The Eclipse and Creative Juxtaposition

“In Chinese tradition, there is the idea in Yin and Yang, that contrasting concepts, light and dark, sunny and shady, sun and moon, combine to create a whole picture”

Eclipse

The light shines in the darkness, and the darkness has not overcome it” John 1:5

Roger Martin, author of the leadership book “The Opposable Mind”and the strategy book “Play to Win” talks of a similar concept, “creative synthesis”,   in a recent Harvard Business Review:

“Research in cognitive science has demonstrated that the core engine of creative synthesis is “associative fluency”—the mental ability to connect two concepts that are not usually linked and to forge them into a new idea. The more diverse the concepts, the more powerful the creative association and the more novel the new idea.

With a new metaphor, you compare two things that aren’t usually connected. For instance, when Hamlet says to Rosencrantz, “Denmark’s a prison,” he is associating two elements in an unusual way. Rosencrantz knows what “Denmark” means, and he knows what “a prison” is. However, Hamlet presents a new concept to him that is neither the Denmark he knows nor the prisons he knows. This third element is the novel idea or creative synthesis produced by the unusual combination.

When people link unrelated concepts, product innovations often result. Samuel Colt developed the revolving bullet chamber for his famous pistol after working on a ship as a young man and becoming fascinated by the vessel’s wheel and the way it could spin or be locked by means of a clutch. A Swiss engineer was inspired to create the hook-and-loop model of Velcro after walking in the mountains and noticing the extraordinary adhesive qualities of burrs that stuck to his clothing.

Metaphor also aids the adoption of an innovation by helping consumers understand and relate to it. The automobile, for instance, was initially described as “a horseless carriage,” the motorcycle as “a bicycle with a motor.” The snowboard was simply “a skateboard for the snow.” The very first step in the evolution that has made the smartphone a ubiquitous and essential device was the launch in 1999 of Research in Motion’s BlackBerry 850. It was sold as a pager that could also receive and send e-mails—a comforting metaphor for initial users.”

(From the Sept-Oct issue of Harvard Business Review, an article by Roger Martin and Tony Golsby-Smith entitled: “Management is Much More than a Science”)

Extract from the book “Risky Strategy” by Jamie MacAlister http://amzn.to/2rrTLvo

We understand that a passion for winning creates both an appetite and a need for some risk. But what happens when working in collaboration becomes a more useful paradigm for positive social change than beating competition? How do we bridge the tension between competition and collaboration, and what does it do for our readiness to make risky choices?

When we look at the exploits of apparently successful leaders, we notice a strange dichotomy between risk taking and risk avoidance, an ability to embrace both, keep both in tension, to be able to find those right risks to take and avoid the others. We enquire of those who appear to have risked all to achieve significant victories, and hear that they are preoccupied with avoiding risk wherever possible.

What is happening here?

I believe what is happening is a phenomenon I call Creative Juxtaposition. It’s the idea that entities with apparently very different or even opposite polarities come together to bring creative and often positive results. Knowledge that comes from different sources, possibly referring to different subjects, combines to form great ideas – a breakthrough in new knowledge, a great strategy or even a new sense of victory. So much great new positive creative stuff seems to come to us in this way.

The origin of our tigers and elephants story sets the scene for this idea. A fast and effective global launch of an electronic games product was achieved through the combination of methodical elephants and impetuous tigers somehow managing to work together to achieve business victory.

…. I see this idea of Creative Juxtaposition at the heart of all sorts of different forms of creativity. The atoms of hydrogen gas and oxygen gas combine to form the most unlikely and miraculous of molecules, the water molecule. Animals of different genders combine to create new life. Animal and plant combine in pollenization to create new plant life and food for animals. There’s Gilbert & Sullivan, Morecambe & Wise, Flanders & Swan, Marks & Spencer, Procter & Gamble. In Chinese tradition, there is the idea in Yin and Yang, that contrasting concepts, light and dark, sunny and shady, sun and moon, combine to create a whole picture. This book explores a number of yin and yangs that combine to create something bigger than the sum of its parts: risk and strategy, tiger and elephant, danger and opportunity.

