The Pocket Guide to Lean Startup

Lean startup is a process focused on obtaining frequent and rapid customer feedback with great detail to get popular products in customer hands sooner.  The goal is to validate an idea or product so a company delivers something of value to a customer and that solves a legitimate problem.  Customers validate the product, and companies validate their customers – a smart way to make sure everybody is driving towards a successful product, wouldn’t you say?  See the below case studies for a timeline on lean startup adoption.

 

Bit by bit customers tore apart our seemingly brilliant initial strategy
— Eric Reis

IMVU: The Realization

In 2004, Eric Reis and a group of founders launched IMVU, a startup focused on improving online communications using avatars.  The group put considerable time and money into developing a product of avatars compatible with existing instant messaging communication systems and IMVU then automatically invited a user’s friends to join to expand its reach.  A deadline was set for a six month launch, and the result was a defect-riddled product when it hit the market.  Luckily, this was not an issue because not one person downloaded the product.

Post-launch the team began interviewing customers to see why nobody was downloading. They quickly learned:

  • The setup was too confusing
  • Without product reputation, users were afraid to spread with friends.  “What if it’s not cool? they wondered”
  • Users already had multiple buddy lists, and people wanted to organize their IMVU friends separately instead of diluting their Yahoo and AOL buddy lists
  • The product best use case was to make new friends, not interact with old friends.  

In short, they learned the whole setup was wrong.

After making adjustments based on these lessons, IMVU later turned into a profitable company with over 100 employees and 60 million avatars created.  The lessons learned at initial launch did more than create a profitable company; it launched a new ideology.

 

Food on the Table: The Evolution

IMVU’s VP of Marketing Manuel Rosso was excited to integrate these newfound ideals when he became the CEO of an Austin startup, Food on the Table, whose goal was to help families plan meals based on sales at local grocery stores.

Code should only remove bottlenecks
— Food on the Table Mantra

Instead of diving into product development, the founders went into the field and interviewed shoppers at various grocery stores. They explained the product and requested feedback about what did and didn’t work. One customer agreed to meet them in person in the parking lot each week. They added a few more customers to the in-person meet ups.  Eventually the operations became too big to handle manually.  Then, and only then, did they introduce the technology behind it.  The lean startup approach ensured that the product met paying customer needs.  Before long, they had one million subscribers.

 

Dropbox: The Early Adopter

Not launching —> painful, but not learning —> fatal
— Drew Houston

Dropbox is a file hosting service offering cloud storage and file sync services. When they entered the market in 2007, venture capitalists explained they were entering an extremely crowded market space whose participants don’t make much money. Drew Houston, when faced with this feedback, asked if the competitor’s products worked as they wanted. The answer was always no. He knew a market existed, the product just needed to work perfectly for customer needs.

So, how do you design something to perfectly match customer needs? You let them design it.  Drew created a 3-minute screencast of the minimum viable product (MVP) his team developed.  The beta waiting list grew from 5,000 to 75,000 people overnight.  The early adopters that viewed the MVP and navigated to the website provided invaluable details about desired features.  Dropbox utilized a service called Votebox to request and obtain feedback on certain features. Within 18 months the users grew to four million, all with virtually no advertising spend.

 

Eve-Tech (Microsoft/Intel) & FastWorks (GE): Future Use Cases

Corporations noticed the power of the lean startup methodology and are now figuring out how best to integrate these new processes into their legacy infrastructure.  A fascinating example is that of Eve-Tech, a Microsoft and Intel invested project, that built an incredible computer using a crowdsourced internet forum to make all product development decisions.  Another involved GE, which created a business unit called FastWorks using the lean startup framework.  Their first project was a challenge to design a working refrigerator with French doors in three months and to have a production product within a year.  The group developed five versions utilizing customer feedback between each iteration.  The results? Half the program cost, twice the program speed and twice the sales rate of other projects.  The lean startup methodology isn’t just for startups anymore, corporations are learning how to play the game too.

Meet the people demanding disruption - Mario Suarez Ortiz

At Salt Flats, our purpose is to make businesses smarter and faster, while helping turn new ideas into business innovations. Our members are the forward-thinking leaders who understand that the best way to prepare for the future is to create the future.

We’re excited to introduce you to our Salt Flats team! We come from diverse backgrounds, are experienced in disruption, and have the expertise to collaborate with you to build your company. This week, we’ll hear from our business development leader Mario Suarez Ortiz, an aerospace engineer with a passion for lean startup principles and a history of developing processes to enhance member experience.

Q: What's your background? 

While pursuing my Undergraduate degree in Aerospace Engineering in Urbana-Champaign, I focused on Aircraft Design and Concept of Operations (ConOPS). Much of the work concentrated on preliminary design layout, with an emphasis on understanding mission requirements to develop the performance parameters for the aircraft. My interests were in the integration of design, user needs and understanding of the metrics and performance parameters that matter.

I had the opportunity to apply and expand these skills following graduation by working for an engineering test lab on Aircraft Seat impact testing. The day to day job involved working with the client’s prototype and testing at our lab. About a year after completing numerous projects here, I moved back to Urbana-Champaign, where I was part of the Human Factors Lab. Our team looked at User Experience methods and human performance of digital tools.  

Looking to apply these skills in an impactful way I decided to pursue my next career at UI LABs.  UI LABs is a non-for profit working with corporate partners on manufacturing and smart city projects. I was part of the smart city space, named City Digital, focused on project management of many innovative projects in building energy and analytics, green infrastructure and water, and construction.

I transitioned to Salt Flats about a year and a half later, combining all these interests and adding the lean startup principles. I am a big believer of Eric Reis' principles in “The Lean Startup” that look at building a startup and understanding agile methods throughout the growth. The work I do now at Salt Flats applies lean startup principles through our prototyping process as well as design thinking methods.

Q: Tell us about some career highlights.

I applied my background in Aerospace Engineering on one of my research projects on Unmanned Aerial Systems, which is defined as the system supporting the operation of a Unmanned Aerial Vehicle (UAV) or “drone” as some people call it. Our team built a small-class UAV (no larger than 6 feet wingspan). The mission of the UAV was to detect and monitor a moving target and fly autonomously while tracking and providing a live feed of the target to our ground base. Our team was able to successfully develop a working prototype of this system and meet the mission requirements.

While working in the Human Factors Lab, I developed tools to better understand the User Experience (UX), focusing on digital tools, such as a phone app or web portal. We optimized design and collected data on user response to ease of use of the systems. The outcomes provided the software developers key learnings on what the user wants and how to best design a digital tool to provide the most comfort.

Q: How are smart phones changing the economy? 

Over the past ten years smart phones have become more widely available to consumers. With more options to choose from, smart phone usage has made its way to a new generation, the youth of the country (ages 11-17). For the first time ever, this age group is now equipped with levels of information and technology never before experienced. The result is a new generation growing up with a backbone understanding of technology usage and trends. The new generation will be equipped with the knowledge to tackle innovative challenges far beyond what we have now. This will open up new industries and new business opportunities.

Q: How are smart phones changing the user experience in 2018? 

The jury is still out on whether the increase in mobile phones and application usage correlates to a quality of life increase.  However, there is no doubt the use cases of our cell phones continues to increase exponentially.  Whether its allowing us to navigate from location to location or stay connected to loved ones, smart phones continue to provide new experiences. In 2018 we will start to see a big change in the way we shop, with augmented reality allowing us to visualize a new product in our homes. Better prediction algorithms will tell us which restaurants we would enjoy eating at. I believe the biggest smart phone user experience change this year will be the increase in the use of augmented reality via user smart phones and designers and engineers transforming the user experience.  

Q: What's next for smart phones? 

The best way to discover new ways of using our phones is through experimentation of mobile applications and mobile technologies. Getting from a concept to a working prototype is key to develop the next solution. Through quick iteration and user testing, ideas can be quickly turned into a product in a couple of months. Key metrics need to be captured during the piloting phase of the prototype. Understanding the right metrics to focus on and observing trends in patterns is the best way in a user-driven approach to product development.

Disruption by Design - Michael Fazio

For 5000 years buildings were created by scratching lines on paper. In the last century computer aided design (CAD) changed the industry by allowing architects, designers and engineers to quickly produce and modify their drawings. But brace yourself, the industry is poised to be disrupted again but this time the result will be much more dramatic than simply improving efficiency. At Salt Flats we see 5 major forces that will converge within the next three to ten years and make the current practice of architecture and design look as archaic as a T-square and protractor.

Virtual reality and augmented reality will enable designers to communicate their vision in ways that clients can understand.

“Clients can’t read drawings” is a common refrain heard around the lunchroom table in a design firm. Many of my own best ideas died on the drawing board because I simply couldn’t convey the overall concept to the people who were going to pay for it. Models and renderings helped but they were static and expensive to make. It was also difficult to depict the actual finishes, furniture, lighting and other design elements. And the view was limited to the angle we had selected. VR and AR have the power to change the entire experience for customers by putting them “in the room.” Rather than being a passive participant on a guided tour through a series of images, they can look around by themselves and actually see space the same way design professionals do.

Buildings will go beyond simply being “smart” 

The first wave of “smart buildings” utilized Building Automation Systems to monitor and control energy usage for lighting, HVAC, security and other systems. They were primarily focused on improving efficiency and managing operational costs. But technologies being developed now will enable buildings to not just know what is happening but respond by automatically adjusting systems based on use. This will not only help building owners reduce costs but also make the environment more comfortable and enjoyable for users.

Artificial Intelligence will create plans that always meet code.

Building codes are complex and sometimes contradictory. Even seasoned professionals can make mistakes or spend hours in front of code reviewers arguing over subtle points of interpretation. Artificial Intelligence and Machine Learning are poised to change all that. Imagine a program that would tell you for example if a corridor was too long or doors were swinging the wrong way. These programs will also learn your preferences and suggest alternative designs that would remedy a code conflict. The review process could even become more streamlined since a building official would have a higher level of confidence in plans prepared in this manner.

New specification tools will allow architects to instantaneously see availability and cost of materials

There is nothing more frustrating than falling in love with a special material and base the entire design around it, only to learn that it is unattainable or not affordable. Wouldn’t it be great if you could immediately know which products met your schedule and budget? New tools are coming which will connect manufacturers and suppliers to designers and contractors in real time. This will create an Amazon-like market for building materials which will shorten lead times from weeks and months to days or even hours.

Big Data will provide new insights into experience design.

Retailers have been mining data from customers for years to determine everything from style preferences to point of sale design to pricing models. Designs for the built environment can also benefit from “crowd feedback”. Many of Salt Flats’ Members are working on ways to collect information on how people use the spaces where they live work and play. The goal of these efforts is to understand what people want and to use those insights to create better and better experiences.

Salt Flats Innovation House is a living lab for the development of these and other technologies focused exclusively on the built environment. At Salt Flats, we’re not waiting for the future…We’re creating it.

To learn more about the innovation taking place at Salt Flats, visit our website at www.saltflats.co.

Meet the people demanding disruption - Jens Horstmann Part 2

At Salt Flats, our purpose is to make businesses smarter and faster, while helping turn new ideas into business innovations. Our members are the forward-thinking leaders who understand that the best way to prepare for the future is to create the future.  The following is the second part of our two part introduction to Jens Horstmann, Salt Flats Co-Founder and COO.

Q: How does Salt Flats play the game differently when it comes to Collective Intelligence?

Collective intelligence and networked management has existed, albeit scarcely, in the market for decades.  Some fortunate companies naturally discovered these beneficial capabilities and rode its benefits to great success (W.L. Gore, the makers of Gore-Tex is a great example, implemented back in the 1950s).  Most companies follow a traditional business model where leadership relies on internal intuition and industry standard reports to make corporate strategy decisions top-down.  Yet a plethora of technology and societal advancements have naturally driven humans to networked models (think social media, internet forums, etc.) and the benefits immediately presented themselves.  After all, nobody is smarter and faster than everybody.

Harnessing Collective Intelligence and providing a process for corporates to leverage their internal competencies is how Salt Flats and our Innovation House™ have differentiated themselves.  There are “unusual suspects” in every organization that can develop never before thought of opportunities.  Take a look at the inventor of Cheetos hottest product to understand who unusual suspects are and why collective intelligence is so necessary - https://thehustle.co/hot-cheetos-inventor/.  Or look at Adobe or Google encouraging employees to roam and network across the enterprise to spark new ideas and foster otherwise impossible “accidents” in innovation. Serendipity on steroids.

It is our job to structure this seeming random or chaotic looking processes and make it accessible to startups and large enterprises, to students and accomplished researchers. While technology advances are important, what matters is how these new ideas take hold in the market, get adopted through seemingly impossible partnerships and thrive against all odds. Yes, there is a plan and process.

Q: What companies do you see as game changers utilizing peer-to-peer networks?

There are numerous tech firms such as Google, Facebook, etc.  Yet, my favorite example of peer-to-peer networks is the movie industry.  Think of the competing priorities and requirements of actors, directors, producers, editing, music, lighting, explosives, etc.  Consider the complexities required to shoot in multiple locations, often at the same time, and keep a consistent feel.  The amount of real-time creativity and innovation, the introduction of new tools and technologies every few years. A hierarchical approach is simply impossible.  There is no way one person could sit at the top and micromanage the millions of moving pieces. Only a highly collaborative, loosely coupled combination of young entrepreneurs and experienced buffs allows everybody to contribute at the peak of their individual abilities. The peer-to-peer network model is highly elastic and has adopted better than any other structure, it continues to work well 100 years later.

