Investing and Healthcare — The Quality and Learning Link

A couple of years ago, my colleague Jim Porto at UNC Chapel Hill asked me to teach a two-day seminar on performance psychology, and I loved it. My students, on the other hand, initially evidenced a normal distribution, with agnosticism as the mean. In other words, a small number loved it, a small number hated it, and most figured it was a necessary block to check before moving on to more productive things. As I continued to teach it and my skills presenting the materials became better, the response improved, and, because the materials were taken from research rather than the self-help section at Borders, the impact has been rewarding (and the student evaluations would make my mother proud).

Well, I no longer teach the seminar (having handed it to others who are every bit as capable), but I’ve retained interest in the topic. Over the winter holidays, I read Malcolm Gladwell’s Outliers and Geoff Colvin’s Talent is Overrated. While both are interesting (Colvin’s is better, despite Gladwell’s higher standing on the New York Times Best Seller list), I decided to apply Jacobi and invert – looking at the causes of failure.

Clinical Pathways and The Story of O

Newton wrote the Principia (the most influential, non-religious text in human history) in 1684.  His three laws of physics and theory of gravitation are contained within it.  Almost immediately there was controversy, when Leibnitz published his text creating calculus, and Newton off-handedly claimed he had invented calculus in order to perform his research for the Principia.  The issue is not resolved until Newton produced his working papers – with credit ultimately given to both for this monumental advance.

Reversion To The Mean

The question had to do with “Reversion to the Mean” in investment settings, but, in fact, it extends to management of firms, in general. Simply put, it sought a defense of reversion to the mean as a reliable and actionable model. The answer, in my view, requires an understanding of physics, psychology, philosophy, economics, and management. Here is the original question and my response.

Computer Simulation Lessons Learned

In previous postings, the names Kahneman and Smith have been referenced – Daniel and Vernon, respectively. Jointly, they won the Nobel Prize in economics (2002); although, their work was conducted separately. http://nobelprize.org/nobel_prizes/economics/laureates/2002/index.html .

In the case of Kanneman, the award was “for having integrated insights from psychological research into economic science, especially concerning human judgment and decision-making under uncertainty,” and for Smith “for having established laboratory experiments as a tool in empirical economic analysis, especially in the study of alternative market mechanisms.”

Both focused on investor psychology and the use of simulations to study investor and market behavior, response to new information, reactions to uncertainty, and the speed with which markets achieve equilibrium.

I mention this because the use of simulations may strike some as fundamentally different than fully competitive markets, but the research was validated as accurately mirroring typical market responses under an assortment of scenarios.

Why mention it here? Well, I use a computer simulation with my marketing class, and, yesterday, the four competing teams gave their end-of-semester “lessons learned” presentations. As usual, the results were interesting, and I thought you might be interested in some of the more significant realizations.

The Strategic Helix of CQI — Sherika Hill

As time permits, I am posting final exam papers written by selected students of mine (with their consent, of course). In each case, they have addressed the question of whether the tools and techniques of continuous quality improvement work in healthcare settings. This seemingly simple question is abundantly difficult. My students, however, are brilliant, and I am frequently rewarded with “mind candy” such as that provided by Sherika Hill, who posits that the continuous improvement of Shewhart’s and Deming’s PDCA cycle is not necessitated by perfection’s impossibility but, instead, by the changing forces and influences of the informing environment.

Newsletter – February 3, 2008

Medicare / Medicaid Budget Proposal. After several years of consecutive budget cuts by the federal government to state Medicaid programs, a New York Times article this weekend describes the budget proposal due for submission on Monday, February 4, 2008. The opening paragraph reads:

“In his new budget, to be unveiled Monday, President Bush will call for large cuts in the growth of Medicare, far exceeding what he proposed last year, and he will again seek major savings in Medicaid, according to administration officials and budget documents.”

With the boomer generation slated to enter retirement starting in less than two years, the high and increasing cost of health care in the United States represents a growing burden on the federal budget. The majority of those costs strike Medicare, where the most significant expenses associated with senior care appear. More than 70% of health-care costs are incurred in the last five years of life, and, with average life expectancy in the United States approaching 80 years, the brunt of this financial burden falls on Medicare. Medicaid, which is part of the same government office, represents an easier target for budget cuts, given the comparative power of these two constituencies – senior citizens and the poor. It is not, therefore, surprising that the lion share of cuts have struck Medicaid in recent years, nor is it unexpected that cuts are planned for Medicare given our close proximity to 2010 and the start of the boomer retirements.

