Work, business & professional services

Six Sigma and innovation culture

In December 2005 3M hired a new CEO called James McNerney, who imported the ‘Six Sigma’ process from his old employer, General Electric. Nothing remarkable about that you might think, after all, 82 out of the top 100 companies in the US use Six Sigma. However, 3M is known as something of an invention factory and Six Sigma is an efficiency and quality process designed to identify problems and remove errors. Six Sigma is about consistency, sameness and control whereas innovation is about mutation, serendipity, difference, failure and disorder. One is a left-brain activity, the other is right-brain. So guess what? Morale at 3M dropped and the company sank from No 1 on the most innovative companies list in 2004 to No 7 in 2007. Much the same thing happened at Home Depot, where the retailer dropped from first to worst on customer satisfaction surveys following the use of Six Sigma. So is Six Sigma dead? No. The point here is that Six Sigma is great for process improvements, quality and general management. Research by management Professor Tom Davenport also suggests that the process might be good for incremental innovation. But when it comes to more radical blue-sky thinking Six Sigma does look like a very bad idea indeed. This is clearly a problem because once companies have passed through the quality phase they tend to look for growth, and apart from M&A one of the best ways of delivering rapid growth is radical innovation. This tension between Six Sigma and innovation is set to become a major issue for c-level executives in the future and is certainly something worthy of further research.

Innovation lessons from the ‘Big Apple’

Ten years ago Apple Computer was almost bankrupt. Fast forward and Apple (the company no longer uses the word computer) is now regularly cited as the most innovative company in the world. So what can we learn from the comeback kid?Rule #1 is that Apple is an innovation orchestrator and integrator. Ideas can come from anywhere, including outside the company. For example, the iPod was originally dreamt up by a consultant and most of its parts were off the shelf. Rule #2 is that Apple build products around the needs of users. This may sound obvious but too many products are still designed by engineers or marketers for engineers or marketers. Thus Apple places the emphasis on simplicity (such as design) rather than complexity.For example, the iPod wasn’t the first digital music player into the market but it was probably the first that was easy to use. Rule #3 is don’t allow the customer to dictate what you do. This may seem contradictory to Rule #2, but customers can only tell you about what already exists. Rule #4 is fail often, fail fast and fail well. In other words, learn from your mistakes – in Apple’s case products like the Apple Lisa and Newton. The fifth and final rule is probably this. Develop products that define new categories and markets rather than products that compete in existing markets.

Thinking about uncertainty

According to Michael Laynor (a senior fellow at Deloitte Research), strategy should begin with what we don’t know, not with what we do. This idea seems to fit with the viewpoint of Paul Saffo (Institute for the Future) in a recent issue of the Harvard Business Review, where he argues that one of the key goals of forecasting is to map uncertainties. Indeed, he argues that it is essentially erroneous to think of forecasting as the business of making predictions. What forecasting is about, he insists, is uncovering hidden currents and unexamined assumptions, which may eventually signal a change in direction for societies, governments and institutions in the future. Hence the primary aim of forecasting is to identify the full range of possible outcomes (that is, multiple futures). Once uncertainty is mapped, uncertainties can then be turned into commercial opportunities. One of the key ways to do this is to distinguish between the impossible and the improbable. Unfortunately most corporations shy away from both or assume that developments will follow a straight line. What actually happens though is that change tends to follow an S Curve. Moreover, as noted futurist Roy Amara once pointed out, we have a tendency to overestimate the short term and underestimate the long term. A good example of this tendency is the home computer. Back in the 1980s most industry observers were predicting a PC in every home. They were right, but it took longer than expected and, moreover, we are not using our home computers for word processing or to view CDs as they forecast. So what’s the best way to forecast the future? One way is to be on the lookout for things that don’t fit. Anything that’s really new won’t fit neatly into a box that already exists so look for anomalies and look to ‘coarse grain modelling’ to filter out the detail in favour of the bigger picture. Also look for interesting failures that were way ahead of their time, especially when these form clusters. Another trick is to use history. History rarely repeats itself but sometimes it rhymes. There are parallels, for instance, between the shake-up in media right now and what happened 50 years ago when TV became a mass-market product. Finally, try to prove yourself wrong and remember that whatever changes, many of our basic human needs and wants don’t.

Global business trends

Capitalism is mutating. Over the past 20 years national boundaries, stable control and long-term relationships have started to disappear. In their place the global has triumphed over the local and the speculator and financier have triumphed over the manager and the manufacturer. Most significantly, perhaps, the financial sector has broken free of much of the regulation that was imposed upon it following the financial fiascos of the 1930s. Global business is now mostly about complex financial products. According to the McKinsey Global Institute, the ratio of global financial assets to annual world output has risen from 109% in 1980 to 316% in 2005. There has been a shift from commercial banking to investment banking and a growth in everything from derivatives to hedge funds. The number of hedge funds, for example, has grown from 610 in 1990 to 9,575 today. These shifts have partly come about through the deregulation of financial markets but technology is no less important.Put simply, it is now easier to move money from one place to another. Thus the new capitalism is the triumph of the trader over the producer, with the former tending to think very short term. This isn’t necessarily bad news. Capital now finds inefficiencies and funds new ideas. Moreover, risk has now (theoretically) been spread further afield. Where all this is leading nobody knows but the shift is one of the most important trends of our time.

The Office of the Future

42% of IBM’s 350,000 staff hardly ever work in the office. This is so well known within IBM that the company has been renamed by some employees as ‘I’m By Myself’. Is this a problem? On the plus side IBM saves around US$100 million every year in real estate costs and most staff seem perfectly happy. However, IBM is not alone in downsizing office space and some observers are predicting a future where there’s no commute because the corporate HQ no longer exists at all. In theory work can be done anywhere these days and some people admittedly do prefer to work at home or wherever else they feel comfortable. After all, as long as the work gets done who cares where it’s done right? There are even companies like Crayon (US) setting up virtual offices in virtual worlds like Second Life where employees can interact visually with one another via their avatars. Ironically though, many of these very same companies are now having to organise physical get-togethers and ‘team building events’ to foster a sense of real life community. Are virtual offices and meetings a wave of the future? I doubt it. Important meetings will be done in the same way that they’re always been done – face-to-face.

Women on the way out?

Women are getting to the top of a whole host of large companies ranging from Pepsi and Sara Lee to Avon and eBay. But scratch the surface and things are moving in the opposite direction in some countries. For example, according to a survey conducted by PriceWaterhouseCoopers, the number of senior female managers in major UK companies has declined by 40% over the past five years. In 2002, 38% of senior executives in the FTSE 350 were held by women. But by 2007 this had fallen to 22%. And it’s a similar story in countries like Australia. Why is this happening? Nobody is quite sure yet, but the number of women starting their own businesses and women seeking more of a work/life balance probably has something to do with it.