Innovation during a Recession

My apologies for the long silence. The last few months have been quite busy with life, work and school. I'm glad to be back to my blog, and hope to continue updating it regularly.

I recently posted a comment on an online discussion regarding Innovation during a Recession. The question that was posed to the group was whether innovation is dead during a recession. The answers came from professionals in a variety of fields, so I decided to bring in the perspective of an Industrial Designer. Luckily, I had also watched a presentation by Bill Buxton, Principal Researcher at Microsoft Corporation, on this very subject a few days before.

 

As we know, the current recession is often compared to the Great Depression of the 1930's. Well, the 1930's were not only an era of recession and pessimism, but also an era of great innovation and creativity.

 

For a start, the Bauhaus - that famous German school that influenced global developments in art, architecture, graphic, interior and industrial design through the 20th century - remained open until 1933, when it was shut down by the Nazi party. Its leaders moved to Britain and the USA, where they continued working for the next five decades. Amongst them was Lazlo Moholy-Nagy, who founded the New Bauhaus in Chicago in 1937. Today this school is known as the Institute of Design, one of America's most notorious human-centered design schools.

Kodak Eastman introduced the world to many influential products in the 1930's. Amongst them were the first 8 mm amateur motion-picture film, cameras and projectors in 1932; and the first slide projector in 1937, just to name a couple.

 

Even the car industry was able to innovate during the hard times. Ford Motor Company introduced the Ford Victoria (later renamed Crown Victoria) in 1932, only a year after having stopped production of the Model A due to the difficult economic times.

 

Finally, one of today's most renowned innovators was doing its part during this era. General Electric introduces innovations in both products and services in the 1930's. This company introduced the World to electric washers in 1929 and to moldable plastics in 1930. And in response to the tough economic times, the GE Credit Corporation is founded in 1932 to help American families finance the purchase of electrical appliances. Back then credit was meant to create value and help consumers achieve the American dream. Unfortunately, credit took a wrong turn and it turned into a tool to generate wealth – not value – for a few bankers regardless of the effects to general consumers.

 

The list goes on and on, but I hope this small sample illustrates the human capacity for innovation in hard times when we set our mind to it. If these examples make you feel better, then take a deep breath, wipe off the long face, and embrace innovation!

Market research or user research? (part II)

As I promised in the last posting, today I will give you an example of how market research and user research can get along and complement each other. To illustrate my point, I would like to refer to an article titled "The Customer Connection: The Global Innovation 1000." This article appeared in the Autumn 2008 special issue of strategy+business magazine, which is published by Booz and Company Inc. The opening paragraph of this article reads:

"How do companies innovate successfully? They can spend the most money, hire the best engineers, develop the best technology, and conduct the best market research. But unless their research and development efforts are driven by a thorough understanding of what their customers want, their performance may well fall short."

The article goes on to explain this hypothesis using traditional market research arguments. Here are some examples:

* Global Innovation 1000 companies spent $447 billion in Research and Development in 2006, more than double the GDP or Ireland, and 84% of worldwide Research and Development spending.

* 2006 expenditures in Research and Development of the Global Innovation 1000 are 10% greater than 2005 expenditures. Overall sales also grew 10% during this period, reaching $11.8 trillion.

* Statistical analysis of the data identified three distinct innovation strategies amongst these companies: Need Seekers, Market Readers and Technology Drivers...

... The first two points show some huge numbers, enough to attract the attention of any investor. However, the third point is quite interesting as well. Need Seekers are defined as companies that "actively engage current and potential customers to shape new products, services, and processes; they strive to be first to market with those products."

How do Need Seekers accomplish this? Their research is not exclusively focused on opening new markets or trying to sell more of their existing products. Simply put, their product developers spend a lot of time with the users of their products and services, and through these interactions they gather insights to improve existing products or come up with new ones. The key here is not numbers. Because of the methods used, product developers can only spend a limited amount of time with individual users in their environment. The key is the quality of the insights, the search for exceptions and pain points, and a strong belief in the opportunities found... even if they are only evidenced by a handful of people.

