Tag: Innovation

Creativity and the Necessity of Giving up Your Best Loved Ideas and Starting Over Again

“You need all kinds of influences, including negative ones, to challenge what you believe in.” — Bill Murray

“Any year that passes in which you don’t destroy one of your best loved ideas is a wasted year,” says Charlie Munger. If only it were that easy. It's mentally hard to come to an opinion and even harder to give up that attachment and admit that we were wrong. That's one reason Henry Singleton opted for flexibility instead of predetermined plans.

Dani Shapiro Still Writing

F. Scott Fitzgerald famously wrote: “The test of a first-rate intelligence is the ability to hold two opposing ideas in mind at the same time and still retain the ability to function. One should, for example, be able to see that things are hopeless yet be determined to make them otherwise.”

The idea is to live in the middle of ideas, believing in them enough to take action but not enough so they become too big of an anchor when something better comes along. More than acknowledging the uncertainty of beliefs you need to embrace it. Keats called this ability “negative capability.” Roger Martin argues that successful thinking involves integrating several different ideas while maintaining the ability to act. It is through the exploration of these opposing ideas, or uncertainty if you will, that we come to better outcomes.

I came across this passage in Dani Shapiro's Still Writing that speaks to the necessity of failure and uncertainty in the creative process.

When writers who are just starting out ask me when it gets easier, my answer is never. It never gets easier. I don’t want to scare them, so I rarely say more than that, but the truth is that, if anything, it gets harder. The writing life isn’t just filled with predictable uncertainties but with the awareness that we are always starting over again. That everything we ever write will be flawed. We may have written one book, or many, but all we know — if we know anything at all — is how to write the book we’re writing. All novels are failures. Perfection itself would be a failure. All we can hope is that we will fail better. That we won’t succumb to fear of the unknown. That we will not fall prey to the easy enchantments of repeating what may have worked in the past. I try to remember that the job — as well as the plight, and the unexpected joy — of the artist is to embrace uncertainty, to be sharpened and honed by it. To be birthed by it. Each time we come to the end of a piece of work, we have failed as we have leapt — spectacularly, brazenly — into the unknown.

Shapiro further highlights the parallels between writing and the broader parallels with the creative life:

The writing life requires courage, patience, persistence, empathy, openness, and the ability to deal with rejection. It requires the willingness to be alone with oneself. To be gentle with oneself. To look at the world without blinders on. To observe and withstand what one sees. To be disciplined, and at the same time, take risks. To be willing to fail—not just once, but again and again, over the course of a lifetime.

[…]
The page is your mirror. What happens inside you is reflected back. You come face-to-face with your own resistance, lack of balance, self-loathing, and insatiable ego—and also with your singular vision, guts, and fortitude.No matter what you’ve achieved the day before, you begin each day at the bottom of the mountain. Isn’t this true for most of us?

Still Writing will help you discover the mindset for a creative life.

Innovation: The Attacker’s Advantage

If you believe Thomas Kuhn's theory outlined in The Structure of Scientific Revolutions, then the pace of change happens slowly at first and then all at once.

Innovation: The Attacker's Advantage, an out-of-print book from 1984 takes a timeless look at this theory and applies it to innovation. This is the Innovator's Dilemma long before the innovator's dilemma.

The perspective of Richard Foster, the book's author, is that there is a battle going on in the marketplace between innovators (or attackers) and defenders (who want to maintain their existing advantage).

Some companies have more good years than bad years. What's the secret behind their success? Foster argues it's their willingness to cannibalise “their current products and processes just as they are the most lucrative and begin the search again, over and over.

It is about the inexorable and yet stealthy challenge of new technology and the economics of sub situation which force companies to behave like the mythical phoenix, a bird that periodically crashed to earth in order to rejuvenate itself.

The book isn't about improving process but rather changing your mindset. This is the Attacker's Advantage.

Henry Ford understood this mindset. In My Life and Work, he wrote,

If to petrify is success, all one has to do is to humor the lazy side of the mind; but if to grow is success, then one must wake up anew every morning and keep awake all day. I saw great businesses become but the ghost of a name because someone thought they could be managed just as they were always managed, and though the management may have been most excellent in its day, its excellence consisted in its alertness to its day, and not in slavish following of its yesterdays. Life, as I see it, is not a location, but a journey. Even the man who most feels himself ‘settled' is not settled—he is probably sagging back. Everything is in flux, and was meant to be. Life flows. We may live at the same number of the street, but it is never the same man who lives there.

[…]

It could almost be written down as a formula that when a man begins to think that he at last has found his method, he had better begin a most searching examination of himself to see whether some part of his brain has not gone to sleep.

Foster recognizes that innovation is “born from individual greatness” but exists within the context of a marketplace where the S-curve dominates and questions such as “how much change is possible, when it will occur, and how much it will cost,” are critical factors.

Companies are often blindsided by change. Everything is profitable until it isn't. But leading companies are supposed to have an advantage. Or, are “the advantages outweighed by other inherent disadvantages?” Foster argues this is the case.

The roots of this failure lie in the assumptions behind the key decisions that all companies have to make. Most of the managers of companies that enjoy transitory success assume that tomorrow will be more or less like today. That significant change is unlikely, is unpredictable, and in any case will come slowly. They have thus focused their efforts on making their operations ever more cost effective. While valuing innovation and espousing the latest theories on entrepreneurship, they still believe it is a highly personalized process that cannot be managed or planned to any significant extent. They believe that innovation is risky, more risky than defending their present business.

Some companies make the opposite assumption. They assume tomorrow does not resemble today.

They have assumed that when change comes it will come swiftly. They believe that there are certain patterns of change which are predictable and subject to analysis. They have focused more on being in the right technologies at the right time, being able to protect their positions, and having the best people rather than on becoming ever more efficient in their current lines of business. They believe that innovation is inevitable and manageable. They believe that managing innovation is the key to sustaining high levels of performance for their shareholders. They assume that the innovators, the attackers, will ultimately have the advantage, and they seek to be among those attackers, while not relinquishing the benefits of the present business which they actively defend. They know they will face problems and go through hard times, but they are prepared to weather them. They assume that as risky as innovation is, not innovating is even riskier.

These beliefs are based on a different understanding of competition.

The S-Curve

S-Curve

The S-curve is a graph of the relationship between the effort put into improving a product or process and the results one gets back for the investment. It's called the S-curve because when the results are plotted, what usually appears is a sinuous line shaped like an S, but pulled to the right at the top and pulled to the left at the bottom.

Initially, as funds are put into developing a new product or process, progress is very slow. Then all hell breaks loose as the key knowledge necessary to make advances is put in place. Finally, as more dollars are put into the development of a product or process, it becomes more and more difficult and expensive to make technical progress. Ships don't sail much faster, cash registers don't work much better, and clothes don't get much cleaner. And that is because of limits at the top of the S-curve.

Limits are the key to understanding the S-curve in the innovation context. When we approach a limit “we must change or not progress anymore.” Management's ability to recognize limits and change course becomes key.

If you are at the limit, no matter how hard you try you cannot make progress. As you approach limits, the cost of making progress accelerates dramatically. Therefore, knowing the limit is crucial for a company if it is to anticipate change or at least stop pouring money into something that can't be improved. The problem for most companies is that they never know their limits. They do not systematically seek the one beacon in the night storm that will tell them just how far they can improve their products and processes.

Foster argues that if you don't understand limits and S-curves you get blindsided by change. I think that's too neat of an argument — you can understand limits and S-curves and still get blindsided but the odds are reduced. You can think of the S-curve as the blindsided curve or the attacker's curve depending on your perspective.

For the S-curve to have practical significance there must be technological change in the wind. That is, one competitor must be nearing its limits, while others, perhaps less experienced, are exploring alternative technologies with higher limits. But this is almost always the case. I call the periods of change from one group of products or processes to another, technological discontinuities. There is a break between the S-curves and a new one begins to form. Not from the same knowledge that underlays the old one but from an entirely new and different knowledge base.

I think this argument is starting to sound a lot like the Innovator's Dilemma but 15 years sooner.

Technological discontinuities are arriving with increasing frequency because we're in the early stages of the technological revolution. Eventually these developments will revert to the mean and disruptive innovation will become less frequent and incremental innovation more common. Disruptive innovation favors the attacker whereas incremental favors the incumbent — going from Zero to One will be harder.

As limits are approached incremental improvement becomes increasingly expensive.

At the same time, the possibility of new approaches often emerges—new possibilities that frequently depend on skills not well developed in leader companies. As these attacks are launched, they are often unnoticed by the leader, hidden from view by conventional economic analysis. When the youthful attacker is strong he is quite prepared for battle by virtue of success and training in market niches. The defender, lulled by the security of strong economic performance for a long time and by conventional management wisdom that encourages him to stay his course, and buoyed by faith in evolutionary change, finds it's too late to respond. The final battle is swift and the leader loses.

This means the standard “stick to your knitting” argument becomes contextual and thus psychologically difficult. Sometimes the best strategy may be to move to something unfamiliar. I'd argue that the competitive drive for efficiency makes a lot of companies increasingly fragile. Most dangerous of all, they are blind to their fragility.

The S-curve, limits and attacker's advantages are at the heart of these problems and they also provide the key to solving them. For example, there are people, call them limitists, who have an unusual ability to recognize limits and ways around them. They ought to be hired or promoted. There are others who can spot ways to circumvent limits by switching to new approaches. They are essential too. Imaginary products need to be designed to understand when a competitive threat is likely to become a reality. Hybrid products that seem to be messy assemblages of old and new technologies (like steam ships with sails) can sometimes be essential for competitive success. Companies can set up separate divisions to produce new technologies and products to compete with old ones. S- curves can be sketched and used to anticipate trouble.

None of this is easy. And it won't happen unless the chief executive replaces his search for efficiency with a quest for competitiveness.

[…]

Most top executives understand, I think, that technological change is relevant to them and that it is useless and misleading to label their business as high-tech or low-tech. What they don't have is a picture of the engines of the process by which technology is transformed into competitive advantage and how they can thus get their hands on the throttle.

“If change occurs at the time learning starts to slow,” wrote Phillip Moffitt in a 1980s Esquire article entitled The Dark Side of Excellence, “… then there is a chance to avoid the dramatic deterioration. If we call this the ‘observation point,' when you can see the past and the future, then there is time to reconsider what one is doing.”

Understanding Limits

Limits are important because of what they imply for the future of the business. For example, we know from the S-curve that as the limits are approached it becomes increasingly expensive to carry out further development. This means that a company will have to increase its technical expenditures at a more rapid pace than in the past in order to maintain the same rate of progress of technical advance in the marketplace, or it will have to accept a declining rate of progress. The slower rate of change could make the company more vulnerable to competitive attack or presage price and profit declines. Neither option is very attractive; they both signal a tougher environment ahead as the limits are approached. Being close to the limits means that all the important opportunities to improve the business by improving the technology have been used. If the business is going to continue to grow and prosper in the future, it will have to look to functional skills other than technology—say marketing, manufacturing or purchasing. Said another way, as the limits of a technology are reached, the key factors for success in the business change. The actions and strategies that have been responsible for the successes of the past will no longer suffice for the future. Things will have to change. Discontinuity is on the way. It is the maturing of a technology, that is the approach to a limit, which opens up the possibility of competitors catching up to the recognized market leader. If the competitors better anticipate the future key factors for success, they will move ahead of the market leaders.

[…]

If one knows that the technology has little potential left, that it will be expensive to tap, and that another technology has more potential (that is, is further from its limits), then one can infer that it may be only a matter of time before a technological discontinuity erupts with its almost inevitable competitive consequence.

