GUEST AUTHOR BLOG: Deliberately Lucky by Dr. Michael E. Raynor, director, Deloitte Consulting and author of "The Innovator’s Manifesto: Deliberate Disruption for Transformational Growth"
Whether you’re an investor, an entrepreneur, or a manager, you live with the unavoidable paradox that although you believe passionately in whatever specific undertaking you are committed to today, you understand that across a portfolio of investments, most initiatives fail to be breakthrough winners.
In the absence of being able reliably to pick or create successful innovations, the state of the art in innovation management is the following three stage approach:
1) Variation: Start with lots of ideas
We see this in the form of innovation tournaments, X-prize-like competitions, and admonitions to give at least some people as possible at least some unstructured time to pursue projects of their choosing. In short, the implicit belief is that since one can’t know in advance what the characteristics of a successful idea are, we have to get as many ideas as we can from as many and diverse sources as we can.
2) Selection: Try out as many of them as you can in the market place to see what works
We need some way of sorting the wheat from the chaff, and since we can’t rely on our judgment we try out as many concepts as possible in the market. We create “lean start-ups” in hope of “failing fast” so we can “iterate” toward a winning formula. Those concepts that meet with early approval from the market are the ones we deem likeliest to succeed.
3) Retention: Stick with the successes and abandon the failures
In the hope that those products early adopters embrace have long run potential, we commit to those and abandon the rest. As we scale up, we must live with the uncertainty that as we cope with the demands of growth, we can adapt effectively.
Fortunately, the profligacy and waste of this approach to innovation need no longer be meekly accepted. New evidence shows that Disruption theory – created by Clayton Christensenand described in "The Innovator’s Dilemma" and "The Innovator’s Solution" (co-authored with Michael Raynor) – can materially and significantly improve predictive accuracy when creating or picking successful new businesses.
Over 500 MBA students from Harvard, MIT, and Ivey Business School in London, Canada analyzed a portfolio of 48 business proposals funded by Intel Corporation . With as little as an hour of instruction in Disruption theory, these students were able to improve their predictive accuracy by up to 50%.
These results imply that it is possible to identify successful new businesses at the earliest stages of development. And the consequences for how we manage effective innovation programs can be profound. Instead of “variation-selection-retention” – a framework designed to compensate for our ignorance – we can now build upon our improved understanding with an entirely new paradigm.
"..it is possible to identify successful new businesses at the earliest stages of development. And the consequences for how we manage effective innovation programs can be profound."
1) Focus: Go where the money isn’t
Innovations consistent with the prescriptions of Disruption theory are systematically more successful than those that aren’t. Consequently, we can focus our efforts on those markets and technologies that target unserved or overserved segments with greater confidence than ever before.
2) Shape: Seek “creative creation”
Rather than trying to find out what works by seeking to minimize reducing the cost of failure, we can now build business models that conform to meaningful patterns of success. Specifically, by serving profitably segments that incumbents deem inconsequential, new businesses can create a valuable foothold. Then, by building their businesses around “enabling technologies” – elements of their business model that allow performance to improve over time – entrants can move from that foothold to positions of mainstream dominance.
3) Persist: Don’t fail fast, learn fast
Disruption improves predictive accuracy, but we’re still a long way from 100%. What this means is that although we can more confidently commit to specific markets, technologies, and strategies, there is still a lot to learn. Learning, however, demands persistence: the willingness to stick with something despite early setbacks. And that persistence need no longer be the product of blind faith, but can instead be based on solid empirical evidence.
Most theories of innovation base their prescriptions for action on explanations of the past. Disruption is perhaps the only theory of innovation to have been tested for predictive power using a portfolio of actual businesses. And the results suggest that a revolution in how innovation is managed is upon us.
It is our goal that "The Innovator’s Manifesto" will be your handbook for that revolution.
Michael Raynor is coauthor with Clayton Christensen of the bestseller The Innovator’s Solution and is author of the critically acclaimed management book The Strategy Paradox. He is a director at Deloitte Consulting LLP and consults to clients in virtually every industry all over the globe. He has appeared on Bloomberg TV, CBC-TV and has written for publications, including Harvard Business Review and Strategy & Leadership. He lives just outside of Toronto.