5: Balancing Reliability and Validity
The chapter opens with an anecdote about his visit to Herman Miller, an office furniture design firm, famous for the design of the "Aeron" office chair.
While the chair has been much imitated since, it was at the time a departure from common chairs in that it was vey basic, and lacked traditional upholstery (which was problematic because it retained body heat), and was so radically minimal that testers and the press remarked it didn't look like a chair at all.
The design process enlisted consultants from outside the furniture industry, who developed a product that was exceptionally suited for its purpose (to provide a seat that remained comfortable even when sat upon for long hours). No research was done to determine what the market thought was attractive in a chair, nor was the sales department allowed to have input into the design based on their perception of customer tastes. The design was limited to the functional and practical aspects only.
It's also noted that the product was launched "with a flourish" rather that tested in selected markets and slowly extended. Not only did this give their salesmen no other option except to sell the Aeron, but it also prevented larger firms from recognizing their idea and beating them to the larger markets.
It wasn't known at the time that the Aeron would become wildly popular, considered the epitome of modern seating, and earn a place in museums of modern art.
Breakthroughs of this nature represent design not only in the formulation of a product, but in business practices: those firms that are analytical in nature tend to be risk-averse and would take much smaller steps to prove out a new idea rather than proceeding boldly.
One of the main problems with design is that it is often compromised to meet the demands of the market - which is to say the ostensible demands of the individuals who are assumed to represent the market. Many products that get rave reviews in the research lab fail in mass production, and others that fail in the research lab succeed in mass production. But more often, research compromises the quality of design.
Ideally, a designer is asked to solve a problem - and if his solution is valid, it needs no validation or consensus. The only question to be asked is "does it work?"
Making a Case for Design Thinking
Martin generalizes that the larger the company, the less likely it will be receptive to design thinking an the more likely it will be pressured by stakeholders to project future operations by extending past trends and to deliver short-term results without risk.
The irony is that shareholders, analysts, and boards want to see growing companies that are creating new products, entering new markets, and otherwise expanding the business - but at the same time justifies its business decisions based on data analysis of current products, current markets, and current practices. There may be some innovative initiatives approved by the board, but most of the budget of the firm will be earmarked for business as usual.
So the motivation of management at most firms is to avoid risk: failure will be punished and success will not be rewarded, and doing what was always done is the best defense. This works over the short run, but in the long run a company that avoids the risk of doing anything new will go stagnant, atrophy, and lose significant chunks of business to more innovative competitors. (EN: Which is part of the reason executives generally have horizons of two to five years before they plan to leave a firm.)
The notion that largeness is safety is entirely false. Consider that the Dow Jones Industrial Average, which includes thirty of the strongest and most stable firms, today has only three of its original companies - the other twenty-seven slots have changed. Or consider the original list of Fortune 100 companies - only 11 are still on the list. Both figures point to one conclusion: 90% of firms that are considered rock-solid today will fail.
He mentions the way in which Southwest airlines grew rapidly in an industry dominated by industry giants, many of whom have declared bankruptcy and restructured several times.
The bias toward business as usual infects all parts of a company, including the research and development branches that are instituted to move the firm forward. Martin suggests that their mandate and budget are skimpy on "research" and big on "development" - in particular, developments that constitute minor improvements to existing products and processes.
A rather clumsy transition to the next three sections of this chapter suggests that to overcome the optimization mindset, firms must focus on three elements: its structures, processes, and cultural norms.
A Project-Oriented Structure
Traditional organization structures were built around ongoing and permanent tasks: the "marketing" department was staffed by individuals who perform marketing functions that are done as a matter of course. And in such a department there is likely a person whose task it is to manage the weekly newspaper advertisement, which is a task they perform each week on an ongoing basis, in the same way they have always done it. This work is performed over and over and is never expected to end: that is, the company will always place a newspaper ad each week and the clerk will always need to attend to the necessary tasks to do so.
Such an organization gravitates toward stasis any myopia: for the sake of efficiency and reliability, nothing is ever expected to change. People settle into jobs in which they become very efficient, but it becomes the scope of their existence: it is "my job" to do this task, and they lose sight of its context and meaning within the bigger picture. This is particularly true among the people who perform hands-on tasks, but also is evident in the attitudes of those who manage them.
Project-oriented teams within an organization depart from this: their work is to implement a solution to a problem for which there is no defined and existing pattern of behavior. In many instances, they explore the problem and define a solution before implementing it. Such teams in traditional organizations are ad-hoc - they effect a change on the rest of the organization and disband once that change has been made.
