Tuesday, June 30, 2015

Think You're Well Connected? Stop Fooling Yourself

You read a lot. You’re informed daily through Twitter, various blogs, and a few subscriptions. Your network is very large, and is made up of people who also have large networks. With technology at your fingertips, you are extremely well informed.

You’re fooling yourself.

Humans want to know what others think, and we’re especially persuaded when information is verified by different sources. The problem is that our “different” sources often tap the same information. You hear something from a Twitter feed that you like, that is confirmed on a blog, that is confirmed yet again by a video of a Ted talk. But what if each of these got their information from the same source? You are all recycling one single datum! It is bad to be poorly informed, but it is much worse to be poorly informed and not realize it.

For example:

“As CEO, I make sure I am in the thick of it. I stay right in the middle of things: product development, engineering, marketing, sales – they all keep me in the know.” So said the CEO of a software startup where I was conducting interviews. I met with him four times over four months, as he shaped the strategy of his budding company. He was surprised when they failed. All his information sources agreed that his strategy would win.

But let’s take a closer look. I asked everyone in his company to tell me whom they turned to for work-related advice and information. Using the matrix of these information flows among everyone in the firm, I mapped the company’s information network here - where the squares are people and the lines are their communications:

As you can see, this company's communication network is dense and saturated, with plenty of paths for information to get around. But that is precisely the problem. Throw one single datum into this company and it rapidly cycles throughout the whole system over and over and over. The central people in the middle – including the CEO – are no better informed than anybody else in this network; they just think they are. But they are simply hearing the same information as it gets recycled over and over apparently from different sources. No wonder they convinced themselves that their strategy made sense. They got the illusion of a second opinion without ever really getting a second opinion.

The solution?

Gather information from those who do not communicate with one another. In fact, you want to gather information from entire networks that do not communicate with one another. Truly rich and diverse information comes only when you hear, separately and independently, from “worlds” that do not overlap: From different parts of the earth, different economic sectors, different social demographics, different religions, languages, ideologies and cultures.

But gathering such varied data is difficult, and it is getting more difficult because of the IT revolution. Twitter will suggest that you listen to people who listen to each other. Amazon will suggest that you read something very much like what you just read. Even your search engine will try to make sure that you get results that are similar to the ones you clicked on last time. If you go with the flow, you’ll end up hearing the same narrow view recycled repeatedly – yet you’ll think you did your due diligence.

Don’t fool yourself.

One of the best academic approaches to information networks is by Duncan Watts.

Monday, June 15, 2015

Context Drives Choice (and Vice Versa)

Entrepreneurs are often seen as great examples of free will in action. In a world of people who too often see their situation as unchangeable, entrepreneurs choose to act. We feel the power of free will when we hear stories about the bold actions of entrepreneurs. 

For example:

Martin McVicar took a summer job at an Irish forklift company in the early 1990s. Within a few years, he designed a unique forklift that swivels for moving awkward loads in small spaces – and founded Combilift to take this product to market. As of 2015 the company is shipping these unique forklifts all over the world.

Trained in chemical engineering, Orlando Vargas left Columbia in 2005 to go to Baja California Sur in Mexico. There he developed an industrial soap made from cactus. Now his company, Phanaint, sells biodegradable cactus-based soaps for industrial uses to businesses all over Mexico. His customers rave about the product; hoteliers, for instance, like that they do not need to use bleach when they use Phanaint soap, and that they avoid toxic runoff.

In 1976 a team from Zanini Equipamentos Pesados created a subsidiary called Sermatec in Sertãozinho – deep in agricultural Brazil. There they developed a unique machine that turns sugar cane into food – or fuel – depending on market conditions updated to the minute. The machine is powered by electricity cogenerated from the discarded portions of the cane, and today the machine is sold to customers worldwide.

Inspiring stories. But here is the rub: In each story, the innovator’s choice was driven by their context: an Irishman immersed in the forklift business, operating in small spaces; a Columbian chemist surrounded by cactus in Baja; Brazilian agricultural engineers amidst the sugar cane, in a world hungry for food and fuel.

In each of these cases, context drove choice.

True, it took a bold decision to actually create these businesses, and the innovators should be admired for this reason. But still, there is no way anyone could have started any of these businesses without being in the context that made the innovation possible.

Context drives choice, yet choice is still pivotal to innovation because we often choose our context. The pivotal choice for McVicar was not to start his company; it was his choice to join an Irish forklift company years earlier. For Vargas, the pivotal choice was to move to Mexico. For the team at Zanini, it was when they joined that firm. We choose our context, and then our context determines our possible future choices.

You may think this point is obvious, but unfortunately it is often ignored. Many young people feel they should start their careers as entrepreneurs, and so they try to start a consumer internet company. Why? Because they are without experience in any context, so all they know are their consumer experiences. If instead they were to choose to work in an interesting context, who knows the amazing things they would discover. Similarly, firms differ in how much they pay attention to context. Some firms allow their workforce to stagnate, while others rotate the most promising employees through interesting contexts.
Context drives choice, but we choose our context.

The classic statement of how context drives organizational creation is by Arthur Stinchcombe.