Skating to where the puck will be

innovateby jordigraells

Microsoft and the Innovator’s Paradox


“The Odds Are Increasing That Microsoft’s Business Will Collapse”

That’s a pretty good title if you (like Henry Blodget from Silicon Alley Insider, the writer of the article) are trying to grab eyeballs. It also provides a useful introduction to what I call the “Innovator’s Paradox.”

Blodget’s article was provocative. He argued that Microsoft is in a no-win situation. It isn’t sitting on any idea that is on the cusp of turning into a multi-billion dollar business. The personal computer is losing its dominance to mobile devices and tablets. The company’s core profit drivers (Windows and Office) are under disruptive assault from Google’s freely available applications and operating system. At best, Microsoft will respond with its own free products and erode its profit margin.

The most telling thing in Blodget’s post was a chart that showed the sources of Microsoft’s profits over the past few years. Microsoft’s core business has continued &#8212 despite continued proclamations of the company’s coming demise &#8212 to throw off cash and to grow. But new growth businesses that were specks in 2006 (entertainment and devices and online services) remain tiny, and Microsoft hasn’t created any material new businesses over the past few years.

So the real problem isn’t what Microsoft is doing today. It’s what Microsoft did, or didn’t do, five, or even 10 years ago. At the time, its base business was a bastion of strength. Today’s threats were in their infancies. It would have been the perfect time to plant seeds that today would be blooming profit generators.

Why didn’t it? It’s The Innovator’s Paradox: When you don’t need the growth, you act in ways that lead to you not getting the growth you will need. And when you do need the growth, you can’t act in ways that deliver it.

Got that?



The problem here, as stated so well in the Innovator’s Dilemma is that even companies that recognize they need to change, that they need to come up with the next big product, are too often totally unable to do so. There are lots of reasons for this but one of the major ones stems from the difference between the truths of exploitation (marketing) and formulation (research).

As was explained to me many years ago, research costs money directly from the bottom line. But marketing makes money, that for every dollar spent on marketing the company makes $4. So it is simply idiotic to spend money on research.

That is the difficulty during the exploitation stage – it is too easy for those who are doing the exploiting to really support the work of those doing the formulation. It takes tremendous personal effort by engaged management to keep the company on the course of innovation.

How do you know where the puck is going? One way that I have personally seen work quite well involves continuous vetting of the ideas from all points of view. The project is examined and critiqued, always in a way to make it better.

And this requires a very special sort of corporate culture – one that abides failure and one that does not abide zero-sum solutions. Let me expand the latter.

What often happens in many mature companies that have low resources for new growth is that the only way I can get my project funded to to make sure that your project is not funded. The only way for me to succeed is for you to fail. Once this happens, innovation is really strangled.

Any innovation that arises will either be destroyed by those with more power or co-opted, removing it from the very people who were innovative. This is one reason why many mature companies only innovate by buying another company’s innovation.

Breaking the Paradox requires not permitting this rot to take root. But simply putting resources into innovation is not enough.

There are two companies today that continue to demonstrate an ability to overcome the Innovator’s Dilemma/Paradox – Apple and Google.. A key point is that management there follows Wayne Gretzky’s maxim: I skate to where the puck is going, not where it has been.But each take very different routes to the puck.

Google allows its workers to spend up to 20% of their time working on innovative ideas. This is a really effective way to allow innovative people to create wonderful things.

Google does its vetting in public. Google often thrust these innovations out into the wild as a public beta, giving us lots of possibilities but asking the public to do the vetting required to determine whether the innovations were really useful. This we have had lots of Google novelties – Wave, Knol,Chrome, Android, etc – that are somewhat hit or miss. It is almost as if Google skates everywhere, waiting for the odds to allow success. Even when one succeeds in being where the puck is, it is often not strong enough to be ready to score. Some more tinkering will be necessary. But at least now they know where to focus some effort. With some further help, the innovation can become a success.

It can do this because it really has to spend little time making sure each item is great. It follows the DIKW model, working through rapid iterations to reach the correct choice. This allows it to throw out a lot of innovations but even the best ones are often just good enough. It can take many more iterations to move towards perfection where more focussed vetting may be necessary while, especially as the products move into the exploitation phase, there is less incentive to.

I’ve written a lot about innovation at Apple. Apple supports innovation but takes a different route to a released product. Apple keeps its vetting much more private. They put a lot of focus on releasing products that are already successful, rather than simply iterating itself there. When the public learns of a new innovation, it is almost totally fully realized. Apple has continually driven innovative approaches through several different products – iMac, iTunes, iPod, iPhone, iPad, etc. – any one of which most companies would be happy to maintain.

Apple most likely has a range of possible innovations in the stream – we hear rumors of all sorts of things. But, whereas Google places its innovation in the public eye for us to vet, Apple does this in private. It harshly examines them, rapidly arriving at only one place to meet the puck, but what is there is incredibly strong and is able to drive to success almost by itself.

Apple has a focus on its innovations that permits it to attain success repeatedly. Google may have less focus on specific innovations, but its iterative cycle can be so rapid that it can reach success also.