A friend of mine, Jensen Huang, founder and CEO of Nvidia, captures it fantastically.  In a recent interview in Forbes magazine, he was asked who is “the boss” today.  His answer: “Nobody, the project is the boss”.  Ultimately, the objective and even definition of ‘what is success’ comes out of a collaborative and agile process that will continue well past the initial product release. Like software, innovation is alive and continues to emerge, staying ever fresh and young, not afraid of the future but becoming the future.

Q: How will block-chain reshape the future of digital in 2018?  

Like management hierarchies, IT systems typically have a hierarchy, a trusted master or clearing house. Sensors are generating now more data than all of YouTube and Facebook activity combined – who can and should make critical, perhaps life and death decisions based on those sensors if it is compromised or hacked?  We all heard about compromised systems and attacks from behind the firewall which like the Wall of China has lost its effectiveness long time ago.

Block-chain encryption to the rescue. It provides the guarantee that the data, and sources supplying the data, are authentic and accurate utilizing a complex set of digital signatures, mathematical algorithm and encryption. It is created and governed by no single person or organization, its source code is accessible to everyone and transparent. Even if the CIA or a rogue government wanted to maliciously modify data, it would not only be extremely difficult but also visible to everybody looking at the chain of information. Block-chain is a fundamental building block to democratize the exchange of data, records, currency without a centralized entity or single authority.  Within the future of digitalization, in my opinion, technologies such as this are critical in seeing the peer-to-peer networked world thrive preserving privacy, authenticity and independence from centrally managed hierarchies.

Q: What are your thoughts on Machine Learning?

When even mainstream media like USA Today discusses the benefits and fears of artificial intelligence you start wondering how far we’ve really come. It’s perhaps the largest disrupter of our time and we are just at the beginning of the beginning. Without getting into ethical, privacy, policy or other very interesting issues, let me focus on what it can do and how it unquestionably transforms the life of every consumer.  Machine learning allows entire industries to suddenly turn decades of treasure troves of collected raw data into real-time capable, actionable and decisive knowledge and insights. Just like we all suffer from information overload; today’s computers are incapable to handle the flood of sensor data that’s about to be unleashed on us. Intelligent analysis at or near the source, Block-chain based collaboration between computing islands on the edge of the network requires intelligent reduction to react to real-time events. Learning the characteristics of an industrial press or habits of an elderly person by observing water or power consumption will not only provide just in time alerts when anomalies are detected, it also finds hidden patterns identifying when service is required, or failure is eminent.

In my opinion, over the next few years, there is not a single industry, market or country that will not be digitally transformed.  Possibilities are vast when networks are connected and spewing off tons of data to be reduced by learning networks (AI) to actionable information for mankind. Things get interesting when spontaneous connections are made by computers and conclusions are reached that are not in our best interest...after all these are complex networked systems with complex interactions that lead to innovation, breakthroughs and yes, sometimes to unpleasant and even catastrophic surprises.

Undoubtedly my favorite topic I’ll be talking about in future blog postings.

To learn more about the innovation taking place at Salt Flats, visit our website at www.saltflats.co.

Digital Transformation – Part VII: The Human-Machine Symbiosis

Over three days from February 14 – 16, 2011, the American public was introduced to the amazing capabilities of artificial intelligence (AI) during the telecast of the Jeopardy! IBM Challenge, when IBM’s Watson faced off against Ken Jennings, the holder of the record for the game show’s longest winning streak, and Brad Rutter, Jeopardy!’s all-time money winner. This much-publicized human-versus-machine competition turned out to be no contest at all, as Watson easily beat its human challengers with a score of $77, 147 to Jennings’s $24,000 and Rutter’s $21,600.

With this remarkable victory, the public learned what was once considered science fiction was suddenly scientific reality: computers could interact with humans in intelligent conversation. Watson wasn’t a linear program following a series of pre-planned fixed steps, like a dishwasher. It was an intelligent machine that could absorb spontaneous human communication and could respond sensibly. And what was most impressive is that it could do so far smarter and faster than the long-running game show’s two greatest champions.

 

An Unsettling Concern

This new reality, while incredibly awe-inspiring, was also unsettling for many. Now that we had first-hand experience with the quality and speed of AI, we could understand why some were concerned that, sometime in the near future, superintelligent robots might develop to the point that they could overtake or even subjugate humans. However, this thinking may be shortsighted because it reflects the prevailing hierarchical mindset, which assumes power is a function of being in charge and, therefore expects humans and machines to behave as separate and competing entities embroiled in a battle to see who comes out on top. If this hierarchical mindset continues to shape how we think and act, this concern could eventually morph into what many would consider a clear and present danger.

With the emergence of the Internet of Things and expected developments in robotics, 3D printing, machine learning, and deep learning, the capabilities and the speed of AI are likely to grow exponentially over the next decade. The proliferation of sensors in everyday life will accelerate the expansion of the network effect as the world becomes more increasingly hyper-connected and everything and everyone becomes inter-connected into a single global network. With the ability to process large volumes of data at the speed of Google searches, AI systems will be able to recognize weak signals and identify patterns across the data that would normally escape even the brightest experts among us. AI holds the potential to become a powerful extension of human intelligence.

At the same time, however, a new and unwelcome consequence of our increasingly hyper-connected world is also likely to grow exponentially: the continuous uptick in hacking and massive data breaches. Until we transition IT systems control structures from linear hierarchical architecture to a more robust network architecture, the expansion of hyper-connected networks will result in hackers having many more opportunities to breach systems. If we are too slow in making this necessary shift, the day will likely come when one madman will be able to shut down an electrical grid, use IoT to spread a deadly virus, or possibly unleash a weapon of mass destruction. And if this were to happen, perhaps the concerns about an independent-minded AI might materialize should it harness its formidable intelligence and exercise its power of judgment to stop the madness or even eliminate the threat. Just as Jennings and Rutter were easily defeated by IBM’s Watson, if human intelligence and machine intelligence remain separate entities, then these fears may prove true. However, it doesn’t have to be that way as another highly publicized contestant who lost to AI discovered.

 

A Creative Partnership

Garry Kasparov is considered by many to be the greatest chess player of all time. During his active career between 1986 and 2005, he was the world’s #1 ranked chess player for 225 out of 228 months. Like Jennings and Rutter, he knows how it feels to lose to a machine because Kasparov has the distinction of being the first world champion chess player to lose a match to a computer, when he was defeated by IBM’s Deep Blue in 1997. Kasparov, however, had a somewhat counter-intuitive and creative reaction to his drubbing. He decided to apply an age-old adage, “If you can’t beat them, join them,” and engaged in an interesting experiment where he paired human chess masters with machines to compete against other machines in a series of matches. In every instance, the human-machine combination defeated the solitary machine. What we learn from Kasparov that we didn’t see on Jeopardy! is that humans can become more powerful—and perhaps even more human—when they collaborate rather than compete with machines.

In his book, The Innovators, Walter Isaacson asserts that the most important development of Digital Age innovation is the emergence of a new form of human-machine symbiosis that is dramatically transforming the essential orientation of all systems from programming to learning. This insight is significant because it reinforces the pressing need for IT systems builders to shift their control architecture from hierarchically programmed structures to networked learning structures, especially if we are serious about curbing all the data breaches.

 

Humans Become More Machine-like

The notion of a human-machine symbiosis is not a new creation of the Digital Age. This phenomenon traces its roots as far back as the Hunter Gatherer Age when humans first built tools to ease the burden of physical work. This symbiosis, which incrementally evolved through the Agrarian Age over several thousand years, catapulted in both form and scale with the emergence of the Industrial Revolution. The proliferation of mechanical inventions, the advent of mass production, and the rise of bureaucracies and corporations reformulated the fundamental dynamics of the human-machine symbiosis. Rather than machines being merely tools, as they were throughout the Agrarian Age, the machine became the dominant metaphor for the worldview that defined the context of everyday social and economic life in industrialized societies.

This mechanistic worldview was reflected in the fundamental organizational design principles of Frederic Taylor, whose Scientific Management model became the template for the command-and-control structures that have defined the practice of management for well over a century. Accordingly, the basic orientation of this management approach is prescribed programming where workers are expected to carry out fixed plans, and where controls and incentives are put in place to make sure employees don’t deviate from the program. This ultimate form of the top-down hierarchical architecture often resulted in Borg-like entities where large numbers of people interacted with each other in rigidly prescribed ways. Most of us have been so socialized into this mechanistic worldview that we fail to recognize that the human-machine symbiosis of the last two centuries has favored the machine over the human. That’s why the fundamental dynamics of all systems are grounded in programming. In many ways, at least in our social architecture, this pervasive orientation toward programming resulted in humans unwittingly became more machine-like.

 

Machines Become More Humanlike

However, with the recent emergence of the phenomenon of Digital Transformation, we are witnessing a radical reformulation of the human-machine symbiosis as machines are becoming more humanlike. Rather than being a threat to humanity, this reformulation of the human-machine symbiosis could very well be the renaissance of humanity.

Isaacson observes that today’s computer technology “augments human intelligence by being tools both for personal creativity and for collaborating.” This means that as machines become more humanlike, we have the opportunity to partner with machines in ways that will greatly accelerate our capacity to learn. Isaacson notes, “that no matter how fast computers progress, artificial intelligence may never outstrip the intelligence of the human-machine partnership.” Consequently, the symbiotic relationship that combines the strengths of both humans and machines could usher in a new era of enhanced human learning and intelligence. Isaacson points to the example of the Google search engine, which rapidly collates the individual judgments of billions of people to provide sensible search results.

It isn’t the intelligent malevolent machine that presents the greatest danger to human civilization; it is the singular malevolent individual who misuses the power of singular control to wreak havoc in our hyper-connected world. A human-machine symbiosis that’s built on a platform of networked collective intelligence could enhance the human experience far beyond our wildest expectations by eliminating the capability for single individuals to engage in large scale coercive actions and mitigating any concerns about AI overtaking humanity. But this will only be possible if we complete the tasks of Digital Transformation and invent the new tools needed to embrace a new mindset, create a new economy, and build a new world that leverages the “power of many” and eliminates the “power of one.”

 

This article was originally published in the Huffington Post.

Meet the people demanding disruption - Jens Horstmann

At Salt Flats, our purpose is to make businesses smarter and faster, while helping turn new ideas into business innovations. Our members are the forward-thinking leaders who understand that the best way to prepare for the future is to create the future.

We’re excited to introduce you to our Salt Flats team! We come from diverse backgrounds, are experienced in disruption, and have the expertise to collaborate with you to build your company. This week, we’ll hear from our co-founder, Jens Horstmann, pioneer in semiconductors, computer aided design tools, computer systems, early B2B online and mobile commerce and automated retail, with over 30+ years of experience in the executive, technology and engineering roles.

Q: What's your background?

I have been an entrepreneur since high school when I founded my first company in Germany doing analog systems and sensors over 35 years ago. My training in electrical engineering and computer science allowed me to apply problem solving technics to technology innovation. I’ve enjoyed working with students and young startups as much as seasoned executives in Fortune 100 enterprises. Roles include being a board member, investor, founder, inventor, engineer, CEO and CTO. I have a passion for aviation and often compare the complexity of risk taking and venturing to dealing with the uncertainty and need for real-time decision making while piloting.

Q: Tell us about some career highlights.

I’m extremely lucky to have been part of an exciting journey through innovation, technology and disruption over 30 years in Silicon Valley. I’ve always strived to be a driver behind disrupting entire industries, and my first opportunity was LSI Logic, the creator and leader of Application Specific Integrated Circuits that enabled a new breed of computers. The design of system-on-a-chip solutions and later the design tools that needed to be invented to harness this new won ability spawned entire markets allowing scientists, engineers, military applications, early building automation and yes, even Hollywood movie makers, to leverage microchips. My role as an applications engineer gave me deep insights into how people were using our technology to disrupt their industries.

Perhaps the young company that leveraged these advances more than anyone else was Sun Microsystems. It allowed them to practically displace billion dollar companies like Digital Equipment Company (DEC), Silicon Graphics, IBM mainframes, and Cray Computers. By putting what people considered “impossible” in the form factor of a pizza box, we shrunk clunky computers and by reducing the price 10-fold, made them accessible to a wide audience of engineers. A multi-billion dollar company was born in just a few years. Once again, I was lucky to work with one of Sun’s founders as microchip designer, systems engineer, architect and senior manager. We not only forced disruption by introducing faster networking, storage, etc. but through a highly methodical design approach were able to crank out a new computer generation every year, something that previously took 3-4 times as long.

The arrival of the publicly accessible internet in 1993 with the advent of a new breed of data-centers (now called Cloud) triggered new disruption that required different networking, graphics chips and tools.  Even Sun, in our mind, wasn’t inventing fast enough. A flurry of startups and now multi-billion dollar companies like Nvidia and Google were the result. I directed one of them, X1 Corporation, applying Machine Learning to Wall Street to assess risk and make certain predictions for the likes of Paul Tudor Jones and Swiss Bank. We were about 20 years too early but managed to repurpose our assets, now called pivot, into the travel industry.

A decade after leaving Sun I found myself taking on yet another market ready for disruption: the movie distribution business dominated by Blockbuster. For several years people had talked about video-on-demand, yet the leading startup Netflix was almost bankrupt in 2002. It occurred to us that the market was ready for retail automation and self-service. A red kiosk, later named Redbox in partnership with McDonalds, was created by a small startup called DVDPlay that was housed in Netflix’s old headquarter. My meeting with Jim Keyes, the CEO of Blockbuster at the time, to discuss RedBox and reading his subsequent quote just months before his bankruptcy that “Neither Redbox (by now a billion dollar business) nor Netflix are even on the radar screen in terms of competition” was a key realization that most large enterprises don’t see the future even if it’s staring them in the face and that innovation may come from startups or unsuspected places.

