The Innovator’s Hypothesis (MIT Press, 2014), by Michael Schrage, is based on the deceptively simple premise that "cheap experiments are worth more than good ideas." In fact, this type of value-producing innovation requires large-scale cultural and strategic shifts throughout the organization. To ease the way, Schrage, an MIT IDE Research Fellow who has written extensively about business innovation, offers a 5X5 framework and lots of actionable advice based on his advisory experiences with entrepreneurial organizations and Fortune 50 corporations.
Schrage says that business experiments should be “simple, fast and cheap.” He debunks many common-wisdom economic myths and strategies that in practice impede the implementation of new ideas. In fact, he has an entire chapter explaining why ‘good ideas’ are bad for innovation. In the following conversation, IDE Digital Community contributor, Paula Klein, asked Schrage to respond to three questions about the book and his objectives.
Q: What are the key takeaways you want top management and entrepreneurs to better understand by reading the book? What's your 'call to action'?
A: Plan less, experiment more – much more. Stop looking for good ideas; start thinking in terms of testable business hypotheses. Also, treat business experiments as investments in discovering who you want your customers and clients to become – not just what you want them to do or buy.
I’d like readers to recognize and embrace that digital media, methods and platforms have completely, utterly and profoundly transformed the economics of experimentation worldwide. The best way to take advantage of those new economics isn't by throwing stuff against a wall to see if it sticks, but by having the courage and discipline to test out business hypotheses that can incrementally - or even fundamentally - change how you define and create value.
Today's reality - and tomorrow's norm - is that the economics of doing little digital experiments are as important as the economics of analyzing Big Data. In addition to presenting a pretty darn good and proven innovation methodology, The Innovator's Hypothesis is a manifesto declaring that hypothesis and experimentation matter more for value creation than grand plans and terabyte-sized datasets.
Q. Some reviewers - and even friendly critics - argue that the kind of experimentation you discuss emphasizes marginal and incremental innovation over more disruptive or transformative initiatives. How do you respond?
A: I feel badly about that. It means that I failed to communicate that serious innovators and serious companies need to encourage their people to come up with business hypotheses and experiments that fundamentally challenge their business-model assumptions, not that simply build on or extend them. One of the key and core concepts of the book is that top management need to encourage and oversee a portfolio of business hypotheses and experiments, not just the best experiments, or those that affirm the strategic direction of the company. The book is filled with examples - both successful and failed - of companies from Google to Amazon to Blockbuster, where a diversity of business experimentations led to greater strategic clarity, focus and impact for the enterprise.
It may be obvious, but cultures of experimentation-- behaviorally, organizationally and economically-- are much different than cultures of analysis.
Q: What should be the ultimate goal of IT and business innovation? Is it better/faster/cheaper technology and processes? Revenue and competitive advantage? Societal benefits? Or maybe all of these?
A: That question allows me to link The Innovator's Hypothesis to my previous book, Who Do You Want Your customers To Become? Over 50 years ago, Ted Levitt, the Harvard Business School professor who became editor of the Harvard Business Review, published a popular and profound HBR article, Marketing Myopia. Levitt galvanized both the marketing and strategic planning communities by asking and elaborating on a simple question: What Business Are You In?
In an era of ongoing technological and innovation-centric disruption, that 'simple' question grows ever-more difficult to answer. Despite its ongoing relevance, my research and advisory work led me to conclude Levitt’s question didn't go far enough. It's not enough to better define our present business; we need to better define our customer’s future. Who do we want our customers to become? Henry Ford didn't just mass-produce the automobile; he effective enabled the mass production of the human capital of driving. Google isn’t just a search company; its algorithms turn everyone who uses them into searchers. Google effectively creates, captures and leverages the human capital of millions of its customers worldwide.
Successful innovators transform the human capital, competencies, capabilities and creativity of their customers and clients.
Therefore, the ultimate goal of IT and business innovation is to make customers and clients better. My design heuristic for innovators worldwide is simple: Making Customers Better, Makes Better Customers. That is, when your innovations improve your customers, your customers become more valuable to you.