Market research or user research? (part I)

Happy 2009! I am back in Sydney after a couple of weeks off, ready to start blogging once again. For this post I will step away from the subject of economics, and instead I will share some personal thoughts about market research.

When I first joined the MBA program at Loyola University Chicago my objective was to specialize in Marketing. Back then I figured that a combined education in Marketing and User-centered design would give me the ability to leverage both the breadth of market research and the depth of user research in my professional development.

I had a great Marketing professor at Loyola, and I quite enjoyed taking my introduction to "Marketing Management" course. However, soon thereafter I felt that market research and user research were mutually exclusive practices in nature. My MBA experience with market research is reminiscent of a conversation I had with a friend of my sister back in 1999.

I talked to my sister's friend about an article which highlighted the fact that a large percentage of elderly people in America did not have enough money in their savings accounts to support themselves during retirement. He pointed out that the article failed to mention that many elderly people have their money invested in real estate, stocks, bonds, and retirement funds which may explain why they do not keep much cash in their savings accounts. This is a simple example of a familiar flaw: statistical data is open to interpretation by the person(s) analyzing it, and often it is used to fit the agenda of the analyst or the client.

Over my years as a corporate employee I had to change my perspective on market research. I have come to accept market research as necessary to create a case for change. Business people are taught to accept research only if it talks about thousands of people being surveyed and billions of dollars in revenue opportunities. However, the methods for the collection and analysis of this type of data are inadequate when it comes to innovation. This is the design space, where a deep understanding of the world of a few users is more meaningful. Today I believe that market research and user-centered research are complimentary, the former to be used to wet the appetite of investors and executives, and the latter to understand users and develop products and services that truly fit their needs.

In the next posting I will illustrate the symbiosis between market research and user research with more specific examples from an article that I read recently.

Developmentalism and the design of societies, part 2

To continue building on the subject from the last post, I will now refer to the book "Poetic Justice" by Martha Nussbaum. The author of the book is a philosopher who started teaching a Law and Literature course in 1994 to Law students at the University of Chicago. Ms. Nussbaum's drive to write this book was her growing concern that philosophical discussion of literature and art, essential elements of public deliberation, had been replaced in law and public service curricula by the "scientific" approach of the law-and-economics movement.

To me the book draws a parallel between law and literature on the one hand, and economics and design on the other. As practices of law and economic development have been dominated by statistical data for decision-making, literature and design invite us to understand humans as individuals with unique needs, passions, desires, emotions and intelligence that cannot be disregarded or summarized into pseudo-scientific data.

Ms. Nussbaum used the novel "Hard Times" by Charles Dickens throughout her book to illustrate the dangers of applying utilitarian theory models to summarize human behaviors. One of the main character in the book is Thomas Gradgrind -

"Thomas Gradgrind, sir. A man of facts and calculations. A man who proceeds upon the principle that two and two are four, and nothing over... With a rule and a pair of scales, and the multiplication table always in his pocket, sir, ready to weigh and measure any parcel of human nature, and tell you exactly what it comes to. It is a mere question of figures, a case of simple arithmetic."

Gradgrind's thinking - although obviously exaggerated - is Dickens' criticism of the pseudo-scientific utilitarian approach that decision makers in the public and business worlds often take to interpret human behavior and make decisions concerning the future of public life and organizational strategy.

According to Ms. Nussbaum, defenders of the utilitarian theory have three responses to this criticism. The first is that utilitarian theory is not intended to offer a complete account of every aspect of people and their inner worlds. But some proponents claim that economics can indeed give a predictive account of human behavior. The second is that utilitarian theory is descriptive, not normative. However, as we saw in the previous posting, developmentalists use utilitarian models to yield information that is used for normative policy making. The third response is that all insights of human behavior can be assigned weights and thus turned into calculations. But the process of assigning weights to human behaviors is not scientific, and therefore it requires some level of interpretation and deliberation before a "rational" result is achieved.

