In the curious eyes of a child …

Only children get to stare. I’ll look into the eyes of a child for hours. I can hardly stand to look into an adult’s for six seconds.

Children make miracles of hands, new snow and mud puddles. I spent a week at NASA and still managed to get bored.

There is something compelling and endearing in curiosity. A beginner’s mind is a marvel. Why are we so ready to abandon that advantage? Why do we strive to be experts? Why do we fight to have all the answers?

Knowing: enemy of curiosity

Sophistication gets in the way of simple worth. Polish pushes past practicality.

I was delighted when we finished our Jurisdictional Advantage assessment tool. I thought I’d finally created the tool to tempt new clients. It is rigorous, analytical, relevant and enormously powerful.

But as I invested more time in discussing it’s merits and even when I revealed its value in response to new, related opportunities — it pushed instead of pulled. The rigour and depth made some worry about overblown budgets. The sophistication suggested simplicity might get ignored. The practical-minded saw threats lurking in its long-range capacity.

More than that, I became (have become) closed to newness. Instead of greeting each new colour with the wonder of a child, I find some way to find its pre-fab place inside the tool.

The words used to describe the tool were, at first, simple. But in supporting its pre-fabricated relevance, things get ever-more complex. Language starts to hide meaning instead of reveal it.

There is a real tension here. On one hand, people want to see some evidence of capacity. What better way than to flash a well-used, refined set of tools and portfolio of happy clients? But, on the other hand, everyone wants to be unique. They want bespoke.

It’s a tenuous balance. Proof of universal satisfaction and evidence of exclusive service. Show that everyone is happy and ensure that no one has anything similar.

It’s made me wonder about the path to haute couture: the creation of exclusive custom-fitted clothing — made to order for a specific customer, made from high-quality, expensive fabric, sewn with extreme attention to detail and finish, often using time-consuming, hand-executed techniques.

Of all that haute couture involves, what is universal? What principles live at its heart? What is unchanged, in spite of creativity? And how is this harnessed?

The madness is made of three priorities:

- Get a grip on what’s going on in impact investment
- Figure out who to meet at the conference
- Decide which arcs to ride in the conversations

Gripping Impact

Social investment/social capital/impact investment are three names for the same space. That there are three (and many others) illustrates the current state of affairs – striving for clarity, rigor, and discipline.

In spite of some superficial ambiguity, there’s rich texture underneath. That refined capacity was aptly showcased in recent conversations with Stephen Huddart, VP of J.W. McConnell Family Foundation and Thomas K. Reis, Director at W.K. Kellogg Foundation. These are sophisticated investors.

My earlier “manifesto” wasn’t near as respectful as it could have been. There’s a thin line between provocation and maverick ignorance. I think I dodged the later, but not by much.

Precision is indeed necessary but, perhaps, not precisely where I placed it. Decisions, at least initial choices, are carefully made. Lots of rigorous tools help identify targets and investment process: logic models, developmental evaluation, causal loops, and network maps.

Just a few of the key resources in this area include the following videos (both from SoCap08) and articles:

Katherine Fulton, President of Monitor Institute – video.

Panel moderated by Kevin Doyle Jones and carried by Jed Emerson of Blended Value, Matthew Bishop of “The Economist”, and David Chen of Equilibrium Capital – video.

Investing for Social and Environmental Impact by Monitor Institute – PDF.

Who To Meet?

There’s almost 800 people attending the conference. It’s tough to pick where to focus the conversation. So far we’ve got meetings with:

Jed Emerson – Blended Value
Pål Dale – Voxtra Foundation
Greg Berry – Nuance Intelligence
Luis Calderon – University of Michigan Social Venture Fund
Andrew Miller – Foresta Capital
Kelly Clark – maramanie
Sean Stannard-Stockton – Tactical Philanthropy
Glen Mehn – Boot Partners
IDEO
Damien Newman – Future of Fish
VanCity Capital
Jonathan Jenkins – UnLtd
Sara Olsen – SVT Group

Story Arcs

So far it looks like there’s an interesting story around portfolio management. We’ve already done work to create an analytical portfolio management framework. An ability to:

1) Understand done deals and their evolution and emerging needs/opportunities
2) Reconcile early investments with investments currently on the table
3) Leverage early and current investments to call for future opportunities

Achieving this capacity requires:

1) Sensitivity tools to monitor and capture organic information and market dynamics related to current investment positions and their ecosystems
2) Create room within the due diligence on current deals to handle volatile information coming from previous deals so that new investments stack on, compliment, and fortify past positions
3) Run analytical foresight, scenario planning, and scanning to anticipate potential future opportunities and use current deals to take options on probable futures

I think the story to ride is this:

Making decisions is only part of investment success. Monitoring and leveraging the systemic layers influencing portfolio performance builds up value, mitigates risk, tailors future interests. The tools of impact management aren’t sensitive to these dynamics. They lag.

There’s an opportunity for a simple, bold process that links lagging metrics with real-time systemic evolution and future options. We’ve got key elements in hand. We’re looking for more.

Investment is a choice. Precision is the vehicle. Impact is an outcome.

Investment is a choice. An informed choice to deliver a range of returns.

Choice requires precision. Precision in timing, pricing, people, and reason. It’s about getting in at the right time, for the right price, with the right people. It’s about getting out in the right way at the right moment.

Impact is a version of interest. It’s another line of return. It’s among a set of investment intentions.

