As we explore more deeply these concepts of mindset, repertoire, and empathy, I want to tell you another story. But this time the story's not about an organization. I want to tell you the story of two managers, George and Geoff. So meet George. George is a bright guy and a highly successful manager who believes in getting the job done right. He's an honors engineering graduate in college with an MBA from a top school, who joined a manufacturing firm famous for its rigorous methods and attention to execution. And George has developed a great track record there. George is used to getting the A. Let's look at how George accomplishes this in his normal environment. First, he limits uncertainty by doing his homework. Then, he selects progressive experiences and focuses on developing a depth of experience and detailed knowledge of the firm's product and its underlying technology. George has developed an expert repertoire. He's respected as the go-to man for any technical question. And he's successfully run several PNLs, profitably growing these businesses along with the market. Now, George is also customer-focused. He collects a lot of data and he looks at his customers objectively. He's learned to figure out and then focus on a few good solid strategies and clear ideas. He reduces his risk by doing his homework and, as a result, he makes careful, calculated investments and consistent progress, all of which confirms and reinforces the value of George's approach. But then, let's say, George gets an offer of a promotion. He's asked to take over a large but struggling business unit in his firm. And he's apprehensive. He feels that meeting this new business' growth goals would be a stretch. Having just been acquired by a very aggressive global parent company, the company's expectations for the growth of this division are beyond what George considers realistic, given market conditions. But regardless, when it's made clear to George that if he wants to continue to advance within the company, he better take the job, he agrees to tackle it. Let's look at what happens to George as he attempts to innovate and grow a business in this new unstable environment. Well, suddenly George is not so sure anymore exactly how to get that A. In this test, he's not sure how to avoid mistakes. He's afraid of the new level of uncertainty he now faces, uncertainty that he can no longer avoid or limit. But because he's avoided new experiences outside of his comfort zone, he feels kind of unprepared. His repertoire that was so useful in his old business, now feels narrow. Despite these limitations though, George still believes that he can improve the value delivered to his new customers if he learns more about them. So he immediately asks his staff to pull together all of the data the organization can find on its customers and their preferences. After weeks of study, George is confident that there's not much about the use of his firm's product by targeted customer groups that he doesn't know. George, however, probably only knows his customers' stated preferences. But using these as the basis for growth almost guarantees producing the kind of me too products that have lackluster profitability. True competitive advantage, as we've said before, lies in addressing people's unarticulated needs. But George has no insights into those. So he can't really know what might be a truly differentiated new value proposition. George is flying blind. Because of his narrow repertoire coupled with superficial data on customers, George struggles to find a big idea. Corporate has been clear that they only want big wins, but finding them turns out not to be so easy. Competitors seem to be onto the best ones already. And despite scouring market research data, good ideas remain illusive, because nothing seems quite big or sure enough. So George keeps looking and he gets more anxious. Finally, George identifies a new value proposition he thinks could be a really big winner. Taking a technology from one area of the business, and using it to address a new customer segment. On paper, this looks like it might be a substantial opportunity, but there's really no hard data on the new segment, and how they'll react to this technology. As George moves forward to develop the idea, he's very careful to protect the firm's intellectual property. He's wary of talking too much about the new offering to either potential customers or to distributors, and he opts to self-manufacture rather than outsource. Encouraged by both his organization and his narrow past experiences, George works hard to prove the value of this opportunity. And even though finance shoots down his capital budget a few times, he finally gets it right. He revises the ROI calculations, and they agree. This is what George has been taught to do. And even though we all understand theoretically that it's impossible to prove with historical data that a new idea that has not yet been attempted will work. Intelligent managers like George get caught up in this game all the time. The data based approach that George's experiences have taught him actually increases the risk of his growth efforts. George's bets will tend to be big. He'll place them more slowly. And every failure will be publicly represented. Worse yet, psychologists tell us that George's anxiety will make it hard for him to even see disconfirming data from his early moves into the market. He simply has too much riding on the success of the initiative. His subordinates and even his own brain will tend to hide bad news from him. As the big roll out progresses, George and his team grow increasingly worried. The news coming in from the market rollout is not reassuring. The new customer group doesn't seem to grasp the many functional benefits of that new technology and distributors also seem uninterested. The salesmen are getting discouraged. But everybody knows that George has a lot riding on this initiative. And he's in no mood to hear bad news. Failure is not an option, he repeatedly reminds his staff. Go do whatever it takes, is his