The Innovator's Hypothesis

The Innovator's Hypothesis: How Cheap Experiments Are Worth More than Good Ideas

MICHAEL SCHRAGE
Copyright Date: 2014
Published by: MIT Press
Pages: 256
https://www.jstor.org/stable/j.ctt9qf969
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  • Book Info
    The Innovator's Hypothesis
    Book Description:

    What is the best way for a company to innovate? That's exactly the wrong question. The better question: How can organizations get the maximum possible value from their innovation investments? Advice recommending "innovation vacations" and the luxury of failure may be wonderful for organizations with time to spend and money to waste. But this book addresses the innovation priorities of companies that live in the real world of limits. They want fast, frugal, and high impact innovations. They don't just seek superior innovation, they want superior innovators.InThe Innovator's Hypothesis, innovation expert Michael Schrage advocates a cultural and strategic shift: small teams, collaboratively -- and competitively -- crafting business experiments that make top management sit up and take notice. Creativity within constraints -- clear deadlines and clear deliverables -- is what serious innovation cultures do. Schrage introduces the 5X5 framework: giving diverse teams of five people up to five days to come up with portfolios of five business experiments costing no more than $5,000 each and taking no longer than five weeks to run. The book describes multiple portfolios of 5X5 experiments drawn from Schrage's advisory work and innovation workshops worldwide. These include financial service approaches for improving customer service and addressing security challenges; a pharmaceutical company's hypotheses for boosting regulatory compliance; and a diaper divisions' efforts to give babies and parents alike better "diapering experiences" with glow-in-the-dark adhesives, diagnostic capability, and bundled wipes. Schrage's 5X5 is enterprise innovation gone viral: Successful 5X5s make people more effective innovators, and more effective innovators mean more effective innovations.

    eISBN: 978-0-262-32304-8
    Subjects: Business, Management & Organizational Behavior

Table of Contents

  1. Front Matter
    (pp. i-iv)
  2. Table of Contents
    (pp. v-vi)
  3. PREFACE
    (pp. vii-xii)
  4. ACKNOWLEDGMENTS
    (pp. xiii-xvi)
  5. I THE INNOVATOR’S HYPOTHESIS
    • 1 THE INNOVATOR’S VISION
      (pp. 3-8)

      The Innovator’s Hypothesischampions simple, fast, and frugal experimentation as the smartest investment that serious innovators can make. The book describes a lightweight, high-impact methodology that clarifies and sharpens innovation focus, facilitates alignment between top-down strategic visions and bottom-up innovation empowerment, and encourages an “actions speak louder than words” innovation culture. This methodology works.

      Both guide and manifesto, this book explains why good ideas are typically bad investments. A new economics of experimentation is transforming innovation investment opportunities worldwide. Simple, fast, and frugal experiments inspire creativity and capability in a way that better analytics and planning can’t. In networked industries...

    • 2 WHAT IS A BUSINESS HYPOTHESIS? WHAT ARE BUSINESS EXPERIMENTS?
      (pp. 9-14)

      For the purposes of this book and the 5×5 methodology, abusiness hypothesisis a testable belief about future value creation. It is not a search for truth or fundamental understanding; a business hypothesis suggests a possible and plausible causal relationship between a proposed action and an economically desirable outcome.

      If there is not an explicit and understood measure for new value creation, it is not a business hypothesis. There must be a metric—revenue, margin, usage, satisfaction, engagement, etc.—for assessing value. What value metric does the business hypothesis seek to improve?

      Structurally, a 5×5 business hypothesis takes the...

  6. II THE INNOVATOR’S FOCUS
    • 3 IDEAS ARE THE ENEMY
      (pp. 17-34)

      Good ideas are usually bad investments. They’re rarely worth the time, money, or effort. They overpromise and underdeliver. They seduce and they cheat. Good ideas are appealing because, well, who doesn’t like good ideas?

      By definition, good ideas are good; better ideas are even better; and great ideas are just great. Economists left, right, and center agree that successful businesses need “good ideas” to grow. Management icons from Peter Drucker to Jack Welch observe that great leaders must have the wisdom and courage to recognize and reward great ideas.

      Reasonable and rational? That’s the conventional wisdom. But in reality, it’s...

    • 4 SIMPLE, FAST, CHEAP, SMART, LEAN, IMPORTANT
      (pp. 35-48)

      Successful innovators know that six ingredients are essential to compete profitably in global markets: simple, fast, cheap, smart, lean, important. Google, Facebook, and Amazon understand this. So do McDonald’s, Tesco, and Walmart. They know how to mix their ingredients well. That’s why they win.