Thus finding the limit becomes important.

Finding the Limit

All this presumes we know the answer to the question “Limits of what?” The “what,” as Owens Corning expressed it, was the “technical factors of our product that were most important to the customer.” The trick is relating these “technical factors,” which are measurable attributes of the product or process to the factors that customers perceive as important when making their purchase decision. This is often easy enough when selling products to sophisticated industrial users because suppliers and customers alike have come to focus on these variables, for example, the specific fuel consumption of a jet engine or the purity of a chemical. But it is much tougher to understand these relationships in the consumer arena. How does one measure how clean our clothes are? Do we do it the same way at home as the scientists do in the lab? Do we really measure “cleanness,” or its “brightness” or a “fresh smell” or “bounce?” All of these are attributes of “clean” clothes which may have nothing whatsoever to do with how much dirt is in the clothes. … These are complicated questions to answer because different consumers will feel differently about these factors, creating confusion in the lab. Further, once the consumer has expressed his preference it may be difficult to measure that preference in technical terms. For example, what does “fit” mean? What are the limits of “fit”? If the attribute that consumers want cannot be expressed in technical terms, clearly its limit cannot be found.

Further complicating the seemingly simple question of “limits of what?” is the realization that the consumer's passion for more of the attribute may be a function of the levels of the attribute itself.

For example, in the detergent battles of the 1950s, P&G and its competitors were all vying to make a product that would produce the “cleanest” clothes. It was soon discovered that in fact the clothes were about as clean as they could ever get. The dirt had been removed, but the clothes often had acquired a gray, dingy look that the consumer associated with dirt. In fact, the gray look was caused by torn and frayed fibers, but the consumer did not appreciate this apparently arcane technical detail. Rather than fight with consumers P&G decided to capitalize on their misperceptions and add “optical brighteners” to the detergent. These are chemicals that reflect light. When they were added to the detergent and were retained on the clothes, they made the clothes appear brighter and therefore cleaner in the consumer's eyes, even though in the true sense they weren't any cleaner.

The consumers loved it, and bought all the Tide they could get in order to get their clothes “clean,” that is optically bright.

[…]

Another complication with performance parameters is that they keep changing. Frequently this change is due to the consumer's satisfaction with the present levels of product performance; optical brightness in our prior example. This often triggers a change in what customers are looking for. No longer will they be satisfied with optical brightness alone; now they want “bounce” or “fresh smell,” and the basis of competition changes. These changes can be due to a change in the social or economic environment as well. For example, new environmental laws (which led to biodegradable detergents), a change in the price of energy, or the emergence of a heretofore unavailable competitive product like the compact audio disc or high-definition TV. These changes in performance factors should trigger the establishment of new sets of tests and standards for the researchers and engineers involved in new product development. But often they don't. They don't because these changes are time-consuming and expensive to make, and they are difficult to think through. Thus it often appears easier to just not make the change. But, of course, this decision carries with it potentially significant competitive risks.

The people that should see these changing preferences, the salesmen, often do not because they have a strong incentive to sell today's products. So the very people that organization has put into place to stay close to the customer often fail to keep the organization informed of a changing landscape. And if they do, it's still a complicated process to get companies to act on that information.

… The people we rely on to keep us close to the customer and new developments often do not. So our structure and systems work to confirm our disposition to keep doing things the same way. As Alan Kantrow, editor at the Harvard Business Review, puts it, “Our receptor sites are carrying the same chemical codes that we carry. We are thus likely to see only what we expect and want to see.” The chief executive says, “I've done good things. We're scanning our environment.” But in fact he is scanning his own mind

Even if sales and marketing do perceive the need for change, they may not take their discovery back to their tech nical departments for consideration. If the technical departments do hear about these developments, they may not be able to do much about them because of the press of other projects. So all in all, changes in customer preferences get transmitted slowly, usually only after special studies are done specifically to examine changing customer preferences. All this means that answering the “limits of what” question can be tricky under the best of circumstances, and much tougher in an ongoing business.

There are limits to limits of course. First, just because you're approaching a limit doesn't meant there is an effective substitute that can solve the problem better. However, “if there is an alternative, and it is economic, then the way the competitors do battle in the industry will change.” Second, it's possible to be wrong about limits and thus draw the wrong conclusions.

A great example of this is Simon Newcomb, the celebrated astronomer, who in 1900 said “The demonstration that no possible combination of known substances, known forms of machinery and known forms of force, can be united in a practical machine by which men shall fly long distances through the air, seems to the writer as complete as it is possible for the demonstration to be.” Two years later he clarified, “Flight by machines heavier than air is unpractical and insignificant, if not utterly impossible.” It wasn't even a year before the Wright brothers proved him wrong at Kitty Hawk.

Diminishing Returns

One mistake we make is to confuse time and effort.

It is not the passage of time that leads to progress, but the application of effort. If we plotted our results versus time, we could not by extrapolation draw any conclusion about the future because we would have buried in our time chart implicit assumptions about the rate of effort applied. If we were to change this rate, it would increase or decrease the time it would take for performance to improve. People frequently make the error of trying to plot technological progress versus time and then find the predictions don't come to pass. Most of the reason for this is not the difficulty of predicting how the technology will evolve, since we have found the S-curve to be rather stable, but rather predicting the rate at which competitors will spend money to develop the technology. The forecasting error is a result of bad competitive analysis, not bad technology analysis.

Thus, it might appear that a technology still has a great potential but in fact what is fuelling its advance is rapidly increasing amounts of investment.

Psychologically, we believe the more effort we put in the more results we should see. This has disastrous effects in organizations unable to recognize limits.

S-Curve pairs

Often there is more than one S-curve, the gap between them represents a discontinuity.

Efficiency Versus Effectiveness

Effectiveness is set when a company determines which S-curve it will pursue (e.g., vacuum tubes or solid state). Efficiency is the slope of the present curve. Effectiveness deals with sustaining a strategy-efficiency with the present utilization of resources. Moving into a new technology almost always appears to be less efficient than staying with the present technology because of the need to bring the new technology up to speed. The cost of progress of an established technology is compared with that of one in its infancy, even though it may eventually cost much less to bring the new technology up to the state of the art than it did to bring the present one there. To paraphrase a comment I've heard many times at budget meetings: “In any case the new technology development cost is above and beyond what we're already paying. Since it doesn't get us any further than we presently are, it cannot make sense.” The problem with that argument is that someday it will be ten or twenty or thirty times more efficient to invest in the new technology, and it will outperform the existing technology by a wide margin.

There are many decisions that put effectiveness and efficiency at odds with each other, particularly those involving resource allocation. This is one of the toughest areas to come to grips with because it means withdrawing resources from the maturing business.

[…]

In addition, many companies have management policies that, interpreted literally, impede moving from one S-curve to another. For example, “Our first priority will be to protect our existing businesses.” Or “We will operate each business on a self-sustaining basis; each will have to provide its own cash as well as make a contribution to corporate overhead.” These rules are established either in a period of relaxed competition or out of political necessity.

The fundamental dilemma is that it always appears to be more economic to protect the old business than to feed the new one at least until competitors pursuing the new approach get the upper hand. Conventional financial theory has no practical way to take account of the opportunity cost of not investing in the new technology. If it did, the decision to invest in the present technology would often be reversed.

Metrics become distorted and defenders believe they are more productive than they are. Attackers and defenders look at productivity differently.

Even if a defender succeeds in managing his own S-curve better, chances are he will not be able to raise his efficiency by more than, say, 50 percent. Not much use against an attacker whose productivity might be climbing ten times faster because he has chosen a different S-curve. All too frequently the defender believes his productivity is actually higher than his attacker's and ignores what the attacker potentially may have to offer the customer. Defenders and attackers often have a different perspective when it comes to judging productivity. For the attacker, productivity is the improvement in performance of his new product over his old product divided by the effort he puts into developing the new product. If his technology is beginning to approach the steep part of its S-curve, this could be a big number. The defender, however, observes the productivity through the eyes of the market, which may still be treating the new product as not much more than a curiosity. So in his eyes the attacker's productivity is quite low. We've seen this happen time and again in the electronics industry. Products such as microwaves, audio cassettes and floppy discs failed at first to meet customer standards, but then, almost overnight, they set new high-quality standards and stormed the market.

Even if the defender admits that the attacker's product may have an edge, he is likely to say it is too small to matter. Since the first version of a wholly new product is frequently just marginally better than the existing product, the defender often thinks the attacker's productivity is lower, not higher than his own. The danger comes in using this erroneous perception to figure out what is going to happen next. Too often defenders err by thinking that the attacker's second generation new product will require enormous resources and result in little progress. We know differently. We know from the mathematics of adolescent S-curves that once the first crack appears in the market dam, the flood cannot be far behind. And further, it won't cost nearly as much since the first product has absorbed much of the start-up costs. No doubt this will be a big shock to the defender who will tell the stock market analysts, “Well, the attacker was just lucky. There was nothing in his record to suggest he could have pulled this thing off.” All true. From the defender's viewpoint there was nothing in the attacker's record to suggest that a change was coming. But the underlying forces were at work nevertheless, and in the end they appeared.

Innovation: The Attacker's Advantage explores why leaders lose and what you can do about it.

The Improbable Story of the Online Encyclopedia

More important than determining who deserved credit is ap­preciating the dynamics that occur when people share ideas.

 

Walter Isaacson is the rare sort of writer that, if you're like me, you just pre-order everything he writes. The first thing I read that he wrote was the Einstein Biography, then the Steve Jobs Biography, then I went back and ordered everything else. He's out with a new book, The Innovators, which recounts the story of the people who created the Internet. From Ada Lovelace, Lord Byron’s daughter, who pioneered computer programming in the 1840s, long before anyone else, through to Steve Jobs, Tim Berners-Lee, and Larry Page, Isaacson shows not only the people but how their minds worked.

Below is an excerpt from The Innovators, recounting the improbable story of Wikipedia.

When he launched the Web in 1991, Tim Berners-Lee intended it to be used as a collaboration tool, which is why he was dismayed that the Mosaic browser did not give users the ability to edit the Web pages they were viewing. It turned Web surfers into passive consumers of published content. That lapse was partly mitigated by the rise of blog­ging, which encouraged user-generated content. In 1995 another me­dium was invented that went further toward facilitating collaboration on the Web. It was called a wiki, and it worked by allowing users to modify Web pages—not by having an editing tool in their browser but by clicking and typing directly onto Web pages that ran wiki software.

The application was developed by Ward Cunningham, another of those congenial Midwest natives (Indiana, in his case) who grew up making ham radios and getting turned on by the global communities they fostered. After graduating from Purdue, he got a job at an elec­tronic equipment company, Tektronix, where he was assigned to keep track of projects, a task similar to what Berners-Lee faced when he went to CERN.

To do this he modified a superb software product developed by one of Apple’s most enchanting innovators, Bill Atkinson. It was called HyperCard, and it allowed users to make their own hyper-linked cards and documents on their computers. Apple had little idea what to do with the software, so at Atkinson’s insistence Apple gave it away free with its computers. It was easy to use, and even kids—especially kids—found ways to make HyperCard stacks of linked pictures and games.

Cunningham was blown away by HyperCard when he first saw it, but he found it cumbersome. So he created a super simple way of creating new cards and links: a blank box on each card in which you could type a title or word or phrase. If you wanted to make a link to Jane Doe or Harry’s Video Project or anything else, you simply typed those words in the box. “It was fun to do,” he said.