There have also been entire companies that are project-oriented, but this has traditionally been rare. A construction company, for example, would assemble the personnel required to build something and manage the construction project. When the building was completed, the company would move on to another project. Its people needed to be flexible because no two days involve the exact same tasks, and the skills needed might change from one project to the next (building an office building or building a bridge require different skills).
Design consultancies operate in the same manner: each job they do for clients is a project that has a specific beginning and ending with work that tends to vary (EN: unless they are doing the weekly newspaper ad or some other repetitive job) such that the agency must define the work to be done and then perform it. In such an agency, an employee's responsibilities vary, and their work is better defined by the projects they are supporting than a job title or role.
There's a note about management in these organizations, chiefly the complain that managers are constantly "putting our brushfires" and can't focus on their real jobs. But in such a workplace, the workers are specialists who do not merely perform tasks, but define the tasks to be done, and the manager's real job is to deal with the brushfires and keep projects on track.
The project-based model emphasizes collaboration - authority over a task is maintained by the person who performs the task. There is usually a project manager who attempts to keep track of the work and overcome impediments, but because there is no formal process that drives the work of the team, there is not a management function to ensure people are doing what they are supposed to be doing - because there are no suppositions.
Martin also speaks of iteration in the design process: the client's requirements generally begin in a vague and ill-formed state and the project team's "discovery" is a matter of discovering what the client really means. This is often done by producing a design that meets the vague requirements, as a means to prompt the client to be more specific.
(EN: Some methodologies involve iterative design, others involve a more rigorous requirements gathering process before design begins - but even in the latter case there is a contingency for plans to change when the requirements are later discovered to be flawed.)
Project teams generally proceed through a number of phases in which the nature of the work fluctuates. The problem-solving phase defines the criteria by which a solution will be assessed to be a success or failure. The design phase hypothesizes a solution that is compared to the problem until consensus is reached that it is worth pursuing. The development phase implements the solution that has been agreed upon. After that is complete, the project is over, though it may result in follow-on work to provide continued support for the solution.
Thus considered, traditional firms are in the "continued support" phase most of the time - and this has been the historical approach to doing business, which can be maintained in a relatively unchanging environment, such that the same operations can be counted on to produce the same results consistently. But in the present day, the environment constantly shifts, such that the problem-solving work cannot be a periodic task, but an ongoing necessity to remain functional and relevant.
Processes That Give Innovation a Chance to Flourish
Martin identifies financial planning and reward systems as two corporate processes that are typically arranged according to an existing algorithm and are resistant to validity and innovation. (EN: "Resistant to" is misleading - they can be modified, but it would be more accurate to suggest that they are most often "defended against" any changes.)
Financial Planning
Any process that deals with the disbursement of money is highly rigid, risk-averse, and generally designed to prevent the funds from being disbursed at all. Good performance is assessed by conformance to predicted expenses: remaining at or below budget, often without regard to the degree to which limited resources prevent the effective accomplishment of a goal.
While keeping costs below revenues is necessary for the short-term success of the firm, the long-term requires investment to be made that will, for a time, exceed the revenue generated by it. The initiation of any revenue-generating practice inherently requires expenses to be incurred before revenue is received.
Budget is allocated based on the predicted return on investment, but the calculation of this return is based on historical evidence. For any new or unusual venture, there is no equivalent past experience, which rigs budgeting processes in favor of efficiency and against effectiveness or innovation. The latter constitute risk of inaccuracy, which is generally regarded as undesirable.
While it is generally accepted that a company must face risk in order to gain rewards, most would prefer to forego the reward to avoid the risk, and conventional approaches to financial planning reflect this. In order to become innovative, a company's risk tolerance must be increased, and projections must be based on plausibility of a future proposal rather than evidence of past operations.
Reward Systems
Reward systems are often tied to expenses, but are treated as such even if a given reward is non-monetary (such as the social status awarded to a high-performing worker).
Because rewards take the form of obligations (an employee who accomplishes something specific is given the expectation of receiving a specific reward) companies are reluctant to provide them. As with expenses, they constitute an expense in exchange for performance, and firms would rather forego performance and save the expense.
The chief reward is salary, which is a regular payment for regular performance. This is necessarily linked to the notion that past performance will perpetuate and generate the same revenues for the firm. For example, the manager who runs a business unit that has earned $2 billion per year (in the past) expects to be compensated with a portion of that revenue his unit is responsible for, and expects a bonus if his unit exceeds past performance.
(EN: It does stand to mention that no manager seems to accept that his salary will be docked for failing to meet past performance - though anyone paid on commission implicitly accepts that as a natural consequence.)
