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Postcards from the Edge

2011 June 26

Some time ago, Mathew Ingram of Gigaom asked in a post why it is that the NY times and other newspapers don’t create new innovations, like daily deals .

The question inspired an impressive variety of comments, from those who denounced newspapers as “old fashioned” and “change averse” to those who pointed out that a newspaper’s primary mission is journalistic.

Whatever your sentiments about newspapers, clearly the problem isn’t exclusive to them. Why didn’t Yahoo invent the search engine?  Why can’t Google get social media right?  In other words, why do exciting innovations tend to come from the edge rather than from the center? The answer has a lot more to do with ecologies than individuals.

Corporations are not People

Most people assume that large organizations simply don’t want to innovate because they like the status quo.  They are “covering their ass” or defending their turf as if organizations were capable of acting like lazy drunks.

I don’t want to say that doesn’t happen, but if that were so, it would be an easy problem to fix.  A change in management would solve it immediately. However, that doesn’t happen in the real world.  As Jim Collins points out in Good to Great, bringing in a CEO from the outside rarely results in positive change.

An alternative explanation is both more likely and more interesting:  people within organizations pursue worthy individual actions that result in poor global outcomes. Nobel prizewinning economist Thomas Schelling described this effect in regards to racial segregation in Micromotives and Macrobehavior way back in 1978 .

It is a mistake to anthropomorphize organizations.  They are not people nor even individual entities, but populations and different rules apply.  Calling them “fat and lazy” misses that point entirely.

The Innovation Ecosystem

A start-up company, almost by definition, is a small place.  It begins with one individual or a few people of like minds who are reacting to specific signals in the market.  Usually, they find that they were wrong in some way.  Maybe they misinterpreted something or lacked information.  At that point, the company dies or changes direction.

Once the company gains traction, an ecosystem develops around it.  There are customers and employees and suppliers and bloggers and journalists and competitors and…well you get the idea.  This change has serious consequences.  After all, if “New Coke” was a start-up, the issues would have been vastly different.  It might have even succeeded.

Wired founder Kevin Kelly described what happens in his book about how business is increasingly following the principles of biology, Out of Control.  He had this to say:

A change accepted by the genome, and then accepted by the bodily form must be accepted by the population at large… Populations (or demes) exhibit their own cohesive drive toward unity, contributing to an emergent behavior of the whole, as if they were one large homeostatic balanced system.

The same effect is at work in business (even, as TechCrunch recently noted, in tech companies).  Just as we don’t grow gills when dropped in the middle of the ocean and starving dolphins don’t show up at our house when we serve fish for dinner, companies that have evolved to serve one marketplace have difficulty serving another.

As Kelly remarks later in the same book, “The greatest problem looming in evolution theory is unraveling the mystery of why organisms don’t change, because stasis is more common than change yet harder to explain.”

The Cybernetics of Action

A much more viable approach to understanding organizations is to treat them as a set of systems rather than as individuals who want this or do that.  In 1950 Norbert Wiener created an approach to systems theory he called cybernetics, which sought to explain regulation in terms of feedback, both negative and positive.

Our internal biology has thousands of such systems.  Our brain regulates our temperature and our heartbeat, for instance, though negative feedback.  Our cells sometimes go through periods of positive feedback, it’s called a tumor.  The feedback system for populations as a whole is called the Hardy-Weinberg principle.

Thomas Kuhn noticed a feedback system in science as well.  He found that scientists tend to work within certain paradigms that framed problems.  They would continue to do so until a crises forced them to reconsider their assumptions.  Then a new paradigm prevails and we start all over again.

Likewise, Clayton Christensen found that big companies often fail not because they are poorly run, but because they follow well established principles.  They spend heavily in research, listen to customers and employees and are praised for their professional management.  Nevertheless, they find themselves upended by disruptive innovation.

You Can’t Work The Problem By Ignoring It

It should be clear by now why big organizations aren’t good at radical change:  They have an ecosystem to support.  Employees and suppliers need to be paid.  Customers need to be serviced and have their demands met.  Established companies, not unreasonably, continue the behavior that makes these things possible.