Impact is simple. Precision is complicated.

You want impact? Find a huge rock. Throw it in a small pond.

Precision? It’s not always intuitive. Take a look at what’s in the pond. Take a look at what’s around the pond. Figure out what feeds it. Find out who needs it.

Drop the rock, forget the splash, solve the problem: save a wetland.

Impact requires more than metrics and evaluation.

Metrics tell us what we’ve done. They measure the past. Evaluation tells us what might be and measures a static future.

Metrics lead to more rocks. Evaluation leads to bigger rocks. We need smarter rocks.

Metrics and evaluation hide the uncertainty of choice. They are accountability tools – not decision tools. They create platforms and benchmarks – slingshots and catapults. We also need targeting systems that deal with evolution and dynamics.

Beyond metrics to sensing and foresight

Our success will be defined by an ability to 1) sense the evolution of now, and 2) anticipate where dynamics will lead us.

Sensing “now” demands a new set of filters and criteria. Today, in a world deluged by data (which change every day), relevancy matters more than volume, frequency and timeliness. Curation counts.

Foresight clarifies “next”. It acknowledges that the future is unknown but leverages fit, character, and ability to absorb new opportunities. It seeks to understand a kind of gravity. These elements attract opportunity. Knowing their gravity and reconciling with emerging demand enables analytical understanding of what might come next.

We live in a fulcrum

Social issues are surging, in the face of a flagging economy. We are global. Our systems have failed. We haven’t yet chosen new ones. A window is open. The world is begging.

Grasping the potential of this moment depends on four key actions:

Deliver returns:

Let’s get clear. This is and must be about money. Without financial return, this won’t fly. The trick is making social values as definitive as cash. And then delivering them too.

Be precise:

To “define”, “benchmark”, and “evaluate” let’s add “sense”, “map”, and “feed”. Precision enables performance and drives impact.

Embrace complexity:

Social issues are complex. They are multi-faceted. Change anything, the rest moves too. There’s no single stream of return – it’s systemic.

Create clarity:

Honor complexity; pillage complication. Let things be inter-connected but do not twist. Money works because its simple. Invest simply, with reason, enabled by precision.

Create a path – recapture the present – sustain the future

We must learn to leverage social value to fortify financial value. It’s critical for mitigating risk. It creates fit. It ensures sustenance. It ensures consistency between systems, activities within systems, and new investments.

—

Henry David Thoreau, Journal (November 1, 1851)

“It is a rare qualification to be able to state a fact simply and adequately.
To digest some experience cleanly.
To say yes and no with authority – to make a square edge.
To conceive and suffer the truth to pass through us living and intact…”

1. Sounds like prophecy. Who really thinks forecasters and futurists are much more than fortune-tellers in suits?

2. Too difficult to connect to tactics. We’re in business, so where’s the money?

3. Fit within priority structure is unclear. Business plan, annual goals, quarterly targets, executive commitments – where’s foresight supposed to fit in that?

4. Results are too difficult to measure. It’s about the future, so how will we know who’s right until we get there?

5. Data is too old or too dirty. If this is the future, why’s the data from 2001? And, how come there’s two decimal places when the time series in only three years long?

6. Baffling methods. Cryptic names, enigmatic systems, mystic doctrine – where’s the Kool-Aid?

7. Too abstract. Lots of stories, where’s the analytics?

8. Spot-check today says little about evolution tomorrow. Planning, strategies, tactics – these are a balancing acts at best – how can today’s “foresight session” give us anything useful beyond the next 15 days?

9. Too far out. We’re barely keeping up with a three-year plan, why talk about 20 years from now?

10. No time to explore. Explore? There’s already too many obvious opportunities to pursue.

Seriously, hammer away. Why will you say no if someone tries to sell you foresight? I’d love to hear from you. Leave a comment or send an email.

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Keywords: Foresight, Analytical-Foresight, Analytics
Tags: Foresight, Analytics

Driving business by innovation means tactical innovations, micro innovations, and need-driven innovations – innovations that create value which, in turn, create business. These are usually undertaken by small business, entrepreneurial corporations and the very rare business-savvy academic.

Driving innovation on behalf of business means economic development, economic diversification, and, regrettably, economic intervention. This is usually undertaken by governments, economic development agencies, and most universities.

For those on the business-side of innovation management, innovation grows from within and means saying “No” to everything but the few bits that create value. For those in economic development, innovation comes from the outside and means saying “Yes” to everything, including a few bits that create value.

This post is written to help those on the outside of business innovation understand what’s needed on the inside.

Leveraging our best

In recent work for Alberta Ingenuity Fund and the Alberta Department of Advanced Education and Technology, we created a 75-indicator set of metrics and indexes to measure Jurisdictional Advantage. It’s a tool that assesses the character of place – the strengths and weaknesses of business and the regions where they exist.

Jurisdictional Advantage assessment also provides a new tool for innovation management. It allows businesses and economic developers to identify gaps in a region’s ability to sustain and leverage innovation. It measures what is inside and what is outside a region’s best.

It’s an essential foundation for asking a higher-level question: Where do we look for innovation? It’s essential because it finally creates some fences in a previously unbounded conversation.

Without Jurisdictional Advantage assessment, anyone that looks for innovation looks everywhere. With this kind of assessment, the question can be highly tailored. Instead of myriad market opportunities, we limit the search to the relative few within a company’s or region’s Jurisdictional Advantage.