      This book explains how successful experimentation drives successful innovation. But successful doesn’t mean expensive, complicated, or sophisticated—quite the opposite.

      Simple, fast, cheap, smart, lean, and important experiments can supercharge any serious innovation process. This book offers market-tested recipes for whipping up fast, cheap, and simple business experiments that transform value creation. Faster, cheaper, and simpler...

    • 5 THE FUNDAMENTAL VALUE INNOVATION: STEALING FROM WARREN BUFFETT
      (pp. 49-64)

      My best professional perk as a youngWashington Postreporter was the opportunity to chat with Warren Buffett. The Sage of Omaha—already celebrated as history’s savviest stock picker—owned a big chunk of the Washington Post Co. and served on its board. His great wealth aside, Buffett is likeable, quotable, and funny. He is the rich uncle that you wish you had.

      We talked a lot about his deals. I didn’t know then that those conversations would be less important as quests for quotes than as tutorials about how the world’s best investor analyzed value. Buffett’s real-world choices sharply...

    • 6 INVESTING IN EXPERIMENTS
      (pp. 65-74)

      Galileo’s Tower of Pisa. Newton’s prisms. Mendel’s peas. Foucault’s pendulums. Pasteur’s flasks. Wilson’s cloud chambers. History suggests remarkably simple, cheap experiments can profoundly transform the sciences.The Innovator’s Hypothesisproposes that remarkably simple and cheap experiments can similarly transform industries and start-ups. Curiosity and ingenuity matter more than budgets.

      Of course, science isn’t business, and business surely isn’t a science. But the potential and power of a single experiment to radically disrupt existing perceptions and expectations is common to both. That’s as true for physics and molecular biology as financial services, retail, chemical engineering, or biotechnology.

      What’s more, the raw materials...

  7. III THE INNOVATOR’S PORTFOLIO
    • 7 BLOCKBUSTED: A CASE STUDY IN EXPERIMENTAL FRUSTRATION AND FAILURE
      (pp. 77-94)

      It didn’t make sense. Why would a smart company—a market leader—spend millions on a legally risky and controversial solution to its most serious business and branding problem without even attempting a simpler and safer $10,000 experiment?

      Beats me. But that’s the bizarre position I found when I started working with Blockbuster in late 1999 to 2000. After years of complaints, the multibillion-dollar video rental giant finally confronted its most painful customer service issue. I was invited to lend a hand.

      Blockbuster’s challenge was clear. Survey after market survey confirmed that—more than anything else—the company’s customers hated...

    • 8 EXPLORING AND EXPLOITING EXPERIMENTATION: THE 5×5×5 APPROACH
      (pp. 95-102)

      Increasingly competitive global markets have made innovation a top-management imperative. When cost-cutting efforts hit diminishing returns, investments designed to add new value enjoy more serious consideration. Consultants, advisors, and assorted management gurus are called upon for innovation insights. New tools and technologies are considered to renew or redefine innovation processes. Firms revisit the fundamentals of their innovation culture and practices.

      While executives declare a greater willingness to innovate, their concerns over costs and risks remain. They’re skeptical of innovation transformations that might undermine key customer and partner relationships. They’re cynical about innovation incrementalism that promises new value creation on the...

    • 9 THE 5×5 PORTFOLIO: THREE REAL WORLD EXAMPLES
      (pp. 103-118)

      The three 5×5 portfolios described in this chapter are composites of experiments proposed by X-teams from companies in three disparate industries. But they fairly and accurately represent the breadth and depth of hypotheses and experiments effective X-teams explore. The individual firms have graciously allowed me to draw upon their X-teams’ efforts to share what successful portfolios look like.

      These portfolios are best viewed less as idealized models and more as templates for context and reference. Several selected experiments no doubt will feel as anachronistic as Sir Isaac Newton’s apple. Others are more contemporary in feel. Collectively, they convey the sweep,...

    • 10 KEY STEPS TO THE 5×5
      (pp. 119-138)

      A simple and straightforward ten-step program describes how to bring the benefits of 5×5 X-teams to your organization. The methodology’s been tested in entrepreneurial and established organizations all over the world. Flexible, versatile, and powerful, these principles provide high-probability paths to measurable success. The results—experimentally and organizationally—will impress.