 

Key to effective teamwork: feeling safe enough to take risks

Google just published some research on effective teamwork.  http://on.inc.com/2u73ZQ1    They highlight 5 factors, and state that the key factor is feeling safe enough to take risks with others.

“We’ve all been in meetings and, due to the fear of seeming incompetent, have held back questions or ideas. I get it. It’s unnerving to feel like you’re in an environment where everything you do or say is under a microscope.

But imagine a different setting. A situation in which everyone is safe to take risks, voice their opinions, and ask judgment-free questions. A culture where managers provide air cover and create safe zones so employees can let down their guard. That’s psychological safety.”

This resonates with the research I did with colleagues at Ashridge a few years ago.  Positive change and innovation in organisations tends to correlate with cultures which help staff to feel safe with taking risks.  I covered this idea in my book “Risky Strategy”

feeling safe on a girder

EXTRACT FROM “RISKY STRATEGY”

Available from Amazon on: http://amzn.to/2rrTLvo

So in handling this paradox of safety with risk, our approach to risk will of course therefore be determined by where or how you experience safety. We tend to experience safety where we can truly place our faith.

I am reminded of the exploits of the Niagara Falls tight rope walker in the mid nineteenth century known as “The Great Blondin”, whose real name was Jean Francois Gravelet.  He repeated the stunt of crossing the falls on many occasions, sometimes using other props, like bicycles and wheelbarrows.  On one occasion he is reputed to have taunted the crowd with the question: “How much do you believe in me?” and getting loud affirmation.  He then asked who in the crowd who said they believed in him would get on his back as he crossed the falls.  No one was prepared to do that – no one had that much faith in him

Did conversation just get more risky? So what did Trump say in that conversation?

Trump & ComeyI am noticing that the pivotal factor in the last two bits of negative publicity about Donald Trump both relate to conversations.  He apparently gave away classified secrets relating to intelligence about ISIS  in a conversation with the Russian Foreign Minister – according to  US newspapers.  And following what appeared to be a private dinner conversation with the sacked Head of the FBI,  James Comey, Trump had apparently asked inappropriately for his loyalty and for the enquiry into Russian intervention in the election to be stopped – something Trump denies.

Whatever the truth and motivations were relating to these conversations, in retrospect at least, they clearly turned out to be for Donald Trump at least, somewhat risky!

Most of the time, conversation is not particularly risky.  We talk about practical matters, talk about our views and feelings at a fairly superficial level,  talk about generalities in vague terms, perhaps we make jokes – but generally only “politically correct” ones.

But often it appears that being able to make progress involves taking risks in conversations.  One of my colleagues at Ashridge has recently published research on “speaking truth to power”.   The idea is that this is often key to unlocking unhelpful “stuck” behaviours in organisations. Careers in business can be adversely affected.  For many, that’s a risk too far.

When a team I was involved in at Ashridge researched how leaders work with risk,  one of the lessons that emerged was the need for organisations  that want to work effectively with risk to encourage risky conversations .

Extract from Risky Strategy by Jamie MacAlister- chapter 13 D

Risky Conversations

It seems that somehow at the heart of how organisations work with risk is the types of conversations that happen between its members.  My Organisation Development consulting colleagues at Ashridge tell me that culture change happens one conversation at a time.  I am very impressed by this concept, and have witnessed it playing out both with clients with whom we work and in the extensive change we have seen at Ashridge over the past four years.

I was working recently with a global services client. There were over a hundred of them, from the top team downwards, and they had all come from different parts of the world to a classy conference centre in west London.  The day started with a strategy presentation, and then the result of a culture assessment exercise. We had proposed and agreed with the top team that they would have a better chance of succeeding with the strategy if they were able to change their culture. There were many aspects to it, but a couple of key ones were a move from one that prioritises individual technical performance at the expense of relationship with colleagues, to one which places more emphasis on relationship and behavioural factors;  to one that values being ‘heard’ above the one that currently puts a greater value on being ‘right’.  Then we asked them to sit in groups, made up of mixed levels of management. We observed and facilitated.