Since the sale of DVDPlay and Redbox I’ve co-founded Crestlight Ventures, a venture capital firm helping startups to navigate the benefits and challenges of partnering with large corporations. The need to “produce” a startup or venture with heavy handed and agile project management, flexible funding and good IP management that both startups and enterprises can benefit from became key ingredients to Crestlight’s model.

The idea of a place where corporates, universities, startups and venture capital collaborate to explore, experiment, test and then turn some ideas into successful new business models was born – the Innovation House™.

Part 2 of Jen's employee spotlight will be published next week.  To learn more about the innovation taking place at Salt Flats, visit our website at www.saltflats.co.

Digital Transformation - Part VI: An Evolutionary Leap in Human Intelligence

Human Intelligence Leap Image.jpg

by Rod Collins, Innovation Sherpa at Salt Flats

 “May you live in interesting times,” is an old English expression whose enigmatic meaning can make people wonder whether they’ve been offered a blessing or a curse. Regardless of the apparent well-wisher’s intentions, interesting times are oftentimes a blessing for some and a curse for others. The difference depends upon how capable and how fast people are in recognizing and embracing new ideas and new opportunities.

We, today, are clearly living in interesting times, perhaps the most interesting times in the history of human civilization. We find ourselves in the midst of a technological phenomenon that is far more transformative than previous technology revolutions because it is thoroughly, radically, and rapidly rewriting all the rules for how the world works. This phenomenon, which we have been calling Digital Transformation, is the fundamental architectural shift in the way the world works from top-down hierarchies to peer-to-peer networks.

Digital Transformation is much more than a technology revolution. It is arguably the most consequential socioeconomic revolution in human history because the transcendence of peer-to-peer networks will dramatically transform the basic contours of the human experience.  This phenomenon is far bigger than most of us are prepared for because the vast majority of us are lacking in an understanding of the dynamics of networks. We are much more conversant in the mechanics of the hierarchical structures that have shaped the evolution of the human experience since the dawn of civilization. Unfortunately, our knowledge deficiencies in the ways of networks cause us to significantly underestimate the magnitude of the inflection point that is happening in the world around us as most remain blind to what is hidden in plain sight. If our interesting times are to become a blessing, we will need to quickly close our network knowledge gap because Digital Transformation is about to go into overdrive with the coming emergence of the Internet of Things (IoT). Once the IoT becomes the fundamental fabric of our everyday lives, what has been hidden in plain sight will become painfully obvious to those who fail to fill the knowledge gap.

An Evolutionary Leap

In the next decade, we will experience two of the most consequential events in human history: the connection of all humans and things via a common digital network and the proliferation of human collective intelligence via artificial intelligence systems. These two events will result in an evolutionary leap in the human species because they will create new dimensions of human intelligence that have never existed before.

Thanks to Moore’s law, sensors will become ubiquitous. They are already in our cars, home appliances, street lamps, medical devices, and smart phones. They will soon be in our clothes, the walls in our homes, the buildings where we work, our food, our pets, and even our bodies. As these sensors proliferate, they will become inevitably interconnected by the IoT and will propagate a plethora of data at rapid speeds in permutations and combinations that have never been available to us before. When this happens, the IoT will become a platform for highly sophisticated artificial intelligence (AI) systems that will substantially exceed the capabilities of any single individual. These AI systems will be able to process the universe of sensor information at the speed of Google searches. They will be able to recognize weak signals and identify patterns across the data that would normally escape even the brightest experts among us. And using the technologies of machine learning, these AI systems will interact with humanity to advance our understanding of the world around us and to enhance the quality of our lives, especially as AI systems become the foundation for a new era in medicine fundamentally oriented around sustaining health rather than treating illnesses.

The Ultimate Manifestation of Collective Intelligence

Currently, there’s much ambivalence about the future of AI and whether it’s a blessing or a curse, especially among those who are concerned that advanced AI could become hostile and upend humankind as the dominant species. However, if we look at AI from the perspective of a network mindset rather than the more familiar hierarchical worldview, we will begin to understand why AI systems are far more likely to be extensions of humanity than they are to be separate and competitive entities.

Hierarchies are designed to leverage individual intelligence, and thus promote the notion that the most intelligent should naturally rise to the dominant position at top of the pyramid. This explains why those with a limited understanding of networks are fearful of AI. They dread that AI will become the smartest entities on the planet and will use this intelligence to exercise coercive control over humankind. However, the phenomenon of Digital Transformation, which is providing the technology that makes AI possible, is also spawning a radically different and an evolutionary superior form of social organization: the peer-to-peer network. Networks, in contrast to hierarchies, naturally leverage collective intelligence, which enables them to be far more powerful than traditional top-down structures.

The unprecedented emergence of technologies and social structures that have the capacity to rapidly aggregate and leverage collective intelligence is a Cambrianesque leap in the evolution of human intelligence. Rather than being separate entities, AI systems following the evolutionary laws of networks referenced earlier in this series—the law of connections, the law of self-organization, and the law of collective intelligence—have the potential to be the ultimate manifestation of human intelligence.

The Nature of Collective Intelligence

 I first learned of the extraordinary power of collective intelligence about twenty years ago when I was tasked with improving the performance of a complex business alliance of thirty-nine companies that had sustained two decades of anemic growth. As our team considered various strategic options, it became clear to us that the root of our growth stagnation was our own management approach. We recognized that we led this alliance as if it were a typical hierarchical firm, and as a result we spent a substantial amount of time arguing with the various organizations about who was in charge. Maybe, we began to surmise, we need to learn how to lead a network. This would mean developing a very different set of skills based around building consensus rather than giving directives.

An important part of our new approach was to design an innovative meeting format (which today is known as the Collective Intelligence Workshop) that would minimize the usual debates that characterize the typical business meeting and employ sophisticated facilitated meeting techniques to achieve rapid consensus among the disparate partners in our business alliance. These meetings were highly successful, and it wasn’t long before we realized that in designing our “no debate” meetings, we had fortuitously and unexpectedly stumbled into a process that effectively and rapidly aggregated the collective intelligence within the room. And once we discovered this powerful phenomenon, we were able to use it to solve previously unsolvable problems.

What impressed us immediately about collective intelligence is that it is extraordinarily intelligent and incredibly fast. We recognized that having a process to converge the best thinking from divergent perspectives gave us the capacity to create breakthroughs that no one of us could do alone. And given our track record of endless parochial debates, we were stunned that issues that would normally fester for months, or sometimes years, could be resolved in the span of a few hours. But perhaps the most distinctive attribute of this newfound asset is that it greatly diminishes, if not eliminates, the natural cognitive biases that the psychologists Daniel Kahneman and Amos Tversky convincingly proved plague individual judgment and decision making.

The Possibility of a Profound Blessing

While the history of humanity has been a progressive evolution of more advanced technologies and civilizations, this human development has been marred at times by inhuman atrocities. Most of these atrocities can be traced to the manifestation of some form of human bias acted out in judgments or decisions made possible by the oppressive exercise of control that is an inherent hazard in hierarchical forms of social organization. One of the social benefits of collective intelligence structures is that, by effectively integrating all the various diverse perspectives, they essentially eliminate the wherewithal for single individuals to wrestle enough control to impose their individual biases on captive audiences.

Over the next decade, tandem developments in the Internet of Things and blockchain technology will come together to enable a human-machine symbiotic network that will morph into a superintelligent artificial intelligence system exponentially smarter and faster than any of us individually or all of us combined. The continued rapid emergence of the peer-to-peer network as the dominant form of social organization, together with the use of collective intelligence dynamics to shape the development of artificial intelligence systems will ignite an extraordinary leap in the social exercise of human judgment and human decision-making. If this happens, our interesting times are highly likely to become a profound blessing.

This article was originally published in the Huffington Post.

Lean Prototyping

At Salt Flats, our purpose is to make businesses smarter and faster, while helping turn new ideas into business innovations. Our members are the forward-thinking leaders who understand that the best way to prepare for the future is to create the future.

We’re excited to introduce you to our Salt Flats team, who come from diverse backgrounds, are experienced in disruption, and have the expertise to collaborate with you to build your company. This week, we’ll hear from Adithya Menon, an emerging leader in providing design, prototyping and testing services for corporate clients and start-ups.

Q: What's your background? 

Born and raised in Malaysia, I grew up knowing I wanted to be an engineer. I actively pursued my passion and came to the United States to study and find opportunities to become an engineer. I graduated from the Illinois Institute of Technology (IIT) in 2016 with my Bachelor’s in Mechanical Engineering and my Master’s in Mechanical and Aerospace Engineering.  

Q: Tell us about some career highlights.

My first engineering job was with a start-up, VG SmartGlass, designing, fabricating and prototyping different kinds of mechanical systems that can be used with VG’s proprietary film. After working there for a year and a half, VG went through funding issues. The CEO and I  started doing design and engineering consulting work on the side to keep the lights on.

Meanwhile, we founded ST Labs, with the main goal of offering prototyping as a service to entrepreneurs, startups and corporations. There seemed to be a clear need for such a service, with the number of business incubators, startup accelerators and ideation spaces increasing in the Chicago area. People are having more and more innovative ideas but need an outlet to explore them. These innovators and inventors don’t necessarily have the engineering background or finances to build a prototype that validates the idea and use case. ST Labs’s goal was to offer quick prototypes at a low cost to accelerate the innovation that is happening here. In July 2017, ST Labs prototyping service was acquired by Salt Flats with me leading the prototyping division, Department X.

Q: What are the major benefits of rapid prototyping? 

The advancements in digital manufacturing processes such as additive manufacturing, laser cutting, and CNC machining have enabled quick turnaround times to prove whether an idea can be turned into a product. For startups and entrepreneurs, speed is imperative. Rapid prototyping accelerates the timeline for someone to develop a minimum viable product. Having a functional prototype increases one’s value proposition and provides valuable feedback from the market, which increases the chance of getting funded.

Q: Explain the process at Salt Flats. 

At Salt Flats, we have access to the latest digital fabrication machines. Combining this with traditional machines like manual mills, lathes, conventional woodworking and metalworking tools, we have  the ability to literally build anything. Having an office at IIT also gives us a talent pool to recruit from when we receive a project that requires a certain skill set that our core team lacks.

When we receive a project, the first step is to clearly outline and document the client's needs. Once the idea is determined viable to build, we form a team of industrial designers, mechanical, electrical and software engineers. A proposal is created outlining our approach and breaking down the project into phases. The first phase is the design phase, followed by creating a bill of materials and identifying sources, fabricating and assembling, testing, and finally deploying the prototype to be tested in an environment it was envisioned for. This is our end to end prototyping as a service approach. ]

Q: What rapid prototyping trends do you see emerging in 2018?

Technology is increasing at an exponential rate according to Ray Kurzweil’s Law of Accelerating Returns. New technologies are enabling us to develop newer technologies. People are coming up with new ideas to simplify or elevate their life, finding innovative solutions to solve complex problems, forming new ideas that lay the groundwork for the next breakthrough technology. These ideas need to be transformed into something workable, the first step being a prototype. Corporate prototyping divisions are plagued by delays and long lead times, forcing them to explore alternate paths to get a prototype made. Serial entrepreneurs are always coming up with new ideas and need a prototype made without needing to hire a full time engineer or buy expensive equipment. In order for these ideas to be validated, tested and into the market, rapid prototyping as a service offering allows innovation to progress and technology to continue advancing at an exponential rate, which is exactly what you’ll find at Salt Flats Innovation House.

Meet the people that demand disruption

At Salt Flats, our purpose is to make businesses smarter and faster, while helping turn new ideas into business innovations. Our members are the forward-thinking leaders who understand that the best way to prepare for the future is to create the future.

We’re excited to introduce you to our team here at Salt Flats, who come from diverse backgrounds, are experienced in disruption and have the expertise to help build your company. This week, we’ll hear from our Co-founder & CEO, David Borlo, an entrepreneur, startup advisor, investor and leader in results-based corporate innovation for the past 25 years.

 

Q: What's your background? 

I’m a 25-year entrepreneur who has been lucky enough to be involved in multiple roles and industries over my career.  Over the years, my responsibilities have included being a startup founder / CEO, startup board member, startup advisor and mentor, and venture capitalist, angel investor.  

Q: Tell us about some career highlights. 

The most exciting times I’ve had have always been focused around disrupting business models using new methods and technology. I was the founder of Allure Fusion Media, which disrupted the printing distribution and fulfillment industry by creating the first fully networked and web-based digital menu board for McDonalds in 1999.  Allure invented dozens of digital signage firsts, some of my favorites including the first outdoor, web-based and POS connected digital menu systems.

I also ran business development for DVDPlay, the innovative technology behind RedBox.  The DVDPlay technology and business model played a major role in the  disruption of the DVD movie rental industry in 2007 and is a common use case for the media and entertainment digitalization over the last decade.

Q: What inspired you to create Salt Flats?

After DVDPlay, my partner and I created the first of its kind venture production company called Crestlight.  Crestlight is an early stage venture investment firm, specializing in bringing process and capital to early stage startups, a next-level startup accelerator program.  As Crestlight took off an interesting market reaction was taking place at the same time. Corporations were reaching out to us requesting help in navigating the new digitally disruptive world they found themselves in.  Combining this Crestlight feedback with the understanding of what happens when corporate strategies fail to incorporate market changes (Blockbuster, ToysRUs, RadioShack, etc.) we began seriously investigating the opportunity in front of us.  The fact that the life expectancy of a Fortune 500 company today is only 15 years is very telling of the disruptive nature of the market.

Q: What does Salt Flats do? 

