Stupski_NM-Summit-Aug09_stripI’m just back from helping facilitate an incredible event: 240 talented educators passionate about building the next generation of K-12 learning. Some of the innovation models and discussions are universal and applicable to any organization; I’ll comment on those in a moment.

First, I’d just like to applaud the Knowledge Alliance, Stupski Foundation, and West Wind Education Policy for convening and delivering an incredible summit. Attendance was by invitation and there was a rich mix of private, social, and government sector representatives, many involved in innovative initiatives. Together, they spent three days exploring ways to combine and focus their efforts. [KnowledgeGarage repository]

Doblin’s Larry Keeley offered the keynote on Innovating by Design. Here are the three big ideas he discussed:

1. “Innovation is a set of skills, an everyday thing and not an event or a turn in the road.” Of course, I won’t be doing Strategy | Innovation | Facilitation if I didn’t believe that! Yet how many organizations have any consistent structure or systems for innovating?

2. Larry presented Doblin’s Ten Types of Innovation model. It’s a model I’ve used in my consulting for years because it dramatically broadens thinking beyond new and better products and services. This graphic comes from an online article by Larry summarizing the model.

doblin_ten_types_15511

3. His presentation concluded with a set of tips for fostering innovation (copied here from the session notes):

  • Think big and stand in the future…Focusing too tightly on the status quo will force failures
  • Prototype a compelling model solution…Not because you will get it right, but instead because it is a shared idea
  • Co-construct, co-construct, co-construct…All of us are smarter than any of us; don’t be exclusionary
  • Avoid central control…It doesn’t work, it is woefully out of date, modern systems don’t need it
  • Start with what you have now…You will not ever have perfect conditions, so be adaptive and modular
  • Foster integrated platforms, not products…not just what we do, but how we do it, so that many independent participants can participate in the solution

Here are a few of my own observations about innovation in K-12 education, most of which are easily extrapolated to other arenas:

1. Standing in the future dramatically clarifies strategic thinking. Someone once said if you’re having trouble solving a problem, make it bigger. While the present (actually the near-future) often seems muddy and contradictory, many things about the more distant future have a high degree of confidence: for example, minority students will comprise a majority of our school-age population within two decades; mobile computing will be more powerful and accessible, and the 5% per year increase in per capita cost of education is unsustainable. Accordingly, I submit it’s easier to envision the shape of U.S. education twenty years from now than it is five years from now.

2. I loved Larry’s admonition to look for a “profound case of stupidity” at the core of any system. In education, it’s our age-graded assembly line system operating in the face of growing dissimilarity in student needs. We need to study/innovate other systems for personalizing learning that produce better results at sustainable cost levels.

great-teachers-sm3. I wrote in my notes, “Find and study the fastest moving organisms.” There are teachers and principals who are innovating new models and having success. There’s lots of research on their successes (see our Turnaround Challenge and Karin Chenoweth’s research for starters), but what’s missing is a systematic effort to identity, adapt, and adopt. In my view, these pioneers (or “lead users”) are the key to education innovation. Eric von Hippel, Director of the MIT Innovation Lab, has spent much of his career researching the vital role of lead users as the fundamental driver of innovation. He has a series of short video tutorials about lead user innovation. This bottom-up lead user innovation model needs to be married to Doblin’s top-down model if innovation in education is to have success.

4. In education, innovation is inhibited by dominant design forces that perpetuate our existing K-12 model in the same way they do the QWERTY keyboard, Microsoft Windows, the internal combustion engine, and other industry standards. James Utterback studied these forces in Mastering the Dynamics of Innovation:

User acceptance of the dominant design of the original innovation created certain boundaries within which subsequent waves of innovation wisely developed….For example, we will see in the next chapter how the displacement of gas lighting by incandescent lighting was advanced by Edison’s running wires through the very same pipes that once brought illuminating gas into consumers’ homes. […]

The lesson for technology managers and business strategists is straightforward: understand the constraints of systems, user learning, habits, and collateral assets already imposed by the existing dominant design. [p51]

I love that image of Edison running wires through repurposed gas pipes! It’s quite an analogy for K-12 education innovation, given that the current dominant design is reinforced by so many levels of standardized systems and regulations, stakeholder expectations and habits, physical infrastructure, and teacher capability! Can we be smart enough to design effective innovation from within?