Initially, most of the voices in the groups were those of the most senior managers expressing their views on technical solutions associated with the strategy. By the end of the day, we were hearing some of the lower levels of management expressing views about human behavioural issues, sometimes even critical of current practices.

We asked them to reflect on what had happened in the room.  Initially, they talked about the technical solutions they had come up with. Then, with a bit of coaxing, they started to notice how the conversations had changed in the groups. People were taking risks in conversations: senior managers inviting their more junior colleagues to be open with their views;  more junior managers making non-technical points, even being critical of leadership behaviours.

Somehow the managers in this room had become more convinced that they all had similar ’skin in the game’, and therefore it was worth taking personal risks to speak out. This was a step towards a more anti-fragile organisation. Weick and Sutcliffe wrote a book on Highly Resilient Organisations (HROs) (Weick & Sutcliffe, 2007), and unpicks some of their characteristics – what works and what doesn’t work in terms of making them more or less resilient. These are organisations that are regularly dealing with crisis or the potential for crisis (eg, emergency service or the military). Many factors can impact resilience, but the one stand-out factor seems to be the ability to be open with failure, to talk about it, to consider its possibility, to be honest about its occurrence, and to consider how it could be avoided or managed if and when it happens.

 

Aduna pioneers African healthy tree product exports

I’ve just had an excellent presentation from a guest speaker to my Global Strategy students at Hult Business School.  Nick Salter is one of the founders of Aduna, a London-based venture that creates demand through clever marketing for African super foods – products with remarkable health benefits from trees growing in Africa .  They currently import, add value to and market Baobab fruit, Moringa leaves and a special healthy form of Cacao.   They are the main marketer of these products in outlets like Holland and Barret, and remarkably for a small company, re-export their products to 18 other countries in Europe, the Middle East and Far East

Adunapresent

His heartfelt belief is that the key to lifting Sub-Saharan  Africa out of poverty is “trade not aid”.  At least not aid the way it is generally configured.  Alot of aid to agricultural projects fails to deliver sustainable benefits to the targeted economies because it fails to generate demand for the produce, and because they are project-based (ie time limited), when the money runs out,  the development unwinds – eg trees are felled or abandoned.  Much better, he argues, for aid to be directed at creating demand in developed economies for these products.  This is what Aduna spend significant amounts of their investors’ money on.   And they are seeing significant social impact as a result.

I am with him on this. I have been visiting Uganda for the past ten years,  with a combined education and business development mission.   Dependency on aid is a real issue – made worse by the lack of transparency of what happens to the aid funds.  The real opportunity in a highly fertile country like Uganda is to create value-added (ie processed) exportable agricultural produce from the millions of acres of un-used but suitable land.   But “exportable” is the key!  Demand, which is satisfied with the right quality of product.

This is pioneering work.  It means breaking existing models and mindsets – changing not only how consumers in developed countries perceive these health products, but the business models and supply chains that deliver them.  It means challenging and possibly disrupting the way that “aid” works.  In marketing these kinds of health products, which by definition cannot be patented, it may at the same time mean challenging the way the health sector  delivers health solutions. This level of change means risk.

In my book, “Risky Strategy”, I have a chapter on “Strategic Pioneering”. I state in it that as well as a winning aspiration and an understanding of the key variables, the right risks are often those based on an opportunity to innovate or a need for change.  As we deliberately step into new territory, we know less about that territory, so the variability of possible outcomes is that much bigger, ie, it’s more risky.  We know that innovation and risk are inextricably linked.  Innovation means change and change inevitably feels risky.

Part of my exploration looks at how innovators feel safe with this kind of risk.  I will watch closely to see how this plays out with Aduna.

 

The start of a journey

I write this as my wife and I are about to start a new journey, moving to Uganda to help set up a new business education venture.

