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roozegaarde

Roozegaarde architecture studio – picture via Dezeen

Some time ago, I initiated a conversation with some folks on “deep change”. What is it? What are the leverage points in organisations to make it happen? What are accelerators for deep change etc? One of my questions was “Can organisations change?

I received plenty of interesting feedback, including some challenging insights by Robert Fritz himself. As I am a big fan of Robert’s work, I was very eager to listen.

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Robert and I had some contacts back and forward over mail, and this blog post is a summary of our conversations. Italic paragraphs are direct quotes from Robert’s mails. Highlights, emphasis, non-italics and picture/video curation by myself.

“I don’t like the notion of “deep” change.  It’s the word “deep” that seems incorrect as an accurate description of what it takes to change and organization or a person’s life.

Of course organizations can change if, and it seems to me only if, there is a change in the underlying structure.  Without a change of structure, the organization will reject change the same way the body rejects an implanted organ.  With a change of underlying structure, change is not only possible but probable.

In my new edition of The Path of Least Resistance for Managers (2011 edition) I updated the book, putting more focus on the leadership dimension.  Over the years, we have seen that without the support and even demand of leadership, change will not be sustainable. Change within the organisation is not a grass roots movement.

Why would people change?  People say that change is hard.  But when it is well motivated it is not hard. That is why people moved from mechanical typewriters to word processors.  Why people now are more likely to listen to music from streaming sties than CDs.  Why people use email rather than write old fashion letters – snail mail.  Etc.  

So, the question of why would people change is critical.  Even before we ask that question, we need to understand why people act the ways they do in the current situation.  We then to have the predisposition of trying to change things before we understand what gives rise to the current behaviour.  Also, too often, change is motivated by a problem orientation rather than an outcome orientation that would lead to a true creative process….”

There are a lot of management theories that suggest a kind of grass roots movement within organizations. Sounds very nice. But, in my experience, if leadership is not behind any endeavor, it is not going to happen. There may be a few exceptions to this, but none that are major.

Among the many things it is, leadership is a position. Like the drummer in a band, it is a job within a group. Now there are good drummers and bad drummers and all those on the continuum between great and terrible. All of them are authentic drummers. I’ve never heard someone say, “Hey, I see you’ve gotten an authentic drummer in the band tonight.”

The same holds true for leadership. Good, bad, all the degrees in-between. All of them leaders. If you mean to separate the good ones from the not so good ones, don’t use the term “authentic leadership.” Call it what it is: good or bad or whatever describes it.

And recently, a group of folks have been writing their ideas about “deep change.” Lots of theories, opinions, etc. What makes a change “deep?” When we understand the structural dynamics involved, this is the key:

THE UNDERLYING STRUCTURE OF ANYTHING WILL DETERMINE ITS BEHAVIOUR

Most of the theories have no idea about this. They are thinking in terms of situations and circumstances.

They come up with tortured proposals that have the subtext that change is hard.

Change, when it is well motivated structurally, is easy for people.

Of course in our society, there is the tendency to try to glorify things we like. This reflects a social trend to express things in the extreme. The best or the worst. It was the best of times; the worst of times. 

So, the next time you find yourself saying things like, “this is an authentic hamburger,” or, “this hamburger is really deep,” know that the modern world has slipped into your subconscious without you being aware of it.

I buy that. Let’s call it what it is, without glorified terms like “authentic”, or “meaningful”, or “deep”.

Let’s call it “good” or “bad” change, and what is in between.

Bad change is the opposite good change. It does not include progress. I found quite some inspiration in Jeff Bezos’ latest letter to Amazon shareholders.

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Jeff Bezos - picture via Forbes

“Day 2 is stasis. Followed by irrelevance. Followed by excruciating, painful decline. Followed by death. And that is why it is always Day 1.”

“I’m interested in the question, how do you fend off Day 2? What are the techniques and tactics? How do you keep the vitality of Day 1, even inside a large organisation?”

“Here’s a starter pack of essentials for Day 1 defence: Customer obsession, a skeptical view of proxies, the eager adoption of external trends, and high-velocity decision making.”

The Bezos starter pack is about structure. Structure that drives behaviour.

“Bad” change is not about advancement, but degradation. Like a building (see my post “Can organisations change?” No maintenance, no refurbishment, no respect for patrimony.

abandonded asylum

Abandoned asylum – Matt Vandervelde – via Dezeen

Neglecting: Keep the windows open, so the wind and rain get in, and kill the building from within. A structure of neglecting that drives behaviour.

Other “bad” change is just plain “fake” change. Many organisations get new boards, new executive teams, have re-orgs. Some satisfy themselves (mostly unconsciously) with innovation theatre and the tactics of startup challenges, innovation sandboxes, accelerators, incubators and what have you. Below yet another list of 10 types of corporate innovation programs. The real question is: do they work, do they deliver structural change?

top 10 innovation

Some are champions at designing and getting excited by the illusion of change. Most of this change is motivated by problem solving rather than what organisations and people really want. Like pimping your house, car, etc. This bad/fake change leads to the oscillating patterns so well described by Robert Fritz. Because of the wrong structure, the organisation oscillates back to its initial state.

What we are after is “good” change, which is related to “progress” and “advancement”.

For Robert Fritz it is about advancement towards the desired “outcome”, and filtering all the noise that distracts from this outcome. In my opinion, “good”, “progress” and “advancement” also have to do with high quality connections for something else than speed and noise-free. As indicated in my post “Cogs in networks”, there should be some dimension/ambition/alignment of “spiritual, moral and aesthetical advancement”.

People in organisations can work with Mother Nature or Mother Structure on behalf of their goals.  The question is what is the overall structure of the organisation?   