Criticism of utilitarian theory and developmentalism has led a group of economists and philosophers to develop quality of life measures that focus on individual needs, functions and capability rather than on the opulence of a nation. This approach has been used by the governments of Finland and Sweden, proving that inequalities in a population can be successfully measured with qualitative approaches.

The good news for prospective MBA students is that leading business schools in North America and Europe are re-designing their curricular programs to add such courses as cognitive science, behavioral psychology and linguistics amongst others in order to compensate for their lack of humanity. The current changes in business programs will be the subject of the next post.

Developmentalism and the design of societies

A few months ago I read an article titled "The Ideology of Development" by William Easterly, which was published in the July/August 2007 issue of 'Foreign Policy' magazine. The topic of development economics came up again in the book "Poetic Justice" by Martha C. Nussbaum, which I have been reading in recent days. Given this coincidence, I decided to dedicate this post to the role that design thinking can play in economic development. I will focus this posting on the article and I will elaborate on the book in the next posting.

The article corroborated a feeling I had towards my MBA studies in Economics. Even though I personally preferred the subject of Economics over other MBA courses such as Accounting and Finance, my concern is that quite often policy makers make a failed attempt at trying to analyze societies and predict the most fitting policies for a society to develop based on numerical economic models. I will use a couple of statements from the article to elaborate on my point.

The first statements is that "The ideology of Development is not only about having experts design your free market for you; it is about having the experts design a comprehensive, technical plan to solve all the problems of the poor."

It is interesting that the word 'design' was used twice in this statement. Evidently, policy-making is a design exercise. However, the statement also includes other such words as 'experts' and 'technical.' My belief is that a user-centered design approach to thinking and policy-making would yield much better results than the development approach, as it would be specific to the situation and co-designed by the people who will be affected by these policies. With this approach, the expert does not drive the process, but rather contributes to it as necessary. This is the equivalent to asking users to co-design a product that they will use, only to a much larger scale. Economic analysis has a place in understanding a society, the way it operates, and the historical drivers of development or stagnation. But these methods are not too useful in predicting the future development of a society. Instead of predicting the outcomes of a new policy, a user-centered design can contribute a great deal by facilitating the creation of the most suitable policies for a specific society.

The second statement I borrowed from the article is that "like other ideologies, this (developmental) thinking favors collective goals such as national poverty reduction, national economic growth, and the global Millennium Development Goals, over the aspirations of individuals."

This is a tremendous gap in economic study: the fact that individual goals, ambitions and desires are generalized around an artificial framework that advocates the 'greater good.' At the end, the 'greater good' benefits a few powerful people and leaves out the masses in many countries of the underdeveloped world. I will elaborate more on this subject in my next posting, as it deserves to be explored to a larger extent.

Now, readers must be wondering how can designers play a role in the development of societies. According to professor Richard Buchanan, who recently joined the faculty of Weatherhead School of Management, there are four orders of design. The first and second order are the graphic and industrial design traditions of the 20th century, which most of us are familiar with. However, the advancements of the late 20th and early 21st centuries have created the opportunity for the role of design to be elevated into two new orders. The third order is systems design, which includes the design of human interactions, organizations, environments and systems. The fourth order is management, which leverages design skills such as abstract thinking, visualization and the ability to see many different approaches to one problem. Drawing the parallel between development and the four orders of design, I see societies as human interactions (third order) and the policies and people who rule them as management (fourth order).

I would like to point out the fact that the writer of the article is a professor of Economics at New York University. Therefore, I don't intend to generalize the way economists think about social behavior and economics. I took a course titled "Managerial Economics and the Multinational Corporation" at Loyola University, and in my opinion the professor was wonderful. She enriched the course by including historical references and stories about real people from the countries that we discussed. However, it was evident that some of the students were comfortable with their 'knowledge' of these countries, which they based on statistics and charts. At the end of the course the professor advised students to live in another country at least once in our lifetime and learn another language. Personally this suggestion was much more significant to me than the many regression analyses I had to run to find out whether capital, labor or another variable is the main driver of economic development in Colombia.

