Since he left HBS in 1990, Charles Conn (MBA 1990) has built a full and varied portfolio career. Early on, he was a partner at McKinsey and then a tech executive, founding Ticketmaster-Citysearch. Today, he’s an advisor, a conservationist, and a longtime board member and chair of Patagonia. He’s also an investor and co-founder of Monograph Capital, a life-sciences venture firm. From his perspective across so many sectors and industries, Conn sees a business landscape that is changing faster than ever. And in an environment like that, Conn says, the rules of strategy that he learned in business school no longer apply.

So how do we change the way we solve strategic business problems? In this episode of Skydeck, Conn talks with Associate Editor Jen Flint about his new book, The Imperfectionists: Strategic Mindsets for Uncertain Times. Co-authored with Robert McLean—a director emeritus of McKinsey & Company and the former dean of the Australian Graduate School of Management—the book outlines the attitudes and actions leaders need to employ in an era of disruption.

READ MORE

Jen Flint: One of the things you write in the beginning of the book is this idea that more new information has been created since 2010 than in all of previous human history, which is staggering to think about. And you write that even though we’re awash in all of this information, this really isn’t the time for certainty and perfectionism. So tell me more about this case that you’re making for leaning into ambiguity and imperfection. Why is that a good solution for this moment in time?

Charles Conn: Yeah, when most of us learn strategy, and many of us learned it from Michael Porter, who wrote his famous book on the five forces back in the 1980s, there was much more clarity about industry boundaries and industry definition. And when you were developing strategy, you tended to know who the competitors were in your space. Fast forward 30 or 40 years, the world we’re in now is really different. With artificial intelligence, automation, programmable biology, and then all of the disruption from the pandemic, from conflict and economic disruption, the frame in which we’re doing strategy has all changed.

Now, you’re just as likely to be disrupted by an entrant completely outside your industry than one that you know already. In fact, industry boundaries have mostly dissolved, and we have the rise of super competitors like Apple or Microsoft or Amazon. And in that world, the kind of thinking behind the five forces model doesn’t work very well.

In a world when things are changing quickly, most people freeze. And they wait for stasis. And I don’t think that’s a good response. I think in fact, equilibrium isn’t coming. We’re actually in a fundamentally changed frame. In that world you have to figure out how to move forward. We like this idea of using a set of mindsets that help you gather the appropriate information, help you build your own capabilities, have you build the assets of your enterprise, and then actually step into that risk.

Another way of thinking about it would be to say that strategy is dynamic problem solving, not grand chess strategy.

JF: Okay so tell us a little bit more about one of those mindsets. Experimentation is one of them. You have worked for a long time with Patagonia as a member of the board. Patagonia is a company that was founded by a true experimentalist. I think there’s an example about wetsuits and how they started working with a new material to get away from the use of neoprene. Tell us the company’s how and why for using experimentalism and how they embed that into the culture.

CC: We love the idea of experimentalism. A lot of times people think that really works best in internet style companies, where you can have interface A and interface B, and you can see which one attracts more commerce or more interest.

But we think it works really well in the physical world, too. And so we knew that existing neoprene wetsuits were incredibly damaging to the environment. We knew it made sense to develop plant-based wetsuits, and we also knew that would be a long and complex process of trying it, breaking it, and making it better. We’re about 10 years into that now. We’re working with this new material, which is called yulex, and now many other surf companies are using it.

We’ve actually got it to the point where it really works, and now we have recyclable wetsuits that don’t damage the environment and maybe even better, we’ve shared that innovation across the industry. So that’s another kind of turning strategy on its head. If you care about bigger objectives than just profit, maybe you actually share some of your bigger innovations. You crowdsource them.

One of the other ones that I like is SpaceX, because again, in experimentalism you tend to think: can’t be done in heavy industry. Space is the heaviest industry. What SpaceX has done is remarkable. In the course of only 20 years, they’ve taken NASA’s cost to deliver a kilogram into space—more than $50,000. They’ve driven it down to about $2,000, something like a 95 percent decline in the cost of sending that kilogram into space. Well, that’s almost beyond belief. How could you possibly have done that after more than 50 years of NASA experimentation? Well, what they’ve done is they massively increased the number of launches per year from, say, three or four a year to more than 20 a year.