"Heroes" and others by Ozark Henry and National Orchestra of Belgium

In an orchestra, it is not the conductor or individual musicians who control this. It is the composer.  The composer’s job is to make sure that the parts fit together. Too often, no one is actually composing the organisation, and it leaves one of two bad choices: command and control or organising systems. Much has been made in the last 20 years, glorifying organising systems, but, what happens over time is that these systems self-organise into structural conflicts, which lead to oscillating patterns.

That’s why a “composed” system can lead to advancement and forward movement toward building the company but the other alternatives do not live up to their promise.

As an accomplished composer, filmmaker, and writer, Robert Fritz likes the orchestra metaphor and the role of the composer. Given my background, I like the building-metaphor and the role of the architect.

Bofill living room La Fabrica

Ricardo Bofill – La Fabrica – Living room – Old cement factory

But structure is not a metaphor, it is a dynamic.

The cause of it, as part of physics, has to do with how structure works.  A tension, any tension, will lead to a dynamic, which is to move toward resolution.  We call this a structural tendency.  The reason it does has to do with the principle of equilibrium.  Nature strives for equilibrium.  It wants to end all tensions, all differences.  A state of “non-equilibrium” (purists would say “degrees removed from equilibrium because it is a perfect state) generates movement.  Sometimes this can be accomplished, such as in the design of airplanes wings, sometimes not, as in an oscillating structure in which, as you move toward resolution of one tension resolution system, generates more tension in its contrasting system.

We can use this principle to our advantage through structural tension in which we set up a state of non-equilibrium to resolve on behalf of a specific goal.  

That is the reason that the two data points of structural tension need to be clear: desired state in relationship to the actual state.  Once formed, that tension strives to resolve.  

Like an archer’s bow, aiming an arrow.  In the arts, tension resolution system cause movement.  In music, in screenplays, in painting, etc.  Most artists, and all composers (the most technical of the arts) understand this principle and use it quite consciously. 

When will you revisit the structure and dynamics of your innovation efforts? When will you go beyond the role of change agent, and create good change as a composer or architect? When will you design a structure that leads to good change?

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I am in the business of cultivating high quality connections and flows to create immersive learning experiences and structural change. Check out: https://petervanproductions.com/

With plenty of acknowledgement to Robert Fritz. More about Robert’s structural change in his book “The Path of Least Resistance for Managers”.

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I ask myself often whether organisations can change – really change – at all. I recently spoke to an HR person of a big worldwide corporation, and her answer was a strong “yes”. I am not so sure. Or maybe I am confused.

As organisations are made of people (humans), would you have the change the people in order to change the organisation? Is there another way? Some people say “you can’t change people, but you can change their behaviour”. Are we fooling ourselves with such statements?

I am seduced by the Robert Fritz’ premise that structure drives behaviour. Or Leandro Herrero‘s thesis that behaviour drives culture. And Jean Russell’s “Cultivating Flows“.

Robert Fritz for managers

There are plenty of metaphors to illustrate the relationship between structure and behaviour. From race cars, the team and the driver, to heroes hacking their way through forests (My friend Leda Glyptis wrote this excellent piece on the oscillating patterns – “Acts” in her post – that innovation heroes have to go through).

I am starting to think about a metaphor based on architecture, and the notion of “patrimony” of a building, which has to do a lot with knowledge stored as inheritance material in physical objects (Thanks, Tom Laforge for the insight).

kanaal solos

Kanaal Site – Axel Vervoordt – Old malt factory - Wijnegem, Belgium

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Ricardo Bofill – The Cathedral – Old cement factory – Barcelona, Spain

 

“Patrimony” is an interesting term. The Dutch word “Erfgoed” maybe captures it better. “Erf” means inheritance, value that can be transmitted across generations. “Goed” stand for “good”, both as 1) something tangible, an art-i-fact and 2) something good, of value/worth/wealth/culture/DNA to be carried forward.

Both sites above are a good illustration: Ricardo Bofill’s “La Fabrica” and Axel Vervoordt’s “Kanaal”.

The architects decided to respect the patrimony, strip it to its essence – its skeleton – and create new perspectives and flows. They did not decide for “disruption”, aka breaking down the building and creating something completely new. They combine old and new, they combine tradition/patrimony/erfgoed with new flows, new structures.

The structure is not only the brick and mortar building itself, but includes the whole site, the landscape, the empty spaces, the social contracts, the tacit and non-tacit agreements of flow.

The structure comes alive when people live in it, add furniture, decoration, color, organise their areas for work, for creativity, for reflection.

What is the skeleton structure of the building, what do we need to keep, where do we need to create new perspectives to cultivate new flows of water, traffic, connections?

The metaphor building/organisation – like any metaphor – works only to a certain extent.

Haidt happiness

What’s missing is what makes us human and our motivations. I am reading Jonathan Haidt’s “The Happiness Hypothesis: Finding Modern Truth in Ancient Wisdom”, and am struck by all the noise humans put on the system. Some salient wisdom:

  • “We are all hypocrites”
  • “The rider (ratio) is not in charge”
  • “The elephant (the unconscious) is not motivated by happiness but by prestige.
  • “Most stories/narratives are confabulated after the facts”

So back to my initial question: can organisations change? Maybe the better question is: what quality of change are we aiming for? Or the more critical question may be: why would people change?”

Fritz’ suggestion is that if you have the right structure, people will naturally change their behaviour and the flows of information.

What are your thoughts?

petervan-signature_transparent_black_version2

I am in the business of cultivating high quality connections and flows to create immersive learning experiences and structural change. Check out: https://petervanproductions.com/

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This post is about some of the myopic views on disruption in financial services (or any other vertical for that argument), and why I am getting a bit tired of FinTech, RegTech, InsurTech, or whatever AbcTech you may come up with.