Start-ups, on the other hand, can react to small changes in their environment.  They might fail by the hundreds, but one positive mutation can alter the overall ecosystem considerably.  The failures, of course, have little effect.

Unfortunately, most companies choose to deal with the problem by ignoring it.  They vow to be different and more nimble, send employees on “team building” retreats where they climb rocks and run over hot coals.  They try to create urgency, set up brainstorming sessions and institute casual Fridays.  All to no avail.

The simple fact is that organizations, to paraphrase Kevin Kelly, follow their own cohesive drive toward unity. In other words, they tend to be very good at what they focus on doing and not very good at other things.

Competing With The Edge

So what’s a lumbering dinosaur to do?  Despite the hubbub that goes on all the time in the media, large companies are much more likely to survive and prosper than they are to die out. (That’s why it makes such big news when they do falter).

Here are some time-tested strategies that incumbents at the center employ to compete with the innovators on the edge.

Acquire: One obvious approach is to leverage their most prominent asset: their size. Silicon Valley stalwarts such as Microsoft, Cisco and Google make dozens of acquisitions every year.  Ad agency giants have employed a similar strategy in recent years.  While digital may own the future, the bulk of the money remains decidedly analog.

There are, of course, pitfalls.  As I pointed out in an earlier post, large media companies have been extremely poor investors.

Partnerships and Minority Stakes: An alternative to making acquisitions is to form partnerships and take minority stakes.  This has become standard practice in the pharmaceutical industry.  There’s less upside, but also less risk and, most of all, it sidesteps the problem of executives screwing up a business they don’t have the first idea how to run.

Skunk Works: In his book, The Innovator’s Dilemma, Clayton Christensen points to a third way:  creating a separate division that lies outside the corporate ecosystem.  This is easier said than done, but IBM’s success with creating the PC shows that it’s possible, albeit difficult.

CEO Led Transformation: The last strategy for competing with the edge is also the most difficult:  CEO led transformation.  Contrary to what many think, even powerful chief executives don’t rule by fiat.  As I wrote in an earlier post, it’s the lunatics that run the asylum and if the rank and file aren’t on board, an initiative is more likely to do harm then good.

That doesn’t mean that it can’t be done.  Bill Gates was famously able to turn the Microsoft ship on a dime when the Internet emerged back in 1995.  However, even after having accurately identified the problem and successfully implemented a solution, he still got an anti-trust suit for his trouble.

Contrary to what many seem to think, radical innovation doesn’t come in glaring headlines (by that time it’s usually too late) , but rather in the form of postcards from the edge.  Moreover, at any one time there are thousands of them, creating more noise than signal.  The only true solution is not a change in mentality, but a change in ecology.

– Greg

note: I’m grateful to Brian Sweeney of SweeneyVesty for introducing me to the concept of “the edge.”  You can visit his website about his native New Zealand and http://www.nzedge.com/

10 Responses leave one →
  1. June 26, 2011

    Great summary. We’ve got an idea – too early to be proven or not – as to how to build an organisation that is natively adaptive to change and disruption. I won’t bore you with the details here but essentially it consists of focusing on building a dynamic and (ultimately) sustainable ecosystem of talents and businesses from the bottom up. Networks not hierarchies. We are focused on the financial services industry (because it’s what we know and because we think the opportunities are vast) but I suspect the same approach would make sense in many industries and economic sectors, in particular those that are “digital” and rely heavily on human capital to succeed.

    In a nutshell, we’ve set about this by creating a holding company that invests in interesting emerging companies in the space and their clever, energetic and passionate founders. Our role is to first “do no harm” and then act as a substrate or connective tissue that allows them to have access to a vibrant and relevant ecosystem more quickly than otherwise might be the case, thus we hope improving the risk/reward equation for all and helping to accelerate the growth trajectories of the successful enterprises and ideas.

