I suspect that Routing Around Institutions will be a force that sweeps through every nook and cranny of our lives and that generates massive shifts in wealth and relevance and yet may never be seen as the force that is affecting most everything.

There are at least two shifts that are combining forces to generate the uber-effect of Routing Around Institutions. Since the two shifts are so deeply powerful we find it VERY hard to imagine that the overall force of Routing Around Institutions will reverse or even slow.

The first force is demand oriented and the second supply oriented and together with a bit of Digital Demographic Revolution tossed in to provide glue between supply and demand, they create new market clearings that “route around” the old ones.

DEMAND: HYPER-PERSONALIZATION

Let’s review hyper-personalization (a phrase that our friend Om Malik deserves credit for).

Hyper-personalization says that people are being trained to want and expect to have exactly what they want, when they want, the way they want, how they want, with the precise conditions they demand as a basic expression of their lives. For some this condition may be linked to “entitlement” while for others it may be a manifestation of “freedom” and yet others might see this as connected to “dignity” or “life is short” or “authoring my life” or “empowerment” or other mental models… Many mental models support the direction toward hyper-personalization.

SUPPLY: GRANULARITY

Granularity means the ability to supply FAR more capability far less expensively AND in many new ways and in variants that was never possible before and in small batch sizes…

++ Nike has produced sports shoes that customers can personally design… Good luck doing that 15 years ago at the modest mark up Nike charges.

++ a good friend relocated to Hong Kong in November 2009 and while at lunch with him he told me that the prior day he had set up 3 companies thanks to Amazon Web Services (and his tech savvy)

So part of granularity is the technological capability to supply in a fashion that is nimble, cheap, specific, adaptable, effective, imaginative, personal…

So what happens when we have a society filled with hyper-personalized demands and granular supply as well as the technological savvy increase across society that is orders of magnitude ahead of what it was twenty years ago?

Among other things we get Routing Around Institutions.  If the old service provider (i.e. ‘institution’) isn’t adequately fulfilling our needs, we will find new ones.  It’s the abstract that has torn apart the newspaper industry, and we virtually every industry on the planet affected by the same forces.

Why do we think we are in the early stages of a REVOLUTION of asking questions?

We quit asking because we don’t get answers.

We believe that humans have built up a massive list of dormant questions that they didn’t bother asking because they never got answers.

Let’s imagine in 1600 you wanted to know on what precise day and date and location Leif Erikson was born. You know, you were just sitting around the dinner table chit chattin’ about the world and all. How would you get that data? Could you get that data? Probably not. Not even if this question truly burned inside of you or even if you had some serious money wagered on the answer.

Does the data exist? Yes. He was actually born somewhere on some date in some location. It happened. But sitting around the dinner table in 1600 the information might be impossible to tap into.

So the next night at dinner you ask “Hey, what was the day, date and precise location of Plato’s birth?” Nothing.

Next night at dinner “Hey, what was the day, date and precise location of Julius Caesar’s birth?”

Nothing.

Next night at dinner “Hey, what was the day, date and precise location of Joan of Arc’s birth?”

Nothing.

How many nights of question asking until one loses enthusiasm for asking unanswerable questions?

How many nights of questions until the others at the dinner table ask for the questions to stop???!!!

So when we can’t get answers to questions we are trained to quit asking them!

Well what if we suddenly COULD get answers to those questions?

Lots of questions?

Like … with Google?  Or an app?

Easily?

While I consider that I am still early in my own thinking about this model I am nonetheless convinced that there has been a mammoth shift in the past twenty years that is core to human experience.

And IF something is core – truly core – to human experience it almost certainly is apt to dramatically affect business.

We discuss some of the business implications in Waypoints Release 140.

Business as “usual” means “business is changing” … meets… “Culture eats strategy for lunch”

There is at least one massive gap in the CFA program: Cultural assessment.

I know, you are thinking “just one?” I said “at least one…”…

Why is culture important?

Cultures have an incredibly large impact on turning resources into profit. Period.

