Last week I wrote about the highly-pertinent-for-BI MIT Sloan Management Review. The latest edition contains a special report entitled “IT-Driven Innovation, The New Information Opportunity,” featuring a number of fascinating interview articles of interest to BI practitioners. In “Putting the Science in Management Science?” Andrew McAfee makes a strong case for a new imperative to use scientific methods to divine business strategy.
McAfee's Sloan colleagues apparently agree with his assessment. Erik Brynjolfsson, in an interview article “The 4 Ways IT is Driving Innovation,” details the sequence of steps that “winning” IT companies use to separate themselves from the pack. According to Brynjolfsson, the difference in performance between IT leaders and laggards has accelerated over the last 15 years as IT's become ever more prominent – and that difference is even greater in IT-intensive industries.
For Brynjolfsson, not surprisingly, “the most important driver of (business) innovation is information technology.” The bigger bang from IT, however, is often the complementary changes introduced to IT-innovated processes: “new ways of reaching customers, new ways of connecting to suppliers, internal organization to the firm. These complementary changes are often ten times as large as the size of the initial investments in the IT itself ...”
Brynjolfsson identifies four dimensions – measurement, experimentation, sharing, and replication – that, judiciously combined, create a new kind of R&D. “Each of these is important in and of itself, but, more profoundly, they reinforce each other. They magnify the impact of each other. Improved measurement makes experimentation much more valuable, which in turn becomes more valuable still if you can share those results to the other locations. And, ultimately, if those results are important, you want to be able to scale those results up.”
Measurement, of course, is the stuff of traditional BI, on steroids with the current data explosion. Experimentation is now de rigeur with information companies like Amazon, eBay and Google, as they test the web experiences of their users. “The big advantage of an experimental approach that uses IT is that you can get at causality in a way that you can’t with just pure measurement and observation.“
Analytics poster child Harrahs is cited as an “offline” archetype of the scientific approach to running business. “The CEO there, Gary Loveman, was a PhD student here at MIT with me. And I think he’s an exemplar of a new kind of senior executive that we’re going to be seeing in the coming years. Gary has created a culture where employees at Harrah’s are regularly doing business experiments and carefully measuring their results through their information systems. The successful findings are shared with business managers at other locations and then scaled up to become part of corporate policy going forward.”
And Brynjolfsson's crystal ball envisions an even higher commitment to scientific business going forward. “What we’re going to see in the coming decade are companies whose whole culture is based on continuous improvement and experimentation — not just of specific processes, but of the entire way the company runs. I think this revolution can be fairly compared to the scientific revolution that happened centuries ago.”
If measurement and experimentation are the drivers of IT innovation, sharing and replication are the agents of IT promulgation and hence value creation across the enterprise. “If we can find more effective ways of sharing those micro-innovations with one another so that each person doesn’t have to reinvent the wheel or reinvent the printer routine, then we’re much more likely to be able to get a faster, more steady pace of economic growth ...”
Further, “business processes themselves can be replicated by leveraging information technology. A nice example is what Andrew McAfee at our Center for Digital Business described in his study of CVS. The company implemented an improved business process for prescription drug ordering at one of its pharmacies, which improved customer satisfaction significantly. But what happened next is what’s really important. Managers took that business process and embedded it in an enterprise information technology system, and then they replicated it to 4,000 other pharmacies in 4,000 other CVS stores within a year.”
Like McAfee's notions of imposition and emergence, Brynjolfsson elaborates the paradox of the simultaneous need for both IT centralization and decentralization to promote the benefits of IT innovation. The freedom of decentralization encourages innovation, the benefits of which are, in turn, implemented enterprise-wide through strong centralized processes. “On one hand, the opportunities for innovation and experimentation need to be decentralized, because only the people who are on the spot are going to have the local, specific knowledge to know what kinds of experiments are likely to be valuable. On the other hand, to be truly successful, companies will have to find ways to embed the resulting innovations into a platform that can be scaled up and replicated.” The parallels of centralization/decentralization, imposition/emergence and William Easterly's planning/searching are uncanny.
Finally, Center for Digital Business researcher, Michael Schrage offers his own trenchant perspectives on IT-driven innovation in “Value-Creation, Experiments, And Why IT Does Matter.” Schrage's point of departure is that CIO shouldn't stand for Chief Infrastructure Officer, and that IT is anything but a commodity for successful millennium companies. “People who think that IT is a commodity, they’re looking at the price, which, yeah, gets cheaper and cheaper every year. But unless you’re clever, you’re going to get less and less. You’re going to pay less but you’ll get less. Good managers get good value from IT, but great managers get great value... The biggest impact of IT is not on information management, it’s on people management, it’s on relationships management, it’s on process management, it’s on systems management. “In short, it's on processes that differentiate the business.
IT leaders, according to Schrage, will use technology to segment, to differentiate, to transform, to define a brand. 'Businesses should treat technology like a special effect. If you’re James Cameron and you’re doing a movie like “Avatar,” the issue is, “What kind of world am I trying to create? What kind of special effect do I want that will blow people away?” And then the question is, “So how do I get the technology to do that?” The leading question is not, “Gee, how do I make a cheaper movie faster?”'
UK supermarket Tesco is, by Schrage's assessment, using technology the right way – to create company value. For Tesco, the litmus test for new technology is that it 1) has to make a process better for customers; 2) has to be cheaper for Tesco; and 3) has to be simpler for staff. “The designed focus is, we want to make it easy for people to shop. Easy for them to come in, easy for them to stay, and easier for them to leave. Minimize frustration. Because even if we’re selling the same stuff as Sainsbury’s, if they have to wait five minutes in line there and only 30 seconds at Tesco, we minimize the frustration.”
If it's conceivable, Schrage is even more fanatical about the experimental method as the primary driver of IT innovation than colleagues McAfee and Brynjolfsson. And, ironically, he criticizes the “experts” created by MBA education who prefer elaborate “planning” exercises over simple “searching” experimental approaches to problem solving. “Now, doing experimentation with digital media is so much easier and cheaper. The cost of exploration has collapsed... But people have been trained not to do experiments in business school. They’ve been trained to study cases and perform calculations. We’ve been trained to ignore, oftentimes, the single most valuable thing these technologies can do for us in the workplace and in the marketplace.” No doubt Schrage is more a searcher than planner.
Schrage summarizes his message for business leaders seeking to optimize strategic innovation from IT. “The most important I would urge companies to do would be to experiment, by crafting good, business hypotheses. I can now look executives in the eye and say, 'The cost of experimentation is now the same or less than the cost of analysis. You can get more value for time, more value for dollar, more value for Euro, by doing a quick experiment than from doing a sophisticated analysis. In fact, your quick experiment can make your sophisticated analysis better.'
The second is to promote greater collaboration, interaction, and diversity — not politically-correct diversity, but diversity of skills and points of view.
And the third is to think more clearly about innovation. It’s no longer about creating new features and functionality. We have to move away from the notion of innovation being about greater creation of choice. Instead, it’s about greater value from use... Changing technologies changes expectations. Does that reduce your chance to add value to your business or does that increase your chance to add value to your business?”