Nile journey

It seems appropriate to post a picture of the so-called “Source of the Nile” at Jinja in Uganda, at the point where the river flows out of Lake Victoria.  It was the mission of nineteenth century pioneers like Speke to try and find the source of the longest river in the world, and the water heart of early Egyptian civilisation.  We are intrigued by the question as to whether this “Pearl of Africa” ( a phrase coined by Winston Churchill to describe Uganda),  can still realise its potential to be the source of fruitful enterprise.

This new journey is the sequel to my previous one, to write “Risky Strategy”, and is perhaps an echo of that pioneering theme.  In the opening chapter I wrote:

“I also need to tell you that this book is a journey, for me and I hope for you, the reader.  It’s a journey that begins here, but I’m afraid doesn’t end within the confines of this book. If you are looking for a book that gives you the answers to all your questions about risk and strategy, then I would suggest you stop here, for you will be disappointed.  My hope is that this book asks a number of good questions that may help you think differently about how you approach strategic decision-making.”

Exxon CEO as US Secretary of State! Is business the problem or the solution?

So this week we hear that Trump has announced that his Secretary of State will be Rex Tillerson,  CEO of Exxon Mobil, the world’s largest private oil company.   Apart from all the additional jitters this creates around the environmental sustainability agenda, with one of the most powerful people in the oil industry becoming one of the most powerful global political leaders,  this is part of a bigger more significant statement – another business leader in a top political job.

As a business professional myself, now a professor teaching business leadership,  I must declare a bias towards the idea that business leaders could make particularly good political leaders.  There are  some reasons why I think this:

  1. Business leaders are familiar with the need to deliver sound economic results to achieve and retain their role as leaders. And economics continues to be a major driver of political success
  2. Business leaders of large organisations have had to operate effectively in a global arena. This means having to navigate the complex cultural differences around the world.  Political leaders increasingly need to be able to do this.
  3. Business leaders are pragmatic. They succeed by doing what it takes to get things done. Witness the Trump response to the question posed to him by a journalist after his election victory:  “Do you regret any of the things that you said during your campaign?” To which he apparently replied:  “Why would I?  I won, didn’t I?”
  4. Business leaders understand how to work effectively with risk. The business marketplace like the political landscape is a wild place. One minute you have a dominant position in an industry – the next minute, a disruptive digital technology is changing everything and your ship is sinking fast. He need to act fast – you need to make tough decisions regarding an uncertain future.  You need to be a strategic risk taker or you fail – as has happened to many organisations that failed to take the right strategic risks.

The interesting question for business leaders is the extent to which we, the “people”, trust them to work for our best interests.   Some would say this can never happen. Business leaders are primarily interested in personal wealth, and to achieve this, generally have to do whatever they can to maximise the profits of the organisations that they lead, and this tends to be in conflict with the interests of others who might be impacted by the organisation.  Others would argue that effective business leaders are only effective because they take account of the interests of all those impacted by a business organisation; so-called “stakeholders” who include customers, suppliers, employed staff and indeed the public at large.  This is a debate that has bubbled away for some time, and to some extent, polarises opinion on the purpose of business.

Over the past couple of years, I have been part of a team at Hult International Business School researching the business response to the issue of “Modern Slavery”.  [ http://bit.ly/2eWSm66  ]  This is the idea that certain extremely exploitative labour practices exist in the global supply chains of many leading business organisations.  It has been thrown into the spotlight in the UK by the passing of the Modern Slavery Act in October 2015, which requires UK-based business organisation to report on what they are doing to discover and address the issue.

Small Risky Strategy cover

EXTRACT FROM “Risky Strategy”

 

Today, we are witnessing Jenga towers toppling and collapsing, towers that previously looked strong.  Others on firmer foundations remain strong.  And new towers are being built all the time.

In our research on modern slavery, we have reached a situation where businesses at the end of a complex global supply chains, primarily the big brand retailers, are in a position to impact positively on the welfare of millions of workers in and from developing countries.  Historically, these businesses have competed to offer the best deal for consumers in the developed nations.  This is the essence of the capitalist model as originally set out by Adam Smith in his 18th century book The Wealth of Nations (Smith, 1997). We have international legislation that fiercely protects this competitive principle, on the basis that it protects the ‘paying public’ from exploitation.