Best is on the inside

Schumpeter is famous for arguing that real innovations stem from recombining existing knowledge in new ways. This knowledge is, of course, held inside businesses and institutions. It’s the holders who reach out of and through that knowledge to create new combinations. In this sense innovation is an internally-driven activity.

This idea of internally-driven innovation derives from work by Asheim, Boschma, and Cooke and their use of ‘related variety‘. It’s a term used in evolutionary economics. It suggests that innovation is not driven by diversity or specialization but by related variety – shared and complementary knowledge bases and competencies (Ashiem et al., 2007: 4).

Ashiem et al. argue that innovations occur when knowledge spills from one industry to another (rather than within one industry). And that innovation’s probability of success is greatest when the two industries share common competences.

Tailoring innovation management

Balance is the trick. Though there is an “In” in innovation, it is immediately followed by “No”.

Shredded Wheat is running ads that say they “put the ‘no’ in innovation”. Criticizing ‘progress’ and elevating ’simplicity’, CEO Frank Druffel writes,

“Progress plays no role at the Post Shredded Wheat Company.

Post Original Shredded Wheat, on the other hand, hasn’t changed. It is still just one simple, honest ingredient which naturally comes with fiber, vitamins and minerals.”

Post is clever. While scathing ‘progress’, they highlight their own path to innovation. The path of others is ‘yes’; the path for Post is ‘no’.

Where others add, Post tailors. This tailoring is cutting. It takes off more than it adds. It is a rigorous process of saying no.

The ‘in’ and ‘no’ of innovation management

Innovation is a wonderful intention. It’s the foremost ambition of every economic development organization. Governments, municipalities, universities and industry associations ache for it.

But innovation is a practice. It is an act. It is founded within organizations not outside them.

The work of most well-intending support institutions is principally a process of yes – a mad hunt to find something to approve. Innovation, on the other hand, is a process of rigorous decisions to say ‘no’. Or, put another way, to minimize ‘yes’.

Until economic development organizations adopt analytical tools like Jurisdictional Advantage, they will struggle at innovation management. The fences are otherwise too wide.

What would you cut?

Where is your company saying no?

What else, besides Jurisdictional Advantage is needed? What else would you use?

I’d love to hear from you. Comment below or feel free to email.

This conversation got started two weeks ago – we post an early draft for email subscribers. If you want in, subscribe to email notification from the blog.

Keywords: Jurisdictional-Advantage, business-innovation, innovation-management, economic-development
Tags: Innovation, Analytics, Decision-tools, Innovation, Alberta

Of all you do, what creates the most value?

Of the value you create, how much comes from core competencies (the things you do best)?

It’s come as a surprise, but reality is: Only a few of the things I do actually create value.

The role of deliberate practice

In The Role of Deliberate Practice in the Acquisition of Expert Performance (1993), psychologists K. Ericcson, R. Krampe and C. Tesch-Romer give evidence to support the long-held belief that excellence is a product of effort across time. It takes ten years, say Ericsson et al, to become expert in anything. It’s the consistency, not talent, that matters most. “Experts”, they write, “grow to acquire cognitive skills enabling them to circumvent limits … From our search for immutable characteristics corresponding to innate talent, we conclude that individuals acquire virtually all of the distinguishing characteristics of expert performers through deliberate practice … In summary, our review has no support for fixed innate characteristics that correspond to general or specific natural ability …”.

So, off we go. Confident in the faith that hard-work and deliberate practice will make us experts – we plow ten years into a set of core capacities. Finally, we pop out 3,650 days, an expert.

But here’s the hitch: While the path to expert is clear, the most valuable areas of expertise are not. Being an expert is one thing. Being an expert of value – that’s a whole other deal.

The essence of excellence

We love professional athletes, rockstars, moviestars, and brilliant CEOs (at least we used to). We thrill in the fantasy that their success is somehow mirrored in our potential. But it’s only a few that grasp the reality of the hard work required to generate that success.

The greatest athletes have a lot to teach us about value creation. In the Mundanity of Excellence, researcher Daniel Chambliss writes, “The mundanity of excellence is typically unrecognized … the reason is fairly simple. Usually we see great athletes only after they become great – after the years of learning the new methods and gaining the habits of competitiveness and consistency … They have long since perfected the myriad of techniques that together constitute excellence.”

Chambliss concludes that 1) excellence (consistent superiority of performance) is a qualitative phenomena where top performers focus on qualitative, not quantitative improvements, 2) Talent is a useless concept masking the reality that concrete actions create outstanding performance, and 3) Excellence is mundane and accomplished through ordinary actions, performed consistently and carefully, compounded together, and added up over time.

Choosing focus

Growing up, sport was a big deal. Hockey and basketball were mainstays.

To be good in hockey there are no capacities more essential than skating, passing and shooting. If you want to practice for maximum payoff: do lots of figure-eights (backwards and forwards), pass and receive passes all along those figure-eights, and take a ton of wrist-shots. Slap-shots, skating round and round the rink, and coasting around in scrimmage games won’t yield a hundredth of what is gained by practicing these top three simple skills.

Similarly, in basketball, focus on simple dribbling, passing, lay-ups and short jump-shots. An important addition might be free-throws if you’re big and liable to get fouled a lot. Dunking, nifty mid-court moves, and long-bomb shots are a waste of time for most players.