For a business analyst, this is THE reason that studying culture is critical. Generating profits is far less about strategies – though good ones certainly help – in that a strategy is merely a “resource” much like people or money or buildings or brand or management or a sales channel. The culture affects the degree to which any of these resources can be used to generate profits.

So… anyone thinking that this piece is going to be a 1970s California avocado-eating fluffy touchy feely piece is best to drop that mental model and put on a business analysis headset.

“As a business analyst, what can I do/ask to learn about the culture of a company I am investigating so that I can more effectively forecast future profitability?”

This is Part #1 with much more ahead… far too much to cover in one sitting. Here we go…

At our Crosby Soho Retreat I made mention of a phrase that had caught my attention most recently: “Culture eats strategy for lunch?” The reaction was somewhat mixed until I explained myself a bit. One reaction was that this period in business and the world is so complicated that having strategy right is just plain essential. I do agree with that. It is a necessary step to have a great (and adaptive) strategy.

The changes are far too drastic in a Routing Around Institutions world to think that one strategy conjured up in, say, December 2010 will stand the test of time without adaptation for more than a year or two unless “strategy” is really a metastrategy such as “Listen to clients… Listen to the market…”. Those are maxims or anthems. Strategy, as an example, would be more of “Pursue a direct distribution model into tier-two cities in China…”

Ok… So I fully agree that a great strategy – and specifically an adaptive one – will be necessary to thrive across the next, let’s say 2-5 years… but it is far from sufficient. Necessary? Yes. Sufficient? Not at all. An additional necessary item is to have a culture capable of adaptation! If the culture is unable to adapt successfully then a new “strategy” will be rejected during transplant and the “adaptation” part associated with the strategy on an ongoing basis will not exist to fill a base requirement.

You can have a great consultant come in, dissect a circumstance, integrate cutting edge thinking from advisory groups and produce the “perfect” strategy…BUT… if a company can’t move itself from its current state to a very different one it will be a TOTAL WASTE OF MONEY… May as well give the money back to shareholders or order more sushi for the Holiday party than to write a big big check to the consultant! The sushi would at least generate some good will with employees while the “new strategy” will only bring the ugliness of a mediocre culture to a boil. Go with the sushi.

Well… Why do people think new strategies are required at any rate?

Change

Everyone looks around in their industry from the old-timers to the rookies and considers that “everything” is changing.

About 18 months back I presented to a group of 100 entrepreneurs and one said, “Hey, with all these new mediums to communicate with I am confused. Which ones reeeeaaallly work? In the old days I chose from letters to phone calls but now it is all just confusing… There are too many options. Which work???”

I answered: “I don’t know.”

Why? In part I don’t know because everyone is hyper-personalizing without restraint today. That “picky” client from 1995 that apologized when asking to be removed from all mailings and emails and blast voice mails BUT to call live when something was really important but not really to the cell phone and this same client who in 2002 decided that Bloomberg IM was helpful and you had thought that he was the last candidate on the planet for Bloomberg IM but, well, what the heck, will wonders cease….

Well, that client doesn’t exist now. Today mainstream clients have ZERO concern for even bothering to inform you of a far more hyperpersonalized set of what they consider to be tolerable communication interactions… You can figure it out… good luck!

And if all that wasn’t a new challenge — infinite “correct” hyper-personalized communication paths — it is all the more challenging that whatever the un-scalable “answer” is today to the question of “which communication mediums do I use?” will change in six months. Better get even more luck or wear a rabbit’s foot on a chain around your neck as you may need ALL of your luck resources. Have fun.

This is not business as usual.

Business “as usual” means “business is changing”…

… lots more on culture and how we assess a company’s culture in Waypoints 135.

First off, who is Fernando Flores?  He’s a Chilean engineer, entrepreneur and politician.  He was tapped by Chile’s president Salvedor Allende in 1970 at 27 yrs of age to be minister of finance.  After a coup overthrew the government (and resulted in the death of Allende), he spent three years in confinement and was rescued by Amnesty International and entered the computer science program at Stanford where he started hanging with Terry Winograd (human computer interaction), Hubert Dreyfus (philosopher), and John Searle (speech acts / philosophy of language).