Petervan Abstrakt Motiv 390a detail b+

Disrupted - Petervan Artwork - Acryl on Paper format A1

 

Most of the discussions in FinTech are about the (by now outdated) “unbundling” of highly vertical integrated organizations like banks. Everybody recalls the famous CB-Insight slides on how all functions on the website of HSBC, Wells Fargo, or fill in your <Bank Name> here, will be replaced by better offerings of startups or scale-ups: “everything gets fragmented”, you know 😉

It even leads to a “Re-bundling” of financial services, as what was once unbundled needs now to be re-bundled by “banking-as-a-platform” or “Fintegration”, just to throw another buzzword into the mix.

This is in my opinion a highly simplistic view on disruption. It is a fragmented view on disruption. The disruption view is fragmented: each little function on its own is subject of a fragmented disruption debate. We are missing the holistic view of what is going on.

What I would like to bring into the conversation is the “inter-connectedness” of everything, or the “entanglement” of everything.

For payments, the conversation is usually about how many and which intermediaries are part of a payment transaction from the payer to the payee, and how they add value, friction and costs into the system: one can indeed draw disintermediation maps and articulate how the different new entrants attack the different pieces of the end-to-end transaction. But it is piecemealed view, as if the sum of the atomic transactions is an exact equation of the value created in those ecosystem value chains.

The same reflections can be made on the securities business, where many different players (exchanges, central counterparties (CCPs), central securities depositories (CSDs), brokers, custodians and investment managers) are part of the end-to-end flow of atomic transactions between the issuer of a security and the consumer of that security. See also recent comprehensive post by Let’s Talk Payments.

The point I am trying to make here is that what needs to be solved, re-thought and re-designed is a deep ecosystem entanglement. What are really needed are a fundamental process redesign and process innovation and that is not an easy undertaking with all the network effects that are inherent in these ecosystems.

The other point I am trying to make is nobody – not the incumbents, nor the startups/scale-ups – is in a position to solve this on their own.

I believe we have to evolve from platform capitalism to platform cooperation or even platform co-operativism.

  • Instead of talking about optimized correspondent banking, the conversation should be one of collaborative/cooperative banking.
  • Instead of talking about optimized securities lifecycles and settlement, the conversation should be one of collaborative/cooperative securities markets.

The system is not broken. It works very well for what it was designed for. It does not need to be fixed. It needs to be re-thought. What we are witnessing is the need for a fundamental re-thinking of our assumptions. The financial system is part of a broader system of capitalism based on neoliberalism. That system is broken.

Paul Mason – who wrote the book “Post-Capitalism” – was very clear in his recent keynote to the Glasgow Economic Forum: “Neoliberalism is broken”. And he goes on:

  • information technology has paralysed capitalism’s capacity to adapt
  • information technology creates a short-cut to abundance
  • the root cause of the boom-bust cycles, collapsing productivity, stagnation and policy paralysis is that the markets are sending us a signal that there’s not enough value in a high-tech economy to justify current valuations — of debt, equities or derivatives
  • we are in a long transition beyond capitalism, in which the state, the market and a non-market sector based on collaborative production will jostle and coexist
  • and that the only theory that can encompass all of these facts is the one originated by the man quoted on the poster behind me [Adam Smith] — a modernised form of the labour theory of value.

That is the first simplification in the current mainstream thinking about disruption.

As a start, one should start looking at the symptoms of that broken system (as very well articulated in Otto Scharmer’s work at the MIT U.Lab). These symptoms are:

  • An Ecological divide
  • A Social divide
  • A Spiritual divide

otto

The second simplification of the disruption discourse is the lack of inclusion of the macro-forces. Some of the macro-forces deeply driving what’s going on are:

  • Technology macro-force. Here is where inter-connectedness hits hardest. However, this is probably the easiest macro-force to deal with, as technology will take care of itself, as it always has. Open source and other collaborative models will only speed-up that self-care of technology: standards will emerge almost naturally, by natural selection, or my monopolistic interventions.
  • Regulatory macro-force. Regulation is still very high on the agenda of financial institutions, and one can only expect that more is to come, especially on the area of data capitalism, handling of personal and corporate data, and even data ethics. After having digested the regulatory impact of the 2008 financial crisis, many are tempted and seduced to jump back with relief into innovation. The blockchain hype is a great excuse for claiming one is busy with the future state of things. Nothing could be further from the truth
  • Geo-political macro-force: Grexit, Brexit, Terrorism, War, Surveillance, climate, and other crisis that can pop-up at any moment in time, with their potential of killing overnight all the innovation plans and ambitions.
  • Eco macro-force: the acknowledgement that our organizations don’t operate in isolation, that we have to evolve from ego-businesses to eco-businesses, not only extracting value out of the ecosystem for our sole and own benefit, but that we are part of a reciprocal non-zero-sum game with an unspoken desire to save humanity.

The third simplification is the omission of the time component of evolution. I strongly recommend you discovering the work of Simon Wardley and his “situational awareness maps”.

 

 

Different values are created by different versions of different technologies and value engines, each of them evolving at their own pace on the lifecycle of emerging to commodity/utility. For big organizations – like financial institutions – it is extremely difficult to map out the current state, let’s not even mention the ability to strategically decide where one wants to head for in different time horizons in the future.

The same situational awareness is not only needed for (existing) and new technologies, but also for existing and new regulations, geo- and eco- events and ambitions.

In the past many have been concerned with the “backward compatibility” of new services and solutions. Backwards compatibility with the existing footprint and practices in the market that is.

