HBR 2007 Breakthrough Ideas, Part 1

Stephen DeAngelis

February 6, 2007

Each year the Harvard Business Review publishes short articles that describe ideas its editors predict will have a profound effect on the business environment [Breakthrough Ideas for 2007]. Not all of the ideas in HBR’s list of twenty seem to rise to the promised “breakthrough” standard, but all of them contain interesting nuggets. Today and tomorrow I’ll list and briefly describe the ideas; but this being a blog about global resilience, I’ll comment more on the ideas that also touch on that topic.

1. The Accidental Influentials. Professor Duncan J. Watts admits that Malcolm Gladwell is a great story teller, but finds that the conclusions of Gladwell’s best-selling book The Tipping Point miss the mark. Watts writes:

“Gladwell argues that ‘social epidemics’ are driven in large part by the actions of a tiny minority of special individuals, often called influentials, who are unusually informed, persuasive, or well connected. The idea is intuitively compelling—we think we see it happening all the time—but it doesn’t explain how ideas actually spread. … Mostly … cascade size and frequency depend on the availability and connectedness of easily influenced people, not on the characteristics of the initiators—just as the size of a forest fire often has little to do with the spark that started it and lots to do with the state of the forest. If the network permits global cascades because it has the right concentration and configuration of adopters, virtually anyone can start one. If it doesn’t permit cascades, nobody can. What seems in retrospect to be the special influential quality of a particular person (or group) is, therefore, mostly an accident of location and timing.”

Watts used computer models in his analysis and it underscores what my colleague Tom Barnett and I have been saying about the importance of connectivity. Resilient organizations and governments will be well-connected.

2. Entrepreneurial Japan. Businessman Yoshito Hori writes about Japan’s economic future being tied more closely to young entrepreneurs than to industrial age giants like Toyoto, Sony or Canon. Hori notes that Japan has a favorable IPO environment, but goes on to describe other conditions that make Japan a good bet for strong ecnomic growth:

“New ventures also benefit from Japanese strengths. For instance, Japan has a highly developed telecommunications infrastructure, including a robust broadband network. Its average Internet user fees are far lower than those in other developed countries—just six cents per 100 Kbps, compared with 24 cents in South Korea, $1.77 in the United States, $1.89 in China, and $2.77 in Germany. Japan also enjoys the world’s highest penetration rate for the mobile Internet, with 90 million mobile phone users, many of whom have 3G handsets. Perhaps most important, the Japanese economy is still the second largest in the world, representing more than half of the entire Asian economy. Its new ventures can reach critical mass quickly, which gives them an advantage over new ventures in, for example, China and India. Japan’s strong base in an array of key technologies and industries—from digital animation to robotics to nanotechnology—creates fertile ground for start-ups in these areas.”

Again Hori highlights the importance of connectivity for success. Infrastructure is critical, which is why our Development-in-a-Box™ approach stresses the importance of building critical infrastructure in post-conflict, post-disaster, or failed state scenarios.

3. Brand Magic: Harry Potter Marketing. Professor Frederic Dalsace and graduate students Coralie Dalmay and David Dubois write:

“Most brands target a specific age group. The big problem with this approach is that it positively discourages customer loyalty—and, as we all know, it’s a lot cheaper to keep customers than to find new ones. To get around this problem, companies should consider creating brands that mature with their customers.”

Marketing strategies are very product dependent and Harry Potter might not be the best example of how to “mature” products.

4. Algorithms in the Attic. Co-director of the MIT Media Lab’s E-Markets Initiative Michael Schrage notes that computer processors are now sufficiently powerful to take advantage of old equations that have been previously rejected for having no business application. Schrage writes:

“For a powerful perspective on future business, take a hard look at mathematics past. As computing gets ever faster and cheaper, yesterday’s abstruse equations are becoming platforms for tomorrow’s breakthroughs. Companies in several industries are now dusting off these formulas and putting them in the service of new products and processes. Procter & Gamble has been restructuring its supply chain with complex ‘expressive bidding’ algorithms—based on 1950s linear-programming equations—that allow suppliers to bid online with bundled offerings of products and service levels rather than with standardized lots. Google’s search engine was possible only because the founders adapted a century-old theorem about matrices to software for ranking Web pages according to links from other sites. Networks like the Web can be expressed as matrices, and a relatively simple calculation gives a ranking of how well each site is connected to the rest of the Web. That formula for automatic ranking—which could be understood and appreciated without a PhD—is one of the most lucrative algorithms ever. The math was there for the taking. … Whether looking for breakthroughs or just trying to improve decision making, companies will benefit from greater sophistication around even simple mathematics. A decade ago, big firms began to realize that they were sitting on a treasure trove of underutilized patents and know-how that could be commercialized for willing buyers. Those ‘Rembrandts in the attic,’ as Kevin G. Rivette and David Kline put it in their 2000 book by that name, needed the keen eye of an intellectual property curator to appreciate their value. Similarly, we now require quantitative entrepreneurs to seek out existing equations that meet today’s pressing business needs. Technology continues to make that quest faster, easier, and cheaper.”