Skating, passing and shooting are the money-makers of hockey. Dribbling, passing and short-shorts are the nickels and dimes of basketball. Your drive and put are where to make gains in gold … on and on through sport after sport. The path to value is clear.

In sport it’s easy to pick important methods to creating value. Practice this few things, over and over again and in ten years (with the assurance of Ericcson et al.) you’ll be pro or at least pro-grade. It’s not so clear, unfortunately, in business.

Identifying the core capacities that create value in business seems much more difficult. For evidence of this challenge, simply observe the wide, wandering path of most corporations. It’s clear that many aren’t sure what creates value. They’re guessing.

Beyond guessing

Identifying value-generating core capacities is difficult, humbling, and, yes, mundane.

First, it’s impossible to find what counts without first detailing what you do and what it achieves. Banal? Maybe. But metrics are critical.

Track where you make efforts. Track where you gain success. Weigh time and expense against sales volume and revenue. Few small to mid-size companies actually have a grip on this kind of information.

Second, learn what is being bought.

Very few of our clients know what is truly valued of all they do. Most know what they want to be valuable. Most know what they try to sell. But hardly any know what is really being bought.

In an interview on the role of industrial design plays in business strategy, Gad Shanaan describes the surprisingly simple elements that drive new product success. In a high-tech world, it’s often low-tech differences that make the sale. He says that most of his clients can’t see the value because they’re too close to their industry.

Sometimes it’s a company’s culture that makes sales (versus the glitzy new design). Sometimes it’s buttons on the front of the TV instead of the side. Simple things create value in ways most would never imagine. And, paradoxically, many of the things we think matter most make no difference at all.

Shanaan explains that the best path to knowing these things is to come with fresh eyes, a new perspective, and a willingness to research areas that most take for granted. Doing the analytical work creates the insights. Doing the simple and often mundane thing creates the value.

Third, ask those that buy what else they want.

The most common forms of business planning are baffling. Executives sit in boardrooms, years away from their most practical experiences, trying to plan for a deeply uncertain future. Entrepreneurs beat their heads pulpy on walls, trying to guess where markets are going. And both, eventually, sit down to write a document that supposedly shapes their undelivered response to the dynamic future alternatives they mysteriously chose to consider.

An alternative path, and one I love to advocate, is writing a preliminary business plan. A mere skeleton of the monster that most produce. After framing your capacities, listing a few new concepts and briefly summarizing the market – take that three to eight page document to partners, suppliers, and clients. Show up reasonably dressed, vastly at ease and ask in a natural voice (with a hint of inquisitive):

A. “What is missing?”
B. “Can you see yourself in this?”
C. “What do you need next?”

You’ll be amazed at the answers. You’ll be stunned by their willingness to put themselves inside your work. You’ll be thrilled by their early commitment to their fingerprints on your skeletal plan.

But, be warned, almost none of it will be exciting. Sustainable things are built on patience and trust. Most of what’s fast and fun dies quickly.

A simple and mundane process. It yields simple and mundane answers. But the beauty is: You will know far more about the few things you need to practice right now to get more sales.

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Site Search Tags: analytics, decision-tools, innovation, investment, planning, strategy

Strategic fit among activities is fundamental to any advantage and, more importantly, the sustainability of that advantage. In his 1996 Harvard Business Review article, What is Strategy?, Michael Porter discusses the synergy between strategic choice and the context in which the decision is made.

Porter argues that fit occurs when there is simple consistency – activities are reinforcing and effort is optimized. In the HBR article he writes, “Rather than seeing [strategic choice] as a whole, [decision-makers] have turned to ‘core competencies’, ‘critical resources’, and ‘key success factors’. In fact, fit is a far more central component of competitive advantage than most realize.” (Porter, 1996: 70) Fragmenting systems into parts may make us feel like we’re getting a grip but it only works if every piece is understood in the context of the whole.

Competitive advantage of context

It’s simple math to see that context matters. When I work out on our deck I get less done than when I toil at the office. The work is the same, tools are identical, but significantly less gets done in one context versus the other. Distracted by kids, birds and the endless construction behind our home – I can’t concentrate outside.

Similarly, water management in Canada, for the most part, is significantly easier than in, say, Israel. Back-to-back droughts and a relatively infinitesimal base allocation make Israel an unlikely place for water-intensive industries.

Compare Edmonton, Alberta to Silicon Valley, California – where would you start a new high-tech business (if you could pick)?

Clearly, place matters.

Yet, in spite of the obvious importance of place, it seems to factor little into the alternatives considered by decision-makers. And when it does, it is rarely with the thought of leveraging the advantages of place but more often overcoming the barriers.

Place matters

We recently completed a piece of work focused on understanding the role of place in optimizing investments. The analysis includes more than 75 indicators that measure the relative strength of a region’s capabilities, supporting institutions, environmental context and industrial ecosystem.

The tool is built to help investors understand which places are the best places for specific industries. For some industries skill sets and technologies matter most. For others the support of industry associations and local government is key. And it goes around the circle, but the point is that places are optimal sites for only some industries – not all industries.

This assessment, of the advantages that accrue from place, is called Jurisdictional Advantage. It measures the character of place. It is an important tool for reconciling the vast range of market opportunities a region might wish to pursue with the relatively few opportunities a region is positioned to capture.

When place creates success

A friend told me a story about Rick Warren that I haven’t been able to confirm. Since I think the story is interesting, I thought I’d it anyway.