Then he created an Internet version of his HyperText program, writing it in just a few hundred lines of Perl code. The result was a new content management application that allowed users to edit and contribute to a Web page. Cunningham used the application to build a service, called the Portland Pattern Repository, that allowed soft­ware developers to exchange programming ideas and improve on the patterns that others had posted. “The plan is to have interested parties write web pages about the People, Projects and Patterns that have changed the way they program,” he wrote in an announcement posted in May 1995. “The writing style is casual, like email . . . Think of it as a moderated list where anyone can be moderator and everything is archived. It’s not quite a chat, still, conversation is possible.”

Now he needed a name. What he had created was a quick Web tool, but QuickWeb sounded lame, as if conjured up by a com­mittee at Microsoft. Fortunately, there was another word for quick that popped from the recesses of his memory. When he was on his honeymoon in Hawaii thirteen years earlier, he remembered, “the airport counter agent directed me to take the wiki wiki bus between terminals.” When he asked what it meant, he was told that wiki was the Hawaiian word for quick, and wiki wiki meant superquick. So he named his Web pages and the software that ran them WikiWikiWeb, wiki for short.

In his original version, the syntax Cunningham used for creating links in a text was to smash words together so that there would be two or more capital letters—as in Capital Letters—in a term. It be­came known as CamelCase, and its resonance would later be seen in scores of Internet brands such as AltaVista, MySpace, and YouTube.

WardsWiki (as it became known) allowed anyone to edit and contribute, without even needing a password. Previous versions of each page would be stored, in case someone botched one up, and there would be a “Recent Changes” page so that Cunningham and others could keep track of the edits. But there would be no supervisor or gatekeeper preapproving the changes. It would work, he said with cheery midwestern optimism, because “people are generally good.” It was just what Berners-Lee had envisioned, a Web that was read-write rather than read-only. “Wikis were one of the things that allowed col­laboration,” Berners-Lee said. “Blogs were another.”

Like Berners-Lee, Cunningham made his basic software available for anyone to modify and use. Consequently, there were soon scores of wiki sites as well as open-source improvements to his software. But the wiki concept was not widely known beyond software engineers until January 2001, when it was adopted by a struggling Internet entrepreneur who was trying, without much success, to build a free, online encyclopedia.

***

Jimmy Wales was born in 1966 in Huntsville, Alabama, a town of rednecks and rocket scientists. Six years earlier, in the wake of Sput­nik, President Eisenhower had personally gone there to open the Marshall Space Flight Center. “Growing up in Huntsville during the height of the space program kind of gave you an optimistic view of the future,” Wales observed. “An early memory was of the windows in our house rattling when they were testing the rockets. The space program was basically our hometown sports team, so it was exciting and you felt it was a town of technology and science.”

Wales, whose father was a grocery store manager, went to a one-room private school that was started by his mother and grandmother, who taught music. When he was three, his mother bought a World Book Encyclopedia from a door-to-door salesman; as he learned to read, it became an object of veneration. It put at his fingertips a cor­nucopia of knowledge along with maps and illustrations and even a few cellophane layers of transparencies you could lift to explore such things as the muscles, arteries, and digestive system of a dissected frog. But Wales soon discovered that the World Book had shortcom­ings: no matter how much was in it, there were many more things that weren’t. And this became more so with time. After a few years, there were all sorts of topics—moon landings and rock festivals and protest marches, Kennedys and kings—that were not included. World Book sent out stickers for owners to paste on the pages in order to update the encyclopedia, and Wales was fastidious about doing so. “I joke that I started as a kid revising the encyclopedia by stickering the one my mother bought.”

After graduating from Auburn and a halfhearted stab at graduate school, Wales took a job as a research director for a Chicago financial trading firm. But it did not fully engage him. His scholarly attitude was combined with a love for the Internet that had been honed by playing Multi-User Dungeons fantasies, which were essentially crowdsourced games. He founded and moderated an Internet mailing list discussion on Ayn Rand, the Russian-born American writer who espoused an objectivist and libertarian philosophy. He was very open about who could join the discussion forum, frowned on rants and the personal attack known as flaming, and managed comportment with a gentle hand. “I have chosen a ‘middle-ground’ method of moderation, a sort of behind-the-scenes prodding,” he wrote in a posting.

Before the rise of search engines, among the hottest Internet ser­vices were Web directories, which featured human-assembled lists and categories of cool sites, and Web rings, which created through a common navigation bar a circle of related sites that were linked to one another. Jumping on these bandwagons, Wales and two friends in 1996 started a venture that they dubbed BOMIS, for Bitter Old Men in Suits, and began casting around for ideas. They launched a panoply of startups that were typical of the dotcom boom of the late ’90s: a used-car ring and directory with pictures, a food-ordering service, a business directory for Chicago, and a sports ring. After Wales relo­cated to San Diego, he launched a directory and ring that served as “kind of a guy-oriented search engine,” featuring pictures of scantily clad women.

The rings showed Wales the value of having users help generate the content, a concept that was reinforced as he watched how the crowds of sports bettors on his site provided a more accurate morning line than any single expert could. He also was impressed by Eric Ray­mond’s The Cathedral and the Bazaar, which explained why an open and crowd-generated bazaar was a better model for a website than the carefully controlled top-down construction of a cathedral.

Wales next tried an idea that reflected his childhood love of the World Book: an online encyclopedia. He dubbed it Nupedia, and it had two attributes: it would be written by volunteers, and it would be free. It was an idea that had been proposed in 1999 by Richard Stallman, the pioneering advocate of free software. Wales hoped eventually to make money by selling ads. To help develop it, he hired a doctoral student in philosophy, Larry Sanger, whom he first met in online discussion groups. “He was specifically interested in finding a philoso­pher to lead the project,” Sanger recalled.

Sanger and Wales developed a rigorous, seven-step process for creating and approving articles, which included assigning topics to proven experts, whose credentials had been vetted, and then putting the drafts through outside expert reviews, public reviews, professional copy editing, and public copy editing. “We wish editors to be true experts in their fields and (with few exceptions) possess Ph.Ds.,” the Nupedia policy guidelines stipulated. “Larry’s view was that if we didn’t make it more academic than a traditional encyclopedia, people wouldn’t believe in it and respect it,” Wales explained. “He was wrong, but his view made sense given what we knew at the time.” The first article, published in March 2000, was on atonality by a scholar at the Johannes Gutenberg University in Mainz, Germany.

***

It was a painfully slow process and, worse yet, not a lot of fun. The whole point of writing for free online, as Justin Hall had shown, was that it produced a jolt of joy. After a year, Nupedia had only about a dozen articles published, making it useless as an encyclopedia, and 150 that were still in draft stage, which indicated how unpleasant the process had become. It had been rigorously engineered not to scale.

This hit home to Wales when he decided that he would personally write an article on Robert Merton, an economist who had won the Nobel Prize for creating a mathematical model for markets contain­ing derivatives. Wales had published a paper on option pricing theory, so he was very familiar with Merton’s work. “I started to try to write the article and it was very intimidating, because I knew they were going to send my draft out to the most prestigious finance professors they could find,” Wales said. “Suddenly I felt like I was back in grad school, and it was very stressful. I realized that the way we had set things up was not going to work.”

That was when Wales and Sanger discovered Ward Cunningham’s wiki software. Like many digital-age innovations, the application of wiki software to Nupedia in order to create Wikipedia—combining two ideas to create an innovation—was a collaborative process in­volving thoughts that were already in the air. But in this case a very non-wiki-like dispute erupted over who deserved the most credit.

The way Sanger remembered the story, he was having lunch in early January 2001 at a roadside taco stand near San Diego with a friend named Ben Kovitz, a computer engineer. Kovitz had been using Cunningham’s wiki and described it at length. It then dawned on Sanger, he claimed, that a wiki could be used to help solve the problems he was having with Nupedia. “Instantly I was considering whether wiki would work as a more open and simple editorial system for a free, collaborative encyclopedia,” Sanger later recounted. “The more I thought about it, without even having seen a wiki, the more it seemed obviously right.” In his version of the story, he then convinced Wales to try the wiki approach.

Kovitz, for his part, contended that he was the one who came up with the idea of using wiki software for a crowdsourced encyclopedia and that he had trouble convincing Sanger. “I suggested that instead of just using the wiki with Nupedia’s approved staff, he open it up to the general public and let each edit appear on the site immediately, with no review process,” Kovitz recounted. “My exact words were to allow ‘any fool in the world with Internet access’ to freely modify any page on the site.” Sanger raised some objections: “Couldn’t total idiots put up blatantly false or biased descriptions of things?” Kovitz replied, “Yes, and other idiots could delete those changes or edit them into something better.”

As for Wales’s version of the story, he later claimed that he had heard about wikis a month before Sanger’s lunch with Kovitz. Wikis had, after all, been around for more than four years and were a topic of discussion among programmers, including one who worked at BOMIS, Jeremy Rosenfeld, a big kid with a bigger grin. “Jeremy showed me Ward’s wiki in December 2000 and said it might solve our problem,” Wales recalled, adding that when Sanger showed him the same thing, he responded, “Oh, yes, wiki, Jeremy showed me this last month.” Sanger challenged that recollection, and a nasty cross­fire ensued on Wikipedia’s discussion boards. Wales finally tried to de-escalate the sniping with a post telling Sanger, “Gee, settle down,” but Sanger continued his battle against Wales in a variety of forums.

The dispute presented a classic case of a historian’s challenge when writing about collaborative creativity: each player has a different rec­ollection of who made which contribution, with a natural tendency to inflate his own. We’ve all seen this propensity many times in our friends, and perhaps even once or twice in ourselves. But it is ironic that such a dispute attended the birth of one of history’s most collab­orative creations, a site that was founded on the faith that people are willing to contribute without requiring credit. (Tellingly, and laudably, Wikipedia’s entries on its own history and the roles of Wales and Sanger have turned out, after much fighting on the discussion boards, to be bal­anced and objective.)

More important than determining who deserved credit is ap­preciating the dynamics that occur when people share ideas. Ben Kovitz, for one, understood this. He was the player who had the most insightful view—call it the “bumblebee at the right time” theory—on the collaborative way that Wikipedia was created. “Some folks, aim­ing to criticize or belittle Jimmy Wales, have taken to calling me one of the founders of Wikipedia, or even ‘the true founder,’” he said. “I suggested the idea, but I was not one of the founders. I was only the bumblebee. I had buzzed around the wiki flower for a while, and then pollinated the free-encyclopedia flower. I have talked with many oth­ers who had the same idea, just not in times or places where it could take root.”

That is the way that good ideas often blossom: a bumblebee brings half an idea from one realm, and pollinates another fertile realm filled with half-formed innovations. This is why Web tools are valuable, as are lunches at taco stands.

***

Cunningham was supportive, indeed delighted when Wales called him up in January 2001 to say he planned to use the wiki software to juice up his encyclopedia project. Cunningham had not sought to patent or copyright either the software or the wiki name, and he was one of those innovators who was happy to see his products become tools that anyone could use or adapt.

