Tag Archives: exploration and exploitation

Deliberate perturbation at Levi's

Last April, I received an email from Erik Joule, Senior Vice President of Merchandising and Design at Levi’s, asking to speak with my colleagues and me about our paper “Wellsprings of Creation“.  Erik and Levi’s were setting out on a “massive cultural transformation project” to renew the organization’s capacity for innovation and creativity.  After speaking with us about our research, Erik decided to use our theory of deliberate perturbation as his conceptual frame for the transformation project.  Subsequently, Erik and I have met a few times to discuss the project, and he invited me to meet with some people at Levi’s to learn more about what they’ve been up to.  On Thursday, I took him up on the offer and interviewed two people from the strategy group.  Here’s their perspective on how Levi’s has been changing.

Our conversation began with a recently launched new product development initiative.  The new product targets a market segment that has not been a priority for the company, and thus represents a significant, high level perturbation.  As Brad, Mike and I explain in our paper, the hallmark of a perturbation is that it jolts an organization away from a stable, predictable equilibrium trajectory.

The initiative incorporated a variety of lower-level perturbations designed to throw the organization out of balance.  For example, working together with a design firm, Levi’s conducted a series of three “salons”, off-site workshops lasting two or three days.  Each of these salons brought together about twenty people from functions across the organization to develop ideas around the new product theme.  One salon was conducted in Memphis, where the company rented a space and recruited local consumers to interact directly with the Levi’s team.  Levi’s wanted quick feedback about their ideas, so they sewed clothes on the spot, had consumers try them out, and got immediate reactions.  The salons were about “ripping you out of your day to day job” and getting into a different frame of mind–an image that captures the essence of perturbation.

The distribution of exploration within the company has also changed.  Previously, the company separated exploitation (day-to-day business) and exploration (innovation), concentrating the latter in a dedicated innovation group.  As with many other companies that have attempted this approach, the innovation group proved unable to drive exploration throughout the company.  Within the organization, it was seen as a “group of people off on the side”, isolated from the market and customer needs, and not taken very seriously.  Now the group is gone, and “innovation is something you do every day.”

Several concepts and phrases came up repeatedly during the interview: rapid prototyping, direct feedback from customers, the need to pursue “progress over perfection”.  The changes have been disorienting for the organization.  Putting rough prototypes in front of real consumers has been discomforting for an organization accustomed to perfecting their products before letting them see the light of day.  Projects staffed with cross-functional teams have disrupted traditional boundaries, as when members of the strategy team (without any specialized training, just a fifteen-minute orientation) participated in a consumer shop-along project that would previously have been performed exclusively by staff from the consumer insight group.  This disorientation is, of course, a sign that perturbations are occurring–that established processes are being knocked off balance.

From an organizational learning perspective, I’m intrigued by the emphasis on collecting people from across the organization and creating opportunities for them to experience their customers–shop-alongs, field trips, even a mock retail environment in a conference room at headquarters with real consumers invited in to “try it out”.  According to Ikujiro Nonaka’s theory of knowledge creation, such shared experiences enable the development of tacit knowledge.  Employees who participate in shop-alongs or see consumers walking around a mockup of a store acquire knowledge beyond what they can articulate in words.  Shared tacit knowledge provides a common frame of reference and thus facilitates communication.

Our conversation raised at least two provocative questions.

First, although employees involved in these efforts have adopted the mantra “failure is an option, fear is not”, what will happen when a significant failure occurs?  Indeed, a senior manager “jumped all over” this phrase when it was presented to him: we have to succeed!  One of my interlocutors reflected, “I don’t think we tolerate failure well … if something fails, it will be the grumbling around the water cooler” that casts a pall over the initiative.  So how should management handle failures?

Second, Erik’s openness to new ideas creates another challenge: which to pursue?  Before, the default response to a new idea was no; Erik’s default response is yes.  “Erik loves ideas”.  One project came up with a list of one thousand ideas.  The theory of deliberate perturbation posits that too few perturbations lead to stagnation, but if perturbations are too numerous or not complementary, they result in chaos and decreased performance.  So how to manage the flow of ideas and ensure that perturbations are as productive as possible?

Even rats are complex organizations?

More on balancing exploration and exploitation, this time from a Science article reviewed by the New York Times.  I have not read the original article, but here’s an excerpt from the New York Times review, entitled “Brain Is a Co-Conspirator in a Vicious Stress Loop“:

Nuno Sousa of the Life and Health Sciences Research Institute at the University of Minho in Portugal and his colleagues described experiments in which chronically stressed rats lost their elastic rat cunning and instead fell back on familiar routines and rote responses …

… regions of the brain associated with executive decision-making and goal-directed behaviors had shriveled, while, conversely, brain sectors linked to habit formation had bloomed.

In other words, the rodents were now cognitively predisposed to keep doing the same things over and over, to run laps in the same dead-ended rat race rather than seek a pipeline to greener sewers. “Behaviors become habitual faster in stressed animals than in the controls, and worse, the stressed animals can’t shift back to goal-directed behaviors when that would be the better approach,” Dr. Sousa said. “I call this a vicious circle.”

This could turn out to be a very vicious circle, since those conditions that seem likely to cause stress–environmental turbulence, deteriorating performance, anticipated threats–are exactly those conditions that require exploratory, adaptive responses.  In fact, my colleagues and I argue that deliberately stressing and destabilizing processes (“deliberate perturbation“) may be necessary to sustain exploration in mature organizations.