Ideologies and Design

I can thank the History Channel for about 90% of my knowledge in World History. I make this disclaimer with the only intention of letting the reader know that I am by no means a History expert. With this cleared out, I want to dedicate this posting to the subject of Sociology. I will dedicate the next posting to Developmentalism, an ideology that flourished in the 20th century.

The subject of Sociology came up during a work discussion about the skepticism we encounter with some clients in the business world who are not familiar with the approach to research that user-centered designers take. When comparing the user-centered research methods against market research, we face such questions as "Is your research statistically valid?" or "Do you expect me to make a product decision based on your interviews with a few people?"

I guess we can thank Sociology for paving the way to this type of thinking in the Western World. To get myself acquainted with the subject, I bought a short book called "Introducing Sociology" by Richard Osborne and Borin Van Loon. The book is part of the "Introducing... " series, which takes a graphic approach to explaining some complicated subjects, such as Philosophy and Cultural studies. This series is definitely a good reference for people who, like me, are trying to get their toes wet without jumping into the pool.

Anyway, the term Sociology was coined by August Comte. He wrote a book in 1822 named "Plan of the Scientific Works Necessary for the Re-organization of Society." This was the first step to explaining human social behavior as a science. However, almost 200 years after the publication of Comte's works, Sociology has been unable to produce anything that scientifically resembles a natural law, and opposers claim that it is impossible to 'observe, verify and deduce general laws about human interaction.' According to the book I am reading, Sociology has been reduced to six types of generalizations, one of which is the claim to express generalities about human behavior. Again, these generalizations do not add up to any acceptable scientific, valid universal law.

So, going back to the types of questions that business people and market researchers ask user-centered designers, my answers would be: No, the user-centered approach is not statistically valid, and neither does it intend - or claim - to be, but that does not disproof its value... And, yes, insights from customers and users of products and services will give a client enough confidence to come up with a great idea on how to improve their experience. These insights bear much more value than statistics, tables and pie charts because they come from human beings, and not from somebody's very abstract interpretation of data that other people collected via surveys or focus groups.

If you are a user-centered designer or a market researcher, I kindly invite you to leave your comments.

Strategy courses in MBA programs

The last MBA course I took before leaving Chicago was titled "Strategy and Leadership." For the length of the course I was very uncomfortable with the rigidity of the syllabus. To start, we all had to adhere to Michael Porter's "Five Competitive Forces that shape Strategy." No offense to Mr. Porter - his forces are quite useful, but what if I wanted to use another author's approach, let alone my own to strategic thinking? But besides the fact that the class had to use Porter's forces, there was something else bothering me...

Well, I recently picked up a copy of the book "Strategic Intuition" by William Duggan. The first chapter of this book finally gave me the insight I needed to answer this question for myself. Here is a quote from Mr. Duggan's book:

"The European version of strategy spread from the military to business in the nineteenth century and then to government, nonprofit agencies, and professions at large in the twentieth century... But as strategic ideas spread from the military, flashes of insight were lost in translation. The leading ideas in strategy today leave them out completely. For example, in the 1980s Michael Porter's competitive strategy became the reigning paradigm in business. It tells you how to analyze your own strategy in light of your industry and your competitors. But it does not tell you how to come up with a strategic idea: that's a creative step Porter leaves out."

Finally I get it. My MBA course on strategy did not teach me how to have an 'aha' moment when a strategic idea is born. It taught me how to analyze that idea. The analytic part is great, and if that were my only goal out in the business world then I should be fully equipped. However, the analytic approach is not too useful for those MBA students who want to be the authors of the 'aha' ideas. This, from my perspective, is definitely an area where business schools can learn a great deal from design and art schools. Whereas the analysis of a strategy has borrowed methods from math and other sciences, the actual creation of a strategy is like a blank canvas that should know no boundaries.