The article provides a lot more about Flores, the person – some of which is glowing and some of which suggests he’s gruff … profane … “out there”… or even cultish – and frankly I have no particular thought on that front. (At the very least, he’s interesting!). I’m going to focus less on Flores the person and more on the abstracts that he espouses, today, as an entrepreneur and consultant.

** He is best known for his research into organizational behavior and his insights into social networks.  Says the author: “At the heart of his work is the realization that most communication between individuals consists not of pure information, but of prompts for action”.

So what?  Well … point #1: language is verrrrry important when it comes to being more effective, as a person or a company.  Point #2: he suggests that by using language deliberately, a person can consciously shape his future.   There’s more to explore in each of these points.

** On point #1: we’ve talked about our definition of ‘commitment’ before, and Flores view is similar.  He makes a sharp distinction between saying “I’ll have that to you by Friday” and the more open-ended “I’ll get right on that”.   So what?  As you might imagine, applying this thinking to a corporation and assessing the promises they are making (and breaking) can be powerful.  This is what’s behind some of his consulting work.

He goes much deeper into linguistics, teaching that offers are conditional promises that can be used to build new relationships with a company. He defines a business as a “network that allows us to make offers”.   He makes distinctions between assertions and assessments, all in the spirit of building trust and keeping promises.

** On point #2: this is very cool and aligns nicely with our thinking about mental models and “reality”.  He contends the human nervous system cannot distinguish between reality and perceptions… and says: “we human beings are linguistic, social, emotional animals that co-invent a world through language. That means reality is not formed by objects.  That opens a different world of possibilities.”

So what?  According to Flores, this means that individuals and organizations are never fully trapped in any situation as long as they are willing to change the way they think and talk about it.

At any rate, in “point #1” he emphasizes the importance of HOW we speak and that there is great power in that and in “point #2” he brings the point home by suggesting that if you believe that mental models are what we interface with as opposed to “reality”, our language has the power to reshape the future.

So cool …

In his consulting work, his selling proposition is this: by training people to consciously use words to articulate commitments and invoke better communication, corporate leaders can reduce that misunderstandings and missteps that prevent so many corporations from realizing their potential.

** On social networks.  I love this bit. I think it provides a new twist to our thinking about Data.   Says Flores: “How do you educate people for the future world, in which an important part of activity is going to be networks? In my opinion, we human beings are not prepared at all for the explosion of new practices the Internet will produce. Education is going to be in networks and it will not be about knowledge. It will be about being successful in relationships, about how to make offers, how to build trust, how to cultivate prudence and emotional resilience.”

So what?  I love it.  There are hints of our thinking about the DATA CHAIN I this… that while so much attention is focused on gaining knowledge and collecting information, the real value is in generating insights as opposed to accumulating knowledge.  AND, that much of that insight & value can be generated only by effective communication with the 100s of people we interact with daily.  In other words, sure, knowledge is great…but it’s awfully tough to generate insight if we aren’t communicating effectively … or if our communication (ie, our “prompts of action”) is fruitless.

I think there’s a LOT more here to explore: the powerful combination of language, mental models, and social networks….

I agree.

Some of his thoughts…

He contends  Facebook’s connections are “weak ties” and weak ties are precisely NOT what drives social change.  Strong ties do.

He suggests social networks are fantastic at organizing information and to the extent that a “social change” can be triggered by mere information flow, then – sure – social networks are a wonderfully useful tool.  Here, he cites Clay Shirky’s famous example of the lost/stolen cell phone in Here Comes Everybody (the one that led to the discovery of the phone and the arrest of the thief by leveraging social networks).  He asserts that in a situation like this – where there isn’t danger, where participant downside is limited, and where the spreading of information is most important – social networks are extremely effective.

However, if we’re talking about 1960’s civil-rights type change, social networks aren’t going to move the ball forward as much as many think.  Here, he focuses on the weak-tie nature of Facebook relationships.  His claim – and one he backs up by quoting some academics who have studied such things – is that the most powerful movements … the ones that we typically think of when we think “activism” … are driven FIRST AND FOREMOST by strong ties among the participants … and NOT BY ideological fervor itself.