At first Wales and Sanger conceived of Wikipedia merely as an adjunct to Nupedia, sort of like a feeder product or farm team. The wiki articles, Sanger assured Nupedia’s expert editors, would be rel­egated to a separate section of the website and not be listed with the regular Nupedia pages. “If a wiki article got to a high level it could be put into the regular Nupedia editorial process,” he wrote in a post. Nevertheless, the Nupedia purists pushed back, insisting that Wiki­pedia be kept completely segregated, so as not to contaminate the wisdom of the experts. The Nupedia Advisory Board tersely declared on its website, “Please note: the editorial processes and policies of Wikipedia and Nupedia are totally separate; Nupedia editors and peer reviewers do not necessarily endorse the Wikipedia project, and Wikipedia contributors do not necessarily endorse the Nupedia project.” Though they didn’t know it, the pedants of the Nupedia priesthood were doing Wikipedia a huge favor by cutting the cord.

Unfettered, Wikipedia took off. It became to Web content what GNU/Linux was to software: a peer-to-peer commons collabora­tively created and maintained by volunteers who worked for the civic satisfactions they found. It was a delightful, counterintuitive concept, perfectly suited to the philosophy, attitude, and technology of the Internet. Anyone could edit a page, and the results would show up instantly. You didn’t have to be an expert. You didn’t have to fax in a copy of your diploma. You didn’t have to be authorized by the Powers That Be. You didn’t even have to be registered or use your real name. Sure, that meant vandals could mess up pages. So could idiots or ideologues. But the software kept track of every version. If a bad edit appeared, the community could simply get rid of it by clicking on a “revert” link. “Imagine a wall where it was easier to remove graffiti than add it” is the way the media scholar Clay Shirky explained the process. “The amount of graffiti on such a wall would depend on the commitment of its defenders.” In the case of Wikipedia, its de­fenders were fiercely committed. Wars have been fought with less intensity than the reversion battles on Wikipedia. And somewhat amazingly, the forces of reason regularly triumphed.

One month after Wikipedia’s launch, it had a thousand articles, approximately seventy times the number that Nupedia had after a full year. By September 2001, after eight months in existence, it had ten thousand articles. That month, when the September 11 attacks occurred, Wikipedia showed its nimbleness and usefulness; contribu­tors scrambled to create new pieces on such topics as the World Trade Center and its architect. A year after that, the article total reached forty thousand, more than were in the World Book that Wales’s mother had bought. By March 2003 the number of articles in the English-language edition had reached 100,000, with close to five hundred ac­tive editors working almost every day. At that point, Wales decided to shut Nupedia down.

By then Sanger had been gone for a year. Wales had let him go. They had increasingly clashed on fundamental issues, such as Sanger’s desire to give more deference to experts and scholars. In Wales’s view, “people who expect deference because they have a Ph.D. and don’t want to deal with ordinary people tend to be annoying.” Sanger felt, to the contrary, that it was the nonacademic masses who tended to be annoying. “As a community, Wikipedia lacks the habit or tra­dition of respect for expertise,” he wrote in a New Year’s Eve 2004 manifesto that was one of many attacks he leveled after he left. “A policy that I attempted to institute in Wikipedia’s first year, but for which I did not muster adequate support, was the policy of respect­ing and deferring politely to experts.” Sanger’s elitism was rejected not only by Wales but by the Wikipedia community. “Consequently, nearly everyone with much expertise but little patience will avoid ed­iting Wikipedia,” Sanger lamented.

Sanger turned out to be wrong. The uncredentialed crowd did not run off the experts. Instead the crowd itself became the expert, and the experts became part of the crowd. Early in Wikipedia’s devel­opment, I was researching a book about Albert Einstein and I noticed that the Wikipedia entry on him claimed that he had traveled to Al­bania in 1935 so that King Zog could help him escape the Nazis by getting him a visa to the United States. This was completely untrue, even though the passage included citations to obscure Albanian websites where this was proudly proclaimed, usually based on some third-hand series of recollections about what someone’s uncle once said a friend had told him. Using both my real name and a Wikipedia han­dle, I deleted the assertion from the article, only to watch it reappear. On the discussion page, I provided sources for where Einstein actu­ally was during the time in question (Princeton) and what passport he was using (Swiss). But tenacious Albanian partisans kept reinserting the claim. The Einstein-in-Albania tug-of-war lasted weeks. I became worried that the obstinacy of a few passionate advocates could under­mine Wikipedia’s reliance on the wisdom of crowds. But after a while, the edit wars ended, and the article no longer had Einstein going to Albania. At first I didn’t credit that success to the wisdom of crowds, since the push for a fix had come from me and not from the crowd. Then I realized that I, like thousands of others, was in fact a part of the crowd, occasionally adding a tiny bit to its wisdom.

A key principle of Wikipedia was that articles should have a neutral point of view. This succeeded in producing articles that were generally straightforward, even on controversial topics such as global warming and abortion. It also made it easier for people of different viewpoints to collaborate. “Because of the neutrality policy, we have partisans working together on the same articles,” Sanger explained. “It’s quite remarkable.” The community was usually able to use the lodestar of the neutral point of view to create a consensus article offering competing views in a neutral way. It became a model, rarely emulated, of how digital tools can be used to find common ground in a contentious society.

Not only were Wikipedia’s articles created collaboratively by the community; so were its operating practices. Wales fostered a loose system of collective management, in which he played guide and gentle prodder but not boss. There were wiki pages where users could jointly formulate and debate the rules. Through this mechanism, guidelines were evolved to deal with such matters as reversion practices, media­tion of disputes, the blocking of individual users, and the elevation of a select few to administrator status. All of these rules grew organically from the community rather than being dictated downward by a cen­tral authority. Like the Internet itself, power was distributed. “I can’t imagine who could have written such detailed guidelines other than a bunch of people working together,” Wales reflected. “It’s common in Wikipedia that we’ll come to a solution that’s really well thought out because so many minds have had a crack at improving it.”

As it grew organically, with both its content and its governance sprouting from its grassroots, Wikipedia was able to spread like kudzu. At the beginning of 2014, there were editions in 287 lan­guages, ranging from Afrikaans to Žemaitška. The total number of articles was 30 million, with 4.4 million in the English-language edi­tion. In contrast, the Encyclopedia Britannica, which quit publishing a print edition in 2010, had eighty thousand articles in its electronic edition, less than 2 percent of the number in Wikipedia. “The cumu­lative effort of Wikipedia’s millions of contributors means you are a click away from figuring out what a myocardial infarction is, or the cause of the Agacher Strip War, or who Spangles Muldoon was,” Clay Shirky has written. “This is an unplanned miracle, like ‘the market’ deciding how much bread goes in the store. Wikipedia, though, is even odder than the market: not only is all that material contributed for free, it is available to you free.” The result has been the greatest collaborative knowledge project in history.

***

The Innovators

So why do people contribute? Harvard Professor Yochai Benkler dubbed Wikipedia, along with open-source software and other free collaborative projects, examples of “commons-based peer produc­tion.” He explained, “Its central characteristic is that groups of in­dividuals successfully collaborate on large-scale projects following a diverse cluster of motivational drives and social signals, rather than either market prices or managerial commands.” These motivations include the psychological reward of interacting with others and the personal gratification of doing a useful task. We all have our little joys, such as collecting stamps or being a stickler for good grammar, knowing Jeff Torborg’s college batting average or the order of battle at Trafalgar. These all find a home on Wikipedia.

There is something fundamental, almost primordial at work. Some Wikipedians refer to it as “wiki-crack.” It’s the rush of dopamine that seems to hit the brain’s pleasure center when you make a smart edit and it appears instantly in a Wikipedia article. Until recently, being published was a pleasure afforded only to a select few. Most of us in that category can remember the thrill of seeing our words appear in public for the first time. Wikipedia, like blogs, made that treat avail­able to anyone. You didn’t have to be credentialed or anointed by the media elite.

For example, many of Wikipedia’s articles on the British aristoc­racy were largely written by a user known as Lord Emsworth. They were so insightful about the intricacies of the peerage system that some were featured as the “Article of the Day,” and Lord Emsworth rose to become a Wikipedia administrator. It turned out that Lord Emsworth, a name taken from P. G. Wodehouse’s novels, was actu­ally a 16-year-old schoolboy in South Brunswick, New Jersey. On Wikipedia, nobody knows you’re a commoner.

Connected to that is the even deeper satisfaction that comes from helping to create the information that we use rather than just pas­sively receiving it. “Involvement of people in the information they read,” wrote the Harvard professor Jonathan Zittrain, “is an important end itself.” A Wikipedia that we create in common is more mean­ingful than would be the same Wikipedia handed to us on a platter. Peer production allows people to be engaged.

Jimmy Wales often repeated a simple, inspiring mission for Wiki­pedia: “Imagine a world in which every single person on the planet is given free access to the sum of all human knowledge. That’s what we’re doing.” It was a huge, audacious, and worthy goal. But it badly understated what Wikipedia did. It was about more than people being “given” free access to knowledge; it was also about empowering them, in a way not seen before in history, to be part of the process of creating and distributing knowledge. Wales came to realize that. “Wikipedia allows people not merely to access other people’s knowl­edge but to share their own,” he said. “When you help build some­thing, you own it, you’re vested in it. That’s far more rewarding than having it handed down to you.”

Wikipedia took the world another step closer to the vision pro­pounded by Vannevar Bush in his 1945 essay, “As We May Think,” which predicted, “Wholly new forms of encyclopedias will appear, ready made with a mesh of associative trails running through them, ready to be dropped into the memex and there amplified.” It also harkened back to Ada Lovelace, who asserted that machines would be able to do almost anything, except think on their own. Wikipedia was not about building a machine that could think on its own. It was instead a dazzling example of human-machine symbiosis, the wisdom of humans and the processing power of computers being woven to­gether like a tapestry. When Wales and his new wife had a daughter in 2011, they named her Ada, after Lady Lovelace.

The Innovators is a must read for anyone looking to better understand the creative mind.

​​(h/t The Daily Beast)

Google and Combinatorial Innovation

Innovaiton
In his new book, How Google Works, Eric Schmidt argues that “we are entering … a new period of combinatorial innovation.” This happens, he says, when “there is a great availability of different component parts that can be combined or recombined to create new inventions.”

For example, in the 1800s, the standardization of design of mechanical devices such as gears, pulleys, chains, and cams led to a manufacturing boom. In the 1900s, the gasoline engine led to innovations in automobiles, motorcycles, and airplanes. By the 1950s, it was the integrated circuit proliferating in numerous applications. In each of these cases, the development of complementary components led to a wave of inventions.

Today’s components are often about information, technology, and computing.

Would-be inventors have all the world’s information, global reach, and practically infinite computing power. They have open-source software and abundant APIs that allow them to build easily on each other's work. They can use standard protocols and languages. They can access information platforms with data about things ranging from traffic to weather to economic transactions to human genetics to who is socially connected with whom, either on an aggregate or (with permission) individual basis. So one way of developing technical insights is to use some of these accessible technologies and data and apply them in an industry to solve an existing problem in a new way.

Regardless of your business there is a core of knowledge and conventional wisdom that your industry is based upon. Maybe it’s logistics, maybe it’s biology, chemistry or storytelling. Whatever that core is, “that’s your technology. Find the geeks, find the stuff, and that’s where you’ll find the technical insights you need to drive success.”

That’s also the area to look for — where conventional wisdom might be wrong. What was once common sense becomes common practice. When everyone agrees on some fundamental assumption about how the industry works, the opposite point of view can lead toward disruption.

Another possible source of innovation is to start with a solution to one problem and then look at ways to use the same solution on other problems.

