Stanford Webinar: System Innovation – Strategies for tackling complexity and scale

Stanford Webinar: System Innovation – Strategies for tackling complexity and scale

And today’s feature presenter
is Professor Banny Banerjee. Banny Banerjee is Professor of the
Practice at the Stanford School of Earth, Energy, and Environmental Sciences. He is also the co-founder and
director of Stanford Change Labs, and teaches design innovation and
strategy at the Stanford D School. Before his academic appointment at
Stanford, Banny spent nearly a decade as a technology innovation lead at
the renowned design firm IDEO. His area of expertise is to use design
thinking for strategic initiative and large scale transformations directed
towards sustainable futures. Regarded as one of the leading experts
in innovation strategy in the area of sustainable transformations,
he’s now working with the Dean of the Stanford School of Earth, Energy
and Environmental Sciences, Pamela Matson, to shape a new academic program
around systems transformation. And now I’d like to turn
the floor over to Banny.>>Good day everyone. Very nice to meet you
albeit in digital space, hope to meet you some day in person. What I would like to speak about to day is
essentially the types of innovations that you need when the challenges
have a certain set of attributes and particularly
those that involve complexity in scale. What I’m going to cover
today are a set of topics. I’m going to break it down in this way. First and
foremost I would like to make a case for a certain style of innovation
that we call systems innovation. But since we are going into
certain nuances of innovation, and the word is used in many ways, I would like to spend some time on
innovation itself and define innovation. And then go into two different
types of methodologies, one of them is called design thinking,
which many of you might be familiar with. And another which we
call system acupuncture. At that point in time, you might ask when
do you use what type of methodology, so we’ll go a little bit into
different types of challenges and when to approach,
how to pick different methodologies. But in doing that,
we will have touched upon issues of scale, and some other attributes about scale. But this is also a topic that is very, very relevant in terms of what types
of leadership we need for the future. So we’ll spend a little time on this
notion of transformative leadership. So we dive in. What I’d like to do before I get
into the topic of innovation is, take a few steps back and talk about
the world we find ourselves in right now. So if we look at
the mega-trends in the world, a few very, very failing things jump out. One of the things that we found
from a previous few decades is that our global economies seem to be
increasingly fragile with very stochastic behavior that are caused by
perturbations anywhere on the planet. And so, we need to prepare for economic
downturn, upheavals in rapid time frames. And our long-term futures in terms
of whether it business futures, or in terms of larger issues such
as civilization or societal issues. Being questioned by
increasing turbulence and large scale challenges that essentially
question the very basis of stability. And, of course, as we all realize, our globe now is much more
connected than it ever was. But it is not an equitable system and the sharp inequities cause problems unto
itself as we are seeing in the larger political issues that
are prevalent in the planet today. And these are no longer abstract with
political instability and geopolitical shifts that changes the policy landscape,
or issues of security, etc. In terms of businesses, we are seeing
rapidly shifting markets, very new players, and technology regimes that
are changing at an increasing clock tick. But there’s something
else that’s going on. Given that we are in the midst
of such big changes, and it is not a secret in the general population
that we are in the midst of changes. The sensibilities are changing and who we are catering to with what kind
of definitions of success is changing. And that has a lot to do with
how we craft our position. And how our brand is perceived and
how our value systems are framed. And let’s not forget that there are very
large changes taking place such as, climate change,
insecurity in our questions around continued security around food,
water, energy, as we add more than a billion
people in the next few decades. And then let’s also not forget, that we
normally think about human issues and animal-centric kind of point of view. But we’re in the midst of an environmental
crisis of the sort we haven’t seen since the dinosaurs went extinct. And a whole lot of our largest systems
actually rely on the fact that we have a stable biosphere. So that’s something that’s
already happening and we will be getting to 9 billion
people on a limited size of a planet, which has already had more resources
drawn from it than it can recharge. So these are all very very large trends,
and one would say that, okay, how does it affect my day or my business? But I would like to argue that
without keeping this in mind, one might be creating not only overlooking
an opportunity to create a better future, but also building in risk into our
businesses today or our agendas today. So, what I would like to claim is that all
these mega-trends indicate a world order, which is very different from the one in
which our prevalent thinking was shaped. So if we are to meet the future, we should essentially evaluate what
is in store for us in the future and what kind of challenges we are facing,
and perhaps retool our ways of thinking. And some of these challenges