As they’ve been doing that, they’ve experimented with new technologies like 3D printing of rocket parts, like reusing rocket parts, like using new materials that have never been used in space before, for example, for heat shielding. But most importantly, they’ve accepted that failures are actually part of building a space program, which is something NASA sort of didn’t accept, even though they had some.

Their big rocket launch recently had what they called an unplanned disassembly. A multi-million dollar launch, which came apart. They knew that was possible in advance, and there were about 20 separate innovations that they were testing as part of the launch. So they didn’t view that as a failure, even though it was costly. And that’s a critical part of the mindset for imperfectionism that we’re talking about: to accept that in a world that’s changing as quickly and is as uncertain as the world that we are in, not every initiative will work.

And as long as you learn something from each failure, and as long as each failure is of modest expense, and reversible—that is, it doesn’t take you through a door that you can’t reopen—then that’s a positive move forward for the organization, not a negative one. We often punish frontline teams when things don’t go right, and that’s the wrong instinct.

JF: You mentioned in the book SpaceX’s strategy, I think they call it “fly, test, fail, fix.” How do we change the way we talk about failure to make it more acceptable as part of the process and kind of de-stigmatize it within organizations?

CC: Yeah, I mean, I think you just said the most important thing, which is like if you’re a mantra is “fly, test, fail, fix,” then you know that failure is inherent to the process of moving forward. At SpaceX that’s part of their culture. We think the critical thing here is that strategy shouldn’t be left to boardrooms and that we need to have CEOs no longer think that they’re the only architect of strategy.

When you think of strategy as dynamic problem solving, for it to be effective, it has to be done all the way down through the organization. And the only important thing is when you get to larger consequence decisions or irreversible decisions, then you need to push that up. So if you push it down to the front lines and then you celebrate failures where there’s lots of learning or capability building, you’re on track to fly, test, fail, fix.

JF: You say that we make a lot of assumptions about where solutions might come from within an organization—you’ve just been talking about, kind of pushing these ideas down through all the different levels of an organization. How can we do better with curiosity within organizations to help us through the problems of today?

CC: We all would say curiosity is great. We love it when we see it in children. You know, they ask something like a hundred questions an hour. And I think the thing to remember is they’re pattern-seekers, and that’s why they ask questions. As we develop successful ways of operating in the world, we become pattern imposers. So, you know, you’re trying to tie a shoe, someone finally shows you how to tie a double bow, and then you become a pattern imposer. And you lose the curiosity about how to secure your shoe.

The thing in organizations is to remember to leave enough time and space so that people have time to express their curiosity and to think about other approaches than, for example, tying something with a double bow.

I think you’re probably familiar with Google. Where, they told everyone, you know, you can do a day a week on your own projects as long as they contribute to company ideas, which is great. It’s also sometimes called 120 time, because in reality it’s hard for people to carve out a full day a week without that actually coming above 100 percent of their time.

And so I think the instinct is right, and the question is, how do you really give people that time in a world where we keep talking about agile and speed and scrums. The idea that you would leave empty space for people, not only to be curious, but even to be bored. That’s the thing that’s hard for organizations to do.

I love the story of Nespresso. You know the little capsules, right? It comes from Nestle, which is this giant, more than a hundred year old company. They gave one of their young engineers, who’s literally a rocket scientist called Eric Favre, the time to experiment with an idea.

He was with his wife in Rome. He noticed that there was this one coffee shop that had this huge queue out the door where the other coffee shops didn’t. And he went in and he noticed the barista, whose name was Eugenio and he was pumping this ancient espresso machine because he thought it was broken.

What he was really doing was driving all these bars of air pressure into that coffee, which made this thick crema on the top, which is why everyone was waiting out the door to get that coffee rather than the coffee next door.

