In trying to extricate themselves from those repetitive failures, organisations should be mindful of a quote from Albert Einstein. "Problems cannot be solved with the same mind set that created them". More on that later.
One of the commentators on my original blog suggests the concept of ‘Skunkworks’ as a possible solution for side-stepping organisational culture. Skunkworks are small teams set up occasionally with but typically without the knowledge of senior leadership. By definition a Skunkworks Team operates outside the organisations ‘normal’ procedures, polices and chain of command ad as such are basically unburdened by the ‘kill-the-chicken’ culture that stymies new ideas. My own experience of skunkworks suggest they are effective for one-off, specific projects and they will invariably come up with new ideas. The problem always comes when trying to integrate the new innovation back into the business. More often than not, that fails and the status quo remains. Commentators like Steve Blank suggest: "... while Skunkworks projects epitomise innovation by exception; to survive, organisations need innovation by design".
So how do organisations do that? What are the different skillsets, policies, approaches and organisational frameworks necessary for innovation to become just another ‘one of the things we do around here’? When do we innovate? And when do we use best practice? All while identifying priorities and directing resources?
There are several approaches, methodologies and disciplines that are well suited to the dynamic, fast-changing 21st century environment and fortunately, organisations and their staff can learn, become skilled in and apply these new approaches as easily as any of the traditional, best practice approaches. Before we explore some of these it is necessary to explore and appreciate when to use them. This is where most organisations trip-up. A manager has an epiphany about some new way of doing things (agile kanban, six sigma) and then they use that for everything. Basically substituting one ‘out-of-context’ approach for another. In selecting one approach for everything, organisations are effectively taking a problem to a person with a hammer; the solution will be a nail! Every time. (Attributed to Steve Dol).
Following WWII, penicillin was touted as a ‘wonder drug’ that could not only kill infections, but also prevent baldness and tooth decay. In his book ‘Penicillin Man’, Kevin Brown says there was even penicillin lipstick for those concerned about ‘hygienic kissing’! When penicillin failed (to cure baldness or prevent tooth decay), did that mean it was no good? We know now that penicillin is, or was, good and fighting infection; just no suited for treating those two conditions. Yet we see the same thing happening in organisations across the planet. Most organisations are fixated on execution, with a multitude of policies, SOPs and best practices (allegedly) in support which they apply as a panacea, like we did with penicillin to ANY situation, regardless of context or problem-diagnosis. And like penicillin, when their approach fails (to deliver the promised business value), they never question their methodology or approach or consider its utility given the business problem i.e. we have a hammer, so the solution must be a nail. Is that how Nokia failed? By doing 'everything right'?
So what are the different tools, approaches and methodologies available to an organisation and in what context should they be used? When to use traditional a best practice approach (a hammer); and when to use something else (possibly a screw-drive, or a saw or something we don’t know about; yet!)
My Grandfather was a Blacksmith. I recall my father telling me stories about working in the 'smithy' with his father. He told me once it was not uncommon for a blacksmith to first make the tool he needed to complete the job at hand if one of his one of his off-the-shelf tools was not suited. When did we lose our ability to think like that? Today our status quo bias draws us to our favorite hammer.
Here I want to introduce two concepts I've found useful and believe offer a way of approaching, understanding and circumventing status quo bias.
Innovation by design - Planning to adapt
The following is taken from a body of work called 'Adapt or Perish' by Professor Warren E Walker. He has developed a fairly simple ‘how to’ or more accurately ‘when to’ guide for adaptation.
In Prof Walkers diagram below, we note the ‘Current’ approach or policy for achieving organisational, programme or policy outcomes. To avoid lock-ins, identify other potential pathways for achieving the same outcome ( (A, B, C, D). Having done that, the table on the right of the diagram indicates the implications of each option; some require many changes while some require few; each have different time/cost/quality impacts. The Walker approach also identifies conditions, triggers or tipping points where measurement indicates the current approach is or will perform outside unacceptable parameters (technology innovation [for Nokia that happened in 2007 when both Samsung and Apple launched smartphones], economic or fiscal drivers/KPI etc.); a sort of policy-smoke-alarm. Like a smoke-alarm, when measurement indicates a condition/trigger/tipping-point is reached; take action and pivot to the predetermined plan.