New technologies tend to come into the world in a very primitive condition, often designed for very specific problems. The steam engine was used as a nifty way to pump water out of mines long before it found its calling powering locomotives. Marconi sold radio as a means of ship-to-shore communications, not as a place to hear phrases like “Baba Booey!” and “all the children are above average.” Bell labs was so underwhelmed by the commercial potential of the laser when it was invented in the ‘60s that it initially put off patenting it. Even the Internet was initially conceived as a way for scientists and academics to share research. As smart as its creators were, they could never have imagined its future functionality as a place to share pictures and videos, stay in touch with friends, learn anything about anything, or do the other amazing things we use it for today.

Schmidt gives his favorite example of building upon a solution developed for a narrow problem.

When Google search started to ramp up, some of our most popular queries were related to adult-oriented topics. Porn filters at the time were notoriously ineffective, so we put a small team of engineers on the problem of algorithmically capturing Supreme Court Justice Potter Stewart’s definition of porn, “I know it when I see it.” They were successful by combining a couple of technical insights: They got very good at understanding the content of an image (aka skin), and could judge its context by seeing how users interacted with it. (When someone searches for a pornography-related term and the image is from a medical textbook, they are unlikely to click on it, and if they do they won’t stay on the site for long.) Soon we had a filter called SafeSearch that was far more effective in blocking inappropriate images than anything else on the web—a solution (SafeSearch) to a narrow problem (filtering adult content).

But why stop there? Over the next couple of years we took the technology that had been developed to address the porn problem and used it to serve broader purposes. We improved our ability to rate the relevance of images (any images, not just porn) to search queries by using the millions of content-based models (the models of how users react to different images) that we had developed for SafeSearch. Then we added features that let users search for images similar to the ones they find in their search results (“I like that shot of Yosemite-go find more that look just like that”). Finally, we developed the ability to start a search not with a written query (“half dome, yosemite”), but a photograph (that snapshot you took of Half Dome when you visited Yosemite). All of these features evolved from technology that had initially developed for the SafeSearch porn filter. So when you are looking at screen upon screen of Yosemite photos that are nearly identical to the ones you took, you can thank the adult entertainment industry for helping launch the technology that is bringing them to you.

How Google Works is full of interesting insights into the inner workings of a company we're all fascinated with.

Edward Hess, Interview No. 6

This interview with Ed Hess is full of amazing insights but I don’t know if you’ll read it because a) it’s long and we live in a world of increasingly short attention spans and b) it’s an actual conversation, the responses can be hard to follow and you might have to dig a little for clarity. If you’re willing to put in the work, however, I think you’ll come away from this more knowledgeable.

Ed is the author of the best book I've ever read on learning, Learn or Die: Using Science to Build a Leading-Edge Learning Organization.

***

INTERVIEWER

I loved your book, so I'm really excited to do this interview with you. I thought it was the best book that I've read on the subject of learning.

HESS

… In researching and writing the book, it was also a transformative process for me in the sense of what I learned and had to come to grips with, even though I'd had a very successful educational business, academic life.

The last five years of working on that book were eye-opening, mind-boggling and humbling.

INTERVIEWER

I have so many questions for you. First off, thank you so much for your generosity in giving this interview, I really appreciate your time.

Let's talk briefly about your forthcoming book, called, “Learn or Die.” Can you give us an overview of the book and why you felt compelled to write it?

HESS

Yes, the book really has two important purposes in answering two questions.

Based on the science of learning and everything the research over the last 20, 25 years has shown, how does one become a better and faster learner, and how does one build a team or an organization that continuously learns better and faster than the competition?

Why is that so important? We live in a very globalized world that's driven by technology, and the projected technology advances over the next 10 years are going to be really metamorphic.

We live in a time of high velocity change. Change requires human and organizational adaptation, and that means it requires learning. I've come to the conclusion that continually learning better and faster than the competition may be the only sustainable competitive advantage individually and organizationally.

Especially in the business world, the next business revolution is going to be a learning revolution. That's why I feel passionately about the book and its purpose, but also the timing of it. Our context demands that we bring the science of learning into our lives, individually, into an organizational life.

INTERVIEWER

What do you mean by the next revolution in business is going to be a learning revolution?

HESS

Business is going to be continually transformed by technology, and artificial intelligence, smart robots and nanotechnology, the Internet of things, 3-D printing. All of this is going to be a huge impact on how business is done, and who does business.

The business of the very near future, in 10 years, if you look how a business is going to be staffed, it's going to be some combination of smart robots, smart machines and humans. The human component of it has got to be able to perform or do things differently, or do things better, or do things that machines can't do.

If you think about that, what is that? That is critical thinking, innovative thinking, emotional and social high engagement with other humans.

If you think about those activities, they're fundamentally learning activities. We're continually learning, so I think whether you're an operationally excellent business model or an innovating business model or a combination, learning underlies both. Operational excellence can't get better, faster and cheaper unless you change.

Underlying change is trying new things and seeing if they work in adapting and learning. The innovation basically comes as you well know, you're an expert in it, comes from integrating experimental learning.

Learning is integral now in business, but it's not emphasized in organizations. If you will, are not resigned in general to maximize or optimize human learning. That will be the focus of many companies. You see that right now in some leading edge companies such as Pixar, WL Gore, largest hedge fund in the world Bridgewater Associates.

INTERVIEWER

.. you have this contradiction. On one hand, you have organizations that need to compete in this ultra competitive world where competitive advantage is eroding and you need to be operationally more excellent than your competitors. Then on the other hand, you have to innovate and innovation is failure and it involves more money sometimes, and it involves trying and experimenting on things. Those two things seem in conflict with one another.

HESS

They are in conflict, they're in, if you will, 99 percent defect free. … These innovation experiments fail about 90 percent of the time.

You are quite correct, they're in direct conflict. How do you basically create an environment where you, in fact can be engaged in both, but use different processes and different tolerances for failure?

Your question is a great question because over the last seven years I've spent a lot of time teaching executives and companies and consulting with companies that have been dealing with this question.

My answer to that also led to the importance of this book, my answer that I wrote about in my last book that I did with Professor Jeanne Liedtka, “The Physics of Business Growth”, I put forth a theory or rationalization if you will, that the way to unify operational excellence and innovation in an organization is to have a learning culture, because learning underlies operational excellence and it underlies innovation.

That's why I put in my book the chapter on UPS which is a world class operationally excellent company, so readers could compare how they create that environment of constructive dissatisfaction in high employee engagement.

Relate that, if you will, to IDEO, WL Gore, Bridgewater, just underlying the differences is, is having different processes.

You have different processes, but also the difference is having a different tolerance for failure and being able to give people permission to live that innovation, et cetera.

Underlying both operational excellence and innovation is the two foundational beliefs, or the two foundational processes. Number one, underlying innovation and operational excellence, go back to root cause analysis or the five why's. Unpacking assumptions, good digging, the why, why, why, is underlying both processes.

Going all the way back, if you will, to the Toyota method, underlying both processes is the fact that mistakes are to be illuminated. Stop the line, pull the cord, Toyota. Mistakes are to be illuminated, and mistakes are opportunities to improve, or opportunities to learn.

Yes, they're in direct conflict. But if you really dig deeper and use learning as the unifier, I believe you can make a compelling argument that they can and they do exist in some organizations, but they can exist in more organizations if you use learning as the environment. Does that make any sense to you?

INTERVIEWER

Yeah, totally. Do you think that organizations have this conflict with incentives, whereby a learning organization sounds great, but it's going to take a while to set up, and I know that in the meantime, I'm measured on these very short term quantitative objectives, which are usually oriented towards fewer defects, less variance and things like that?

Although people would agree that we want to set up a learning culture, and if you sat everybody in an organization in the room, they'd all say yes. Why doesn't that ever happen, then? What are the impediments to enacting that?

HESS

Another good question, and a complex question. Let me approach it this way. A learning culture is only one part of the proposal. That's why I write and emphasize a learning system.

As you know from reading my book, I'm very behavioral-oriented. I start with what behaviors we want to drive and say, let's create a system that's going to drive those behaviors, and what are the parts of the system — it's culture, leadership behaviors, measurements, rewards, processes, HR policies.

If you go back to it, putting in a culture is not enough unless you define the behaviors you're trying to get, and unless you measure and reward. If you want to measure and reward learning behaviors, if you want to put them in, it's more complex.

You're an expert, so I know you weren't saying this, but I talk to business people. The easy way is to go, quote, “put in a culture,” and talk about it. Nothing really changes with talk. You're back to those two business maxims. You get what you measure, and if you measure and reward it, you really get a lot of it.

You've got to start at the bottom and say, “What type of behavioral changes are we trying to get here?” It's interesting, and that's why the Intuit story is in the book.

You take Intuit and look at, and they've been now on an over seven-year journey. Really putting in a learning culture in the sense of making experimentation, and small, fast, cheap experiments their basic business model, but also empowering line employees to do experiments even if their bosses don't like the experiments.

It's been a huge success, but the reason it's been a huge success is a couple of things. They got leadership involved, and they focused on changing leadership behaviors and leadership mindsets about learning, and about power and hierarchy.

If you look at a lot of great learning organizations, whether it is Intuit, or the ones I always talk about, Pixar, IDEO, WL Gore, Bridgewater, UPS, there's always hierarchy. But hierarchy as an elitism, is de-emphasized, and there is a real push for highly engaging employees and leadership humility, and intellectual humility.

What you're really talking about here, if you think about the book, is changing the organizational mental model. To do that, you've got to change leaders' mental models. Basically, in order for change to occur in the company, you've got to have leaders model the behaviors you want.

If you think about in my book, when I have the high performance learning organization checklists that I put in the book, the first thing on the checklist. Does the CEO own the learning culture and walk the talk? The second thing, has the organization put in place culture, structured leadership behaviors, HR policies, measurement and rewards to enable and promote learning behaviors?

If you don't approach it from a package, your next question is, “Well, it's very hard to do this.” Yes, and that's why you've got to start small in the sense you can't roll out 22 behaviors. You've got to start small and figure out and prioritize what you are really going to start working on.

What Intuit started working on was, “Let's use experimentation as a way to change the culture and change the behaviors, and basically teach learning, teach exploration, teach root cause analysis, teach stress testing of ideas, and devaluing real power and hierarchy.”

INTERVIEWER

I think that's key. A lot of times, organizations want to implement something, so they come in and they take the whole package, and they try to implement it. It's a lot easier to start with something small, but only, in my mind, if you have an understanding of why that works somewhere else.

HESS

The other thing we have to take into account is the context of, at least in the United States, the public markets and the obsession with short-termism and quarterly earnings, and the high volatility of the public markets in the United States with the average tenure of public CEOs being less than five years, the high turnover of share ownership and the volatility of corporate existence, the short lifespan of organizations today.

If you think about it and look at where the great learning and innovation is going on, they're going into where it's happening the easiest, if you will. It's private companies, or it's public companies that have dual classes of stock, where the founders or founder's family have the control positions, voting control or strong voting positions in a sense to be able to ward off the immense pressures of short-termism in our capital markets.

That's why I write in the epilogue that if we really want innovation, you really want more learning, sometimes the untouched has got to basically enable it, too.

INTERVIEWER

I've always thought that was one reason for Berkshire Hathaway's remarkable success: the fact that Warren and Charlie controlled 40 percent of the stock for a long period of time. They were able to take these counterculture or counter-organizational moves where they would sit with cash for a long period of time and not do anything. There was no activist that could take charge of the company and force them to pay a dividend. They set their incentives up, even without that dual class of shareholders, to do that.

HESS

Yes.

INTERVIEWER

Let's go to the book for a second. What is learning, and does it change as we get older?

HESS

That's an interesting question. If you define learning as the incorporation of experience and conflicting data into your existing mental models, or learning is the transformation, enhancement of your mental models.