are very large in scale. And we are often motivated by them,
or we are in the midst of directly or indirectly working on them. And the question is, to what extent can we move the needles on
any of the challenges that we are facing? And also recognizing that not
all problems are linear and a lot of problems
are exponential in scale. But meanwhile what we are very, very good at doing are things such
as the line that the S scale shows. And that’s when the going is good. Where we are able to it for a period,
then it scales up and then it levels off. And that’s when we are successful,
but that creates a theoretical gap if the problem is increasing
at an exponential rate. And that essentially begs the question, how can we meet nonlinear problems
with nonlinear solutions? And then the issue of time,
this is the symbol for the time constant. And every system out there
Has a native time constant, whether it’s a business system or
an institutional system or a cultural system or the cells in our
body or some geological force out there. It goes from seconds to years to eons,
but this has a clock tick. And it turns out that the clock tick of
change that we are seeing is faster than the clock tick of many
of our organizations and many of our institutions. And so
we need to find ways of intelligently dealing with the issue of time. So what we’re looking at when
we take a few steps back is that increasingly as leaders,
as people who are managing day-to-day operations as well as big ones. We are looking at challenges that
are no longer to be addressed by businesses’ usual methods,
because these challenges are scaled, they’re complex, often with time
frames that seem unrealistic. And so we need new ways of thinking. So what we need is a kind of innovation, and I’ll get into the definition
of innovation in just a bit, but of the type of innovation that
we haven’t really seen before. So we need to, in a sense,
innovate on innovation. And what I think we need is a very
radical form of innovation that takes on the complexity and the scale and
the urgency of the challenges. So I’ve been using the word innovation,
it gets used in very many different ways. People talk of technology as innovation,
and often innovations and innovation get used synonymously, and
a clever technology is called innovation. The way I mean it it is essentially a way
of demarcating something that’s innovative and something that’s not, by saying,
does it outperform business as usual? Does it outperform the normative modes of
working in order to drive completely new outcomes, completely new behaviors,
new paradigms that rewrite the rule books? Can we change the behavior of the system? And can we send it in a different
direction in the future? And it’s a broader frame for innovation. So everything I’m going to talk about
about innovation is with this frame. Which is, we already have very,
very good processes and we’ve attained a certain kind
of operational excellence. But it turns out that operational
excellence is not good enough anymore. So how can we outperform
the business as usual? Okay, so that’s the thing. But I would like to say that this is
not just a matter of new processes and skills, but it also involves new
mindsets and new leadership models. And the leadership models would lead
to new organizational cultures and ecosystems that would allow
these processes to take root so that you can outperform
the business decision. Now mindsets,
there are many dimensions of mindsets. Today, I’m going to touch
on a few mindsets, and I’m going to frame a few very key failure
modes that you need to watch out for. Because if you’re falling into that trap,
it means that you’ve written away the opportunities that you get if
you are doing systems thinking and if you are doing innovation correctly. So first and foremost,
I would say that there is such a thing as innovation-blindness,
which means that your theory of change or success might not be directed towards
outperforming the normative modes. You have placed too big
a faith in the current system. And you’re drawing your current theory
of success based on what you’ve done in the past, rather than what
you ought to do in the future. And you’re essentially writing away
the disproportionate wins you could have if you were to bring in
an innovation agenda. Now, what I’m going to do, in having
kind of framed innovation this way, is that I’m going to talk about
two different techniques. And I’m going to talk
about design thinking and then go into systems thinking. Design thinking has become quite popular,
a lot of you know about this. But I’ll give you a little bit of
history and also perhaps a case that’ll help to explain how I am
thinking about design thinking. Now design thinking came out
of the design field roughly around the late 1990s at
the turn of the century. Where designers realized that
what they had been asked to do was not just operational products and
services. But they were also being asked to
solve questions that were somewhat ill-defined and had to do with things that
had to be conceived of in the future. And it turned out that the way designers
think is quite different from how different fields operate. So just as engineering is very
different from political science, it’s very different from economics,
design is also quite different, and so this notion of design thinking came about. And it started getting used in very many
different ways to create experiences of the future to which one could
design products and services. All designing systems
are by the largest system, that did many things with many
