Rule 3 – Nuture both types of loonshots

The third of what Safi Bahcall calls the Bush-Vail Rules is “nuture both types of loonshots.”These two types are strategy and product. I am ambivalent about making the distinction, but I understand why he does. I see a lot of churn around trying to fix symptoms of deeper problems. No amount of surface-level fixes will matter if the underlying system or strategy remains broken.

We’ve worked hard in our communications about innovation to use the term “capability” so that people don’t mentally anchor on innovations as only being technology. Every couple months I get asked what the difference is between invention and innovation, which tells me that the person asking assumes an innovation is a physical tech, not a system or a process or an insight or a use of a technology.

Invention and innovation are two distinct activities that generally require different environments. Invention is typically the work of scientists and researchers in laboratories, like the transistor, developed at Bell Laboratories in the 1940s. Innovation is an invention put to commercial use, like the transistor radio, sold by Texas Instruments in the 1950s. Seldom do the two activities occur successfully under the same roof. They tend to thrive in opposite conditions; while competition and consumer choice encourage innovation, invention has historically prospered in labs that are insulated from the pressure to generate profit.

But what about breakthrough strategy? And what about loonshots?

Bahcall proposes calling a surprising breakthrough in product – a technology that was widely dismissed before ultimately triumphing – a P-type loonshot. Examples include radar, the telephone, and the personal computer. You may be in the presence of a P-type loonshot if people are saying “there’s no way that will ever work” or “that will never catch on” or “no one needs that; we’re just fine with what we’ve got.”

A surprising breakthrough in strategy – a new way of doing business, or a new application of an existing product, which involves no new technologies – is an S-type loonshot. Examples include Walmart’s approach to deliver the same products, cheaper, to underserved areas; the hub-and-spoke airline system; Facebook; Google. You may be in the presence of an S-type loonshot if people are saying “There’s no way that will ever make money” or “there’s no way that’s going to give us the value we’re looking for (or increase the value).”

Innovation around strategy triggers corporate antibodies in most organizations far more than the invention of new tech does. If you think for a moment you will see why this is so.

But back to Rule #3.

If you are an innovation practitioner or manager, you’re probably familiar with Clayton Christensen’s adaptive/transformation/disruptive nomenclature for innovations, and with McKinsey’s Three Horizons model. My team finds the McKinsey model more useful, because it gives practitioners and managers a sense of the potential cost/benefit analysis and helps teams build a diversified innovation portfolio. The Christensen model is useful after the fact, but can be combined with the Three Horizons to set business goals. However, neither of these map to what Bahcall is modelling by distinguishing S-type and P-type loonshots. In part, that’s because he’s working only with loonshots, not with low-risk/low-reward adaptive tweaks. In part, it’s because Bahcall is interested in applying a systems thinking approach to innovation, one that results in virtuous cycles.

S-type loonshots are crucial for getting into a virtuous cycle, which Jim Collins described as “the flywheel” in Good to Great (also in a monograph released last year). Here’s how Amazon leverages it’s S-type loonshot (Amazon’s business model) to keep itself going and growing:


P-type loonshots can also lead to a virtuous cycle, but with this type there is a built-in danger that the cycle will become too addictive and eat itself, or be easily thrown off by a competitor’s S-type loonshot or a change in the environment (new policies, new needs, a new administration, etc). At that point, relying solely on P-type loonshots becomes a Doom Loop rather than a flywheel.

P-type loonshots feel easier to me, based on my experience. By “easier” I don’t mean that it’s easy to make working radar or a 747; I mean that it’s easier for the decision-makers to put money into R&D for new technology, easier to tell if the technology is working, easier to tell if the technology is more advanced, and easier to test it against unmet needs. It’s easier to demo a P-type innovation and often easier to describe it so that you can get the necessary buy-in. There’s sort of a path, and it’s not nearly as messy as the one for S-types.