Rick Warren is the celebrated author of The Purpose Driven Life. Forbes called his previous book, The Purpose Driven Church, “the best book on entrepreneurship, management, and leadership in print”. He’s been invited to speak at the United Nations, the World Economic Forum in Davos, Harvard’s Kennedy School of Government, and TIME’s Global Health Summit. The Economist said he is “arguably the most influential pastor in America.”

In 2006, after selling more than 30 million copies of The Purpose Driven Life, Rick Warren was a bit of a celebrity. In an interview, the story goes, he was asked what’s next. Apparently he misunderstood the question and started to run through a list of new goals. The interviewer interrupted and rephrased the question: Did he plan to leave his Church and pursue other things? Realizing what was meant, Rick grins and says something like, “Oh, sorry, no we have no plans to leave. We made a commitment to stay with the church for 40 years. We aren’t going anywhere.”

40 years!

Imagine what would change if you committed to stay in one place for 40 years. Think of how that changes your choice of home, friends, community and work. As a business owner, consider how much more important “place” would suddenly become.

If people, supporting agencies, infrastructure, natural environment and industrial ecosystems define place, what would be different, in your interest in these elements, if you knew you would never leave the place you are now?

Choosing to stay

I still struggle with living in Edmonton. It’s flat, there’s no good lakes, the winters are long and dark, and it is way out on the edge of the world. It’s hard for me to commit to staying.

Maybe it’s my young kids, it might be the product of ageing, or maybe I suddenly recognize its importance but these days I feel a pressure to choose a place. I feel the importance of investing in people. I feel like I should get involved at the university or support local economic development. For the first time ever, I think some of the decisions the city is making feel important. I wonder about caring for the river not far from our home. I think often of other, local companies that might need what we do (even if they can’t afford it).

I feel the weight of place. Not a burden. More like my favorite, leather coat. It lies heavy on my shoulders, it creaks with my movements – when I first put it on, for some odd reason, it reminds me I am alive.

What is place for you?

I am deeply interested in stories of how place matters to business and the success of local economies.

- Has your business chosen to stay? What has that meant? What changed?
- Has your business existed in the same community for more than 50 years? What has that taught you about the importance of place?
- Of those businesses and industries that care most for your community – its people, environment, and success – how long have they been around? Are the people that run them from that same place? Why do they care?

I’ve been lucky and had good teachers. The best encouraged my natural interests. One of these passions, probably inspired by countless fantasy novels growing up, is the timeless and often ancient principles of art, architecture, literature, philosophy and, of course, economics.

It’s become a fascination, an almost unconscious drive as I fiddle through life. It comes out in favourite business models and business books. So, it’s no mystery why I found the following interview so compelling (it’s taken from an HBR article by David Gumpter, cited by Bo Burlingham).

This is a discussion with Fritz Maytag, CEO and Master Brewer of Anchor Steam Brewery. Anchor Brewing is one of the first, if not the first, microbreweries in North America. In this interview Maytag is discussing the early days of the American microbrewing renaissance:

“No other beer in the world, and certainly no group of beers, has anything like the theme we have. It is that we make everything as simply as we can with as few shortcuts … in a pure, traditional manner. Just as an example, all of our beers are made with malt. We don’t use corn or rice or sugars or sugar syrups or other grains. Almost all other brewers in this country and many overseas use them … There’s nothing wrong with it. It’s not cheating. It’s not evil… But we prefer to go back to the old way of making ale, the way it was done for thousands of years – with malted barely.

“That’s just one part of our theme. We also use nothing but whole hops – the little hop flowers. Traditionally, you pick these, dry them with warm air, pack them in a bag or bale, and take them to the brewery to put in copper kettles. Our brew kettles are copper, of course. Nowadays, most new breweries don’t use copper kettles. They use stainless steel. We wouldn’t dream of using stainless. Ask me why, I can’t really tell you. Copper looks good, it feels good. The old brewers say that it affects the flavor…

“The same with our air dried hops. We could use extract, which is what most brewers all over the world do now. Shipping and storing efficiency would be infinitely greater. Many breweries around the world also use a special treatment on the hops … almost doubles the yield. A little chemical trick. We wouldn’t dream of doing that.

“And there’s more. We ferment all of our beers in very strange, old-fashioned fermenters … and we cool the fermenting room with filtered San Francisco air. This apparently is the way beer was made in the old days on the West Coast before they had ice. They just used the cool night air. So here we are with these unusual fermenters and with the air cooled by San Francisco air …

“Why do we do it? Because it feels good … Part of the joy of Anchor Steam beer is that it comes from this funny old way of fermenting …”

Going back as a theme

Simplicity belies sufficiency. It’s tempting to over-complicate principles. Thankfully, Maytag didn’t give in to this urge while building Anchor Brewing.

Maytag centres his “theme” on principles. There’s nothing new in what he describes doing with his company. It’s actually the inverse of new – he’s gone old.

While there’s nothing new in what he’s said, it doesn’t take away from it’s significance. He takes old technologies that work, uses them deliberately in ways that leverage their strengths, and builds his business dead-centre in the middle of those advantages.

Maytag inverted the traditional technological tree when, for almost everyone else, newer is better.

Dogma less a principle

“Newer is better” is a dogma – an almost religious belief that most, by their actions, consider absolute truth. Maytag’s success is, in his discussion above, attributed to abandoning the current doctrine of his industry for the timeless principles that are its guide.