As mentioned in previous postings, today’s 47 million seniors (those over the age of 65) will nearly double by the year 2030. This is 10 years after the Centers for Medicare and Medicaid Services (CMS) project insolvency of Medicare in 2020, and 2020 is a decade after the first of the boomer generation retirements in 2010. This increasing level of fiscal hiccupping is something that I and my students my projected nearly a decade ago, and it is something that I predicted during testimony in support of cost-reduction legislation in Pennsylvania several years ago.

Bird Flu. Roughly a year ago, bird flu was everywhere in the news. Today, however, it is barely mentioned. The majority of reported cases come from Indonesian, and the World Health Organization, as reported in this New York Times article, indicates the following:

“The virus is known to have infected at least 357 people around the world in 14 countries, killing 224 of them, according to the World Health Organization. Experts say that because of poor reporting of infections and deaths, the true number could be much higher.”

Not everything in health care is “doom and gloom,” and the recognition that bird flu has not spread more widely represents a success story, to date. Keeping my fingers crossed, I cannot help but connect this story with the previous one concerning budget cuts for Medicare and Medicaid. The Medicare population is consistently the most at risk for any form of flu, while the Medicaid population often represents one of the most significant vectors for communicable disease in the United States. This is largely a consequence of poverty and the inability to afford regular health care. While many complain that America’s poor increasingly use the emergency room as their primary care physician of choice, few who make such statements recognize the singular fact that, even for this demographic group, the emergency room is not an E Ticket at Disney World or high on the poors’ list of entertainment options.

Nevertheless, just as Katrina represented a significant embarrassment to the federal government, reductions in Medicare and Medicaid spending may constitute a similar threat to the reputation of government if bird flu ever meets its potential as a global pandemic. It is only then that the proposed and recent funding cuts will receive the close scrutiny it warrants today.

Invention and Innovation. Stanford psychiatrist Albert Bandura, who initially conducted research on dysfunctional behavior, ultimately focused on the psychology that makes superlative performance possible. More recently (nearly 50 years later), Charles Manz and Henry Sims (“The New Super Leadershp”) have returned to the subject, verifying much of Bandura’s work.

Both indicate that the most common trait of superior performers is a high tolerance for recurrent failure. Of course, there are other attributes that contribute to this outcome, as well. Frustration is also helpful, since it provides motivation and causes the subconscious mind to work on a problem even after we have mentally moved to more immediate concerns.

This tolerance for recurrent failure, however, cannot be emphasized enough. It represents the daily existence of most medical science researchers, who typically work for decades toward identifying the next advance. In their case, there is no guarantee of ultimate success, and each day represents just another in a long string of what many may consider daily “failures.” There are, in fact, decades worth of failure leading to nearly every Nobel Prize, and, for every Nobel Prize winner, an abundance of similar researchers complete productive careers without ever achieving that pinnacle.

This represents a significantly different take on the subject of innovation, inspiration, and accomplishment than is the norm. Most believe that the eureka moment arrives in a flash, rather than as a consequence of long and persistent labor. This next article, however, notes the fallacy of that bias.

Double Dipping. Sometime back, researchers studied the five second rule for a cookie dropped on the linoleum floor. It appears that five seconds is not sufficient time for bacteria to attack the cookie. Double dipping – the practice of returning a partially consumed tortilla chip to the salsa –, however, appears to be a different matter. Researchers with nothing better to do have concluded that the practice does, indeed, spread bacteria, according to this CNN article. Personally, I would prefer they diligently fail at finding a cure for the common cold (which hit the Crawfords last week) than spend their days confirming what my mother and common sense suggest are right, reasonable, and true. [Not every story in the news is worth reading, but some make us more competitive at Trivial Pursuit.]

High Operations Tempo Leads To Lower Military Morale. As an old combat arms officer, I am understandably concerned about the military and the current state of its morale. Over the last year, I’ve spoken with a number of military members (something on the order of 15) and have come to the conclusion that morale is significantly lower than at any time in my memory – including those dark years during the Carter administration, when funding was scarce, and during the first term of the Clinton administration, when the nation was pursuing a “peace dividend.” The military, it appears, has come to the same conclusion, according to this CNN article.

This represents a healthcare issue because soldier suicides are up, as are self-inflicted injuries. What does not appear in that article is what I am hearing from members of the Reserves and National Guard. Until recently, most members of the Reserves and Guard entered service never expecting foreign deployment, much less employment in a war zone. Repeated deployments and separations from family, however, are taking a toll, even if national support for the military is significantly better than during Vietnam.

This should not suggest that I am opposed to our presence in Afghanistan or Iraq, however. During my time in the military, I was privy to the classified reports concerning Iraq’s former dictator, and I remain surprised that he did not have weapons of mass destruction. Nevertheless, suicides and self-inflicted injuries are up 20% over last year, and are roughly double pre-9/11 levels.