I believe there is room today to start thinking in terms of “Forward Compatibility”.

What is Forward Compatibility? It is a capability to plan ahead for gradual adoption by the ecosystem, taking into account the different barriers mentioned above. This is about knowing HOW to get at the new destination:

  • How you rally the main stakeholders of the ecosystem into a rigorous system and process innovation? Process innovation is different from process-, datamodel-, or messaging standardization. It is not about standardizing the existing and guaranteeing backwards compatibility with the existing. It is about co-creating a new reality.
  • How you promote the evolution from the current model to the future model? In the case of distributed ledger technologies for example, it is not about a tabula rasa that will eradicate the existing, but how one evolves from for example a messaging hub-and-spoke paradigm towards business objects and lifecycles in the cloud, initially probably in one central database (one node), and then evolve to a peer-to-peer networks of many distributed databases or nodes (remember the Digital Asset Grid?)
  • How to bootstrap this new reality taking into account the network effects to be created and promoted in the new P2P reality.

No disruption will happen without fundamental re-design – or better re-invention – of the end-to-end business processes:

  • Organizations knowing where they want to get and defining and leading that journey;
  • De-risking change throughout this journey;
  • Making trade-offs in the breadth ànd depth of the destination;
  • Moving beyond the atomic nature of the transaction. As mentioned an nausea in previous posts, it is not good enough anymore to enable (atomic) transactions, the challenge is to enable commerce, as an end-to-end process

Startups/Scale-ups who want to be part of this endeavor, will need to know how to “scale”: they will need to learn to appreciate the mechanics of growing a startup into a corporate. This growth process (and its associated growth pains) is very well described in the post “Go Corporate or go home” around the concept of legibility of on organization. The startup organizations – whether they like it or not – will need to become more legible, more predictable. The author makes a very solid argument why hierarchies are needed.

“The smaller a company is, the less they need to formalize anything, and the less the three levels — chain of command, business process, and culture — differ.”

 As they grow, they will have to synchronize how they transform these three levels (chain of command, business process, and culture). It’s not only from small self-sufficient team into hierarchies; it is also growing into professional business processes, and evolving the social fabric and conventions.

Although startups, scale-ups, and corporate innovation sandboxes mimicking the startup culture “love to have and keep the flexibility, the cost of growth is scale, integration, and profitability.”

In this context, it is probably worth having a look at the post about the Transferwise culture (I could have taken any other scale-up for that matter) “We inspire smart people and we trust them”, and especially the comment on that post that talks about KPIs, product-level empowerment, about focusing on growth more holistically, actually removing bottlenecks and silos, empowering teams at the product level, and instrumenting themselves to be able to actually get granular feedback.

If possible – assuming you want to spend some quality time – read that post and comment after you have read “Go corporate of go home”.

So next time, when you pitch about disruption, about the end of banks/banking, about collaboration/co-operation, or about any other technology solving world hunger, please make sure you have an answer on how to get to your new destination. I would suggest you keep forward compatibility in mind.

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I was invited at the 7th Banking Innovation Forum in Vienna to speak on Innovation. The title of my talk was “Innovation: from tactics to strategy”

I have posted the deck on Slideshare

It was an interesting audience, with most people coming from Central and Eastern Europe, with some interesting case studies from Paolo Barbesino from UniCredit in Italy, Carlos Gomez from Activo bank in Portugal, Marcel Gajdos from Visa Europe Czech Republic/Slovakia, Efigence in Poland, and Wojciech Bolanowski from PKO Bank Polski. I made quite some notes, and if i find the time to make a post on it, i will.

Luckily, my fans are out there to help me. I planned write something about my talk as well, but Wojciech Bolanowski already did that in his great LinkedIn Post here. I have cut and pasted his post in its entirety, as it captures well what i was trying to convey in that presentation. Thank you so much, Wojciech, much appreciated 😉

+++ Start post Wojciech

Inspire other people, think differently, create spaces where people come alive, ship to customers; as well as bravery, prototyping, events, capabilities and clarity – these are ingredients for successful innovation within big organization; at least according to excellent speaker and Innotribe Co-founder Peter Vander Auwera.

How to innovate in the shadow of behemoth?

marriott

Peter spoke on the first day of 7th Annual Banking Innovation Forum by Uniglobal in Vienna Marriott Hotel (as pictured above). He was keeping the audience extremely focused and interested. The subject was complex and of great importance: how to make really BIG organization innovative. As Peter put it in an outstanding rethoric figure: “how to make babies”. I would like to add: how to make the babies when you are well-known, established, serious and successful one with huge legacy and obliging history.

The questions are (usually) much more important than particular answers, so there is not my goal to report Peters’s solution in details. What I would like to point out is the question itself. Today, in the fast-running world of fin-tech start-ups and quasi-banking innovators almost every bank is big enough to raise this question to itself. Is it enough to inspire other people with your disrutptive ideas? Is such inspiring even possible in organization too big to change itself spontaneously? What could possibly happen if you think differently from dominant thinking styles?

Obviously, being innovative within mammoth-size organization is a big challenge and requires specific attitude and social skills. As I understood one of the Peter’s suggestion is to create appropriate team which become the centre and engine of the process. The brave, capable team with clearly set culture of “rather be failing frequently than never trying new things” to quote Peter’s presentation. Some important tools to do so are special workspaces, integrating events and ways of building true alignment.

Bravery – the slide of the presentation. Source: Uniglobal

How to gain executives’ support?