The older you get, and the more successful you are…This is not science. This is a hypothesis. The more successful you are and the older you get, changing your mental models, being open-minded, slowing down your thinking and subjecting it to stress testing by other people.

Is it human for it to get harder? Probably. I haven't done a lot of research into the age issue. There is tangential research which basically shows that arrogance is a huge inhibitor to learning. Arrogance comes also from success in positional authority.

Let me give you an example that's very interesting. My two young granddaughters, when they were three and five, we would have conversations where the word they used the most often was why. In fact, I remember a conversation where with the youngest one, when I asked her a question, I said, “Could you please not answer everything with why?” Her answer was, “Why?”

They're 8 and 10 now, and they rarely use the word why. If you think about what happens as we go into the education system, as we age and go into the workforce, instead of being about curiosity and questioning, the whole system changes to being about being right, getting good grades, not making mistakes.

All of this is part of the answer to your question. In most organizations, you become successful for doing something very, very well. Therefore, you become really focused on avoiding mistakes and avoiding taking risk, and not losing what you have. All of that builds up, makes learning hard.

INTERVIEWER

That relates to one of the stories you tell in the book, which was during the first 20 years of work experience, you became an expert at what you call speedy thinking. You were right often enough to prosper and didn't think much about thinking.

You even mention that the speed of your thinking was a competitive advantage. You thought you were a good thinker and you thought you had all the right answers but then something happened …

HESS

A couple of things happened all at the same time. One involved my emotional intelligence, and one involved, if you will, my first big business failure. The third involved, if you will, being in the final two slots for a wonderful CEO position, and being told that I was not getting it, and the reason why (Hess elaborates on this in the book). It was a combination. Two of the events, my first big business failure and the emotional event, happened in the same week.

In a nutshell, I evolved my first 20 years in the business world as a highly effective, I will call it machine, in the sense that I was very successful. I had great teams, but I always told my teams that, “Look, we're going to do things right. We never cross the line. I will never ask you to do something that I wouldn't do. We're going to be high performance, but I don't have a lot of time for chitchat. You perform for me. I'll take care of you. I'll get you development. I'll get you training. I'll get you promoted. I'll help you go to wherever you want. That's the quid pro quo. You perform well. I'll help you be all you can be.”

It's very similar to what Reid Hoffman writes in “Alliance.” I don't have time for chitchat. Shane, don't bring your personal life to work. I hope things are well with you, but football, kids, family…Let's just work.

Emotionally, I became very focused on and consumed by getting things done and stress at home and in my marriage. I was not a good listener. I wasn't empathetic. My wife wanted to talk a lot of things out, and I kept wanting to interrupt, and let's get to the bottom line and solve the problem. She was very interested in the process, and being listened to and respected as to how she was thinking through it and all of this.

That led to such unhappiness on her part that she told me one morning at breakfast that she needed a separation. I'm not sure this was in the book, but it is true. I teach this, I tell students this. I heard her. It was upsetting, but I said to her…It's embarrassing to admit this, but I did. This just tells you how bad I was, how much work I really needed.

I said to her, “This is very important, but I've got a couple of meetings. Can we talk about it when I get home?” Instead of saying, “We'll pick up the phone and cancel those meetings, delay those meetings and have a conversation.” I in effect told her my meetings were more important than her wanting to talk about needing a separation. I came home that night, and she was gone. That was huge.

Later that afternoon, I got a call from my brother. We had invested some money in a company. Basically, the call was that something's gone wrong, I need a million dollars. I in effect lost my first million in business. That was a time that a million dollars was a lot of money in the business world. It's a lot of money to me and every individual today.

In one day, I took my first business loss, and I thought I was really good in business, and I took a huge human loss. Both of which I had to learn from, which I did. As I write in the book, my wife and I reconciled. We'll celebrate next month our 33rd year of marriage.

I'm still a work in progress. It took a huge wakeup call for me to slow down and begin the process of being emotionally engaged, suspending judgment, learning to be intellectually humble. That also along the way led me to start being much more open to stress testing my thinking.

Writing this book took all of that even to a much, much higher level. Researching and writing the book made me realize that I can even be a better thinker. Into the last three years, I think I have made the most progress I have made in my life in quieting my ego and being much more open-minded and changing my language.

On daily basis thinking about how I'm thinking, and thinking about how I'm relating, and trying to improve on a daily basis how I think and how I relate, and how I engage in learning conversations. Longwinded answer. As my little granddaughter would say, TMI, too much information. [laughs]

INTERVIEWER

Not at all. That's a very personal story, and it clearly had a major impact on your life. When I hear you tell it again, I wonder how you changed. You come to this moment where you realized something needed to change and you created it but what did this process look like? How did you go about slowing down and evaluating your thinking, and listening more to other people, and being more humble? How did you bring about this change? I imagine it didn't happen overnight.

HESS

No, it takes years. The first thing it took, I realized that I needed, just as I write in my book, and just as Daniel Kahneman has written, it is very, very hard for anyone to, if you will, evaluate or be critical of one's own thinking. That's why all of this learning stuff is a team activity that I write.

I sat back and I said, “Hmm, I need some help.” In my normal anal-compulsive way, I spoke to a lot of people, and a lot of executive recruiters that I trusted, and a lot of executives, and found a person who everyone agreed was one of the best executive coaches, and was trained. She was a psychologist, psychiatrist, and executive coach. She was a graduate of Columbia Medical School.

I went to her and explained my issue. She basically helped me understand where all of this came from. As I write in my book, it all came from back to my elementary school days.

In my elementary school days, I learned to be the person who sits in the first row. I was a kid that was most likely to succeed and all that kind of crap. I was a kid that sat on the first row, and was the first one waving his hand to answer the teacher's questions. I performed for gold stars and A's.

All of that started, but understanding that and understanding that behavior, and understanding my niche, too, and the home environment in which I grew up, which I write about in another part of my book, where I'm very thankful to my parents.

I had loving parents who sacrificed, and made really everything possible in my life, but my home environment was not a real emotional environment. I never remember either my mother or father ever saying they loved me. I never remember being hugged or anything.

That happens to a lot of kids, but it was just saying emotions were not on the table. It was what did you do, and I earned love and respect at home by getting A's, by performing. I became a high performer, and all of that carries.

Understanding all of that goes back to what happened. My counseling sessions basically is what my friend Robert Kegan from Harvard in “We Need to Change” writes about, and I talk about his miscellaneous book in my book. I had to basically get down and unpack my mental model that was underlying why I was performing this way, because I was performing that way because it was producing good results for me.

Underlying that was a big assumption that if I wasn't the first one with the answer, if I didn't interrupt my wife and solve the problem, she wouldn't love me. I defined that as helping. She defined that as disrespect. What I had to learn was that by listening and humble inquiry, instead of solving problems, I had to learn that if I don't have the answer, I had to learn that saying I don't know. I had to learn by quieting myself.

I had to learn, and that takes time. I had to learn through experience that I still could be successful doing those things. In fact, I would be more successful. I wrote about that in my book. That when I started changing in my workplace and putting in new behaviors, the amazing thing is that my team performance went off the charts. It went from high to supersonic.

It was amazing, because all of a sudden, it was like I released something inside of people. They felt more cared about and more engaged. The same thing happened in my personal relationships and friendships. The answer to your question is no. It's never over. I'm working on it. This all began for me, this huge transformation, in 1988, '89. This is umpteen years later. It's 16 years later, and I'm still a work in progress.

You're a great learner. If you look at what you do and the service you provide to the world, you're out there. You are curious. You're out there, and you're testing and you're critiquing and you're learning. The fact is that if we were to talk 20 years from now, you would be a different person in many ways than you are today.

INTERVIEWER

I hope so. I think we all evolve into what we're learning and focusing on. Like you said, what gets measured gets done a lot of the time. When you start really critically evaluating yourself in the context of your goals and objectives and how other people feel, you subjectively start to measure that. That's one way that you can change.

You talk in your book about metacognition, which is the process of managing how we think, and focusing on that helps us understand what strategies are likely to be effective in various circumstances.

How do we consciously recognize situations where we need to move from maybe a habit and system one thinking to system two thinking, which is more reflective?

A great example would be your conversation with your wife that morning at the table. How do you in the moment grasp that your default is to say, “Oh, can we reschedule this conversation for later,” and move to, “No, this is really more important,” which is thoughtful? You're moving from an immediate habitual response. How do we go about doing that?

HESS

There is no easy answer. There are some ways to approach it. If you can start with the whole area and the research that's being done in mind focus, and the ability, if you will, to — this even goes back to work at MIT, and the Shine and Humble Inquiry, and the work of Isaacs in dialogue — the ability to be in the moment in a conversation, and to slow down and assess.

If you go back also to the Bridgewater chapter and think about how they start a meeting, they start a meeting by defining the purpose of the meeting, what type of meeting it is and what process is going to be used in the meeting vis-a-vis the conversation or the discussion.

If you're in a one on one situation, you can do that. When you go into a business meeting, you're not in charge. But you can do that to yourself. A tool that I have found helpful that I talk about in the book and it's not unique. It's not innovative. It's called mental rehearsal, and mental replay.

What I did back when I was in the real world, I would look at my day and, if you will, visualize my day before my day started. Take 15, 20 minutes and think about what was on my calendar, and think about what type of meeting that was going to be.

To think about, if you will, if you have more meetings which are relating, what my objectives were and who I wanted to get involved, and who I wanted to hear from, and prime myself for slowing down and letting the process evolve. Not chaos, but having a mental game plan. Not controlling, but a mental thinking game plan as to how to approach it.

Most importantly, the thing that helped me for years was what I call mental replay. On the way home or in a quiet time that evening, actually closing my eyes and replaying key meetings, and basically grading myself, and writing down. I didn't call it a journal. I kept a legal pad, but it's like a journal. Writing down what I did, what I would do differently, and how I could improve.

It's interesting. For years, I would basically grade myself. Not only subjectively, but looking at the results of my behavior, other people's behaviors, other people's reactions. If you think about it, you can tell from my book and you can tell from my talk, I'm really big on trying to look at something from various angles.

If you really go look, if you go back to the Bridgewater case and Ray Dalio, there's a unique individual who built the largest and arguably most successful hedge fund in the world. If you go back to his methodology from the time he started his business in his apartment in New York, he wrote down each day his decision about each trade, why he made that trade, and what were his assumptions, and he wrote down the results. The thing about it is he was using thinking rehearsal, or mental rehearsal.

You've got to have some processes that slow you down to where you're thinking about how you think, and thinking about how you relate. Just saying that you're going to do it is not enough. Good intent is not enough. It works, and everybody that I've worked with or talked with that has tried some of these techniques in my book, they work.

If you go to Gary Klein's work and his visualization on his tool, if you will, that he puts out, how experts make decisions, and the examples that I use in the book of the fire chief, you go in. You assess. You recognize. You come up with a conclusion, but you train yourself to stop. Is there anything in the environment, anything in the context that is different, unusual, an aberration? Anything that I notice that may require some modification?

You're doing that, if you will, cognitively. But also, if you will, the emotional or the intuitive reaction. You build in this, “Stop, reflect.” It could be less than a minute. It could be two minutes, reflect time. You stop the autopilot.

Again, the questions you ask are very good. It's very hard to answer in 30 seconds, or even a few minutes.

INTERVIEWER

That's kind of incredible. It sounds like you come up with a process by which you systemize these gates almost, where you slow down just for a second to double check what you're doing. That's really fascinating.