Salt Flats is an entirely new approach to corporate strategy, innovation and talent development. Built from the ground up using unique internal methodologies and startups, incubators and accelerator success stories, we have created a first of its kind Innovation House. In one building, under one roof, we help corporations use our proprietary services and programs so that they may harness the wild change in the market and create real wealth for their company.

We are different from a traditional management consultant or business incubator program in that our services start at the seed of an idea and extend through the establishment of the business model. We use a collective intelligence based workshop to find and hone the challenges to be solved, we employ a technology team and rich ecosystem to quickly pilot solutions and establish ideal business models through commercialization services.

Q: How does Salt Flats approach innovation strategy differently?

Salt Flats created an innovative program that is optimized for the market disruption that is occurring in this digitally disruptive world.  We have found that simply repositioning legacy models won’t work, which is why we are a group of startup entrepreneurs, design thinkers, engineers, investors and lean startup specialists. Legacy ‘plan and control’ models used by large consultancies do not have the pace and scale of our ‘explore, experiment and discover’ model.

The Innovation House is a very unique asset used by our corporate clients. We offer access to a 45,000 SQ. FT. purpose built building in the West Loop of Chicago. Salt Flats membership is  special in that the members are curated based on their participation in the built environment industry, thus creating a powerful ecosystem. The rooms at Salt Flats Innovation House are designed for workshops, technology prototyping, co-working and socializing. Getting corporations outside of the four walls and into our Innovation House is a huge differentiator.  Legacy thinking, fear of failure, hierarchical structures, and tunnel vision/echo chambers are proven psychological barriers that exist within traditional corporate offices.  To truly change the way you act you need a place designed for action.

We focus on building and deploying, not research, reports or advice. Each member, through the Salt Flats Innovation House, immediately has access to our developer teams, prototype teams, startups, IP, industries, technologies and backgrounds that would never occur elsewhere, which is light years beyond the traditional business incubator programs.

Q: How does Salt Flats differ from typical incubators & startup accelerators? 

Business Incubators and startup accelerators are focused on startup development.  Salt Flats Innovation House is focused on corporate development & corporate innovation.  With an incubator program, a corporation is a passive sponsor that can participate in events and some programing. With an Innovation House, such as Salt Flats Innovation House, you are a client focused on building your corporate strategy and changing your culture to adapt to the digital transformation of the market.

Q: What emerging technology are you most excited about in 2018 and why? 

Artificial intelligence, augmented and virtual reality, blockchain, and internet of things.  These technology platforms provide the best opportunity for new business model creation, market disruption and innovation acceleration.  2018 will be an exciting year.

To learn more about the innovation taking place at Salt Flats, visit our website at www.saltflats.co.

Salt Flats: A Revolution in Corporate Strategy

by Rod Collins, Innovation Sherpa at Salt Flats

The two timeless jobs of business leaders are strategy and execution. Strategy is “doing the right thing” and execution is “doing things right.” While both of these jobs are equally important, more often than not, far greater time and attention is devoted to execution. This is understandable because, historically, the work of strategy has usually been done in annual planning sessions whereas the work of execution is a daily preoccupation. This disproportionate focus on doing things right combined with a sense of overconfidence about what’s the right thing can sometimes foster an inadvertent occupational hazard: doing the wrong thing right. And as Peter Drucker once astutely observed, “There’s nothing more useless than doing the wrong thing right.”

When companies fall into this hazard, it’s often because business leaders become victims of their operational excellence. When you are very good at what you do, it becomes difficult to envision a future that is very different from the past. And while some within the company may clearly see the forces of creative destruction gathering on the horizon, their voices are often muted by a misplaced sense of confidence in current product and operating models.

Unfortunately, this occupational hazard can have fatal consequences as happened to Kodak when they couldn’t envision a world without film or Blockbuster who became over dependent upon late fees as their prime source of revenue. Each of these companies was operationally excellent at doing what once the right thing, but, which suddenly and surprisingly became the wrong thing because of disruptive innovations that dramatically transformed their long-established industries.

A Dynamic Strategic Discipline

Our mission at Salt Flats is very clear: to do everything possible to enable our members to always be on the leading edge of both defining and doing the right thing. The key to continuous market leadership is to follow a dynamic strategic discipline that understands that competitive market advantage belongs to those who know how to move beyond innovation, not to those who steadfastly work to preserve the status quo.

Those who know how to move beyond innovation understand that the new context of competition is not the industry, but rather the ecosystem. That’s because, in digitally transformed markets, disruptive innovation rarely comes from another industry player. It’s more likely to come from a start-up that is well-connected within an ecosystem of ideas and talent that’s unconstrained by the status quo. This new context of competition calls for a revolution in corporate strategy.

The New Work of Strategy

Corporate strategy is no longer an annual planning process that extrapolates recent industry trends into future business forecasts. The new work of corporate strategy is a continuous discipline of rapid learning focused on staying a step ahead of relentless change.

The Salt Flats Innovation House is a place where companies can hone their skills in the practices of rapid learning. Salt Flats Innovation House is a vibrant ecosystem where people from your organization can step away from the status quo and have the opportunity to leverage a diversity of perspectives from staff within your organization, from adjacent players in your industry, from start-ups who are exploring new product solutions, and from innovators whose transformative ideas may be transferable to your products and processes. Our innovative ecosystem accelerates the rapid exchange of information and ideas by bringing together specialists, entrepreneurs, operators, start-ups, engineers, and innovators in our highly powerful Collective Intelligence Workshops to identify breakthrough strategic opportunities for continued growth through innovation in business, product, or delivery models.

Applying the proven methods of Design Thinking and Lean Start-Up, we work together with you to leverage the full knowledge of our ecosystem to rapidly prototype ideas into products and verify that strategic innovations can translate into meaningful customer experiences that reinforce your reputation as the trusted and forward-thinking brand.  Rapid Prototyping within a robust ecosystem provides our corporate members with the necessary insight and certainty about what’s the right thing to do in fast-changing markets before committing major resources to full-scale execution.

Preparing for the Next Wave of the Digital Revolution

Within the next decade, the speed of digital disruption will rapidly accelerate as the Internet of Things connects everyone and everything into a single hyper-connected network. We are likely to see more change in the next decade than we have seen in the past twenty-five years. This means that the cadence of disruptive innovation is likely to increase and the landscape of competition will continue to shift from the industry to the ecosystem.

Competitive advantage will belong to companies who can rapidly adapt their business and delivery models to leverage the inter-connected platforms made possible by the exponential advances in IoT technology. And the market leaders in this next wave of the digital revolution will be those companies who have the skills and the tools to tap into the power of the ecosystem to envision a future that may be very different from the past.

Key Strategic Questions

What will your business look like when your product is digitally disrupted and fully networked? Are you prepared to leverage new technologies, new markets, new business models or new sales strategies into game-changing innovations that will transform your industry? These are the key strategic questions that business leaders across all industries will need to answer to remain viable in the next wave of technological transformation.

At Salt Flats, our purpose is to make businesses smarter and faster, and to help turn new ideas into huge innovations. Our members are the forward-thinking leaders who understand that the best way to prepare for the future is to create the future. And when you have the skills and the ability to create the future, you have a winning sustainable competitive advantage because in a rapidly changing world, it’s the most adaptable that thrive by making sure they never fall into the trap of doing the wrong thing right.

 

Digital Transformation – Part V: Blockchain May Be the Future of IT

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Digital Transformation – Part V: Blockchain May Be the Future of IT

by Rod Collins, Innovation Sherpa at Salt Flats

Morning Star is not your usual company. That’s because the 400-person California-based agribusiness has no supervisors. Rather than relying on the intelligence of an elite few, Morning Star is a highly successful self-managing peer-to-peer network that has skillfully leveraged the “power of many” to sustain its position as the world’s largest tomato processor.

From the beginning, the company’s founder, Chris Rufer, built his innovative enterprise on two core principles. First, individuals should keep their commitments to others. People at Morning Star are not handed assignments. Instead they negotiate Colleague Letters of Understanding with their co-workers, and, to assure everyone is honoring their commitments, the metrics associated with these agreements are published bi-weekly.

The second principle is that no individual should use force against others or their property. This means that no single person has the authority to issue an order or the ability to unilaterally fire another person. For the people at Morning Star, what they do and with whom they work are always collective decisions.

For over three decades, these two principles have served as a solid foundation to support an innovative management technology that is disrupting the way we build and lead human organizations.

Recently, there has been increasing buzz about another innovative technology—this time in the financial services world—that many believe has the potential to disrupt the way we build and organize IT systems. This technology is blockchain. Like Morning Star, blockchain is designed as a peer-to-peer network which, upon close examination, also follows Rufer’s two core principles.

Blockchain

Blockchain is the creation of an anonymous individual or group of individuals who, using the pseudonym Satoshi Nakamoto, published a short paper in 2009 that outlined an unconventional peer-to-peer system that allows users to directly transact business without the need for any intermediaries.

Blockchain is a distributed ledger system that uses a network consensus to record and execute transactions. It’s best known as the platform for the Web currency Bitcoin. Blockchain’s most distinguishing characteristic is that no single agent has the ability to execute control over system activity. Or to use Rufer’s words, no individual can engage in coercive activity against another person or their property.

To understand how blockchain works, consider this analogy—which while admittedly simplified—conveys the basic sense of this paradigm shift in systems architecture. Imagine you are attending an auction, along with 300 other people, to bid on the numerous treasures and heirlooms from the estate of a recently departed collector. Let’s also imagine that the 300 auction participants are a blockchain community. As the auction proceeds, there is a particular painting that you would like to bid on, but you can’t afford to spend more than $2,000. As the bidding proceeds, you find yourself in a competition with another participant who bids the painting up to $2,500 and wins the bid.

Because the auction is using blockchain, recording this transaction requires the majority of the 300 people in the room to agree that the particular painting was sold for $2,500 to the competing bidder and to affirm he has the cash to pay for the painting. Once consensus is reached, the transaction is grouped and recorded with other bidding transactions into a block, which is permanently timestamped and connected into a chain with other blocks of transactions from the auction, hence the name blockchain.

When a block is connected to the chain, it is immutable and can never be altered. In addition, these blocks are not recorded in a single central ledger, but rather into a distributed ledger, which means that all of the participants have their own individual copies of the ledger. This makes it difficult for a single individual to commit fraud because all copies of the ledger would need to be changed to pull off the counterfeit transaction. As Jaron Lanier, the author of Who Owns the Future?, succinctly puts it, “You can fake an ID, but you can’t fake a thousand concurrent views of the person you are falsely pretending to be.”

Any modification to a transaction has to be recorded as a separate immutable entry in a new block that references the timestamped original transaction. This means that, if after the event, the winning bidder, who also happens to be the brother-in-law of the auctioneer, tries to persuade the auctioneer to accept a lessor amount for the painting and change the recorded transaction because “we’re family,” the auctioneer would be unable to do so because adjusting the record would require a completely new transaction that would need to be agreed upon by the blockchain community. Obviously, the majority of the auction participants are not going to affirm a false entry.

Extinguishing the “Power of One”

This game-changing systems architecture is likely to revolutionize the way we build IT systems because it has the potential to eradicate most hacking and fraud activity and would provide a solid solution for the first big job to be done that we discussed in Part IV of this series: to transition all IT systems to a new platform that completely extinguishes the “power of one.”

The problem with our current IT structure is that by keeping data in centralized systems, once a system is breached, a hacker has complete access to all the information and is free to use his or her “power of one” to singularly execute actions that can wreak havoc on unsuspecting victims. This ability is lost in blockchain because hackers will be powerless to influence the “power of many” who will not be inclined to go along with illicit actions.

Smart Contracts

Another innovative characteristic of blockchain is that it has the capacity to create what are known as “smart contracts.” In typical business arrangements, expectations and agreements between parties are usually memorialized in written contracts, with the understanding that each of the parties can trust the others to act according to the terms of the contract. If that trust is breached, the parties have the option to sue each other in legal proceedings, which are often prolonged and costly. Smart contracts eliminate the possibility of breaches by transforming the foundation of trust from reliance upon the good intentions of others to credence on a basic attribute of the blockchain system

With smart contracts, agreements and expectations are built into the system, making it difficult, if not impossible, for one party to violate the terms of a contract. Thus, any time there is a transaction, recording it on blockchain requires an affirmation that the action is consistent with the terms of the smart contract. In other words, Rufer’s principle that individuals should keep their agreements with others is a core pillar of the basic architecture of blockchain systems.

Creating a New Economic Engine

Blockchain also provides a foundation for solving the second big job to be done referenced in last month’s blog: to create a new economic engine to preserve the middle class as the number of jobs are dramatically reduced. As mentioned above, blockchain is the architecture used for the cryptocurrency in Bitcoin. This means that blockchain has the capacity to calculate value. At this time, the mathematical dynamics for calculating cryptocurrency are relatively basic. However, as the evolution of the Internet of Things (IoT), the emergence of artificial intelligence, and the phenomenon known as Moore’s Law continue to accelerate the technology revolution, there is a strong possibility that blockchain systems architecture will develop the capability to create sophisticated algorithms that can accurately calculate the economic value that people contribute by their participation in network activity. This value is likely to take the form of a cryptocurrency that will be valid tender in specific economic markets.

If you are wondering how this form of currency might work, let’s look at an early precursor of this type of value creation with which we are all familiar: frequent traveler points. Frequent traveler points are a form of currency that have real economic value in specific markets. In addition to booking flights and hotel rooms, these points can be used for a wide range of approved retail purchases from dedicated catalogues. Similarly, once algorithms have the wherewithal to calculate the relative value of our participation on social media sites or our contributions to the quality of Wikipedia articles or Google searches, we can be fairly compensated in cryptocurrency for our activity in these new economic platforms. When we have this capability, the pervasive problem of the inherent wealth inequality in the current structure of the Internet will begin to resolve itself as more people have a vehicle for wealth creation in a digitally transformed economy.