Interesting.

In other words… a hatred of racism (the ideology) in the 1960s wouldn’t be sufficient to get people to perform sit-ins (and potentially put themselves in harm’s way).  But … a close personal tie to someone who is being harmed by the ideology (eg, a family member who was beaten) matters a whole lot more.   While the former might drive “high interest” in getting things changed … the latter is what drives “commitment” to getting things changed and pushing through the TPPAs (total perceived pains of adoption) that come with “activism”.

I can’t help but think of the planet & sustainability here.  Do we all have “interest” in climate change?   Sure.  But a commitment to change? Nah. “Strong tie personal relationships” aligned with the change?  Nah.

So what?  There’s a lot more to Gladwell’s piece (including useful points about how *strategy* is necessary for most organized social movements and how horrible it is to develop a useful, focused strategy via a social network) but the bit about STRONG TIES vs WEAK TIES interests me the most.  In our parlance, I think what Gladwell is saying is that what drives real social change is when the change fits well in the CHANGE FUNCTION … that is, when the crisis is high and the TPPA is low.

If you have a family member or personal friend who has been deeply affected by a perceived injustice … it’s more likely to drive a HIGH CRISIS. That is, this STRONG TIE translates to a HIGH CRISIS.  Do I need Facebook to have STRONG TIES?  Not at all. In fact, the WEAK TIES on Facebook may – if anything – have a dilutive effect on a person’s relationships.

Similarly, if the “activism” has a high TPPA, the STRONG TIES are even more necessary.  If I’m going to get arrested for my actions, it’s a high TPPA and I darn well better have a HIGH CRISIS to make me dedicated enough to endure the TPPA.  A loose tie typically won’t do this.

In other words:

-          Shirky cell phone example:  Low Crisis, But even lower TPPA = change happens.

-          1960’s civil right movement:  High TPPA (beaten, arrested), but even higher Crisis driven by strong ties of the participants effected = change happens.

Interesting read.  The whole article is here: http://www.newyorker.com/reporting/2010/10/04/101004fa_fact_gladwell?currentPage=all

… just a quote I liked from Ultra Marathon Man: “Somewhere along the line, we seem to have confused comfort with happiness. I’ve now come to believe that quite the opposite is the case. Dostoyevsky had it right: ‘Suffering is the sole origin of consciousness.’ Never are my senses more engaged tan when the pain sets in. There is magic in misery. Just ask any runner.”

Yeah, sure, it seems a bit morbid … and, frankly, I’m not sure how I feel about “suffering” being the sole origin of consciousness. That’s a deeper conversation for another day! BUT …the bit about confusing comfort with happiness resonates deeeeeply. I catch myself personally falling prey to this occasionally … and I also think there is something deeply relevant in the quote relative to the US society / culture at large. “Comfort = Happiness …. and we all deserve to be happy, right? Ergo, we all deserve to be comfortable!” It smacks of the Entitlement issue that seems to be running rampant in the US …

Pip’s add… I saw the video from a “life coach” a couple weeks back who was holding a session on parenting. Her main point was that when parents are asked today about what they want for their children they often say “I just want them to be happy” while 30 years ago parents would answer with words like “hard working, respectful, compassionate”… It seems to me that happy might be one outcome of the other three but that a vague “happy” lacks a path toward accomplishment… And moment to moment “happy” pursuit is confused with deeply satisfying lives… The difference between a drug binge versus raising a family for instance. YES, I do think this is an important shift in society and maybe in our demographic subset of node #1 monumental shifts but my mind is not around it yet.

The article rightly notes that most online recommendations are specific to some relatively narrow niches.  I.e., Pandora. And they’re typically hit or miss.

Hunch is a site that takes on this task by getting people to “talk about themselves – their opinions, tastes, beliefs, idiosyncrasies.  Then, once they have shared enough information, mine that data for correlations that provide precisely tailored recommendations for each user”.

