IBM Study: CEOs See Creativity and Managing Complexity as Today's Vital Skills

IBM has just released its fourth annual survey based on 1500 face-to-face interviews with global CEOs. Past studies have been rich sources of understanding the trends that company leaders are seeing shaping their businesses. The opening statement by IBM’s own CEO, Samuel J. Palmisano, sets the stage for this year’s study:

“[E]vents, threats and opportunities aren’t just coming at us faster or with less predictability; they are converging and influencing each other to create entirely unique situations. These firsts-of-their-kind developments require unprecedented degrees of creativity — which has become a more important leadership quality than attributes like management discipline, rigor or operational acumen.”

Later, the report states:

For CEOs and their organizations, avoiding complexity is not an option — the choice comes in how they respond to it. Will they allow complexity to become a stifling force that slows responsiveness, overwhelms employees and customers, or threatens profits? Or do they have the creative leadership, customer relationships and operating dexterity to turn it into a true advantage?

Today’s complexity is only expected to rise, and more than half of CEOs doubt their ability to manage it. Seventy-nine percent of CEOs anticipate even greater complexity ahead. However, one set of organizations - we call them “Standouts” - has turned increased complexity into financial advantage over the past five years.

Creativity is the most important leadership quality, according to CEOs. Standouts practice and encourage experimentation and innovation throughout their organizations. Creative leaders expect to make deeper business model changes to realize their strategies. To succeed, they take more calculated risks, find new ideas, and keep innovation in how they lead and communicate.

Having written a lot about the new breed of complex problems businesses are facing today, this rang true with me. In fact, the study’s findings line up well with the challenges and approaches I describe in Innovation X. Here’s a small sample.

• Embody creative leadership: Creative leaders invite disruptive innovation, encourage others to drop outdated approaches and take balanced risks. (In Innovation X I refer to this as Divergence)
• Reinvent customer relationships: In a massively interconnected world, CEOs prioritize customer intimacy as never before. Globalization, combined with dramatic increases in the availability of information, has exponentially expanded customers’ options. (Immersion)
• Build operating dexterity: CEOs are revamping their operations to stay ready to act when opportunities or challenges arise. (Adaption)

The report is fairly lengthy but an easy read, and well worth getting. Unfortunately the site seems to be having some technical glitches and it took me several tries to actually download the PDF (registration required with opt in/out contact info). Get the report here >

50 Years of Honda in the USA

The new issues of Automobile Magazine just showed up, and in it is an article about the 50th anniversary of Honda arriving in the USA. Honda had a presence as a motorbike company in the US long before it was a car company. How it was able to create a toehold that blossomed into an industry-changing dominance - essentially killing the British motorbike industry in the process - is the stuff of business school legend.

I wrote up a version of this story for my book (which is coming along nicely, by the way), but it didn’t make the cut. I was going to use it as an example of how companies which are adaptive to the changing environment, and their unfolding understanding of the market context, will be able to jump on opportunities as they arise, rather than sticking doggedly to a pre-ordained strategic plan. Here it is below.

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In the late 1950’s Honda contemplated a bold move: entering the motorbike market in the United States. We all know how this story turns out — today Honda is a dominant player in the US, selling a wide range of models in large numbers. But its start could not have been more improbable or less likely to succeed. It was only by staying flexible to an emerging understanding of what the problem — and the opportunities — were, that Honda succeeded in its long shot.

Honda had done well in its native Japan, leaping in a short amount of time to the number one position largely on the strength of its Super Cub model, which was based around a new lightweight, 50cc engine that Honda had developed. The engine was inexpensive which allowed the bike to be sold for a low price, an important factor in Japan’s struggling post-war economy. The Super Cub had also been designed with close attention to customers’ needs such as the ability to drive it one-handed to facilitate carrying a package in the other arm.

At face value, the Super Cub had little appeal for the American buyer. The motorbike market in the US at the time was quite small and dominated by entrenched players such as Harley Davidson, Indian, and imports like Triumph and Moto Guzzi. There were only 1,000 full-time motorbike dealers in the entire country (compared to some 10,000 today), and most bikes were either in the mold of Harley-Davidson — large, heavy, and built for noisy cruising, or were sportbikes made for performance, exemplified by Triumph. Motorbike riders were generally seen as nefarious outsiders, clad in leather jackets and riding in packs to terrorize small towns and cause trouble at funfairs, an image played up by Hollywood — think James Dean, Marlon Brando in The Wild One, and Easy Rider. Furthermore, Japanese products with funny names were looked upon suspiciously by American consumers.

In 1958 Honda dispatched Kihachiro Kawashima (who went on to become president of American Honda) and his assistant, to spend time in the US and scope out the market for Honda’s bikes. Honda had no market research of any kind, and in fact knew very little about America at all. Kawashima’s reaction upon arriving in the US was, “How could we have been so stupid as to start a war with such a vast and wealthy country?”

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When to be Visionary, When to Adjust

[Another book work-in-progress sneak peek here. This is from the chapter on Adaption — making continuous adjustments to strategy and offerings based on ongoing monitoring of the changing environment.]