While blockchain is clearly in its infancy and has many bugs to be worked out and applications to be developed, the network-based architecture of this innovative technology promises to go a long way in making sure the benefits of digital transformation significantly outweigh the dangers and that these benefits are shared by all as we continue to discover new ways to create wealth.   

This article was originally published in the Huffington Post.

Digital Transformation – Part IV: The Two Big Jobs To Be Done

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by Rod Collins, Innovation Sherpa at Salt Flats

One of Peter Drucker’s most popular and enduring business quotes is, “The best way to predict the future is to create it.” This advice has never been truer than it is today as the technologies of digital transformation are changing all the rules for how the world works by displacing top-down hierarchies that amplify the “power of one” with more powerful peer-to-peer networks that enable the “power of many.”

Another famous Drucker quote is, “If you don’t understand innovation, you don’t understand business.” That’s because when your job is to create the future—which is the fundamental responsibility of the business leader—you better have a firm grasp of how innovation works.

Understanding The Job To Be Done

Perhaps no one has advanced our knowledge on the workings of innovation more than Clayton Christensen, whose many books on the topic have become essential reading for twenty-first century business leaders. In his most recent book Competing Against Luck, which he co-wrote with Taddy Hall, Karen Dillon, and David Duncan, Christensen emphasizes that the starting point for innovation is often uncovering what he calls “the job to be done.” Whereas most attempts at business innovation often start with a product idea, Christensen urges business leaders to step back and take the time to uncover what problem customers are “hiring” their product to solve. If they fully understand that problem and use that knowledge to guide what products to make, they will not only delight their customers, but they may very well create something that has never existed before, which is the essential task of innovation.

As the structural organization of the world continues its rapid shift from hierarchies to networks, the digital transformation that is driving this transition is not only creating powerful new capabilities, such as the Internet of Things, artificial intelligence, nanotechnology, and robotics, it is also creating unprecedented problems that need to be solved—or as Christensen would describe it, new jobs to be done. In particular, there are two pressing big jobs to be done, which if not solved, could unfortunately mutate digital transformation into digital destruction.

Big Job #1

The first and most immediate big job to be done is to transition all IT systems to a new platform that completely extinguishes the “power of one.” Just within the past few weeks, we have learned of yet one more massive security breach—this time into Equifax’s sensitive data base—affecting over 143 million people. What’s most alarming is that the number of instances of these types of security failures have become so common, we have almost come to accept them as facts of life rather than as totally unacceptable problems to be solved.  

The unpleasant reality is that this problem represents a clear and present danger because the power to create large scale catastrophes is reaching the hands of more and more people as connected technologies become more powerful and more ubiquitous. As connectivity expands, data is becoming increasingly more vulnerable and open to exploitation and irreparable loss of control, e.g., ransomware and increasing identity fraud.

The root cause of this problem is that conventional IT systems, which use hierarchical control mechanisms, are no longer “moated” structures once they are interconnected on the Internet. The combination of hierarchically structured controls in an increasingly networked world is toxic because any smart hacker can use the network to break into most, if not all, conventional IT systems, and once in the system, can easily figure out how to manipulate its single point of control mechanisms, such as passwords. In a hyper-connected world, traditional control mechanisms that act like singular keys to allow individuals to access data are rapidly becoming perilous liabilities.

The continued maintenance of centralized computing architectures in a hyper-connected world is unsustainable because with single points of control, companies are increasingly vulnerable to crashes, fraud, and security breaches. More ominously, the possibility of surreptitious and total surveillance by both government and nongovernment actors is now a reality. These circumstances will get worse, not better, unless we correct for the toxic mix between networked technologies and hierarchical IT structures.

The solution is to replace singular control mechanisms with collective intelligence dynamics and replace the “power of one” with the “power of many.” In other words, we need a networked security architecture for a networked world that requires a consensus among a set of multiple actors to validate an action. This type of architecture would have likely prevented the Equifax breach.

Big Job #2

The second big job is to create a new economic engine to preserve the middle class as the number of jobs are dramatically reduced. Society is entering a new phase in which fewer and fewer workers are needed to produce and distribute all the goods and services consumed.

Jaron Lanier, the author of Who Owns the Future?, cites the examples of Kodak and Instagram to demonstrate this phenomenon. Kodak, at its peak, employed more than 140,000 people and was worth $28 billion. When Instagram was sold to Facebook for a billion dollars in 2012, it employed only 13 people.  Instagram’s value doesn’t primarily come from 13 people, but rather from the millions of users who contribute to the network without being paid for it. Today’s networked economy is a form of a feudal system, where many people contribute work but only a small number get paid.  This has the net effect of centralizing wealth and limiting overall growth. An economy that fails to compensate the prime contributors of value is not a sustainable system.

Another troubling development is that, for the first time in human history, technology and automation are no longer replacing displaced jobs with better and higher paying jobs. As a consequence, the longstanding Industrial Age concept of a job may become obsolete.

While most of us understand that the technology revolution will rapidly displace all manual jobs with robots and 3D printers, few of us have recognized that automation has begun to displace knowledge and service jobs. If enough jobs are eliminated, the customer base will dwindle rapidly. And if there are no customers, the economy as we have known it may collapse. Perhaps, this explains why Elon Musk and Mark Zuckerberg have both become proponents for the notion of universal basic income. However, such a notion is a short-sighted solution and an attempt to ignore Albert Einstein’s sage insight that, “We can’t solve problems using the same kind of thinking we used when we created them.” We are surely capable of a more creative and a more reliable solution.

The real problem is not the disappearance of jobs, but rather the disappearance of the primary mechanism for compensating people for the value they contribute to the overall economy. The notion of a universal basic income is short-sighted because it separates compensation from value contribution. The real issue is that, in these early years of a digitally transformed world, nobody knows how to value contributions in a networked information economy. The traditional concepts of economic value are rapidly becoming obsolete in a hyper-connected world. Plant, property, equipment and labor are no longer the meaningful categories of value. They are being replaced by data, information, intelligence, and contribution.

If we want to preserve the middle class, we need to change how the economy works. We need to create new economic mechanisms that can accurately, fairly, and sufficiently measure and distribute economic value across the broad population of all network contributors.  In the new economy, most traditional labor will indeed be accomplished by robots, 3D printers, and artificial intelligence, and the economic value of individuals will no longer happen in the context of a job, but rather in the context of their contributions to networked activity. Because traditional accounting models were not designed to measure the value of data, information, intelligence, and contribution, we will also need a new accounting paradigm designed for a post-digital economy.

Developing a new practical paradigm of economic value as well as the means to equitably calculate the contributions of individuals who participate in value-generating networks is the biggest economic challenge of our times and the necessary solution to preserving the middle class. Fortunately, while digital transformation has created these perilous circumstances, it has also enabled the creation of a new relatively unknown tool—Blockchain—that may very well be the right platform at the right time to solve both of the two big jobs to be done. More on this in next month’s blog.

This article was originally published in the Huffington Post.

Digital Transformation - Part III: The Internet of Things Changes Everything

IoT Image.png

by Rod Collins, Innovation Sherpa at Salt Flats

In 2006, Don Tapscott and Anthony D. Williams described in their book Wikinomics how a new phenomenon they called mass collaboration was going to change everything. They recognized that this unprecedented capacity for self-organization would give rise to powerful new models of production based on distributed peer-to-peer networks rather than centralized top-down hierarchies. Tapscott and Williams envisioned a world where this new way of organizing would eventually displace traditional corporate structures as the economy’s dominant engine for wealth creation. At the time, many critics dismissed the two authors as being carried away by breathless hype and overstating the impact of the digital revolution. While these critics acknowledged the obvious reality of fast-paced technological innovation, they scoffed at the notion that new technologies would radically change the fundamental dynamics for how our social structures work.

Given that more than a decade later the top-down hierarchy continues to remain the dominant organizational structure, it might be tempting to conclude the critics are right and that the notion that mass collaboration changes everything is indeed nothing more than hype. However, closure at this point might be premature because there’s increasing evidence that we are on the cusp of a new second wave of the digital revolution, which promises to be far more transformative than the already disruptive first wave.

First Wave: The Internet

The first wave of the digital revolution emerged with the dawn of the new century when the Internet created new ways to connect people and get things done. One of the interesting developments of this first wave is that it hasn’t affected all industries equally. If you are in the media, entertainment, retail, or communications industries, your world has been thoroughly transformed. Stalwart names, such as Border’s, Blockbuster, Kodak, Tower Records, and the Encyclopedia Britannica, have been either disrupted or displaced by the upstarts Amazon, Netflix, Apple, Spotify, and Wikipedia. However, if you work in the healthcare, insurance, energy, food processing, or, until recently, the financial services industries, your world has not been heavily impacted by this first wave. For these core economic industries, digital transformation has been essentially limited to digitizing existing product models. Unlike the media and retail industries whose basic business models have been radically disrupted, the longstanding models of the core economic industries have remained essentially the same.

However, this is likely to soon change as we see early signs of the arrival of a new wave, which will leave no industry untouched. This second wave will be spawned by an incredibly powerful force, the Internet of Things (IoT), which will not only dramatically accelerate the capacity for mass collaboration, but as Tapscott and Williams foresaw, will indeed change everything.

Second Wave: The Internet of Things

Jeremy Rifken, in The Zero Marginal Cost Society, describes the emerging IoT as the first smart-infrastructure revolution in history because it will allow every human being and every thing to communicate with each other by connecting every machine, business, residence, and vehicle within a single comprehensive operating system. This infrastructure will rapidly take shape over the next decade as the number of sensors grows at exponential speed. In 2007, there were 10 million sensors, by 2013 we achieved 3.5 billion sensors, and by 2030, it is projected that 100 trillion sensors will connect to the IoT.

The IoT has already begun to create a superintelligent network that will allow humans to keep up with the pace of change by making everything more intelligent. According to Steve Case, the founder of AOL, the IoT transforms “the Internet from something we interact with to something that interacts with everything around us.”

One of the most important attributes of the IoT will be its ability to recognize weak signals before they become strong ones, allowing humans to recognize patterns before they cause problems. Weak signals are patterns that a human mind doesn’t notice because these signals are usually understated when they first emerge, and therefore, are likely to remain hidden in plain sight. Perhaps no industry will be more impacted by this attribute than the arguably biggest laggard in the first two decades of the digital revolution: healthcare.

Transforming Healthcare

While most hospitals today are full of smart devices, few of the sensors in these devices communicate with each other. Once these sensors are fully connected via the IoT, the practice of healthcare will be dramatically transformed. For example, the IoT will be able to warn patients—at home via Amazon’s Alexa or on a smartphone—of blood clots before impending strokes or heart attacks. Sensors linked to electronic medical records will allow the IoT to quickly diagnose a patient’s likely physical state to assist emergency medical personnel and expedite treatment. Skin patches will capture vital data, measuring heart rate, food consumption, and other factors, and will communicate this information to patients and providers through third-party apps. And these apps, using sensor data will become vital conduits of healthcare, providing reliable instant diagnoses.

Rather than waiting for the presentation of symptoms, the IoT will recognize the weak signals of cellular anomalies, notify both patients and doctors through apps, and even set up doctor appointments. As the IoT matures, it will automatically correct the medical malady and notify both patient and doctor of the aborted illness. When the IoT reaches this level of functionality, it will be humankind’s first experience of an omniscient system that will know everything about everyone. The system will have “divine-like” qualities because it will be able to benevolently and autonomously intercede to maintain continual health.

Driverless Cars

Another core industry that is likely to be radically transformed is the transportation industry. As short as five years ago, most of us would have thought the notion of driverless cars was either science fiction, or at a minimum, decades away. Yet, today driverless cars are a reality as Google is currently testing these autonomous vehicles on open roads and traditional automakers such as Mercedes-Benz, Nissan, and Audi are revamping their business strategies around this transportation game-changer. But chances are most of us underestimate just how transformative driverless cars will be. That’s because we assume that driverless cars will be individually driven, as autos are today—the only difference being the computer will be at the controls instead of a human operator. Although that may be the initial modus operandi, the ultimate operating system for these autonomous vehicles is likely to be shaped by the IoT.

Because each driverless car is a collection of smart sensor devices that can be interconnected into a holistic network, the IoT will be able to aggregate and leverage the collective intelligence distributed throughout the network to drive all the vehicles concurrently. In other words, no longer will individual drivers, whether human or automated, be making individual decisions by anticipating what other drivers will do. Rather the IoT system will be making proactive decisions for all the driverless cars with the full knowledge of what each car is doing in real-time. This holistic driving capability has the potential to drastically reduce car accidents. It also means that driverless cars will essentially become a highly sophisticated automated mass collaboration system.

Accelerating the Network Effect

 Healthcare and transportation are just two examples of how all industries will be revolutionized by the fundamental architectural shift from bureaucratic hierarchies to digitally transformed networks. Similar metamorphoses are already happening in financial services as blockchain technology eliminates the need for financial intermediaries and will likely happen in energy as individuals bypass corporations to form their own networks for exchanging solar energy.

The Internet of Things will change everything because by connecting every person and every thing into a single global network, the IoT will accelerate the network effect and set in motion the evolutionary sequence of the three laws of networks, described in Part I of this series: the law of connections, which shifts power from elites to peers; the law of self-organization, which creates the conditions for mass collaboration; and the law of collective intelligence, which produces extraordinarily intelligent results at incredibly fast speeds.