Nightly Ritual. It was a nightly ritual that extended well beyond my son’s toddler years. Over the objections of mom, I was the enabler of my sons nighttime stalling routine. In an effort to delay his bedtime, my son would attempt to engage me in conversation on any subject he believed I would find interesting. And, as he would wind down from the day, laying there in bed, with me sitting on the edge, his mind would become pliable, open, and receptive, and it was then that I would impart those lessons that I believed most important.

I told him not to take drugs, because, at his early age, his mind was still growing, and the death of a single nerve cell represented the death of all the subsequent cells that single cell would become as it divides. I described all the negatives associated with smoking, above and beyond the risk of lung cancer. I told him that during his grammar school, middle school, and high school years he would confront an abundance of opportunities to mess-up his life but few opportunities, beyond good grades, to make his future successful. Those opportunities, I explained, would arrive when he entered college; which would be less likely if he became an unplanned parent.

Chief among those opportunities to mess up, I explained, would include overvaluing the opinions of his contemporaries. As an adult, I said, he would care little for what his neighbor thought; focusing, instead, on the strength of his marriage, raising his children to be the best adults they could become, paying the mortgage, succeeding at work, and earning a graduate degree. His friends of today would be gone tomorrow and barely remembered, so peer pressure and bullying should be put into perspective. Neither, I asserted, were worthy of him as perpetrator and both could be profitably ignored as the victim.

Today, he is an honors and advanced placement student at one of the top 50 high schools in the country, and, as a junior, the volume of his “junk” mail from colleges and universities around the US far exceed that which is addressed to his parents. I mention all this because of a CNN article on the aftermath of a suicide prompted by bullying.

Sometimes, there are more important things than a good night’s sleep.

 

 

The Critical Mass of Collective Intelligence

An earlier posting, titled “The Outlier’s Power — Why We Emerged from the Caves,” was also posted on my department’s weblog, The Effective Health Executive, where it received a response from alamanach — making note of two content errors. That comment and my response follow. For those who follow this blog because of its focus on healthcare, the connection and implications become evident in the last two paragraphs:

2 Responses to “The Outlier’s Power — Why We Emerged From the Caves”

Alamanach,

You are, of course, correct on all accounts. The first law of the Academy is to never trust an old management professor to accurately recall the science he learned in high school and as an undergrad. I had to go back and verify the blush of embarrassment I felt when reading your response, and, indeed, the second law of thermodynamics was created by Sadi Carnot in 1824—nearly 80 years before Werner Karl Heisenberg issued from his mother’s womb in 1901.

 

It is worth noting, as well, that the “friend” who urged Newton to publish his findings (in what would become the Principia) was Edmond Halley, of Halley’s Comet fame. In fact, Halley largely financed the publication at a cost of between five and six shillings per copy. That conversation occurred because of Halley’s interest in astronomy, of course, but he was also interested in meteorology.

 

“In 1686 Halley published the second part of the results from his St. Helena expedition, being a paper and chart on trade winds and monsoons. In this he identified solar heating as the cause of atmospheric motions.” http://en.wikipedia.org/wiki/Edmond_Halley

 

Following publication of the Principia, Halley wrote to Newton:

 

“I hope you will not repent you of the pains you have taken in so laudable a piece, so much to your own and the nation’s credit, but rather, after you shall have a little diverted yourself with other studies, that you will resume those contemplations wherein you had so great success, and attempt the perfection of the lunar theory, which will be of prodigious use in navigation, as well as of profound and public speculation.” Edmond Halley, July 5th, 1687.

 

In other words, Halley recognized the potential utility of Newton’s work on improving nautical navigation and trade. As the producer of the Principia, Halley would have an in-depth understanding of its contents, but he wrote this to Newton shortly after its publication and release. If Halley had not made this intellectual connection, surely some other academic of that day would. This can be contrasted with the referenced discovery by Archimedes, prior to the invention of Gutenberg’s printing press.

 

Archimedes ability to determine the purity of gold and other precious metals made international trade more readily possible because the value of coinage (money) could be identified with greater precision. This prevented unscrupulous traders from counterfeiting the unit of exchange by diluting its contents, as those on the other end of the trade now possessed the ability to verify the quality of the currency being offered. Without the printing press, there must have been some significant lag between the discovery and its broad adoption in the marketplace – with some period of awkward transition, as those familiar with the practice were compelled to explain this new approach without ready reference to an authoritative treatise.

 

In this contrast between Halley’s realization and Archimedes Eureka-moment, we have tangible evidence of Gutenberg’s powerful influence on the progress of humankind. By bringing together the collective intellect of any era, a critical mass of curiosity and contribution occurs. As Newton, himself, wrote to Robert Hooke in February of 1675, “If I have seen further it is by standing upon the shoulders of Giants.”

