Experimentation Based Management

Tom Davenport posted on his Harvard Business School Publishing blog his view on the future of strategy. He stresses the importance of experimentation: A Culture of Experimentation and Learning A company focused on entrepreneurial execution would have a culture based on experimentation and learning, so that no major strategy or initiative is undertaken without extensive testing, the use of a control group, and other aspects of the scientific method. In this sort of culture, any particular strategy, process design, or performance metric is only a hypothesis about how the world works. It should be tested and confirmed on a small scale before proceeding to the large scale initiative. Capital One, for example, undertakes more than 60,000 experiments a year in credit card marketing and other financial offerings. Toyota is also known for its culture of experimentation and learning. Entrepreneurial execution is an effective compromise between the overly deterministic approach of strategic engi...

Ingersoll-Rand is a giant company that makes dreary products such as industrial grinders, used in auto-shops to sand down auto bodies. Historically, Ingersoll-Rand has been slow a bringing new products to market, with an average four-year product introduction cycle. The company decided to to something about the slow development cycle. It created a project team whose goal was to produce a new grinder in a year - one quarter the usual time. This team did a lot of things right in this direction, including the use of stories to emphasize the group's new attitude and culture. One story, for instance, involved a critical decision about whether to build the new grinder's casing out of plastic or metal. Plastic would be more comfortable for the customer, but would it hold up as well as metal? The traditional Ingersoll-Rand method of solving this problem would have been to conducted protracted, careful studies of the tensile and compression properties of both materials. But this was the...

From the "Business Model Design and Innovation" blog. Best Management Book 2009: "Business Model Innovation" by Osterwalder & Pigneur, Produced by ULURU by: Alexander Osterwalder The title of this blogpost is probably a bit cocky and it would certainly be completely off the mark if it were just about another management book... What will be different about this book that Professor Yves Pigneur and I are writing in collaboration with ULURU is the business model. We are launching this book based on an innovative business model, which is quite different from any other management book published to date. However, before revealing any ideas that we have come up with during our brainstorming sessions, I would like to get some inputs from you. Please help us design a great book by telling us what you would expect from a book by us on the topic of business model innovation. What will make you buy it? Take this survey to tell us what you would like to see in this book A...

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Michael Schrage wrote "Serious Play: How the World's Best Companies Simulate to Innovate" to show that a company dominates its industry when it designs prototypes quickly and frequently, and when it uses its innovations to continually transform itself and its relationships with customers and suppliers. Microsoft, Boeing, Royal Dutch/Shell and Disney are masters of what Schrage calls "rapid prototyping." Whether it's a spreadsheet that tests a new financial model or a foam prototype of a calculator, what interests Schrage is not the model itself, but the behavior that play--be it modeling, prototyping, or simulation--inspires. An organizational culture built around this kind of "serious play" is fundamental for encouraging innovation. Schrage argues that while prototypes and simulations are valuable in supporting an organization's existing behaviors, they're more valuable when they turn up surprises. In the last chapter, Schrage lays out t...

Capital One is a diversified financial services company offering a broad array of credit, savings and loan products to customers in the United States, UK, and Canada. It ranks #115 on the S&P 500 and #4 in Diversified Financials (BusinessWeek, 2005). Its stock has outperformed the S&P index since 1999. Founded by Richard Fairbank in 1988 based on his belief that the power of information, technology, testing and great people could be combined to bring highly customized financial products directly to consumers, Capital One has emerged as one of the America's largest consumer franchises with almost 50 million customer accounts and one of the nation's most recognized brands. In an interview for Fast Company Magazine Nigel Morris, Cap One’s president thus defined the reason behind their success: “Very few companies have the ability to test and learn.” Testing and learning form the foundation on which Capital One is built. The company tests every product offering, every proce...

Frans Johansson’s “Medici Effect” shows how breakthrough ideas most often occur when we bring concepts from one field into a new, unfamiliar territory, and offers examples how we can turn the ideas we discover into path-breaking innovations. Arthur Koestler (1976) has coined the term “bisociation” to make a distinction between the routine skills of thinking “on a single plane”, and the creative act, which always operates on more than one plane. Koestler developed his views on creativity from the study of humor, literature, and biology. He defines creativity as the juxtaposition of two self-consistent, but habitually incompatible frames of reference in the physical, psychological, or social world. A humorous anecdote illustrates this principal: Q: Where does a General keep his Armies? A: In his sleevies. The joke is a play on the definition of the word armies. It is most humorous to grade-school kids who will be caught up in the military frame of reference with the use of the words gene...

Experimentation-based-management (XBM) is a branch or variant of evidence-based-management (EBM). EBM is an emerging movement to explicitly use the current, best evidence in management decision-making. It was first presented by Jeffrey Pfeffer and Robert I. Sutton in a seminal Harvard Business Review article published in 2006 in which they invited managers to ground decisions in the latest and best knowledge of what actually works. Pfeffer and Sutton were inspired by evidence-based medicine, a movement that has taken the medical establishment by storm over the 90’s. EBM developed as a response to a set of emerging factors in health care: concerns about practice variation; the rapid growth of medical technology, leading to a proliferation of diagnostic and treatment options; the patient empowerment movement; and psychological research that raised questions about the quality of human judgment and decision making. Research uncovered that physicians did not use much of the research which w...