components or strategies. Strategies as opposed to tactics,
which mean that plans for longer-term futures as opposed
to shorter-term futures. And interventions to challenges that
didn’t seem to be on any one person’s agenda, but they needed to be
done in a multi-stakeholder way. But also very importantly, creating
visions of the future to shoot for. So in a sense, you need a certain
imagination to shoot for, for a certain future that you want, so that you can direct your plans and
your actions towards them. And design thinking started
getting used for that. So let me take you to a very simple case. This is a student project that was
done at Stanford in the D School. And it’s a very hands-on class. And students from all walks of life and very different disciplines get brought
in into introductory design class. And this is a journey of
a set of students, a team, in an introductory design class. So they were given a challenge
around infant mortality. So in the world,
over 4 million of the 130 babies that are born every year die
in the first 28 days. And one of the primary causes today is
low birth weight, premature babies. Premature babies do not have enough
subcutaneous fat in their body to regulate their temperature. So the normative technique for
the last over 100 years has been to put them in incubators where their body
temperature can be artificially regulated. And so, incidentally, the incubator term
comes from the poultry industry where the technology was stolen from,
incubating eggs. And the modern day incubator
costs upwards of $20,000. But a lot of these babies are born in
developing countries with lots of social and economic issues, and
they cannot afford $20,000. So this team was asked to chop
two zeroes from the cost, make it into $200 instead of $20,000
in the theory that if you could make it cheaper, a whole lot of these
countries that have the problem of large scale infant mortality because of
premature birth, they could deal with it. Now let’s look at the journey that these as students performed with
the design thinking guidelines. So first and foremost,
instead of taking a typical approach of a slashing cost by looking at the cost
of goods and making things cheaper, and knock down, and
making the feature simpler. They actually took the trouble to go
to the places where this was happening. They went to rural India and
Bangladesh and looked at these small regional
hospitals in fairly remote areas. And much to their surprise, they found
that these hospitals had incubators, they actually possess incubators. But they also found something very
interesting that you must be noticing. That there were no babies in them. So that really puzzled them and they said
why are there no babies in the incubator? And so they started digging into it and
they realized that actually the problem was that the people to the families to whom the babies are born lived
in very tiny remote areas. And they were day laborers and they could not afford the cost to bring
the baby to the regional hospitals. So this is the point at which one of
the most important pivots took place. They went against the brief that
their partners had given them and they said,
we do not need a $200 baby incubator. We need a $20 baby warmer that
can work without electricity. Particularly because they also notice
that a lot of these remote areas had intermittent power. So if you had something
that ran on electricity and it failed, then the baby would die. So they reframed what
the problem brief was. Then they came back and according to
the design principles they brainstormed. The bottom left shows you that they
came up with many, many ideas. And they quickly went into
a rapid prototyping phase where they tried out many, many
solutions in very rough and crude ways. And they bought materials from
grocery stores from other stores and couple things together with Tupperware and so on in order to explore the idea and
quickly test them. And one of the ideas that came about was why not make something like
a sleeping bag for a baby, but also put an insert in it which is made
out of some kind of phase change material which the first prototype is made out of
margarine and racks from a grocery store. And if you put- Recrystallization
is something that can be used to keep the baby warm, and hot
water is something you can find anywhere. And so that was the idea that won
out among a lot of contesting ideas. And just to give you a sense, they came
up with over 180 ideas, and they made over 80 prototypes in a matter of a few
weeks, so that’s how first it moved. And then they didn’t stop there,
they took this to the villages back and they learned a lot of lessons,
and lots of failure modes that would essentially take them down
in the last mile of concerns by many stakeholders who
constituted the stakeholder set. And they learned the definition
of the customer in that there’s an entire set of people who can aid or
impede your cause. So they found out
the opinions of the midwives. They found out about the regional doctors. They found out about people who
were the regulators, etc, etc. They found out that people
are not lived with them, they might not understand
when the thing is too hard. So that changed their brief, so they came
back and kept prototyping fast forward. These people, the year after the class
they just started a tiny little startup. They got a fund from a grant from
a nonprofit or a foundation. And they came up with
a product that is now, it’s won every design there is to win. It’s being distributed by big
players such as GE Healthcare. It has saved tens of thousands of lives, if not hundreds of
thousands are backordered. It’s made a big different in