The presentation was full of insider stories with some of them concerning interactions between innovators and the board members. Those were a great lesson of struggle which, I think, at least to some extend, any innovator should expect and be prepared for. The very useful take-out was about prototyping and commercial launching of innovative products. The prototype should be, according to Peter’s best practice, as vivid and identical with the final product as possible. No more “Power Point Prototypes” unless you would like to fail. What’s even more – prototyping is just a step to the real strategic goal – to deliver real, commercial product and give it to customers. “Go out of the sandbox” is another great statement I heard from the speaker. Indeed, today environment of fast growing and alternating product propositions demand being “on market”. The Grand Jury of customers has no time to screen through pilots or prototypes; every company should be ready to risk and show its innovation as soon as it is delivered. In my opinion this is extremely important to realize. Shipment to customers what is already prototyped is the crucial part of execution process in innovation. I feel it is striking and true, therefore I tweeted this immediately with hashtag #BAIF2015!

What about the reluctant middle-level-managers?

The next splendid remark is about mid-level managers’ attitude toward change. For them the main goal is “too keep any changes far away of the plan”. It is understandable and rational. For manager’s KPIs are target-related, they try to keep organization on the course to achieve them. However, any innovation process within organization creates the risk of change, which, possibly, could alternate plans and goals. This is the real challenge – to execute innovation in organization which mainly consists of medium-level managers. And execution itself is much more difficult and lasts much longer than whole creative process of gathering ideas, evangelization, internal promotion etc. What Peter stressed, and I agree fully, is thatin context of big organizations idea management process is easier and shorter than its incubation and implementation. In start-ups world there is exactly the opposite relation.

Start-ups as indicators

Start-ups in financial sector (dubbed fintech recently) occupied a lot of Peter’s presentation as he is involved in the well-known Innotribe@Sibos program. The event has attracted more than 340 participants this year. It is quite nice sample to show what’s going on in innovation. With four continental semi-finals (NYC, London, Cape Town and Singapore) it gives global overview and prime selection of activities. This could be a useful indicator for big companies to track the start-up trends and pick up something valuable from. For example in 2014 the leading areas of start-up activity were (despite a broad category of corporates/business services) investment management, lending, big data and personal financial management. It is a clear message to banks: there is innovation coming to your core businesses and it is technology-driven.

This post is inspired by presentation shown on of 7th Annual Banking Innovation Forum ; there is another one of this category, in case you are interested:

Collateral damage of 2008 – card revenues in CEE

Peter Vander Auwera on stage in Vienna. Source: Uniglobal

Linguistic disclaimer

I have written this text in English and I know my limitations. It is possible you find this post illogical, offending, unclear or too simplistic. It does not mean to be that way, so please blame it to my imperfect English skills. I am neither native nor perfect English speaking person . If you want to be helpful, do share your grammar, spelling, style and any other remarks with me. I would appreciate any contributing comment, especially if it came from native speakers.

+++ End post Wojciech

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A couple of months ago, I was at Techonomy 2014 and I am still digesting a fantastic interview with Peter Thiel and Reid Hoffman. Interview done by David Kirkpatrick from Techonomy Media.

The full interview (about 38 min) is worth every second, and the full transcript is available here.

Thiel and Hoffman

There is a great section about innovation and innovation teams in big corporations, and Reid says:

I think the challenge in practice is, I often think of the people that are able to drive innovation in one way or another as being quite weak at the political games, and the political processes—the more political processes you set up, it always seems to empower the wrong people.

To a question from the audience on how innovations teams can avoid this, Reid Hoffman says at minute 28:40 something that made me fundamentally rethink how companies should get organized around innovation, or disruption, or whatever the latest buzzword of the year is.

Well, the short answer there is, having a head of strategy, a head of innovation and a small group is almost always—I’ve never seen it work, it’s usually a disastrous failure. The question is, you actually have to be, we’re going and building this product, we’re going and doing this, and it has to be essentially funded, and as an isolated group.

And there’s a lot of different ways of doing an isolated group. I don’t know them all, throughout all the industries. One was how Jobs did it, which is, he basically said, okay, he pulled people into a project and put them in a room where only their badges would work. He would go work with them. Part of a thing that happens at Google, and, you know, there’s variation, like there’s when Andy Rubin was building Android, only the Android folks’ badges were working, going into the Android, and basically Larry was like “Look, Andy, just go, this is important to do, just make this happen.”

I think the common pattern is, it has to be a product-oriented group, it isn’t a group that says we’re producing a strategy, or we’re producing an innovation plan.

We’re building something, we’re making it happen, and it’s empowered by the CEO, and it is completely disconnected from any political process from the rest of the organization.

And I think thus far, those are the only patterns I’ve seen work. The CEO often has to have an opinion on the product, on the merits of the product, so it’s not a portfolio, it’s not a financial portfolio, a hundred different innovations without any details on any one particular.”

This is something very different than the so called “experimentation sandboxes”, or “innovation labs”, or “customer innovation centers”, or “accelerators”, or “incubators”.

Leandro Herrero recently writes:

Carve out space and time, protect them, and free them from the standard corporate rules. You can do this with a small team or a big one, a few rooms, one room, or a building. Do it forever, or for 3 months. Experiment with your own version of Lab126. Social engineer the environment until you see the fruits. Kindle ideas! We shape the spaces so that spaces may shape us.

I am not so sure this works. Austin Carr wrote in Jan 2015 a great post in FastCompany about the Fire Phone debacle that was developed in that same Lab126.

Yet is there something new going on with Amazon, something dangerous on a whole new level? Or is this the latest installment in what Bezos has always been selling about his company: that it is so different in its outlook, its operations, and its potential that it should be judged differently, too? The criticism this time goes beyond the fact that the CEO prefers to invest heavily in what might drive business tomorrow rather than reap profits today. This time, say the critics, Bezos has lost his focus. This time, they say, he is pursuing global domination at the expense of his historic drive to improve the customer experience.

