Maximize The Learning Ratio

As creatures of habit, we like to do what we did last time. Outcomes match expectations and things go as planned – no surprises, no delays, no problems. But as creatures swimming in an evolutionary soup, doing what we did last time leads to extinction. Customers’ expectations multiply and competitors mutate into a higher performing organism and eat us. There are two competing functions – do what we did last time to minimize energy and try new things to harden ourselves for the ever more competitive future.

You can’t reinvent yourself at every turn or your brain will run out of glucose and you’ll pass out. And you can’t always lounge on the couch or you’ll get out of shape and become a slow-moving snack for the new T-Rex on the block.  If the endpoints lead to our demise, the solution must be something like the middle way.

If you can get away with it, do what you did last time – minimum energy living is a good gig if you can get it. With little investment and lots of return, there’s enough for everyone.  Plenty to eat and some left over to put in stores for the winter. But plenty to eat and plenty of time to goof off may make for lazy (but happy) tribe members who may be of little use when it’s time to defend the business model against hostile species.

Live frugally to develop a surplus and spend some of it trying new things. Improved fitness is the best way to navigate the landscape, even the landscape still beyond the horizon.  More than physical fitness, improved mental fitness is the dominant trait that leads to survival. But doing new work is energy intensive and must be done skillfully.

The primary reason we try new things is to learn. In that way, the new things we try are a means to an end – improved mental fitness. But because doing new is expensive from an energy perspective, the learning ratio (new learning divided by the energy to learn) must be high. First, be clear about what you want to learn because learning the wrong thing costs more energy than resting on the couch. Second, maximize the learning of your experiments.

If you run an experiment where you are 100% sure of the outcome, your learning is zero. You already knew how it would go, so there was no need to run the experiment. The least costly experiment is the one you didn’t have to run, so don’t run experiments when you know how they’ll turn out.  If you run an experiment where you are 0% sure of the outcome, your learning is zero. These experiments are like buying a lottery ticket – you learn the number you chose didn’t win, but you learned nothing about how to choose next week’s number.  You’re down a dollar, but no smarter.

The learning ratio is maximized when energy is minimized (the simplest experiment is run) and probability the experimental results match your hypothesis (expectation) is 50%.  In that way, half of the experiments confirm your hypothesis and the other half tell you why your hypothesis was off track.

We can argue about the energy balance between leveraging best practices and creating new recipes. But, when you want to learn, there can be no argument – maximize the learning ratio.

Image credit – Craig Sunter

If you don’t know what to do, you may be on the right track.

What would you do if:

You had to push through your fear of being judged?

You had to break some rules to get an idea off the ground?

You had a concept that would displace your most successful product?

Your colleague tried to scuttle your best idea?

You knew it was time to stop judging yourself negatively?

Your colleague asked you to help with a hair-brained idea?

You were asked to facilitate a session to create new concepts, but no one could explain what would happen after the concepts were created?

You weren’t afraid your prototype would be a success?

You thought you knew what the customer wanted, but didn’t have the data to prove it?

You were asked to create patentable concepts you knew would never be commercialized?

Your prototype threatened the status quo?

You were asked to facilitate a session to create new concepts and told how to do it?

You were told “No.”

You saw a young employee struggling with a new concept?

You were blocking yourself from starting the right work?

You thought your idea had merit, but you needed help testing it in the market?

You were asked to follow a standard process but you knew there wasn’t one?

You were asked to come up with new concepts though there were five excellent concepts gathering dust?

You were told there was no market for your new-to-world prototype?

You had to bolster your self-confidence to believe wholeheartedly in your idea?

There is a name for what you would do. It’s called innovation.


image credit – UnknownNet Photography

Responding With Kindness

If some talks to you in an angry way, what do you do? Well, if it’s a family member you take it personally and respond with equal and opposite anger. If it’s someone at work, you take it personally but use a bit more restraint.  And in both cases, the root of all the trouble is taking their anger personally.

There can be no argument if the second doesn’t accept the radiated negativity of the first. In that way, arguments are like tennis – it takes two to play a match worth watching.  But in the heat of the moment, and even in the residual heat after the moment, it’s tremendously difficult remember their anger is about them.

