Why does your firm exist?

To maximize shareholder value? No – that’s the dumbest idea in the world.

To reduce transaction costs? No – that’s another economic model that doesn’t have much grounding in reality.

In fact, if you ask this of most firms, they don’t have a very good answer. There have been a few compelling contributions to this discussion recently. In the post linked to above, Steven Denning suggests that delighting customers is a much better goal than maximizing shareholder value.

And in his new book Betterness: Economics for Humans,Umair Haque says that firms should exist to make us and the world a better place. That might sound a bit utopian, but think about the opposite of that idea – do you really want to spend your life working for an organisation that makes the world worse?

Betterness

Here is the problem that Haque is trying to address:

Big Question: what does it mean to live meaningfully well? If you accept the less-than-heretical proposition that our way of life, work, and play, while materially rich, might be leaving us emotionally, relationally, socially, physically, and spiritually if not empty, than perhaps just a little bit unhealthy; that it might be optimized for more, bigger, faster, cheaper, nastier over wiser, fitter, smarter, closer, tougher — how would we redesign economies, markets, and organizations to help us live better?

He suggests that we start by redefining what we are trying to achieve with our organisations.

To do this, Haque says that “Going from business to betterness means going from vision, mission, strategy, and objectives to ambition, intention, constraints, and imperatives. To give you an idea of what this means, I’ve been using the book to think about what I’m trying to accomplish in my work. So I’ll walk you through what I’ve been thinking, which I hope will give you some ideas about how you and your organisation might change as well.

Ambition

Ambition replaces vision – and it answers the question “why are we here?” More specifically, ambition is meant to outline the kinds of returns you will provide, and to whom you will provide them. It’s based on delivering genuine value to people.

My Ambition: I will help make work better through encouraging innovation that matters – innovation that makes customers’ lives better, and which encourages strong, sustainable and interesting organisations.

Intention

Intention looks at how you will make the people you interact with better. How will you achieve your ambition? Which day-to-day activities will drive this forward?

My Intention: My work will help build innovation skills and strong networks to make firms more fun, resilient, adaptable, and sustainable. I’ll do by doing research that contributes to developing a genuine understanding of how organisations create value; and by communicating the results of this work in a way that will have an actual impact on the way people work – through teaching, through books and articles, through this blog, through speaking and through working directly with organisations.

Constraints

This is the trickiest one to get my head around. Constraints are the things that must not be done. Instead of trying to carve out a competitive advantage through executing a strategy, the betterness approach looks to build value by enabling customers. Constraints are about avoiding things that do damage.

My constraints: I will not: encourage innovation just for the sake of novelty; try to elevate my ideas by taking shots at others; get caught up in publishing for the sake of publishing instead of communicating to effect change.

Imperatives

Imperatives are simply the things that must be done daily.

My imperatives: I will: make evidence-based recommendations; share knowledge daily; have a positive impact on the people with whom I work.

Innovation Betterness

If you take these ideas seriously, you end up with what Haque calls behavioural innovation. In summarizing the research behind the book, he describes the organizations that were more successful:

Those who were able to create wealth were a new kind of innovator: behavioral innovators. Innovation is often conceptualized at the level of products and services, business models, or competencies. Behavioral innovators pushed the boundaries at a higher level. They made novel, different, innovative sets of decisions compared to current rivals and historical peers. These decisions weren’t one-offs, but consistent, repeated, and predictable: novel habits about products and services offered, investments seeded, people employed and goals sought, more sharply focused on elevating human potential.

This gets at another question that Steve Denning asked recently: Why Are There No Successful Innovation Initiatives?

In part, it’s because change is hard. As Gregg Fraley says in a comment on yesterday’s post – if innovation were easy, everyone would be doing it.

But it goes deeper than that: to have a successful innovation initiative, it’s not enough to just talk about the importance of innovating. It’s not enough to get some tools. To innovate successfully, you actually have to change how you do business.

This is one of the key points that Jeffrey Phillips makes in Relentless Innovation. He says that to embed innovation, you have to make it part of Business As Usual. That’s why we keep talking about the importance of linking innovation to strategy.

But if you do that, you are changing your whole business model. If you are genuinely committed to making a change, you end up changing your value proposition. Once you do that, everything else has to change as well.

I think that Haque’s Betterness principles can help with this. If you are going to become genuinely committed to innovation, you might as well start with your value proposition. If you work through defining clearly your ambition, intention, constraints and imperatives, you will have to embed innovation into your new Business As Usual scheme.

It took me longer than usual to write this post. I’m a bit nervous about stating my intentions as clearly as I have, and this is still a work in progress. But I hope that you will tell me if my ambitions are failing you, since the people here are a big part of who I am trying to have an impact on. If you have any feedback on how I’m doing, or suggestions on how to do it better, please let me know.

Here’s one last thought from Umair:

A life well lived is a consequence of human choice: the decision to pursue the significant over the trivial, the enduring over the evanescent, and the meaningful over the useless. So here’s my challenge – live one.

Innovation is the process of idea management. This means that to innovate effectively you need to have great ideas, select the best ones and execute them, and then get those executed ideas to spread.