Schrage makes a good point. The information age is also the age of mathematics. Many of the challenges that will face businesses in the future will require math graduates more than business graduates to solve them. One of the reasons that many pundits see a bright future for Asia is because many Asian education systems stress mathematics in their core curricula.

5. The Leader from Hope. Harry Hutson and Barbara Perry argue that leaders need to reject cynicism and dispiritedness and stop avoiding the word “hope” when talking about an organization’s future. They write:

“Hope has been shown to be the key ingredient of resilience in survivors of traumas ranging from prison camps to natural disasters. Many studies have shown that people who score higher on measures of hope also cope better with injuries, diseases, and physical pain; perform better in school; and prove more competitive in sports. Our contribution has been to outline the elements of hope—possibility, agency, worth, openness, and connection—in a way that guides efforts to nurture it in the workplace. The first two are central to the definition of hope: People must see that change is possible and how they can engage personally in that change. The remaining elements have to do with how hope is cultivated in organizations: Hopeful work groups are most often composed of individuals whose worth to the organization has been affirmed, who perceive an openness on the part of management, and who enjoy an authentic sense of connection with their colleagues and with the organization’s mission. Even so briefly described, these elements suggest why hope can be an energetic force for positive change to a degree that, say, optimism alone could never be.”

Anyone who follows this blog understands that I am an optimist (or at least an optimistic realist). I live in a world where the bottom line matters, but I also believe that the world can become a better place. Although I find the nuances between Hutson’s and Perry’s “hope” and “optimism” pretty thin, I agree that “possibility, agency, worth, openness, and connection” are all important elements of a resilient organization.

6. An Emerging Hotbed of User-Centered Innovation. MIT professor Eric von Hippel argues that many producer-developed “innovations” are lagging innovations that users are generating on their own. He writes:

“In an array of industries, producer-centered innovation is being eclipsed by user-centered innovation—the dreaming up, development, prototyping, and even production of new products by consumers. These users aren’t just voicing their needs to companies that are willing to listen; they’re inventing and often building what they want. … Recent research shows that the 70% to 80% of new product development that fails does so not for lack of advanced technology but because of a failure to understand users’ needs. The emergence of user-centered innovation clearly shows that this near-exclusive focus on technological advance is misplaced.”

Von Hippel goes on to explain how Denmark is creating a new user-centered innovation process supported by government funds. In some ways, von Hippel’s insights clash with those of Clayton Christensen who insists, in his book The Innovator’s Dilemma, that one reason companies find themselves behind the innovation curve is that they listen too well to what their customers want. I expect the way that von Hippel would square that circle is by saying that companies need to find out what customers want in the future rather than focusing on what they need today. There are a number of approaches to innovation that hold promise (see my post A New Approach to Innovation) and all should be pursued.

7. Living With Continuous Partial Attention. Linda Stone, who has been a senior executive with both Apple and Microsoft, writes about the new, below-the-table phenomenon of constantly checking cell phones, Blackberries, or PDAs during meetings or conferences. I plead guilty. Stones writes:

“This constant checking of handheld electronic devices has become epidemic, and it illustrates what I call ‘continuous partial attention.’ Although continuous partial attention appears to mimic that much discussed behavior, multitasking, it springs from a different impulse. When we multitask, we are trying to be more productive and more efficient, giving equal priority to all the things we do—simultaneously filing or copying papers, talking on the phone, eating lunch, and so forth. Multitasking rarely requires much cognitive processing, because the tasks involved are fairly automatic. Continuous partial attention, by contrast, involves constantly scanning for opportunities and staying on top of contacts, events, and activities in an effort to miss nothing. It’s an adaptive behavior that has emerged over the past two decades, in stride with Web-based and mobile computing, and it connects us to a galaxy of possibilities all day every day. The assumption behind the behavior is that personal bandwidth can match the endless bandwidth technology offers.”

Stone argues that personal bandwidth is not up to the task and, as a result, a backlash to continuous partial attention has already started. She also worries that information overload will burn people out much more quickly as they strain to keep up with an increasing number of information sources all screaming for attention. One of the things my company, Enterra Solutions, does is work with decision makers to determine exactly what information they need and when they need it. That data is then served up when, where, and in the format that makes it most useful. Stone says this is exactly what resilient companies will learn to do for their employees and customers, provide them with “discriminating choices and quality of life.”