The natural tendency is to focus on the injustice of the other’s anger. They’re out of line, they’re wrong, they shouldn’t yell like that. But pouring your energy into that bucket won’t end the arguments. You can’t control their behavior, you can only control your response to their behavior. The only way to end the arguments is to look inside and figure out why you take their anger personally.

If their anger threatens you, you’ll take it personally and respond in-kind.  And what is threatened is your image of yourself.  If you don’t think highly of yourself, you call your caliber into question and respond with anger to prop up and protect your self-image.  But, if you don’t think their rage applies, you won’t be threatened and you’ll respond effectively. And you’ll be able to help them be more effective.

When you respond to anger with kindness, people notice.  It may take them a while to understand there is no hidden agenda and your kindness truly kindness, but when they do, they change and your relationship changes.  Trust and mutual respect blossom and the future has no limit.

It’s not easy to respond to anger with kindness. But in the end, it’s worth it.

Image credit – Dean Hochman

Improving What Is and Creating What Isn’t

There are two domains – what is and what isn’t. We’re most comfortable in what is and we don’t know much about what isn’t. Neither domain is best and you can’t have one without the other. Sometimes it’s best to swim in what is and other times it’s better to splash around in what isn’t.  Though we want them, there are no hard and fast rules when to swim and when to splash.

Improvement lives in the domain of what is. If you’re running a Six Sigma project, a lean project or a continuous improvement program you’re knee deep in what is. Measure, analyze, improve, and control what is. Walk out to the production floor, count the machines, people and defects, measure the cycle time and eliminate the wasteful activities. Define the current state and continually (and incrementally) improve what is. Clear, unambiguous, measurable, analytical, rational.

The close cousins creativity and innovation live in the domain of what isn’t. They don’t see what is, they only see gaps, gulfs and gullies. They are drawn to the black hole of what’s missing. They define things in terms of difference.  They care about the negative, not the image. They live in the Bizarro world where strength is weakness and far less is better than less. Unclear, ambiguous, intuitive, irrational.

What is – productivity, utilization, standard work. What isn’t – imagination, unstructured time, daydreaming. Predictable – what is. Unknowable – what isn’t.

In the world of what is, it’s best to hire for experience.  What worked last time will work this time. The knowledge of the past is all powerful.  In the world of what isn’t, it’s best to hire young people that know more than you do. They know the latest technology you’ve never heard of and they know its limitations.

Improving what is pays the bills while creating what isn’t fumbles to find the future. But when what is runs out of gas, what isn’t rides to the rescue and refuels. Neither domain is better, and neither can survive without the other.

The magic question – what’s the best way to allocate resources between the domains? The unsatisfying answer – it depends. And the sextant to navigate the dependencies – good judgement.

Image credit – JD Hancock

Dismantle the business model.

When companies want to innovate, there are three things they can change – products, services and business models. Products are usually the first, second and third priorities, services, though they have a tighter connection with customer and are more lasting and powerful, sadly, are fourth priority.  And business models are the superset and the most powerful of all, yet, as a source of innovation, are largely off limits.

It’s easy to improve products. Measure goodness using a standard test protocol, figure out what drives performance and improve it. Create the hard data, quantify the incremental performance and sell the difference.  A straightforward method to sell more – if you liked the last one, you’re going to like this one. But this is fleeting. Just as you are reverse engineering the competitors’ products, they’re doing it to you. Any incremental difference will be swallowed up by their next product. The half-life of your advantage is measured in months.

It’s easy for companies to run innovation projects to improve product performance because it’s easy to quantify the improvement and because we think customers are transactional. Truth is, customers are emotional, not rational. People don’t buy performance, they buy the story they create for themselves.

Innovating on services is more difficult because, unlike a product, it’s not a physical thing. You can’t touch it, smell it or taste it.  Some say you can measure a service, but you can’t. You can measure its footprints in the sand, but you can’t measure it directly. All the click data in the world won’t get you there because clicks, as measured, don’t capture intent – an unintentional click on the wrong image counts the same a premeditated click on the right one. Sure, you can count clicks, but if you can’t count the why’s, you don’t have causation. And, sure, you can measure customer satisfaction with an online survey, but the closest you can get is correlation and that’s not good enough.  It’s causation or bust.  You’ve got to figure out WHY they like your services. (Hint – it’s the people who interface directly with your customers and the latitude you give them to advocate on the customers’ behalf.)