Hunch starts by asking users a bunch of questions (seems like MyRobot or whatever that service we tested a few years ago was) and seems to pride itself around the fact that these questions cover just about anything – like “exercise regimens, the ethics of SeaWorld, and zombies.” To date, the company has collected 55mn answers to such questions from 1mn users.  The goal: just as Google has built a vast index of the web … Hunch is assembling a detailed picture of each user’s taste.

Among some of Hunch’s findings:

If you believe in UFOs, you prefer Pepsi to Coke.
If you own a pitbull, you find Mario Lopez attractive.
If you like Cookie Monster, you believe in life after death..

So what?  Hmm.  Fun idea … I like the spirit of the founder and her dedication to ‘connecting people’. Also, I don’t doubt that there’s some pretty heady technology behind all this.  However, I see Hunch’s product as a dead end.  Some thoughts:

#1: Yes, I’ll start with the Data Chain and our NODE #1 shift around Naked Without Data.  Recall how we noted that there is a growing gap in today’s society when it comes to the Data Chain’s step #2 (Gathering Data) and step #4 (Generating insight).  The gap, we’ve posited, exists in part from our lack of training in Logic.

Well, a key element of Logic involves causal reasoning.  And … I can’t help but think of this – and Hunch’s mis-steps – when they claim that if you like Cookie Monster, you believe in life after death.

Yes – this may be what the data says.

But is it a valid claim? I highly doubt it.

At any rate, I’m all for using data to find insights in new ways. But let’s stop and think about its legitimacy.

#2: “Skipping the work’s” finger prints are all over this too.  Let’s simply use an algorithm to find out who this person is and what he/she is really all about!  That’ll do it!

#3: Future of Advertising. One part of Hunch that I like is that it is trying to bridge the gap between “advertising” and “social” in a way that a simple Google search doesn’t.  We talked at length about this in Waypoints 122 – how fewer and fewer of our “searches” will be outsourced to a Google server over the next decade and how more and more will be done via our own social networks.

And my sense is that part of Hunch’s aim is to utilize social networks to fill its data base with data.

So – in one sense, I think Hunch has the right idea.  The problem is that the premise of Hunch is STILL about end users relying on some outside algorithm to tell it what it wants.  So, in a sense, the only difference b/w Hunch and Google is the type of information it gathers and the types of connections its algorithm will make to assess “what Bob wants”.  But it still suggests that “Bob” will sit passively by …waiting for a server sitting in some data center to tell him what he wants.

Our contention is that as the Digital Demographic Revolution runs its course, Bob will assume control of this algorithm.  It will no longer be on a server somewhere.  Rather, it’ll be in his own head. And he’ll be able to ping his own connections to find the right information … or product … he’s looking for.   Instead of waiting for a server to tell him that because he believes in UFO’s he’ll like Pepsi more than Coke, he’ll take control of the algorithm and tap into his own information network to make a soft-drink assessment.

At any rate … interesting article.  Interesting use of data.  But not a very compelling service as far as I’m concerned.   The “compelling” part of it might just be a fun factor – almost like a Magic 8-ball that told you whether you were going to have good luck today when you asked it.

Innovation.

I consider it a very abused word. A very vague word. A word that is positioned as highly highly highly important. A word that confuses. A word that people don’t think about enough so as to define it well for communication.. A word that generates very little common ground because NO ONE bothers to define it!

And yet few think they really really know THEIR own definition of the word let alone what others consider the word to mean.

So, one signal of an unhealthy society is poor “communcation” with communication taken from its roots as an action noun meaning “action taken toward the experience of oneness.” When you are “Communicating” everyone feels connected or on “common ground”. Anything not intended to generate common ground is NOT communication. (yes, I realize this makes for yet another word that society does think about enough to foster better communication… isn’t it ironic?) For clarity, “common ground” does not necessitate “agreement” and “agreement” doesn’t mean communication has taken place. More on THIS mess in a separate Waypoints. (there are MANY other words that are VERY important that we don’t adequately define such as technology, leadership…) But … back to the action.