5. “Careful there!” Evolutionary biologist Stephen Jay Gould might have said. Dominant design principles exist in the natural world as well and beneficial mutations are often eradicated by genetic dilution despite their benefit to the mutated organism. Gould noted that many, many evolutionary adaptations spread and gain superiority in small, fringe populations before migrating into larger populations. To apply this principle to education, Gould might point out that within traditional schools innovative methods developed by cutting edge teachers rarely propagate far from their source. Meanwhile, charter schools are small, fringe worlds where innovation is more common, yet there is no effective migration path back into the larger dominant design schools.

6. Thus, we are confronting what we might call the Gravitational Paradox of Education Innovation. If we attempt to foster innovation, as Utterback suggests, in full recognition of the boundaries of the dominant design, we run the risk that the gravitation forces of the existing model will crush progress. On the other hand, if we foster innovation in places sufficiently protected from those forces, we run the risk they will burn up trying to re-enter the dominant design atmosphere. Where then to position our innovation camp?

7. I digress here to comment: on the core task of educating high-poverty students for productive lives, we have a ton of knowledge about how to do so if we were starting with a clean slate! It’s not an easy thing, for sure, but it’s the lesser innovation challenge compared to the institutional complexity of changing the K-12 industry itself. Typing_Fingers_sm(Similarly, we know the DVORAK keyboard is 16 times easier to use than the QWERTY, but the unsolved innovation challenge is how to migrate from one model to the other.)

8. So how do we tackle the Gravitational Paradox? Where do we position our innovation camp? I’ve thought a lot about this since the summit and I wonder if the Linux/Open Source model might not offer promise. In 1984, Richard Stallman’s Free Software Foundation launched the GNU project to create a free version of the Unix operating system as an alternative to the dominant, proprietary systems of the time. In the early 90s, Finnish grad student Linus Torvalds extended this work, proving to be adept at enrolling different organizations and programmers, coordinating self-interested development projects, promulgating standards, and slowly nurturing an entire Linux industry around a collaborative, global, largely volunteer effort.

9. Urban education, in my view, needs the same three things that made Linux work:

  • A clear mission and mandate to develop an alternative to the dominant design.
  • A means of enrolling and coordinating local innovators (typically lead users) to build that alternative.
  • The ability to perfect and protect a rigorous, yet customizable, system with reliable, replicable performance and supported by a sustainable, professional industry.

Despite the many differences between software and education, Linux successfully solved the paradox faced by education innovators. Committing to an “Open/Urban” model could pull lead user innovators into a national coalition, focus R & D, accelerate dissemination of successful innovations, and stimulate the formation of supporting institutions and professionals.

I look forward to comments!

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fosbury_bar_200On grainy TVs in the summer of 1968, ABC Sports trumpeted something dramatic: a high jumper competing for the gold by leaping over the bar… backwards! Americans ran to their living rooms to gape each time Dick Fosbury made an attempt.

Serial entrepreneur and professor John Greathouse probes the origins of Fosbury’s innovation:

[Fosbury] began experimenting with alternative, unconventional methods of high jumping as a high school sophomore. Rejecting the straddling approach, which had been the standard for the prior forty years, Dick tweaked the old-fashioned scissor kick, eventually morphing it into a new and unique approach, which was eventually dubbed the “Fosbury Flop.”

The track and field community initially scorned Fosbury’s approach, labeling it “unsafe” and “too unorthodox” for the average jumper to master. However, nothing sells an innovative idea like winning. After Fosbury set an Olympic record at the 1968 Mexico City games, jumping 7 feet 4.25 inches, track coaches all over the world took notice.

The adoption of the Fosbury Flop was rapid. The last high jumper to set a world record using the straddling approach was Vladimir Yashchenko in 1977. As shown in the chart below The Fosbury Flop had become the international standard by the 1980 Olympics.

fosbury_stats

The Fosbury Flop helps illustrate an essential principle of innovation:  “…Whereas it may be appealing to focus on the future, breakthrough innovation depends on exploiting the past.” (Kathleen Eisenhardt, from the foreward of How Breakthroughs Happen by Andrew Hargadon) It is in the combining and synthesizing of long-established or emerging elements, often from disparate fields, that new solutions spring. If we reverse-engineer the Fosbury Flop, we can tease apart the details of training, equipment, and technique assembled and refined by Fosbury. For example, he abandoned the mainstream straddle technique and began experimenting with the older scissor kick. There was also a game changer that is too frequently left out of the picture (literally and figuratively): “Given that landing surfaces had previously been sandpits or low piles of matting, high jumpers of earlier years had to land on their feet or at least land carefully to prevent injury. With the advent of deep foam matting high jumpers were able to be more adventurous in their landing styles and hence experiment with styles of jumping.”