In similar ways economics has become over-run with dogmas. There is a fanatical faith that statistical models, characterized by mathematical assumptions, can guide national and global understanding. Obviously, given the shock on everyone’s faces when we plunged into the current recession, those models didn’t anticipate today’s recession.

There are some, like Nassim Nicolas Taleb, celebrated author of Black Swan, that would argue these events are 1) unpredictable and 2) a direct consequence of fool-hardy faith in economics. And, in almost every way, I would agree he’s right. But, I think he throws out a lot of value when he dismisses economics out of hand.

Despite today’s turmoil – the timeless principles of economics remain meaningful

“As to methods there may be a million and then some, but principles are few. The man who grasps principles can successfully select his own methods. The man who tries methods, ignoring principles, is sure to have trouble.” Ralph Waldo Emerson

Principles of Economics

When I was taught economics, my supervisor focused on the Austrian School – started in the 15th century. The school rejects statistical and hypothetical experiments in economics. They argue that the actions of people are too complex. Instead they focus on the logical processes of human action – the principles of choice.

These principles of choice are, the Austrian School argues, built on undeniable facts about human existence. They pivot on the axiom that humans take conscious action toward chosen goals.

For example, Austrian economists put great emphasis on the forward-looking nature of choice. Time is seen as the root of uncertainty. I might be certain my beer is here and cold right now – I am not near as certain that it will be here in three days. That uncertainty erodes the value of drinking beer in three days. So I drink it now.

This issue of uncertainty is a small and subtle shift from the traditional view of time in economics. Traditional economics would argue that I might be willing to take a rain check on that cold beer if I were paid some kind of interest rate to wait. A bit of cash might overwhelm my impatience to down a pint right now, while idling on my deck. And that might be true – if I were certain the beer would be there later (and that the sun would be out, and that my kids would be sleeping, and that I was mid-stride in a lavish 1.5 month holiday as is the case now).

This is all well and good when it comes to beer – but what of real things such as, say, mortgages? Traditional economics would say I’d accept a mortgage rate that reflects my time preference for housing. From this perspective, we might say my threshold is somewhere around six percent. Anything above that and I’d rather rent. But from an Austrian economists view the mortgage rate isn’t really the main issue – it’s more one of uncertainty. I can handle the rate today. I know that. I’m not be sure of the rate nor my ability five years from now. If I’m going to jump, I’d better go now – future rates be damned.

Both of these are arguments based on rationality. The problem is that rationality depends on where you start from. To a traditional economist paying nine percent on a $350,000 mortgage while holding down a $75,000 per year mortgage seems irrational. No one would do it. But to an Austrian economist, looking at the uncertainty of the future, this might make more “sense”. The goal would drive the action – own a home today, worry about tomorrow when it gets here.

Toss the dogma, not the principle

That economics has failed, in general, to anticipate the future does not mean that economics, in general, is of no value. There are many worthwhile perspectives derived from an economic paradigm.

Though today’s unexpected recession might mean that economists can no longer claim a privileged view of what’s next – prediction was never the point.

The point of economics is understanding that people choose with goals in mind. These goals define their actions. Understanding those goals is of value when making decisions.

This perspective of economics – that it describes choice and human action rather than predicts the future – makes it deeply relevant in today’s context. It’s as meaningful today as it ever was.

I’m thinking a lot about terrior these days. It’s a French concept. It developed out of centuries of winemaking.

Terrior is based on the observation that wines from the same grape but different regions, vineyards or even parts of the same vineyard can be so different from each other.

What makes the difference? Wine is obviously the product of humidity, soil composition, days of sunlight, etc, etc. These variables in combination, composition, and compilation create substance. Together, the minute and indefinite create something definite and enduring.

But, of course, it’s more than mere pieces. It is about wholes too.

Wine is not the simple math of its parts – it is the product of the whole. It’s an odd temporal concept – innovation and brilliance comes from the today’s whole rather than the incremental addition of parts in times past.

More than wine

This applies to more than wine. Sports cars from Italy are consistently finer than those from America. Almost any pub in the UK is better than the best pub here in Edmonton. The highly ranked Indian whiskey I’m sipping right now is bewilderingly subdued against the raft of bottles I’ve got from Scotland.

In some things the impact of place is so distinct and so pervasive, it creates stereotypes. In food: Champagne, Cognac, Scotch, and Maple syrup. In clothes: Italian leather, Parisian scarves, Brazilian bikinis. In business: American finance, Israeli technology, and Indian strategy.

What about place makes things different? What do we know of this “character” of place? How deliberately to we acknowledge its role in what we do?

Place as lead actor

David Koepp is best known as a film writer. He worked on Jurassic Park, Carlito’s Way, Spider-Man and (the upcoming) Angels & Demons. He also directed Ghost Town – a very funny movie.

The DVD for Ghost Town includes the usual Director/Actor interview. I don’t usually watch the interviews but, for some reason, I watched Koepp’s.

In the interview, Koepp explains why he made the movie. If you’ve seen the other movies listed above, it’s a clear switch from his usual fare. Though he gives several reasons, Koepp says one was his interest in shooting a film where place was a character. He had two leads: Gervais and New York.

Koepp knows there’s a substance to place. A grit and nuance that a movie set never mimics quite well enough.

Why is there nowhere like New York?

How place creates moments

There was a lovely time in my life when I was often in Paris. I’d fly through the night for an early AM landing in France.

