## Archive for November, 2016

### The Shape Of Innovation

November 26, 2016

In the past, I’ve summarized innovation as a decision tree. I’ve summarized innovation as divergence and convergence, generation and tree pruning. So I drew this figure.
The generative grammar produces a surface. The Constraints produce another surface. The realization, represented by the blue line, would be a surface within the enclosed space, shown in yellow. The realization need not be a line or flat surface.

In CAD systems, the two surfaces can be patched, but the challenge here is turning the generative grammar into a form consistent with the equations used to define the constraints. The grammar is a tree. The constraints are lines. Both could be seen as factors in a factor analysis. Doing so would change the shape of the generated space.

In a factor analysis, the first factor is the longest and steepest. The subsequent factors are flatter and shorter.

A factor analysis produces a power law.

A factor analysis represents a single realization. Another realization gives you a different factor analysis.

When you use the same units on the same axes of the realizations, those realizations are consistent or continuous with each other. These are the continuities of continuous innovation. When the units differ in more than size between realizations, when there is no formula that converts from one scale to another, when the basis of the axes differ, the underlying theories are incommensurate or discontinuous. These are the discontinuities of discontinuous innovation.

The surfaces contributing to the shape of the enclosed space can be divided into convex and concave spaces. Convex spaces are considered risky. Concave spaces are considered less risky. Generation is always risky. The containing constraints are unknown.
The grammar is never completely known and changes over time. The black arrow on the left illustrates a change to the grammar. Likewise, the extent of a constraint changes over time, shown by the black arrow on the right. As the grammar changes or the constraints are bent or broken, more space (orange) becomes available for realizations. Unicode, SGML, and XML extended the reach of text. Each broke constraints. Movement of those intersections moves the concavity, the safe harbor in the face of gernerative risks. As shown the concavity moved up and to the left. The concavity abandoned the right. The right might be disrupted int he Foster sense. The constraints structure populations in the sense of a collection of pramatism steps. Nothing about this is about the underserved or disruption in the Christensen sense.

The now addressible space is where products fostering adoption of the new technology get bought.

The generative grammar is a Markov chain. Where the grammar doesn’t present choice, the chain can be thought of as a single node.

The leftmost node is the root of the generative grammar. It presents a choice between two subtrees. Ultimately, both branches would have to be generated, but the choice between them hints at a temporal structure to the realization, and shifting probabilities from there.

New gramatical structures would enlarge the realization. Grammars tend to keep themselves short. They provide paths that we traverse or abandon over historical time. The realization would shift its shape over that historical time. This is where data mining could apply.

When the constraints are seen from a factor analysis perspective, the number of factors are few in the beginning and increase over time. This implies that gaps between the realization and the factors would exit and diminish over time. Each factor costs more han the factor before it. Factors add up to one, and then become a zero-sum game. For another factor to assert itself, existing factors would have to be rescaled.

Insisting on a factor anlaysis perspective leaves up with trying to find a factor designated as the root constraint. And then, defining the face offs. This subgrammar vs this collection

of constraints. Each would have rates, thus differential equations. Each would be a power law. So in our system there would be four differential equations and four power laws. There would also be four convergences. These would be reflected in the frequencies of use histograms.

Notice that nowhere in this discussion was innovation based on an idea from management. The ideas were about enlarging the grammar, aka ontological sortables, and the breaking or bending of constraints. When a constraint built into a realization breaks, Glodratt told us that the realization moves some distance to the next constraint.These efforts explore the continuities and discontinuities of the possible innovations. Produtization is the next step in fostering adoption.

As always, enjoy.

### Doing Discontinuous Innovation

November 14, 2016

Discontinuous innovation creates economic wealth. Continuous innovation captures cash. Economic wealth, unlike what the financial services companies tell us with their wealth management services, is more than a pile of cash. Cash is the purview of the firm.  Economic wealth is the purview of the economy as it reaches well beyond the firm. Cash is accounted for where economic wealth is not.

Notice that no firm has an imperative to create economic wealth. To the contrary, managers today are taught to convert any economic wealth they encounter into cash. They do this with the assumption that that economic wealth would be put back, but that has yet to happen. Globalism was predicated on using the cash saved to create new categories, new value chains, new careers—economic wealth. Instead, we sent it to Ireland to avoid taxes. Oh well, we let the tail wag the dog.