the issue of infant mortality. Now if you look at the system, if you’re a hardcore engineer you wouldn’t
be impressed it’s very, very simple. Now if it is this simple, the question
to ask is then why did it elude the medical community for
a 150 years, right? It’s not for want of billions of
dollars worth of research funding. So here is the secret sauce. The process involved actually
taking the trouble to go out and seek insights without some,
and deep human considerations. Without preconceived ideas,
without preconceived theories. Being naive and
open to what might really be happening. Reframing the problem statement
in terms of those and then being extremely generative
to create concepts and prototypes and then testing them so
you can generate insights again. But the mean, the big differentiator is
that they did not ask the wrong question. They did not say,
how can we design a cheap incubator? They said, how can we keep babies alive? And just that difference sends
you in a different path. So that in a nutshell is how design
thinking operates the long process with lots of tools, but at enough level of
abstraction, that’s how it works, right? Now, there are many
types of challenges and one can ask, whether is design
thinking sufficient, right? Now if you think a little deeply,
one of the things that this did is it looked at some of
the failure modes at the human level. And it looked at the lives of the people,
etc. But one of the failure modes to
think about is that even though this had a certain systems
thinking involved in it, there is such a thing
as being system-blind. Where your theory of success
doesn’t take into account the larger system dynamics and the complex
interactions of different factors. So design thinking is absolutely beautiful when it comes to the interferes
between the system and the human. And often it can change certain
aspects about the system, but it’s not necessarily a good tool to
change the larger system itself. For that, you need a tool
such as system acupuncture. And in order to explain what that is,
I’m going to explain what some of the distinction are. This is the Cynefin Model by Snowden, and it frames four different
types of challenges. One of them is simple,
the other’s complicated, the third is complex, and
the fourth is chaotic. The simple is a self-evident system,
such as door lock, or French press, or. There if you don’t need instructions in how to work that system. A complicated system is like a car or
Swiss watch, it’s very complicated. Many parts, many, many coupled systems and you need expertise in
order to deal with it. But the subsystems are predictable in what they do and you can bring
a whole lot of what is called, deterministic thinking, in solving these. Complex problems however, are ones where there’s a dance
between many different components. And unless you understand the dynamics
of that dance, the chances that you would be able to influence
it in the way you want to is low. And you need to understand it
in terms of the relationships. So it’s like a forest where many,
many components have symbiotic relationships and that gives you
the larger construct which is the forest. And chaotic is when something is happening because of which the relationships
are changing very, very quickly. Like a forest, fire where the processes
are something that are very becoming increasingly unconstrained and
things are changing very, very quickly where the influence
you have on the system is very low. Now, it turns out that most of our systems
happen to befall in the complex realm, but most of our decision making cultures,
and tools, are for complicated systems. So we bring the tools of one type of
system to a different type of problem, and there lies one of the reasons
why we are unable to come up with systemic solutions
to systemic problems. And if you have a system that
is going into chaotic states, you need arrest it very, very quickly. And because the level of influence
that you have, it drops very rapidly. So imagine you’re cooking and
suddenly the kitchen catches fire, that is not the time to go do your dishes. That’s the time to put out the fire
before, and you have a small window of time, turns out that a lot of our
larger systems are entering already into chaotic state so we need to find
interventions very, very quickly to those. And I would argue that there’s
complexity in the simplest of things. If you are at a dining table
conversation with an extended family, that’s a complex system onto itself,
right? But a lot of the big things that we
talked about in setting the stage, we as organizations, as in-markets
that are changing that rapidly, we are definitely in the complex realm. So, the mindset to have is watch out for whether a system is complex or
simply complicated. And if they are systemic challenges, they ought to be met with systemic
solutions, and if they involve scale, then you have to have your
solutions involve scale as well. So if you look at this another way, we can see that there are many ways
in which to categorize challenges. But there are challenges
that are bounded in nature, they are very predictable systems,
however complicated. And the business as usual systems
work pretty well out there. When you have ill-defined challenges but
where the boundary conditions are fairly tight, such as how do you
create a service that is engaging to a diverse customer set,
now that’s a pretty open-ended question. However, it’s somewhat bounded
because all you’re dealing with is engagement of a certain customer set. Then, that is something
that innovation tools, such as design thinking is sufficient. However, if you’re trying to transform the