As in most long-haul international travel, jet-lag was a menace. To get straightened out, we’d stay up the whole day and dribble into bed late in the Parisian PM.

The mornings were the worst. We’d land right when our bodies thought it was time for bed. To stay awake we’d grab a croissant and hit the museums/galleries. By the time we were through the museum we were back into the early AM hours back home. The rest was easy.

On one of those trips, this time in April, I went to the Rhodin Museum.

I’ve never been anywhere like Musee Rodin. It’s hardly right to even call it a museum. It’s a garden. The museum’s tossed in, like an after-thought. The place is absolutely brilliant – especially in April.

In the gardens there’s a cafeteria half-way down the western wall. When I got there, it was barely 9AM. I grabbed an espresso.

I was tempted to stay on the patio but other people were already milling about. I wanted some quiet and fled, looking for a more secluded spot. I ended up near the base of the garden, just shy of the southern wall.

There, centered in a grove of tall trees, stands Rhodin’s monument to Victor Hugo. It’s a sculpture; a reposing, nearly nude Hugo lies on a huge rock. He is flanked by three Muses (Les Orientales, Les Chatiments, and Meditation) who, leaning forward, seem to call, almost beg, for something the man refuses to give.

There I sat. French espresso steamed in a gleaming white cup. French wind whispered in French-grown trees. Around me, Paris half-heartedly shuffled its way into a new day.

There, at the foot of Hugo, for no reason I could name, the world silently stopped. It was like some movie’s special effect. It felt like everything just – quietly, simply – stood still.

The noise disappeared. Sunlight spilt into the clearing. The espresso’s delicately curling steam caught the light. A bird’s liquid song sprang into the air.

One of the most beautiful moments of my life wandered in, effervescent as a toddler’s delight, and scattered off into time.

Leveraging place to stack odds

What are the ingredients of place? Why might that matter? When there’s two options on the table – does place factor in?

Today we finished a major project that answers these questions. All told, we hired nine PhDs, three MBAs, two economists and two consultants. The team reviewed more than 300 academic articles in competitive intelligence, ecology, emergent industry theory, open innovation and regional economics.

There’s nothing new. There never is. The work is based on timeless principles not trends.

The project aggregates elements already in use by the Kauffman Foundation, the UK’s National Endowment for Science, Technology and the Arts (NESTA), Tekes – the Finish Funding Agency for Technology and Innovation, Fundacion Chile, and Sustainable Development Technologies Canada (SDTC).

Most of these pieces are already in play with our client. This work pulled them together. Made them whole.

We evaluated how the character of place funnels options, stacks odds, and mitigates risks in certain investment decisions. We then built a tool that reconciles myriad opportunities with the relatively few things a place is best positioned to support. It runs on indicators, is modular and scales from ground-level tactical analytics to high-strategic fit.

Strategic fit, Michael Porter says, is fundamental to any advantage. The tighter the fit, the higher the probability of success. And, more importantly, as fit increases so does the sustainability of advantage.

This matters when investing. Investments are risky, particularly in times like these. If place can stack the odds, why not leverage that? Just like poker, investment success is about probability, not certainty.

If we quantify terrior, what do we learn of the best businesses to fit in specific places? Three things:

1. Real, enduring innovation is found at home. It stems from recombining existing knowledge in entirely new ways.

2. Where the capacities of firms are aligned with the character of place, the probability of success goes up.

3. Strategy must be tailor-made. Bespoke practices for specific bottlenecks for specific potentials for specific places.

1. Build simple tools that do just what you need and nothing you don’t.

2. Honor complexity; pillage complication. Let things be inter-connected but do not twist.

The first intention is directly related to a fascination with pure craftsmanship. The second is the result of a paper read long ago about wicked problems.

—

I once spent three months in Ukraine. I can’t remember why but one of those ninety-some days was invested in watching a man run a foot-pumped lathe while he hand-carved spindles for a staircase.

These were his tools: a chisel, a piece of wood, and a spinning lathe.

I was mesmerized. Intricate, graceful forms emerged – almost breathed out – of hewn hardwood. In a shower of shavings what was formless became timeless.

Standing there, dust billowing around us, he explained his work. A slight turn of the chisel sliced great arcs from the wood. A fraction more pressure nearly drove the knife through the heart of the block.

Watching those minute changes that wrought such remarkable beauty taught me the treasure of simplicity. Simplicity enables nuance. Nuance imbues craftsmanship.

—

In 1998 Jeffrey Conklin and William Weil wrote a paper called “Wicked Problems: Naming the Pain in Organizations“. It changed me. I remember buzzing about it afterwards.

I felt I saw the root of the confusion that so often dominated my strategic policy work. I felt free to seek answers in ways that felt natural but didn’t fit the normal corporate context.

Conklin and Weil start with a quote by Laurence J. Peter (who was, apparently, an obnoxious man): “Some problems are so complex that you have to be highly intelligent and well informed just to be undecided about them.”

I think that sentence is brilliant. First, problems are wickedly complex. That’s the reality. Second, even if you’re outrageously bright – it’s not enough. Third, even if you can bring a mountain of information, you’ll just barely crest the hill. Together: for the bright and highly informed few that approach the summit, there is still a long road ahead. To me – that’s the challenge I love.

That article and Mr. Peter’s quote became reasons for me to start this business I am in.

I want to embrace complexity. Instead of fighting it – I think we should use it. But I agree with Mr. Peter, being well-informed is essential. Turns out, it’s also rare.