Where services are difficult to innovate, the business model is almost impossible. No one is quite sure what the business model actually is an in-the-trenches-way, but they know it’s been responsible for the success of the company, and they don’t want to change it. Ultimately, if you want to innovate on the business model, you’ve got to know what it is, but before you spend the time and energy to define it, it’s best to figure out if it needs changing.  The question – what does it look like when the business model is out of gas?

If you do what you did last time and you get less in return, the business model is out of gas.

Successful models are limiting. Just like with the Prime Directive, where Captain Kirk could do anything he wanted as long as he didn’t interfere with the internal development of alien civilizations, do anything you want with the business model as long as you don’t change it. And that’s why you need external help to formally define the business model and experiment with it. The resource should understand your business first hand, yet be outside the chain of command so they can say the sacrilegious things that violate the Prime Directive without being fired.  For good candidates, look to trusted customers and suppliers.

To define the business model, use a simple block diagram (one page) where blocks are labelled with simple nouns and arrows are labelled with simple verbs. Start with a single block on the right of the page labelled “Customer” and draw a single arrow pointing to the block and label it.  Continue until you’ve defined the business model.  (Note – maximum number of blocks is 12.)  You’ll be surprised with the difficulty of the process.

After there’s consensus on the business model, the next step is to figure out how the environment changed around it and to identify and test the preferred evolutionary paths. But that’s for another time.

Image credit – Steven Depolo

Full Circle Innovation

It’s not enough to sell things to customers, because selling things is transactional and, over time, transactional selling deteriorates into selling on price. And selling on price is a race to the bottom.

Sales must move from transactional to relational, where people in the sales organization become trusted advisers and then something altogether deeper. At this deeper level of development, the sales people know the business as well as the customer, know where the customer wants to go and provide unique perspective and thoughtful insight.  That’s quite a thing for sales, but it’s not enough.  Sales must become the conduit that brings the entire company closer to the customer and their their work.

When the customer is trying to figure out what’s next, sales brings in a team of marketing, R&D and manufacturing to triangulate on the future.  The objective is to develop deep understanding of the customer’s world.  The understanding must go deeper than the what’s.  The learning must scrape bottom and get right down to the bedrock why’s.

To get to bedrock, marketing leads learning sessions with the customer.  And it all starts by understanding the work.  What does the customer do? Why is it done that way? What are the most important processes? How did they evolve? Why do they flow the way they do? These aren’t high-level questions, they are low-level, specific questions, done in front of the actual work.

The mantra – Go to the work.

When the learning sessions are done well, marketing includes experts in manufacturing and R&D.  Manufacturing brings their expertise in understanding process and R&D brings their expertise in products and technologies.  And to understand the work the deepest way, the tool of choice is the Value Stream Map (VSM).

Cross-organization teams are formed (customer, sales, marketing, manufacturing, and R&D) and are sent out to create Value Steam Maps of the most important processes.  (Each team is supported by a VSM expert.)  Once the maps are made, all the teams come back together to review the them and identify the fundamental constraints and how to overcome them.  The solutions are not limited to new product offerings, rather the solutions could be training, process changes, policy changes, organizational changes or business model changes.

Not all the problems are solved in the moment.  After the low hanging fruit is picked, the real work begins.  After returning home, marketing and R&D work together to formulate emergent needs and create new ways to meet them.  The tool of choice is the IBE (Innovation Burst Event).

To prepare for the IBE, marketing and R&D formalize emergent needs and create Design Challenges to focus the IBE teams.  Solving the Design Challenges breaks the conflicts creates novel solutions that meet the unmet needs.  In this way, the IBE is a pull process – customer needs create the pull for a solution.

The IBE is a one or two-day event where teams solve the Design Challenges by building conceptual prototypes (thinking prototypes).  Then, they vote on the most interesting concepts and create a build plan (who, what, when).  The objective of the build plan is to create a Diabolically Simple Prototype (DSP), a functional prototype that demonstrates the new functionality. What makes it diabolical is quick build time.  At the end of the IBE is a report out of the build plan to the leader who can allocate the resources to execute it.

In a closed-loop way, once the DSP is built, sales arranges another visit to the customer to demonstrate the new solution.  And because the prototype designed to fulfill the validated customer need, by definition, the prototype will be valuable to the customer.

