March 28, 2008
“21: The Movie” is in theaters today in the United States. Last week I wrote a blog entry on what innovators could learn from blackjack card counters.
Today, to celebrate the formal release of the movie, I am including a downloadable pdf with a full article on the topic of statistics, probability, card counting and innovation. This is an expanded version of the blog entry.
Download the article (pdf) – to save the file, right click and “save target as”
Feel free to email the article to all of your friends, colleagues, and anyone else who is interested in innovation.
March 21, 2008
Which will help your business be more successful: statistics or probability?
Underwriters at insurance companies use statistics to assess future risks. This is based on years of collected data.
Probability is what card counters in Vegas use to increase their odds of success. This is based on real-time, real-life experience.
If you want to play it safe, use statistics. If you want to win big, use probability.
There Are Lies, Damned Lies, and Statistics – Mark Twain
Businesses are increasingly using statistics to manage decision making, as evidenced by popular books like Tom Davenport’s Competing on Analytics and the boom in CRM system usage.
The belief is that if we gather more data we can make better decisions. But this may not be true when it comes to innovation.
If you are crunching numbers, you are probably gathering information from existing customers. This will give you insight into their buying habits, usability behaviors, and other patterns. But most likely you are only gathering data on YOUR customers. This represents the middle of the bell curve or the norm. This information may be useful in “incremental” improvement, but it will rarely lead to significant innovations.
When you move beyond the norm to the far ends of the bell curve, you will find the real interesting ideas.
Being normal is not a virtue; it denotes a lack of courage
On the far right-hand side of the curve are the market leaders; the advanced users. They may not be your customers because you can’t meet their high-end needs. Or maybe they were once your customers and they left. When someone is not a customer it is difficult to gain insights into their wants and needs. If you could somehow understand their perspectives, you may find opportunities for “advanced” innovation and insights on where the industry may be going in the near future. These innovations would be more radical, yet continuous in nature. Think of this as the Blu-ray improvement on the standard DVD (we’ll save a discussion on the demise of HD DVD for another time).
On the far left-hand side of the curve are the laggards; the less sophisticated users. Your products/services may be too advanced, too complicated, or too expensive for their needs. Again, you are probably not gathering statistics on these individuals or organizations. But here lies the greatest opportunity for discontinuous innovation. Or as Clayton Christensen would call it, disruptive innovation. If you can find a way of “dumbing down” your offering, you might find new and untapped sources of revenue. Quite often these products become the de facto standard, much like when PCs replaced the more sophisticated mainframes and mini-computers.
The problem is, it is very difficult to get data about the ends of the bell curve. Focus groups, surveys, and other traditional data gathering techniques are useless. I love this quote from Scott Cook at Intuit: “For every one of our failures, we had spreadsheets that looked awesome.” We can use numbers to justify anything we want. But quite often they justify the wrong actions.
The Probable is What Usually Happens – Aristotle
If a statistics-driven innovation model does not work, what would a probability-based model look? Probability tells me that if everything is equal, the more bets I have, the more likely one will be successful. The odds of 1 success out of 200 are greater than 1 success out of 20.
But how can you have more bets without diluting your effort and potential returns? The key is to learn as you go. This is exactly what card counters to.
Let’s contrast a more statistics-driven model with a probability-based model. To do so, we will use two exceedingly simplistic examples. With innovation model #1, you make a few “big bets” based on analytics you gathered from your customers (a statistics-driven model). Innovation model #2 is a more experiential “learn as you go” model (a probability-based model).
In both examples, let’s assume you have $100 million to bet, woops, I mean invest in innovation.
January 9, 2008
Today, my article on “The Performance Paradox: When Less is More” was published by the American Management Association.
You may recall that I introduced this concept in a blog entry last month.
What is the Performance Paradox?
The more fixated on your goal you become, the greater your chance of success, right? Yes, but only to a certain extent. It turns out that when people are too fixated on the future, their creativity and overall performance actually diminish.