response when they try to talk about their concerns. Not surprisingly, George's story does not have a happy ending. After substantial losses, with little sign of a positive trajectory, the CFO pulls the plug on George's big idea. Plant assets and inventory need to be written off. As unfortunately, is George's career. And in retrospect, he looks back and wonders, how he, a manager with such a strong track record of success, could have gone so wrong. In this unpredictable world though, all of those wonderful qualities of George that helped him to succeed, are actually getting in his way. His reliance on data, his market research approach, and especially his narrow repertoire turn out to be big problems. Because, despite another whole set of myths about what business innovation looks like, innovation is not primarily around novelty. It's about value creation. So the most valuable kinds of innovation often involve borrowing something from somewhere else. Another industry, your own past, or else recombining things that already exist. Let me give you a very simple example. I'll bet many of you don't even remember the days when luggage looked like this. And then someone got the bright idea to add wheels. Now, there's not a lot of novelty here, but lots of value creation for those of us old enough to remember lugging our suitcases without wheels through airports. So let's go meet a different manager. Let's meet Geoff. And let's look at the ways in which Geoff chooses a set of practices and behaviors that are quite different from those George made. When our research team met Geoff, he had just joined Pfizer Consumer Products with a strong mandate to grow that business organically. He arrived there from Doblin, an innovation consulting firm, bringing with him years of experience in different businesses and in different functions. Including, change management practice at Arthur Anderson and two marketing ventures he'd started up. While George worries about looking foolish and fears uncertainty, Geoff evidences what Stanford psychologist Carol Dweck calls a growth mindset. This is the conviction that the world, including one's own abilities, can be shaped and changed. For Geoff, this translates into a focus on learning. Because learning occurs only when we step away from the familiar, Geoff accepts the uncertainty that inevitably accompanies any new experience. Meanwhile for George, life is a test that he tries hard to get right so that he won't look stupid. Carol Dweck calls George's mindset fixed. George lives his life trying to avoid mistakes. And because moving into uncertainty, truly does lead to more mistakes, George avoids that. Which means that he often shies away from new experiences. Now, an individual like George or Geoff's mindset is developed long before he or she enters a business organization. In Dwecks's view, our early classroom experiences encourage one mindset or the other. And usually the fixed wins, she argues. But the difference is, these mindset set in motion are profound. They establish dynamics with lifelong consequences for our ability to identify and lead innovation. Dweck's mindset argument is supported by the research of other psychologists, such as Columbia professor Tory Higgins. In his research on motivation, Higgins notes that virtually all theories of motivation, from the time of the ancient Greek philosophers through Sigmund Freud to today. Are based on the idea that we approach things that are pleasurable and we avoid things that are painful. What's less understood, he argues, are the strategies individuals use to operationalize these principles. He calls these our regulatory focus, after the role they play in regulating our choices. Like Dweck, he sees two primary types of focus, promotion and prevention. People with a promotion focus are motivated by some kind of new and exciting end state. Which leads to a concern with advancement, growth and accomplishment. Those with a prevention focus, like George, are motivated more by avoiding negative outcomes, and so are concerned with protection and safety. Promoters like Geoff prefer errors of commission because their inclination is to act, to pursue multiple avenues to reach this goal. Preventers like George prefer errors of omission. Choosing instead not to even act in order to minimize the possibility of a negative outcome. These early differences in mindset and focus set the stage for the choices we make. Geoff's tend to lead to success when the focus is on innovation. George's, although it has helped him succeed in a stable environment, often increases the likelihood of failure when the focus is innovation. Because George fears uncertainty, he avoids new experiences, whereas Geoff seeks them out. George in turn develops a narrow repertoire. But by the time we meet Geoff in mid-career, he's developed a broad repertoire of experiences spanning functions and industries that prepares him to see opportunity. It's important to note that what we call George's narrow repertoire, we used to call deep expertise in a stable world, where it was an asset. Even more than that, George understands his data on customers. But Geoff isn't content with the published market research. He decides he needs more hands-on exposure to customers. And so he assembles a cross functional team to follow the customers home. Team members make lots of observations about customers' wants and needs and look for emergent patterns. Throughout, they're guided by one question. What could we be doing for consumers that would truly make their lives better? This is what customer empathy is about. What we're taking about here is much more than customer focus. Customer empathy puts the customers' problems, rather than your company's solutions front and center. It requires a deep interest and involvement in the details of customers' lives as people, not as categories of consumers. That's why we call it empathy. As we've said before, if we wait for customers to tell us what they want, we have the same information our competitors do. If we want to get there