This full circle process has several novel elements, but the magic is in the framework that brings everyone together.  With the process, two companies can work together effectively to achieve shared business objectives.  And, because the process brings together multiple functions and their unique perspectives, the solutions are well-thought-out and grounded in the diversity of the collective.

Image credit – Gerry Machen

Transcending Our Financial Accounting Systems

In business and in life, one of the biggest choices is what to do next.  Sounds simple, but it’s not.

The decision has many facets and drives many questions, for example:  Does it fit with core competence? Does it fit with the brand? How many will we sell? What will the market look like after it’s launched? Do we have what it takes to pull it off?

These questions then explode into a series of complex financial analyses like – return on investment, return on capital, return on net assets (and all its flavors) and all sorts of yet-to-be created return on this’s and that’s.  This return business is all about the golden ratio – how much will we make relative to how much it costs.  All the calculations, regardless of their name, are variations on this theme. And all suffer the same fundamental flaw – they are based on an artificial system of financial accounting.

To me, especially when working in new territory, we must transcend the self-made biases and limitations of GAAP and ask the bedrock question – Is it worth it?

In the house of cards of our financial accounting, worth equals dollars. Nothing more, nothing less.  And this simplistic, formulaic characterization has devastating consequence.  Worth is broader than profit, it’s nuanced, it’s philosophical, it’s about people, it’s about planet. Yet we let our accounting systems lead us around by the nose as if people don’t matter, like the planet doesn’t matter, like what we stand for doesn’t matter. Simply put, worth is not dollars.

The single-most troubling artifact of our accounting systems is its unnatural bias toward immediacy.  How much will we make next year? How about next quarter? What will we spend next month? If we push out the expense by a month how much will we save? What will it do to this quarter’s stock price? It’s like the work has no validity unless the return on investment isn’t measured in days, weeks or months. It seems the only work that makes it through the financial analysis gauntlet is work that costs nothing and returns almost nothing. Under the thumb of financial accounting, projects are small in scope, smaller in resource demands and predictable in time.  This is a recipe for minimalist improvement and incrementalism.

What about the people doing the work? Why aren’t we concerned they can’t pay their mortgages? Why do we think it’s okay to demand they work weekends? Why don’t we hold their insurance co-pays at reasonable levels? Why do we think it’s okay to slash our investment in their development? What about their self-worth? Just because we can’t measure it in a financial sense, don’t we think it’s a liability to foster disenchantment and disengagement? If we considered our people an asset in a financial accounting sense, wouldn’t we invest in them to protect their output? Why do we preventive maintenance on our machines but not our people?

When doing innovative work, our financial accounting systems fail us. These systems were designed in an era when it was best to increase the maturity of immature systems.  But now that our systems are mature, and our objective is to obsolete them, our ancient financial accounting systems hinder more than help. The domains of reinvention and disruption are dominated by judgement, not rigid accounting rules.  Innovation is the domain of incomplete data and uncertain outcomes and not the domain of debits and credits.

Profit is important, but profit is a result.  Financial accounting doesn’t create profit, people create profit. And the currency of people are thoughts, feelings and judgement.

With innovation, it’s better to create the conditions so people believe in the project and are fully engaged in their work. With creativity, it’s better to have empowered people who will move mountains to do what must be done. With work that’s new, it’s better to trust people and empower them to use their best judgement.

Image credit – Jeremy Tarling


If you can’t imagine it, it can’t be done.

But if it can’t be done, how can you imagine it?

No one is buying a product like the one you imagined. There’s no market.

No one can buy an imaginative product that doesn’t yet exist. There may be a market.

Imagine things are good, just as they are.

Imagine an upstart competitor will obsolete your best product.

Let’s fix what is.

Let’s imagine what isn’t, and build it.

Don’t waste time imagining radical new concepts. There’s no way to get there.

Use your imagination to create an unobtainable concept, then build a bridge to get there.

Imagine the future profits of our great recipe. Let’s replicate it.

Imagine our recipe has a half-life. Let’s disrupt it.

To be competitive, we’ve got to use our imagination to reduce the cost of our products.

To be competitive, we’ve got to use our imagination to obsolete our best work.