 

This is why the World Wide Web (of which this blog is just a small contribution) is so powerful. It is Gutenberg on steroids, but it has Gutenberg as its origination and inspiration. Equally important, it suggests the vital role of recording and publishing our failures, because there is information contained in the attempts that fall short of the mark – warning others that an unsuccessful path represents a waste of time or warrants alteration. This practice, however, has largely fallen into disuse within medical science, as the industry competitors funding research seek to publish their successes and strategically avoid admission of failure and experience its uncomfortable consequences –namely, harming regulatory approval and undermining the company’s equity value.

 

I believe, however, that we confront a looming resource-constraints challenge with the boomer generation in retirement. Already bowing under the heavy weight of health-care costs and inflation, institutional payers increasingly require failure on lower-priced generics before approving prescription of patent-protected medications. As we seek to more-frugally manage the cost of care, this seems likely to depress industry spending on research and development – making publication of our successes, near misses, and abject failures all-the-more important if medical science is to continue advancing through efficient and best use of our collective intellect.

Halo Effect Review —

Last night, I came across this review of Phil Rosenzweig’s The Halo Effect: … and the Eight Other Business Delusions That Deceive Managers from Amazon.com. For anyone interested in management and with the study necessary to appreciate its references, this piece possesses uncommon depth, even with its abundant typos.

