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This chapter is from the book

A Methodology with Tools

Innovators are intuitively interested in what’s new. We are intrinsically geared to consider situations that are incongruous to our expectations, recognize that which does not fit in. However, translating this inherent human sensibility to discovery into equally powerful strategic insights is often challenging. While what is incongruous may be interesting, its very incongruity makes it difficult for us to integrate with our existing knowledge. In short, it is difficult to learn from novelty. In seeking out lessons from outliers we reframe strategy from a science of studying the average and minutiae of the already known, to an art of potential serendipity and discovery of that not yet widely known. To provide guideposts along this reorientation toward the novel, we suggest the following tools and methodology to the strategic-novelty hunter: First, identify the WOW (strategic novelty), then, execute the SO WHAT? (decipher the significance for your company). Finally, amplify the OOMPH (leverage learning for outsized impact). The following pages will provide you with a methodology to accompany each step in your journey. The accompanying tools and their instructions can be found in Chapter 3.

1. Identify the WOW

Curiosity is piqued when one comes across an outlier. This reaction may be provoked by any number of reasons but is characteristic when one discovers outliers. We ask you to consider, what intrigues you in the case? Why? It may be the emotion that stems from discovering an unexpectedly diverse group of people creatively advancing biotech or an improbable number of people participating in the R&D process of product development. This initial reaction is highly informative and provides a wealth of insights about the observed outlier phenomenon. The reaction may also be instructive about you as a strategist: What is your attitude toward novelty and surprise? These reactions may well range from wonder to anger to relief depending on your relative vantage point. All too often these reactions are rationalized away and dismissed.

One must note that those engaged in the outlier cases are accustomed to that which may be considered novel and unsettling for you or your industry’s established norms and practices. For example, at BioCurious, one of our outlier companies, the citizen scientists working in an open biotech laboratory see their creative workspace open to a diverse community as contributing factor, not a deterrent, to scientific innovation. For the multitudes involved in the R&D processes at Quirky an organizational model benefiting from the perspectives of thousands of peers is the new normal, not a managerial nightmare. For a strategist unfamiliar with these business models these organizations may seem lacking in legitimacy, manageability, and/or credibility. Yet they may thrive.

Outliers provide a natural experiment of ideas and business models that counter industry incumbent groupthink. Incumbents, the dominant or established companies, can learn from paying attention to an organization that attempts something that was thought implausible, improbable, or even impossible. Even if the outlier fails, one is better off knowing exactly why the idea did not succeed. If it succeeds you are paying attention to the emergence of novelty. Dismissing failed companies like Napster may mean turning a blind eye to the iTunes and Spotifys that follow.

If you dismiss these cases one must ask, why? The reaction and potential resistance to the outlier cases you come across in this book and elsewhere are highly informative of the strategic mind-set you inhabit, and the boundaries or limitations of your perspective. To emphasize this point, outliers lie “outside” the boundaries of the usual and commonplace. Thus, by their very nature, they also point to the boundaries within which companies pursue the already known and potentially average. In a nutshell: Take this as an opportunity for a personal discovery. What kind of resistance does the case instantly evoke in your mind (e.g., it will never work because . . .)? Is the outlier company too small to be competing in an industry dominated by large incumbent companies? Do the outliers lack the formal qualifications and methods generally deemed necessary to participate in the advancement of science, development of products, or diffusion of ideas? Is their business model unproven, open, and inclusive, when the industry norm is closed and proprietary? What are the strategic implications for you if your industry’s practices are outdated, these outliers are onto something, or even succeed?

As the Harvard philosopher of education Scheffler pointed out, “Surprise is, after all, unsettling; it risks the distress of disorientation and the potential pain of relearning” (2010).

2. Execute the SO WHAT

Take the next step. What can incumbent firms and strategists learn from these outliers? After all, many start-ups and new companies are incapable of maintaining their innovativeness for extended periods of time. Many more simply disappear without a trace. Indeed, it is because outlier companies are fleeting windows into the leading edge of ideas and new industries that they provide an opportunity to imagine and develop novelty of strategic importance. When studying outlier companies one does not benefit from the certainty of comparing one’s relative position to a known industry average, benchmark, or best practice. Instead one aims to gain from the outliers’ perspectives—vantage points at the leading edge. In contrast, the average companies with which strategic management texts are generally concerned are relatively stable and well-known, and thus information sources of limited strategic value in terms of novelty.

Being receptive to new ideas is not enough. Knowing what ideas can enrich your organization is where novelty benefits strategy. This is where the “SO WHAT?” begins. The outliers that provoke the most resistance often demonstrate the kind of novelty that either the industry as a whole, or perhaps only your company, is least receptive to. As the future is not distributed evenly across organizations—it only converges on the average as the industry matures—we argue that strategists’ idiosyncratic reactions to outliers can guide this process.