He was curious enough to wonder what was going on, and Nestle was smart enough to let him do that experimentation. Eight years elapsed before that became a commercial product. It’s amazing that Nestle, that had two big existing franchises in coffee—instant and stove top—was willing to risk those franchises by creating a new one. And it was amazing that they gave this young experimentalist the time to explore his curiosity.

JF: Yeah because curiosity creates a space for ideas to come in from the outside, right. And that gets to another idea in your book of collective intelligence and open source technology. What attitude do you think leaders should be adopting to better enable organizations to leverage intelligence from outside of the organization, and what about AI? How could that be used as a tool for problem solving within organizations now?

CC: Can I give you two examples? So the Nature Conservancy is a conservation organization, not a company, but I love this example. They care about endangered fish species, and they know that some of those get captured by fishing boats at sea. They knew that you could put video camera technology aboard those boats.

They didn’t know how to translate that into making real-time decisions on the deck of a boat about which fish you should put over the side safely and which ones it was okay to keep. They knew they didn’t have a bunch of artificial intelligence engineers in-house. So they did a competition on Kaggle, which is one of these crowdsourcing competition sites.

They only put up a $150,000 prize. They got 3000 entries. The winning entry used computer vision from the cameras to identify the shape of gill plates and fins to identify endangered species versus species that it was okay to capture. And that’s now been put into effect in the tuna fishing fleet.

Amazing. And what they just recognized was they could crowdsource in collective intelligence from the world of, in this case, it was a person who was an expert in computer vision and artificial intelligence to transform how a conservation organization works.

We’ve seen very similar things with what’s called AI swarms, where you have it, the interaction of multiple AI models also with people. This has been used to great effect to guessing sports outcomes, but also to doing cancer diagnosis. It turns out that a swarm of AI algorithms with human doctors gives better outcomes than individual algorithms or individual people. And so I think there’s probably a multitude of examples of ways we could leverage the creativity within our organizations by not being afraid to reach outside.

JF: In fact, you suggest that there’s a cost to not reaching outside, to not taking some of these risks.

CC: Yeah, there’s some really cool work done by our friend Dan Lovallo, Tim Koller and others, some of whom worked with McKinsey on something called the risk-aversion tax, sometimes abbreviated as RATs. And what they showed is, even when presented with the odds of a particular investment most middle managers incorrectly allocated investment to those risky decisions. Time after time, instead of picking the correct decision based on the probabilities, they erred on the side of underinvestment. And so that risk-aversion tax is the difference between what the mathematics of probabilities said you should do and what you actually did, and that risk aversion tax in their example cases range from 25 to more than 50 percent.

So think about that: incredible investment opportunities that have been foregone because people were essentially paralyzed. Now someone listening might say, well, that assumes you have adequate access to capital and a bunch of other things. But they also tried this with quite small sums rather than a hundred million dollar sums for big companies, and they found that at risk-aversion tax still existed.

Let me wrap it all together and, and say those mindsets taken together, this curiosity, the occurrent behavior or experimentalism, the willingness to see things from multiple perspectives, the willingness to crowdsource better ideas from outside taken together: We call that imperfectionism, which is this idea of stepping into risk rather than waiting. And I think that’s the most important thing.

None of this is out of the reach of smaller companies. Almost by definition, successful competition doesn’t require huge balance sheets. It requires the willingness to recognize that strategy is dynamic problem solving, that every strategic move is a wager, and that as long as they’re of reasonable size and reversible, we should step forward and learn.

Skydeck is the Harvard Business School alumni podcast, featuring interviews and insights from across the world of business. It’s produced by the External Relations Department at HBS. Our audio engineer is Craig McDonald.

It is available on Apple, Spotify, and wherever you get your favorite podcasts. And If you could take a moment to rate and review us, we’d be grateful.

For more information, or to find archived episodes, visit alumni-dot-hbs-dot-edu-slash-skydeck.

Post a Comment