Breakthrough Innovation

February 17, 2009

Big and Bold Enough to Meet the Challenge

Filed under: Uncategorized — mosesma @ 8:34 pm
Not afraid of a little rain

Not afraid of a little rain

President Barack Obama, in selling his historic $787 billion economic stimulus bill, said that the budget had to be big enough and bold enough to meet the size of the economic challenge we face. It is among the most significant legislative accomplishments since FDR overhauled the U.S. government in his first 100 days, and spent an equivalent of $2 trillion in today’s dollars*, to stimulate the U.S. economy out of this new Great Depression.

In the middle of a recession, tax cuts alone will not create jobs, because business owners are simply going to save that cash for a rainy day. The only way to profoundly impact and maybe reverse this situation – according to Keynesian economy theory – is to do something big and bold enough to change the rules of the game and dramatically create millions of jobs. The only way to stop the cascade of layoffs is to shift businesses from fear into hope, and begin hiring again because there are an increasing number of newly employed people willing to buy their stuff. Economic stimulation worked for Bill Clinton, who was able to create 23 million jobs over his eight year term. By the way, no House Republicans voted for Bill Clinton’s 1993 economic stimulus bill either.

John Nash, whose theories are illustrated in the film "A Beautiful Mind"

John Nash, whose theories are illustrated in the film "A Beautiful Mind"

The reason bold action is required is because the economy is stuck what Nobel economist John Nash called a “non-cooperative equilibrium”, a term used in game theory. Basically, if the economy is healthy, everyone spends to keep up with the competition. But if the economy contracts, everyone battens down the hatches – and starts doing layoffs to prepare for the loss of revenues caused by everyone else doing layoffs. It’s like the prisoner’s dilemma game, in which anyone who acts altruistically gets shafted by everyone else who acts selfishly, in their own best interest.

Similarly for companies seeking a turnaround or turning around recession-think, management has to be courageous enough to do something big enough and bold enough to meet the size of the challenge they’re facing. The bigger the challenge, the bigger the action required. And like the larger economy, companies face an attitudinal shift once things go into a tailspin. Employees generally start becoming less loyal, or go into a period of non-productive shock after a wave of layoffs.

In game theory, it’s all about “executing a non-linear transition to a Pareto optimal state”. For the economy, it’s passing a stimulus package big and bold enough to create millions of jobs and possibly make naysaying House Republicans apoplectic. And for your company, it’s executing an innovation stimulus program big and bold enough to raise eyebrows as well as hopes.

What does an innovation stimulus package need to include to be effective? How big and bold does it need to be, to bring hope back to the equation? How much money do you need to spend to get your employees to start thinking “Yes, we can!” again?

Fortunately, it doesn’t have to cost a lot of money to make innovation happen in a storm. This is because it really doesn’t take that much to shift your employee’s survival instinct from flight to fight. What it takes is  showing them that you’re serious about controlling the direction and destiny of your company, instead of letting the storm decide for you. What it takes is finding “good men in a storm” and giving them what they need to move into action. What it takes is demonstrating courage and encouraging hope. What it takes is leadership!

cchangeWhat you need to do is implement the 8 C’s of Change, that enumerate the individual shifts that need to happen throughout the organization. Just doing lip service about innovation isn’t enough. You need to commit to a program of comprehensive change that span the entire enterprise, and reaches deep into the psychology and culture of the organization. Management needs to rise to the challenge of leadership.

For a company to fully rebound from a downturn, the following C’s are required…

You have to send out the message – with evocative executive Communications that express true vision and leadership – and hammers home the message that Change is Coming and that anything is possible if we only work together to make it happen.
You have to take the time to develop deeper Customer insight – helping you find unarticulated needs and desires to build more compelling products and services.
During a slowdown, it’s time to train and re-train for business Creativity, Collaboration and Continuous learning – to help your employees turn themselves into a 21st century labor force.
Also, you need to think about acquiring or building some Cool innovation tools, aka “revolutionary software applications for innovation management”.  It’s the latest Web 2.0 thing, and based on open source, it’s much cheaper than you’d imagine. [Note: full disclosure, my company develops and sells this kind of stuff.]

Another most important C is to re-invent Compensation for creativity. It’s not just about having the CEO work for a buck a year… it’s really about coming up with a way to truly reward deep creativity throughout the organization, by sharing the upside rewards of successful deployments, improvements and spinoffs. If you don’t have the cash, think about  profit-sharing bonuses based on the implementations of your  employee’s radical innovations.

The final C that wraps it all up is Constructive leadership. Just like we needed FDR to lead us out of the Great Depression, and Barack Obama to get us out of our current pickle… your company needs you to rise to the challenge, to spread the call to action, to encourage your employees to hold fast, to be brave, and to work harder. It doesn’t really help to hire lots of consultants and buy lots of tools… it’s really up to you to bring hope to your employees, and to show them that the only thing we have to fear… is fear itself.

Go ahead and give it a try… Yes we can! YES we can! YES WE CAN!


Franklin Delano Roosevelt at a Fireside Chat

Franklin Delano Roosevelt at a Fireside Chat

* It might be useful to see how I developed this $2 trillion figure for what FDR proposed as a stimulus. The US Public Works Administration, part of the National Industrial Recovery Act, was a $3.3 billion program that employed 2 million people. Now, most Republican economists will simply use the inflation multiplier from 1933 – eg, in the 1930’s, a dozen eggs cost around a quarter. However, I believe that you have to include a GDP deflator, as well as compensating for the increase in population, in order to measure the psychological impact of the FDR stimulus package. In 1933, the US population was 125.6 million, and it’s now over 300 million. Thus, we need to multiply the CPI index against a GDP deflator, and increase that by 2.4x to reflect the growth of the population, in terms of the impact of a stimulus. This works out to about $2.2 trillion, in today’s dollars. This is why some of Obama’s economists argue that even $800 billion is not big or bold enough, to counteract the $2 trillion that we’ll be losing in economic contraction over the next few years.


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