—

In May, 2008 Harvard Business Review published an article by John C. Camillus titled “Strategy as a Wicked Problem“. It too changed me.

The Camillus work reminded me of where our work started. This whole thing started as an experiment. In fact, the blog used to be called “The Sift Every Thing Experiment“. As the concept matured I thought we should drop the “experiment” bit – feeling it eroded the “brand image”. Plus, clients were starting to worry. Were they our experiments?

But the Camillus article has made me reconsider that choice. He advises leaders to “abandon the convention of thinking through all [options] before choosing a single one, and experiment with a number of strategies that are feasible even if the [implications are unclear].” And later he writes that “to tackle wicked problems, smart companies conduct experiments, launch innovative pilot programs, test prototypes – and make mistakes from which they can learn.”

Experiments honor complexity. They admit, by their very nature, that answers are unclear. This admission engages curiosity, play, and adventure. And this is important because these are the only worthy foes of status quo, precedent, and pat answers.

(Note: If interested, there is a longer, more detailed article at our corporate site.)

—

On the flip side there is always the risk of complicating things while trying to be too simple. Einstein is often credited with advising that “everything should be made as simple as possible, but no simpler”. Do not twist.

Do not flippantly white-wash basic principles. Do not accept myriad additional mechanisms for further refinement when earlier versions get it done.

From my hero, Henry David Thoreau:

“It is a rare qualification to be able to state a fact simply and adequately.
To digest some experience cleanly.
To say yes and no with authority – to make a square edge.
To conceive and suffer the truth to pass through us living and intact…
Say it and have done with it. Express it without expressing ourself.”

Journal (November 1, 1851)

—

There is a darkness that closes in around complex questions. It creates a kind of fear in decision-makers. It turns good people into lazy thinkers. I know. I feel it.

The only light that can chase that darkness away is a cleaner and finer knowing. It means a deep investment in tools that refine disparate data into real, practical knowledge. Only a very few are willing to pay this price.

But my guess is this: Until that price is paid, good people will shy away. Important choices will not be made. Chosers will be faced down, bullied by imposing uncertainty. Better information can change the world by simply helping people face the darkness and touch it without fear. It’s not sufficient, but it gets us started.

I’ve always been attracted to important questions … this work has cemented that interest.

Here’s a question I found a while ago. Still think it’s great:

“Why are you choosing this?”

It’s complete answer either reveals:

- all the information included in decision making,
- the criteria by which choices are being made,
- the rank of alternative paths to action,
- the final goal in mind,
- the strategy for achieving that goal or …

… it provides a simple indicator of the gaps.

Anyone got a better one?

Intuition is a way of knowing that’s both revered and abhorred – particularly in business. There seems to be an inverse relationship between sophistication and attitude toward intuition.

No one’s really confident that they understand intuition. Who, exactly, trains in intuition? Who’s got some and knows how to use it? One of the reasons we like an MBA so much is we can tell who’s got them. With an MBA there are at least some grades to look back on and the pedigree of the school, but what have I got to show for intuition? Nothing. Which is why its difficult to respect.

That’s not to say that intuition isn’t used in sophisticated organizations. It’s there in all its glory. Jack Welch, Steve Jobs, Warren Buffet: all three employ intuition with a heavy hand. It just hides behind the veneer of analytical savvy and a successful career.

Intuition is still too fragile in today’s corporate world. It needs a house. One of its best houses is “execution”.

Execution isn’t praised because it’s the rarest and most important capacity in a leader. We praise it because it’s the essential ingredient for building the walls that intuition can hide behind.

Being intuitive is a bit like being a clam.

Before clams were known for their pearls they were known for their shells. Thick, sharp, tough … the shells were everything we knew about them. Shells were all we could see. Once we figured out how to open them, clams became known for their meat. Juicy, tasty, and abundant … clams were for meat. And finally, after a long period of irrelevance, we started to know clams for their pearls.

But one thing is certain, clams have always grown pearls.

I think our understanding of intuition is on the same evolutionary path. It’s the pearl and we just noticed it.

P.S. Seth Godin gave a brief description of this tension.

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Until now I’ve just used RSS to keep me up to speed on the many blogs I frequent.  Any new post shows up in my aggregator and I don’t  wander through all the various sites that haven’t been updated.  Doc’s changed that.

In the interview, Doc explained how he uses Technorati, PubSub, Icerocket, Google blog search, and Feedster to track conversations.  He made a distinction between what he calls the “live web” and the rest of the web.  Where the regular web is made of static, architected web sites the live web is an organismic, dynamic environment made up of constantly changing publications like blogs and podcasts.

None of that stood out for me.  But his explanation of how he aggressively subscribes to topic searches did.  He called it “watching the river of fresh posts”.  That phrase alone let me see how widely I had missed the importance of RSS.  Instead of watching single conversations roll out on blogs, I can listen to all conversations.   Moving past favorite bloggers, I can watch favorite ideas.

I bet it’s obvious to everyone else but for me it was a revelation. Ever been in a room with seven really cool conversations happening at once?  Ever struggled in vain to both track your own conversation and hear the other ones around you too?  RSS lets you do that without looking like a fop. Even better, it lets you listen to every conversation … everywhere.

Doc likens it to drinking from a firehose, only you get to make your own firehose.  I’d suggest it’s more like drinking from the municipal supply, only you get to pick your watershed.

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