To make a long story short, I don’t believe anymore in open innovation, and I don’t believe anymore in sandboxes.

Many sandboxes are “me too” versions of a hype for being perceived or associated with the next Google or the next Apple. Let’s be realistic, the chance that your company ever gets close to those top players is close to zero. Same for the incumbent turning around itself for the next paradigm: there is historical evidence that the chance to succeed is also close to zero. If you disagree, please give me 1-5 examples of companies who did succeed.

But don’t get me wrong. Innovation is needed, especially in incumbent large organisations. To create real lasting innovation in big corporations, you need:

  • High quality alignment about the strategic options and the innovation agenda at the level of the board, and the executive committee. All organizations struggle with this. It creates illusions of innovation busyness and quasi satisfaction of having ticked the box
  • Willingness to invest in several real options, and actually do something beyond analyzing and prototyping to death.
  • You need to SHIP product

Let me say that again: you need to ship product.

It’s about focus based on quality alignment. The focus to put the energy of a multi-disciplinary team through the full A-Z process of designing, creating, marketing, distributing a product service in the hands of the customer who gets value and is willing to pay for it.

Let’s apply this to FinTech. Fintech is red-hot.

  • With 3-6 Billion dollar investment per year in startups, depending on the source.
  • Investments by VCs, Corporate Venture Funds, pooled resources in accelerators, bootcamps and incubators.
  • And with almost every major bank having their own innovation outpost or lab or accelerator in Silicon Valley, and increasingly also in APAC, Tel-Aviv, London and Berlin.

Their challenge is to find the best startups. Depending on the source, more than 3,000+ FinTech Startups compete for the money and the attention. Investors are looking for the best ones. Banks are looking for the best ones. But their motivations are different. From pure ROI and fast and profitable exit to complementarity of the existing portfolios.

One way to find the best ones are FinTech Startup competitions. We at Innotribe run one ourselves quite successfully. Nothing wrong with Startup Challenges.But I believe the industry needs to move beyond competition and prize money. Beyond the searchable database or heat map. Beyond the hackaton. Beyond the prototype, the sandbox, the accelerator or the lab.

The keyword is embedding and creating deep, sustainable, repeatable relationships on the long term.

Accelerators, Bootcamps, Incubators, and Sandboxes: I get it. It’s all super cool there, it’s fun, young, dynamic, exciting, etc but show me the results from an innovation point of view, aka actually shipping of actual innovations by big corporations/banks. I am not asking for investment results, etc. I am trying to find systemic evidence that sandboxes help companies innovate in or outside their core.

My discomfort is that the motivations of the different players are not aligned:

I do see the value for the sandboxes, accelerators, incubators. For the startups joining, in many cases some form of cheap equity or other string is attached. Cheap for the investor that is. The startup immediately loses 10% or more of its shares in return for this generous gift.

I do see the value for the startups. Investment, visibility, mentors etc.

  • But that is just the start, that is just the sandbox.
  • When – and if – they come out of an incubator etc, the journey just begins.
  • The only thing they have learned is to pitch better and to better iterations of MVPs, at best.

But I do not yet see what meat is left on the bone of those who invested in these sandboxes?

  • Did any ever succeed in actually shipping a new product/service?
  • Indeed, I am looking at this space from the standpoint of the organization who owns the sandbox/accelerator/incubator and what value it provides to that organization in better serving its customers.

I am getting convinced that sandboxes “out there” – as an outpost that is – don’t work. Work in the sense of getting products shipped with the core. I am getting convinced that organizations don’t need one sandbox but thousands (ok, ten’s) of sandboxed deeply embedded in the organization.

The sandbox then is not just about experimenting but about actually shipping a product, and show/inspire the others in the company in a super-transparent way how that is done, so that next time they want to be part of the project too.

However, in many cases sandboxes are lipstick on a pig. I love this Financial News article about everybody cool and running hackatons:

“So they are engaging with the outside world for new ideas and inputs. They really, really want to look like a cool place to work at. They seek to be perceived more like large tech companies.”

In many cases it’s all about perception, only.

But perception is not good enough. It is needed, but not good enough. In my opinion, if a company cannot innovate in its core, it has a problem. Innovating without the complexity of the core is relatively easy, especially of you can throw 100M at it. But does it leave innovation meat on the core bone? I doubt it.

Innovation by committee does not work. The false certainty of the committee kills it.

Real innovation happens when you have a dedicated multidisciplinary team going after a big bet. Real innovation does not happen in sandboxes. I have seen it in my SWIFT life several times. Some were successful like Alliance Lite and more recently the Real-Time Payments win in Australia. Others failed to deliver or got killed (the death and killing of innovative projects and the lessons learned will be the subject of another post in this Innovation 201 series).

To come back to the start of this blog post and the insights of Reid Hoffman. The successful innovations are not the credit of a central innovation team. They are the credit of a dedicated core team.

But a team alone won’t cut it. This team, the “execution engine”, is only one of the 3 innovation engines needed in an organization. The other two are 1) the behavior (culture) engine and 2) the catalyst engine. More on them in a subsequent post.

3 inno engines

One thing is for sure: ALL organizations struggle getting stuff out of the sandbox. Maybe the problem is with the whole idea of sandbox in the first place. If it never gets in, you don’t need to struggle to get it out.

Embedding or Sandboxing: I think embedding is the answer. So let’s get out of the innovation sandbox and let’s get some real stuff shipped?

Some modesty is at its place here. I have been working as a change agent – sometimes rebel – in many organizations in the last 30 years. And still, I don’t know the perfect answer. But I think I have a little clue on what does not work, and what could work. I would love to open the conversation with the Heads of Innovation to share what sticks and what not. I am so curious to hear your voices, comments, insights and your lessons learned.