What approach to use on the current problem?
At the start of any new initiative most organisations rush straight to execution. Assumptions become facts, we pick up the hammer and off we go. I propose the first step must be diagnosis; determine the context, parameters and level of complexity of the business problem you are dealing with before prescribing the treatment? How to do that?
The following section draws from the work of Ralph Stacey and his ‘Stacey Matrix’. It establishes a conceptual framework for understanding and managing complexity and, by extension, guiding our choice of approach; when to innovate (create a new tool); and when to use best practice (a hammer).
In the figure below, along the bottom axis we move from being close to certainty to being far from certainty; the other axis, we move from being close to agreement to being far from agreement.
Rational Decision Making: At a point close to certainty and close to agreement is the Rational Decision Making environment. This is typified by strong cause and effect relationships with high levels of certainty and agreement about the nature of the problem, the intended actions and expected outcomes. Here; it is possible, and appropriate to utilise best practice approaches.
Beyond this ‘Rational’ area; different decision-making practices; indeed planning/policy approaches, implementation methodologies and organisational frameworks, need to be applied.
Political and Judgmental Decision Making: At a point closer to certainty but further from agreements political decisions occurs. Conversely, at a point closer to agreement but further from certainty, judgmental or intuitive decision making practices occur.
The Edge of Chaos: As we approach a point far from certainty and far from agreement, organisational frameworks of any sort, begin to break down. In this anarchic zone, progress is difficult. Think: Syria, Yemen and Eastern Ukraine.
Complex Decision Making: Between the zone of rational decision making and anarchy is a zone of complexity. In this complex decision-making environment, links between cause and effect that may have been obvious in the Rational Decision Making area are unclear. Undifferentiated problems present themselves, there is typically disagreement and uncertainty about the nature of the problem, (sometimes even if there is a problem), intended actions, possible solutions and expected outcomes. This is where most organisations trip up with best practice.
Most of our best practice relies on high certainty/agreement, strong cause/effect relationships and high-quality/complete data. In reality, at the beginning of any venture little is known and much is assumed. In spite of this you will invariably find assumptions underlying a plan treated as facts rather than as best-guess estimates to be tested and questioned. In New Zealand, evidence-based policy is now applied to every area of Public Policy and this has flowed into best practice decision making practices and execution methodologies that is applied indiscriminately to every situation. While these approaches are practical and appropriate in a rational decision making context, such initiatives are often doomed to failure before they start if applied in complex decision-making environment typified by disagreement and uncertainty. The word ‘evidence’ is sort of a clue that perhaps such an approach is not going to work (refer hygienic-kissing above).
How big an issue is this for NZ? In 2011 Forte Management said: “New Zealand’s problem is not a lack of innovation but rather our inability to convert our legendary inventiveness into productivity, profitability and prosperity”. In a 2003 OEDC report in referencing New Zealand it stated: “The mystery is why a country that seems so close to best practice in most of the policies that are regarded as the key drivers of growth is nevertheless just an average performer”. In the 2013 report ‘Productivity by the numbers: The New Zealand experience’, the NZ Productivity Commission points out that ‘New Zealanders work about 15% longer than the OECD average to produce about 20% less output per person’. That’s working harder, not smarter! So yes, inefficiency is a big problem in New Zealand. I assert that some of the issues covered in this blog are a big contributor to that inefficiency. Somehow we replaced our 'make to tool and innovate' tradition with on of 'we never have time to do it right first time, but we always seem to have time to do it over'.
The two methods described here offer leaders a way of understanding complexity, innovating by design and in doing so, circumventing stats-quo-bias. Prof Walker's straightforward approach for planning and implementing adaptive strategies and the exquisitely simple Stacey Matrix which can be a good starting point for organisations to first ‘diagnose’ the complexity of the problem they are dealing with before rushing straight to the solution. Why would managers want to do that? My own experience suggests that these approaches can deliver what every leader craves; an unlimited capacity for responding to continuous change.