system itself, that’s a class C kind of challenge and that’s where you
need more systems thinking and more tools that deal with
the complexity and scale. Incidentally, for those of you who
are in organization types that have to deal with business success,
it’s also closely tied to the difference between the Red Ocean
Strategies and Blue Ocean Strategies. Red Ocean Strategies relates to strategies
where it’s where the margins are low, there’s very little differentiation
whether what is red with the blood of sharks
going out at the same food. A Blue Ocean Strategy is where
you’re able to innovate and create a space where there
are relatively few competitors and you’re creating value rather
than simply capturing value. And you’re creating markets that
you get to write the rule books in. The competitors will come, but
if you create an innovation capacity, you have created a capacity
to stay one step ahead. So these two concepts are actually tied, which also implies that business
success is also closely related to working towards future systems that
are desirable and there are ways to do it. Now, we have that at
Stanford Change Labs which I head. We’ve come up with a methodology which
we call System Acupuncture which has many tools and a process architecture
that I’m going to a little bit. But it involves a theory,
a framework, a set of processes, and tools that integrate systems thinking,
design thinking, and an architecture around scale,
a very nuanced way of looking at scale. Building in a lot of theories from other
fields, such as resilience theory, leverage points, economic complexity, but making it very accessible in
ways in which one could use it. But also recognizing that
the behavioral component and the social component is a very,
very large component and whether or not an innovation diffuses
through a community is very important. And there’s a ton of research out there,
risk and return into principles and design tools. So we do that as well. And we are reframing what technology
business and organizational change strategy looks like by looking
at the non-linear IT [INAUDIBLE] and how do you change cultures. But also using non-linear technology, new business models such
as platform thinking, etc. And a certain kind of integration into,
not just looking at single outcomes, but simultaneously looking at multi
outcome strategies in elegant ways. So that is what the process looks like. But what we are, somewhat, fetishistic
about is are we creating a skill impact? We are recreating a deep
transformation in the system behavior, and if the current system is headed
towards a certain predictable future that we do not like, or we are concerned about
the stability of the resilience of, can we do something to send it
towards a different future and create a position for
ourselves where it’s win-win. We’re able to deal with impending
changes or potential changes in ways that they can navigate those
waters with better seamanship. And can we actually take charge of
the future and position ourselves, so that we have more influence in
which way the future actually goes? So the direction makes a big difference,
but also can we come up with outcomes? The delta is a science of change. So if we were to take
on aspirational goals, and part of innovation is creating
extremely aspirational goals, and then working really hard to meet them and
my argument is that actually having greater aspirations is
a very big component of innovation. If you did not shoot for the moon, it would be unlikely that you’d
get to the top of even a tall building. You’d need a large target in order to
get there, to direct your thinking. So if you have a large
chasm between the current massive challenge in the future,
how do we get to that? How do we bridge that chasm? And of course,
you cannot jump a chasm in two leaps. A single leap. You have to cross a chasm
in a single leap. So all you need to build a bridge. So let’s see what you need to do in terms
of this philosophy of system acupuncture. First of all, the term comes with
the admission that brute force methods are not going to work because you
simply do not have the resources. You have to be elegant in
how you use resources. And so the metaphor is acupuncture
where you look into the system with enough intelligence to have a theory
about where you should place your interventions in clever ways such that
you change the behavior of the system. And you get the outcomes in
the most resource effective and actionable ways,
which is also very, very leveraged. So if you look at this chasm, the first step to look at is you need
to envision a future that is different. Because you are doing that
implicitly anyways even if, by placing your belief in businesses,
usual because you have bought into the vision that
the business is usual implicitly has. But if you’re trying to change the future,
it is worth taking the time and using the tools in order
to cast the future anyways. And then you’re building a bridge
that involves a few steps. So you envision the future. So there’s another step before that,
is creating the preconditions for success. But then the steps in the innovation
process is envisioning the future from a systems prospective,
understanding what makes the system tick. And then doing the work it takes to
create a theory of change in terms of systems acupuncture points. Now that you have the makings
of a strategy at a high level, saying that if we change this side and
that, theoretically we should change. Then you design your intervention and that turns into more higher level