Much as government agencies have a strong bias for franchise (the mission execution/ice phase) over loonshots (the search/water phase) and a strong bias for Soldiers over Artists, they have a strong bias for P-type over S-type on the rare occasions when they do loonshots. In my experience, it takes an average of 7 years for an S-type loonshot to get implemented in a government agency. I’ve always found that appalling, but compared to some of the timeframes in the outside world, it’s not bad. I’ll talk more about this phenomenon in my next post, The Three Deaths, but one of the reasons that S-type loonshots are not favored is that they require more coordination across more of the business. One visionary manager or leader can bring in a new product, but to change the way things are done requires multiple stakeholders agreeing and working together, and inevitably tips over rice bowls. Even if an S-type loonshot is mandated from the top (which is rare in the government), there will be people who sabotage it. If you’ve gone through a “modernization” exercise, you know what I mean.

Creatives and entrepreneurs, design teams and intrepreneurs help themselves by becoming proficient in both types of loonshots. The dynamic interplay between them leads to better, more valuable, results. Organizations also benefit; an R&D shop that is detached from user needs and strategic goals can turn into a waste of money.

The “design pyramid” builds on this concept: the better the design of an item, the more likely it will lead to innovation. With most things the government builds (software, etc.), we stop at “reliability,” but what if we challenged ourselves to go higher?

design pyramid image: functionality is the bottom, creativity is the top
The pyramid of design quality by System D and Ximerae.

If you’ve designed a system that doesn’t take humans into account, you can’t demand better humans.

 

Loonshots blogs so far

So, to sum up the first three rules:
• We need to protect and nuture loonshots
• We need to balance loonshots and franchises
• We need to distinguish between the two types of loonshots and nuture both

We need to do all these things because missing loonshots can be fatal.

Fatal in the literal sense, as when the Navy’s decision to ignore radar let the Nazi U-boats own the Atlantic. Fatal for a business, as Kodak and Blockbuster and PanAm show. How might it be fatal for your organization?

Some economists also believe that preferring quarterly reports and instant gain over loonshots is fatal for a nation’s economy. For the past 60 years, several key indicators of America’s creative power have turned downward, some steeply. Entrepreneurship is a buzzword and a TV show, but America’s start-up rate has been falling for decades.

The word innovation may have spread like ragweed to cover every minuscule tweak of a soda can or a toothpaste flavor, rendering it somewhere between meaningless and hateful, but the rate of productivity growth has been mostly declining since the 1970s. Even Silicon Valley has come under criticism for devoting its considerable talents to trivial problems, like making juice or hailing a freelancer to pick up your laundry.

The United States’ worst deficit today is not of incremental innovation but of breakthrough invention. Research-and-development spending has declined by two-thirds as a share of the federal budget since the 1960s. The great corporate research labs of the mid-20th century, such as Bell Labs and Xerox Palo Alto Research Center (PARC), have shrunk and reined in their ambitions. America’s withdrawal from moonshots started with the decline in federal investment in basic science. Allowing well-funded and diverse teams to try to solve big problems is what gave us the nuclear age, the transistor, the computer, and the internet. Today, the U.S. has minimal investments in DARPA, IARPA, the NSF and NIH, and NASA, but little coordination or work has been done to optimize them for loonshots.

In 2009, Michael Mandel, former Chief Economist for Businessweek presented new research in a cover story called “The Failed Promise of Innovation in the U.S.” In it, he coined the term “Innovation Shortfall” to describe a shocking surprise: despite all the talk about a New Economy based on innovation, the economic facts revealed something else. When viewed through the lens of the U.S. economy as a whole, rather than the narrow, specific slices of technology or communication, the first decade of the 21st century did not generate expected growth in jobs, revenues, profits, or stock prices. There was much less in true economic value generated by innovation than was expected. (Mandel is now the chief economic strategist for the Progressive Policy Institute and senior fellow of the Mack Center for Technological Innovation at Wharton.) (https://hbr.org/2011/09/americas-innovation-shortfall)

So how do we recognize a loonshot?

Per the back of the book, a loonshot is a neglected project, widely dismissed, the champion written off as unhinged. I think loonshots are distinguished by a combination of radical creativity and persistance, and that’s the next post.

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