HESS

The other thing I can't stress enough is the mental rehearsal, and keeping the journal. Just by doing that, grading yourself in the sense of, “Where can I improve? What happened today? What would I do differently in how I think? What would I do differently in that conversation as to how I relate?”

Over years of doing this, it comes back to, at least for me, to two related things, intellectual humility and quieting my ego. Because if I can quiet my ego, I can listen better. I can be more empathetic. I do suspend judgment. I can inquire. I can actively consider other views. Much of this is a discipline. Much of this is psychological.

INTERVIEWER

Speaking of psychology, one interesting thing from your book was that you spent time in these learning cultures, or models of various aspects of what you talked about for your book.

You said high performance learning organizations are a function of the right people, the right processes, and the right environment.

Then you went out to these workplaces and you sat in them, and you immersed yourself in these cultures.

What I found the most interesting was the Bridgewater experience, where you went and spent several days at this company that is incredibly unique and so different from anything I've ever read about before.

Can you share some of your experience with us?

HESS

It is very unique, and it is different. Not only did I go and spend time inside, but what was interesting also was the prep time.

When I was talking with Ray Dalio about doing this, he very up front said, “I'm going to lay out one condition.” I said, “OK, what is it?” He said, “I want you to agree to take the role of a new recruit coming to join Bridgewater as an employee. I'm going to send you a Bridgewater iPad, and you will basically watch over 10 hours of various films and answer questions, and get graded on your questions, to immerse yourself before you come in having some understanding of the Bridgewater way.”

He said, “In addition, to help you prepare, I'm going to send you lots of other stuff that, da-da-da.” It was a structured and planned immersion. It's a fascinating place. It vets wonderful people.

You know from my book they allowed me to use quotes and tell their stories. They're stories that made for change. Genders can sometimes change, too. They're very compelling stories about how this transformation took place, what Ray calls getting to the other side.

It's somewhat also analogous to my studies with the United States Marine Corps. As I write in the book, I had the Marine Corps transformation process, where a general once phrased it this way to me. He says, “Take very average people and put them in the most difficult environments and they perform consistently exceptionally well.”

Why? Because of how they, if you will, how they're trained to think, behave, and the values. When you look at Bridgewater and you look at any organization – whether it's UPS or someone like W. L. Gore or Pixar – all four of those organizations and the Navy SEALS or the Marine Corps or the Special Forces or the US Army, they all have strong cultures and they all have strong process. They all have a similar, what I call leadership model that is very, very humanistic and people-oriented. I do a lot of this inside companies.

You know. You've been around the block, too. There's a lot of people who talk the talk that don't walk the walk. I had read Bridgewater's management principles. I'd used them in my classroom for a couple of years and got a surprising negativity about it all from my students. That also happened when they were used in the Harvard class, which only piqued my interest.

When I went in there and saw it, sat in meetings, and watched the process happen, where people's thinking was challenged and there were in-sync conversations which were trying to get to the bottom of why certain things were not working, whether it was a process or whether it was a thinking pattern or whether whatever.

Watching that happen, what he writes and what I write is the reality of what they get. The interesting thing is the transformation process. If you think about a firm like Bridgewater, it hires very, very bright people who were then, generally speaking, very successful in school and very successful in extracurricular activities their entire educational life, and are nice people and know how to get along with other people.

They come in there and … it's the first negative feedback they'd ever received in their life.

How do people change their mental model of what being smart is and change their mental model about mistakes and their emotional defensiveness to, in effect, protect their ego. That's what it's all about.

It's fascinating. Many of the places I've studied and got involved in, each of them are different. Gallo has built a learning system. It's got a culture. It's got processes, measurements are lower, et cetera, all designed to mitigate…our natural inclination for System 1 thinking and System 1 conversations.

Defend, deny, deflect, protect the ego…The thing that I find amazing is that I think that if you close your eyes and think of 2025, 2030, you think of an operationally excellent company going to be set primarily by smart robots, smart machines with a small human contingent that have got to be the big thinkers. Modelled inside that company of the future is going to be something similar to what the model is in Bridgewater.

INTERVIEWER

Can you walk me through a meeting at Bridgewater where they make decisions? How is it different? What is the structure by which they organize those meetings? How do they seek dissenting views and how do they challenge one another?

HESS

I'll refer you also…to my book. I will just say, please look at that to be specific, because off the top of my head, I may not use the exact words they use…First, who's in charge of the meeting? What person is responsible for the meeting? Then, what's the purpose of the meeting? Is it a view, is it a debate? Is it to find and discuss a problem and figure out what the root cause is? What's the purpose?

Then as they go through, depending on what the purpose of the meeting is, if it's a review, someone states what they believe the issue is and where are we not in synch? Because at the end of every meeting and at the end of every review that had happened previous to that meeting, there's agreement on the action to be taken and a responsible party is assigned.

If something still is not working, you go back to what was agreed. Who is the responsible party? What was done? What were the results? Why is it not working? Is it a process issue or is it a people issue? If it's a process issue, then they go down a certain line of thinking. Is it a people issue? What is the issue? Is it a skill issue or is it a capability or a mindset issue?

If you think about it, it's a very continuous drill-down, what I call peeling back the artichoke to get to the heart of the problem. People who are in the meeting, everyone has permission to speak freely.

All conversations that I watched on the films and that I've viewed I would say were respectful and in their own way compassionate, in the sense that everyone at the table had been at the receiving end of it and knew they were going to be on the receiving end of it because it's part of the daily grind.

There's empathy and compassion. There was no raised voices. There's no personal stuff. Was it comfortable for everyone all the time? No, it's not. Is it hard? Is it hard to push and push people to get to the bottom of things? It's hard to be the pusher and it's hard to be the pushee. It takes a real belief in the power of what happens.

When you talk to people that have been there, like for 10 years, and talk to them…I remember speaking with a gentleman who's very successful there. A quiet person, more a quant than a client relationship person. A quiet person. I started talking to him about it, difficulty in learning and was he comfortable with this?

He said, “You never truly get comfortable.” He said, “But it's so powerful in how it's transformed my life.” I said, “If you had to describe in one word your 10 years here at Bridgewater, what would it be?” He said — this was very surprising to me, in the sense that this was a quant guy — he said to me, “Love.” I said, “Excuse me?” He says, “Love. Love. I love this place, and I love the people I work with.” I looked at him, and he says, “You're surprised?” I said, “Yes, because you don't seem like a touchy feely person.”

He said, “I'm not. I truly love this place.” That was fascinating to me. I spoke to another person who was also a superstar there. I watched her really have a very difficult time in the meeting where they were getting to the bottom of why one of her teams were not performing. It really had to do with her leadership style. It was…

INTERVIEWER

Tough to watch?

HESS

Yeah. I felt for the people doing the pushing in her. She said, “Look, I need to think about this. I don't know the answer, so let's take a break and, let's get back.” They came back. All this was films I watched. When I met her I said, “Can we talk about these films?” She said, “Yes.”

We talked about it, and I said, “What does all this mean to you in your life?” She said to me, “In being pushed to think more deeply, in being pushed to be more critical about how I think and how I relate has made me a much better mother. It also has changed me in terms of how I view my children's mistakes.”

We were going on. She's the one who gave me the quote in the book that the purpose of the whole system at Bridgewater is to overcome our humanness in a humane way. In other words, to help us view our natural proclivities for system one, ego defenses, but in a humane way.

The other thing that was fascinating at Bridgewater was how open everyone truly is. I would have people sit there and tell me that they think they probably have peaked at Bridgewater. They need to grow, and they don't see the opportunity. I say, “Well, gosh, what have you done about this?”

They say, “Oh, I talk to Ray about it. Yeah, I talked to Ray for two years about it.” I said, “You've actually told Ray that you're thinking of leaving?” They said, “I've actually told Ray that I'm not only thinking I'm looking, but I'd really like to stay if we can make something work where I can grow.” I said, “What did he say?”

He says, “I respect that. Let's try and see, because I want you to stay and grow. But, also, I want you to grow. If you can grow somewhere better, we'll help you get there.” It was like, “Wow.” I can remember two or three young people. It's amazing. I asked to meet with lots of different people. Young people. Senior people.

I remember having lunch with three young people. We were having lunch. They have different lunch areas and cafes. It's all catered every day. It was awesome sushi. I'm sitting there with these three guys. We're sitting outside. The environment is very tranquil. It's along a river. A small river. Trees.

We're sitting there. I asked the three guys…They know who I am, and why I'm there and all this kind of stuff. “Where would you like to start?” Everyone at Bridgewater has a big burden. A big personal issue they're working on. I had only met these guys three minutes, five minutes. The guy says, “I want to tell you what my big burden is.”

They go around the table. They basically lay out what their big issue is they're trying to work on personally. It's like, “Wow.” They're looking at me, and I can see it in their eyes and feel it. They want reciprocity. “OK, Ed. What's your big burden?” I sense that, and I volunteer it. Those then set up a wonderful, open conversation.

Think about that. How many times have you gone into a new environment and somebody…First, they're young. They know I'm there because of Ray. The first thing they want to talk about is their vulnerability. I'm talking about a hedge fund. I'm talking about a money machine.

I'm not talking about going into an…educational environment or a social environment. It's little things like that that gave me the feeling and also the data that this place is different.

INTERVIEWER

It struck me when I was reading that chapter that the common refrain in most organizations is pick your battles, but it seemed like nothing was too small in Bridgewater to pick apart and tease apart and try to understand.

HESS

Correct. The other thing that's common in organizations is not only pick your battles but pick your time to raise the battle. There are no battles too small and right now is the time. I was in meetings that had purpose A. In this particular meeting I'm referring to there's probably 12 senior executives in the room. The meeting was scheduled to last 45 minutes.

The meeting at the end of 40 minutes was over, and Ray says, “Before we leave.” He looked at person X and said, “We've got an open issue. I'd like to get to the bottom of this. I'd like for us to get in sync.” Some of them had knowledge of it, but everyone else…The meeting was supposed to last only five more minutes, because everyone's got another…

There was a 45 minute discussion of that in sync issue. Afterwards, I asked Ray. I said, “Ray, why'd you do it then?” He said, “You can't let things slide, and it was my fault I'm not getting back to it sooner, because I've been travelling. But, I had the responsible parties, the necessary parties.” He says it in that chapter. You don't put things off. You deal with them directly, honestly, openly.

One of the most amazing things, and I think I write about in the chapter, is when I was doing the book, one of my editors said, “All this sounds good, but it's just one way, top-down.” I told her the story and how I read an email, when I was doing my research, an email that went from a, I would say, mid-level person who happened to be part of a small team — I don't know if it's five or six people — who had a big client, big meeting that Ray attended. This was an email. Everything at Bridgewater, every communication, every review, every performance, everything about everybody is public record.

If you went to work for Bridgewater, you could go on your little iPad and look and see every grade that Ray Dalio or Bob Prince or any individual. Every grade, everything about their performance, their measurements, their test scores, et cetera, et cetera. You could watch every film of every senior management executive meeting. We film everything. It's totally transparent.

This gentleman puts it in the system and I read it. The substance of the email basically said, “Dear Ray, in our meeting yesterday with client so-and-so, your performance was disappointing and, quite frankly, embarrassing to the team.”

INTERVIEWER

I remember that.

HESS

“It was this, this, and this.” How many places can you be that truthful with the CEO? He's not CEO, technically. He's the founder.

INTERVIEWER

Not many.

HESS

Not many, at all. I read Ray's response. “Dear So-and-So, thank you for bringing this to my attention. You are right. I was not on top of my game. I let the team down, and I apologize to the team and your organization. I need to work on these things. I will not let this happen again.”