8. Borrowing from the PE Playbook. Michael C. Mankins takes on the subject of mergers & acquisitions and recommends that companies learn from what has made private equity groups successful. He writes:

“To survive the economic downturn at the start of the decade, corporations took dramatic steps to reduce costs and improve productivity. As a result, their operating leverage skyrocketed, and when the economy rebounded, corporate profits quickly followed. Since the amount of capital required to sustain organic growth represents a small portion of the cash now coming in, most of these profits are going straight to the balance sheet. … So what can companies do to profitably rid themselves of this embarrassment of riches? Like it or not, acquisition really is the only option, but to exercise that option effectively, would-be buyers are going to have to take a few leaves from the PE playbook. To begin with, they’re going to have to spend a lot more time looking at potential deals. PE firms create value in acquisitions by being very selective. Research shows that for every deal a PE firm completes, it screens 40, appraises four, and actively pursues two. Corporate buyers cast smaller nets: Whereas PE firms reject 39 deals for every one they complete, most corporations would struggle to come up with more than four or five targets in the M&A pipeline. … Finding profitable outlets for excess cash can be challenging. Making acquisitions has always been tough, but in today’s market, as private equity players compete for many deals, success is even harder. The smartest companies will incorporate the best practices of PE firms in order to hunt more like them and will take advantage of the liquidity they create in order to hunt with them.”

I have argued before that we are entering an era of consolidating industries [Consolidating Industries & Critical Infrastructure Platforms] and Mankins observations underscore some of the reasons why that is happening.

9. When To Sleep On It. We are all familiar with proverbs that contradict one another. For example, we are told he who hesitates is lost. At the same time, we are told it is better to be safe than sorry. Professor Ap Djiksterhuis talks about when it doesn’t make sense for decision makers to engage in long and careful deliberation. He writes:

“Psychological research shows that conscious deliberation, however long and careful, can be a surprisingly crude and ineffective tool, because the conscious mind has a very limited processing capacity. Most people cannot, for example, compare three organizations differing on 14 dimensions. That is simply too much information for the conscious mind to take in and handle all at once. … People who mull over their decisions typically get the relative importance of the various pros and cons very wrong. … Conscious deliberation leads to sound decisions only when a very limited amount of information is involved. Luckily, there is another way to make difficult choices: Don’t think hard about the decision, and after a while your unconscious mind, which is known to have a far greater processing capacity than your conscious mind, will tell you what you should do. Such an unconsciously generated preference is usually referred to as intuition or a gut feeling—a conviction that one alternative is better than another, even when we can’t verbalize why. The notion of trusting your intuition is, of course, far from new; but what was unexamined until now is whether extensive unconscious thought can make intuition more reliable. … The moral? Use your conscious mind to acquire all the information you need for making a decision—but don’t try to analyze the information. Instead, go on holiday while your unconscious mind digests it for a day or two. Whatever your intuition then tells you is almost certainly going to be the best choice.”

I suspect this work will require much more study. On the surface it sounds like a follow-on to Malcolm Gladwell’s last book Blink. This one would be titled Blink Twice.

10. Here Comes XBRL. XBRL stands for Extensible Business Reporting Language, a new standard language that is being implemented by the Security and Exchange Commission. Robert G. Eccles believes the adoption of XBRL will a big breakthrough for business. He writes:

“XBRL … will make it much easier to generate, validate, aggregate, and analyze business and financial information, which in turn will improve the quality, timeliness, completeness, and comparability of the information that companies use to make decisions. The new language will allow them to strengthen and ensure the reliability of their internal controls, thereby lowering the cost of maintaining these pervasively manual compliance processes. It will make ERP (enterprise resource planning) systems much more flexible and easier to upgrade or change, dramatically cutting the investments needed to maintain these beasts. And by significantly reducing the amount of effort needed to change and integrate business reporting systems, XBRL will make digesting acquisitions, shedding businesses, reorganizing, and adding new products and business units far less difficult. All this undoubtedly sounds too good to be true to managers who are rightfully jaded after decades of false promises that the next IT silver bullet is (this time, really!) just around the corner. So what makes XBRL different? Unlike all past technological developments, it doesn’t come in a wide variety of proprietary flavors, like ERP systems, operating systems, and customer relationship management systems, to name just a few. XBRL is an open-source standard that was developed by an international public consortium of nearly 500 organizations from 27 countries, including companies, investors, analysts, auditors, regulators, and aggregators of financial data, such as Standard & Poor’s. … The bottom line: XBRL’s benefits go far beyond faster and cheaper compliance. Late adopters beware.”

I am a huge proponent of standards-based systems, including standardized computer languages.  XBRL will be just one more standard that resilient enterprises will put in their kit.

Tomorrow I’ll look at the final ten breakthrough ideas identified by HBR.