      The spirit of the guidelines is more important than the letter. Five key phrases best capture that spirit:

      The business potential of your hypotheses should be easy to understand. They address fundamental business questions and concerns. The importance of these hypotheses needs to be obvious, and they should invite and...

  8. IV THE INNOVATOR’S CULTURE
    • 11 CRAFTING GREAT BUSINESS EXPERIMENTS: THREE THEMES
      (pp. 141-154)

      Experiments are remarkable media and mechanisms for exploring value creation. An ounce of simple experimentation can be worth several pounds of sophisticated analysis. Successful high-impact business experiments don’t demand genius; they require ingenuity. What invites and incites ingenuity?

      Mediocrity seldom evokes greatness. Unimaginative strategic visions beget uninspiring hypotheses. Typical problems typically produce typical experiments. Ordinary disagreements suggest ordinary experiments. This shouldn’t surprise. In most organizations, the urgently mundane successfully competes with the strategically important.

      Truly great experiments in science and technology emerge from Einsteinian intuition or Edisonian insight. Great business experiments demand a different emphasis: the discipline to ask—and...

    • 12 A GUIDE FOR X-TEAMS
      (pp. 155-176)

      Creating high-performance X-teams is readily achievable. Talented people—representing a mix of organizations from all over the world—have achieved remarkable results remarkably fast. Their teams did great. Their experiments impressed.

      This chapter explores and explains those critical X-team success factors. Respecting simple and fundamental X-team principles shifts the likelihood of success from possible to probable.

      If you’re reasonably committed to being a good X-team player, you will get good results for yourself, your team, and your organization. If you and your colleagues are seriously committed, you will get outstanding results. The purpose is better aligning your team’s internal actions...

    • 13 WHAT MAKES “HYPOTHESIS” SO HARD?
      (pp. 177-190)

      During a 5×5 workshop in Sydney, the team leader at an elite professional services firm proudly presented her group’s portfolio of business hypotheses and experiments. Alas, it contained neither hypotheses nor experiments. Instead, the 5×5 featured detailed proposals and ambitious plans. Nothing was fast, cheap, or simple. The proposals sounded remarkably like what elite professional services firms pitch to win clients.

      When this was politely pointed out, the response was aggressively defensive: “We thought that by taking a little more time and investing more resources, we could come up with actual solutions to problems instead of incomplete experiments. We wanted...

    • 14 Q & A
      (pp. 191-194)

      The top-line takeaway has to be that almost everybody finds the effort well worth their time and effort. I’ve rarely run across organizations that felt they could have done just as well setting up an innovation task force or hiring an external consultant.

      But the three more detailed learnings that matter most are:

      I can’t stress this enough. It generally takes more effort than teams are comfortable with to craft simple, interesting, and important hypotheses that get people excited. For whatever reason, thinking in terms of causal links—that is, “If we do X , then our customers [or suppliers...

  9. V EXPLORING THE 5×5 EXPONENTIAL FUTURE
    • 15 EXPERIMENTING WITH EXPERIMENTATION
      (pp. 197-212)

      By design, 5×5 frameworks embrace flexibility, adaptability, and off-the-shelf technology: whatever works. But does that simple ethos hold up as technical disruptions intensify and business challenges increase? Customers crave getting more for less. Seemingly strategic competitive advantages appear fleeting. Can 5×5 initiatives successfully drive lightweight, high-impact value creation in environments rife with tomorrow’s risks?

      Yes. The innovation future will prove 5×5 friendly. Experimentation’s emerging economics seductively favor innovators prepared to move fast. Vision remains vital. But strategic advantage increasingly relies upon diversified portfolios of innovative hypotheses. However, the customer’s vision and strategic advantage matter most of all. Smart customers will...

  10. APPENDIX: THE INNOVATOR’S HYPOTHESIS MATH
    (pp. 213-220)
    EVA K. LEE
  11. BIBLIOGRAPHIC ESSAY
    (pp. 221-228)

    This brief bibliographic essay discusses key influences on The Innovator’s Hypothesis, as well as further suggested reading. The book draws from a variety of remarkable practitioners, researchers, and writers on innovation, risk, and experimentation. Their most important common denominator is an authentic commitment to learning by doing. These are not dispassionate creatures of analysis. The most significant differences between them, by contrast, are their attitude toward simple, fast, and frugal experimentation. There’s little consensus around what is simple or fast or frugal. Those definitional disagreements and gaps create productive opportunities to experiment with experimenting. This acknowledgment might surprise him, but...

  12. INDEX
    (pp. 229-237)