Take another look at this video from Ken Robinson:
If you are not willing to be wrong, you will never come up with anything original.
In business, we want to be innovative, but too often we're not willing to risk being wrong. I hate being wrong, but I find that I fear being irrelevant more.
My friend and former colleague Gael Andry recently shared an article titled How Will You Measure Your Life? by Clayton Christensen of disruptive innovation fame. The article is well worth reading in its entirety, but the following passage caught my attention, in particular:
If you study the root causes of business disasters, over and over you'll find this predisposition toward endeavors that offer immediate gratification. If you look at personal lives through that lens, you'll see the same stunning and sobering pattern: people allocating fewer and fewer resources to the things they would have once said mattered most.
Jensen and Meckling's analysis of agency costs has frequently been used as the justification for the assertion that the purpose of business is to maximize shareholder value. Single factor maximization is appealing because it is mathematically tractable and seemingly actionable. But, I believe it to be fundamentally inappropriate.
Generating sufficient returns for shareholders is a constraint, not an objective. To continue in business, providers of capital must be offered adequate returns. Likewise, customers have to be served competitively, suppliers must make a reasonable profit, and employees must be compensated fairly.
The purpose of business is to allow us to live meaningfully. It's up to each of us to define, and be responsible for, the purpose of the business in which we engage.
Please read Thinking, Fast and Slow by Daniel Kahneman, a psychologist and winner of the Nobel Prize in Economics. Kahneman has played a principal role in the development of Prospect Theory, which has changed our understanding of how real people make decisions, including decisions about investing in prospective innovation. One of the key components of Prospect Theory is that decision makers weight outcomes in a manner that is at odds with what we might consider strictly rational behavior.
For example, consider the following, staightforward relationship between underlying probability (on the x axis) and decision weights (on the y axis):
The preceding simply suggests that decisions are weighted according to the underlying probabilities of possible outcomes. In this Homo Economicus scenario, the expected value of a $1,000 payoff that has a 50% chance of occuring is $500. Furthermore, given the same potential payoff of $1,000, an increase in the probability from 50% to 60% increases the expected value of the bet by $100.
In the context of new product development, for instance, Homo Economicus perceives value in proportion to a reduction in uncertainty. Presumably, he would be willing to pay for marginal increases in the probability of a desired outcome such as revenue growth.
Prospect Theory, however, suggests that people aren't strictly rational. Our typical behavior reflects these general patterns:
The preceding observations are reflected in the following S-shaped curve:
The preceding elements of Prospect Theory have a number of implications regarding innovation:
As a Principal of Evergreen Innovation Partners, I've seen the above play out time and time again. The fast, intuitive thinking in which we humans engage doesn't always serve us well in the context of innovation. We exaggerate long odds, under-value near-certainty, and fail to assess intermediate probabilities and marginal increases in value with sufficient finesse. Over time, we engage in such behaviors to our collective disadvantage.
Embedded below is a video of Jeffrey Baumgartner regarding the applicability of Open Innovation to small and medium-sized businesses:
Recently, I stumbled upon Jeffrey's astute observations on prospect theory, risk, and innovation.
Faced with a complex system characterized by delay and feedback, our intuition often serves to occlude understanding. According to the authors of these two books, that fact does little to diminish our confidence in what our senses and intuition tell us and the stories we create to make sense of the world:
The scientific method remains our best path to understanding, sometimes in spite of our intuition and common sense.
From time to time, I intend to post short video introductions under the "Art of the New" banner. (It's a term I stole from George Gendron, the former editor of Inc. magazine.) My intent is to help make interesting people and organizations engaged in learning and creating become a little more visible.
To kick things off, check out Will Ritter of Spark R&D in Bozeman, Montana:
Will is a very talented design engineer and is rapidly becoming a skilled businessman. In the growing world of splitboard backcountry riding, Spark R&D is developing a heady reputation for the design and manufacture of innovative products.
Duncan Watts knows more about small world networks than most of us. That's why we should take note when he challenges some of the key assumptions underpinning the prescriptions of viral marketing:
We imagine information or influence propagating through a network in the manner of an infectious disease. We talk about viral videos and viral media, and we really think things spread this way. What we recently stumbled on is that almost nothing spreads. Instead, the vast majority of all adoptions happen within just one degree of the seed...Research suggests that when we do see big events—things that we call viral—something other than word-of-mouth, peer-to-peer diffusion is happening..Once you get your so-called viral video on the front page of Yahoo!, 100 million people see that. So this is not about viral anymore. This is mass media.