However, we know today that in return for this privilege, there is still exploitation of workers that contributes to delivering this consumer benefit.   We know from our research that the only reasonable ways in which the developed world’s retailers and other major corporates can change this for the better is by collaborating – to maximise the influence and impact where it matters, including with national governments.   Ironically, in the UK and other countries, the latest legislation on modern slavery is a catalyst that encourages this collaboration.  But this flies in the face of naturally competitive instincts and competition law.   Is this a time for bold leaders to challenge this paradigm?  Could this be a time for a positive Black Swan?

Indeed, is this a time for business to become part of the solution, instead of part of the problem?

Timothy Fort, Professor of Ethics at George Washington University Business School, and Director of that university’s program on ‘Peace through Commerce’ (Fort, 2007), argues that for such a time as this, business itself has a role to play in bringing ethical leadership to the world in which it has become a core element.  He develops classical ’theory of the firm’ thinking:  is the purpose of business to maximise shareholder value, which gets further translated and simplified to maximise profit, or is it fundamentally to bring about positive social change?

 

Gut feeling works for financial traders – tigers in action!

“The study of 18 hedge fund traders found those with greater “interoception”, which is the ability to sense the state of their body, made more money and survived for longer in hectic financial markets. Results are published in the journal Scientific Reports

This work was led by John Coates, a Cambridge medical practitioner and former New York financial trader.

traders

In this extract from my book, “Risky Strategy” now available on Amazon and in certain Waterstones outlets, I talk about John’s work in the context of how “tigers” work with risk.

EXTRACT:

We learn from John Coates in his intriguing book on the “Hour between Dog and Wolf” (Coates, 2012) that risk is a ‘whole body’ experience.   Coates was formerly a financial trader in New York, and then switched careers to become a medical practitioner based in Cambridge in the UK.   His extensive research looks at how humans respond to risk physiologically, ie through the production and delivery of hormones.

It appears that three hormones play slightly different roles when we are confronted with situations involving some element of risk: cortisol, adrenaline and testosterone.  These hormones respond to variable inputs to the body:  visual input through the eyes, a sound, a smell or even some kind of impact to our skin’s sensory nerve endings.   What is interesting then is the role that the brain has in processing this information, and how the hormonal system is tied into that response.

Coates observes that in sport, for example, the speed of response needed by a player reacting to an approaching tennis or cricket ball, and making a skilful connection with that ball suggests that normal brain-based analytical processes can’t be too heavily involved.  There isn’t the theoretical time for the information to be sent to the brain, processed and sent back to the muscles that need then to respond.   It would appear that some kinds of pre-conscious and rapid communication between brain and muscles are what actually keeps us alive in fast-moving situations.  Hormones have some kind of role in facilitating this, even though the hormones themselves don’t move that fast.  Separately, conscious reflection shows up later, to analyse what has happened.

From this, we have the concept of muscle memory.   I am a keen tennis player, and am only too aware of the importance of muscle memory.  It works for you and against you.  Against in the sense that for most of my life I have not been hitting shots with a top spin action, which requires a loose wrist.  My muscles remember a firmer wrist flatter shot, and my mind is trying to convince them otherwise.   But it works for me in that once I have practised it a few thousand times, my mind doesn’t have to keep reminding my muscles what to do when I am playing in a match.  And that’s important when the ball is hurtling over the net onto my end of the court, and I need to react both quickly and accurately.

In the case of tennis, you wouldn’t typically refer to this kind of muscle memory as ‘intuition’.  But Coates observed something very similar, and quite mystifying, on the financial trading floor. Traders, it would appear, seem to develop muscle memory for responding to situations, even before they have very much information, and certainly before they have much time to analyse it.   He tells stories of traders sensing a buzz on the trading floor, or even change of tone of voice here and there, or the speed at which information was appearing on the screen … and issuing a “buy” or “sell” order immediately.