Likewise, we are taught to lay off people, because we can put that money to better use, but then we don’t put it to better use. Those people we laid off  don’t recover. They work again, but they don’t recover. Oh, well. This is where continuous innovation takes you. Eventually, it is moved offshore. The underlying carrier technologies are lost as well, so those jobs can’t come back. The carrier technologies will evolve elsewhere.

I could go on. I did, but I deleted it.

Anyway, I’ve been tweeting about our need to create new economic wealth as the solution to globalism. Instead, the rage gets pushed to the politicians, so we’ve seen where that got us. The politicians have no constructive solution. We can solve this problem without involving politicians. We can innovate in a discontinuous manner. As a result of those tweets, a product manager that follows me ask, so how do we innovate discontinuously.

I’ll review that here.

1. Begin with some basic research. That kind of research bends or breaks a constraint on the current way things are done in that domain.

Samuel Arbesman’s “The Half-Life of Ideas” gives us a hint in the first chapter with a graph of the experiments on temperature. Each experiment resulted in a linear range resulting from the theory used to build the measurement system that underlaid the experiment. The experiments gave us a dated collection of lines. The ends of those lines were the end of the theories used to build the experiments. You couldn’t go from one line to the next with a single measurement device, with a single theory. You had a step function on your hands after the second experiment.

The lines on the right side of the graph were replaced with later lines, later experiments. The later lines were longer. These later lines replaced the earlier step functions with another step function. A single measurement device could measure more. The later theory could explain more. The later theory broke or bent a constraint. The earlier theory did so as well when you consider that before the earliest theory, there was no theory, so nothing could be done. As each theory replaced the prior theory more could be done. Value was being delivered. That value escaped the lab once a manager got it sold into a market beyond the lab, aka innovated.

1. Build that basic research into an infrastructural platform, into your technology/carrier layer, not into a product/carried layer. Do not even think about a product yet.

Moore’s technology adoption lifecycle starts with a technology. After step 2, that’s what you have. You have a technology. Products get a technology adopted. The technical enthusiasts is the first population that needs to be addressed. This population is the geeks. They insist on free. They insist on play. They refer technologies to their bosses.

1. Explore what vertical industry you want to enter then hire a rainmaker known in that vertical. This rainmaker must be known by the executives in that vertical. This rainmaker is not a sales rep calling themselves a rainmaker.
2. When the rainmaker presents you with a B2B early adopter, their position in the vertical matters. Their company must be in the middle of the industry’s branch/subtree of the industrial classification tree. They should not be on a leaf or a root of the branch/subtree. This gives you room to grow later. Growth would be up or down and not sideways to peers of the same parent in the subtree.
3. That B2B early adopter’s vertical must have a significant number of the seats and dollars.
4. That early adopter must have a product visualization. This product visualization should be carried content, not carrier. Carrier functionality will be built out later in advance of entering the IT horizontal. Code that. Do not code your idea. Do not code before you’re paid. And, code it in an inductive manner as per “Software by Numbers.” Deliver functionality/use cases/jobs to be done in such a way that the client, the early adopter, is motivated to pay for the next unit of functionality.
5. Steps 3—6 represent a single lane in Moore’s bowling ally. Prepare to cross the chasm between the early adopter and more pragmatic prospects in the early adopters vertical. Ensure that the competitive advantage the early adopter wanted gets achieved. The success of the early adopter is the seed of your success. Notice that most authors and speakers talking about crossing the chasm are not crossing the chasm. There is no chasm in the consumer market.
6. There must be six lanes before you enter the IT horizontal. That would be six products each in their own vertical. Do not stay in a single vertical. So figure out how you many lanes you can afford and establish a timing of those lanes. Each lane will last at least two years because you negotiate a period exclusion for the client in exchange for keeping ownership of your IP.
7. Each product will enter its vertical in its own time. The product will remain in the vertical market until all six products in the bowling ally have been in their verticals at least two years. Decide on the timing of the entry into the horizontal market taking all six products into consideration. All six will be modified to sum their customer/user populations into a single population, so they can enter the IT horizontal as a carrier focused technology. The products will shed their carried functionality focus. You want to enter the horizontal with a significant seat count, so it won’t take a lot of sales to win the tornado phase at the front of the IT horizontal.
8. I’ll leave the rest to you.