So… we have a society that doesn’t define well enough its key words so that communication can flow easily. As an analysts that is one signal of an unhealthy society, organization, family…

With innovation occasionally, if we are lucky, might have a conversation where one group tries to tell others what the word REALLY means in an effort to speak over or trump others’ definition. “No… what innovation reeeally means is…” (sentences that start with “No…” or “But…” or “You’re wrong…” rarely lead to “common ground”. There are some component definitions of innovation that I do like but I am not religious:

• Applying an idea to your business processes to address a problem

• When a motivated set of participants alter a system

Whether these elements are captured in “innovation” or not I still see them as important even if I have to write them out completely each time I use them instead of aiming to capture them in a single word…

AM I convinced that these MUST be in the definition of innovation? No. “Innovation” is just a “word” and last I checked words were here to serve us and we are not meant as slaves to the tools we create. (in theory) So… I don’t care so much about THE definition of innovation but I would like to know how others are using the word so we can converse intelligently about goals or actions aimed to have more of “it”.

This past weekend I was driving my father-in-law’s Volvo SUV. I don’t know cars very well but I am pretty sure Volvo’s brand is about “safety”. So, I wasn’t surprised about the blindside lights on the car’s mirrors.

What happens is that when someone is in a position to pass you on either side a tiny orange light kicks in so that you are warned when looking in the mirrors that a car is in your blind spot. Great feature I think.

Now… is THAT an innovation? I think so. Some guy had both mastery of the car/circumstance and an ability to apply creativity and was motivated to change a system and turned an idea into a reality… the result was a pioneering product. I WOULD include this as an innovation.

Will it sell more cars? Maybe… I doubt too many more.

Big revenue generator? I doubt it though, again, I don’t know cars well at all.

My definition of innovation isn’t bounded by revenue generation or job creation BUT yours might and that’s fine by me… so long as I can interface successfully with you I am ok. When “important” words carry different implicit definitions and we never do a “modem handshake” (remember those???) we will get ourselves into trouble and tizzies.

It is all a mess. So until I know what the word “innovation” is used for having a conversation about “Is America no longer a leader technology innovation?” is a waste of my time… “innovation” “leader” “technology” all in one sentence!! Good luck communicating! Usually this stuff is bandied about when the economy is bad or some other countries economy is getting great press for being an “innovative leader.”

When Information Week does an expose on the “Innovation Mandate” in an article that could easily have been pulled from the file cabinet ten years ago, I see irony – a non-innovative look at the problem of innovation in the US… egads. Let’s talk AGAIN about how, well, we should force kids to like math and science and fill-in-the-blank… or how we shouldn’t do this dang outsourcing… or how we NEED a broadband policy or more technology in the classroom… ugh.

What is it and why does it matter?

… an excerpt from Waypoints 124.  Ping us at dave@coburnventures.com if you’re interested in more.

When we combine the demand side force of “Hyper Personalization” with the supply side force of “Granularity” (meaning the ability of businesses to form for specific purpose with lower entry and exit costs) and bridge supply and demand with the growing digital acumen observed as a result of the Digital Demographic Revolution, we expect that people will be routing around “Institutions” at an accelerating pace. A generation from now individuals won’t see many “Institutions” as frustrating inhibiting roadblocks so much as merely one of many choices that might fill their wants.

So what? We see the “Routing around of Institutions” as one of the most significant and extremely widespread outcomes of the Digital Demographic Revolution. We expect few if any Institutions will fail to succumb to its force during the coming decades and some are already mere shells of themselves – for instance, newspapers. Every “Institution” will be pressed to dramatically alter its relationship with the public or experience the possibility of a severe drop in relevance.

As an investment theme: finding those companies or trends that pose a threat to established institutions will provide significant opportunity! Medical Tourism?  Yep.  Over the top TV?  Uh huh.

Here’s more of what we mean when we state that this force will be extremely widespread: Telecom companies are being routed around by Skype as just one minor example; newspapers have been routed around by blogs and a thousand other sources; Wall Street research is being routed around; hospitals are being routed around from any number of forces from medical tourism to home birthing to holistic medicine to “wellness centers”; home schoolers are routing around schools; governments and militaries are being routed around by Al Queda…. The trend will know no limits … though some Institutions may make adaptations more than others or use blocking techniques to limit the pace of routing.