fidelities of platform architectures, or process architectures, or organization
change theories of processes and so on. It can go in many different directions,
data plans, market models, or what have you,
product services. But then you have to turn it into action,
that is, that has the potential to scale. And you have to think about scale it every
step, and essentially bake and scale. So that’s something that we’re
going to talk about as well. So that essentially is the arc. But when you do that,
what we do is we take a certain lens. We are looking at the behavior at
the system level and the human level. We look at everything
through the scale lens. If we look at the ecosystem of what’s
happening in the larger ecosystem not just put the blinders on
our technology, or our focus. And we definitely take the innovation lens
of what can be changed in a radical way, in a disproportionate way. We do that in the time we
are understanding the system, we do that when we’re strategizing and
when we’re designing solutions. So those are the lens we use. And so let me say that you could do all of
this and still have another failure mode. You could be scale-blind and
that means that you could do something where you somehow had a view that it’s going to scale automatically,
just because the problem is scaled. And that’s what motivates you. Your solution is going to scale as well. And you’re actually going to
be able to move the needle. Well, what we understand from our
research is scale is inordinately hard to stuff in after the fact. The DNA of your solution is
if it doesn’t have scale, then you have to get inordinately
lucky to have scale. So if you are not banking on blind luck, then you need to incorporate
from the principle of scale. And first and foremost,
you need to become scale-minded. You have to build in
scalability at the onset. You need to obsess about
it at every scale and you need to build in non-linearity if
your problems involve non-linearity. Now there are many aspects to scale,
many dimensions to scale. One can’t just go by
traditional metrics of numbers. You have to first ask yourself,
can you enter it? Where you have no option of entering
at scale, what is going to allow you to do scaling, that distinction itself
is a very important distinction. But scale is always tied to time. It’s inseparable from time. Because if you had unlimited resources and
unlimited time, you would eventually get scale. But we don’t have 100 years and
we don’t have unlimited amounts of time. So there’s a time constant built in into
scale, so we can’t be time-blind either. Particularly, if the problems
are running away from us or the industry’s changing rapidly. We need to understand
the nuance of time as well. So if we have to talk about some of these
things as mindsets for the transformative leader, at least some of the top there
are many, many different things. But some of the things to worry about is,
are we being impact minded? Are we really being change minded? Are we wearing the innovation hat? Or are we being risk averse to the point of being risky, where we have baked in so many business processes that abhor
failure or are scared of risk. That we’ve also brought down the ceiling
for what kind of ideas can be brought. And either we are losing
out an opportunity for occupying a completely different
position or leaving ourselves wide open to other people who would be
innovative and essentially upstage us. We have to be system minded. And that’s a whole perceptual lens by
which one can look at the world and our work. And this is a very different way
of life than procedural ways that look at complicated systems. And for those of you in the technology
field, a lot of our training trains us for complicated systems but not for
kind of complex systems. We need to be scale minded,
time minded, and process minded. Because if we have a good sense of process
and we hack the process itself, and we’re nuanced about how we use a process, process can be a great proxy for
leadership. It gets you those things that
extraordinary leadership gets you. And because of our challenges,
this is not a single spot. It’s not a single stakeholder spot,
so we need to find ways in way to be very co-creative and
engaging multiple stakeholders. We need to envision alternate futures and
drive towards them. And there is a huge part to
create being facilitating and catalyzing action, to the extent that
you’re also creating leadership modalities among people who might be very young or
might not have very much experience. But you need to have them fall
into leadership modalities. And ultimately, you’re creating
an ecosystem for systemic change. So what we’re looking at is
essentially that which a certain kind of leadership that will be
able to increase the innovation and the transformation capacity of your team. First of all, of yourself,
then the team, then your division. Then your organization, including what
position your organization has in the industry, the entire industry itself,
and in multi-industry, multi-stakeholder, multi-sector
ecosystems. And all of that, the degree to
which we can be innovated on and transformed is up to how we approach it. And what kind of methodological
tools we bring to it and what kind of value systems we bring to it. So ultimately what we are trying to do Is move the needle on extremely
profound challenges and create a world where we have a place
in doing excellent business and we have a position which is resilient and
point it towards better futures. So we need to worry about
potency of intervention. Whether the scale is
relevant in times that are relevant and with a diffusion scale. And the degree to which is integrated in