However, while the second wave of the digital revolution portends much promise for the future capabilities of humanity, these wondrous possibilities are not guaranteed. That’s because a byproduct of the acceleration of the network effect is the emergence of two massive jobs to be done, which if not handled properly, could very well wreak havoc on all of us. More on this in next month’s blog.

This article was originally published in the Huffington Post.

Digital Transformation - Part II: Collective Intelligence Is the Game Changer

The science fiction writer William Gibson once astutely observed, “The future has already arrived; it’s just not evenly distributed.” As described in last month’s blog, our future is a digitally transformed world that will usher in an entirely new human epoch where the dominant top-down hierarchical structures of the first 10,000 years of human civilization will rapidly give way to the far more powerful peer-to-peer network architecture that is now possible, practical, and increasingly more pervasive thanks to the proliferation of digital technology. However, despite the increasing evidence of the ascendance of hyper-connectivity, our rapid transformation to a fully networked world remains hidden in plain sight. Although we use our connected iPhones to do Google searches as we step into an Uber car on our way to close a deal we made on eBay, we are in many ways oblivious as to just how radically the world is changing around us. Our tools may be networked and digital, but the world we carry around inside our heads is still very hierarchical and linear. It’s an unsustainable situation, and we know how this ends: The future always wins, and it’s just a matter of time before the future will become very evenly distributed.  

The Power of Many

The prime distinction between hierarchies and networks is that hierarchies are designed to leverage the “power of one,” while networks naturally enable the “power of many.” That is why networks are so much more powerful. Perhaps you may be thinking, if networks are so superior, why is it that hierarchies have shaped our social architecture for all this time? The simple answer is, until the digital technology revolution, we had no way to effectively bring people together into cohesive real-time networks. In the absence of this capability, the best we could do to coordinate the activities of large numbers of people was to build sophisticated hierarchical structures. The fundamental assumption underlying what was once the greatest human organizational innovation is that, by leveraging the individual intelligence of the elite leaders at the top, the whole organization is smarter than it otherwise would be if people were left to their own judgments. And for many centuries, this supposition was true.

However, the current technology revolution has spawned a new and very different innovation in organizational structure that has completely nullified this centuries-old assumption. In the hyper-connected network, the smartest organizations are not the ones with the smartest individuals, but rather those with the capacity to rapidly aggregate and leverage their collective intelligence.

What makes networks so superior is that they are distributed structures that are far more resilient because, unlike centralized structures, distributed structures don’t have single points of failure, which are the Achilles’ heel of command-and-control organizations. If you can disable a leader in a hierarchy, you can often disable the whole organization. This is not so with networks. Instead of leveraging the individual smarts of an elite few, networks leverage the collective intelligence of everyone in the distributed system, thus eliminating single points of failure in complex organizations. This eradication is the great game changer and, arguably, the single most important attribute of digital transformation.

The Wisdom of Crowds

 In his seminal book, The Wisdom of Crowds, James Surowiecki provides numerous examples of where, under the right conditions, distributed groups are highly intelligent and consistently outperform even the smartest individuals among them. He describes how the sports bookmakers at the Mirage assure the reliable profitability of the betting operations at the Las Vegas hotel by relying on the collective judgments of the gamblers to set the betting lines, how Linus Torvalds defied logic by introducing the phenomenon that has come to be known as crowdsourcing to build the highly successful Linux operating system, how the World Health Organization rapidly deployed a global networked communications structure to rapidly solve the SARS threat before it could spread to pandemic proportions, and how Google, a late entry into a crowded field of upstarts, established quick dominance of the search engine market when a pair of Stanford graduate students discovered a way to use the collective intelligence of the users to rank the pages.

Despite these compelling examples, tapping into the wisdom of the crowd is more the exception than the rule. Perhaps that’s because accessing collective intelligence is not as easy as it may appear. There are many leaders who feel that they are tapping into this resource by gathering different perspectives into a room and managing a spirited discussion among the multiple points of view before making an executive decision. While they may be well-intentioned, this is not how collective intelligence works.

Surowiecki specifies four conditions that are necessary to access the wisdom of the crowd:

·      Diversity of opinion: Having different perspectives—even eccentric notions—broadens the available information, provides the capacity for evolving ideas, makes it easier for individuals to be candid, and protects against the negative dynamics of shortsighted groupthink.

·      Independent thinking: Each individual is free to express his or her own opinions without editing and without any pressure to conform to the beliefs of others in the group. Surowiecki makes the point that “paradoxically, the best way for a group to be smart is for each person in it to think and act as independently as possible.”

·      Local knowledge: To truly access collective intelligence, the group must be able to draw upon specialized and localized knowledge because the closer a person is to the problem or the customer, the more likely he or she is to have a meaningful contribution.

·      Aggregation mechanisms: A distributed system can only produce genuinely intelligent results if there are processes or algorithms for integrating the content of everyone’s observations and opinions.

The Importance of Aggregation Mechanisms

Without all four conditions, accessing collective intelligence is not possible. That is why the leader who gathers different perspectives into a lively discussion is not tapping into the collective wisdom of the group. Although he or she may have access to multiple perspectives and have input from people with extensive local knowledge, chances are organizational politics is interfering with true independent thinking and when the leader is processing the consolidation of the information, there is clearly no aggregation mechanism. Google, on the other hand, has all four attributes. The billions of users assure diversity of opinion as well as sufficient local knowledge, people are free to exercise individual choice of the pages to view, and sophisticated algorithms serve as highly effective aggregation mechanisms.

Of the four conditions, perhaps the most important is the use of aggregation mechanisms. This is why so much of social media is dysfunctional. Popular sites such as Facebook and Twitter have the first three attributes, but are clearly devoid of aggregation mechanisms. And so, while we have diversity of opinion, independent thinking, and a great deal of local knowledge, without a way to aggregate the different contributions, we have a cacophony of chaos that divides us into myopic tribes and reinforces a highly polarized climate in which compromise and, even more so, consensus becomes impossible. This is the dark side of our hyper-connected world.

The Great Challenge

The great challenge for social media sites going forward is to become platforms that contribute to the best—and not the worst—that humans have to offer. To do so they need to find ways to develop sophisticated aggregation mechanisms that are capable of accessing and leveraging the collective intelligence of their users to transform tribal positions into innovative solutions that promote the common good. Creating this collective intelligence capability, while admittedly not easy, is the greatest contribution that social media sites could provide humanity for building a better future.

If we are to create this better future, we will need to change the world we carry inside our heads—a world that has been ingrained since the first day we stepped into a schoolroom. There we learned that human intelligence was an attribute of individuals and that knowledge is advanced through a competition of ideas. There is nothing in our educational histories that has prepared us for a world of networked intelligence that has suddenly actualized what used to be a platitudinous sentiment: Nobody is smarter than everybody.

We hold onto old mindsets about human intelligence because, as Surowiecki points out, “One of the striking things about the wisdom of crowds is that even though its effects are all around us, it’s easy to miss, and, even when it’s seen, it can be hard to accept.” Simply put, the phenomenon of collective intelligence has been hidden in plain sight because it defies all our beliefs about how intelligence works. But whether we believe it or not won’t matter for much longer because we are on the threshold of one of the most consequential events that will reshape the human experience and accelerate the evolution of both human and artificial collective intelligence: the connection of all humans and things via the Internet of Things (IoT). More on this in next month’s blog.

This article was originally published in the Huffington Post.

Digital Transformation - Part I:   It’s All About Networks

by Rod Collins, Innovation Sherpa at Salt Flats

In his recently published book, The Seventh Sense: Power, Fortune, and Survival in the Age of Networks, Joshua Cooper Ramo relates the story of one the most closely guarded secrets during the early years of the Cold War: If the Soviet Union had engaged in a nuclear first strike, it was highly likely the United States would have been unable to respond. That’s because the American field officers and their commanders in Washington would have had no way to communicate with each other. Consistent with the technology at the time, the American radio and telephone systems were highly centralized, which made them also highly vulnerable. One of the key structural problems of centralized systems is that each regional center has the potential to become a single point of failure that can disrupt the entire system, as often happens when air traffic across a nation is snarled because of unexpected weather at a major hub. Fortunately, this national security vulnerability was corrected with an innovative solution: the distributed network.

Recognizing the urgency of this challenge, Paul Baran, who at the time was with the joint venture between the U.S. Air Force and the Douglas Aircraft Company known as RAND, devised a way of building messaging systems without any central hubs. Each message would be able to find its own path from point A to point B. Thus, if any part of the system was disrupted, the remaining pathways in the network could resiliently adapt to route all the traffic in the system with minimal disruption. This structural shift from centralized systems to distributed networks, which solved a critical military problem in the 1950’s, would turn out to be a harbinger of a dramatic phenomenon that would shape the early twenty-first century: digital transformation.

Digital Transformation

There is no topic that is both more important and more confusing to business leaders than digital transformation. With the deluge of articles and keynote speeches on how the digital revolution is accelerating radical change, you would think that there would be more clarity about this pervasive phenomenon. Instead there is general sense of confusion reminiscent of the Buffalo Springfield lyric: “There’s something’s happening here; what it is ain’t exactly clear.”

What we do know is that none of us could live without what are now necessary gadgets that just a mere decade ago were figments of our imaginations. We also know that these marvels are changing our lives more profoundly than any of the progression of the twentieth-century gadgets spotlighted in Disney World’s Carousal of Progress.  What isn’t clear, however, is the extent to which the technology revolution has not only transformed our gadgets but also the fundamental fabric for how the world works. And until business leaders understand the full extent of the profound changes spawned by the technology revolution, digital transformation will remain an elusive enigma.

More Than a Technology Revolution

The first thing we need to understand is that digital transformation is not just a technology revolution; it is far more importantly, the most significant socioeconomic revolution in human history.  We are in the middle of an unprecedented inflection point in the development of civilization—the transition from the first human epoch where centralized hierarchies that leveraged individual intelligence were the basis of social organization to the second human epoch whose social structures will be highly sophisticated distributed networks capable of rapidly leveraging human and artificial collective intelligence. This fundamental architectural shift from hierarchies to networks is the essential evolutionary dynamic of digital transformation and is changing the world rapidly and profoundly, and there is nothing that can stop this change. 

In the next decade, we will experience two of the most consequential events in human history: the connection of all humans and things via a common digital network and the proliferation of human collective intelligence via artificial intelligence systems. This transition represents a seismic qualitative shift in the human experience because humanity itself will be transformed. The key building blocks for solidifying this shift are already in place; they just need to be configured.

An Architectural Shift

The next thing we need to understand is how networks work. That’s because, as Paul Mason presciently observes in his book Postcapitalism, “the ‘intelligent machine’ was not the computer but the network.” In other words, it’s not the gadgets that are intelligent, but rather the underlying networks of people and data that connect to the gadgets. What makes the gadgets so powerful is that for the first time we have the wherewithal to rapidly aggregate and leverage the global collective intelligence of human and data networks. And now that we have this capacity, an inevitable evolutionary shift has been set in motion, and when it is complete the fundamental architecture and the basic rules for how all our socioeconomic institutions work will be radically transformed.

 

When we think of architecture, what comes to mind are beautiful buildings or elaborate edifices. We rarely think of architecture as something that explains how societies or economies work. And yet without social architecture, much of what we experience as everyday life would not be possible.

A fundamental social architecture must answer two questions: 1) How does power work? and 2) How do things get done? In hierarchies, power belongs to those in charge and things get done through the application of centralized control mechanisms. Thus, hierarchical structures leverage the individual intelligence of the elite to organize the work of large numbers of unconnected people.   In networks, however, power belongs to the connected and things get done through the application of collective intelligence dynamics that enable the self-organization of work among large numbers of people. Thus, the prime distinction between hierarchies and networks is that hierarchies are designed to leverage the “power of one,” while networks naturally enable the “power of many.”

Networks Outperform Hierarchies

Hierarchies and networks are not equal alternative structures in a hyper-connected world. Networks tend to outperform hierarchies by a wide margin in terms of both intelligence and speed, as we learned in the summer of 2011 when Firas Khatib, a biochemist at the University of Washington, turned to Foldit to solve a stubborn molecular puzzle that had stumped the world’s best scientists for over a decade.

Foldit is a collaborative online video game developed by the University of Washington that enlists players worldwide to solve difficult molecular problems. What’s most interesting about Foldit is that many of the more than 250,000 players have little or no background in biochemistry. There are no special requirements for joining the Foldit community—all comers are welcome.

The stubborn puzzle involved figuring out the detailed molecular structure of a protein-cutting enzyme from an AIDS-like virus found in monkeys. Cracking this puzzle could be the breakthrough needed to arrest the medical malady. When Khatib presented the molecular challenge to the Foldit community, what had evaded the world’s best individual scientists for ten years was amazingly solved by the collective intelligence of a diverse group of online gamers within only ten days.

The Network Effect

Although, it may seem counterintuitive, networks are far more effective and efficient than hierarchies because, by leveraging the distributed intelligence of the many rather than the smarts of the elite few, networks accelerate the path to knowledge. This acceleration is a byproduct a what is known as the network effect, which is achieved when networks reach a sufficient level of critical mass to give rise to the sequential evolution of three laws:

·      The law of connections: the simple act of connection changes the fundamental dynamics for how power works by shifting the locus of power from elites to peers.

·      The law of self-organization: When the power shift is complete, peers begin to self-organize their efforts in autonomous and often unexpected ways.

·      The law of collective intelligence: When a network achieves an effective level of self-organization, it develops the capacity to rapidly aggregate and leverage its collective intelligence, often producing extraordinarily intelligent results at incredibly fast speeds.