We have all seen an intriguing new idea shot down prematurely. New ideas are inevitably rough, full of holes, unproven. The more radical the idea, the more this will be true. If an organization is set up for incremental innovation, the bias will be to poke the holes rather than support the promise. Often a charismatic and influential leader is necessary to shepherd the ideas along and provide the high-level guiding vision.

But the best leaders also recognize that in a complex world sticking to a vision come hell or high water can also be a recipe for disaster. In the face of rapid change, effective adaption requires an understanding of the gap between how the world is, and our aspirations for how it could be. But it can often be hard to conceptually bridge that gap.

The problem, of course, is that it is often hard to tell the wheat from the chaff ahead of time. To quote another sage, St. Hubbins (that would be David St. Hubbins, of the fictional heavy metal band Spinal Tap), “It’s such a fine line between stupid and clever.” This basically sums up the paradox. How do you deal with the fact that sometimes clever and stupid are the exact same thing, it is just a matter of timing that determines whether you are a hero or a zero? (This post from a few years ago goes into more detail.)

So is it better to adhere closely to a vision and ignore the brickbats of stick-in-the-muds, or to adapt the concept based on feedback from experts and customers, and changes in the competitive context?

A simple diagram illustrates the capriciousness of this dilemma:

These well-known examples show that both staying true to the vision and adjusting it can result in hits or flops.

Jeff Bezos had a vision for 1-Click which met initial resistance from customers when tested, but by making some small changes they turned it into a very popular feature.

By contrast, New Coke, one of the most famous big flops in all of business, was chasing a need that did not exist — Coca-Cola was simply responding to the taste tests that Pepsi were running on television. Coca-Cola lacked conviction behind the new product, and it was not truly rooted in what customers wanted.

Like New Coke, “Betamax” has become a synonym for product failure, albeit one that hung on for ten years or so before giving up the ghost. Sony’s vision for Betamax focused on recording TV-shows, but its one-hour recording time was too short for movies or lengthy sporting events. Furthermore, Sony did not see the opportunity in selling tapes pre-recorded with movies. JVC’s competing VHS format addressed both these issues. After launch, Sony did not adequately adjust to respond to emergent customer needs, costing it its first-mover advantage.

During development and the run-up to product launch we want to be triangulating on the emerging problem definition (i.e. the problem the product is intended to solve) from as many angles as possible to give ourselves a full picture and confidence that the vision is indeed on target. Negative comments from customers must be put in that broader context.

We do not want to get in the trap of being led around by the nose by customers. As my colleage Albert Tan observes, focus groups were originally called that because they were intended to focus the research; they were never intended to be the research. Unfortunately at many organizations, focus groups have become a substitute for taking ownership of the vision, as was the case at Coca-Cola when they introduced New Coke.

After launch, we should stay deeply immersed to pick up the signals, large and faint, that indicate how close we were to the mark. Chances are, we did not get it exactly right the first time — with an X-problem you almost never do. So we need to see where the gaps are between what people want and what the product can do, but again filtering this through the lens of an expertise-informed vision of the future. As customers adapt to our new offering, we want to see how they change their habits and what new needs emerge. Doing so will avoid being the next Betamax.

Sadly, there is no pat answer whether to stay unwavering to your vision, or adjust it based on feedback.

Passion and Compassion

Another frog colleague, Mark Olson, suggests a nice way to think about it. First, do you have passion for the vision? That is, are you truly committed to it because you believe in its potential? Do you see promise where naysayers only see faults? Do you see the clever-ness where others see stupidity? Second, is the vision rooted in compassion for customers? In other words, is it based on a deep understanding of underlying customer needs, perhaps ones that they have not expressed explicitly?

If both of these are true, then staying close to the vision may be the correct course. (That does not mean that particulars of the instantiation of the vision cannot be adjusted based on feedback, however.)

If only one or the other is true, then you should stay open to new possibilities for what the vision is, or what customers truly need.

More book details >

Marty Neumeier on Wicked Problems

Marty Neumeier, author most recently ofThe Designful Company, gave a talk atAdaptive Path’s MX Conferenceon Tuesday. Nate Bolt posted some notes about it that included Neumeier talking about wicked problems, one of the areas I’ve been thinking about for a while also.

Bolt writes up the following from Neumeier’s talk, in response to a question about how to avoid bold dumb vision (as opposed to bold smart vision):

Ford had the bold vision of a ford pinto. They made the mistake of deciding their design vision instead of designing it.

That’s what happened with the Aeron chair. They wanted to make the best chair ever, and they threw out the style guide of all previous office chairs to do that. They made a prototype and tried it with potential customers, and they said “it’s sort of comfortable but it’s kind of weird. I don’t know if I would buy it.” Then they worked really hard on the comfort part of it, and then eventually people said “it’s really very weird but it’s super comfortable.” Then it takes off because it is different.

I worry about innovations that aren’t different enough, and the Pinto was maybe too different. Clairol “touch of yogurt” shampoo was going too far. You learn to spot a real innovation by it’s combination of being weird and good.That’s where the real art comes in, doesn’t it? Knowing the difference.