the existing complex systems rather than of being a figment of anti-imagination
which is very, very hard to actualize. So I’ll end there and
we’ll invite questions. And so I’m looking at the questions,
and there are some recurring questions. There are people who are asking about
examples of an exponential problem. Well, an exponential problem is
essentially where, when you look at it from a systems perspective,
it is typically caused because of some kind of a feedback loop where a causes b, b causes c and
maybe there are many steps later. But if a causes b and b causes c,
but c causes a again, then the effect is also
contributing to the cause. And it creates a feedback loop and
particularly if you have a high gain rate, you can actually get
an exponential problem. So in the, and at a planetary scale,
the fact that we have lost a whole lot of our polar ice caps
means that a whole lot of white, reflective landmass is being replaced
by dark absorptive landmass, and the heat gain is increasing. Which means that the temperature of
the oceans is increasing at a much faster rate and
causing the ice to melt even faster. So this is an example of a feedback loop. But if you find any
rapidly changing equation, particularly if it’s tied
to a population issue. So, if you have a finite
resource such as water or energy, energy is not exactly finite, but at any given time the capacity over
a short period of time might be finite. But then in that time frame,
if you have a rapid increase because of population pressures or
an influx into the city etc. Then you’re seeing a certain kind of,
you might have feedback loops where some issue is being
raised not at a linear scale, but either at an exponential scale or
with step functions. And you see that both in positive and
negative ways. You could get sudden collapses in
systems such as if you get a functions in the level of density in a city,
the entire transportation system can come to a grinding halt and
that’s a non-linear effect as well. So there are some other questions here. There was a question about the VUCA world. I think that those of you who
attended another webinar by Julia, she mentioned the VUCA world, volatile,
uncertain, complex and ambiguous. That’s exactly what we are talking about. That’s another term for
the big background that I explained, that we are in an increasingly VUCA world. And even those of you who are in
industries where you feel that you have captive markets, and you have technology
portfolios that you can trust and market the visions that you
can feel very confident about. Think about how rapidly
the established industries have been disrupted in the past. Think about the transportation industry,
the hotel industry, and you know who I’m talking about, right? Now, so let me read the questions. So there was a question about
the three bubbles that I used in the, arch and while I talk about that,
I’m going to try and move back to the to that slide if I may. So the three bubbles was
essentially at the stages. This is the slide, at each stage
there is a certain lens you can have. Now the perceptual lens is the lens
you have when you look something. So supposing you have
a scenario such as a cafe. And there are all these people who
are working, some older people, some younger people, some people on computers,
some people who are discussing the paper. And some people who are just chatting and
having coffee and if all people come into the room. And one of them is an engineer,
the other is a social scientist, the third is an economist,
the fourth is a structural engineer. I’m exaggerating, of course, but if you ask them what you see, they
would see completely different things. One person would see, look, how many
people of different racial types and origins of ethnic origins. Someone else would look at, hey,
look at how snazzy the technology is and everybody is on Wi-Fi and everybody is
connected and everybody is on telephone. Somebody else would say, wow,
look at the building structure. This kind of building is
happening in a seismic zone. I’m wondering if they have structural
support behind the building. You just see different things with
the perceptual lens that you come in with. That’s implicit in everything we do and it makes our vision sharper in certain
things and duller in other things. So if you are in a technology-based
company, you look at the world through the technology which is of
course something you need to do. But there’s a risk of having the hammer
to hammer everything looking like a nail. And what we say is that there is no
way to avoid a perceptual lens, so we will choose which perceptual
lens we should have. And we will look at it from the point
of behavior and behavioral frames. There are many in which to
decode behavior and behavior. I said we have to obsess about scale, so there is a nuanced way in which you
are asking the scale question and understanding the problem and
solving the problem. And you’re understanding the problem,
you’re saying, what are the scale dynamics? What is changing? What are the dynamics that
are causing things to change? And what are opportunities
to enter in scale? And, you’re not just saying, look just
if you’re in the food business or you’re in the energy business. You’re not just looking at energy. If you’re a modern day organization
that is related to energy, you’re not in the business
of selling electrons. Energy is a lifeblood of the economy. And it touches all of our lives. And there are a million ways in which
systems are changing which has an energy footprint in it. And there are many,