Speed, once again, in financial trading is of the essence.  Being even a couple of minutes slower in executing a trade can make huge differences in financial returns.  The trading floor is really a place for tigers – elephants need not apply!

Risky conversation at the hairdressers

I brought my newly published book, “Risky Strategy”, with me to my hair appointment this morning and placed it on the counter in front of me.  Lauren, who was cutting my hair, asked me about it, so I explained that it was about how we evaluate risk when we make decisions.

She asked me if I wanted a number 5?  I had never had this kind of cut before, and it sounded quite radical!  But I realised I was in a place where I could demonstrate something of what I had written about, so I said: “OK.  I’ll take the risk!”  She said a number of things to help me feel safe with this risk, like: “It wont be that short!” and “I wont apply the machine to the top of your head”, where things are a bit thinner.  And I instantly felt better.

I then talked about one of the other ideas in the book.  We tend to deal with risk either as “tigers” or “elephants”.  Elephants think about risks analytically, evaluate, take their time.  Tigers are more intuitive, quicker decision makers – work more on gut feeling.  We all have a bit of both in how we deal with risk, but some are more tiger and some more elephant.

Then the next door hairdresser immediately piped up that she had a friend who was very tiger,  and that she tended to be the elephant in the relationship, encouraging her to think more carefully.  My hairdresser then responded that  she was probably more tiger and that sometimes our tiger, gut feeling, can be spot on for some reason.

I then mentioned that in the book I talk about a New York trader, who went on to study medicine at Cambridge University.  He has written about a phenomenon involving our hormones,  and gave examples of how traders would sense a slight change of tone in someone’s voice, and know instantly they needed to sell their investment –  a fast decision that would turn out to be necessary just before the price dropped dramatically.

The client in the chair next to me then said that she had previously worked in the City in London back in 2008, and that a trader had noticed a slight change in a price index, and known intuitively that there was something wrong with the market.  A few days later, the banking crisis started to unravel!

I talked about how the cover of my book, showing a Jenga Tower, related to a scene from a recent movie, “The Big Short” in which a banker, Ryan Gosling anSmall Risky Strategy coverd colleagues is trying to convince Steve Carrell, a hedge fund manager and colleagues to invest in a financial instrument to go “short” on the US mortgage fund market.  He explains that bricks in the Jenga Tower represented different low quality investments that were going bust, as he pulled bricks out and threw them dramatically into a metal bin behind him.  Then as the tower collapses,  he says: “Then this happens!”.   Carrell responds: “Whats this?”.  Gosling replies”  “The American mortgage market!”  Great drama.   And I’m thinking, I hope I don’t experience this level of drama when I see the result of my haircut!

Then we get on to talk  about the mystery of intuition, and this is a clue to a parallel universe or time zone!   This depth of conversation across multiple clients in the hairdressers has never happened to me before.  And all because I mentioned that I had just published my book:  “Risky Strategy”

Check it out on Amazon and who knows what risky conversations you might end up in the most unlikely circumstances.  See https://www.amazon.co.uk/Risky-Strategy-Understanding-Strategic-Decisions/dp/1472926048?ie=UTF8&*Version*=1&*entries*=0

 

 

BREXIT is more risky, but is it the land of opportunity? Beware loss aversion!

All change is risky because we are moving into territory we are less familiar with, so we are not as well informed as to what could happen as when we stay where we are.

The REMAIN campaign appears to be largely based on the understandable fear of what might go badly in a new territory – that of being outside Europe.  Risk psychologists like Daniel Kahneman, in his Nobel prize winning work, call this  “loss aversion”.
Change brings more risk because it brings a greater variability of possible outcomes, but those outcomes can be better than expected as well as worse.  The problem is that our evaluation of these two possibilities is not symmetrical.  We tend to be more concerned about possible loss than we are excited about possible gain.

