Prediction logic vs Creation logic

Thursday October 30th, 2014 0 comments

Following-up on last week’s provocative title (“If you wish to kill innovation, hand it over to R&D!”), here is another short clip from Jay Rao, who teaches innovation at Babson College.

His logic should strike a chord with us all. Jay compares large corporations, who tend to prefer using the Prediction Logic, with smaller, entrepreneurial organizations, which prefer the Creation Logic.

Prediction logic (analysis followed by action):

  • We begin with hard “MBA like” work: Porter model, SWOT analysis, STEP analysis etc.
  • We then seek to predict future outcomes
  • An interesting paradox is that, when we try to predict the future, we rely a lot on… past experience
  • We then weigh the predicted outcomes against financial metrics (Internal Rate of Return, Cost of Capital, etc.)
  • If the future does not materialize in the way we expected, then we failed
  • The implication of that, is that companies will then dedicate a lot of effort, time and resources to get “back on track” and turn the potential failure into the success it was meant to be
  • … and again it fails, becoming either an “elephant in the room project” (my words, not Jay’s), that nobody believes in, but everybody pretends will be a success or… the project is abandoned and the team disbanded and its participants carry the cross of failure.

What entrepreneurial firms do is different. They follow the Creation Logic (action followed by analysis), when dealing with “unknown Unknowns” (which is proper to the Disruption Economy):

  • “They know that the Future is somewhat different from the Past. They know that they don’t have historical data to predict the past.”
  • So, they observe what is going on and wonder how to occupy the space and test where there could be opportunities (a very close thinking to the one of Dave Snowden, described in a previous blog of mine )
  • But there are a lot of unknowns in that space “and the only way I am going to learn is by taking action”. Therefore “You think big, set-out in a direction but you start small and you start several projects”
  • “See which of these are providing you some data or a proof of concept about what you think the Future may hold for you”
  • “Design your prototype and…fail fast, smart and cheap and learn quickly about the variables and unknowns of this environment.  And don’t throw in more resources until you find your proof of concept”

I like the way Jay Rao concretely thinks about innovative projects. In the Creation Logic, failing doesn’t become a stigma nor gets associated with incompetence. Creating, failing and learning create a different, innovative culture.

I also see a strong parallel with the needed evolution in the way we think about strategy. In the Disruption Economy, my partners and I strongly believe that organizations will have to progress from strategy (an elite at the top of the organization trying to guess the Future and align the rest behind that static picture) to strategize, a permanent process of development, actualization and innovation, involving all in the company and aiming at being prepared for whatever Future comes our way.

For those of you interested in Jay Rao’s book, here is its Amazon link

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