This blog post is part of my series “Innovation 201”

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I have been relatively silent on my blog, tweets and other social media. The reason is focus. Focus on preparing with the team another exciting experience at Innotribe Sibos, this year in Boston from 29 Sep till 2 Oct 2014.

Less than 2 months from D-day, we are in full build up. We are in good shape, and preparations are in full swing. We are now at a stage where we have detailed minute-by-minute session scripts for all sessions, and are at a rate of several speaker preparation calls per week. And we have for each of our 17 sessions a detailed floor plan like this one:

SESSION 002 Future of Money

 

Here are some numbers: 4 days, 17 sessions, 2 locations, 50+ speakers, 10+ moderators, 10+ instigators, 9 startups, 6 innovators, 7 coaches, 4 Sponsors, 7 technical crew, 6 facilitation crew, 12 cameras, 7 screens, 3 stages, 2 bridges, 4 pieces of artwork, 1 bitcoin ATM machine, 1 skyline.

When it all comes together, it will look a bit like this:

Camera 04b

I have some other surprises that I will document in a later blog post.

But don’t be mistaken: Innotribe Sibos is about content, content, and more content.

For the content some of the main subjects covered, see my previous post https://petervan.wordpress.com/2014/06/20/innotribe-sibos-2014-building-bridges/ To summarize:

  • Day-1 is all about cryptocurrencies (Bitcoin, Ripple, ColoredCoins, etc) from all angles: vision, regulation, disruption, and transformation.
  • Day-2 covers “Network effects”: networked organizations, platform thinking, eco-system thinking
  • Day-3 gets you into Innovation Capabilities and the exciting Grand Finale of the 2014 Innotribe Startup Challenge
  • Day-4 articulates our ambition to convene all significant players of the FinTech Innovation Ecosystem

Since my last post several new speakers and moderators have been added, for example:

  • Yoni Assi (CEO eToro and Board member Israel Bitcoin Foundation)
  • Dirk Haubrich (Head of Consumer Protection and Financial Innovation, European Banking Authority EBA, via Skype)
  • Dan Marovitz (CEO Faculty of 1000 Ltd, former Managing Director, Head of Product Management, Global Transaction Banking Deutsche Bank)
  • Anne Shere Wallwork (Senior Counselor for Strategic Policy, Office of Terrorist Financing and Financial Crimes – U.S. Department of the Treasury)

And on day-4 we have gathered the top captive funds in one session starting on 2 Oct at 09:30 am, and moderated by Tony Fish, Founder AMF Ventures:

  • Vanessa Colella, Director Citi Ventures
  • Christophe Chazot, New Group Head of Innovation, HSBC
  • Derek White, Chief Design Officer, Barclays
  • Matteo Rizzi, General Partner, Sberbank SBT Venture Capital
  • Julio Faura, Head of R&D and Innovation, Banco Santander
  • Manual Silva Martinez, Vice-President BBVA Ventures

I will do a separate blog on day-4 later, as that will be a very exceptional day.

Our speakers are thought leaders and top innovators. We have 7 out of the FinTech top-40 http://thetally.efinancialnews.com/2014/06/fintech-focus/ and 3 out of the Bank Innovation “top-30 innovators to watch” http://www.bankinnovation.net/2014/07/2014-innovators-to-watch-30-executives-shaping-the-industry/ secured for this yearly gathering.

And in addition, we are building bridges and sharing speakers with Technology Forum, Investment Management Forum, Markey Infrastructures Forum, Standards Forum.

Full detailed program, with all speakers confirmed is now available on sibos.com here: http://www.sibos.com/conference/conference-programme/2014?field_session_stream_tid%5B%5D=203&op=Filter

Super-excited with big kudos to the Innotribe team, the event producers GPJ and facilitators Collective Next.

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Just found this awesome 27 min talk by Joi Ito on the 9 principles of open innovation. They are not that new – first version appeared in 2012 – but they seem to have matured, like good wine in well kept cellars. Almost every sentence he speaks is tweetable 😉

To help me concentrate on the content, I usually make a lot of notes, and before knowing I almost made the transcript of this talk, so i can as well share my notes.

So, I have no credits on the content. I just did some mix and matching with some other material from others. Like Joi, I have been a DJ, and I have fun in mixing and weaving different themes into some form of new carpet. Highlights are mine.

joi ito

 

Joi Ito is Director of the MIT Media Lab and many other things (check out this Wikipedia page).

Here is the sort of transcript, more or less ordered around his 9 principles.

But in his intro, he says also loads of interesting things.

The MIT Media lab 30 years later: Media is plural for Medium, Medium is something in which you can express yourself. The Medium was hardware, screens, robots, etc. Now the medium is society, ecosystem, journalism,… Our work looks more like social science.

Before the Internet (BI) and Post the Internet (PI): Post the Internet, it is about participating responsibly in a system that you can’t predict and whose outcome to your intervention is almost random.

We are moving from “demo or die” to “deploy or die”. It just costs some “sweat equity” and some kids in a dorm room to get things done. Kids are competing with the incumbents. The innovation cost – the cost of trying something – went to nearly zero. Now you can innovate without asking permission, pushing innovation to the edges, and allow grassroots innovation.

Note: I believe “grassroots” innovation is very important in organizations. Last week I was on the judge panel of an internal innovation channel. I saw quite some things that our innovation team explored before, but never succeeded to get out there. With grassroots innovation, you have the buy-in from the fabric of the organization from day-1. It is very “swarmwise”.

Before, the guys who had the money had the power. Now, because the space of startups is so crowded, the VCs have to sell themselves.