fosbury_cushion_lo-res

This same recombinant pattern is evident in the birth of mass production at Ford Motor Company, as chronicled by Andrew Hardagon in his book How Breakthroughs Happen. Interchangeable parts and tools were essential but had been part of industrial production for nearly a century. Continuous flow production was already widely in use by H.J. Heinz, Campbell Soup, and other food canners and processors. The final major innovation in the Ford system was bringing the work to the worker rather than the worker to the work — and Henry Ford credited Chicago meatpackers for that insight.

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Dave on May 28th, 2009

Grasshopper.com promotes their product (phone system)grasshopper_idea with a nifty video titled “Entrepreneurs can change the world.” Kind of clever — I watched it several times!

Main message: Entrepreneurs are changing the world, one small business at a time. Are we prepping young people to meet that opportunity?

Thanks to the InfoChachkie blog for introducing this 3-minute video:

High-tech marketing guru Richard St. John…invested the necessary time to ensure that his 2006 talk at the TED Conference was succinct and highly impactful. Over a seven-year period, he interviewed over 500 very successful people in order to answer this question posed to him by a high school student: “What leads to success?”

It’s a nice model and a clever presentation. InfoChachkie adds:

It is not the presence of one, two or even a few of these traits which will lead to success. Rather, it is the combination of all these factors, consistently executed in concert over an extended period, which leads to personal and professional success.

To which I would add that most entrepreneurial successes have far more to do with St. John’s simple model than with genius, a revolutionary idea, or a brilliant business plan.

Dave on March 3rd, 2009

household_debtThis graph summarizes the consumer pressures that are likely to dampen the U.S. economy long after the credit crisis and Wall Street gridlock is behind us. As the graph shows, median household income has been flat for years despite rising household spending and skyrocketing household debt.

In five earlier posts, I reviewed the evidence of economic climate change:

This recession is structurally and dramatically different than the other five recessions of the past 35 years.

Even before this recession began, job creation and real median household income had already flat-lined.

To compensate, Americans worked longer hours and took on massive amounts of debt, fueled by low interest rates, soaring housing prices, and easy (often negligent) credit.

The implosion of this housing bubble, combined with the global credit crisis, suggests “the most likely outcome is not a V-shaped recovery (which is the current official consensus) or a U-shaped recovery (which is closer to the private sector consensus), but rather an L, in which there is a steep fall and then a struggle to recover. (Baseline Scenario)

In the final post of the series, I discuss adaptation and opportunity by connecting the large-scale economic impacts we’re going through to the five basic recession strategies available to your enterprise.

drought-pix_200In this final post of the series, I want to build the connection between the large-scale economic impacts we’re going through and the five basic recession strategies available to your enterprise. It is easiest for me to think of the implications of this crisis in ecological terms. A mild recession is like a short drought: it temporarily stresses plants and animals but most bounce back when rain returns. On the other hand, a sustained drought throws the ecosystem into disequilibrium, lowers the carrying capacity for supporting life, and disrupts the interdependency of species with dramatic adapt-or-perish consequences.

Sadly, it seems clear that our economy is rapidly downshifting to a smaller, slower-growing state that may last for many years. Just as global warming is disrupting natural habitats, the economic downturn is altering the economic habitats of businesses and non-profits far and wide. As consumer spending and business investment shrink, many enterprises are no longer in equilibrium with their environment. They are in a race against insolvency.

Faced with shrinking revenues, there is a natural survival response to cut costs and redouble past efforts to drive sales. In highly contested markets with excess capacity everywhere, this strategy yields diminishing returns. It is certainly no guarantee of remaining cash positive.

Instead of doing more of the same for less and less return, the path back to fitness requires doing less of the same – and doing more to create new demand and reduce competition. Design your short-term strategies to become both cash positive AND uncommon.