INTERVIEWER

That's remarkable. How often does that happen? Not only does an employee have the guts, and I guess in this place it's cultural, but the chutzpah to send a message like that and speak so directly to the founder or CEO …Psychologically, within your organization, that is such a hard thing to do, and then have the type of response that not only encourages, but agrees with, and immediately admits a mistake.

HESS

Right. If you look at the culture, and every organization does it differently. You look at what Pixar has created. That could occur in Pixar. You look at what WL Gore has created. That could occur in WL Gore. If you look at what Intuit's trying to do by “It's time to bury Caesar,” in devaluing positional power and “empowering employees,” trying to have conversations about the business issues and experiments and everything. That's what Intuit's trying to move towards. If you think, you go to UPS, the UPS culture of constructive dissatisfaction and the devaluing of perks, no corporate jets. The whole culture.

If you think about it, and you go back and you look through the some of the high-performance organizational research that I cite in the book, you could go back all the way to confronting the Google facts. I got some nice stuff in it. You see some consistencies. They're different degrees.

They're different degrees, but underlying all of this is, if you will, a leadership openness to subject themselves to the same rigor and review as everyone else. The message that sends, and the vulnerability, if you think about it, goes back to McGregor….The all-knowing, decisive, wise leader, quite frankly, has always been hooey.

But it's in the environment today that you live, where this type of thinking and learning is so critical.

In order for it to occur, it takes a humanistic type of environment that basically is, “I state permission to speak freely,” and really, intellectual humility. It goes back to my work and other people's work in looking at high-performance organizations, to what Jim Collins calls “level five leadership” and I call “humble, passionate operators.”

It's funny. Every talk I give to executives, I use the word “humble.” Everybody wants to have a conversation about it, because they disagree that you can be humble. Because the word “humble” means to so many people that you're basically a pushover.

There's this whole concept in the business world that if you're humanistic and engaging with people, you'll come across as soft. People will take advantage of you. That all goes back to Theory X. It's not the case.

INTERVIEWER

I think you proved that.

HESS

You can be humanistic and have high standards and high accountability. The companies I write about, every one of them are outstanding performers because they have the highest of standards that they hold themselves to. There is no softness in standards. There's a human element. Nobody can go put in the Bridgewater way. Nobody can go put in the WL Gore ways. You've got to create your own way that's consistent with the leadership team. If people criticize Bridgewater's culture, and UPS, but WL Gore will tell you the same thing that Bridgewater will tell you. It takes people longer than a year to adjust to working in the WL Gore environment, when they come in from the outside world, because our whole philosophy of engagement and collaboration and openness.

It's not the same as Bridgewater. What's fascinating is all these great companies will tell you, “We are not for everyone.”

INTERVIEWER

I'm conscious of the fact we're way over time. Ed, I want to thank you so much for your time. This was a fascinating conversation.

HESS

No problem. I enjoyed talking with you. I like your work. …

***

If you liked this interview, do yourself a favor and pick up a copy of Ed's book Learn or Die: Using Science to Build a Leading-Edge Learning Organization.

Eight Things I Learned from Peter Thiel’s Zero To One

peter-thiel

Peter Thiel is an entrepreneur and investor. He co-founded PayPal and Palantir. He also made the first outside investment in Facebook and was an early investor in companies like SpaceX and LinkedIn. And now he's written a book, Zero to One: Notes on Startups, or How to Build the Future, with the goal of helping us “see beyond the tracks laid down” to the “broader future that there is to create.”

Zero To One is an exercise in thinking. It's about questioning and rethinking received wisdom in order to create the future.

Here are eight lessons I took away from the book.

1. Like Heraclitus, who said that you can only step into the same river once, Thiel believes that each moment in business happens only once.

The next Bill Gates will not build an operating system. The next Larry Page or Sergey Brin won’t make a search engine. And the next Mark Zuckerberg won’t create a social network. If you are copying these guys, you aren’t learning from them.

Of course, it’s easier to copy a model than to make something new. Doing what we already know how to do takes the world from 1 to n, adding more of something familiar. But every time we create something new, we go from 0 to 1. The act of creation is singular, as is the moment of creation, and the result is something fresh and strange.

2. There is no formula for innovation.

The paradox of teaching entrepreneurship is that such a formula (for innovation) cannot exist; because every innovation is new and unique, no authority can prescribe in concrete terms how to be more innovative. Indeed, the single most powerful pattern I have noticed is that successful people find value in unexpected places, and they do this by thinking about business from first principles instead of formulas.

3. The best interview question you can ask.

Whenever I interview someone for a job, I like to ask this question: “What important truth do very few people agree with you on?”

This is a question that sounds easy because it’s straightforward. Actually, it’s very hard to answer. It’s intellectually difficult because the knowledge that everyone is taught in school is by definition agreed upon. And it’s psychologically difficult because anyone trying to answer must say something she knows to be unpopular. Brilliant thinking is rare, but courage is in even shorter supply than genius.

Most commonly, I hear answers like the following:

“Our educational system is broken and urgently needs to be fixed.”

“America is exceptional.”

“There is no God.”

These are bad answers. The first and the second statements might be true, but many people already agree with them. The third statement simply takes one side in a familiar debate. A good answer takes the following form: “Most people believe in x, but the truth is the opposite of x.”

What does this have to do with the future?

In the most minimal sense, the future is simply the set of all moments yet to come. But what makes the future distinctive and important isn’t that it hasn’t happened yet, but rather that it will be a time when the world looks different from today. … Most answers to the contrarian questions are different ways of seeing the present; good answers are as close as we can come to looking into the future.

4. A new company’s most important strength

Properly defined, a startup is the largest group of people you can convince of a plan to build a different future. A new company’s most important strength is new thinking: even more important than nimbleness, small size affords space to think.

5. The first step to thinking clearly

Our contrarian question – What important truth do very few people agree with you on? — is difficult to answer directly. It may be easier to start with a preliminary: what does everybody agree on?”

“Madness is rare in individuals
—but in groups, parties, nations and ages it is the rule.”
— Nietzche (before he went mad)

If you can identify a delusional popular belief, you can find what lies hidden behind it: the contrarian truth.

[…]

Conventional beliefs only ever come to appear arbitrary and wrong in retrospect; whenever one collapses we call the old belief a bubble, but the distortions caused by bubbles don’t disappear when they pop. The internet bubble of the ‘90s was the biggest of the last two decades, and the lessons learned afterward define and distort almost all thinking about technology today. The first step to thinking clearly is to question what we think we know about the past.

Here is an example Thiel gives to help illuminate this idea.

The entrepreneurs who stuck with Silicon Valley learned four big lessons from the dot-com crash that still guide business thinking today:

1. Make incremental advances — “Grand visions inflated the bubble, so they should not be indulged. Anyone who claims to be able to do something great is suspect, and anyone who wants to change the world should be more humble. Small, incremental steps are the only safe path forward.”

2. Stay lean and flexible — “All companies must be lean, which is code for unplanned. You should not know what your business will do; planning is arrogant and inflexible. Instead you should try things out, iterate, and treat entrepreneurship as agnostic experimentation.”

3. Improve on the competition — “Don’t try to create a new market prematurely. The only way to know that you have a real business is to start with an already existing customer, so you should build your company by improving on recognizable products already offered by successful competitors.”

4. Focus on product, not sales — “If your product requires advertising or salespeople to sell it, it’s not good enough: technology is primarily about product development, not distribution. Bubble-era advertising was obviously wasteful, so the only sustainable growth is viral growth.”

These lessons have become dogma in the startup world; those who would ignore them are presumed to invite the justified doom visited upon technology in the great crash of 2000. And yet the opposite principles are probably more correct.

1. It is better to risk boldness than triviality.
2. A bad plan is better than no plan.
3. Competitive markets destroy profits.
4. Sales matters just as much as product.”

To build the future we need to challenge the dogmas that shape our view of the past. That doesn’t mean the opposite of what is believed is necessarily true, it means that you need to rethink what is and is not true and determine how that shapes how we see the world today. As Thiel says, “The most contrarian thing of all is not to oppose the crowd but to think for yourself.

6. Progress comes from monopoly, not competition.

The problem with a competitive business goes beyond lack of profits. Imagine you're running one of those restaurants in Mountain View. You're not that different from dozens of your competitors, so you've got to fight hard to survive. If you offer affordable food with low margins, you can probably pay employees only minimum wage. And you'll need to squeeze out every efficiency: That is why small restaurants put Grandma to work at the register and make the kids wash dishes in the back.

A monopoly like Google is different. Since it doesn't have to worry about competing with anyone, it has wider latitude to care about its workers, its products and its impact on the wider world. Google's motto—”Don't be evil”—is in part a branding ploy, but it is also characteristic of a kind of business that is successful enough to take ethics seriously without jeopardizing its own existence. In business, money is either an important thing or it is everything. Monopolists can afford to think about things other than making money; non-monopolists can't. In perfect competition, a business is so focused on today's margins that it can't possibly plan for a long-term future. Only one thing can allow a business to transcend the daily brute struggle for survival: monopoly profits.

So a monopoly is good for everyone on the inside, but what about everyone on the outside? Do outsize profits come at the expense of the rest of society? Actually, yes: Profits come out of customers' wallets, and monopolies deserve their bad reputation—but only in a world where nothing changes.

In a static world, a monopolist is just a rent collector. If you corner the market for something, you can jack up the price; others will have no choice but to buy from you. Think of the famous board game: Deeds are shuffled around from player to player, but the board never changes. There is no way to win by inventing a better kind of real-estate development. The relative values of the properties are fixed for all time, so all you can do is try to buy them up.

But the world we live in is dynamic: We can invent new and better things. Creative monopolists give customers more choices by adding entirely new categories of abundance to the world. Creative monopolies aren't just good for the rest of society; they're powerful engines for making it better.

7. Rivalry causes us to overemphasize old opportunities and slavishly copy what has worked in the past.

Marx and Shakespeare provide two models that we can use to understand almost every kind of conflict.

According to Marx, people fight because they are different. The proletariat fights the bourgeoisie because they have completely different ideas and goals (generated, for Marx, by their very different material circumstances). The greater the difference, the greater the conflict.

To Shakespeare, by contrast, all combatants look more or less alike. It’s not at all clear why they should be fighting since they have nothing to fight about. Consider the opening to Romeo and Juliet: “Two households, both alike in dignity.” The two houses are alike, yet they hate each other. They grow even more similar as the feud escalates. Eventually, they lose sight of why they started fighting in the first place.”

In the world of business, at least, Shakespeare proves the superior guide. Inside a firm, people become obsessed with their competitors for career advancement. Then the firms themselves become obsessed with their competitors in the marketplace. Amid all the human drama, people lose sight of what matters and focus on their rivals instead.

[…]

Rivalry causes us to overemphasize old opportunities and slavishly copy what has worked in the past.

8. Last can be first

You’ve probably heard about “first mover advantage”: if you’re the first entrant into a market, you can capture significant market share while competitors scramble to get started. That can work, but moving first is a tactic, not a goal. What really matters is generating cash flows in the future, so being the first mover doesn’t do you any good if someone else comes along and unseats you. It’s much better to be the last mover – that is, to make the last great development in a specific market and enjoy years or even decades of monopoly profits.

Grandmaster José Raúl Capablanca put it well: to succeed, “you must study the endgame before everything else.”

Zero to One is full of counterintuitive insights that will help your thinking and ignite possibility.

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