James Utterback: Technological development occurs in stages. Stage #1 = no one really knows what the new product’s form factor is. Stage #2 = a dominant design is agreed upon.  Stage #3 = market participants compete on process improvements.

For more details on James Utterback’s thinking, take a look at his book, Mastering the Dynamics of Innovation..

What is the core belief and why does it matter?

We love James Utterback’s simple model and here it goes: James Utterback says that technological development takes on three stages. Stage #1 is where no one really knows what the form factor is of this new technological “product”. In stage #2 a dominant design is implicitly agreed upon. In stage #3, market participants must compete on process improvements.

That’s it… but in saying this Utterback says a lot – truly worth the 200-pages he uses to flesh out aspects of this idea.

Expanding upon the core idea…

Stage #1… in stage #1 the technology is so new it isn’t clear what form or forms it might take. Market participants appropriately compete to make their features the de facto standard or compete as to what the product might look like. It is appropriate to get new product ideas into the market because this period of product innovation will last only so long around each technology. The best technology only wins some of the time.

The more revolutionary the product the longer the “product innovation” stage might last. For instance, sorting out what a personal computer might look like took more than a couple decades after the first effort was born in the early 1960s.

Consortiums theoretically meant to sort through what a product will indeed look like are formed then politicized and abused by many who wish to subvert that process in order to exert their own forces through a different means. Everyone for themselves is the rule though a tremendous amount of puffery about “what is best for the consumer” is tossed about as a smoke screen. Ever wonder why those opposing a given technological solution nevertheless join the standard-building consortium? They do so to sabotage progress. Machiavelli would feel at home in stage #1.

Stage #2… in stage #2 we have finally determined what the de facto form factor will look like. For instance we have collectively decided that a “car” has four tires, a windshield with wipers, a gas tank, headlights, two axels, etc… More or less we know what a “car” will look like or be comprised of. At times regulatory bodies and lawmakers will even get behind standardizing certain aspects if the industry itself does not. For instance governments might demand that a car must have seatbelts and four working tires and they may even demand an annual inspection. I think of seat belt laws and airbags and crash testing. At this point competing on product innovation is largely too late. Creating a car with five wheels – even supported by scientific support of greater efficiency or safety – probably wouldn’t get too far.

How does the dominant design come about? Often the market takes over. Brian Arthur wrote about the idea of Increasing Returns to Scale and used the QWERTY keyboard as an example to demonstrate his idea. The QWERTY keyboard did make some sense logically as an alternative to a straight layout of the alphabet on a keyboard. A straight alphabetic keyboard would result in mechanical keys getting stuck as combinations around certain high frequency letters occurred. Is there such a corollary on the digital keyboard of a computer?

No. So why not switch to a “smarter” layout? Too late. The dominant design has been determined.

Stage #3… in stage #3 companies accept what the dominant design is or wind up losing all their money competing inappropriately. Michael Dell and Ted Waitt showed up at stage #3 in the 1980s while others thought the product innovation was still ahead!. The PC’s dominant design had been determined. All the major parts were standardized. They started building in their dorm rooms and selling “direct”. Everything was about taking the accepted ideas of what the product was and somehow doing it better, more efficiently, and more effectively.

For years and years others would put “innovate” and the “pc” in the same sentence and had trouble making money. Dell spent its energy on reducing costs ceaselessly while spending next to nothing on R&D. While Dell’s competitors snubbed their noses at the lack of innovation Dell became a money machine!

What doesn’t work so well in stage #3 is fighting the market. It isn’t a great strategy to insist that the market has adopted the wrong solutions and that the market will wake up and get smart! Good luck. What is decided is decided. TCP/IP is the protocol that sits behind Internet traffic. I have never heard anyone claim TCP/IP is technologically brilliant. But it became a standard and having a standard facilitated the growth of the Internet. Fighting TCP/IP was popular for a long time until it became clearly hopeless.