many ways of looking at, much better and sophisticated ways of looking, at energy
that you can only gleam and understand if you look at the larger ecosystem of
different things that are happening. Sociological changes, different actors, value change, supply change,
technology emergencies, etc. An innovation I already explained that
you have to be a little very aggressive about that, okay, we can, with common
sense we get a certain kind of answer. But common sense is not common sense. You have to do better than common sense. You have to do it such that an ounce of
thinking should get you a ton of results. And result it’s a mindset, and
it’s an innovator’s mindset. And just because people are giving
you constraints that seem impossible, it just means that we have to get smarter
and we have to create win-win strategies. So one of the examples of
innovation mind frame is, very often we pick the short-term
against the long-term. The moment we pick the short-term
against the long-term, we are saying that we are not going to be
innovative enough to meet both criteria. So we actually say let’s
do the short-term first or let’s just focus on the long-term. But if you’re innovative you
should be able to take on both and just by putting that frame
you will find solutions. Okay, so let’s see, with the few minutes left I’m
going to pick a few other questions. Transformation capacity is not a small
feat and it’s not a small answer. Is the starting point to transform
organizations mindsets to believe that they can transform. So the question is,
given that the aspiration of big transformation is it
seems enormously hard. Where do you start? And what are simple places to start? And if you look at the change models
of change itself, of transformation, and if you’re in an organization. The way to think about it
is do the small changes can have a disproportionate effect. And instead of trying to create a blanket
change in your entire organization and saying my god my bosses, you should
meet my boss they’d never agree to this. Or you should meet my board,
they’d never allow you to do it. Or do you realize how
constrained my industry is? And how regulated my industry is and
so on. Do you think that the shareholders
are going to tolerate this, etc. These are questions when I do
work with large organizations, this is a standard question. And yet, it is possible to
actually create change in very strategic ways but
also simple ways change your team. Change first toward think about how
you yourself are going to change, the change your team but
also create some more centers of change small intervention of change that
has a way in which to expand. And so there is a whole, so
yes organizational change and change in organizational culture and
mindsets is a very, very important dimension of change and that is one of
the first things you should target. But one of the ways in which to
do that is to also target some highly practical initiatives that will
then serve as a vessel for that change. So you’re all delivering on new product
strategy at the same time as which you’re making changes internally. So what would be a good strategy that
we can apply to forecast the future for a particular industry? So you’re trying to essentially
gaze into the future, and you’re essentially saying look,
a lot of it is changing. And so, the best way of doing this is,
I would say, two tools. One of them is a broader systems mapping
identifying the forces that play and the dynamics that Includes the industry
and your industry influences. So those two aspects. So if you understand what is influencing
your industry and what it influences. And then also figure out how better
the feedback loops out there. And then ask yourself what
are the dominant drivers? And what among those are changing? And the second tool is essentially
foresight which is eventually saying, what are the events that are probable
that could happen that are not necessary highly likely but could happen. Or what are the bigger changes that
are happening, and what does that mean for our industry, and
essentially going through a process. And then you essentially prioritize
the drivers in terms of probability and salience, and that gives you a map of
where your industry’s likely to move. You can find gravity whereas that would
have and markets that are opening up that will suck your industry in that
direction or create impediments.>>Well, thank you very much, Banny. We’re at the top of the hour here, so unfortunately we’ll not have enough
time for additional questions. But hopefully you all have
enjoyed the webinar and the information that has been
presented as much as I have. I’d like to encourage all of
you again to visit our website and find out more information about the
program that we’ll be offering September. And hopefully we can see many
of you with us here on campus. And with that, I wish you all a good
rest of the day and lookout for the recording of the webinar which
should be coming to you within the week. Thank you very much.>>Thank you very much and
hope to see you in person in September.


4 thoughts on “Stanford Webinar: System Innovation – Strategies for tackling complexity and scale”

  • Marcos Rittner says:

    What Mega Trends jump out? How fragiles our economies are… needless to say that about Brazil. The future is uncertain. And it has been (…) since the discovery of fire. No doubt it has accelerated incredibly (the rate of change). But having 9billion people by 2044 is scary… Our prevalent thinking was built in a different way. We must tweak our thinking, yes. I loved the approach of exponential solutions!

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