Put together a specification, a detailed Gannt chart and make it happen on time.

Imagine what could be, and make a prototype.

Let’s shore up our weaknesses and live to fight another day.

Let’s imagine our strength as a weakness and invent the future.

We are the best in the industry. Imagine how tough it is to be our competitor.

Imagine there’s a hungry start-up who will do whatever it takes to get the business.

We’ve got to protect our market share.

Imagine what we could create if we weren’t constrained by our success.

Imagine how productive we will be when we standardize the work.

Imagine how much fun we will have when we reinvent the industry.

Ask the customer what they want, built it and launch it.

Imagine what could be, build a prototype, show the customer, listen and refine.

Let’s follow the script. Imagine the profits.

Let’s burn the script and imagine a new one.

Image credit — Allegra Ricci

With innovation you’ve got to feel worthy of the work.

When doing work that’s new, sometimes it seems the whole world is working against you. And, most of the time, it is.  The outside world is impossible to control, so the only way to deal with external resistance is to pretend you don’t hear it. Shut your ears, put your head down and pull with all your might. Define your dream and live it. And don’t look back.  But what about internal resistance?

Where external resistance cannot be controlled and must be ignored, internal resistance, resistance created by you, can be actively managed.  The best way to deal with internal resistance is to prevent its manufacture, but very few can do that. The second best way is to acknowledge resistance is self-made and acknowledge it will always be part of the innovation equation.  Then, understand the traps that cause us to create self-inflicted resistance and learn how to work through them.

The first trap prevents starting.  At the initial stage of a project, two unstated questions power the resistance – What if it doesn’t work? and What if it does work?  If it doesn’t work, the fear is you’ll be judged as incompetent or crazy. The only thing to battle this fear is self-worth. If you feel worthy of the work, you’ll push through the resistance and start.  If it does work, the fear is you won’t know how to navigate success. Again, if you think you’re worthy of the work (the work that comes with success), you and your self-esteem will power through the resistance and start.

Underpinning both questions is a fundamental of new work that is misunderstood – new work is different than standard work.  Where standard work follows a well-worn walking path, new work slashes through an uncharted jungle where there are no maps and no GPS. With standard work, all the questions have been answered, the scope is well established and the sequence of events and timeline are dialed in.   With standard work, everything is known up front. With new work, it’s the opposite. Never mind the answers, the questions are unknown. The scope is uncertain and the sequence of events is yet to be defined. And the timeline cannot be estimated.

But with so much standard work and so little new work, companies expect people to that do the highly creative work to have all the answers up front. And to break through the self-generated resistance, people doing new work must let go of self-imposed expectations that they must have all the answers before starting.  With innovation, the only thing that can be known is how to figure out what’s next. Here’s a generic project plan for new work – do the first thing and then, based on the results, figure out what to do next, and repeat.

To break through the trap that prevents starting, don’t hold yourself accountable to know everything at the start. Instead, be accountable for figuring out what’s next.

The second trap prevents progress. And, like the first trap, resistance-based paralysis sets in because we expect ourselves to have an etched-in-stone project plan and expect we’ll have all the answers up front.  And again, there’s no way to have the right answers when the first bit of work must be done to determine the right questions. If you think you’re worthy of the work, you’ll be able to push through the resistance with the figure out what’s next approach.

When in the middle of an innovation project, hold yourself accountable to figuring out what to do next. Nothing more, nothing less. When the standard work police demand a sequence of events and a timeline, don’t buckle. Tell them you will finish the current task then define the next one and you won’t stop until you’re done.  And if they persist, tell them to create their own project plan and do the innovation work themselves.

With innovation, it depends. With innovation, hold onto your self-worth. With innovation, figure out what’s next.

Image credit — Jonathan Kos-Read


Diabolically Simple Prototypes

Ideas are all talk and no action.  Ideas are untested concepts that have yet to rise to the level of practicality.  You can’t sell an idea and you can’t barter with them. Ideas aren’t worth much.

A prototype is a physical manifestation of an idea. Where ideas are ethereal, prototypes are practical. Where ideas are fuzzy and subject to interpretation, prototypes are a sledge hammer right between the eyes.  There is no arguing with a prototype. It does what it does and that’s the end of that. You don’t have to like what a prototype stands for, but you can’t dismiss it. Where ideas aren’t worth a damn, prototypes are wholly worth every ounce of effort to create them.