Each approach has real benefits. By focussing so strongly on where it believes the puck is going, Apple has actually been able to create products that were actually inconceivable for the public before release. But by putting many eggs in one basket as it were (yes I know too many metaphors) it runs the risk of mistaking where the puck will be.

Google does not really need to be sure of where the puck will go. It can simply put so many innovations out there, that one of them is bound to hit. However, its lack of focus can often mean that really disruptive innovations may not get the push they need – they get lost in the crowd.

Both Apple and Google are exemplars of their particular niche when it comes to sustaining innovations. The ways they figure out where the puck will be are different but the basic recognition that anticipating the puck is paramount for their company is the same.

So, companies that want to break the innovator’s paradox need to figure out if they should follow the Apple model or the Google one.

[As an aside, it is obvious that Pixar follows a similar model as Apple and has, not too surprisingly, become the most successful studio in Hollywood.]

Sometimes failure is an option

The Long of Coming Up Short

Thumbnail image for Whitney Johnson 2.jpgI didn’t take Calculus in high school, and I almost didn’t take Advanced Placement (AP) American History for fear that I wouldn’t get an A. In retrospect, given that I’ve pursued a career in finance, achieving a B in Calculus rather than knowing little to nothing on the topic would have been a decent trade. Yet I was so concerned about getting anything less than an A, which for me was tantamount to an F, that I wouldn’t take the risk.

Fear of failure can be a debilitating trait personally and professionally. According to Dr. Megan Gunnar of the University of Minnesota, an expert on stress and coping in children (as quoted in Mind in the Making, by Ellen Galinsky), we must learn to fail so that we can learn to succeed. She explains, “if you never allow your children to exceed what they can do, how are they going to learn to manage adult life — where a lot of it is managing more than you thought you could manage?” The same is true in the workplace: If we never have the opportunity to exceed what we can do, or think we can do, how will we manage?

When we are doing the work we really want to do, and hoping to triumph professionally, we will likely experience failures, and experience them repeatedly. And we’ll be in good company. According to Columbia University professor Amar V. Bhide, for 90% of all successful new businesses, the strategy the founders initially pursued didn’t lead to the business’s success. Meanwhile, Dr. Fritz Grupe, founder of, has found that 80% of college-bound students have yet to choose a major, and “50% of those who do declare a major, change majors — with many doing so two and three times during their college years.” That’s a lot of intermediate failures, or at the very least detours, before arriving at success.

One way we practice learning to fail is by institutionalizing opportunities to take on challenges. Singapore has, in part, become one of the world’s leaders in math education because a lesson isn’t complete if the students haven’t been given something they don’t know how to do. In the words of George Polya, a Hungarian mathematician and educator, we need to build processes into our work to find “a way out of difficulty, a way around an obstacle, attaining an aim which is not immediately attainable.”


An important aspect of a resilient organization is the ability to deal with failure. In a complex world with a multitude of difficult problems, success is not always immediately possible. It can take several iterative steps through failure to find the right solution, to gain wisdom.

I’ve written about the DIKW model of Innovation. Data is manipulated by humans to become different forms of information. The interconversion of information produces knowledge, which results in the ability to make a decision. Often this decision may be to recognize that previous attempts were wrong – a failure – and need to be modified, resulting in another iteration of the DIK cycle.

In a resilient company, each iteration drives the organization towards wisdom – the ability to make the correct decision.

Often, a good strategy is to find out the things that do not work – that are successful failures. An example I use in game play is called Bulls and Creots. Trying to guess a four digit number, with correct numbers in the right place called Bulls and correct numbers in the wrong place called Creots.

There are about 4500 possible numbers assuming no repeats and no zero in the first position. It helps to have a system to work through the possibilities in the best possible fashion. However, the most informative answer is to be completely wrong.

Guessing 4 numbers that are not in the answer removes 40% of the possibilities. One failure greatly limits the future possibilities, making it much easier to narrow down on the correct solutions.

I worked at a biotechnology company called Immunex for 16 years. It was a very well-run, innovative company that did a pretty good job accepting failure if well done. It was one of those 90% of businesses that found success at something different from the initial idea.

Too many companies believe that if they only promote those who are always successful, then they will always win. They fail to recognize that sometimes success can be debilitating and that sometimes failure is liberating.

In a complex world, sometimes the path to wisdom requires failure.

Lower barriers to entry applies almost everywhere

barrierby Donald Macleod

iPhone economics and lower barriers to entry
[Via O’Reilly Radar]

Tomi Ahonen at Communities Dominate Brands has an interesting analysis on iPhone economics. It’s a substantial piece with a lot of good stats, and his key conclusion is:

… don’t invest in [app development] today … Put your creativity and investment into the real money opportunities, remember Pop Idol simple SMS votes earning half a billion dollars in USA this year alone …

He comes to this conclusion after observing that the vast majority of apps will lose money, while only a tiny handful generate significant revenue. Consequently, the logical response is for developers (and businesses) to instead focus their attentions on more lucrative opportunities. In other words, the only way to win is not to play the game.

