Most companies over-optimize for efficiency. They want to get so good at their current market that they lose flexibility to adjust to the future. And the non-intuitive thing is it’s better to manage chaotically, if that’s productive and fertile.
Think of the standard model. It’s clean, efficient, sanitary, sterile, and our model is messy and chaotic and fertile. And in the long term fertile will beat sterile, but in the short term, sterile is very good.
You have to be very conscious as a leader how you’re optimizing for long-term innovation. Manufacturing has dominated the economy for 200 years. There’s this big influence from manufacturing, because it’s generated most of the economic wealth of the past couple hundred years, around the boss and the worker and the worker following the rules. You want zero variation. That’s nirvana.
And yet, if you’re an innovation culture, variation is essential. At core, an innovation culture is around increasing variation, and a manufacturing culture, like 5-sigma, is around decreasing variation. In manufacturing and in safety – think of hospitals and airlines – you want perfect process, full compliance, and that is the right way to manage those businesses, which are most of the economy. Then there’s this creative sector, which we’re both in, and as managers we’ve inherited a cultural legacy that is highly optimized for manufacturing and safety with process, OKRs, and all these ideas to manage creativity, but, in fact, we really need to create a fertile ecosystem and not try to manage it too much, and yet not have it be chaotic.
That was from a fascinating episode of a16z podcast with Reed Hastings, CEO of Netflix. The DoD as a whole has to be seen as an innovation culture, not a manufacturing culture. The way to win future wars is to incorporate new tech and CONOPS as fast as possible, not maximize the cost-efficiency of a static force structure. Yet the DoD was reinvented in the early 1960s to implement a manufacturing culture, and that’s what we have all grown into today.
On the operational side of the military, the revival of mission command concepts points to a move towards an innovating culture. I think it’s also present on the acquisition side in nascent form, organically growing from the innovation hubs like DIU and the software factories like Kessel Run. But ultimately, acquisitions are judged using manufacturing metrics by oversight agencies. The workforce is incentivized to decrease variation in cost and schedule growth to a fixed requirement. What is needed is to increase variation, and importantly have a filtering mechanism to get rid of bad actors/projects.
Reed had a good point in there. As an organization grows, it faces a lot of culture challenges to innovation. But it also has a lot more people, which means more potential for good ideas. Those have to be harnessed, not suppressed into a standard. Here’s more from Reed, recounting an earlier foray into entrepreneurship:
I viewed the organization as a big software puzzle, which I know is laughably simplistic, but that’s how I viewed it. And so, every time there was an error, we’d put a process in place to make sure that error didn’t happen. And, indeed, generally that particular error didn’t happen. But what I missed were the cultural effects of that year after year. And the cultural effect was that the people who prospered were the people who could develop and follow process well. That was the value system. If you followed the process well, you were rewarded in all kinds of ways. Over time it slowly drove out the creative mavericks who didn’t really want to deal with all that crap. The subtle thing is in the short term the business ran better, not worse, because it was very highly optimized. There was no negative feedback about it.
Then the market shifted. In that case, it was C++ to Java, but the details don’t really matter. And we were unable to adapt. We ended up buying a bunch of companies to have new products for our sales force because we weren’t coming up with them ourselves. To do more acquisitions, it gets more complex because you’ve got this other company full of process, and eventually, we drowned.
I think the manufacturing-driven management philosophies like Six Sigma, Lean, and Kaizen have their place. Once you commit to making a thing, continuous improvement and optimization will be needed to refine the original idea. Newer philosophies like Agile just take that idea and makes it more meta by dealing with whether the particular thing is the best thing to make in the first place. Quartz had a great article discussing the rise and fall of Six Sigma that touches on why it resonated so strongly with people in the U.S. https://qz.com/work/1635960/whatever-happened-to-six-sigma/
Yeah definitely. I guess from a DoD-wide acquisition perspective, it should be an innovation culture with pockets of manufacturing cultures where it makes sense, such as in O&S and FRP. Currently, DoD has a manufacturing culture with small pockets of innovation cultures, such as at DARPA or DIU. Never have a one-size fits all, but I think innovation culture is directionally correct — especially if you think about 50 or 100 years into the future.
It’s not either or but a balance. Take Ericsson it was founded in 1876 as a manufacturing company which included manufacturing telephones. In 1994 it invented the first version of Bluetooth – it owns the majority of patents. Today it has evolved to “Tech is at the heart of everything we do” with a portfolio that 5 corporate business units one of which is Networks which includes hardware and separate from these is Future Technologies. It takes a spectrum of talent – conservative, innovative and entrepreneurial.
Yeah, I guess I correlate that with organizational types. There should be various strong organizations which should pursue a culture that works for their mission. Like Apple’s spare no expense culture compared to Amazon’s frugal culture, where one is in design and the other retail/logistics.