For most of you, it doesn’t look like what you’re doing today. It creates economic wealth, will take a decade or more, requires larger VC investments and returns, and it gets a premium on your IPO unlike IPOs in the consumer/late market phases of the technology adoption phases.

One warning. Once you’ve entered the IT horizontal, stay aware of your velocity as you approach having sold half of your addressable market. The technology adoption lifecycle tells us that early phases are on the growth side and that late phases are on the decline side of the normal curve.

There needs to be a tempo to your discontinuous efforts. The continuous efforts can stretch out a category’s life and the life of the companies in that category. Continuous efforts leverage economies of scale. A discontinuous effort takes us to a new peak from which continuous efforts will ride down. Discontinuous innovations must develop their own markets. They won’t fit into your existing markets, so don’t expect to leverage your current economies of the scale. iPhones and Macs didn’t leverage each other.

Don’t expect to do this just once. Apple has had to do discontinuous innovations three or four times now. They need to do it again now that iPhones are declining. Doing it again, and again means that laying off is forgetting how to do it again. It’s a matter or organizational design. I’ve explored that problem. No company has to die. No country has to fall apart due to the loss of their economic wealth.

### Value Projection

November 7, 2016

I’ve often used the triangle model to illustrate value projection. In a recent discussion, I thought that a Shapely Value visualization would work. I ended up doing something else.

We’ll start by illustrating the triangle model to show how customers use the enabling software to create some delivered value. The customer’s value is realized by their people using a vendor’s software. The vendor’s software provides no value until it is used to create the value desired by the customer.

The gray triangle represents the vendor’s decisions that resulted in the software that they sold to the customer. The base of that triangle represents the user interface that the customer’s staff will use. Their use creates the delivered value.

The red triangle represent’s the customer’s decisions that resulted in that delivered value. The software was a very simple install and use application. Usually, configurations are more complicated. Other software may be involved. It may take multiple deliverables to deliver all the value.

Here we illustrate a more complicated situation where a project with several deliverables and another vendor’s product was needed to achieve the desired value.

When a coallition is involved in value delivery, Shapely value can be used to determine the value each member of the coallition should receive realtive to their contribution to value delivered.

Here I used a regular hexigon to represent six contributors that made equal contributions. The red circle represents the value delivered.

The value delivered is static, which is why I rejected this visualization. The effort involves multiple deliverables.

The next thing we had to handle was representing the factors involved in that value delivery. Those factors can be discovered by a factor analysis.

A factor analysis allocates the variance in the system to a collection of factors. The first factor is the longest and steepest factor. The first factor explains more variance than any of the subsequent individual factors. The second factor is shorter and flatter than the first factor. The second factor is longer and steeper than the first factor. The third factor is flatter and shorter than the second factor.

Even without the details 80 percent of the variance is covered by the first three factors. Additional factors can be found, but they become increasingly expensive to discover.

For our purposes here we will stop after the first three factors or after the first 80 percent of variance. We will allocate some of the delivered value to those factors.

Putting all of this together, we get the following visualization.

Here the vendor is at the center of the rings. The rings are organized by the project’s deliverables along the project’s timeline. The first ring represents the UI of the vendor’s application. The distance between this ring and the origin of the circle represents the time it took to deliver the UI. That UI incorporates the factors explaining the relative importance of the delivered elements of the software.  The white area in the vendor ring, adjacent to the purple factor represents the 20 percent of variance or importance that would be allocated to subsequent factors beyond the first three.

The gray rings represent the time gaps between the install. The second customer ring represents the efforts to configure the application. The third ring represents further implementation efforts. The customer’s efforts might involve using an API to extend the functionality of the application. This is shown with the orange and red segments. The extension is organized as a stack crossing the customer’s rings.

The radius of the circles represents time. That being the case, we don’t need the left side of the circles. Time starts at the origin and moves outward.

Different vendors could be represented with different rings, or some allocation of the existing rings. The vendors themselves have relative ranks relative to the delivery of the ultimate value.