Nihilistic, Liberating, Iconoclastic Debunkery of Management, November 18, 2007

By	Eggcrate “glodphlex” (New York City) – See all my reviews

At the core of the Halo Effect is an impicit piece of mathematics, the Null Hypothesis. The Null Hypothesis has become a foundation of modern statistics, and Null has some very unfashionable things to say about human thinking. Null holds that we must assume that the universe is essentially random, and we will begin with the idea that randomness, or “noise processes” are the true explanation behind many seeming truths and meaningful coincidences. Only through rigorous analysis can we say that there is a probability (never a certainty) that other-than-random forces are at work. Thus we derive the notorious P-value, which says what is the probability that randomness alone *coulld not* account for the outcome ?
Business literature, it goes without saying, is a large and lucrative enterprise which must remain constantly in motion, like certain large fish, by grinding out a steady stream of “state of the art” theories, concepts, perspective shifts, novel vocabularies, often lending a patina of legitimacy to the New New thing which of course supercedes the Old Old thing.
Rozenzweig has scented the unspoken relationship between Business and Inspriational writing, and fundamentally identifies a deep strain of arbitrary, indulgent, and often opportunistic hawking of trivial intellectual novelties packaged as deep insight.
What Rozensweig is demanding his reader to do is “grab the right end of the stick” and not confuse causes with effects, or coincidences with good predictions. This message will probably not be met with much enthusiasm.
If much of what should work consistently, such as obsessive execution models, eventually doesn’t, and there is the inevitable regression to the mean of mediocre performance, what then does work ? What establishes critical perforative differences across business cultures ?
The answer, or a strongly partial answer might be found in Daniel Goleman’s writings, or the executive development at Goldman Sachs or innumerable papers and writings on psychology and behavior.
This essential distinction is self knowledge. From the materials emerging in many contexts, a very high, detailed, and thorough inventory of self knowledge which is consistently honed throughout the promotion ladder, and beginning as early in the executive’s career, will distinguish the brilliantly innovative, the ploddingly mediocre, and the catastropic miscast. This will, inevitably, have the greatest long term impact on the financial and cultural performance of the company. In other words, profit and the quality of the culture are inseparable, and the culture in general and the culture of self knowledge are equally inseparable.
The reason for this is that human behavior has two rough domains, the Proactive, when one is moving according to the established plan and is on a winning streak. We inhabit a culture that fetishizes the proactive stance, places a neurotic worship on “winning” above all else, and yet has an equally neurotic, unconscious disgust for the reactive stance, and “losing”. So, the executive is unconsciously, unwittingly socialized to be forever in the Proactive, Winning mode where he (or she) wears the magical Halo.
However, the Halo is also a crown of lead, because the status of “winner” positions this Halo wearing Proactive Winner into thought processes, behaviors, beliefs, attitudes to keep the Halo exquisitely polished and easily seen from a great distance.
In real life, once one has discarded the remains of infantile omnipotence and a lust for ego gratification at the expense of hard facts and amorphous, fluid realities, one is more ofthen that not forced into the Reactive mode.
Psychology teaches us that humans think and act very, very differently when the high control emotional state of Proactivity is shifted to the low control state of Reactivity, when the halo has to be taken off and melted down for ammunition, so to speak.
When one is then trapped in near-arbitrary linguistic distinctions of “winner” versus “loser” the mind will naturally regress to a more elementary, instinctual class of mental processes, such as obsession with detail and trivia at the expense of the big picture (a.k.a. paralysis by analysis), or cling to nuances and formalities (Freud calls this the narcissism of petty differences), or experience low grade paranoia and creative blockage, or fly into defensive rages, or generally behave in weird, irrational, and confusingly non-linear ways.
The smartest and hottest companies appear to have absorbed this lesson, they want to get under the skin of the Proactive, Winning, Upbeat Can-Do mindset and ask the brutal, vital, self preserving question, HOW does this candidate (for an initial hire, for promotion, for senior position) operate in the maximal reactive state ??? What instincts and unconscious resources does the individual, and collectively, the entire organization have on tap when the game changes, when one’s identity is under seige, when a disruptive technology or business model appears without warning ?
For this reason, and and all organizations with adequate resources should institute aggressive self knowledge programs with an emphasis on identifying the blind spot(s) of each candidate, and from that, providing them with clear feedback and counseling as to how those blind spots WILL, inevitable become the flashing illuminated signs in times of stress, change, or confusion.
The optimal strategy for a rapidly ascending Halo person, a perceived Golden Winner, a “savior figure” come to make it all right again, would be to go off site, away from the corporation, and engage the best, most candid psychological services available for a thorough multidimensional workup of all personal factors, with a particular emphasis on how one’s Defense Mechanisms shpape behavior and perception in times of stress.
Because of employment laws, there is only so much a company can do internally, with the 360 degree reviews, the Caliper tests, etc. all of which are useful withing the allowed limits of the workplace.
If Goleman is right, the seriously motivated executive, the one who will emerge as the long term winner, as opposed to the transient Halo wearer, will be the one who has had the most greuling inquiry into his or her failure modes and how this has formed the Operating Style.
If Goleman is further right, the greater the initial success, the lower one’s desire for self knowledge and self inquiry, especially painful, embarassing, or ego diminishing self inquiry,the more vulnerable he will be to “bolts from the blue”, and yet further studies have demonstrated that at the critical juncture of promotion, it is this very lack of self knowledge, fueled often by a hubristic arrogance (read: a measure of narcisitic personality disorder), that makes the executive drift from Proactive self confidence into Reactive Dysfunction, his or her loathing for self exposure and objective criticism may engender a defensive prickliness, or an avoidant withdrawal, or a paranoid rumormongering, all of which greatly undermine the holistic healthy functioning of the business organism.
In a phrase, this is the genesis of the long noted Peter Principle, one is inevitably promoted to the level of one’s incompetence, where one then remains for a long time, subtly but effectively clogging the arteries of the executive circulatory system.
How many senior executives have believed that they had everything under control, and the next day they find themselves pouring an extra drink and asking “what went wrong”? “how could we NOT see that coming”? “why didn’t anyone tell me”?
Sadly for the executive and his slaved over compensation package, what went wrong wasn’t a specific communication breakdown or ill structured policy, it was an endemic case of “Halo Fetishism” which should have been rooted out early on before the Peter Principle Effect became the normal operating mode. In a sense then the entire company, the enterprise, has to be not only intellectually alive to the world it inhabits, it must also be psychologically alive, it must embrace the HOW of its Reactive Modes, it must allow for lead halos as well as golden halos, it must learn to be comfortable with “negative emotions” such as depression and outrage, and learn to extract value from those not-upbeat-winner emotional conditions as vital sources of reality and internal feedback, and ultimately, worldly realism.
The alternative is obscurity, or worse, extinction.

The Outlier’s Power — Why We Emerged From the Caves

Why is it that we take statistics early in our studies? Well, there is a method to the seeming madness of our education, and, to understand it, it is necessary to recognize that logic, in its purest form, is mathematics. 1 + 1 = 2 is such a simple statement — demonstrably true — and so elegant in its evident correctness.

 

Within statistics, when you study multiple regressions, you encounter the concept of the “residual.” Residuals, by definition, are outlier events — those exceeding three standard deviations from the mean. Rare, by definition, they are the means by which the totality of humankind has advanced. Einstein was a residual. Stephen Hawkings is a residual. Mozart was a residual. Picasso, Ford, Roosevelt (FDR), Roosevelt (Teddy), Beethoven, Shakespeare, and Drucker were all residuals — outliers of excellence each. They were three standard deviations from the mean… anything but average… the tails in a Gaussian distribution. They were, in short, the means by which humankind progressed.

 

This is inordinately odd — contrary to all expectation. Heisenberg’s second principle of thermodynamics has it that everything tends to degrade over time; the truth of which is evident when comparing the image in the mirror to the senior class photograph from high school for any of us. Death, as an unavoidable reality, serves as both postulate and theorem, proving this great equalizing truth.