In my book, “Risky Strategy”, now available on Amazon on pre-order to be published in August  (http://amzn.to/1Q3L2Gn), I talk about this phenomenon and illustrate it with the diagram below,  which is a representation of the risk-return trade-off which most financial analysts and investors are familiar with.   The idea is that risk is actually about greater variability of possible future outcomes.  And with greater risk, we generally expect to achieve a better outcome than with less risk.

So when we look at what statisticians call the “normal” curve (or bell curve) below, mapping possible quantified  future outcomes (x axis) against the likelihood of them occurring (y axis), the more risky option is represented by the flatter bell, and the less risky, the taller narrower bell. What the diagram illustrates is that the peak of the flatter more risky bell represents a better expected outcome than that of the taller less risky bell.

160615 brexit chart

So if we plug into this our European referendum options, I argue that BREXIT is represented by the flatter curve, and REMAIN by the taller curve.  The shaded area to the left represents the possible outcomes that could be worse in a BREXIT situation.  The shaded area to the right represents what could be better in a BREXIT situation.   Human nature apparently tends to focus more, and therefore be more concerned about, the loss area.  This is our loss aversion.   But the area of opportunity is significantly bigger!

So what area of opportunity would BREXIT offer? I would like to suggest that we would be able to do more of what we believe is right, and not be constrained in this by Brussels.   I would like to suggest that we would not lose anything that is currently working well to mutual benefit – why would we?

Why would we see reduction in any trade with Europe that is beneficial to both buyer and seller?  We remain committed to free and fair trade, why should that change?  All that might change are those things which are not mutually beneficial.  For example, we would allow workers from Eastern Europe who brought value to the UK economy, as many do now.  But we might discontinue acceptance of those who come to diminish our society in some way.

If we can overcome our loss aversion, then the risky BREXIT option could bring us more upside than downside – it could be the land of opportunity!

Innovation & getting past loss aversion

Extract from book: “Risky Strategy” to be published by Bloomsbury in August

 

At Procter & Gamble this was referred to as ‘minimising the cost of failure’. The idea is that we reduce cost, and therefore the risk of failed innovation, by having regular check points or gates at early stages in the process, which provide opportunities to check out of the innovation process before too much is invested.   Our old friend ‘loss aversion’, and its close cousins ‘cognitive inertia’ and ‘confirmation bias’, are increasingly at work, seeking to trip this process up. At what point is too much invested in the process to feel comfortable to walk away with a guaranteed loss, while there is always the chance that it could still be a successful gain? To what extent do we continue to look for reasons why the innovation may not be right, compared to our reasons for persevering?

The Silicon Valley phraseology for this kind of approach is ‘failing fast’. The implication is that your expectation is managed because you expect to fail – the thing that’s important is that it happens quickly, you learn quickly and move on. Speed is of the essence. It would appear that, not just because in a world where technology is supposedly changing fast and markets are changing swiftly, being ahead of your competition is a distinct advantage. But also, ‘failing fast’ means you have not got too fond of your pet project; it’s not your baby to try and protect. As a result, cognitive inertia doesn’t have a chance to set in. And ‘failing fast’ means you have not built up too much cost before it becomes sunk cost.

 

It takes a certain type of character (or deep pockets) to be able to walk away from a lot of sunk cost on an innovation project that is going nowhere. I was at Mars Confectionery as a management trainee, in my early career years, when I witnessed Forest Mars turn up to our offices in Slough, and tell local management to start ripping up the Banjo line. Banjo was a chocolate wafer bar that was innovative because its main ingredient was a chocolate substitute, which was significantly lower cost than real chocolate. It had tested positively in research and test markets, and gone to full production. The Banjo line was the biggest and most efficient in the factory, using latest technology, for packaging as well as product. However, it was not tracking to plan, and while it was achieving profit, it was not achieving the required level of return on assets that the Mars family set for all its businesses. As far as Mars was concerned, it was therefore taking up valuable space and management time which could be better employed on better ventures. So it was stopped, and the investment written off. This type of risk mitigation is itself high risk for most business leaders.