The next post will explore the five basic recession strategies.

five_recession_strategies_20090820With the gift of hindsight, I can report that it is possible to adapt and transform in severe economic conditions. It’s painful, but possible to come out stronger. Twenty years ago, the Boston area experienced a deep recession that decimated the design and construction industry. A highly-contested marketplace became downright dangerous as companies slashed costs and took huge risks to win work. It did not take long for me and my Beacon Construction colleagues to recognize that hyper-competing in this environment would eventually end in failure. Through trial and error, we discovered strategies for finding and winning work outside the hotly contested mainstream. In the process, we evolved into a far leaner and smarter organization that became an attractive acquisition for Skanska USA.

Since leaving Beacon in 1994, I’ve spent many years as part of a national research-based initiative to identify and disseminate patterns of entrepreneurial success. This knowledge, and in particular the systematic way that top entrepreneurs harness adaptation to changing circumstances, are the foundations for this blog.

In my previous posts in this series, I’ve examined recent recessions, jobs and income, and consumer spending and debt to make the case that small businesses must adapt to long-term economic climate change even once the credit crisis eases.subprimes_suck

I haven’t mentioned Wall Street, monetary and fiscal policy, or globalization. So here’s where I stand aside and give the economists the floor. If you haven’t already discovered the Baseline Scenario, I am pleased to introduce you! It’s published by really smart economists dedicated to educating the rest of the human race about the precarious state of the U.S. and global economy and the prospects for improvement.

There’s an old saying: “To the blind, all things are sudden.” Normally, the owners and managers of small businesses and non-profits can craft strategy without studying macroeconomics. Not now. I urge you to take the time to read Baseline Scenario’s summary on the U.S. and global economic crisis. It really could be the most important half-hour investment you make.
A critical excerpt from the 12/15/08 edition of Baseline Scenario:

6) The global situation is analogous to the problem of Japan in the 1990s, in which corporates tried to repair their balance sheets while consumers continued to save as before. The difference, of course, is that the external sector was able to grow and Japan could run a current account surplus; this does not work at a global level. Global growth prospects are therefore no better than for Japan in the 1990s.

7) A rapid return to growth requires more expansionary monetary policy, and in all likelihood this needs to be led by the United States. But the Federal Reserve is still some distance from fully recognizing deflation and, by the time it takes that view and can implement appropriate actions, declining wages and prices will be built into expectations, thus making it much harder to stabilize the housing market and restart growth.

8) The push to re-regulate, which is the focus of the G20 intergovernmental process process (with the next summit set for April 2), could lead to a potentially dangerous procyclical set of policies that can exacerbate the downturn and prolong the recovery. There is currently nothing on the G20 agenda that will help slow the global decline and start a recovery.

9) The most likely outcome is not a V-shaped recovery (which is the current official consensus) or a U-shaped recovery (which is closer to the private sector consensus), but rather an L, in which there is a steep fall and then a struggle to recover.

Very sobering stuff. I’ve framed this crisis as economic climate change that is challenging the very viability of organizations large and small. In industry after industry, there is no longer the demand to support the current players. We won’t just slog through. Adapt or Perish.

The final post in the Economic Climate Change series, Adaptation and Opportunities, will focus on how to begin addressing these new realities.

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In my previous two posts in this series, I looked first at past recessions and then at the glacial rate growth in jobs and household income even before the current crisis. To meet rising household expenses, Americans worked longer hours and reduced savings from 10% of income in the 1970s to nearly 0% today.

They also borrowed at an accelerating rate as low interest rates fueled housing prices and expanding home equity loans.

Here’s financial blogger Hale Stewart again:

Let’s look a bit deeper into the expansion.  Consumer spending makes up 70% of US GDP.  So for the economy to expand, people need to keep spending.  At the beginning of this expansion, the US was saving about 2% of their paychecks.  That means the US consumer was pretty much spending everything they made.  Although the US consumer kept spending for the duration of the expansion he didn’t see any increase in real income.  So – where did this extra money come from?

Massive amounts of consumer debt.  Notice the mammoth increase in consumer debt over the last 8 years.

consumer_debt

According to Credit Slips, the fantastic blog on consumer credit and bankruptcy:

The debt service ratio estimates the proportion of after-tax income that families spend on mortgages and consumer debt.  That ratio rocked around 10-11% for the early 1980s, then it began to climb. Since the second half of 2005, despite record low interest rates, the ratio has remained above 14%.  That’s about a 30% increase in the amount of income consumed by debt payments alone.