 As the fundamental architecture for how the world works rapidly shifts from hierarchies to networks, our public and private sector leaders are severely challenged because, as Ramo, notes, “We’re at an extremely primitive point in our understanding of networks.” Rapidly increasing our understanding of how networks work and how to lead them is the most important leadership challenge of our day. Leaders can no longer afford to build centralized organizations where supervisors with the legitimate authority to kill good ideas or keep bad ideas alive become legions of single points of failure. If leaders want to build resilient organizations that have the wherewithal to rapidly adapt to disruptive change, the first task of digital transformation is to learn how to build and lead highly effective distributed networks.

This article was originally published in the Huffington Post.

 

Nobody Is Smarter or Faster Than Everybody

Nobody Is Smarter or Faster Than Everybody

One of the deepest beliefs of command-and-control management is the assumption that the smartest organization is the one with the smartest individuals. This belief is as old as scientific management itself. According to this way of thinking, just as there is a right way to perform every activity, there are right individuals who are essential for defining what are the right things and for making sure that things are done right. Thus, traditional organizations have long held that the key to the successful achievement of the corporation’s two basic accountabilities of strategy and execution is to hire the smartest individual managers and the brightest functional experts.

Command-and-control management assumes that intelligence fundamentally resides in a select number of star performers who are able to leverage their expertise across large groups of people through proper direction and effective control. Thus, the recruiting efforts and the promotional practices of most companies are focused on competing for and retaining the most talented people.  While established management thinking holds that most individual workers are replaceable, this is not so for those star performers whose decision-making and problem-solving prowess are heroically revered. Traditional hierarchical organizations firmly believe in the myth of the individual hero. They are convinced that a single highly intelligent individual can make the difference between success and failure, whether that person is a key senior executive, a functional expert, or even a highly paid consultant.

However, in a rapidly changing world, it is becoming painfully obvious to harried executives that no single individual or even an elite cadre of star performers can adequately process the ever-evolving knowledge of fast-changing markets into operational excellence in real-time. Eric Teller, the CEO of Google X, has astutely recognized that we now live in a world where the pace of technological change exceeds the capacity for most individuals to absorb these changes in real time. If we can’t depend upon smart individuals to process change in time to respond to market developments, what options do business leaders have?

Nobody Is Smarter Than Everybody

 If business executives want to build smart companies in a rapidly changing world, they will need to think differently and discover the most untapped resource in their organizations: the collective intelligence of their own people. Innovative organizations, such as Wikipedia and Google, have made this discovery and have leveraged the power of collective intelligence into powerful business models that have radically transformed their industries. The struggling online encyclopedia Nupedia rescued itself from oblivion when it serendipitously discovered an obscure application known as a wiki and transformed itself into Wikipedia by using the wiki platform to leverage the power of collective intelligence. In less than a decade, Wikipedia became the world’s most popular general reference resource. Google, which was a late entry into a crowded field of search engine upstarts, quickly garnered two-thirds of the search market by becoming the first engine to use the wisdom of crowds to rank web pages. These successful enterprises have uncovered the essential management wisdom for our times: Nobody is smarter or faster than everybody.

Two other companies that understand this management wisdom are W. L. Gore & Associates and Morning Star, both of whom have designed their organizations to leverage collective intelligence by eliminating all bosses. In both of these organizations, no one has the authority to make assignments or to control the work of other individuals. Rather than building top-down hierarchies, the founders of these companies designed their organizations as peer-to-peer networks that leverage the collective intelligence of the people who actually do the work to decide what to do and how to do it. And both have achieved remarkable success. Over its six decades, W. L. Gore has made a profit every year it has been in production and is perennially on Fortune’s list of the Best Companies to Work For. Morning Star, which was founded in 1970, has used what they term “self-management” to become the world’s largest tomato processor.

What all of these organizations have in common is a shared value that the smartest organizations are not the ones with the smartest elite individuals, but rather the ones who have the capacity to quickly aggregate and leverage the collective intelligence of everyone in their organizations.

A Counterintuitive Reality

Until recently, the notion that nobody is smarter or faster than everybody has been little more than a nice-sounding platitude that no one really believed. After all, unless you were one of the few who attended Montessori schools—which Google co-founders Larry Page and Sergey Brin did—most of us were reared in an educational system that worshipped at the altar of individual intelligence. From grade school through college, our academic success was measured by individual grades not our contributions to teams of mutual learners. We learned to compete rather than to collaborate with our fellow students. In fact, what enlightened companies call collaboration is considered cheating in most academic settings.

While smart individuals are important in any organization, it isn’t their unique intelligence that is paramount but rather their unique contributions to the overall intelligence of teams. That’s because the blending of the diverse perspectives of different types of intelligences is often the fastest path to the solution of complex problems, as we learned in the summer of 2011 when a diverse group of over 250,000 experts, non-experts, and unusual suspects in a scientific gaming community called Foldit, solved in ten days a biomolecular problem that had alluded the world’s best scientists for over ten years. This means a self-organized group that required no particular credentials for membership was 365 times more effective and efficient than the world’s most credentialed individual experts. Similarly, the non-credentialed contributors of Wikipedia were able to produce approximately 18,000 articles in its first year of operation compared to only 25 articles produced by academic experts in Nupedia’s first year. This means the wisdom of the crowd was 720 times more effective and efficient than the individual experts.  These results are completely counterintuitive to everything that most of us have been taught about how intelligence works. However, as counterintuitive as this may seem, the preeminence of collective intelligence has suddenly become a practical reality thanks to proliferation of digital technology over the last two decades.

As we move from the first wave of the digital revolution, which was sparked by connecting people via the Internet, to the second wave where everyone and everything will be hyper-connected in the emerging Internet of Things, our capacity to aggregate and leverage collective intelligence is likely to accelerate as practical applications of artificial intelligence become everyday realities.

The New Organizational Challenge

In a digitally disrupted world, the new challenge of managing large numbers of people is not about finding an elite few smart individuals and giving them the power to command and control the work of others; it’s about building an environment and a culture that naturally and rapidly integrates the intelligent contributions of everyone within an organization. This is what Wikipedia, Google, W. L. Gore, and Morning Star have done very successfully over the span of several decades. Each, in its own way, is a highly developed knowledge network with the capacity to leverage the wisdom of crowds to keep up with a relentless accelerating pace of change.

As we progress deeper into the Digital Age, more managers will come to understand that they can no longer survive by assuming the role of engineers and controllers manipulating the levers of order and authority. Managing at the new pace of change means that managers are now pathfinders and facilitators leading their organizations in partnership with their workers on collective quests for knowledge and speed in service of their customers. Managers skilled in both the social and the systems technologies of collective intelligence understand well that the smartest company is the one with quick access to collective intelligence and they also fully appreciate that, now more than ever, nobody is smarter or faster than everybody.

This article was originally published in the Huffington Post.

What Every Company Should Learn From United Airlines

by Rod Collins

The recent outrage over the violent removal of a boarded paying customer to make room for a commuting employee clearly caught United Airlines by surprise. As the facts of this troubling situation unfolded, it appears that the airline’s customer service representatives and its executives were initially convinced that the only real problem that happened during the boarding process of Flight 3411 was a passenger’s refusal to accept the airline’s re-accommodation policy. Within 24 hours of the incident, United’s CEO praised his employees in an internal memo for their adherence to company policy, reinforcing his commitment to stand behind them in their proper handling of a “belligerent” customer who refused to give up his seat in deference to corporate wishes. It appears from the memo that the CEO was certain the airline did everything right and that the passenger did everything wrong.

However, in the subsequent 24 hours, that certainty was shaken when a social media firestorm and a significant drop in United’s stock price brought a healthy sense of reality to the airline’s executive suite. The CEO began rapidly walking back his initial comments and shifting into full damage control mode when he realized, as far as the public was concerned, the passenger did nothing wrong and United did nothing right. How could United have gotten this so wrong, especially when you consider that this wasn’t the first time that United’s blind adherence to a bureaucratic policy created a social media firestorm that tarnished their brand. Had the late Yogi Berra been a passenger on this infamous flight, he might have commented, “See I told you, it’s déjà vu all over again.”  

“They’re Throwing Guitars Out There!”

In the summer of 2008, Dave Carroll and his band were traveling on United Airlines from Halifax, Nova Scotia to Omaha, Nebraska, where they were scheduled to perform. While they were sitting at the gate on their connecting flight at Chicago’s O’Hare Airport, Dave heard someone behind him exclaim, “They’re throwing guitars out there!” Dave’s eyes widened in horror as he looked out the window just in time to see his $3,500 Taylor guitar sail through the air and crash to the ground. When he arrived at the baggage claim in Omaha, he confirmed his worse fears: The neck on his beloved six-string was split in two.

Fortunately for Dave and the band, none of their other instruments were damaged and they were able to fulfill their concert obligations. Once things settled down after the hectic activity of the setups, rehearsals, and performances, Dave placed a call to United to register his claim with the airline for the expensive repair of his guitar. He was stunned when the customer service representative told him that there was nothing that the airline could do to help him and that the repair was his responsibility. According to United’s policy, all claims for damages must be filed within twenty-four hours, and Dave had missed the deadline. Dave protested that he had actually witnessed the irresponsible handling of his precious cargo and it was wrong for United to shirk its responsibility to its paying passengers by hiding behind a rigid policy. Despite his continued attempts over the next nine months, nobody up the chain of command would budge. The policy was quite clear, and it was evident that policy compliance was a prime value at United.

A Viral Solution

Realizing that he was at the end of the line with United’s brass, Dave took a different tack and posted a YouTube video of him and his band playing an original song entitled “United Breaks Guitars.” On its first day, the video received 150,000 hits. By day three, it had gone viral with more than 500,000 hits and caught the attention of United’s executives. The airline had a change of heart and called Dave to let him know that it might be willing to make an exception to its policy. United also asked if Dave might consider taking down the video. Dave responded that there was no way he was removing what had suddenly become his best marketing tool. Besides, he no longer needed to repair his guitar because Bob Taylor, the owner of Taylor Guitars, was so pleased with the positive publicity that he was receiving from the video that he gave Dave two replacement guitars to express his gratitude.

As of today, the original video has been viewed over 17 million times. Dave’s meteoric rise at the expense of what was once known as the “Friendly Skies” continued with the 2012 publication of his book on the power of one voice in the new world of social media. If there’s one airline that should have known from direct experience the power of social media, it’s clearly United Airlines.

The Power of One Voice in a Hyper-Connected World

When we heard Dave Carroll’s voice in protest against his mistreatment by United, it was a light-hearted parody spoofing the mindlessness of rigid bureaucratic policies that all too often defy human decency. We laughed along with Carroll and admired the creativeness with which this David slew Goliath. We all relished the newfound power that one voice could muster thanks to the new tools of social media. While we were irritated at United’s failure to take responsibility for its own actions, Carroll’s canniness and humor shaped the lasting memory of this escapade. In the end, it was Dave Carroll’s wit that we remember, and that was probably a good thing for United.

Unfortunately, the recent déjà vu incident is not likely to end as well for the airline. That’s because when we heard David Dao’s voice, we were shocked by the shrieks of anguish from the pain of a broken nose. As fellow passengers witnessed mindless bureaucratic policies morph into mindful violence, they sensed in the moment that a line had been crossed, and immediately took to social media to share with the world how Goliath had treated this David. This was no laughing matter; this was a distressing exhibition of violence by a company against a customer whose only infraction was to be firm on his right to remain in the seat that he had paid for. The video of Dao’s dragging has been viewed by over 550 million people who share a common reaction: outrage. Although United has been forced by a public outcry to take full responsibility for its actions, the airline’s callous initial response is likely to shape the lasting memory of this unfortunate scrape. In the end, it will be David Dao’s screams that we will remember, and that is not a good thing for United.

The Purpose of a Business

As United works to repair its tarnished brand, they might keep in mind a guiding principle that today’s best businesses take very seriously: In a hyper-connected world, everyone in an organization should always remember they work for the customers, not the bosses. Companies never go out of business because they lose their bosses. They only disappear when they lose their customers. That’s why the leaders of customer-centric companies wisely understand the primary purpose of a business is not about creating shareholder wealth; it’s about creating customer value. These vanguard leaders appreciate that shareholder wealth is the reward that customers provide when the true purpose of a business is delivered.

Unfortunately, what happened on Flight 3411—giving corporate policy priority over human decency—could have happened on almost any other airline as well as with many other transactional businesses. Far too many companies see business as a collection of financial transactions, and consequently, they don’t attach any real value to their customers because consumers are ultimately viewed as market mechanisms for converting products into profits. When the purpose of a business is to maximize shareholder wealth, it is easy to fall into the trap of thinking that dragging a paying customer from his seat is a sensible action when the airline needs to make room for a flight crew member who is critical for sustaining the profitability of another flight.

A customer-centric company would never see the forced removal of a paying customer as a sensible action. When the purpose of a business is to create customer value, business leaders are more focused on the customer experience than the customer transaction, and empower their employees to give priority to human decency over corporate policy. That’s what happened when a Zappos customer couldn’t find the time to stop by a UPS office to return multiple pairs of shoes when her mother suddenly passed away. Rather than stand on policy, the shoe retailer’s customer service reps arranged to send a UPS truck to a convenient place of the customer’s choosing. But that wasn’t all. The day following the pickup, the Zappos reps delivered a bouquet of flowers to comfort their valued customer in this difficult time in her life. That’s human decency in action!

The ultimate irony—and perhaps the most important lesson that every company should learn from United’s actions—is that policies that are myopically designed to protect profitability can be far more costly than the expenses saved. In a hyper-connected world, the wise business leader understands that human decency, not bureaucratic policies, drives profitability, especially when the purpose of a business is to create customer value.

This article was originally published in the Huffington Post.

