Artificial intelligence, robotics, augmented reality- these are just a few of the technologies at the heart of the Fourth Industrial Revolution, a period of rapid technological change the world is now entering. Business success in this VUCA (volatile, uncertain, complex, ambiguous) time requires companies to learn faster than the competition—learn from customers and employees. Learning faster and adapting to change requires that an organization embrace a culture of experimentation. Organizations must experiment with different aspects of the business, such as advanced technologies, processes, and business models. Organizations must understand that it is better to experiment and fail than to never make any mistakes at all.
H-Y (Honda-Yamaha) War, an Unlikely Case Study
In the early 1980s, Honda and Yamaha were in a fierce battle for market share in the motorcycle market, with Honda holding a slight lead. Yamaha ignited the H-Y war in 1981 when the company announced the opening of a new factory, with a public declaration that Yamaha will be the world’s largest motorcycle manufacturer.
Honda responded, not with the traditional response of building an even bigger factory, but with increased speed and agility. Over the next eighteen months, Honda experimented then introduced or replaced 113 models (they started with 60). Honda effectively turned over its entire product line twice. Yamaha (also starting with 60 models) was only able to bring 37 changes to its models in the same timeframe.
With each iterative experiment, Honda was learning what customers wanted. The company continued to refine the experiments to meet the needs of their customers. Next to Honda, Yamaha products looked old and unimaginative. Yamaha ultimately surrendered.
Three Characteristics of the Adaptable, Experimental Organization
What’s most impressive about Honda’s experiments during the H-Y war isn’t the sheer number of products they brought to market, but the physical nature of those products. The products were motorcycles, not pixels or content on a screen. The products required a cultural and structural commitment towards the speed of learning that spanned the company’s mindsets, processes, and infrastructure.
1) Mindsets: Failure is learning
Many organizations today are built on cultures of perfection where failure is unacceptable. This mindset is a remnant of the command and control management principles in vogue in the mid-to-late 1900s when mass production in factories and automation of manual labor created incredible productivity gains. This is not the world we live in today. Companies stuck in the past don’t take risks, lack creativity, and ultimately get left behind as competitors learn and innovate faster.
By contrast, Amazon describes failure as a necessity for invention, innovation, and eventually, success. It’s not failing for failing’s sake; it’s about learning from each failure. Without the learnings from Amazon’s major failure in its Fire Phone in 2014, the company may not have had the epic success of their latest foray into consumer hardware (Alexa-embedded devices like the Echo). The Fire Phone failure resulted in a $170M write-down in unsold inventory only a quarter after launch.
“Failure and invention are inseparable twins. To invent, you have to experiment, and if you know in advance that it’s going to work, it’s not an experiment.” – Jeff Bezos
2) Processes: Agility is built into planning and processes
Another byproduct of the last industrial revolution is the linear processes that gave the appearance of control, with neatly placed boxes and lines on a process map. People worked in their respective functional areas, and each functional area had its own goals. Nowhere is this more prominent than the planning process of legacy organizations where plans and budgets are managed on an annual basis—rigidity is built in, which slows the pace of learning.
Rigid plans and processes are like highways without exits; there is no optionality. The modern organization needs the ability to change opportunistically and reset for a new option based on the latest information from customers and employees.
Agility in planning and working in a series of short sprints creates optionality and increases the opportunities for learning. When translated into practical terms, organizations that are testing and learning need to 1) stay flexible with frequent ways out, and, counter to intuition, 2) act in very short cycles, in order to properly capture the long term. Building agility into decisions and processes increases the volume of experiments, and thus the pace of learning.
3) Infrastructure: Supports agility and reduces the cost of experimentation
As Marc Andreessen said in 2011, “software is eating the world.” That world now includes the infrastructure layer in organizations as everything becomes codified. The foundation of the experimental culture focuses on making infrastructure readily accessible and cheaply available. This experimental infrastructure includes the Cloud, DevOps practices, APIs, and data platforms.
As competitive advantage is driven by the speed of learning, which comes from more opportunities to fail and succeed through experiments, then the modern organization’s infrastructure must reduce the unit cost of experiments. The pace of change will only increase, and along with it, volatility, uncertainty, complexity, and ambiguity, as the Fourth Industrial Revolution gains momentum. Organizations that want to thrive in this new world must experiment faster, learn faster, and adapt faster.
Experimental Culture at SingleStone
As a tech consulting firm, we must constantly innovate and keep a pulse of “what’s next” to help guide our clients through the seemingly chaotic choices today. Experimentation is part of everything we do, from design thinking to prototyping to testing new tools to agile and continuous delivery. Yet, we don’t have it all figured out. In a recent feedback session with our team, we learned that while we experiment constantly on our client projects to deliver faster, better outcomes, we have an opportunity to take bolder risks and experiment more with our own business. We love this feedback and will be testing and bringing new services and products to market in the coming months, all focused on helping our clients keep up with the pace of change.
How much does your organization embrace experimentation? Do you seek to learn from failure or are you afraid of it? How might you infuse experimentation into everything you do?
Let’s start with a conversation.