What if established companies experimented with radical business models? Industry incumbents often have the benefit of resources, complementary knowledge and know-how, industry presence, legitimacy, and, of course, examples of prototypes of outliers that serve as trailblazers. The largest hurdle for many companies is to instill an internal cultural sense of curiosity, receptiveness to surprise, and strategic experimentation that would allow for renewal and transformative learning. You may ask, how can your company experiment with novelty in a controlled yet meaningful way? While outlier companies are fully committed to a single experimental business model, you can experiment with strategic novelty on a project or a business unit basis. To further lower the perceived threat of newness leaders must remember that strategic novelty need not be something never before tested. Outlier companies are often able to create the new by transposing existing tools and organizational ideas into original contexts. For example, BioCurious looked to the maker movement and open innovation culture prevalent in Silicon Valley, and the well-known TechShop working spaces as inspiration for its biotech laboratory rather than incumbent university or closely guarded corporate laboratories. By following outliers one can develop portfolios of different strategic options that can then be deployed across the organization in strategically novel ways which scale up impact.

How to de-risk discovery and experimentation in your company? Experimentation, deploying red teams, and exposing strategic plans to contrarians, internal or external, can test existing business models with little or no risk. Industry incumbents have secured their position by developing valuable networks and platforms by which they do business. Outliers have typically had to build versions of these from scratch or have had to develop business models that innovate around these resources. Strategists in established companies can benefit from their position while exercising the option of partnering with strategically novel organizations. Making small, early investments into such relationships could better leverage or optimize existing networks and platform assets, and at the very least, keep your company informed and externally oriented.

The biggest risk is not to try. Many of the established organizations that are following the industry logic are underperforming or failing. Politically, conventional mediocrity is safer than experimenting with novelty. Strategically however, it is not.

3. Amplify the OOMPH

The strategic novelty employed by the outlier companies identified in this book, as well as those that you will discover hereafter, serves to amplify the results of the business model. Outliers do not seek to innovate new practices and challenge established strategies simply to be different or for the sake of being novel. They experiment in order to better achieve impact. How can your company gain from these lessons in impact or scale (“OOMPH)”?

To leverage strategic novelty your company needs cultural leadership that empowers a receptive audience. An organization that does not want to be surprised will often miss, if not readily dismiss, innovation and opportunities for serendipitous learning. Will you act as an example of being open to novelty that others dare follow? Outliers only seem odd because incumbents have developed practices and methods that are so similar to each other. We argue that group consensus, while warm and fuzzy, is strategically unsustainable and should be avoided at your own competitive peril.

Here are some ideas on how to achieve impact both inside your organization, and externally in the marketplace. They are also addressed in the tools provided.

How to Create OOMPH Internally:

  1. Leadership. How might you show an example that others can follow? How might you de-risk experimentation for others so that they dare to join you? How might you communicate that the mission is important enough for it to be worth the risk?
  2. Resource Leverage. How would you gain outsized benefits with a small, early investment? How would you secure a portfolio of real options that you can learn from? How might you move faster than your competitors based on these early resource commitments? How might you commit the absolutely best global resources to your venture?

How to Create OOMPH in the Marketplace:

  1. Multiplying. How would you make the impact of novelty scale in your markets? How would you make it in others’ interest to join you? (e.g., “issue spreading” so that others support the cause; “product enhancing” so that others develop complementary products or services; “agenda shaping” so that others buy into a strategy of experimentation; “niche creating” so that there is a particular market that is being co-created) (Alexy et al, 2013).
  2. Scaling/Combining. How might you scale this up, either by scaling the experiment or combining many different experiments together? (Try enlarging or integrating.)
  3. Network/Platform Effects. What kind of strategy would give your company a large role in the unfolding of novelty, or how would you punch above your weight? Whom could you partner with? What would give you a decisive competitive advantage (e.g., cost, timing, lock-in, speed, distracting competition/strategic signaling)?

Table 1.1 provides a summary of why to learn from outliers in the context of the methodology. The WOW! is a reminder of the nature of outliers as momentary windows into the future. The SO WHAT? invites interested intrapreneurs to experiment with the meaning of novelty and contribute toward the company’s strategic renewal. The third step of OOMPH! calls for impact. Strategic novelty can be leveraged to determine or build the future—develop “next” practices or define the “new” normal. Thus, there is competitive value that can be captured via learning from outliers before novelty fades. Ideas and outliers often regress to the mean over time and by then, the leading edge of novelty would have moved on.

Table 1.1 How to Learn from Outliers: A Methodology

Nature of Outliers

Nature of Learning

Nature of Strategy

Outliers offer a fleeting window to strategic novelty that guides trailblazers.

WOW!

Learning is at its most effective when expectations are deliberated, defeated, or defied.

Research on strategic management tends to eliminate outliers, i.e., data that is very different from the average performance.

Outliers experiment with different business models and thus expand the horizons on what is possible, plausible, or profitable.

SO WHAT...?

Emotional responses—such as dismissal—indicate important limits to learning, worth exploring and potentially expanding.

Any decent strategy is about breaking new ground, being different, not the same as other organizations.

The experimental novelty can be amplified (or scaled)— and possibly even become mainstream.

OOMPH!

Such serendipitous learning is the only free lunch there is, i.e., you find something you were not looking for.

By the time strategic novelty has become mainstream, it has likely lost its capacity to be a source of strategic learning or offer a source of competitive advantage.

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