 

 

 

Why Holacracy May Not Work For Extraverts

Holacracy & Extraverts Image.jpg

by Rod Collins, Innovation Sherpa at Salt Flats

 Early in my career, I discovered I was a borderline extravert when I completed the Myers-Briggs Type Indicator (MBTI) as part of a management training class. The tool measures psychological preferences among four sets of dichotomies: extraversion/introversion, sensing/intuition, thinking/feeling, and judging/perceiving. While my results showed that I had very dominant preferences in three of the categories, I had only a slight preference for extraversion. I was not surprised to learn that I go back and forth when it comes to being an extravert or an introvert.

The MBTI has been very popular in business circles because it shows how different people on the same team can view problems, process information, and make decisions very differently from each other, and yet, be equally effective. To demonstrate this insight, the class instructor divided our class of twelve into two groups based on our extraversion/introversion preferences, and assigned the same task to both groups. My group—the extraverts—immediately dove into the task, with everyone participating in a free flow of ideas and opinions. We engaged in a lively discussion where we often interrupted each other and sometimes finished each other’s sentences. We completed the task and had a fun time doing it.

When the instructor brought the two groups back together and we compared our results, both groups had come up with a responsive solution to the task. The instructor then asked us if we noticed any differences between the groups. One of the extraverts immediately jumped in and exclaimed how quiet the introvert group was, noticing that for the first few minutes no one spoke as each member was involved in writing notes. And when they did engage in conversation, it appeared very low key and orderly compared to the rowdy extraverts. As the instructor probed more deeply into the dynamics of the two groups, it became clear that everyone was satisfied with how his or her group operated. It was then that the instructor enlightened us with a valuable lesson about the difference between extraverts and introverts: When it comes to gathering and processing information, introverts like to “think things through,” and extraverts prefer to “talk things out.”

As we all know, we usually don’t begin our business meetings by separating introverts from extraverts. So what happens when these two groups are comingled in the same conversation? Typically, the extraverts’ style of talking things out prevails, leaving the introverts frustrated at the seeming messiness of what often feels like thoughtless debate. If organizations want to achieve highly effective work cultures, chances are they will need to find a way to balance the voices of both the introverts and the extraverts.

Building a Highly Effective Work Culture

Companies who take their work cultures seriously are apt to apply for Fortune’s annual list of the 100 Best Companies to Work For. Last month, the magazine unveiled the twentieth edition of this prestigious list. At the top of the list for an impressive eighth time in the last eleven years was Google. Google is one of a handful of companies that are perennial members of this distinguished group. Another company that once appeared poised to be a reliable presence on this list is now conspicuous by its absence for the second consecutive year: Zappos. Once renowned for its unique culture and its chosen mission of delivering happiness, the innovative Las Vegas retailer seems to have lost some of its cultural luster.

Zappos, which was founded in 1999, first appeared on Fortune’s list in 2009 when it debuted at #23. It remained on the list for seven consecutive years, peaking at #6 in 2011. During this time, Zappos had built a fun culture celebrated for treating employees and customers as family. Its reputation for turning culture into a corporate asset was so well-known that the shoe retailer needed to establish daily tours to accommodate the throngs of curious visitors who wanted a glimpse of this unique workplace.

The Biggest Holacracy Experiment

Zappos fall from Fortune’s prestigious list coincides with a singular and much publicized event: it’s adoption of Holacracy. In 2012, Tony Hsieh, Zappos’ CEO, attended a presentation by Brian Robertson who described the management system that he had introduced into his software company to eliminate the messiness of human interactions that often prevent organizations from achieving their full potential. Much of this messiness, according to Robertson, comes from the emotional distress of power struggles that plague traditional bureaucratic organizations. Robertson’s system employs a distributed network of roles within overlapping circles, where people follow very specific rules designed to make sure that all voices are heard as they rationally resolve differences and reach agreements.

Hsieh was so impressed with Robertson’s system, he decided that Holacracy would be the platform Zappos would use to reinvent itself into a self-managed organization. In doing so, Zappos would become the largest company to embrace this controversial organizational model. After piloting Holacracy in Human Resources in 2013, the whole organization adopted the new management system in 2014. Three years into this grand experiment, perhaps it’s time for leaders at Zappos to reconsider the wisdom of this move. And if they do, it might be useful to keep in mind the importance of balancing the needs of the introverts and the extraverts.

A System Designed for Introverts

Because Zappos’ adoption of Holacracy had been a major topic in the business press throughout 2014, I was pleased to have the opportunity in early 2015 to attend a half-day session on the innovative management system. The session was facilitated by one of the trainers who had been part of the team that oriented Zappos staff on the practices and principles of Holacracy. What became clear very quickly in the session—and what was subsequently reinforced when I read Robertson’s book, Holacracy: The New Management System for a Rapidly Changing World—is that Holacracy is a system designed for introverts. I was stuck by how similar the Holacracy practices were to the meeting dynamics that were naturally used by the introvert group in the MBTI training exercise that I had attended many years earlier.

Holacracy values rationality and order. Its rules are very explicit that only one person may speak at a time and usually only when it is your turn to speak. While people are free and encouraged to speak candidly and authentically during their speaking time, there is none of the usual back and forth that is the more natural style of extraverts who like to talk things out. Because I’m only a borderline extravert, my introvert side appreciated and valued the system’s cultivation of thoughtfulness. However, my extravert side was not at all comfortable with the proceedings. That’s probably because Holacracy successfully reverses the typical dynamics for what happens when introverts and extraverts are comingled by making sure that the introverts’ style of thinking things through prevails. Unfortunately, one of Holacracy’s unintended consequences is that it runs the risk of leaving the extraverts frustrated at the seeming rigidity of what feels like tedious and lifeless interaction.

Messiness Is Not the Problem       

As I became more familiar with Holacracy, especially after reading Robertson’s book, I appreciated the sincerity of what he set out to accomplish because I faced a similar task twenty years ago when I was a business executive leading a geographically distributed enterprise where endless debate among business factions thwarted our growth. It became undeniably clear that, if we were going to achieve our growth potential, we would have to stop the endless debate, and that meant designing meetings that worked. As we set out to design a different way of interacting, I remembered the insights learned in the MBTI class and knew that, if we were to work at our very best, our meetings needed to balance the voices and the styles of both the introverts and the extraverts. Our solution was an innovative meeting format that has evolved over the years into what is now known as the Collective Intelligence Workshop. This meeting protocol became the foundation for a networked-based management system that successfully aligned the dispersed activity of our distributed business.

The secret sauce of our new way of working was the continuous iteration between dynamics designed for the different needs of the introverts and the extraverts. There were times in these sessions where only one person could speak or where only clarifying questions could be entertained, especially early on when we were gathering initial information. There were other times where participants were engaged in small group exercises where the discussion was more free form in the accomplishment of a focused task. At other times the facilitator guided the participants through structured large group discussions where the individuals could build on each other’s ideas, often producing powerful ideas or results as the ostensible messy process morphed into creative insight.

We learned that messiness, in and of itself is not a problem—it’s unresolved messiness that’s the problem. Messiness is often the first stage of the creative journey, and if you structure out all the messiness, you run the risk of killing creativity. A great work culture is one where creativity thrives because organizations are able to balance the voices of both the introverts and the extraverts in a way that both of these styles feel their voices matter. If Zappos wants to return to the Fortune list, perhaps pivoting to a system that better balances these differing styles might be the solution.

This article was originally published in the Huffington Post.

The Future of Strategy 

by Rod Collins, Innovation Sherpa at Salt Flats

For more than a century, Kodak was one of America’s top-rated brands. Founded in 1890, the pioneering technology company became one of the great innovators of its time, transforming the photography industry from the purview of an elite few professionals and hobbyists into a market for the masses. Through a product progression of easy-to-use, affordable cameras, Kodak made taking pictures as effortless as the push of a button. Employing a simple and effective strategy—sell inexpensive cameras and make large margins on film and film processing—the photography innovator became a consistently profitable American icon. By 1976, Kodak had corralled a remarkable 90 percent of film sales and 85 percent of camera sales.

Around the same time, in 1975, Kodak’s engineers had created an innovation that was a significant departure from their usual product line: the world’s first digital camera. While the engineers were enthralled with the possibilities of their invention, the executives were less than enthused because Kodak’s economic engine was driven by film, not cameras. The top brass could not envision a world without film sales. Confident that they could maintain their firm decades-old grip over a market they created, the executives shelved the digital camera and stuck to their basic strategy.

At the time, few would have questioned the wisdom of maintaining a course that did, in fact, sustain Kodak’s market leadership for the next three decades. But was this truly strategic wisdom or merely an application of the complacent attitude, “If it ain’t broke, don’t fix it”? After all, how is it that this top-rated company, renowned for its strategic and leadership excellence, missed the eventual and inevitable transformation of its market in the first decade of our new century?

The Most Important Strategic Decision

The most important strategic decision that business leaders need to make is to know when it is time to change. Kodak’s strategic flaw in the mid-1970’s was not the decision to continue with their long-standing strategy; it was their failure to be competent in knowing when to change. Had they had this competency, they might have had the vision to recognize the coming of the digital revolution and the ability to leverage their shelved invention to once again transform the photography industry. Instead, it was Apple and not Kodak, that had the vision to invent the smart phone, which, in a few short years, decimated the market that Kodak had built and controlled for so many decades. The disruption began with the 2007 launch of the first iPhone, which included a basic digital camera, and culminated in 2011 with the high-quality video capabilities of the iPhone 4. By January 2012, the American icon was forced to file for Chapter 11 bankruptcy.

Strategy’s Roots: Planning

Since the invention of management in the late nineteenth century, the foundation of strategic work has been planning. In traditional management, it’s the responsibility of the leaders at the top to set the direction for the firm, chart a course of action, and define a plan for meeting business objectives. For most of the twentieth century, this approach worked well because market change was relatively incremental and business bosses had the wherewithal to shape markets.

Planning assumes that the world is basically static, the past is a proxy for the future, problems are issues of complication that can be solved with linear thinking, and plans can be executed with minimal modification. When change is incremental, planning works because the past becomes a powerful strategic tool. If leaders can fully understand the fundamental dynamics and interrelationships that explain the workings of their industries and markets, they can linearly extrapolate this understanding to shape future strategy. This explains why the essential work of strategy for most of the twentieth century was about forecasting and planning and why a common attribute of highly effective leaders was that they were experts on the past. If you understood the past, you could create the future by translating forecasts into workable plans, organizing activities around those plans, and executing according to plan.

Strategy’s Future: Sensemaking

But what happens when change is exponential and the past is no longer a proxy for the future? The assumptions that were true in the twentieth century have been rendered obsolete by the sudden emergence of the Digital Age, which has radically transformed how the world works. Business leaders now find themselves in a time of continuous accelerating change where the future is likely to be very different from the past, problems are issues of complexity that can only be solved by nonlinear holistic thinking, and strategic plans, as originally conceived, are short-lived because they no longer fit fast-changing circumstances.

Eric Teller, the CEO of Google’s research and development lab has insightfully observed that, somewhere in the first decade of the twenty-first century and for the first time in human history, the rate of technological change now exceeds the average rate at which most individuals can absorb the changes. When the world is rapidly changing, the danger of strategic plans is that they can suddenly become limiting factors, as happened to Kodak when it was unable to adapt to changing technology and stubbornly stuck to its strategic plan when it no longer made sense.

With the sudden increase in the pace of change spawned by the digital revolution, market shifts are now disruptive and impervious to the preferences and plans of executive leaders. If business leaders want to succeed in an age of accelerations, they need to accept that the foundation of strategic activity is no longer planning—it’s now sensemaking.  A collective sensemaking discipline that has the capacity to rapidly and holistically process change in real-time is a better foundation upon which to build strategy in a time of great change.

This is not to say that planning is no longer important. Quite the contrary, planning remains crucial as a dimension of delivery. It’s just that, in an age of accelerations, planning is a tactical and not a strategic activity. The essential work of strategy today and in the future is about having the capacity to rapidly adapt to accelerating change, and that can’t be done without a sophisticated sensemaking discipline.

Implementing A Sensemaking Discipline

The three most important things to understand about implementing a sensemaking discipline is that the activity is inherently collective, the process is emergent, and the purpose is to discover what’s unknown. When the pace of technological change is faster than the rate at which individuals can process change in real time, leaders need to learn how to rapidly aggregate and leverage their collective intelligence if they are to have any hope of managing at the pace of change. That’s because the popular adage that “nobody is smarter or faster than everybody” turns out to be true, as was clearly demonstrated a few years back in 2011 when the online Foldit community solved in ten days a stubborn biomolecular riddle that had evaded the world’s best individual scientists for over a decade.

When planning is the foundation for strategy, the end is often assumed and the status quo is rarely questioned, which makes strategic shifts difficult, if not impossible, especially if current business and product models have been lucrative. When sensemaking is the basis for strategic discipline, divergent ideas are embraced, independent thinking is encouraged, and aggregation mechanisms are employed to enable the right direction to emerge from the collective intelligence of the group. Often the emergent direction uncovers market knowledge that was previously hidden or unknown, which can then be leveraged into an innovative and sustainable competitive advantage.

We can only image what might have happened if Kodak had a robust sensemaking discipline. If the diversity of perspectives among the engineers and the executives had been better integrated, if the continuance of film and film processing as the core economic engine had been open to question, and if innovative business and product models could have been entertained, perhaps we would be stopping by Kodak stores rather than Apple stores when it was time to replace our mobile phones.

This article was originally published in the Huffington Post.

Rod Collins (@collinsrod) is the Innovation Sherpa at Salt Flats and the author of Wiki Management: A Revolutionary New Model for a Rapidly Changing and Collaborative World (AMACOM Books).