People are organizations, too

Nelson and Winter’s respected volume An Evolutionary Theory of Economic Change makes a significant contribution to the development of an algorithmic, symbol system model of economic behavior.  One of my favorite lines from the book:

the idea that “individuals are complex organizations too” has considerable power. (1982: 72)

Minsky provides one interpretation of the individual-organization duality in Society of Mind.  Another perspective surfaced in a recent op-ed piece titled “Your Baby is Smarter than you think” in the New York Times.  The article hints that the dynamics of exploration, exploitation, learning, and maturation, which my colleague Brad Staats and I study in the context of organizations, may also apply to human beings.  From the article:

Adults focus on objects that will be most useful to them. But as the lever study demonstrated, children play with the objects that will teach them the most. In our study, 4-year-olds imagined new possibilities based on just a little data. Adults rely more on what they already know. Babies aren’t trying to learn one particular skill or set of facts; instead, they are drawn to anything new, unexpected or informative.

Part of the explanation for these differing approaches can be found in the brain. The young brain is remarkably plastic and flexible. Brains work because neurons are connected to one another, allowing them to communicate. Baby brains have many more neural connections than adult brains. But they are much less efficient. Over time, we prune away the connections we don’t use, and the remaining ones become faster and more automatic. Moreover, the prefrontal cortex, the part of the brain that controls the directed, planned, focused kind of intelligence, is exceptionally late to mature, and may not take its final shape until our early 20s.

So perhaps individuals also face a “productivity dilemma“?

New version of "Wellsprings of Creation" available on SSRN

A new version of my paper with Brad Staats, Mike Tushman, and Dave Upton on how deliberate perturbation can sustain innovation in mature organizations is available for download from SSRN.  Here is the abstract:

Organizations struggle to balance simultaneous imperatives to exploit and explore, yet theorists differ as to whether exploitation undermines or enhances exploration. The debate reflects a gap: the missing theoretical mechanism by which organizations break free of old routines and discover new ones. We propose that the missing link is perturbation: novel stimuli that disrupt the execution of specialized routines. Perturbation creates opportunities for organizations to invoke exploratory, general-purpose problem-solving routines. In mature organizations, exogenous perturbations become increasingly scarce to the point that exploration is stifled and inertia sets in. We theorize that mature organizations can sustain exploration by deliberately inducing perturbations in their own processes. Our theory yields testable hypotheses about the relationships between exploitation, perturbation, and exploration. We provide illustrations from The Toyota Motor Company to show how deliberate perturbation enables efficient exploration in the midst of intense exploitation.

Does HP need deliberate perturbation?

In an article titled “Does H.P. Need a Dose of Anarchy?”, the New York Times asks whether Mark Hurd’s management is causing exploitation to drive out exploration–the classic “productivity dilemma“. From the article:

Mr. Hurd, hired four years ago in the wake of Carleton S. Fiorina’s tumultuous departure as chief executive, forced a steady, boring diet of performance benchmarks, heavy-handed cost-cutting and data-mining down H.P.’s corporate throat.  …

But with the most brutal cuts behind it, H.P. faces a fresh set of challenges as the second stage of Mr. Hurd’s tenure begins. Most pressing is widespread concern that Mr. Hurd has built an inflexible, solipsistic giant so obsessed with schematics and data-driven fiscal machinations that it has lost the ability to deliver that prized and perennial Silicon Valley trick: to surprise and astound.

This is a clear statement of what my colleagues Brad Staats, Mike Tushman, and Dave Upton and I label the “conflict school” in our working paper “Wellsprings of Creation: How Deliberate Perturbation Sustains Exploration in Mature Organizations”.  Conflict school theorists argue that the very tools organizations use to exploit their accumulated knowledge–standardized, stable, and streamlined operating procedures–also squelch innovation.  Consequently, the most efficient and productive organizations adapt poorly to environmental changes, leaving them vulnerable to attacks by more creative (albeit perhaps less streamlined) competitors.  In HP’s case, those competitors appear to include Apple, Amazon, and Acer:

It arrived late with a line of netbooks, the low-cost, compact laptops that have taken the world by storm, opening doors for its rival Acer.  …

With its software gurus, its newfound penchant for design and its deep ties to retailers, H.P. might have been expected to disrupt the cellphone market with new devices or even to concoct an electronic book reader that would complement its printer business. Instead, it’s Apple and Amazon that built vibrant new businesses around such products. 

According to the article, Mr. Hurd is not too worried:

“In spite of the fact that there are things we could always do a better job on, innovating and so forth, I don’t think we have ever felt stronger about our portfolio of products and services and our opportunity to serve the market,” Mr. Hurd says. “I don’t think we think we’re confused about what the market wants.”

Perhaps he should be more concerned: academic research suggests that the productivity dilemma is very difficult to overcome.  Our research on Toyota suggests that organizations can sustain exploration in the midst of intense exploitation, but it’s extremely hard to do.  Unless HP is tackling the problem head on, rigidity and inflexibility may be real risks.

What HP probably doesn’t need, however, is anarchy.  Anarchy would simply negate the impressive efficiency gains that the company has made over the past few years.  Instead, we would recommend deliberate perturbation: selectively and strategically destabilizing processes throughout the organization.  The mechanics of deliberate perturbation are not yet well understood, but we try to provide some ideas in our paper.