    [Reply]

    Greg Reply:

    Sounds interesting. Good luck with it!

    – Greg

    [Reply]

  2. June 26, 2011

    Another great post, Greg!

    I think you raise an important issue here: start-ups and big companies are embedded in different ecosystems and operate in different “regimes”. The point is: big companies have to maintain a much bigger ecosystem. The consequence is that they also have much more to lose in case of change and failure.

    In one of my posts I suggested that this is quite related to an inherent ‘job sharing’ between firms of different size when it comes to innovation. Basically, both big and small firms are innovative – however, innovation tends to take place in different fields for them.
    http://timkastelle.org/blog/2010/11/innovation-and-ambidexterity/

    Moreover, I think particular innovation ecosystems need to be populated by dedicated individuals. I’d suspect that a big company full of entrepreneurs or a start-up full of I-shapes wouldn’t work out too well 😉
    http://timkastelle.org/blog/2010/09/innovation-and-human-capabilties/

    Cheers, Ralph

    [Reply]

    Greg Reply:

    Ralph,

    I think you’re right. You have to adapt to the ecosystem you’re in. Unfortunately, as the saying goes, the grass always looks greener on the other side. Big companies envy start-ups for their lack of constraints and start-ups envy incumbents for their resources, including their access to customers and suppliers.

    I think that point gets lost a lot of the time. Heritage brands like the NY Times have an enormous number of big fans who expect them to be faithful to their mission. They can’t just say, “we don’t want to do that anymore because we see some really shiny stuff over the next mountain.”

    – Greg

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  3. June 26, 2011

    I caught an image of a giant dinosaur stepping on little rat-like creatures. The phrase “Necessity is the mother of invention”, also came to mind. Is it just the struggle to survive that drives innovation? Why did an ape-like creature invent stone tools? Was it the fight to survive that drove the development of the spear, or was it the desire to eat fresh meat?

    I tend to see radical innovation as being born out of desperation while complacency develops moderate changes designed to improve a large organization’s lethargic existence. The giants of this wold operate on the premise, “If it ain’t broke, don’t fix it”. The tiny new guy darts and hops around its feet picking up the crumbs. Most of the little creatures get squashed….

    A few survive to dine on the giant’s flesh when it falls. It happened to the dinosaurs. It has happened over and over again in nature. It has happened over and over again in business. All things have a given amount of days. All things change. It is the basic underlying rule in this reality.

    It amazes me that the complacent giant never sees change coming until it is too late… but it always seems to work that way.

    [Reply]

    Greg Reply:

    Patrick,

    Interestingly, there is a growing view that things like stone axes and spears were driven by our ability to communicate and coordinate action.

    Big organizations actually innovate quite a bit, but they do have trouble coordinating action.

    – Greg

    [Reply]

  4. June 26, 2011

    Greg,

    It’s a complicated issue.. trying to answerer it with some simple images and a few words may not show off my best judgement…. still the giants do tend to respond slowly… coordination could be at the root of it, maybe its the hierarchy large organizations create, maybe its complacency… maybe its arrogance. I’ve spent most of my life studying history.. all the way back to Blue-Green Algae. What I am sure of is this, “Change comes, whether you want it or not”.

    [Reply]

    Greg Reply:

    Yes it does:-)

    – Greg

    [Reply]

  5. gregorylent permalink
    July 26, 2011

    “edge” and “center” are linear concepts, and almost by design serve to obscure the actual non-linear, or post-linear, reality of what is happening..

    these are shifts in consciousness that are happening, and yes, i am inferring higher consciousness, human evolution.

    your strategies for design and organization are perhaps going to contribute to change, but have NOTHING to do with transformation.

    transformation comes about through in increase in the capacity of awareness to directly perceive more subtle levels of existing interconnectedness.

    forget managing your way to the edge, it will never happen, because concepts of manipulation don’t work there.

    [Reply]

    Greg Reply:

    Thanks for sharing.

    – Greg

    [Reply]

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