In general, those who perform duties that generate a given revenue in the past demand to be compensated as if those same duties will generate the same revenue in future. Aside of the obvious flaw (assuming past performance guarantees future results), this leaves those whose work is innovation without the ability to negotiate fair compensation for the revenue their ideas will generate in future, on the grounds that they cannot be predicted using historical data.
The Reward of Design
Designers, in particular, are peculiar in their desire for rewards. While financial compensation is a necessity of life, the real reward they seek is to have their ideas "make it out into the world." To a designer, success is about having an impact: his vision must be built, made real, and delivered to a user who can benefit from it.
Failing that, designers feel some sense of accomplishment merely from solving problems: any designer's portfolio and the walls of his office show illustrations of the problems he has solved - the more complex the problem, the more pride he takes in having solved it.
All other rewards are secondary: being paid in cash or receiving social recognition is secondary to having discovered a solution to a problem and seeing that solution realized.
(EN: There is a distinction to be made between those who are intrinsically motivated and those who are extrinsically motivated. The former are well described by the author - but there are plenty of the latter kind, who want wealth and recognition regardless. An intrinsically motivated designer is largely indifferent to payment and recognition, and would be ashamed of receiving either for doing second-rate work.)
Constraints or Challenges
Design thinking is not a practice that can be successful outside of a culture that is supportive of it - hence firms that wish to implement this approach must make some changes to their cultural norms.
In reliability-driven firms, constraints are the enemy: there is never enough capital or resources to do all that can be dine, nor enough customer to purchase the output if the capital and resources could be obtained. The desire is to do more of the same things, and constraints are barriers to doing so.
In design-oriented firms, constraints are merely challenges. A design-thinking engineer is challenged to find a way to lower the cost of production, a design-thinking marketer is challenged to find a way to reach new markets, and a design-thinking treasurer is challenged to find more capital.
The difference here is that a constraint is something that is taken as it is and it is presumed that it cannot be overcome, whereas a challenge is something that is unacceptable at it is, but with ingenuity it can be overcome.
Essentially, the culture of reliability accepts limitations, whereas the culture of design sees them as obstacles to be overcome.
Obstacles to Change
Companies are defensive of their structures, processes, and cultural norms - so if you intent is to introduce design thinking to a firm whose practices are rooted in analysis of past data, there will be significant resistance as managers, executives, and even shareholders resist the suggestion to change from the analytical way of thinking.
Training in Analytical Thinking
Only a tiny fraction of managers in the world of business have training that would help them to understand design thinking. By Martin's estimate, there are 140,000 MBAs in the business world, and it is unlikely that even one in a hundred have taken a course in entrepreneurship or have any other exposure to anything but optimization and efficiency.
As such, they have no understanding of it, and will apply and defend the analytical thinking to which they have been trained. They will do so with a fervor that is almost religious in nature, refusing the suggestion to do something so fundamentally different to a methodology to which they cling as a belief.
Reliability Orientation of Key Stakeholders
The same can be said of other key stakeholders: they are simply institutionalized to analytical thinking and are dismissive of anything that cannot be "proven" using past data.
Those who are concerned with stock prices, namely board members and the financial press, are very much grounded in the past, doing various calculations and observations of past performance as a means to predict the future, and giving little credibility to anything that cannot be quantified.
It will take significant commitment to ignore the warnings and cautions of analysts, who will be inclined to resist and oppose anything that cannot be proven by their analysis of the firm's past numbers and the stock's past performance.
Among US companies, only Apple, Inc. has gained much credibility for the value of design, such that analysts show faith in the company's future that is unsupported by financial measures.
(EN: This is a bit of an exaggeration, as there are quite a few firms that trade on hope, as evidenced by a price-to-equity ratio of 20 or greater and/or a price-to-book ratio of 50% or less. This is clearly a departure from traditional measures - but to the authors point, many stocks trading in this range are declared "overpriced" by analysts.)
Ease of Defending Reliability
In most corporate settings, proposals must be defended, and optimization is far more easy to defend than innovation. Where there is a competition between two projects that promise the same return, an optimization project will be seen as more credible, and will win funding.
Optimization is based on "empirical" data - a proposal to build a new factory is supported by the history of an existing one, even if it requires speculation about the performance of a competitor's operation. This seems more "real" than the imaginative thinking required to project the performance of some operation that has never existed.
Naturally, this means that funding goes to business as usual - doing more of the same, or imitating what someone else is already doing. (EN: I have found this to be a good litmus test - ask of a firm "what have you done in the past ten years that was a first in your industry?" to determine whether they are innovative, or merely following the herd.)