 

Despite this degrading recognition, we have emerged from the caves. We invented music and art and, most glorious of all, parenting. And all of this is predicated on the outlier. The average of humankind advances not because of the average advance or the average human, but, instead, because of the Eureka events produced by the exception and the exceptional.

 

It was, after all, a naked Archimedes, displacing water from his bathtub, who first uttered the expression “Eureka!” when discovering that, with water and its density-based displacement, he could measure the purity of gold and other precious metals. Of course, “utter” is too middling a description for the man who ran naked through the town, screaming “Eureka!” with the realization that he had addressed a long-standing concern of his king. At that instance, he could not know or appreciate that this moment of brilliance was a necessary predicate to international trade. Regardless of how you view globalization, we have the outlier of Archimedes to thank for it.

 

This is why the greatest human to grace the planet was not one of the names mentioned two paragraphs previous (Einstein, Hawkings, Mozart, Picasso, Ford, Roosevelt, Beethoven, Shakespeare, Drucker, etc.), nor was it Archimedes. No, according to a recent survey of noted historians, the most significant individual to promote the advancement of humankind was Gutenberg — the inventor of the printing press.

 

Before the printing press, the collective knowledge of humankind was reproduced by monks — sitting in their cloister, painstakingly scribing texts by hand. This process limited the distribution channel by which knowledge was available to curious and intelligent minds. Before Gutenberg, if an Einstein were born on some remote village, so what? No critical mass of prior knowledge would be available to educate and take advantage of such uncommon intellect. With the arrival of the printing press, all of this changed. Guttenberg’s invention became the LEXIS-NEXIS of that earlier time — the mass distributor of information.

 

Before Gutenberg, it would not have been possible for an obscure academic, at an obscure university in England, to achieve nearly instantaneous fame based on a single intellectual achievement. And yet, it was from this setting that, according to the London Guardian, the most influential book ever written was produced by a previously unknown and geeky little man.

 

His name was Isaac, and the year was 1687.

 

It was in that year that Isaac finally consented to the request of a friend to publish his thoughts on a small number of seemingly disparate subjects. From it, five great advancements arrived. Four of those advancements appeared within the text, and, strangely, the most important to come out of this effort was kept secret until some years later. The last of the four published advances was this:

 

F = G [ (m1 x m2) / r^2]

 

F is the magnitude of the gravitational force between the two point masses

G is the gravitational constant

m₁ is the mass of the first point mass

m₂ is the mass of the second point mass

r is the distance between the two point masses

 

This was the theory of gravitation.

 

The theory of gravitation hardly seems groundbreaking today, but it did resolve the argument of whether the planets revolve around the sun in circles or, alternatively, in elliptical orbits. The original mathematical resolution of this dilemma was derived from the fifth great (secret) advance — the one that never appeared in the original text. Specifically, answering this question of gravitation, alone, made it necessary to invent an entirely new form of math … calculus … a decade prior to its first publication by Leibniz.

 

Isaac, of course, was Sir Isaac Newton, and the other three great advances contained in his Philosophia Naturalis Principia Mathematica were the three laws of physics. I’m sure the you’ll recall them from your time in high school:

 

1. An object in motion tends to stay in motion unless acted upon by some net external force.

2. Force = Mass X Velocity

3. For every action there is an equal and opposite reaction.

 

It is the rare and exceptional mind that advances us all, because it is the rare and exceptional that possesses a disproportionate influence when all is said and done. You know this as students, because you have taken tests. If you score 95% on four tests but score a zero on the fifth, your average is not 90% or 85% — despite the central mass of results in the 90s. Instead, this single outlier of a zero drops your average to just 76%. Pleasantly, since Gutenberg, the brilliant outlier has the same effect as the zero, but that outlier works in our favor, rather than against us.

 

It is an old canard that if you were to place an infinite number of monkeys, into an infinitely-sized room, seated at an infinite number of typewriters, eventually, one of them would hammer out Romeo and Juliet. Whether by design, genetics, inexplicable brilliance, or serendipity, the proportions work in our favor. Over 300 million merely-average Americans cannot negate the positive force of a single Dean Kamen — the inventor of the portable infusion pump, the Segway scooter, the fluorescent water purifier (being deployed in Third World countries), or that miraculous wheelchair that climbs stairs, traverses beaches, or raises up on two wheels so that the paraplegic can reach that can of soup at the top of the cupboard. Neither Al Franken nor Rush Limbaugh nor any other zealot, regardless of agenda or philosophy, can defeat the earnest but brilliant outlier, and the outlier arrives with sufficient reliability that ineptness and Heisenberg can be predictably defeated.

Good Idea? Chief Innovations Officer — Executive Pay and Status for Organizational Creativity

Should companies have a Chief Innovation Officer?

