Creativity=recombination, Jedi edition

Where do great ideas come from? A popular notion among creativity experts is that recombination of preexisting ideas in a new context is the form that most if not all creativity takes. One more datum: Courtesy of my lovely wife, it seems that George Lucas may have been voguing, so to speak, when he came up with one of his most iconic images. 

Neuroeconomic imperialism?

I just saw a recent article in the Chronicle of Higher Education on the emerging field of neuroeconomics. Unlike behavioral economics, where ideas from psychology have been ported over to economics to explain various individual “anomalies” in choice behavior, in neuroeconomics much of the intellectual traffic has gone in the other direction–economic modeling tools are helpful in understanding psychological processes (including where those processes deviate from classic economic theory). The axiomatic approach to choice makes it a lot easier to parse out how the brain’s actual mechanisms do or don’t obey these axioms.

An important guy to watch in this area is Paul Glimcher, who mostly stays out of the popular press but is a hardcore pioneer in trying to create a unified (or “consilient”) science encompassing neuroscience, psychology, and economics. I’ve learned a lot from reading his Foundations of Neuroeonomics (2010) and Decisions, Uncertainty, and the Brain (2004): why reference points (as in prospect theory) are physiologically required; how evolutionary theory makes a functionalist and optimizing account of brain behavior more plausible than a purely mechanical, piecemeal, reflex-type theory; why complementarity of consumption goods presents a difficult puzzle for neuroscience; and much more.

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Motivation Trumps IQ. What now?

An article recently posted in Slate reviews research showing that a significant portion of the variation in IQ tests is attributable to motivation rather than ability. In one striking study researchers measured the children’s IQ and split them into High, Average, and Low groups. They reran the test offering the low group an M&M for every correct answer. As a result of this simple incentive, the low group’s score went from 79 to 97 – on par with the average group.

Ok, so incentives work. Perhaps not a big surprise on many levels.

On the other hand, there is a large OB/HRM literature invested in the conclusion that performance increases are associated with hiring employees with a higher IQ. The assumption there is that IQ measures ability as opposed to motivation.

This raises a critical question for strategy scholars. Is motivation an immutable attribute of human capital Read the rest of this entry »

A Fly in the Ointment…

An article in today’s New York Times highlights a dramatic increase in the price of generic ointments over the last few years — generics have gone up 6 to 7 times their 2008 prices. Here is a chart showing the climb in prices for a few products. Before you say, this is clearly fallout from the new healthcare law, the article doesn’t point to any change in legislation covering ointments. In fact, there is a certain amount of puzzlement over why prices have gone up so much.

They note that doctors are not price sensitive when they write prescriptions and patients do what doctors recommend — that’s nothing new.

It turns out that regulation for generic skin treatments is more stringent than other generics because they must demonstrate that products are absorbed as well as the original treatments. This, more costly process creates higher entry barriers for generic ointments Read the rest of this entry »

Entrepreneurship: Exploring (or Building) Adjacencies

Because I write and teach about innovation and strategy, friends and students often ask me to evaluate their new business ideas. A relatively large percentage of these business ideas are about a product the individual somehow identifies with, but in an area in which the individual has no work experience. The mythology of entrepreneurship is that it’s all about great ideas. The reality is that great ideas are a dime a dozen; successful entrepreneurship is much more closely linked to the ability to execute. How do people learn to execute? In general, it’s through having deep experience somewhere in the value chain. In other words, most successful entrepreneurship is accomplished through exploring (or building) something adjacent to where you already are or have been. If, for example, you have worked for an interior design firm for several years, and you travel to South Africa and see beautiful and unusual textiles you would like to be able to use in your practice, but no one is importing these textiles, you are in a much better position to create such an import business (and to know what it’s worth, and how to reach the target market) than another tourist who sees the beautiful textiles and wonders why the interior designer she has hired hasn’t shown her anything so unique.

Adjacent positions give you insight into the value chain of your target area (Who are the likely suppliers? What is their cost structure like? Who are the buyers? How are they used to being presented with goods to choose from? How big is the market? How are the logistics typically handled?). Adjacent positions can also help you identify valuable problems to solve (What aspects of the currently available products or business model are inefficient or irritating? What new innovation would exceed customer expectations, and how much more would they pay for it?). Perhaps most importantly, occupying an adjacent position means you are more likely to have valuable network contacts to lubricate your entry – for example, already having a relationship and credibility with distributors will usually have a big impact on the rate at which you can enter a market.

What if you love an idea, and are motivated to execute on it, but aren’t in an adjacent position? Build one. Consider working (or interning) for a firm that is either upstream or downstream in the value chain you will be entering. If you can offer up your effort at a low cost (preferably free) for at least a few hours a day, you can usually edge your way into just about any business. You could also consider working for someone who will ultimately be your competitor, but working for someone who will be your supplier or your customer is more likely to engender goodwill in the value chain, and help you accrue valuable contacts that you will use in your new business.