Note: I heard something very similar recently in the context of innovation motivations: corporates looking for innovations have to sell themselves to startups.

Diminishing cost of innovation makes those having the money behave a little bit better. Who is thinking about those ideas that don’t start small? Thinking about it as a community. This is less about empowering the individual, more about empowering the community.

Note: “empowering the community”. Wow! Big ideas are usually shared ideas. In yesterday’s post, I mentioned the great Diego Miralles with his story of the Janssen Labs as a story of shared infrastructure. I believe the time is ripe – more than ever – for cooperative structures where we can form “coalitions of the willing” to solve the big community challenges.

Twitter was not a company, it was a feature. It only became useful when linked, when in a system. Can the ecosystem solve the big problems, a complex system with nobody really in charge? In stead of designing that one thing, in a system design is more like growing, giving birth to a child, you don’t know exactly where that child is going, it has your DNA, but hopefully turns into something that you are going to be proud of. Think of it like a gardener: the open internet is the water, the openness, the air that you need, and all of us are the organism that live in that system, to make this thing vibrant.

Then Joi started introducing and commenting some of the 9 principles.

A lot of people disagree with them, but I don’t care. I care about the arguments, I don’t care that they are disagreeing.

Joi Ito 9 Principles2

Pull over push

You pull from the network as you need it, rather than stocking it and centrally and control it. And agility is what comes out of that. If you have printing presses, and lines of code, and IP, those are all reasons not to shift course, to stick to your map, rather than the compass. All the things we think are assets are in fact liabilities, if you think about it from the perspective of agility.

Compasses over map

Often the map costs more to build than it is worth, because the complexity is so high and it is so unpredictable. Dependence on planning is a weakness.

Practice over theory

When I was looking for funding my first ISP, the investor spent 3M USD for consultants to advise not to invest 600K dollars. If it costs you more money to think about it than to do it, it’s better to do it. And if you do it, it turns out that you get a fact, not a theory. It is important to do things, especially if the cost of doing things is cheaper than talk about it. A lot of times it works in practice and not in theory, you can figure out the theory later. Most of the world deals with things that work in theory, but not in practice, and they try to discredit reality in order to fit with their theory. But “in theory” they say, “theory and practice are the same”

Disobedience over compliance

You don’t win a Nobel price by doing what you are told. You win a Nobel price by questioning authority and thinking for yourself. You want to build an organization that is resilient to disobedience

Emergence over authority

In communities, authority seems to be emergent. Open Source project leaders, tend to be somewhat quite people, with a lot of EQ, how are not naturally trying to grasp power, but end up in power because the followers (@petervan: I would say the fellowers) push them there. In an investment firm with a hierarchy that is based on function and title, you just need a stick to keep the troops aligned. But when you are in a system where you are paying to participate, then you want emerging authority.

Learning over education

Education is what people do to you, learning is what you do to yourself. About degrees and “finalizing my eduction”. I don’t want you to be at the media lab, because you want to get out.

Resilience over strength (part of the Q&A)

In stead of bulk-up and resist failure, invest the same money on recovery and resilience. You tend to try to minimize failure, rather than trying to work on resilience. It’s also kind of a Zen thing too. If you are extremely present and ready for anything, your are in an extremely resilient state. And it you are not present, you are always focused on the future, or the past, you try to build up walls and trying to make sure that you don’t get choved. And it is hard when you are surrounded by other planners in an institution like this (Knite Foundation) you tend to focus on structure, strength versus resilience, the structure vs this bounciness. Again on the Internet, a lot of the pieces are very resilient, when you are in an institution that uses a lot of planning; it is hard to create that interface

Also the Q&A part of this talk was interesting.

On how to share knowledge:

The conference model is a great system. A lot of people have experimented with ways to try to share knowledge, but it seems to be one of the hardest problems because everybody has a day-job, they are very busy, and people are talking sort of different languages, and when you are face to face you can coordinate your language in real-time

On how to you get people who are working on things coordinated?

At the Media Lab we have several approaches: we have this sort of big data, data mining, machine learning, predicting things through causalities and patterns vs something where people are more in charge and people are more active.

There is another version of this talk at TED talks:

The more I listen to Joi, the more I become aware that he is talking about leadership features to navigate our companies in this more then ever unpredictable fast moving world. It was a pure coincidence; right after Joi’s talk, I spotted this great post from John Maeda, about Creative Leaders versus Authoritative LeadersJohn Maeda was the President of the Rhode Island School of Design from 2008 to 2013. He is currently a Design Partner at Kleiner Perkins Caufield & Byers.

This chart represents a summary of the kind of creative leadership that is rising — and needed — in the face of our increasing interconnectedness due to global economies, mobile devices, and social media. In an age where anyone can “friend” the CEO, and where complexity and volatility are the only constants, what should leadership look like? I often say we are now operating within a “heterarchy” though I’ve also cleverly seen it called the “wirearchy.” In any case, it’s a world where I believe the natural perspective of artists and designers — who thrive in ambiguity, fail productively, and rebound naturally — will be become more and more useful in leadership contexts.

The chart was originally created for a workshop at the Davos World Economic Forum in 2009 and became the basis of my book Redesigning Leadership, written with Becky Bermont. In my own observation, there are authoritative leaders and creative leaders everywhere — it’s not something wholly determined by industry, generation, or position. And every leader will need, on any given day, a little bit of both types of leadership.

John Maeda principles

Makes me think about principles for Leadingship vs. Leadership. See also my post “The End of Leadership” of 1 ½ year ago. Like Joi’s talk makes us reflect on the openness of innovation, Maeda adds the openness of leadingship.

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