If Camp A says it will work and Camp B says it won’t, a prototype will settle the disagreement pretty quickly.  It will work or it won’t.  And if it works, the idea behind it is valid.  And if it doesn’t, the idea may be valid, but a workable solution is yet-to-be discovered.  Either way, a prototype brings clarity.

Prototypes are not elegant.  Prototypes are ugly. The best ones do one thing – demonstrate the novel idea that underpins them. The good ones are simple, and the best ones are diabolically simple. It is difficult to make diabolically simple prototypes (DSPs), but it’s a skill that can be learned.  And it’s worth learning because DSPs come to life in record time. The approach with DSPs is to take the time up front to distill the concept down to its essence and then its all-hands-on-deck until it’s up and running in the lab.

But the real power of the DSP is that it drives rapid learning.  When a new idea comes, it’s only a partially formed.  The process of trying to make a DSP demands the holes are filled and blurry parts are brought into focus.  The DSP process demands a half-baked idea matures into fully-baked physical embodiment.  And it’s full-body learning.  Your hands learn, your eyes learn and your torso learns.

If you find yourself in a disagreement of ideas, stop talking and start making a prototype. If the DSP works, the disagreement is over.

Diabolically simple prototypes end arguments. But, more importantly, they radically increase the pace of learning.

Image credit – snippets101

With innovation, it depends.

By definition, when the work is new there is uncertainty.  And uncertainty can be stressful. But, instead of getting yourself all bound up, accept it.  More than that, relish in it.  Wear it as a badge of honor.  Not everyone gets the chance to work on something new – only the best do.  And, because you’ve been asked to do work with a strong tenor of uncertainty, someone thinks you’re the best.

But uncertainty is an unknown quantity, and our systems have been designed to reject it, not swim in it.  When companies want to get serious they drive toward a culture of accountability and the new work gets the back seat.  Accountability is mis-mapped to predictability, successful results and on time delivery.  Accountability, as we’ve mapped it, is the mortal enemy of new work.  When you’re working on a project with a strong element of uncertainty, the only certainty is the task you have in front of you.  There’s no certainty on how the task will turn out, rather, there’s only the simple certainty of the task.

With work with low uncertainty there are three year plans, launch timelines and predictable sales figures. Task one is well-defined and there’s a linear flow of standard work right behind it – task two through twenty-two are dialed in. But when working with uncertainty, the task at hand is all there is.  You don’t know the next task.  When someone asks what’s next the only thing you can say is “it depends.”  And that’s difficult in a culture of traditional accountability.

An “it depends” Gannt chart is an oxymoron, but with uncertainty step two is defined by step one.  If A, then B.  But if the wheels fall off, I’m not sure what we’ll do next.  The only thing worse than an “it depends” Gantt chart is an “I’m not sure” Gannt chart.  But with uncertainty, you can be sure you won’t be sure.  With uncertainty, traditional project planning goes out the window, and “it depends” project planning is the only way.

With uncertainty, traditional project planning is replaced by a clear distillation of the problem that must be solved.  Instead of a set of well-defined tasks, ask for a block diagram that defines the problem that must be solved.  And when there’s clarity and agreement on the problem that must be solved, the supporting tasks can be well-defined.  Step one – make a prototype like this and test it like that. Step two – it depends on how step one turns out.  If it goes like this then we’ll do that.  If it does that, we’ll do the other.  And if it does neither, we’re not sure what we’ll do.  You don’t have to like it, but that’s the way it is.

With uncertainty, the project plan isn’t the most important thing.  What’s most important is relentless effort to define the system as it is.  Here’s what the system is doing, here’s how we’d like it to behave and, based on our mechanism-based theory, here’s the prototype we’re going to build and here’s how we’re going to test it.  What are we going to do next?  It depends.

What’s next? It depends. What resources do you need? It depends. When will you be done? It depends.

Innovation is, by definition, work that is new.  And, innovation, by definition, is uncertain.  And that’s why with innovation, it depends.  And that’s why innovation is difficult.

And that’s why you’ve got to choose wisely when you choose the people that do your innovation work.

Image credit – Sara Biljana Gaon (off)

Mike Shipulski Mike Shipulski
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