You protect against horrible innovation by prototyping.Test this out little by little. Either in the market or wherever. Stage-gate innovation is what we call it. Ventures do that by giving a little money, then a little more money. Businesses want to get into the market immediately, and they are impatient. So they take very small risks. That’s just me-too-ism. Anyone who can help prototype. Herman miller said “we’ve gone this far, let’s go one step further and keep trying it in the market place.

(Not to knock on Nate in any way as I know what it’s like to try and take notes while somebody’s presenting, but I just want to caveat what I’m about to write by saying that I don’t know for sure how accurately Nate’s notes capture what Neumeier said or intended, so I could be boxing ghosts here.)

I’m not quite sure what the first paragraph means without more context, but I take it to mean he’s drawing a distinction between a vision that is set from top-down and not tested out, versus one that is tested through a design process.

Undoubtedly Herman Miller did a lot of testing with the Aeron chair, and if Gladwell is to be believed (and I’m assuming Neumeier is familiar with Gladwell’s account - he gives a good talk here) it did indeed test poorly for aesthetics.

I have a hard time going along with the idea that the Pinto was more different from what was out there than the Aeron however. The Pinto looked like a small American car and was designed to compete with small Japanese cars during the fuel crisis. The AMC Pacer was way more different, and look how well that did, though it is something of a cult classic today. But that didn’t do AMC much good.

I agree with his statement about spotting innovation by its combination of weird and good, but then calling it an art rather defeats the next statement of testing out with prototypes — that isn’t really how art works.

Then things get a bit troubling. Yes, we want to reduce our risk by prototyping, and that does help. However, to hold up the Pinto and the Aeron as opposing examples seems a stretch. I’m sure the Pinto was focused-grouped too (though focus groups were very different back in those days).

Neumeier seems to be switching between saying you need to set an audacious vision and then stick with it, and that you need to prototype iteratively and get feedback incrementally that you then use to refine the design.

The Aeron was tested, but what did Herman Miller do? They didn’t change direction. They stuck with the plan and ploughed ahead. Perhaps partly becaused they’d invested several years of work into the chair (HM is famous for spending four or five years to design a task chair) and the architecture of the design was basically baked in. They could not take the weirdness out of the chair without drastically changing it.

So Herman Miller took a bet the farm risk, tested with prototypes, but they ignored the input, for whatever reason. Herman Miller had a “smart” hunch about how the chair would ultimately be received. They took a big risk that they knew what the fine line was between stupid and clever. They could easily have been wrong, and then case studies would be written about how they ignored focus group input and were too stubborn to change direction, so the chair was the biggest flop in their history.

The fact is, sometimes innovations succeed or fail through pure dumb luck. And we laud the ones that succeed in hindsight, but how many of us could have truly predicted them ahead of time, even if we prototyped the hell out of them?

Lessons in Innovation from Spore

Electronic Arts finally released Sims-creator Will Wright’s newest game, Spore this week. I’m not really a gamer, but it looks to be an intriguing and engaging game. I actually saw a demo of a prototype a couple of years ago (Wright demo’d it prolifically during its long gestation period), at an outstanding talk Wright gave along with composer/producer Brian Eno in San Francisco. The talk, put on by the Long Now Foundation, explored a common theme between the two men’s work of starting with simple elements and creating increasing complexity with relatively simple rules.

In the case of Wright it had to do with simple game elements working within simple rules about how they could be combined and how they interact. In Eno’s case it had to do with small numbers of notes, some simple rules about how they should be played, and then setting them off and running to see what melodies they create.

There are some profound lessons for innovation there. I wrote at the time:

The talk helped crystalize some things I’ve been thinking about with wicked problems, and issues of emergence and how one can use seeds (in Eno’s words) to generate and test ideas, rather than trying to build forests. This is a key aspect of dealing with wicked problems: rapid iterations of probing and testing to further understand the problem.

Plant seeds, not forests

When you’re trying to tackle a new problem where the problem itself is unclear (a characteristic of wicked problems), it is usually foolish to go whole hog and launch a full-fledged product (i.e. a “forest”). Chances are it is going to miss the mark and fail. So an incremental approach that acknowledges the emergent nature of the problem is far more effective. In other words, plant seeds and see which ones flourish.

In contrast to expensive, complex forests that take a lot of resource investment to make, seeds are cheap, disposable, and resource light. Spread them as liberally as you can, with some forethought as to which areas of soil look the most promising (that is, do some pre-screening of the opportunity areas).

Seeds in this case can mean prototypes, sketches, white papers, limited market tests, focus groups, even casual conversations with end customers. Really, any means of trying out a new idea, whether in early stage development (where cheap and fast are key) or actual product launch.

In the latter case, the mentality should be one of incremental launches that ideally build on one another and get one piece right at a time, rather than trying to build the whole thing right from the beginning. This is also a key principle behind the approach to software development known as agile programming, and can be seen in the endless stream of “beta” launches from many software companies that have real users bang away on the emergent offering.