While his numbers are sobering, they’re not all that surprising. Consider publishing — people have long known that the vast majority of authors slave away on projects that will never make any money, while a very few stars (think J.K. Rowling) make a killing. Whatever you call it — the long tail, the Pareto principle, the 80/20 rule — this simply appears to be the brutal truth of most media industries, from publishing to movies to music.

What I think he overlooks — or is bemoaning — is the important role the App store is playing in lowering the barriers to market entry for developers. He cites the big money opportunities as “SMS, MMS, and WAP” (seriously, WAP?). But, good luck trying to get a biz dev deal there. Only a few, really well-connected organizations are going to get those. When you compare the costs of hiring some kid out of college who can’t believe he’s actually getting paid to write apps to the cost of building the kind of highly skilled (and highly compensated!) sales force required to put these deals together, an app investment suddenly doesn’t look so bad.


Why industries are being overturned comes down to one simple fact – work that used to require years of training and a tremendous expense to accomplish can be done by someone in their basement. It is true in software development, in music, in books, etc.

While it may be difficult to be a superstar here, it does make it easier for creative people to actually make more money, since they can reproduce their work so easily.

I first heard about this new economy two years ago at an O’Reilly meeting. A class at Stanford was devoted to understanding how people choose apps. Breaking into small teams, they worked on developing apps that people would use. They discovered that you can learn what makes a winning app.

In 10 weeks, they had created apps with a possible yearly revenue of $10 million dollars. Some students left school to run the companies that created the best apps, which were bringing in close to $1 million.

The faster they could run their test cycle, the faster they could create a winning app.

The key is low barriers. This allows people to rapidly produce a variety of apps, with the focus then going to those with the best results. This way, instead of having to hit some grand slams in order to pay for overhead, a bunch of singles can give one a comfortable amount of money.

Companies as complex systems

networkby jurvetson

Seeing Your Company as a System
[Via Ackoff Center Weblog]

Much-needed guidance on making companies more employee-centered, adaptive, and capable This is an article from Strategy+Business by Andrea Gabor: … No matter how disparate the causes of failure, there is always a common thread: somewhere, somehow, management has let its attention slip…


Many of the failures we have seen over the last few years – the financial industry, the housing industry, the oil industry – have arisen because the organization involved are being run like a ‘machine’ – push lever X to get result Y. A better approach in these complex setting is to view the organization as a living organism – where small changes in initial conditions, coupled with network effects, can result in disparate, somewhat stochastic, outcomes.

We have done a great job over the last century solving the problems that could be attacked with a ‘machine-based’ management approach. What we have left are the really complex problems where a wide variety of levers can be manipulated with often unexpected outcomes.

Few problems involving complex processes can be solved by moving a single lever. One point of attack will not provide a solution. In fact it often create problems elsewhere in the process.

Today’s complex world requires a different approach, one that overcomes the faults of the ‘machine-driven’ management approaches. This article serves as a nice introduction to the works of Russell Ackoff and others that describe a systems-based approach to management.

Key to this approach is a view of employees that seems to be anathema to many:

All the works mentioned in this guide have been linked to higher performance. Yet their focus on the expertise of ordinary employees remains a hard sell in many companies, because it requires an enormous long-term commitment to training and to local control and knowledge sharing.

Moreover, employee-centered systems organizations need to develop trust — between supervisors and employees and among employees who have to work together to understand and improve the system. Making this work takes skillful management. Indeed, many quality improvement efforts in the U.S. failed because they absorbed rigid process guidelines but failed to build in flexibility.

Management approaches utilizing complex systems thinking require a relationship with employees, especially those most directly engaged with complex problems, that few companies seem to be able to foment. Yet those organizations that can accomplish this will be able to successfully deal with much more complex problems than those that can not, producing an advantage that will be hard for ‘machine-based’ thinking to overcome.

Part of what SpreadingScience tries to do is educate organizations about human social networks, helping them understand how to leverage new technologies to identify and empower the people they need in order to solve complex problems. We help them understand how to adapt their tools to make it easier to support a network-driven management style, and allowing the organization to solve a greater range of complex problems.

The companies that can accomplish this will have a selective advantage over those who can not.

New Seminar – You’re not crazy. You are innovative.


I’ve been working on a series of seminars. I hope to announce more of them soon but I have the first one ready.

You’re not crazy. You are innovative. will examine the disruptive innovators in a community. These people are absolutely critical for the introduction of new ideas into an organizations – ideas that could make or break the success of the company.

Yet often these people are seen more for their disruptive activities rather than their innovation. The majority of the community – the people who simply get things done – views disruption negatively because it changes their workflow, making it hard to simply get things done. Doers distrust disruptors.

This seminar will explore how human social networks adapt to change and why the disruptors are so often not listened to. It will demonstrate that the social networks of disruptors and doers look very different and how Web 2.0 tools can be used to identify members in each group.

It will also provide insights into human social networks that can empower disruptors, making it easier for their innovative ideas to traverse a community and have the major impacts that they should.

The next class in Seattle will start soon. I can also provide seminars for groups. If you would like to attend, send us an email.