All three steps are interdependent, and you need to be good at all three to innovate effectively. Today I’m interested in things you can do to get better at getting your ideas to spread. The improvement points cover all three steps of the innovation process, and I picture it like this:

To get better at getting your great ideas to spread, you can do three things:

1. Have better ideas,
2. Get better at making your ideas real, or
3. Find better networks into which you send them.

Have Better Ideas

The first two ways you can be more innovative are:

• 1. Move to a more densely populated, better educated city.
• 2. Make your city more densely populated & better educated.

What do these two things do? They give you access to a more diverse range of ideas, which in turn make your own ideas better. Two books have addressed this recently. Harvard academic Edward Glaeser has written Triumph of the City: How Our Greatest Invention Makes Us Richer, Smarter, Greener, Healthier, and Happier,and The Economist Editor Ryan Avent has an excellent little eBook called The Gated City. A lot of the foundational research covered in both books has been done by Glaeser, and he writes very well, but I prefer Avent’s book by a small margin.

Both authors make the point that cities with higher population density are more productive, primarily because this increased density leads to an increase in innovation. Here is what Avent says:

Innovation is rarely an individual act. Complex problems often take time and multiple perspectives to solve. The atmosphere of communicative competition within big cities is incredibly good at facilitating this process. Talented workers in similar fields wrestle with problems, try to top each other, learn from each others’ mistakes, hire each other, fire each other and inadvertently create competitors, and generally advance the state of knowledge within an industry.
…
Density boosts productivity, economists find, though estimates of the effect differ. Antonio Ciccone and Robert Hall find that doubling county-level employment density raises productivity 6%. They note that over half of the variation in output per worker across US states can be explained by density. That’s remarkable. Employment density – not skill level, not the composition of industry, not tax policy – explains most of the difference in productivity across states. Timothy Harris and Yannis Ioannides also find that doubling density raises productivity by 6%.
…
Jaison Abel, Ishita Dey, and Todd Gabe find, by contrast, that doubling the density raises productivity by just 2% to 4%. They add a caveat, however: the impact of density on productivity varies with the stock of human capital – essentially how skilled a city is. Cities with low worker skill levels experience virtually no productivity improvement from increased density. The productivity gains in skilled cities, on the other hand, are twice the average.

So you can improve your personal innovation performance by moving to a bigger city, and tapping into the diverse networks there. Just make sure it’s a well-educated city (these are more fun to live in anyway!).

If this seems like too much trouble, then you should at least work to encourage immigration into your current city. Get culturally diverse, well-educated migrants moving to your city.

Get Better at Making Your Ideas Real

For many people, the fun parts of creative work are having the exciting ideas in the first place, and seeing those ideas come to fruition at the end of the process. The part in between isn’t as much fun. As Dorothy Parker said: “I hate writing. I like having written.”

There are a whole string of books written that basically try to spur people to action – to execute their ideas. They read like self-help books, but a lot of times, innovative people do in fact need to help themselves to get their ideas out the door. Seth Godin has published a series of these books as part of his Domino Project, including: his own Poke the Box,Do the Workby Steve Pressfield, and most recently The Flinchby Julien Smith.

Which you prefer will depend on whose style of writing you respond to most strongly. My favourite of the three is The Flinch. In it, Smith describes The Flinch as the response that we have to danger – we put our hands up in front of ourselves for protection, and flinch. He contends that while this response was evolutionary useful in the days when anything surprising was in fact likely to cause us harm, these days we flinch at things that don’t threaten us at all. The Flinch is the response that prevents us from executing ideas. If they are just ideas that no one else ever hears, then they won’t be rejected, and we won’t be hurt.

But they also won’t be loved, and we won’t accomplish the things that we hope to.

To be more innovative, we have to conquer The Flinch. Smith’s recommendation is to train ourselves to do things that are difficult:

Consider this: in your corridor, every flinch is a door you can open with a new scar and lesson behind it, the same way a kid learns by touching the burner. It’s an experiment—an attempt at something new. Not all experiments hurt, but all of them are valuable—and if you don’t open doors, you’ll never get the scars or learn the lessons. Open doors mean expanded options. The flinch will block you, but once the door is open, the threat vanishes. A new path appears.
…
But there’s a secret here, too: getting lost is not fatal. Almost every time, it will make your world bigger. You can look at the edges of your map, the places you were unsure about. Old explorers even had a phrase for it: “Here be dragons.”
…
The ability to withstand the flinch comes with the knowledge that the future will be better than the past. You believe that you can come through challenges and be just as good as you were before them. The more positive you are, the easier it is for you to believe this. You move forward and accept tough situations, so no matter the breakup, the job loss, or the injury, you believe you’ll recover and end up fine. If you believe this, you’re right.

The book currently costs $0 (that’s right – $0!), so there’s not much excuse for not checking it out. You should get this book, read it, and try out the ideas in it- they can help you be more innovative.

Here is an interview with Smith by Chris Brogan that explains more about the book (it contains swearing):

Find a Better Network

Ideas diffuse through networks. One way that you can be better at innovating is to find a network that is more receptive to your ideas. As Seth Godin says in his TED talk, you’re much better off sending your ideas to people that really care about them, and if you’re lucky, they’ll tell their friends.