With all the excitement around corporate innovation as new paradigm to reach business’ differentiation and competitive advantage we have no full consciousness yet regarding the organisational structure that would support Innovation as a permanent function in today’s corporations.

Based in your own perspective would you justify the Chief Innovation Officer position to encourage innovation permanently in our organisations? If so, what could be a proper justification to promote such change in the manner on which corporate innovation is perceived, managed and developed?

 

 

 

This was the question posed by management consultant Octavio Ballesta on the professional and social networking site LinkedIn last week. Due to space limitations on that site, I am responding to this important question here.

Charles Manz (Professor of Business Leadership at the University of Massachusetts) and Henry Sims (Professor of Management and Organization at the Maryland Business School) published “The New SuperLeadership: Leading Others to Lead Themselves” in 2001 (ISBN: 1-57675-105-8). In it, they undertake an investigation of organizational leadership, asking the question, “what is the best way to cultivate effective organizations and teams?” In their text and other published papers, they draw on the precepts of performance psychology to identify the mindset and perspective of exceptional performers – which enjoys a rich history dating back to the Bobo doll experiments of Albert Bandura in 1961, where Bandura began investigating dysfunctional behavior as a benchmark of comparison for later research related to identifying hyper-functional psychology.

 

Manz and Sims divide the current leadership environment into four types: the strongman, the transactor, the visionary, and the super leader. The strongman relies on the issuance of commands and intimidation as the basis of his authority. The transactor, on the other hand, motivates through the use of incentives. The visionary, which is the closest of the four to the Chief Innovations Officer, relies on the workforce to adopt his vision for the future and to be inspired and motivated by it. Finally, the super leader understands the psychology of exceptional performance and trains his organization to adopt that psychology.

 

My purpose in describing this is not to urge the adoption of super leadership; although, I do believe the approach constitutes a superior model for improving organizational effectiveness and, from your standpoint as a consultant, a superior product offering for marketplace deployment. Instead, the purpose of this response is to consider the utility of creating a Chief Innovations Officer position. The problem with the visionary approach to leadership is, of course, that it requires front-line staff to buy into the leader’s vision with a level of personal commitment that may be beyond the average employee – whether the worker is tenured from before the transition or hired subsequently.

 

Under this model, the visionary would typically be the chief executive officer of the organization. As Manz and Sims note, it would be necessary to focus greater emphasis on selective, future hiring for external candidates and targeted promotions for internal candidates. This would move human resources into a greater position of power than is common in most organizations, making the Assistant Chief Innovations Officer the Director of Human Resources. This, in itself, would represent a significant cultural change, and, as we know, organizational change is one of the most difficult aspects of any firm to alter. Warren Buffett has famously noted that, “When a management team with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact.“

 

Drawing on the work of Gallup’s Marcus Buckingham and his “Strength Finder” system, we know that we can identify and hire/promote for specific superstar capabilities, depending on the position and those skills that most reliably predict success within it. This would seem to support either of the two likely models for creating a Chief Innovations Officer position. On the one hand, we may seek to instill an innovations mentality throughout the organization, with every employee innovating. On the other hand, you may seek to extend the visionary model, where a single repository or small group are tasked with innovating for the larger organization. There are risks with both.

 

Under the first model, where every worker is an innovator, it seems likely that the firm will degrade into a state of chaos. Under this scenario innovation is abundant, every employee as an advocate for his or her innovation, and the firm degrades into a hydra-headed PushMePullYou of Dr. Doolittle fame – where innovative ideas arrive by the second but no advance follows in the absence of a targeted deployment of talent and resources toward the realization of the most meritorious proposals. The second model of a single repository of innovation suffers all the flaws identified by Manz and Sims, described above.

 

These two models, however, represent two extremes, failing to recognize the hybrids that exist in the expanse between them. But it does note the difficulty associated with adopting Buckingham’s model with hiring and promotion. Under the first scenario, it must be understood that innovative minds are not so readily found in the marketplace as to allow population of an entire organization with them. Additionally, innovation is not a readily teachable set of traits and capabilities; although, there are a number of advocated products and approaches in the marketplace (such as Edward DeBono’s “Lateral Thinking,” and text by the same name). Under the second scenario, it would be necessary to hire an abundance of stellar-performing non-innovating workers to carry out the innovator’s vision. The problem with this approach is that it places too much work on the innovator, just as the non-delegating Type-A manager will typically rise to one level beyond his competence (unless learning to delegate effectively). This, of course, is the definition of the “Peter Principle.”