first and stay ahead, we have to be willing to make educated guesses about what they want, often before they can even articulate these wants. The number one reason growth ideas fail is that we misjudge what customers want. So the surest way to reduce the risk in any innovation is to develop a deeper feel for that. The closer you get to customers' lives, to their problems and their frustrations, the better you will be at creating new value for them. We've already said that George has trouble finding innovative ideas. But Geoff's combination of repertoire and empathy help him identify multiple insights. He identifies one insight that he calls something so fundamental it made us want to cry. Almost every consumer health product in use, he observed, had been designed for the home medicine cabinet. As a result, he found that consumers were resorting to all kinds of stopgap solutions for carrying their health products with them on the go. The insight we had was that we needed to provide a way for people to be able to take care of themselves and their health away from home. They needed portable healthcare, Geoff explained. So he and his team set a goal of giving consumers access to the same healthcare products they had at home, whether they were traveling by car or bus or plane or train. Now as we move forward, George manages risk through analysis. But Geoff manages risk through action. For instance, after a few small experiments that didn't really go anywhere, they tried converting a bottle of Listerine, one of Pfizer's strongest brands, into a package of thin strips that would fit in a pocket. They weren't sure at the outset what the potential was. But Listerine PocketPaks, as they called them, seemed like an affordable bet. Geoff realized that involving retailers as early as possible would be crucial. In part, because he worried about getting internal buy-in. Achieving the alignment that he needed across Pfizer units to develop this new product and package combination. He also believed that offering theoretical arguments to retailers about why this was a great new category of products would not be enough. All in all, he concluded, attempting a large roll out would likely be a slow and painful process, and Geoff believed in the need for speed. So he elected to partner with a few retailers to conduct some quick, small-scale experiments in just a few stores. Walgreens was the first to step up to the plate, offering Geoff limited shelf space in just seven stores to test early forms of the new concept. And a critical part of this initial experiment was observing and interviewing customers as they experienced the product in the stores. The insights they gained from shoppers, they hoped, would help them test the underlying assumptions about both the customer and the business case that they had for this new concept. Such as, for instance, how much the new, smaller sizes would cannibalize sales of existing larger sizes. So while George ended up placing big bets slowly, Geoff placed small bets quickly. We've talked about George's challenges as he moved forward. Geoff fares much better. Based on some enthusiastic responses from customers to the Listerine PocketPaks, Geoff and his team quickly explore pocket-size formats for all Pfizer brands. And they consider how to combine them in ways that would be even more convenient for customers. Ultimately, they hit upon the idea of a portfolio of pocket-size products that consumers could put together themselves, as they would a cosmetics kit. So, soccer moms could stock kits of Neosporin ointment and Band-Aids in their cars. Professionals, like us, could create kits with Motrin and Zantac in their briefcases. And whereas George struggled and tended to fail, Geoff more than succeeds in this situation. The success of the Walgreen's pilots quickly persuades competing drugstores to stock Pfizer's pocket-size products. In the face of such demonstrated consumer demand, Geoff's team is able to work through all the territorial challenges at Pfizer and emerge with a broad array of new product offerings. Working with retailers. Sharing the concept early on with them, had not only cemented their interest in the product, but also convinced Pfizer managers, who responded to the retailers' enthusiasm with increasing support for the initiative. The bottom line? Portable products generated 5 to 10% incremental revenue for the participating brands from the start and were projected to become a $500 million category for Pfizer. This contributed to one of the highest consumer product company evaluations on record, shortly thereafter when Pfizer sold the consumer products division to Johnson and Johnson. But, let's not forget about George. How do we help George to succeed? Not by asking him to become Geoff. That's not who he is. But by showing him how, when the situation calls for it and involves uncertainty, he can adopt more of Geoff's behaviors. But first, we have to help him overcome his fear of uncertainty and the anxiety he feels. Otherwise, he won't even see the disconfirming data that his experiments produce. We know from neuroscience that when we are anxious our brain tries to help us out. Unfortunately, it does this by keeping us from even seeing information that disturbs us. Now, I suspect this is how most of us survived our children's teenage years. But if innovation requires that we learn how to fail fast and cheap, this brain trick spells disasters. And this is where design thinking comes in. The four questions we started out with give George the structure and the process to help him succeed and to conquer his anxiety as he learns to master this new environment that innovation thrives in. This is the paradox of innovation. Sometimes, in order to help people be more creative, we have to give them more structure, not less. But it needs to be structure of the right kind. And design thinking can help us to provide very specific guidance by laying out a discreet set of steps to help George get there. These steps are what we will focus on in our next two sessions.