The reason debt service has grown isn’t hard to figure out.  From 1990 to 2004 alone, Americans shifted from owing about 86.2% of a year’s disposable income to owing 105.1% of their disposable income.  We don’t have the numbers yet, but no one thinks the debt load shrank from 2004 to 2007.

An increase of three percentage points in the debt service ratio may not sound like much, but that’s an additional $3 taken out of every $100 of after-tax income just to make interest payments.  It has the same effect as taking a 3% pay cut.

Fast forward to January 2009. The housing bubble that floated all that home mortgage debt has burst; nearly one in six homeowners owe more on a mortgage than the home is worth. Credit card companies are tightening credit and raising rates.

Implications for business strategy:

  1. Federal economic stimulus will hopefully help the economy, but will not meaningfully improve stagnant household incomes.
  2. With household income flat, health care expenses rising at a double-digit rate, and severe new restraints on consumer borrowing, there will be powerful, downward pressure on consumer spending for a long, long time.
  3. Big ticket items including housing, education, health care, and transportation are likely to see dramatic changes in consumer behavior over time.
  4. Discretionary consumer spending will decrease, but will remain an outlet for meeting psychological needs.

In the fourth post in this series, I’ll discuss some of the non-consumer issues that should inform recession and post-recession strategies.

In my previous post, I reviewed the past five recessions to provide one backdrop for business strategy. In this post, I’ll discuss jobs and household income: two of the underlying issues that make our current crisis unlike past recessions.

We’re still in the storm, but we can already see some of the likely contours of the future business environment. Jobs and household income were increasing at glacial rates long before the crisis and ongoing downward pressure is anticipated. To the extent that the fitness of our individual enterprises is tied to a general “rising tide,” said tide is lifting fewer boats and not as high.

Like global warming, we frequently have a vague recognition of the trends in job and income growth but without scale or detail. Let’s take a look.

Job creation was a crisis before the recession
Last April, financial blogger Hale Stewart assembled a fact-filled critique of the recent economic expansion (2002-2007).  He included a version of this graph showing that expansions in the 1960s and 1970s grew jobs at about 3% per year. In the 1990s expansion, job growth dropped to 2% per year. Then, in the 2000s, job growth flat lined for 29 months before eking out an average 1% annual growth – not even enough to absorb the 1.25% annual growth in the labor force.

employment_cycles_dave_588

Most people lost ground in the last economic expansion
Throughout the recent presidential campaign, we heard a growing angst about the plight of the middle class. The bottom line is that median household income, adjusted for inflation, has stopped rising. Stewart offers this Census graph with the comment: “Real median household income is now at the same level it was in 2001.”

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Past experience is an inadequate guide to our current crisis; nevertheless, we can still learn a lot from past recessions. Let’s examine the past five recessions. I’ve plotted the rate of economic growth since 1973 (economists study real GDP but it’s hard to relate to individual businesses) along with the unemployment rate (an easier to follow index of general economic health).

recession and unemployment chart

Their technical durations were 6, 2, 5, 3, and 3 quarters, although if you examine the unemployment rate, you’ll see that the pain continues for much longer. We’re already 4 quarters into the current crisis and not close to the bottom yet.

Unemployment rose 4%, 2%, 3.5%, 2%, and 2.5% respectively. By comparison, the rate has risen almost 2.5% since late 2007 and may go much higher.

As I list the key causes of the past five recessions, note the absence of the kind of system-wide implosion we’re currently experiencing.

The 1973 recession was triggered by the quadrupling of oil prices by OPEC and the cost of the Vietnam War. Lockable gas caps were a sign of the times.

In 1979, oil prices spiked again. A few years later, the Fed imposed tight monetary policy to control inflation, leading to another recession.

A recession begun in 1990 was precipitated by declining business investment, the savings and loan crisis, and the Gulf War and Mideast uncertainty.

The most recent recession in 2001 followed the dot-com bubble and September 11.

These recessions were tough enough on individual businesses. In Boston from 1989 to 1992, conditions were particularly severe. I’ll talk about that in later posts.

Here is a last comment about the unemployment rate. Notice that jobs come back much more slowly than they are lost. Once economists tell us a recession has ended and the economy is growing again, it takes years for jobs to rebound and the economy to feel healthy again.

In the next few posts, I’ll be looking at factors in the current crisis that are changing our economic climate long-term: jobs and income, consumer spending and debt, and the banking mess and global risks.

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