 

A hybrid model between these two extremes would have the Director of Human Resources hiring creative minds for a skunk works of innovation, on the one hand, and hiring a production workforce of exceptional executors, on the other hand. This was a model used most effectively by Thomas Edison, and, more recently, by Dean Kamens‘ DEKA Corporation. Both represent historical superlatives – i.e., that which has been rarely achieved. For every Bell Labs, Xerox R&D, IBM, and 3M of yesteryear, there are an abundance of the opposite examples. With each of these superlative examples (i.e., Bell Labs, etc.), they were particularly adept at innovating new products and deploying the necessary capital and resources to bring them to market. Their rarity, however, indicates the difficulty of bringing this to fruition, and the realization that none are currently considered among the most innovative organizations today indicates the difficulty in sustaining a culture of innovation and practical creativity over the long-term.

 

The reason for this is largely explained in Clayton Christensen’s “The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail.” As Christensen recounts with example after example drawn from various industries (but focusing on the disk drive industry), it is not the organization that innovates and employs capital and resources toward the realization of those innovations, it is the customer that drives the organization’s focus. This may seem contrary to intuition, but the reality is that organizations tend to focus on the demands of their existent customers – doing that which is most likely to satisfy the present source of their revenue streams. They are, on the other hand, unlikely to deploy significant resources servicing the creation and cultivation of new, innovative products for which an established market demand is not evidently available.

 

This, of course, does not mean that an organization cannot attempt to break this mold. When making the attempt, however, the immediate crisis of the moment tends to urge pulling away those working on the new, innovative project and deploying them toward resolution of the existing customer’s crisis. According to Christensen, the only model that works in the creation of novel innovations by established firms is for the existing corporation to create a standalone operation designed to bring a given innovation to completion. This would include separate staff, separate facilities, separate resources, and separate capital. None of these can be co-located or within the purview of the existing organization; otherwise, any of these may be redeployed when the need arises – and it predictably will.

 

It must, as well, be recognized that disruptive technologies and innovations tend to target a separate and greatly different customer base than the firm’s traditional clients, and that the newly- targeted market is likely to be smaller and less lucrative during the early stages of the new market’s lifecycle. Therefore, management is on less than solid ground when justifying deployment of the capital and resources toward such a new innovation. If the firm is public, with stock traded on an exchange, shareholders are likely to question the wisdom of investing significant capital toward a smaller market and an unproven product. Moreover, the net effect may promote what Peter Lynch describes in “One Up on Wallstreet” as “DeWorsification” – product diversification that extends beyond the firm’s established core competencies.

 

None of this undermines the utility of an organization encouraging innovation toward the improvement of an existing product and, thereby, satisfying existing customers or markets. Senior management can readily justify deployment of seed capital and resources toward the next advance. In this case, however, we have all the negatives associated with seeking a quantum leap improvement, identified by Edwards Deming and the other supporters of Total Quality Management. Specifically, quantum leap advances tend to promote increased variation in product reliability. While customers are typically willing to accommodate a certain level of frustration related to new product reliability, they are rarely willing to do so with established products. In the early days of personal computers, system crashes were common, but buyers accepted it because no suitable alternative existed and there was tacit recognition that computers were on the leading edge of technology. Today, however, the customer is unlikely to accommodate an increase in computer instability, even if the new computer is faster or unreliably does everything but birth babies, wash windows, and shear sheep.

 

Fortunately, we have the arrival of Six Sigma and LEAN Systems (courtesy of Genechi Taguchi and Toyota) as a model for installing incremental advances representing new innovation for existing products. This approach, however, requires enormous focus and tremendous engineering precision at the initial design stage – deploying the quantitative tools described at the National Institutes of Science and Technology (NIST) website. This level of precision focus, however, is largely an anathema for creative minds. This is why Apple and Google are so rare in the marketplace. Today, they are uniquely able to combine the creativity of innovation with the technological rigor of a quant geek. To a more limited extent, we see this uncommon combination in the gaming industry, but writing software code in the creation of the next videogame is a significantly less complex proposition than moving from Walkman to iPod, room-sized computer systems to Macintosh, creating an entire desktop environment of web-based tools, or Detroit’s efforts at inventing a moderately-priced hydrogen-powered car. [This is because software resides in the bits and bytes of programming code and requires no translation/transition to a factory and production operations to create the end product – it only requires transferring the code to a CD.] In each of the just-described advances, we have the example of quantum-leap innovation deployed toward the improvement of existing products – rather than invention of novel, never-seen-before products.

 

Ultimately, management consulting has cultivated a less than stellar reputation for itself. It is accused of installing solutions that are unsustainable after the consultant’s departure, shilling flavor-of-the-month management theories that will not withstand the test of time, and charging too much for too little improvement. In my view, establishing the position of Chief Innovations Officer threatens to sustain that reputation for all the reasons described above.