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Searching and Experimenting for Business Innovation

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Every other month, the Wall Street Journal publishes an edition of its Business Insight series, a collaboration with MIT's Sloan Management Review that “looks at today's business news through the lens on innovative management theory”. The Sloan Management Review is much like the Harvard Business Review, revolving instead on MIT's  B-School.

One of the main topics of 8/17/2009 edition was innovation. In fact, the front page article was entitled The New, Faster Face of Innovation, written by MIT faculty Erik Brynjolfsson and Michael Schrage. On the surface, the article touts technology as a fundamental enabler of heightened innovation: “Technology is transforming innovation at its core, allowing companies to test new ideas at speeds – and prices – that were unimaginable even a decade ago.” 

To be sure, the rapid development of technology and expansion of the Web provide the infrastructure for promoting ever-more-rapid innovation. But what's behind this technology enablement are two themes that have been a focus of this blog since its inception:  1) the transition from a planning to a searching mentality for intelligence, and 2) the use of randomized experiments to formulate and test business hypotheses.

It sure seems the distinctions between planners and searchers are becoming increasingly important for strategy and intelligence at the warp speed of business today. The top-down, methodical processes of traditional planning are too slow and plodding, and are now giving way to the swifter bottom-up techniques of searching. The grand designs of planners are yielding to the modest goals of searchers. The fixed objectives of planners are losing out to flexibility and nimbleness of searchers. Planners think they know the answers; searchers know they don't have answers – but set out to get them. Planners look to confirm their convictions; searchers explore a range of possibilities to help formulate new convictions. Planning is an exclusive function of management; searching is an inclusive exercise engaging the entire enterprise. In sum, traditional planning is heavy and slow; new-wave searching is light and fast – and more attuned to the velocity of business innovation today.

Brynjolfsson and Schrage opine: “Increasingly, the more innovative companies – the Googles and Harrah's of tomorrow – will shift away from traditional research-and-development methods. Five years ago, for instance, a leadership team team might have reviewed two or three big innovation proposals from consulting gurus; executive teams today might compare the outcomes of 50 or 60 real-world experiments to decide which one to act upon.”....”Not only do we expect managers to solicit and welcome more ideas from lower down in the ranks, we expect that lots more people will be invited to review experiments and make changes.”

The role of experiments, particularly with randomization to intervention and control, is likewise growing in importance as a catalyst for business innovation. Indeed, Competing on Analytics, Super Crunchers and evidenced-based management are all about the powerful combination of experiments and predictive modeling for business benefit. The culture of hypothesize/experiment/learn quickly is consistent with the high energy environments of current business. And while it's certainly the case that both planners and searchers deploy the experimental method and analytics in their work, planners look for experiments more to confirm their hypotheses, while searchers use them to explore and help formulate their intelligence.

The authors don't have to be sold on the value of experiments. “Traditionally, companies have simply rooted through all of that data to look for patterns and trends; they've mined the data. But some retailers are beginning to realize that they can get much better results by using their digital systems to run experiments.”... ”Experiments will become far more pervasive as information technology improves and testing grows faster and cheaper.” ...  “(Companies) will focus on experiments that not only can be tested rapidly but also can be put into wide effect just as quickly.” According to Amazon and Microsoft innovator Greg Linden: “Genius is born from a thousand failures....In each failed test, you learn something that helps you find something that will work. Constant, continuous, ubiquitous experimentation is the key.”

Coincidentally, the trend towards expanded use of the Web for experimentation is affirmed by another article from the same WSJ of 8/17/2009. Thick Fashion Magazines Are So Last Year tells the story of significant reductions in the number of pages of the telltale September issues of fashion magazines brought on by “frugal fashion advertisers slashing their budgets in the recession and experimenting with putting more ad dollars to use on the Web.” Ad pages in bellwether Vogue dropped from 729 in 2007 to 429 this year as fashion companies spent less on print and more on magazine Web sites and social networking sites like YouTube and Twitter – “gingerly testing a range of lower-cost, often more measurable outlets.” Measuring and experimenting to optimize budget allocations among competing media is now a critical challenge for fashion advertisers.

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