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Monday, February 20, 2006

New Thinking for New Markets #1

New Thinking for New Markets

There is a reason that MBA's and the large companies that tend to employ them, in general, suck at being entrepreneurial. It's no secret that in exchange for 2 years of your life and $100 thousand dollars, a top business school will train you to think in a way that large companies around the world find tremendously valuable. You will be able to do a SWOT analysis , calculate NPV , quantify risk, run Monte Carlo simulations and generate more decks, of dizzying complexity, then the average employee. However, the average MBA will get no classes on making a decision in the face of uncertainty, no cases on thinking like a successful entrepreneur, no training in innovative problem solving. This deficit in MBA programs, reinforced at most big companies, arises not because innovation requires some "special sauce" or because entrepreneurship involves a genetic predisposition coupled with Powerball level luck. These limits are the result of a mode of thinking called "causal thinking" or "causal reasoning" and it is this manner of thinking that can most limit innovation and reduce entrepreneurial action .

If you work in a large company, causal thinking should be very familiar to you. It is a process that starts with the definition of a goal (generally static and imposed from above) and an assumed set of means or capabilities (narrowly constrained to core competencies in most organizations). The causal thinker selects the best option from among a given set of "means" to achieve the desired goal. In other words the casual thinker connects a series of dots between a set of given means and some
pre-determined optimal end. In the causal model the future has to be predicted (using research or other analytics) in order for a controllable set of options to arise, from which they can cherry picking the most favorable path.

"Creating a firm in a market that does not yet exist involves understanding how to make decisions in the absence of
pre-existant goals." -S. Sarasvathy

There is of course an alternate approach to thinking and problem solving and it's called
Effectuation . While the word may be somewhat unfamiliar, the process is wholly intuitive. The effectual thinker starts with a set of means (who I am, who I know and what I know) and uses them to create a series of potential outcomes, which are expanded and refined through interaction with stakeholders. To put it simply, the effectual mode of thinking starts with locally or internally generated resources, and uses them to fashion what the eventual outcome will be. In the effectual model there is no attempt to predict the future, since the market doesnt yet exist.

To further highlight the difference between these modes of thought, it might be best to think about how one goes about preparing dinner. Using the causal process one would first decide on exactly what the evenings meal should be, vegetable lasagna for instance. Then one would assemble all the required ingredients to create the dish and finally they would prepare it. You could think of this as the Great Chefs approach to cooking.

Of course most people use a much more effectual process in choosing the evening meal. They may start with a taste for pasta, arrive home look through the cabinets and refrigerator, take stock of whats present and depending on what they find, they may create vegetable lasagna, Cesar salad, tacos or they could phone a friend and ask them to bring over pizza. Think of this as the the
Iron Chef approach to cooking

While both models have strengths and weaknesses, effectuation is a clearly superior method of decision making and problem solving when attempting to build innovative products or entrepreneurial firms. Particularly when faced with "Knightian" uncertainty. Media companies are being forced by changes in technology to enter new markets with new products, considered the "suicide quadrant" by many. Continuing to use casual thinking to approach these new markets wont help media companies solve problems faster, make better decisions, produce more innovative products or form high value relationships.

Ben Franklin once quipped that “the definition of insanity is doing the same thing over and over and expecting different results.” This is an apt quote for what happens within many media companies. New markets require new thinking not new acronyms.


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