A case in point: My good friend, Rick Alden, founded a company called Skullcandy in 2003 that makes, primarily, headphones with an edgy, extreme sports aesthetic.  I was initially skeptical of his idea to enter headphones – to me it was a commoditized product category dominated by companies that operate in countries with significantly lower production costs. Rick, however, was deeply embedded in an adjacent industry – snowboarding. He had founded National Snowboarding Incorporated in the 1980s (which promoted the sport of snowboarding and offered lessons and competitions), and had designed and patented the first ever step-in snowboard boot and binding system. His brother Dave was a pro-snowboarder for Burton, and his father Paul Alden had been one of the founders of the North American Snowboard Association which helped to create guidelines for teaching snowboarding and developed the snowboarding World Cup. In short, Rick knew snowboarders – he knew their aesthetic, and he knew their habits. He knew most of the major snowboarding manufacturers, snowboard shops, and snowboard pro-riders. So when Rick launched Skullcandy, he was not only in a great position to evaluate what design features snowboarders would respond to, he was also able to get endorsements from the most famous snowboarders, and get on the shelves of the best snowboard shops. Once he had captured that market, the mass market (Best Buy, college bookstores, etc.) eagerly demanded product. Within two years Skullcandy had surpassed a million in sales, and by 201 1 Skullcandy’s sales had reached $231 million.

Had Rick started by developing a mass market product and approached Best Buy, it is unlikely the story would have turned out the same. It is equally unlikely that someone outside of the extreme sports industry could have replicated what Rick did. It was Rick’s adjacent position that gave him the knowledge, the contacts, and the credibility to enter and succeed in this market.

Individual Bias and Collective Truth?

Freek’s latest post on confirmation bias notes that intellectual commitments can bias which research findings one believes. The tone of the post is that we would all be better off if such biases didn’t exist, but there is definitely a tradeoff here. Greater objectivity tends to go with lower intensity of interest in a subject. (Disinterested and uninterested are correlated, for those old-timers who remember when those words had different definitions.) That’s why you often find that those with strong views on controversial topics–including those with minority or even widely ridiculed opinions–often know more about the topic, the evidence, and the arguments pro and con than “objective” people who can’t be bothered to dig into the matter. Other than partisanship, the only thing that will get people interested enough to seriously assess competing claims is a personal stake in the truth of the matter. (And in all cases, Feynman’s admonition that the easiest person to fool is yourself should be borne in mind.)

Historians of science of all stripes, from romanticists like Paul de Kruif (author of the classic The Microbe Hunters) to sophisticated evolutionists like David Hull in Science as a Process, have reported that intellectual partisanship motivates a great deal of path-breaking research. “I’ll show him!” has spawned a lot of clever experiments. Burning curiosity and bland objectivity are hard to combine.

But how can such partisanship ever lead to intellectual progress? Partisans have committed to high-profile public bets on one or another side of a controversy; their long-term career and immediate emotional payoffs depend not directly on the truth, but on whether or not they “win” in the court of relevant opinion. The key to having science advance is for qualified non-partisan spectators of these disputes be able to act as independent judges to sort out which ideas are better.

Ideally, these adjacent skilled observers would have some skin in the game by virtue of having to bet their own research programs on what they think the truth is. If they choose to believe the wrong side of a dispute, their future research will fail, to their own detriment. That’s the critical form of incentive compatibility for making scientific judgments objective, well-described in Michael Polanyi’s “Republic of Science” article. If, for most observers, decisions about what to believe are closely connected to their own future productivity and scientific reputation, then the partisanship of theory advocates is mostly a positive, motivating exhaustive search for the strengths and weaknesses of the various competing theories. Self-interested observers will sort out the disputes as best they can, properly internalizing the social gains from propounding the truth.

The problem for this system comes when 1) the only scientific interest in a dispute lies among the partisans themselves, or 2) observers’ control over money, public policy, or status flows directly from choosing to believe one side or another regardless of the truth of their findings. Then, if a false consensus forms the only way for it come unstuck is for new researchers to benefit purely from the novelty of their revisionist findings–i.e., enough boredom and disquiet with the consensus sets in that some people are willing to entertain new ideas.

Fungibility v. Fetishes

For an economist studying business strategy, an interesting puzzle is why businesspeople, analysts, and regulators often don’t seem to perceive the fungibility of payments. Especially in dealing with bargaining issues, a persistent “optical illusion” causes them to fetishize particular transaction components without recognizing that the share of total gain accruing to a party is the sum of these components, regardless of the mix. Proponents of the “value-based” approach to strategy, which stresses unrestricted bargaining and the core solution concept, ought to be particularly exercised about this behavior, but even the less hard-edged V-P-C framework finds it difficult to accommodate.

Some examples:

  • There’s been some noise lately about U.S. telecom providers cutting back on the subsidies they offer users who buy smartphones. None of the articles address the question of whether the telecom firms can thereby force some combination of a) Apple and Samsung cutting their wholesale prices and b) end users coughing up more dough for (smartphone + service). The possibility that competition among wireless providers fixes the share of surplus that they can collect, so that cutting the phone subsidy will also require them to cut their monthly service rates, is never raised explicitly. There is a pervasive confusion between the form of payments and the total size of payments.

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