Recent research has shown how ideas spread through networks – and that a small minority of committed people within a group can get everyone within the group to buy the idea:

“When the number of committed opinion holders is below 10 percent, there is no visible progress in the spread of ideas. It would literally take the amount of time comparable to the age of the universe for this size group to reach the majority,” said SCNARC Director Boleslaw Szymanski, the Claire and Roland Schmitt Distinguished Professor at Rensselaer. “Once that number grows above 10 percent, the idea spreads like flame.”
As an example, the ongoing events in Tunisia and Egypt appear to exhibit a similar process, according to Szymanski. “In those countries, dictators who were in power for decades were suddenly overthrown in just a few weeks.”

10% can be a small number of you are in the right group. On the other hand, if you’re trying to sell everyone in China on your idea, 10% is a pretty massive number. So you need to give some thought to the network that you’re pitching your idea to.

To identify the right network, you need to have a very clear idea of what your value proposition is, and who will gain the most benefit from what you have to offer. People resist new ideas, so you have to find a way to give them ideas that really matter.

The key point is that you have to choose. Don’t try to appeal to everyone, because winning over 10% of everyone is really hard. Create specific value for a specific group, and you can get to that 10% more easily.

There are other ways that you can get better at getting your ideas to spread. But these are all good places to start.

Haruki Murakami is one of my favourite authors, and in reading a couple of his books recently, I ran across several quotes made me think about innovation. In large part, this is because nearly everything I encounter makes me think about innovation one or another. Nevertheless, here are four thoughts triggered by Murakami.

The first two quotes come from his most recent novel 1Q84. In the first, two characters discuss a section from a book by Chekhov that one had read out loud to the other:

Thanks for reading the book to me. I felt close to the Gilyaks. Why do the Gilyaks walk through the forest swamps and not on the wide roads[?]
Even if the roads are convenient, it’s easier for the Gilyaks to keep away from the roads and walk through the forest. To walk on the roads, they would have to completely remake the way they walk. If they remade the way they walk, they would have to remake other things. … I don’t like to walk on the wide roads either.

In the Chekhov passage, this was framed as a diffusion of innovation problem: there were brand new roads that had been built for the people, but the Gilyaks refused to use them. Why? This illustrates an important point – when you change one thing, you have to change others.

It’s frustrating when people don’t adopt our great new ideas. Often, they resist not because of the idea itself, but because of the other things they would have to change to accommodate the new idea.

In the second quote, one person who is in hiding discusses how she could be found out:

“I don’t get it. Would an analysis like that really turn up where I am now?”
“I don’t know,” Tamaru said. “It might, and it might not. It depends. I’m just saying that’s what I would do. Because I can’t think of anything else. Every person has his set routines, when it comes to thinking and acting, and where there’s a routine, there’s a weak point.”
“It sounds like a scientific investigation.”
“People need routines. It’s like a theme in music. But it also restricts your thoughts and actions and limits your freedom. It structures your priorities and in some cases distorts your logic…”

This relates to a point I raised yesterday about the tradeoffs between efficiency and innovation. Routines help us become more efficient – the are an essential part of creating regular outcomes that can be measured and improved.

At the same time, these routines limit the scope of the ideas that we think about, which makes it harder to innovate. If you’re trying to innovate, think about the routines you use at work and personally, to try to identify how they might also be limiting your freedom.

1Q84 is an excellent book, but if you haven’t read any Murakami before, it’s probably not the best place to start.

I also recently finished What I Talk About When I Talk About Running. This is a non-fiction book in which Murakami discusses how his life as a runner is deeply interconnected with his life as a writer. Here is one passage that struck me in it:

In other words, you can’t please everybody.
Even when I ran my bar I followed the same policy. A lot of customers came to the bar. If one out of ten enjoyed the place and said he’d come again, that was enough. If one out of ten was a repeat customer, then the business would survive. To put it the other way, it didn’t matter if nine out of ten didn’t like my bar. This realization lifted a weight off my shoulders. Still, I had to make sure that the one person who did like my place really liked it. In order to make sure he did, I had to make my philosophy and stance clear-cut, and patiently maintain that stance no matter what. This is what I learned through running a business.

John always talks about how strategy is making choices. In addition to saying what you will do, you also have to be clear about what you won’t do – what you’ll say no to.

In his new book Betterness: Economics for Humans, Umair Haque discusses Constraints as one of the key components of developing a strategy that matters. Constraints are simply those things you will not do.

The math may be different in your industry – it might take more or less than one repeat customer in ten to succeed. However, the fact that you need to make this one insanely happy is a constant. And you can’t do that if you’re trying to please everyone.

Finally, here’s a short quote from Norwegian Wood:

If you only read the books that everyone else is reading, you can only think what everyone else is thinking.

I’ve talke about this before – finding your own set of information resources is a crucial part of innovating.

Of course, the real value comes from finding novel connections between the information that you’re processing – connecting ideas is the fundamental creative act in innovation.